Investors Want H&R Block’s Subprime Lender to Pay Up



Several mortgage bond investors are seeking assistance to force a subprime lending unit of H&R Block Inc. to buy back billions of dollars worth of faulty loans.  The company, called Option One back when it did its dirty work, is now known by the name Sand Canyon Corp (SCC).  H&R Block sold off the servicing assets but still holds some liability.

payback

At its peak, Option One Mortgage was one of the top 10 subprime lenders during the housing boom.  Loans that are delinquent or in foreclosure from Option One could eventually account for more than $12 billion.

The group of investors are calling out to others who hold securities backed by Option One Mortgage loans.  They hope to gather together 25 percent of the bonds, giving them contractual rights to make demands on the trustee (and thereby the lender).

“A number of investors have acted, and are continuing to do so now,” said Talcott Franklin, the lawyer from Dallas handling the case. “Those who haven’t acted to date may be realizing that someday, the train will leave the station.”

Franklin declined to name the investors, who are hoping to come to a settlement with the lender similar to the $1.6 billion settlement between Bank of America Corp and Assured Guaranty Ltd., the company responsible for issuing Bank of America’s mortgage bonds.

Bank of America

That case, Franklin explained, gave bond investors a legitimate fighting chance to reclaim some of their losses.  According to his estimates, the damages may exceed the available funds, so those investors hoping to make a claim should get in line quickly.