Mortgage Loans Held For Investment And Related Assets

3 Months Ended

Jul. 31, 2011

Mortgage Loans Held For Investment And Related Assets

Mortgage Loans Held For Investment And Related Assets

5. Mortgage Loans Held for Investment and Related Assets

The composition of our mortgage loan portfolio as of July 31, 2011 and April 30, 2011 is as follows:

									(dollars in 000s)
As of		July 31, 2011					April 30, 2011
		Amount		% of Total			Amount		% of Total
Adjustable-rate loans	$	320,539		58	%	$	333,828		58	%
Fixed-rate loans		233,452		42	%		239,146		42	%
		553,991		100	%		572,974		100	%
Unamortized deferred fees and costs		3,975					4,121
Less: Allowance for loan losses		(91,303	)				(92,087	)
	$	466,663				$	485,008

     Our loan loss allowance as a percent of mortgage loans was 16.5% at July 31, 2011, compared to 16.1% at April 30, 2011.

     Activity in the allowance for loan losses for the three months ended July 31, 2011 and 2010 is as follows:

							(in 000s)
Three months ended July 31,		2011			2010
Balance, beginning of the period	$	92,087		$	93,535
Provision		5,625			8,000
Recoveries		49			33
Charge-offs		(6,458	)		(13,172	)
Balance, end of the period	$	91,303		$	88,396

     When determining our allowance for loan losses, we evaluate loans less than 60 days past due on a pooled basis, while loans we consider impaired, including those loans more than 60 days past due or modified as troubled debt restructurings (TDRs), are evaluated individually. The balance of these loans and the related allowance is as follows:

								(in 000s)
As of		July 31, 2011				April 30, 2011
	Portfolio Balance Related Allowance					Portfolio Balance Related Allowance
Pooled (less than 60 days past due)	$	290,762	$	10,914	$	304,325	$	11,238
Impaired:
Individually (TDRs)		95,417		9,499		106,328		11,056
Individually (60 days or more past due)		167,812		70,890		162,321		69,793
	$	553,991	$	91,303	$	572,974	$	92,087

     Our portfolio includes loans originated by Sand Canyon Corporation (SCC) and purchased by H&R Block Bank (HRB Bank) which constitute 63% of the total loan portfolio at July 31, 2011. We have experienced higher rates of delinquency and have greater exposure to loss with respect to this segment of our loan portfolio. Our remaining loan portfolio totaled $207.3 million and is characteristic of a prime loan portfolio, and we believe subject to a lower loss exposure. Detail of our mortgage loans held for investment and the related allowance at July 31, 2011 is as follows:

(dollars in 000s)

		Outstanding		Loan Loss Allowance			% 30	+ Days
		Principal Balance		Amount	% of Principal		Past Due
Purchased from SCC	$	346,695	$	80,640	23.3	%	44.8	%
All other		207,296		10,663	5.1	%	12.4	%
	$	553,991	$	91,303	16.5	%	32.7	%

Credit quality indicators at July 31, 2011 include the following:

						(in 000s)
Credit Quality Indicators		Purchased from SCC		All Other		Total Portfolio
Occupancy status:
Owner occupied	$	244,259	$	132,132	$	376,391
Non-owner occupied		102,436		75,164		177,600
	$	346,695	$	207,296	$	553,991
Documentation level:
Full documentation	$	105,547	$	150,972	$	256,519
Limited documentation		10,447		22,411		32,858
Stated income		198,898		21,168		220,066
No documentation		31,803		12,745		44,548
	$	346,695	$	207,296	$	553,991
Internal risk rating:
High	$	143,931	$	357	$	144,288
Medium		202,764		-		202,764
Low		-		206,939		206,939
	$	346,695	$	207,296	$	553,991

     Loans given our internal risk rating of "high" are generally originated by SCC, have no documentation or are stated income and are non-owner occupied. Loans given our internal risk rating of "medium" are generally full documentation or stated income, with loan-to-value at origination of more than 80% and have credit scores at origination below 700. Loans given our internal risk rating of "low" are generally full documentation, with loan-to-value at origination of less than 80% and have credit scores greater than 700.

     Our mortgage loans held for investment include concentrations of loans to borrowers in certain states, which may result in increased exposure to loss as a result of changes in real estate values and underlying economic or market conditions related to a particular geographical location. Approximately 52% of our mortgage loan portfolio consists of loans to borrowers located in the states of Florida, California and New York.

     Detail of the aging of the mortgage loans in our portfolio that are past due as of July 31, 2011 is as follows:

													(in 000s)
		Less than 60		60 – 89	Days		90+ Days		Total
		Days Past Due		Past Due			Past Due (1)		Past Due		Current		Total
Purchased from SCC	$	35,960	$	8,886		$	133,767	$	178,613	$	168,082	$	346,695
All other		10,470		1,735			20,479		32,684		174,612		207,296
	$	46,430	$	10,621		$	154,246	$	211,297	$	342,694	$	553,991

^{(1)No loans past due 90 days or more are still accruing interest}

Information related to our non-accrual loans is as follows:

				(in 000s)
As of		July 31, 2011		April 30, 2011
Loans:
Purchased from SCC	$	138,277	$	143,358
Other		22,964		14,106
		161,241		157,464
TDRs:
Purchased from SCC		3,767		2,849
Other		178		329
		3,945		3,178
Total non-accrual loans	$	165,186	$	160,642

Information related to impaired loans is as follows:

					(in 000s)
	Portfolio Balance		Portfolio Balance		Total
	With Allowance		With No Allowance		Portfolio Balance		Related Allowance
As of July 31, 2011:
Purchased from SCC	$	180,494	$	47,081	$	227,575	$	70,964
Other		27,954		7,700		35,654		9,425
	$	208,448	$	54,781	$	263,229	$	80,389
As of April 30, 2011:
Purchased from SCC (1)	$	180,387	$	51,674	$	232,061	$	71,733
Other (1)		29,027		7,561		36,588		9,116
	$	209,414	$	59,235	$	268,649	$	80,849

⁽¹⁾ Classification of amounts as of April 30, 2011 have been restated to conform to the current period presentation.

Information related to the allowance for impaired loans is as follows:

				(in 000s)
As of		July 31, 2011		April 30, 2011
Portion of total allowance for loan losses allocated
to impaired loans and TDR loans:
Based on collateral value method	$	70,890	$	69,794
Based on discounted cash flow method		9,499		11,055
	$	80,389	$	80,849

Information related to activities of our non-performing assets is as follows:

	(in 000s)
Three Months Ended July 31,	2011		2010
Average impaired loans:
Purchased from SCC	$	230,150
All other		36,477
	$	266,627	$	303,767
Interest income on impaired loans:
Purchased from SCC	$	1,556
All other		119
	$	1,675	$	1,749
Interest income on impaired loans recognized on a cash basis on non-accrual status:
Purchased from SCC	$	1,498
All other		114
	$	1,612	$	1,636

Our real estate owned includes loans accounted for as in-substance foreclosures of $7.2 million and $7.7 million at July 31, 2011 and April 30, 2011, respectively. Activity related to our real estate owned is as follows:

							(in 000s)
Three months ended July 31,		2011			2010
Balance, beginning of the period	$	19,532		$	29,252
Additions		1,573			6,527
Sales		(3,722	)		(8,827	)
Writedowns		(793	)		(643	)
Balance, end of the period	$	16,590		$	26,309