It’s arguably the biggest deal in reverse mortgage history. Finance of America Companies (FOA) dropped a bomb last week when it announced a deal to acquire American Advisors Group’s (AAG) direct-to-consumer sales channel, a deal that will have lasting consequences in the reverse industry. The deal will combine the first- and third-largest reverse mortgage lenders in America, and is occurring at a tumultuous time for mortgage businesses, one in which Reverse Mortgage Funding (RMF), another top five lender, declared bankruptcy.
For the 12 months ending in November 2022, AAG’s market share stands at 25.8% while FAR’s market share is 8.9%, according to data compiled by Reverse Market Insight (RMI). If these positions hold through the deal’s closing, FOA will hold over a third of the industry’s total market share before taking the recent closure of RMF’s 7.5% market share into account. This gives the newly-consolidated lender undisputed dominance in the space in terms of volume.
AAG’s impact on FOA can also be measured by the company’s command of reverse mortgage industry advertising, which even competitors hail as a major driving force of national business.
To learn more about the deal, RMD sat down with Finance of America Reverse (FAR) President Kristen Sieffert, who will assume leadership of the AAG brand following the deal’s closure.
How it happened, and why now
The timing of FOA’s acquisition announcement coincides with the shutdown of the company’s forward mortgage business, which led to a $302 million loss in the third quarter. In the third quarter earnings call, FOA interim CEO Graham Fleming stressed to analysts and investors that there were silver linings: notably, the profitability of the company’s specialty finance and services (SF&S) businesses, which includes reverse lending operations.
In that same Q3 period, FAR earned $34 million in pre-tax income, a sign of momentum as its forward mortgage business stalled.
In a statement to RMD, Sieffert said that FOA’s desire to invest in businesses with “strong growth potential” was a primary motivator in executing the deal.
“Given the current market environment, home equity will be an increasingly important asset for homeowners to consider in order to supplement their incomes, especially in retirement,” Sieffert said.
In addition, Sieffert believes that FOA’s innovation will provide a big boost when it comes to reaching a wider AAG audience — and when it comes to working with the consumer.
“As we see more older Americans introduced to home equity as an alternative for financing their retirement and an uptick in the selection of reverse mortgage products, we believe that we will be able to do more for the consumer following this transaction by coupling our innovation with AAG’s audience reach,” said Sieffert.
The company has also made investments into its educational outreach programs, including a recent collaboration with Morningstar, which will expand the availability of reverse mortgage information to financial advisors. In addition, assuming control of the AAG marketing practice and materials will help to expand the company’s educational reach even further.
“Our expansion into this direct-to-consumer retail channel will better position us to further educate seniors about home equity and reverse products and will boost the value and opportunities we can provide to our customers, employees, partners and investors,” Sieffert said.
When asked about potential changes to executive leadership, Sieffert noted she will be taking a central role in overseeing the AAG brand under the FAR umbrella.
“Both AAG and FAR will continue to operate as separate brands under the FOA umbrella,” she said. “Upon closing, the AAG centralized retail team will operate under the AAG brand, which they have invested heavily in over the years. [I] will oversee the entire company following closing and integration, including the various sales channels and across both brands.”
Sieffert said it was “too soon” to comment on how other employees could be impacted, noting that personnel decisions will be made after the deal closes.
“We’ll need to evaluate impacts to employees on a case-by-case basis in the months following the acquisition to ensure we are best positioned for success within the current market environment,” she said. “Our belief is that this acquisition will put the organization in a position for future growth as we work to expand access to home equity solutions and the products we offer to our growing consumer segment.”
Wholesale division, ‘high growth potential’ focus
According to wholesale endorsement data compiled by RMI, AAG is the fifth-largest wholesale lender in the reverse mortgage industry, with 2,512 endorsements in the 12-month period ending in September 2022. That represents 16.1% of its 15,599 retail originations from the same time period.
There have been questions as to whether AAG’s existing wholesale division would be included in the new deal, and Sieffert said that all of AAG is making the move to FOA.
“All of AAG’s sales channels are included in the deal,” she said. “We look forward to partnering and collaborating with their wholesale team to work toward a transition that is seamless for the wholesale partners they serve.”
At the start of 2022, now-bankrupt reverse mortgage lender Reverse Mortgage Funding (RMF) acquired AAG’s mortgage servicing rights (MSRs) portfolio in a deal that included more than 75,000 loans totaling $12.1 billion in unpaid principal balance (UPB). RMF is now preparing to broker a deal with Longbridge Financial to transfer servicing.
When asked about AAG’s portfolio of MSRs, Sieffert declined to address that component of the deal. Instead, she reiterated FOA’s desire to focus on businesses with high growth potential — which leadership has previously said the reverse mortgage business had.
“The AAG opportunity came to light and we were able to quickly move to take action. What’s important to focus on about this transaction is the potential we see with our expansion into this direct-to-consumer retail channel and the value of combining our product innovation with their breadth of reach,” she said. “The ability to have an increasingly positive and lasting impact for so many additional older homeowners is real, and we are eager to lead the charge.”
FAR has also been active in developing what Sieffert calls “an internal concierge team” to support its existing servicing portfolio. The team is designed to assist borrowers and to provide service to heirs who become involved when the loan matures.
Marketing apparatus, next steps
A pivotal component of the sale is the acquisition of AAG’s marketing apparatus, including the company’s popular celebrity spokesman, Tom Selleck. Sieffert said a key piece of the acquisition deal was that Selleck remained the face of the AAG brand.
“AAG’s marketing apparatus, including the advertising featuring Tom Selleck, is a critical piece of the acquisition, and continued investment in broad audience exposure is a key part of the model for this channel,” she said.
Citing other recent educational initiatives that FAR has undertaken, Sieffert said the company’s investments in educational materials will be enhanced when coupled with AAG’s marketing strategies.
“Ultimately, we believe that when AAG’s broad reach is coupled with FAR’s thought leadership and product innovation, together the companies can condition the market for greater acceptance of reverse mortgage products and all mortgage originators will benefit,” she said.
But until the deal closes, Sieffert said the plan is for both companies to operate normally.
“We are going to spend the coming months, between now and when the deal closes, preparing for a seamless transition,” she said.