Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-256453

Prospectus Supplement No. 2 (to prospectus dated June 4, 2021)

 

Finance of America Companies Inc.

186,461,906 Shares of Class A Common Stock offered by Selling Securityholders

Up to 14,374,971 Shares of Class A Common Stock offered by Finance of America Companies Inc.

 

 

This prospectus supplement is being filed to update and supplement the information contained in the prospectus dated June 4, 2021 (as it may be supplemented or amended from time to time, the “Prospectus”), with the information contained in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, which we filed with the Securities and Exchange Commission on November 12, 2021 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.

The Prospectus and this prospectus supplement relate to: (a) the offer and sale from time to time by the selling securityholders named in the Prospectus (the “Selling Securityholders”) of up to 186,461,906 shares of our Class A Common Stock, including up to 131,318,286 shares of Class A Common Stock that we may issue from time to time to the Selling Securityholders upon exchange of an equal number of limited liability company interests (“FoA Units”) in Finance of America Equity Capital LLC (“FoA”), held by them; and (b) the offer and sale by us of up to an aggregate of 14,374,971 shares of our Class A Common Stock that are issuable upon the exercise of 14,374,971 Warrants originally issued in the initial public offering of Replay Acquisition LLC (f/ka/ Replay Acquisition Corp.).

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

Our Class A Common Stock and our Warrants are listed on the New York Stock Exchange, or NYSE, under the symbols “FOA” and “FOA.WS,” respectively. On November 11, 2021, the closing price of our Class A Common Stock was $5.85 and the closing price for our Warrants was $0.7226.

We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for future filings. See “Summary—Implications of Being an Emerging Growth Company” in the Prospectus.

 

 

See the section entitled “Risk Factors ” beginning on page 7 of the Prospectus to read about factors you should consider before buying our securities.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of the Prospectus or this prospectus supplement. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus supplement is November 12, 2021.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number 001-40308

 

 

FINANCE OF AMERICA COMPANIES INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		85-3474065
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
Street Address 909 Lake Carolyn Parkway, Suite 1550, Irving Texas		75039
(Address of Principal Executive Offices)		(Zip Code)

(972) 999-1833

Registrant’s telephone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A common stock, par value $0.0001 per share		FOA		The New York Stock Exchange
Warrants to purchase shares of Class A Common Stock		FOA.WS		The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

As of November 12, 2021, 58,936,744 of the registrant’s Class A common stock, par value $0.0001 per share, were issued and outstanding.

 

 

 

Finance of America Companies Inc.

and Subsidiaries

 

 

 

Table of Contents		Page
Part I - Financial Information			1
Item 1. Financial Statements			1
Consolidated Financial Statements			1
Consolidated Statements of Financial Condition			1
Consolidated Statements of Operations			3
Consolidated Statements of Comprehensive Income			4
Consolidated Statements of Equity			5
Consolidated Statements of Cash Flows			7
Notes to Consolidated Financial Statements			9
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			76

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts or statements of current conditions, but instead represent only management’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. It is possible that our actual results, financial condition and liquidity may differ, possibly materially, from the anticipated results, financial condition and liquidity in these forward-looking statements. The Company’s actual results may differ from its expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions (or the negative versions of such words or expressions) are intended to identify such forward-looking statements. The Company cautions readers not to place undue reliance upon any forward-looking statements, which are current only as of the date of this report. Results for any specified quarter are not necessarily indicative of the results that may be expected for the full year or any future period. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions, or circumstances on which any such statement is based, except as required by law. Such forward-looking statements are subject to various risks and uncertainties including, among others; the effect of the COVID-19 pandemic on the Company’s business; changes in prevailing interest rates or U.S. monetary policies that affect interest rates that may have a detrimental effect on our business; the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors in our markets; our ability to obtain sufficient capital to meet the financing requirements of our business; the use estimates in measuring or determining the fair value of the majority of our assets and liabilities; the possibility of disruption in the secondary home loan market, including the mortgage-backed securities market; and other risks and uncertainties set forth in the section entitled “Risk Factors” included in our Registration Statement on Form S-1 originally filed with the SEC on May 25, 2021, as such factors may be further updated from time to time in the Company’s periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in the Company’s other filings with the SEC.

Website Disclosure

The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s investor relations website at https://www.financeofamerica.com/investors. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting “Email Alerts” under the “News & Events” tab of our investor relations website. Information on the Company’s website is not incorporated by reference herein and is not a part of this Form 10-Q.

 

Part I - Financial Information

Item 1. Financial Statements

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Financial Condition

(In thousands, except share data)

 

 

		September 30, 2021				December 31, 2020
		Successor				Predecessor
		(unaudited)
ASSETS
Cash and cash equivalents		$	191,736			$	233,101
Restricted cash			325,226				306,262
Reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value			10,347,459				9,929,163
Mortgage loans held for investment, subject to nonrecourse debt, at fair value			5,939,651				5,396,167
Mortgage loans held for investment, at fair value			1,077,670				730,821
Mortgage loans held for sale, at fair value			2,047,015				2,222,811
Debt securities			7,317				10,773
Mortgage servicing rights, at fair value, $96,073 and $14,088, subject to nonrecourse MSR financing liability, respectively			340,949				180,684
Derivative assets			54,993				92,065
Fixed assets and leasehold improvements, net			29,503				24,512
Goodwill			1,298,796				121,233
Intangible assets, net			692,676				16,931
Other assets, net			315,102				300,632
TOTAL ASSETS		$	22,668,093			$	19,565,155
LIABILITIES, CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST (“CRNCI”) AND EQUITY
HMBS related obligation, at fair value		$	10,216,310			$	9,788,668
Nonrecourse debt, at fair value			5,831,083				5,271,842
Other financing lines of credit			3,325,156				2,973,743
Payables and other liabilities			509,803				400,058
Notes payable, net			353,567				336,573
TOTAL LIABILITIES			20,235,919				18,770,884
Commitments and Contingencies (Note 21)
CRNCI			—				166,231
EQUITY (Note 30)
FoA Equity Capital LLC member’s equity			—				628,176
Class A Common Stock (Successor), $0.0001 par value; 6,000,000,000 shares authorized; 58,936,744 shares issued and outstanding at September 30, 2021			6				—
Class B Common Stock (Successor), $0.0001 par value; 1,000,000 shares authorized, 6 shares issued and outstanding at September 30, 2021			—				—
Additional paid-in capital (Successor)			821,316				—
Accumulated deficit (Successor)			(48,164	)			—
Accumulated other comprehensive (loss) income			(92	)			9
Noncontrolling interest			1,659,108				(145	)
TOTAL EQUITY			2,432,174				628,040
TOTAL LIABILITIES, CRNCI AND EQUITY		$	22,668,093			$	19,565,155

See accompanying notes to unaudited consolidated financial statements

 

1

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Financial Condition

(In thousands)

 

 

 

The following table presents the assets and liabilities of the Company’s consolidated variable interest entities, which are included on the Consolidated Statements of Financial Condition above, and excludes intercompany balances, retained bonds and beneficial interests that eliminate in consolidation.

