Trouble at Option One: H&R Block Latest to Delay SEC Filing

Tax services provider H&R Block Inc. (NYSE:HRB) said yesterday it will delay filing its annual report with the Securities and Exchange Commission, citing problems in its Option One Mortgage subprime lending operation. The company said that it will report an additional $29 million in pretax loan impairments above what it had indicated in its preliminary earnings call. H&R Block had indicated at that time that it expected to report a $44.7 million loss during the company’s fiscal third quarter, which ended January 31, due to poor performance at Option One. H&R Block has actively been looking to unload its Option One division as the formerly profitable operation has become an Achilles heel to the tax services company during the ongoing housing slump. In its filing, H&R Block said recent market conditions had resulted in a “significant declines” in the values of Option One’s mortgage loans, including non-performing loans. Housing Wire reported last week that the company had eliminated 100 percent mortgage financing in both its subprime and newly-introduced Alt-A lending programs. Hints at possible funding difficulties Hinting at broader liquidity problems at the Irvine, Calif.-based subprime lender, H&R Block also said it is reviewing warehouse credit obligations associated with the Option One business. With H&R Block’s admission of a potential problem with warehouse credit facilities at Option One, numerous subprime lending operations now appear to be facing possible funding difficulties.

New Century Financial disclosed earlier this week that foreced repurchases from its numerous short-term credit providers have left the company with nearly $9 billion in liabilities, which industry insiders say will force a bankruptcy filing by the troubled lender within days and has led the company’s delisting from the NYSE imminent. San Diego-based subprime lender Accredited Home Lenders Holding Co. (NASDAQ:LEND) said Tuesday that it will delay its earnings report as it seeks to address a fast-moving liquidity crisis that has left the company’s cash position significantly compromised. Industry insiders speaking with HW, all of whom are associated with secondary market and trade desk operations, have said that most large Wall Street creditors are retrenching their credit positions with respect to the subprime market as part of what is now being called a “credit crunch” by most industry participants. “New Century isn’t going to be alone on this, unfortunately,” said one source, on the strict condition of anonymity. “Any company that doesn’t have significant deposits to fall back on, and has focused primarily on building a subprime business, is going to be caught up.” At least some sources, however, were looking for the light at the end of the tunnel. “I look at it this way: Wall Street’s stance is clear, and the FDIC has made it clear where it stands on the issue,” said another source. “We have a degree of market clarity now that we didn’t have even two weeks ago, and as fast as this has moved along recently, I have to think as an industry we’ll move on as quickly as possible as well.” Full disclosure: The author owns no financial interest in any of the publicly-held companies discussed in this story. Housing Wire will always disclose the financial positions of its authors.

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