FoA suffers $302M loss in Q3 amid forward mortgages shutdown

The company's losses were mainly due to non-cash transactions

The decision to exit the forward mortgage business hit Finance of America Companies hard in the third quarter of 2022. 

The company registered a $302 million loss from July to September, mainly due to non-cash transactions. It lost $168 million, or about half of the Q3 losses, in the previous quarter. 

FoA announced the shutdown of Finance of America Mortgage, its forward mortgage business, in late October, becoming the largest originator to do so this cycle. It estimated the costs related to the decision were between $145 million and $164 million. HousingWire first reported on the topic. 

“The decision to discontinue our forward mortgage business was the outcome of a thorough review of our business and the broader economic outlook. Ultimately, we determined the market conditions have fundamentally changed and we need to change with them,” Graham Fleming, FoA’s president and interim CEO, told analysts during a call.

He added that the company’s executives “expect to materially complete the wind down across both retail and wholesale mortgage channels by the end of this year.” 

On paper, the loss in the third quarter resulted from negative changes in the fair value of long-term assets, as well as liabilities of $116 million and the impairment of intangible and other long-lived assets of $138 million — consequences of the exit from the forward mortgage business. 

Fraud risk continues to rise even as the market contracts 

According to a Q2 analysis by FundingShield, there was a 40.69% increase in wire-related issues compared to Q1 2022. Among today’s lower volumes, the need to keep costs down while still managing risks has never been greater. 

Presented by: FundingShield

The negative performance also reflects a net loss of $27 million with forward mortgage originations, despite a $7 million profit with specialty finance and services (SF&S). 

FoA forward mortgage funded volume totaled $2.7 billion from July to September, down 36% quarter-over-quarter and 63% year-over-year. This year, the company’s gain-on-sale margin went from 2.14% in the second quarter to 1.87% in the third quarter, mainly due to heavy competition.  

“The exit from forward mortgages will allow us to optimize our resources and prioritize high-growth businesses where we already hold distinct competitive advantages and leading positions in markets with a positive macro tailwind,” Fleming said. 

One of these businesses is reverse mortgages, according to the executive. FoA produced a $1.1 billion funded volume in Q3 2022, down 28% from the previous quarter and 2% compared to the same period last year, mainly due to reduced correspondent aggregation. Year-to-date 2022, however, volume reached $4.2 billion, a 43% increase year-over-year. 

Commercial originations for residential real estate investors decreased 21% year-over-year and 34% quarter-over-quarter to $355 million. From January to September, the volume was $1.5 billion, a 23% increase compared to the same period last year.

FoA had a $44 million revenue with lender services such as appraisal and title, down 24% quarter-over-quarter and 50% year-over-year. 

The company’s executives expect to provide more services and products to other lenders due to the exit from the forward mortgage business. As part of this strategy, FoA is helping its loan officers and branches to transition to other companies, such as American Pacific Mortgage and Hallmark Home Mortgage

“We’re assisting many of our branches to go to other mortgage lenders during the wind-down. And, with that, we’re also working with the lenders that they’re going to help them introduce these products,” Fleming said. “So, we actually believe that, not in the short term, but over the course of 2023, there’s a bigger opportunity to cross-sell.”

In addition, the executive added that FoA is working with a couple of large retail lenders to embed the company’s reverse products in their offering. 

Regarding the servicing business, FoA’s mortgage servicing rights totaled $103 million as of September 30, down 71% from June 30. This was due to sales of MSRs, which will continue depending on the market’s opportunities, according to executives. 

FoA’s cash position was at $169 million at the end of the third quarter, a $50 million decrease from the previous quarter, attributable to the repayment of secured debt.

Finance of America shares traded at $1.46 on Wednesday morning, down 3.3% from the previous close.

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