Finance of America’s Graham Fleming on HECM demand, second liens and Onity deal

Neil Pierson: Let’s start by talking about the broader reverse mortgage industry since everyone is aware that HECM production remains slow. At Finance of America, endorsements are actually down year over year. What do you think the obstacles are to create more demand for this program?

Graham Fleming: Obstacle, I think, is the wrong word. Obviously, we’re the largest originator and the largest servicer of proprietary loans as well as HECM loans. Our goal at Finance of America is to provide choice to the consumer.

We launched our proprietary product back in back in 2019, so we’ve been doing this for quite some time. Over the years, we’ve seen HECM production wane, and we’ve seen it grow. So we don’t really see it as an obstacle. It’s more about consumer choice and what’s best for the consumer. Does a HECM product suit their needs? Does a prop loan suit their needs?

Obviously, with the way rates went in 2021, there’s a lot of seniors now that are locked into low-rate, first-lien mortgages. In the last few years, we’ve reintroduced a second-lien reverse mortgage. So for us, it’s about providing choice to the consumer and providing them the loan that best suits their individual need. It’s not a question of one versus the other.

Pierson: When talking about proprietary loans, historically speaking, these have been considered jumbo loans. But some people say they’ve seen demand for the products down to a couple hundred thousand dollars. Does there need to be a mindset change in the industry around presenting these loans as options to people with lower home values?

Fleming: From our perspective, we don’t quite go that low. When it comes to a first-lien prop versus a first-lien HECM, some borrowers would prefer a lower HECM rate with lower proceeds. Some would prefer a higher rate and higher proceeds with a prop loan.

The second-lien product — where you can now retain your low-rate, first-lien mortgage and still access the equity in your home without taking on a new payment — we think that has tremendous value when you look at the amount of home equity that’s being extracted in the conventional mortgage world. We just launched in four new states with HomeSafe Second. This is about choice for the consumer and ultimately allowing them to access the equity in their home.

As we all know, the country’s getting older. There’s a retirement shortfall. Consumers have a massive amount of home equity, which has been well publicized. For us, it’s about education and choice to the consumer. I don’t want to say it’s a race to the bottom when it comes to credit standards, but ultimately, we’re here to provide the best product to the consumer.

Pierson: FOA has made some hires in the past year, bringing in a new chief marketing officer and three new personnel related to that team. How is the work going so far to increase FOA’s visibility in the marketplace? The messaging around reverse mortgages still seems to be lacking and there’s a need for education in general, correct?

Fleming: Yeah, it’s obviously a work in progress. We continue to focus on awareness of the products. The benefits of reverse mortgages and how they can help in retirement is one pillar. Even the forward mortgage professionals, while there’s an increasing awareness of the product, it’s not fully baked into their mindset that if a borrower’s over 62, they should always consider a reverse mortgage if they’re looking to get equity out of their home.

The industry will continue to invest in the digital experience to make this transaction as seamless and as modern as possible for the consumer. You’ll see us continue pushing out more information into the marketplace — both to consumers and B2B with other mortgage partners — so they can do away with these myths that people have had about reverse mortgages.

Obviously, we moved away from Tom Selleck to focus on the FOA brand, but we’re currently in all distribution channels — print, TV, streaming, digital. Ultimately, we look at how the return on investment performs in each of these channels, but you’ll continue to see us invest in marketing over the coming years.

Our goal is to bring this product mainstream. As seniors turn 62, one of the first considerations they should have is, “I think I should take out a reverse mortgage to help me in my retirement.”

Pierson: Last year, FOA launched a partnership with Better for senior HELOCs and reverse mortgages. What have you been able to accomplish with them so far?

Fleming: Through our marketing campaigns, we have a pretty broad funnel for anybody over the age of 55 looking for a reverse mortgage. Obviously, there’s a cohort that comes in that’s looking for a home equity line of credit. So we decided we would partner with Better, primarily because of their technology and speed through Tinman.

