Finance Of America exits wholesale, correspondent lending

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Finance of America Mortgage, a nonbank lender that went public last year, is closing its wholesale and correspondent lending channels after laying off more than 1,000 employees this year amid mounting losses.

The Irving, Texas-based lender is also reportedly in negotiations to sell its personal mortgage division, which employs about 1,000 loan originators working from more than 200 offices across the country.

Finance of America Mortgage TPO — the company’s division that works with mortgage brokers and matching lenders — sent out an email alert Friday, informing affiliates that they would no longer broker or purchase loans after December 16 would finance.

“We recognize that this decision will impact your relationships,” the statement said. “The FAM team will continue to ensure that you and your borrowers receive the same exceptional service that you have received from us over the years, ensuring that your existing pipeline with us completes smoothly and on time.”

Friday was the last day for mortgage brokers and related lenders to file a new floating loan or complete a new forward lock at Finance of America and October 28 will be the last day to lock on loans currently in the pipeline or before Loan packages to submit blocked loans, the company said.

Finance of America’s commercial and reverse mortgage lending businesses “will continue to accept new applications and continue to operate as normal,” the company said.

Finance of America Mortgage, which was valued at nearly $2 billion when it went public last year in a SPAC merger, does most of its business through its retail and direct-to-consumer channels.

Financing the lending channels in America

Lending by channel, in billions of dollars Source: Finance of America Quarterly Report to Investors

According to the Nationwide Mortgage Licensing System and Registry, Finance of America Mortgage’s retail division sponsors 1,094 mortgage loan originators working in 246 offices nationwide.

During the second quarter of this year, these retail locations accounted for approximately 56 percent of the company’s total $4.23 billion in lending, with production of the $256 million direct-to-consumer channel accounting for an additional 6 percent.

Large and correspondent loans — in which Finance of America funds loans originated by its partners — accounted for another $1.52 billion in loan production, or more than a third of the total, the company said in its most recent quarterly report to investors.

Though the nation’s largest mortgage lender, United Wholesale Mortgage, says it will fight for homebuyer market share, another big player in the competitive wholesale business, Homepoint, has downsized drastically. Some other lenders that only dabbled in wholesale, such as Guaranteed Rate and LoanDepot, have chosen to shut down these channels.

Like many other mortgage lenders, Finance of America has been forced to downsize as rising mortgage rates wiped out the highly profitable business of refinancing existing home loans.

Finance of America’s mortgage refinancing collapses

Finance of America – Mortgage and Refinance Sourcing by Quarter: Financial Regulatory Filing

In the first quarter of 2021 — when 30-year fixed-rate mortgage rates hit an all-time low of 2.65 percent — Finance of America refinanced an all-time high of $5.74 billion in mortgages, more than double the $2.66 billion Dollars bought loans it funds.

In its most recent quarterly report, Finance of America reported a net loss of $168 million for the second quarter, with rising mortgage rates severely constraining funding. Although purchase loan volume rose to $3.34 billion in the second quarter, refinancing volume collapsed to $825 million.

Graham Fleming

Speaking on a conference call with investment analysts on Aug. 4, interim CEO Graham Fleming said the company has made staff cuts in its mortgage origination “to match capacity with current market demand,” a move he said is expected to reach 100 million dollars per year in cost savings.

According to Finance of America’s 2021 Annual Report, the company employed approximately 5,300 people in 2021, including 3,088 in the mortgage origination division and 1,021 in the lender division.

Fleming said Finance of America has reduced headcount and expenses by 20 percent company-wide since the beginning of the year — meaning the company has shed more than 1,000 employees.

“We are optimizing our cost structure through headcount reductions and other cost management efforts,” Fleming said on the conference call. “We have moved out of the direct customer channel, which relied heavily on refinancing leads, and are actively sizing each of our branches.”

With purchase loans expected to continue to account for the lion’s share of new businesses, Fleming said Finance of America’s retail business “remains poised to benefit from this shift. Initial purchases currently make up around 85 percent of our volume. We also believe there remain significant opportunities to sell non-mortgage products through our mortgage channel and are focused on growing this opportunity.”

Since then, Finance of America has reportedly been in negotiations to sell its retail mortgage division, with Guaranteed Rate as the lead prospect.

Finance of America reportedly signed a non-binding letter of intent with Guaranteed Rate, National Mortgage Professional reported September 29. But Guaranteed Rate has ‘walked away from negotiations’ HousingWire reported Friday, citing anonymous sources.

A spokesman for Finance of America told Inman, “It is company policy not to comment on rumors or speculation in the market.”

While investors have crashed on Finance of America since going public last year, the company’s shares are trading above their all-time lows.

After briefly trading above $11 in April 2021, Finance of America stock price gradually slipped to an all-time low of $1.20 on August 31. Rumors of an impending sale of the company’s personal mortgage business boosted the company’s share price, which surged 54 percent to a recent high of $1.74 on Oct. 4.

At Friday’s close of $1.60, Finance of America has a market cap of approximately $100 million.

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