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FOA Finance of America Companies

Filed: 16 Aug 21, 4:17pm
0001828937 foa:CommercialLinesOfCreditMember foa:TwoMillionSecuritiesRepoLineMember 2021-01-01 2021-06-30
 
 
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 June 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.)
  
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
(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 every Interactive Data File required to be submitted 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 such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
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 August 16, 2021, 59,881,714 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
 
  
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3
 
  
  
 
3
 
  
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89
 
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 for share data)
 
 
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
(unaudited)
        
ASSETS
            
Cash and cash equivalents
  
$
157,336
     $233,101 
Restricted cash
  
 
354,390
      306,262 
Reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value
  
 
10,316,027
      9,929,163 
Mortgage loans held for investment, subject to nonrecourse debt, at fair value
  
 
5,424,621
      5,396,167 
Mortgage loans held for investment, at fair value
  
 
1,225,090
      730,821 
Mortgage loans held for sale, at fair value
  
 
2,057,542
      2,222,811 
Debt securities
  
 
8,694
      10,773 
Mortgage servicing rights, at fair value, $65,129 and $14,088, subject to nonrecourse MSR financing liability, respectively
  
 
290,938
      180,684 
Derivative assets
  
 
61,811
      92,065 
Fixed assets and leasehold improvements, net
  
 
28,669
      24,512 
Goodwill
  
 
1,298,324
      121,233 
Intangible assets, net
  
 
704,243
      16,931 
Other assets, net
  
 
300,253
      300,632 
   
 
 
     
 
 
 
TOTAL ASSETS
  
$
22,227,938
     $19,565,155 
   
 
 
     
 
 
 
LIABILITIES, CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST (“CRNCI”) AND EQUITY
            
HMBS related obligation, at fair value
  
$
10,168,224
     $9,788,668 
Nonrecourse debt, at fair value
  
 
5,425,732
      5,271,842 
Other financing lines of credit
  
 
3,412,234
      2,973,743 
Payables and other liabilities
  
 
488,735
      400,058 
Notes payable, net
  
 
353,718
      336,573 
   
 
 
     
 
 
 
TOTAL LIABILITIES
  
 
19,848,643
      18,770,884 
   
 
 
     
 
 
 
Commitments and Contingencies (Note 23)
            
CRNCI (Note 25)
  
 
0  
 
     166,231 
EQUITY (Note 35)
            
FoA Equity Capital LLC member’s equity
  
 
0  
 
     628,176 
Class A Common Stock (Successor), $0.0001 par value; 6,000,000,000 shares authorized; 59,881,714 shares issued and outstanding at June 30, 2021
  
 
6
      —   
Class B Common Stock (Successor), $0.0001 par value; 1,000,000 shares authorized, 7 shares issued and outstanding at June 30, 2021
  
 
0  
 
     —   
Additional
paid-in
capital (Successor)
  
 
807,521
      —   
Accumulated deficit (Successor)
  
 
(69,548
     —   
Accumulated other comprehensive (loss) income
  
 
(27
     9 
Noncontrolling interest
  
 
1,641,343
      (145
   
 
 
     
 
 
 
TOTAL EQUITY
  
 
2,379,295
      628,040 
   
 
 
     
 
 
 
TOTAL LIABILITIES, CRNCI AND EQUITY
  
$
22,227,938
     $19,565,155 
   
 
 
     
 
 
 
See accompanying notes to unaudited consolidated financial statements
 
3

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.
 
   
June 30, 2021
       
December 31, 2020
 
   
Successor
       
Predecessor
 
   
(unaudited)
         
ASSETS
               
Restricted cash
  
$
334,984
        $293,580 
Mortgage loans held for investment, subject to nonrecourse debt, at fair value
               
2021 FASST HB1
  
 
506,482
         —   
2020 RTL1 ANTLR
  
 
—  
 
        137,989 
2019 FASST JR2
  
 
437,641
         488,760 
2020 FASST HB2
  
 
397,121
         398,480 
2018 FASST JR1
  
 
395,716
         449,069 
2019 FASST JR3
  
 
370,209
         450,703 
2020 FASST JR3
  
 
341,385
         372,015 
2019 FASST JR4
  
 
331,302
         377,265 
2020 FASST S3
  
 
313,728
         316,774 
2020 FASST JR2
  
 
312,160
         341,439 
2019 FASST JR1
  
 
295,605
         331,244 
2020 FASST S2
  
 
289,129
         311,721 
2021 FASST JR1
  
 
562,333
         —   
2018 FASST JR2
  
 
234,665
         264,622 
2020 FASST JR4
  
 
228,248
         237,100 
2020 FASST S1
  
 
173,955
         189,243 
2020 FASST JR1
  
 
0  
 
        263,266 
2018 RTL1 ANTLR
  
 
0  
 
        82,393 
2019 RTL1 ANTLR
  
 
0  
 
        118,161 
2020 FASST HB1
  
 
0  
 
        265,923 
2021 RTL1 ANTLR
  
 
234,942
         —   
Other assets
  
 
76,056
         79,528 
   
 
 
        
 
 
 
TOTAL ASSETS
  
$
5,835,661
        $5,769,275 
   
 
 
        
 
 
 
LIABILITIES
               
Nonrecourse debt, at fair value
               
2021 FASST HB1
  
$
537,618
        $—   
2021 FASST JR1
  
 
507,721
         —   
2020 FASST HB2
  
 
445,758
         472,074 
2019 FASST JR2
  
 
425,568
         463,568 
2018 FASST JR1
  
 
405,161
         450,268 
2019 FASST JR3
  
 
374,391
         423,406 
2020 FASST JR3
  
 
316,738
         337,024 
2019 FASST JR4
  
 
316,203
         350,514 
2019 FASST JR1
  
 
301,889
         326,367 
2020 FASST S2
  
 
287,139
         298,435 
2020 FASST S3
  
 
286,549
         294,226 
2020 FASST JR2
  
 
280,978
         297,046 
2021 RTL1 ANTLR
  
 
266,461
         —   
2018 FASST JR2
  
 
240,078
         265,695 
2020 FASST JR4
  
 
198,582
         217,362 
2020 FASST S1
  
 
169,769
         181,630 
2020 FASST JR1
  
 
0  
 
        238,438 
2020 RTL1 ANTLR
  
 
0  
 
        140,441 
2018 RTL1 ANTLR
  
 
0  
 
        80,767 
2019 RTL1 ANTLR
  
 
0  
 
        121,580 
2020 FASST HB1
  
 
0  
 
        298,913 
Payables and other liabilities
  
 
117
         291 
   
 
 
        
 
 
 
TOTAL LIABILITIES
  
$
5,360,720
        $5,258,045 
   
 
 
        
 
 
 
Net fair value of assets subject to nonrecourse debt
  
$
474,941
        $511,230 
   
 
 
        
 
 
 
See accompanying notes to unaudited consolidated financial statements
 
4

Finance of America Companies Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share data)
(Unaudited)
 
 
 
   
April 1, 2021

to

June 30, 2021
      
January 1, 2021
to

March 31, 2021
  
For the three
months ended
June 30, 2020
  
For the six
months ended
June 30, 2020
 
   
Successor
      
Predecessor
 
REVENUES
                      
Gain on sale and other income from mortgage loans held for sale, net
  
$
187,577
       $291,334  $298,291  $428,975 
Net fair value gains on mortgage loans and related obligations
  
 
131,151
        76,663   112,303   125,683 
Fee income
  
 
90,864
        161,371   76,656   146,627 
Net interest expense:
                      
Interest income
  
 
13,151
        12,661   11,507   19,678 
Interest expense
  
 
(33,626
       (34,366  (33,298  (67,230
   
 
 
       
 
 
  
 
 
  
 
 
 
Net interest expense
  
 
(20,475
       (21,705  (21,791  (47,552
   
 
 
       
 
 
  
 
 
  
 
 
 
TOTAL REVENUES
  
 
389,117
        507,663   465,459   653,733 
   
 
 
       
 
 
  
 
 
  
 
 
 
EXPENSES
                      
Salaries, benefits and related expenses
  
 
274,731
        238,530   230,275   374,653 
Occupancy, equipment rentals and other office related expenses
  
 
6,720
        7,597   7,208   14,611 
General and administrative expenses
  
 
119,301
        127,217   81,214   159,780 
   
 
 
       
 
 
  
 
 
  
 
 
 
TOTAL EXPENSES
  
 
400,752
        373,344   318,697   549,044 
OTHER, NET
  
 
(2,103
       (8,862  (28  (44
   
 
 
       
 
 
  
 
 
  
 
 
 
NET (LOSS) INCOME BEFORE INCOME TAXES
  
 
(13,738
       125,457   146,734   104,645 
Provision for income taxes
  
 
1,086
        1,137   448   766 
   
 
 
       
 
 
  
 
 
  
 
 
 
NET (LOSS) INCOME
  
 
(14,824
       124,320   146,286   103,879 
CRNCI
  
 
0  
 
       4,260   (2,620  (18,006
Noncontrolling interest
  
 
(17,089
       201   571   800 
   
 
 
       
 
 
  
 
 
  
 
 
 
NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
  
$
2,265
       $119,859  $148,335  $121,085 
   
 
 
       
 
 
  
 
 
  
 
 
 
EARNINGS PER SHARE (Note 33)
                      
Basic weighted average shares outstanding
  
 
59,881,714
                  
Basic net income per share
  
$
0.04
                  
Diluted weighted average shares outstanding
  
 
191,200,000
                  
Diluted net loss per share
  
$
(0.05
                 
See accompanying notes to unaudited consolidated financial statements
 
5

Finance of America Companies Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
(Unaudited)
 
 
 
   
April 1, 2021
to

June 30, 2021
      
January 1, 2021
to

March 31, 2021
  
For the three
months ended
June 30, 2020
  
For the six
months ended
June 30, 2020
 
   
Successor
      
Predecessor
 
NET (LOSS) INCOME
  
$
(14,824
      $124,320  $146,286  $103,879 
COMPREHENSIVE LOSS ITEM:
                      
Impact of foreign currency translation adjustment
  
 
(27
       (11  18   11 
   
 
 
       
 
 
  
 
 
  
 
 
 
TOTAL COMPREHENSIVE LOSS
  
 
(14,851
       124,309   146,304   103,890 
Less: Comprehensive loss attributable to the noncontrolling interest and CRNCI
  
 
(17,108
       4,461   (2,049  (17,206
   
 
 
       
 
 
  
 
 
  
 
 
 
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
  
$
2,257
       $119,848  $148,353  $121,096 
   
 
 
       
 
 
  
 
 
  
 
 
 
See accompanying notes to unaudited consolidated financial statements
 
6

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 
   
 
 
  
 
 
  
 
 
  
 
 
 
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
 
7

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
  
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
Vesting of restricted stock
units
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
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
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to unaudited consolidated financial statements
 
8

Finance of America Companies Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
 
 
   
April 1, 2021

to

June 30, 2021
      
January 1, 2021
to

March 31, 2021
  
For the six
months ended
June 30, 2020
 
   
Successor
      
Predecessor
 
Operating Activities
                  
Net (loss) income
  
$
(14,824
      $124,320  $103,879 
Adjustments to reconcile net (loss) income to net cash
(used in)
provided by operating activities:
  
 
5,172
        (6,277  (221,079
   
 
 
       
 
 
  
 
 
 
Net cash
 (used in)
provided by operating activities
  
 
(9,652
       118,043   (117,200
   
 
 
       
 
 
  
 
 
 
Investing Activities
                  
Purchases and originations of mortgage loans held for investment
  
 
(1,241,085
       (1,151,925  (2,056,834
Proceeds/payments received on mortgage loans held for investment
  
 
689,215
        677,777   681,376 
Purchases and origination of mortgage loans held for investment, subject to nonrecourse debt
  
 
(12,319
       (12,247  (20,429
Proceeds/payments on mortgage loans held for investment, subject to nonrecourse debt
  
 
251,152
        217,452   511,615 
Purchases of debt securities
  
 
(1,449
       (557  (9,044
Proceeds/payments on debt securities
  
 
1,888
        2,096   26,673 
Purchases of mortgage servicing rights
  
 
(61
       (9,014  —   
Proceeds on sale of mortgage servicing rights
  
 
—  
 
       7,765   —   
Acquisition of subsidiaries, net of cash acquired
  
 
(20,000
       (749  364 
Purchase of investments
  
 
—  
 
       —     (2,250
Acquisition of fixed assets
  
 
(4,915
       (4,178  (4,129
Acquisition of deferred purchase price liability
  
 
—  
 
       —     —   
Payments on deferred purchase price liability
  
 
(311
       (657  (949
Issuance of convertible notes receivable
  
 
—  
 
       (2,550  —   
DIP Financing
  
 
—  
 
       (35,260  —   
   
 
 
       
 
 
  
 
 
 
Net cash used in investing activities
  
 
(337,885
       (312,047  (873,607
   
 
 
       
 
 
  
 
 
 
Financing Activities
                  
Proceeds from securitizations of reverse mortgage loans, subject to HMBS related obligations
  
 
795,334
        602,172   898,118 
Payments of HMBS related obligations
  
 
(597,892
       (506,142  (1,002,412
Proceeds from issuance of nonrecourse debt, net
  
 
600,595
        579,518   1,645,039 
Payments on nonrecourse debt
  
 
(498,966
       (658,300  (512,689
Proceeds from other financing lines of credit
  
 
8,758,149
        10,027,696   15,347,541 
Payments on other financing lines of credit
  
 
(8,620,873
       (9,660,588  (15,354,635
Debt issuance costs
  
 
(580
       (2,467  (2,828
Payments on notes payable
  
 
—  
 
       —     (10,000
Principal payments under capital lease obligation
  
 
—  
 
       —     (415
Member contributions
  
 
—  
 
       1,426   502 
Member distributions
  
 
—  
 
       (75,000  —   
Settlement of CRNCI
  
 
(203,216
       —     —   
Noncontrolling interest contributions
  
 
023
        —     16 
Noncontrolling interest distributions
  
 
(137
       (620  (310
   
 
 
       
 
 
  
 
 
 
Net cash provided by financing activities
  
 
232,437
        307,695   1,007,927 
   
 
 
       
 
 
  
 
 
 
Foreign currency translation adjustment
  
 
(1
       (7  5 
   
 
 
       
 
 
  
 
 
 
Net (decrease) increase in cash and restricted cash
  
 
(115,101
       113,684   17,125 
 
9

Finance of America Companies Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
 
