Investor Ross buys H&R Block mortgage service unit

By Joseph A. Giannone

NEW YORK (Reuters) - Billionaire investor Wilbur Ross, who made his fortune making bold bets on distressed industries, is buying H&R Block Inc's (HRB.N: Quote, Profile, Research) mortgage servicing business for $1.1 billion amid the worst market crisis in decades.

Ross will emerge the No. 2 U.S. subprime mortgage servicer with a deal announced at the same time as humbled investment bank Bear Stearns leaps into the arms of JPMorgan Chase, and mortgage fund Carlyle Capital Corp collapses.

Both developments stem from the accelerating demise of mortgage and credit markets.

Yet Ross, who successfully bought coal, textile and steel companies when they were on the ropes, is charging ahead in the mortgage business.

"Notwithstanding the problems in subprime lending, we regard mortgage servicing as an attractive business," Ross said in an interview.

WL Ross & Co., the investment firm founded by Ross, will add the fourth-largest U.S. servicer of subprime mortgages with a portfolio of about $53 billion. Ross said he wants to acquire more prime loan, "Alt-A" and subprime servicing businesses.

"This gives us a lot of scale in that industry, a lot of operating synergies. The combined companies will have better cash flow than the two would have independently," he said.

Ross joins a short list of investors who believe the business of sending out bills and collecting loan payments will hold up well as lending activity slumps and defaults rise.