American Finance (FOA), a leading lender in the mortgage industry, announced its results for the third quarter of 2024 on Wednesday evening. It brought in adjusted earnings of $15 million, or $0.67 per share.
The company noted that Q3 2024 marked the fifth consecutive quarter of improved performance, including a second quarter recovery in which it posted a net loss of $5 million.
“Our performance this quarter is the culmination of many strategic and operational initiatives we have undertaken over the past year to strengthen the business,” said FOA CEO Graham Fleming on the earnings call. “These efforts are now bearing fruit as we focus on advancing our strategic plan.”
Key metrics are improving
All of the company’s key earnings metrics – net income, adjusted income, EBITDA and relative earnings per share – delivered in positive territory from June to September, Fleming noted.
Another good performance was helped by a successful reverse stock split carried out earlier in the quarter. This brought the company’s share price in line with New York Stock Exchange (NYSE)’s continued regular listing and completed an offer to exchange notes scheduled to mature in 2025.
Fleming also talked about the company’s future plans, highlighting HomeSafe Second’s recently revamped second reverse mortgage product. This has been a source of focus and widespread interest in the reverse mortgage industry since its 2023 return.
“We’re focusing on segments of the market where we see the most growth potential, such as consumers aged 55 and over who are looking for a second home loan as a way to access their home equity without having to refinance away from the normal cost of living,” he said. “Our HomeSafe Second product can be an important solution for these people.”
Integrated platform, secondary product
FOA President Kristen Sieffert expanded on what was said during the Q3 earnings call about the integrated platform developed from the company’s platform. American Finance Reverse (FAR) and American Advisors Group (AAG) brands, consolidated under the FOA banner.
“I am pleased to share that our third quarter results show that these ROI-enhancing initiatives are having the intended impact,” said Sieffert. “We exceeded our expectations and continued to improve performance while remaining dedicated to improving the customer experience and expanding our market presence.”
The company’s sales channel saw a 38% improvement from Q2 to Q3 as measured by productivity per loan officer. October was the “biggest month ever for FOA submissions and funding for 2024,” Sieffert added.
He said the July merger of FAR and AAG products was a success. It helped “set the stage for modernizing our approach to customer experience and acquisitions,” while “creating the first digital channel with a modern marketing strategy is critical to developing our products and improving manufacturing efficiency.”
Building the company’s proprietary product suite has been a long-term focus. And the strength of HomeSafe Second’s potential value proposition for homeowners age 55 and older was a point of emphasis on the Q3 earnings call.
“In the third quarter, we saw an 89% increase in HomeSafe Second loans compared to Q2, and we expect continued growth in this area as we deliberately invest more capital and resources in the product,” said Sieffert. “While mortgage lending is on the rise across the country, the latest HMDA data shows foreclosure rates of over 35% for people aged 55 and over. “Many have a lot of money in their homes but are struggling with graduate credit.”
Digging for details
Matt Engel, FOA’s chief financial officer, highlighted the improved financial performance across several metrics.
“If we compare our performance with the previous quarter, we have seen a significant improvement in the whole team,” he said. “Revenue increased from $79 million in Q2 to $290 million in Q3, driven by higher originations and significant fair value gains on our remaining assets.
“Net income increased to $204 million in Q3 from a loss of $5 million in Q2, primarily due to fair value adjustments from improved market inputs and model assumptions combined with increased operational performance.”
Engel added that the company is looking to achieve sustainable profitability by 2025 by investing in “growth opportunities,” the company’s innovation platform and maintaining an “optimized fixed cost structure.” The recent completion of an unsecured note exchange also “strengthened our capital structure and extended the maturity of our debt, which significantly increased our ability to focus on growth,” Engel said.
He also expressed confidence in the entire reverse mortgage industry.
“Looking forward, we are encouraged by the positive trends in the mortgage market and the strength of our proprietary products,” he said. “Our ability to adapt to changing market conditions, combined with a strong balance sheet following a successful debt swap and improving liquidity provide a solid foundation for future growth.”
In a Q&A session after the big earnings announcement, Engel said the company generated more than $500 million in revenue in the third quarter and expects “something in that ball park” in the fourth quarter.
Earlier this week, the credit rating agency Fitch marked the success of the exchange deal by improving the company’s supplier rating after the initial downgrade.
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