10-Q: Finance of America Reports Q3 Loss Amid Fair Value Shifts

Finance of America Companies Inc. reported a net loss of $29.86 million for the third quarter of 2025, primarily driven by negative fair value changes from market inputs, despite increased loan origination volumes.

Summary

• The company reported a net loss of $29.86 million for the three months ended September 30, 2025, a significant decrease from net income of $203.75 million for the same period in 2024.
• Total revenues for Q3 2025 decreased to $80.85 million from $290.07 million in Q3 2024.
• For the nine months ended September 30, 2025, net income was $124.97 million, down from $178.32 million in the comparable 2024 period.
• Fair value changes from market inputs or model assumptions decreased by $226.0 million in Q3 2025 compared to Q3 2024, resulting in net fair value losses.
• Net origination gains increased by $2.7 million (4.7%) in Q3 2025, driven by higher reverse mortgage loan origination volumes of $602.9 million, up from $513.4 million in Q3 2024.
• Total expenses increased by $24.3 million in Q3 2025, primarily due to increased loan portfolio related expenses (securitization) and higher variable compensation.
• The company entered into an Amended and Restated Repurchase Agreement on November 13, 2025, to purchase all of the Blackstone Investor's equity stake for $80,298,170, with the transaction expected to occur in two closings by February 27, 2026, and potential price increases if delays occur.
• A strategic partnership with Better.com was announced in October 2025 to launch home equity lines of credit (HELOCs) and home equity loans (HELOANs) and integrate reverse mortgage products into a unified digital experience.
• A material weakness in internal control over financial reporting, identified as of December 31, 2024, related to cash flow statement classification errors, continued to exist as of September 30, 2025, with remediation efforts ongoing.

Sentiment

Score: 3

Explanation: The company reported a substantial net loss and significant revenue decline in Q3 2025, primarily due to adverse fair value changes from market inputs. While loan origination volumes increased and strategic partnerships were announced, these positives are overshadowed by the financial downturn, increased expenses, and the ongoing material weakness in internal controls. The complexities and potential cost increases associated with the Blackstone repurchase agreement also contribute to a cautious outlook.

Positives

• Net portfolio interest income increased by $15.0 million in Q3 2025, partly due to gains on extinguishment of debt related to the purchase of previously issued securities.
• Net origination gains rose by $2.7 million (4.7%) in Q3 2025, driven by a 17.4% increase in reverse mortgage loan origination volumes to $602.9 million.
• Nine-month reverse mortgage loan origination volume increased by 27.6% to $1.8 billion in 2025 compared to $1.4 billion in 2024.
• The company successfully completed five securitizations for the nine months ended September 30, 2025, issuing $4.9 billion in notes, demonstrating strong capital markets capabilities.
• Cost-cutting initiatives contributed to decreases in general and administrative expenses in the Retirement Solutions segment and Corporate and Other.
• A strategic partnership with Better.com was announced to expand product offerings to include HELOCs and HELOANs and enhance digital reach.
• The Ginnie Mae HMBS 2.0 program, expected in 2026, is anticipated to expand securitization eligibility for HECM loans, potentially increasing future opportunities.
• The company was in compliance with all financial covenants for its credit facilities and Ginnie Mae requirements as of September 30, 2025, with a waiver obtained for the net worth to total assets ratio.

Negatives

• The company reported a net loss of $29.86 million in Q3 2025, a significant decline from net income of $203.75 million in Q3 2024.
• Total revenues decreased substantially to $80.85 million in Q3 2025 from $290.07 million in Q3 2024.
• Fair value changes from market inputs or model assumptions resulted in net fair value losses of $21.87 million in Q3 2025, a $226.0 million decrease compared to net fair value gains in Q3 2024.
• The weighted average margin on reverse mortgage loan production decreased to 9.94% in Q3 2025 from 11.15% in Q3 2024, and to 9.18% for the nine months ended September 30, 2025, from 9.91% in 2024, due to changes in channel mix.
• Total expenses increased by $24.3 million in Q3 2025, primarily due to increased securitization expenses and higher variable compensation.
• Non-funding interest expense, net, increased by $5.3 million in Q3 2025, mainly due to discount amortization expense related to the exchange of senior notes.
• Net cash used in operating activities increased by $20.7 million for the nine months ended September 30, 2025, primarily due to increased cash used for originations of loans held for sale.
• A material weakness in internal control over financial reporting, identified as of December 31, 2024, continued to exist as of September 30, 2025, related to errors in cash flow statement classification.

