Q3 2021 Finance of America Companies Inc Earnings Call

November 9, 2021

Operator: Sam.

Operator: Good morning, ladies and gentlemen, and welcome to the Finance of America's Q3 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call will be recorded. I would now like to turn the conference over to Michael Fant, Senior Vice President of Finance at Finance of America. Please go ahead. Michael.

Operator: Good morning, ladies and gentlemen, and welcome to the Finance of America's Q3 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call will be recorded. I would now like to turn the conference over to Michael Fant, Senior Vice President of Finance at Finance of America. Please go ahead, Michael.

Good morning, ladies and gentlemen, and welcome to the finance of Americas third quarter 2012 earnings Conference call.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session and instructions will follow at that time as a reminder, this call will be recorded.

I'd now like to turn the conference over to Michael <unk> Senior Vice President of Finance at Finance of America. Please go ahead Michael.

Michael Fant: Thank you and good morning everyone, and welcome to Finance of America's Q3 Earnings Call. With me today are Patti Cook, Chief Executive Officer, and Johan Gericke, Chief Financial Officer. As a reminder, this call is being recorded, and you can find the earnings release and presentation on our investor relations website at www.financeofamerica.com. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures, to the extent available without unreasonable effort, discussed on today's call in our earnings press release and on the Investor Relations page of our website.

Okay.

Thank you and good morning, everyone and welcome to finance for the Americas third quarter earnings call with me today are Patty Cook, Chief Executive Officer, and Johan <unk> Chief Financial Officer.

As a reminder, this call is being recorded and you can find the earnings release and presentation on our Investor Relations website at Www Dot Finance of America Dot com.

In addition, we will refer to certain non-GAAP financial measures on this call you can find reconciliations of non-GAAP to GAAP financial measures to the extent available without unreasonable effort discussed on today's call in our earnings press release and on the Investor Relations page of our website.

Michael Fant: Also, I would like to remind everyone that comments on this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the Company's expected operating and financial performance for future periods. These statements are based on the Company's current expectations and are subject to the safe harbor statement for forward-looking statements that you will find in yesterday's earnings release. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks or other factors, including those that are described in the Risk Factors section of Finance of America's Form S-1, originally filed with the SEC on 25 May 2021, as well as our subsequent filings with the SEC. We are not undertaking any commitment to update these statements if conditions change.

Also, I would like to remind everyone that comments on this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the Company's expected operating and financial performance for future periods. These statements are based on the Company's current expectations and are subject to the safe harbor statement for forward-looking statements that you will find in yesterday's earnings release. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks or other factors, including those that are described in the Risk Factors section of Finance of America's Form S-1, originally filed with the SEC on 25 May 2021, as well as our subsequent filings with the SEC. We are not undertaking any commitment to update these statements if conditions change.

Also I would like to remind everyone that comments on this conference call may be forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 regarding the company's expected operating and financial performance for future periods.

These statements are based on the company's current expectations and are subject to the safe Harbor statement for forward looking statements that you will find in yesterday's earnings release.

Actual results for future periods may differ materially from those expressed or implied by these forward looking statements due to a number of risks or other factors, including those that are described in the risk factors section of finance America's form S. One originally filed with the SEC on May 25th 2021, as well as our subsequent filings.

With the SEC.

We are not undertaking any commitment to update these statements if conditions change.

Michael Fant: Please note these are interim period financials and are unaudited. On today's call, Tidy will begin with a discussion of our strategic priorities. Johan will cover the financial results and Patti will close by providing insight into how we view our growth opportunities. Now I would like to turn the call over to Finance of America's Chief Executive Officer, Patti Cook.

Please note these are interim period financials and are unaudited. On today's call, Patti will begin with a discussion of our strategic priorities, Johan will cover the financial results and Patti will close by providing insight into how we view our growth opportunities. Now I would like to turn the call over to Finance of America's Chief Executive Officer, Patti Cook.

Please note. These are interim period financials and are unaudited.

On today's call will begin with a discussion of our strategic priority.

Ron will cover the financial results and Patty will close by providing insight into how we view our growth opportunity now.

Now I would like to turn the call over to finance and Americas, Chief Executive Officer Patty Cook.

Patti Cook: Patti, thanks Michael, and good morning everyone. Thank you for joining us for our Q3 call. We're going to spend a little more time than usual as we want to discuss our strategic priorities and opportunities for growth. First off, let me start by saying that I could not be prouder of our performance this quarter as well as the hard work of the entire Finance of America team. Every segment of our business grew revenue and increased profitability compared to last quarter. In fact, our year-to-date revenue of $1.4 billion is up 7% compared to the same period last year. This is a remarkable achievement if you consider the huge bar that mortgage set in 2020, and it's a testament to not only the strong growth we have seen in our non-mortgage businesses but also our unique operating model.

Got it.

And good morning, everyone. Thank you for joining us for our third quarter call.

We're going to spend a little more time than usual.

It's Scott Thanks T J priority.

Infinity is picked up.

First off let me start by saying that I could not be prouder, if I perform.

As well as the hard work of the entire Finance America Paul.

Every segment of our business grew revenue and increased profitability compared to last quarter.

Our year to date revenue of one 4 million is up 7% compared to the same period last year.

This is a remarkable achievement if you consider the huge bar that mortgage set in 2020, and it's a testament to not only the strong growth we have seen in our non-mortgage businesses but also our unique operating model. As a result, we generated basic earnings per share of $0.36 and adjusted fully diluted earnings per share of $0.39, which is up 30% compared to last quarter. Our growth can be attributed to two fundamental pillars that our businesses stand, product innovation and capital markets expertise.

This is a remarkable achievement if you consider the huge box.

Set in 2020.

And it's a testament to not only gets to our growth we have seen in our non mortgage businesses.

But also our unique operating model.

Patti Cook: As a result, we generated basic earnings per share of $0.36 and adjusted fully diluted earnings per share of $0.39, which is up 30% compared to last quarter.

As a result, we generated basic earnings per share.

And adjusted fully diluted earnings per share was 39, which is up 30% compared to last quarter.

Patti Cook: Our growth can be attributed to two fundamental pillars that our businesses stand.

Well it can be attributed to two fundamental Hillary.

Businesses stand upon.

Patti Cook: Product innovation and capital markets expertise. No other non bank consumer lending company can match the breadth of our products and distribution. And underpinning our broad product range are very sophisticated capital markets capabilities. These not only maximize the value we get for our production but also rapidly take advantage of opportunities the market presents. This combination is unmatched in the consumer lending arena and has allowed us to continue growing profitably despite an anticipated slowdown in the mortgage market.

Product innovation and capital markets expertise.

No other non bank consumer lending company can match the breadth of our products and distribution. And underpinning our broad product range are very sophisticated capital markets capabilities. These not only maximize the value we get for our production but also rapidly take advantage of opportunities the market presents. This combination is unmatched in the consumer lending arena and has allowed us to continue growing profitably despite an anticipated slowdown in the mortgage market. Our business model is purposefully different from mortgage companies that are generally designed around a single lending platform that offers one size fits all mortgages with an eye toward maximizing transaction value.

No other non bank consumer lending company can match, the breadth of our products and distribution.

And underpinning our broad product range are very sophisticated capital markets capability.

These not only maximize the value gap crop protection, but also rapidly take advantage of opportunities the market presents.

This combination is unmatched in the consumer lending arena.

And it has allowed us to continue growing profitably despite an anticipated slowdown in the mortgage market.

Patti Cook: Our business model is purposefully different from mortgage companies that are generally designed around a single lending platform that offers one size fits all mortgages with an eye toward maximizing transaction value. We are a specially financed company built to capture lifetime household value. Yet unlike many fintechs that carry massive valuations but lose hundreds of millions of dollars, we are profitable today and will remain focused on profitable growth going forward. As you will see when Johan covers his segment results, our non mortgage businesses now account for 49% of our revenue and 80% of our adjusted net income. More importantly, I expect those ratios to increase in the future. I will talk more about our growth expectations towards the end of this call.

Our business model is purposely kept for mortgage company.

We just aligned around a single lending platform that offers one size fits all mortgages with an eye toward maximizing transaction value.

We are a specially financed company built to capture lifetime household value. Yet unlike many fintechs that carry massive valuations but lose hundreds of millions of dollars, we are profitable today and will remain focused on profitable growth going forward. As you will see when Johan covers his segment results, our non mortgage businesses now account for 49% of our revenue and 80% of our adjusted net income. More importantly, I expect those ratios to increase in the future. I will talk more about our growth expectations towards the end of this call.

We are a specialty finance company built to capture lifetime household value.

Unlike many fantastic carried massive valuations, but literally hundreds of millions of dollars we are profitable today.

And we will remain focused on profitable growth going forward.

As you will see when Johan coverage. This segment results, our non mortgage businesses now accounts for 49% of our revenue and 80% of our adjusted net income.

More importantly, I expect those ratios to increase in the future.

I will talk more about our growth expectations towards the end of this call.

Patti Cook: We are cognizant of the economic outlook and, as a result, are focused on three immediate strategic priorities. First, we will continue to optimize the mortgage business in a way that allows us to disproportionately benefit from the expected growth of the purchase and non-agency markets, yet remain able to take advantage of the episodic refinance opportunities as we did in 2020. We are laser-focused on capitalizing on the strength of our large and successful purchase-centric distribution network and introducing new products like Flex, our non-agency mortgage.

We are cognizant of the economic outlook and, as a result, are focused on three immediate strategic priorities. First, we will continue to optimize the mortgage business in a way that allows us to disproportionately benefit from the expected growth of the purchase and non-agency markets, yet remain able to take advantage of the episodic refinance opportunities as we did in 2020. We are laser-focused on capitalizing on the strength of our large and successful purchase-centric distribution network and introducing new products like Flex, our non-agency mortgage.

We are cognizant of the economic outlook.

And as a result are focused on three immediate strategic priority.

First we will continue to optimize the mortgage business in a way that allows us to disproportionately benefit from the expected growth of the purchase and non agency market.

Yet remain able to take advantage of the episodic refinance opportunities as we get into 2020.

We are laser focused on capitalizing on the strength of our large and successful purchase centric distribution network and introducing new products like flex or non agency mortgage.

Patti Cook: Secondly, we will continue making significant investments in our specialty finance businesses such as reverse, commercial, and home improvement to further accelerate growth. I will cover this in depth at the end of the call when I talk about our growth prospects. Lastly, and this is something I am really excited about, we are investing heavily in our technology, data, and operating models to capture the substantial lifetime household value inherent in our franchise. We talk about lifetime household value rather than lifetime consumer value since our products not only allow us to deliver an enduring personalized experience that meets customers' specific financing needs at various stages of life, but also capture multi-generational relationships.

