Option One sale might collapse

H&R; Block Inc. said Thursday that the sale of its Option One Mortgage Corp. sub-prime lending unit might fall apart because of deteriorating credit markets and a quarterly loss that more than doubled.

The largest U.S. tax preparer said that Option One planned to stop offering sub-prime home loans and that private equity firm Cerberus Capital Management might buy just the loan servicing business, after agreeing in April to buy the entire unit.

H&R; Block, based in Kansas City, Mo., is negotiating with Cerberus to complete the deal before a Dec. 31 deadline but said there was “no assurance” any transaction would occur.

Losses at Option One contributed to an overall loss of $302.6 million, or 93 cents a share, for the fiscal first quarter that ended July 31. For the year-earlier quarter, the company lost $131.4 million, or 41 cents a share. Revenue rose 11% to $381.2 million.

Option One will stop making sub-prime mortgages regardless of talks with New York-based Cerberus, but the exit date is “fluid,” said H&R; Block Chief Executive Mark Ernst. He said the servicing business was still “quite valuable.”

A Cerberus spokeswoman declined to comment. H&R; Block spokesman Nick Iammartino said the company would continue to offer higher-quality, prime mortgages.

Sub-prime lenders make loans to people with poor credit. Dozens of mortgage lenders have closed this year as rising borrowing costs and stagnant home prices have led to more defaults, while tight capital markets have deprived lenders of needed cash.

H&R; Block shares gained 34 cents to close at $19.84.