H&R Block Fears Rising Mortgage Deliquencies

In a blow to company shareholders, H&R Block, said this week that it will likely need to set aside $61.3 million to protect against increasing home mortgage loan liabilities.

The nation’s largest tax preparer believes that mortgage delinquencies at its Option One Mortgage unit will rise in the coming year, and needs to boost its loan-liability cash reserves owing to recent increases in loan repurchases, which have been noted across the industry.

The company’s stock plunged on the news and was lately down $1.98, or 8.7 percent, to $20.81. Volume was much heavier than normal. Other big Florida mortgage providers have expressed similar concerns over the rising risk of delinquency, given the preponderance of resetting ARMs on the market.

The KBW Mortgage Finance Index, a respected industry gauge, has lost about 10 percent since May and edged lower following the H&R Block news.

The firm believes it will need to repurchase a pre-tax total of $102.1 million in loans. The company said $46.1 million of the loans were sold during the financial quarter ending July 31, while $56 million in loans were sold in previous quarters. The company attributed the rising level of home loan repurchases primarily to a higher level of repurchase requests from loan buyers.

Locally, there has been an increase in the past few months of customers who have fallen behind on Florida mortgage loan payments. Foreclosure rates continue to swell in previously hot real estate markets, prompting elevated concern among lenders. We have yet to see the full fallout from the end of the housing boom, which some worry will be severe.