March 22, 2007 / 4:26 AM / 10 years ago

UPDATE 1-Option One credit line extended but reduced

(Adds background on possible sale of Option One, subprime market)

NEW YORK, March 21 (Reuters) - H&R Block Inc. (HRB.N), the largest U.S. tax preparer, said on Wednesday its Option One subprime mortgage unit renewed a credit line with Bank of America Corp. (BAC.N) for a year, but the size was cut in half.

Lenders have faced rising defaults in mortgages to people with weaker credit this year. H&R Block is trying to sell its subprime unit.

The Option One Loan Warehouse Corp. off-balance sheet credit line was extended through March 2008, but cut to $2 billion from $4 billion, according to a regulatory filing on Wednesday.

Last week, H&R Block said it did not expect Option One to meet the covenant terms for eight warehouse credit facilities, which temporarily finance loans until they can be packaged into bonds, when its waivers expire at the end of April.

Without the waivers, providers of the credit lines would have the right to terminate future funding obligations, the tax preparer said.

H&R said last week it has written down the value of the subprime lender's assets by $29.2 million before taxes, because of the "extreme volatility in the mortgage market," according to H&R Block Chief Executive Mark Ernst.

Default rates in the subprime segment of the U.S. mortgage market have jumped in recent months as the housing industry slowed and prices fell. At least 20 lenders in the subprime mortgage sector, which serves borrowers with poor credit histories at high interest rates, have gone out of business.

For more about the subprime mortgage crisis, see [nN16195443]

((Reporting by Jonathan Keehner and Ed Leefeldt in New York; editing by Andre Grenon; +1 646 223 6128; E-mail: jonathan.keehner@reuters.com)) Keywords: H&RBLOCK FINANCING/

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