H&R Block reported earnings for its fiscal first quarter of 2008 this morning, and Option One’s drag was clear: the tax provider reported a loss of $302.6 million, compared to a loss of $131.4 million in the year-ago period. The company dropped a number of market bombshells as well, saying that it was renegotiating its previously-announced deal to sell its Option One Mortgage unit to private equity giant Cerberus Capital Management LP. Details from the company’s press statement:

Certain closing conditions of this agreement currently are not being met. Consequently, some of the key components of the discussions currently are:

• The closing conditions requiring Option One to have $2 billion in loans funded within 60 days of closing and $8 billion minimum in warehouse lines would be waived, with certain other closing conditions being waived or modified.
• H&R Block would be responsible for divesting or winding down Option One’s remaining origination business, which would be pursued immediately. As a result, certain shutdown costs may be incurred.
• Cerberus would purchase Option One’s loan servicing platform.
• The parties are working toward advancing the Dec. 31 contract termination date to provide for an earlier resolution of the Option One situation.

And if that wasn’t enough for you, the company pulled a Countrywide on analysts and made a Great Depression reference:

“The mortgage origination market is in the midst of the most severe dislocation that it has seen in years, maybe the most severe since the 1930s,” Chief Executive Mark Ernst said on a conference call.

Something tells me that between the Aegis bankruptcy, and the mess that ResCap is in right now — both are Cerberus-owned mortgage businesses — that the private equity giant isn’t too enthused about taking on another subprime ship with growing holes in its hull. Tacking on the value of the servicing platform might be the only way this deal gets done. Update: My comments above on the servicing platform looks to be correct — Bloomberg reports on the Cerberus deal, and notes that the servicing platform is now the center of discussion. I’d first noted that the sale was in doubt in a post back in early July, just for the record.