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Finance of America Companies Inc.（"FoA," "公司," "我們," 或 "我們的"）於2020年10月9日在特拉華州成立。FoA是一家金融服務控股公司，通過其運營子公司，爲現代養老提供領先的房屋淨值融資解決方案。此外，FoA主要提供資本市場和投資組合管理能力，以優化其發放的貸款向投資者的分配。
FoA在Finance of America Equity Capital LLC（"FoA Equity"）擁有控制性的財務利益。FoA Equity擁有Finance of America Funding LLC（"FOAF"）的所有優先權益。FOAF全資擁有Finance of America Holdings LLC（"FAH"）和Incenter LLC（"Incenter"，與FoA Equity、FOAF和FAH一起，被稱爲"控股公司子公司"）。
公司通過其FAH控股子公司經營一個貸款公司，Finance of America Reverse LLC（「FAR」）。通過FAR，公司發起、購買、銷售、證券化和服務由聯邦住房管理局（"FHA"）保險的HECm，以及非機構反向抵押貸款。公司通過其Incenter控股子公司擁有運營服務公司（「運營服務子公司」以及與FAR一起，爲「運營子公司」），提供資本市場和投資組合管理能力。
2023年2月1日，Incenter簽署了一項協議，打算出售 百分之一百 （i）Incenter的直接子公司，也是公司的間接子公司Agents National Title Holding Company（「ANTIC」）發行及流通的股份的百分比，以及（ii）Incenter的直接子公司，也是公司的間接子公司Boston National Holdings LLC（「BNT」）發行及流通的會員權益的百分比。ANTIC和BNT的銷售交易於2023年7月3日完成。公司以往將ANTIC和BNT的業務納入之前報告的貸款服務部門。2023年3月30日，FoA Equity董事會批准了一項計劃，出售組成公司之前報告的貸款服務部門餘下的資產，除了其Incenter Solutions LLC經營服務子公司。公司在2023年6月30日完成了此類資產的出售。有關詳情，請參閱附註4 - 停止經營。
2023年2月19日，FAH和FAm達成協議，賣出了以Finance of America Commercial（「FACo」）品牌運營的FAm特定商業創始資產。該交易於2023年3月14日結案。公司在此前報告的商業創始部門歷史上包括了FACo的商業創始運營。與交易相關，公司停止了商業創始部門的運營並清算了其商業創始部門。有關詳細信息，請參閱附註4 - 停止運營。
(1) The Seller owns one share of FoA Class B Common Stock. Class B Common Stock has no economic rights but entitles each holder of at least one such share (regardless of the number of shares held) to a number of votes that is equal to the aggregate number of Class A LLC Units held by the holder on all matters on which Class A Common Stockholders are entitled to vote. The fair value of the Class B Common Stock was determined to be negligible as there are no economic rights associated with the Class B Common Stock.
(2)Amounts represent the cash portion of the consideration paid to acquire the net assets of AAG/Bloom. Total cash consideration was $140.9 million.
(3)At the closing of the AAG Transaction, FoA Equity issued 1,969,299 Class A LLC Units to the Seller, which hold 1:1 conversion rights for Class A Common Stock of FoA. At the closing date, the fair value of these Class A LLC Units were equal to the Class A Common Stock share price of $12.40 per share.
(4)The deferred equity consideration is comprised of two forms of issuable Class A LLC Units; 705,841 units with a fair value of $8.7 million that are equity classified and indemnity holdback units totaling up to 714,226 units as of the acquisition date with a fair value of $4.4 million that are liability classified. The deferred equity consideration that is liability classified is recorded in payables and other liabilities in the Condensed Consolidated Statements of Financial Condition. Refer to Note 21 - Subsequent Events for additional information on the deferred equity consideration that is equity classified.
The indemnity holdback units to be issued to the Seller are based on set thresholds and, subject to meeting the control condition, are settled two and three years following the closing date. The amount of units released to the Seller depends on the dollar amount of indemnified claims FoA pays out on behalf of the Seller related to litigation liabilities and indemnifiable loan losses. Two years following the closing date, FoA Equity will issue to the Seller Class A LLC Units equal to the excess of the remaining indemnity holdback units over the threshold of 357,113. The remaining Class A LLC Units the Seller is entitled to are issued three years following the closing date. Management has included the fair value of indemnity holdback units, reduced for estimated litigation liabilities and indemnifiable loan losses, above in the consideration given to the Seller.
23
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
4. Discontinued Operations
During the fourth quarter of 2022 and calendar year 2023, the Company entered into a series of transactions, discontinuing certain business lines while enhancing our reverse mortgage loan business, in order to transform our business from a vertically integrated lending and complementary services platform to a modern retirement solutions platform. This transformation included the wind-down of the previously reported Mortgage Originations segment and sale of the previously reported Commercial Originations and Lender Services segments. This constitutes a strategic shift that has or will have a major effect on our operations and financial results.
The following table summarizes the major classes of assets and liabilities classified as discontinued operations as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024
December 31, 2023
Assets
Other assets, net
$
3,827
$
6,721
Liabilities
Payables and other liabilities
13,585
18,304
24
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table summarizes the major components of net loss from discontinued operations (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Portfolio interest income
Interest income
$
—
$
—
$
—
$
828
Interest expense
—
—
—
(970)
Net portfolio interest income (expense)
—
—
—
(142)
Other income (expense)
Net origination gains
—
—
—
308
Net fair value changes on loans and related obligations
—
—
—
308
Fee income
—
3
—
68,128
Gain on sale and other income from loans held for sale, net
—
—
—
278
Net other income (expense)
—
3
—
68,714
Total revenues
—
3
—
68,572
Expenses
Salaries, benefits, and related expenses
—
962
—
51,664
Loan production and portfolio related expenses
—
36
—
1,223
Marketing and advertising expenses
—
74
—
962
Depreciation and amortization
—
—
—
2,778
General and administrative expenses
—
1,122
1,622
55,454
Total expenses
—
2,194
1,622
112,081
Impairment of intangibles and other assets(1)
—
—
—
(4,455)
Other, net(2)
—
(261)
(3,105)
1,660
Net loss from discontinued operations before income taxes
—
(2,452)
(4,727)
(46,304)
Provision (benefit) for income taxes from discontinued operations
—
12
—
(1,093)
Net loss from discontinued operations
—
(2,464)
(4,727)
(45,211)
Net loss from discontinued operations attributable to noncontrolling interest
—
(1,629)
(2,719)
(29,182)
Net loss from discontinued operations attributable to controlling interest
$
—
$
(835)
$
(2,008)
$
(16,029)
(1) The Company evaluates the carrying value of long-lived assets, including intangible assets, fixed assets, leasehold improvements as well as right-of-use assets in operating leases when indicators of impairment exist in accordance with Accounting Standards Codification (“ASC”) 360, Property, Plant, and Equipment. Based on the analyses, the Company recognized impairment charges in the nine months ended September 30, 2023, related to the sales of the previously reported Lender Services and Commercial Originations segments.
(2) Amounts include gains on disposals of $0.2 million and $2.2 million for the three and nine months ended September 30, 2023, respectively. The gains on disposals consist of a $0.2 million gain on the sale of ANTIC and BNT, a $12.2 million gain on the sale of the remaining assets of the Lender Services segment, and a $10.2 million loss on the sale of our commercial originations operational assets.
25
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 included the following material activities related to discontinued operations (in thousands):
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Gain on sale and other income from loans held for sale, net
$
—
$
278
Unrealized fair value changes on loans, related obligations, and derivatives
—
308
Impairment of intangibles and other assets
—
4,455
Depreciation and amortization
—
2,778
Acquisition of fixed assets
—
1,815
5. Variable Interest Entities and Securitizations
The Company determined that the special purpose entities created in connection with its securitizations are VIEs. A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is the entity that, through its variable interests, has both the power to direct the activities that significantly impact the VIE’s economic performance and the obligations to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Consolidated VIEs
FAR
FAR securitizes certain of its interests in HECM buyouts and non-agency reverse mortgage loans. The transactions provide investors with the ability to invest in a pool of reverse mortgage loans secured by residential properties. The transactions provide FAR with access to liquidity for these assets, ongoing servicing fees, and potential residual returns. The principal and interest on the outstanding certificates are paid using the cash flows from the underlying reverse mortgage loans, which serve as collateral for the debt. The securitizations are callable at or following the optional redemption date as defined in the respective indenture agreements. In 2024,the Company entered into a financing agreement which was structured as a securitization. The special purpose entity created for the purposes of the financing is a VIE which the Company has consolidated, as the Company is the primary beneficiary. The non-agency loans included in this securitization are recorded in loans held for investment, at fair value, in the Condensed Consolidated Statements of Financial Condition and the associated debt is recorded in other financing lines of credit in the Condensed Consolidated Statements of Financial Condition.
During the three and nine months ended September 30, 2024, the Company redeemed outstanding securitized notes related to certain non-agency reverse product securitizations. As part of the redemptions, the Company paid off notes with outstanding principal balances of $382.9 million and $1,188.0 million, respectively. The notes were paid off at par.
FAM
FAM securitized certain of its interests in commercial mortgage loans. The transactions provided debt security holders the ability to invest in a pool of loans secured by an investment in real estate. The transactions provided the Company with access to liquidity for the loans and ongoing management fees. The principal and interest on the outstanding debt securities are paid using the cash flows from the underlying loans, which serve as collateral for the debt.
During the nine months ended September 30, 2024, the Company redeemed outstanding securitized notes related to certain commercial mortgage securitizations. As part of the redemptions, the Company paid off notes with outstanding principal balances of $45.6 million. The notes were paid off at par.
26
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Servicing-Securitized Loans
In their capacity as servicer of the securitized loans, FAR and FAM retain the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance. FAR and FAM also retain certain beneficial interests in these trusts which provide exposure to potential gains and losses based on the performance of the trust. As FAR and FAM have both the power to direct the activities that significantly impact the VIE’s economic performance and the obligations to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the definition of primary beneficiary is met and the trusts are consolidated by the Company through its FAR and FAM subsidiaries.
Certain obligations may arise from the agreements associated with transfers of loans. Under these agreements, the Company may be obligated to repurchase the loans or otherwise indemnify or reimburse the investor for losses incurred due to material breach of contractual representations and warranties. There were no charge-offs associated with these transferred mortgage loans related to the standard securitization representations and warranties obligations for both the three and nine months ended September 30, 2024 or 2023.
The following table presents the assets and liabilities of the Company’s consolidated VIEs, which are included in the Condensed Consolidated Statements of Financial Condition, and excludes intercompany balances, except for retained bonds and beneficial interests (in thousands):
September 30, 2024
December 31, 2023
ASSETS
Restricted cash
$
167,399
$
168,010
Loans held for investment, subject to nonrecourse debt, at fair value
8,712,720
7,881,566
Loans held for investment, at fair value
222,609
—
Other assets, net
54,817
68,178
TOTAL ASSETS
$
9,157,545
$
8,117,754
LIABILITIES
Nonrecourse debt, at fair value
$
8,523,744
$
7,859,065
Other financing lines of credit
174,874
—
Payables and other liabilities
904
546
TOTAL VIE LIABILITIES
8,699,522
7,859,611
Retained bonds and beneficial interests eliminated in consolidation
(352,557)
(327,653)
TOTAL CONSOLIDATED LIABILITIES
$
8,346,965
$
7,531,958
Unconsolidated VIEs
Transfer of loans accounted for as sales
The Company securitized certain of its interests in non-agency reverse mortgage loans and in agency-eligible residential mortgage loans. The transactions provided investors with the ability to invest in a pool of mortgage loans secured by residential properties and provided the Company with access to liquidity for these assets and ongoing service fees. The Company’s beneficial interest in the securitizations is limited to a 5% eligible vertical interest in the trusts. The Company determined that the securitization structures meet the definition of a VIE and concluded that the Company does not hold a significant variable interest in the securitizations and that the contractual role as servicer is not a variable interest. The transfers of the loans to the VIEs were determined to be sales. The Company derecognized the mortgage loans and did not consolidate the trusts.
The Company’s continuing involvement with and exposure to loss from the VIEs includes the carrying value of the retained bonds, the servicing asset recognized in the sale of the loans, servicing advances in the role as servicer, and obligations under representations and warranties contained in the loan sale agreements. Creditors of the VIEs have no recourse to the Company’s assets or general credit. The underlying performance of the mortgage loans transferred has a direct impact on the fair values and cash flows of the beneficial interests held and the servicing asset recognized.
27
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Transfer of loans accounted for as secured borrowings
The Company securitized certain non-agency reverse mortgage loans and commercial mortgage loans where its beneficial interest in the securitizations is limited to a 5% eligible vertical interest in the trusts. The Company determined that these securitization structures meet the definition of a VIE and concluded that the Company does not hold a significant variable interest in the securitizations and the Company does not have the power to direct the activities that most significantly affect the economic performance of the VIEs. However, the transfers of the loans to the VIEs were determined not to be sales. As such, the Company continues to recognize the loans and recognized a nonrecourse liability for the proceeds received from third parties for the transfer of the loans. Bonds issued in the securitization that were retained by the Company are not recognized. The Company’s continuing involvement with and exposure to loss from the VIEs includes the carrying value of the retained bonds, servicing advances in the role as servicer, and obligations under representations and warranties contained in the loan sale agreements. Creditors of the VIEs have no recourse to the Company’s assets or general credit. The underlying performance of the mortgage loans held has a direct impact on the fair values and cash flows of the beneficial interests held.
The tables below present a summary of the unconsolidated VIEs for which the Company holds variable interests (in thousands):
September 30, 2024
Carrying value
Assets
Liabilities
Maximum exposure to loss
Total assets in VIEs
Transfers of loans - sale treatment
Retained interests
$
48,190
$
—
$
48,190
$
959,667
Transfers of loans - secured borrowing
Loans and nonrecourse liability
390,049
370,442
19,607
390,049
TOTAL
$
438,239
$
370,442
$
67,797
$
1,349,716
December 31, 2023
Carrying value
Assets
Liabilities
Maximum exposure to loss
Total assets in VIEs
Transfers of loans - sale treatment
Retained interests
$
50,774
$
—
$
50,774
$
1,008,152
Transfers of loans - secured borrowing
Loans and nonrecourse liability
389,557
368,343
21,214
389,557
TOTAL
$
440,331
$
368,343
$
71,988
$
1,397,709
As of September 30, 2024 and December 31, 2023, there were $0.5 million and $0.7 million, respectively, of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 90 days or more past due.
6. Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on the assumptions market participants would use when pricing an asset or liability and follows a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
28
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
All aspects of nonperformance risk, including the Company’s own credit standing, are considered when measuring the fair value of a liability.
Following is a description of the three levels of the fair value hierarchy:
Level 1 Inputs: Quoted prices for identical instruments in active markets.
Level 2 Inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs: Instruments with unobservable inputs that are significant to the fair value measurement.
The Company classifies assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers into or out of Level 3 within the fair value hierarchy during the three and nine months ended September 30, 2024 and 2023.
Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and the details of the valuation models, key inputs to those models, and significant assumptions utilized. Within the assumption tables presented, not meaningful (“NM”) refers to a range of inputs that is too broad to provide meaningful information to the user or to an input that has no range and consists of a single data point.
Instrument
Valuation techniques
Classification of Fair Value Hierarchy
Assets
Loans held for investment, subject to HMBS related obligations(1)
HECM loans - securitized into Ginnie Mae HMBS
These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio using weighted average remaining life (“WAL”), conditional prepayment rate (“CPR”), loss frequency, loss severity, borrower draw, and discount rate assumptions.
Level 3
Loans held for investment, subject to nonrecourse debt(1)
Non-agency reverse mortgage loans - securitized
These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using WAL, loan-to-value (“LTV”), CPR, loss severity, home price appreciation (“HPA”), and discount rate assumptions.
Level 3
HECM buyouts - securitized (performing)
These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using WAL, CPR, loss severity, and discount rate assumptions.
Level 3
HECM buyouts - securitized (nonperforming)
These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using CPR, loss frequency, loss severity, and discount rate assumptions.
Level 3
Commercial mortgage loans - securitized
This product is valued using a discounted cash flow (“DCF”) model utilizing a single monthly mortality prepayment rate (“SMM”), discount rate, and loss rate assumptions.
Level 3
(1)The Company aggregates loan portfolios based on the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided is based on the range of inputs utilized for each securitization trust.
29
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Loans held for investment
Non-agency reverse mortgage loans
The Company values non-agency reverse mortgage loans utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio. The primary assumptions utilized in valuing the loans include WAL, LTV, CPR, loss severity, HPA, and discount rate.
Level 3
Inventory buyouts
The fair value of repurchased loans is based on expected cash proceeds of the liquidation of the underlying properties and expected claim proceeds from HUD. The primary assumptions utilized in valuing nonperforming repurchased loans include CPR, loss frequency, loss severity, and discount rate. Termination proceeds are adjusted for expected loss frequencies and severities to arrive at net proceeds that will be provided upon final resolution, including assignments to FHA. Historical experience is utilized to estimate the loss rates resulting from scenarios where FHA insurance proceeds are not expected to cover all principal and interest outstanding and, as servicer, the Company is exposed to losses upon resolution of the loan.
Level 3
Commercial mortgage loans
This product is valued using a DCF model with SMM, discount rate, and constant default rate (“CDR”) assumptions.
Level 3
Other assets
Retained bonds
Management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal valuation model. The primary assumptions utilized include WAL and discount rate.
Level 3
Loans held for sale - residential mortgage loans
This includes all mortgage loans that can be sold to the agencies, which are valued predominantly by published forward agency prices. This will also include all non-agency loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair value), or quoted market prices for similar loans are available.
Level 2
MSR
The Company valued MSR internally through a DCF analysis and calculated using a pricing model. This pricing model is based on the objective characteristics of the portfolio (loan amount, note rate, etc.) and commonly used industry assumptions such as discount rate and weighted average CPR. There were no MSR at September 30, 2024 and the range and weighted average of the unobservable inputs of MSR were not meaningful at December 31, 2023.
Level 3
Liabilities
HMBS related obligations
HMBS related obligations
The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The estimated fair value of the HMBS related obligations also includes the consideration required by a market participant to transfer the HECM and HMBS servicing obligations, including exposure resulting from shortfalls in FHA insurance proceeds as well as assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for repayment, costs to transfer servicing obligations, shortfalls in FHA insurance proceeds, and discount rates. The significant unobservable inputs used in the measurement include CPR and discount rates.
The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The significant unobservable inputs used in the measurement include WAL, CPR, and discount rates.
Level 3
30
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Nonrecourse commercial loan financing liability
The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The primary assumptions utilized include WAL, weighted average SMM, and discount rates. The Company estimates prepayment speeds giving consideration that the Company may in the future transfer additional loans to the trust, subject to the availability of funds provided for within the trust.
Level 3
Deferred purchase price liabilities
Deferred purchase price liabilities
These liabilities are measured based on the estimated amount of indemnified claims associated with the AAG Transaction and the closing market price of the Company’s publicly-traded stock on the applicable date of the Condensed Consolidated Statements of Financial Condition. Refer to Note 3 - Acquisitions for additional information.
Level 3
Tax Receivable Agreements (“TRA”) obligation
The fair value is derived through the use of a DCF model. The significant unobservable assumptions used in the DCF include the ability to utilize tax attributes based on current tax forecasts, a constant U.S. federal income tax rate, and a discount rate.
