FOA returns to profitability in Q1 2023, focuses on ‘retirement solutions’ business

After dissolving its forward business and acquiring AAG, FOA appears poised to dominate the reverse mortgage landscape

Finance of America Companies (FOA), the parent company of reverse mortgage lenders Finance of America Reverse (FAR) and American Advisors Group (AAG), returned to profitability in the first quarter of 2023 as it focuses on its retirement solutions businesses. Taking the lead is an emphasis on the reverse mortgage sector.

After enduring a $182 million loss the prior quarter, the company posted a $14.6 million profit in Q1 2023. It is now looking ahead to a more dominant position in the reverse mortgage space with its recent acquisition of AAG.

FOA CEO Graham Fleming said that the company is optimistic about its place in the business moving forward following the AAG deal, which made it the largest reverse mortgage originator by volume.

An emphasis on reverse

Fleming said that the AAG deal will “materially enhance” the company’s overall position in the reverse mortgage market and its growth prospects in the retirement solutions segment. The company is optimistic about its increased market share, greater reach among potential customers, and the potential for growth through new direct-to-consumer channels from the acquired AAG assets, Fleming said.

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

When combined with educational initiatives and partnerships, its reach should be expanded — and there could also be benefits for FAR’s signature proprietary reverse mortgage product suite, he said.

“Importantly, AAG’s expanded reach and retail presence will complement the innovative proprietary product suite at Finance of America Reverse,” Fleming said. “The AAG brand’s direct-to-consumer retail channel alone reaches more than 10 million consumers annually via targeted marketing and advertising.”

Fleming also noted the retirement situation in the U.S. and how it interacts with the company’s offerings.

“In the U.S., the retirement savings gap is approaching $4 trillion, yet homeowners age 62 and older have amassed more than $11.5 trillion in home equity value,” he said. “This is the market opportunity: Helping older homeowners use their homes’ ‘superpower’ to achieve their financial goals, whether by tapping home equity via AAG or FAR, securing the Finance of America Home Improvement Loan or generating additional income by home sharing with Silvernest.”

Financial performance

FOA CFO Johan Gericke said the company has instituted changes to its financial reporting standards in the wake of the AAG acquisition, which includes the designation of its forward mortgage and commercial title insurance investments as “discontinued operations.”

Continuing operations reported net income of $55 million, which Gericke attributes to market rate changes that increased the value of FOA’s reverse mortgage assets.

“Excluding these fair value changes and other non-recurring items, the company reported an adjusted net loss of $15 million, or $0.08 per fully diluted share, as earnings in our operating segments were more than offset by corporate expenses,” Gericke said.

In terms of the AAG acquisition, it added $5.6 billion in assets and $62 million in equity to the company, along with $5.4 billion in loans held for Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) investments. About $30 million in capital raised by investors and the profitability led to an increase in the company’s equity at $203 million. This makes for an 88% increase when compared to December of 2022.

The company also worked to drop its other financing lines of credit to $1.1 billion. That’s a drop of 52% compared to December.

FOA’s “retirement solutions” segment, which includes the reverse mortgage businesses, saw softened volume in Q1, Gericke said.

“For the quarter, we funded $357 million, down from the prior quarter as volumes softened due to seasonality and competitive pressures,” he said. “Even with this decline, the segment recognized $2 million in adjusted net income for the quarter, as revenue margins for the segment improved to 7.3% from 4.6% in the fourth quarter.”

Gericke said AAG’s results are not included in Q1 data and will be incorporated into the earnings results beginning in Q2.

“We expect the acquisition to drive profitable growth, as we realize both revenue and expense synergies over the coming quarters,” he said.

Banking turmoil, originations outlook

Fleming was asked during the Q&A portion of the earnings call about recent turmoil in the banking industry and whether or not FOA is exposed to additional risk. When it comes to the reverse mortgage business, Fleming is not concerned.

“On the reverse side, we haven’t necessarily seen banks in that space for a number of years,” he said. “[It’s mostly made up of] non-bank lenders, although we would be thrilled if the banks [returned] to the space [as] that would increase the visibility of the product with our customer base.”

There appears to be more exposure to banking turmoil for the company’s home improvement vertical, but the company has also remained focused on getting its newly-acquired AAG personnel back to the performance levels they were at prior to the acquisition, Fleming said.

When asked about the outlook for origination volume, Gericke said the company expects volumes to pick up in Q2. By the time Q4 rolls around and AAG is fully integrated into FOA, volumes should be higher, he said.

“Obviously, we don’t have the full benefit of the origination power of AAG [right now],” Gericke said. “But once we roll into the second part of Q2, I expect that to be operating smoothly and as it had prior to the acquisition.”

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