Troubled Finance of America reports escalating losses – National Mortgage News - 24line

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الجمعة، 11 نوفمبر 2022

Troubled Finance of America reports escalating losses – National Mortgage News

In its third quarter earnings call, Finance of America leadership took pains to paint a bright future for the troubled company, which recently shuttered its forward-mortgage operations. 

For the third quarter, FOA lost $302 million, due to non-cash charges related to changes changes in fair value of long-term assets and liabilities of $116 million and impairment of intangible and other long-lived assets of $138 million related to the forward mortgage business, whose shut down was announced subsequent to the quarter ending in October.

That compared with a loss of $168 million in the second quarter and net income of $50 million in the third quarter of 2021, which was the last and only time FOA reported a profitable period since the company went public via a special purpose acquisition company merger in April 2021.

NMN110922-FOA 3Q22

Management is bullish on the prospects for next year.

“With respect to 2023, we project adjusted fully diluted earnings per share of 45 cent to 55 cents for the year, driven predominantly by our reverse origination segment, where we see powerful macro tailwinds continuing to exist,” said Graham Fleming, president and interim CEO on its earnings call. “Streamlining of the organization will allow us to focus all of our resources on those businesses that drive growth and which, in turn, will drive long-term shareholder value.”

FOA wants to expand its partnership opportunities with large mortgage lenders and other financial services companies to offer those reverse mortgage products. Previously it had focused on its own retail platform for those, Fleming said.

The company entered into an arrangement with Morningstar to educate financial advisers about reverse mortgages and other home equity products. “We continue to believe that education is key to the growth of the reverse industry and the collaboration will make education about reverse mortgages, including the Finance of Americas products available to around 150,000 advisers,” Fleming continued.

When asked if any other FOA business lines, such as its lender services segment, would be affected by the forward mortgage shutdown, Fleming responded that the company is assisting its branches to find new homes.

“And with that, we’re also working with the lenders that they’re going to, to help them introduce these products,” he said. “So we actually believe that, not in the short term, but over the course of 23, we think there’s a bigger opportunity to cross-sell.”

FOA’s mortgage originations business reported a pretax loss of $170 million in the third quarter, compared with a $35 million loss in the prior quarter and a pretax profit of $15 million in the prior year.

The company originated $2.7 billion during the third quarter at a margin of 187 basis points. In the second quarter, it produced $4.2 billion with a 214 basis point margin. One year ago, FOA had volume of $7.4 billion at a 261 basis point margin.

Meanwhile the reverse mortgage unit reported origination volume of $1.1 billion, down from $1.6 billion in the second quarter and $1.2 billion for the third quarter of 2021.

Besides HECMs, the company has its own proprietary HomeSafe product, which it said recorded seven consecutive quarters of increased new-to-reverse mortgage borrowers.

Pretax income from reverse mortgages fell to $34 million in the most recent quarter from $36 million for the second quarter and $69 million one year ago.

During the quarter, FOA sold 71% of its mortgage servicing rights portfolio, reducing it to $103 million from $359 million on June 30. FOA was taking advantage of forward MSRs being attractively priced during the quarter, noted Johan Gericke, chief financial officer.

It will focus on Home Equity Conversion Mortgage MSRs going forward, and obtained a funding facility secured by them, Gericke said.

The lender services segment had a 24% decline in revenue compared with the second quarter and 50% lower than the prior year as originations slowed down across the industry. Nearly 80% of its revenue for the period came from third parties, in line with prior periods.

Lender services had a pretax loss of $11 million for the quarter on total revenue of $44 million. In the second quarter, its pretax loss was $5 million with revenue of $58 million, while for the third quarter of 2021, it reported pretax income of $9 million on revenue of $88 million.

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