Secondly, we will continue making significant investments in our specialty finance businesses such as reverse, commercial, and home improvement to further accelerate growth. I will cover this in depth at the end of the call when I talk about our growth prospects. Lastly, and this is something I am really excited about, we are investing heavily in our technology, data, and operating models to capture the substantial lifetime household value inherent in our franchise. We talk about lifetime household value rather than lifetime consumer value since our products not only allow us to deliver an enduring personalized experience that meets customers' specific financing needs at various stages of life, but also capture multi-generational relationships.

Secondly, we will continue making significant investments.

Specialty finance businesses, such as her first commercial and home improvement to further accelerate growth.

I will cover this in test at the end of the call when I talk about our growth prospects.

Lastly, and this is something I am really excited about we are investing heavily in our technology data and operating model.

Captured a substantial lifetime household value inherent in our franchise.

We talked about lifestyle household value rather than lifetime consumer value.

And so our products not only allow us to deliver an enduring personalized experience that meets customers' specific financing needs at various stages of life.

But also capture multi generational relationship.

Patti Cook: We believe that customers and their families benefit when lending is treated holistically in the context of their ongoing financial journey, not as random one-off transactions. No other consumer lending platform can offer a student loan all the way to a reverse mortgage at the scale that Finance of America can.

We believe that customers and their families benefit when lending is treated holistically in the context of their ongoing financial journey, not as random one-off transactions. No other consumer lending platform can offer a student loan all the way to a reverse mortgage at the scale that Finance of America can. With that, I'll hand it over to Johan to walk through the financials before I close out with some important remarks on growth and our expectations for the Q4.

We believe that customers and their families benefit when lending is treated holistically in the context of their ongoing financial journey.

Not as random one off transactions.

No other consumer lending platform can offer a student loan all the way through a reverse mortgage at a scale that finance from America Ken.

Patti Cook: With that, I'll hand it over to Johan to walk through the financials before I close out with some important remarks on growth and our expectations for the fourth quarter.

With that I'll hand, it over to Johan to walk through the financials.

Before I close out some of course, a remark on growth and our expectations for the fourth quarter.

Johan Gericke: Thanks Patti. As mentioned earlier, this was a strong quarter for all our businesses. Revenue grew 17% compared to last quarter and we generated $55 million in pre-tax income.

Johan Gericke: Thanks Patti. As mentioned earlier, this was a strong quarter for all our businesses. Revenue grew 17% compared to last quarter and we generated $55 million in pre-tax income. This translated to adjusted net income of 75 million and fully diluted adjusted earnings per share of $0.39, which exceeded expectations. Moving to the balance sheet, cash increased by 35 million in Q3 despite retaining and growing our MSR balances. This was largely due to the successful execution of four securitizations by our capital markets. Three securitizations were related to FOA originated loans, and the team also acted as co-manager on a third-party securitization.

Thanks Patty.

As mentioned earlier this was a strong quarter for all our businesses.

Revenue grew 17% compared to last quarter, and we generated 55 million in pre tax income.

Johan Gericke: This translated to adjusted net income of 75 million and fully diluted adjusted earnings per share of $0.39, which exceeded expectations. Moving to the balance sheet, cash increased by 35 million in Q3 despite retaining and growing our MSR balances. This was largely due to the successful execution of four securitizations by our capital markets. Three securitizations were related to FOA originated loans, and the team also acted as co-manager on a third-party securitization. We grew our MSR balances by 50 million and are heavily focused on recapturing. Currently, we are recapturing greater than 70% in our retail channel and greater than 60% for our mortgage business overall.

This translated to adjusted net income of $75 million.

Fully diluted adjusted earnings per share of 39.

Which exceeded expectations.

Moving to the balance sheet cash increased by $35 million in Q3.

Spike retaining and growing our MSR balances.

This was largely due to the successful execution of four securitizations by our capital markets team.

Three securitizations were related to F away originated loans and the team also exit as co manager on a third party securitization.

We grew our MSR balances by 50 million and are heavily focused on recapturing. Currently, we are recapturing greater than 70% in our retail channel and greater than 60% for our mortgage business overall. Lastly, we grew Tangible Equity by 64 million or 17% quarter over quarter as we continue to strengthen our balance sheet to fund future growth. As we look at our individual reporting segments, revenue in mortgage originations grew by 8% relative to the Q2 and it generated $15 million in pre-tax income. Gain on sale margins was stable in our retail channel, and a modest quarterly decline in overall margin was due to channel mix from growth in the TPO channel.

We grew our MSR balances by $50 million and are heavily focused on recapturing.

Currently we are capturing greater than 70% in our retail channel and greater than 60% for our mortgage business overall.

Johan Gericke: Lastly, we grew Tangible Equity by 64 million or 17% quarter over quarter as we continue to strengthen our balance sheet to fund future growth.

Lastly, we grew tangible equity by $64 million or 17% quarter over quarter as we continued to strengthen our balance sheet to fund future growth.

Johan Gericke: As we look at our individual reporting segments, revenue in mortgage originations grew by 8% relative to the second quarter and it generated $15 million in pre-tax income. Gain on sale margins was stable in our retail channel, and a modest quarterly decline in overall margin was due to channel mix from growth in the TPO channel. As our recent Parkside acquisition impacted the full quarter, our reverse origination segment set a second consecutive quarterly funding record. The strength in this market is driven by both new originations and cash-out refinances due to recent home price appreciation. This generated quarterly revenue of $111 million, the first time it crossed the $100 million mark, and pre-tax income of $69 million, which grew 30% compared to last quarter.

As we look at our individual reporting segments revenue and mortgage originations grew by 8% relative to the second quarter and these generated $15 million and pretax income.

Gain on sale margins was stable in our retail channel and a modest quarterly decline in overall margin was due to channel mix from growth in the GPO channel as a recent oxide acquisition impacted the full quarter.

As our recent Parkside acquisition impacted the full quarter, our reverse origination segment set a second consecutive quarterly funding record. The strength in this market is driven by both new originations and cash-out refinances due to recent home price appreciation. This generated quarterly revenue of $111 million, the first time it crossed the $100 million mark, and pre-tax income of $69 million, which grew 30% compared to last quarter.

Our reverse origination segment set a second consecutive quarterly funding record.

The strength in this market is driven by both new originations and cash out refinances due to recent home price appreciation.

This generated quarterly revenue of $111 million.

First time, it crossed the $100 million of all.

And pretax income of $69 million, which grew 30% compared to last quarter.

Johan Gericke: Year to date, reverse originations generated $168 million in pre-tax income, a 127% increase as compared to the same period in 2020.

Year to date, reverse originations generated $168 million in pre-tax income, a 127% increase as compared to the same period in 2020. Our commercial originations business also continued its growth trajectory, producing record quarterly origination volume and revenue growth of 22% quarter over quarter. Our pipeline is higher than it was last quarter and we are processing as many loans as we can. Given that demand is outstripping supply, we saw an increase in revenue margins quarter over quarter. Lender Services had another strong quarter with 9% revenue growth and 13% pre-tax income growth relative to last quarter.

Year to date reverse originations generated $168 million in pre tax income a 127% increase as compared to the same period in 2020.

Johan Gericke: Our commercial originations business also continued its growth trajectory, producing record quarterly origination volume and revenue growth of 22% quarter over quarter. Our pipeline is higher than it was last quarter and we are processing as many loans as we can. Given that demand is outstripping supply, we saw an increase in revenue margins quarter over quarter. Lender Services had another strong quarter with 9% revenue growth and 13% pre-tax income growth relative to last quarter. Year to date, this business has contributed $30 million in pre-tax income compared to $15 million last year, a 100% increase. If you combine the impact of these three businesses, Reverse, Commercial, and Lender Services, you'll see that year to date revenue increased by 94% and pre-tax income increased by 148% respectively compared to 2020.

Our commercial originations business also continued its growth trajectory.

<unk> record quarterly origination volume and revenue growth of 22% quarter over quarter.

Our pipeline is higher than it was last quarter and we are processing as many loans as we can.

Given the demand is outstripping supply, we saw an increase in revenue margins quarter over quarter.

Then there are services had another strong quarter with 9% revenue growth and 13% pretax income growth relative to last quarter.

Year to date, this business has contributed $30 million in pre-tax income compared to $15 million last year, a 100% increase. If you combine the impact of these three businesses, Reverse, Commercial, and Lender Services, you'll see that year to date revenue increased by 94% and pre-tax income increased by 148% respectively compared to 2020. Turning to our portfolio management segment, the capital markets team completed three securitizations of Finance of America originated loans resulting in growth in our assets under management. In addition, we continue to retain MSR originated in our retail channel and sell MSR in our TPO channel.

Year to date. This business has contributed $30 million in pre tax income compared with $15 million last year, a 100% increase.

If you combine the impact of these three businesses reverse commercial and lender services, you will see that year to date revenue increased by 94% and pretax income increased by 148% respectively compared to 2020.

Johan Gericke: Turning to our portfolio management segment, the capital markets team completed three securitizations of Finance of America originated loans resulting in growth in our assets under management. In addition, we continue to retain MSR originated in our retail channel and sell MSR in our TPO channel. The latter is sold to a third party fund which allows us to retain the right to market to those customers. Also note that fair value marks related predominantly to higher modeled repayment speeds on securitized mortgage assets and MSR flow through this segment. Let me now hand it back to Patti to cover our growth expectations for Q4.

Turning to our portfolio management segment, the capital markets team completed three Securitizations of finance of America originated loans, resulting in growth in our assets under management.

In addition, we continued to retain MSR originated in our retail channel and sell MSR in our CPO channel.

The latter is sold to a third party fund which allows us to retain the right to market to those customers. Also note that fair value marks related predominantly to higher modeled repayment speeds on securitized mortgage assets and MSR flow through this segment. Let me now hand it back to Patti to cover our growth expectations for Q4.

The latter is sold to a third party fund, which allows us to retain the rights to market to those customers.

Also note that fair value marks related predominantly to hire model prepayment speeds on securitized mortgage assets and MSR flow through this segment.

Let me now hand, it back to Patrick to cover our growth expectations for Q4. Thank.

Patti Cook: Thanks, Johan. Before I talk about Q4 expectations, I want to address what appears to be the market's misperception of our company. I don't believe the market is properly rewarding Finance of America for the underlying value of the different segments of our business. Our comparison set appears to be mortgage companies, yet 49% of our revenue, and 80% of our pre-tax income this quarter were generated by segments other than mortgage originations. For purposes of this discussion, I will refer to these other non-mortgage segments as Specialty Finance and Services collectively. Importantly, I expect that the relative revenue and profit contributions from Specialty Finance and Services will grow over time.