   
April 1, 2021

to

June 30, 2021
       
January 1, 2021
to

March 31, 2021
   
For the six
months ended
June 30, 2020
 
   
Successor
       
Predecessor
 
Cash and restricted cash, beginning of period
  
 
626,827
         539,363    382,664 
   
 
 
        
 
 
   
 
 
 
Cash and restricted cash, end of period
  
$
511,726
        $653,047   $399,789 
   
 
 
        
 
 
   
 
 
 
Supplementary Cash Flows Information
                    
Cash paid for interest
  
$
68,186
        $50,071   $206,536 
Cash paid for taxes, net
  
 
1,521
         63    276 
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    238,811 
Loans transferred to mortgage loans held for sale, at fair value, from mortgage loans held for investment, at fair value
  
 
03,084
         —      777,256 
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
  
 
79
         71    72,469 
Loans transferred to mortgage loans held for investment, subject to nonrecourse debt, at fair value, from mortgage loans held for investment, at fair value
  
 
505,378
         272,098    1,885,291 
Loans transferred to mortgage loans held for investment, subject to HMBS, at fair value, from mortgage loans held for investment, at fair value
  
 
701,375
         42,909    —   
See accompanying notes to unaudited consolidated financial statements
 
10

Finance of America Companies Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
 
 
   
April 1, 2021
to

June 30, 2021
       
January 1, 2021
to

March 31, 2021
   
For the six
months ended
June 30, 2020
 
   
Successor
       
Predecessor
 
Consideration Transferred
         
Total cash consideration
  
$
342,270
        
Blocker rollover equity
   
221,811
        
Seller earnout contingent consideration
   
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
        
Acquisition Related Activity
         
Assets Acquired
         
Cash and cash equivalents
  
$
336,075
        
Restricted cash
   
305,292
        
Non-cash assets acquired:
         
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
   
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
        
  
 
 
        
Tangible net assets acquired
   
1,143,524
        
  
 
 
        
Goodwill
  
$
1,271,324
        
  
 
 
        
See accompanying notes to unaudited consolidated financial statements
 
11

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 Veteran 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 its other holding company subsidiary, 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 management is actively monitoring the global situation 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 June 30, 2021 (Successor), 551 clients, or 0.57% of the total serviced portfolio, have entered into a forbearance plan 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 period from April 1, 2021 to June 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 ended and six months ended June 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 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).
 
12

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
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 the Company as a publicly traded company on the New York Stock Exchange (“NYSE”), and the Company 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 the Company 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, which were wholly owned subsidiaries of FOAF, as well as 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 and 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. See Note 25—Changes in CRNCI for further discussion of the CRNCI and additions to or deductions from the CRNCI balance.
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.
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 will record 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 certain events occur, which indicate goodwill might be impaired between annual tests, goodwill must be tested when such events occur. In making this assessment, the Company considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, etc. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment. Changes
 
1
3

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
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, customer lists, and broker relationships acquired through various acquisitions. 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 as liabilities 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.
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 the 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.
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 federal and state tax rates at the date of the exchange;
 
14

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
  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 future exchanges 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 June 30, 2021 (Successor), the Company had a liability of $32.8 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 the Company’s earnings were subject to certain U.S. Federal and foreign taxes. Subsequent to the Transaction, the portion of earnings allocable to the Registrant 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 in the future.
The computation of the effective tax rate and provision at each interim period requires the use of certain estimates and significant judgment 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 balance sheet date. The 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.
 
15

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
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, 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.
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 Achievement Date occurs.
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 Earnout Achievement Date occurs. See Note 34—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 (loss) income is reduced by the portion of net (loss) income 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.
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 period. 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 period.
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.
Reclassifications
Certain amounts from the prior period consolidated financial statements have been reclassified to conform to the current period financial presentation.
 
1
6

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.
 
17

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 a requirement to 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.
 
18

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
Recently Issued Accounting Guidance, Not Yet Adopted as of June 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.
 
19

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
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.
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
non-performing
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 0 charge-offs associated with these transferred mortgage loans related to the standard securitization representations and warranties obligations for the Successor period from April 1, 2021 to June 30, 2021 or the Predecessor period from January 1, 2021 to March 31, 2021. There were also 0 charge-offs associated with these transferred mortgage loans for the Predecessor periods for the three months ended June 30, 2020 or for the six months ended June 30, 2020.
 
20

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):
 
   
June 30,
2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
ASSETS
  ��         
Restricted cash
  
$
334,984
     $293,580 
Mortgage loans held for investment, subject to nonrecourse debt, at fair value
            
2021 FASST JR1
  
 
562,333
      —   
2021 FASST HB1
  
 
506,482
      —   
2019 FASST JR2
  
 
437,641
      488,760 
2020 FASST HB2
  
 
397,121
      398,480 
2018 FASST JR1
  
 
395,716
      449,069 
2019 FASST JR3
  
 
370,209
      450,703 
2020 FASST JR3
  
 
341,385
      372,015 
2019 FASST JR4
  
 
331,302
      377,265 
2020 FASST S3
  
 
313,728
      316,774 
2020 FASST JR2
  
 
312,160
      341,439 
2019 FASST JR1
  
 
295,605
      331,244 
2020 FASST S2
  
 
289,129
      311,721 
2021 RTL1 ANTLR
  
 
234,942
      —   
2018 FASST JR2
  
 
234,665
      264,622 
2020 FASST JR4
  
 
228,248
      237,100 
2020 FASST S1
  
 
173,955
      189,243 
2020 FASST JR1
  
 
—  
 
     263,266 
2020 RTL1 ANTLR
  
 
—  
 
     137,989 
2018 RTL1 ANTLR
  
 
—  
 
     82,393 
2019 RTL1 ANTLR
  
 
—  
 
     118,161 
2020 FASST HB1
  
 
—  
 
     265,923 
Other assets
  
 
76,056
      79,528 
   
 
 
     
 
 
 
TOTAL ASSETS
  
$
5,835,661
     $5,769,275 
   
 
 
     
 
 
 
LIABILITIES
            
Nonrecourse debt, at fair value
            
2021 FASST HB1
  
$
537,618
     $—   
2021 FASST JR1
  
 
534,444
      —   
2020 FASST HB2
  
 
448,333
      474,599 
2019 FASST JR2
  
 
447,966
      487,966 
2018 FASST JR1
  
 
412,370
      458,279 
2019 FASST JR3
  
 
394,096
      445,691 
2020 FASST JR3
  
 
333,373
      354,762 
2019 FASST JR4
  
 
332,846
      368,963 
2019 FASST JR1
  
 
317,778
      343,544 
2020 FASST S2
  
 
302,253
      314,144 
2020 FASST S3
  
 
301,631
      309,713 
2020 FASST JR2
  
 
296,093
      313,057 
2021 RTL1 ANTLR
  
 
268,428
      —   
2018 FASST JR2
  
 
243,734
      269,741 
2020 FASST JR4
  
 
209,035
      228,804 
2020 FASST S1
  
 
178,704
      191,189 
2020 FASST JR1
  
 
—  
 
     250,988 
2020 RTL1 ANTLR
  
 
—  
 
     140,839 
2018 RTL1 ANTLR
  
 
—  
 
     80,767 
2019 RTL1 ANTLR
  
 
—  
 
     127,981 
2020 FASST HB1
  
 
—  
 
     298,914 
Payables and other liabilities
  
 
117
      291 
   
 
 
     
 
 
 
TOTAL VIE LIABILITIES
  
 
5,558,819
      5,460,232 
   
 
 
     
 
 
 
Retained bonds and beneficial interests eliminated in consolidation
  
 
(198,099
     (202,187
   
 
 
     
 
 
 
TOTAL CONSOLIDATED LIABILITIES
  
$
5,360,720
     $5,258,045 
   
 
 
     
 
 
 
 
21

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 Trust 2021-INV1 (“HAWT 2021-INV1”) trust for the sole purpose of acquiring mortgage loans for securitization. In June 2021, FAM executed the HAWT 2021-INV1 securitization, 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 structure meets the definition of a VIE and concluded that the Company does not hold a significant variable interest in the securitization 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 VIE. The transfer of the loans to the VIE was determined to be a sale. The Company derecognized the mortgage loans and did not consolidate the trust.
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 June 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 $15.7 million. The servicing asset recognized upon sale of the mortgage loans to the VIE had an initial fair value of $1.1 million. Cash proceeds from the securitization were $299.0 million. The Company recorded a gain on sale on the securitization of $12.5 million.
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:
 
   
June 30, 2021
       
December 31, 2020
 
   
Successor
       
Predecessor
 
Unconsolidated Securitization Trusts:
             
Total collateral balances – UPB
  $300,318       $0   
   
 
 
      
 
 
 
Total certificate balances
  $300,047       $0   
   
 
 
      
 
 
 
As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), there were $0.1 million of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 60 days or less past due.
 
22

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
4.
Acquisitions
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 hold 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”) retain 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.
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):
 
23

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
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.
 
(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.
 
2
4

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
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      
   
 
 
      
 
(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.
 
(in thousands)
  
For the three months ended

June 30,
   
For the six months ended

June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Pro forma revenues
  $387,014   $454,249   $895,203   $639,377 
Pro forma net income
   19,672    100,413    111,055    7,121 
Pro forma net income attributable to controlling interest
   6,748    27,492    37,734    12,985 
Pro forma net income (loss) attributable to noncontrolling interest
   12,924    72,921    73,321    (5,864
Renovate America Inc.
On March 26, 2021, in order to expand it’s product base to home improvement loans, the Company acquired certain assets and operations of Renovate America Inc. (“RAI”), that constitute a business for purposes of ASC 805, in a business combination for
 $
43.5
 
million predominantly paid in cash at closing. A fair value estimate of
 
$
36.0
 
million in net assets were acquired with the purchase, consisting primarily of purchased loans, with the remaining
$
7.5
 
million of the purchase price being allocated to goodwill.
Parkside
On May 14, 2021, in order to further strengthen its position in the wholesale mortgage originations, the Company acquired certain assets and operations of Parkside Lending, LLC (“Parkside”), that constitute a business for purposes of ASC 805, in a business combination for
 
$
20.0
 
million cash paid at closing. The Company acquired certain key contracts and real property leases, as well as proprietary materials, intellectual property, and workforce. In addition to the initial cash purchase price, an earnout liability of $7.0 million was recorded for future contingent consideration payments that are tied to Parkside achieving certain specified profitability metrics, with the offset allocated to goodwill. The total amount of cash consideration and earnout liability of $27.0 million have been allocated to goodwill.
The RAI and Parkside transactions will be accounted for using the acquisition method. Under the acquisition method of accounting, RAI and Parkside’s assets and liabilities will be recorded at estimated fair value as of the acquisition dates with the excess of the purchase prices over the estimated fair values of the net assets acquired, if applicable, recognized as goodwill. Additional disclosures required by ASC 805 with respect to the RAI and Parkside acquisitions have been omitted because the information is immaterial to the financial statements.
 
2
5

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
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 period from April 1, 2021 to June 30, 2021 or for the Predecessor period from January 1, 2021 to March 31, 2021. There were no transfers for the Predecessor for the three months ended and six months ended June 30, 2020.
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 (“GNMA”) HMBS are not actively traded in open markets with readily observable market prices.
The Company values HECM loans securitized into GNMA 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.
 
2
6

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
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.
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:
 
   
June 30, 2021
      
December 31, 2020
 
   
Predecessor
      
Successor
 
   
Range of Input
  
Weighted Average of
Input
      
Range of Input
  
Weighted Average of
Input
 
Conditional repayment rate
  
 
NM
 
 
 
20.3
     NM   20.0
Loss frequency
  
 
NM
 
 
 
4.3
     NM   4.4
Loss severity
  
 
4.9% - 11.7%
 
 
 
5.2
     5.1% - 13.3%   5.4
Discount rate
  
 
NM
 
 
 
1.9
     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 GNMA 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.
 
27

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 nonperforming securitized HECM buyouts for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
  
Weighted Average of
Input
      
Range of Input
  
Weighted Average of
Input
 
Conditional repayment rate
  
 
NM
 
 
 
40.6
     NM   42.9
Loss frequency
  
 
25.0% - 100.0%
 
 
 
52.5
     25.0% - 100.0%   54.8
Loss severity
  
 
    4.9% - 11.7%
 
 
 
7.0
         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.
The following table presents the weighted average significant unobservable inputs used in the fair value measurement of performing securitized HECM buyouts for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
  
Weighted Average of
Input
      
Range of Input
  
Weighted Average of
Input
 
Weighted average remaining life in years
  
 
NM
 
 
 
8.7
        NM   8.5 
Conditional repayment rate
  
 
NM
 
 
 
13.7
       NM   14.7
Loss severity
  
 
4.9% - 11.7%
 
 
 
8.6
       5.1% - 13.3%   7.7
Discount rate
  
 
NM
 
 
 
3.4
       NM   3.5
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.
Non-Agency
Reverse Mortgage—Securitized
The Company values securitized
non-agency
reverse mortgage loans utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio using loan to value, repayment, pool-level losses, home price appreciation, and discount rate assumptions. The following table presents the significant unobservable inputs used in the fair value measurements of
non-agency
reverse mortgage loans for the periods indicated:
 
28

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
  
Weighted Average of
Input
      
Range of Input
  
Weighted Average of
Input
 
Weighted-average remaining life in years
  
 
NM
 
 
 
7.1
      NM   6.9 
Loan to value
  
 
0.1% - 75.7%
 
 
 
50.0
 
 
   9.0% - 73.1%   48.2
Conditional repayment rate
  
 
NM
 
 
 
19.2
     NM   18.7
Loss severity
  
 
NM
 
 
 
10.0
     NM   10.0
Home price appreciation
  
 
3.9% - 8.8%
 
 
 
5.9
     1.1% - 8.9%   5.6
Discount rate
  
 
NM
 
 
 
3.7
     NM   3.6
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.
Commercial Mortgage Loans
Fix & Flip—Securitized
The securitized Fix & Flip loans are short-term loans for individual real estate investors, with terms ranging from
9-18
months. This product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following weighted average assumptions in estimating the fair value of securitized Fix & Flip mortgage loans for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
  
Weighted Average of
Input
  
 
  
Range of Input
  
Weighted Average of
Input
 
Prepayment rate (SMM)
  
 
NM
 
 
 
15.3
     NM   17.1
Discount rate
  
 
5.1% - 10.0%
 
 
 
5.1
     6.7% - 10.0%   6.7
Loss frequency
  
 
0.3% - 77.2%
 
 
 
0.7
     0.2% - 44.0%   0.6
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, at Fair Value
Reverse Mortgage Loans
Reverse mortgage loans held for investment, at fair value, consists of originated or purchased HECM and
non-agency
reverse mortgage loans not yet securitized, unsecuritized tails, and certain HECMs purchased out of GNMA HMBS (“Inventory Buyouts”) that the Company intends to securitize for purposes of serving as collateral for future securitization transfers.
Originated or purchased HECM loans held for investment are valued predominantly by utilizing forward HMBS prices for similar pool characteristics and based on observable market data. These amounts are further adjusted to include future cash flows that would be earned for servicing the HECM loan over the life of the asset.
Unsecuritized tails consists of performing and nonperforming repurchased loans. The fair value of performing unsecuritized tails are valued at current pricing levels for similar GNMA HMBS. The fair value of nonperforming unsecuritized tails is based on expected claim proceeds from the Department of Housing and Urban Development (“HUD”) upon assignment of the loans.
 
