FAR Earnings Strong as Parent Prepares for Impending IPO

As it continues to prepare for its impending initial public offering (IPO) reportedly by the end of the first quarter of 2021, Finance of America Companies (FOA) – parent company of leading reverse mortgage lender Finance of America Reverse (FAR) – shared its second consecutive quarterly and first full-year earnings report since announcing its impending stock market offering.

After describing 2020 as “exceptionally strong” for the mortgage industry in general, company leadership described a major strength of the company as its diversified portfolio, which is made more unique because of its inclusion of both Federal Housing Administration (FHA)-sponsored Home Equity Conversion Mortgages (HECMs), as well as proprietary reverse mortgage offerings.

FAR earnings

Fourth quarter reverse mortgage originations at FAR totaled $655 million in funded volume, rising from the $626 million figure recorded in the prior quarter marking an increase of 5%. This is slightly lower than the $686 million in funded volume from the fourth quarter in 2019, but year-over-year funded volume was nearly 10% higher in 2020.

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Full year 2020 volume comes out to $2.7 billion, rising from just under $2.5 billion in volume from the full year of 2019. Total revenue in Q4 increased 12%, from $49 million to $55 million and year-over-year, revenue increased 34% from $145 million in 2019 to $194 million in 2020. With funded volume increasing over 9% in 2020, pre-tax net income was up 65% compared to full year 2019 levels, which the company attributes “to improved margins in the segment,” the earnings release said.

In addition to the core financial results, FOA also completed two asset securitizations in its portfolio management segment for $555 million during the fourth quarter, and ten asset securitizations for $3,270 million during 2020. These include for non-agency (proprietary) reverse mortgage, rehab/construction commercial loans and HECM buyout loans, according to the earnings report.

FAR’s place in the larger company

Ahead of its IPO, FOA sees the reverse mortgage product category as an important component of its diversified portfolio of products and services. This is according to Patti Cook, CEO of Finance of America

“One of the key differentiating factors for us is our broadly diversified platform that generates sustainable growth across economic cycles and capitalizes on market tailwinds as they present themselves,” Cook explained. “Our lending businesses include mortgages, reverse mortgages, and commercial loans distributed across distributed retail, third-party brokers and digital direct to consumer channels.”

Portfolio diversity also extends to services offered beyond FOA’s lending segments, including fee-for-service and portfolio management businesses, the latter of which includes a broker-dealer and registered investment adviser.

“This diversification allows for broad reach and customer choice, and generates more consistent volumes, margins, revenue and earnings over time,” Cook explained.

Commenting specifically on the performance of FAR in 2020, Cook explained the recognition FOA maintains for providing a product category designed to help seniors age in place, saying that FAR’s performance increase in 2020 was notable when compared to the year before.

“Baby boomers are increasingly looking to finance their aging in place, and we remain well positioned to provide capital to these borrowers that are looking to utilize the significant value accumulated in their homes, without being forced to sell and move,” Cook explained.”Our 2020 funded volumes increased slightly compared to 2019 levels, while revenue and earnings were up meaningfully on a year-over-year basis reflecting higher margins for the reverse products.”

FOA CEO on reverse mortgage prospects

In terms of what the future holds for FAR, Cook says that FOA recognizes the inherent potential of the reverse mortgage product category and plans to soon extend the offerings to new products, including a new offering she describes as a combination of components from traditional and reverse mortgages.

“Looking ahead, we continue to launch new products and extend our Reverse Originations reach,” she said. “As an example, we will be rolling out our new reverse mortgage product in short order, which provides a unique retirement mortgage solution and combines the attributes of a traditional mortgage with the flexibility of a reverse mortgage. We expect that this new loan product will ramp up to be a meaningful contributor to earnings in the coming years.”

When asked by RMD about what the wider reverse mortgage industry should expect from a post-IPO FAR, Cook pointed to the growth that is more possible for a public company and how that has the potential to make reverse mortgage products more mainstream.

“Going public will help accelerate the growth of FOA and advance important initiatives that have made FAR the #1 wholesale reverse lender for 10 years and counting,” Cook said in an email to RMD. “Our commitment to our partners has never been stronger and we look forward to serving them through continued innovation.”

Finance of America announced its intention to issue an IPO in October of 2020, with a valuation of $1.9 billion, upon a merger with a special-purpose acquisition company (SPAC). The IPO announcement also detailed 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.

“Going public is the next milestone in Finance of America’s ongoing evolution,” said FAR President Kristen Sieffert in an October 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.”

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