Risks

• Ability to expand the customer base, efficiently acquire and originate reverse mortgage loans, finance the reverse mortgage portfolio, and profitably securitize or monetize the portfolio while managing challenges of a unified modern retirement solutions platform.
• Ability to realize anticipated benefits from the transition to a unified lending platform and streamlining operations, and generally operating the business profitably.
• Ability to respond to significant changes in prevailing interest rates and maintain profitable business operations.
• Geographic market concentration risk if economic conditions in current markets decline or are impacted by natural disasters.
• Ability to achieve anticipated returns from capital investments in technology.
• Business, compliance, and reputational risks associated with incorporating artificial intelligence technologies into processes.
• Use of estimates in measuring the fair value of assets and liabilities, which may require write-downs or write-ups if estimates prove incorrect.
• Ability to prevent cyber intrusions and mitigate cyber risks.
• Adverse effects from the condition of the U.S. residential mortgage market and other economic, political, business, and/or competitive factors, including a sustained period of higher interest rates.
• Ability to manage changes in licensing status, business relationships, or servicing guidelines with Ginnie Mae, HUD, or other governmental entities.
• Ability to obtain sufficient capital and liquidity to meet financing and operational requirements, and to comply with debt agreements and repay substantial debt.
• Ability to repay or refinance debt on reasonable terms as it becomes due.
• Ability to manage disruptions in the secondary home loan market, including the mortgage-backed securities market.
• Ability to finance and recover costs of reverse mortgage servicing operations.
• Ability to maintain compliance with extensive and complex regulations, including consumer protection laws applicable to reverse mortgage lenders.
• Ability to compete with national banks, which are not subject to state licensing and operational requirements.
• Ability to manage various legal proceedings, federal or state governmental examinations, and enforcement investigations.
• Continued ability to remain in compliance with the terms of consent orders issued by the Consumer Financial Protection Bureau.
• Holding company status and dependency on distributions from Finance of America Equity Capital LLC.
• Ability to comply with the continued listing standards of the New York Stock Exchange (NYSE).
• Low trading volume of common stock, which may result in an inability to sell shares at a desired price.
• Ability to remediate the material weakness in internal control over financial reporting and maintain an effective system of internal controls.
• Controlled company status under NYSE rules, which exempts the company from certain corporate governance requirements and affords stockholders fewer protections.
• The Repurchase Agreement with Blackstone may not be completed on the terms or timeline currently contemplated or at all, which could adversely affect stock price, business, financial condition, and results of operations, including incurring substantial costs and reputational harm.
• The Blackstone Investor has the right to terminate the Amended and Restated Repurchase Agreement if closings are delayed, or to transfer its Sold Equity to unaffiliated third parties, reducing the amount repurchased by the company.

Future Outlook

The company is focused on growing its core retirement solutions business, anticipating benefits from demographic and economic tailwinds. It plans to introduce additional innovative non-agency reverse mortgage loan products and continue investing in its second lien product, including marketing and digital efforts. A strategic partnership with Better.com will facilitate the launch of HELOCs and HELOANs and integrate reverse mortgage products into a unified digital experience. The upcoming Ginnie Mae HMBS 2.0 program in 2026 is expected to expand securitization eligibility for HECM loans. Management believes current cash flow from operations, borrowing availability, and existing facilities are adequate for ongoing cash requirements, with future debt maturities to be funded through cash, operating activities, and potential capital market access. The company is committed to remediating the material weakness in internal control over financial reporting and will continually assess its effectiveness.

Management Comments

• "We are focused on growing our core retirement solutions business, which benefits from demographic and economic tailwinds."
• "We believe we can continue to enhance, expand, and more effectively dispatch our innovative suite of home equity-based financing solutions to help senior homeowners achieve their retirement goals."
• "The launch and expansion of the second lien product has enabled us to serve borrowers who already have and desire to maintain a low-rate primary mortgage but want the convenience of a flexible second lien with no required monthly principal and interest payments."
• "These efforts exemplify our commitment to meet and serve new kinds of borrowers."
• "Our digital innovation strategy is designed to deliver financial services to seniors in a way that is both modern and user friendly."
• "Management is committed to remediating the material weakness in a timely fashion."
• "Management believes it has made substantial progress towards remediating the material weakness, subject to continuous management testing of the operating effectiveness of this internal control."
• "Management will continually assess the effectiveness of the remediation efforts and may determine to take additional measures to address control deficiencies or modify the remediation plan described above."

Industry Context

The company operates in the home equity-based financing solutions market for modern retirement, which is expected to benefit from demographic and economic tailwinds. The reverse mortgage market is identified as vast and largely underserved, presenting opportunities for innovative product development. The strategic partnership with Better.com to offer HELOCs and HELOANs signifies an expansion beyond traditional reverse mortgages, addressing a broader spectrum of borrower needs for higher loan-to-value solutions. The anticipated implementation of the Ginnie Mae HMBS 2.0 program in 2026 is a key industry development that is expected to enhance securitization eligibility for HECM loans, potentially improving liquidity and market efficiency for participants like Finance of America. However, the industry remains susceptible to broader macroeconomic factors, including U.S. Federal Reserve monetary policies, which can influence interest rates, real estate values, mortgage transaction volumes, and profit margins.