 

		September 30, 2021				December 31, 2020
		Successor				Predecessor
		(unaudited)
ASSETS
Restricted cash		$	306,615			$	293,580
Mortgage loans held for investment, subject to nonrecourse debt, at fair value			5,939,651				5,396,167
Other assets			69,947				79,528
TOTAL ASSETS		$	6,316,213			$	5,769,275
LIABILITIES
Nonrecourse debt, at fair value		$	5,735,010			$	5,257,754
Payables and other liabilities			117				291
TOTAL LIABILITIES		$	5,735,127			$	5,258,045
Net fair value of assets subject to nonrecourse debt		$	581,086			$	511,230

See accompanying notes to unaudited consolidated financial statements

 

2

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share data)

(Unaudited)

 

 

		For the three months ended September 30, 2021				April 1, 2021 to September 30, 2021				January 1, 2021 to March 31, 2021				For the three months ended September 30, 2020				For the nine months ended September 30, 2020
		Successor								Predecessor
REVENUES
Gain on sale and other income from mortgage loans held for sale, net		$	210,095			$	397,672			$	291,334			$	407,926			$	836,901
Net fair value gains on mortgage loans and related obligations			122,509				253,660				76,663				95,955				221,638
Fee income			145,725				236,589				161,371				119,375				266,002
Net interest expense:
Interest income			15,862				29,013				12,661				9,937				29,615
Interest expense			(37,691	)			(71,317	)			(34,366	)			(25,935	)			(93,165	)
Net interest expense			(21,829	)			(42,304	)			(21,705	)			(15,998	)			(63,550	)
TOTAL REVENUES			456,500				845,617				507,663				607,258				1,260,991
EXPENSES
Salaries, benefits and related expenses			262,000				536,731				238,530				240,381				615,034
Occupancy, equipment rentals and other office related expenses			8,283				15,003				7,597				8,184				22,795
General and administrative expenses			141,595				260,896				127,217				113,804				273,584
TOTAL EXPENSES			411,878				812,630				373,344				362,369				911,413
OTHER, NET			9,928				7,825				(8,862	)			(2,470	)			(2,514	)
NET INCOME BEFORE INCOME TAXES			54,550				40,812				125,457				242,419				347,064
Provision for income taxes			4,440				5,526				1,137				808				1,574
NET INCOME			50,110				35,286				124,320				241,611				345,490
CRNCI			—				—				4,260				(4,953	)			(22,959	)
Noncontrolling interest			28,726				11,637				201				276				1,076
NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST		$	21,384			$	23,649			$	119,859			$	246,288			$	367,373
EARNINGS PER SHARE (Note 28)
Basic weighted average shares outstanding			59,861,171				59,871,386
Basic net income per share		$	0.36			$	0.39
Diluted weighted average shares outstanding			191,161,431				191,180,610
Diluted net income per share		$	0.22			$	0.17

See accompanying notes to unaudited consolidated financial statements

 

3

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

 

 

		For the three months ended September 30, 2021				April 1, 2021 to September 30, 2021				January 1, 2021 to March 31, 2021				For the three months ended September 30, 2020				For the nine months ended September 30, 2020
		Successor								Predecessor
NET INCOME		$	50,110			$	35,286			$	124,320			$	241,611			$	345,490
COMPREHENSIVE LOSS ITEM:
Impact of foreign currency translation adjustment			(65	)			(92	)			(11	)			26				37
TOTAL COMPREHENSIVE INCOME			50,045				35,194				124,309				241,637				345,527
Less: Comprehensive income (loss) attributable to the noncontrolling interest and CRNCI			28,681				11,573				4,461				(4,677	)			(21,883	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST		$	21,364			$	23,621			$	119,848			$	246,314			$	367,410

See accompanying notes to unaudited consolidated financial statements

 

4

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(Unaudited)

 

 

		FoA Equity Capital LLC Member’s Equity				Accumulated Other Comprehensive (Loss) Income				Noncontrolling Interest				Total
Predecessor:
Balance at December 31, 2019 (audited)		$	482,719			$	(51	)		$	145			$	482,813
Contributions from members			1,042				—				—				1,042
Net (loss) income			(27,249	)			—				229				(27,020	)
Foreign currency translation adjustment			—				(8	)			—				(8	)
Balance at March 31, 2020			456,512				(59	)			374				456,827
Distributions to members			(578	)			—				—				(578	)
Noncontrolling interest distributions			—				—				(310	)			(310	)
Net income			148,335				—				571				148,906
Foreign currency translation adjustment			—				18				—				18
Balance at June 30, 2020			604,269				(41	)			635				604,863
Distributions to members			(1,781	)			—				—				(1,781	)
Noncontrolling interest contributions			—				—				16				16
Noncontrolling interest distributions			—				—				(702	)			(702	)
Net income			246,288				—				276				246,564
Foreign currency translation adjustment			—				27				—				27
Balance at September 30, 2020		$	848,776			$	(14	)		$	225			$	848,987
Balance at December 31, 2020 (audited)		$	628,176			$	9			$	(145	)		$	628,040
Contributions from members			1,426				—				—				1,426
Distributions to members			(75,000	)			—				—				(75,000	)
Noncontrolling interest distributions			—				—				(620	)			(620	)
Net income			119,859				—				201				120,060
Accretion of CRNCI to redemption price			(32,725	)			—				—				(32,725	)
Foreign currency translation adjustment			—				(11	)			—				(11	)
Balance at March 31, 2021		$	641,736			$	(2	)		$	(564	)		$	641,170

See accompanying notes to unaudited consolidated financial statements

 

5

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Equity

(In thousands, except share data)

(Unaudited)

 

 

 

		Class A Common Stock								Class B Common Stock																				Noncontrolling Interest
		Shares				Amount				Shares				Amount				Additional Paid-in Capital				Retained Earnings / Accumulated Deficit				Accumulated Other Comprehensive Loss				Class A LLC Units				Amount				Total Equity
Successor:
Balance at April 1, 2021			59,881,714			$	6				7			$	—			$	758,243			$	(71,813	)		$	—				131,318,286			$	1,658,545			$	2,344,981
Net (loss) income			—				—				—				—				—				2,265				—				—				(17,089	)			(14,824	)
Noncontrolling interest contributions			—				—				—				—				—				—				—				—				24				24
Noncontrolling interest distributions			—				—				—				—				—				—				—				—				(137	)			(137	)
Equity based compensation - Restricted Stock Units (“RSUs”)			—				—				—				—				49,278				—				—				—				—				49,278
Foreign currency translation adjustment			—				—				—				—				—				—				(27	)			—				—				(27	)
Balance at June 30, 2021			59,881,714			$	6				7			$	—			$	807,521			$	(69,548	)		$	(27	)			131,318,286			$	1,641,343			$	2,379,295
Net income			—				—				—				—				—				21,384				—				—				28,726				50,110
Noncontrolling interest distributions			—				—				—				—				—				—				—				—				(418	)			(418	)
Equity based compensation - RSUs			—				—				—				—				12,036				—				—				—				—				12,036
Net surrender to settle RSUs			(944,970	)			—				(1	)			—				1,759				—				—				(829,222	)			(10,543	)			(8,784	)
Foreign currency translation adjustment			—				—				—				—				—				—				(65	)			—				—				(65	)
Balance at September 30, 2021			58,936,744			$	6				6			$	—			$	821,316			$	(48,164	)		$	(92	)			130,489,064			$	1,659,108			$	2,432,174

See accompanying notes to unaudited consolidated financial statements

 