Level 3
September 30, 2024
December 31, 2023
Instrument / Unobservable Inputs
Range
Weighted Average
Range
Weighted Average
Assets
Loans held for investment, subject to HMBS related obligations
WAL (in years)
NM
3.3
NM
3.4
CPR
NM
20.2
%
NM
20.1
%
Loss frequency
NM
4.6
%
NM
4.5
%
Loss severity
3.5% - 15.0%
3.5
%
3.4% - 12.9%
3.5
%
Discount rate
NM
4.6
%
NM
5.0
%
Average draw rate
NM
1.1
%
NM
1.1
%
Loans held for investment, subject to nonrecourse debt:
Non-agency reverse mortgage loans - securitized
WAL (in years)
NM
9.8
NM
9.7
LTV
0.0% - 97.2%
46.5
%
0.0% - 79.6%
45.9
%
CPR
NM
15.0
%
NM
14.7
%
Loss severity
NM
10.0
%
NM
10.0
%
HPA
(5.2)% - 8.6%
3.6
%
(9.8)% - 7.6%
3.3
%
Discount rate
NM
6.5
%
NM
6.9
%
HECM buyouts - securitized (performing)
WAL (in years)
NM
7.1
NM
7.4
CPR
NM
15.4
%
NM
15.1
%
Loss severity
3.5% - 15.0%
5.6
%
3.4% - 12.8%
6.9
%
Discount rate
NM
7.4
%
NM
8.2
%
HECM buyouts - securitized (nonperforming)
CPR
NM
40.8
%
NM
39.8
%
Loss frequency
23.1% - 100.0%
48.0
%
23.1% - 100.0%
51.0
%
Loss severity
3.5% - 15.0%
6.2
%
3.4% - 12.8%
6.4
%
Discount rate
NM
7.8
%
NM
8.6
%
Commercial mortgage loans - securitized
SMM
NM
8.3
%
NM
10.7
%
31
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024
December 31, 2023
Instrument / Unobservable Inputs
Range
Weighted Average
Range
Weighted Average
Discount rate
NM
19.5
%
NM
16.5
%
Loss rate
NM
8.1
%
NM
1.0
%
Loans held for investment:
Non-agency reverse mortgage loans
WAL (in years)
NM
9.2
NM
12.1
LTV
0.6% - 68.1%
35.6
%
3.9% - 53.8%
33.8
%
CPR
NM
17.5
%
NM
14.4
%
Loss severity
NM
10.0
%
NM
10.0
%
HPA
(5.2)% - 7.8%
3.4
%
(9.8)% - 7.6%
3.1
%
Discount rate
NM
6.5
%
NM
6.9
%
Inventory buyouts
CPR
NM
41.4
%
NM
41.5
%
Loss frequency
NM
43.5
%
NM
48.2
%
Loss severity
3.5% - 15.0%
5.6
%
3.4% - 12.8%
5.1
%
Discount rate
NM
7.8
%
NM
8.6
%
Commercial mortgage loans
SMM
NM
—
%
NM
73.6
%
CDR
NM
9.2
%
NM
25.6
%
Discount rate
8.7% - 12.4%
8.7
%
9.6% - 20.0%
13.2
%
Other assets:
Retained bonds
WAL (in years)
2.2 - 22.8
4.8
2.3 - 23.4
4.9
Discount rate
(1.4)% - 13.0%
6.8
%
(31.2)% - 12.3%
6.7
%
Liabilities
HMBS related obligations
CPR
NM
23.6
%
NM
23.8
%
Discount rate
NM
4.5
%
NM
5.0
%
Nonrecourse debt:
Reverse mortgage loans:
Securitized non-agency reverse
WAL (in years)
0.1 - 11.0
3.2
0.8 - 11.2
4.5
CPR
11.6% - 64.5%
17.4
%
10.6% - 22.3%
14.7
%
Discount rate
NM
6.3
%
NM
7.0
%
Performing/Nonperforming HECM securitizations
WAL (in years)
NM
0.2
NM
0.9
CPR
34.7% - 35.2%
35.0
%
21.5% - 22.3%
21.9
%
Discount rate
NM
9.9
%
NM
10.0
%
Nonrecourse commercial loan financing liability
WAL (in months)
NM
3.7
NM
1.8
Weighted average SMM
NM
18.5
%
NM
33.3
%
Discount rate
NM
8.4
%
NM
9.1
%
32
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024
December 31, 2023
Instrument / Unobservable Inputs
Range
Weighted Average
Range
Weighted Average
Deferred purchase price liabilities
TRA obligation
Discount rate
NM
34.8
%
NM
33.0
%
Fair Value of Assets and Liabilities
The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis (in thousands):
September 30, 2024
Total Fair Value
Level 1
Level 2
Level 3
Assets
Loans held for investment, subject to HMBS related obligations
$
18,521,337
$
—
$
—
$
18,521,337
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans
9,063,459
—
—
9,063,459
Commercial mortgage loans
33,910
—
—
33,910
Loans held for investment:
Reverse mortgage loans
702,858
—
—
702,858
Commercial mortgage loans
498
—
—
498
Other assets:
Retained bonds
42,777
—
—
42,777
Loans held for sale - residential mortgage loans
1,151
—
1,151
—
Total assets
$
28,365,990
$
—
$
1,151
$
28,364,839
Liabilities
HMBS related obligations
$
18,292,043
$
—
$
—
$
18,292,043
Nonrecourse debt:
Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability
8,528,429
—
—
8,528,429
Nonrecourse commercial loan financing liability
8,690
—
—
8,690
Deferred purchase price liabilities:
Deferred purchase price liabilities
5,501
—
—
5,501
TRA obligation
3,934
—
—
3,934
Total liabilities
$
26,838,597
$
—
$
—
$
26,838,597
33
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2023
Total Fair Value
Level 1
Level 2
Level 3
Assets
Loans held for investment, subject to HMBS related obligations
$
17,548,763
$
—
$
—
$
17,548,763
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans
8,138,403
—
—
8,138,403
Commercial mortgage loans
133,990
—
—
133,990
Loans held for investment:
Reverse mortgage loans
574,271
—
—
574,271
Commercial mortgage loans
957
—
—
957
Other assets:
Retained bonds
44,297
—
—
44,297
Loans held for sale - residential mortgage loans
4,246
—
4,246
—
MSR
6,436
—
—
6,436
Loan purchase commitments
630
—
630
—
Total assets
$
26,451,993
$
—
$
4,876
$
26,447,117
Liabilities
HMBS related obligations
$
17,353,720
$
—
$
—
$
17,353,720
Nonrecourse debt:
Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability
7,876,932
—
—
7,876,932
Nonrecourse commercial loan financing liability
27,268
—
—
27,268
Deferred purchase price liabilities:
Deferred purchase price liabilities
4,318
—
—
4,318
TRA obligation
4,537
—
—
4,537
Warrant liability
1,150
1,150
—
—
Total liabilities
$
25,267,925
$
1,150
$
—
$
25,266,775
34
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Level 3 assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
Assets
Three months ended September 30, 2024
Loans held for investment
Loans held for investment, subject to nonrecourse debt
Retained bonds
Beginning balance
$
18,873,818
$
8,418,195
$
41,893
Total gain included in earnings
487,239
483,014
1,976
Purchases, settlements, and transfers:
Purchases and additions
718,300
8,844
—
Sales and settlements
(494,834)
(177,675)
(1,092)
Transfers in (out) between categories
(359,830)
364,991
—
Ending balance
$
19,224,693
$
9,097,369
$
42,777
Liabilities
Three months ended September 30, 2024
HMBS related obligations
Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability
Nonrecourse commercial loan financing liability
Deferred purchase price liabilities
TRA obligation
Beginning balance
$
(17,980,232)
$
(8,038,866)
$
(11,842)
$
(1,834)
$
(3,703)
Total loss included in earnings
(409,485)
(249,488)
(2,413)
(3,667)
(231)
Purchases, settlements, and transfers:
Purchases and additions
(485,434)
(425,667)
—
—
—
Settlements
583,108
185,592
5,565
—
—
Ending balance
$
(18,292,043)
$
(8,528,429)
$
(8,690)
$
(5,501)
$
(3,934)
Assets
Nine months ended September 30, 2024
Loans held for investment
Loans held for investment, subject to nonrecourse debt
MSR
Retained bonds
Beginning balance
$
18,123,991
$
8,272,393
$
6,436
$
44,297
Total gain (loss) included in earnings
1,381,038
669,093
(920)
1,063
Purchases, settlements, and transfers:
Purchases and additions
2,084,750
31,080
—
—
Sales and settlements
(1,581,575)
(671,528)
(5,516)
(2,583)
Transfers in (out) between categories
(783,511)
796,331
—
—
Ending balance
$
19,224,693
$
9,097,369
$
—
$
42,777
Liabilities
Nine months ended September 30, 2024
HMBS related obligations
Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability
Nonrecourse commercial loan financing liability
Deferred purchase price liabilities
TRA obligation
Beginning balance
$
(17,353,720)
$
(7,876,932)
$
(27,268)
$
(4,318)
$
(4,537)
Total gain (loss) included in earnings
(1,103,494)
(455,674)
6,338
(1,320)
603
Purchases, settlements, and transfers:
Purchases and additions
(1,457,360)
(813,870)
—
—
—
Settlements
1,622,531
618,047
12,240
137
—
Ending balance
$
(18,292,043)
$
(8,528,429)
$
(8,690)
$
(5,501)
$
(3,934)
35
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Assets
Three months ended September 30, 2023
Loans held for investment
Loans held for investment, subject to nonrecourse debt
Loans held for sale
MSR
Retained bonds
Beginning balance
$
17,568,751
$
7,928,414
$
10,695
$
9,456
$
45,570
Total gain (loss) included in earnings
245,104
(66,140)
1,146
87
(1,778)
Purchases, settlements, and transfers:
Purchases and additions
758,193
16,045
—
—
—
Sales and settlements
(546,046)
(344,162)
(8,450)
(1,599)
(941)
Transfers in (out) between categories
(373,131)
378,602
1
—
—
Ending balance
$
17,652,871
$
7,912,759
$
3,392
$
7,944
$
42,851
Liabilities
Three months ended September 30, 2023
HMBS related obligations
Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability
Nonrecourse commercial loan financing liability
Deferred purchase price liabilities
TRA obligation
Sale commitments
Beginning balance
$
(16,665,535)
$
(7,737,529)
$
(59,016)
$
(4,042)
$
(1,097)
$
—
Total gain (loss) included in earnings
(226,421)
(7,301)
28
(621)
92
(1,095)
Purchases, settlements, and transfers:
Purchases and additions
(632,568)
(448,394)
—
—
—
—
Settlements
546,356
413,027
26,615
—
—
—
Ending balance
$
(16,978,168)
$
(7,780,197)
$
(32,373)
$
(4,663)
$
(1,005)
$
(1,095)
Assets
Nine months ended September 30, 2023
Loans held for investment
Loans held for investment, subject to nonrecourse debt
Loans held for sale
MSR
Retained bonds
Purchase commitments
Beginning balance
$
12,022,098
$
7,454,638
$
161,861
$
95,096
$
46,439
$
9,356
Total gain (loss) included in earnings
649,691
12,648
(205)
(1,074)
(1,357)
—
Purchases, settlements, and transfers:
Purchases and additions
7,922,385
63,550
40,468
405
—
—
Sales and settlements
(1,441,502)
(1,083,919)
(215,847)
(86,483)
(2,231)
(9,356)
Transfers in (out) between categories
(1,499,801)
1,465,842
17,115
—
—
—
Ending balance
$
17,652,871
$
7,912,759
$
3,392
$
7,944
$
42,851
$
—
36
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Liabilities
Nine months ended September 30, 2023
HMBS related obligations
Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability
Nonrecourse commercial loan financing liability
Nonrecourse MSR financing liability
Deferred purchase price liabilities
TRA obligation
Sale commitments
Beginning balance
$
(10,996,755)
$
(7,175,857)
$
(106,758)
$
(60,562)
$
(137)
$
(3,781)
$
—
Total gain (loss) included in earnings
(506,834)
(149,481)
21
748
(621)
2,776
(1,095)
Purchases, settlements, and transfers:
Purchases and additions
(6,908,330)
(1,555,155)
(27,565)
—
(3,905)
—
—
Settlements
1,433,751
1,100,296
101,929
59,814
—
—
—
Ending balance
$
(16,978,168)
$
(7,780,197)
$
(32,373)
$
—
$
(4,663)
$
(1,005)
$
(1,095)
Fair Value Option
The Company has elected to measure its loans held for investment, loans held for sale, HMBS related obligations, and nonrecourse debt at fair value under the fair value option. The Company elected to apply the provisions of the fair value option to these assets and liabilities in order to align financial reporting presentation with the Company’s operational and risk management strategies. Presented in the tables below are the fair value and the unpaid principal balance (“UPB”), at September 30, 2024 and December 31, 2023, of financial assets and liabilities for which the Company has elected the fair value option (in thousands):
September 30, 2024
Estimated Fair Value
Unpaid Principal Balance
Assets at fair value under the fair value option
Loans held for investment, subject to HMBS related obligations
$
18,521,337
$
17,493,824
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans
9,063,459
8,783,102
Commercial mortgage loans
33,910
43,653
Loans held for investment:
Reverse mortgage loans
702,858
648,344
Commercial mortgage loans
498
702
Other assets:
Loans held for sale - residential mortgage loans
1,151
1,487
Liabilities at fair value under the fair value option
HMBS related obligations
18,292,043
17,493,824
Nonrecourse debt:
Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability
8,528,429
8,847,008
Nonrecourse commercial loan financing liability
8,690
14,075
37
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2023
Estimated Fair Value
Unpaid Principal Balance
Assets at fair value under the fair value option
Loans held for investment, subject to HMBS related obligations
$
17,548,763
$
16,875,437
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans
8,138,403
8,257,750
Commercial mortgage loans
133,990
136,622
Loans held for investment:
Reverse mortgage loans
574,271
558,577
Commercial mortgage loans
957
1,044
Other assets:
Loans held for sale - residential mortgage loans
4,246
9,247
Liabilities at fair value under the fair value option
HMBS related obligations
17,353,720
16,875,437
Nonrecourse debt:
Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability
7,876,932
8,429,135
Nonrecourse commercial loan financing liability
27,268
26,661
Fair Value of Other Financial Instruments
As of September 30, 2024 and December 31, 2023, all financial instruments were either recorded at fair value or the carrying value approximated fair value with the exception of notes payable, net. Notes payable, net, includes our 7.875% Senior Notes due 2025 (the “2025 Unsecured Notes”) and related-party credit lines, recorded at the carrying value of $435.7 million and $410.9 million as of September 30, 2024 and December 31, 2023, respectively, and have a fair value of $376.8 million and $345.6 million as of September 30, 2024 and December 31, 2023, respectively. The fair value for notes payable, net, was determined using quoted market prices adjusted for accrued interest, which is considered to be a Level 2 input. Refer to Note 21 - Subsequent Events for additional information on the 2025 Unsecured Notes. For other financial instruments that were not recorded at fair value, such as cash and cash equivalents including restricted cash, promissory notes receivable, and other financing lines of credit, the carrying value approximates fair value due to the short-term nature of such instruments. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 3 inputs, with the exception of cash and cash equivalents, including restricted cash, which are Level 1 inputs.
38
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
7. Reverse Mortgage Portfolio Composition
The table below summarizes the composition and the outstanding UPB of the reverse mortgage loan portfolio serviced by the Company (in thousands):
September 30, 2024
December 31, 2023
Reverse mortgage loans:
Reverse mortgage loans held for investment, subject to HMBS related obligations
$
17,493,824
$
16,875,437
Reverse mortgage loans held for investment, subject to nonrecourse debt:
Non-agency reverse mortgages
8,236,314
7,631,601
Performing HECM buyouts
201,406
216,184
Nonperforming HECM buyouts
345,382
409,965
Total reverse mortgage loans held for investment, subject to nonrecourse debt
8,783,102
8,257,750
Reverse mortgage loans held for investment:
Non-agency reverse mortgages
352,308
241,424
HECM loans not securitized(1)
98,916
101,820
Unpoolable HECM loans(2)
184,738
203,957
Unpoolable HECM tails
12,382
11,376
Total reverse mortgage loans held for investment
648,344
558,577
Total owned reverse mortgage portfolio
26,925,270
25,691,764
Loans reclassified as government guaranteed receivable
54,270
94,636
Loans serviced for others
141,267
164,742
Total serviced reverse mortgage loan portfolio
$
27,120,807
$
25,951,142
(1) Loans not securitized primarily represent newly originated loans and poolable tails.
(2) Unpoolable loans primarily represent loans that have reached 98% of their maximum claim amount (“MCA”).
The table below summarizes the reverse mortgage portfolio owned by the Company by product type (in thousands):
September 30, 2024
December 31, 2023
Adjustable rate loans
$
19,682,414
$
18,874,588
Fixed rate loans
7,242,856
6,817,176
Total owned reverse mortgage portfolio
$
26,925,270
$
25,691,764
As of September 30, 2024 and December 31, 2023, there were $460.5 million and $478.8 million, respectively, of foreclosure proceedings in process, which are included in loans held for investment, subject to HMBS related obligations, at fair value, loans held for investment, subject to nonrecourse debt, at fair value, or loans held for investment, at fair value, in the Condensed Consolidated Statements of Financial Condition, and $37.1 million and $46.2 million, respectively, of foreclosure proceedings in process, which are included in loans serviced for others in the table above.
39
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
8. Loans, at Fair Value
Loans held for investment and held for sale consisted of the following (in thousands):
September 30, 2024
Unpaid Principal Balance
Fair Value Adjustments
Estimated Fair Value
Loans held for investment, subject to HMBS related obligations
$
17,493,824
$
1,027,513
$
18,521,337
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans
8,783,102
280,357
9,063,459
Commercial mortgage loans
43,653
(9,743)
33,910
Total loans held for investment, subject to nonrecourse debt
8,826,755
270,614
9,097,369
Loans held for investment(1):
Reverse mortgage loans
648,344
54,514
702,858
Commercial mortgage loans
702
(204)
498
Total loans held for investment
649,046
54,310
703,356
Other assets:
Loans held for sale - residential mortgage loans
1,487
(336)
1,151
Total loan portfolio
$
26,971,112
$
1,352,101
$
28,323,213
(1) As of September 30, 2024, there was $607.1 million in UPB in loans held for investment pledged as collateral for financing lines of credit.
December 31, 2023
Unpaid Principal Balance
Fair Value Adjustments
Estimated Fair Value
Loans held for investment, subject to HMBS related obligations
$
16,875,437
$
673,326
$
17,548,763
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans
8,257,750
(119,347)
8,138,403
Commercial mortgage loans
136,622
(2,632)
133,990
Total loans held for investment, subject to nonrecourse debt
8,394,372
(121,979)
8,272,393
Loans held for investment(1):
Reverse mortgage loans
558,577
15,694
574,271
Commercial mortgage loans
1,044
(87)
957
Total loans held for investment
559,621
15,607
575,228
Other assets:
Loans held for sale - residential mortgage loans
9,247
(5,001)
4,246
Total loan portfolio
$
25,838,677
$
561,953
$
26,400,630
40
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) As of December 31, 2023, there was $487.9 million in UPB in loans held for investment pledged as collateral for financing lines of credit.
The tables below show the total amount of loans held for investment and held for sale that were greater than 90 days past due and on non-accrual status (in thousands):
September 30, 2024
Unpaid Principal Balance
Estimated Fair Value
Difference
Loans held for investment, subject to nonrecourse debt:
Commercial mortgage loans
$
26,995
$
22,687
$
(4,308)
Loans held for investment:
Commercial mortgage loans
702
498
(204)
Other assets:
Loans held for sale - residential mortgage loans
459
368
(91)
Total loans 90 days or more past due and on non-accrual status
$
28,156
$
23,553
$
(4,603)
December 31, 2023
Unpaid Principal Balance
Estimated Fair Value
Difference
Loans held for investment, subject to nonrecourse debt:
Commercial mortgage loans
$
34,115
$
31,244
$
(2,871)
Other assets:
Loans held for sale - residential mortgage loans
4,324
428
(3,896)
Total loans 90 days or more past due and on non-accrual status
$
38,439
$
31,672
$
(6,767)
The table below shows a reconciliation of the changes in loans held for sale (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Beginning balance
$
1,154
$
53,500
$
4,246
$
173,984
Originations/purchases/repurchases
4,711
55,656
7,574
180,983
Proceeds from sales
(4,714)
(80,016)
(10,971)
(346,026)
Net transfers related to loans held for sale
—
—
—
15,580
Net transfers related to discontinued operations
—
—
—
12,525
Gain (loss) on loans held for sale, net
—
(6,710)
302
(23,056)
Net fair value changes on loans held for sale
—
1,526
—
9,966
Ending balance
$
1,151
$
23,956
$
1,151
$
23,956
41
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
9. HMBS Related Obligations, at Fair Value
HMBS related obligations, at fair value, consisted of the following (in thousands):
September 30, 2024
December 31, 2023
Ginnie Mae loan pools - UPB
$
17,493,824
$
16,875,437
Fair value adjustments
798,219
478,283
Total HMBS related obligations, at fair value
$
18,292,043
$
17,353,720
WAL (in years)
4.1
4.1
Weighted average interest rate
6.6
%
6.6
%
The Company was servicing2,767 and 2,552 Ginnie Mae loan pools at September 30, 2024 and December 31, 2023, respectively.
