H&R Block Having Trouble Selling Option One

H&R Block Inc. (NYSE:HRB) today said that it remains in negotiations to sell its Option One Mortgage Corporation subsidiary, noting that it will be unable to unload the subprime lender by the end of March as it had earlier indicated.

The tax services company has been looking to sell Option One since November, and faulted “recent events in the subprime mortgage industry” for delaying the sale of the lending unit it owns.

Rumors that Option One had been sold were gaining momentum earlier in the week, with numerous sources suggesting the company might announce a sale as early as Tuesday of this week.

HW received numerous emails advising that a sale was imminent, although no sources suggested a particular buyer or details surrounding a possible acquisition of the subprime lending operation.

Other sources have suggested that Option One faces liquidity problems akin to other large subprime lenders, and that a purchaser will come in the form of a creditor looking to hedge against a large warehouse credit facility it had extended to the company.

In spite of the ongoing industry speculation, no evidence exists to suggest that the company is actually facing a liquidity crisis similar to those affecting other lenders, although Option One is losing money.

H&R Block filed its 10-K with the Securities and Exchange Commission on March 14, one day after announcing that it would delay its filing to review its Option One business interests. In its report, the company reported a net loss of $60.3 million during its most recent fiscal quarter, with losses at Option One swamping gains in the company’s tax-related businesses.

Option One continues to fund loans as well, and in early March, HW reported that the lender had altered its lending guidelines in an effort to fend off future losses. Changes included the elimination of all 100 percent CLTV mortgage fundings.

If anything, a few sources allegedly close to negotiations have told HW that the issue isn’t liquidity at Option One, but that the sticking point is in determining the value of the lending platform.

“H&R Block has a certain number they’re looking for, and the problem is that with the market being the way it is right now, nobody’s willing to meet it,” said one source. “Subprime paper isn’t the only thing investors want a heavy discount on right now.”