Thursday, March 15, 2007

H&R Block's Mortgage Unit Has More Problems

From the WSJ:

H&R Block Inc.'s disclosure of more losses on subprime mortgages is stirring up doubts about the planned sale of its home-lending business.

In a quarterly report filed with the Securities and Exchange Commission, the nation's largest tax preparer said it cut the carrying value of certain mortgage assets by an additional $29.2 million at its Option One unit, which, based on market share, ranked third last year among home-loan providers to people with scuffed credit.

H&R Block Chairman and Chief Executive Mark Ernst said "we are progressing as planned" with the anticipated sale of Option One and "remain committed to announce results and further steps by the end of this month." He previously has told analysts and investors that the Kansas City, Mo., company would expect the sale price of the mortgage arm to exceed its book value of $1.3 billion.

But skeptics abound. "It seems hard to believe that they can command anything near the price they are talking about for Option One in this market, if they can sell it at all," said analyst Kathleen Shanley at GimmeCredit, which says investors should "avoid" buying H&R Block bonds.

This brings up an interesting point. With all of subprime's current problems, it's natural for vulture investors to come in buying cheap assets; that's the market at work.

But, will subprime companies be able to sell their distressed assets at decent prices? Will the problems in subprime prevent deals from going through?