Morningstar DBRS Confirms Ranking on Finance of America Reverse LLC

DBRS, Inc. (Morningstar DBRS) confirmed its MOR RVO2 residential reverse mortgage originator ranking for Finance of America Reverse LLC (FAR or the Company). The trend on the ranking remains Stable.

FAR is a residential mortgage originator primarily focused on providing senior homeowners reverse mortgages through the U.S. Department of Housing and Urban Development insured home equity conversion mortgages (HECMs) and a proprietary reverse mortgage product branded as HomeSafe. FAR, founded in 2003 as Urban Financial Group, Inc., is a wholly owned indirect subsidiary of Finance of America Equity Capital LLC (FOAEC). Finance of America Companies Inc. (Finance of America or FOA) directly and indirectly owns a portion of the ownership interests in FOAEC and controls FOAEC.

In April 2021, Finance of America went public when it merged with Replay Acquisition Corp., a special-purpose acquisition company. During Q4 2022 and 2023, FOA and its subsidiaries went through a series of business restructurings (exiting traditional mortgage lending, commercial mortgage lending, and certain of its lender services business) in order to develop a streamlined reverse mortgage origination and retirement solutions business through the use of home equity.

In December 2022, FAR entered into an asset purchase agreement with American Advisors Group (AAG), a direct-to-consumer reverse mortgage lender now known as Bloom Retirement Holdings Inc., to purchase a substantial majority of the assets and certain of the liabilities of AAG. The AAG transaction was completed on March 31, 2023, and included the acquisition by FAR of substantially all operations of AAG, including approximately 340 AAG employees.

FAR is licensed to operate in all 50 states; Washington, D.C.; and Puerto Rico. The Company originates and acquires loans through its retail and wholesale channels. The wholesale channel includes brokers, principal authorized agents, and correspondents. The retail channel is a traditional direct-to-consumer channel through the Company's loan officers.

In 2023, FAR originated approximately 8,700 reverse mortgages totaling more than $1.6 billion and as of March 31, 2024, the Company originated approximately 1,600 reverse mortgages totaling more than $348 million. FAR has a servicing portfolio of approximately 90,000 reverse mortgage loans totaling approximately $25 billion (as of March 31, 2024; excluding reverse mortgage loans not on FAR's balance sheet) that is subserviced primarily by a third-party servicer (Celink), which performs the day-to-day servicing functions.

The Company is headquartered in Tulsa, Oklahoma, and led by a senior management team averaging more than 18 years of industry experience. FAR's executive management team has remained stable over the past year. However, certain changes in FAR's senior management occurred after FAR's acquisition of AAG's assets in March 2023, including a new chief marketing officer, chief compliance officer, and chief financial officer. The underwriting department is decentralized and consists of approximately 30 underwriters averaging six years of Company tenure and 10 years of relevant experience.

FAR has an acceptable earnings generation capacity, though earnings are reliant on transactional based revenue sources, which introduces the potential for meaningful volatility in earnings. FAR's credit risk is limited, as it primarily securitizes or sells loans it originates instead of holding them on its balance sheet for an extended period. Similar to other nonbank mortgage companies, FAR's narrow funding profile relies predominantly on secured wholesale funding sources, which result in a highly encumbered balance sheet that may limit financial flexibility during periods of market stress. The Company's capitalization is acceptable, with improved equity position, but leverage remains high.

The MOR RVO2 residential reverse mortgage originator ranking reflects FAR's experienced and stable executive management team, focused origination and underwriting practices, solid control environment, and reliable loan performance.

All rankings are subject to surveillance, which could result in rankings being raised, lowered, placed under review, confirmed, or discontinued by Morningstar DBRS.

Morningstar DBRS mortgage originator rankings are not credit ratings. Instead, they are designed to evaluate the quality of the parties that originate residential mortgage loans. Although the originator's financial condition contributes to the applicable ranking, its relative importance is such that an originator's ranking should never be considered as a proxy of its creditworthiness.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is U.S. Residential Mortgage Originator Rankings (June 28, 2024), which can be found on https://dbrs.morningstar.com under Methodologies & Criteria.

For more information on this ranking or this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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