29

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
The fair value of repurchased loans is based on expected cash proceeds of the liquidation of the underlying properties and expected claim proceeds from HUD. The primary assumptions utilized in valuing nonperforming repurchased loans include loss frequency and loss severity. Termination proceeds are adjusted for expected loss frequencies and severities to arrive at net proceeds that will be provided upon final resolution, including assignments to FHA. 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.
The Company classifies reverse mortgage loans held for investment, at fair value as Level 3 assets within the GAAP hierarchy.
Inventory Buyouts
The fair value of Inventory Buyouts is based on the expected cash proceeds of the liquidation of the underlying properties and expected claim proceeds from HUD. The primary assumptions utilized in valuing Inventory Buyouts include loss frequency and loss severity. Termination proceeds are adjusted for expected loss frequencies and severities to arrive at net proceeds that will be provided upon final resolution, including assignments to FHA. 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.
The Company values Inventory 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 Inventory Buyouts classified as reverse mortgage loans held for investment for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
   
Weighted Average of
Input
      
Range of Input
   
Weighted Average of
Input
 
Conditional repayment rate
  
 
NM
 
  
 
45.8
     NM    44.0
Loss frequency
  
 
NM
 
  
 
53.6
     NM    46.9
Loss severity
  
 
NM
 
  
 
9.4
     NM    10.5
Discount rate
  
 
NM
 
  
 
3.6
     NM    4.1
Non-Agency
Reverse Mortgage Loans
The fair value of
non-agency
reverse mortgage loans is based on values for investments with similar investment grade ratings and the value the Company would expect to receive if the whole loans were sold to an investor.
The Company values
non-agency
reverse mortgage loans utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio using prepayment, home price appreciation, pool-level losses, cost to service, and discount rates.
 
30

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
non-agency
reverse mortgage loans classified as reverse mortgage loans held for investment for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
  
Weighted Average of
Input
      
Range of Input
  
Weighted Average of
Input
 
Weighted-average remaining life in years
  
 
NM
 
 
 
8.0
      NM   8.0 
Loan to value
  
 
0.4% - 62.8%
 
 
 
44.6
     0.1% - 62.1%   44.0
Conditional repayment rate
  
 
NM
 
 
 
16.9
 
 
   NM   16.8
Loss severity
  
 
NM
 
 
 
10.0
     NM   10.0
Home price appreciation
  
 
3.9% - 8.8%
 
 
 
5.9
     1.1% - 8.9%   5.5
Discount rate
  
 
NM
 
 
 
3.7
     NM   3.6
Commercial Mortgage Loans
Fix & Flip
The Fix & Flip loans are short-term loans for individual real estate investors, with terms ranging from 9—18 months. This product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following weighted average assumptions in estimating the fair value of Fix & Flip mortgage loans for the periods indicated:
 
   
June 30, 2021
 
   
Successor
 
   
Range of Input
   
Weighted Average of
Input
 
Prepayment rate (SMM)
  
 
NM
 
  
 
12.5
Discount rate
  
 
NM
 
  
 
5.4
Loss frequency
  
 
NM
 
  
 
0.4
As of March 2021, management made the decision to change the classification of fix & flip loans from mortgage loans held for sale, at fair value, to mortgage loans held for investment, at fair value.
Agricultural Loans
The agricultural loans are government-insured loans made to farmers to fund their inputs and operating expenses for the upcoming growing season with terms ranging from 7—17 months. The product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following assumptions in estimating the fair value of agricultural loans for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
  
Weighted Average of
Input
  
 
  
Range of Input
  
Weighted Average of
Input
 
Discount rate
  
 
NM
 
 
 
4.7
     NM   6.4
Prepayment rate (SMM)
  
 
10.0% - 100.0%
 
 
 
28.3
     0% - 1.0%   0.7
Default rate (CDR)
  
 
NM
 
 
 
1.0
     0% - 2.0%   0.4
 
31

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
Mortgage Loans Held for Sale, at Fair Value
Reverse Mortgage Loans
Reverse mortgage loans held for sale, at fair value, consists of unpoolable loans that the Company intends to sell to third party investors. Reverse mortgage loans held for sale consists primarily of performing repurchased loans. The fair value of performing unpoolable loans is based on expected claim proceeds from HUD upon assignment of the loans. In certain instances the loan balance may exceed the maximum claim amount (“MCA”). In these instances, the fair value is based on expected proceeds from sale of the underlying property and any additional HUD claim proceeds. The Company classifies reverse mortgage loans held for sale as Level 3 assets within the GAAP hierarchy.
Residential and Commercial Mortgage Loans
Mortgage loans held for sale include residential and commercial mortgage loans originated by the Company and held until sold to secondary market investors. The Company primarily originates conventional GSEs and government (FHA and Department of Veterans Affairs) residential mortgage loans (collectively “residential mortgage loans held for sale”) and recourse and nonrecourse commercial mortgage loans to owners and investors of single and multi-family residential rental properties (“commercial loans held for sale”).
Residential Mortgage Loans
The Company originates or purchases mortgage loans in the U.S. that it intends to sell to FNMA, FHLMC, and GNMA (collectively “the Agencies”). Additionally, the Company originates or purchases mortgage loans in the U.S. that it intends to sell into the secondary markets via whole loan sales. Mortgage loans held for sale are typically pooled and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality. In addition, the Company may originate loans that do not meet specific underwriting criteria and are not eligible to be sold to the Agencies. Two valuation methodologies are used to determine the fair value of mortgage loans held for sale. The methodology used depends on the exit market as described below:
Loans valued using observable market prices for identical or similar assets
—This includes all mortgage loans that can be sold to the Agencies, which are valued predominantly by published forward agency prices. This will also include all
non-agency
loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair value), or quoted market prices for similar loans are available. As these valuations are derived from quoted market prices, the Company classified these valuations as Level 2 in the fair value disclosures. During periods of illiquidity of the mortgage marketplace, it may be necessary to look for alternative sources of value, including the whole loan purchase market for similar loans, and place more reliance on the valuations using internal models. Due to limited sales activity and periodically unobservable prices in certain of the Company’s markets, certain mortgage loans held for sale portfolios may transfer from Level 2 to Level 3 in future periods.
Loans valued using internal models
– To the extent observable market prices are not available, the Company will determine the fair value of mortgage loans held for sale using a collateral based valuation model, which approximates expected cash proceeds on liquidation. For loans where bid prices or commitment prices are unavailable, these valuation models estimate the exit price the Company expects to receive in the loan’s principal market and are based on a combination of recent appraisal values, adjusted for certain loss factors. The Company classifies these valuations as Level 3 in the fair value disclosures.
Commercial Mortgage Loans
The Company primarily originates two separate commercial loan products that it classifies as held for sale: Single Rental Loan (“SRL”) and Portfolio Lending.
 
32

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
SRL
The SRL product is designed for small/individual real estate investors looking to purchase and then
rent-out
a single property. These are
30-year
loans with fixed interest rates typically between 5.0%—8.0%. This product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following weighted average assumptions in estimating the fair value of SRL mortgage loans held for sale for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
  
Weighted Average of
Input
  
 
  
Range of Input
  
Weighted Average of
Input
 
Prepayment rate (CPR)
  
 
1.0% - 17.0%
 
 
 
14.0
     1.0% - 17.1%   15.4
Discount rate
  
 
NM
 
 
 
3.3
     NM   5.0
Default rate (CDR)
  
 
1.0% - 54.0%
 
 
 
2.4
     1.0% - 64.9%   3.6
Portfolio Lending
The Portfolio product is designed for larger investors with multiple properties. Specifically, these loans are useful for consolidating multiple rental property mortgages into a single loan. These loans have fixed coupons that typically range from 5.0%—6.2%, with 5 and
10-year
balloon structures, as well as a 30 year structure. This product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following weighted average assumptions in estimating the fair value of Portfolio mortgage loans held for sale for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
  
Weighted Average of
Input
  
 
  
Range of Input
  
Weighted Average of
Input
 
Prepayment rate (CPR)
  
 
0.0% - 14.8%
 
 
 
8.1
     0% - 15.0%   9.3
Discount rate
  
 
NM
 
 
 
3.8
     NM   4.9
Default rate (CDR)
  
 
1.0% - 27.1%
 
 
 
1.7
     1.0% - 42.7%   2.0
Fix & Flip
The Fix & Flip loans are short-term loans for individual real estate investors, with terms ranging from
9-18
months. This product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following weighted average assumptions in estimating the fair value of fix & flip mortgage loans for the periods indicated:
 
   
December 31, 2020
 
   
Predecessor
 
   
Range of Input
  
Weighted Average
of Input
 
Prepayment rate (SMM)
   NM   12.4
Discount rate
   6.7% - 10.0%   7.2
Loss frequency
   NM   0.8
 
33

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
As of March 2021, management made the decision to change the classification of fix & flip loans from mortgage loans held for sale, at fair value, to mortgage loans held for investment, at fair value.
Mortgage Servicing Rights (FAM)
As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), the Company valued mortgage servicing rights internally. The significant assumptions utilized to determine fair value are projected prepayments using the Public Securities Association Standard Prepayment Model, discount rates, and projected servicing costs that vary based on the loan type and delinquency. The Company classifies these valuations as Level 3 since they are dependent on unobservable inputs.
Fair value is derived through a discounted cash flow analysis and calculated using a computer pricing model. This computer valuation is based on the objective characteristics of the portfolio (loan amount, note rate, etc.) and commonly used industry assumptions (PSAs, etc.). The assumptions taken into account by the pricing model are those which many active purchasers of servicing employ in their evaluations of portfolios for sale in the secondary market. The unique characteristics of the secondary servicing market often dictate adjustments to parameters over short periods of time.
Subjective factors are also considered in the derivation of fair values, including levels of supply and demand for servicing, interest rate trends, and perception of risk not incorporated into prepayment assumptions.
Fair value is defined as the estimated price at which the servicing rights would change hands in the marketplace between a willing buyer and seller. The valuation assumes that neither party would be under any compulsion to buy or sell and that each has reasonably complete and accurate knowledge of all relevant aspects of the offered servicing. The fair values represented in this analysis have been derived under the assumptions that sufficient time would be available to market the portfolio.
The following tables summarize certain information regarding the servicing portfolio of retained MSRs for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Capitalization servicing rate
  
 
1.0
 
 
 
 
   0.8
Capitalization servicing multiple
  
 
3.8
 
       3.2 
Weighted-average servicing fee (in basis points)
  
 
25
 
       25 
The significant assumptions used in estimating the fair value of MSRs were as follows (in annual rates):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
  
Weighted Average
of Input
  
 
  
Range of Input
  
Weighted Average
of Input
 
Weighted average prepayment speed (CPR)
  
 
5.7% - 19.9%
 
 
 
10.1
     6.6% - 24.9%   12.1
Discount rate
  
 
NM
 
 
 
10.4
     NM   12.1
Weighted average delinquency rate
  
 
1.2% - 9.1%
 
 
 
1.3
     1.2% - 9.2%   1.3
The following table summarizes the estimated change in the fair value of MSRs from adverse changes in the significant assumptions (in thousands):
 
34

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
   
June 30, 2021
 
   
Successor
 
   
Weighted Average
Prepayment Speed
   
Discount
Rate
   
Weighted Average
Delinquency Rate
 
Impact on fair value of 10% adverse change
  
$
(10,734
  
$
(10,921
  
$
(138
Impact on fair value of 20% adverse change
  
 
(20,763
  
 
(21,093
  
 
(348
These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
Investments, at Fair Value
The Company invests in the equity of other companies in the form of common stock, preferred stock, or other
in-substance
equity interests. To the extent market prices are not observable, the Company engages third-party valuation experts to assist in determining the fair value of these investments. The values are determined utilizing a market approach which estimates fair value based on what other participants in the market have paid for reasonably similar assets that have been sold within a reasonable period from the valuation date. The Company classifies these valuations as Level 3 in the fair value disclosures.
Derivative Assets and Liabilities
Some of the derivatives held by the Company are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 1. In addition, the Company enters into IRLCs with prospective borrowers. Commitments to fund residential mortgage loans with potential borrowers are a binding agreement to lend funds to these potential borrowers at a specified interest rate within a specified period of time. The fair value of IRLCs is derived from the fair value of similar mortgage loans or bonds, which is based on observable market data. Changes to the fair value of IRLCs are recognized based on changes in interest rates, changes in the probability that the commitment will be exercised (pull through factor), and the passage of time. The expected net future cash flows related to the associated servicing of the loan are included in the fair value measurement of IRLCs. The Company adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. Given the unobservable nature of the pull through factor, IRLCs are classified as Level 3.
In addition, the Company executes derivative contracts, including forward commitments, TBAs, interest rate swaps, and interest rate swap futures, as part of its overall risk management strategy related to its reverse mortgage and commercial loan portfolios. The value of the forward commitments is estimated using current market prices for HMBS and are considered Level 3 in the fair value hierarchy. TBAs are valued based on forward dealer marks from the Company’s approved counterparties and are considered Level 2 in the fair value hierarchy. The value of interest rate swaps and interest rate swap futures is based on the exchange price or dealer market prices. The Company classifies interest rate swaps as Level 2 in the fair value hierarchy. The Company classifies interest rate swap futures as Level 1 in the fair value hierarchy. The value of the forward MBS is based on forward prices with dealers in such securities or internally-developed third party models utilizing observable market inputs. The Company classifies forward MBS as Level 2 in the fair value hierarchy.
HMBS Related Obligations, at Fair Value
The HMBS related obligation valuation considers the obligation to pass FHA insured cash flows through to the beneficial interest holders (repayment of secured borrowing) of the HMBS securities and the servicer and issuer obligations of the Company.
 
