Finance of America posts a profit, aims to rule HECM market

Finance of America recorded a slight profit to begin the year as it hones its new identity as the nation's top reverse mortgage lender.

The Plano, Texas company generated net income of $14.5 million in the first quarter following a $182 million net loss in the fourth quarter last year, it reported Monday. This was its first profit since the second half of 2021. Those figures were calculated including net losses from discontinued operations, as the firm closed its forward mortgage origination business in the first quarter. 

The lender's net income from continuing operations paints a more favorable picture, with FOA posting a $55.5 million profit in the first quarter against a $47.9 million loss over the prior period. FOA reported sizable losses from discontinued operations, including a $134.1 million net loss in the fourth quarter and a $40.9 million net loss between January and March.

FOA also closed its purchase of American Advisors Group at the end of March, making it the largest reverse mortgage originator by volume including its Finance of America Reverse arm, CEO Graham Fleming said in a conference call Monday. AAG brings to the firm $5.6 billion in assets, and AAG's earnings will be included in the business' second quarter reporting. 

Without AAG performance included, FOA's new Retirement Solutions reporting segment encompassing all originations fell to $357 million in the first quarter from $701 million in the prior period. Executives attributed the decline to seasonal and competitive pressures. At the same time last year, FOA recorded $1.5 billion in origination volume.

Company leaders said they anticipated profitability with AAG, citing the $12.39 trillion in collective home equity held by adults age 62 or older as of the fourth quarter. 

"Current demographic trends point to substantial market opportunity, and we believe FOA has the significant competitive advantages needed to capitalize on this," said Fleming.

The firm reduced its expenses to $83 million from $87 million to close 2022, following massive changes in the past seven months. FOA cut its wholesale channel last October and sold title insurance subsidiaries of its Incenter brand for $100 million to Essent in February in a deal expected to close by the third quarter. It also signed an agreement in the second quarter to sell a majority share of the remainder of its lender services business.

The company has reduced its corporate salaries and benefits by 32% in the past 12 months and expects to complete its rightsizing by the third quarter as well, Fleming said.

The firm's new reporting segments are split between the aforementioned Retirement Solutions, Portfolio Management and Corporate and Other. The Portfolio Management segment, which includes revenue earned from gain on sale, interest income, and underwriting among other functions, was up 30% quarter-over-quarter to $26.3 million to begin the year. 

The segment posted a $20.1 million figure in the fourth quarter last year. Portfolio Management revenue should be twice as high when AAG is factored in, Chief Financial Officer Johan Gericke said. 

Total revenue was up 50%, jumping from $93.6 million in the fourth quarter to $141 million in the first quarter. The firm's cash and cash equivalents also rose slightly, from $61 million to close the year to $69 million at the end of March.

The company also sliced its lines of credit in half from $2.3 billion at the end of last September to $1.1 billion to close the first quarter, Gericke said.

FOA in the past few months has strengthened its relationships with its servicers, including a new subservicing agreement with Ocwen Financial subsidiary PHH Mortgage announced last week and a renewal in March of its partnership with primary subservicer Celink. Finance of America Reverse alone held 62,879 reverse mortgages in its servicing portfolio with an unpaid principal balance of $17.9 billion at the end of last year, a financial filing described.

Fleming said the company would welcome more competitors in the reverse mortgage space, with banks currently absent in the home equity conversion mortgage market.

"We would be thrilled if the banks came into the space," he said. "It would increase the visibility of the product with our customer base."