Thank you Johan.

Before I talk about fourth quarter expectations I wanted to address what appears to be the market misperception about the company I.

I don't believe the market is properly rewarded finance of America for the underlying value of the different segments of our business.

Our comparison set appears to be mortgage company.

Yes, 49% of our revenue and 80% of our pretax income this quarter were generated by segments other than mortgage origination.

For purposes of this discussion I will refer to these other non mortgage segment.

<unk> finance conservative collectively.

Importantly, I expect that the relative revenue and profit contributions from Specialty Finance and Services will grow over time. Individual companies like our Reverse, Commercial, and lender services businesses have recently traded at multiples substantially higher than where Finance of America stock is currently trading. As I read through these announcements, the transaction values are always underscored by expectations of sector growth, for example, the acquisition of Anchor Loans by Pretium a week ago. The market is clearly not rewarding Finance of America for the superior growth in comparable sectors inherent in our Specialty Finance and Services business.

Importantly, I expect that the relative revenue and profit contribution from specialty finance and services will grow over time.

Patti Cook: Individual companies like our Reverse, Commercial, and lender services businesses have recently traded at multiples substantially higher than where Finance of America stock is currently trading. As I read through these announcements, the transaction values are always underscored by expectations of sector growth, for example, the acquisition of Anchor Loans by Pretium a week ago. The market is clearly not rewarding Finance of America for the superior growth in comparable sectors inherent in our Specialty Finance and Services business. To address these misperceptions, we have prepared a presentation which is available on our investor relations website.

Individual companies like I'll revert commercial Atlanta, It services businesses have recently traded at multiples substantially higher and we have financed of American stock is currently trading.

As I read through these announcements the transaction values are always underscored by expectations of consecutive growth.

For example, the acquisition of a bank or low spiked premium a week ago.

The market is clearly not rewarding finance of America for the superior growth in comparable sector inherit in our specialty finance business.

To address these misperceptions, we have prepared a presentation which is available on our investor relations website. In this presentation we split the company into two parts, Mortgage versus Specialty Finance and Services, which includes everything other than Mortgage as mentioned earlier. Looking now at page six of the presentation, Specialty Finance and Services has delivered consistent strong growth over the past two years, and revenue from SF&S is expected to grow by over 60% for full year 2021. When you combine robust revenue growth with operating leverage, we expect Adjusted Net Income for SF&S to grow by 168% for the full year.

To address these misperceptions, we have prepared a presentation, which is available on our investor Relations website.

Patti Cook: In this presentation we split the company into two parts, Mortgage versus Specialty Finance and Services, which includes everything other than mortgage. As mentioned earlier.

In this presentation, we split the company into two parts mortgage versus specialty finance and services, which includes everything other than mortgage as mentioned earlier.

Patti Cook: Looking now at page six of the presentation, Specialty Finance and Services has delivered consistent strong growth over the past two years, and revenue from SF&S is expected to grow by over 60% for full year 2021. When you combine robust revenue growth with operating leverage, we expect Adjusted Net Income for SFS to grow by 168% for the full year.

Looking now at page six of the presentation.

Specialty finance and services has delivered consistent strong growth over the past two years.

And revenue from <unk> is expected to grow by over 60% for full year 2021.

When you combine robust revenue growth with operating leverage we expect adjusted net income for <unk> to grow by 168% for the full year.

Patti Cook: I mentioned earlier on the call that we are focused on three strategic priorities.

I mentioned earlier on the call that we are focused on three strategic priorities. Starting on page seven, we will leverage our strong distribution, comprehensive product set, and capital markets capabilities to drive consistent mortgage earnings. It is this combination of products and talent that allows us to identify significant gaps in the market where customers are not being served by existing products. For example, the nature of work has changed and millions of people are self-employed to the gig economy. We are uniquely positioned to create and launch lending products like Flex, our non-agency loans to help these customers achieve their dream of homeownership. This should reduce mortgage earnings volatility compared to an agency-based refi-dependent mortgage model.

I mentioned earlier on the call that we are focused on three strategic priorities.

Patti Cook: Starting on page seven, we will leverage our strong distribution, comprehensive product set, and capital markets capabilities to drive consistent mortgage earnings. It is this combination of products and talent that allows us to identify significant gaps in the market where customers are not being served by existing products. For example, the nature of work has changed and millions of people are self-employed to the gig economy. We are uniquely positioned to create and launch lending products like Flex, our non-agency loans to help these customers achieve their dream of homeownership. This should reduce mortgage earnings volatility compared to an agency-based refi-dependent mortgage model. As the market has shown, agency refi business generally has low margins, is highly competitive, and volumes are very volatile. Instead, our distribution platform is ideally suited to capture the more stable, generally less price-sensitive purchase market.

Starting on page seven.

We will leverage our strong distribution company.

<unk> comprehensive product set and capital markets capabilities to drive consistent mortgage journey.

It is this combination of products and talent that allows us to identify significant gaps in the market where customers are not being served by existing products.

For example, the <unk>.

Nature of work has changed.

So if people are self employed to the economy.

We are uniquely positioned to create and launch lending products like flex our non agency loan.

To help these customers achieve their dream of homeownership.

This should reduce more concerning volatility compared to an agency based refi dependent Voyager trial.

As the market has shown, agency refinancing business generally has low margins, is highly competitive, and volumes are very volatile. Instead, our distribution platform is ideally suited to capture the more stable, generally less price-sensitive purchase market. In addition, our unmatched capital markets capabilities allow us to grow and maximize the value from non-agency production at attractive pricing. Secondly, as shown on page eight, we are going to double down on investments in our reverse, commercial, and home improvement businesses. These lending businesses have structural tailwinds that will fuel continued growth, as is evidenced by the substantial multiple banks and other investors are paying for these businesses. In reverse, the market is massive.

As the market has shown agency <unk> business generally has low margins is highly competitive and volumes are very volatile.

Instead, our distribution platform.

<unk> suited to capture the more stable.

Generally less price sensitive purchase market and.

Patti Cook: In addition, our unmatched capital markets capabilities allow us to grow and maximize the value from non-agency production at attractive pricing.

In addition, our unmatched capable capital markets capabilities allow us to grow and maximize the value of non agency production at attractive pricing.

Patti Cook: Secondly, as shown on page eight, we are going to double down on investments in our reverse, commercial, and home improvement businesses. These lending businesses have structural tailwinds that will fuel continued growth, as is evidenced by the substantial multiple banks and other investors are paying for these businesses. In reverse, the market is massive. Seniors hold almost $8 trillion in home equity, and research has shown that the majority of seniors have not saved enough for retirement. We have a few tests ongoing to increase market awareness and position a reverse mortgage as a very efficient retirement tool. Initial results are very encouraging. The recent elevated home price appreciation coupled with the increased desire by older Americans to age in place has created a unique window of opportunity for us to leverage our scale and expertise to lean into this business, which is exactly what.

Secondly.

As shown on page eight.

We are going to double down on investments and our reverse commercial and home improvement businesses.

These lending businesses have structural tailwind that will fuel continued growth.

As is evidenced by the substantial multiples bank and other investors are paying for these businesses.

And reverse the market is massive senior told almost eight trillion in home equity and research has shown that the majority of seniors have not saved enough for retirement.

Seniors hold almost $8 trillion in home equity, and research has shown that the majority of seniors have not saved enough for retirement. We have a few tests ongoing to increase market awareness and position a reverse mortgage as a very efficient retirement tool. Initial results are very encouraging. The recent elevated home price appreciation coupled with the increased desire by older Americans to age in place has created a unique window of opportunity for us to leverage our scale and expertise to lean into this business, which is exactly what we are doing.

We have a few tests on calling to increase market awareness and position our reverse mortgage as a very efficient retirement tool.

Initial results are very encouraging.

The recent elevated home price appreciation.

With the increased desire by Oh, two Americans to age in place has created a unique window of opportunity for us to leverage our scale and expertise to lean into this visit.

Johan Gericke: We are doing.

Which is exactly what we're doing.

Patti Cook: In commercial. Several factors are driving the substantial demand for investor loans including the aging housing stock, strong growth and household formation outpacing housing stock supply, and a large number of millennial first-time home buyers who prefer updated homes. Our pipeline keeps growing and margins are expanding as demand outstrips supply.

In commercial several factors are driving the substantial demand for investor loans including the aging housing stock, strong growth and household formation outpacing housing stock supply, and a large number of millennial first-time home buyers who prefer updated homes. Our pipeline keeps growing and margins are expanding as demand outstrips supply. We have an opportunity to further enhance our growth by moving experienced underwriters and processors from our mortgage business to our commercial business. If you look at revenue margins, we are getting paid almost twice as much on average for a commercial loan as we are for a mortgage loan.

In commercial.

Factors are driving the substantial demand for passenger loads.

Including the aging housing stock.

<unk> growth in household formation outpacing housing supply and <unk>.

A large number of millennials first time homebuyers, who prefer updated homes.

Our pipeline keeps growing and margins are expanding as demand outstripped supply.

Patti Cook: We have an opportunity to further enhance our growth by moving experienced underwriters and processors from our mortgage business to our commercial business. If you look at revenue margins, we are getting paid almost twice as much on average for a commercial loan as we are for a mortgage loan.

We have an opportunity to further enhance our growth by losing experienced underwriters and processors from our mortgage business to our commercial business.

And if you look at revenue margins, we aren't getting paid almost twice as much on average for a commercial load as we offer a mortgage loan.

Patti Cook: In home improvement. Several macro trends favor ongoing house aging, home stock, the shift to work from home, and the recent mortgage refinance wave that locked in historically low rates for most borrowers. This is another window of opportunity we are well positioned to take advantage of through our acquisition of a digital point of sale and fulfillment solution from Renovate America. This infrastructure connects us to thousands of contractors that served more than 15,000 customers this year alone.

In home improvement. Several macro trends favor ongoing growth, aging house, aging home stock, the shift to work from home, and the recent mortgage refinance wave that locked in historically low rates for most borrowers. This is another window of opportunity we are well positioned to take advantage of through our acquisition of a digital point of sale and fulfillment solution from Renovate America. This infrastructure connects us to thousands of contractors that served more than 15,000 customers this year alone.

And home improvement several macro trends favor on calling from <unk> House <unk> home Scott the shift to work from home and the recent mortgage refinance wave that locked in historically low rates for most borrowers.

This is another window of opportunity, we are well positioned to take advantage of to our acquisition of a digital point of sale.

Element solutions renovate America.

This infrastructure connect says to thousands of contracting that served more than 15000 customers. This year alone.