35

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
The valuation of the obligation to repay the secured borrowing is estimated using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The estimated fair value of the HMBS related obligations also includes the consideration required by a market participant to transfer the HECM and HMBS servicing obligations including exposure resulting from shortfalls in FHA insurance proceeds.
The Company’s valuation considers assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for repayment, costs to transfer servicing obligations, shortfalls in FHA insurance proceeds, and discount rates. The significant unobservable inputs used in the measurement include:
Borrower Repayment Rates—the conditional repayment rate curve considers borrower age and gender is based on historical termination rates.
Discount Rate—derived based on an assessment of current market yields and spreads that a market participant would consider for entering into an obligation to pass FHA insured cash flows through to holders of the HMBS beneficial interests. Yield spread applied over interpolated benchmark curve or as a spread over collateral forward curve.
The following table presents the weighted average significant unobservable inputs used in the fair value measurement of HMBS related obligations for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
   
Weighted Average
of Input
      
Range of Input
   
Weighted Average
of Input
 
Conditional repayment rate
  
 
NM
 
  
 
20.2
     NM    19.9
Discount rate
  
 
NM
 
  
 
1.7
     NM    1.4
Nonrecourse Debt
Reverse Mortgage Loans
Outstanding notes issued that are securitized by nonrecourse debt are paid using the cash flows from the underlying reverse mortgage loans, which serve as collateral for the debt. Nonrecourse debt is estimated using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The significant unobservable inputs used in the measurement include:
Weighted Average Remaining Life—The projected remaining life is based on the expected conditional prepayment rate, which is utilized to determine future terminations.
Borrower Repayment Rates—The conditional repayment rate curve considers borrower age and gender is based on historical termination rates.
Discount Rate—derived based on an assessment of current market yields and spreads that a market participant would consider for entering into an obligation to pass FHA insured cash flows through to holders of the HMBS beneficial interests. Yield spread applied over interpolated benchmark curve or as a spread over collateral forward curve.
The Company’s valuation considers assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for prepayment and discount rates. The following table presents the weighted average significant unobservable inputs used in the fair value measurements of nonrecourse debt for the periods indicated:
 
36

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
   
Weighted
Average of
Input
      
Range of Input
   
Weighted
Average of
Input
 
Performing/Nonperforming HECM securitizations
                      
Weighted-average remaining life (in years)
  
 
0.6 - 1.2
 
  
 
0.9
      0.2 - 1.5    1.0 
Conditional repayment rate
  
 
19.6% - 29.1%
 
  
 
23.9
     34.3% - 56.3%    42.8
Discount rate
  
 
NM
 
  
 
2.1
     NM    3.1
Securitized
Non-Agency
Reverse
                      
Weighted-average remaining life (in years)
  
 
1.3 - 2.1
 
  
 
1.9
      0.3 - 2.7    2.1 
Conditional repayment rate
  
 
20.6% - 31.2%
 
  
 
25.6
     19.6% - 35.8%    23.9
Discount rate
  
 
NM
 
  
 
2.0
     NM    2.2
Commercial Mortgage Loans
Outstanding nonrecourse notes issued that are securitized by loans held for investment, subject to nonrecourse debt, are paid using the cash flows from the underlying mortgage loans. The fair value of nonrecourse debt is estimated using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability.
The Company’s valuation considers assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for prepayment and discount rates. The Company estimates prepayment speeds giving consideration that the Company may in the future transfer additional loans to the trust, subject to the availability of funds provided for within the trust. The following table presents the significant unobservable inputs used in the fair value measurements of nonrecourse debt for the periods indicated:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
   
Weighted
Average of Input
      
Range of Input
   
Weighted
Average of Input
 
Nonrecourse debt
                      
Weighted-average remaining life (in months)
  
 
NM
 
  
 
3.8
      
1.9
 
- 4.1
    3.4 
Weighted-average prepayment speed (SMM)
  
 
NM
 
  
 
17.1
     17.7% - 32.0%    21.4
Discount rate
  
 
NM
 
  
 
2.5
     NM    5.8
Deferred Purchase Price Liabilities
Deferred purchase price liabilities are measured using a present value of future payments which considers various assumptions, including future loan origination volumes, projected earnings and discount rates. As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), the Company utilized discount rates ranging from 12% to 30% to value the deferred purchase price liabilities. The liabilities as of June 30, 2021 (Successor) include provisional estimates for the seller earnout provision related to the Parkside asset purchase agreement that were based on the information that was available as of the acquisition date. Refer to Note 4—Acquisitions for additional details regarding these acquisitions. As this value is largely based on unobservable inputs, the Company classifies this liability as Level 3 in the fair value hierarchy.
 
3
7

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
Tax Receivable Agreement
As a result of the Business Combination, the Company is a party to the tax receivable agreements (“TRAs”) with the Sellers. The fair value of the TRA obligation is derived through the use of a DCF model. The Company classifies the TRA obligation as Level 3 in the fair value hierarchy.
Nonrecourse MSR Financing Liability, at Fair Value
The Company has agreed to sell to certain third parties the right to receive all excess servicing and ancillary fees related to identified mortgage servicing rights in exchange for an upfront payment equal to the entire purchase price of the identified mortgage servicing rights.
Consistent with the underlying mortgage servicing rights, fair value is derived through a discounted cash flow analysis and calculated using a computer pricing model. This computer valuation is based on the objective characteristics of the portfolio (loan amount, note rate, etc.) and commonly used industry assumptions (PSAs, etc.). The assumptions taken into account by the pricing model are those which many active purchasers of servicing rights employ in their evaluations of portfolios for sale in the secondary market. The unique characteristics of the secondary servicing market often dictate adjustments to parameters over short periods of time.
Subjective factors are also considered in the derivation of fair values, including levels of supply and demand for servicing, interest rate trends, and perception of risk not incorporated into prepayment assumptions.
The Company classifies the valuations of the nonrecourse MSR financing liability as Level 3 in the fair value disclosures.
The significant assumptions used in estimating the fair value of the outstanding nonrecourse MSR financing liability were as follows (in annual rates):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Range of Input
  
Weighted Average
of Input
      
Range of
Input
  
Weighted Average
of Input
 
Weighted average prepayment speed (CPR)
  
 
6.0% - 16.0%
 
 
 
9.2
     6.9% - 12.7%   11.6
Discount rate
  
 
10.9% - 11.0%
 
 
 
11.0
     11.7% - 12.0%   12.0
Weighted average delinquency rate
  
 
NM
 
 
 
1.0
     NM   1.8
The following table summarizes the estimated change in the fair value of the nonrecourse MSR financing liability, at fair value from adverse changes in the significant assumptions (in thousands):
 
   
June 30, 2021
 
   
Successor
 
   
Weighted
Average
Prepayment
Speed
   
Discount
Rate
   
Weighted
Average
Delinquency
Rate
 
Impact on fair value of 10% adverse change
  $(1,231  $(2,112  $(23
Impact on fair value of 20% adverse change
   (2,889   (4,552   (58
These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
 
38

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
Retained Bond
The retained bonds represents the U.S. Risk Retention Certificates, a 5% eligible vertical interest in the Company’s unconsolidated VIE, HAWT
2021-INV1.
The beneficial interests retained consisted of an interest in each class of securities issued by the Trust. Because of the nature of the valuation inputs and due to the lack of observable market prices or data the Company classifies retained bonds as Level 3 assets within the GAAP hierarchy. Quarterly, management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal valuation model.
Warrants
The Company has determined that the warrants acquired with the Business Combination are subject to treatment as a liability. The warrants issued are exercisable for shares of Class A Common Stock of FoA at the share price on the date of exercise. The warrants are publicly traded and are valued based on the closing market price of the applicable date of the Consolidated Statements of Financial Condition. Accordingly, the warrants are classified as Level 1 financial instruments.
 
3
9

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis (in thousands):
 
   
June 30, 2021
 
   
Successor
 
   
Total Fair
Value
   
Level 1
   
Level 2
   
Level 3
 
Assets
                    
Reverse mortgage loans held for investment, subject to HMBS related obligations
  
$
10,316,027
   
$
—  
 
  
$
—  
 
  
$
10,316,027
 
Mortgage loans held for investment, subject to nonrecourse debt:
                    
Reverse mortgage loans
  
 
5,189,679
   
 
—  
 
  
 
—  
 
  
 
5,189,679
 
Fix & flip mortgage loans
  
 
234,942
   
 
—  
 
  
 
—  
 
  
 
234,942
 
Mortgage loans held for investment:
                    
Reverse mortgage loans
  
 
1,020,143
   
 
—  
 
  
 
—  
 
  
 
1,020,143
 
Fix & flip mortgage loans
  
 
44,578
   
 
—  
 
  
 
—  
 
  
 
44,578
 
Agricultural loans
  
 
160,369
   
 
—  
 
  
 
—  
 
  
 
160,369
 
Mortgage loans held for sale:
                    
Residential mortgage loans
  
 
1,908,107
   
 
—  
 
  
 
1,896,654
   
 
11,453
 
SRL
  
 
96,569
   
 
—  
 
  
 
—  
 
  
 
96,569
 
Portfolio
  
 
52,866
   
 
—  
 
  
 
—  
 
  
 
52,866
 
Mortgage servicing rights
  
 
290,938
   
 
—  
 
  
 
—  
 
  
 
290,938
 
Investments
  
 
6,000
   
 
—  
 
  
 
—  
 
  
 
6,000
 
Derivative assets:
                    
Forward commitments, TBAs, and Treasury Futures
  
 
1,187
   
 
32
   
 
319
   
 
836
 
IRLCs
  
 
34,647
   
 
—  
 
  
 
—  
 
  
 
34,647
 
Forward MBS
  
 
996
   
 
—  
 
  
 
996
   
 
—  
 
Interest rate swap futures
  
 
24,981
   
 
24,981
   
 
—  
 
  
 
—  
 
Other assets:
                    
Retained bonds
  
 
15,671
   
 
—  
 
  
 
—  
 
  
 
15,671
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total assets
  
$
19,397,700
   
$
25,013
   
$
1,897,969
   
$
17,474,718
 
   
 
 
   
 
 
   
 
 
   
 
 
 
     
Liabilities
                    
HMBS related obligation
  
$
10,168,224
   
$
—  
 
  
$
—  
 
  
$
10,168,224
 
Nonrecourse debt:
                    
Nonrecourse debt in VIE trusts
  
 
5,360,603
   
 
—  
 
  
 
—  
 
  
 
5,360,603
 
Nonrecourse MSR financing liability
  
 
65,129
   
 
—  
 
  
 
—  
 
  
 
65,129
 
Deferred purchase price liabilities:
                    
Deferred purchase price liabilities
  
 
11,663
   
 
—  
 
  
 
—  
 
  
 
11,663
 
TRA obligation
  
 
32,810
   
 
—  
 
  
 
—  
 
  
 
32,810
 
Derivative liabilities:
                    
Forward MBS
  
 
4,364
   
 
—  
 
  
 
4,364
   
 
—  
 
Forward commitments, TBAs, and Treasury Futures
  
 
1,176
   
 
31
   
 
34
   
 
1,111
 
Interest rate swap futures
  
 
13,789
   
 
13,789
   
 
—  
 
  
 
—  
 
Warrants
  
 
19,261
   
 
19,261
   
 
—  
 
  
 
—  
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total liabilities
  
$
15,677,019
   
$
33,081
   
$
4,398
   
$
15,639,540
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
40

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
   
December 31, 2020
 
   
Predecessor
 
   
Total Fair
Value
   
Level 1
   
Level 2
   
Level 3
 
Assets
                    
Reverse mortgage loans held for investment, subject to HMBS related obligations
  $9,929,163   $—     $—     $9,929,163 
Mortgage loans held for investment, subject to nonrecourse debt:
                    
Reverse mortgage loans
   5,057,624    —      —      5,057,624 
Fix & flip mortgage loans
   338,543    —      —      338,543 
Mortgage loans held for investment:
                    
Reverse mortgage loans
   661,790    —      —      661,790 
Agricultural loans
   69,031    —      —      69,031 
Mortgage loans held for sale:
                    
Residential mortgage loans
   2,080,585    —      2,069,957    10,628 
SRL
   60,467    —      —      60,467 
Portfolio
   38,850    —      —      38,850 
Fix & flip mortgage loans
   42,909    —      —      42,909 
Mortgage servicing rights
   180,684    —      —      180,684 
Investments
   18,934    —      —      18,934 
Derivative assets:
                    
Forward commitments and TBAs
   1,806    —      722    1,084 
IRLCs
   87,576    —      —      87,576 
Interest rate swaps and interest rate swap futures
   2,683    186    2,497    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total assets
  $18,570,645   $186   $2,073,176   $16,497,283 
   
 
 
   
 
 
   
 
 
   
 
 
 
     
Liabilities
                    
HMBS related obligation
  $9,788,668   $—     $—     $9,788,668 
Nonrecourse debt:
                    
Nonrecourse debt in VIE trusts
   5,257,754    —      —      5,257,754 
Nonrecourse MSR financing liability
   14,088    —      —      14,088 
Deferred purchase price liabilities
   3,842    —      —      3,842 
Derivative liabilities:
                    
Forward MBS
   18,634    —      18,634    —   
Forward commitments and TBAs
   1,332    —      248    1,084 
Interest rate swaps and interest rate swap futures
   755    186    569    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total liabilities
  $15,085,073   $186   $19,451   $15,065,436 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
41

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3, in thousands):
 
   
Successor
 
   
Assets
 
June 30, 2021
  
Mortgage
loans held for
investment
  
Mortgage
loans held for
investment,
subject to
nonrecourse
debt
  
Mortgage
loans held
for sale
  
Derivative
assets
  
Mortgage
servicing
rights
  
Retained
Bonds
  
Investments
 
Beginning balance, April 1, 2021
  
$
11,171,736
  
$
5,291,444
  
$
135,681
  
$
38,574
  
$
267,364
  
$
—  
 
 
$
9,470
 
Total gain or losses included in earnings
  
 
153,690
  
 
80,408
  
 
1,816
  
 
(3,066
 
 
(26,536
 
 
666
  
 
(3,470
Purchases, settlements and transfers:
                             
Purchases and additions, net
  
 
1,428,976
  
 
22,041
  
 
256,438
  
 
—  
 
 
 
50,110
  
 
15,078
  
 
—  
 
Sales and settlements
  
 
(615,958
 
 
(522,141
 
 
(275,956
 
 
(25
 
 
—  
 
 
 