6

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

		April 1, 2021 to September 30, 2021				January 1, 2021 to March 31, 2021				For the nine months ended September 30, 2020
		Successor				Predecessor
Operating Activities
Net income		$	35,286			$	124,320			$	345,490
Adjustments to reconcile net income to net cash (used in) provided by operating activities:			(107,899	)			(6,277	)			(722,262	)
Net cash (used in) provided by operating activities			(72,613	)			118,043				(376,772	)
Investing Activities
Purchases and originations of mortgage loans held for investment			(2,658,540	)			(1,151,925	)			(2,974,275	)
Proceeds/payments received on mortgage loans held for investment			1,446,930				677,777				1,373,034
Purchases and origination of mortgage loans held for investment, subject to nonrecourse debt			(25,081	)			(12,247	)			(31,730	)
Proceeds/payments on mortgage loans held for investment, subject to nonrecourse debt			556,466				217,452				548,901
Purchases of debt securities			(1,449	)			(557	)			(38,749	)
Proceeds/payments on debt securities, net			3,238				2,096				138,320
Purchases of mortgage servicing rights			(2,352	)			(9,014	)			—
Proceeds on sale of mortgage servicing rights			2,501				7,765				—
Acquisition of subsidiaries, net of cash acquired			(22,838	)			(749	)			351
Purchase of investments			—				—				(3,938	)
Acquisition of fixed assets			(8,636	)			(4,178	)			(5,611	)
Payments on deferred purchase price liability			(311	)			(657	)			(1,504	)
Issuance of convertible notes receivable			—				(2,550	)			—
DIP Financing			—				(35,260	)			—
Net cash used in investing activities			(710,072	)			(312,047	)			(995,201	)
Financing Activities
Proceeds from securitizations of reverse mortgage loans, subject to HMBS related obligations			1,587,902				602,172				1,433,324
Payments of HMBS related obligations			(1,221,327	)			(506,142	)			(1,495,917	)
Proceeds from issuance of nonrecourse debt, net			1,270,334				579,518				2,554,115
Payments on nonrecourse debt			(809,184	)			(658,300	)			(1,132,984	)
Proceeds from other financing lines of credit			18,451,706				10,027,696				25,119,693
Payments on other financing lines of credit			(18,401,507	)			(9,660,588	)			(24,942,223	)
Debt issuance costs			(1,342	)			(2,467	)			(3,191	)
Payments on notes payable			—				—				(26,771	)
Principal payments under capital lease obligation			—				—				(680	)
Member contributions			—				1,426				234
Member distributions			—				(75,000	)			(1,552	)
Settlement of CRNCI			(203,216	)			—				—
Noncontrolling interest contributions			24				—				16
Noncontrolling interest distributions			(555	)			(620	)			(1,012	)
Net cash provided by financing activities			672,835				307,695				1,503,052
Foreign currency translation adjustment			(15	)			(7	)			12
Net (decrease) increase in cash and restricted cash			(109,865	)			113,684				131,091
Cash and restricted cash, beginning of period			626,827				539,363				382,664

 

7

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

		April 1, 2021 to September 30, 2021				January 1, 2021 to March 31, 2021				For the nine months ended September 30, 2020
		Successor				Predecessor
Cash and restricted cash, end of period		$	516,962			$	653,047			$	513,755
Supplementary Cash Flows Information
Cash paid for interest		$	124,312			$	50,071			$	103,578
Cash paid for taxes, net			1,882				63				1,026
Loans transferred to mortgage loans held for investment, at fair value, from mortgage loans held for investment, subject to nonrecourse debt, at fair value			242,650				283,428				444,238
Loans transferred to mortgage loans held for sale, at fair value, from mortgage loans held for investment, at fair value			48,759				—				167,590
Loans transferred to government guaranteed receivables from mortgage loans held for investment, at fair value, and mortgage loans held for investment, subject to nonrecourse debt, at fair value			343				71				57,554
Loans transferred to mortgage loans held for investment, subject to nonrecourse debt, at fair value, from mortgage loans held for investment, at fair value			1,309,669				272,098				2,591,455
Loans transferred to mortgage loans held for investment, subject to HMBS, at fair value, from mortgage loans held for investment, at fair value			1,393,897				42,909				—

See accompanying notes to unaudited consolidated financial statements

 

8

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

1. Organization and Description of Business

Finance of America Companies Inc. (“FoA”, “Company”, or “Successor”) was incorporated in Delaware on October 9, 2020. FoA is a financial services holding company which, through its operating subsidiaries, is a leading originator and servicer of residential mortgage loans and provider of complementary financial services.

FoA has a controlling financial interest in Finance of America Equity Capital LLC (“FoA Equity” or “Predecessor”). FoA Equity owns all of the outstanding equity interests or has a controlling financial interest in Finance of America Funding LLC (“FOAF”). FOAF wholly owns Finance of America Holdings LLC (“FAH”) and Incenter LLC (“Incenter” and collectively, with FoA Equity, FOAF and FAH, known as “holding company subsidiaries”).

The Company, through its holding company subsidiary, FAH, operates three lending companies, Finance of America Mortgage LLC (“FAM”), Finance of America Reverse LLC (“FAR”), and Finance of America Commercial LLC (“FACo”) (collectively, the “operating lending subsidiaries”). Through FAM and FAR, the Company originates, purchases, sells and securitizes conventional (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as government sponsored entities (“GSEs”)), government-insured (Federal Housing Administration (“FHA”)), government guaranteed (Department of Veterans Affairs), and proprietary non-agency residential and reverse mortgages. FACo serves as a specialty finance company which originates a variety of commercial mortgage loans to owners and investors of single and multi-family residential rental properties. The Company, through one of its other holding company subsidiaries, Incenter, has operating service companies (the “operating service subsidiaries” and together with the operating lending subsidiaries, the “operating subsidiaries”) which provide lender services, title services, secondary markets advisory, mortgage trade brokerage, appraisal and capital management services to customers in the residential mortgage, student lending, and commercial lending industries. Incenter operates a foreign branch in the Philippines for fulfillment transactional support.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has adversely impacted global financial markets and contributed to significant volatility in market liquidity and yields required by market investors in the type of financial instruments originated by the Company’s primary operating subsidiaries. The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. The Company’s work-from-home environment is anticipated to continue until at least January 2022, with certain exceptions for employees whose job functions or other considerations require them to be in a physical office from time to time. The Company’s management is actively monitoring the global situation relating to COVID-19 and its effect on the Company’s financial condition, liquidity, operations, industry, and workforce. Further, the Company cannot estimate the length or gravity of the impact that the COVID-19 pandemic will have on the residential mortgage and commercial lending industries. As of September 30, 2021, approximately 0.40% of Units and 0.42% of unpaid principal balance of the companies total residential mortgage servicing portfolio is in forbearance as a result of the economic impacts caused by COVID-19. As the pandemic continues, it has the potential to cause additional volatility in the financial markets and may have an adverse effect on the Company’s results of future operations, financial position, intangible assets and liquidity in fiscal year 2021.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements comprise the financial statements of FoA and its controlled subsidiaries for the Successor three months ended September 30, 2021, the Successor period from April 1, 2021 to September 30, 2021, and the financial statements of FoA Equity and its controlled subsidiaries for the Predecessor periods from January 1, 2021 to March 31, 2021 and for the three months and nine months ended September 30, 2020. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The Consolidated Statement of Financial Condition as of December 31, 2020 has been derived from the audited consolidated financial

 

9

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

statements of the Predecessor as of and for the year ended December 31, 2020. In the opinion of management, such financial information reflects all normal and recurring adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. Operating results for the interim period are not necessarily indicative of the results that may be expected for any future period or for the full year. The consolidated interim financial statements, including the significant accounting policies, should be read in conjunction with the audited consolidated financial statements of FoA Equity and notes thereto for the year ended December 31, 2020 (Predecessor).

On October 12, 2020, the Company, Replay Acquisition Corp. (“Replay”) and FoA Equity entered into the Transaction Agreement pursuant to which Replay agreed to combine with FoA Equity in a series of transactions that resulted in the formation of FoA as a publicly traded company on the New York Stock Exchange (“NYSE”), and FoA controlling FoA Equity in an “UP-C” structure (collectively, the “Business Combination”). At the closing of the Business Combination (the “Closing”) on April 1, 2021 (the “Closing Date”), Replay domesticated into a Delaware corporation and FoA was formed. See Note 4 - Acquisitions for additional information.

