FOA narrows losses, touts dominance of reverse mortgage market

Key Takeaways:

– Finance of America Companies (FOA) narrowed its quarterly loss to $20 million and reported an overall improvement in earnings to $164.7 million in Q4 2023
– FOA has a 37% share of the total market for Home Equity Conversion Mortgages (HECMs) and proprietary reverse mortgages
– CEO Graham Fleming described 2023 as a transformational year for the company with a goal of becoming the preeminent platform for homeowners 55 and older
– FOA has a 36.9% market share of HECM-backed Securities (HMBS) and has funded $17.8 billion in loan volume from 2018 through 2023
– President Kristen Sieffert outlined a three-year strategic plan to grow the company’s presence in the retirement-focused home equity space
– FOA aims to address consumer understanding of reverse mortgages through investments in technology and messaging
– CFO Matt Engel stated that the company believes it can originate $300 million a month based on its scaled reverse mortgage business and current margins
– FOA faced challenges with the integration of American Advisors Group (AAG) into its corporate infrastructure and noncompliance notices from the NYSE
– The company completed two large securitizations in February and is confident in its long-term earnings power and potential to reach $300 million a month in originations

HousingWire:

Finance of America Companies (FOA), parent of leading reverse mortgage lender Finance of America Reverse (FAR), narrowed its quarterly loss to $20 million and posted an overall improvement in its earnings to $164.7 million in fourth-quarter 2023.

The fourth-quarter loss was down from the $25 million in losses posted in Q3 2023, FOA reported during an earnings call on Wednesday.

The company also touted its dominance in Home Equity Conversion Mortgages (HECMs) and proprietary reverse mortgages, noting its 37% share of the total market while expressing a goal of doubling its monthly loan origination volume on a dollar amount basis in the months ahead.

FOA also addressed challenges, including the remaining tasks related to the integration of American Advisors Group (AAG) into its corporate infrastructure, as well as its two notices from the New York Stock Exchange (NYSE) about noncompliance with listing standards.

Company performance

Graham Fleming

Describing 2023 as a “transformational year” for FOA, CEO Graham Fleming described the leadership team’s desire to make the company “the preeminent platform for homeowners 55 and older seeking to benefit from their home equity.”

“We are firmly positioned as the leading provider of modern retirement solutions with the potential to reach tens of millions of customers nationwide,” he said.

This potential was further detailed in the earnings presentation, with the company describing the total home equity held by the senior demographic. This is based on the most recent National Reverse Mortgage Lenders Association (NRMLA)/RiskSpan Reverse Mortgage Market Index (RMMI), as well as FOA’s 36.9% HECM market share of HECM-backed Securities (HMBS) on the issuer league tables compiled by New View Advisors.

Illustrating the potential value of the reverse mortgage product category and other offerings from FOA were focal points of the presentation, along with the company’s ability to serve as an entity to effectively meet evolving consumer needs.

In addition to touting its leading status as a lender, FOA offered further details such as its $17.8 billion in funded loan volume from 2018 through 2023, and it noted that there have yet to be any “principal loss in respect of [proprietary reverse loan securitization] bonds.”

Reverse mortgage ambitions

Kristen Sieffert, president of FOA and longtime leader of FAR, further expounded on the potential for the company’s growth in the retirement-focused home equity space.

“As Graham mentioned, our vision is to make home equity an essential part of a modern, mainstream retirement plan,” Sieffert said. “We’ve designed a three-year strategic plan that we believe will enable us to achieve this goal while also helping us provide the most value to those we serve, including our shareholders.”

Kristen Sieffert, president of leading reverse mortgage lender Finance of America Companies.
Kristen Sieffert

The first component of this plan is to transition to a single loan origination system (LOS) that preexisting FOA personnel can use alongside those brought aboard with the AAG retail platform acquisition, Sieffert said. She added that the potential market remains a key opportunity, which could help the company create “long-term growth at scale.”

