Home equity conversion mortgages (HECMs), which are guaranteed by the U.S. Dept of Housing and Urban Development (HUD), and a custom jumbo reverse mortgage product known as HomeSafe are the main products offered by Finance of America Reverse LLC (FAR), a residential mortgage originator, for elderly homeowners. Finance of America Equity Capital LLC (FOAEC) owns 100 percent of FAR, which was created in 2003 as Urban Financial Group, Inc.
Asset Acquisition Agreement
The company Finance of America Companies Inc. (FOA or Finance of America) directly & indirectly has a stake in FOAEC and exercises control over it. A direct-to-consumer opposite mortgage lender named American Advisors Group (AAG) and FAR agreed to an asset acquisition agreement in December 2022 under which FAR would buy the vast majority of AAG’s assets and some of its liabilities. The FAR acquired all of AAG’s businesses, including roughly 340 AAG workers, as part of the AAG deal, which was finalized on March 31, 2023. However, as a division of FAR, the AAG name and business operations are still in place.
The skilled origination procedures, extensive expertise of the senior management team, and strong loan performance of FAR are reflected in the MOR RVO2 household reverse mortgage originator ranking. All 50 states, Washington, D.C., Puerto Rico, and the US Virgin Islands have granted FAR permission to conduct business there. Through its retail as well as wholesale operations, the company creates HECMs, and through correspondent, main agent, and bulk transaction channels, it purchases loans. HomeSafe is currently available in 27 states and Washington, D.C. The company generates its HomeSafe loans via its retail, correspondent, broker, and main agent channels. Reverse mortgages of over 14,000, worth over $4.9 billion were acquired or originated by the company in 2022, and it had a servicing portfolio worth more than $18 billion.
FAR Will Continue To Expand
The senior management team of FAR has an average tenure in the industry of more than 18 years. Graham Fleming has been appointed as FOA’s new chief executive officer, while Kristen Sieffert has been elevated to the position of president. The decentralized underwriting department had about 21 underwriters working there as of December 31, 2022, with an average tenure with the company of more than five years & 10 years of appropriate experience.
With 2022 delinquencies totaling a little around 0.5%, FAR will continue to expand its reverse beginnings while sustaining strong loan performance. FAR has a tolerable ability to generate profitability, but because they are dependent on transaction-based income streams, there is a risk of material earnings fluctuation. FAR’s credit risk is minimal because it often sells or securitizes the loans it originates from rather than keeping them on its financial statement for a prolonged period.
Market Stress
The narrow funding profile of FAR, which is similar to that of other nonbank mortgage companies, relies mostly on assured wholesale funding sources. As a result, the company has a heavily leveraged balance sheet, which may limit its ability to respond quickly to market stress. Given its high degree of leverage, the Company has a weak capitalization. Nevertheless, it has extensive exposure to the company’s capital markets as a member of the parent company of Finance of America, which is publicly traded.