The consolidated financial statements include the accounts of the Predecessor, prior to the Business Combination, which was determined to be FoA Equity, a limited liability company that was formed in July 2020. Prior to the Business Combination, FoA Equity was a wholly owned subsidiary of UFG Holdings LLC (“UFG”). FoA Equity owned all of the outstanding equity interests or had a controlling financial interest in FOAF. FAH and Incenter LLC were wholly owned subsidiaries of FOAF, and are included in the consolidated financial statements along with their consolidated operating lending subsidiaries and operating service subsidiaries. See Note 1 - Organization and Description of Business for additional information.

The significant accounting policies described below, together with the other notes that follow, are an integral part of the consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its controlled subsidiaries and certain variable interest entities (“VIEs”) where the Company is the primary beneficiary. The Company is deemed to be the primary beneficiary of a VIE when it has both (1) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (2) exposure to benefits and/or losses that could potentially be significant to the entity. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that the Company became the primary beneficiary through the date that the Company ceases to be the primary beneficiary.

FoA Equity consolidates the accounts of Finance of America Commercial Holdings LLC (“FACo Holdings”), which is a direct subsidiary of FAH and an indirect parent company of FACo. Through the date of the Business Combination, the noncontrolling interests of FACo Holdings met the definition of contingently redeemable financial instruments for which the ability to redeem was outside the control of the consolidating entity. The Contingently Redeemable Noncontrolling Interest (“CRNCI”) in this subsidiary was shown as a separate caption between liabilities and equity. Any income or losses attributable to the CRNCI were shown as an addition to or deduction from CRNCI in the Consolidated Statements of Financial Condition. All significant intercompany balances and transactions were eliminated. In connection with the closing of the Business Combination disclosed in Note 4 - Acquisitions, FoA caused Finance of America Holdings LLC to exercise its right under the FACo Holdings Agreement to purchase all of the outstanding Class B Units held by Buy to Rent Platform Holdings, L.P. (“B2R”) for a redemption price of $203.2 million in satisfaction of the applicable Hurdle Amount under the FACo Holdings Agreement.

Business Combinations

The Company applies the acquisition method to all transactions and other events in which the entity obtains control over one or more other businesses. Assets acquired and liabilities assumed are measured at fair value as of the acquisition date. Liabilities related to contingent consideration are recognized at the acquisition date and re-measured at fair value in each subsequent reporting period. Goodwill is recognized if the consideration transferred exceeds the fair value of the net assets acquired.

 

10

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

Under ASC 805, there is an option to apply push-down accounting, which establishes a new basis for the assets and liabilities of the acquired company based on a “push-down” of the acquirer’s stepped-up basis. The push-down accounting election is made in the reporting period in which the change in control event occurs. FoA has elected push-down accounting for the Business Combination, and recorded the push-down entries at FoA Equity.

Goodwill

Goodwill is the excess of the purchase price over the fair value of the net assets acquired. Goodwill is not amortized, but is reviewed for impairment annually as of October 1 and monitored for interim triggering events on an ongoing basis. If triggering events occur, which indicate goodwill might be impaired between annual tests, goodwill will be tested when such events occur. In making this assessment, the Company considers a number of factors including, but not limited to, operating results, business plans, economic projections, share price and anticipated future cash flows. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment. Changes in economic and operating conditions could result in goodwill impairment in future periods. In testing goodwill for impairment, the Company performs a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill, the Company will compare the fair value of that reporting unit with its carrying value including goodwill. If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss equal to the amount by which the carrying value of the goodwill exceeds the implied fair value of that goodwill.

Intangible Assets, Net

Intangible assets, net, primarily consist of trade names and broker/customer relationships acquired through various acquisitions and recorded at their estimated fair value on the date of acquisition. Intangible assets are amortized on a straight line basis over their estimated useful lives. Amortization expense of intangibles is included in general and administrative expenses on the Consolidated Statements of Operations. The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

Warrant Liability

The Company accounts for warrants for the Company’s Class A Common Stock at fair value within payables and other liabilities on the Consolidated Statements of Financial Condition because the warrants do not meet the criteria for classification within equity. The warrants are subject to remeasurement at each statement of financial condition date and any change in fair value is recognized within other, net in the Consolidated Statements of Operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants.

 

11

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

Tax Receivable Agreement Obligation

In connection with the Business Combination, concurrently with the Closing, the Company entered into Tax Receivable Agreements (“TRA”) with certain owners of FoA Equity prior to the Business Combination (the “TRA Parties”). The TRAs generally provide for payment by the Company to the TRA Parties of 85% of the cash tax benefits, if any, that the Company is deemed to realize (calculated using certain simplifying assumptions) as a result of (i) tax basis adjustments as a result of sales and exchanges of units in connection with or following the Business Combination and certain distributions with respect to units, (ii) the Company’s utilization of certain tax attributes attributable to Blackstone Tactical Opportunities Associates - NQ L.L.C., a Delaware limited partnership, shareholders (“Blocker GP”), and (iii) certain other tax benefits related to entering into the TRAs, including tax benefits attributable to making payments under the TRAs. These tax basis adjustments generated over time may increase (for tax purposes) the depreciation and amortization deductions available to the Company and, therefore, may reduce the amount of U.S. federal, state and local tax that the Company would otherwise be required to pay in the future, although the IRS may challenge all or part of the validity of that tax basis, and a court could sustain such challenge. The tax basis adjustments upon sales or exchanges of units for shares of Class A Common Stock and certain distributions with respect to Class A LLC Units may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets. Actual tax benefits realized by the Company may differ from tax benefits calculated under the Tax Receivable Agreements as a result of the use of certain assumptions in the TRAs, including the use of an assumed weighted average state and local income tax rate to calculate tax benefits.

The payments that FoA may make under the TRAs are expected to be substantial. The payments under the TRAs are not conditioned upon continued ownership of FoA or FoA Equity by the Continuing Unitholders (as defined in Note 4 - Acquisitions).

The Company accounts for the effects of these increases in tax basis and associated payments under the TRAs arising from exchanges in connection with the Business Combination as follows:

 

•

records an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted U.S. federal and state tax rates at the date of the exchange;

 

•

to the extent we estimate that the Company will not realize the full benefit represented by the deferred tax asset, based on an analysis that will consider, among other things, our expectation of future earnings, the Company reduces the deferred tax asset with a valuation allowance; and

 

•

initial measurement of the obligations is at fair value on the acquisition date. Subsequently, the liability will be remeasured at fair value each reporting period, with any changes in fair value recognized through earnings.

The Company records obligations under the TRAs resulting from exchanges subsequent to the Business Combination, as they occur, at the gross undiscounted amount of the expected future payments as an increase to the liability along with the deferred tax asset and valuation allowance (if any) with an offset to additional paid-in capital.

As of September 30, 2021 (Successor), the Company had a liability of $35.1 million related to its projected obligations under the TRA, which is included in deferred purchase price liabilities within payables and other liabilities on the Consolidated Statements of Financial Condition.

Income Taxes

Prior to the Business Combination, a portion of FoA Equity’s earnings were subject to certain U.S. federal and foreign taxes. Subsequent to the Business Combination, the portion of earnings allocable to FoA is subject to corporate level tax rates at the federal, state and local levels. Therefore, the amount of income taxes recorded prior to the Business Combination are not representative of the expenses expected subsequent to the Business Combination.

