Option One Sees Profits Decline
By MATHEW PADILLA
Rising interest rates have squeezed profits at Irvine-based subprime mortgage lender Option One Mortgage Corp., according to the latest quarterly results from parent company H & R; Block Inc.
Kansas City, Mo.-based H & R; Block, the largest preparer of tax returns for consumers, posted a loss of $44.1 million for the quarter ended July 31, versus a profit of $5.2 million a year earlier.
Shrinking profits at Option One were a factor in the loss, the company said.
Option One took a hit when the yield on two-year Treasury bills shot up about 100 basis points in a matter of weeks starting in April, said Robert Dubrish, chief executive of Option One.
“We essentially made less money during that period,” Dubrish said. “There’s really not much we can do. That’s the way the industry works.”
H & R; still made money off mortgages in the most recent quarter, earning $94 million on revenue of $268 million. But the profit figure was off 43% from a year ago, when the mortgage industry was at its peak. Revenue was off 8% from a year earlier.
Last year’s sizable mortgage profits offset losses in H & R;’s other business lines, including tax, business and investment services. This year H & R; didn’t earn enough from mortgages to offset losses during what is a slow time for the company’s other businesses.
Option One and other subprime lenders make loans to people with less-than-perfect credit. They usually package their loans in $1 billion pools and sell them to Wall Street investors as securities.
Last week, Reuters reported Option One is readying a $1.6 billion offering of mortgage-backed securities.
Whether Option One’s shrinking profits are unique to the company or represent an industry slowing is unclear. Orange-based Ameriquest Mortgage Co. and Irvine-based New Century Financial Corp. are the industry’s top two players.
Shares of New Century have been on a tear, recently hitting a high for the year.
