KANSAS CITY, Mo. - H&R Block Inc. said yesterday that a deal to sell its troubled mortgage-lending arm had fallen through, forcing the company to scrap most of the $1 billion business.

The Kansas City tax preparer said it and Cerberus Capital Management L.P. had terminated their agreement, announced in April, for a Cerberus subsidiary to buy Option One Mortgage Corp.

It is at least the second major takeover in the mortgage industry this year that has been scuttled as defaults on mortgages soar nationwide. A deal for mortgage insurer Radian Group Inc., of Philadelphia, to be bought by competitor MGIC Investment Corp., of Milwaukee, was canceled in September. They agreed that the current troubles in the mortgage industry made it too difficult to combine operations. Also, the proposed sale of mortgage lender PHH Corp., of Mount Laurel, N.J., to a General Electric Co. affiliate and the Blackstone Group L.P. has been hung up by a lack of funding.

H&R Block is accepting no new mortgage applications and will lay off about 620 employees, close three offices, and take a $75 million restructuring charge as it shuts down the mortgage operation, the company said.

Block said it would honor $30 million worth of existing mortgage commitments.

H&R Block also said it would sell its mortgage-servicing business, which would result in another asset-impairment charge for the quarter ended Oct. 31 of no more than $125 million.

Kathleen Shanley, an analyst for corporate bond research firm Gimme Credit L.L.C., said in a note to clients that Option One had a net book value of $1.1 billion as of July, according to the latest available figures.

"Given the ongoing and severe deterioration in the subprime sector, it would surprise us if a $125 million charge would be sufficient to mark down this business to its current value," Shanley wrote.

Cerberus and H&R Block have tried to renegotiate the agreement regarding Option One over the last several months as the mortgage market was rocked by subprime defaults and tightened lending. Subprime mortgages are loans to people with poor credit records.

Under the original deal, Cerberus was to pay $300 million less than Option One's net asset value.

H&R Block shares lost 16 cents yesterday to close at $19.30.