Finance of America Companies, the parent company of leading reverse mortgage lender Finance of America Reverse (FAR), disclosed that the reverse mortgage lender set a second consecutive quarterly record in terms of fundings and that reverse mortgages make up a key offering for the organization as it plans to offer loan products across the needs spectrums of borrowers’ entire lives.
This is according to the parent company’s executive leadership team in a Q3 2021 earnings presentation.
Reverse mortgage originations also more than doubled in Q3 2021 compared to the same period in 2020, contributing to an overall sizable increase in the overarching company’s revenue and pre-tax income. The company also plans to “double down” on additional investments into FAR, as well as into its burgeoning commercial and home improvement businesses according to the presentation.
Reverse mortgage results
Similarly to the company’s Q2 2021 presentation, the parent company touted the positive performance of FAR as a notable element of the company’s success in a niche market according to figures shared by Johan Gericke, Finance of America’s CFO.
“Our reverse origination segment set a second consecutive quarterly funding record,” he said. “The strength in this market is driven by both new originations and cash-out refinances due to recent home price appreciation. This generated quarterly revenue of one hundred and eleven million, the first time it crossed the $100 million mark. And pre-tax income of $69 million, which grew 30% compared to last quarter.”
Year-to-date reverse originations generated $168 million in pre-tax income, he said, making for a 127% increase when directly compared to the Q3 2020.
The state of the reverse mortgage market
In addition to the positive financial performance from FAR, the reverse mortgage business is seen by the parent company as a sector that remains full of potential due to the growing preferences of American seniors to age in place. This is according to Finance of America CEO Patti Cook.
“We are going to double down on investments in our reverse commercial and home improvement businesses,” Cook said. “These lending businesses have structural tailwinds that will fuel continued growth, as is evidenced by the substantial multiples [that] banks and other investors are paying for these businesses.”
The size of the potential reverse mortgage market remains massive due to favorable demographics and the increasing collective home equity of the senior cohort, Cook said.
“Seniors hold almost eight trillion in home equity and research has shown that the majority of seniors have not saved enough for retirement,” Cook said. “We have a few tests ongoing to increase market awareness and position a reverse mortgage as a very efficient retirement tool. [The] initial results are very encouraging. The recently elevated home price appreciation, coupled with the increased desire by older Americans to age in place has created a unique window of opportunity for us to leverage our scale and expertise to lean into this business, which is exactly what we are doing.”
Cook also explained the desire for Finance of America to serve people at any point in their lives – potentially from early adulthood to retirement – and that reverse mortgages will remain a core component of a product suite that can achieve such a goal.
“[One] priority […] is to leverage our substantial mortgage infrastructure, technology, and data to increase the lifetime household value of our customers,” she said. “We have only scratched the surface on this and see an opportunity to unlock multi-generational value from our customers as they migrate from student loans, to personal loans, to mortgage, to home improvement and ultimately to a reverse mortgage.”
Only a fraction of the total Finance of America sales force offers all of the company’s products currently, she explained.
Headwinds in the reverse mortgage market, regulation
While a great deal of the discussion surrounding FAR and reverse mortgages more generally revolved around tailwinds that could expand that business, one investor asked the leadership team about perceptions related to current headwinds in the space, including recent evidence of greater regulatory scrutiny. Cook instead sees the biggest obstacle to the reverse business as education and adoption of the product category, she said.
“It’s education. You’ve got this huge population out there, [and] you’ve got a great product that satisfies one of their biggest needs,” she said. “Getting to them [is a challenge], and because reverse is still a bit of a niche market, it’s hard to do. So, really it’s the collective of us and our competitors, working with what I’ll call some ‘industry think tanks’ to really try and increase the uptake of potential borrowers into a reverse.”
On the question of higher regulatory scrutiny, Cook sees it as a potential positive since that higher level of scrutiny could invite awareness of reverse mortgages and potentially expand trust in the sector, she said.
“I think on your second question on the regulatory environment, we welcome that scrutiny,” she said. “And I mean that sincerely. We take our customer relationship in the reverse mortgage [space] seriously, and we have a demonstrated track record of doing the right thing. We have a good relationship with the CFPB, and like I said, I welcome the increased scrutiny.”
