HR Block 2005 Annual Report Download - page 70

savings associations, credit unions and other financial loans to be licensed unless an exemption is available. In addition,
institutions. There are also numerous companies competing in most states have other laws, public policies and general
the business of servicing non-prime loans. No one firm is a principles of equity relating to consumer protection, unfair and
dominant supplier of non-prime and prime mortgage loans or a deceptive practices, and practices that may apply to the
dominant servicer of non-prime loans. Inside B&C Lending origination, servicing and collection of mortgage loans.
ranked Option One as the number seven originator, based on In recent years, there has been a noticeable increase in state,
market share as of December 31, 2004, and the number four county and municipal statutes, ordinances and regulations that
servicer, based on servicing volume as of December 31, 2004, of prohibit or regulate so-called ‘‘predatory lending’’ practices.
non-prime loans in the industry. Predatory lending statutes such as HOEPA, regulate ‘‘high-cost
SEASONALITY OF BUSINESS ⬎⬎⬎ Residential mortgage loans,’’ which are defined separately by each state, county or
volume is not subject to significant seasonal fluctuations. The municipal statute, regulation or ordinance, but generally include
mortgage business is cyclical, however, and directly affected by mortgage loans with interest rates exceeding a (1) specified
national economic conditions, trends in business and finance and margin over the Treasury Index for a comparable maturity, or
is impacted by changes in interest rates. (2) designated percentage of points and fees. Statutes, ordinances
GOVERNMENT REGULATION ⬎⬎⬎ Mortgage loans and regulations that regulate high-cost loans generally prohibit
purchased, originated and/or serviced are subject to federal laws mortgage lenders from engaging in certain defined practices, or
and regulations, including: require mortgage lenders to implement certain practices, in
쐍The federal Truth-in-Lending Act, as amended, and connection with any mortgage loans that fit within the definition
Regulation Z promulgated thereunder; of a high-cost loan. We do not originate loans which meet the
쐍The Equal Credit Opportunity Act, as amended, and definition of high-cost loans under any law.
Regulation B promulgated thereunder; Certain state laws restrict or prohibit prepayment penalties on
쐍The Fair Credit Reporting Act, as amended; mortgage loans, and we relied on the federal Alternative
쐍The federal Real Estate Settlement Procedures Act, as Mortgage Transactions Parity Act (‘‘Parity Act’’) and related rules
amended, and Regulation X promulgated thereunder; issued in the past by the Office of Thrift Supervision (‘‘OTS’’) to
쐍The Home Ownership Equity Protection Act (‘‘HOEPA’’); preempt state limitations on prepayment penalties. In September
쐍The Soldiers’ and Sailors’ Civil Relief Act of 1940, as 2003, the OTS released a new rule that reduced the scope of the
amended; Parity Act preemption effective July 1, 2004 and, as a result, we
쐍The Home Mortgage Disclosure Act (‘‘HMDA’’) and can no longer rely on the Parity Act to preempt state restrictions
Regulation C promulgated thereunder; on prepayment penalties. The elimination of this federal
쐍The federal Fair Housing Act; preemption requires compliance with state restrictions on
쐍The Gramm-Leach-Bliley Act and regulations adopted prepayment penalties. These restrictions prohibit us from
thereunder; and charging any prepayment penalty in six states and restrict the
쐍Certain other laws and regulations. amount or duration of prepayment penalties that we may impose
Under environmental legislation and case law applicable in in an additional eleven states. This places us at a competitive
certain states, it is possible that liability for environmental disadvantage relative to financial institutions that continue to
hazards in respect of real property may be imposed on a holder of enjoy federal preemption of such state restrictions. Such
a deed to the property, which may impair the underlying institutions can charge prepayment penalties without regard to
collateral. state restrictions and, as a result, may be able to offer loans with
Applicable state laws generally regulate interest rates and other interest rate and loan fee structures that are more attractive than
charges pertaining to non-prime loans. These states also require the interest rate and loan fee structures that we are able to offer.
certain disclosures and require originators of certain mortgage See discussion in ‘‘Risk Factors’’ for additional information.
BUSINESS SERVICES
GENERAL ⬎⬎⬎ Our Business Services segment offers middle- Segment revenues constituted 13.0% of our consolidated revenues
market companies accounting, tax and consulting services. We for fiscal year 2005, 11.8% for 2004 and 11.6% for 2003.
have continued to expand the services we offer our clients by This segment consists primarily of RSM McGladrey, Inc., which
adding wealth management, retirement resources, payroll provides tax, accounting, and business consulting services in
services, corporate finance and financial process outsourcing.
H&R BLOCK 2005 Form 10K
8