Finance of America's diversified business model should help the newly listed company weather future headwinds for the mortgage business, CEO Patricia Cook said in the company's first quarter earnings call.
Finance of America's paid portfolio management and lending services were a major contributor to the company's results in the first quarter, Cook said.
"In fact, we expect our non-mortgage segment contributions to continue to increase as the year progresses, while the mortgage segment will decline year-over-year," said Cook. "Based on the current market, we estimate that the net effect could be a decrease in Adjusted EBITDA for full year 2021 of around 20% year over year."
Cook pointed to the launch in April of a home improvement finance division that the company acquired after acquiring the assets of Renovate America from bankruptcy. In May, the company made its 17th acquisition since its inception in 2013, purchasing Parkside Lending's wholesale channel for approximately $ 40 million.
The company also launched its reverse mortgage hybrid product EquityAvail, which it estimated to have a potential customer base of 2 million borrowers in March.
Finance of America posted net income of $ 124 million in the first quarter, up from $ 153 million in the fourth quarter. In the first quarter of last year, Finance of America lost $ 43 million.
The Forward mortgage business generated $ 96 million in net income before tax for the first quarter as it financed $ 8.4 billion in loans. The profit on the sales margin was 340 basis points for the period.
This translates into net income before taxes of $ 135 million for the fourth quarter when $ 8.8 billion was funded. However, the profit on the sales margin was higher at 431 basis points.
The correspondence and wholesale channels had bigger margin declines than the retail segment, Cook said.
A year ago, Finance of America Mortgage was $ 4.2 billion in volume with pre-tax income of $ 10 million and profit on sales margin of 210 basis points.
The reverse mortgage business improved results over comparable periods. Earned $ 45 million in the first quarter, up from $ 33 million in the fourth quarter and $ 17 million in the first quarter of 2020.
There was "near-record volumes and strong growth for our reverse origination business, where growth drivers are less correlated to the direction of interest rates," Cook said. "Baby boomers, in particular, are increasingly trying to age on the spot, and our reverse mortgage products offer this population the opportunity to capitalize on the equity that has accumulated in their homes."
Reverse mortgage financing increased from $ 655 million in the previous quarter to $ 759 million and from $ 656 million a year ago to $ 759 million.
The company's commercial segment, which primarily lends loans to fix and flip and single-family homes, had $ 341 million in funding, up from $ 307 million in the fourth quarter, up from $ 459 million a year ago.
There's "more margin competitiveness in Fix and Flip, but we feel good about where this market is and where it's going to go," said Cook. "I think the real opportunity for us is if you look at the [single family rental] market."
That deal will benefit from the Federal Housing Finance Agency's cap on Fannie Mae and Freddie Mac's ability to purchase non-owner real estate, she continued.
Incenter, the lending services business, posted $ 13 million in pre-tax income for the first quarter, mainly driven by strong title agency and insurance revenues and increased activity in brokerage and advisory services for mortgage services.
The fourth quarter earned $ 4 million and the first quarter last year earned $ 3 million from this segment.