HR Block 2006 Annual Report Download - page 94

MORTGAGE SERVICES
Mortgage Services – Financial Results (in 000s)
This segment is primarily engaged in the origination of non-prime
mortgage loans through an independent broker network, the origination
Year Ended April 30, 2006 2005 2004
of non-prime and prime mortgage loans through a retail office network,
Components of gains on sales:
the sale and securitization of mortgage loans and residual interests, and
Gain on mortgage loans $ 575,402 $ 772,061 $ 915,628
Gain (loss) on derivatives 141,223 46,853 (11,957)
the servicing of non-prime loans.
Gain on sales of AFS residual
Mortgage Services – Operating Statistics (dollars in 000s) interests 31,463 15,396 40,689
Impairment of AFS residual
Year Ended April 30, 2006 2005 2004
interests (34,107) (12,235) (26,063)
Volume of Loans
Originated –713,981 822,075 918,297
Wholesale (non-prime) $ 36,028,794 $ 26,977,810 $ 20,150,992 Interest income:
Retail: Non-prime 3,260,071 3,005,168 1,846,674 Accretion-residual interests 114,346 137,610 186,466
Prime 1,490,898 1,018,746 1,258,347 Other 18,722 11,850 5,064
$ 40,779,763 $ 31,001,724 $ 23,256,013
133,068 149,460 191,530
Non-Prime Loan Characteristics –Loan-servicing revenue 398,992 273,056 211,710
Weighted average FICO Other 1,097 1,427 2,172
score 622 614 608
Weighted average Total revenues 1,247,138 1,246,018 1,323,709
interest rate for
borrowers (WAC) 7.87% 7.36% 7.39% Cost of services 296,710 221,148 193,383
Weighted average loan- Cost of other revenues:
to-value 80.6% 78.9% 78.7% Compensation and benefits 293,781 239,997 206,238
Percentage with Occupancy 45,116 37,336 28,418
prepayment penalty 72.4% 70.8% 73.7% Other 105,494 78,769 55,265
Origination Margin 444,391 356,102 289,921
(% of Origination Volume) (1) –
Loan sale premium 1.42% 2.77% 4.21% Selling, general and administrative 184,421 172,675 151,882
Residual cash flows Total expenses 925,522 749,925 635,186
from beneficial
Pretax income $ 321,616 $ 496,093 $ 688,523
interest in Trusts 0.51% 0.63% 0.72%
Gain (loss) on (1) See ‘‘Reconciliation of Non-GAAP Financial Information’’ at the end of Item 7. Fiscal
derivatives 0.35% 0.15% (0.05%)
Loan sale repurchase year 2006 excludes the impact of a restructuring charge.
reserves (0.18%) (0.13%) (0.20%) (2) Defined as gain on sale of mortgage loans (including gain or loss on derivatives,
Retained MSRs 0.61% 0.44% 0.36% mortgage servicing rights and net of direct origination and acquisition expenses)
2.71% 3.86% 5.04% divided by origination volume.
Cost of acquisition (0.37%) (0.54%) (0.50%) (3) Defined as total premium received divided by total balance of loans delivered to
Direct origination third-party investors or securitization vehicles (excluding mortgage servicing rights
expenses (0.58%) (0.68%) (0.65%) and the effect of loan origination expenses).
Net gain on sale –
gross margin (2) 1.76% 2.64% 3.89%
FISCAL 2006 COMPARED TO FISCAL 2005 –Mortgage Services’
Other revenues (0.02%) 0.03% 0.01%
revenues were essentially flat compared to the prior year, with higher
Other cost of
origination (1.33%) (1.55%) (1.68%)
loan servicing revenues and gains on derivatives offset by lower margins
Net margin 0.41% 1.12% 2.22%
on mortgage loans sold and lower accretion.
Total cost of origination 1.91% 2.23% 2.33%
Total cost of origination
and acquisition 2.28% 2.77% 2.83%
Loan Delivery –
Loan sales $ 40,272,225 $ 30,975,523 $ 23,234,935
Execution price (3) 1.58% 3.01% 4.09%
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H&R BLOCK 2006 Form 10K