HR Block 2006 Annual Report Download - page 77

The following table summarizes our servicing portfolio by origin and conditions, trends in business and finance and is impacted by changes
includes related mortgage servicing rights (MSRs) as of April 30, 2006 in interest rates.
and the rate we earned on each type of servicing during fiscal year 2006: GOVERNMENT REGULATION –Mortgage loans purchased,
originated and/or serviced are subject to federal laws and regulations,
(dollars in 000s)
including:
Type of Servicing Principal Balance MSR Balance Rate Earned
쐍The federal Truth-in-Lending Act, as amended, and Regulation Z
Originated $ 62,813,849 $ 272,472 0.38%
promulgated thereunder;
Sub-servicing 10,471,509 – 0.18%
쐍The Equal Credit Opportunity Act, as amended, and Regulation B
Purchased 96,719 – 0.50%
promulgated thereunder;
Tot al $ 73,382,077 $ 272,472 0.38%
쐍The Fair Credit Reporting Act, as amended;
쐍The Fair Debt Collection Practices Act;
When non-prime loans are sold or securitized, we generally retain the
쐍The federal Real Estate Settlement Procedures Act, as amended,
right to service the loans, which results in MSR assets being recorded and Regulation X promulgated thereunder;
on our balance sheet. Assumptions used in estimating the value of MSRs
쐍The Home Ownership Equity Protection Act (HOEPA);
are discussed in Item 8, note 1 to our consolidated financial statements.
쐍The Soldiers’ and Sailors’ Civil Relief Act of 1940, as amended;
In addition to servicing loans we originate, we also service non-prime
쐍The Home Mortgage Disclosure Act (HMDA) and Regulation C
loans originated by other lenders, designated in the above table as sub- promulgated thereunder;
servicing. MSRs are recorded only in conjunction with our originated or
쐍The federal Fair Housing Act;
purchased loan-servicing portfolio.
쐍The Telephone Consumer Protection Act;
GEOGRAPHIC DISTRIBUTION –The following table details the
쐍The Gramm-Leach-Bliley Act and regulations adopted thereunder;
percent of non-prime loan origination volume and our loan origination
쐍The Fair and Accurate Credit Transactions Act;
branches by state, excluding our Retail channel, for fiscal years 2006
쐍Regulation AB; and
and 2005:
쐍Certain other laws and regulations.
Under environmental legislation and case law applicable in certain
2006 2005
states, it is possible that liability for environmental hazards in respect of
Percent of Number of Percent of Number of
real property may be imposed on a holder of a deed to the property,
State Volume Branches Volume Branches
which may impair the underlying collateral.
California 24.5% 6 21.8% 8
Applicable state laws generally regulate interest rates and other
Florida 10.7% 3 7.2% 4
New York 9.1% 2 11.5% 2
charges pertaining to non-prime loans. These states also require certain
Massachusetts 6.7% 2 8.4% 2
disclosures and require originators of certain mortgage loans to be
New Jersey 5.1% 1 5.3% 3
licensed unless an exemption is available. In addition, most states have
Other 43.9% 20 45.8% 23
other laws, public policies and general principles of equity relating to
consumer protection, unfair and deceptive practices, and practices that
COMPETITIVE CONDITIONS –Both the non-prime and prime sectors may apply to the origination, servicing and collection of mortgage loans.
of the residential mortgage loan market are highly competitive. The In recent years, there has been a noticeable increase in state, county
principal methods of competition are price, service and product and municipal statutes, ordinances and regulations that prohibit or
differentiation. There are a substantial number of companies competing regulate so-called ‘‘predatory lending’’ practices. Predatory lending
in the residential loan market, including mortgage banking companies, statutes such as HOEPA, regulate ‘‘high-cost loans,’’ which are defined
commercial banks, savings associations, credit unions and other separately by each state, county or municipal statute, regulation or
financial institutions. There are also numerous companies competing in ordinance, but generally include mortgage loans with interest rates
the business of servicing non-prime loans. No one firm is a dominant exceeding a (1) specified margin over the Treasury Index for a
supplier of non-prime and prime mortgage loans or a dominant servicer comparable maturity, or (2) designated percentage of points and fees
of non-prime loans. Inside B&C Lending ranked Option One as the charged to borrowers. Statutes, ordinances and regulations that
number seven originator, based on market share as of March 31, 2006, regulate high-cost loans generally prohibit mortgage lenders from
and the number three servicer, based on servicing volume as of engaging in certain defined practices, or require mortgage lenders to
March 31, 2006, of non-prime loans in the industry. implement certain practices, in connection with any mortgage loans
SEASONALITY OF BUSINESS –Residential mortgage volume is not that fit within the definition of a high-cost loan. We do not originate
subject to significant seasonal fluctuations. The mortgage business is loans which meet the definition of high-cost loans under any law.
cyclical, however, and directly affected by national economic
H&R BLOCK 2006 Form 10K
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