The computation of the effective tax rate and provision at each interim period requires the use of certain estimates and significant judgments including, but not limited to, the expected operating income for the year, projections of the proportion of income that is subject to tax, permanent differences between the Company’s GAAP earnings and taxable income, and the likelihood of recovering deferred tax assets existing as of the statement of financial position date. The

 

12

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

estimates used to compute the provision for income taxes may change throughout the year as new events occur, additional information is obtained or as tax laws and regulations change. Accordingly, the effective tax rate for future interim periods may vary materially.

The Company accounts for income taxes pursuant to the asset and liability method, which requires it to recognize current tax liabilities or receivables for the amount of taxes it estimates are payable or refundable for the current year, deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.

The benefit of tax positions taken or expected to be taken in the Company’s income tax returns is recognized in the financial statements if such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents a potential future obligation to the taxing authority for a tax position that was not recognized. Interest costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable, and are recognized as general and administrative expenses.

Seller Earnout

The equity owners of FoA Equity prior to the Closing are entitled to receive an earnout exchangeable for Class A Common Stock if, at any time during the six years following Closing, the volume weighted average price (the “VWAP”) of Class A Common Stock with respect to a trading day is greater than or equal to $12.50 for any 20 trading days within a consecutive 30-trading-day period (“First Earnout Achievement Date”), 50% of the earnout units issued to sellers (in conjunction with the Sponsor shares defined below, the “Earnout Securities”) will be issued; and if, at any time during the six years following Closing, the VWAP is greater than or equal to $15.00 for any 20 trading days within a consecutive 30-trading-day period, the remaining 50% of the Earnout Securities will be issued (“Second Earnout Achievement Date”).

The seller earnout is accounted for as contingent consideration and classified as equity. The seller earnout was measured at fair value upon the consummation of the Business Combination, the date of issuance, and will not be subsequently remeasured. The settlement of the seller earnout will be accounted for within equity, if and when, the First or Second Earnout Achievement Date occurs. See Note 22 - Incentive Compensation for additional information.

Sponsor Earnout

The Company classified the Sponsor Earnout Agreement as an equity transaction measured at fair value upon the consummation of the Business Combination, the date of issuance, and will not be subsequently remeasured. Additionally, the settlement of the Sponsor Earnout Agreement will be accounted for within equity, if and when the First or Second Sponsor Earnout Achievement Date occurs. See Note 29 - Sponsor Earnout for additional information.

Noncontrolling Interest

Noncontrolling interest represents the Company’s noncontrolling interest in consolidated subsidiaries which are not attributable, directly or indirectly, to the controlling Class A Common Stock ownership of the Company. Net income (loss) is reduced by the portion of net income (loss) that is attributable to noncontrolling interests as well as special allocations related to the Amended and Restated Long-Term Incentive Plan (“A&R MLTIP”) as defined in the FoA Equity LLC Agreement.

 

13

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

Equity Based Compensation

Equity based compensation with service conditions made to employees is measured based on the grant date fair value of the awards and recognized as compensation expense over the period during which the recipient is required to perform services in exchange for the award (the requisite service period). The Company has elected to use a straight line attribution method for recognizing compensation costs relating to awards that have service conditions only. Forfeitures are recorded as they occur.

For equity based compensation where there are market conditions as well as service conditions to vesting, the grant date fair value of the awards is recognized as compensation expense using the graded-vesting method over the requisite service period for each separately vesting tranche of the award as if they were multiple awards.

Earnings Per Share

Basic net income per share is based on the weighted average number of shares of Class A Common Stock issued and outstanding during the Successor periods. Diluted net income per share is based on the weighted average number of shares of Class A Common Stock issued and outstanding and the effect of all dilutive common stock equivalents and potentially dilutive share based compensation awards outstanding during the Successor periods.

For the Predecessor periods, FoA Equity’s capital structure consisted of a single class of outstanding membership units which were held by one member, UFG. Therefore, the Company omitted earnings per unit for the Predecessor periods presented due to the limited number of LLC unit holders.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates and assumptions due to factors such as changes in the economy, interest rates, secondary market pricing, prepayment assumptions, home prices or discrete events affecting specific borrowers, and such differences could be material.

Reclassifications

Certain amounts from the prior period consolidated financial statements have been reclassified to conform to the current period financial presentation.

 

14

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

Recently Adopted Accounting Guidance

 

Standard		Description		Effective Date		Effect on Consolidated Financial Statements
ASU 2016-13 , Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, ASU 2020-03, Codification Improvements to Financial Instruments		Requires use of the current expected credit loss model that is based on expected losses (net of expected recoveries), rather than incurred losses, to determine our allowance for credit losses on financial assets measured at amortized cost, certain net investments in leases and certain off-balance sheet arrangements.   Replaces current accounting for purchased credit impaired (“PCI”) and impaired loans.   Amends the other-than-temporary impairment model for available for sale debt securities. The new guidance requires that credit losses be recorded through an allowance approach, rather than through permanent write-downs for credit losses and subsequent accretion of positive changes through interest income over time.		January 2020		The Company determined that certain servicer advances and other receivables, net of reserves included in other assets are within the scope of ASU 2016-13. The Company determined that these receivables have limited expected credit-related losses due to the contractual servicing agreements with agencies and loan product guarantees. Furthermore, the Company determined that for outstanding servicer and other advances, the majority of estimated losses are attributable to losses due to operational servicing defects and credit-related losses are not significant because of the contractual relationship with the agencies. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.
ASU 2018-17 , Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities		The amendments in this Update require that indirect interests held through related parties under common control be considered on a proportional basis when determining whether fees paid to decision makers or service providers are variable interests. These amendments align with the determination of whether a reporting entity within a related party group is the primary beneficiary of a VIE.		January 2020		The Company adopted this guidance using the prospective method of adoption.   Adoption of this standard did not have a material impact on the consolidated financial statements.
ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment		Historical guidance for goodwill impairment testing prescribed that the Company must compare each reporting unit’s carrying value to its fair value. If the carrying value exceeds fair value, an entity performs the second step, which assigns the reporting unit’s fair value to its assets and liabilities, including unrecognized assets and liabilities, in the same manner as required in purchase accounting and then records an impairment. This ASU eliminates the second step.   Under the new guidance, an impairment of a reporting unit’s goodwill is determined based on the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to the reporting unit.		January 2020		The Company adopted this guidance using the prospective method of adoption.   Adoption of this standard did not have a material impact on the consolidated financial statements.

 

15

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

Standard		Description		Effective Date		Effect on Consolidated Financial Statements
ASU 2018-13 , Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement		The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurements, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. Certain disclosure requirements were either removed, modified, or added.   This guidance removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 fair value measurement methodologies, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds requirements for the disclosure of a) changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and b) the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.		January 2020		The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
ASU 2018-15 , Intangibles - Goodwill and Other - Internal- Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract		The amendments in this Update align the requirements for capitalizing implementation costs incurred in a service-contract hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).		January 2020		The Company adopted this guidance using the prospective method of adoption.   Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes		This amendment simplifies various aspects of the guidance on accounting for income taxes.		January 2021		The Company adopted this guidance using the prospective method of adoption.   Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

