Private equity firm Cerberus Capital Management has backed away from a deal to buy Irvine-based Option One Mortgage Corp., according to the subprime lender’s parent company, H & R; Block Inc.
As a result of the nixed deal, the Kansas City-based tax and accounting services company said Tuesday that Option One has stopped making loans and will close that part of its operations.
H & R; Block also plans to sell Option One’s mortgage-servicing business.
The closure of Option One’s mortgage business will result in 620 lost jobs in three offices. Most of those jobs are believed to be based in Orange County.
H & R; Block also is taking a pretax restructuring charge of approximately $75 million because of today’s decision.
H & R; Block and Cerberus announced a possible sale in April. At the time H & R; Block said Option One’s value was estimated to be close to $1 billion.
The rapidly deteriorating subprime market immediately cast doubt on a deal of that size being closed.
In October, H & R; Block said Option One couldn’t meet the original terms of a deal, and was looking to rework the sale to include just Option One’s business servicing mortgages.
Additional negotiations with Cerberus failed to reach a acceptable deal, company officials said.
Option One is the latest local casualty of the imploding subprime mortgage market in 2007. As recently as last year, Option One was the country’s No. 6 maker of subprime loans.
In 2003, at the height of the housing and mortgage boom, Option One was the biggest source of profits for H & R; Block. The past year’s industry meltdown has seen hundreds of million of dollars in losses for the company, which has already announced several rounds of job cuts here and nationwide.
