Finance of America Companies Inc. (FOA) Q3 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. My name is Hillary, and I'll be your conference moderator today. At this time, I'd like to welcome you to the Finance of America Third Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. I will now turn the call over to Michael Fant, Senior Vice President of Finance. You may begin.

Thank you, and good afternoon, everyone, and welcome to Finance of America's third quarter, 2026 earnings call. With me today are Graham Fleming, Chief Executive Officer, Kristen Seifert, President, and Matt Engel, Chief Financial Officer. As a reminder, this call is being recorded, and you can find the earnings release and related presentation on our investor relations website at ir.financeofamericacompanies.com. Also, I would like to remind everyone that comments on this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations and are subject to the Safe Harbor Statement for forward-looking statements that you will find in today's earnings release and related presentation. Actual results for future periods may differ materially from those expressed or implied by these four looking statements due to a number of risks or other factors, including those that are described in the risk factors section of Finance of America's annual report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 13, 2026. Such risk factors may be amended and updated in our subsequent filings with the SEC. We are not undertaking any commitment to update these statements if conditions change. Please note, today we will be discussing interim period financials for our continuing operations, which are unupdated. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures to the extent available without unreasonable efforts in our earnings press release and presentation on the Investor Relations page of our website. Now, I'll turn the call over to our Chief Executive Officer, Graham Fleming. Graham?

Thank you, Michael. Good afternoon, everyone, and thank you for joining us today. Before I go through the quarter in detail, I want to give you the five key takeaways from today's call. Everything in the rest of this call and the accompanying materials is an elaboration of these five points. First, our volume this quarter grew 24% year-over-year, and we expect continued growth both in 2027 and beyond based on demographic trends and continued product development. Second, our retail platform is becoming more efficient and productive. Productivity per loan officer is up 40% compared to the third quarter of 2025. Third, margins compressed as the Fed shifted from cutting to raising interest rates. We have already made the necessary changes to product pricing, and we expect margins to return to historical levels in the first half of 2027. Fourth. We have generated $145 million of cash from originations and capital markets activities year to date, including $33 million of cash this quarter, which we have used to complete several capital actions this year. And finally, we expect adjusted earnings per share of between $4 to $5 on an annual run rate basis during the second half of 2027, driven by higher volume and normalized margins, partially offset by lower portfolio management earnings, resulting from higher discount rates. Turning to slide 5. Third quarter funded volume was $748 million, compared with $730 million in Q2, 2026, and $603 million in Q3, 2025. That means growth both sequentially and year over year. Through September, year-to-date production was approximately $2.1 billion versus $1.8 billion in the first nine months of 2025, or an increase of 17% year-over-year. That progress is part of the longer story. Since 2023, we have been investing in a more focused, reversed mortgage platform. A broader proprietary product offering, and the technology and distribution capabilities needed to reach more homeowners. Finance of America has grown volumes on average by 20% each year since 2023. The third quarter was a challenging rate environment, with the 10-year Treasury yields increasing over 75 basis points during the quarter. A reaction to the Fed's pivot to raising rates and elevated inflation. Higher rates create two distinct challenges, non-cash fair value adjustments to certain assets within our portfolio, and near-term pressure on origination margins and inventory due to the challenge of repricing customers already in our pipeline. During the first nine months of 2026, we recorded $167 million in unfavorable, non-cash changes in fair value for our portfolio assets and liabilities. That same mechanism produced $161 million in positive fair value changes during the first nine months of 2025. This is primarily a discount rate effect, not a cash flow effect. The expected nominal cash flows from these assets has not materially changed. Additionally, our retirement solutions revenue margin was impacted in the third quarter, decreasing to 9%, compared with 11.3% in the third quarter of 2025, and a historical average since the start of 2024 of 10.7%. We believe these impacts are temporary and do not change the underlying fundamentals of our business. Notably, neither of these challenges changes the long-term demand for our products, nor the opportunity we see to continue scaling our platform. In fact, we have successfully navigated similar periods before, such as 2022, when the Fed raised rates seven times for a total of 425 basis points. When rising rates reduced margins, we responded with product and pricing changes that improved the economics of new production over time. During October, we made the necessary changes to our product offerings, and we expect that our revenue margin will return to our historical averages over the first half of 2027. While the near-term interest rate environment remains dynamic, we continue to focus on the levers within our control, pricing appropriately for the environment, improving conversion of productivity, managing costs, and preserving financial flexibility. With respect to capital allocation, we will repay $60 million of our senior secured notes and will exercise our right to extend the remaining approximately $90 million to November 2027. We believe that in the current environment, this is a prudent choice as this increases the company's financial flexibility. Before I turn it over to Kristen and Matt, I want to take a moment to acknowledge our team. Thanks to the hard work, our operating strategy is delivering on production and productivity. And with that, I will turn the call over to Crystal.

