Finance of America's nonlending biz expected to outperform mortgage in ‘21

Finance of America's diversified business model should help the newly public company navigate the headwinds facing the mortgage business going forward, CEO Patricia Cook said on the company's first quarter earnings call.

During the first quarter, Finance of America's fee-based portfolio management and lender services businesses contributed meaningfully to the company's results, Cook noted.

"In fact, we expect contributions from our non-mortgage segments to continue to increase during the remainder of the year, while the mortgage origination segment declines, year-over-year," Cook said. "We estimate based on the current market, the net effect could be a reduction in adjusted EBITDA for full year 2021 of roughly 20% year-over-year."

Cook pointed to the company's April launch of a home improvement finance division, which it acquired after purchasing Renovate America’s assets out of bankruptcy. In May, the company made its 17th acquisition since it was formed in 2013, buying Parkside Lending’s wholesale channel for approximately $40 million.

The company also launched its reverse mortgage hybrid product, EquityAvail, for which it estimated a potential clientele of 2 million borrowers in March.

Finance of America reported first quarter net income of $124 million, down from $153 million in the fourth quarter; in the first quarter last year, Finance of America lost $43 million.

Its forward mortgage business had pretax net income of $96 million in the first quarter, as it funded $8.4 billion of loans. The gain on sale margin for the period was 340 basis points.

This compares to pretax net income of $135 million in the fourth quarter, when it funded $8.8 billion, but the gain on sale margin was higher at 431 bps.

The correspondent and wholesale channels had larger margin declines than the retail segment, Cook said.

One year ago, Finance of America Mortgage did $4.2 billion in volume, with pretax net income of $10 million and a gain on sale margin of 210 bps.

The reverse mortgage business saw improved earnings over comparable periods. In the first quarter it earned $45 million, up from $33 million in the fourth quarter and $17 million for the first quarter of 2020.

There were "near record volumes and strong growth for our reverse origination business where growth drivers are less correlated with the direction of interest rates," Cook said. "More specifically, baby boomers are increasingly looking to age in place, and our reverse mortgage products provide the opportunity to this demographic to tap the equity accumulated in their homes."

Reverse mortgage funded volume increased to $759 million from $655 million in the prior quarter and $656 million in the prior year.

The company's commercial segment, which primarily lends on fix and flip and single-family rental properties had funded volume of $341 million, up from $307 million in the fourth quarter, but down from $459 million one year ago.

There is "more margin competitiveness in fix and flip, but we feel good about where that market is and where it will continue to go," Cook said. "I think the real opportunity for us is when you look at the [single family rental lending] market."

That business will benefit from the Federal Housing Finance Agency's cap on Fannie Mae and Freddie Mac's ability to acquire non-owner-occupied properties, she continued.

Incenter, the lender services business, had $13 million of pretax income during the first quarter primarily as a result of strong title agency and underwriting revenue, along with increased activity for the mortgage servicing rights brokerage and advisory business.

In the fourth quarter it earned $4 million and in the first quarter of last year, it earned $3 million from this segment.