H&R Block Inc. (NYSE: HRB) reported a fourth quarter loss on Thursday, on the poor performance of its mortgage lending arm, sending shares down nearly 4 percent.

Shares fell 91 cents, or 3.99 percent to $21.88 in afternoon trading on the New York Stock Exchange.

For the quarter which ended April 30, the tax-services company reported a net loss of $85.5 million, or 26 cents a share, compared with a net income of $587.5 million, or $1.77 a share, a year ago.

Revenue increased 7.9 percent to $2.35 billion.

Analysts polled by Thomson Financial forecast fourth-quarter profit of $1.88 per share on revenue of $2.44 billion.

The company was hurt by poor performance in its mortgage lending unit, Option One, which it sold to private equity Cerberus Capital Management earlier in the quarter.

Option One, a ‘subprime’ lender which sells mortgages to people with poor credit, suffered losses after housing prices declined and interests rates rose, causing a number of borrowers to default on their loans.

H&R reported quarterly losses of $676.8 million, or $2.07 per share on discontinued operations, which included Option One performance.

Though its core tax division saw revenue rise 8.2 percent to $1.76 billion, it could not offset other losses.

Looking ahead, H&R Block is projecting fiscal 2008 earnings from continuing operations of $1.25 to $1.45 a share. Analysts' mean estimate was for earnings of $1.47 a share.