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Option One Mortgage to Shut Down

An agreement by H&R Block to sell its ailing mortgage unit Option One to Cerberus Capital Management has been severed, according to both parties involved.

Both companies called the termination “fully amicable”, though Option One will wind down operations as a result.

H&R Block will lay off approximately 620 employees, close three offices, and take a $75 million restructuring charge.

Option One will no longer accept loan applications, but will continue to service the existing pipeline totaling about $30 million, most of which are government-backed loans (FHA loans, VA loans).

The defunct mortgage lender also plans to sell its valuable servicing portfolio.

Both parties said they had tried to find a way to save the deal originally conceived in April, but couldn’t find a mutually acceptable agreement.

“The mortgage market today has undergone vast changes since last April when the original Cerberus deal was signed,” H&R Block Chairman Richard Breeden said in a statement.

“Despite the hard work and good faith of both sides we could not find a way to restructure the original transaction to mutual satisfaction.”

Two weeks ago, H&R Block president and CEO Mark Ernst resigned as the prospect of selling its money-losing subprime mortgage unit looked increasingly bleak.

The proposed sale of Option One to private equity firm Cerberus Capital for $800 million (formerly $1 billion) agreed upon earlier this year was largely expected to fizzle as the credit markets continued to breed uncertainty.

Cerberus already backed out of a deal to buy Affiliated Computer Services Inc., and is currently attempting to withdraw its offer for United Rental.

According to National Mortgage News, Option One made $29.8 billion in subprime loans last year.

Shares of H&R Block were down 5 cents, or 0.26%, to $19.41 in midday trading on Wall Street.

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