Patti Cook: Our third priority, as shown on page nine, is to leverage our substantial mortgage infrastructure, technology, and data to increase the lifetime household value of our customers. We have only scratched the surface on this and see opportunity to unlock multigenerational value from our customers as they migrate from student loans to personal loans to mortgage to home improvement and ultimately to a reverse mortgage.

Our third priority, as shown on page nine, is to leverage our substantial mortgage infrastructure, technology, and data to increase the lifetime household value of our customers. We have only scratched the surface on this and see opportunity to unlock multigenerational value from our customers as they migrate from student loans to personal loans to mortgage to home improvement and ultimately to a reverse mortgage. We have 340 retail offices and more than 2,300 loan officers and broker relationships through which we can sell our extensive product suite. Only a fraction of our sales force offers all of our products today, and the opportunity to leverage our mortgage infrastructure to grow our non mortgage business is substantial.

Our third priority as shown on page nine is to leverage our substantial mortgage infrastructure technology and data to increase the lifetime household value with our customers.

We have only scratched the surface on that and see opportunity to unlock multi generational value from our customers as they migrate from student loans to personal loans to mortgage to home improvement and ultimately to our reverse mortgage.

Patti Cook: We have 340 retail offices and more than 2,300 loan officers and broker relationships through which we can sell our extensive product suite. Only a fraction of our sales force offers all of our products today, and the opportunity to leverage our mortgage infrastructure to grow our non mortgage business is substantial.

Yeah.

We have 340 retail offices and more than 23 countries loan officers and broker relationship through which we can sell our extensive product suite.

Only a fraction of our sales for it offers all of our products today and the opportunity to leverage our mortgage infrastructure to grow our non mortgage business is substantial.

Patti Cook: Turning to page 10.

Turning to page 10. You can see how our mortgage infrastructure contributes to revenue in our specialty finance and services businesses today. It is important to note, despite doubling year-over-year, revenue from our mortgage infrastructure is still a small portion of overall revenue for our SF&S businesses. I expect that our concerted efforts and targeted investments to leverage existing infrastructure will create a whole new avenue of growth for the company. We have purposefully designed our company to be a thoughtful balance of technology and human consultation with the customer at the center of everything we do. This creates an enduring relationship and allows us to offer a personalized solution to meet their specific financing needs at each stage of life.

Turning to page 10.

Patti Cook: You can see how our mortgage infrastructure contributes to revenue in our specialty finance and services businesses today. It is important to note, despite doubling year over year, revenue from our mortgage infrastructure is still a small portion of overall revenue for our SF&S businesses. I expect that our concerted efforts and targeted investments to leverage existing infrastructure will create a whole new avenue of growth for the company.

You can see how our mortgage infrastructure contribute to revenue in our specialty finance and services businesses today.

It is important to note despite doubling year over year revenue from our mortgage infrastructure is still a small portion of overall revenue for our <unk> businesses.

I expect that our concerted effort and targeted investments to leverage existing infrastructure will create a whole new avenue of growth for the company.

Patti Cook: We have purposefully designed our company to be a thoughtful balance of technology and human consultation with the customer at the center of everything we do. This creates an enduring relationship and allows us to offer a personalized solution to meet their specific financing needs at each stage of life. Through our various channels, whether in person, online, over the phone, or through our thousands of third party originators, we can interact with customers in the manner they prefer. Being a trusted multigenerational advisor that offers personalized proactive advice in a frictionless way will not only drive customer value but ultimately deliver substantial value to our shareholders.

We have heard we have purposely designed our company to be a thoughtful balance of technology and human consultation with the customer at the center of everything we do.

This creates an enduring relationship and allows us to offer a personal lines solutions to meet their specific financing needs at each stage of life.

Through our various channels, whether in person, online, over the phone, or through our thousands of third party originators, we can interact with customers in the manner they prefer. Being a trusted multigenerational advisor that offers personalized proactive advice in a frictionless way will not only drive customer value but ultimately deliver substantial value to our shareholders. To close this call, I want to provide a glimpse of what we see for the Q4. On page 12, you will see that we divide our guidance into two parts, Mortgage and Specialty Finance and Services, which, as mentioned earlier, is everything except mortgage originations going forward.

Through our various channels whether in person online over the phone or through one thousands of third party originators.

We can interact with customers in the manner they prefer.

Being a trusted multi generational adviser that offers personalized proactive advice in a frictionless way will not only drive customer value, but ultimately deliver substantial value to watch shareholders.

Patti Cook: To close this call, I want to provide a glimpse of what we see for the fourth quarter.

To close this call I want to provide a glimpse of what we see for the fourth quarter.

Patti Cook: On page 12, you will see that we divide our guidance into two parts, Mortgage and Specialty Finance and Services, which, as mentioned earlier, is everything except mortgage originations going forward. We will provide a view on those parts for the quarter ahead. For mortgage, we expect revenue between $170 million and $190 million, an Adjusted Net Income margin between 2% and 4%.

On page 12, you will see that we divide our guidance Institute.

Mortgage and specialty finance and services.

Which as mentioned earlier is everything except mortgage originations.

We will provide a view on those parts for the quarter ahead. For mortgage, we expect revenue between $170 million and $190 million, an Adjusted Net Income margin between 2% and 4%. For specialty finance and services, we expect revenue between $230 and $250 million and adjusted net income margin between 26% and 28%. We have also included the corresponding Q3 metrics to give you a sense of the direction we're heading in, a reduction in revenue and profitability in our mortgage origination business. In line with industry expectations and seasonal cyclicality, offset by continued highly profitable growth in our specialty finance and services segment. I will now hand it back to the operator as we open for Q and A.

Going forward, we will provide a view on those parts for the quarter ahead.

For mortgage.

We expect revenue between 170 and $190 million and adjusted net income margins between two and 4%.

Patti Cook: For specialty finance and services, we expect revenue between $230 and 250 million and adjusted net income margin between 26% and 28%. We have also included the corresponding Q3 metrics to give you a sense of the direction we're heading in, a reduction in revenue and profitability in our mortgage origination business in line with industry expectations and seasonal cyclicality, offset by continued highly profitable growth in our specialty finance and services segment.

For specialty finance and services, we expect revenue between 230 and $250 million and adjusted net income margin between 26 and 28%.

We have also included the corresponding third quarter metrics to give you a sense of the direction we're heading at.

Adoption and revenue and profitability in our mortgage origination business.

In line with industry expectations, and seasonal cyclicality offset by continued highly profitable growth and our specialty finance and services segment.

Patti Cook: I will now hand it back to the operator as we open for Q and A.

I will now hand, it back to the operator as we open for Q&A.

Operator: We will now begin the question and answer session. To ask a question, you may press Star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Steven Laws with Raymond James. You may go ahead.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two at.

At this time, we will pause momentarily to assemble our roster.

Operator: Our first question comes from Steven Laws with Raymond James. You may go ahead. Hi.

Our first question comes from Stephen Laws with Raymond James You May go ahead.

Stephen Laws: Hi. Good morning. First off, Patti, Johan, and team, congrats on a nice quarter. I think you guys exceeded my volume and margin numbers across all the product lines. So nice quarter. To follow up some questions on that, can you talk about your outlook for what's driving the significant reverse margin growth or, sorry, reverse volume growth we've seen the past two quarters. I know that's been kind of one of the key conversations to have with investors is with that being a penetration story as opposed to market share story what drives the penetration. Seems like you guys have made a lot of success there in the last couple of quarters and curious what your outlook there is and key focus to continue to drive that penetration higher.

[Analyst] (Raymond James): Good morning. First off, Patti, Johan, and team, congrats on a nice quarter. I think you guys exceeded my volume and margin numbers across all the product lines. So nice quarter. To follow up some questions on that, can you talk about your outlook for what's driving the significant reverse margin growth or, sorry, reverse volume growth we've seen the past two quarters. I know that's been kind of one of the key conversations to have with investors is with that being a penetration story as opposed to market share story what drives the penetration. Seems like you guys have made a lot of success there in the last couple of quarters and curious what your outlook there is and key focus to continue to drive that penetration higher.

Hi, good morning.

One first of all closed out of Johan and team Congrats on a nice quarter. I think you guys exceeded my volume and margin numbers across across all the product lines, So nice quarter.

And just to follow up with some questions on that can you can you talk about your outlook.

Or what's driving the significant reverse margin growth or sorry reverse volume growth we've seen in the past few quarters I know that's been.

One of the key.

Conversations I've had with investors is what that being a penetration story as opposed to a market share story what drives the penetration seems like you guys have made a lot of success there in the last couple of quarters.

Curious what's your outlook there is in key focus to continue to drive that penetration higher.

Okay.

Patti Cook: Yeah, I think what's playing out in the reverse market, I think is the tailwinds that we continue to talk about. Stephen, you know, if I look at our growth, it's both in new borrower originations as well as in recapture. So we continue to see good volume growth and good margin in that sector.

Patti Cook: Yeah, I think what's playing out in the reverse market, I think is the tailwinds that we continue to talk about, Stephen. You know, if I look at our growth, it's both in new borrower originations as well as in recapture. So we continue to see good volume growth and good margin in that sector.

Yeah I think.

What's playing out in the various markets.

<unk> is the tailwind that we continue to talk about even.

If I look at our growth it's both in Newton.

Borrower originations as well as in bleach volumes. So we continue to see good volume growth and he couldnt blood thinner.

Thank God.

[Analyst] (Goldman Sachs): Great.

Stephen Laws: Great. Can you talk about CRE? You know, certainly we've seen some platform acquisitions by some others. In the last couple of quarters as people continue to look for ways to enter that sector. You know, your margins holding up actually increasing quite a bit. Can you talk about your opportunities there and are you seeing more competition or? You know, I know you mentioned your pipeline as I think you said higher than it was last quarter, but how is that competition impacting you, if at all?

[Analyst] (Raymond James): Can you talk about CRE? You know, certainly we've seen some platform acquisitions by some others.

Great and can you talk about CRE.

Certainly we've seen some platform acquisitions, but by some others.

[Analyst] (Raymond James): In the last couple of quarters as people continue to look for ways to enter that sector. You know, your margins holding up actually increasing quite a bit. Can you talk about your opportunities there and are you seeing more competition or? You know, I know you mentioned your pipeline as I think you said higher than it was last quarter, but how is that competition impacting you, if at all?

In the last couple of quarters as people continue to look for ways to enter that sector.

Your margins holding up actually increasing quite a bit.

Can you talk about your opportunities there and are you seeing more competition or I know you mentioned in your pipeline and so I think he said is higher.

