Finance of America Companies Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing was issued March 15, 2024. The supplied data cover the full year, not Q4 alone.
Business context
FoA transformed from a diversified lending and lender-services company into a retirement-focused platform, principally originating and servicing reverse mortgages through Finance of America Reverse (FAR). Its two reportable segments are Retirement Solutions and Portfolio Management. The March 2023 acquisition of selected American Advisors Group (AAG/Bloom) assets expanded its reverse-mortgage platform. The company also exited or sold traditional mortgage, commercial lending, and most lender-services operations; the home-improvement business was being wound down.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Continuing-operations revenue | $234.3 million | $52.8 million |
| Continuing-operations net loss | $166.2 million | $325.9 million |
| Net loss from discontinued operations | $51.9 million | $389.7 million |
| Consolidated net loss | $218.2 million | $715.5 million |
| Adjusted EBITDA, non-GAAP | $(82.0) million | $107.9 million |
| Net cash from (used in) operating activities | $(71.6) million | $1,407.8 million |
Continuing-operations revenue rose largely because fair-value gains improved from the prior-year period; it was not a return to profitability. Net fair-value gains on loans and related obligations were $322.3 million, versus $89.5 million. Results include substantial model-based fair-value measurements, many using Level 3 inputs.
- Origination: Reverse-mortgage initial origination volume fell to $1.6 billion from $4.8 billion; reported net origination gains fell to $121.6 million from $283.8 million. Weighted-average production margin increased to 7.53% from 5.87%, partly reflecting the acquired retail platform.
- Segments: Retirement Solutions reported a pretax loss of $60.3 million, compared with pretax income of $117.2 million. Portfolio Management reported pretax income of $24.9 million, compared with a pretax loss of $347.4 million, substantially reflecting the change in fair-value results.
- Liquidity: Year-end cash and cash equivalents were $46.5 million, with $178.3 million restricted cash. Management reported approximately $0.6 billion of liquidity sources available for continuing operations, principally undrawn warehouse capacity; it also cited approximately $1.5 billion of total loan-funding capacity, some committed and some uncommitted.
- Debt: Total indebtedness was approximately $26.6 billion, including about $17.4 billion of HMBS obligations, $7.9 billion of nonrecourse debt, approximately $8.8 billion of senior secured facilities and $410.9 million of notes payable. Approximately 62% of outstanding indebtedness had variable rates. The $350 million senior notes mature in November 2025 and bear 7.875% interest.
- Equity and assets: Total assets were $27.1 billion, total liabilities $26.8 billion, and total equity $272.4 million at year-end. Accumulated deficit was $714.4 million.
Material changes and outlook
Compared with 2022, lower interest-rate-related fair-value losses and a larger acquired HECM portfolio supported reported revenue and Portfolio Management results. However, higher rates coincided with lower loan demand and sharply lower reverse-mortgage originations. Fee income declined to $43.5 million from $81.8 million, and the company remained loss-making with negative operating cash flow. Comparability is also affected by business exits, discontinued-operation presentation, and the AAG/Bloom acquisition.
Management cited cost reductions, expanded funding availability, and the May 25, 2025 maturity extension of revolving working-capital lines as liquidity measures, and stated it believes resources will be sufficient to meet ongoing obligations. The filing provides no specific earnings or revenue guidance. Management’s outlook remains exposed to interest rates, home prices, secondary-market liquidity, and execution of the transformed business and AAG/Bloom integration.
Risks, contingencies, and unusual items
- Management disclosed that the company’s financial condition at certain points in 2023 raised going-concern questions before considering management’s plans. Continued profitability and extensions or replacement of credit facilities are important; the 2025 senior-note maturity creates refinancing risk.
- The company obtained covenant waivers or amendments during 2023. FAM was also in violation of Fannie Mae’s material-decline-in-tangible-net-worth covenant at year-end and had not met its capital-ratio requirement; it was winding down and surrendering approvals. FAR relied on a Ginnie Mae capital waiver.
- On January 9, 2024, HUD notified FAR that it had failed to report operating losses exceeding 20% of net worth within the required period. The company responded; HUD’s determination on possible administrative action or civil penalties was pending.
- Reverse mortgages carry mandatory HECM repurchase and borrower-advance obligations. Unfunded agency and non-agency reverse-mortgage borrower commitments were $4.5 billion at year-end. These obligations can pressure liquidity, particularly if financing or securitization markets weaken.
- California represented 43% of reverse-mortgage unpaid principal balance; the company highlights regional housing and natural-disaster exposure. Fair-value estimates are sensitive to unobservable assumptions, including discount-rate spreads, home prices, prepayments, and loss assumptions.
- The company reported ongoing litigation and regulatory matters, including coordinated California PAGA employment cases. As of December 31, 2023, it said it had no matters considered probable or reasonably possible for which it could estimate a loss or range; outcomes remain uncertain. It also agreed to comply with CFPB orders associated with AAG/Bloom.
- NYSE notified FoA in February 2024 that its share price had been below the $1.00 continued-listing threshold for the specified period; it had a six-month cure period. Related-party working-capital notes were amended in January 2024, increasing commitments from $60 million to $85 million and extending maturity to May 25, 2025; the rate rises from 10% to 15% beginning May 15, 2024.
Most important facts for investors to verify
- Whether operating performance and cash generation improve enough to reduce reliance on credit-line extensions, and how the company will address the November 2025 senior-note maturity.
- Actual liquidity available after facility eligibility, covenants, collateral haircuts, and mandatory HECM repurchases; distinguish committed from uncommitted capacity.
- Whether reverse-mortgage production, margins, and AAG/Bloom integration can offset the company’s loss-making results and lower origination volumes.
- How much reported earnings depend on Level 3 fair-value assumptions, and how changes in market inputs or model assumptions affect asset values and equity.
- HUD’s final response to FAR’s late notification, the status and potential cost of litigation and CFPB-order compliance, and FAM’s remaining wind-down obligations.
- Progress toward NYSE listing compliance and the potential effect of exchangeable AAG/Bloom units, other equity awards, warrants, and controlled-company ownership on public shareholders.
- Although the auditor gave unqualified opinions on the financial statements and internal controls, management and the auditor excluded acquired AAG/Bloom operations from the 2023 internal-control assessment; those operations represented 35% of 2023 origination volume and 21% of year-end assets. Verify the 2024 assessment.