H&R Block Inc.’s mortgage unit lost a $1.5 billion credit line, falling “dangerously close” to the minimum amount demanded by a hedge fund firm that has agreed to buy the money-losing home lender.

The so-called warehouse credit facility for Option One Mortgage Corp. wasn’t renewed by Lehman Brothers Holdings Inc. when it expired on June 28, Kansas City, Mo.-based H&R Block said in a federal filing. That reduced the unit’s borrowing capacity to $8 billion in committed loans and $2 billion in uncommitted lines of credit.

Cerberus Capital Management LP, a New York-based hedge fund manager, demanded Option One maintain warehouse lines of at least $8 billion when it agreed to buy the unit in April. Investors are counting on the sale to stem mortgage losses that totaled $808 million in fiscal 2007 and free H&R Block to focus on its tax preparation business, which hasn’t grown in the last two years.

“This leaves Option One skirting dangerously close to the line,” an analyst at Gimme Credit who has a “deteriorating” credit score on H&R Block, Kathleen Shanley, said. “The company has little margin for error.” H&R

Block shares fell 48 cents ,or 2.1%, to $22.55 in New York Stock Exchange composite trading.

The company said it didn’t make sense to spend money for lines of credit beyond what the sales agreement required.

“We are confident we have the current and potential lending relationships to maintain at least this amount in place through the closing of the Option One sale transaction,” said the company in a statement. “There’s no contractual need to go any higher.”

Option One was using $1.5 billion of its warehouse lines at the end of April 30, down from $7.8 billion a year earlier, according to its annual report published last month. That means the firm needs at most $4 billion to support the day-to-day operations of the mortgage lender, H&R Block said yesterday.