The clock is ticking on

H&R Block's

(HRB) - Get Report

plan to sell its mortgage business.

The Kansas City, Mo.-based tax company has said it expects to have a decision on so-called strategic alternatives for its Option One Mortgage by the end of March. H&R Block put the unit up for sale in November, saying it hoped to get $1.3 billion.

Since then, the subprime mortgage business has fallen apart. Shares in subprime lenders such as

NovaStar

( NFI),

Accredited

( LEND) and

New Century

(NEWC)

have plunged as defaults and delinquencies spiked.

H&R Block has hardly been immune: Its shares are off 8% this year despite solid gains in the company's bread-and-butter tax preparation business. Yet the company remains optimistic, and so do some analysts.

Jennifer Pinnick, an analyst at Morgan Stanley, writes that expectations have fallen so far that a sale is likely to boost the tax services provider's share price.

"We think a sale price is going to be lower than expectations," she wrote in a recent note, "but higher than the zero value that the market seems to be predicting."

The market isn't expecting much because H&R Block's mortgage business has been a drag on the company.

For the quarter ended Jan. 31, H&R reported a loss of $60.3 million, or 18 cents a share. That includes a $29 million reduction in the "carrying value of residual interests in its discontinued mortgage operations."

The company said in a quarterly filing two weeks ago that as of Jan. 31, Option One did not meet the "minimum net income" covenant contained in eight of its warehouse facilities. While it obtained waivers through April 27, the company is looking for extensions.

Last week, a group of lenders including

Bank of America

(BAC) - Get Report

and

Wells Fargo

(WFC) - Get Report

cut funding to the subprime mortgage subsidiary in half, to $2 billion, though they extended their off-balance sheet financing commitment though next year.

Yet the company indicated earlier this month that it expects to sell the unit for around book value. H&R Block has further surprised Wall Street by not taking a big writedown on Option One.

"In light of the extreme volatility in the mortgage market, we conducted rigorous review of the carrying value of all the assets of our Option One Mortgage Corporation subsidiary," CEO Mark Ernst said March 14. "We continue to believe that the net asset value in this business is appropriate and prudent."

Pinnick cautions that it's possible that H&R Block may not be able to sell the unit at all. Still, shares have "reached a valuation floor," she writes, since H&R Block is trading as if the mortgage operations have no value. She upgraded her rating on the stock to equal weight -- the equivalent of a hold position -- in the note.

Shares fell 16 cents Thursday to $20.68.