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Option One Anticipates Higher Mortgage Losses

H&R Block Inc. here expects to record a $102.1 million provision for losses in the current quarter related to its subsidiary, Option One Mortgage Corp.

The company's stock price dropped from trading to levels just above $20 per share from just shy of $23 per share in reaction on Aug. 25 and at least one Wall Street firm, UBS, downgraded the stock to "neutral" from a "buy" that day, according to Yahoo! Finance. As of press time last Wednesday the stock was continuing to trade at the lower level.

Block said the expected loss provision would reflect an increase in the estimated recourse liability recorded by Option

One for loan repurchases and premium-recapture reserves.

"The increased level of loan repurchases, which have been noted industrywide, are primarily due to a higher level of repurchase requests from loan buyers and an increase in early payment delinquencies," the company said.

The provision would represent an after-tax amount of $61.3 million, or $0.19 per share, according to Block.

Option One is one of the biggest subprime servicers in the country. As of March 31, it serviced $76 billion in loans, making it third in the nation after Countrywide Financial and Ameriquest Mortgage. The firm showed a large jump in servicing year to year. It was up 25%, from $60 billion serviced on March 31, 2005.

As of March 31 of this year, Option One had a market share of 5.64% of all subprime servicing in the country. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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