(73
 
 
—  
 
Transfers in/(out) between categories
  
 
(597,327
 
 
552,869
  
 
42,909
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending balance, June 30, 2021
  
$
11,541,117
  
$
5,424,621
  
$
160,888
  
$
35,483
  
$
290,938
  
$
15,671
  
$
6,000
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
   
Successor
 
   
Liabilities
 
June 30, 2021
  
HMBS related
obligations
  
Derivative
liabilities
  
Deferred
purchase
price
liabilities
  
Nonrecourse
debt in VIE
trusts
  
Nonrecourse
MSR
financing
liability
  
TRA
Liability
 
Beginning balance, April 1, 2021
  
$
(9,926,132
 
$
(936
 
$
(3,214
 
$
(5,205,892
 
$
(22,051
 
$
—  
 
Total gains or losses included in earnings
  
 
(44,651
 
$
—  
 
 
 
(1,760
 
 
(32,601
 
 
4,123
  
 
(860
Purchases, settlements and transfers:
                         
Purchases and additions, net
  
 
(795,333
 
 
—  
 
 
 
(7,000
 
 
(796,376
 
 
(47,201
 
 
(31,950
Settlements
  
 
597,892
  
 
(175
 
 
311
  
 
674,266
  
 
—  
 
 
 
—  
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending balance, June 30, 2021
  
$
(10,168,224
 
$
(1,111
 
$
(11,663
 
$
(5,360,603
 
$
(65,129
 
$
(32,810
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
   
Predecessor
 
   
Assets
 
March 31, 2021
  
Mortgage
loans held for
investment
  
Mortgage
loans held for
investment,
subject to
nonrecourse
debt
  
Mortgage
loans held
for sale
  
Derivative
assets
  
Mortgage
servicing
rights
  
Investments
 
Beginning balance, January 1, 2021
  
$
10,659,984
  
$
5,396,167
  
$
152,854
  
$
88,660
  
$
180,684
  
$
18,934
 
Total gain or losses included in earnings
  
 
132,499
  
 
(37,757
 
 
2,764
  
 
(50,040
 
 
20,349
  
 
(9,464
Purchases, settlements and transfers:
                         
Purchases and additions, net
  
 
1,143,109
  
 
21,064
  
 
175,551
  
 
—  
 
 
 
74,978
  
 
—  
 
Sales and settlements
  
 
(534,738
 
 
(360,128
 
 
(152,579
 
 
(46
 
 
(8,647
 
 
—  
 
Transfers in/(out) between categories
  
 
(229,118
 
 
272,098
  
 
(42,909
 
 
—  
 
 
 
—  
 
 
 
—  
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending balance, March 31, 2021
  
$
11,171,736
  
$
5,291,444
  
$
135,681
  
$
38,574
  
$
267,364
  
$
9,470
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
42

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
   
Predecessor
 
   
Liabilities
 
March 31, 2021
  
HMBS
related
obligations
  
Derivative
liabilities
  
Deferred
purchase
price
liability
  
Nonrecourse
debt in VIE
trusts
  
Nonrecourse
MSR
financing
liability
 
Beginning balance, January 1, 2021
  
$
(9,788,668
 
$
(1,084
 
$
(3,842
 
$
(5,257,754
 
$
(14,088
Total gain or losses included in earnings
  
 
(41,434
 
$
—  
 
 
 
(29
 
 
(30,770
 
 
390
 
Purchases, settlements and transfers:
                     
Purchases and additions, net
  
 
(602,172
 
 
—  
 
 
 
—  
 
 
 
(575,668
 
 
(8,353
Sales and settlements
  
 
506,142
  
 
148
  
 
657
  
 
658,300
     
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending balance, March 31, 2021
  
$
(9,926,132
 
$
(936
 
$
(3,214
 
$
(5,205,892
 
$
(22,051
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
   
Predecessor
 
   
Assets
 
December 31, 2020
  
Mortgage
loans held for
investment
  
Mortgage
loans held for
investment,
subject to
nonrecourse
debt
  
Mortgage
loans held
for sale
  
Derivative
assets
   
Mortgage
servicing
rights
   
Debt
securities
  
Investments
 
Beginning balance, January 1, 2020
  $10,894,577  $3,511,212  $182,973  $14,008   $2,600   $102,260  $20,508 
Total gain or losses included in earnings
   627,251   304,663   (2,158  74,470    4,562    2,288   (5,512
Purchases, settlements and transfers:
                               
Purchases and additions, net
   3,616,667   136,838   409,467   182    173,522    24,489   3,938 
Sales and settlements
   (1,536,977  (1,285,902  (605,018  —      —      (129,037  —   
Transfers in/(out) between categories
   (2,941,534  2,729,356   167,590   —      —      —     —   
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Ending balance, December 31, 2020
  $10,659,984  $5,396,167  $152,854  $88,660   $180,684   $—    $18,934 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
 
   
Predecessor
 
   
Liabilities
 
December 31, 2020
  
HMBS
related
obligations
  
Derivative
liabilities
  
Deferred
purchase
price
liabilities
  
Nonrecourse
debt in VIE
trusts
  
Nonrecourse
MSR
Financing
Liability
 
Beginning balance, January 1, 2020
  $(9,320,209 $(68 $(4,300 $(3,490,196 $—   
Total gain or losses included in earnings
   (359,951  (834  (3,014  (294,802  798 
Purchases, settlements and transfers:
                     
Purchases and additions, net
   (2,051,953  (182  (138  (3,110,368  (15,101
Sales and settlements
   1,943,445   —     3,610   1,637,612   215 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending balance, December 31, 2020
  $(9,788,668 $(1,084 $(3,842 $(5,257,754 $(14,088
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
43

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
Fair Value Option
Presented in the tables below are the fair value and unpaid principal balance (“UPB”) at June 30, 2021 (Successor) and December 31, 2020 (Predecessor), of assets and liabilities for which the Company has elected the fair value option (in thousands):
 
Successor:
        
   
June 30, 2021
  
Estimated
Fair Value
   
Unpaid Principal
Balance
 
Assets at fair value under the fair value option
          
Reverse mortgage loans held for investment, subject to HMBS related obligations
  
$
10,316,027
   
$
9,406,924
 
Mortgage loans held for investment, subject to nonrecourse debt:
          
Reverse mortgage loans
  
 
5,189,680
   
 
4,615,128
 
Commercial mortgage loans
  
 
234,941
   
 
229,858
 
Mortgage loans held for investment:
          
Reverse mortgage loans
  
 
1,020,143
   
 
879,794
 
Commercial mortgage loans
  
 
204,947
   
 
202,195
 
Mortgage loans held for sale:
          
Residential mortgage loans
  
 
1,908,107
   
 
1,858,087
 
Commercial mortgage loans
  
 
149,435
   
 
144,789
 
Liabilities at fair value under the fair value option
          
HMBS related obligations
  
 
10,168,224
   
 
9,406,924
 
Nonrecourse debt:
          
Nonrecourse debt in VIE trusts
  
 
5,360,603
   
 
5,276,781
 
Nonrecourse MSR financing liability
  
 
65,129
   
 
65,129
 
   
Predecessor:
        
   
December 31, 2020
  
Estimated
Fair Value
   
Unpaid Principal
Balance
 
Assets at fair value under the fair value option
          
Reverse mortgage loans held for investment, subject to HMBS related obligations
  $9,929,163   $9,045,104 
Mortgage loans held for investment, subject to nonrecourse debt:
          
Reverse mortgage loans
   5,057,624    4,457,805 
Commercial mortgage loans
   338,543    333,344 
Mortgage loans held for investment:
          
Reverse mortgage loans
   661,790    589,429 
Commercial mortgage loans
   69,031    69,127 
Mortgage loans held for sale:
          
Residential mortgage loans
   2,080,585    2,000,795 
Commercial mortgage loans
   142,226    140,693 
Liabilities at fair value under the fair value option
          
HMBS related obligations
   9,788,668    9,045,104 
Nonrecourse debt:
          
Nonrecourse debt in VIE trusts
   5,257,754    5,155,017 
Nonrecourse MSR financing liability
   14,088    14,088 
 
44

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
Net Fair Value Gains on Mortgage Loans and Related Obligations
Provided in the table below is a summary of the components of net fair value gains on mortgage loans and related obligations (in thousands):
 
   
April 1, 2021
to

June 30, 2021
     
January 1, 2021
to

March 31, 2021
   
For the three
months ended
June 30, 2020
   
For the six
months ended
June 30, 2020
 
   
Successor
     
Predecessor
 
Net fair value gains (losses) on mortgage loans and related obligations:
                     
Interest income on mortgage loans
  
$
173,940
    $160,568   $217,841   $401,513 
Change in fair value of mortgage loans
  
 
84,983
     (51,346   180,904    82,338 
Change in fair value of mortgage backed securities
  
 
—  
 
    —      (1,470   817 
   
 
 
    
 
 
   
 
 
   
 
 
 
Fair value gains on mortgage loans
  
 
258,923
     109,222    397,275    484,668 
   
 
 
    
 
 
   
 
 
   
 
 
 
Interest expense on related obligations
  
 
(113,474
    (119,201   (127,488   (261,845
Change in fair value of derivatives
  
 
(46,478
    43,972    8,567    (5,743
Change in fair value of related obligations
  
 
32,180
     42,670    (166,051   (91,397
   
 
 
    
 
 
   
 
 
   
 
 
 
Fair value losses on related obligations
  
 
(127,772
    (32,559   (284,972   (358,985
   
 
 
    
 
 
   
 
 
   
 
 
 
Net fair value gains on mortgage loans and related obligations
  
$
131,151
    $76,663   $112,303   $125,683 
   
 
 
    
 
 
   
 
 
   
 
 
 
As the cash flows on the underlying mortgage loans will be utilized to settle the outstanding obligations, the Company’s own credit risk would not impact the fair value on the outstanding HMBS liabilities and nonrecourse debt.
Fair Value of Other Financial Instruments
As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), all financial instruments were either recorded at fair value or the carrying value approximated fair value. For financial instruments that were not recorded at fair value, such as cash and cash equivalents including restricted cash, servicer advances and other financing lines of credit, the carrying value approximates fair value due to the short-term nature of such instruments.
 
45

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
6.
Reverse Mortgages Portfolio Composition
The table below summarizes the Company’s serviced reverse mortgage portfolio composition and the remaining UPBs of the reverse mortgage loan portfolio (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Reverse mortgage loans:
            
Reverse mortgage loans held for investment, subject to HMBS related obligations
  
$
9,406,924
     $9,045,104 
    
Reverse mortgage loans held for investment:
            
Non-agency
reverse mortgages
  
 
536,739
      215,688 
Loans not securitized
(1)
  
 
254,004
      168,292 
Unpoolable loans
(2)
  
 
80,487
      197,395 
Unpoolable tails
  
 
8,564
      8,054 
   
 
 
     
 
 
 
Total reverse mortgage loans held for investment
  
 
879,794
      589,429 
    
Reverse mortgage loans held for investment, subject to nonrecourse debt:
            
Performing HECM buyouts
  
 
276,177
      141,691 
Nonperforming HECM buyouts
  
 
634,342
      538,768 
Non-agency
reverse mortgages
  
 
3,704,609
      3,777,346 
   
 
 
     
 
 
 
Total reverse mortgage loans held for investment, subject to nonrecourse debt
  
 
4,615,128
      4,457,805 
   
 
 
     
 
 
 
    
Total owned reverse mortgage portfolio
  
 
14,901,846
      14,092,338 
Loans reclassified as government guaranteed receivable
  
 
49,813
      49,255 
Loans serviced for others
  
 
18,099
      123,324 
   
 
 
     
 
 
 
Total serviced reverse mortgage loan portfolio
  
$
14,969,758
     $14,264,917 
   
 
 
     
 
 
 
 
(1)
Loans not securitized represent primarily newly originated loans.
(2)
Unpoolable loans represent primarily loans that have reached 98% of their MCA.
The table below summarizes the owned reverse mortgage portfolio by product type (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Fixed rate loans
  
$
5,181,814
     $5,010,659 
Adjustable rate loans
  
 
9,720,032
      9,081,679 
   
 
 
     
 
 
 
Total owned reverse mortgage portfolio
  
$
14,901,846
     $14,092,338 
   
 
 
     
 
 
 
 
46

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
7.
Reverse Mortgage Loans Held for Investment, Subject to HMBS Related Obligations, at Fair Value
Reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value, consisted of the following for the dates indicated (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Reverse mortgage loans held for investment, subject to HMBS related obligations—UPB
  
$
9,406,924
     $9,045,104 
Fair value adjustments
  
 
909,103
      884,059 
   
 
 
     
 
 
 
Total reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value
  
$
10,316,027
     $9,929,163 
   
 
 
     
 
 
 
 
8.
Mortgage Loans Held for Investment, Subject to Nonrecourse Debt, at Fair Value
Mortgage loans held for investment, subject to nonrecourse debt, at fair value, consisted of the following for the dates indicated (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Mortgage loans held for investment, subject to nonrecourse debt—UPB:
            
Reverse mortgage loans
  
$
4,615,128
     $4,457,805 
Commercial mortgage loans
  
 
229,858
      333,344 
Fair value adjustments
  
 
579,635
      605,018 
   
 
 
     
 
 
 
Total mortgage loans held for investment, subject to nonrecourse debt, at fair value
  
$
5,424,621
     $5,396,167 
   
 
 
     
 
 
 
The table below shows the total amount of mortgage loans held for investment, subject to nonrecourse debt that were greater than 90 days past due and on
non-accrual
status (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Loans 90 days or more past due and on
non-accrual
status
            
Mortgage loans held for investment:
            
Fair value:
            
Commercial mortgage loans
  
$
33,764
     $32,377 
   
 
 
     
 
 
 
Total fair value
  
 
33,764
      32,377 
   
 
 
     
 
 
 
Aggregate UPB:
            
Commercial mortgage loans
  
$
34,159
      33,888 
   
 
 
     
 
 
 
Total aggregate UPB
  
 
34,159
      33,888 
   
 
 
     
 
 
 
Difference
  
$
(395
    $(1,511
   
 
 
     
 
 
 
 
47

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
9.
Mortgage Loans Held for Investment, at Fair Value
Mortgage loans held for investment, at fair value, consisted of the following for the dates indicated (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Mortgage loans held for investment—UPB:
            
Reverse mortgage loans
  
$
879,794
     $589,429 
Commercial mortgage loans
  
 
202,195
      69,127 
Fair value adjustments
  
 
143,101
      72,265 
   
 
 
     
 
 
 
Total mortgage loans held for investment, at fair value
  
$
1,225,090
     $730,821 
   
 
 
     
 
 
 
 
10.
Mortgage Loans Held for Sale, at Fair Value
Mortgage loans held for sale, at fair value, consisted of the following for the dates indicated (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Mortgage loans held for sale—UPB:
            
Residential mortgage loans
  
$
1,858,087
     $2,000,795 
Commercial mortgage loans
  
 
144,789
      140,693 
Fair value adjustments
  
 
54,666
      81,323 
   
 
 
     
 
 
 
Total mortgage loans held for sale, at fair value
  
$
2,057,542
     $2,222,811 
   
 
 
     
 
 
 
The table below shows the total amount of mortgage loans held for sale that were greater than 90 days past due and on
non-accrual
status (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Loans 90 days or more past due and on
non-accrual
status
            
Mortgage loans held for sale:
            
Fair value:
            
Residential mortgage loans
  
$
11,453
     $10,628 
Commercial mortgage loans
  
 
3,203
      5,051 
   
 
 
     
 
 
 
Total fair value
  
 
14,656
      15,679 
   
 
 
     
 
 
 
Aggregate UPB:
            
Residential mortgage loans
  
 
12,594
      13,236 
Commercial mortgage loans
  
 
3,360
      5,317 
   
 
 
     
 
 
 
Total aggregate UPB
  
 
15,954
      18,553 
   
 
 
     
 
 
 
Difference
  
$
(1,298
    $(2,874
   
 
 
     
 
 
 
The Company originates or purchases and sells mortgage loans in the secondary mortgage market without recourse for credit losses. However, the Company at times maintains continuing involvement with the loans in the form of servicing arrangements and the liability under representations and warranties it makes to purchasers and insurers of the loans.
 
