FOA records loss in Q1 but remains confident about improving profitability

Finance of America Companies (FOA), which controls the outgoing brands Finance of America Reverse (FAR) and American Advisors Group (AAG), recorded a net loss under generally accepted accounting principles (GAAP) of $16 million in Q1 2024 and an adjusted net loss of $7 million for the quarter, according to a recently released earnings report.

Total revenues at the company dropped sharply from $276 million in Q4 2023 to $75 million in Q1 2024. Company leaders, however, expressed confidence in their strategic positioning following the completion of the corporate integration of AAG and the recently announced sunsetting of the FAR and AAG brands under the FOA brand, which is expected to go into effect later this year.

Corporate positioning

CEO Graham Fleming said during the earnings call that the company “is well positioned to return to sustained profitability,” particularly due to its leadership position in the reverse mortgage space and a reduced adjusted net loss compared to Q4 2023.

Graham Fleming

“These results were driven primarily by an improvement in operating performance compared to recent quarters as margin improved and remained strong through the quarter,” Fleming said. “On an adjusted basis, in the first quarter, we recognized a net loss of $7 million or $0.03 per fully diluted share. This is a 65% improvement from the net loss of $20 million or $0.09 per fully diluted share in the fourth quarter.”

Higher revenues and lower costs helped to drive this improvement, he explained, and loan origination revenue went up despite a slight loss in volume.

“During the quarter, reverse volumes were down only 3% to the prior quarter as previously guided,” he said. “However, improved margins led to a $5 million increase in revenue in our originations platform. Our net balance-sheet markup due to outside factors was minimal for the quarter as spread tightening and home price appreciation improvements offset an increase in interest rates.”

The company is eyeing a 10% increase in origination volume for Q2 2024, estimating the volume from April through June at somewhere between $465 million and $500 million, Fleming said.

AAG integration ‘complete’

FOA President Kristen Sieffert provided an operational update for the company, saying that “much of our previously communicated work to streamline our operations is now behind us and the integration of AAG’s platform is complete.”

Kristen Sieffert

Early this year, the company finalized its transition plans to bring both FAR and AAG personnel onto a single loan origination system (LOS), which Sieffert said was the “last step in the full integration process.” Completing it now allows the company to continue with the next phase of its “go-to-market strategy,” which the brand unification will help to facilitate.

A unified brand will serve to “optimize and maximize” the company’s resources and reach, including the discontinuation of the AAG and FAR brands, which are expected to take place in early Q3 2024. Modernizing the company’s digital capabilities is also a priority, she said, and there has been interest in the company’s wholesale partnerships program from “traditional mortgage lenders and servicers,” with a focus on FOA’s proprietary second-lien product within the “HomeSafe” product catalog.

“In March, we expanded the reach of this product through a leading broker-facing platform and approved the product to be offered through our principal agent channel, giving partners more flexibility in how they bring the product to market,” Sieffert said. “Following the launch of the most recent loan origination system, we’ve seen interest in the product grow to over 6% of our overall submission volume.”

Retirement solutions, debt maturity

The company’s retirement solutions division produced “strong top-line revenues” of $46 million in Q1 2024, according to chief financial officer Matt Engel.

“As expected, funded volumes were modestly down from the fourth quarter as we completed the LOS consolidation,” Engel said. “However, revenue margins for the segment equated to 10.8% or a 17% increase over the fourth quarter. This is due to spread tightening across our suite of products, leading to improved margins. Expenses decreased from the prior quarter as the company continues to align our infrastructure to our current business model.”

Engel also addressed high-yield debt on the company’s balance sheet that is currently scheduled to mature in November 2025.

“We are moving proactively to review our options and holding productive conversations with the necessary parties to identify an optimal path forward,” Engel said. “While it is premature to discuss specifics, we are encouraged by the early conversations.”

Product interest

In a Q&A session following the main segment of the call, FOA leaders were asked about products that seem to be garnering the most demand from consumers. Sieffert quickly pointed to HomeSafe Second.

“With the HECM product and the regular HomeSafe product, as the rates rise, the LTVs are compressed a little bit. We don’t have that dynamic on the HomeSafe Second,” Sieffert said. “And so it’s freeing up more capital for people to access the cash that they need.

”We see that as one of the bigger growth opportunities for us — especially in conversations with larger traditional mortgage bankers and servicers that have portfolios of products — that borrowers are looking for different solutions that the traditional products just aren’t filling the needs right now.”

Engel also alluded to a potential securitization of HomeSafe products in the range of $300 million in future quarters.