Mortgage Lending Deepens H&R Block Losses

KANSAS CITY, Mo. – Tax preparer H&R Block said yesterday losses at its troubled subprime mortgage operations more than doubled losses for its fiscal first quarter ended July 31 to $302.6 million, or 93 cents a share. The losses could scuttle the company’s planned sale of its Option One subprime loan subsidiary and force Block to shut it down altogether, the company warned yesterday. Block said it is negotiating with private equity firm Cerberus Capital Management LP, which has agreed to buy Option One, for a lower price. “The mortgage origination market is in the midst of the most severe dislocation it has seen in years, maybe the most severe since the 1930s," Mark Ernst, chairman and chief executive, told analysts during a conference call to announce its first-quarter results. Activist shareholders of H&R Block are calling for the company to get out of the mortgage business to focus on its core tax preparation business. Richard Breeden, former chairman of the Securities and Exchange Commission and now running a hedge fund, is waging a proxy fight for three seats on the H&R block board, from which he hopes to reshape the company.