Finance of America asks investors to look beyond traditional mortgages

American corporate finance on Wednesday told investors that it had managed to increase its creations in 2021, but a more competitive landscape has reduced margins and, therefore, the company’s net income.

In a tough environment for term mortgages, Finance of America is betting on specialty financing and service products — reverse mortgages, investor loans, commercial loans — that are expected to generate the bulk of the return this year.

Finance of America funded $35.6 billion in 2021, up 9% from 2020, primarily due to reverse and commercial activities. However, in the fourth quarter, total volume was $8.79 billion, down 10% year-over-year and 2% quarter-over-quarter.

On paper, the company recorded a loss of $1.17 billion in 2021, reversing a profit of $498 million the previous year, which was practically an impairment of goodwill and intangible assets. The stock was needed to bring its book value in line with a bearable control premium, due to a sustained decline in the share price, FoA executives said. Adjusted net income, which excludes impairment, was $308 million in 2021, down 28% year-over-year.

In the fourth quarter, the company recorded a loss of $1.33 billion on paper due to impairment, compared to a profit of $50 million in the previous quarter and a profit of $152 million in the same quarter of 2020. Adjusted net income was $70 million, down 7% quarter-over-quarter and down 43% year-over-year.

In a conference call with analysts, Patti Cook, the outgoing chief executive, said Finance of America delivered a “strong performance” in its first year as a public company, the finance and services businesses stand out as the mortgage industry faces a challenging environment.

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In 2021, the company’s best performance was in business mounts, rising from $855 million to $1.7 billion, up 107%. Reverse issuance increased 57% year-over-year to $4.26 billion.

About $29.6 billion of the total funded last year came from its traditional term mortgage arm, which was up 2% from a year earlier — in total, 55% of mortgage volume was in refinancing last year, according to filings. In the fourth quarter, however, mortgage originations were down 22% from the fourth quarter of 2020 and 7% from the third quarter of 2021, to $6.89 billion.

Margins in the mortgage business fell from 3.88% in 2020 to 2.86% in 2021. Cook said margins were falling because the company was coming more from the wholesale channel than the retail division.

Like many of its competitors, FoA has downsized to accommodate reduced volumes.

“We have taken steps to position our mortgage business for significantly reduced refinance volume, while maintaining our ability to benefit from expected growth in the purchase and non-agency markets,” she told analysts. “This quarter, our mortgage segment posted a loss, which can be primarily attributed to our nascent home improvement business.”

The company’s strategy is to sell more financing products and specialized services through mortgage channels. He also has a home improvement business. Revenue from these products attributable to mortgages grew from $46 million in 2019 to $96 million in 2021. Segments are expected to remain the primary driver of profitability in 2022, Cook said.

During the conference call, an analyst asked why the company’s stock performance was disconnected from executives’ optimism about the company. Cook responded that the company has always asserted that specialized financing and service products will boost the company’s earnings during mortgage cycles. “People have to believe that the trend is continuing. We should start distinguishing ourselves from our peers.

Finance of America shares were trading at $3.39 around 10 a.m. EST Thursday, up 4.46% from the previous day. The company made its public debut in April by merging with the special purpose acquisition company Replay acquisition company valued at $1.9 billion. It started trading at $10 a share. As of Wednesday, his market value was $191.5 million.

In early February, the company announced that Cook would retire as soon as the company finds a successor. Cook will remain on the board until the annual meeting of shareholders.

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