4.	Mortgage Loans Held for Investment and Related Assets

The composition of our mortgage loan portfolio as of July 31, 2012 and April 30, 2012 is as follows:


										(dollars in 000s)
As of	July 31, 2012						April 30, 2012
	Amount			% of Total			Amount			% of Total
Adjustable-rate loans	$	222,474			55	%	$	238,442			56	%
Fixed-rate loans		183,196			45	%		190,870			44	%

		405,670			100	%		429,312			100	%
Unamortized deferred fees and costs		3,274						3,429
Less: Allowance for loan losses		(22,185	)					(26,540	)

	$	386,759					$	406,201

Our loan loss allowance as a percent of mortgage loans was 5.5% at July 31, 2012, compared to 6.2% at April 30, 2012.

Activity in the allowance for loan losses for the three months ended July 31, 2012 and 2011 is as follows:


				(in 000s)
Three months ended July 31,	2012			2011
Balance, beginning of the period	$	26,540		$	92,087
Provision		4,000			5,625
Recoveries		1,186			49
Charge-offs		(9,541	)		(6,458	)

Balance, end of the period	$	22,185		$	91,303

Our allowance decreased significantly from the prior year primarily due to a change in the fourth quarter of fiscal year 2012, whereby we now charge-off loans 180 days past due to the value of the collateral less costs to sell.

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 TDRs, are evaluated individually. The balance of these loans and the related allowance is as follows:


							(in 000s)
As of	July 31, 2012				April 30, 2012
	Portfolio Balance		Related Allowance		Portfolio Balance		Related Allowance
Pooled	$	238,999	$	7,701	$	248,772	$	9,237
Impaired:
Individually (TDRs)		67,587		6,931		71,949		7,752
Individually		99,084		7,553		108,591		9,551

	$	405,670	$	22,185	$	429,312	$	26,540

Our portfolio includes loans originated by Sand Canyon Corporation, previously known as Option One Mortgage Corporation, and its subsidiaries (SCC) and purchased by H&R Block Bank (HRB Bank), which constitute 58% of the total loan portfolio at July 31, 2012. We have experienced higher rates of delinquency and believe that we have greater exposure to loss with respect to this segment of our loan portfolio. Our remaining loan portfolio totaled $171.6 million at July 31, 2012 and is characteristic of a prime loan portfolio, and we believe therefore subject to a lower loss exposure. Detail of our mortgage loans held for investment and the related allowance at July 31, 2012 is as follows:


					(dollars in 000s)
	Outstanding		Loan Loss Allowance					% 30+ Days
	Principal Balance		Amount		% of Principal			Past Due
Purchased from SCC	$	234,040	$	17,724		7.6	%		34.9	%
All other		171,630		4,461		2.6	%		9.5	%

	$	405,670	$	22,185		5.5	%		24.1	%

Credit quality indicators at July 31, 2012 include the following:


					(in 000s)
Credit Quality Indicators	Purchased from SCC		All Other		Total Portfolio
Occupancy status:
Owner occupied	$	168,756	$	109,934	$	278,690
Non-owner occupied		65,284		61,696		126,980

	$	234,040	$	171,630	$	405,670

Documentation level:
Full documentation	$	74,959	$	125,811	$	200,770
Limited documentation		7,080		17,750		24,830
Stated income		131,633		17,447		149,080
No documentation		20,368		10,622		30,990

	$	234,040	$	171,630	$	405,670

Internal risk rating:
High	$	80,268	$	—	$	80,268
Medium		153,772		—		153,772
Low		—		171,630		171,630

	$	234,040	$	171,630	$	405,670

Loans given our internal risk rating of "high" were originated by SCC, generally have no documentation or are stated income, and are non-owner occupied. Loans given our internal risk rating of "medium" were 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" were 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 58% of our mortgage loan portfolio consists of loans to borrowers located in the states of Florida, California, New York and Wisconsin.

Detail of the aging of the mortgage loans in our portfolio as of July 31, 2012 is as follows:


	(in 000s)
	Less than 60 Days Past Due		60 – 89 Days Past Due		90+ Days Past Due⁽¹⁾		Total Past Due		Current		Total
Purchased from SCC	$	21,167	$	2,658	$	77,457	$	101,282	$	132,758	$	234,040
All other		6,436		1,828		13,830		22,094		149,536		171,630

	$	27,603	$	4,486	$	91,287	$	123,376	$	282,294	$	405,670

⁽¹⁾	We do not accrue interest on loans past due 90 days or more.

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


			(in 000s)
As of	July 31, 2012		April 30, 2012
Loans:
Purchased from SCC	$	81,539	$	88,347
Other		16,178		16,626

		97,717		104,973

TDRs:
Purchased from SCC		3,398		3,166
Other		509		1,270

		3,907		4,436

Total non-accrual loans	$	101,624	$	109,409

Information related to impaired loans is as follows:


							(in 000s)
	Balance With Allowance		Balance With No Allowance		Total Impaired Loans		Related Allowance
As of July 31, 2012:
Purchased from SCC	$	45,719	$	94,184	$	139,903	$	11,653
Other		8,199		18,569		26,768		2,831

	$	53,918	$	112,753	$	166,671	$	14,484

As of April 30, 2012:
Purchased from SCC	$	56,128	$	97,591	$	153,719	$	14,917
Other		7,137		19,684		26,821		2,386

	$	63,265	$	117,275	$	180,540	$	17,303

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


			(in 000s)
As of	July 31, 2012		April 30, 2012
Portion of total allowance for loan losses allocated to impaired loans and TDR loans:
Based on collateral value method	$	7,553	$	9,551
Based on discounted cash flow method		6,931		7,752

	$	14,484	$	17,303

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


			(in 000s)
Three months ended July 31,	2012		2011
Average impaired loans:
Purchased from SCC	$	147,555	$	230,150
All other		26,841		36,477

	$	174,396	$	266,627

Interest income on impaired loans:
Purchased from SCC	$	1,011	$	1,556
All other		82		119

	$	1,093	$	1,675

Interest income on impaired loans recognized on a cash basis on non-accrual status:
Purchased from SCC	$	994	$	1,498
All other		73		114

	$	1,067	$	1,612

Activity related to our real estate owned (REO) is as follows:


				(in 000s)
Three months ended July 31,	2012			2011
Balance, beginning of the period	$	14,972		$	19,532
Additions		3,074			1,573
Sales		(1,801	)		(3,722	)
Writedowns		(788	)		(793	)

Balance, end of the period	$	15,457		$	16,590