H&R Block has deal to sell unit

KANSAS CITY, Mo. - H&R Block Inc. said yesterday 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, currently services about $53 billion in subprime mortgages, making it the fourth-largest such operation in the nation. H&R Block, based in Kansas City, Mo., shut down Option One's mortgage originations after an earlier agreement to sell the division to Cerberus Capital Management L.P. fell through.

H&R Block shares rose 89 cents, or 5.09 percent, to $18.36 in trading yesterday.

WL Ross & Co. L.L.C. earlier agreed to acquire $42 billion in mortgage-servicing rights from American Home Mortgage Investment Corp., and the combined total of $95 billion will create the country's second-largest subprime-servicing portfolio, after Countrywide Financial Corp.

WL Ross has agreed to offer comparable positions to a "substantial portion" of employees of Option One's servicing business.

"Notwithstanding the problems of the subprime-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 subprime 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 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."