Following the demise of a deal to sell its retail mortgage division, Finance of America Companies Inc. has decided instead to shut it down.
In a notice filed with the Securities and Exchange Commission dated Oct. 20, the company said its board of directors has authorized a plan to “discontinue the operations of the company’s mortgage originations segment, other than its home improvement channel.”
In closing Finance of America Mortgage LLC, FoA will “incur aggregate pre-tax charges of approximately $145 million to $164 million, of which the company expects that approximately $15 million to $26 million will be cash expenditures,” the notice states.
FoA states that closing its retail channel will allow it to implement what it calls a “Resource Optimization Plan,” in which it will “strategically optimize and invest” in its reverse mortgage and commercial mortgage originations segments, as well as its lender services and portfolio management segments.
In a news release issued Friday, FoA Interim Chief Executive Officer Graham Fleming, said closing the forward mortgage origination segment “will allow FOA to optimize its resources and prioritize businesses that have a distinct market opportunity and greater growth potential.”
In addition, he said, “the move will accelerate the company’s ability to partner with large mortgage lenders and other financial services companies to offer FoA’s SF&S (specialty finance and services) solutions on their platforms.”
He added that the decision “was made with careful consideration, and we understand the impact this action will have on many of our employees and their families. We are providing support and resources to assist our departing employees in their search for employment opportunities and are actively working to facilitate the transition of many of these employees to roles at other mortgage lenders. The impacted employees have long been valued members of our team and we recognize the many contributions they have made to the company.”
The decision to close Finance of America Mortgage comes about 10 days after Finance of America Mortgage announced it would stop funding or purchasing correspondent loans through its forward wholesale and non-delegated correspondent channels next month.
It also ended discussions to sell its retail mortgage division to Guaranteed Rate, according to a former company official. FoA officials declined to comment on effort to sell the division.
According to Thursday’s filing with the SEC, FoA said it estimates that the costs to shut down the mortgage business will include:
- approximately $12 million to $18 million in employee severance, retention, and related benefits;
- approximately $5 million to $9 million in lease terminations and other related costs;
- approximately $8 million to $12 million in vendor contract terminations and other costs; and
- approximately $120 million to $125 million in non-cash charges for the impairment of intangible and fixed assets.
FoA said it expects that approximately $135 million to $145 million of these pre-tax charges will be incurred in 2022, with the balance to be incurred in the first half of 2023.
The company said it anticipates that the Resource Optimization Plan will begin in the fourth quarter of 2022, and expects it to be substantially completed by the end of the year.
FoA said it plans to continue to fund “an immaterial number of forward mortgage loans relating to its mortgage originations segment in the first half of 2023, primarily consisting of forward mortgage loans with extended lock periods and representing less than 11%: of its aggregate forward mortgage loan pipeline.
In addition, it said it expects to “achieve annualized savings of approximately $110 million to $120 million (representing the recognized loss in the applicable portion of the business segment in the first half of 2022, on an annualized basis) once the Resource Optimization Plan is fully completed.” It added that it expects to realize related savings beginning in early 2023.
The company has not yet announced when it will release its earnings report for the third quarter of 2022. The company previously has reported three straight quarterly losses, and has reduced its workforce by 20% in 2022.
When it released its second-quarter results – reporting a net loss of $168 million, or 70 cents per diluted share – it also announced plans to shut down its forward wholesale channel. At the time, FoA said it would halt funding and purchasing loans in its wholesale and NDC channels effective Dec. 16.
According to its website, FoA overall had 5,500 employees among its divisions, which include the multi-channel Finance of America Mortgage and Finance of America Reverse, as well as Finance of America Home Improvement, Finance of America Commercial, and Incenter Mortgage Advisors. A 20% reduction would amount to cutting 1,100 positions.
Speaking about the strength of FOA’s SF&S business, Fleming said the reverse segment recently debuted its collaboration with Morningstar to educate 150,000 participating financial advisors on reverse mortgages and other home-equity options available to customers aged 55 years or older.
FoA said its commercial business – which provides fix-and-flip loans, rental portfolio loans, and other financing for residential investment properties – also has “commanding market share.” It said its home improvement business continues to grow, while its portfolio management and capital markets capabilities “support the innovation of proprietary products and connect FoA’s originated loans to an expanding universe of large institutional investors.”
Lastly, FoA said its lender services business continues to “rapidly grow the number of third-party lenders it serves by introducing new technology-enabled products, including augmented reality solutions for virtual appraisals and a new tax solutions product to assist homeowners in lowering their property tax bills.”
