HR Block 2006 Annual Report Download - page 75

that have statutes regulating, through licensing and other requirements, schools have not, and will not in the future, have a material adverse
the activities of brokering loans, providing credit services and offering effect on our operations. We cannot predict, however, what the effect
‘‘credit repair’’ services to consumers for a fee (Loan Activity Statutes). may be of the enactment of new statutes or the adoption of new
We believe the procedures under which we facilitate RALs are regulations pertaining to these matters.
structured so our activities are not included within the scope of the As noted above under ‘‘Owned and Franchised Offices,’’ many of the
activities regulated by these Loan Activity Statutes. There can be no income tax return preparation offices operating in the U.S. under the
assurances, however, that states with these Loan Activity Statutes will name ‘‘H&R Block’’ are operated by franchisees. Certain aspects of the
not contend successfully that these statutes apply to the RAL business franchisor/franchisee relationship have been the subject of regulation
and that we will need to become licensed under the Loan Activity by the Federal Trade Commission and by various states. The extent of
Statutes, otherwise comply with statutory requirements, or modify regulation varies, but relates primarily to disclosures to be made in
procedures so that the Loan Activity Statutes are inapplicable. connection with the grant of franchises and limitations on termination
Many states have statutes requiring the licensing of persons offering by the franchisor under the franchise agreement. To date, no such
contracts of insurance. We have received from certain state insurance regulation has materially affected our business. We cannot predict,
regulators inquiries about our POM guarantee program and the however, the effect of applicable statutes or regulations that may be
applicability of the state insurance statutes. In states where the inquiries enacted or adopted in the future.
are closed, the regulators affirmed our position that the POM guarantee We also seek to determine the applicability of all government and self-
is not a contract of insurance and is therefore not subject to state regulatory organization statutes, ordinances, rules and regulations in
insurance licensing laws. In the few states where inquiries are pending, the international countries in which we operate (collectively, Foreign
we believe there are no insurance laws under which the POM guarantee Laws) and to comply with these Foreign Laws. We cannot predict what
constitutes a contract of insurance. There can be no assurances, effect the enactment of future Foreign Laws, changes in interpretations
however, that the product, or other similar products we may offer in the of existing Foreign Laws, or the results of future regulator inquiries
future, will not be scrutinized as potential insurance products and held regarding the applicability of Foreign Laws may have on our segments,
to be subject to various insurance laws and regulations. any particular subsidiary, or our consolidated financial statements.
Many of our income tax courses are regulated and licensed in select Statutes and regulations relating to income tax return preparers,
states. Failure to obtain a tax school license could limit our ability to electronic filing, franchising and other areas affecting the income tax
develop interest in tax preparation as a career or obtain qualified business also exist in other countries in which we operate. In addition,
tax professionals. the Canadian government regulates the refund-discounting program in
We believe the federal, state and local laws and legislation regulating Canada. These laws have not materially affected our
electronic filing, RALs and the facilitation of RALs, loan brokers, credit international operations.
services, credit repair services, insurance products, and proprietary See discussion in ‘‘Risk Factors’’ for additional information.
MORTGAGE SERVICES
GENERAL –Our Mortgage Services segment originates mortgage loans, 쐍Option One’s wholesale origination channel works with
services non-prime mortgage loans and sells and securitizes mortgage independent brokers throughout the U.S. to fund non-prime
loans and residual interests in the U.S. Revenues primarily consist of mortgage loans through a national branch network. Wholesale
gains from sales and securitizations of mortgage assets, accretion on originations represent the majority of Option One’s total
residual interests and servicing fee income. Segment revenues loan production.
constituted 25.6% of our consolidated revenues for fiscal year 2006 and 쐍HRBMC originates residential mortgage loans directly to
28.2% for 2005 and 31.2% for 2004. retail consumers.
We originate both non-prime and prime mortgage loans. Non-prime 쐍Option One’s national accounts channel forms partnerships with
mortgages are those that may not be offered through government- financial institutions, including national and regional banks, to
sponsored loan agencies and typically involve borrowers with limited allow them to offer non-prime loans.
income documentation, high levels of consumer debt or past credit 쐍Option One’s bulk acquisitions channel specializes in the purchase
problems. Even though these borrowers have credit problems, they also of performing non-prime mortgage loan pools.
tend to have equity in their property that will be used to secure the loan. Option One is headquartered in Irvine, California and operates in
Prime mortgages are those that may be offered through government 48 states by serving 49,000 mortgage broker locations and through its
sponsored loan agencies. We conduct business through four channels: network of 35 wholesale loan production branches and eight retail
production offices.
H&R BLOCK 2006 Form 10K
5