While touting progress in its sales of reverse mortgages, a change made to account for stock price declines and goodwill caused Finance of America Companies (FOA) to report a net loss of nearly $1.34 billion under generally accepted accounting principles.
“Due to a sustained decline in our stock price, the company recognized a $1.4 billion charge in the fourth quarter as we wrote off all goodwill and certain intangible assets to align the company’s book value per share with supportable control premium,” Chief Financial Officer Johan Gericke said Thursday.
He went on to explain that it did not impact the adjusted net income and tangible value, which was around $30 million. The company generated net income of $15 million for the fourth quarter of 2021.
Reverse originations generated $243 million pre-tax income for the year, excluding impairment of goodwill and intangible assets during 2021 — a new record and 127% higher than the prior year.
Finance of America CEO Patty Cook said this is because the reverse eligible population is growing.
“Many boomers have not saved enough to maintain their current lifestyle. A reverse mortgage is an attractive solution to not only allow homeowners to age in place, but also to plan their lifestyle,” she said. “We are continuing to invest in education and advertising to drive market awareness around the benefits of a reverse mortgage and the responsible use of the home equity as an effective means to help fund retirement.”
Cook said FOA also is positioning itself for fewer refinances, “while still maintaining our ability to benefit from expected growth in the purchase and non-agency market.”
“As refinance volumes decline, it allows our roughly 1,100 loan officers and 1,250 broker relationships to supplement their business by selling reverse and commercial mortgages,” she said. “In 2021, our LOs and brokers each sold, on average, half a reverse in one-10th of the commercial loan, and we believe there is opportunity to increase this meaningfully.”
Cook, who announced her retirement on the call Thursday, acknowledged the loss in the fourth quarter in their traditional mortgages.
“This quarter, our mortgage segment posted a loss, which can be primarily attributed to our nascent home-improvement business that is reported as part of the mortgage-origination segment,” Cook said. “Excluding the loss from home improvement, our mortgage business broke even and we expect the mortgage business will return to profitability as the home buying season approaches.”
At the same time, FOA is positioning itself to take advantage of non-agency loans, she said.
“We are also focused on our non-agency proprietary product that caters to borrowers who don’t qualify for agency loans,” Cook said. “This recently launched product doesn’t change our credit risk, but allows us to serve a broader subset of qualified customers who don’t fulfill the traditional requirements, such as a customer who has an independent business and doesn’t get a W2, or a customer who is a consultant or receives income from multiple jobs, or a customer who briefly fell on part-time due to COVID and has a gap in their income history.”
The company is also focused on its specialty finance and services (SF&S) segment.
“In the fourth quarter, it contributed $196 million in revenue and $73 million in adjusted net income,” Cook said. “A key driver of our SF&S success is our reverse mortgage business, which offers products and services designed to help older Americans tap home equity as part of their retirement plan. The strength in this market is driven by post new origination and refinancing due to recent home price appreciation.”
Cook said she would stay on until a successor is found.