Thanks, Graham, and good afternoon, everyone. Last quarter, I highlighted an important evolution in our business, our ability to generate more production from the opportunities already entering our platform. This quarter proved it under pressure. Against the capital markets headwinds, Graham described, that shift matters more than ever, and our focus remains on three things, sustaining growth, increasing productivity, and turning our investments into compounding benefits. First, production growth remained resilient in a difficult market. We funded 24% more this quarter than in the third quarter of last year. Turning to slide seven, the contrast with the traditional mortgage market is stark. From 2024 through our 2027 outlook, our funded volume grows more than 60%, better than 17% per year. The forward mortgage industry grows about 6% a year over the same period. Next year, for the recent MBA forecast, the forward market shrinks by 5% against double-digit growth for FOA. The difference is demand. Ours is driven by retirement need, not refinancing incentives. Higher rates affect borrower proceeds, but they do not eliminate our customers' need for financial flexibility in retirement. On slide 8, we show the consistent growth our platform has experienced. Since 2023, our submission volumes have increased by 21% annually, while our funded volumes have grown by 20% annually. This is across our product suite, as HECM volume is up 14% year-over-year, home-safe first liens are up 15%, and home-safe seconds are up 63%. That breadth is deliberate. Each of our products serves a different homeowner need, and together they give us multiple paths to growth, even when pricing pressure affects individual products. That's why in a quarter when benchmark rates rose sharply and traditional mortgage industry applications declined, our submission volume grew by 20% and our funded UPV grew by 24% year over year. Our growth comes from conversion, productivity, and product range, and our 2027 outlook assumes no benefit from rates. Wholesale remains our largest channel, representing nearly 60% of funded volume. It funded $444 million in the quarter, up 10% year-over-year, and submissions reached $625 million, up 6% sequentially and the highest level in seven quarters. Second, our operating model is becoming more productive. Retail funded volume increased 11% sequentially and 54% year-over-year to $303 million. Slide 9 shows how, even with 12% fewer opportunities than in Q2, which was the result of a deliberate shift to quality over quantity, submissions held steady and funded loans rose 9%. This continued move to quality, coupled with our technology advancements, lifted production per loan officer to an average of $1.2 million per month in the third quarter, up nearly 9% sequentially and more than 40% year-over-year. Productivity has risen year-over-year in each quarter of 2026, and the gain is not a denominator effect. Total retail headcount is essentially unchanged from a year ago. Third, the investments we made this year were built to compound. We expect to keep improving retail funnel conversion and loan officer productivity in 2027, and to deliver continued efficiency gains in operations and our G&A expenses as volume grows over a stable cost base. Our digital platform is scaling. In the third quarter, pre-qualification starts, rose 89%, digital opportunities grew 61%, and time from lead to application fell to under six days from roughly 20. A new website launches in the first half of 2027 to lift funnel conversion further. We are also broadening our product suite. The line of credit version of Homestake Second launches soon, and next year we will expand the suite further as we move from the leader in reverse mortgages toward becoming the leader in home equity solutions for retirement. We cannot control where rates go. We can control conversion, cost, and pricing, and we are getting better at all three. Our growth is driven by demographics, not the rate cycle, and that is why we expect to keep growing through this market and to convert that growth into stronger, more consistent earnings power. With that, I'll turn it over to Matt.

