FOA posts robust Q3 earnings as company touts product, platform changes

Finance of America (FOA), the reverse mortgage industry’s leading lender, announced its third-quarter 2024 earnings results on Wednesday evening. It delivered adjusted net income of $15 million, or $0.67 per share.

The company noted that Q3 2024 marked the fifth consecutive quarter of improved operating performance, including a recovery from the second quarter in which it posted a net lossof $5 million.

“Our performance this quarter is the culmination of a number of strategic and operational initiatives we’ve undertaken over the last year to strengthen the business,” FOA CEO Graham Fleming said on the earnings call. “These efforts are now paying off as we focus on continued execution of our strategic plan.”

Key metrics improve

All of the company’s key earnings metrics — net income, adjusted net income, EBITDA and associated earnings per share — were brought into positive territory from June through September, Fleming noted.

Some of the positive performance was helped by a successful reverse stock split performed early in the quarter. This brought the company’s share price into compliance with the New York Stock Exchange (NYSE)’s continued listing standard and finalized an exchange offer with notes originally scheduled to come due in 2025.

Fleming also mentioned the company’s future plans, highlighting the recently reshaped HomeSafe Second second-lien reverse mortgage product. This has been a source of focus and wider interest in the reverse mortgage industry since it was brought back in 2023.

“We are focusing on market segments where we see the most growth potential, such as consumers 55 and older seeking second-lien mortgage loans as a way to access their home equity without refinancing away from low-rate conventional mortgages,” he said. “Our HomeSafe Second product could be a valuable solution for this population.”

Consolidated platform, second-lien product

FOA President Kristen Sieffert expanded on some of what was said during the Q3 earnings call regarding the consolidated platform built from the company’s Finance of America Reverse (FAR) and American Advisors Group (AAG) brands, which were united under the FOA banner.

“I’m pleased to share that our third-quarter results indicate that these ROI maximization initiatives are having the intended impact,” Sieffert said. “We surpassed our volume expectations and continued optimizing operations while staying dedicated to enhancing the customer experience and expanding our market presence.”

The company’s retail channel saw a 38% improvement from Q2 to Q3 as measured by production per loan officer. October was FOA’s “largest submission and funding month of 2024,” Sieffert added.

She said that the July consolidation of the FAR and AAG brands has proven successful. It has helped to “set the stage for modernizing our approach to customer experience and acquisition,” while “developing a digital-first channel with a modern advertising strategy is vital for mainstreaming our products and enhancing production efficiency.”

Building out the company’s proprietary product suite has been a focus for some time. And the strength of HomeSafe Second’s potential value proposition for homeowners 55 and older was a point of emphasis on the Q3 earnings call.

“In the third quarter, we saw an 89% increase in HomeSafe Second loans compared to Q2, and we anticipate further growth in this area as we intentionally invest more capital and resources to the product,” Sieffert said. “While home equity lending nationwide is on the rise, recent HMDA data shows people 55 and older face denial rates eclipsing 35%. Many have considerable home equity but struggle with tighter credit conditions affecting qualifications.”

Digging into the details

Matt Engel, FOA’s chief financial officer, emphasized improved financial performance across several metrics.

“Comparing our performance to the previous quarter, we saw notable improvements across the board,” he said. “Revenue increased from $79 million in Q2 to $290 million in Q3, driven by higher origination volumes and significant fair value gains on our residual assets.

“Net income rose to $204 million in Q3 from a loss of $5 million in Q2, largely due to favorable fair value adjustments from improving market inputs and model assumptions combined with increased operational efficiencies.”

Engel added that the company is eyeing sustained profitability into 2025 by investing in “growth opportunities,” the company’s origination platform and maintenance of an “optimized fixed cost structure.” The recent completion of the unsecured note exchange has also “bolstered our capital structure and extended our debt maturities, which have greatly enhanced our ability to focus on growth,” Engel said.

He also indicated confidence in the overall trajectory of the reverse mortgage industry.

“Looking ahead, we are encouraged by the favorable trends in the reverse mortgage market and the strength of our proprietary product offerings,” he said. “Our ability to adapt to changing market conditions, combined with a strong balance sheet following the successful debt exchange and improving liquidity position provides a solid foundation for future growth.”

In the Q&A session after the main earnings presentation, Engel said that the company did more than $500 million in originations during the third quarter and expects “something in that same ballpark” in the fourth quarter.

Earlier this week, credit ratings agency Fitch noted the success of the exchange agreement by upgrading the company’s issuer default rating after an initial downgrade.