Announcement: Moody's affirms Finance of America Mortgage LLC's assessment at Average, as an originator of conventional, conforming residential mortgage loans

Global Credit Research - 04 Dec 2020

New York, December 04, 2020 -- Moody's Investors Service (Moody's) has assessed Finance of America Mortgage LLC (FAM) as an Average originator of conventional, conforming residential mortgage loans.

Headquartered in Horsham, PA, FAM is a wholly-owned subsidiary of Finance of America Holdings LLC (FAH). FAM began originating under its current name in 2015, following FAH's acquisition of a regional mortgage company. As of 30 June 2020, FAM had 2,658 employees and 280 branches. FAM is licensed in all 50 states plus the District of Columbia, Puerto Rico, and the U.S. Virgin Islands

ASSESSMENT RATIONALE

We assess FAM's underwriting and valuation practices as Average. FAM's conforming, conventional underwriting guidelines includes overlays to Fannie Mae and Freddie Mac guidelines. Examples of these overlays include higher investment property reserves and a shorter employment verification window for self-employed borrowers. Since our last review, FAH hired a Chief Appraiser to monitor the appraisal process at all subsidiaries as well as appraisal management companies (AMCs). About a quarter of appraisals are sent to an affiliate of FAM that is a licensed AMC. We view FAM's affiliation with an AMC as negative due to the potential for conflict of interest. FAM management has stated that this risk is mitigated by a combination of oversight and electronic documentation of all communication between the two companies.

Our assessment of FAM's early loan performance is affirmed at Average as the performance is comparable to overall conforming, conventional Fannie Mae and Freddie Mac published performance.

We continue to assess FAM's credit risk management as Average. FAM purchases closed loans from their non-delegated correspondents on a flow basis after a full review of each loan file. During the review period, FAM moved away from their originate-to-sell model and began to retain the mortgage servicing rights of the loans they originate.

We affirm FAM's sales and marketing at Average. FAM has an acceptable third party originator monitoring process and all marketing materials produced by loan officers are reviewed by FAM.

FAM's closing practices continue to be assessed at Average due to the company's trailing document procurement process and adequate approval process for title companies and closing attorneys. FAM experienced minimal closing delays during COVID-19 as hybrid e-closings were adapted.

Our assessment for FAM's financial strength continues to be Below Average. FAM's financial flexibility is limited by its short-term warehouse lines of credit. FAM also experienced elevated earnings volatility. FAM's indirect parent company, Finance of America Equity Capital LLC has agreed to a business combination with a publicly-traded special purpose acquisition company (SPAC) that will result in Finance of America becoming a publicly listed company. It is anticipated that the transaction will close in the first half of 2021.

FAM's management and staffing continues to be assessed as Average. During the review period, FAM continued to experience an elevated level of employee turnover. This is offset by the company's formal training program which incorporates correction actions.

We continue to assess FAM's oversight processes as Average. FAM has multiple levels of quality control (QC) review, actions plans for identified trends and underwriter compensation which are tied to QC results.

Our assessment for FAM's legal and compliance functions is Above Average. FAM has a centralized in-house compliance and legal team and robust controls in place to review TPO generated disclosures.

We assess FAM's technology as Average due to its acceptable loan origination system (LOS). Some processes within the LOS are still manual and require human intervention. A documented and tested disaster recovery plan is in place.

The framework used in this analysis was "Originator Assessments for Residential Mortgage Loans" published in December 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1122178. Alternatively, please see the Framework list at https://www.moodys.com/research/Listof-NCRA-Frameworks--PBC_1178235 for a copy of this framework.

Please see www.moodys.com for any updates on changes to the lead analyst and to the Moody's legal entity that has issued the assessment.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Cinthia Chung-Yip Associate Lead Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 William Fricke VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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