In 1997, H&R Block got into the subprime lending business. The Kansas City-based tax-preparation company bought an outfit called Option One.
The diversification into home loans produced profits for a time. But eventually, the slimy practices on which subprime lending was built took hold like an infection. Block shut down the business in 2007 and sold it the following year.
Option One continues to torment H&R Block. A Dallas lawyer is making noises about forcing Block to repurchase the bad loans that Option One issued during the freewheeling days of the housing bubble. Shares of the company's stock lost more than 7 percent of their value yesterday.
Here's Bloomberg's take on the effort by investors who own bonds backed by Option One mortgages:
H&R Block, the biggest U.S. tax preparer, is being targeted by investors seeking so-called putbacks of loans that allegedly failed to match the sellers' promised quality, which JPMorgan Chase & Co. bond analysts estimated in October may cost banks and lenders across the industry as much as $90 billion.Putbacks and loss rates are getting beyond the Plog's level of expertise. But $12.8 billion sure sounds like a lot of money.
H&R Block may face a maximum liability of $12.8 billion from mortgage repurchases, RBS Securities Inc. analysts estimated in an October report, based on data about delinquency and loss rates on its loans.