The Mortgage Biz Has Lost Its Fizz

When H&R Block Inc. decided to expand into the mortgage business in the late 1990s, Chief Executive Mark A. Ernst made a big bet that the move would help bolster profits during the lean months between tax seasons. And for years the move paid off. In the fiscal year ended last April, for example, the mortgage division delivered fully 58% of Block’s operating income.

But like many financial execs, Ernst is suddenly finding out that the mortgage business isn’t what it used to be. With the refi boom largely over since April, earnings are tumbling. Despite a 2.7% rise in mortgage originations for the quarter ended Oct. 31, Block said that its mortgage profits plunged 42%, to $106 million — pushing it back into the red in its fiscal second quarter. Moreover, analysts expect Block’s profits to slide an additional 19% for the quarter that ends Jan. 31. Competitors “are just pricing loans much tighter than what we would have anticipated,” Ernst told Wall Street analysts.

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