48

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
The following table summarizes cash flows between the Company and transferees as a result of the sale of mortgage loans in transactions where the Company maintains continuing involvement with the mortgage loans (in thousands):
 
   
April 1, 2021
to
June 30, 2021
      
January 1, 2021
to

March 31, 2021
   
For the three
months ended
June 30, 2020
   
For the six
months ended
June 30, 2020
 
   
Successor
      
Predecessor
 
Cash flows:
                      
Sales proceeds
  
$
5,181,557
     $6,387,933   $2,631,554   $2,868,960 
Fair value of retained beneficial interest
(1)
  
 
49,308
      66,400    43,500    44,855 
Gross servicing fees received
  
 
14,278
      13,877    1,544    1,824 
Repurchases
  
 
(6,818
     (4,144   (3,380   (8,547
Gain
  
 
197,129
      284,948    282,424    291,671 
 
(1)
Fair value of retained beneficial interest includes retained servicing rights and other beneficial interests retained as of the statement of financial condition date.
 
11.
Mortgage Servicing Rights, at Fair Value
The servicing portfolio associated with capitalized servicing rights consists of the following (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Fannie Mae/Freddie Mac
  
$
29,705,985
     $20,501,504 
Ginnie Mae
  
 
553,800
      1,727,831 
Private investors
  
 
332,402
      40,027 
   
 
 
     
 
 
 
Total UPB
  
$
30,592,187
     $22,269,362 
   
 
 
     
 
 
 
    
Weighted average interest rate
  
 
3.0
     3.1
The activity in the loan servicing portfolio associated with capitalized servicing rights consisted of the following (in thousands):
 
   
April 1, 2021
to
June 30, 2021
      
January 1, 2021
to

March 31, 2021
   
For the three
months ended
June 30, 2020
   
For the six
months ended
June 30, 2020
 
   
Successor
      
Predecessor
 
Beginning UPB
  
$
26,675,358
     $22,269,362   $402,852   $288,057 
Originated MSR
  
 
5,139,859
      6,312,227    6,849,850    6,986,237 
Purchased MSR
  
 
5,537
      866,806    —      —   
Payoffs, sales and curtailments
  
 
(1,228,567
     (2,773,037   (40,859   (62,451
   
 
 
     
 
 
   
 
 
   
 
 
 
Ending UPB
  
$
30,592,187
     $26,675,358   $7,211,843   $7,211,843 
   
 
 
     
 
 
   
 
 
   
 
 
 
 
49

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
The activity in the mortgage servicing rights asset consisted of the following (in thousands):
 
   
April 1, 2021
to
June 30, 2021
      
January 1, 2021
to

March 31, 2021
   
For the three
months ended
June 30, 2020
   
For the six
months ended
June 30, 2020
 
   
Successor
      
Predecessor
 
Beginning balance
  
$
267,364
     $180,684    3,119   $2,600 
Originations
  
 
50,049
      65,964    43,561    44,855 
Purchases
  
 
61
      9,014    —      —   
Sales
  
 
—  
 
     (8,647   —      —   
Changes in fair value due to:
                      
Changes in market inputs or assumptions used in valuation model
  
 
(16,051
     35,109    (2,749   (3,424
Changes in fair value due to portfolio runoff and other
  
 
(10,485
     (14,760   (1,247   (1,347
   
 
 
     
 
 
   
 
 
   
 
 
 
Ending balance
  
$
290,938
     $267,364   $42,684   $42,684 
   
 
 
     
 
 
   
 
 
   
 
 
 
The value of MSRs is driven by the net cash flows associated with servicing activities. The cash flows include contractually specified servicing fees, late fees, and other ancillary servicing revenue. The fees were $13.7 million for the Successor period from April 1, 2021 to June 30, 2021 and $13.0 million for the Predecessor period of January 1, 2021 to March 31, 2021. Fees for the Predecessor were $1.7 million and $1.8 million for the three months ended and six months ended June 30, 2020, respectively. These fees and changes in fair value of the MSRs are recorded within fee income on the Consolidated Statements of Operations.
The following table provides a summary of the loan servicing portfolio delinquencies as a percentage of the total number of loans and the total unpaid balance of the portfolio:
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
   
Number of
Loans
  
Unpaid
Balance
      
Number of
Loans
  
Unpaid
Balance
 
Portfolio delinquency
                    
30 days
  
 
0.4
 
 
0.4
     0.5  0.5
60 days
  
 
0.0
 
 
0.0
     0.1  0.1
90 or more days
  
 
0.1
 
 
0.1
     0.2  0.1
   
 
 
  
 
 
     
 
 
  
 
 
 
Total
  
 
0.5
 
 
0.5
     0.8  0.7
   
 
 
  
 
 
     
 
 
  
 
 
 
      
Foreclosure/real estate owned
  
 
0.0
 
 
0.0
     0.0  0.0
 
12.
Derivative and Risk Management Activities
The Company’s principal market exposure is to interest rate risk, specifically long-term U.S. Treasury and mortgage interest rates, due to their impact on mortgage-related assets and commitments. The Company is also subject to changes in short-term interest rates, such as LIBOR, due to their impact on certain variable rate asset-backed debt such as warehouse lines of credit. Various financial instruments are used to manage and reduce this risk, including forward delivery commitments on mortgage-backed securities or whole loans and interest rate swaps.
The Company did not have any derivative instruments designated as hedging instruments or subject to master netting and collateral agreements as of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), for the Successor period from April 1, 2021 to June 30, 2021 and the Predecessor period from January 1, 2021 to March 31, 2021. The Company also had no derivative instruments designated as hedging instruments or subject to master netting and collateral agreements for the Predecessor period for the three months ended and six months ended June 30, 2020.
 
50

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
The following tables summarize the amounts recorded in derivative assets and payables and other liabilities, related to derivative liabilities, in the Consolidated Statements of Financial Condition for the periods indicated (in thousands):
 
   
June 30, 2021
 
   
Successor
 
   
Derivative assets
  
Derivative liabilities
 
   
Fair
value
   
Notional
amount
   
Unrealized
gains
(losses)
  
Fair
value
   
Notional
amount
   
Unrealized
gains
(losses)
 
Interest rate lock commitments
  
$
34,647
   
$
2,539,030
   
$
(52,929
 
$
—  
 
  
$
—  
 
  
$
—  
 
Forward commitments, TBAs securities, and treasury futures
  
 
1,187
   
 
895,807
   
 
(619
 
 
1,176
   
 
954,493
   
 
156
 
Interest rate swaps and futures contracts
  
 
24,981
   
 
4,616,698
   
 
22,298
  
 
13,789
   
 
1,082,600
   
 
(13,034
Forward MBS
  
 
996
   
 
802,500
   
 
996
  
 
4,364
   
 
1,988,500
   
 
14,271
 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Net fair value of derivative financial instruments
  
$
61,811
   
$
8,854,035
   
$
(30,254
 
$
19,329
   
$
4,025,593
   
$
1,393
 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
 
   
December 31, 2020
 
   
Predecessor
 
   
Derivative assets
  
Derivative liabilities
 
   
Fair
value
   
Notional
amount
   
Unrealized
gains
(losses)
  
Fair
value
   
Notional
amount
   
Unrealized
gains
(losses)
 
Interest rate lock commitments
  $87,576   $2,897,479   $73,568  $��     $13,822   $68 
Forward commitments, TBAs securities, and treasury futures
   1,806    399,612    968   1,332    389,422    (1,248
Interest rate swaps and futures contracts
   2,683    1,386,400    2,324   755    744,500    (617
Forward MBS
   —      —      (348  18,635    3,187,000    (16,587
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Net fair value of derivative financial instruments
  $92,065   $4,683,491   $76,512  $20,722   $4,334,744   $(18,384
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
The Company is exposed to risk in the event of
non-performance
by counterparties in their derivative contracts. In general, the Company manages such risk by evaluating the financial position and creditworthiness of counterparties, monitoring the amount of exposure and/or dispersing the risk among multiple counterparties. While the Company does not presently have master netting arrangements with its derivative counterparties, it does either maintain or deposit cash as margin collateral with its clearing broker to the extent the relative value of its derivatives are above or below their initial strike price. The Company pledged deposits of $4.1 million and $12.0 million as of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), respectively. Total margin collateral is included in other assets, net, in the Company’s Consolidated Statements of Financial Condition.
 
13.
Goodwill
Goodwill consisted of the following (in thousands):
 
   
April 1, 2021
to
June 30, 2021
      
January 1, 2021
to

March 31, 2021
   
For the three
months ended
June 30, 2020
   
For the six
months ended
June 30, 2020
 
   
Successor
      
Predecessor
 
Beginning balance
  
$
0
     $121,233   $121,137   $121,137 
Additions from acquisitions
  
 
1,298,324
      7,517    617    617 
   
 
 
     
 
 
   
 
 
   
 
 
 
Ending balance
  
$
1,298,324
     $128,750   $121,754   $121,754 
   
 
 
     
 
 
   
 
 
   
 
 
 
 
51

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
For the Successor period, the goodwill beginning balance was established as a result of the Business Combination and changes during the period are attributable to additional acquisitions. Refer to Note 4—Acquisitions for additional details regarding these acquisitions. The Company did 0t identify any impairment for the Successor period from April 1, 2021 to June 30, 2021, the Predecessor period of January 1, 2021 to March 31, 2021 nor the Predecessor periods for the three months ended and six months ended June 30, 2020. Goodwill is reviewed for impairment utilizing a qualitative assessment or a quantitative goodwill impairment test and determined that it was more likely than not that no impairment of goodwill existed as of the evaluation date.
The amount of goodwill allocated to each reporting unit consisted of the following (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Reporting units:
            
Mortgage Originations
  
$
711,306
     $44,429 
Reverse Originations
  
 
404,441
      —   
Commercial Originations
  
 
75,350
      43,113 
Lender Services
  
 
100,128
      25,247 
Portfolio Management
  
 
7,099
      8,444 
   
 
 
     
 
 
 
Total goodwill
  
$
1,298,324
     $121,233 
   
 
 
     
 
 
 
 
14.
Intangible Assets, Net
Intangible assets, net, consisted of the following (in thousands):
 
June 30, 2021
  
Amortization
Period
(Years)
   
Cost
   
Accumulated
Amortization
   
Net
 
Successor:
                    
Non-amortizing
Intangibles
                    
Trade name
  
 
N/A
 
  
$
178,000
   
$
—  
 
  
$
178,000
 
        
 
 
   
 
 
   
 
 
 
Total
non-amortizing
intangibles
       
$
178,000
   
$
—  
 
  
$
178,000
 
        
 
 
   
 
 
   
 
 
 
     
Amortizing Intangibles
                    
Broker/customer relationships
  
 
8 - 15
 
  
$
530,900
   
$
(13,237
  
$
517,663
 
Trade names
  
 
10
 
  
 
8,800
   
 
(220
  
 
8,580
 
        
 
 
   
 
 
   
 
 
 
Total amortizing intangibles
       
$
539,700
   
$
(13,457
  
$
526,243
 
        
 
 
   
 
 
   
 
 
 
     
Total intangibles
       
$
717,700
   
$
(13,457
  
$
704,243
 
        
 
 
   
 
 
   
 
 
 
 
52

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
December 31, 2020
  
Amortization
Period
(Years)
   
Cost
   
Accumulated
Amortization
   
Net
 
Predecessor:
                    
Non-amortizing
Intangibles
                    
Domain name
   N/A   $5,422   $—     $5,422 
        
 
 
   
 
 
   
 
 
 
Total
non-amortizing
intangibles
       $5,422   $—     $5,422 
        
 
 
   
 
 
   
 
 
 
     
Amortizing Intangibles
                    
Customer list
   5 - 12   $12,754   $(5,100  $7,654 
Broker relationships
   10    7,627    (5,429   2,198 
Trade names
   5 - 20    2,495    (1,487   1,008 
Technology assets
   5    805    (156   649 
        
 
 
   
 
 
   
 
 
 
Total amortizing intangibles
       $23,681   $(12,172  $11,509 
        
 
 
   
 
 
   
 
 
 
     
Total intangibles
       $29,103   $(12,172  $16,931 
        
 
 
   
 
 
   
 
 
 
Amortization expense was $13.5 million for the Successor period from April 1, 2021 to June 30, 2021 and $0.6 million for the Predecessor period from January 1, 2021 to March 31, 2021. Amortization expense for the Predecessor was $0.6 million and $1.3 million for the three months ended and six months ended June 30, 2020, respectively.
The estimated amortization expense for each of the five succeeding fiscal years and thereafter as of June 30, 2021 (Successor) is as follows (in thousands):
 
Year Ending December 31,
  
Amount
 
2021
  $26,914 
2022
   53,828 
2023
   53,828 
2024
   53,828 
2025
   53,828 
Thereafter
   284,017 
   
 
 
 
Total future amortization expense
  $526,243 
   
 
 
 
 
53

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
15.
Other Assets, Net
Other assets, net, consisted of the following (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Right-of-use
assets
  
$
62,835
     $46,609 
Government guaranteed receivables
  
 
48,087
      46,481 
Receivables, net of allowance of $1,452 and $788, respectively
  
 
48,666
      67,011 
Loan subject to repurchase from GNMA
  
 
30,027
      42,148 
Prepaid expenses
  
 
26,070
      17,536 
Retained bonds
  
 
15,671
      —   
Investments, at fair value
  
 
6,554
      18,934 
Servicer advances, net of allowance of $2,002 and $1,661, respectively
  
 
6,318
      5,795 
Deposits
  
 
2,438
      14,188 
Receivable from clearing organization
  
 
2,041
      2,043 
Other
  
 
51,546
      39,887 
   
 
 
     
 
 
 
Total other assets, net
  
$
300,253
     $300,632 
   
 
 
     
 
 
 
As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), there were $368.6 million and $380.3 million, respectively, of foreclosure proceedings in process, which are included in mortgage loans held for investment, at fair value, on the Consolidated Statements of Financial Condition.
 
