Option One Gets $350M Funding Boost for Servicing Ops

In a filing with the SEC this morning, H&R Block said that its troubled mortgage unit Option One Mortgage Corporation had received an additional $350 million in funding for servicing advances from a unit of Royal Bank of Scotland Group, PLC. The tax preparation company, which has seen its financial fortunes sink under the wieght of mounting losses at Option One, said that Greenwich Capital Financial Products had increased a debt facility used to fund servicing advances from $400 million to $750 million. The boost in funding for Option One’s servicing operation came as a $750 million warehouse line of credit previously funded by Greenwich was terminated, H&R Block said. While the company did not comment on reasons for the termination, sources have suggested to me that the company didn’t particularly need the warehouse facility to fund loan origination given its current state, while also suggesting that financing servicing operations is a relatively safer bet than providing debt facilities to fund origination activities. H&R Block also said it had amended various terms of its commercial lines of credit with JPMorgan Chase, designed to prevent it from materially defaulting under a net worth covenenant into early 2008 as well as providing “flexibility” in its continuing attempt to sell troubled Option One. H&R Block had announced in April a deal to sell Option One to private equity investor Cerberus Capital Management, L.P. for roughly $970 million, a deal that has since been cast into doubt as the mortgage crisis has gained momentum and significantly devalued Option One’s lending and servicing platforms.