Higher than it was last quarter, but how is the competition impacting you if at all I mean honestly at this point our pipeline is growing and is as large as we've ever seen it for us. It's a matter of trying to be able to keep up with that supply, which is why I referenced in my remarks, the opportunity for us.

Patti Cook: I mean, honestly, at this point our pipeline is growing and it's as large as we've ever seen it. For us, it's a matter of trying to be able to keep up with that supply, which is why I referenced in my remarks the opportunity for us to move people to commercial to be able to take advantage of that pipeline. And I think again, the reason you're seeing new entry is that the fundamentals of that market is so strong. So it's not really from my perspective, a matter of competition. It's a matter of the structural tailwind available in that market that's creating a huge opportunity.

Patti Cook: I mean, honestly, at this point our pipeline is growing and it's as large as we've ever seen it. For us, it's a matter of trying to be able to keep up with that supply, which is why I referenced in my remarks the opportunity for us to move people to commercial to be able to take advantage of that pipeline. And I think again, the reason you're seeing new entry is that the fundamentals of that market is so strong. So it's not really from my perspective, a matter of competition, it's a matter of the structural tailwind available in that market that's creating a huge opportunity.

To move people more to.

Commercial to be able to take advantage of that pipeline.

And I think again the reason youre seeing new entrants is that the fundamentals of that market is so strong.

So it's not really from my perspective, a matter of a topic kitchen.

Matter of that structural tailwind available in that market share, creating a huge opportunity.

[Analyst] (Raymond James): Thanks, Patti. One last one for me. At the higher level, conforming loan limits looks like they're going higher, possibly quite a bit higher. Can you talk about how that impacts your business, the opportunities there across different products and.

Stephen Laws: Thanks, Patti. One last one for me. At the higher level, conforming loan limits looks like they're going higher, possibly quite a bit higher. Can you talk about how that impacts your business, the opportunities there across different products and how you're positioned for that?

Thanks, Patty one last one for me you know at the higher level conforming loan limits looks like theyre going higher possibly quite a bit higher can you talk about how that you know.

It impacts your business the opportunities there.

Across different products and.

[Analyst] (Raymond James): How you're positioned for that?

You know how youre positioned for that.

Patti Cook: One of the great things of our platform is the capital markets expertise that we have to complement what's going on in the agency business. So when I think about what the agencies are doing, we pick up the opportunity via our capital markets to always be complementing or supplementing what the agencies are doing. So initially I don't really see a huge change in what we'll do. There's always going to be a shift between what goes to the agencies and what goes non-agency. And I think it's the non-agency portion of the market where we are intently focused.

You know what are the trade things of our platform.

Capital markets expertise that we have to complement what's going on in the agency business. So when I think about what the agencies are doing we pick up the opportunity via our capital market to all players be supplementing or supplementing what the agencies are doing.

So initially I don't really see a huge change.

And what we'll do there is always going to be a shift between what goes to the agencies and west coast Non agency and I think it's the non agency portion of the market, where we are intensely focused.

[Analyst] (Raymond James): Great. Well, again, congrats on a nice quarter and thanks for your time this morning.

Stephen Laws: Great. Well, again, congrats on a nice quarter and thanks for your time this morning.

Great well again, congrats on a nice quarter and thanks for your time this morning.

Patti Cook: Thanks, Steven. Appreciate your comments.

Patti Cook: Thanks, Stephen. Appreciate your comments.

Thanks, Stephen I appreciate your comments.

Operator: Our next question comes from Ryan Nash with Goldman Sachs. You may go ahead.

Our next question comes from Ryan Nash with Goldman Sachs. You May go ahead.

[Analyst] (Goldman Sachs): Hey, good morning, Patti. Good morning, Johan.

Ryan Nash: Hey, good morning, Patti. Good morning, Johan.

Hey, good morning, Patty money Johan <unk> morning.

Johan Gericke: Morning, Ryan.

Johan Gericke: Morning, Ryan. How are you?

Patti Cook: How are you?

Patti Cook: Good morning.

Morning, Ryan good morning.

[Analyst] (Goldman Sachs): So, Patti, clearly there's a big shift in the message today to moving away from being thought of as a mortgage company. I guess to maybe take that a step further. Why not take more aggressive steps to rationalize the mortgage business, materially downsize, or even go as extreme as exiting to move away from being thought of as a more traditional gain on sale lender? And I guess second, when you think about the specialty finance and services business, who are you comping your performance against and how do you want us to think about as a peer set for that business?

Ryan Nash: So, Patti, clearly there's a big shift in the message today to moving away from being thought of as a mortgage company. I guess to maybe take that a step further. Why not take more aggressive steps to rationalize the mortgage business, materially downsize, or even go as extreme as exiting to move away from being thought of as a more traditional gain on sale lender? And I guess second, when you think about the specialty finance and services business, who are you comping your performance against and how do you want us to think about as a peer set for that business? Thanks.

So.

Clearly theres a big shift in the message today moving away from being thought of as a mortgage company.

Maybe take that a step further why not take more aggressive steps to rationalize the mortgage business materially downsized or even go as extreme as exiting.

To move away from being thought of as more traditional gain on sale lender.

Second when you think about the specialty finance and services business.

You're comping your performance against how should how do you want us to think about it as a pure set for that business. Thanks.

Michael Fant: Thanks.

Patti Cook: Yeah, I think on the mortgage franchise, Ryan, that that franchise has huge intrinsic value for us because if you think about it, it's always going to be well poised to take advantage of the opportunity that's in the mortgage, and that's worth it by itself. But more importantly, we can leverage the 230 offices, the 2,300 LOs, and brokers to sell what will increasingly be a growing set of non-mortgage products. So it's the distribution in that channel that's very valuable to us. It's the perfect place for us to distribute more non-agency proprietary products.

Patti Cook: Yeah, I think on the mortgage franchise, Ryan, that that franchise has huge intrinsic value for us. Because if you think about it, it's always going to be well poised to take advantage of the opportunity that's in the mortgage, and that's worth it by itself. But more importantly, we can leverage the 230 offices, the 2,300 LOs, and brokers to sell what will increasingly be a growing set of non-mortgage products. So it's the distribution in that channel that's very valuable to us. It's the perfect place for us to distribute more non-agency proprietary products.

Yeah, I think on the mortgage franchise Ryan.

That that franchise has huge intrinsic value for us.

Because if you think about it it's always going to be well poised to take advantage of the opportunity in the mortgage and that's worth it by itself, but more importantly, we can leverage the 230 offices that 'twenty 300, elbows and brokers to sell what will increasingly be.

A growing set of non mortgage products. So it's the distribution in that channel that's very valuable to us.

It's the perfect place for us to distribute more non agency proprietary products.

Patti Cook: I think the concept when you go to specialty finance and services is not going to be an aggregated one. We're not going to be able to name one company that you can compare it to. I think you're going to have to look at each one of them individually and construct your comp set. Whether that's for commercial, it's a little hard to do in reverse. But I think you can't look at it in aggregate. You got to look at each business line, home improvement, and see if you can find a comp that can give you some perspective.

I think the concept when you go to specialty finance and services is not going to be an aggregated one. We're not going to be able to name one company that you can compare it to. I think you're going to have to look at each one of them individually and construct your comp set. Whether that's for commercial, it's a little hard to do in reverse. But I think you can't look at it in aggregate. You got to look at each business line, home improvement, and see if you can find a comp that can give you some perspective.

I think the concept when you got a specialty finance and services is not going to be an aggregated one.

We're not going to be able to name one company that you can compare it to I think youre going to have to look at each one of them individually and construct your top set whether that's for commercial it's a little hard to deliberate parts, but I think you can't look at it in aggregate you got to look at each business lines home improvement and see if you can find.

The comp they can give you some perspective.

[Analyst] (Goldman Sachs): Got it. Okay. Maybe just to ask a follow-up on the mortgage business. So it looks like it's going to be close to breakeven next quarter. And I was just wondering, could we see broader changes on the cost side in that business? And then Johan, on the 2.61 margin in the mortgage business, can you maybe just talk about where we are by channel in terms of margins and where do you think they're headed in both the short and intermediate term? And I have one follow-up on cost.

Ryan Nash: Got it. Okay. Maybe just to ask a follow-up on the mortgage business. So it looks like it's going to be close to breakeven next quarter. And I was just wondering, could we see broader changes on the cost side in that business? And then Johan, on the 2.61 margin in the mortgage business, can you maybe just talk about where we are by channel in terms of margins and where do you think they're headed in both the short and intermediate term? And I have one follow-up.

Got it okay.

Maybe just to ask a follow up on the on the mortgage business. So it looks like it's going to be close to breakeven next quarter and I was just wondering could we see broader changes on the cost side in that business and then.

On the $2 61 margin in the mortgage business can you maybe just talk about where we are by channel in terms of margins and where do you think they're headed in both the short and intermediate term and I have one follow up.

Patti Cook: On cost, we're intently focused on cost. We actually had some terminations just this week. The balance for us is what is the volume we want to be able to put through that channel relative to the margin and what can we do to optimize it? I mean that is going to be a huge priority for us now. And as we go forward, as the mortgage market is uncertain, it is incumbent upon us to make sure we keep that business right size.

Patti Cook: We're intently focused on cost. We actually had some terminations just this week. The balance for us is what is the volume we want to be able to put through that channel relative to the margin and what can we do to optimize it? I mean that is going to be a huge priority for us now. And as we go forward, as the mortgage market is uncertain, it is incumbent upon us to make sure we keep that business right size.

On costs, we are intently focused on cost.

<unk> actually had some terminations just this week.

To balance for US is what is the volume we want to be able to put through that channel.

Relative to the March end and what can we do to optimize it I mean that is going to be a huge priority for us now and as we go forward as the mortgage market is uncertain. It is incumbent upon us to make sure we keep that business right sized.

Johan Gericke: Yes, Ryan. And as it relates to the margin, as I alluded to in the comments, margins in the retail channel were relatively flat quarter over quarter. Didn't see a lot of meaningful movement there. They were ever so modestly better in the wholesale channel and modestly worse in the direct channel. And so the big change there really is the mix just in terms of higher volume through the wholesale channel. You know, we haven't seen anything in October that indicates a cliff where it's dropping off, you know. And so I'm sitting here cautiously optimistic that things hold, you know, as they are right now.

Yeah, Ryan and as it relates to the margin.

As I alluded to in the comments.

Margins in the retail channel were relatively flat quarter over quarter. It didnt see a lot of meaningful movement there.

Ever so modestly better.

In the wholesale channel and modestly worse in the direct channel and so the big change there really is the mix just in terms of higher volume through the wholesale channel.

We haven't seen anything in October that indicates a cliff.

Whether it's dropping off.

And so I'm sitting here are cautiously optimistic that things are holding up.

