KANSAS CITY, MO. — H&R Block Inc. said Monday that it had signed an agreement to sell its troubled mortgage servicing business for $1.1 billion to billionaire investor Wilbur Ross.
Option One Mortgage Corp., which has been rocked by the nationwide mortgage crisis, services about $53 billion of sub-prime mortgages, ranking it the fourth-largest in the nation. Kansas City-based H&R Block shut down Option One's mortgage originations after an earlier agreement to sell the division to Cerberus Capital Management fell through.
H&R Block shares, which have traded in a 52-week range of $16.89 to $24.02, rose 89 cents, or 5.1%, to $18.36 in trading Monday.
WL Ross & Co. earlier agreed to acquire $42 billion in mortgage servicing rights from American Home Mortgage Investment Corp., and the combined total of $95 billion would create the country's second-largest sub-prime servicing portfolio, after Countrywide Financial Corp.
"Notwithstanding the problems of the sub-prime lending industry, we regard mortgage servicing as an attractive business and believe that there are considerable economies of scale attached to it," Ross said in a statement. "We shall therefore continue to seek acquisitions of prime, Alt-A and sub-prime servicing."
The transaction is expected to close May 30, subject to regulatory approvals and completion of a $1.2-billion financing package that would come from existing Option One lenders.
"In today's turbulent markets, the challenge is to complete a transaction, not simply announce an agreement," said Richard C. Breeden, chairman of H&R Block.
"We have reached what we consider to be a good agreement with WL Ross & Co., whose reputation for completing transactions is excellent. However, there is still much work to be done until the business is safely transferred at closing."
Breeden was elected to H&R Block's board of directors last year after criticizing the nation's largest tax preparer for getting involved in non-tax areas, such as sub-prime lending, investment advising and banking. Option One's problems contributed to the resignation in November of former Chief Executive Mark Ernst.
Ross has taken advantage of the crisis in the credit markets to buy up assets. In February, he agreed to make as much as a $1-billion investment in Bermuda-based bond insurer Assured Guaranty, considered one of the strongest left in its sector.