10-K: Finance of America Companies Inc. Streamlines Operations, Focuses on Retirement Solutions in 2023

Finance of America Companies Inc. underwent a significant transformation in 2023, shifting its focus to a modern retirement solutions platform centered on reverse mortgage products.

Summary

• Finance of America Companies Inc. (FOA) transitioned from a diversified lending platform to a retirement solutions provider in 2023, discontinuing several business lines.
• The company now primarily focuses on reverse mortgage products, including Home Equity Conversion Mortgages (HECM) and proprietary reverse mortgage loans.
• FOA acquired assets from American Advisors Group (AAG/Bloom) to expand its reverse mortgage business.
• The company operates through two segments: Retirement Solutions, which handles loan origination, and Portfolio Management, which manages loan securitization and sales.
• As of December 31, 2023, FOA had $1.5 billion in committed or uncommitted loan funding capacity and approximately $0.6 billion of liquidity sources.
• The company reported a net loss of $218.2 million for 2023, compared to a net loss of $715.5 million in 2022.
• The company's reverse mortgage loan portfolio is geographically concentrated, with 43% of loans secured by properties in California.
• The company is subject to extensive regulations and relies on third-party subservicers for loan servicing.

Sentiment

Score: 4

Explanation: The document highlights a significant strategic shift and cost-cutting measures, but also reveals substantial losses, a high debt burden, and ongoing risks, resulting in a negative sentiment overall.

Positives

• The company is focused on a growing market of retirement solutions.
• The company has a diversified mix of capital partners.
• The company has a strong culture promoting ethical standards and customer service.
• The company has a robust funding structure.

Negatives

• The company has a recent history of net losses.
• The company's business is significantly impacted by changes in interest rates.
• The company has a geographic concentration in California.
• The company uses estimates in measuring the fair value of its assets and liabilities.
• The company is subject to extensive regulations and compliance costs.
• The company's stock has experienced low trading volume.

Risks

• The company's ability to manage the challenges of operating as a modern retirement solutions platform is critical.
• The company's success depends on its ability to develop and obtain regulatory approval for innovative proprietary products.
• The company's financial condition may raise questions about its ability to continue as a going concern.
• The company is exposed to interest rate risk and fluctuations in the mortgage-backed securities market.
• The company is subject to cyber security risks and potential data breaches.
• The company is subject to legal proceedings, federal or state governmental examinations, and enforcement investigations.
• The company's ability to repay or refinance its senior notes due in November 2025 is uncertain.
• The company's stock is at risk of being delisted from the NYSE.

Future Outlook

The company expects to continue to incur ongoing operational and system costs to maintain compliance with laws and regulations and consent orders. The company also expects the frequency and impact of weather and climate related events and conditions to increase as well.

Management Comments

• The company believes it can more effectively dispatch its innovative suite of solutions to help senior homeowners achieve their retirement goals through the use of home equity.
• The company seeks to programmatically and profitably monetize its loans, which minimizes capital at risk, while often retaining a future performance-based participation interest in the underlying cash flows of our monetized loans.
• The company aims to always do the right thing for our customers, investors, and other counterparties.

Industry Context

The company's shift to retirement-focused lending reflects a broader trend in the financial services industry to cater to the growing senior population and their specific financial needs. The reverse mortgage market is seen as a key component of an underserved market of seniors in the U.S.

Comparison to Industry Standards

• The company competes with other third-party businesses such as wholesale and retail reverse mortgage origination businesses, including bank and non-bank financial services companies focused on originating reverse mortgages.
• Certain of the company's competitor financial institutions typically have access to greater financial resources, have more diverse funding sources with lower costs of capital and are less reliant on loan sales or securitizations of mortgage loans into the secondary markets to maintain their liquidity.
• The company operates at a competitive disadvantage to federally chartered depository institutions because they enjoy federal preemption and are not subject to state licensing and certain consumer protection laws of the states in which they do business.

Legal Proceedings

• The company is currently and routinely involved in legal proceedings concerning matters that arise in the ordinary course of its business.
• The company is subject to the California Labor Code, pursuant to which certain plaintiffs have filed representative actions under the California Private Attorney General Act (the PAGA Litigation) seeking statutory penalties for alleged violations related to the calculation of overtime pay, errors in wage statements, and meal and rest break violations, among other things.
• The company is subject to repurchase and indemnification claims regarding alleged breaches of representations and warranties relating to the sale of mortgage loans, the placement of mortgage loans into securitization trusts or the servicing of securitized mortgage loans.

Related Party Transactions

• The company had two Revolving Working Capital Promissory Note Agreements outstanding with BTO Urban Holdings and Libman Family Holdings, LLC, which are deemed affiliates of the Company.
• Related parties of FoA purchased notes in the high-yield debt offering in November 2020 in an aggregate principal amount of $135.0 million.
• The company issued 21,739,132 shares of Class A Common Stock to the Investors for $30.0 million.

Stakeholder Impact

• Shareholders may experience volatility in the share price and may not receive dividends in the near future.
• Employees may be affected by the company's cost-cutting measures and restructuring.
• Customers will have access to a more focused range of retirement solutions.
• Lenders and investors may be impacted by the company's financial performance and compliance with debt agreements.

Next Steps

• The company will continue to focus on growing its core retirement solutions businesses.
• The company will continue to develop and offer products for borrowers with interest in using the reverse mortgage loan product as a retirement planning tool.
• The company will continue to monitor its liquidity in order to fund its loan origination business, manage day-to-day operations, and protect against unforeseeable market events.

Key Dates

Keywords

reverse mortgage, retirement solutions, HECM, mortgage lending, financial services, securitization, Ginnie Mae, interest rates, liquidity, capital markets