As they are right now.

[Analyst] (Goldman Sachs): Got it. And maybe one last one for Patti. So when I look at the Q4 guidance of $70 million adjusted net income, I guess, your honor, are there any adjustments to think about beyond what we saw this quarter to the adjusted net income, and then second, do you think we're at a trough for adjusted net income, and maybe just talk, Patti, intermediate term expectations for where you see adjusted net income or revenues could go for mortgage and specialty finance, and what type of growth rates could we see out of specialty finance over the intermediate term?

Ryan Nash: Got it. And maybe one last one for Patti. So when I look at the Q4 guidance of $70 million adjusted net income, I guess, Johan, are there any adjustments to think about beyond what we saw this quarter to the adjusted net income, and then second, do you think we're at a trough for adjusted net income, and maybe just talk, Patti, intermediate term expectations for where you see adjusted net income or revenues could go for mortgage and specialty finance, and what type of growth rates could we see out of specialty finance over the intermediate term? Thanks.

Got it and maybe one last one for Pat So when I look at the <unk> guidance of <unk> <unk>.

$70 million adjusted net income I guess are there any adjustments to think about beyond what we saw this quarter.

So the adjusted net income and then second do you think we're at a trough for adjusted net income and <unk>.

Maybe just talk kind of the intermediate term expectations for where you see adjusted net income of revenues could go for mortgage in specialty finance and what type of growth rates could we see out of our specialty finance over the intermediate term. Thanks.

Johan Gericke: Yes. So let me tackle the first one in terms of adjustments. I'd say the only things that we really know that are going to happen is the amortization of intangibles and the share-based compensation that we disclosed in the earnings release. Obviously, we don't know what the fair value marks are going to be. Those are a little bit harder to judge, and we hope that there are no non-recurring pieces. So, you know, you should think of it only as those two aspects that we back out, and the rest we, you know, essentially put a zero on.

Johan Gericke: Yes. So let me tackle the first one in terms of adjustments. I'd say the only things that we really know that are going to happen is the amortization of intangibles and the share-based compensation that we disclosed in the earnings release. You know, obviously, we don't know what the fair value marks are going to be. Those are a little bit harder to judge, and we hope that there are no non-recurring pieces. So, you know, you should think of it only as those two aspects that we back out, and the rest we, you know, essentially put a zero on.

Yes, So let me tackle the first one.

In terms of adjustments I would say the only thing that we really know that are going to happen is the amortization of intangibles and share based compensation that we disclosed in the earnings release.

Obviously, we don't know what the fair value marks are going to be those are a little bit harder to judge.

And we hope that there are no nonrecurring pieces. So you should think of it only has those two aspects that we back out from the rest.

Essentially zero.

Patti Cook: I think as far as the outlook, we're not going to give specific guidance for next year. But I would see, here's what I'd say about mortgage. Mortgage is going to do what it's going to do. Rates could rise, rates could go down, and we are poised to optimize whatever scenario develop. The more important conversation, though, is that the tailwinds available that are present in those other businesses show no signs of changing. So, you know, we keep looking. You can't predict it quarter over quarter. But I don't see any fundamental reason why those businesses won't continue to grow. They're fueled by things that aren't temporal. Right. High equity valuation in reverse. People haven't saved enough, they want to stay in their home. High home price appreciation, those are strong fundamentals for that business that will suggest it's going to continue to grow.

And I think as far as the outlook, we're not going to give specific guidance for next year, but I would see here's what I'd say about mortgage mortgage is going to do what it's gonna do rates could rise rates could go down and we are poised to us to optimize whatever scenario developed.

More important conversation, though is that's a tailwind available that are present in those other businesses showed no signs of changing.

So we keep looking you can't predict it quarter over quarter, but I don't see any fundamental reason why those businesses will continue to grow.

There are few things that are temporal.

Right, Hi, Hi equity valuation of the first people haven't saved enough they want to stay in their home high home price appreciation. Those are strong fundamentals for that business that would suggest it's going to continue to grow and if you look at the back up in sort of demand and commercial I would say the same thing home improves.

High home price appreciation, those are strong fundamentals for that business that will suggest it's going to continue to grow. If you look at the backup in sort of demand and commercial, I'd say the same thing. Home improvement. Everybody's locked in low rates. Where are they going to go when they want to do something for their home? So I think the difference between mortgage, which gets whipped around by interest rates, and these other businesses is the structural tailwinds that are available in those businesses. They'll continue to grow.

Patti Cook: If you look at the backup in sort of demand and commercial, I'd say the same thing. Home improvement. Everybody's locked in low rates. Where are they going to go when they want to do something for their home? So I think the difference between mortgage, which gets whipped around by interest rates, and these other businesses is the structural tailwinds that are available in those businesses. They'll continue to grow.

Everybody's locked in low rates, where are they going to go when they wanted to do something for their home. So I think the difference between mortgage which gets whipped around by interest rates and these other businesses is the structural tailwind that are available within those businesses that will continue to grow.

[Analyst] (Goldman Sachs): Thanks for all the color.

Ryan Nash: Thanks for all the color.

Thanks for all the color.

Johan Gericke: Thanks, Ryan.

Thanks, Ron.

Operator: Our next question comes from Doug Harter with Credit Suisse. You may go ahead.

Our next question comes from Doug Harter with Credit Suisse. You May go ahead.

Patti Cook: Thanks.

Doug Harter: Thanks. Patti, you talked about wanting to continue to invest in the specialty finance businesses. Do you think that's going to be organic or do you see acquisition opportunities In those businesses?

[Analyst] (Raymond James): Patti, you talked about wanting to continue.

Thanks, Paul you talked about wanting to continue to invest in more specialty finance businesses.

Patti Cook: To invest in the specialty finance businesses.

[Analyst] (Raymond James): Do you think that's going to be organic or do you see acquisition opportunities?

Do you think that's going to be organic or do you see acquisition opportunities.

Patti Cook: In those businesses?

And those.

Yes.

Patti Cook: Right now our activities are mostly organic, and I'll give you an example. So one of the areas we're investing in reverse right now is in our direct channel with some pretty sophisticated and targeted marketing that is yielding good results. So I think it's looking at, and in home improvement we've acquired this great point of sale system. We have a great product. It's investing in that technology, getting it out to the sales force so that we can sell those products. So in my comments and in our strategic objectives, it's probably primarily focused on organic investment.

Right now our activities are mostly organic.

You. An example, so one of the areas we're investing in reverse right now is in our direct channel with some pretty sophisticated and targeted marketing that is yielding good results. So I think it's looking at and in home improvement we've acquired just great point.

<unk> sale system, we have a great product, it's investing in that technology getting it out to the sales force. So that we can sell those products.

In my comments and in our strategic objective is primarily focused on organic investment.

Patti Cook: Got it.

Doug Harter: Got it. And then, do you see... Are there any kind of product gaps or any product that you want to add to our suite that you feel will allow you to kind of better utilize that mortgage infrastructure you talked about?

[Analyst] (Raymond James): And then, do you see? Are there any kind of product gaps or any product that you want to add to?

Got it.

Do you see other I mean.

Product jobs or any products that you want to add to your.

Patti Cook: Your suite that.

Cheers.

Patti Cook: You feel will allow you to kind of better utilize that.

Do you.

Do you feel will allow you to kind of better utilized.

[Analyst] (Raymond James): Mortgage infrastructure you talked about?

Mortgage infrastructure you talked about.

Patti Cook: Sure. So there's a couple. I mean, on the one hand, within Flex, we're going to continue to build out that product. And basically what that product does is it looks around the edges of agency and says where can we grab a borrower who might not have gotten an agency loan? And this isn't generally by going down in credit; it's usually by looking at the income qualification, maybe something that the GSEs don't count, our investors because remember, we're selling these loans are willing to consider. So we're going to continue to expand out Flex. I think when you look at the point of sale platform and home improvement, that is a great opportunity for us to offer. I'm going to say ancillary products to home improvement.

Sure. So there's a couple I mean on the one hand within flat, we're going to continue to build out that product and basically what that product does is it looks around the edges of agency and say where can we grab a borrower who might not have gotten in agents.

The loan and this isn't generally by going down in credit, it's usually by looking at the income qualifications, maybe something that the GSE don't count our investors because remember we're selling these loans are willing to consider so we're going to continue to expand out black I think when you look at the point of sale.

<unk>.

Platform in home improvement that is a great opportunity for us to offer I'm going to say ancillary products to home improvement it could be a personal loan it could be solar it will be direct to consumer lending that we can leverage that platform for.

Patti Cook: It could be a personal loan. It could be solar. It will be direct to consumer lending that we can leverage that platform for. I mean, we love the opportunity for new products. It's a great time in the market because there's a lot of demand for investments.

It could be a personal loan. It could be solar. It will be direct to consumer lending that we can leverage that platform for. I mean, we love the opportunity for new products. It's a great time in the market because there's a lot of demand for investments.

We love the opportunity for new product, it's a great time in the market because there's a lot of demand for investment.

[Analyst] (Goldman Sachs): Thank you, Patti.

Doug Harter: Thank you, Patti.

Thank you Ben.

Operator: Our next question comes from Lee Cooperman with Omega Family Office. You may go ahead.

Our next question comes from Lee Cooperman with Omega family Office, you May go ahead.

[Analyst] (Omega Family Office): Thank you. Just a couple of high-level questions. I noticed on your press release of earnings, you refer to yourself as a high-growth consumer and specialty lending business. I think the stock sells at somewhere between two and three times earnings, which doesn't suggest high growth. I know you spent a lot of time this morning discussing why do you think the market. Are you going to rely upon the market just to wake up and change its expectations, or are there proactive things you could do? I notice, for example, that GE is breaking themselves up into three companies.

Lee Cooperman: Thank you. Just a couple of high-level questions. I noticed on your press release of earnings, you refer to yourself as a high-growth consumer and specialty lending business. I think the stock sells at somewhere between two and three times earnings, which doesn't suggest high growth. I know you spent a lot of time this morning discussing why do you think the market. Are you going to rely upon the market just to wake up and change its expectations, or are there proactive things you could do? I notice, for example, that GE is breaking themselves up into three companies. So that would be question number one.

Just a couple of high level questions.

I noticed on the press release of earnings you referred to yourself as a high growth consumer and specialty lending business.

I think the stock shows that somewhere between two and three times earnings which doesn't suggest high growth I know you spent a lot of time this morning discussing why.

Do you think the market.

When the market does to wake up and changes in expectations or the proactive things you could do I noticed for example that GE is break themselves up to three companies.