16

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

Standard		Description		Effective Date		Effect on Consolidated Financial Statements
ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants		In August 2021, the FASB issued ASU 2021-06 to align the SEC paragraphs in the codification with the new SEC rules issued in May 2020 relating to changes to the disclosure requirements for acquisitions and dispositions. ASU No. 2021-06 amends and supersedes various SEC paragraphs in FASB’s Topic 205, Presentation of Financial Statements, and Topic 946, Investment Companies.   In May 2020, the SEC issued Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, to update the financial disclosure requirements in Regulation S-X for acquisitions and dispositions of businesses. In addition, to address the unique attributes of investment companies and business development companies, the SEC adopted new requirements regarding fund acquisitions specific to registered investment companies and business development companies.   Regulation S-X Rule 3-05 generally requires a registrant to provide separate audited annual and unaudited interim pre-acquisition financial statements of the business if it is significant to the registrant using the investment, asset, and income tests. The amendments in this Update include changes to the investment and income tests when measuring significance, and raising the significance threshold for reporting the disposition of a business on Form 8-K from 10% to 20% to conform to requirements for reporting business acquisitions.		January 2021		This ASU is effective for all acquisitions and disposals occurring after January 1, 2021.   The Company adopted this guidance using the retrospective method of adoption.   The Company evaluated the significance of all material acquisitions and disposals using the final amendments and determined it was in compliance.   Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

17

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

Recently Issued Accounting Guidance, Not Yet Adopted as of September 30, 2021

 

Standard		Description		Date of Planned Adoption		Effect on Consolidated Financial Statements
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting   ASU 2021-01, Reference Rate Reform (Topic 848): Codification Clarification		The amendments in this Update provide temporary optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Offered Rate (“LIBOR”) or other interbank offered rates expected to be discontinued.   In January 2021, FASB issued an Update which refines the scope of ASU Topic 848 and clarifies the guidance issued to facilitate the effects of reference rate reform on financial reporting. The amendment permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements and calculating price alignment interest in connection with reference rate reform activities.		TBD		This ASU is effective from March 12, 2020 through December 31, 2022.   If LIBOR ceases to exist or if the methods of calculating LIBOR change from the current methods for any reasons, interest rates on our floating rate loans, obligation derivatives, and other financial instruments tied to LIBOR rates, may be affected and need renegotiation with its lenders.   The Company continues to assess the potential impact that the adoption of this ASU will have on the Company’s consolidated financial statements and related disclosures.
ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation(Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options		The amendments in this Update affect all entities that issue freestanding written call options that are classified in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Topic 260, Earnings Per Share.		January 2022		This ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.   The adoption of this standard is not expected to have any material impact on the Company’s consolidated financial statements as it currently does not apply.

3. Variable Interest Entities and Securitizations

The Company determined that the SPEs created in connection with its securitizations are VIEs. A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is the entity that, through its variable interests has both the power to direct the activities that significantly impact the VIE’s economic performance and the obligations to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

FACo

FACo securitizes certain of its interests in fix & flip mortgages. The transactions provide debt security holders the ability to invest in a pool of performing loans secured by an investment in real estate. The transactions provide FACo with access to liquidity for the loans and ongoing management fees. The principal and interest on the outstanding debt securities are paid using the cash flows from the underlying loans, which serve as collateral for the debt.

 

18

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

In April 2021, FACo executed its optional redemption of outstanding securitized notes related to the 2018, 2019, and 2020 ANTLR securitizations. As part of the optional redemption, FACo paid off notes with an outstanding principal balance of $175.3 million. The notes were paid off at par.

FAR

FAR securitizes certain of its interests in nonperforming reverse mortgages and non-agency reverse mortgage loans. The transactions provide investors with the ability to invest in a pool of reverse mortgage loans secured by one-to-four-family residential properties. The transactions provide FAR with access to liquidity for these assets, ongoing servicing fees, and potential residual returns. The principal and interest on the outstanding certificates are paid using the cash flows from the underlying reverse mortgage loans, which serve as collateral for the debt. The securitizations are callable at or following the optional redemption date as defined in the respective indenture agreements.

In February 2021, FAR executed its optional redemption of outstanding securitized notes related to outstanding nonperforming HECM securitizations. As part of the optional redemption, FAR paid off notes with an outstanding principal balance of $294.2 million. The notes were paid off at par.

In April 2021, FAR executed its optional redemption of outstanding securitized notes related to outstanding non-agency reverse mortgage securitizations. As part of the optional redemption, FAR paid off notes with an outstanding principal balance of $239.8 million, accrued interest of $6.3 million and discount of $3.7 million.

In their capacity as servicer of the securitized loans, FACo and FAR retain the power to direct the VIE’s activities that most significantly impact the VIEs economic performance. FACo and FAR also retain certain beneficial interests in these trusts which provide exposure to potential gains and losses based on the performance of the trust. As FACo and FAR have both the power to direct the activities that significantly impact the VIE’s economic performance and the obligations to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the definition of primary beneficiary is met and the trusts are consolidated by the Company through its FACo and FAR subsidiaries.

Certain obligations may arise from the agreements associated with transfers of loans. Under these agreements, the Company may be obligated to repurchase the loans, or otherwise indemnify or reimburse the investor for losses incurred due to material breach of contractual representations and warranties. There were no charge-offs associated with these transferred mortgage loans related to the standard securitization representations and warranties obligations for the Successor three months ended September 30, 2021, for the Successor period from April 1, 2021 to September 30, 2021, or the Predecessor period from January 1, 2021 to March 31, 2021. There were also no charge-offs associated with these transferred mortgage loans for the Predecessor three months ended September 30, 2020 or for the nine months ended September 30, 2020.

 

19

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

The following table presents the assets and liabilities of the Company’s consolidated VIEs, which are included in the Consolidated Statements of Financial Condition and excludes intercompany balances, except for retained bonds and beneficial interests (in thousands):

 

		September 30, 2021				December 31, 2020
		Successor				Predecessor
ASSETS
Restricted cash		$	306,615			$	293,580
Mortgage loans held for investment, subject to nonrecourse debt, at fair value			5,939,651				5,396,167
Other assets			69,947				79,528
TOTAL ASSETS		$	6,316,213			$	5,769,275
LIABILITIES
Nonrecourse debt, at fair value		$	5,956,832			$	5,459,941
Payables and other liabilities			117				291
TOTAL VIE LIABILITIES			5,956,949				5,460,232
Retained bonds and beneficial interests eliminated in consolidation			(221,822	)			(202,187	)
TOTAL CONSOLIDATED LIABILITIES		$	5,735,127			$	5,258,045

FAM

FAM securitizes certain of its interests in agency-eligible residential mortgage loans. The transaction provides investors with the ability to invest in a pool of mortgage loans secured by one-to-four-family residential properties and provides FAM with access to liquidity for these assets and ongoing servicing fees. The principal and interest on the outstanding certificates are paid using the cash flows from the underlying mortgage loans, which serve as collateral for the debt. In May 2021, FAM established the Hundred Acre Wood (“HAWT”) trust for the sole purpose of acquiring mortgage loans for securitization. In 2021, FAM executed the HAWT 2021-INV1 and HAWT 2021-INV2 securitizations, where FAM’s beneficial interest in the securitization is limited to its U.S. Risk Retention Certificates, a 5% eligible vertical interest in the Trust. The Company determined that the securitization structures meets the definition of a VIE and concluded that the Company does not hold a significant variable interest in the securitizations and that the contractual role as servicer is not a variable interest and does not give the Company the power to direct the activities that most significantly affect the economic performance of the VIEs. The transfer of the loans to the VIEs was determined to be a sale. The Company derecognized the mortgage loans and did not consolidate the trusts.

FAM’s continuing involvement with and exposure to loss from the VIE includes the carrying value of the retained bond, the servicing asset recognized in the sale of the loans, servicing advances in the role as servicer, and obligations under representations and warranties contained in the loan sale agreements. Creditors of the VIE have no recourse to FAM’s assets or general credit. The underlying performance of the mortgage loans transferred has a direct impact on the fair values and cash flows of the beneficial interests held and the servicing asset recognized.