10. Nonrecourse Debt, at Fair Value
Nonrecourse debt, at fair value, consisted of the following (in thousands):
Issue Date
Final Maturity Date
Interest Rate
Original Issue Amount
September 30, 2024
December 31, 2023
Securitization of non-agency reverse loans
May 2018 - July 2024
May 2050 - July 2074
1.25% - 4.50%
$
9,808,631
$
7,923,846
$
7,331,305
Securitization of performing/nonperforming HECM loans
(1) In May 2024, the Company redeemed outstanding securitized notes related to commercial mortgage loans held at December 31, 2023. The Company also issued a new securitization related to commercial mortgage loans. Refer to Note 5 - Variable Interest Entities and Securitizations for additional information.
(2) Nonrecourse reverse loan financing liability is comprised of the balance of the nonrecourse debt for the applicable period associated with a non-agency securitization. As the securitization was determined to be an unconsolidated VIE and failed sale treatment, the associated nonrecourse debt is accounted for by FoA and presented separately from the other nonrecourse debts. Refer to Note 5 - Variable Interest Entities and Securitizations for additional information.
(3) Nonrecourse commercial loan financing liability is comprised of the balance of the nonrecourse debt for the applicable period associated with a commercial mortgage securitization. As the securitization was determined to be an unconsolidated VIE and failed sale treatment, the associated nonrecourse debt is accounted for by FoA and presented separately from the other nonrecourse debts. Refer to Note 5 - Variable Interest Entities and Securitizations for additional information.
42
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Future repayment of nonrecourse debt issued by securitization trusts is dependent on the receipt of cash flows from the corresponding encumbered loans receivable. As of September 30, 2024, estimated maturities for nonrecourse debt for the next five years and thereafter are as follows (in thousands):
Year Ending December 31,
Estimated Maturities
Remainder of 2024
$
1,038,778
2025
1,748,081
2026
3,163,819
2027
1,278,214
2028
163,854
Thereafter
1,468,337
Total payments on nonrecourse debt
$
8,861,083
11. Other Financing Lines of Credit
The following summarizes the components of other financing lines of credit (in thousands):
(1)Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions, and covenants of the respective agreements, including asset-eligibility requirements. Capacity amounts presented are as of September 30, 2024. The lines of credit with no capacity are terminated as of September 30, 2024.
(2)The other financing line of credit with a maturity date in November 2024 has been renewed subsequent to September 30, 2024.
(3)These lines of credit are tied to the maturity date of the underlying mortgage related assets that have been pledged as collateral.
As of September 30, 2024 and December 31, 2023, the weighted average outstanding interest rates on outstanding financing lines of credit of the Company were 7.61% and 6.90%, respectively.
The Company’s financing arrangements and credit facilities contain various financial covenants, which primarily relate to required tangible net worth amounts, liquidity reserves, leverage ratios, and profitability.
As of September 30, 2024, the Company was in compliance with all of its financial covenants related to required liquidity reserves, debt service coverage ratio, tangible net worth amounts, and required profitability.
43
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The terms of the Company’s financing arrangements and credit facilities contain covenants, and the terms of the Company’s government sponsored entities (“GSE”)/seller servicer contracts contain requirements that may restrict FoA Equity and its subsidiaries from paying distributions to its members. These restrictions include restrictions on paying distributions whenever the payment of such distributions would cause FoA Equity or its subsidiaries to no longer be in compliance with any of its financial covenants or GSE requirements. Further, FoA Equity is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of FoA Equity (with certain exceptions) exceed the fair value of its assets. Subsidiaries of FoA Equity are generally subject to similar legal limitations on their ability to make distributions to FoA Equity.
As of September 30, 2024, the maximum allowable distributions available to the Company based on the most restrictive of such financial covenant ratios is presented in the table below (in thousands, except for ratios):
Financial Covenants
Requirement
September 30, 2024
Maximum Allowable Distribution(1)
FAR
Adjusted Tangible Net Worth
$
250,000
$
709,055
$
459,055
Liquidity
40,000
42,541
2,541
Leverage Ratio
6:1
2.0:1
469,316
FAH
Adjusted Tangible Net Worth
$
200,000
$
696,386
$
496,386
Liquidity
40,000
44,620
4,620
Leverage Ratio
10:1
2.3:1
533,677
(1) The Maximum Allowable Distribution for any of the originations subsidiaries is the lowest of the amounts shown for the particular originations subsidiary.
As of December 31, 2023, the maximum allowable distributions available to the Company based on the most restrictive of such financial covenant ratios is presented in the table below (in thousands, except for ratios):
Financial Covenants
Requirement
December 31, 2023
Maximum Allowable Distribution(1)
FAM
Adjusted Tangible Net Worth
$
10,000
$
15,264
$
5,264
Liquidity
1,000
2,254
1,254
FAR
Adjusted Tangible Net Worth
$
250,000
$
447,571
$
197,571
Liquidity
40,000
41,656
1,656
Leverage Ratio
6:1
3.0:1
223,460
FAH
Adjusted Tangible Net Worth
$
220,000
$
446,321
$
226,321
Liquidity
40,000
45,282
5,282
Leverage Ratio
10:1
3.3:1
297,445
(1) The Maximum Allowable Distribution for any of the originations subsidiaries is the lowest of the amounts shown for the particular originations subsidiary.
44
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
12. Payables and Other Liabilities
Payables and other liabilities related to continuing operations consisted of the following (in thousands):
September 30, 2024
December 31, 2023
Accrued and other liabilities
$
95,388
$
94,468
Lease liabilities
29,178
31,250
Ginnie Mae reverse mortgage buyout payable
15,161
67,991
Deferred purchase price liabilities(1)
11,105
12,780
Accrued compensation expense
10,037
13,080
Total payables and other liabilities
$
160,869
$
219,569
(1) As of September 30, 2024 and December 31, 2023, the Company had deferred purchase price liabilities of $7.2 million and $8.1 million, respectively, related to the closing of the AAG Transaction. Refer to Note 3 - Acquisitions for additional detail.
13. Litigation
The Company’s business is subject to legal proceedings, examinations, investigations, and reviews by various federal, state, and local regulatory and enforcement agencies as well as private litigants such as the Company’s borrowers or former employees. At any point in time, the Company may have open investigations with regulators or enforcement agencies, including examinations and inquiries related to its loan servicing and origination practices. These matters and other pending or potential future investigations, examinations, inquiries, or lawsuits may lead to administrative or legal proceedings, and possibly result in remedies, including fines, penalties, restitution, alterations in business practices, or additional expenses and collateral costs.
As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and reasonably estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company establishes an accrued liability and records a corresponding amount to litigation related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. For certain matters, the Company may determine that a loss is not probable but is reasonably possible or may consider a loss to be probable but cannot calculate a precise estimate of losses. For these matters, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material litigation and regulatory matters on an ongoing basis, in conjunction with any outside counsel handling the matter. Based on our assessment of the facts and circumstances, we do not believe any of these matters, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, or cash flows in a future period.
The Company is a defendant in three representative lawsuits alleging violations of the California Labor Code and brought pursuant to the California Private Attorneys General Act (“PAGA”). The cases have been coordinated. On November 4, 2022, the court ordered that each of the plaintiffs’ individual PAGA claims must be arbitrated and that their representative PAGA claims will be stayed pending a ruling by the California Supreme Court in the third-party case Adolph v. Uber Technologies, Inc. On July 17, 2023, the California Supreme Court issued its decision in Adolph, ruling that an order compelling arbitration of individual claims does not strip the plaintiff of standing to litigate the representative portion of the PAGA claim. The Company has settled two of the three individual arbitration claims for a de minimis amount and is in different stages of the remaining individual arbitration claim and the representative PAGA claims. Generally, the representative PAGA claims remain stayed until the individual claims are resolved. Due to the unpredictable nature of litigation generally, and the wide discretion afforded the Court in awarding civil penalties in PAGA actions, the outcome of these matters cannot be presently determined, and a range of possible losses cannot be reasonably estimated. Although the actions are being vigorously defended, the Company could, in the future, incur judgments or enter into settlements of claims that could have a negative effect on its results of operations in any particular period.
Legal expenses, which include, among other things, settlements and the fees paid to external legal service providers, were $0.7 million and $2.8 million for the three and nine months ended September 30, 2024, respectively, and
45
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
$0.5 million and $2.6 million for the three and nine months ended September 30, 2023, respectively. These expenses are included in general and administrative expenses in the Condensed Consolidated Statements of Operations.
14. Commitments and Contingencies
Servicing of Mortgage Loans
The Company has contracted with third-party providers to perform specified servicing functions on its behalf. These services include maintaining borrower contact, facilitating borrower advances, generating borrower statements, collecting and processing payments of interest and principal, and facilitating loss-mitigation strategies in an attempt to keep defaulted borrowers in their homes. The contracts are generally fixed-term arrangements, with standard notification and transition terms governing termination of such contracts.
For reverse mortgages, defaults on loans leading to foreclosures may occur if borrowers fail to meet maintenance obligations, such as payment of taxes or home insurance premiums. When a default cannot be cured, the sub-servicers manage the foreclosure process and the filing of any insurance claims with HUD. The sub-servicers have responsibility for remitting timely advances and statements to borrowers and timely and accurate claims to HUD, including compliance with local, state, and federal regulatory requirements. Although the Company has outsourced its servicing function, as the issuer, the Company has responsibility for all aspects of servicing of the HECM loans and related HMBS beneficial interests under the terms of the servicing contracts, state laws, and regulations.
Additionally, the sub-servicers are responsible for remitting payments to investors, including interest accrued, interest shortfalls, and funding advances such as taxes and home insurance premiums. Advances are typically remitted by the Company to the sub-servicers on a daily basis.
Contractual sub-servicing fees related to sub-servicer arrangements are generally based on a fixed dollar amount per loan and are included in loan servicing expenses in the Condensed Consolidated Statements of Operations.
Unfunded Commitments
The Company is required to fund further borrower advances (where the borrower has not fully drawn down the HECM, non-agency reverse mortgage, or commercial mortgage loan proceeds available) and fund the payment of the borrower’s obligation to pay FHA monthly insurance premiums for HECM loans.
The outstanding unfunded commitments available to borrowers related to agency and non-agency reverse mortgage loans were $4.6 billion and $4.5 billion as of September 30, 2024 and December 31, 2023, respectively. The outstanding unfunded commitments available to borrowers related to commercial mortgage loans were $6.8 million as of September 30, 2024 compared to $21.4 million as of December 31, 2023. This additional borrowing capacity is primarily in the form of undrawn lines of credit.
The Company also has commitments to purchase loans totaling $1.9 million as of September 30, 2024, compared to $4.7 million as of December 31, 2023.
Mandatory Repurchase Obligation
The Company is required to repurchase reverse loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM is equal to or greater than 98% of the MCA. Performing repurchased loans are typically conveyed to HUD and nonperforming repurchased loans are generally liquidated in accordance with program requirements. Loans are considered nonperforming upon events including, but not limited to, the death of the mortgagor, the mortgagor no longer occupying the property as their principal residence, or the property taxes or insurance are not being paid.
As an issuer of HMBS, the Company also has the option to repurchase reverse loans out of the Ginnie Mae securitization pools without prior approval from Ginnie Mae in certain instances. These situations include the borrower requesting an additional advance that causes the outstanding principal balance to be equal to or greater than 98% of the MCA; the borrower’s loan becoming due and payable under certain circumstances; the borrower not occupying the home for greater than twelve consecutive months for physical or mental illness, and the home is not the residence of another borrower; or the borrower failing to perform in accordance with the terms of the loan.
For each HECM loan that the Company securitizes into agency HMBS, the Company is required to covenant and warrant to Ginnie Mae, among other things, that the HECM loans related to each participation included in the agency HMBS are eligible under the requirements of the National Housing Act and the Ginnie Mae MBS Guide, and that the Company will take all actions necessary to ensure the HECM loan’s continued eligibility. The Ginnie
46
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Mae HMBS program requires that the Company removes the participation related to any HECM loan that does not meet the requirements of the Ginnie Mae MBS Guide. In addition to securitizing HECM loans into agency HMBS, the Company may sell HECM loans to third parties, and the agreements with such third parties include standard representations and warranties related to such loans, which if breached, may require the Company to repurchase the HECM loan and/or indemnify the purchaser for losses related to such HECM loans. In the case where the Company repurchases the loan, the Company bears any subsequent credit loss on the loan. To the extent that the Company is required to remove a loan from an agency HMBS, purchase a loan from a third-party, or indemnify a third-party, the potential losses suffered by the Company may be reduced by any recourse the Company has to the originating broker and/or correspondent lender, if applicable, to the extent such entity breached similar or other representations and warranties. Under most circumstances, the Company has the right to require the originating broker/correspondent to repurchase the related loan from the Company and/or indemnify the Company for losses incurred. The Company seeks to manage the risk of repurchase and associated credit exposure through the Company’s underwriting and quality assurance practices.
15. Income Taxes
The Company’s effective tax rate on continuing operations for the three and nine months ended September 30, 2024 and 2023 differs from the U.S. federal statutory rate primarily due to anticipated state statutory income tax rates, the projected mix of earnings or loss attributable to the noncontrolling interest, the impact of discrete tax items, and changes in the valuation allowance against net deferred tax assets.
FoA is taxed as a corporation and is subject to U.S. federal, state, and local taxes on the income allocated to it from FoA Equity based upon FoA’s economic interest in FoA Equity as well as any stand-alone income it generates. FoA Equity and its disregarded subsidiaries, collectively, are treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, FoA Equity is not subject to U.S. federal and certain state and local income taxes. FoA Equity’s members, including FoA, are liable for U.S. federal, state, and local income taxes based on their allocable share of FoA Equity’s pass-through taxable income.
In 2023, there were certain FoA Equity wholly-owned corporate subsidiaries that were regarded entities for tax purposes and subject to U.S. federal, state, and local taxes on income they generated. As such, the consolidated tax provision of FoA included corporate taxes that it incurred based on its flow-through income from FoA Equity, as well as corporate taxes that were incurred by its regarded subsidiaries.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences attributable to those temporary differences and the expected benefits of net operating losses and carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent results of operations. As of September 30, 2024, due to current year operating results and forecasted taxable income or losses, management has maintained their assessment that the existing taxable temporary differences that will reverse through the course of ordinary business will not more-likely-than-not generate sufficient taxable income to utilize the current attributes. Therefore, a valuation allowance for the deferred tax asset in excess of deferred tax liabilities has been maintained. Management also determined that the future sources of taxable income from reversing temporary differences that comprise the investment in FoA Equity deferred tax liability would only be fully realized until sale of FoA’s interest in FoA Equity. Accordingly, the deferred tax liability from investment in FoA Equity has been treated as an indefinite-lived intangible and is limited by the federal net operating loss utilization rules.
Tax positions taken in tax years that remain open under the statute of limitations will be subject to examinations by tax authorities. With few exceptions, the Company is no longer subject to state or local examinations by tax authorities for tax years ended December 31, 2019 or prior.
47
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
16. Interest Income and Interest Expense
Interest income and interest expense from continuing operations consisted of the following (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Interest income:
Interest income on mortgage loans(1)
$
486,349
$
439,881
$
1,420,634
$
1,160,836
Other interest income
3,551
4,118
11,336
8,788
Total portfolio interest income
489,900
443,999
1,431,970
1,169,624
Interest expense:
Interest expense on HMBS and nonrecourse obligations(1)
(406,473)
(352,161)
(1,173,713)
(902,028)
Interest expense on other financing lines of credit
(20,366)
(20,298)
(59,548)
(68,400)
Total portfolio interest expense
(426,839)
(372,459)
(1,233,261)
(970,428)
Net portfolio interest income
63,061
71,540
198,709
199,196
Non-portfolio interest income
789
325
1,448
946
Non-funding interest expense
(10,008)
(7,667)
(28,087)
(22,855)
Non-funding interest expense, net
(9,219)
(7,342)
(26,639)
(21,909)
Net interest income
$
53,842
$
64,198
$
172,070
$
177,287
(1)Amounts include interest income and expense on all loans held for investment, subject to HMBS related obligations, loans held for investment, subject to nonrecourse debt, other loans held for investment, HMBS related obligations, and nonrecourse debt.
48
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
17. Business Segment Reporting
The following tables are a presentation of financial information by segment (in thousands):
For the three months ended September 30, 2024
Retirement Solutions
Portfolio Management
Total Reportable Segments
Corporate and Other
Eliminations
Total
Portfolio interest income
Interest income
$
—
$
489,900
$
489,900
$
—
$
—
$
489,900
Interest expense
—
(426,839)
(426,839)
—
—
(426,839)
Net portfolio interest income
—
63,061
63,061
—
—
63,061
Other income (expense)
Net origination gains
57,216
—
57,216
—
—
57,216
Gain on securitization of HECM tails, net
—
10,560
10,560
—
—
10,560
Fair value changes from model amortization
—
(43,753)
(43,753)
—
—
(43,753)
Fair value changes from market inputs or model assumptions
—
204,154
204,154
—
—
204,154
Net fair value changes on loans and related obligations
57,216
170,961
228,177
—
—
228,177
Fee income
7,247
930
8,177
—
(123)
8,054
Non-funding interest expense, net
—
—
—
(9,219)
—
(9,219)
Net other income (expense)
64,463
171,891
236,354
(9,219)
(123)
227,012
Total revenues
64,463
234,952
299,415
(9,219)
(123)
290,073
Total expenses
48,529
18,388
66,917
13,514
(123)
80,308
Other, net
—
—
—
(1,592)
—
(1,592)
Net income (loss) before taxes
$
15,934
$
216,564
$
232,498
$
(24,325)
$
—
$
208,173
Depreciation and amortization
$
9,424
$
41
$
9,465
$
312
$
—
$
9,777
Total assets
$
288,556
$
28,658,666
$
28,947,222
$
1,397,698
$
(1,398,363)
$
28,946,557
49
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three months ended September 30, 2023
Retirement Solutions
Portfolio Management
Total Reportable Segments
Corporate and Other
Eliminations
Total
Portfolio interest income
Interest income
$
—
$
443,999
$
443,999
$
—
$
—
$
443,999
Interest expense
—
(372,459)
(372,459)
—
—
(372,459)
Net portfolio interest income
—
71,540
71,540
—
—
71,540
Other income (expense)
Net origination gains
31,376
—
31,376
—
—
31,376
Gain on securitization of HECM tails, net
—
7,100
7,100
—
—
7,100
Fair value changes from model amortization
—
(56,882)
(56,882)
—
—
(56,882)
Fair value changes from market inputs or model assumptions
—
(122,449)
(122,449)
—
—
(122,449)
Net fair value changes on loans and related obligations
31,376
(172,231)
(140,855)
—
—
(140,855)
Fee income
10,983
2,473
13,456
1,354
(1,609)
13,201
Loss on sale and other income from loans held for sale, net
(2,212)
(4,772)
(6,984)
—
—
(6,984)
Non-funding interest expense, net
—
—
—
(7,342)
—
(7,342)
Net other income (expense)
40,147
(174,530)
(134,383)
(5,988)
(1,609)
(141,980)
Total revenues
40,147
(102,990)
(62,843)
(5,988)
(1,609)
(70,440)
Total expenses
60,034
21,490
81,524
25,511
(1,609)
105,426
Impairment of other assets
—
—
—
(558)
—
(558)
Other, net
16
—
16
3,837
—
3,853
Net loss before taxes
$
(19,871)
$
(124,480)
$
(144,351)
$
(28,220)
$
—
$
(172,571)
Depreciation and amortization
$
9,503
$
30
$
9,533
$
421
$
—
$
9,954
Total assets
$
309,534
$
26,022,716
$
26,332,250
$
1,510,951
$
(1,454,095)
$
26,389,106
50
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the nine months ended September 30, 2024
Retirement Solutions
Portfolio Management
Total Reportable Segments
Corporate and Other
Eliminations
Total
Portfolio interest income
Interest income
$
—
$
1,431,970
$
1,431,970
$
—
$
—
$
1,431,970
Interest expense
—
(1,233,261)
(1,233,261)
—
—
(1,233,261)
Net portfolio interest income
—
198,709
198,709
—
—
198,709
Other income (expense)
Net origination gains
137,133
—
137,133
—
—
137,133
Gain on securitization of HECM tails, net
—
32,317
32,317
—
—
32,317
Fair value changes from model amortization
—
(149,174)
(149,174)
—
—
(149,174)
Fair value changes from market inputs or model assumptions
—
228,976
228,976
—
—
228,976
Net fair value changes on loans and related obligations
137,133
112,119
249,252
—
—
249,252
Fee income
20,269
2,270
22,539
—
(369)
22,170
Gain (loss) on sale and other income from loans held for sale, net
(76)
378
302
—
—
302
Non-funding interest expense, net
—
—
—
(26,639)
—
(26,639)
Net other income (expense)
157,326
114,767
272,093
(26,639)
(369)
245,085
Total revenues
157,326
313,476
470,802
(26,639)
(369)
443,794
Total expenses
146,774
60,903
207,677
49,362
(369)
256,670
Impairment of other assets
—
—
—
(600)
—
(600)
Other, net
(174)
—
(174)
2,275
—
2,101
Net income (loss) before taxes
$
10,378
$
252,573
$
262,951
$
(74,326)
$
—
$
188,625
Depreciation and amortization
$
28,338
$
64
$
28,402
$
806
$
—
$
29,208
Total assets
$
288,556
$
28,658,666
$
28,947,222
$
1,397,698
$
(1,398,363)
$
28,946,557
51
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the nine months ended September 30, 2023
Retirement Solutions
Portfolio Management
Total Reportable Segments
Corporate and Other
Eliminations
Total
Portfolio interest income
Interest income
$
—
$
1,169,624
$
1,169,624
$
—
$
—
$
1,169,624
Interest expense
—
(970,428)
(970,428)
—
—
(970,428)
Net portfolio interest income
—
199,196
199,196
—
—
199,196
Other income (expense)
Net origination gains
88,777
—
88,777
—
—
88,777
Gain on securitization of HECM tails, net
—
17,095
17,095
—
—
17,095
Fair value changes from model amortization
—
(162,386)
(162,386)
—
—
(162,386)
Fair value changes from market inputs or model assumptions
—
(172,168)
(172,168)
—
—
(172,168)
Net fair value changes on loans and related obligations
88,777
(317,459)
(228,682)
—
—
(228,682)
Fee income
24,236
10,914
35,150
6,352
(8,125)
33,377
Loss on sale and other income from loans held for sale, net
(5,789)
(17,675)
(23,464)
—
—
(23,464)
Non-funding interest expense, net
—
—
—
(21,909)
—
(21,909)
Net other income (expense)
107,224
(324,220)
(216,996)
(15,557)
(8,125)
(240,678)
Total revenues
107,224
(125,024)
(17,800)
(15,557)
(8,125)
(41,482)
Total expenses
154,325
68,407
222,732
84,601
(8,125)
299,208
Impairment of other assets
—
—
—
(558)
—
(558)
Other, net
75
—
75
2,777
—
2,852
Net loss before taxes
$
(47,026)
$
(193,431)
$
(240,457)
$
(97,939)
$
—
$
(338,396)
Depreciation and amortization
$
31,057
$
78
$
31,135
$
1,296
$
—
$
32,431
Total assets
$
309,534
$
26,022,716
$
26,332,250
$
1,510,951
$
(1,454,095)
$
26,389,106
18. Liquidity and Capital Requirements
Compliance Requirements
FAR
As an issuer of HMBS, FAR is subject to minimum net worth, liquidity, and leverage requirements as well as minimum insurance coverage established by Ginnie Mae.
