4. Mortgage Loans Held for Investment and Related Assets

The composition of our mortgage loan portfolio as of January 31, 2013 and April 30, 2012 is as follows:


						(dollars in 000s)
As of		January 31, 2013			April 30, 2012
		Amount	% of Total		Amount	% of Total

Adjustable-rate loans	$	203,624	55%	$	238,442	56%
Fixed-rate loans		168,515	45%		190,870	44%
		372,139	100%		429,312	100%
Unamortized deferred fees and costs		3,004			3,429
Less: Allowance for loan losses		(17,256)			(26,540)
	$	357,887		$	406,201

Our loan loss allowance as a percent of mortgage loans was 4.6% at January 31, 2013, compared to 6.2% at April 30, 2012.

Activity in the allowance for loan losses for the nine months ended January 31, 2013 and 2012 is as follows:


				(in 000s)
Nine months ended January 31,		2013		2012

Balance, beginning of the period	$	26,540	$	92,087
Provision		10,250		17,275
Recoveries		2,745		160
Charge-offs		(22,279)		(19,573)
Balance, end of the period	$	17,256	$	89,949

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. This change did not have a significant impact on our provision recorded during the nine months ended January 31, 2013.

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		January 31, 2013				April 30, 2012
		Portfolio Balance		Related Allowance		Portfolio Balance		Related Allowance

Pooled	$	219,345	$	6,670	$	248,772	$	9,237
Impaired:
Individually (TDRs)		59,295		5,013		71,949		7,752
Individually		93,499		5,573		108,591		9,551
	$	372,139	$	17,256	$	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 HRB Bank, which constitute 57% of the total loan portfolio at January 31, 2013. 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 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 January 31, 2013 is as follows:


						(dollars in 000s)
		Outstanding		Loan Loss Allowance		% 30+ Days
		Principal Balance		Amount	% of Principal	Past Due

Purchased from SCC	$	212,250	$	13,596	6.4%	34.5%
All other		159,889		3,660	2.3%	9.2%
	$	372,139	$	17,256	4.6%	23.6%

Credit quality indicators at January 31, 2013 include the following:


						(in 000s)
Credit Quality Indicators		Purchased from SCC	All Other		Total Portfolio

Occupancy status:
Owner occupied	$	154,470	$	102,180	$	256,650
Non-owner occupied		57,780		57,709		115,489
	$	212,250	$	159,889	$	372,139
Documentation level:
Full documentation	$	68,413	$	116,591	$	185,004
Limited documentation		6,889		16,775		23,664
Stated income		118,100		16,385		134,485
No documentation		18,848		10,138		28,986
	$	212,250	$	159,889	$	372,139
Internal risk rating:
High	$	68,645	$	-	$	68,645
Medium		143,605		-		143,605
Low		-		159,889		159,889
	$	212,250	$	159,889	$	372,139

Loans given our internal risk rating of “high” were originated by SCC, and generally had no documentation or were based on stated income. Loans given our internal risk rating of “medium” were generally full documentation or based on stated income, with loan-to-value ratios at origination of more than 80%, and were made to borrowers with credit scores below 700 at origination. Loans given our internal risk rating of “low” were generally full documentation, with loan-to-value ratios at origination of less than 80% and were made to borrowers with credit scores greater than 700 at origination.

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 January 31, 2013 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	$	16,752	$	3,084	$	69,905	$	89,741	$	122,509	$	212,250
All other		7,168		1,089		12,931		21,188		138,701		159,889
	$	23,920	$	4,173	$	82,836	$	110,929	$	261,210	$	372,139

⁽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		January 31, 2013		April 30, 2012

Loans:
Purchased from SCC	$	76,235	$	88,347
Other		15,761		16,626
		91,996		104,973
TDRs:
Purchased from SCC		3,460		3,166
Other		504		1,270
		3,964		4,436
Total non-accrual loans	$	95,960	$	109,409

Information related to impaired loans is as follows:


								(in 000s)
		Balance		Balance With		Total		Related
		With Allowance		No Allowance		Impaired Loans		Allowance

As of January 31, 2013:
Purchased from SCC	$	38,938	$	88,671	$	127,609	$	8,470
Other		6,757		18,428		25,185		2,116
	$	45,695	$	107,099	$	152,794	$	10,586

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		January 31, 2013		April 30, 2012

Portion of total allowance for loan losses allocated
to impaired loans and TDR loans:
Based on collateral value method	$	5,573	$	9,551
Based on discounted cash flow method		5,013		7,752
	$	10,586	$	17,303

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


				(in 000s)
Nine months ended January 31,		2013		2012

Average impaired loans:
Purchased from SCC	$	137,703	$	224,002
All other		25,879		35,421
	$	163,582	$	259,423
Interest income on impaired loans:
Purchased from SCC	$	2,940	$	4,340
All other		232		348
	$	3,172	$	4,688
Interest income on impaired loans recognized on
a cash basis on non-accrual status:
Purchased from SCC	$	2,881	$	4,182
All other		214		324
	$	3,095	$	4,506

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


				(in 000s)
Nine months ended January 31,		2013		2012

Balance, beginning of the period	$	14,972	$	19,532
Additions		7,208		6,521
Sales		(6,652)		(7,933)
Writedowns		(1,676)		(2,193)
Balance, end of the period	$	13,852	$	15,927