Finance of America ending forward mortgage originations

Finance of America is ending its forward mortgage originations by the end of the year, a massive cost-cutting move that could come with a price tag of up to $164 million.

The Resource Optimization Plan approved by the company's Board of Directors is expected to achieve annualized savings of approximately $110 million to $120 million, which will begin to be realized early next year, according to a Securities and Exchange Commission disclosure filed Friday afternoon. It's unclear how many employees will be laid off, although the firm said it estimates approximately $12 million to $18 million in pre-tax charges for employee severance, retention and related benefits.

"The discontinuation of the forward mortgage originations segment will allow FOA to optimize its resources and prioritize businesses that have a distinct market opportunity and greater growth potential," said Graham Fleming, the CEO of the Plano, Texas company, in a press release. "In addition, the move will accelerate the company's ability to partner with large mortgage lenders and other financial services companies to offer FOA's [specialty finance and services] solutions on their platforms."

Those services include its commercial, home improvement and reverse lending platforms along with portfolio management and other lender services.  

Fleming said the decision was made with careful consideration and he acknowledged the impact on FOA employees. 

"We are providing support and resources to assist our departing employees in their search for employment opportunities and are actively working to facilitate the transition of many of these employees to roles at other mortgage lenders," he said.

The plan is expected to incur pre-tax charges between approximately $145 million to $164 million, of which $15 million to $26 million will be cash expenditures, FOA said in its SEC filing. The company expects approximately $135 million to $145 million of the charges will be incurred this year and the rest during the first half of 2023, with between $5 million to $9 million of that total covering lease terminations and related costs. 

FOA said it will fund an "immaterial" number of forward mortgage loans in the first half of 2023, made mostly of loans with extended lock periods representing less than 11% of the forward mortgage pipeline. 

The company earlier this month said it would wind down its wholesale operations by Dec. 16, and in August said it would exit its consumer-direct channel which was heavily reliant on refinance activity. It was also allegedly trying to sell its retail channel in a deal with Guaranteed Rate that fell through; the competitor had no comment earlier this month.

The move comes two months after Finance of America reported a net loss of $168 million in the second quarter. At the time, executives suggested expense reductions including layoffs could  save the firm over $100 million this year. 

Fleming in August touted FOA's home improvement line, which reported its highest funding months ever in June and July and was expected to break even over the summer. The speciality finance and services segment with reverse and commercial lending and other lender services posted a $1 million loss in the second quarter, alongside FOA's mortgage division which reported a net loss of $21 million between April and June. 

FOA's reverse mortgage operations also slipped recently, with home equity conversion mortgage endorsements falling 44.3% from August to September. The company hasn't yet announced its third quarter earnings date.