The net worth required is $5.0 million plus 1% of FAR’s outstanding HMBS and unused commitment authority from Ginnie Mae. The liquidity requirement is for 20% of FAR’s required net worth to be in the form of cash or cash equivalent assets. The leverage requirement is to maintain a ratio of net worth to total assets of not less than 6%.
As of September 30, 2024, FAR was in compliance with the minimum net worth, liquidity, capitalization levels, and insurance requirements of Ginnie Mae. The minimum net worth required of FAR by Ginnie Mae was $180.9 million as of September 30, 2024. FAR’s actual net worth calculated based on Ginnie Mae guidance was $699.7 million as of September 30, 2024. The minimum liquidity required of FAR by Ginnie Mae was $36.2 million as of September 30, 2024. FAR’s actual cash and cash equivalents were $42.5 million as of September 30, 2024. FAR’s actual ratio of net worth to total assets was below the Ginnie Mae requirement; however, FAR received a waiver for the minimum outstanding capital requirements from Ginnie Mae. Therefore, FAR was in compliance with all Ginnie Mae requirements.
52
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
In addition, FAR is required to maintain both fidelity bond and errors and omissions insurance coverage at tiered levels based on the aggregate UPB of the loans serviced by FAR throughout the year. FAR is required to conduct compliance testing at least quarterly to ensure compliance with the foregoing requirements. As of September 30, 2024, FAR was in compliance with applicable requirements.
FoA Securities
Finance of America Securities LLC (“FoA Securities”), one of the operating service subsidiaries of Incenter, operates in a highly regulated environment and is subject to federal and state laws, SEC rules, and Financial Industry Regulatory Authority rules and guidance. Applicable laws and regulations restrict permissible activities and require compliance with a wide range of financial and customer-related protections. The consequences of noncompliance can include substantial monetary and nonmonetary sanctions. In addition, FoA Securities is subject to comprehensive examination by its regulators. These regulators have broad discretion to impose restrictions and limitations on the operations of the Company and to impose sanctions for noncompliance. FoA Securities is subject to the SEC’s Uniform Net Capital Rule (SEC Rule 15c3-1), which requires the maintenance of minimum net capital. FoA Securities computes net capital under the alternative method. Under this method, the required minimum net capital is equal to $250 thousand. As of September 30, 2024, FoA Securities was in compliance with the minimum net capital requirement.
Additionally, FoA Securities claims the exemption provision of Footnote 74 of the SEC Release No. 34-70073 adopting amendments to 17 C.F.R. § 240.17a-5 because FoA Securities’ other business activities are limited to (1) proprietary trading; (2) receiving transaction-based compensation for referring securities transactions to other broker-dealers; and (3) participating in distributions of securities (other than firm commitment underwritings) in accordance with the requirements of paragraphs (a) or (b)(2) of Rule 15c2-4.
FAM
In connection with the discontinued operations of the Company’s previously reported Mortgage Originations segment, FAM has surrendered all its GSE/agency mortgage origination licenses and approvals as of June 30, 2024 and is therefore no longer subject to the GSE/agency compliance requirements that were applicable to FAM prior to the surrender of its licenses and approvals.
19. Related-Party Transactions
Promissory Notes
The Company had two Revolving Working Capital Promissory Note Agreements (the “Working Capital Promissory Notes”) outstanding with BTO Urban Holdings L.L.C. and Libman Family Holdings, LLC, which are deemed affiliates of the Company. Amounts under the Working Capital Promissory Notes may be re-borrowed and repaid from time to time until the related maturity date. The Working Capital Promissory Notes accrue interest monthly at a rate of 15.0% per annum and mature in May 2025. These notes had outstanding amounts of $84.6 million and $59.1 million as of September 30, 2024 and December 31, 2023, respectively, recorded within notes payable, net, in the Condensed Consolidated Statements of Financial Condition. Additionally, the Company paid $2.0 million and $4.8 million of interest related to the Working Capital Promissory Notes for the three and nine months ended September 30, 2024, respectively. The Company paid $0.6 million and $1.4 million of interest related to the Working Capital Promissory Notes during the three and nine months ended September 30, 2023, respectively.
2025 Unsecured Notes
Related parties of FoA purchased notes in the high-yield debt offering in November 2020 in an aggregate principal amount of $135.0 million. In October 2024, certain of the direct and indirect subsidiaries of the Company entered into an exchange of the 2025 Unsecured Notes with certain holders. Refer to Note 21 - Subsequent Events for additional information.
Equity Investment
On December 6, 2022, the Company entered into separate Stock Purchase Agreements (each, a “Stock Purchase Agreement”) with each of (i) BTO Urban Holdings L.L.C., Blackstone Family Tactical Opportunities Investment Partnership – NQ ESC L.P. and BTO Urban Holdings II L.P. (collectively, the “Blackstone Investor”) and (ii) Libman Family Holdings, LLC (the “BL Investor” and together with the Blackstone Investor, the “Investors”). Pursuant to each such Investor’s respective Stock Purchase Agreement, on the terms and subject to the conditions set forth therein, each of the Investors will purchase 1,086,956 shares of Company Class A Common Stock for an
53
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
aggregate purchase price of $15.0 million, representing a price per share of Company Class A Common Stock equal to the volume weighted average price per share of Company Class A Common Stock on the New York Stock Exchange over the fifteen consecutive trading days ending on December 6, 2022. On March 31, 2023, in conjunction with the closing of the AAG Transaction, the 2,173,912 shares of Company Class A Common Stock were issued to the Investors for $30.0 million.
20. Earnings (Loss) Per Share
The following tables reconcile the numerators and denominators used in the computations of both basic and diluted earnings (loss) per share (in thousands, except share data):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Basic earnings (loss) per share:
Numerator
Net income (loss) from continuing operations
$
203,748
$
(172,468)
$
183,047
$
(337,610)
Less: Income (loss) from continuing operations attributable to noncontrolling interest(1)
119,545
(107,940)
106,463
(212,190)
Net income (loss) from continuing operations attributable to holders of Class A Common Stock - basic
$
84,203
$
(64,528)
$
76,584
$
(125,420)
Net loss from discontinued operations
$
—
$
(2,464)
$
(4,727)
$
(45,211)
Less: Loss from discontinued operations attributable to noncontrolling interest(1)
—
(1,629)
(2,719)
(29,182)
Net loss from discontinued operations attributable to holders of Class A Common Stock - basic
$
—
$
(835)
$
(2,008)
$
(16,029)
Denominator
Weighted average shares of Class A Common Stock outstanding - basic
9,924,671
8,772,623
9,824,171
7,980,449
Basic earnings (loss) per share
Continuing operations
$
8.48
$
(7.36)
$
7.80
$
(15.72)
Discontinued operations
—
(0.09)
(0.21)
(2.00)
Basic earnings (loss) per share
$
8.48
$
(7.45)
$
7.59
$
(17.72)
(1)The Class A LLC Units of FoA Equity, held by the Continuing Unitholders and AAG/Bloom (collectively “Equity Capital Unitholders”), which comprise the noncontrolling interest in the Company, represents a participating security. Therefore, the numerator was adjusted to reduce net income (loss) by the amount of net income (loss) attributable to noncontrolling interest.
Additionally, the Class B Common Stock does not participate in earnings or losses of the Company and, therefore, is not a participating security. The Class B Common Stock has not been included in either the basic or diluted earnings (loss) per share calculations.
Net income (loss) attributable to noncontrolling interest includes an allocation of expense related to the Amended and Restated Long-Term Incentive Plan (“A&R MLTIP”) subject to special allocation terms per the Amended and Restated Limited Liability Company Agreement (“A&R LLC Agreement”).
54
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Diluted earnings (loss) per share:
Numerator
Net income (loss) from continuing operations attributable to holders of Class A Common Stock - basic
$
84,203
$
(64,528)
$
76,584
$
(125,420)
Reallocation of net income (loss) from continuing operations assuming exchange of Class A LLC Units(1)
89,397
—
76,749
—
Net income (loss) from continuing operations attributable to holders of Class A Common Stock - diluted
$
173,600
$
(64,528)
$
153,333
$
(125,420)
Net loss from discontinued operations attributable to holders of Class A Common Stock - basic
$
—
$
(835)
$
(2,008)
$
(16,029)
Reallocation of net loss from discontinued operations assuming exchange of Class A LLC Units(1)
—
—
(2,033)
—
Net loss from discontinued operations attributable to holders of Class A Common Stock - diluted
$
—
$
(835)
$
(4,041)
$
(16,029)
Denominator
Weighted average shares of Class A Common Stock outstanding - basic
9,924,671
8,772,623
9,824,171
7,980,449
Effect of dilutive securities:
Assumed exchange of weighted average Class A LLC Units for shares of Class A Common Stock(2)
13,185,957
—
13,222,101
—
Additional dilutive shares under the treasury stock method(3)
48,676
—
16,344
—
Weighted average shares of Class A Common Stock outstanding - diluted(4)
23,159,304
8,772,623
23,062,616
7,980,449
Diluted earnings (loss) per share
Continuing operations
$
7.50
$
(7.36)
$
6.65
$
(15.72)
Discontinued operations
—
(0.09)
(0.18)
(2.00)
Diluted earnings (loss) per share
$
7.50
$
(7.45)
$
6.47
$
(17.72)
(1) For the three and nine months ended September 30, 2024, this adjustment assumes the reallocation of noncontrolling interest income (losses), on an after-tax basis, due to the assumed exchange of all Class A LLC Units outstanding for shares of Class A Common Stock in FoA as of the beginning of the period following the if-converted method for calculating diluted earnings (loss) per share. For the three and nine months ended September 30, 2023, the effect of the elimination of the noncontrolling interest due to the assumed exchange of all Class A LLC Units outstanding for shares of Class A Common Stock in FoA was determined to be anti-dilutive under the if-converted method. As such, the effect has been excluded from the calculation of diluted loss per share.
Following the terms of the A&R LLC Agreement, the Class A LLC unitholders bear approximately 85% of the cost of any vesting associated with the Replacement RSUs and Earnout Right RSUs prior to any distribution by the Company to such Class A LLC unitholders. The remaining compensation cost associated with the Replacement RSUs and Earnout Right RSUs was borne by FoA. As a result of the application of the if-converted method in arriving at diluted earnings (loss) per share, the entirety of the compensation cost associated with vesting of the Replacement RSUs and Earnout Right RSUs is assumed to be included in the net income (loss) attributable to holders of the Company’s Class A Common Stock. As of April 1, 2024, there is no further compensation cost associated with the Replacement RSUs and Earnout Right RSUs.
(2) The Exchange Agreement allows for the exchange of Class A LLC Units held by Equity Capital Unitholders, representing the noncontrolling interest, on a one-for-one basis for shares of Class A Common Stock in FoA. For the three and nine months ended September 30, 2024, the diluted weighted average shares outstanding of Class A Common Stock includes the effects of
55
Finance of America Companies Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
the if-converted method to reflect the provisions of the Exchange Agreement and assumes the Class A LLC Units held by Equity Capital Unitholders, representing the noncontrolling interest, exchange their units on a one-for-one basis for shares of Class A Common Stock in FoA. The 14,144,005 and 13,579,267 weighted average Class A LLC Units outstanding for the three and nine months ended September 30, 2023 were determined to be anti-dilutive under the if-converted method and have been excluded from the computation of diluted loss per share.
(3) The Company had 48,676 and 16,344 potentially dilutive shares, under the treasury stock method, from RSUs for the three and nine months ended September 30, 2024, and 252,190 and 145,520 potentially dilutive shares, under the treasury stock method, from RSUs for the three and nine months ended September 30, 2023. The potentially dilutive shares from RSUs were determined to be anti-dilutive for the three and nine months ended September 30, 2023 and have been excluded from the computation of diluted loss per share.
The Company had no potentially dilutive shares, under the treasury stock method, from forward sale share contracts for the three and nine months ended September 30, 2024, and 0 and 70,029 potentially dilutive shares, under the treasury stock method, from forward sale share contracts for the three and nine months ended September 30, 2023. The potentially dilutive shares from forward sale share contracts were determined to be anti-dilutive for the nine months ended September 30, 2023, and have been excluded from the computation of diluted loss per share.
(4) As part of the AAG Transaction, there are two forms of contingently issuable Class A LLC Units: 705,841 Units that are equity classified and indemnity holdback units totaling up to 714,226 Units that are liability classified. In accordance with ASC 260, Earnings Per Share, these units are not included in the diluted weighted average shares outstanding of Class A Common Stock for the three and nine months ended September 30, 2024 and 2023.
21. Subsequent Events
2025 Unsecured Notes Exchange
On October 31, 2024, FoA Equity, FOAF, and certain of their respective direct and indirect subsidiaries who act as guarantors completed an exchange with certain existing noteholders of FOAF’s 2025 Unsecured Notes. Existing noteholders, representing 97.892% of the aggregate principal amount outstanding of the 2025 Unsecured Notes, exchanged their respective 2025 Unsecured Notes in consideration for (i) the issuance of (a) $195,783,947 of FOAF’s new 7.875% Senior Secured Notes due 2026, with FOAF’s option to extend until 2027, (b) $146,793,000 of FOAF’s new 10.000% Exchangeable Senior Secured Notes due 2029, and (ii) cash consideration of $856,555. Further, such existing noteholders consented to an amendment of the indenture governing the 2025 Unsecured Notes which eliminated substantially all of the restrictive covenants, certain events of default, and certain other provisions contained in the 2025 Unsecured Notes.
Deferred equity related to AAG Transaction
Pursuant to the terms of the asset purchase agreement relating to the AAG Transaction, FoA Equity was required to issue certain Class A LLC Units to AAG/Bloom upon the satisfaction of certain control conditions which consisted of various regulatory approvals and consents. Such control conditions were satisfied on October 29, 2024 and on such date, FoA Equity issued 705,841 Class A LLC Units to AAG/Bloom in accordance with the terms of the asset purchase agreement relating to the AAG Transaction. Refer to Note 3 - Acquisitions for additional information.
56
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes. This discussion and analysis contains forward-looking statements that involve risk, uncertainties, and assumptions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors. Except where the context otherwise requires, the terms “Finance of America,” “FoA,” the “Company,” “we,” “us,” or “our” refer to the business of Finance of America Companies Inc. and its consolidated subsidiaries. References to “FoA Equity” are to Finance of America Equity Capital LLC, a Delaware limited liability company, that the Company controls in an “UP-C” structure.
Overview
Finance of America Companies Inc. is a financial services holding company which, through its operating subsidiaries, is a leading provider of home equity-based financing solutions for a modern retirement. In addition, FoA offers capital markets and portfolio management capabilities primarily to optimize the distribution of its originated loans to investors.
FoA was incorporated in Delaware on October 9, 2020 and became a publicly-traded company on the New York Stock Exchange in April 2021, with trading beginning on April 5, 2021 under the ticker symbol “FOA.” FoA has a controlling financial interest in FoA Equity. FoA Equity owns all of the outstanding equity interests in Finance of America Funding LLC (“FOAF”). FOAF wholly owns Finance of America Holdings LLC (“FAH”) and Incenter LLC (“Incenter” and collectively, with FoA Equity, FOAF, and FAH, known as “holding company subsidiaries”). FAH is the parent of a lending company, Finance of America Reverse LLC (“FAR”), while Incenter is the parent of operating service companies (together with FAR, the “operating subsidiaries”) that provide capital markets and portfolio management capabilities.
Through the end of the third fiscal quarter of 2022, the Company was principally focused on offering (1) a wide array of loan products throughout the United States (“U.S.”), including reverse mortgage loans, traditional mortgage loans, business purpose loans to residential real estate investors, and home improvement loans, and (2) complementary lender services such as title insurance and settlement services to mortgage businesses. However, during the fourth quarter of 2022 and calendar year 2023, the Company exited multiple business lines, including its traditional mortgage lending segment, its commercial lending segment, its home improvement lending business, and its lender services businesses, and shifted its focus to developing a streamlined retirement solutions business.
Our strategy and long-term growth initiatives are built upon a few key fundamental factors:
•We are focused on growing our core retirement solutions business, which benefits from a shared set of demographic and economic tailwinds. We believe we can more effectively dispatch our innovative suite of solutions to help senior homeowners achieve their retirement goals through the use of home equity.
•We seamlessly connect borrowers with investors. Our consumer-facing business leaders interface directly with the investor-facing professionals in our Portfolio Management segment, facilitating the development of attractive lending solutions for our customers with the confidence that the loans we generate can be efficiently and profitably sold to a deep pool of investors, either directly via whole-loan sales or indirectly via the issuance and sale of mortgage-backed securities. We seek to programmatically and profitably monetize our loans, which minimizes capital at risk, while often retaining a future performance-based participation interest in the underlying cash flows of our monetized loans.
•We distribute our products through multiple channels, including through newer channels as a result of the asset acquisition from American Advisors Group, now known as Bloom Retirement Holdings Inc. (“AAG/Bloom”), that closed on March 31, 2023, and utilize flexible technology platforms in order to scale our businesses and manage costs efficiently.
Through FAR, the Company originates, acquires, and services home equity conversion mortgages (“HECM”), which are originated pursuant to the Federal Housing Administration (the “FHA”) HECM program and are insured by the FHA, and non-agency reverse mortgage loans, which are not insured by the FHA. We originate loans through a retail channel (consisting primarily of a centralized retail platform) and a third-party originator (“TPO”) channel (consisting primarily of a network of mortgage brokers). We have launched several non-agency reverse mortgage loan products to serve the U.S. senior population and have plans for additional innovative products to satisfy this vast and largely underserved market. We also service the loans that we originate, contracting with various third-party subservicers for the subservicing of our loans. We are a leader in this market and we are focused on
57
developing and offering products for borrowers with interest in using the reverse mortgage loan product as a retirement planning tool.
