Finance of America Companies Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2024

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements comprise the financial statements of FoA and its controlled subsidiaries. The condensed consolidated financial statements have been prepared in accordance with United States (“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 (the “SEC”). The accompanying financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of its financial condition as of September 30, 2024, its results of operations for the three and nine months ended September 30, 2024 and 2023, and its cash flows for the nine months ended September 30, 2024 and 2023. The Condensed Consolidated Statement of Financial Condition at December 31, 2023 was derived from audited financial statements but does not contain all of the footnote disclosures from the annual financial statements. Operating results for the interim periods are not necessarily indicative of the results that may be expected for any future period or for the full year. The condensed consolidated financial statements, including the significant accounting policies, should be read in conjunction with the consolidated financial statements and notes as of and for the year ended December 31, 2023 within the Company’s Annual Report on Form 10-K.

The significant accounting policies, together with the other Notes to Condensed Consolidated Financial Statements, are an integral part of the condensed consolidated financial statements. Where applicable, the significant accounting policies have been updated below for the presentation changes in the Condensed Consolidated Statements of Operations.

On July 25, 2024, the Company completed a 1-for-10 reverse stock split (the “Reverse Stock Split”) of its shares of Class A Common Stock. FoA Equity completed a corresponding 1-for-10 reverse split of its units (“Class A LLC Units”) to maintain the 1-for-1 parity of its Class A LLC Units with the Company’s adjusted number of Class A Common Stock shares. All references in this Quarterly Report on Form 10-Q to numbers of Class A Common Stock shares, weighted average shares outstanding, earnings (loss) per share, FoA Class A Common Stock share price, and number of Class A LLC Units have been adjusted to reflect the Reverse Stock Split on a retroactive basis. As a result of the Reverse Stock Split, an immaterial amount was reclassified from Class A Common Stock to additional paid-in capital in the Condensed Consolidated Statements of Financial Condition.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates regarding loans held for investment, subject to HMBS related obligations, loans held for investment, subject to nonrecourse debt, other loans held for investment, HMBS related obligations, and nonrecourse debt are particularly subject to change. 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.

Change in Condensed Consolidated Statements of Operations Presentation

Beginning with the Company’s second quarter 2024 Form 10-Q, the Condensed Consolidated Statements of Operations presentation was changed to provide additional detail regarding the Company’s activities. The change primarily consists of disaggregating the Company’s previously reported net fair value gains (losses) on loans and related obligations caption into the currently presented captions of interest income, interest expense, net origination gains, gain on securitization of HECM tails, net, fair value changes from model amortization, and fair value changes from market inputs or model assumptions. Additionally, previously reported interest income and interest expense, which primarily represented the Company’s interest income on mortgage loans held for sale and other interest income and the Company’s interest expense associated with the Company’s other financing lines of credit, was combined with the interest income and interest expense that was previously reported within net fair value gains (losses) on loans and related obligations, excluding non-portfolio interest income and the interest expense associated with the Company’s non-funding debt, which is now reported separately as non-funding interest expense, net. As a result of the change, the Company’s previously reported revenues have been recast to reflect the updated presentation as follows:

Reconciliation of the previously reported Condensed Consolidated Statements of Operations captions to the current presentation:


For the three months ended September 30, 2023	Total		Net fair value losses on loans and related obligations		Fee income		Loss on sale and other income from loans held for sale, net		Interest income		Interest expense
Finance of America Companies Inc. as previously reported	$	(70,440)	$	(53,135)	$	13,201	$	(6,984)	$	4,443	$	(27,965)

Reconciliation to current presentation:

PORTFOLIO INTEREST INCOME
Interest income	443,999		439,881		—		—		4,118		—
Interest expense	(372,459)		(352,161)		—		—		—		(20,298)
NET PORTFOLIO INTEREST INCOME	71,540		87,720		—		—		4,118		(20,298)

OTHER INCOME (EXPENSE)
Net origination gains	31,376		31,376		—		—		—		—
Gain on securitization of HECM tails, net	7,100		7,100		—		—		—		—
Fair value changes from model amortization	(56,882)		(56,882)		—		—		—		—
Fair value changes from market inputs or model assumptions	(122,449)		(122,449)		—		—		—		—
Net fair value changes on loans and related obligations	(140,855)		(140,855)		—		—		—		—
Fee income	13,201		—		13,201		—		—		—
Loss on sale and other income from loans held for sale, net	(6,984)		—		—		(6,984)		—		—
Non-funding interest expense, net	(7,342)		—		—		—		325		(7,667)
NET OTHER INCOME (EXPENSE)	(141,980)		(140,855)		13,201		(6,984)		325		(7,667)

TOTALS	$	(70,440)	$	(53,135)	$	13,201	$	(6,984)	$	4,443	$	(27,965)


For the nine months ended September 30, 2023	Total		Net fair value gains on loans and related obligations		Fee income		Loss on sale and other income from loans held for sale, net		Interest income		Interest expense
Finance of America Companies Inc. as previously reported	$	(41,482)	$	30,126	$	33,377	$	(23,464)	$	9,734	$	(91,255)

Reconciliation to current presentation:

PORTFOLIO INTEREST INCOME
Interest income	1,169,624		1,160,836		—		—		8,788		—
Interest expense	(970,428)		(902,028)		—		—		—		(68,400)
NET PORTFOLIO INTEREST INCOME	199,196		258,808		—		—		8,788		(68,400)

