HR Block 2013 Annual Report Download - page 59

52 H&R Block 2013 Form 10-K
Credit card receivables are generally charged-off against the related allowance at 180 days past due or within 60
days of receiving notification of a customer's bankruptcy filing or other event.
MORTGAGE LOANS HELD FOR INVESTMENT – Mortgage loans held for investment represent loans
originated or acquired with the ability and current intent to hold to maturity. Loans held for investment are carried at
amortized cost adjusted for charge-offs, net of allowance for loan losses, deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans. Loan fees and certain direct loan origination costs are deferred
and the net fee or cost is recognized in interest income over the life of the related loan. Unearned income, premiums
and discounts on purchased loans are amortized or accreted into income over the estimated life of the loan using methods
that approximate the interest method based on assumptions regarding the loan portfolio, including prepayments adjusted
to reflect actual experience.
We record an allowance representing our estimate of credit losses inherent in the loan portfolio at the balance sheet
date. Loan recoveries and the provision for credit losses increase the allowance, while loan charge-offs decrease the
allowance. A current assessment of the value of the loan’s underlying collateral is made when the loan is no later than
60 days past due and any loan balance in excess of the value less costs to sell the property is included in the provision
for credit losses.
We evaluate mortgage loans less than 60 days past due on a pooled basis and record a loan loss allowance for those
loans in the aggregate. We stratify these loans based on our view of risk associated with various elements of the pool
and assign estimated loss rates based on those risks. Loss rates consider both the rate at which loans will become
delinquent (frequency) and the amount of loss that will ultimately be realized upon occurrence of a liquidation of
collateral (severity), and are primarily based on historical experience and our assessment of economic and market
conditions.
Loans are considered impaired when we believe it is probable we will be unable to collect all principal and interest
due according to the contractual terms of the note, or when the loan is 60 days past due. Impaired loans are reviewed
individually and loss estimates are based on the fair value of the underlying collateral. For loans over 60 days but less
than 180 days past due we record a loan loss allowance. For loans 180 days or more past due we charge-off the loan
to the value of the collateral less costs to sell. During fiscal year 2012 we changed from recording a specific loan loss
allowance for loans 180 days or more past due to charging-off those loans. This change had no income statement impact,
but reduced the principal amount of loans outstanding and the related allowance. This change was made as a result of
our change in regulators from the Office of Thrift Supervision (OTS) to the Office of the Comptroller of the Currency
(OCC).
We classify loans as non-accrual when full and timely collection of interest or principal becomes uncertain, or when
they are 90 days past due. Interest previously accrued, but not collected, is reversed against current interest income
when a loan is placed on non-accrual status. Accretion of deferred fees is discontinued for non-accrual loans. Payments
received on non-accrual loans are recognized as interest income when the loan is considered collectible and applied to
principal when it is doubtful that all contractual payments will be collected. Loans are not placed back on accrual status
until collection of principal and interest is reasonably assured as a result of the borrower bringing the loan into compliance
with the contractual terms of the loan. Prior to restoring a loan to accrual status, management considers a borrower’s
prospects for continuing future contractual payments.
From time to time, as part of our loss mitigation process, we may agree to modify the contractual terms of a borrower’s
loan. We have developed loan modification programs designed to help borrowers refinance adjustable-rate mortgage
loans prior to rate reset or who may otherwise have difficulty making their payments. In cases where we modify a loan
and in so doing grant a concession to a borrower experiencing financial difficulty, the modification is considered a
troubled debt restructuring (TDR). We may consider the borrower’s payment status and history, the borrower’s ability
to pay upon a rate reset on an adjustable-rate mortgage, the size of the payment increase upon a rate reset, the period
of time remaining prior to the rate reset and other relevant factors in determining whether a borrower is experiencing
financial difficulty. A borrower who is current may be deemed to be experiencing financial difficulty in instances where
the evidence suggests an inability to pay based on the original terms of the loan after the interest rate reset and, in the
absence of a modification, may default on the loan. We evaluate whether the modification represents a concession we
would not otherwise consider, such as a lower interest rate than what a new borrower of similar credit risk would be
offered. A loan modified in a TDR, including a loan that was current at the time of modification, is placed on non-
accrual status until we determine future collection of principal and interest is reasonably assured, which generally