Our Portfolio Management segment provides structuring and product development expertise as well as broker/dealer and institutional asset management capabilities, which facilitates innovation and the successful monetization of our loans. We securitize HECM into Home Equity Conversion Mortgage-Backed Securities (“HMBS”), which the Government National Mortgage Association (“Ginnie Mae”) guarantees, and sell the HMBS in the secondary market while retaining the rights to service the HECM. When HECM are not eligible for securitization into HMBS or are required to be bought out of a pool of HECM previously securitized into an HMBS, we securitize them into privately placed mortgage-backed securities or hold them for investment. We both securitize non-agency reverse mortgage loans into mortgage-backed securities sold to investors and sell them as whole loans to investors. We may also decide to strategically hold certain non-agency reverse mortgage loans for investment. The capabilities provided by the Portfolio Management segment allowed us to complete several issuances and sales of mortgage-backed securities backed by our loan products in 2023 and through three quarters of 2024, demonstrating the high quality and liquidity of the loan products we originate, the deep relationships we have with our investors, and the resilience of our business model in many economic environments.
See Note 1 - Organization and Description of Business in the Notes to Condensed Consolidated Financial Statements for discussion of recent actions affecting the overall go-forward business operations, including details regarding the series of transactions entered into in order to transform our business from a vertically integrated lending and complementary services platform to a modern retirement solutions platform.
Our Segments
In connection with the transformation of our business from a vertically integrated lending and complementary services platform to a modern retirement solutions platform, we realigned our business to operate through two reportable segments: Retirement Solutions and Portfolio Management. See Note 1 - Organization and Description of Business in the Notes to Condensed Consolidated Financial Statements for more information about the realignment of our reportable segments.
Retirement Solutions
The mission of our Retirement Solutions segment is to help senior homeowners achieve their financial goals in retirement. This segment includes all loan origination activity for the Company, including the origination of HECM and non-agency reverse mortgage loans through both the retail and TPO channels. The Retirement Solutions segment generates revenue from fees earned at the time of loan origination as well as from the initial estimate of net origination gains, with all originated loans accounted for at fair value. Once originated, the loans are transferred to our Portfolio Management segment, and any future fair value adjustments, including interest earned, on these originated loans are reflected in the revenues of our Portfolio Management segment until final disposition.
Finance of America Mortgage LLC (“FAM”), an indirect subsidiary of the Company, has sold the operational assets of its home improvement lending business and substantially completed the process of winding down the operations of the home improvement lending business as of March 31, 2024. However, the previous operations of the home improvement lending business are reported as part of the Company’s Retirement Solutions segment rather than as discontinued operations. This is because the wind-down of the home improvement lending business was not considered by the Company to be a strategic shift that has or will have a major effect on our operations and financial results.
Portfolio Management
Our Portfolio Management segment provides product development, loan securitization, loan sales, risk management, servicing oversight, and asset management services to the Company. Our Portfolio Management team acts as the connector between borrowers and investors. The direct connections to investors, provided by our Financial Industry Regulatory Authority registered broker-dealer, allows us to innovate and manage risk through better price and product discovery. Given our scale, we are able to work directly with investors and, where appropriate, retain assets on the balance sheet for attractive return opportunities. These retained investments are a source of growing and recurring interest and other servicing-related income. The Portfolio Management segment primarily generates
58
revenue from the net interest income and fair value changes on portfolio assets, monetized through securitization, sale, or other financing of those assets.
See the Segment Results section below and Note 17 - Business Segment Reporting in the Notes to Condensed Consolidated Financial Statements for additional financial information about our segments.
Business Trends and Conditions
There are several key factors and trends affecting our results of operations. A summary of key factors impacting our revenues include:
•prevailing interest rates which impact loan origination volume, with declining interest rates leading to increases in volume, and an increasing interest rate environment leading to decreases in volume;
•our ability to successfully operate the newly integrated lending platform that we acquired from AAG/Bloom in March 2023;
•housing market trends which also impact loan origination volume, with a strong housing market leading to higher loan origination volume, and a weak housing market leading to lower loan origination volume;
•demographic and housing stock trends which impact the addressable market size;
•movement of market interest rates and yields required by investors, with the increasing of market interest rates and yields generally having negative impacts on the fair value of our financial assets, and the decreasing of market interest rates and yields generally having positive impacts on the fair value of our financial assets;
•increases or decreases in default status of loans and prepayment speeds; and
•broad economic factors such as the strength and stability of the overall economy, including sustained higher or lower interest rates and inflation, the unemployment level, and real estate values.
Other factors that may affect our cost base include trends in salaries and benefits costs, sales commissions, technology, rent, legal, compliance, and other general and administrative costs. Management continually monitors these costs through operating plans.
Other Recent Events
Due to significant inflationary pressures, the U.S. Federal Reserve raised the federal funds rate during the first three quarters of 2023 and during the same period, reduced its overall purchases and holdings of government and mortgage-related bonds. Higher interest rates generally led to lower mortgage transaction volumes, increased competition, and lower profit margins. Volatility in market conditions resulting from the foregoing events have caused and may continue to cause credit spreads to widen, which reduces, among other things, availability of credit to our Company on favorable terms, liquidity in the market, the fair market value of the assets on our balance sheet, and price transparency of real estate related or asset-backed assets. More recently, inflationary pressures have eased and, based on weakening inflation pressures, the U.S. Federal Reserve decreased the federal funds rate by 50 basis points in September 2024 and 25 basis points in November 2024.
Our Company is actively monitoring these events and their effects on the Company’s financial condition, liquidity, operations, industry, and workforce.
These continuing economic impacts may cause additional volatility in the financial markets and may have an adverse effect on the Company’s results of future operations, financial position, intangible assets, and liquidity in 2024 and beyond. See Results of Operations.
For further discussion on the potential impacts of the Federal Reserve’s monetary policies, see “Risks Related to the Business of the Company” and “Our business is significantly impacted by changes in interest rates. Changes in prevailing interest rates due to U.S. monetary policies or other macroeconomic conditions that affect interest rates may have a detrimental effect on our operations, financial performance, and earnings” under the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 15, 2024, as such risk factors may be amended or updated in our subsequent periodic reports filed with the SEC.
59
Factors Affecting the Comparability of our Results of Operations
As a result of a number of factors, our historical results of operations may not be comparable from period to period and may not be comparable to our financial results of operations in future periods. Set forth below is a brief discussion of the key factors that may impact the comparability of our results of operations.
Discontinued Operations
During the fourth quarter of 2022 and calendar year 2023, the Company entered into a series of transactions, discontinuing certain business lines while enhancing our reverse mortgage loan business, in order to transform our business from a vertically integrated lending and complementary services platform to a modern retirement solutions platform. This transformation included the wind-down of the previously reported Mortgage Originations segment, other than the home improvement lending business, and sale of the previously reported Commercial Originations and Lender Services segments, with the exception of its Incenter Solutions LLC operating service subsidiary. This constitutes a strategic shift that has or will have a major effect on our operations and financial results. As such, starting with the first fiscal quarter of 2023, results of our previously reported Mortgage Originations, Commercial Originations, and Lender Services segments, excluding the home improvement lending business and Incenter Solutions LLC, are reported as discontinued operations for all periods presented in accordance with Accounting Standards Codification 205, Presentation of Financial Statements. During the third fiscal quarter of 2023, the Company sold the operational assets of the home improvement lending business and began the process of winding down the operations of the home improvement lending business, which was substantially complete as of March 31, 2024. Also during the third fiscal quarter of 2023, the Company ceased the operations of Incenter Solutions LLC. The wind-down of Incenter Solutions LLC was substantially complete by the end of December 2023. The Company’s wind-down of the home improvement lending business and Incenter Solutions LLC was not considered by the Company to be a strategic shift that has or will have a major effect on our operations and financial results. Therefore, the previous operations of the home improvement lending business and Incenter Solutions LLC are not reported as discontinued operations. Refer to Note 1 - Organization and Description of Business and Note 4 - Discontinued Operations in the Notes to Condensed Consolidated Financial Statementsfor additional information.
AAG Transaction
On March 31, 2023, the Company completed the acquisition of the assets, including the retail loan originations platform, and liabilities associated with the AAG Transaction. Refer to Note 1 - Organization and Description of Business and Note 3 - Acquisitions in the Notes to Condensed Consolidated Financial Statementsfor additional information.
Reverse Stock Split
On July 25, 2024, the Company completed a 1-for-10 reverse stock split (the “Reverse Stock Split”) of its shares of Class A Common Stock. FoA Equity completed a corresponding 1-for-10 reverse split of its units (“Class A LLC Units”) to maintain the 1-for-1 parity of its Class A LLC Units with the Company’s adjusted number of Class A Common Stock shares. All references in this Quarterly Report on Form 10-Q to numbers of Class A Common Stock shares, weighted average shares outstanding, earnings (loss) per share, FoA Class A Common Stock share price, and number of Class A LLC Units have been adjusted to reflect the Reverse Stock Split on a retroactive basis. As a result of the Reverse Stock Split, an immaterial amount was reclassified from Class A Common Stock to additional paid-in capital in the Condensed Consolidated Statements of Financial Condition.
Change in Condensed Consolidated Statements of Operations Presentation
Beginning with the Company’s second quarter 2024 Form 10-Q, the Condensed Consolidated Statements of Operations presentation was changed to provide additional detail regarding the Company’s activities. The change primarily consists of disaggregating the Company’s previously reported net fair value gains (losses) on loans and related obligations caption into the currently presented captions of interest income, interest expense, net origination gains, gain on securitization of HECM tails, net, fair value changes from model amortization, and fair value changes from market inputs or model assumptions. Additionally, previously reported interest income and interest expense, which primarily represented the Company’s interest income on mortgage loans held for sale and other interest income and the Company’s interest expense associated with the Company’s other financing lines of credit, was combined with the interest income and interest expense that was previously reported within net fair value gains (losses) on loans and related obligations, excluding non-portfolio interest income and the interest expense associated with the Company’s non-funding debt, which is now reported separately as non-funding interest expense, net. As a result of the change, the Company’s previously reported revenues have been recast to reflect the updated
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presentation. Refer to Note 2 - Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statementsfor additional information.
Components of Our Results of Operations
Revenues
Interest income
We earn interest income on all loans held for investment, subject to HMBS related obligations, loans held for investment, subject to nonrecourse debt, and other loans held for investment. Refer to Note 16 - Interest Income and Interest Expense in the Notes to Condensed Consolidated Financial Statementsfor additional information.
Interest expense
We incur interest expense on our HMBS related obligations, nonrecourse debt, and our financing lines of credit. Refer to Note 16 - Interest Income and Interest Expense in the Notes to Condensed Consolidated Financial Statementsfor additional information.
Net origination gains
Net origination gains is the difference between the cost basis of newly originated or acquired loans and their initial estimated fair value at the time of origination.
Gain on securitization of HECM tails, net
Gain on securitization of HECM tails, net, is the fair value gain we recognize based on tail securitizations, net of Ginnie Mae guarantee fees.
Fair value changes from model amortization
Fair value changes from model amortization are from portfolio runoff and realization of modeled income and expenses.
Fair value changes from market inputs or model assumptions
Fair value changes from market inputs or model assumptions represent other changes to fair value of portfolio-related assets and liabilities not related to new originations, portfolio runoff, or realization of modeled income and expenses. These changes are driven primarily by updates to market inputs or model changes. Refer to Note 6 - Fair Value in the Notes to Condensed Consolidated Financial Statementsfor additional information regarding the key inputs, assumptions, and valuation techniques utilized to measure fair value.
Fee income
We earn various fees from our customers during the process of origination and servicing of loans. Revenue is recognized when the performance obligations have been satisfied, which is typically at the time of loan origination or over the life of the loans serviced.
Gain (loss) on sale and other income from loans held for sale, net
Gain (loss) on sale and other income from loans held for sale, net, includes realized and unrealized gains and losses on loans held for sale.
Non-funding interest expense, net
Non-funding interest expense, net, includes our non-portfolio interest income and the interest expense associated with the Company’s non-funding debt. Refer to Note 16 - Interest Income and Interest Expense in the Notes to Condensed Consolidated Financial Statementsfor additional information.
Expenses
Salaries, benefits, and related expenses
Salaries, benefits, and related expenses include commissions, bonuses, equity-based compensation, salaries, benefits, taxes, and all payroll related expenses for our employees.
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Loan production and portfolio related expenses
Loan production and portfolio related expenses include loan origination costs, fees related to loan funding, and portfolio expenses associated with our securitizations.
Loan servicing expenses
Loan servicing expenses include costs related to the servicing and sub-servicing of loans.
Marketing and advertising expenses
Marketing and advertising expenses are related to brand marketing and providing loan product information to our customers.
Depreciation and amortization
Depreciation and amortization expenses include depreciation and amortization of fixed assets, leasehold improvements, and definite-lived intangible assets.
General and administrative expenses
General and administrative expenses include communications and data processing costs, professional and consulting fees, occupancy, equipment rentals, other office related expenses, and other expenses.
Impairment of Other Assets
Impairment of other assets includes impairment charges recognized on long-lived assets.
Other, Net
Other, net, primarily includes gains or losses on non-operating assets and liabilities.
Income Taxes
FoA is taxed as a corporation and is subject to U.S. federal, state, and local taxes on the income allocated to it from FoA Equity based upon FoA’s economic interest in FoA Equity as well as any stand-alone income it generates. Refer to Note 15 - Income Taxes in the Notes to Condensed Consolidated Financial Statementsfor additional information.
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Results of Operations
Overview
The following tables present selected financial data for the three and nine months ended September 30, 2024 and 2023.
Consolidated Results
The following table summarizes our consolidated operating results from continuing operations (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Portfolio interest income:
Interest income
$
489,900
$
443,999
$
1,431,970
$
1,169,624
Interest expense
(426,839)
(372,459)
(1,233,261)
(970,428)
Net portfolio interest income
63,061
71,540
198,709
199,196
Other income (expense):
Net origination gains
57,216
31,376
137,133
88,777
Gain on securitization of HECM tails, net
10,560
7,100
32,317
17,095
Fair value changes from model amortization
(43,753)
(56,882)
(149,174)
(162,386)
Fair value changes from market inputs or model assumptions
204,154
(122,449)
228,976
(172,168)
Net fair value changes on loans and related obligations
228,177
(140,855)
249,252
(228,682)
Fee income
8,054
13,201
22,170
33,377
Gain (loss) on sale and other income from loans held for sale, net
—
(6,984)
302
(23,464)
Non-funding interest expense, net
(9,219)
(7,342)
(26,639)
(21,909)
Net other income (expense)
227,012
(141,980)
245,085
(240,678)
Total revenues
290,073
(70,440)
443,794
(41,482)
Total expenses
80,308
105,426
256,670
299,208
Impairment of other assets
—
(558)
(600)
(558)
Other, net
(1,592)
3,853
2,101
2,852
NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
$
208,173
$
(172,571)
$
188,625
$
(338,396)
Net interest income
All of our financial instruments, with the exception of our notes payable, are either recorded at fair value or the carrying value approximated fair value. The interest recognized on these financial instruments are recorded in interest income or interest expense in the Condensed Consolidated Statements of Operations. The interest on our notes payable is recorded in non-funding interest expense, net, in the Condensed Consolidated Statements of Operations. We evaluate net interest income through an evaluation of all components of interest income and interest expense.
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The following table provides an analysis of all components of net interest income (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Interest income:
Interest income on mortgage loans(1)
$
486,349
$
439,881
$
1,420,634
$
1,160,836
Other interest income
3,551
4,118
11,336
8,788
Total portfolio interest income
489,900
443,999
1,431,970
1,169,624
Interest expense:
Interest expense on HMBS and nonrecourse obligations(1)
(406,473)
(352,161)
(1,173,713)
(902,028)
Interest expense on other financing lines of credit
(20,366)
(20,298)
(59,548)
(68,400)
Total portfolio interest expense
(426,839)
(372,459)
(1,233,261)
(970,428)
Net portfolio interest income
63,061
71,540
198,709
199,196
Non-funding interest expense, net
(9,219)
(7,342)
(26,639)
(21,909)
Net interest income
$
53,842
$
64,198
$
172,070
$
177,287
(1)Amounts include interest income and expense on all loans held for investment, subject to HMBS related obligations, loans held for investment, subject to nonrecourse debt, other loans held for investment, HMBS related obligations, and nonrecourse debt.
For the three months ended September 30, 2024 versus the three months ended September 30, 2023
Net income (loss) from continuing operations before income taxes improved $380.7 million primarily as a result of the following:
•Net portfolio interest income decreased $8.5 million primarily due to higher average cost of funds within our securitized financing portfolio more than offsetting the increase in interest income on the underlying loans.
•Net fair value changes on loans and related obligations improved $369.0 million primarily as a result of improved fair value changes from market inputs or model assumptions compared to the 2023 period. The improvement in fair value changes from market inputs or model assumptions was primarily related to market interest rate and yield volatility, which generated net fair value gains during the three months ended September 30, 2024 compared to losses in the 2023 period. See Note 6 - Fair Value within the Notes to Condensed Consolidated Financial Statements for additional information on assumptions impacting the value of our loans held for investment.
The Retirement Solutions segment recognized $57.2 million in net origination gains on loan originations of $513.4 million for the three months ended September 30, 2024 compared to $31.4 million in net origination gains on loan originations of $470.0 million for the comparable 2023 period. The increase in net origination gains in the Retirement Solutions segment was due to both higher loan origination volumes and higher margins.
The $3.5 million increase in gain on securitization of HECM tails, net, during the three months ended September 30, 2024 compared to the 2023 period was due to higher premiums from our tail securitizations. Fair value changes from model amortization improved $13.1 million as a function of lower net realized portfolio income and expenses and higher modeled yield on a larger portfolio in the three months ended September 30, 2024 compared to the 2023 period.
•Fee income decreased $5.1 million primarily due to fees associated with the previous operations of the home improvement lending business.
•Gain (loss) on sale and other income from loans held for sale, net, improved $7.0 million due to the absence of residential, commercial, and home improvement loans held for sale activity during the three months ended September 30, 2024.
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•Non-funding interest expense, net, increased $1.9 million due to increases in outstanding amounts and interest rates on our working capital promissory notes.
•Total expenses decreased $25.1 million or 23.8% primarily due to decreases in salaries, benefits, and related expenses as well as decreases in general and administrative expenses due to a reduction in average headcount and continued cost-cutting measures associated with the restructuring of the business.
•Other, net, changed $5.4 million primarily due to the ongoing remeasurement of our deferred purchase price liabilities.
For the nine months ended September 30, 2024 versus the nine months ended September 30, 2023
Net income (loss) from continuing operations before taxes improved $527.0 million primarily as a result of the following:
•Net fair value changes on loans and related obligations improved $477.9 million primarily as a result of improved fair value changes from market inputs or model assumptions compared to the 2023 period. The improvement in fair value changes from market inputs or model assumptions was primarily related to market interest rate and yield volatility, which generated net fair value gains during the nine months ended September 30, 2024 compared to losses during the 2023 period. See Note 6 - Fair Value within the Notes to Condensed Consolidated Financial Statements for additional information on assumptions impacting the value of our loans held for investment.
The Retirement Solutions segment recognized $137.1 million in net origination gains on loan originations of $1.4 billion for the nine months ended September 30, 2024 compared to $88.8 million in net origination gains on loan originations of $1.2 billion for the comparable 2023 period. The increase in net origination gains in the Retirement Solutions segment was due to both higher loan origination volumes and higher margins associated with the increase in volumes from our retail platform acquired from AAG/Bloom.
The $15.2 million increase in gain on securitization of HECM tails, net, during the nine months ended September 30, 2024 compared to the 2023 period was due to higher premiums from our tail securitizations. Fair value changes from model amortization improved $13.2 million as a function of lower net realized portfolio income and expenses and higher modeled yield on a larger portfolio in the nine months ended September 30, 2024 compared to the 2023 period.
•Fee income decreased $11.2 million primarily related to lower mortgage servicing rights (“MSR”) servicing fee income due to a much lower MSR portfolio balance for the nine months ended September 30, 2024 compared to the 2023 period, as well as lower fees associated with the previous operations of the home improvement lending business, and a decline in services provided by the Company’s operational fulfillment services team. These reductions were partially offset by higher reverse loan origination fees generated through our retail platform acquired from AAG/Bloom.
•Gain (loss) on sale and other income from loans held for sale, net, improved $23.8 million as a result of minimal residential, commercial, and home improvement loans held for sale activity for the nine months ended September 30, 2024 compared to the 2023 period.