[Analyst] (Omega Family Office): So that would be question number one. And related to that question is, forget about the next quarter, but on a five-year basis, when you refer to yourself as a high-growth consumer specialty lending business, what kind of growth do you think the company could support on a five-year basis per annum? And secondly, you know, on the COVID sheet there are three earnings numbers. There's the basic $0.36, there's the fully diluted $0.20, and then there's the adjusted net income of $75 million or $0.39. Which do you think, given your knowledge of the business, is the most relevant to your business? You know, the kind of number that would shape dividend policy going forward or other kind of activities? Those two questions and congratulations on a good quarter.

So that would be question number one.

And related to that question is, forget about the next quarter, but on a five-year basis, when you refer to yourself as a high-growth consumer specialty lending business, what kind of growth do you think the company could support on a five-year basis per annum? And secondly, you know, on the COVID sheet there are three earnings numbers. There's the basic $0.36, there's the fully diluted $0.20, and then there's the adjusted net income of $75 million or $0.39. Which do you think, given your knowledge of the business, is the most relevant to your business? You know, the kind of number that would shape dividend policy going forward or other kind of activities? Those two questions and congratulations on a good quarter.

Related to that question is forget about the next quarter, but on a five year basis. When you referred to yourself as a high growth consumer specialty lending business, what kind of growth you think the company could support on a five year basis per annum and secondly on the cover sheet. The three are these numbers is the basic 36 inches of fully diluted 22.

And then there's the adjusted net income was 75 million or 39 cents, which do you think given your knowledge of the business is the most relevant to your business.

The kind of number that we shape dividend policy going forward or other kind of activities. There's two questions and congratulations on a good quarter.

Patti Cook: Thanks, Lee. Look, I think that what we tried to do on this call is draw attention to what we think is a big distinction between the way the market is looking at us and the way we ought to be valued. So I think it is up to us to continue to get out there, tell the story quarter over quarter, show that that SF&S business is growing at a rapid and consistent rate because of the tailwinds that exist. You know, so for me, we're still a relatively new company. We've got to push for more analysts to follow us and for them to get the story. And if they start doing comps on that portion of the business relative to some of the action that is taking place in the market, they ought to be applying a higher multiple to that business than they are to mortgage.

Thanks Lee.

Well I think that.

What we tried to do on this call is draw attention to what we think is a big distinction between the way the market is looking at us.

And the way, we ought to be value. So I think it is up to us to continue to get out there telling that story it quarter over quarter show that that <unk> business is growing at a rapid and consistent rate because of the tailwind that exists.

So for me.

It's still a relatively new company, we've got to push for more analysts to follow us and for them to get the story.

And if they start doing comps on that portion of the business relative to some of the action that is taking place in the market they ought to be applying a higher multiples of that business than they are to mortgage.

[Analyst] (Omega Family Office): So it's a sum of the parts story. In your view, is there anything you could do, or that's just not in the cards for us, that everything is more integrated?

Lee Cooperman: So it's a sum of the parts story in your view, is there anything you could do [inaudible] GE, or that's just not in the cards for us, that everything is more integrated?

So to sum of the parts story in your view is there anything you could do all of the G E.

Or is it just not in the cards for us that everything is more integrated.

Patti Cook: We love the elegance of the model and the integrated aspect of it. So if you start pulling the puzzle apart, the picture is not as clear. So what mortgage? Right. Taking those 230 offices and the 2,300 salespeople and brokers and to sell the products that are in SF&S, they are inextricably linked.

Patti Cook: We love the elegance of the model and the integrated aspect of it. So if you start pulling the puzzle apart, the picture is not as clear. So what, mortgage, right? Taking those 230 offices and the 2,300 salespeople and brokers and to sell the products that are in SF&S, they are inextricably linked.

We love the elegance of the model N P integrated aspect of it. So if you start pulling the puzzle apart.

Picture is not as clear.

Mortgage REIT, taking those 230 offices in the 'twenty 300, salespeople with brokers to sell the products that are in excess of net they are inextricably linked.

[Analyst] (Omega Family Office): Gotcha. Okay, and which of those three numbers on the COVID sheet do you think is the most important for us to look at?

Lee Cooperman: Gotcha. Okay, and which of those three numbers on the cover sheet do you think is the most important for us to look at?

Got you okay.

And which of those three numbers on the cover sheets do you think is the most important for us to look at.

Johan Gericke: Yeah, we look at Adjusted Net Income because it normalizes for, you know, for fluctuations in fair value marks and other things that are a little bit out of our control. I would say as it relates to your follow-on question in terms of what's shaped in dividend policy. Obviously that would depend on how much capital we have available and cash we have available. We're obviously investing heavily in the business today, so there's nothing this quarter.

Yeah, we look at adjusted net income because it normalizes for.

For fluctuations in fair value marks and other things that are a little bit out of our control I would say as it relates to your follow on question in terms of whats shaping dividend policy, obviously that would depend on how much capital we have available in cash we have available. We're obviously investing heavily in the business today.

[Analyst] (Omega Family Office): Okay. Getting away from the next quarter, which doesn't interest me on a five-year basis. When you refer to yourself as a high-growth consumer, especially lending business, do you think you could double the size of the company in five years, 15% compound? Is that a reasonable guesstimate assuming no major recessions, stuff like that.

Lee Cooperman: Okay. Getting away from the next quarter, which doesn't interest me on a five-year basis. When you refer to yourself as a high-growth consumer, especially lending business, do you think you could double the size of the company in five years, 15% compound? Is that a reasonable guesstimate assuming no major recessions, stuff like that.

There's nothing this quarter, okay, and getting away from the next quarter, which doesn't interest me and a five year basis. When you refer to yourself as a high growth consumer, especially lending business. Do you think you could you could double the size of the company in five years, 50% compound.

Is that a reasonable guesstimate.

Should we know you know a major recession stuff like that.

Patti Cook: I mean, I'd like to say that we can achieve 15% given the current dynamics of today's market going forward.

Patti Cook: I mean, I'd like to say that we can achieve 15% given the current dynamics of today's market going forward. Right. If this growth rate continues in our non-mortgage businesses, I would say we should be generating 15% returns.

I mean, I'd like to say that we can achieve 15% given the current dynamics of today's market going forward.

Patti Cook: Right. If this growth rate continues in our non-mortgage businesses, I would say we should be generating 15% returns.

Right at this growth rate continues in our non mortgage businesses I would say, we should be generating 15% return.

[Analyst] (Omega Family Office): Thank you and good luck. Congratulations on a good quarter.

Lee Cooperman: Thank you and good luck. Congratulations on a good quarter.

Good luck.

Gratulation had a good quarter.

Patti Cook: Thanks, Lee. I appreciate it.

Thanks, Lee I appreciate it.

Okay.

Operator: Our next question comes from James Faucette with Morgan Stanley. You may go ahead.

Our next question comes from James Faucette with Morgan Stanley You May go ahead.

[Analyst] (Morgan Stanley): Hey, thank you very much, and thanks for the detail and color on your focus in some of these other areas. I'm wondering on reverse mortgage, you've highlighted the tailwinds and that kind of thing. Can you kind of talk about what, if any, headwinds you may have that you've got to navigate through or around to take advantage of the structural opportunities in reverse? Also, as part of that question on reverse, the CFPB last month took action against one of your competitors around their advertising space or their advertising practices in the mortgage space. Do you see a trend of regulators looking more closely at their enforcement activities around reverse mortgages, and how does that potentially create some opportunities for you?

James Faucette: Hey, thank you very much, and thanks for the detail and color on your focus in some of these other areas. I'm wondering on reverse mortgage, you've highlighted the tailwinds and that kind of thing. Can you kind of talk about what, if any, headwinds you may have that you've got to navigate through or around to take advantage of the structural opportunities in reverse? Also, as part of that question on reverse, the CFPB last month took action against one of your competitors around their advertising space or their advertising practices in the mortgage space. Do you see a trend of regulators looking more closely at their enforcement activities around reverse mortgages, and how does that potentially create some opportunities for you?

Hey, Thank you very much and thanks for the detail and color on your focus than some of these other areas I'm wondering on reverse mortgage you've highlighted the the tailwind and that kind of thing can you kind of talk about what if any headwinds may.

But you've got to navigate through are around to take advantage of.

The structural opportunities in reverse and then Oh.

Also as part of that.

Question on reverse the CFPB last month took action against one of your competitors around their advertising space or their advertising prices in the mortgage space.

Do you see a trend of regulators looking more closely at their enforcement activities around reverse mortgages.

How does that potentially create some opportunities for you.

Patti Cook: Yeah. Thank you. So I think the biggest headwind when I think of the reverse market is adoption. It's education. Right. You've got this huge population out there, and you've got a great product that satisfies one of their biggest needs. It's really, it's getting to them. And because reverse is still a bit of a niche market, it's hard to do on our own. So really it's the collective of us and our competitors working with what I'll call some industry think tanks to really try and increase the uptake of potential borrowers into a reverse. I think on your second question on the regulatory environment, like we welcome that scrutiny, and I mean it sincerely. We take our customer relationship in the reverse mortgage seriously, and we have a demonstrated track record of doing the right thing.

Yes. Thank you.

So I think the biggest headwind when I can think of the reverse market its adoption.

It's education right you've got this huge population out there you've got a great product and satisfies one of their biggest needs, it's really it's getting to them and.

Because reverse is still a bit of a niche market, it's hard to do on our own. So really it's the collective of us and our competitors working with what I'll call. Some interest rates think tanks to really try and increase the uptake.

<unk>.

Potential borrowers into a reverse.

I think on your second question on the regulatory environment like we welcome that scrutiny and I mean sincerely, we take our customer relationship in the reverse mortgage seriously and we have a demonstrated track record of doing the right thing we have a good relationship with the <unk>.

We take our customer relationship in the reverse mortgage seriously, and we have a demonstrated track record of doing the right thing. We have a good relationship with the CFPB and like I said, I welcome the increased grouping.

Patti Cook: We have a good relationship with the CFPB and like I said, I welcome the increased grouping.

And like I said I welcome the increased scrutiny.

[Analyst] (Morgan Stanley): Thanks. Just quickly on the home improvement, can you quickly run through again? I think you kind of talked about this, but I'm not sure I captured it entirely. Your customer acquisition and engagement in that home improvement area and how you're thinking about expanding kind of that reach.

James Faucette: Thanks. Just quickly on the home improvement, can you quickly run through again? I think you kind of talked about this, but I'm not sure I captured it entirely. Your customer acquisition and engagement in that home improvement area and how you're thinking about expanding kind of that reach.

Thanks, and then just quickly on the home improvement can you quickly run through again and I think you've kind of talked about this but I'm not sure I captured entirely.

Customer acquisition.

