Finance of America panies (FOA) - 2022 Q4 - Annual Report

Market Opportunity - The U.S. reverse mortgage market opportunity is estimated at $12 trillion in home equity for homeowners aged 62 and older, with only 2% currently utilizing reverse mortgages[18][21] - The company is focusing on retirement solutions and reverse mortgage origination, having exited traditional mortgage lending and commercial lending segments[71] - The company is focused on developing innovative products for the senior population, enhancing its position as a market leader in reverse mortgages[22] Financial Position - As of December 31, 2022, the company had $2.8 billion in committed or uncommitted loan funding capacity and approximately $1.4 billion in liquidity sources[24] - The company generated net losses of $715.5 million and $1.176.7 million for the years ended December 31, 2022 and 2021, respectively, with an accumulated deficit of $634.3 million as of December 31, 2022[77] - Revenues decreased from $1.7 billion in fiscal year 2021 to $0.6 billion in fiscal year 2022 due to rising interest rates and lower origination volumes[74] Operations and Strategy - The company plans to acquire the assets and operations of AAG, a leading reverse mortgage lender, expected to close on March 31, 2023, creating the leading U.S. reverse mortgage originator[30] - The Mortgage Originations segment was authorized to wind down operations, except for the Home Improvement channel, which was completed by February 28, 2023[34] - The company has entered into an agreement to acquire certain business operations of American Advisors Group for a transaction expected to close at the end of Q1 2023, which is part of a $30 million equity raise[79] Regulatory Environment - The company is subject to extensive regulation by federal, state, and local authorities, which could adversely impact its results of operations and financial condition if any loans are found to have been originated in violation of such laws[54] - The company must comply with a complex array of federal, state, and local regulations, with noncompliance potentially leading to fines, loss of licenses, and other penalties[172] - The company is subject to increased legal, accounting, and financial compliance costs due to the requirements of the Exchange Act and Sarbanes-Oxley, which may strain resources[93] Employee and Culture - The company maintains a strong focus on employee mental health and offers a comprehensive benefits package, including health, dental, vision, life insurance, and a 401(k) with employer match[52] - The company has a commitment to diversity, equity, and inclusion (DEI), recognizing the value of varied experiences and perspectives to drive innovation and revenue growth[46] - As of December 31, 2022, the company had 1,943 U.S.-based employees, including 1,931 full-time and 12 part-time employees, along with 381 employees based in the Philippines[44] Risks and Challenges - The company faces competitive pressures from other financial institutions that may have greater financial resources and lower funding costs, particularly in a rising interest rate environment[40] - The company’s operations are significantly impacted by changes in interest rates, which could adversely affect its business and earnings[72] - The company faces risks associated with acquisitions, including the potential failure to identify liabilities or shortcomings prior to investment[96] Technology and Innovation - The company is making significant technology investments to enhance service offerings, but returns on these investments are unpredictable[98] - The company utilizes a modern learning management platform for employee training, covering compliance with consumer protection laws and other regulatory topics[48] - The company is subject to regulatory risks related to subservicer compliance, which could lead to fines and impact financial performance[153] Market Dynamics - The demand for loan originations is influenced by various factors, including national economic conditions, interest rates, and seasonal trends, with historically lower revenue levels in the first quarter[43] - The company’s mortgage origination activity is seasonal, with higher volumes typically in the second and third quarters[129] - Profitability is directly impacted by interest rate changes, with existing mortgage assets losing value as rates rise[135] Legal and Compliance Issues - The company is currently involved in litigation related to alleged violations of the California Labor Code, which could result in significant administrative costs[205] - The Company is subject to two enforcement matters with the CFPB, which could adversely affect its reverse mortgage business and financial results[189] - Legal proceedings may arise from alleged violations of consumer protection laws, which could result in significant financial liabilities[178]