Rating agency cites stable management and solid loan performance
Finance of America Reverse (FAR) has been recognized as a solid performer in the reverse mortgage market, earning a “stable” rating from DBRS Morningstar.
The rating agency confirmed FAR’s MOR RVO2 ranking, reflecting confidence in the company’s operations and stability as a reverse mortgage originator.
DBRS Morningstar highlighted Finance of America’s (FOA) shift in focus over the past year, particularly its exit from the traditional mortgage business and its acquisition of American Advisors Group (AAG). This strategic pivot has allowed FOA to concentrate more on reverse mortgages, a niche where it continues to solidify its presence.
The rating agency pointed to the relative stability of FOA’s executive management team as a key factor in the ranking. While there have been some changes – such as the addition of a new chief marketing officer, chief compliance officer, and chief financial officer following the AAG acquisition – DBRS Morningstar noted that the overall leadership team has remained consistent, bringing valuable experience to the company’s operations.
FOA’s second-quarter earnings were described as “acceptable,” though DBRS Morningstar cautioned that the company’s reliance on transactional revenue could lead to earnings volatility. However, the agency also noted that FOA mitigates its credit risk by securitizing and selling most of the loans it originates rather than holding them on its balance sheet, which limits potential financial exposure.
“Like other nonbank mortgage companies, FOA’s funding model is heavily reliant on secured wholesale funding sources,” the analysis explained. This approach results in a highly encumbered balance sheet, which could pose challenges in times of market stress, potentially affecting the company’s financial flexibility.
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Despite these challenges, DBRS Morningstar’s ranking reflects confidence in FOA’s overall operation, citing its strong origination and underwriting practices, solid control environment, and consistent loan performance as positive factors.
This rating comes on the heels of FOA’s second-quarter earnings report, which revealed a reduction in losses and growth in loan volume, signaling some positive momentum for the company.
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