“Reverse mortgages are utilized by approximately 2% of the total addressable market,” she said. “As the industry’s leading retail and wholesale originator, Finance of America has close to 40% market share of this activity. We have our eyes fixed on driving market penetration over the long term so that as the total pie grows, we will have the ability to meaningfully increase our reach and impact as well.”

Sieffert also addressed a common reverse mortgage industry issue: consumer understanding of the product category. She said that new investments in technology and messaging will help to bridge the gap for potential clients.

“Within our three-year plan, we’re committed to breaking this adoption barrier by investing in modernized messaging, digital technology and tailored customer-centric experiences,” she explained. “These experiences are essential in unlocking the massive market opportunity that exists and providing our customers and partners the service and experience they deserve and expect.”

Addressing challenges

Speaking about anticipated performance in 2024, FOA chief financial officer Matt Engel said the company believes that “originating $300 million a month based on our scaled reverse mortgage business and current margins” is possible. Revenue margins have performed well thus far in 2024, and the company’s operating loss was narrowed in Q4 2023 by 20%.

Engel also attributed some of the lower origination volume to the consolidation of the LOS platform that Sieffert described.

“In our reverse platform, volumes decreased in the fourth quarter due to seasonality,” he said. “Additionally, as Kristen mentioned, we began the consolidation of our loan origination system during the quarter, further impacting retail production.”

In February, the company completed what it called “two large securitizations,” which have freed up cash for additional investments. Performance of long-term assets has been positive, Engel said.

Engel also addressed the two notices sent by NYSE in December and February, which said that FOA was not in compliance with the exchange’s continued listing standard due to its stock price falling below $1.00 per share for a consecutive 30-day trading period.

Engel verbally read a statement that was previously provided to RMD on this topic for initial reporting, adding that the company has “made great strides as an organization to achieve our strategic goals,” and that it believes “in the long-term earnings power of the company” and its potential to reach $300 million a month in originations.

During a Q&A segment, when asked about 2024 performance goals, Sieffert said the company is confident in its plans should interest rates remain where they are.

“The plan is to incrementally begin growing the production volume through the course of this year and into the well into the future,” she said. “And obviously, when rates come down, it makes it easier. But with where rates are today, we still believe in the growth model that we have.”

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Property Chomp’s Take:

Finance of America Companies (FOA), the parent company of Finance of America Reverse (FAR), recently reported a narrowing of its quarterly loss to $20 million, along with an overall improvement in earnings to $164.7 million in the fourth quarter of 2023. This positive news was shared during an earnings call held on Wednesday.

CEO Graham Fleming described 2023 as a “transformational year” for FOA, highlighting the company’s position as the leading provider of modern retirement solutions for homeowners aged 55 and older. The company’s dominance in Home Equity Conversion Mortgages (HECMs) and proprietary reverse mortgages was noted, with a 37% share of the total market. Additionally, FOA expressed a goal of doubling its monthly loan origination volume on a dollar amount basis in the months ahead.

Kristen Sieffert, president of FOA and FAR, outlined a three-year strategic plan aimed at making home equity an essential component of a modern retirement plan. One key aspect of this plan is transitioning to a single loan origination system that will enable the company to achieve long-term growth at scale. Sieffert also highlighted the company’s focus on driving market penetration and increasing consumer understanding of the reverse mortgage product category through investments in technology and messaging.

Looking ahead to 2024, FOA CFO Matt Engel expressed confidence in the company’s ability to originate $300 million a month based on the scaled reverse mortgage business and current margins. Despite challenges such as seasonal fluctuations in volume and the consolidation of the loan origination system, FOA remains optimistic about its long-term earnings power and potential to reach its production goals.

FOA also addressed concerns related to noncompliance with New York Stock Exchange listing standards, attributing the stock price decline to broader market conditions. The company remains committed to achieving its strategic goals and believes in its ability to drive growth and profitability in the months and years ahead.

In conclusion, Finance of America Companies has demonstrated strong performance and strategic vision in the reverse mortgage industry, positioning itself as a leader in providing retirement solutions for older homeowners. With a focus on innovation, market penetration, and long-term growth, FOA is poised to continue its success in the evolving landscape of home equity finance.

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