NEW YORK - H & R Block Inc. shares lost nearly 8 percent Monday on renewed fears that the company will drag in the subprime mortgage mess.
News that a group of mortgage bond investors may try to force former mortgage of H & R Block potentially unit to buy back billions of dollars in shares of ready suffering real sent sliding.
Mortgages written by unit Option a former of the block, which has ceased to issue new loans in December 2007, were a recurring problem for investors in recent years, but which had recently been updated.
Morgan Stanley Vance Edelson analyst said that many-, but not all - block investors had grown complacent on the issue of the mortgage over the past year. Yet, the subject was raised on each recent conference call. "It remained part of the investor debate, because many investors have realized that H & R Block is not entirely of the forest on this issue."
At the end of its fiscal year third quarter in March, then-CEO Alan Bennett said the unit created to deal with the remaining mortgage issues, sand Canyon Corp., had 131 million of dollars in reserves to cover potential claims, and claims came in "within reserved expectations."
The exact amount of the loans in question is not yet known.
Dallas Talcott Franklin attorney told Associated Press that he is still bringing the Group of investors in mortgage bonds collateralized loans a bad Option. Once it is assembled, the group will be press H & R Block to buy back agreements bitter. "At this point you don't know really what you have, until you actually get confirmation of these farms," he said.
Some analysts believe that bonds purchased by banks and other non-governmental entities could add as much as $ 100 billion.
A H & R Block spokesperson, said the company received no request and cannot comment on the actions carried out by external parties. During a conference call late last month, Bennett said that the company would provide "full update" on the activity of mortgage when it reports the results of the fiscal year on June 23.
Edelson of Morgan Stanley, said that the company has a number of factors in turn. To force the redemption, bond investors must prove there was wrongdoing in the mortgage on a certain level, not merely that an owner by default on a loan of an Option, he said.
"This could be a chaotic situation that takes years to discuss, because traverse all the paperwork is a laborious process," said Edelson.
Earlier this year, the analyst pointed to customers that an Option had avoided real estate loans and second liens, which are a typical generator of redemption. In addition, block made business with Fannie Mae and Freddie Mac sponsored government companies, who were at the origin of most of redemptions in the industry.
Franklin said that investors would have is sufficient to demonstrate a "material and its prejudicial effect. For example, sand Canyon could be pressed to buy back loans where it can be shown that borrowers committed a fraud by providing incorrect information which, their income. During the housing bubble, these loans were known as "liar loans" because people did not have to provide documentation for their income. The Attorney sought to "what do you think that the chances are that some of the borrowers were, in fact, deceitful?".
"Much of this responsibility is driven back-end", he added. "If the loan is not a loss which it is associated with, then he did y no redemption."
Franklin said he hoped that the issue can be resolved by negotiation, dispute step.
Concerns about the spraying of the real estate market could have provided fuel for the stock liquidation. With prices of real estate remaining deleted, and some suggesting that the bottom of the market has not yet been reached, investors may be concerned that a new round of foreclosures is on the way.
Shares of H & R Block fell $1.31 or 7.6%, to close at $15.93. The stock has traded between $10.13 and $18.08 in the past 52 weeks, with the lowest point reached in October, the last time that the mortgage issue came to the top of the agenda of the traders.
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