Silver Tsunami Update: Finance of America Companies $FOA

I first wrote about Finance of America Companies on July 4th of last year.

Finance of America Companies (FOA) is the market leader in reverse mortgages. They are just five quarters into a turnaround, bouncing back from the brink of bankruptcy.

It wasn’t pretty, the Coronavirus pandemic had slowed sales to a crawl, these high trust transactions have an important in-person component. Then, just as people were meeting in person again, a banking crisis shattered confidence in financial institutions. Other analysts blamed low volumes on rising interest rates, but I maintain the belief that seventy year old widows care more about the failure of First Republic than they do about a 5% Fed Funds rate. The fact that FOA has seen five quarters of sequential volume growth despite high interest rates lends support to my position.

FOA has flipped to GAAP net income positive on the back of this volume growth, which at $2.6 billion of annual originations is still below the long term average of $3 billion. The turnaround was due to time passing after the banking crisis, as well as an aggressive fixed cost cutting initiative, transferring their cost structure toward variable costs. This allowed a resumption of marketing efforts.

I am saddened to learn that the marketing campaign with Tom Selleck had run its course. I’m not against using sex appeal in marketing, and there’s probably nobody better to reach widows than Tom Selleck. There is a new marketing campaign featuring a Mrs. Acosta, and while I am skeptical, FOA is taking back market share which was lost when the company was too squeezed to advertise properly. After FOA acquired their largest competitor, FOA’s peak market share was 37%. That had since fallen to 28%, and as of last quarter has climbed back to 29%. Mutual of Omaha is fierce competition if you don’t have an advertising budget.

Finviz is finally correctly displaying the market capitalization of $598 million including the LLC units in the footnote of the SEC filings. When FOA acquired their largest competitor, the stock price was so depressed that it was highly dilutive. In order to maintain control of the combined entity, the acquired company was paid in non-voting LLC units. Those units are easy to miss, and misunderstating the market capitalization probably contributed to the stock price running up from $5 to $32 before crashing back to the $24 range. Macrotrends still displays an incorrect figure of $272 million, so not all data scraping services are as far along in their AI journey.

The last time I had written about FOA, management had guided toward $26 million of operating net income for 2025. I predicted that was a sandbagged number, because my estimates were closer to $80 million. So far, in the first six months of 2025, operating net income is $27 million, and they are on track to finish the year much closer to my estimate than to theirs.

But more importantly, my original thesis was about the residual income that would accrue to FOA because of the spread between adjustable rate mortgages and five year mortgage backed securities (MBS) for the two year period of an inverted yield curve. FOA was accruing a 4.25% arbitrage on $7 billion of non-conforming mortgages, but that money would only be received as the MBS matured and were re-issued. For the last two quarters, book value of FOA has increased by $80 million per quarter, rising from $316 million in December of 2024 to $473 million by June of 2025. This is just the beginning, because interest rates rose in 2022, and the MBS have a five year maturity, so we should be seeing those residuals pumping up book value until sometime in 2027.

A company that grows book value by $80 million a quarter, or $240 million a year, should be able to return capital to shareholders at some point. I don’t know what kind of a war chest FOA wants to maintain after being so close to the brink just five quarters ago. But at some point, they will have to start buying back stock or paying a dividend. I am not sure what their preference is, but hopefully they ask Leon Cooperman, who owns more than 10% of the company, and recently increased his stake by a third.

Management is guiding toward $2.60 to $3.00 per share of adjusted net income for 2025, they are already two quarters through the year, and affirmed that guidance each quarter. Meanwhile book value is growing at a rate of over $7 per quarter as those inverted yield curve residuals come in. Interest expense is set to drop by $10 million for 2026 over 2025 due to the recent refinancing of a 15% interest working capital loan. They really were perceived to be on bankruptcy’s door just a year ago.

For the long run, FOA has three sources of income; operations, portfolio management, and residuals. Income from operations is on track to be around $60 million at the current run rate. Income from portfolio management is on track to be around $80 million at the current run rate. And after the inverted yield curve residuals are finished, ordinary residuals should be something like $50 million a year. Deducting interest expense which is $50 million for 2025, but likely to be $40 million for 2026, we get a run rate of $150 million annual income. This run rate has room to improve as debt is retired and as baby boomers need more pocket money.

The current market capitalization of FOA is $598 million, but a market leading financial firm could easily trade at a price to earnings ratio of 15x. It might take a few years to reach 15x, but there is a lot of room for returning capital to shareholders along the way. The immediate priority for management is retiring debt, however, and it is likely that most of the residual income from the inverted yield curve will go toward fixing the balance sheet.

At a price to earnings ratio of 10x, and if the exchangeable notes all convert, FOA would slowly trend toward a share price of $90 over the next several years. At a price to earnings ratio of 15x, that would be a price target of $135. If it takes three years to reach that re-rating, management would have another approximately $450 million of income to retire debt, hopefully buy back shares, or possibly pay dividends. In the worst case scenario with no share buybacks and repaying all outstanding debt, $250 million of dividends fully diluted would be over $15 a share over those three years. And that does not take into account the fact that currently the inverted yield curve residuals are coming in at a rate of $80 million a quarter. I am also not taking into account the secular tailwind of the silver tsunami as baby boomers manage their golden years. There is a lot of room for things to go right.

I had prepared a video with a spreadsheet estimating a potential share price out to 2030. That estimate bakes in a certain growth rate which may or may not be accurate, I also initially missed those LLC units, and FOA refinanced some outstanding debt with a convertible that converts at a price of $27.50. I have updated the price targets here to be more accurate, but the original video goes into more detail about the business and the margins. With no interest expense, a tiny bit of growth, and a 15x price to earnings multiple, the most aggressive share price target would be $181 by the end of 2028.

Finance of America Companies (FOA) $24.62: $90 by the end of 2028 base case

Finance of America Companies (FOA) $24.62: $135 by the end of 2028 bull case