Tax prep giant H&R Block Inc. reported a third-quarter loss last week, pointing to its struggling mortgage lending arm even at the start of a strong beginning to the fourth quarter’s tax season  -- where the company makes the bulk of its profits.Block said that it lost $44.7 million in the three months ending Jan. 31, compared to gains of $12.1 million in the same period a year ago. Revenue for the same quarter increased to $955.1 million, from $860.3 million.

Block executives pointed to the company’s mortgage business, Option One, which lost $69.7 million during the quarter, down from a gain of $42.4 million a year. For the quarter, Block took around $111 million of losses related to bad loans, most of which had been sold in previous quarters.

Block announced in November that it would lower its earnings forecast after poor results at Option One, and that, in addition to cutting loan-fulfillment operations and closing branches, the company would consider selling the division. After releasing the third-quarter results, chief executive Mark Ernst alluded to his expectation that a deal -- or, at the very least, another strategic direction -- for the unit would be announced sometime in March.

The entire subprime lending industry has been squeezed as the very customers that it targets -- those with poor credit -- continue to default on loans at unusually high rates.

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