Option One To Cut 575 Jobs

September 11, 2007 No Comments »

H&R Block’s struggling subprime mortgage unit Option One announced late Tuesday that it will cut 575 employees.

The layoffs are in addition to the 615 announced on May 15, and signal the ongoing problems facing subprime lenders in today’s market.

Parent company H&R Block, the largest U.S. tax preparer, said Option One expects the “restructuring” to be completed by December 31.

The cuts are part of the ongoing reorganization announced in May, designed to trim costs due to the reduction in loan origination.

According to the National Mortgage News, Option One made $29.8 billion in subprime loans last year, but has recently shifted gears dramatically, offering only agency-backed products.

In April, H&R Block had agreed to sell Option One to private equity firm Cerberus Capital Management LP, but little over a week ago the company announced that the sale was falling apart due to heavy losses in the deteriorating secondary market.

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 seems highly unlikely given the current lending environment.

The company 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.

H&R Block expects a $19 million pretax restructuring charge in its current fiscal year thanks to the additional cuts.

Irvine, CA based Option One was the nation’s eighth largest subprime mortgage lender last year.

See the complete list of mortgage layoffs.

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