•Non-funding interest expense, net, increased $4.7 million due to increases in outstanding amounts and interest rates on our working capital promissory notes.
•Total expenses decreased $42.5 million or 14.2% primarily due to decreases in salaries, benefits, and related expenses as well as decreases in general and administrative expenses due to a reduction in average headcount and continued cost-cutting measures associated with the restructuring of the business. This was partially offset by an increase in marketing and advertising expenses within our retail loan originations platform acquired from AAG/Bloom.
SEGMENT RESULTS
Revenues and fees are directly attributed to their respective segments at the time services are performed. Revenues generated on inter-segment services performed are valued based on estimated market value. Expenses directly attributable to the operating segments are expensed as incurred. Other expenses are allocated to individual segments based on the estimated value of services performed, total revenue contributions, personnel headcount, or the equity invested in each segment based on the type of expense allocated. The allocation methodology is reviewed annually. There were no changes to methodology during the three and nine months ended September 30, 2024 and 2023.
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Expenses for enterprise-level general overhead, such as executive administration, are not allocated to the business segments.
Retirement Solutions Segment
The following table summarizes our Retirement Solutions segment’s results (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Net origination gains
$
57,216
$
31,376
$
137,133
$
88,777
Fee income
7,247
10,983
20,269
24,236
Loss on sale and other income from loans held for sale, net
—
(2,212)
(76)
(5,789)
Total revenues
64,463
40,147
157,326
107,224
Total expenses
48,529
60,034
146,774
154,325
Other, net
—
16
(174)
75
NET INCOME (LOSS) BEFORE INCOME TAXES
$
15,934
$
(19,871)
$
10,378
$
(47,026)
Our Retirement Solutions segment generates its revenues primarily from the origination of reverse mortgage loans, including HECM insured by the FHA and non-agency reverse mortgage loans. Revenues from our Retirement Solutions segment include both our initial estimate of net origination gains from originated loans, which is determined by utilizing quoted prices on similar securities or internally-developed models utilizing observable market inputs, in addition to fees earned at the time of origination of the associated loans. We elect to account for all originated loans at fair value. The loans are immediately transferred to our Portfolio Management segment, and any future fair value adjustments, including interest earned, on these originated loans are reflected in revenues of our Portfolio Management segment until final disposition.
On August 31, 2023, FAM entered into an agreement to sell the operational assets of the home improvement lending business. This transaction closed on September 15, 2023. In connection with such transaction, the Company began the process of winding down the operations of the home improvement lending business, which was substantially complete as of March 31, 2024. As of March 31, 2024, there were no loans in the home improvement lending pipeline. The wind-down of the home improvement lending business was not considered by the Company to be a strategic shift that has or will have a major effect on our operations and financial results. Therefore, the previous operations of the home improvement lending business are reported as part of the Company’s Retirement Solutions segment rather than as discontinued operations.
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KEY METRICS
The following table provides a summary of our Retirement Solutions segment’s key metrics (in thousands, except units):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Reverse mortgage loan origination volume
Loan origination volume(1)
$
513,355
$
469,961
$
1,383,369
$
1,179,017
Loan origination volume - tails(2)
251,690
293,399
760,786
759,513
Total loan origination volume
$
765,045
$
763,360
$
2,144,155
$
1,938,530
Total reverse mortgage loan origination volume - units
2,390
2,776
6,595
6,357
Reverse mortgage loan origination volume - by channel(1)
(2) Tails consist of subsequent borrower draws, mortgage insurance premiums, service fees, and other advances, which we are able to subsequently pool into a security.
Revenues
In the table below is a summary of the components of our Retirement Solutions segment’s total revenues (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Net origination gains:
TPO
$
49,188
$
27,428
$
112,005
$
80,836
Retail
21,461
17,637
59,785
41,948
Acquisition costs
(13,433)
(13,689)
(34,657)
(34,007)
Total net origination gains
57,216
31,376
137,133
88,777
Fee income
7,247
10,983
20,269
24,236
Loss on sale and other income from loans held for sale, net
—
(2,212)
(76)
(5,789)
Total revenues
$
64,463
$
40,147
$
157,326
$
107,224
For the three months ended September 30, 2024 versus the three months ended September 30, 2023
Total revenues increased $24.3 million or 60.6% as a result of the following:
•Net origination gains increased $25.8 million or 82.4% as a result of higher reverse mortgage loan origination volumes and higher margins. We originated $513.4 million of reverse mortgage loans for the three months ended September 30, 2024, an increase of 9.2%, compared to $470.0 million for the comparable 2023 period. During the three months ended September 30, 2024, the weighted average margin on reverse mortgage loan production was 11.15% compared to 6.68% in 2023, an increase of 4.47%.
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•Fee income decreased $3.7 million primarily due to fees associated with the previous operations of the home improvement lending business.
•Loss on sale and other income from loans held for sale, net, improved $2.2 million due to the absence of losses related to the previous operations of the home improvement lending business.
For the nine months ended September 30, 2024 versus the nine months ended September 30, 2023
Total revenues increased $50.1 million or 46.7% as a result of the following:
•Net origination gains increased $48.4 million or 54.5% as a result of higher reverse mortgage loan origination volumes and higher margins associated with the increase in volumes from our retail platform acquired from AAG/Bloom. We originated $1.4 billion of reverse mortgage loans for the nine months ended September 30, 2024, an increase of 17.3%, compared to $1.2 billion for the comparable 2023 period. During the nine months ended September 30, 2024, the weighted average margin on reverse mortgage loan production was 9.91% compared to 7.53% in 2023, an increase of 2.38% primarily due to the increase in retail production mix associated with the onboarding of our retail platform acquired from AAG/Bloom.
•Fee income decreased $4.0 million primarily due to fees associated with the previous operations of the home improvement lending business, partially offset by higher reverse loan origination fees generated through our retail platform acquired from AAG/Bloom.
•Loss on sale and other income from loans held for sale, net, improved $5.7 million due to lower losses related to the previous operations of the home improvement lending business.
Expenses
In the table below is a summary of the components of our Retirement Solutions segment’s total expenses (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Salaries
$
13,451
$
19,084
$
41,054
$
48,576
Commissions and bonuses
4,726
6,575
13,536
17,207
Other salary related expenses
2,040
2,609
7,709
6,525
Total salaries, benefits, and related expenses
20,217
28,268
62,299
72,308
Loan production expenses
2,250
2,352
6,431
6,174
Marketing and advertising expenses
10,290
11,439
29,457
21,965
Depreciation and amortization
9,424
9,503
28,338
31,057
General and administrative expenses
6,348
8,472
20,249
22,821
Total expenses
$
48,529
$
60,034
$
146,774
$
154,325
For the three months ended September 30, 2024 versus the three months ended September 30, 2023
Total expenses decreased $11.5 million or 19.2% as a result of the following:
•Total salaries, benefits, and related expenses decreased $8.1 million or 28.5% primarily due to a decrease in average headcount for the three months ended September 30, 2024 at 446 compared to 670 for the 2023 period related to continued cost-cutting measures associated with the restructuring of the business, as well as lower commissions and bonuses due to channel mix and the lack of compensation cost associated with the Replacement Restricted Stock Units (“RSUs”) and Earnout Right RSUs for the three months ended September 30, 2024 when compared to the 2023 period.
•General and administrative expenses decreased $2.1 million or 25.1% primarily due to continued cost-cutting measures associated with the restructuring of the business for the three months ended September 30, 2024 when compared to the 2023 period.
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For the nine months ended September 30, 2024 versus the nine months ended September 30, 2023
Total expenses decreased $7.6 million or 4.9% as a result of the following:
•Total salaries, benefits, and related expenses decreased $10.0 million or 13.8% primarily due to a decrease in average headcount for the nine months ended September 30, 2024 at 492 compared to 573 for the 2023 period related to continued cost-cutting measures associated with the restructuring of the business, as well as lower compensation cost associated with the Replacement RSUs and Earnout Right RSUs, partially offset by increased expenses associated with the onboarding of our retail loan originations platform acquired from AAG/Bloom in the 2023 period.
•Marketing and advertising expenses increased $7.5 million or 34.1% primarily within our retail loan originations platform acquired from AAG/Bloom.
•General and administrative expenses decreased $2.6 million or 11.3% primarily due to continued cost-cutting measures associated with the restructuring of the business, partially offset by increases in various expenses from the onboarded infrastructure of our retail loan originations platform acquired from AAG/Bloom for the nine months ended September 30, 2024 when compared to the 2023 period.
Portfolio Management Segment
The following table summarizes our Portfolio Management segment’s results (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Portfolio interest income:
Interest income
$
489,900
$
443,999
$
1,431,970
$
1,169,624
Interest expense
(426,839)
(372,459)
(1,233,261)
(970,428)
Net portfolio interest income
63,061
71,540
198,709
199,196
Other income (expense):
Gain on securitization of HECM tails, net
10,560
7,100
32,317
17,095
Fair value changes from model amortization
(43,753)
(56,882)
(149,174)
(162,386)
Fair value changes from market inputs or model assumptions
204,154
(122,449)
228,976
(172,168)
Net fair value changes on loans and related obligations
170,961
(172,231)
112,119
(317,459)
Fee income
930
2,473
2,270
10,914
Gain (loss) on sale and other income from loans held for sale, net
—
(4,772)
378
(17,675)
Net other income (expense)
171,891
(174,530)
114,767
(324,220)
Total revenues
234,952
(102,990)
313,476
(125,024)
Total expenses
18,388
21,490
60,903
68,407
NET INCOME (LOSS) BEFORE INCOME TAXES
$
216,564
$
(124,480)
$
252,573
$
(193,431)
Our Portfolio Management segment generates its revenues primarily from the net interest income and fair value changes on portfolio assets, monetized by securitization, sale, or other financing of those assets.
Net fair value changes in our Portfolio Management segment include fair value adjustments primarily related to the following assets and liabilities:
•Loans held for investment, subject to HMBS related obligations, at fair value
•Loans held for investment, subject to nonrecourse debt, at fair value
•Loans held for investment, at fair value
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•Loans held for sale, at fair value
•HMBS related obligations, at fair value; and
•Nonrecourse debt, at fair value.
KEY METRICS
The following table provides a summary of the assets and liabilities under management by our Portfolio Management segment (in thousands):
September 30, 2024
December 31, 2023
Cash and cash equivalents
$
28,797
$
32,245
Restricted cash
175,855
178,319
Loans held for investment, subject to HMBS related obligations, at fair value
18,521,337
17,548,763
Loans held for investment, subject to nonrecourse debt, at fair value
9,097,369
8,272,393
Loans held for investment, at fair value
703,356
575,228
Other assets, net
131,952
166,153
Total earning assets
28,658,666
26,773,101
HMBS related obligations, at fair value
18,292,043
17,353,720
Nonrecourse debt, at fair value
8,537,119
7,904,200
Other financing lines of credit
1,054,568
928,479
Payables and other liabilities
54,353
107,664
Total financing of portfolio
27,938,083
26,294,063
Net carrying value of earning assets
$
720,583
$
479,038
The following tables provide a summary of our Portfolio Management segment’s key metrics (dollars in thousands):
September 30, 2024
December 31, 2023
Reverse Mortgages
Loan count
90,768
91,888
Active unpaid principal balance (“UPB”)
$
26,070,643
$
24,923,313
Due and payable
451,590
371,913
Foreclosure
497,586
524,988
Claims pending
100,988
130,928
Ending UPB
$
27,120,807
$
25,951,142
Average UPB
$
299
$
282
Weighted average coupon
7.39
%
7.35
%
Weighted average age (in months)
44
40
Percentage in foreclosure
1.8
%
2.0
%
70
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Investment and Capital Markets
Number of structured deals
1
1
5
4
Structured deals (size in notes)
$
839,432
$
544,052
$
2,146,095
$
1,895,536
Revenues
In the table below is a summary of the components of our Portfolio Management segment’s total revenues (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Portfolio interest income:
Interest income
$
489,900
$
443,999
$
1,431,970
$
1,169,624
Interest expense
(426,839)
(372,459)
(1,233,261)
(970,428)
Net portfolio interest income
63,061
71,540
198,709
199,196
Other income (expense):
Gain on securitization of HECM tails, net
10,560
7,100
32,317
17,095
Fair value changes from model amortization
(43,753)
(56,882)
(149,174)
(162,386)
Fair value changes from market inputs or model assumptions
204,154
(122,449)
228,976
(172,168)
Net fair value changes on loans and related obligations
170,961
(172,231)
112,119
(317,459)
Fee income
930
2,473
2,270
10,914
Gain (loss) on sale and other income from loans held for sale, net
—
(4,772)
378
(17,675)
Net other income (expense)
171,891
(174,530)
114,767
(324,220)
Total revenues
$
234,952
$
(102,990)
$
313,476
$
(125,024)
Certain of our financial instruments are valued utilizing a process that combines the use of a discounted cash flow (“DCF”) model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment and repayment assumptions used in the model are based on various factors, with the key assumptions being prepayment and repayment speeds, credit loss frequencies and severity, and discount rate assumptions. Any changes in fair value on these financial instruments are recorded in net fair value changes on loans and related obligations, with changes in fair value due to portfolio runoff and realization of modeled income and expenses being recorded in fair value changes from model amortization in the Condensed Consolidated Statements of Operations, and other fair value changes being recorded in fair value changes from market inputs or model assumptions in the Condensed Consolidated Statements of Operations. The interest recognized on these financial instruments is recorded in interest income or interest expense in the Condensed Consolidated Statements of Operations.
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The following table provides an analysis of all components of net portfolio interest income (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Interest income:
Interest income on mortgage loans(1)
$
486,349
$
439,881
$
1,420,634
$
1,160,836
Other interest income
3,551
4,118
11,336
8,788
Total portfolio interest income
489,900
443,999
1,431,970
1,169,624
Interest expense:
Interest expense on HMBS and nonrecourse obligations(1)
(406,473)
(352,161)
(1,173,713)
(902,028)
Interest expense on other financing lines of credit
(20,366)
(20,298)
(59,548)
(68,400)
Total portfolio interest expense
(426,839)
(372,459)
(1,233,261)
(970,428)
Net portfolio interest income
$
63,061
$
71,540
$
198,709
$
199,196
(1)Amounts include interest income and expense on all loans held for investment, subject to HMBS related obligations, loans held for investment, subject to nonrecourse debt, other loans held for investment, HMBS related obligations, and nonrecourse debt.
For the three months ended September 30, 2024 versus the three months ended September 30, 2023
Total revenues improved $337.9 million as a result of the following:
•Net portfolio interest income decreased $8.5 million primarily due to higher average cost of funds within our securitized financing portfolio more than offsetting the increase in interest income on the underlying loans.
•Net fair value changes on loans and related obligations improved $343.2 million primarily as a result of improved fair value changes from market inputs or model assumptions compared to the 2023 period. The improvement in fair value changes from market inputs or model assumptions was primarily related to market interest rate and yield volatility, which generated net fair value gains during the three months ended September 30, 2024 compared to losses during the 2023 period. See Note 6 - Fair Value within the Notes to Condensed Consolidated Financial Statements for additional information on assumptions impacting the value of our loans held for investment.
The $3.5 million increase in gain on securitization of HECM tails, net, during the three months ended September 30, 2024 compared to the 2023 period was due to higher premiums from our tail securitizations. Fair value changes from model amortization improved $13.1 million as a function of lower net realized portfolio income and expenses and higher modeled yield on a larger portfolio in the three months ended September 30, 2024 compared to the 2023 period.
•Gain (loss) on sale and other income from loans held for sale, net, improved $4.8 million due to the absence of residential, commercial, and home improvement loans held for sale activity during the three months ended September 30, 2024.
For the nine months ended September 30, 2024 versus the nine months ended September 30, 2023
Total revenues improved $438.5 million as a result of the following:
•Net fair value changes on loans and related obligations improved $429.6 million primarily as a result of improved fair value changes from market inputs or model assumptions compared to the 2023 period. The improvement in fair value changes from market inputs or model assumptions was primarily related to market interest rate and yield volatility, which generated net fair value gains during the nine months ended September 30, 2024 compared to losses during the 2023 period. See Note 6 - Fair Value within the Notes to Condensed Consolidated Financial Statements for additional information on assumptions impacting the value of our loans held for investment.
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The $15.2 million increase in gain on securitization of HECM tails, net, during the nine months ended September 30, 2024 compared to the 2023 period was due to higher premiums from our tail securitizations. Fair value changes from model amortization improved $13.2 million as a function of lower net realized portfolio income and expenses and higher modeled yield on a larger portfolio in the nine months ended September 30, 2024 compared to the 2023 period.
•Fee income decreased $8.6 million primarily related to lower MSR servicing fee income due to a much lower MSR portfolio balance during the nine months ended September 30, 2024 compared to the 2023 period.
•Gain (loss) on sale and other income from loans held for sale, net, improved $18.1 million as a result of minimal residential, commercial, and home improvement loans held for sale activity for the nine months ended September 30, 2024 compared to the 2023 period.
Expenses
In the table below is a summary of the components of our Portfolio Management segment’s total expenses (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Salaries
$
2,697
$
3,263
$
8,560
$
12,947
Commissions and bonuses
116
1,202
1,750
3,587
Other salary related expenses
274
771
1,770
2,358
Total salaries, benefits, and related expenses
3,087
5,236
12,080
18,892
Loan portfolio related expenses
4,696
4,018
14,790
15,122
Loan servicing expenses
7,772
8,000
23,622
23,274
Marketing and advertising expenses
1
1
40
13
Depreciation and amortization
41
30
64
78
General and administrative expenses
2,791
4,205
10,307
11,028
Total expenses
$
18,388
$
21,490
$
60,903
$
68,407
For the three months ended September 30, 2024 versus the three months ended September 30, 2023
Total expenses decreased $3.1 million or 14.4% as a result of the following:
•Salaries, benefits, and related expenses decreased$2.1 million or 41.0% primarily due to a decrease in average headcount and continued cost-cutting measures associated with the restructuring of the business during the three months ended September 30, 2024 compared to the 2023 period. Average headcount was 57 for the three months ended September 30, 2024 compared to 71 for the 2023 period.
•General and administrative expenses decreased $1.4 million for the three months ended September 30, 2024 compared to the 2023 period primarily due to continued cost-cutting measures associated with the restructuring of the business.
For the nine months ended September 30, 2024 versus the nine months ended September 30, 2023
Total expenses decreased $7.5 million or 11.0% as a result of the following:
•Salaries, benefits, and related expenses decreased $6.8 million primarily due to a decrease in average headcount and continued cost-cutting measures associated with the restructuring of the business during the nine months ended September 30, 2024 compared to the 2023 period. Average headcount was 64 for the nine months ended September 30, 2024 compared to 74 for the 2023 period.
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Corporate and Other
Corporate and Other consists of our corporate services groups. These groups support our operating segments, and the cost of services directly supporting the operating segments are allocated to those operating segments on a cost-of-service basis. Enterprise-focused Corporate and Other expenses that are not incurred in direct support of the operating segments are kept unallocated within Corporate and Other.
The following table summarizes Corporate and Other results (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Fee income
$
—
$
1,354
$
—
$
6,352
Non-funding interest expense, net
(9,219)
(7,342)
(26,639)
(21,909)
Total revenues
(9,219)
(5,988)
(26,639)
(15,557)
Total expenses
13,514
25,511
49,362
84,601
Impairment of other assets
—
(558)
(600)
(558)
Other, net
(1,592)
3,837
2,275
2,777
NET LOSS BEFORE INCOME TAXES
$
(24,325)
$
(28,220)
$
(74,326)
$
(97,939)
In the table below is a summary of the components of Corporate and Other total expenses (in thousands):
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Salaries and bonuses
$
12,044
$
17,064
$
39,614
$
60,211
Other salary related expenses
1,566
5,610
7,416
14,261
Shared services - payroll allocations
(5,831)
(7,621)
(16,250)
(25,203)
Total salaries, benefits, and related expenses
7,779
15,053
30,780
49,269
Marketing and advertising expenses
34
51
46
188
Depreciation and amortization
312
421
806
1,296
Communications and data processing and other expenses
5,545
11,111
18,821
37,819
Professional and consulting fees
3,681
5,018
9,827
12,420
Shared services - general and administrative allocations
(3,837)
(6,143)
(10,918)
(16,391)
Total general and administrative expenses
5,389
9,986
17,730
33,848
Total expenses
$
13,514
$
25,511
$
49,362
$
84,601
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For the three months ended September 30, 2024 versus the three months ended September 30, 2023
Total revenues decreased $3.2 million primarily as a result of the following:
•Fee income decreased $1.4 million related to the decline in services provided by the Company’s operational fulfillment services team. As of September 30, 2023, the Company ceased the operations of the offshore fulfillment services team.
