After shutting down its forward mortgage business, Finance of America Companies Inc. (FoA) has decided to increase its footprint in the reverse mortgage space by acquiring American Advisors Group’s (AAG) direct-to-consumer retail operations.
The deal, which will require a mix of cash and equity, is supported by a $30 million capital investment through a private placement of FOA’s common stock from existing stockholders, including entities affiliated with chairman and founder Brian Libman.
AAG, founded and controlled by Reza Jahangiri, will receive at least $10 million in cash, plus stock shares in FoA, which currently trades at about $1.20 a share, according to an 8K filed by FoA with the Securities and Exchange Commission on Wednesday.
AAG is the largest player in the HECM space, while Finance of America is the third-largest.
“We believe home equity will be an increasingly important asset for Americans to consider in order to supplement their incomes, especially in retirement,” Graham Fleming, FoA’s president and interim CEO, said in a statement Wednesday.
Finance of America Reverse LLC, FoA’s division focused on reverse mortgages, will operate as a separate direct-to-consumer retail channel under the name AAG, according to the transaction announced on Wednesday.
AAG’s brand marketing reaches more than 10 million potential customers a year, and the deal allows the FoA to use celebrity spokesperson Tom Selleck in its commercials and other advertising. The acquisition is also expected to add to tangible book value and earnings per share.
The transaction is expected to close in the first half of 2023, subject to regulatory approval. The private placement is conditioned to the closing of the transaction.
The two companies are familiar with one another. FAR and AAG first established a correspondent partnership for proprietary reverse mortgages in early 2018, allowing AAG to offer the products under its own branding while FAR simultaneously continued to offer the “HomeSafe” product directly through its channels. The move happened relatively early on in the timeline of the HomeSafe product, which has gone on to encompass a full product suite with various individualized attributes, such as a fixed- or adjustable-rate and a line of credit feature.
In October, with the broader industry experiencing headwinds, AAG paused new loan submissions and suspended existing applications on the HomeSafe product.
Both companies have made large-scale layoffs in recent months as origination volume has dropped. According to SEC filings, FoA lost $302 million last quarter, but its reverse mortgage division posted a $34 million profit.
Check back with RMD for updates on what this deal means for the reverse mortgage space. And share your thoughts on the acquisition with Managing Editor James Kleimann at email@example.com.