A mortgage subsidiary of H&R Block Inc. (HRB) reached an agreement worth $125 million to settle claims by the Massachusetts attorney general that it engaged in unfair and discriminatory lending practices. Under the deal, H&R Block subsidiary Sand Canyon Corp., a mortgage originator formerly known as Option One Mortgage Corp., will pay $9.8 million to Massachusetts and direct the servicer of the loans, Coppell, Texas-based American Home Mortgage Servicing Inc., to modify about 5,500 loans providing $115 million in additional relief through principal write-downs and interest-rate reductions. AHMSI said it was dismissed from the lawsuit in 2008 except for the limited purpose of providing an adequate legal remedy to borrowers. Massachusetts sued Option One in 2008 after investigating the high rate of foreclosures of homes financed with subprime loans, Massachusetts Attorney General Martha Coakley said in a press conference announcing the settlement. "Option One made loans that it knew were likely to fail and it discriminated against African-American and Latino borrowers," she said in a statement. "Its blatant disregard for prudent underwriting standards contributed to the economic downturn we still find ourselves in today. Like our other cases against mortgage lenders and their Wall Street facilitators, this case holds this corporation accountable and provides much needed relief to homeowners." Sand Canyon Corp. agreed to set aside a $5 million contingency to cover loan modifications that cannot be made and noted in a statement that its financial commitment for the loan modifications is capped at that amount. "Block Financial Corp. was not a party to the Sand Canyon settlement and will be dismissed from the litigation," said H&R Block spokesman Gene King in an email. "We are pleased with the outcome in this matter, which ends a lengthy legal stalemate and allows all parties to move on." Write to Liz Enochs.