Finance of America Companies (FOA): Redefining Home Equity Financing in a Modern Retirement Landscape

Company Overview

Finance of America Companies (FOA) is a leading provider of home equity-based financing solutions, positioning itself at the forefront of the rapidly evolving retirement planning industry. With a strategic shift towards a streamlined retirement solutions platform, the company has demonstrated remarkable resilience and adaptability in navigating the dynamic mortgage market.

Finance of America Companies Inc. (FoA) was incorporated in Delaware on October 9, 2020, as a financial services holding company. Initially, the company's focus was on offering a diverse range of loan products throughout the United States, including reverse mortgage loans, traditional mortgage loans, business purpose loans to residential real estate investors, and home improvement loans. FoA also provided complementary lender services such as title insurance and settlement services to mortgage businesses.

Strategic Transformation

In the fourth quarter of 2022 and throughout 2023, FoA underwent a significant transformation, strategically exiting multiple business lines. This included the divestment of its traditional mortgage lending segment, commercial lending segment, home improvement lending business, and lender services businesses. This strategic shift allowed the company to concentrate on developing its core retirement solutions business, aligning with the growing demand for innovative home equity financing products among the aging U.S. population.

A pivotal moment in FoA's evolution came with the acquisition of certain assets and liabilities from American Advisors Group (AAG), now known as Bloom Retirement Holdings Inc., which closed on March 31, 2023. This acquisition included AAG's retail loan originations platform, which FoA successfully integrated into its operations, enhancing its market presence and capabilities in the retirement solutions sector.

During this transformation period, FoA faced several challenges, including navigating the volatile interest rate environment in 2023, which led to lower mortgage transaction volumes, increased competition, and reduced profit margins. The company also had to manage the complex integration of the AAG assets and platform. Despite these obstacles, FoA demonstrated its resilience by rationalizing its corporate overhead, increasing its funding facilities, and enhancing its liquidity, which positioned it for stronger financial performance in the future.

Core Business

Finance of America's core business is centered around its Retirement Solutions segment, which includes the origination of Home Equity Conversion Mortgages (HECMs) insured by the Federal Housing Administration (FHA) and proprietary non-agency reverse mortgage loans. Through its retail and third-party originator (TPO) channels, the company has established a robust platform to serve the rapidly expanding senior homeowner demographic.

The Retirement Solutions segment focuses on helping senior homeowners achieve their financial goals in retirement. This segment includes all of the company's loan origination activities, including the origination of HECMs and non-agency reverse mortgage loans. FoA originates these reverse mortgage loans through both a retail channel, consisting primarily of a centralized retail platform, as well as a TPO channel that utilizes a network of mortgage brokers.

During the nine months ended September 30, 2024, the Retirement Solutions segment originated $1.38 billion in reverse mortgage loans, an increase of 17.3% compared to the same period in 2023. This increase was driven by higher loan origination volumes, as well as higher margins associated with the increase in retail platform production following the acquisition of assets from AAG in March 2023. The segment's net origination gains increased by 48.4% to $137.13 million for the nine-month period, reflecting both the higher loan origination volumes and the improved margins.

Fee income for the Retirement Solutions segment decreased by $4.0 million, or 16.5%, for the nine months ended September 30, 2024 compared to the prior year period. This was primarily due to lower fees associated with the wind-down of the company's home improvement lending business, partially offset by higher reverse loan origination fees generated through the acquired retail platform from AAG.

Financials

In 2024, Finance of America reported $443.79 million in annual revenue and $1.93 billion in loan origination volume, a 19% year-over-year increase, reflecting the success of its strategic initiatives and operational execution. The company's net income from continuing operations for the year reached $40 million, or $1.78 per basic share, while adjusted net income and adjusted EBITDA stood at $14 million and $60 million, respectively.

The company's financial performance was underpinned by several key factors. First, reverse mortgage loan volumes grew by 19% in 2024, driven by the integration of the retail platform acquired from American Advisors Group (AAG) in March 2023 and the expansion of non-agency reverse mortgage offerings. This integration not only enhanced efficiency but also contributed to a 16% increase in revenue margins within the Retirement Solutions segment.

Additionally, Finance of America's strategic focus on its proprietary HomeSafe Second product demonstrated exceptional results, achieving nearly 400% year-over-year growth. This second-lien reverse mortgage solution, designed to allow homeowners to access their home equity while preserving their existing low-rate first mortgages, has resonated strongly with the target demographic.

In the most recent quarter (Q3 2024), the company reported revenue of $290.07 million and net income of $84.20 million. This represents a 311% year-over-year growth in revenue and a 31% increase in net income compared to Q3 2023. The increase in revenue and net income was primarily driven by higher reverse mortgage loan origination volumes and improved margins.

The company's Portfolio Management segment provides product development, loan securitization, loan sales, risk management, servicing oversight, and asset management services. During the nine months ended September 30, 2024, the segment's net portfolio interest income was $198.71 million, relatively flat compared to the same period in 2023. Net fair value changes on loans and related obligations in this segment improved by $429.6 million for the nine-month period, primarily due to improved fair value changes from market inputs or model assumptions compared to the prior year.

Market Opportunity and Growth Strategy

Recognizing the immense potential of the senior home equity market, which is estimated to exceed $14 trillion, Finance of America has made significant investments in data-driven marketing initiatives and technological advancements. In the first quarter of 2025, the company expects origination volumes to grow by 25% to 30% year-over-year, supported by the launch of a revamped advertising and brand platform.

The company's growth strategy is further bolstered by its successful capital markets execution. In February 2025, Finance of America completed its largest securitization of non-agency proprietary products, demonstrating its ability to efficiently monetize its loan portfolio and enhance liquidity to support continued expansion.

The reverse mortgage market has seen a compound annual growth rate (CAGR) of approximately 8% over the past 5 years, driven by the growing population of retirement-age homeowners and increasing awareness of home equity as a retirement planning tool. This industry trend aligns well with Finance of America's strategic focus and positions the company to capitalize on the growing demand for home equity-based retirement solutions.

Liquidity

Despite the challenges posed by the volatile interest rate environment in 2024, Finance of America navigated the market conditions through disciplined cost management and operational efficiencies. The company's adjusted net income and adjusted EBITDA for the full year 2024 increased by 178% and 116%, respectively, compared to 2023, showcasing its resilience and commitment to profitability.

As of September 30, 2024, Finance of America reported a cash position of $44.26 million. The company has no debt on its balance sheet, resulting in a debt-to-equity ratio of 0. In terms of financing capacity, Finance of America has $995 million in reverse mortgage warehouse financing capacity, of which $576.48 million was drawn as of September 30, 2024. The company also has $513.30 million in additional secured facilities, of which $478.09 million was drawn.

Future Outlook

Looking ahead, Finance of America is well-positioned to capitalize on the growing demand for home equity-based retirement solutions. The company's strategic investments in technology, data analytics, and customer-centric product development position it as a leader in the rapidly evolving senior housing finance market.

For 2025, Finance of America expects full year origination volumes to be in the range of $2.4 billion to $2.7 billion, representing a 26% to 42% increase from 2024. In the first quarter of 2025, the company anticipates origination volume to be between $525 million and $550 million, a 25% to 30% increase compared to Q1 2024. Finance of America has also reaffirmed its full year 2025 adjusted net income projection in the range of $2.60 to $3 per share.

With a seasoned management team, a strengthened balance sheet, and a clear strategic vision, Finance of America is poised to drive continued growth and deliver long-term value for its shareholders. As the demographic trends in the U.S. continue to favor the company's offerings, Finance of America stands as a compelling investment opportunity in the dynamic and evolving retirement solutions landscape.