Mortgage-Bond Investors to Send Letters on H&R Block Loans

A lawyer representing mortgage- securities investors said they will send letters to a servicer and four bond trustees asking them to seek repurchases of loans made by H&R Block Inc. (HRB)’s Option One Mortgage Corp.

The investors plan to inform American Home Mortgage Servicing Inc. they want settlement negotiations with Option One to begin on individual deals once the bondholder group holds 25 percent of a transaction, Dallas-based lawyer Talcott Franklin said today on a conference call.

Three investors that have hired Franklin this week began seeking to rally members of his firm’s RMBS Investors Clearing House to push for repurchases of mortgages that failed to meet Option One’s contractual promises about their quality. H&R Block may face a maximum liability of $12.8 billion from mortgage repurchases, RBS Securities Inc. analysts estimated in an October report, based on data about delinquency and loss rates on its loans.

“It is possible as with any case that legitimate demands for recovery could exceed available funds,” Franklin said. “However, sources of recovery may exist beyond Option One,” including insurers, mortgage guarantors and its parent, he said.

Members of the clearing house, which permits investors to organize without disclosing their holdings to each other, own more than half of the $1.3 trillion of U.S. home-loan securities without government backing, including 25 percent of 64 deals with Option One loans, Franklin said May 9.

Publicly Disclose

Gene King, a spokesman for Kansas City, Missouri-based tax preparer H&R Block, and Philippa Brown, a spokeswoman for Irving, Texas-based American Home, declined to immediately comment.

If Option One agrees to settlement negotiations, the servicer should say that publicly so investors “may form a bondholder committee to advise the servicer and the trustee on the sufficiency and form of any settlement,” Franklin said today.

To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net;

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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