DBRS Morningstar Assigns MOR RVO2 Residential Reverse Mortgage Originator Ranking to Finance of America Reverse LLC

DBRS, Inc. (DBRS Morningstar) assigned a MOR RVO2 residential reverse mortgage originator ranking to Finance of America Reverse LLC (FAR or the Company). The trend on the ranking is 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 (HUD) insured home equity conversion mortgages (HECMs) and a proprietary jumbo reverse mortgage product branded as HomeSafe. FAR, founded in 2003 as Urban Financial Group, Inc., is a leader in the niche market of reverse mortgage lending and 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. FOA is a nonbank mortgage company that provides a diverse selection of loan products, lending, and capital markets advisory services. In April 2021, Finance of America went public when it merged with Replay Acquisition Corp., a special-purpose acquisition company.

The MOR RVO2 residential reverse mortgage originator ranking reflects FAR’s experienced senior management, strong underwriting team, financial profitability, and good loan performance.

FAR is licensed to operate in all 50 states; Washington, D.C.; Puerto Rico; and the U.S. Virgin Islands. The Company originates HECMs through its retail and wholesale operations and acquires loans through correspondent, principal agent, and bulk transaction channels. The Company originates its HomeSafe loans through its retail, broker, correspondent, and principal agent channels and currently offers HomeSafe in 25 states and Washington, D.C. In 2020, the Company originated close to 10,000 reverse mortgages totaling over $3 billion and serviced approximately 58,000 reverse mortgage loans totaling $14.3 billion.

The Company has approximately 453 employees and is headquartered in Tulsa, Oklahoma, with call centers in Tulsa; San Diego, California; Bohemia, New York; Mount Laurel, New Jersey; and Carmel, Indiana. FAR is led by a senior management team averaging almost 10 years of Company tenure and 15 years of relevant industry experience. The underwriting department is decentralized and consists of 61 underwriters averaging over four years of Company tenure and 10 years of relevant experience. All underwriters are authorized to underwrite HECM loans and 13 underwriters are authorized to decision HomeSafe loans up to loan amounts of $4 million. Loan performance is strong with delinquencies under 1.0%.

FAR has been profitable on an annual basis for the past five years with acceptable returns. The Company has limited credit risk given the structure of its business as a seller/securitizer of the HECM loans originated and the low loan-to-values (LTVs) of the underlying portfolio. The Company also benefits from government guarantees from the Federal Housing Administration and Ginnie Mae on the performance of its agency-backed portfolio. Similar to other nonbank mortgage companies, FAR’s narrow funding profile relies predominantly on secured wholesale funding, which is relatively short term, and results in a highly encumbered balance sheet that may limit financial flexibility during periods of market stress. The Company’s capitalization is somewhat weak given its high level of leverage; however, as the Company is part of the Finance of America umbrella, it has the ability to draw on additional equity capital, if necessary, from FOA. Additionally, as a public company, FOA has access to the equity capital markets.

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

DBRS Morningstar 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 (August 28, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.