And engagement in that in that home.

Home improvement.

And how.

How youre thinking about expanding the kind of that reach.

Patti Cook: Yeah. Right now that business is organized at point of sale. The contractor is offering the home improvement loan to the borrower. The opportunity for us that comes from that platform and that relationship is several. First of all, we're acquiring 15,000, based on last year's production, new potential borrowers. You're going to immediately ask yourself, well, what does the rest of their lending portfolio look like, and is there an opportunity for us to refi a loan, offer them something else? It's the borrower, it's the customer acquisition on the one hand, and the other things we might be able to advise them on. The second opportunity is taking the technology that underpins the home improvement model and putting other products on it. You know, solar would be a good example, or a home equity-like product. That's not a mortgage, that's a personal loan.

Patti Cook: Yeah. Right now that business is organized at point of sale. The contractor is offering the home improvement loan to the borrower. The opportunity for us that comes from that platform and that relationship is several. First of all, we're acquiring 15,000, based on last year's production, new potential borrowers. You're going to immediately ask yourself, well, what does the rest of their lending portfolio look like, and is there an opportunity for us to refinance a loan, offer them something else? It's the borrower, it's the customer acquisition on the one hand, and the other things we might be able to advise them on.

Yeah. So right now that business is organized at point of sale.

The contractor is offering the home improvement loans to the borrower.

The opportunity for us that comes from that platform and that relationship with several first of all we're acquiring 15000 based on last year's production new potential borrowers. So youre going to immediately ask yourself well what does the rest of their lending portfolio look like and is there an opera.

Annuity for us to refi loan offer them something else.

So it's the borrower if the customer acquisition on the one hand, and the other things we might be able to advise them on.

The second opportunity is taking the technology that underpins the home improvement model and putting other products on it. You know, solar would be a good example, or a home equity-like product. That's not a mortgage, that's a personal loan.This would be another platform to be able to do it. The distinguishing factor about the platform is that it's basically an automated underwriting. Unlike when you do a mortgage, then you're bogged down and everything you need to do to underwrite the loan. The loans that we can put through this platform will largely be an automated underwrite. It puts us in the personal loan space in a way we're not today.

The second opportunity is taking that technology that underpins the whole improvement model and putting other products on it.

Well solar would be a good example.

Or a home equity life product, that's not a mortgage that's a personal alone. This would be another platform to be able to do it the distinguishing factor about the platforms is that it's basically an automated underwrite somewhat like when you do a mortgage and your bogged down in everything you need to do to underwrite below the low.

Patti Cook: This would be another platform to be able to do it. The distinguishing factor about the platform is that it's basically an automated underwriting. Unlike when you do a mortgage, then you're bogged down and everything you need to do to underwrite the loan. The loans that we can put through this platform will largely be an automated underwrite. It puts us in the personal loan space in a way we're not today.

So that we can put through this platform will largely be an automated onto right. So it puts us in the personal loan space in a way we're not today.

[Analyst] (Morgan Stanley): Thank you very much.

James Faucette: Thank you very much.

Thank you very much.

Operator: Again, if you have a question, please press star then 1. Our next question comes from Wayne Cooperman with Cobalt Capital. You may go ahead.

Again, if you have a question. Please press Star then one.

Our next question comes from Wayne Cooperman with cobalt capital.

You May go ahead.

[Analyst] (Cobalt Capital): Hello. Good morning. I was wondering, you were talking about comping to other companies. I wondered if you could just comp the reverse business to the forward business and try to understand the returns on capital on each business if they're separable, or if the cost structures are so intertwined that it's really not feasible to do that.

Wayne Cooperman: Hello. Good morning. I was wondering, you were talking about comping to other companies. I wondered if you could just comp the reverse business to the forward business and try to understand the returns on capital on each business if they're separable, or if the cost structures are so intertwined that it's really not feasible to do that.

Hello, Good morning.

Was wondering you were talking about comping to other companies I wondered if you could just carve the reverse business to the Ford business and.

Trying to understand the returns on capital on each business, if theyre separable or if the cost structures are so intertwined that its really not feasible to do that.

Patti Cook: First of all, the cost is not intertwined. We do manage them as a separate segment. If we're going to talk about cost to originate, there's a cost to originate a mortgage loan, and there's a cost to originate a reverse loan. I think. That's what I'd say about the cost side. I think the non-mortgage businesses generally have higher margins. Right. They're niche businesses. They are, It's not nearly as competitive. You can see by looking at the data in the release, the revenue numbers for reverse and mortgage, that reverse is going to have higher margins.

So first of all the cost is not intertwined.

So we do manage them as a separate segment. So if we're going to talk about cost to originate is a cost originated mortgage loan and there's a cost were originated with personal loans.

I think.

Patti Cook: That's what I'd say about the cost side. I think the non-mortgage businesses generally have higher margins. Right. They're niche businesses. They are. It's not nearly as competitive. You can see by looking at the data in the release, the revenue numbers for reverse and mortgage, that reverse is going to have higher margins. Right.

So that's what I'd say about the.

The cost side I think the non mortgage businesses generally have higher margins.

Right. They are niche businesses. They are it's not nearly as competitive. So you can see by looking at the data in the release.

The revenue numbers for <unk>.

Reverse and mortgage that reverse is going to have higher margins.

Wayne Cooperman: Right. I know in the forward business you don't have a lot of capital tied up because you originate the mortgage and sell it pretty quickly. What on the reverse side? I mean, do you have to hold more capital or hold the loan longer? Like how would you compare the return on capital between one versus the other on a, you know, on a new go forward basis?

[Analyst] (Cobalt Capital): I know in the forward business you don't have a lot of capital tied up because you originate the mortgage and sell it pretty quickly. What on the reverse side? I mean, do you have to hold more capital or hold the loan longer? Like how would you compare the return on capital between one versus the other on a, you know, on a new go forward basis?

Right.

I know in the <unk> business.

Have a lot of capital tied up because you originate the mortgage and sell it pretty quickly one.

On the reverse side.

Do you have to recall of more capital or hold the lower longer like how would you compare the return on capital between one versus the other on a on a new go forward basis yeah.

Johan Gericke: Yeah, look, Wayne, I say the return on capital on the reverse business is, is pretty high. We do not disclose obviously the amount of capital we have allocated to each segment. If you just look at the operating margin, pre-tax income over revenue, you know, it is north of 60%, so highly profitable. What we do is we retain the loans, you know, for three months. We aggregate them until we securitize them. We have a little bit of cost of holding those, but I do not think we have a negative carry on that. We securitize it. We obviously get the margin.

When I say the return on capital on the reverse business.

We don't disclose obviously the amount of capital we have allocated to each segment.

But if you just look at the the operating margin pretax income over revenue north of 60%, So a highly profitable and what do we retain the loans.

For three months, we aggregate them until we securitize them. So we have a little bit of cost of holding those but I don't think we have a negative carry on that and then move to securitize that we obviously get the margin.

Johan Gericke: It's a profitable business for us.

Got it.

It does.

Patti Cook: Yes.

Wayne Cooperman: Yes. Do you have to hold more capital on a reverse securitization than a forward securitization, or are they about the same?

[Analyst] (Cobalt Capital): Do you have to hold more capital on a reverse securitization than a forward securitization, or are they about the same?

Profitable business for US here do you have to hold more capital on a reverse securitization than a forward securitization or are they about the same.

Patti Cook: The timeline's different.

With timelines different yeah, I mean, that's the timeline is different the one obviously staying on balance sheet. The other one goes off balance sheet.

Johan Gericke: Yeah, I mean the timeline is different. The one obviously stays on balance sheet, the other one goes off balance sheet.

Johan Gericke: Yeah, I mean the timeline is different. The one obviously stays on balance sheet, the other one goes off balance sheet. You know, when you. I'm happy to walk you through the technicalities of it, you know, if you're interested, but the net story is we don't necessarily have to hold incremental capital over and above the exposure that we have on the balance sheet net of the non-recourse obligations. You know, the liability piece and the businesses is obviously how you process.

Johan Gericke: You know, when you.

You know when you're in.

Johan Gericke: I'm happy to walk you through the technicalities of it, you know, if you're interested, but the net story is we don't necessarily have to hold incremental capital over and above the exposure that we have on the balance sheet net of the non-recourse obligations. You know, the liability piece and the businesses is obviously how you process.

Yes.

I'm happy to walk you through the technicalities of it.

If you're interested but.

The net story is.

We don't necessarily have to hold incremental capital over and above the exposure that we have on the on the balance sheet net of the <unk>.

Non recourse obligations.

Ability piece.

Okay.

The businesses, there's always value prop.

[Analyst] (Cobalt Capital): Is the only, I mean, could you grow the mortgage reverse business? Is it just you seem like you have the capacity to grow it, it's just you need to grow that market more. It's not really a supply issue, right?

Wayne Cooperman: Is the only, I mean, could you grow the mortgage reverse business? Is it just you seem like you have the capacity to grow it, it's just you need to grow that market more. It's not really a supply issue, right?

So as the only I mean could you grow the mortgage reverse business.

Just you seem like you have the capacity to grow it is just in.

You need to grow that market more it's not really a supply issue right.

Patti Cook: No, it's getting it. We refer to it as the uptake in that market, getting more people to take out a reverse. We're starting to see it happen. Like if I even look at the past couple of years and the growth in that sector, you see the evidence two things are happening. More people are taking out a reverse, and people that have taken out a reverse are also watching home price appreciation and continuing to monetize the equity they have in their home, which would continue. House price appreciation is a great tailwind in reverse as well.

No it's getting it we refer to it is the uptake in that market getting more people to take out a reverse <unk>.

And we're starting to see it happen like if I, even look at the past couple of years and the growth in that sector. You see the evidence two things are happening more people are taking out a reverse and that people that have taken out a reverse are also watching home price appreciation and continuing to monetize the <unk>.

They have in their call, which would continue.

So house price appreciation is a great.

Tailwind in reverse as well.

[Analyst] (Cobalt Capital): All right, thank you very much.

Wayne Cooperman: All right, thank you very much.

Okay, Alright, thank you very much.

Patti Cook: Thank you.

Thank you.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Patti Cook for any closing remarks.

This concludes our question and answer session.

I'd like to turn the conference back over to Patrick Cooke for any closing remarks.

Patti Cook: Well, thank you all for joining us today, and we look forward to continuing our discussion with you about Finance of America. Please reach out if you have any questions. We'd love to chat. Thanks.

Yeah.

Well. Thank you all for joining us today, and we look forward to continuing our discussion with you about finance of America. Please reach out if you have any questions, we'd love to Chad. Thanks.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Q3 2021 Finance of America Companies Inc Earnings Call

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