16.
HMBS Related Obligations, at Fair Value
HMBS related obligations represent the issuance of pools of HMBS, which are guaranteed by GNMA, to third-party security holders. The Company accounts for the transfers of these advances in the related HECM loans as secured borrowings, retaining the initial HECM loans in its Consolidated Statements of Financial Condition as reverse mortgage loans held for investment, subject to HMBS related obligations, and recording the pooled HMBS as HMBS related obligations. Monthly cash flows generated from the HECM loans are used to service the outstanding HMBS.
HMBS related obligations, at fair value, consisted of the following (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
GNMA loan pools—UPB
  
$
9,406,924
     $9,045,104 
Fair value adjustments
  
 
761,300
      743,564 
   
 
 
     
 
 
 
Total HMBS related obligations, at fair value
  
$
10,168,224
     $9,788,668 
   
 
 
     
 
 
 
Weighted average remaining life
  
 
4.4
      4.5 
Weighted average interest rate
  
 
2.6
     3.0
The Company was servicing 1,765 and 1,693 GNMA loan pools at June 30, 2021 (Successor) and December 31, 2020 (Predecessor), respectively.
 
54

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
17.
Nonrecourse Debt, at Fair Value
Nonrecourse debt, at fair value, consisted of the following (in thousands):
 
   
Issue Date
  
Class of Note
  
Final
Maturity Date
  
Interest Rate
   
Original
Issue
Amount
   
June 30,
2021
      
December 31,
2020
 
                    
Successor
      
Predecessor
 
Securitization of nonperforming HECM loans:
                      
2021 FASST HB1
  February 2021  A, M1, M2, M3, M4, M5  February 2031   0.9%—9.0%   $571,448   
$
537,299
     $—   
2020 FASST HB2
  July 2020  A, M1, M2, M3, M4, M5  July 2030   1.71%—7.75%    594,171   
 
446,413
      476,147 
2020 FASST HB1
  February 2020  A, M1, M2, M3, M4, M5  February 2030   2.0%—6.0%    373,912   
 
0  
 
     298,883 
      
Securitization of
non-agency
reverse loans:
                      
2021 FASST JR 1
  April 2021  A1, A2  April 2026   1.5%—2.0%    562,512   
 
512,794
      —   
2019 FASST JR2
  June 2019  A, A2  June 2069   2.0%    499,000   
 
406,709
      440,141 
2018 FASST JR1
  May 2018  A  May 2068   4.3%    559,197   
 
386,548
      428,671 
2019 FASST JR3
  September 2019  A  September 2069   2.0%    450,104   
 
359,772
      404,057 
2020 FASST JR3
  August 2020  A, A2  August 2025   2.0%—3.0%    360,713   
 
315,570
      337,099 
2019 FASST JR4
  November 2019  A  November 2069   2.0%    365,685   
 
305,097
      335,945 
2019 FASST JR1
  March 2019  A  March 2069   2.0%    347,000   
 
288,654
      309,840 
2020 FASST S3
  December 2020  A1, A2  December 2025   1.5%—2.5%    313,357   
 
288,383
      297,871 
2020 FASST S2
  June 2020  A1, A2  March 2025   2.0%    320,460   
 
286,734
      299,401 
2020 FASST JR2
  May 2020  A1A, A1B, A2  May 2023   0.0%—2.0%    305,658   
 
277,694
      291,827 
2018 FASST JR2
  December 2018  A  December 2068   4.5%    280,400   
 
229,872
      253,325 
2020 FASST JR4
  October 2020  A, A2  August 2025   2.0%—3.0%    241,664   
 
197,970
      217,385 
2020 FASST S1
  March 2020  A1, A2  March 2025   2.0%—3.7%    199,000   
 
168,761
      181,059 
2020 FASST JR1
  April 2020  A, A2  April 2023   2.0%    254,805   
 
0  
 
     240,563 
 
55

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
   
Issue Date
  
Class of Note
  
Final
Maturity Date
  
Interest Rate
   
Original
Issue
Amount
   
June 30,
2021
      
December 31,
2020
 
                    
Successor
      
Predecessor
 
Securitization of Fix & Flip loans:
                      
2021 RTL1 ANTLR
  April 2021  A1, A2, M  November 2024 (A1); January 2025 (A2); May 2025 (M) 2.1%—5.4%    268,511   
 
268,511
      —   
2020 RTL1 ANTLR
  May 2020  A1, A2  May 2022 (A1, A2)   6.9%—8.0%    306,517   
 
—  
 
     140,072 
2018 RTL1 ANTLR
  September 2018  
A1, A2,
A-VFN,
M
  July 2022 (A1, A2); March 2023 (M)   4.3%—7.4%    210,296   
 
—  
 
     80,949 
2019 RTL1 ANTLR
  March 2019  A1, A2, A-VFN, M  June 2022 (A1, A2); January 2023 (M)   4.5%—6.9%    217,100   
 
—  
 
     121,772 
                      
 
 
     
 
 
 
Total nonrecourse debt
 
  
 
5,276,781
      5,155,007 
    
 
 
     
 
 
 
Nonrecourse MSR financing liability, at fair value
 
  
 
65,129
      14,088 
Fair value adjustments
 
  
 
83,822
      102,747 
    
 
 
     
 
 
 
Total nonrecourse debt, at fair value
 
  
$
5,425,732
     $5,271,842 
    
 
 
     
 
 
 
Nonrecourse MSR Financing Liability, at Fair Value
The Company has agreements with third parties to sell beneficial interests in the servicing fees generated from certain of its originated or acquired mortgage servicing rights. Under these agreements, the Company has agreed to sell to the third parties the right to receive all excess servicing and ancillary fees related to the identified MSRs in exchange for an upfront payment equal to the entire purchase price of the identified mortgage servicing rights. These transactions are accounted for as financings under ASC 470
, Debt
and included in nonrecourse debt, at fair value in the Consolidated Statements of Financial Condition.
The Company elected to measure the outstanding financings related to the nonrecourse MSR financing liability, at fair value, as permitted under ASC 825
, Financial Instruments
, with all changes in fair value recorded as a charge or credit to fee income in the Consolidated Statements of Operations. The fair value on the nonrecourse MSR financing liability is based on the present value of expected future cash flows to be paid to the third parties with the discount rate approximating current market value for similar financial instruments. See Note 30—Related Party Transactions for additional information regarding the nonrecourse MSR financing liability.
 
56

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
18.
Other Financing Lines of Credit
The following summarizes the components of other financing lines of credit (dollars in thousands):    
 
               
Outstanding Borrowings at
 
               
June 30,
2021
      
December 31,
2020
 
Facility
  
Maturity Date
  
Interest Rate
 
Collateral
Pledged
  
Total
Capacity
(1)
   
Successor
  
 
  
Predecessor
 
Mortgage Lines:
          
 
  
March 2022 $300M Facility
  March 2022  LIBOR + applicable margin First Lien Mortgages  $300,000   
$
192,417
     $182,015 
March 2022 $200M Facility
  March 2022  LIBOR + applicable margin N/A   200,000   
 
189,464
      302,877 
May 2022 $200M Facility
  May 2022  LIBOR + applicable margin First Lien Mortgages   200,000   
 
189,050
      109,463 
February 2022 $300M Facility
  February 2022  LIBOR + applicable margin First Lien Mortgages   300,000   
 
186,754
      0   
July 2021 $200M Facility
(2)
  July 2021  LIBOR + applicable margin First Lien Mortgages   200,000   
 
167,207
      122,075 
October 2021 $200M Facility
  October 2021  LIBOR + applicable margin First Lien Mortgages   200,000   
 
166,564
      158,114 
March 2022 $225M Facility
  March 2022  LIBOR + applicable margin First Lien Mortgages   225,000   
 
163,678
      154,097 
March 2022 $200M Facility
  March 2022  LIBOR + applicable margin First Lien Mortgages   200,000   
 
155,468
      97,225 
March 2026 $150M Facility - MSR
  March 2026  LIBOR + applicable margin MSRs   150,000   
 
125,113
      0   
April 2022 $250M Facility
  April 2022  LIBOR + applicable margin First Lien Mortgages   250,000   
 
122,412
      225,837 
May 2022 $350M Facility
  May 2022  LIBOR + applicable margin First Lien Mortgages   350,000   
 
102,332
      283,821 
October 2021 $250M Facility
  October 2021  LIBOR + applicable margin First Lien Mortgages   250,000   
 
65,541
      170,174 
August 2021 $200M Facility
  August 2021  LIBOR + applicable margin First Lien Mortgages   200,000   
 
59,663
      126,047 
August 2021 $300M Facility
(2)
  August 2021  LIBOR + applicable margin First Lien Mortgages   300,000   
 
40,562
      15,719 
Securities Repo Line
  N/A  LIBOR + applicable margin Mortgage
Related
Asset
   13,951   
 
13,951
      —   
February 2021 $50M Facility - MSR
(3)
  February 2021  Prime +
applicable margin;
5.00% floor
 MSRs   50,000   
 
—  
 
     50,000 
June 2023 $300M Facility
  June 2023  LIBOR + applicable margin First Lien Mortgages   300,000   
 
—  
 
     —   
           
 
 
   
 
 
     
 
 
 
Subtotal mortgage lines of credit
       $3,688,951   
$
1,940,176
     $1,997,464 
        
 
 
   
 
 
     
 
 
 
        
Reverse Lines:
                         
October 2021 $400M Facility
  October 2021  LIBOR + applicable margin First Lien Mortgages  $400,000   
$
257,257
     $84,124 
April 2022 $250M Facility
  April 2022  LIBOR + applicable margin First Lien Mortgages   250,000   
 
214,245
      173,484 
$200M Repo Facility
  N/A  Bond accrual rate
+ applicable
margin
 Mortgage
Related
Assets
   200,000   
 
176,549
      174,578 
February 2024 $90M Facility
  February 2024  LIBOR + applicable margin MSRs   90,000   
 
89,497
      0   
December 2021 $100M Facility
  December 2021  LIBOR + applicable margin First Lien Mortgages   100,000   
 
89,226
      61,220 
March 2022 $100M Facility
  March 2022  LIBOR + applicable margin First Lien Mortgages   100,000   
 
87,936
      15,803 
 
57

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
                 
Outstanding Borrowings at
 
                 
June 30,
2021
      
December 31,
2020
 
Facility
  
Maturity Date
  
Interest Rate
  
Collateral
Pledged
   
Total
Capacity
(1)
   
Successor
      
Predecessor
 
June 2022 $75M Facility
  June 2022   LIBOR + applicable margin 
 
  First Lien Mortgages 
 
   75,000   
 
72,479
  
 
   11,423 
April 2022 $52.5M Facility
  April 2022   LIBOR + applicable margin 
 
  
 
Mortgage
Related
Assets
 
 
 
   52,500   
 
52,500
      50,239 
April 2022 $50M Facility
  April 2022   

 
Prime +
applicable
margin; 6.00%
floor
 
 
 
 
  Unsecuritized Tails 
 
   50,000   
 
38,757
      37,442 
April 2022 $45M Facility
  April 2022   9.00%   
 
Mortgage
Related
Assets
 
 
 
   45,000   
 
28,220
      26,875 
June 2022 $200M Facility
(2)
  June 2022   LIBOR + applicable margin 
 
  First Lien Mortgages 
 
   200,000   
 
26,883
      128,723 
August 2021 $50M Facility
  August 2021   LIBOR + applicable margin 
 
  First Lien Mortgages 
 
   50,000   
 
24,329
      2,860 
$1.2M Repo Facility
  N/A   LIBOR + applicable margin 
 
  
 
Mortgage
Related
Assets
 
 
 
   1,215   
 
1,215
      1,188 
               
 
 
   
 
 
     
 
 
 
Subtotal reverse lines of credit
 
      $1,613,715   
$
1,159,093
     $767,959 
        
 
 
   
 
 
     
 
 
 
        
Commercial Lines:
                             
September 2022 $150M Facility
  September 2022   LIBOR + applicable margin 
 
  
 
Encumbered
Agricultural
Loans
 
 
 
  $150,000   
$
112,229
     $52,300 
April 2023 $145M Facility
  April 2023   LIBOR + applicable margin 
 
  First Lien Mortgages 
 
   145,000   
 
86,055
      100,070 
February 2022 $150M Facility
  February 2022   LIBOR + applicable margin 
 
  First Lien Mortgages 
 
   150,000   
 
33,768
      —   
November 2023 $65M Facility
  November 2023   LIBOR + applicable margin 
 
  First Lien Mortgages 
 
   65,000   
 
30,528
      28,064 
August 2022 $75M
  August 2022   2.50% - 3.25%   
 
Encumbered
Agricultural
Loans
 
 
 
   75,000   
 
24,746
      —   
August 202
2
 $25M Facility
  August 2022   10.00%   Second Lien Mortgages 
 
   25,000   
 
20,900
      21,475 
$4M Securities Repo Line
  N/A   LIBOR + applicable margin 
 
  
 
Mortgage
Related
Assets
 
 
 
   4,024   
 
4,024
      —   
February 2022 $150M Facility
  February 2022   LIBOR + applicable margin 
 
  First Lien Mortgages 
 
   150,000   
 
715
      —   
$2M Securities Repo Line
  N/A   Distributed Bond Interest + 50 bps 
 
  
 
Mortgage
Related
Assets
 
 
 
   —     
 
—  
 
     6,411 
               
 
 
   
 
 
     
 
 
 
Subtotal commercial lines of credit
 
      $764,024   
$
312,965
     $208,320 
        
 
 
   
 
 
     
 
 
 
Total other financing lines of credit
           $6,066,690   
$
3,412,234
     $2,973,743 
            
 
 
   
 
 
     
 
 
 
(1)
 
Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements, including asset-eligibility requirements. Capacity amounts presented are as of June 30, 2021.
(2)
 
See Note 36 - Subsequent Events for additional information on facility amendments.
(3)
 
The February 2021 $50M facility - MSR was paid off and terminated in February 2021.
 
