Most people recognize H&R Block as a tax preparation corporation, but one little known fact about the company is its tie to the mortgage sub-prime lending catastrophe. H&R Block owned Option One Mortgage Corporation during the housing market boom.
Option One was responsible for originating an estimated $80 billion in new loans between 2004 and 2007. Most of these loans were considered to be non-prime, and due to questionable underwriting the liability attached to H&R Block could be in the hundreds of millions.
As of January 31, 2010 H&R Block has set aside $198 million in reserves in preparation for future kick backs due to faulty or misrepresentations in the underwriting. H&R Block in unsure about the exact amount that they may need to hold in its reserves to protect their interests. A large portion of the origination’s in question have already fallen by the way-side due to the fact that they have been refinanced. The refinancing process removes liability from the loan originator and places it on the new underwriter.
In an effort to obtain a realistic total to base their liability reserves off of, H&R Block has turned to the amount of bonds that are currently active in the market that were originated by Option One Mortgage Corporations for its best estimate. H&R Corporate estimates show that there were only $26 billion dollars in mortgage security bonds issued between 2004 and 2007. This estimate represents a more realistic total than the cumulative total of all new loan origination’s completed by Option One Mortgage Corporation.
With H&R’s new mortgage exposure estimate the total of their liability reserves equals 0.76% of the $26 billion. Many Finance experts agree that company’s reserves should be adequate enough to handle expected the kick backs.
The bonds of most concern to H&R Block are the ones that Freddie Mac and Fannie Mae have backed. These two federally controlled mortgage giants have the man power and the means to sift through existing mortgage bonds looking for inconsistencies and shoddy underwriting. If discrepancies are found within their holdings they are more likely to kick back the loan to the originator, or to whomever currently holds legal liability for the originator, which in Option One Mortgage Corporations case it is H&R block.
About H&R Block
H&R Block is the world’s largest tax preparation business, employing 100,000 tax professionals and having served more than 500 million clients. Brothers Henry W. Bloch and Richard A. Bloch founded the company in 1955 and grew the business to become a brand and franchising icon.
In addition to retail tax offices in the U.S., Canada and Australia, and its H&R Block At Home™ software and online solutions, the company offers business services through RSM McGladrey, and financial products to support its tax business through the H&R Block Bank.
RSM McGladrey is a professional services firm consulting mid-size organizations. The company offers wealth management, retirement resources, business and tax consulting, investment banking, and international business services.
The H&R Block Bank offers traditional and alternative banking solutions to H&R Block tax clients and associates. The Bank serves customers at its branch location in H&R Block World Headquarters in Kansas City, Mo., as well as online and via phone.
As the company has evolved and achieved significant milestones, H&R Block has remained committed to the factors that led to its success: superior customer service, a pledge to stand behind our work and a commitment to serving clients where they prefer to be reached — in a retail office, online, using software or a combination of methods. H&R Block is dedicated to being the most trusted, state-of-the-art tax preparation firm at the best value.
H&R block was one of the many (including well known banks) who wanted into the subprime mortgage business. Everyone was burned. It is amazing that more people did not see it coming.