As of September 30, 2021 (Successor), the interests retained upon transfer of the mortgage loans consisted of an interest in each class of securities issued by the VIE and had an initial fair value of $42.0 million. The servicing asset recognized upon sale of the mortgage loans to the VIE had an initial fair value of $3.2 million. Cash proceeds from the securitizations were $795.6 million. The Company recorded a gain on sale on the securitizations of $32.9 million.

 

20

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

The following table presents a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor and that were not consolidated by the Company:

 

		September 30, 2021				December 31, 2020
		Successor				Predecessor
Unconsolidated securitization trusts:
Total collateral balances – UPB		$	795,077			$	—
Total certificate balances		$	795,077			$	—

As of September 30, 2021 (Successor), there were $1.6 million of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 90 days or less past due. As of December 31, 2020, there were no unconsolidated securitization trusts.

4. Acquisitions

The Business Combination

On October 12, 2020, the Company, Replay and FoA Equity entered into a Transaction Agreement (the “Transaction Agreement”) pursuant to which Replay agreed to combine with FoA Equity in a series of transactions that resulted in the Company becoming a publicly-traded company on the New York Stock Exchange (“NYSE”) and controlling FoA Equity in an “UP-C” structure. At the Closing on April 1, 2021, Replay domesticated into a Delaware corporation, and the Company was formed. Following the Closing, the public investors held Class A Common Stock representing approximately a 31.3% economic interest, and BTO Urban Holdings L.L.C., a Delaware limited liability company (“BTO Urban”), Blackstone Family Tactical Opportunities Investment Partnership – NQ – ESC L.P., a Delaware limited partnership (“ESC”), Libman Family Holdings LLC, a Connecticut limited liability company (“Family Holdings”), The Mortgage Opportunity Group LLC, a Connecticut limited liability company (“TMO”), L and TF, LLC, a North Carolina limited liability company (“L&TF”), UFG Management Holdings LLC, a Delaware limited liability company (“Management Holdings”), and Joe Cayre (each of BTO Urban, ESC, Family Holdings, TMO, L&TF, Management Holdings and Joe Cayre, a “Seller” and, collectively, the “Sellers” or the “Continuing Unitholders”) retained a 68.7% economic interest in FoA Equity in the form of Class A LLC Units. Additionally, the Company issued to the Continuing Unitholders shares of Class B Common Stock, which have no economic rights but entitle each holder to a number of votes that is equal to the aggregate number of Class A LLC Units held by such holder on all matters on which shareholders of the Company are entitled to vote generally. Subsequent to the Closing, the Company controls FoA Equity as the sole appointer of the board of managers and is a holding company with no assets or operations other than its equity interest in FoA Equity.

The Business Combination was accounted for using the acquisition method with the Company as the accounting acquirer. Under the acquisition method of accounting, the Company’s assets and liabilities were recorded at carrying value, and the assets and liabilities associated with FoA Equity were recorded at estimated fair value as of the Closing Date. The excess of the purchase price over the estimated fair values of the net assets acquired was recognized as goodwill. For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination. The determination of whether control has been obtained begins with the evaluation of whether control should be evaluated based on the variable interest or voting interest model. If the acquiree is a variable interest entity, the primary beneficiary would be the accounting acquirer. FoA Equity met the definition of a variable interest entity, and the Company was determined to be the primary beneficiary.

As a result of the Business Combination, the Company’s financial statement presentation distinguishes FoA Equity as the “Predecessor” through the Closing Date. FoA is the “Successor” for periods after the Closing Date. As a result of the application of the acquisition method of accounting in the Successor period, the consolidated financial statements for the Successor period are presented on a full step-up basis, and are therefore not comparable to the consolidated financial statements of the Predecessor period that are not presented on the same full step-up basis.

 

21

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

The consolidated financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods. Rather, any provisional amount adjustments will be recognized during the reporting period in which the adjustments are determined. The Company will also be required to record, in the same period’s consolidated financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting had been completed at the Closing Date. The purchase price allocation, while provisional, has been substantially completed. The allocation will be finalized as soon as practicable, but no later than one year from the Closing Date. The following table summarizes the provisional estimated fair value of consideration transferred, noncontrolling interest equity value, assets acquired and liabilities assumed in conjunction with the Business Combination (in thousands):

 

Consideration transferred:
Total cash consideration		$	342,270
Blocker rollover equity			221,811
Seller earnout contingent consideration (1)			160,272
Tax receivable agreement obligations to the seller			31,950
Total consideration transferred			756,303
Noncontrolling interest			1,658,545
Total equity value		$	2,414,848
Assets acquired:
Cash and cash equivalents		$	336,075
Restricted cash			305,292
Reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value			10,071,192
Mortgage loans held for investment, subject to nonrecourse debt, at fair value			5,291,443
Mortgage loans held for investment, at fair value			1,100,544
Mortgage loans held for sale, at fair value			2,140,361
Debt securities			9,230
Mortgage servicing rights, at fair value			267,364
Derivative assets			116,479
Fixed assets and leasehold improvements, net			26,079
Intangible assets, net (2)			717,700
Other assets, net			279,155
Total assets acquired		$	20,660,914
Liabilities assumed:
HMBS related obligations, at fair value		$	9,926,131
Nonrecourse debt, at fair value			5,227,942
Other financing lines of credit			3,340,345
Payables and other liabilities			669,048
Notes payable, net			353,924
Total liabilities assumed		$	19,517,390
Net identifiable assets acquired			1,143,524
Goodwill (3)		$	1,271,324

 

(1)	Represents the estimated fair market value of earnout shares issued to Sellers, which will be settled with shares of Class A Common Stock and is accounted for as equity classified contingent consideration. These estimated fair values are preliminary and subject to adjustments in subsequent periods.

 

22

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

(2)

Intangible assets were identified that met either the separability criterion or contractual legal criterion. The evaluations of the facts and circumstances available as of April 1, 2021, to assign provisional fair values to assets acquired and liabilities assumed are ongoing, including the assessments of the economic characteristics of intangible assets. These evaluations may result in changes to the provisional amounts recorded based on third party valuations performed. The indefinite lived trade names and definite lived trade names intangible assets represent the values of all the Company’s trade names. The broker/customer relationships intangible asset represents the existing broker/customer relationships.

(3)

Goodwill represents the excess of the gross consideration transferred over the provisional fair value of the underlying net tangible and identifiable intangible assets acquired. Goodwill represents future economic benefits arising from acquiring FoA Equity, primarily due to its strong market position and its assembled workforce that are not individually identified and separately recognized as intangible assets. Approximately $85.2 million of the goodwill recognized is expected to be deductible for income tax purposes.

There were certain transaction expenses contingent on the Closing (i.e. the change-in-control event). Given these expenses were triggered by the successful Closing of the Business Combination, the payment of $5.0 million is considered to have been incurred “on the line”, i.e., these expenses are not presented in either the Predecessor or Successor periods.

The following unaudited pro forma financial information presents the results of operations as if the Business Combination had occurred on January 1, 2020. The unaudited pro forma results may not necessarily reflect the actual results of operations that would have been achieved nor are they necessarily indicative of future results of operations.

 

Identifiable intangible assets		Provisional Fair value (in thousands)				Provisional Useful life (in years)
Indefinite lived trade names		$	178,000				N/A
Definite lived trade names			8,800				10
Broker/customer relationships			530,900				8-15
Total		$	717,700

 

(in thousands)		For the three months ended September 30,								For the nine months ended September 30,
		2021				2020				2021				2020
Pro forma revenues		$	456,500			$	600,540			$	1,354,046			$	1,240,824
Pro forma net income			50,797				188,723				161,614				193,622
Pro forma net income attributable to controlling interest			21,424				45,300				50,406				53,958
Pro forma net income (loss) attributable to noncontrolling interest			29,373				143,423				111,208				139,664

Renovate America Inc.

