FoA sees the reverse, home improvement as key to its future
United States Finance Companies (FoA)the parent company of the primary reverse mortgage lender Finances of Reverse America (FAR), posted a fourth consecutive quarter of losses in the third quarter of 2022 in a difficult mortgage market. This news follows a recent decision to close its term mortgage subsidiary, Finance of America Mortgage (FAM).
FAR saw an overall 28% reduction in funded reverse mortgage volume in the third quarter, which FoA attributed to “a strategic decision to reduce correspondent aggregation.”
Despite the decline in volume, FAR saw its seventh consecutive quarter of growth among new reverse customers in its HomeSafe reverse mortgage product line. It also totaled $72 million in revenue in the third quarter. That revenue was lower than the second quarter, due to industry-wide volume reductions, but was partially offset by improved margins, the company said.
Reverse without forward
In its past 2022 earnings calls, FoA management emphasized that its finance and specialty services (SF&S) businesses – including FAR and its home improvement lending subsidiary – will be more focused on the lending business of the society.
During the earnings call, FoA interim CEO Graham Fleming stressed the importance of FAR to the future of the company.
“[W]We believe that in the future, many consumers will seek to broaden discussions with their financial advisors to include the equity in their property, as they re-evaluate retirement planning and their long-term financial needs,” said said Fleming. “Against this backdrop, and with FoA’s leading position offering reverse mortgage products that leverage home equity, we will better serve our clients on their financial journey.” Our company has a history of product innovation, and our inverse business has a tremendous opportunity to continue that legacy in these changing market conditions.
Fleming also noted FoA’s desire to expand partnerships with existing term mortgage lenders and other financial services companies. The goal is to bring more products from FAR – including the Federal Housing Administration (FHA)-backed Home Equity Conversion Mortgage (HECM) and its HomeSafe Reverse Mortgages – to a wider range of professionals in anticipation of the broader integration of home equity into retirement plans.
“While we previously focused on operating our own mortgage retail platform to offer these products, we will now pursue the opportunity to expand this program across the mortgage industry,” said Fleming. “We intend to have several major retail lenders and other financial services companies offer our reverse products.”
Education as business driver
Fleming also noted on the call the importance of education in increasing awareness and distribution of reverse mortgages to a wider audience, citing recent educational collaboration with the morning star as a gesture that illustrates its product education priorities.
“We continue to believe that education is key to the growth of the reverse industry, and that the collaboration will make reverse mortgage education, including the Finance of America suite of products, available to approximately 150,000 advisers,” Fleming said. “By teaming up with Morningstar, we can ensure mortgage advisors are informed about their home equity when creating diversified, long-term financial strategies for their clients. »
Fleming called FoA’s SF&S business profitable, with FAR earning $34 million in pretax revenue in the third quarter. He also noted that the reverse mortgage industry has not been immune to the tougher economic climate, which has plagued the term mortgage market.
“The industry has not been immune to market impacts, and we see exciting opportunities to strengthen our platform and grow this fundamental business area,” Fleming said. “This should allow FoA to emerge from this downturn in a position of strength, to capitalize on long-term structural market opportunities resulting from the large housing capital of baby boomers.”
FoA’s home improvement lending vertical has been described as a “complement” to FAR, serving as an “effective customer acquisition channel” and aiding in the educational mission of FAR and its reverse mortgage products.
“The average age of a home improvement client is 52, as these clients are looking to update their homes for retirement,” Fleming said. “A home improvement loan offers an effective solution for homeowners looking to leverage their equity and is an attractive option for those who have already locked in low interest rates on their mortgages.”
Potential for new products
During the Q&A session of the earnings call, Fleming was asked to expand the business in the reverse mortgage segment in light of unexpected losses.
“We are seeing reductions in refinancing volume as rates have risen,” Fleming said. “And then we reset rates to the current economics of securitization on the transactions we originate. As I mentioned, we continue to see growth from new to the opposite. And given the climate current economy, we are working on new products that will help seniors access equity.
Fleming also explained that FoA backed off on some correspondent acquisitions in the third quarter and volumes were down as a result.
“[That was due to] without acquiring, I think on a second quarter equivalent basis, about $150 million to $200 million of correspondents,” he said. “So we believe that as this market normalizes, we will be able to increase volume through the new reverse product, a second-tier product, and increase our corresponding acquisitions.”