September 19, 2021

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Mortgage News

FAR Parent Touts Reverse Mortgages as Key to Strong Q1 Earnings

Finance of America Companies (NYSE: FOA), parent company of leading reverse mortgage lender Finance of America Reverse (FAR), has released its earnings report for the first quarter of 2021 after successfully going public earlier this year.

In statements accompanying the earnings report, FOA chief executive Patricia Cook cited FAR’s strong growth as the main driver of the company’s success and said the parent company expects mortgage origins to slow down in the coming year, supported by the company’s non-mortgage funding . Credit transactions.

This emerged from a call for earnings held late last week that included presentations from Cook, SVP of Finance Michael Fant and CFO Johan Gericke.

Strong reverse mortgage performance

After this graduation When he went public on April 1 and began public trading on the New York Stock Exchange four days later, Cook described a busy time for FOA overall, not least the start the Finance of America Home Improvement (FAHI) industry, which was completed following the acquisition of Renovate America, Inc.’s renovation loan product formerly known as “Benji”.

In addition, Cook cited the launch of FAR’s new hybrid forward reverse mortgage product.EquityAvail, “Further diversify the parent company’s assets.

Patricia Cook

“Finance of America Reverse also launched EquityAvail, a groundbreaking new mortgage product designed to provide homeowners with greater financial flexibility on or near retirement,” Cook said in the call. “This product will combine elements of a traditional mortgage with a reverse mortgage to improve cash flow and help retirees meet their retirement goals. Finance of America Home Improvement and EquityAvail are the latest examples of our proven ability to innovate and create products that meet the changing needs of our customers. “

In addition to introducing these new industries and products, Cook said reverse mortgages played a major role in the presentation, which focused on FOA’s earnings growth in the first quarter.

“Finance of America continued to perform well, adding to the strength of our diversified consumer credit platform, which includes mortgages, reverse mortgages and commercial loans offered through distributed retail stores, third-party brokers and direct-to-consumer digital channels,” she said . “In addition, our paid portfolio management and lender services businesses made a significant contribution to the quarter.”

However, when it comes to the business highlights of the quarter, FAR was at the forefront, according to Cook.

“Highlights of the first quarter included near-record volumes and strong growth for our reverse-origins business, where growth drivers are less correlated with interest rate direction,” she said. “Baby boomers, in particular, are increasingly trying to age on the spot, and our reverse mortgage products offer this population the opportunity to capitalize on the equity that has accumulated in their homes.”

In addition, commercial lending to residential real estate investors accelerated in the first quarter for FOA, and “the bias towards newer construction or remodeled homes” is a good sign of continued demand, Cook said.

Growth expectations excluding mortgage loans, refinanced volume

Interestingly, the growth of the non-lending segments is likely to be a bigger business driver for FOA in the coming years, Cook said.

“[W]We expect contributions from our non-mortgage segments to continue to grow as the year progresses, while the mortgage origins segment will decline year over year, ”said Cook. “Based on the current market, we estimate that the net effect could be a decrease in Adjusted EBITDA for full year 2021 of around 20% year over year.”

CFO Johan Gericke explained the development of the reverse mortgage business and said that FAR is well placed to capitalize on a business environment unique to the reverse mortgage industry.

“The volume financed by Reverse Originations increased compared to the previous quarter by 17% to 769 million US dollars,” said Gericke on the conference call. “This resulted in segment revenue increasing to $ 69 million and income before tax to $ 45 million for the first quarter of 2021, up 25% and 36%, respectively, compared to the previous quarter. Our business continues to benefit from the unique tailwind in this sector. “

Future outlook for reverse mortgages

In a question-and-answer portion of the call, Cook explained the opportunities she sees in the reverse mortgage business and how it continues to support FOA’s profits as a key differentiator for growing a diversified portfolio.

“I think the growth we are seeing there is very encouraging because I think it reflects the tailwind that we expected,” Cook said on the conference call. “You have a home appreciation, you have the aging baby boomers, and they are eager to unlock the equity in their home. I think it’s more about that – I’ll say margins are stable on average, but definitely keep growing. “

In March, Finance of America announced that it was in positive financial shape ahead of the upcoming public offering with strong results for the fourth quarter of 2020 reportand describes 2020 as “exceptionally strong” for the mortgage industry in general. Management described one of the company’s major strengths as its diversified portfolio, enhanced by the inclusion of both the Federal Housing Administration (FHA) sponsored home equity conversion mortgage (HECM) and proprietary reverse mortgage offerings becomes more unique.

FAR President Kristen Sieffert

FAR President Kristen Sieffert had previously told RMD that the acquisition of Benji and the start of FAHI could offer an opportunity for certain “synergies” with the reverse mortgage business.

“Our goal is to give customers more options and additional financial flexibility in retirement, whether through the strategic use of home equity or, in the case of our sister company Silvernest, to offer customers an alternative source of income and camaraderie in retirement through sharing”, Sieffert told RMD in March. “Together we can develop optimized solutions for people who have the confidence to work with the same team.”

According to recent reverse mortgage endorsement data compiled According to Reverse Market Insight (RMI), FAR is the third largest reverse mortgage lender in the industry with 4,799 HECM endorsements in the twelve month period ending April 2021.