Don't expect H&R Block to buy up any of the newly for-sale subprime mortgage companies.

"I can categorically tell you that we are not going to be looking at them," said chief financial officer Ozzie Wenich, "particularly given the state of health of many of these folks."

Some observers have been predicting that H&R Block could be a possible buyer for one of the several specialty finance companies that have put themselves up for sale in recent months. But the Kansas City, Mo.-based company is not interested, Mr. Wenich said.

"At one time this was probably a great market," he said, but "a lot of these people didn't take conservative assumptions, and now they are paying the piper."

Last April, H&R Block moved into the subprime mortgage market with the purchase of Option One, a former Fleet Financial Group subsidiary.

H&R Block is best known for its thousands of branches that offer rapid tax refunds, often to cash-strapped customers.

At that time, William Anderson, then president of Block Finance, said the company was getting into subprime lending "in a big way." Two months later, he left for a position with a financial publishing organization.

Now H&R Block seems to be content with what it has. "We're not looking to compete with the likes of Contifinancial," Mr. Wenich said. "We have what we want, and we're going to grow it."

Option One has been performing "very well" since the purchase, said Mr. Wenich. The lender is originating about $200 million in subprime loans a month, after originating about $1 billion last year, he said.

Although one potential buyer may be out of the running, specialty finance companies needn't worry about a lack of interest out there, some analysts say.

"Most of these companies will be bought over the next three years," said Joe Jolson, an analyst with NationsBanc Montgomery Securities Inc. "It's inevitable that the buyers are commercial banks or larger thrifts," he said.

Some analysts have speculated in recent weeks that Money Store Inc., the Union, N.J.-based home equity giant, has had a hard time finding a buyer.

The company has been rumored to be up for sale for months and announced last week that it had hired Prudential Securities to help it "explore strategic alternatives."

The company did not show up for NationsBanc Montgomery Securities' annual investors conference last week, which Mr. Jolson took as a sign that a deal is imminent. (See related article, page 28.)

"They've spoken at a number of other conferences in recent months, so something has changed" since then, he said.

Mr. Jolson is among a handful of analysts optimistic about the future of subprime mortgage companies. In a recent report titled "Too Cheap To Buy?" Mr. Jolson said he is "increasingly bullish about the macro environment for specialty finance/mortgage finance equities."

Well-managed subprime companies will do better than anticipated in a modest recession, Mr. Jolson said, because they have already experienced industrywide shakeouts that led to tighter underwriting standards.

"We find many mortgage finance equities, which are selling at historically low P/E multiples based on our 1998 EPS estimates, particularly enticing," Mr. Jolson's report said.

Once companies shift to a cash-flow-neutral basis, investor perception will be dramatically improved, he said.

"Today's toxic waste could be tomorrow's diamonds in the rough," he said.

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