•Non-funding interest expense, net, increased $1.9 million due to increases in outstanding amounts and interest rates on our working capital promissory notes.
Total expenses decreased $12.0 million or 47.0% as a result of the following:
•Salaries, benefits, and related expenses, net of shared services allocations, decreased $7.3 million or 48.3% due to decreases in salaries and bonuses and other salary related expenses of $5.0 million and $4.0 million, respectively, for the three months ended September 30, 2024 compared to the 2023 period as the Company continued our focus on cost-cutting initiatives related to the restructuring of the business. Compared to 2023, average onshore headcount declined by 29.0% from 338 for the three months ended September 30, 2023 to 240 for the three months ended September 30, 2024. These reductions were partially offset by a $1.8 million decrease in shared services allocations due to the reduction in supported business lines in the three months ended September 30, 2024.
•General and administrative expenses, net of shared services allocations, decreased $4.6 million or 46.0% primarily due to a $5.6 million decrease in communications and data processing and other expenses. These reductions are due to continued cost-cutting measures associated with the restructuring of the business. This was partially offset by a $2.3 million decrease in shared services allocations due to the reduction in supported business lines in the three months ended September 30, 2024.
Other, net, changed $5.4 million primarily due to the ongoing remeasurement of our deferred purchase price liabilities.
For the nine months ended September 30, 2024 versus the nine months ended September 30, 2023
Total revenues decreased $11.1 million primarily as a result of the following:
•Fee income decreased $6.4 million related to the decline in services provided by the Company’s operational fulfillment services team. As of September 30, 2023, the Company ceased the operations of the offshore fulfillment services team.
•Non-funding interest expense, net, increased $4.7 million due to increases in outstanding amounts and interest rates on our working capital promissory notes.
Total expenses decreased $35.2 million or 41.7% as a result of the following:
•Salaries, benefits, and related expenses, net of shared services allocations, decreased $18.5 million or 37.5% due to decreases in salaries and bonuses and other salary related expenses of $20.6 million and $6.8 million, respectively, for the nine months ended September 30, 2024 compared to the 2023 period as the Company continued our focus on cost-cutting initiatives related to the restructuring of the business. Compared to 2023, average onshore headcount declined by 36.8% from 408 for the nine months ended September 30, 2023 to 258 for the nine months ended September 30, 2024. These reductions were partially offset by a $9.0 million decrease in shared services allocations due to the reduction in supported business lines in the nine months ended September 30, 2024.
•General and administrative expenses, net of shared services allocations, decreased $16.1 million or 47.6% due to a $19.0 million decrease in communications and data processing and other expenses and a $2.6 million decrease in professional and consulting fees. These reductions are due to continued cost-cutting measures associated with the restructuring of the business. This was partially offset by a $5.5 million decrease in shared services allocations due to the reduction in supported business lines in the nine months ended September 30, 2024.
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NON-GAAP FINANCIAL MEASURES
The Company’s management evaluates performance of the Company through the use of certain non-GAAP financial measures, including adjusted net income (loss), adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and adjusted earnings (loss) per share.
The presentation of non-GAAP measures is used to enhance investors’ understanding of certain aspects of our financial performance. This discussion is not meant to be considered in isolation, superior to, or as a substitute for the directly comparable financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Management believes these key financial measures provide an additional view of our performance over the long-term and provide useful information that we use in order to maintain and grow our business.
These non-GAAP financial measures should not be considered as an alternative to net income (loss), operating cash flows, or any other performance measures determined in accordance with U.S. GAAP. Adjusted net income (loss), adjusted EBITDA, and adjusted earnings (loss) per share have important limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of the limitations of these metrics are: (i) cash expenditures for future contractual commitments; (ii) cash requirements for working capital needs; (iii) cash requirements for certain tax payments; and (iv) all non-cash income/expense items.
Because of these limitations, adjusted net income (loss), adjusted EBITDA, and adjusted earnings (loss) per share should not be considered as measures of discretionary cash available to us to invest in the growth of our business or distribute to shareholders. We compensate for these limitations by relying primarily on our U.S. GAAP results and using our non-GAAP financial measures only as a supplement. Users of our condensed consolidated financial statements are cautioned not to place undue reliance on our non-GAAP financial measures.
Change in Non-GAAP Measures
Prior to the third quarter of 2024, the Company’s adjusted net income (loss), adjusted EBITDA, and adjusted earnings (loss) per share were adjusted for equity-based compensation for only the Replacement RSUs and Earnout Right RSUs. Beginning with the third quarter of 2024, the Company revised our definitions of adjusted net income (loss), adjusted EBITDA, and adjusted earnings (loss) per share to now adjust for all non-cash equity-based compensation in the aforementioned non-GAAP measures. As a result of the change, prior period amounts have been recast to reflect the updated presentation.
Subsequent to granting the Replacement RSUs and Earnout Right RSUs, the Company has granted other equity-based awards. As these awards are non-cash expenses that are not directly correlated with operating results, the Company believes that analysts, investors, and other users of the financial statements may find this change beneficial when analyzing our operating performance and comparability to peers. As a result of the change, adjusted net loss decreased $1.1 million and $2.9 million for the three and nine months ended September 30, 2023, respectively, from what was previously reported. The change also resulted in a decrease to adjusted loss per share of $0.05 and $0.13 for the three and nine months ended September 30, 2023, respectively, from what was previously reported.
Adjusted Net Income (Loss)
We define adjusted net income (loss) as consolidated net income (loss) from continuing operations adjusted for:
1.Income taxes
2.Changes in fair value of loans and securities held for investment and related obligations due to market inputs or model assumptions, deferred purchase price obligations (including earnouts and Tax Receivable Agreements (“TRA”) obligation), contingent earnout, warrant liability, and minority investments.
3.Amortization or impairment of intangibles and impairment of certain other long-lived assets.
4.Equity-based compensation, excluding forfeitures and accelerations associated with restructuring activities, which are included in certain non-recurring costs.
5.Certain non-recurring costs and adjustments that management believes should be excluded as these do not relate to a recurring part of the core business operations. These items include amounts recognized for settlement of legal and regulatory matters, acquisition or divestiture-related expenses, and other one-time charges.
76
6.Pro-forma income tax benefit (provision) adjustments to apply an effective combined corporate tax rate to adjusted net income (loss) before taxes.
Management considers adjusted net income (loss) important in evaluating our Company as a whole. This supplemental metric is utilized by our management team to assess the underlying key drivers and operational performance of the continuing operations of the business. In addition, analysts, investors, and creditors may use this measure when analyzing our operating performance and comparability to peers. Adjusted net income (loss) is not a presentation made in accordance with U.S. GAAP, and our definition and use of this measure may vary from other companies in our industry.
Adjusted net income (loss) provides visibility to the underlying operating performance by excluding the impact of certain items that management does not believe are representative of our core earnings. Adjusted net income (loss) may also include other adjustments, as applicable, based upon facts and circumstances, consistent with our intent of providing a supplemental means of evaluating our operating performance.
Adjusted EBITDA
We define adjusted EBITDA as net income (loss) from continuing operations adjusted for:
1.Income taxes
2.Change in fair value of loans and securities held for investment and related obligations due to market inputs or model assumptions, deferred purchase price obligations (including earnouts and TRA obligation), contingent earnout, warrant liability, and minority investments.
3.Amortization or impairment of intangibles and impairment of certain other long-lived assets.
4.Equity-based compensation, excluding forfeitures and accelerations associated with restructuring activities, which are included in certain non-recurring costs.
5.Certain non-recurring costs and adjustments that management believes should be excluded as these do not relate to a recurring part of the core business operations. These items include amounts recognized for settlement of legal and regulatory matters, acquisition or divestiture-related expenses, and other one-time charges.
6.Depreciation
7.Interest expense on non-funding debt
We evaluate the performance of our company and segments through the use of adjusted EBITDA as a non-GAAP measure. Management considers adjusted EBITDA important in evaluating the Company as a whole. Adjusted EBITDA is a supplemental metric utilized by our management team to assess the underlying key drivers and operational performance of the continuing operations of the business. In addition, analysts, investors, and creditors may use this measure when analyzing our operating performance. Adjusted EBITDA is not a presentation made in accordance with U.S. GAAP, and our use of this measure and term may vary from other companies in our industry.
Adjusted EBITDA provides visibility to the underlying operating performance by excluding the impact of certain items that management does not believe are representative of our core earnings. Adjusted EBITDA may also include other adjustments, as applicable, based upon facts and circumstances, consistent with our intent of providing a supplemental means of evaluating our operating performance.
Adjusted Earnings (Loss) Per Share
We define adjusted earnings (loss) per share as adjusted net income (loss) (defined above) divided by the weighted average outstanding shares, which includes outstanding Class A Common Stock plus the Class A LLC Units owned by the noncontrolling interest on an if-converted basis and any shares under the treasury stock method.
Analysts, investors, and creditors may use this measure when analyzing our operating performance and comparability to peers. Adjusted earnings (loss) per share is not a presentation made in accordance with U.S. GAAP, and our definition and use of this measure may vary from other companies in our industry.
The following table provides a reconciliation of net income (loss) from continuing operations to adjusted net income (loss) and adjusted EBITDA (in thousands, except for share data):
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Reconciliation to GAAP
For the three months ended September 30, 2024
For the three months ended September 30, 2023
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Reconciliation of net income (loss) from continuing operations to adjusted net income (loss) and adjusted EBITDA
Net income (loss) from continuing operations
$
203,748
$
(172,468)
$
183,047
$
(337,610)
Add back: (Provision) benefit for income taxes
(4,425)
103
(5,578)
786
Net income (loss) from continuing operations before taxes
208,173
(172,571)
188,625
(338,396)
Adjustments for:
Changes in fair value(1)
(198,337)
120,380
(215,887)
197,506
Amortization or impairment of intangibles and impairment of other assets
9,297
9,297
28,491
27,891
Equity-based compensation
1,516
4,854
7,092
14,334
Certain non-recurring costs
418
6,260
4,115
12,374
Adjusted net income (loss) before taxes
21,067
(31,780)
12,436
(86,291)
Benefit (provision) for income taxes
(5,568)
8,107
(3,571)
22,779
Adjusted net income (loss)
15,499
(23,673)
8,865
(63,512)
Provision (benefit) for income taxes
5,568
(8,107)
3,571
(22,779)
Depreciation
480
656
1,317
4,538
Interest expense on non-funding debt
10,008
7,642
28,087
22,827
Adjusted EBITDA
$
31,555
$
(23,482)
$
41,840
$
(58,926)
GAAP PER SHARE MEASURES
Net income (loss) from continuing operations attributable to controlling interest
$
84,203
$
(64,528)
$
76,584
$
(125,420)
Basic weighted average shares outstanding
9,924,671
8,772,623
9,824,171
7,980,449
Basic earnings (loss) per share from continuing operations
$
8.48
$
(7.36)
$
7.80
$
(15.72)
If-converted method net income (loss) from continuing operations
$
173,600
$
(64,528)
$
153,333
$
(125,420)
Diluted weighted average shares outstanding
23,159,304
8,772,623
23,062,616
7,980,449
Diluted earnings (loss) per share from continuing operations
$
7.50
$
(7.36)
$
6.65
$
(15.72)
NON-GAAP PER SHARE MEASURES
Adjusted net income (loss)
$
15,499
$
(23,673)
$
8,865
$
(63,512)
Weighted average shares outstanding
23,159,304
22,916,628
23,062,616
21,559,717
Adjusted earnings (loss) per share
$
0.67
$
(1.03)
$
0.38
$
(2.95)
(1) Changes in fair value - The adjustment for changes in fair value includes changes in fair value of loans and securities held for investment and related liabilities due to market inputs or model assumptions, deferred purchase price obligations, contingent earnout, warrant liability, and minority investments.
Changes in fair value of loans and securities held for investment and related liabilities due to market inputs or model assumptions - This adjustment relates to changes in the significant market or model input components of the fair value for loans and securities and related obligations, which are held for investment. We include an adjustment for the significant market or model input components of the change in fair value because, while based on real observable and/or predicted changes in drivers of the valuation of assets, they may be mismatched in any given period with the actual change in the underlying economics or when they
78
will be realized in actual cash flows. Changes in fair value of loans and securities held for investment and related obligations include changes in fair value and related hedge gains and losses for the following MSR, loans held for investment, and related liabilities:
1.Loans held for investment, subject to HMBS related obligations, at fair value;
2.Loans held for investment, subject to nonrecourse debt, at fair value;
3.Loans held for investment, at fair value;
4.Retained bonds, at fair value;
5.MSR, at fair value;
6.HMBS related obligations, at fair value; and
7.Nonrecourse debt, at fair value.
The adjustment for changes in fair value of loans and securities held for investment and related obligations due to market inputs or model assumptions is calculated based on changes in fair value associated with the above assets and liabilities calculated in accordance with U.S. GAAP, excluding the period-to-date estimated impact of the change in fair value attributable to current period additions and the change in fair value attributable to post-origination loan advances, accretion, and model amortization (i.e., portfolio run-off), net of hedge gains and losses, and any securitization expenses incurred in securitizing our mortgage loans held for investment, subject to nonrecourse debt. This adjustment represents changes in accounting estimates that are measured in accordance with U.S. GAAP. Actual results may differ from those estimates and assumptions due to factors such as changes in the economy, interest rates, secondary market pricing, prepayment assumptions, home prices, or discrete events affecting specific borrowers, and such differences could be material. Accordingly, this number should be understood as an estimate and the actual adjustment could vary if our modeling is incorrect.
Change in fair value of deferred purchase price obligations - We are obligated to pay contingent consideration to sellers of acquired businesses based on future performance of acquired businesses (earnouts) as well as realization of tax benefits from certain exchanges of Class A LLC Units into Class A Common Stock (TRA obligation). Change in fair value of deferred purchase price obligations represents impacts to revenue or expense due to changes in the estimated fair value of expected payouts as a result of changes in various assumptions, including future performance, timing and realization of tax benefits, and discount rates.
Change in fair value of contingent earnout - We are entitled to receive certain contingent consideration from the buyers of our disposed businesses based on future performance of those businesses. Change in fair value of contingent earnout represents impacts to revenue or expense due to changes in the estimated fair value of expected payouts as a result of changes in various assumptions, including future performance and discount rates.
Change in fair value of the warrant liability - The adjustment to the warrant liability is based on the change in its measured fair value. Although the change in fair value of the warrant liability is a recurring part of our business, the change in fair value is unrealized, and we believe the adjustment is appropriate as the fair value fluctuations from period to period may make it difficult to analyze core-operating trends.
Change in fair value of minority investments - The adjustment to minority equity investments and debt investments is based on the change in their measured fair value. Although the change in fair value of minority equity investments and debt investments is a recurring part of our business, we believe the adjustment is appropriate as the fair value fluctuations from period to period may make it difficult to analyze core-operating trends.
Liquidity and Capital Resources
FoA is a holding company and has no material assets other than its direct and indirect ownership of Class A LLC Units. FoA has no independent means of generating revenue. FoA Equity may make distributions to its holders of Class A LLC Units, including FoA and the Equity Capital Unitholders, in an amount sufficient to cover all applicable taxes at assumed tax rates, payments under the TRA, and dividends, if any, declared by FoA. Deterioration in the financial condition, earnings, or cash flow of FoA Equity and its subsidiaries for any reason
79
could limit or impair FoA Equity’s ability to make such distributions. In addition, FoA Equity is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of FoA Equity (with certain exceptions) exceed the fair value of its assets. Subsidiaries of FoA Equity are generally subject to similar legal limitations on their ability to make distributions to FoA Equity. Further, our existing financing arrangements include, and any financing arrangement that we enter into in the future may include, restrictions that impact FoA Equity’s ability to make distributions to FoA.
Our cash flows from operations, borrowing availability, and overall liquidity are subject to risks and uncertainties. We may not be able to obtain additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and fund our capital requirements are dependent on our future financial performance, which is subject to general economic, financial, and other factors that are beyond our control. Accordingly, our business may not generate sufficient cash flow from operations and future borrowings may not be available from additional indebtedness or otherwise to meet our liquidity needs. If we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions, which would result in additional expenses or dilution.
Sources and Uses of Cash
Our primary sources of funds for liquidity include: (i) payments received from the sale or securitization of loans; (ii) payments from the liquidation or securitization of our outstanding participating interests in loans; and (iii) advances on warehouse facilities, other secured borrowings, and the 7.875% Senior Notes due 2025 (the “2025 Unsecured Notes”). Refer to Note 21 - Subsequent Events in the Notes to Condensed Consolidated Financial Statements for additional information on the 2025 Unsecured Notes.
Our primary uses of funds for liquidity include: (i) funding of borrower advances and draws on outstanding loans; (ii) originations of loans; (iii) payment of operating expenses; and (iv) repayment of borrowings and repurchases or redemptions of outstanding indebtedness.
Our cash flow from operating activities when combined with net proceeds from our portfolio financing activities, as well as capacity through existing facilities, provide adequate resources to fund our anticipated ongoing cash requirements. We rely on these facilities to fund operating activities. As the facilities mature, we anticipate renewal of these facilities will be achieved. Future debt maturities will be funded with cash and cash equivalents, cash flow from operating activities, and, if necessary, future access to capital markets. We continue to optimize the use of balance sheet cash to avoid unnecessary interest-carrying costs.
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Cash Flows
The following table presents amounts from our Condensed Consolidated Statements of Cash Flows (in thousands):
For the nine months ended September 30, 2024
For the nine months ended September 30, 2023
Net cash provided by (used in):
Operating activities
$
(317,610)
$
(10,233)
Investing activities
145,598
139,331
Financing activities
167,550
(123,972)
Effect of exchange rate changes on cash and cash equivalents
24
52
Net increase (decrease) in cash and cash equivalents and restricted cash(1)
$
(4,438)
$
5,178
Net decrease in cash and cash equivalents
$
(2,224)
$
(31,020)
Net increase (decrease) in restricted cash
(2,214)
36,198
(1) Amounts presented contain results from both continuing and discontinued operations. Refer to Note 4 - Discontinued Operations in the Notes to Condensed Consolidated Financial Statements for additional information regarding cash flow associated with the results of discontinued operations.
Our cash and cash equivalents and restricted cash decreased by $4.4 million for the nine months ended September 30, 2024 compared to an increase of $5.2 million during the comparable period in 2023. Our cash and cash equivalents, excluding restricted cash, decreased $2.2 million nine months ended September 30, 2024 compared to a decrease of $31.0 million during the comparable period in 2023.
Operating Cash Flow
Cash flows from operating activities decreased by $307.4 million for the nine months ended September 30, 2024 compared to the corresponding 2023 period. The decrease was primarily attributable to a $295.0 million decrease in proceeds from the sale of loans held for sale, net of cash used for originations, which relates to the wind-down of business lines that are not part of our modern retirement solutions platform.
Investing Cash Flow
The increase of $6.3 million in cash provided by our investing activities during the nine months ended September 30, 2024 compared to the 2023 period was primarily attributable to a $386.5 million decrease in cash used for purchases and originations of loans held for investment, net of proceeds/payments, and a $140.9 million cash outlay for the AAG Transaction in the 2023 period. This was partially offset by a decrease of $378.0 million in proceeds/payments on loans held for investment, subject to nonrecourse debt, net of cash used for purchases and originations, a decrease of $80.1 million in proceeds from the sale of MSR, and a decrease in net proceeds from the sale of businesses of $68.2 million.
Financing Cash Flow
The increase of $291.5 million in cash provided by our financing activities during the nine months ended September 30, 2024 compared to the 2023 period was primarily driven by a $728.6 million increase in proceeds on other financing lines of credit, net of payments. This was partially offset by a $133.6 million decrease in proceeds from issuance of nonrecourse debt, net of payments, and by a $285.4 million increase in payments on HMBS related obligations, net of proceeds.
Financial Covenants
Our credit facilities contain various financial covenants, which primarily relate to required tangible net worth amounts, liquidity reserves, leverage ratios, and profitability. These covenants are measured at our holding company subsidiary or our operating subsidiaries. The Company was in compliance with the financial covenants as of September 30, 2024. Refer to Note 11 - Other Financing Lines of Credit in the Notes to Condensed Consolidated Financial Statements for additional information.
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Compliance Requirements
As an issuer of HMBS, FAR is subject to net worth, liquidity, and leverage requirements as established and defined by Ginnie Mae as follows:
Minimum Net Worth
•$5.0 million plus 1% of FAR’s outstanding HMBS and unused commitment authority from Ginnie Mae.
