Option One loses half-billion bucks

December 11th, 2007, 8:16 am · 3 Comments · posted by Jon Lansner

H&R Block today said this today about its Irvine-based subprime lender, Option One…

On Dec. 4, H&R Block announced it had agreed to terminate the purchase agreement entered into in April 2007 under which an affiliate of Cerberus Capital Management, L.P. would have acquired Option One Mortgage Corporation (OOMC), a wholly owned subsidiary of H&R Block. The company also said then that it will close all origination activities of OOMC and pursue the sale of the loan servicing business.

The 2008 second quarter pretax loss from discontinued operations was $551.2 million. The loss includes:

$252 million net loss on sale of $3.0 billion in whole mortgage loans by the company or related mortgage trusts.
$123 million impairment charge to adjust the remaining mortgage origination and servicing assets to their estimated fair value, less costs to sell.
$62 million of impairment charges relating to residual interests on mortgage securities which at quarter end have a carrying value of $38 million.
$61 million in costs related to the restructuring of OOMC’s loan origination activities and a write down of fixed assets. An additional restructuring charge of $47 million is expected to be primarily incurred in the fiscal 2008 third quarter.
$53 million in other operating losses during the quarter.

The company worked aggressively to reduce OOMC’s mortgage exposure. After beginning the quarter with $2.3 billion of total loans on- and off-balance sheet and originating $721 million in loans during the second quarter (including more than $594 million in August 2007), the company sold or wrote down loans to a remaining total of $113 million, net of reserves, at Oct. 31. Reserves for potential losses on repurchases of loans previously sold totaled $86 million at Oct. 31.

Richard C. Breeden, chairman of H&R Block, said, “We continue to move resolutely to end our participation in the subprime mortgage business. We have completed $3 billion of whole loan sales since Aug. 1 of this year. While we incurred a painful loss in exiting these positions, we determined to take our lumps and move forward.”

To read more of the H&R Block release, CLICK HERE

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