Management Changes

Corporate Governance

Legal Proceedings

• The company is a defendant in a representative lawsuit alleging violations of the California Labor Code, brought pursuant to the California Private Attorneys General Act (PAGA).
• The individual arbitration claim related to this lawsuit has been settled for a de minimis amount.
• The outcome of the representative PAGA claim cannot be presently determined, and a range of possible losses cannot be reasonably estimated due to the unpredictable nature of litigation and the wide discretion afforded the Court in awarding civil penalties.
• Legal expenses for the three months ended September 30, 2025, were $0.5 million, and for the nine months ended September 30, 2025, were $1.6 million.

Related Party Transactions

• On August 4, 2025, two outstanding Working Capital Promissory Notes with BTO Urban Holdings L.L.C. and Libman Family Holdings, LLC (LFH), deemed affiliates, were repaid and terminated in full. These notes had outstanding amounts of $85.0 million as of December 31, 2024.
• Interest paid related to the Working Capital Promissory Notes was $4.0 million for the three months ended September 30, 2025, and $8.5 million for the nine months ended September 30, 2025.
• On August 4, 2025, FAR entered into an unsecured revolving working capital promissory note (LFH Promissory Note) with LFH, providing an uncommitted revolving facility of up to $20.0 million, accruing interest monthly at 10% per annum and maturing on August 4, 2026. This note had no outstanding balance as of September 30, 2025.
• Interest paid related to the LFH Promissory Note was $0.3 million for the three months ended September 30, 2025.
• The company had $77.3 million of Secured Notes due to LFH as of both September 30, 2025, and December 31, 2024.
• Interest paid to LFH related to the Secured Notes was $3.4 million for the nine months ended September 30, 2025.
• On August 4, 2025, the company entered into a Repurchase Agreement with the Blackstone Investor (deemed affiliates) to purchase all of Blackstone's equity stake (Class A Common Stock, Class B Common Stock, Class A LLC Units, and Earnout Rights) for $80,298,170. The Tax Receivable Agreement (TRA) with the Blackstone Investor will be terminated.
• The Repurchase Agreement was amended and restated on November 13, 2025, to provide for two closings, potential increases in the purchase price (a premium of $10,037,271.20 if the First Closing is delayed past December 4, 2025, and a 15.00% per annum increase for delayed Second Closing Sold Equity), and certain termination rights for the Blackstone Investor if closings are not consummated by specified dates.

Stakeholder Impact

• Shareholders face potential dilution from convertible notes and incentive units, and the impact of the Blackstone repurchase agreement (reduction in outstanding shares/units, but also potential price increases if delayed). Negative financial results (net loss, revenue decline) could adversely affect share price, and the material weakness in internal controls could erode investor confidence.
• Employees, particularly officers, received Incentive Units, aligning their interests with long-term company performance. However, streamlining operations and cost-cutting initiatives have led to a decrease in average headcount.
• Customers may benefit from the expansion of product offerings (HELOCs, HELOANs) through the Better.com partnership and the company's digital innovation strategy aimed at improving the customer experience.
• Creditors are impacted by the company's substantial debt obligations ($30.1 billion) and its compliance with financial covenants for credit facilities and Ginnie Mae requirements (with a waiver). The repayment of Working Capital Promissory Notes affects certain related-party creditors.
• The Blackstone Investor is selling its entire equity stake for $80.3 million, with potential for a higher payout if the repurchase closings are delayed, and the termination of the Tax Receivable Agreement.

Next Steps

• Consummation of the First Closing of the Amended and Restated Repurchase Agreement by December 4, 2025.
• Consummation of the Second Closing of the Amended and Restated Repurchase Agreement by February 27, 2026.
• Continued efforts to remediate the material weakness in internal control over financial reporting.
• Ongoing assessment of the effectiveness of remediation efforts for internal controls.
• Integration of reverse mortgage products into Better.com's AI platform.
• Launch of HELOCs and HELOANs through Better.com's AI platform.
• Implementation of Ginnie Mae's HMBS 2.0 program in 2026.
• Potential issuance of remaining Class A LLC Units to AAG/Bloom on March 31, 2026, dependent on indemnified claims.

Key Dates

Recommendation

The company reported a substantial net loss and significant revenue decline in Q3 2025, primarily driven by adverse fair value changes from market inputs. This indicates a challenging operating environment and potential volatility in asset valuations. The ongoing material weakness in internal controls over financial reporting raises concerns about financial reporting reliability. While strategic partnerships and increased loan origination volumes offer some long-term potential, the immediate financial performance and the complexities surrounding the Blackstone repurchase agreement (including potential price increases and termination risks) present significant headwinds and uncertainty. The stock's low trading volume also suggests limited liquidity. Given these factors, a seasoned investor would likely consider reducing exposure due to the high risk and negative short-term outlook.

Keywords

Reverse mortgage, HECM, Mortgage-backed securities, Securitization, Financial services, Home equity, Retirement solutions, Fair value, Interest rates, Blackstone, Better.com, Capital markets, Loan origination, Internal controls