58

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), the weighted average outstanding interest rates on outstanding debt of the Company were 2.57% and 3.15%, respectively.
The Company’s borrowing arrangements and credit facilities contain various financial covenants which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements. As a result of market disruptions and fair value accounting adjustments taken in March 2020 resulting from the
COVID-19
pandemic, FACo was in violation of its first, second, and third quarter 2020 profitability covenants with two of its warehouse lenders. The Company received waivers of these covenant violations from both lenders as well as amendments to profitability covenants for the remaining quarters of 2020.
As a result of impacts from the Business Combination, FAM was not in compliance with the lender adjusted tangible net worth quarterly and
two-consecutive
quarter requirements by FNMA as detailed below. The Company received a waiver for the covenant violations from FNMA. As of June 30, 2021 (Successor), the Company had obtained waivers for these covenant violations and was in compliance with all other financial covenants.
The terms of the Company’s financing arrangements and credit facilities contain covenants, and the terms of the Company’s GSE/seller servicer contracts contain requirements that may restrict the Company and its subsidiaries from paying distributions to its members. These restrictions include restrictions on paying distributions, whenever the payment of such distributions would cause FoA to no longer be in compliance with any of its financial covenants or GSE requirements. Further, the Company is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of the Company (with certain exceptions) exceed the fair value of its assets. Subsidiaries of the Company are generally subject to similar legal limitations on their ability to make distributions to FoA.
 
59

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
As of June 30, 2021 (Successor), the maximum allowable distributions available to the Company based on the most restrictive of such financial covenant ratios is presented in the table below (in thousands, except for ratios):
 
Successor
 
Financial Covenants
  
Requirement
   
June 30, 2021
   
Maximum Allowable
Distribution
(1)
 
FAM
               
Adjusted Tangible Net Worth
  
$
150,000
   
$
191,383
   
$
41,383
 
Liquidity
  
 
40,000
   
 
60,697
   
 
20,697
 
Leverage Ratio
  
 
15:1
 
  
 
13.3:1
 
  
 
21,591
 
Material Decline in Lender Adjusted Net Worth:
               
Lender Adjusted Tangible Net Worth (Quarterly requirement)
  
$
294,790
   
$
191,383
   
$
(103,406
Lender Adjusted Tangible Net Worth
(Two-Consecutive
Quarterly requirement)
  
 
215,803
   
 
191,383
   
 
(24,419
FACo
               
Adjusted Tangible Net Worth
  
$
85,000
   
$
93,411
   
$
8,411
 
Liquidity
  
 
20,000
   
 
28,579
   
 
8,579
 
Leverage Ratio
  
 
6:1
 
  
 
3.6:1
 
  
 
37,192
 
FAR
               
Adjusted Tangible Net Worth
  
$
398,288
   
$
449,271
   
$
50,983
 
Liquidity
  
 
20,000
   
 
25,120
   
 
5,120
 
Leverage Ratio
  
 
6:1
 
  
 
3.6:1
 
  
 
180,788
 
Material Decline in Lender Adjusted Net Worth:
               
Lender Adjusted Tangible Net Worth (Quarterly requirement)
  
$
302,921
   
$
448,047
   
$
145,126
 
Lender Adjusted Tangible Net Worth
(Two-Consecutive
Quarterly requirement)
  
 
354,344
   
 
448,047
   
 
93,703
 
 
(1)
The Maximum Allowable Distribution for any of the originations subsidiaries is the lowest of the amounts shown for the particular originations subsidiary.
 
60

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
As of December 31, 2020 (Predecessor), the maximum allowable distributions available to the Company based on the most restrictive of such financial covenant ratios is presented in the table below (in thousands, except for ratios):
 
Predecessor
 
Financial Covenants
  
Requirement
   
December 31, 2020
   
Maximum Allowable
Distribution
(1)
 
FAM
               
Adjusted Tangible Net Worth
  $125,000   $289,163   $164,163 
Liquidity
   40,000    56,775    16,775 
Leverage Ratio
   15:1    9.3:1    110,267 
Material Decline in Lender Adjusted Net Worth:
               
Lender Adjusted Tangible Net Worth (Quarterly requirement)
  $210,428   $282,062   $71,634 
Lender Adjusted Tangible Net Worth
(Two-Consecutive
Quarterly requirement)
   93,763    282,062    188,299 
FACo
               
Adjusted Tangible Net Worth
  $85,000   $126,672   $41,672 
Liquidity
   20,000    46,385    26,385 
Leverage Ratio
   6:1    1.7:1    90,782 
FAR
               
Adjusted Tangible Net Worth
  $300,000   $474,128   $174,128 
Liquidity
   20,000    36,425    16,425 
Leverage Ratio
   5.5:1    2.5:1    258,615 
Material Decline in Lender Adjusted Net Worth:
               
Lender Adjusted Tangible Net Worth (Quarterly requirement)
  $314,091   $472,458   $158,367 
Lender Adjusted Tangible Net Worth
(Two-Consecutive
Quarterly requirement)
   205,619    472,458    266,839 
 
 
(1)
The Maximum Allowable Distribution for any of the originations subsidiaries is the lowest of the amounts shown for the particular originations subsidiary.
 
 
61

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
19.
Payables and Other Liabilities
Payables and other liabilities consisted of the following (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Accrued compensation expense
  
$
131,831
     $150,214 
Accrued liabilities
  
 
97,902
      83,427 
Lease liabilities
  
 
64,496
      48,250 
Deferred tax liability, net
  
 
28,455
      —   
GNMA reverse mortgage
buy-out
payable
  
 
32,607
      32,317 
Liability for loans eligible for repurchase from GNMA
  
 
30,027
      42,148 
Derivative liabilities
  
 
19,329
      20,722 
Warrant liability
  
 
19,261
      —   
Estimate of claim losses
  
 
11,839
      8,609 
Deferred purchase price liabilities
  
 
44,473
      3,842 
Repurchase reserves
  
 
8,515
      10,529 
   
 
 
     
 
 
 
Total payables and other liabilities
  
$
488,735
     $400,058 
   
 
 
     
 
 
 
Warrants
Prior to the Business Combination, Replay issued 28,750,000
units, consisting of one ordinary share and
one-half
of one redeemable warrant (each, a “Public Warrant” or “Warrant”), resulting in 14,375,000 Public Warrants.
Each Warrant is now exercisable for a share of FoA Class A Common Stock. As of June 30, 2021 (Successor), there were
 
14,375,000
Public Warrants outstanding.
The
W
arrants will expire April 1, 2026, five years after the completion of the Business Combination. The Company may call the
W
arrants for redemption:
 
  in whole and note in part;
 
  at a price of $0.01 per warrant;
 
  upon a minimum of 30 days’ prior written notice of redemption;
 
  
if, and only if, the last reported closing price of the Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a
30-trading
day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders; and
 
Each Warrant entitles the holder to purchase one ordinary share at a price of $11.50 per share, subject to adjustment for reorganization and/or extraordinary dividends event, as described in the warrant agreement.
If the Company calls the Warrants for redemption, management will have the option to require all holders that wish to exercise the warrants to do so on a “cashless basis,” as described in the warrant agreement.
 
6
2

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
The Company has determined that the Warrants are subject to treatment as a liability. As of the Closing of the Business Combination on April 1, 2021 and as of June 30, 2021 (Successor), the Warrants had a fair value of $18.0 million and $19.3 million,
respectively. These liability-classified Public Warrants are out of the money and thus have no impact on diluted EPS.
 
20.
Leases
The Company’s lease portfolio is comprised primarily of real estate and equipment agreements. Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in other assets, net, and payables and other liabilities, respectively, on the Consolidated Statements of Financial Condition, as of June 30, 2021 (Successor) and December 31, 2020 (Predecessor). The Company does not currently have any finance leases in which it is the lessee. Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
For operating leases, the lease liabilities are initially recognized based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. This incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment and given similar credit risk. The lease term for all of the Company’s leases includes the noncancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease. The Company includes these options in the lease term when it is reasonably certain of exercising them.
ROU assets are further adjusted for lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term and is recorded in general and administrative expenses in the Consolidated Statements of Operations. The Company recognizes variable lease payments associated with the Company’s leases when the variability is resolved. Variable lease payments are recorded in general and administrative expenses in the Consolidated Statements of Operations along with expenses arising from fixed lease payments.
The table below summarizes the Company’s operating lease portfolio (in thousands):
 
   
June 30, 2021
      
December 31, 2020
 
   
Successor
      
Predecessor
 
Right-of-use
assets
  
$
62,835
     $46,609 
Lease liabilities
  
$
64,496
     $48,250 
Weighted-average remaining lease term (in years)
  
 
6.61
      3.61 
Weighted-average discount rate
  
 
7.08
     7.42
The table below summarizes the Company’s net operating lease cost:
 
   
April 1, 2021
to
June 30, 2021
      
January 1, 2021
to

March 31, 2021
  
For the three
months ended
June 30, 2020
  
For the six
months ended
June 30, 2020
 
   
Successor
      
Predecessor
 
Operating lease cost
  
$
5,591
       $5,490  
$
7,046
  $13,658 
Short-term lease cost
  
 
888
        1,035  
 
(593
  1,438 
   
 
 
       
 
 
  
 
 
  
 
 
 
Total operating and short term lease cost
  
 
6,479
        6,525  
 
6,453
   15,096 
   
 
 
       
 
 
  
 
 
  
 
 
 
Variable lease cost
  
 
1,997
        1,808  
 
718
   1,422 
Sublease income
  
 
(516
       (464 
 
(574
  (1,270
   
 
 
       
 
 
  
 
 
  
 
 
 
Net lease cost
  
$
7,960
       $7,869  
$
6,597
  $15,248 
   
 
 
       
 
 
  
 
 
  
 
 
 
 
63

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
The table below summarizes other information related to the Company’s operating leases:
 
   
April 1, 2021
to
June 30, 2021
      
January 1, 2021
to

March 31, 2021
   
For the three
months ended
June 30, 2020
   
For the
six months
ended
June 30, 2020
 
   
Successor
  
 
  
Predecessor
 
Cash paid for amounts included in the measurement of lease liabilities:
                      
Operating cash flows from operating leases
  
$
5,291
     $5,423   $6,255   $12,540 
Leased assets obtained in exchange for new operating lease liabilities
  
 
22,752
      701    1,134    4,598 
The following table presents a maturity analysis of operating leases and a reconciliation of the undiscounted cash flows to lease liabilities as of June 30, 2021 (Successor):
 
2021
  
$
10,083
 
2022
  
 
16,846
 
2023
  
 
13,104
 
2024
  
 
9,025
 
2025
  
 
6,045
 
2026
  
 
3,585
 
Thereafter
  
 
24,742
 
   
 
 
 
Total undiscounted lease payments
  
 
83,430
 
Less: amounts representing interest
  
 
(18,934
   
 
 
 
Total lease liabilities
  
$
64,496
 
   
 
 
 
 
21.
Notes Payable, Net
Senior Unsecured Notes
In November 2020, FOAF issued $350.0 million aggregate principal amount of senior unsecured notes (the “Notes”). Interest is payable semi-annually in arrears on May 15 and November 15 beginning on May 15, 2021. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by FoA Equity and each of FoA Equity’s material existing and future wholly-owned domestic subsidiaries, excluding certain subsidiaries who are not able to guarantee due to tax, contractual or regulatory reasons.
At any time prior to November 15, 2022, FOAF may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount thereof, plus the applicable premium as of the redemption date under the terms of the indenture and accrued and unpaid interest. The redemption price during each of the twelve-month periods following November 15, 2022, November 15, 2023 and at any time after November 15, 2024 is 103.938%, 101.969% and 100.000%, respectively, of the principal amount plus accrued and unpaid interest thereon. At any time prior to November 15, 2022, FOAF may also redeem up to 40% of the aggregate principal amount of the notes at a redemption price equal to 107.875% of the aggregate principal amount of the senior unsecured notes redeemed, with an amount equal to or less than the net cash proceeds from certain equity offerings, plus accrued and unpaid interest.
Upon the occurrence of a change of control, the holders of the Notes will have the right to require FOAF to make an offer to repurchase each holder’s Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest.
The Notes contain covenants limiting, among other things, FOAF and its restricted subsidiaries’ ability to incur additional debt or issue certain preferred shares, incur liens, make certain distributions, investments and other
 
64

Finance of America Companies Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
 
 
 
restricted payments, engage in certain transactions with affiliates, and merge or consolidate or sell, transfer, lease or otherwise dispose of all or substantially all of FOAF’s assets. These incurrence based covenants are subject to exceptions and qualifications. Many of these covenants will cease to apply during any time that the Notes have investment grade ratings and no default has occurred and continuing. The Company was in compliance with all required covenants related to the Notes as of June 30, 2021 (Successor).
Financing Agreements
As a part of the Company’s acquisitions of certain subsidiaries, the Company entered into various note agreements with the sellers. In addition, in 2017, the Company entered into an agreement for the purchase of computer hardware and equipment which was financed by notes payable to the seller with monthly payments through January 2021.
A summary of the outstanding notes payable, net, is presented in the table below (in thousands):
 
Description
  
Maturity Date
  
Interest
Rate
  
June 30,
2021
      
December 31,
2020
 
         
Successor
      
Predecessor
 
Senior Unsecured Notes
  November 2025   7.9 
$
350,000
     $350,000 
Financing Agreement
  January 2021   5.5 
 
0  
 
     9 
          
 
 
     
 
 
 
Total aggregate principle amount
 
 
 
350,000
      350,009 
Fair value adjustment, net of amortization
(1)
 
 
 
3,718
      0   
Less: Debt issuance costs
 
 
 
—  
 
     (13,436
   
 
 
     
 
 
 
Total notes payable, net
 
 
$
353,718
     $336,573 
   
 
 
     
 
 
 
 
(1)
In conjunction with the Business Combination discus