Thank you, Kristen. Good afternoon, everyone. On a GAAP basis, the company recognized a pre-tax loss of $130 million, primarily reflecting non-cash fair value changes on residual assets, partially offset by a reduction in the fair value liability of our convertible notes. It is important to distinguish these non-cash fair value adjustments from the underlying economics of our portfolio. While changes in market rates affect the current valuation of certain assets, these assets continue to accrete, and we ultimately expect to monetize these assets over time. We continue to believe our residual assets represent meaningful long-term economic value, and our focus remains on managing the portfolio to maximize that value. As shown on slide 10, adjusted net income for the quarter was $6 million, or $0.28 per share. As Graham and Kristen mentioned, the key driver of lower adjusted earnings was lower revenue margins in our retirement solutions segment. These results were impacted by the increase in benchmark rates during the third quarter. We consider these as temporary in nature, not because we anticipate the rate environment to move in our favor, but because of the nature of our platform. Although fair values declined, our portfolio management segment still generated adjusted net income of $11 million as our portfolio continued to create a yield in the mid-teens against retained beneficial interest of approximately $500 million. Cost discipline remained a key focus as well. Total expenses, excluding securitization-related expenses, increased by only $2 million, with this coming from an increase in subservicing expense associated with the HECM portfolio we acquired on June 30th. Variable compensation rose with the growth in our retail platform Kristen mentioned, and this was offset by a reduction in marketing expense as we focused our efforts on higher-value opportunities. Turning to the balance sheet, our cash and cash equivalents increased to $118 million as of September 30, as we generated $33 million over the prior quarter. For the year, we have generated $145 million in cash from originations of capital markets activity, which we have used to complete several significant capital transactions, including the repurchase of Blackstone's remaining equity position and the acquisition of Oddity's HECM servicing portfolio. Leveraging our strong cash position, we will complete the $60 million paydown on our senior secured notes later this month. Looking forward, we expect to achieve the low end of our previously communicated full-year 2026 funded volume guidance range of $2.8 billion to $3.1 billion. However, we no longer expect to achieve our adjusted EPS guidance for the full-year 2026 of $4.50 to $5 as a result of the decreased margins in the third quarter and the time it takes for the changes we have already made to make their way through our pipeline. We anticipate the fourth quarter will approximate our third quarter adjusted earnings results. Looking ahead to 2027, we expect funded volume to reach $3.1 to $3.4 billion, a growth rate similar to what we have achieved over the past several years, supported by consumer demographics, our product prep, and ongoing conversion improvements. This increase in funded volume, combined with the expected return to normalized margins by product and channel, Though partially offset by lower portfolio management earnings resulting from the higher discount rates, it should allow Finance of America to achieve a run rate adjusted earnings per share of approximately $4 to $5 on an annualized basis during the second half of 2027. Looking ahead, our priorities are unchanged. Continue to grow our operating platform to produce strong recurring earnings, maintain sufficient liquidity to support the business, and allocate capital where we believe it can produce the most attractive risk-adjusted returns. With that, I will turn the call back to Graham for closing remarks.

Thank you, Matt. We have built a platform capable of delivering sustained production growth across different market environments, and this quarter demonstrated that progress. While the current rate environment is pressured earnings, we have taken action to improve margins and remain focused on increasing productivity, generating cash, and maintaining financial flexibility. Looking ahead, we are confident that the long-term demand for home equity solutions remains substantial. With our leading market position, expanding product offerings, and continued operational improvements, we are well positioned to capitalize on this opportunity and translate our growth into stronger earnings over time. And with that, I'll open the call to questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. And if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Gaurav Mehta from Alliance Global Partners. Your line is open. Please go ahead.

Thank you. I wanted to go back to your comments about your expectations of revenue margins, expected to go back to historical trends, and you talked about some pricing and product adjustment that you have made. Can you maybe provide some more color on those adjustments and what gives you confidence that you can get back to the historical revenue margins in a high-rate environment?

I guess a couple things, Gaurav. We have made changes to our pricing already here in the last few weeks to LTVs and interest rates. And we believe we'll restore those margins back to our historical levels. On top of that, of course, we don't know where the rates will go in the future, but rates have come back quite a bit during the month of October. And so we feel pretty confident that, you know, heading into 2027, as the pipeline with the old rates and LTVs works its way through, that the new production coming in will be at that margin. So, you know, our guidance kind of reflects that Q4 will still be a little bit down on the margin because we'll have that pipeline still coming through. But then as the new production starts to come through in the first quarter, we expect those margins to get back to historical levels.

Okay, and as a follow-up, can you also maybe discuss what your interest rate assumption is for your 2027 guidance?

What was the first part of the question, Greg? Our interest rate assumption is 2027. We're agnostic to the industry environment. We'll adjust our products, our rates, and our LTVs to yield the historical revenue margin that we've had, which is, as I said in my remarks, 10.7%. So we will adjust our products to achieve that revenue margin we don't have an expectation for.