OTHER INCOME (EXPENSE)
Net origination gains	88,777		88,777		—		—		—		—
Gain on securitization of HECM tails, net	17,095		17,095		—		—		—		—
Fair value changes from model amortization	(162,386)		(162,386)		—		—		—		—
Fair value changes from market inputs or model assumptions	(172,168)		(172,168)		—		—		—		—
Net fair value changes on loans and related obligations	(228,682)		(228,682)		—		—		—		—
Fee income	33,377		—		33,377		—		—		—
Loss on sale and other income from loans held for sale, net	(23,464)		—		—		(23,464)		—		—
Non-funding interest expense, net	(21,909)		—		—		—		946		(22,855)
NET OTHER INCOME (EXPENSE)	(240,678)		(228,682)		33,377		(23,464)		946		(22,855)

TOTALS	$	(41,482)	$	30,126	$	33,377	$	(23,464)	$	9,734	$	(91,255)

Accounting Policy Updates for Changes in Condensed Consolidated Statements of Operations Presentation

Loans Held for Investment, Subject to HMBS Related Obligations, at Fair Value, Loans Held for Investment, Subject to Nonrecourse Debt, at Fair Value, and Loans Held for Investment, at Fair Value

The yield recognized on loans held for investment, subject to HMBS related obligations, loans held for investment, subject to nonrecourse debt, and other loans held for investment is recorded in interest income in the Condensed Consolidated Statements of Operations and includes the recognition of interest income that is expected to be collected based on the stated interest rates of the loans. The difference between the cost basis of newly originated or acquired loans and their estimated fair value is recognized in the net origination gains component of net fair value changes on loans and related obligations in the Condensed Consolidated Statements of Operations. Certain HECM and non-agency reverse mortgage loans originated or acquired by the Company include broker compensation or correspondent fees. These premiums are remitted to the mortgage broker or correspondent lender who acted as the intermediary for the reverse mortgage. Broker compensation and correspondent fees are recorded on a net basis in net origination gains and therefore are not separately presented in the Condensed Consolidated Statements of Operations. Through the servicing of HECM loans, the Company generates tails. Tails consist of subsequent borrower draws, mortgage insurance premiums, service fees, and other advances, which the Company is able to subsequently pool into a security. The fair value gain recognized on the securitization of tails is recorded in gain on securitization of HECM tails, net, in the Condensed Consolidated Statements of Operations. Changes in estimated fair value are recorded in net fair value changes on loans and related obligations, with changes in fair value due to portfolio runoff and realization of modeled income and expenses being recorded in fair value changes from model amortization in the Condensed Consolidated Statements of Operations, and other fair value changes being recorded in fair value changes from market inputs or model assumptions in the Condensed Consolidated Statements of Operations.

Other Assets, Net

Retained Bonds, at Fair Value

The yield recognized on retained bonds is recorded in interest income in the Condensed Consolidated Statements of Operations and includes the contractual interest income that is expected to be collected based on the stated interest rates of the bonds. The changes in estimated fair value are recorded in net fair value changes on loans and related obligations, with changes in fair value due to portfolio runoff and realization of modeled income and expenses being recorded in fair value changes from model amortization in the Condensed Consolidated Statements of Operations, and other fair value changes being recorded in fair value changes from market inputs or model assumptions in the Condensed Consolidated Statements of Operations.

HMBS Related Obligations, at Fair Value, and Nonrecourse Debt, at Fair Value

The interest on the HMBS related obligations and nonrecourse debt is recorded in interest expense in the Condensed Consolidated Statements of Operations and includes recognition of contractual interest expense based on the stated interest rates of the obligations and amortization of any discount at which the related bonds were issued. The discount is amortized to interest expense in the Condensed Consolidated Statements of Operations over the expected life of the note using the effective interest method. The changes in estimated fair value are recorded in net fair value changes on loans and related obligations, with changes in fair value due to portfolio runoff and realization of modeled income and expenses being recorded in fair value changes from model amortization in the Condensed Consolidated Statements of Operations, and other fair value changes being recorded in fair value changes from market inputs or model assumptions in the Condensed Consolidated Statements of Operations.

Notes Payable, Net

The interest recognized on notes payable is recorded in non-funding interest expense, net, in the Condensed Consolidated Statements of Operations. The interest recognized includes the contractual interest expense based on the stated interest rates of the debt and amortization of any issuance costs, premiums, and discounts which are amortized over the outstanding life of the note using the effective interest method.

Recently Issued Accounting Guidance, Not Yet Adopted as of September 30, 2024

Standard

Description

Date of Planned Adoption

Effect on Consolidated Financial Statements

Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07 which requires disclosures of significant reportable expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss.

This ASU also requires disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources.

The Company will adopt ASU 2023-07 beginning with our annual reporting period ending December 31, 2024 and interim periods beginning in 2025.

This ASU will result in additional disclosures related to each reportable segment, but will not have a material impact on our consolidated financial statements.

We will apply the additional disclosures retrospectively to all prior periods presented.

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09 that enhances income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation, and by requiring disclosure of the amount of income taxes paid disaggregated by federal, state, and foreign taxes, as well as disaggregated by material individual jurisdictions.

We are currently evaluating the impact that this guidance will have on the disclosures within our financial statements, and expect to adopt this ASU for the year ending December 31, 2025.

This ASU will result in additional income tax disclosures, but the Company does not expect it will have a material impact on our consolidated financial statements.

Adoption of this ASU should be applied on a prospective basis, but retrospective application is permitted. Early adoption is permitted.

ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)

In November 2024, the FASB issued ASU 2024-03 which is intended to improve disclosures by providing more detailed information about the types of expenses in commonly presented expense captions in the income statement.

We are currently evaluating the impact that this guidance will have on the disclosures within our financial statements, and expect to adopt this ASU for the year ending December 31, 2027 and interim periods beginning in 2028.

This ASU will result in additional expense disclosures, but the Company does not expect it will have a material impact on our consolidated financial statements.

Adoption of this ASU should be applied on a prospective basis, but retrospective application is permitted. Early adoption is permitted.