HR Block 2007 Annual Report Download - page 58

below, mortgage results include $388.7 million in loss provisions and loans to become increasingly more likely to execute on early payment
repurchase reserves, impairments of residual interests of $168.9 million default provisions available to them in loan sale agreements. As a result,
and impairments of other assets totaling $345.8 million. If conditions in we experienced higher actual and expected loan repurchase activity.
the industry, particularly in home appreciation, continue to decline, our Additionally, after we repurchased the loans, we experienced higher
future results would continue to be negatively impacted. severity of losses on those loans. We recorded total loss provisions of
The following table summarizes the key drivers of loan origination $388.7 million during fiscal year 2007 compared to $73.6 million in the
volumes and related gains on sales of mortgage loans: prior year. The provision recorded in the current year consists of
(dollars in 000s)
$238.8 million recorded on loans sold during the current year and
Year Ended April 30, 2007 2006 $149.9 million related to loans sold in the prior year. Loss provisions as
a percent of loan volumes increased 126 basis points over the prior year.
Application process:
Total number of applications 256,877 369,210 See additional discussion of our reserves and repurchase obligations in
Number of sales associates (1) 1,683 2,814
Item 8, note 20 to our consolidated financial statements.
Closing ratio (2) 49.7% 60.3%
During the current year, we recorded impairments of $168.9 million in
gains on sales of mortgage assets due to higher expected credit losses
Originations:
Total number of loans originated 127,556 222,749
resulting from the decline in performance of the underlying collateral.
WAC8.60% 7.87%
We also recorded unfavorable pretax mark-to-market adjustments in
Average loan size $212 $183
other comprehensive income, which decreased the fair value of our
Total volume of loans originated $27,073,467 $40,779,763
residual interests $32.4 million during the current year. These
Direct origination and acquisition expenses, net $171,374 $387,911
adjustments were recorded net of write-ups of $18.6 million and
deferred taxes of $5.3 million. We also recorded $7.0 million and
Revenue (loan value):
$31.5 million in gains on the sale of residual interests for the years
Net gain on sale –gross margin (3) (1.10%) 1.76%
ended April 30, 2007 and 2006, respectively.
(1) Includes all direct sales and back office sales support associates.
During the current year, we recorded a net $11.0 million in losses,
(2) Percentage of loans funded divided by total applications in the period.
compared to gains of $141.2 million in the prior year, related to our
(3) Defined as gain on sale of mortgage loans (including gain or loss on derivatives,
m30
various derivative instruments. The decline for the current year was
mortgage servicing rights and net of direct origination and acquisition expenses)
divided by origination volume.
caused by market interest rates, based on the two-year swap, declining
6 basis points compared to an increase of 131 basis points during the
Gains on sales of mortgage assets decreased $1.2 billion from the prior year. See Item 8, note 20 to the consolidated financial statements.
prior year. This decrease resulted primarily from significantly lower The value of MSRs recorded in the current year increased to 64 basis
origination volumes and loan sale premiums, increases in loan points from 61 basis points in the prior year due to changes in our
repurchase reserves and impairments of residual interests and losses on assumptions used to value MSRs, as well as an increase in average loan
derivatives. balances. However, this increase was offset by an overall decline in
During the fourth quarter, concerns about credit quality in the non- origination volumes, resulting in a net decrease in gains on sales of
prime industry resulted in lower demand for non-prime loans and a mortgage loans of $78.3 million. See additional discussion of our MSR
higher yield requirement by investors that purchase the loans. As a assumptions in ‘‘Critical Accounting Policies’’ and in Item 8, note 20 to
result, during the quarter we originated mortgage loans that, by the time the consolidated financial statements.
we sold them in the secondary market, were valued at less than par. Our Interest income decreased $78.7 million from the prior year. This
fourth quarter net gain on sale gross margin was a negative 6.87% and a decrease is primarily due to higher levels of non-performing loans,
negative 1.10% for the full fiscal year. We sold 73% and 39% of our loans lower accretion resulting from the sale of previously securitized
through securitizations in the fourth quarter and fiscal year, residual interests and lower write-ups to residual interest balances.
respectively. Additionally, our loan sale premium declined 148 basis
points from 1.42% in fiscal year 2006, to a negative 0.06% in the current
year.
The disruption in the secondary market, coupled with declining credit
quality and increasing early payment defaults, caused investors in our
H&R BLOCK 2007 Form 10K