•Tangible net worth is defined as total equity less goodwill, intangible assets, affiliate receivables, and certain pledged assets.
Minimum Liquidity
•Maintain liquid assets equal to at least 20% of the minimum net worth required for a HMBS issuer.
Minimum Leverage Ratio
•Maintain a ratio of tangible net worth to total assets greater than 6%.
As of September 30, 2024 and December 31, 2023, FAR was in compliance with the net worth and liquidity requirements. FAR’s actual ratio of tangible net worth to total assets was below the Ginnie Mae requirement due to the Company’s determination that HECM loans transferred into HMBS securitizations do not meet the requirements of sale accounting. As a result, the Company accounts for HECM loans transferred into HMBS securitizations as secured borrowings and continues to recognize the loans as held for investment, subject to HMBS related obligations, along with the corresponding liability for the HMBS related obligations. FAR received a waiver for the minimum outstanding capital requirements from Ginnie Mae. Therefore, FAR was in compliance with all Ginnie Mae requirements.
In connection with the discontinued operations of the Company’s previously reported Mortgage Originations segment, FAM has surrendered all its government sponsored entities (“GSE”)/agency mortgage origination licenses and approvals as of June 30, 2024 and is therefore no longer subject to the GSE/agency compliance requirements that were applicable to FAM prior to the surrender of its licenses and approvals.
Refer to Note 18 - Liquidity and Capital Requirements in the Notes to Condensed Consolidated Financial Statements for additional information.
Summary of Certain Indebtedness
The following description is a summary of certain material provisions of our outstanding indebtedness. As of September 30, 2024, our debt obligations were $28.3 billion. This summary does not restate the terms of our outstanding indebtedness in its entirety, nor does it describe all of the material terms of our indebtedness.
Warehouse Lines of Credit
Reverse mortgage facilities
As of September 30, 2024, we had $995.0 million in warehouse lines of credit capacity collateralized primarily by first lien mortgages with a $576.5 million aggregate principal amount drawn through eight funding facility arrangements with seven active lenders. These facilities are generally structured as master repurchase agreements under which ownership of the related eligible loans is temporarily transferred to a lender, as participation arrangements pursuant to which the lender acquires a participation interest in the related eligible loans, or as loan and security agreements under which eligible loans are pledged to the lender as collateral. The funds advanced to us are generally repaid using the proceeds from the sale or securitization of the loans to, or pursuant to, programs sponsored by Ginnie Mae or private secondary market investors, although prior payment may be required based on, among other things, certain breaches of representations and warranties or other events of default.
When we draw on these facilities, we generally must transfer and/or pledge eligible loans to the lender and comply with various financial and other covenants. The facilities generally have one-year terms and expire at various times during 2024 through 2026. Under the facilities, loans are generally transferred and/or pledged at an advance rate less than the principal balance of the loans (the “haircut”), which serves as the primary credit enhancement for the lender. Six of our warehouse lines of credit are guaranteed by FAH, a consolidated subsidiary of the Company and the parent holding company to the reverse mortgage business. Since the advances to us are generally for less than 100% of the principal balance of the loans, we are required to use working capital to fund the remaining portion of the principal balance of the loans. Upon expiration, management believes it will either renew its existing facilities or
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obtain sufficient additional lines of credit. The interest rate on all outstanding facilities is the Secured Overnight Financing Rate (“SOFR”), plus applicable margin.
The following table presents additional information about our warehouse facilities as of September 30, 2024 (in thousands):
Reverse Warehouse Facilities
Maturity Date
Total Capacity
Outstanding Balance
Committed
June 2025 - September 2025
$
335,000
$
321,757
Uncommitted
November 2024(1) - October 2026
660,000
254,718
Total reverse warehouse facilities
$
995,000
$
576,475
(1) The warehouse line of credit with a maturity date in November 2024 has been renewed subsequent to September 30, 2024.
General
With respect to each of our warehouse facilities, we pay certain up-front and/or ongoing fees which can be based on our utilization of the facility. In some instances, loans held by a lender for a contractual period exceeding 45 to 60 calendar days after we originate such loans are subject to additional fees and interest rates.
Certain of our warehouse facilities contain sub-limits for “wet” loans, which allow us to finance loans for a minimal period of time prior to delivery of the note collateral to the lender. “Wet” loans are loans for which the collateral custodian has not yet received the related loan documentation. “Dry” loans are loans for which all the sale documentation has been completed at the time of funding. Wet loans are held by a lender for a contractual period, typically between five and ten business days and are subject to a reduction in the advance amount.
Interest is generally payable at the time the loan is settled off the line or monthly in arrears and the principal is payable upon receipt of loan sale or securitization proceeds or transfer of a loan to another line of credit. The facilities may also require the outstanding principal to be repaid if a loan remains on the line longer than a contractual period of time, which generally ranges from 45 to 365 calendar days.
Interest on our warehouse facilities vary by facility and may depend on the type of asset that is being financed. The interest rate on all outstanding facilities is SOFR, plus a spread.
Loans financed under certain of our warehouse facilities are subject to changes in fair value and margin calls. The fair value of our loans depends on a variety of economic conditions, including interest rates and market demand for loans. Under certain facilities, if the fair value of the underlying loans declines below the outstanding asset balance on such loans or if the UPB of such loans falls below a threshold related to the repurchase price for such loans, we could be required to (i) repay cash in an amount that cures the margin deficit or (ii) supply additional eligible assets or rights as collateral for the underlying loans to compensate for the margin deficit. Certain warehouse facilities allow for the remittance of cash back to us if the value of the loan exceeds the principal balance.
Our warehouse facilities require our borrowing subsidiaries to comply with various customary operating and financial covenants, including, without limitation, the following tests:
•minimum tangible or adjusted tangible net worth;
•maximum leverage ratio of total liabilities (which may include off-balance sheet liabilities) or indebtedness to tangible or adjusted tangible net worth;
•minimum liquidity or minimum liquid assets; and
•minimum profitability.
In the event we fail to comply with the covenants contained in any of our warehouse lines of credit, or otherwise were to default under the terms of such agreements, we may be restricted from paying dividends, reducing or retiring our equity interests, making investments, or incurring more debt.
Other Secured Lines of Credit
As of September 30, 2024, we collectively had $513.3 million in additional secured facilities with $478.1 million aggregate principal amount drawn through credit agreements or master repurchase agreements with six funding facility arrangements and five active lenders. These facilities are secured by, among other things, eligible asset-backed securities, HECM MSR, and HECM tails. In certain instances, these assets are subject to existing first lien warehouse financing, in which case these facilities (i.e., mezzanine facilities) are secured by the equity in these
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assets exceeding first lien warehouse financing. These facilities are generally structured as master repurchase agreements under which ownership of the related eligible assets is temporarily transferred to a lender. The funds advanced to us are generally repaid using the proceeds from the sale or securitization of the underlying assets or distribution from underlying securities, although prior payment may be required based on, among other things, certain breaches of representations and warranties or other events of default.
When we draw on these facilities, we generally must transfer and pledge eligible assets to the lender and comply with various financial and other covenants. Under our facilities, we generally transfer the assets at a haircut, which serves as the primary credit enhancement for the lender. Four of these facilities are guaranteed by FAH, a consolidated subsidiary of the Company.
The following table presents additional information about our other financing lines of credit as of September 30, 2024 (in thousands):
Other Financing Lines of Credit
Maturity Date
Total Capacity
Outstanding Balance
Committed
Various(1)
$
473,304
$
448,609
Uncommitted
October 2025
40,000
29,484
Total other secured lines of credit
$
513,304
$
478,093
(1) These lines of credit are tied to the maturity date of the underlying mortgage related assets or HECM MSR that have been pledged as collateral.
We pay certain up-front and ongoing fees based on our utilization with respect to many of these facilities. We pay commitment fees based upon the limit of the facility and unused fees are paid if utilization falls below a certain amount.
Interest is payable either at the time the loan or securities are settled off the line or monthly in arrears, and principal is payable upon receipt of asset sale or securitization proceeds, principal distributions on the underlying pledged securities or transfer of assets to another line of credit, and upon the maturity of the facility.
Under these facilities, we are generally required to comply with various customary operating and financial covenants. The financial covenants are similar to those under the warehouse lines of credit. The Company was in compliance with all financial covenants as of September 30, 2024.
HMBS Related Obligations
FAR is an approved issuer of HMBS securities that are guaranteed by Ginnie Mae and collateralized by participation interests in HECM insured by the FHA. We originate HECM insured by the FHA. Participations in the HECM are pooled into HMBS securities which are sold into the secondary market with servicing rights retained. We have determined that loan transfers in the HMBS program do not meet the accounting definition of a participating interest because of the servicing requirements in the product that require the issuer/servicer to absorb some level of interest rate risk, cash flow timing risk, and incidental credit risk due to the buyout of HECM assets as discussed below. As a result, the transfers of the HECM do not qualify for sale accounting, and we, therefore, account for these transfers as financings. Holders of participating interests in the HMBS have no recourse against assets other than the underlying HECM loans, remittances, or collateral on those loans while they are in the securitization pools, except for standard representations and warranties and our contractual obligation to service the HECM and the HMBS.
Remittances received on the reverse loans, if any, and proceeds received from the sale of real estate owned, and our funds used to repurchase reverse loans are used to reduce the HMBS related obligations by making payments to the securitization pools, which then remit the payments to the beneficial interest holders of the HMBS. The maturity of the HMBS related obligations is directly affected by the liquidation of the reverse loans or liquidation of real estate owned properties and events of default as stipulated in the reverse loan agreements with borrowers. As an HMBS issuer, FAR assumes certain obligations related to each security it issues. The most significant obligation is the requirement to purchase loans out of the Ginnie Mae securitization pools once they reach certain limits set at loan origination for the maximum UPB allowed. Performing repurchased loans are generally conveyed to the United States Department of Housing and Urban Development, and nonperforming repurchased loans are generally liquidated in accordance with program requirements.
As of September 30, 2024, we had HMBS related obligations of $18.3 billion and HECM pledged as collateral to the pools of $18.5 billion, both carried at fair value.
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Additionally, as the servicer of reverse mortgage loans, we are obligated to fund additional borrowing capacity primarily in the form of undrawn lines of credit on floating rate reverse mortgage loans. We rely upon certain of our warehouse financing arrangements and our operating cash flows to fund these additional borrowings on a short-term basis prior to securitization. The additional borrowings are generally securitized within 30 days after funding. The obligation to fund these additional borrowings could have a significant impact on our liquidity.
Nonrecourse Debt
We securitize and issue interests in pools of loans that are not eligible for the Ginnie Mae securitization program. These include reverse mortgage loans that were previously repurchased out of a HMBS pool, which are referred to as HECM buyouts, commercial mortgage loans, and non-agency reverse mortgages. The transactions provide investors with the ability to invest in these pools of assets. The transactions provide us with access to liquidity for these assets, ongoing servicing fees, and potential residual returns for the residual securities we retain at the time of securitization. The transactions are structured as secured borrowings with the loan assets and liabilities, respectively, included in the Condensed Consolidated Statements of Financial Condition as loans held for investment, subject to nonrecourse debt, at fair value, and nonrecourse debt, at fair value. As of September 30, 2024, we had nonrecourse debt-related borrowings of $8.5 billion.
Notes Payable
2025 Unsecured Notes
On November 5, 2020, FOAF, a consolidated subsidiary of the Company, issued $350 million aggregate principal amount of 2025 Unsecured Notes. The 2025 Unsecured Notes bear interest at a rate of 7.875% per year, payable semi-annually in arrears on May 15 and November 15 beginning on May 15, 2021. The 2025 Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by FoA and each of FoA’s material existing and future consolidated domestic subsidiaries, excluding FOAF and subsidiaries.
In accordance with the agreement, FOAF may redeem some or all of the 2025 Unsecured Notes at a redemption price equal to 100% of the principal amount thereof, plus the applicable premium as of the redemption date under the terms of the indenture and accrued and unpaid interest. The redemption price during the twelve-month period following November 15, 2023 and at any time after November 15, 2024 is 101.969% and 100%, respectively, of the principal amount plus accrued and unpaid interest thereon. Upon the occurrence of a change of control, the holders of the 2025 Unsecured Notes will have the right to require FOAF to make an offer to repurchase each holder’s 2025 Unsecured Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest.
The 2025 Unsecured Notes contain covenants limiting, among other things, FOAF and its restricted subsidiaries’ ability to incur certain types of additional debt or issue certain preferred shares, incur liens, make certain distributions, investments and other restricted payments, engage in certain transactions with affiliates, and merge or consolidate or sell, transfer, lease, or otherwise dispose of all or substantially all of FOAF’s assets. These incurrence-based covenants are subject to exceptions and qualifications. Many of these covenants will cease to apply during any time that the 2025 Unsecured Notes have investment grade ratings and no default with respect to the 2025 Unsecured Notes has occurred and is continuing. The Company was in compliance with all required covenants related to the 2025 Unsecured Notes as of September 30, 2024.
FoA’s existing owners or their affiliated entities, including Blackstone and Brian L. Libman, FoA’s founder and chairman, purchased notes in the offering in an aggregate principal amount of $135.0 million.
In October 2024, certain of the direct and indirect subsidiaries of the Company entered into an exchange of the 2025 Unsecured Notes with certain holders. Refer to Note 21 - Subsequent Events in the Notes to Condensed Consolidated Financial Statements for additional information.
Related-party notes
The Company had two Revolving Working Capital Promissory Note Agreements (the “Working Capital Promissory Notes”) outstanding with BTO Urban Holdings L.L.C. and Libman Family Holdings, LLC, which are deemed affiliates of the Company. Amounts under the Working Capital Promissory Notes may be re-borrowed and repaid from time to time until the related maturity date. The Working Capital Promissory Notes accrue interest monthly at a rate of 15.0% per annum and mature in May 2025.
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Contractual Obligations and Commitments
The following table provides a summary of obligations and commitments outstanding as of September 30, 2024 (in thousands):
Total
Less than 1 year
1- 3 years
3 - 5 years
More than 5 years
Contractual cash obligations:
Warehouse lines of credit
$
576,475
$
486,165
$
90,310
$
—
$
—
HECM MSR line of credit
69,231
—
—
69,231
—
Other secured lines of credit
408,862
11,074
29,484
—
368,304
Nonrecourse debt
8,861,083
2,349,839
4,559,500
850,492
1,101,252
Notes payable(1)
435,744
—
435,744
—
—
Operating leases
38,258
5,321
10,087
7,167
15,683
Total
$
10,389,653
$
2,852,399
$
5,125,125
$
926,890
$
1,485,239
(1) The $350 million aggregate principal amount of the 2025 Unsecured Notes due November 15, 2025 were exchanged subsequent to the balance sheet date. Refer to Note 21 - Subsequent Events in the Notes to Condensed Consolidated Financial Statements for additional information.
In addition to the above contractual obligations, we have also been involved with several securitizations of HECM loans, which were structured as secured borrowings. These structures resulted in us carrying the securitized loans in the Condensed Consolidated Statements of Financial Condition and recognizing the asset-backed certificates acquired by third parties as HMBS related obligations. The timing of the principal payments on this nonrecourse debt is dependent on the payments received on the underlying mortgage loans and liquidation of real estate owned properties. The outstanding principal balance of loans held for investment, subject to HMBS related obligations, was $17.5 billion as of September 30, 2024.
The Company’s TRA obligation will require payments to be made that may be significant and are not reflected in the contractual obligations tables set forth above.
CRITICAL ACCOUNTING ESTIMATES
For a description of our critical accounting estimates, see the Form 10-K filed with the SEC on March 15, 2024.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our principal market risk is interest rate risk, primarily to changes in long-term Treasury rates and mortgage interest rates due to their impact on mortgage-related assets. Changes in short-term interest rates will also have an impact on our financing lines of credit.
Interest Rate Risk
Changes in interest rates will, in general, impact our operating segments as follows:
Retirement Solutions
•an increase in prevailing interest rates could adversely affect our loan origination volume as new loans or refinancing an existing loan will be less attractive to borrowers.
Portfolio Management
•an increase in interest rates could generate an increase in delinquency, default, and foreclosure rates resulting in an increase in both servicing costs and interest expense on our outstanding debt.
•an increase in interest rates will lead to a higher cost of funds on our financing lines of credit.
•an increase in interest rates and market spreads may cause a reduction in the fair value of our long-term assets.
•a decrease in interest rates may increase prepayment speeds of our long-term assets which could lead to a reduction in the fair value of our long-term assets.
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Earnings on our held for investment assets depend largely on our interest rate spread, represented by the relationship between the yield on our interest-earning assets, primarily securitized assets, and the cost of our interest-bearing liabilities, primarily securitized borrowings. Interest rate spreads are impacted by several factors, including forward interest rates, general economic factors, and the quality of the loans in our portfolio.
Sensitivity Analysis
We utilize a sensitivity analysis to assess our market risk associated with changes in interest rates. This sensitivity analysis attempts to assess the potential impact to earnings based on hypothetical changes in interest rates.
We estimate the fair value of the outstanding mortgage loans and related liabilities using a process that combines the use of a DCF model and analysis of current market data. The cash flow assumptions used in the model are based on various factors. Refer to Note 6 - Fair Value in the Notes to Condensed Consolidated Financial Statements for further discussion of the key assumptions and valuation techniques.
Our total market risk is impacted by a variety of other factors including market spreads and the liquidity of the markets. There are certain limitations inherent in the sensitivity analysis presented, including the necessity to conduct the analysis based on a single point in time.
The sensitivities presented are hypothetical and should be evaluated with care. The effect on fair value of a 25 bps variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
The following table summarizes the estimated change in the fair value of our significant assets and liabilities sensitive to interest rates as of September 30, 2024 (in thousands):
September 30, 2024
Down 25 bps
Up 25 bps
Increase (decrease) in assets
Loans held for investment, subject to HMBS related obligations
$
31,051
$
(30,833)
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans
122,748
(120,592)
Commercial mortgage loans
75
(75)
Loans held for investment:
Reverse mortgage loans
6,709
(6,460)
Total assets
$
160,583
$
(157,960)
Increase (decrease) in liabilities
HMBS related obligations
$
26,918
$
(26,684)
Nonrecourse debt
49,275
(49,145)
Total liabilities
$
76,193
$
(75,829)
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be
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considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, and the information described above in this Item 4, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - Other Information
Item 1. Legal Proceedings
The information required with respect to this Part II, Item 1 can be found under Note 13 - Litigation in our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report.
Item 1A. Risk Factors
We are not aware of any material changes from the risk factors set forth under “Item 1A. Risk Factors” included in the Form 10-K filed with the SEC on March 15, 2024.
In addition to the other information included in this Report, you should carefully consider the factors discussed in “Item 1A. Risk Factors” included in the Form 10-K, as well as the factors identified under “Forward-Looking Statements” prior to the beginning of Part I, Item 1 of this Quarterly Report and as may be updated in subsequent filings with the SEC, which could materially affect the Company’s business, financial condition, or future results. The risks described in the Form 10-K and this Quarterly Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Section 13(r) Disclosure
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the Exchange Act, we hereby incorporate by reference herein Exhibit 99.1 of this report, which includes disclosures regarding activities at Mundys S.p.A., which may be, or may have been at the time considered to be, an affiliate of Blackstone and, therefore, our affiliate.
Executive Compensation Matters
On November 7, 2024, upon the recommendation of the Compensation Committee, the Board of Directors of the Company granted options to certain officers of the Company, in recognition of their leadership and service to the Company, including in connection with recent strategic initiatives. Grants were made to the Company’s named executive officers and chief financial officer, in the amounts set forth below pursuant to the Finance of America Companies Inc. 2021 Omnibus Incentive Plan and the form of Option Grant Notice and Option Agreement, substantially in the form attached hereto as Exhibit 10.1 to this Quarterly Report on Form 10-Q.
The options vest on the second anniversary from the date of grant (subject to the officer’s continued employment on the vesting date), are exercisable for a period of five years from the date of grant (on a one-for-one basis for Class A LLC Units of FoA Equity, which are exchangeable for shares of Class A Common Stock of the Company on a one-for-one basis), and have an exercise price equal to $25.00, which exceeds the fair market value of one share of Class A Common Stock of the Company on the date of grant.
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Certain agreements and other documents filed as exhibits to this Form 10-Q contain representations and warranties that the parties thereto made to each other. These representations and warranties have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and other documents and that may not be reflected in such agreements and other documents. In addition, these representations and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have changed since the date of such agreements and other documents.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.