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BRIAN WATT: H&R Block is due out with its quarterly earnings report today. The firm is best known for preparing tax returns, but it also owns a home-lending business that investors are watching closely. There’s also word its profits will take a plunge. And Marketplace’s Bob Moon reports it could be a sign of bigger trouble ahead.
BOB MOON: The higher that home prices climbed in recent years, the riskier the loans became for some mortgage lenders. Many targeted less credit-worthy buyers with so-called sub-prime loans that carry higher interest rates and fees.
Now, with adjustable rates going up and a growing number of borrowers failing to make their payments, H&R Block is being forced to write off a loss of $102 million.
Analysts say that could amount to as much as 40 percent of the profits the company’s mortgage business might have been expected to take in.
Some experts wonder if this is just the beginning, not only for H&R Block, but other mortgage providers. Christopher Thornberg watches the home-lending industry for Beacon Economics.
CHRISTOPHER THORNBERG: “We’re at the beginning of the breaking real estate bubble, we’re not at the end, we’re not near the bottom. We have a ways to go.”
Thornberg expects a shakeout for the mortgage industry, but he can’t predict which companies might be most vulnerable:
THORNBERG:“To some extent, this is going to be one of those things where we’re just going to have to let the smoke clear to find out where the bombs have landed.”
Thornberg has little sympathy for companies that he says have long been riding high on such high-risk loans.
In Los Angeles, I’m Bob Moon for Marketplace.
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