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Wednesday, December 12, 2007

Mortgage Mess Gets Messier

Items of interest:

Ben Steverman / BusinessWeek:
Mortgage Mess Gets Messier -- Sometimes bad news comes in threes.

While the Federal Reserve cut interest rates Dec. 11 to ease the financial and housing crises, the market was confronted with yet more evidence of the damage these crises are inflicting on the mortgage industry. Washington Mutual (WM), H&R Block (HRB) and IndyMac Bancorp (IMB) all took hits as more and more borrowers seem unable to pay their mortgages. [...]

Then H&R Block chimed in by reporting a loss in its second quarter of $1.55 per share, vs. a 49-cents loss a year ago. Most of that loss was due to H&R Block's closed-down subprime mortgage business. It tried to sell its Option One Mortgage Corporation to Cerberus Capital Management in April, but that deal fell through earlier this month.

"We continue to move resolutely to end our participation in the subprime mortgage business," H&R Block chairman Richard Breeden said in a statement. It has sold $3 billion in loans since August. "While we incurred a painful loss in exiting these positions, we determined to take our lumps and move forward," he added. [...]

The third loser of the day was IndyMac, the nation's ninth largest originator of mortgages that has been hurt both by the housing market slowdown and rising losses on riskier mortgages. On Dec. 11, Standard & Poor's Ratings Service lowered its ratings on IndyMac's debt to junk status, from BBB-/A-3 to BB+/B. [...]

H&R Badly Bleeding

H&R Block Loss Wider Than Expected -- H&R Block Inc, slammed over the past year by exposure to risky mortgages, reported a bigger-than-expected quarterly loss on Tuesday after shutting down its Option One Mortgage subprime lender.

But the company is in compliance with debt covenants based on the company's net worth as of Oct. 31.

The No. 1 U.S. tax preparer said shareholders' equity, or net worth, has plummeted to $544.3 million from $1.4 billion at the end of April amid the turmoil in the subprime market.
Laurie Kulikowski / TheStreet.com:
Subprime Bleeds H&R Block -- In the three months ended in October, the Kansas City, Mo.-based firm reported a net loss of $502.3 million, or $1.55 a share, compared to the year-earlier quarter where it reported a loss of $156.5 million, or 49 cents a share. Revenue, on the other hand, rose 10% to $434.8 million.

Analysts, as surveyed by Thomson Financial, had expected the company to post a loss of 35 cents a share. [...]

Of that loss approximately $366.2 million, or $1.13 a share, resulted from its discontinued subprime mortgage operations through its subsidiary Option One. H&R Block attributed the rest of the loss to normal seasonality in the tax services business.

Richard Breeden, the former SEC commissioner-turned-activist investor who was named chairman of the company late last month after then-CEO Mark Ernst resigned under pressure, said in a statement that H&R Block continues "to move resolutely to end our participation in the subprime mortgage business."

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