On March 26, 2021, in order to expand its product base to home improvement loans, the Company acquired certain assets and operations of Renovate America, Inc. (“RAI”) (the “RAI Transaction”).

The RAI Transaction met the requirements to be considered a business combination under ASC 805. The assets purchased and liabilities assumed from the RAI Transaction have been recorded at fair market value and included in the Company’s consolidated financial statements from the date of the RAI Transaction. The Company has allocated the purchase price to the tangible and identifiable intangible assets based on their estimated fair market values at the date of the RAI Transaction as required under ASC 805. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets was recorded as goodwill. The goodwill generated by the RAI Transaction is expected to be deductible for U.S. federal income tax purposes.

As a result of the RAI Transaction, for accounting purposes, FAM was deemed to be the accounting acquirer and RAI was deemed to be the accounting acquiree.

The RAI Transaction was accounted for using the acquisition method of accounting and the fair value of the total purchase consideration transferred was $43.5 million, including cash and the relief of obligations owed to FAM by the debtor in possession of RAI. There was no contingent consideration as part of the RAI Transaction.

 

23

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

The purchase price allocation, while provisional, has been substantially completed. The allocation will be finalized as soon as practicable, but no later than one year from the Closing Date. The following table sets forth the provisional fair values of the assets acquired in connection with the RAI Transaction (in thousands):

 

		Acquisition Date Fair Value
Loans held for sale, at fair value(1)		$	35,226
Intangible assets			1,890
Goodwill			5,627
Other assets, net			753
Net assets acquired		$	43,496

 

(1)	These loans held for sale, at fair value are included as a component of mortgage loans held for sale, at fair value on the Consolidated Statements of Financial Condition.

Goodwill is comprised of expected future benefits for the Company and the assembled workforce acquired in the RAI Transaction, which do not qualify as separately recognized intangible assets. Goodwill associated with the RAI Transaction is assigned to the Company’s Mortgage Originations reportable segment, which represents the Company’s reporting unit that is expected to benefit from the assembled workforce acquired in the RAI Transaction.

Below is a summary of the identifiable intangible asset acquired in the RAI Transaction:

 

		Provisional Fair Value (in thousands)				Provisional Useful Life (in years)
Technology		$	1,890				5

 

5.	Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on the assumptions market participants would use when pricing an asset or liability and follows a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

All aspects of nonperformance risk, including the Company’s own credit standing, are considered when measuring the fair value of a liability.

Following is a description of the three levels:

Level 1 Inputs: Quoted prices for identical instruments in active markets.

Level 2 Inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs: Instruments with unobservable inputs that are significant to the fair value measurement.

The Company classifies assets in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy for the Successor for the three months ended September 30, 2021, the Successor period from April 1, 2021 to September 30, 2021 or for the Predecessor period from January 1, 2021 to March 31, 2021. There were no transfers for the Predecessor three months ended and nine months ended September 30, 2020.

 

24

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and the details of the valuation models, key inputs to those models and significant assumptions utilized. Within the assumption tables presented, not meaningful (“NM”) refers to a range of inputs that is too broad to provide meaningful information to the user or to an input that has no range and consists of a single data point.

Reverse Mortgage Loans Held for Investment, Subject to HMBS Related Obligations, at Fair Value

HECM loans securitized into Ginnie Mae HMBS are not actively traded in open markets with readily observable market prices.

The Company values HECM loans securitized into Ginnie Mae HMBS utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio using prepayment, borrower mortality, borrower draw and discounts rate assumptions management believes a market participant would use in estimating fair value. The significant unobservable inputs used in the measurement include:

Conditional Repayment Rate - The Company projects borrower prepayment rates which considers borrower age and gender and is based on historical termination rates. The outputs of borrower prepayment rates, which include both voluntary and involuntary prepayments, are utilized to anticipate future terminations.

Loss Frequency and Severity - Termination proceeds are adjusted for expected loss frequencies and severities to arrive at net proceeds that will be provided upon final resolution. Loss frequency and severity represent the frequency of losses and the losses associated with loans that are liquidated through a foreclosure sale, net of claim proceeds. Historical experience is utilized to estimate the loss rates resulting from scenarios where FHA insurance proceeds are not expected to cover all principal and interest outstanding and, as servicer, the Company is exposed to losses upon resolution of the loan. Loss frequency and severity are based upon the historical experience with specific loan resolution waterfalls.

Due and Payable Triggers - The input for terminations not attributable to an FHA assignment is based on historical foreclosure and liquidation experience.

Discount Rate - derived based upon reference to yields required by market participants for recent transactions in the HECM loan bulk market adjusted based upon weighted average life of the loan portfolio. This rate reflects what the Company believes to be a market participant’s required yield on HECM loans of similar weighted average lives. The yield spread is applied over an interpolated benchmark curve or as a spread over a collateral forward curve.

Average Draw Rates - The draw curve is estimated based upon the historical experience with the specific product type contemplating the borrower’s age and loan age.

Changes to any of these assumptions could result in significantly different valuation results. The Company classifies reverse mortgage loans held for investment as Level 3 assets within the GAAP hierarchy, as they are dependent on unobservable inputs.

 

25

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

 

 

The following table presents the weighted average significant unobservable inputs used in the fair value measurement of reverse mortgage loans held for investment, subject to HMBS related obligations, for the periods indicated:

 

		September 30, 2021								December 31, 2020
		Successor								Predecessor
Inputs		Range				Weighted Average				Range				Weighted Average
Conditional repayment rate			NM				20.8	%			NM				20.0	%
Loss frequency			NM				4.8	%			NM				4.4	%
Loss severity			4.1% - 11.8%				4.4	%			5.1% - 13.3%				5.4	%
Discount rate			NM				2.2	%			NM				1.6	%
Average draw rate			NM				1.1	%			NM				1.1	%

The Company aggregates loan portfolios based upon the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided above are based upon the range of inputs utilized for each securitization trust.

Mortgage Loans Held for Investment, Subject to Nonrecourse Debt, at Fair Value

Reverse Mortgage Loans

Reverse mortgage loans held for investment, subject to nonrecourse debt, include HECM loans previously purchased out of Ginnie Mae HMBS pools and non FHA-insured jumbo reverse mortgages, which have been subsequently securitized and serve as collateral for the issued debt. These loans are not traded in active and open markets with readily observable market prices. The Company classifies reverse mortgage loans held for investment, subject to nonrecourse debt as Level 3 assets within the GAAP hierarchy.

HECM Buyouts - Securitized (Nonperforming)

The Company values nonperforming securitized HECM buyouts utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using conditional repayment, loss frequency and severity, borrower mortality, and discount rate assumptions management believes a market participant would use in estimating fair value.

The following table presents the weighted average significant unobservable inputs used in the fair value measurement of nonperforming securitized HECM buyouts for the periods indicated:

 

		September 30, 2021								December 31, 2020
		Successor								Predecessor
Inputs		Range				Weighted Average				Range				Weighted Average
Conditional repayment rate			NM				41.2	%			NM				42.9	%
Loss frequency			25.0% - 100.0%				59.9	%			25.0% - 100.0%				54.8	%
Loss severity			4.1% - 11.8%				6.1	%			5.1% - 13.3%				7.5	%
Discount rate			NM				3.6	%			NM				4.1	%

The Company aggregates loan portfolios based upon the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided above are based upon the range of inputs utilized for each securitization trust.

HECM Buyouts - Securitized (Performing)

The Company values performing securitized HECM buyouts utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using conditional repayment, loss frequency and severity, borrower mortality, and discount rate assumptions management believes a market participant would use in estimating fair value.

 

26