Finance of America reduces losses in Q3, offers update on AAG integration

Net losses were $175M, an improvement from the second quarter

Finance of America Companies (FOA), the parent company of industry-leading lender Finance of America Reverse (FAR) and its American Advisors Group (AAG) brand, managed to reduce its net losses in Q3 2023 to $175 million from $221 million in Q2, and $302 million in Q3 2022 as it continues to streamline operations.

The negative impact of mortgage rates and spreads led to most Q3 losses, with an adjusted Q3 loss of $25 million coming from its Finance of America Home Improvement vertical. This is according to an earnings presentation featuring FOA CEO Graham Fleming, with new business information presented by FOA President Kristen Sieffert.

Interest rate increases, company focus

Interest rate increases accounted for a significant impact on the company portfolio, so FOA leadership is focused on business elements it has more control over, Fleming said.

“With this focus, we have identified core operating initiatives that will enhance revenue and improve expenses within our operating segments and will also streamline our corporate overhead,” he said.

Graham Fleming, CEO of Finance of America Companies.
Graham Fleming

Despite flat revenue stemming from the volatile interest rate environment, FOA managed to increase reverse mortgage volume in Q3 according to Michael Fant, FOA’s SVP of Finance.

“First and foremost, we increased volumes in the third quarter,” Fant said. “In our reverse business we originated $470 million in loan volumes, up 18% from $397 million in the second quarter. This was primarily due to the successful integration of the AAG retail platform.”

Some of the company’s priorities include an expansion of its product suite, modernizing customer experience touchpoints and “optimizing” marketing toward lead conversion, he said. FOA is also taking steps to streamline other elements of its business.

“To improve expenses, we are planning to consolidate our technology, lower our cost to produce and efficiently scale our marketing,” he said. “Finally, to rationalize corporate, we will continue to streamline our enterprise functions and simplify our structure to more appropriately align with our ‘go forward’ operational strategy.”

Cost reductions

The quarter also included strategic moves aimed at reducing its costs, Fleming said. These include the sale of the company’s title insurance business during the first few days of the quarter, along with the completion of two transactions in September designed to “further refine our focus,” Fleming said.

The company sold the “operational assets” of its home improvement platform, and described a “transition” of its offshore fulfillment services team in pursuit of an opportunity to build a “modern retirement solutions platform,” Fleming said.

Matt Engel, formerly of AAG, will assume the duties of CFO at FOA on Nov. 15 following last month’s resignation of Johan Gericke.

Fleming also paid tribute to former FOA CEO Patti Cook, who died last week at her home in New York.

“I do want to take a moment and send our deepest sympathies to the friends and family of Patti Cook,” he said. “Patti was an extraordinary leader of Finance of America, but more importantly, she was a wonderful woman and friend. Her impact on Finance of America and all of us will never be forgotten.”

AAG integration update, tech consolidation

Sieffert said that the integration of AAG’s retail platform into FOA’s corporate infrastructure is “on track,” adding that the combined entity has identified new opportunities particularly in the proprietary reverse mortgage space.

“Team morale is high, and everyone is excited to come under one umbrella and begin offering the full array of products of the combined company,” Sieffert said. “As we’ve said before, we believe a substantial opportunity exists to offer our proprietary products through our direct-to-consumer division, AAG.”

Kristen Sieffert, president of Finance of America Companies (FOA).
Kristen Sieffert

FAR began referring to AAG as its direct-to-consumer division with an announcement last month that it was expanding the availability of its proprietary second-lien reverse mortgage product, HomeSafe Second, to an expanded pool of direct retail loan officers and wholesale brokers.

The HomeSafe product suite is “already the leading suite of available options in the wholesale sector within our industry and for many gaps not addressed through the traditional HECM product,” Sieffert said.

The increase in volume stemming from the AAG acquisition has given the company confidence in its ability to expand reverse mortgage penetration, Sieffert said.

“As we continue the integration, the final significant hurdle is the consolidation of our technology stack, which includes migrating to a single loan origination system,” she explained. “This migration is projected to start in December and should largely be completed by the end of Q1 2024.”

This integration project will “slow some of [the company’s] operations,” but will also increase workflow and expense “efficiencies” once complete, she added.

HomeSafe Second and other proprietary products

Sieffert also mentioned that despite the volatile rate environment placing downward pressure on loan-to-value levels, there has been no shortage of inbound reverse mortgage inquiries to the company.

“These borrowers need alternate ways to access their equity and the broader market dynamics have created an increased appeal of our HomeSafe second lien product,” she said. “We will be better able to serve those borrowers go forward through two main avenues.”

These include expanding HomeSafe Second to the full sales team within the AAG call center, which will occur in November. The product will also become available in the loan origination system (LOS) “used by the majority of industry originators that do business” with FOA through its wholesale division.

The LOS was not specified, but the leaders in the space include ReverseVision and QuantumReverse.

In late-day trading on Wednesday, FOA’s stock was trading at $0.66 per share.

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