Your next question comes from the line of Timothy D'Agostino from B Riley. Your line is open. Please go ahead.

Yeah, hi. Thanks for taking the questions. I guess just quickly circling back on the guidance, you mentioned margins should return in the first half of 27, and I believe you said the first quarter. So I guess thinking about the $4 to $5 of adjusted EPS run rate for the second half of 2027, I guess it would be good to get some color on why you're leaning away from the first half. You know, again, you expect margins to return. Is there anything else you want to kind of flag for the first half as to why you're maybe not touching guidance there? Thank you.

Yeah, we just have a longer lead time with reverse mortgages and the senior cycle, so we don't have, you know, an application to funding cycle that's, call it 21 days or 30 days, right? Consumers need to go through counseling, right? We need to go through the process. We just have a longer lead time, and when we bring new submissions... into the pipeline and new leads into the call center. You know, it's roughly a 60 or 90 day timeline before they turn into funded inventory. So that's the, you know, that's the, you know, the reason for, you know, potentially having a longer timeline. So on, you know, I'm not going to say it won't be the first quarter, but we also, look, we're just having midterms today, you know, potentially rates move again in December, maybe one more time, right, which will cause us to move our margins again. So, you know, we're probably building in a little bit of cushion. We're just a little uncertain if the rate is going to move one or two more times, and we'll have to adjust our products and margins again to match that.

I would probably add to that as well. If you look at our funding patterns the last few years, generally our first quarter fundings are the lowest of the year. Submissions dip a little bit over the holiday period. So we still expect strong year-over-year growth, but sequentially that Q1 is usually our softest. So it's a combination of what Graham said and perhaps that pattern as well.

Okay, that's helpful. And then if I could just ask a second one, just on cash and capital allocation, you had mentioned, you know, using cash for the Onity, HECM servicing portfolio, Blackstone equity position, you know, thinking out to now November, you have the $60 million of debt. So I guess capital allocation and cash use in 2027, outside of, you know, that 90, the additional $90 million worth of debt, you know, how else could you return capital shareholders? You know, can you share with us, you know, maybe plans on that? Could it be potential share buybacks, a dividend? Just kind of trying to understand how you think about that. Thank you.

Yeah, all of the above. Once we retire the $19 million, we are continuing to generate cash through our operations and our call to reissue activity on the balance sheet. So, yes, share buybacks and dividends are both likely outcomes once we've retired the $19 million on secure debt.

Your next question comes from the line of Gabe Pogge from Raymond James. Your line is open. Please go ahead.

Hey, thanks for taking the questions. So my first question is, you guys are going to pay down $60 million on the notes this month. Can we just walk through and it kind of piggybacks on Tim's prior question, kind of how you're thinking about cash usage, et cetera, to get to the $90 million a year from now? Let's do.

Yeah, I guess there's a couple things, Gabe. I think first, as Graham mentioned, we have a number of prior securitizations that we have continued to call and reissue activity. So we expect over the course of 2027 to generate additional cash from that activity. And then also, as we've talked about in some prior calls, we are still pursuing financing on our HECM MSR asset. That we don't know the exact timing of that, but we expect that certainly in the first half of 27 generated significant additional cash from that as well. So those are, you know, the core operations, the call and reissue activity, the HECM MSR, the combination of those three gives us high level of confidence that the 90 million will be easily paid off at the end of next year.

Got it. And then I've got a question on. You guys talking about returning to historical margins late, I guess, late 1.527, and that's then the inflection point to get to your new guidance in the back half of the year. What exactly is that historical margin number that you guys are using or pointing to just for modeling purposes? I know you've given some volume guidance, but where do you think margins should shake out or could shake out as we get towards the back half of next year?

So I'd say on average, that historical margin is about 10.7, right? We've seen some quarters higher than that. We've seen some quarters lower than that, right, as things change. But that's the number we're kind of targeting. Again, I think we'll get back to those margins in the first half of 27, the volume, we're down a little bit in Q1, most likely, and then starting to hit our stride in Q2 seasonally. And so that's where it really kind of leads to the guidance for that.

This concludes our Q&A session. I will now turn the call back to Graham Fleming for closing remarks.

I want to thank everybody for joining our call today, and we look forward to updating you in March on our full year 2026 results. Thank you very much, everybody, for joining the call today.

This concludes today's call. Thank you for attending. You may now disconnect.