Amid one of the most challenging mortgage markets since the great financial crisis, Finance of America Mortgage LLC (FAM) will shut down by the end of the year following its decision to exit the wholesale channel and the collapse of a forward retail deal with Guaranteed Rate earlier this month.
The board of directors of multichannel lender Finance of America Companies Inc. (FoA) authorized a plan to discontinue the operations of the company’s forward mortgage originations segment in order to strategically optimize and invest in the company’s reverse originations, commercial originations, lender services and portfolio management segments, according to the firm’s 8-K filings.
“The discontinuation of the forward mortgage originations segment will allow Finance of America Companies to optimize its resources and prioritize businesses that have a distinct market opportunity and greater growth potential,” Graham Fleming, interim chief executive officer at Finance of America, said in a statement.
The shutdown of Finance of America Mortgage will accelerate the company’s ability to partner with large mortgage lenders and other financial services companies to offer FoA’s specialty finance and services (SF&S) solutions on their platforms, Fleming added.
FoA plans to fund forward mortgage loans relating to its mortgage originations segment in the first half of 2023, primarily consisting of forward mortgage loans with extended lock periods and representing less than 11% of the aggregate forward mortgage loan pipeline, according to its filing with the U.S. Securities and Exchange Commission.
With the shutdown of its forward mortgage company, FoA expects to save between $110 million and $120 million annually. Of the aggregate pre-tax charges of about $145 million to $164 million, the lender estimates about $12 million to $18 million will consist of employee severance, retention and related benefits.
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After Guaranteed Rate walked away from negotiations to acquire FoA’s forward mortgage retail channel earlier this month, the company was rumored to be closing the division. FoA may exit the retail channel if it fails to sell the business, a source with direct knowledge of the negotiations said.
The company declined to comment on whether Finance of America found another buyer for the retail branches.
On October 7, FoA said that it will no longer fund and purchase loans through its wholesale and non-delegated correspondent channels. The last day to lock loans in the pipeline and to submit a credit package on previously locked loans is October 28. The deadline to fund the wholesale pipeline and purchase a non-delegated correspondent pipeline is December 16.
FoA reported a loss of $168 million in the second quarter, with reverse mortgages being the bright spot for the company. Reverse volume reached $1.58 billion in the second quarter, a 7% increase compared to the first quarter, and up 56% compared to the second quarter of 2021.
The lender’s forward mortgage business posted $4.23 billion in funded volume in the second quarter, down 17% quarter over quarter and 39% year over year. The company reduced its workforce, taking out roughly 35% in costs on a run rate basis, equating to over $100 million annualized.
FoA originated $6 billion through the retail mortgage channel from January to June, down 50.7% year-over-year, according to Inside Mortgage Finance. The company ranked no. 33 among the top U.S. retail mortgage lenders in the period.