Reverse mortgage growth touted in tough Q2 earnings for FAR parent

Reverse mortgage growth touted in tough Q2 earnings for FAR parent

August 5, 2022 0 By administrator

Finance of America Companies (FOA) — the parent organization of leading reverse mortgage lender Finance of America Reverse (FAR) — announced this week that steep losses of $168 million in Q2 2022 will lead to various cost control measures including a reduction in its workforce and a move away from a refinance-reliant direct-to-consumer forward channel.

However, FOA President and interim CEO Graham Fleming also took the time to describe the importance of the company’s reverse mortgage division, describing that growth in volumes and recent research illustrating the untapped potential of the market continue to demonstrate a need for further investment in this side of the business.

Reverse mortgage market challenges

Fleming describes the reverse mortgage business at FOA in very positive terms especially considering the stringer headwinds being faced on the company’s traditional mortgage segment, he explained on an earnings call this past Thursday. In the case of both reverse and commercial originations, the company could not reprice loans in the pipeline at the same pace that the market moved, which led to a decline in margins for both businesses when coupled with funded loans losing value.

“In order to combat this margin compression, we repriced loans and raised coupons several times,” Fleming said. “And yet despite these increases, we saw record origination volumes in reverse, and another strong quarter from commercial. As the capital markets stabilize, we expect margins in these businesses to return closer to historical averages, and we will take any additional actions necessary to improve profitability.”

In addition to addressing a need to “optimize” the traditional mortgage business, Fleming also described that investing further in the reverse mortgage segment will be a company priority going forward, and observable growth in FOA’s home improvement business will also bring cross-sell opportunities including for reverse, he explained.

“Reverse origination volumes of $1.58 billion in Q2 set yet another quarterly funding record and was roughly $100 million above the first quarter,” Fleming said. “This growth is attributable primarily to market penetration in first-time reverse customers. As a result, we have seen a decrease in prepayment rates as production shifts from refinance to new volume.”

Fleming also mentioned research published in July by FAR, indicating that senior consideration of incorporating home equity into retirement remains generally low even for people who could most easily qualify for a product like a reverse mortgage.

“These results underscore not only the massive market opportunity, but also the need for greater consumer education and awareness to fuel product adoption,” he said. “We’re actively working on a strategic partnership to unlock a new origination channel that will target reverse as an efficient financial planning tool. And we’re very excited about…

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