Mortgage Daily Logo
mortgage news from industry experts

Option One Settles Allegations of Securities Fraud

The former subprime lending arm of H&R Block Inc. has agreed to a settlement over alleged deception in the sale of residential mortgage-backed securities. At issue was its commitment to repurchase bad loans even though it was incapable of meeting that commitment.

At the height of the subprime mortgage crisis, in December 2007, H&R Block made the decision to permanently shut down subsidiary Option One Mortgage Corp. The move resulted in the closing of three offices and 620 layoffs.

The closing was followed by the 2008 sale of Option One’s mortgage servicing operation to American Home Mortgage Servicing Inc.

But although Option One’s financial condition was rapidly deteriorating in 2007, it failed to advise RMBS investors about its dire situation, according to a complaint filed Tuesday in U.S. District Court for the Central District of California by the Securities and Exchange Commission.

According to the SEC, the formerly Irvine, Calif.-based company promised investors of $4.3 billion in RMBS issued in 2007 that it would repurchase loans that breached representations and warranties but neglected to tell those investors about its deteriorating condition or that it was incapable of meeting the repurchase obligations.

It had been previously profitable but started experiencing a revenue decline and significant losses in mid-2006, the securities regulator said. It was hit with hundreds of millions of dollars in margin calls from its creditors. While it was receiving financial support from H&R Block, the parent company was under not obligation to provide the funding — something the subprime lender allegedly failed to disclose to investors.

“The SEC further alleges that Block never guaranteed Option One’s loan repurchase obligations and that Option One’s mounting losses threatened Block’s credit rating at a time when Block was negotiating a sale of Option One,” according to the statement.

Option One, which now goes by the name Sand Canyon Corp., agreed to settle the SEC’s charges for $28.2 million. The settlement, which is subject to court approval, includes $14,250,558 in disgorgement, $3,982,027 in pre-judgment interest and a $10 million penalty. It also enjoins the company from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.

The SEC indicated that Option One originated $40 billion during its fiscal-year 2006, though H&R Block previously reported that the unit’s originations were $28.4 billion during the 12 months ended Jan. 31, 2007.

The SEC touted more than $1.98 billion in penalties in financial crisis-related enforcement actions. More than a hundred defendants — including 44 chief executive officers, chief financial officers and other senior corporate officers — have been charged by the SEC.

“We will take action against those who fail to disclose or downplay important facts that make an investment riskier, even if those risks do not materialize,” SEC Division of Enforcement Chief Kenneth Lench said in a news release. “We remain committed to uncovering misconduct involving complex financial instruments including RMBS.”

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...


Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI

Related Posts