H&R Block Inc. wants to leverage its strong brand name, nationwide chain of 8,500 offices, and huge customer base into a multibillion-dollar subprime mortgage business.
If it is successful, Block could become one of the most remarkable new nontraditional entrants to the industry in years.
"We hope to be really big," said William P. Anderson, president of Block Financial. H&R Block handles about a sixth of all tax returns filed in the United States.
But analysts and competitors think Block's program, launched this year, could fall on its face. They say its access to customers is not as big an advantage as it may seem, and that its office-based approach is out of date.
Mr. Anderson is unfazed. He said his unit had placed mortgage salespeople in 30 branches in the last three months. By yearend, more than 100 branches will offer loans, he said. The unit plans eventually to offer mortgages through a majority of the company's 8,500 branches.
The fragmentation of the subprime market gives H&R Block an opening to establish itself in the public's mind as a finance company, Mr. Anderson said. "Outside of the Money Store, it's hard to find a recognizable brand name" in the business of lending to homeowners with blemished credit records, Mr. Anderson said. He noted that the company also has prime- quality borrowers in its customer base.
Mr. Anderson's plans include a "substantial amount" of advertising and creation of warehouse lines of credit for the company's franchisees.
The Block plan sets up an intriguing numbers game. If half of the company's offices close just a few loans a month, that would push loan volume into the billions. Observers, however, have reservations about the program.
"The concept makes sense," said Richard Bove, an analyst with Raymond James & Associates, St. Petersburg, Fla. "They have the customer there when he needs the money."
But Mr. Bove said Block's success hinged on the personality of its tax preparers, who will have to refer borrowers to the in-house mortgage person. "The mortgage person can't see the customer's tax return," he pointed out.
"It's something to keep an eye on," said Kevin Spinner, an analyst with Keefe, Bruyette & Woods, New York, "but they're going backward rather than forward in terms of the rest of the industry."
Old-line office-based finance companies have been struggling recently. The cutting-edge companies are setting up direct mail and telemarketing companies, Mr. Spinner said. "It's a get-to-the-borrower-first attitude," he said.
Another criticism from analysts is that Block is entering the subprime market when the field is becoming crowded, driving down previously generous profit margins.
Other subprime lenders insist they are unruffled by the plan. Generating volume may be a problem for Block, said R. Harold Owens, president of World Acceptance Corp., Greenville, S.C., and a subprime industry veteran. H&R Block customers are not necessarily homeowners, he said.
Federal regulations prohibit H&R Block from disclosing information about its customers, so the percentage of homeowners is not publicly available. But Mr. Anderson dismissed the notion that volume may be a problem.
"When you have 14 million customers and prepare one out of every six tax returns in the United States, you have a lot of everything," he said.
Another analyst, who requested anonymity, said the Block concept was flawed because customers come in only once a year. He said it would be difficult for any one office to generate enough volume to attract salespeople. "Who would want to work for them?" he said.
H&R Block, based in Kansas City, Mo., will be packaging the loans with others purchased from small subprime lenders, such as NF Investments, Atlanta, and securitizing them. Servicing is handled by Companion Servicing, Atlanta, which is half-owned by H&R Block.
