4. Mortgage Loans Held for Investment and Related Assets

The composition of our mortgage loan portfolio as of January 31, 2012 and April 30, 2011 is as follows:


		(dollars in 000s)
	January 31, 2012		April 30, 2011
As of	Amount	% of Total	Amount	% of Total
Adjustable-rate loans	$ 297,375	58 %	$ 333,828	58 %
Fixed-rate loans	219,134	42 %	239,146	42 %

	516,509	100 %	572,974	100 %
Unamortized deferred fees and costs	3,629		4,121
Less: Allowance for loan losses	(89,949 )		(92,087 )

	$ 430,189		$ 485,008

Our loan loss allowance as a percent of mortgage loans was 17.4% at January 31, 2012, compared to 16.1% at April 30, 2011.

Activity in the allowance for loan losses for the nine months ended January 31, 2012 and 2011 is as follows:


		(in 000s)
Nine months ended January 31,	2012	2011
Balance, beginning of the period	$ 92,087	$ 93,535
Provision	17,275	24,100
Recoveries	160	169
Charge-offs	(19,573 )	(29,928 )

Balance, end of the period	$ 89,949	$ 87,876

When determining our allowance for loan losses, we evaluate loans less than 60 days past due on a pooled basis, while loans we consider impaired, including those loans more than 60 days past due or modified as troubled debt restructurings (TDRs), are evaluated individually. The balance of these loans and the related allowance is as follows:


				(in 000s)
	January 31, 2012		April 30, 2011
As of	Portfolio Balance	Related Allowance	Portfolio Balance	Related Allowance
Pooled (less than 60 days past due)	$ 260,916	$ 9,467	$ 304,325	$ 11,238
Impaired:
Individually (TDRs)	84,443	9,011	106,328	11,056
Individually (60 days or more past due)	171,150	71,471	162,321	69,793

	$ 516,509	$ 89,949	$ 572,974	$ 92,087

Our portfolio includes loans originated by Sand Canyon Corporation, previously known as Option One Mortgage Corporation, and its subsidiaries (SCC) and purchased by H&R Block Bank (HRB Bank), which constitute 63% of the total loan portfolio at January 31, 2012. We have experienced higher rates of delinquency and believe that we have greater exposure to loss with respect to this segment of our loan portfolio. Our remaining loan portfolio totaled $192.4 million and is characteristic of a prime loan portfolio, and we believe therefore subject to a lower loss exposure. Detail of our mortgage loans held for investment and the related allowance at January 31, 2012 is as follows:


				(dollars in 000s)
	Outstanding	Loan Loss Allowance		% 30+ Days
	Principal Balance	Amount	% of Principal	Past Due
Purchased from SCC	$ 324,122	$ 77,373	23.9 %	47.1 %
All other	192,387	12,576	6.5 %	12.4 %

	$ 516,509	$ 89,949	17.4 %	34.2 %

Credit quality indicators at January 31, 2012 include the following:


			(in 000s)
Credit Quality Indicators	Purchased from SCC	All Other	Total Portfolio
Occupancy status:
Owner occupied	$ 229,463	$ 122,424	$ 351,887
Non-owner occupied	94,659	69,963	164,622

	$ 324,122	$ 192,387	$ 516,509

Documentation level:
Full documentation	$ 95,323	$ 140,179	$ 235,502
Limited documentation	8,414	19,999	28,413
Stated income	189,698	19,793	209,491
No documentation	30,687	12,416	43,103

	$ 324,122	$ 192,387	$ 516,509

Internal risk rating:
High	$ 129,745	$ —	$ 129,745
Medium	194,377	—	194,377
Low	—	192,387	192,387

	$ 324,122	$ 192,387	$ 516,509

Loans given our internal risk rating of "high" were generally originated by SCC, have no documentation or are stated income and are non-owner occupied. Loans given our internal risk rating of "medium" were generally full documentation or stated income, with loan-to-value at origination of more than 80% and have credit scores at origination below 700. Loans given our internal risk rating of "low" were generally full documentation, with loan-to-value at origination of less than 80% and have credit scores greater than 700.

Our mortgage loans held for investment include concentrations of loans to borrowers in certain states, which may result in increased exposure to loss as a result of changes in real estate values and underlying economic or market conditions related to a particular geographical location. Approximately 52% of our mortgage loan portfolio consists of loans to borrowers located in the states of Florida, California and New York.

Detail of the aging of the mortgage loans in our portfolio that are past due as of January 31, 2012 is as follows:


						(in 000s)
	Less than 60 Days Past Due	60 –89 Days Past Due	90+ Days Past Due⁽¹⁾	Total Past Due	Current	Total
Purchased from SCC	$ 28,876	$ 6,159	$ 141,247	$ 176,282	$ 147,840	$ 324,122
All other	8,423	1,524	20,639	30,586	161,801	192,387

	$ 37,299	$ 7,683	$ 161,886	$ 206,868	$ 309,641	$ 516,509

⁽¹⁾ We do not accrue interest on loans past due 90 days or more.

Information related to our non-accrual loans is as follows:


		(in 000s)
As of	January 31, 2012	April 30, 2011
Loans:
Purchased from SCC	$ 142,853	$ 143,358
Other	23,283	14,106

	166,136	157,464

TDRs:
Purchased from SCC	5,729	2,849
Other	1,282	329

	7,011	3,178

Total non-accrual loans	$ 173,147	$ 160,642

Information related to impaired loans is as follows:


				(in 000s)
	Portfolio Balance	Portfolio Balance	Total
	With Allowance	With No Allowance	Portfolio Balance	Related Allowance
As of January 31, 2012:
Purchased from SCC	$ 179,776	$ 40,672	$ 220,448	$ 71,084
Other	25,390	9,755	35,145	9,398

	$ 205,166	$ 50,427	$ 255,593	$ 80,482

As of April 30, 2011:
Purchased from SCC⁽¹⁾	$ 180,387	$ 51,674	$ 232,061	$ 71,733
Other⁽¹⁾	29,027	7,561	36,588	9,116

	$ 209,414	$ 59,235	$ 268,649	$ 80,849

⁽¹⁾ Classification of amounts as of April 30, 2011 has been restated to conform to the current period presentation.

Information related to the allowance for impaired loans is as follows:


		(in 000s)
As of	January 31, 2012	April 30, 2011
Portion of total allowance for loan losses allocated to impaired loans and TDR loans:
Based on collateral value method	$ 71,471	$ 69,794
Based on discounted cash flow method	9,011	11,055

	$ 80,482	$ 80,849

Information related to activities of our non-performing assets is as follows:


		(in 000s)
Nine months ended January 31,	2012	2011
Average impaired loans:
Purchased from SCC	$ 224,002
All other	35,421

	$ 259,423	$ 308,282

Interest income on impaired loans:
Purchased from SCC	$ 4,340
All other	348

	$ 4,688	$ 4,975

Interest income on impaired loans recognized on a cash basis on non-accrual status:
Purchased from SCC	$ 4,182
All other	324

	$ 4,506	$ 4,711

Our real estate owned (REO) includes loans accounted for as in-substance foreclosures of $5.7 million and $7.7 million at January 31, 2012 and April 30, 2011, respectively. Activity related to our REO is as follows:


		(in 000s)
Nine months ended January 31,	2012	2011
Balance, beginning of the period	$ 19,532	$ 29,252
Additions	6,521	12,931
Sales	(7,933 )	(16,900 )
Writedowns	(2,193 )	(3,442 )

Balance, end of the period	$ 15,927	$ 21,841