Finance of America Equity Capital LLC, a portfolio company of Blackstone Group, Inc. and parent company to leading reverse mortgage lender Finance of America Reverse (FAR), is set to make an initial public offering (IPO) with a valuation of $1.9 billion, upon a merger with a special-purpose acquisition company (SPAC). The news was first reported by the Wall Street Journal (WSJ).
The announcement on Tuesday also came with the news that the merger will see institutional investors make a private investment of $250 million into the company. The lender’s founder and funds managed by Blackstone Group will have a 70% ownership stake in the company resulting from this deal. The SPAC, Replay Acquisition Corp (NYSE: RPLA), has been formed for the express purpose of taking the private Finance of America entity public.
In terms of what this will mean for the reverse mortgage company’s operations going forward, moving from private to public will allow for the access of additional capital and for FAR to continue creating new products in the home equity tapping space. This is according to Kristen Sieffert, president of FAR.
“Going public is the next milestone in Finance of America’s ongoing evolution,” Sieffert said in an email to RMD. “FAR has been the leading innovator in our space since launching HomeSafe in 2014 and accessing the public capital markets will accelerate our ability to further fuel product innovation. Our proprietary suite of reverse mortgage solutions is one of our key differentiators and competitive advantages, and we plan to continue investing in this important line of business so that our team and our partners can better serve the vast amount of retirees whose needs may not be met by the existing options.”
This is a move which can also further push the reverse mortgage industry toward the goal of becoming more accepted as a provider of options for cash flow in retirement, and that FAR will continue to operate normally during the process of going public, Sieffert added.
“Our goal is to help more people accomplish their goals in retirement and to see the strategic use of home equity become a more accepted method of financing retirement,” she said. “We believe this milestone will help us more quickly achieve this vision. It’s important to note that the process of going public will have no impact on our day-to-day operations. It will remain business as usual and our customers can expect the same high level of service they are accustomed to.”
The point of access to additional capital was further emphasized by Scott Norman, VP of field retail and director of government relations at FAR.
“This is a special and exciting time for Finance of America Reverse, as we have a grand vision to improve the retirement years for our nation’s retirees, and accessing the public capital markets will help our ability to achieve this,” added Norman in another public LinkedIn posting.
Previous IPO consideration
Finance of America had been considering a more traditional public offering for some time prior to the formation of this deal, but began negotiating with the founders of Replay earlier this summer, according to sources who spoke with WSJ. Those same sources related that the expectation surrounding this deal is that going public will allow Finance of America to raise capital more easily.
Currently, the only major reverse mortgage lender operating under the auspices of a publicly-traded company is Liberty Reverse Mortgage, which is a subsidiary of Ocwen Financial Corporation (NYSE: OCN). Earlier this year, One Reverse Mortgage parent company Quicken Loans filed its own IPO, but this occurred after the company halted its reverse mortgage business and reassigned its reverse mortgage employees to other divisions.
SPAC growing in popularity as method for going public
Filing an IPO through a SPAC has become a popular practice this year, with general IPO activity on Wall Street growing to a level said to “rival the dot com era” of the late 1990s, according to WSJ reporter Corrie Driebusch last month.
“[O]ne of [SPACs’] biggest benefits for founders is that in a reverse merger, a startup can provide shareholders with earnings and growth projections for the future,” Driebusch wrote in September based on input from an early investor in Uber and Airbnb. “In a traditional IPO that isn’t allowed.”
FAR is one of the major players operating today in the reverse mortgage industry through its origination of both HECM loans and its own suite of proprietary reverse mortgage products, “HomeSafe.” Recently, the company rolled out a new advertising campaign offering testimonials about the HomeSafe product suite.
FAR is currently the largest HECM wholesale lender and the third-largest HECM lender overall operating in the business according to Home Equity Conversion Mortgage (HECM) endorsement data compiled by New View Advisors, having endorsed 3,506 HECM loans in the 12 months ending in September, 2020.
No lender-specific public data is available for private reverse mortgages in the space, however Home Mortgage Disclosure Act (HMDA) data released last month gave a picture of the size of the proprietary reverse mortgage market in 2019.
Editor’s note: This story has been updated with a new statement from Kristen Sieffert, president of FAR.