Finance of America reduces loss, reassures on NYSE status

Finance of America, which has been the largest reverse mortgage lender since its acquisition of American Advisors Group assets in 2022, remained in the red during the latest quarter but moved closer to profitability.

The company, which focuses on home equity withdrawal products used by older adults, recorded a $5.12 million net loss in the second quarter, down from $20.3 million in red ink in the first three months this year. The number narrowed from a $222.5 million quarterly net loss a year earlier.

While the company's bottom line still isn't officially in the black, executives said the reduced loss, the success of its plan to use a reverse stock split to resolve issues with its New York Stock Exchange status and other developments mean FOA's outlook has improved.

"We are committed to maintaining access to public markets and trading on the NYSE," Graham Fleming, Finance of America's CEO, said during an earnings call late Tuesday, reiterating previous assurances the company has made.

FOA's share price opened slightly higher Wednesday morning, trading at $7.38. It had closed at $7.21 the day before. 

Besides the reduction in net loss under standard accounting principles, the company reported alternative measures that included $9 million in adjusted earnings before interest, taxes, depreciation and amortization, marking its first positive EBITDA figure since 2022.

"With continued improvement across our top and bottom lines, we expect to continue on the path to sustained profitability," Chief Financial Officer Matthew Engel said during the call.

Among strategies the company hopes will drive that profit is the business it does in the proprietary and Ginnie Mae markets for reverse mortgage-backed securities. Ginnie Mae is a guarantor of securitized mortgages that other government agencies back at the loan level.

In particular, the company and analysts who cover it focused on a revised program Ginnie is instituting for securitized Home Equity Conversion Mortgages during the call. 

The program "provides a more favorable HMBS structure that will significantly reduce the capital required for buyouts and allows for the securitization of these buyouts into pools backed by Ginnie Mae," Graham said.

"This has the potential to have a positive impact on earnings, tangible net worth and liquidity," he added.

When asked by analysts to quantify the potential cash benefits from that program, Fleming said he couldn't provide exact figures because it's still in formation, but hoped to in the next quarter's call.

"We see a significant portion of our buyouts that would be eligible to be put into the new program with advance rates clearly above where we are today," he said. "We'll be quantifying those numbers a little more closely over the coming quarter as that gets finalized."

Another part of the business gaining traction is the market for its proprietary HomeSafe loans secured by a second lien rather than a first, executives said.

During the second quarter, Finance of America spurred growth in the program by increasing the loan-to-value ratio limits for "high-quality customers," said President Kristen Sieffert.

"In that same period, we experienced a 168% increase in submission volume quarter-over-quarter and a 30% reduction in average term time. We will continue to expand the state availability each quarter and plan to launch HomeSafe Second specific marketing campaigns in our retail channel by the end of Q3," she said.

Higher LTVs can lead to weaker credit but also may be less risky if other borrower metrics are strong. Second liens have been more popular in the reverse and traditional mortgage markets recently because many borrowers have low-rate first lien loans they don't want to disrupt.