H&R Block Considering Strategic Alternatives for Mortgage Unit

H&R Block Inc. today announced it is evaluating strategic alternatives for Option One Mortgage Corp., including a possible sale or other transaction through the public markets.

H&R Block also revised its earnings guidance for fiscal 2007 to reflect continued pricing pressures in the mortgage market as well as lower-than-expected originations.

“Option One has generated an outstanding record of growth and profitability during H&R Block’s ownership while achieving one of the most efficient cost structures in the industry,” said Mark Ernst, chairman and chief executive officer. “As a result, it has been difficult to consider other possibilities for this business, but a potential separation of Option One would enable H&R Block to further focus management resources on its core businesses and create long-term shareholder value.”

The company has retained Goldman, Sachs & Co. to assist in the review of alternatives. Any proposed transaction will be subject to approval by H&R Block’s board of directors.

Option One is taking further actions to reflect changes in the mortgage market. The company will consolidate by one-third its loan fulfillment operations by closing 12 branch offices over the next four months. Business from these branches will be transferred to other offices, bringing processing capacity in line with current and future volumes without sacrificing service.

Based in Irvine, California, Option One is a leading national wholesale originator and servicer of non-prime residential mortgage loans and reaches homebuyers through wholesale, national accounts, correspondent and H&R Block Mortgage Corp. offices. In fiscal 2006, Option One was the nation’s fifth largest originator of non-prime residential mortgages, with $40 billion in originations.

In addition, Option One has earned the top reputation in the industry for serving mortgage holders. The company services about $74 billion in non-prime mortgages.

Earnings per share for H&R Block’s fiscal year, ending April 30, 2007, are now expected to be $1.20 to $1.45. The company previously had forecast $1.60 to $1.85 per share. The guidance revision is entirely attributable to changes in the near-term outlook for the mortgage segment and does not include any impact from a sale or other transaction affecting the business.