H&R Block Inc. announced Tuesday it will lay off 575 workers from its Option One Mortgage subsidiary as it continues an attempt to salvage the sale of the business to Cerberus Capital Management L.P.
The layoffs, which are in addition to a workforce reduction of 615 jobs announced in May, will cost the company $19 million, including $11 million in termination benefits and $5 million in lease terminations.
H&R Block said at the end of August that it was working with Cerberus to modify the terms of an April 19 agreement to sell Option One Mortgage to the investment firm. In an Aug. 30 filing with the Securities and Exchange Commission, H&R Block said was unable to meet some conditions of the agreement, including requirements that Option One have $2 billion in loans funded within 60 days of closing and $8 billion in warehouse lines of credit.
H&R Block said it was seeking to have those and other closing conditions waived or modified in hopes of closing the sale by Dec. 31. H&R Block said it would take responsibility for divesting or winding down Option One’s remaining origination business, incurring related shutdown costs, and that Cerberus would purchase Option One’s loan servicing platform.
In its last quarterly report to investors, H&R Block said that beginning early last month, Option One was only originating loans eligible for repurchase by Fannie Mae and Freddie Mac because of difficulty selling other loans in the secondary market. The new underwriting guidelines were expected to “significantly reduce” loan origination volume to $200 million per month beginning in September.
H&R Block, which had previously reported that Option One, H&R Block Mortgage Corp. and two small discontinued nonmortgage businesses lost $192.8 million in the quarter ending July 31, said that if market conditions failed to improve, another $150 million to $200 million in mortgage-related losses were anticipated in the quarter ending in October.