H&R Block’s subprime mortgage unit Option One has lost access to two warehouse lines of credit worth $1 billion each, and has seen two others lines scaled back tremendously.
According to a filing with the Securities and Exchange Commission after market close on Wednesday, JP Morgan Chase Bank and Citigroup Global Realty Markets Realty Corp. each terminated $1 billion off-balance sheet warehouse financing facilities they had arranged with the struggling lender.
H&R Block said the lines of credit were severed because of the pending expiration of waivers of minimum net income requirements, and as a result of inadequate loan origination volume.
Option One saw two financing agreements reduced as well, including one with Citigroup, which fell from $1.5 billion to $150 million, and another with Greenwich Capital Financial Products Inc., cut from $2 billion to $750 million.
In April, Cerberus Capital Management LP had agreed to buy Option One, but in light of recent events, the company may just walk away with the valuable servicing business.
Conditions involving the sale include the requirement that Option One fund $2 billion in loans within 60 days of closing, while retaining a minimum $8 billion warehouse line, which at this point seems impossible.
H&R Block said it would shut down Option One’s lending operations if the takeover didn’t go through, and would later sell the “quite valuable” loan servicing portion.
The US tax preparer has struggled to dump the ailing subprime lender amid rising defaults and program cutbacks which have curtailed loan production severely, leading to the loss of 575 jobs.
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