H&R; Block to Acquire Option One Mortgage
Tax giant H&R; Block Inc., moving to bolster its fledgling financial services business, said Wednesday that it will acquire high-risk mortgage lender Option One Mortgage Corp. in Santa Ana for $190 million in cash.
Option One, which made $1.1 billion in loans through 41 locations nationwide last year, is owned by banking giant Fleet Financial Group Inc., which bought the Santa Ana company just two years ago. Fleet Financial, based in Providence, R.I., announced in December that it planned to sell the Santa Ana operation.
“Fleet just really wanted to focus on their core business, which is banking on the Eastern Seaboard,” said William D. Davis, vice president and a founder of Option One.
Pending regulatory approval, the deal should close in June, Block executives said.
Option One makes loans to individuals who cannot qualify for a traditional home loan. Then it pools these loans and sells them to institutional investors, Davis said.
The purchase of Option One, the country’s 15th-largest sub-prime lender, represents H&R; Block’s most aggressive move into the lending area. The Kansas City, Mo.-based company already owns a minority interest in another sub-prime lender and has originated some high-risk loans out of its existing offices. Still, this business is only about a quarter of Option One’s size, according to William Anderson, president of Block Financial Corp., H&R; Block’s financial services arm.
Anderson said Block plans to retain Option One’s existing management and its 561 employees, including 241 at its Santa Ana headquarters.
Option One was started in 1992 as a subsidiary of Plaza Home Mortgage. In 1995, facing much competition and a slowdown in home refinancing, Plaza’s board of directors voted to sell the company, including a much smaller Option One, to Fleet Financial for $120 million.
Having a large parent like H&R; Block should insulate the company from interest-rate fluctuations and other dips in the real estate market, Davis said.
The profitability of sub-prime loans, which carry higher interest rates, has lured large financial institutions such as Aames Financial Corp. and Countrywide Home Loans.
