FAR Parent Touts Reverse Mortgages as Key to Strong Q1 Earnings

Finance of America Companies (NYSE: FOA), parent organization of leading reverse mortgage lender Finance of America Reverse (FAR), has released its first quarter 2021 earnings report after successfully going public earlier this year.

In statements accompanying the earnings report, FOA CEO Patricia Cook cited strong growth from FAR as a key driver of the company’s success, while also saying that the parent company anticipates a slowdown in mortgage originations in the coming year to be bolstered by the company’s non-lending businesses.

This is according to an earnings call held late last week, which featured presentations from Cook, SVP of Finance Michael Fant and CFO Johan Gericke.

Strong reverse mortgage performance

After completing its initial public offering (IPO) on April 1 and commencing public trading on the New York Stock Exchange four days later, Cook described a busy time for FOA at-large due in no small part to the launch of the Finance of America Home Improvement (FAHI) vertical, accomplished after the acquisition of Renovate America, Inc.’s home improvement loan product, formerly known as “Benji.”

On top of this, Cook cited the launch of FAR’s new hybrid forward-reverse mortgage product “EquityAvail,” further diversifying the parent company’s assets.

Patricia Cook

“Finance of America Reverse also launched EquityAvail, a groundbreaking new mortgage product designed to provide greater financial flexibility for homeowners at or near retirement,” Cook explained on the call. “This product will combine elements of a traditional mortgage with a reverse mortgage, to improve cash flow and help retirees accomplish their retirement goals. Finance of America Home Improvement and EquityAvail are the latest examples of our proven ability to innovate and create products that meet the evolving needs of our customers.”

In addition to the launches of these new verticals and products, reverse mortgages played a pronounced part of the presentation focused on FOA’s earnings growth in Q1, according to Cook.

“Finance of America continued to generate strong performance, further reinforcing the strength of our diversified consumer lending platform spanning mortgages, reverse mortgages and commercial loans offered across distributed retail, third-party brokers and digital direct-to-consumer channels,” she said. “In addition, our fee-based portfolio management and lender services businesses contributed meaningfully to this quarter.”

Right upfront in terms of business highlights for the quarter, however, was FAR, according to Cook.

“First quarter highlights included near record volumes and strong growth for our reverse originations business, where growth drivers are less correlated with the direction of interest rates,” she explained. “More specifically, baby boomers are increasingly looking to age in place, and our reverse mortgage products provide the opportunity to this demographic to tap the equity accumulated in their homes.”

Additionally, commercial loans to residential real estate investors accelerated for FOA in Q1, and “the bias for newer construction or remodeled properties” bodes well for the ongoing demand, Cook said.

Non-mortgage growth expectations, reverse funded volume

Interestingly, growth from non-lending segments for FOA is expected to be a larger driver of business in the coming years, Cook said.

“[W]e expect contributions from our non-mortgage segments to continue to increase during the remainder of the year, while the mortgage originations segment declines year-over-year,” Cook explained. “We estimate based on the current market, the net effect could be a reduction in adjusted EBITDA for the full year 2021 of roughly 20% year-over-year.”

CFO Johan Gericke detailed the performance of the reverse mortgage business, describing that FAR is well-suited to take advantage of business circumstances which are unique to the reverse mortgage industry.

“Reverse originations funded volumes were up 17% quarter-over-quarter to $769 million,” Gericke said on the call. “This drove segment revenue to $69 million and pre-tax income to $45 million for the first quarter of 2021, up 25% and 36% respectively compared to prior quarter levels. Our business continues to benefit from the unique tailwinds present in this sector.”

Future prospects for reverse mortgages

In a question-and-answer portion of the call, Cook elaborated on the opportunities that she sees in the reverse mortgage business sector, and how it continues to aid FOA’s earnings as a key differentiating factor to the growth of a diversified portfolio.

“I think the growth that we see there is very encouraging, because I think it reflects the tailwinds that we’ve been expecting,” Cook explained on the call. “You’ve got home price appreciation, you’ve got the aging baby boomers and they are anxious to tap into the equity in their home. So, I think there it’s more about – I’m going to say on average stable margins, but definitely continued growth.”

In March, Finance of America signified it was in a positive financial position ahead of the impending public offering with a strong Q4 2020 earnings report, describing 2020 as “exceptionally strong” for the mortgage industry in general. Company leadership described a major strength of the company as its diversified portfolio, which is made more unique because of its inclusion of both Federal Housing Administration (FHA)-sponsored Home Equity Conversion Mortgages (HECMs), as well as proprietary reverse mortgage offerings.

FAR President Kristen Sieffert

Previously, FAR President Kristen Sieffert related to RMD that the acquisition of Benji and launch of FAHI could present an opportunity for certain “synergies” with the reverse mortgage business.

“Our aim is to help give customers more options and additional financial flexibility in retirement be that through the strategic use of home equity or in the case of our sister company, Silvernest, helping provide customers with an alternative revenue stream and companionship in retirement through home sharing,” Sieffert told RMD in March. “Working together, we will be able to create streamlined solutions for people that come with the confidence of working with the same team.”

According to recent reverse mortgage endorsement data compiled by Reverse Market Insight (RMI), FAR is the third-largest reverse mortgage lender in the industry with 4,799 HECM endorsements over the 12-month period ending in April, 2021.

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