We have built the technology where, if a senior comes into our funnel and they’re looking for a HELOC, we can partner with Better to provide that. It’s a quick process and it’s also an evolution. For FOA, we continue to add new states and we would love to be considered the lender of choice for seniors who want to extract home equity, whether that’s with a HECM, a proprietary second lien or a HELOC.

Pierson: You mentioned product availability by state. There are now roughly 30 states that allow proprietary reverse mortgages, but there’s still work to do to fill in the gaps. Are you doing any work around that as a company?

Fleming: We’re constantly working with the regulators on the state level. We’re constantly clarifying, educating, whatever phrase you would you prefer to use. And we’re constantly approaching states that may have prohibitions on reverse mortgages and explaining the benefits of the program to the regulators, so they understand how this product is beneficial to the senior demographic. The regulatory environment is a slow process, but we continue to work on expanding access nationwide on these products.

Pierson: Your company also received a $2.5 billion commitment last year from Blue Owl Capital. What have you been able to do with that infusion of capital?

Fleming: Let me just clarify the commitment: Blue Owl contributed $50 million of equity to Finance of America, and in conjunction with that, they committed to acquiring $2.5 billion of product in a whole loan format from FOA. This is an option that we have to deliver these loans to Blue Owl — there’s no mandatory commitment and there’s no time frame for commitment.

But we are very pleased to have Blue Owl as an equity partner. We think it speaks a lot to the interest in the reverse segment, the fact that they’re willing to make an equity commitment to us and acquire the product that we’re generating.

We probably did our first proprietary securitization back in 2020, and we’ve been doing so pretty much on a quarterly basis for the last six years. I think there’s a tremendous amount of education in the secondary market with the bond buyers of these products, so you know somebody who’s just coming into this market is overcoming some of that (lack of knowledge). But we have a very robust set of investors that have partnered with the company for a number of years.

Pierson: Let’s discuss your recent acquisition of assets from Onity Mortgage. You didn’t receive initial approval from Ginnie Mae, so you had to reduce the size of the transaction. Can you talk about the work to get the deal over the finish line and what it will do for FOA going forward?

Fleming: First of all, we have an excellent reputation with Ginnie Mae, being the largest HECM servicer in the space, and we obviously want transactions in front of them. In conjunction with Ginnie and Onity, we modified that transaction.

We pretty much acquired the newer portions of their book, and as an expert subservicer in the space, Onity retained some of the legacy book, which at the end of the day was a transaction that we all enjoy. We’re glad to have closed this on June 30, and we’re excited to transfer those loans into our portfolio, which I think takes place at the end of July.

We hired about 13 people — originators and operations staff — from Onity into FOA as part of this transaction. We’ve diversified our subservicing platform with Celink and now Onity, which we think is good for FOA and good for the industry. We’ll be able to come up with best-in-class service across both agreements, which will be good for consumers.

Lastly, we also partnered with Onity to offer our second-lien product to their forward portfolio. To the extent that they have seniors in their servicing portfolio looking to access equity, we’re partnering with Onity to offer our second-lien product to those customers. All around, we think this is a win-win for both companies.

Pierson: The industry is still awaiting a response from the Department of Housing and Urban Development (HUD) after its request for information on the HECM and HMBS programs. What is your company doing with either HUD or the National Reverse Mortgage Lenders Association (NRMLA) to make these programs better and drive demand?

Fleming: Obviously, we’ve provided a letter to HUD, and we provided our comments to NRMLA. On the servicing side, are there way to modernize the process and make it more efficient? With the assignment of loans to HUD, is there a way to introduce HMBS 2.0 to provide more liquidity on HECM buyouts?

We think all of the suggestions we made to HUD and all the suggestions that NRMLA made would be beneficial to the program. At this point, we’re just waiting on feedback. We don’t have any timeline from HUD on a response. We don’t know where they are in the consideration of those suggestions.

I’m not going to make any more commitments about timing (on HMBS 2.0) because I obviously got that one completely incorrect. But we are optimistic.