Capital Markets Piquing Lender Interest

Editor's note: This Q&A appears in the April 2021 edition of MReport magazine, available here. 

Patricia Cook serves as CEO of Finance of America Companies. Finance of America offers an array of financial products, including mortgages, reverse mortgages, commercial loans, and other lender services.

After earning a B.A. in education at Saint Mary’s College, Cook became interested in the sales and financial services field. She completed her MBA at New York University’s Stern School of Business, and joined Salomon Brothers at a time when there were not many female MBAs on Wall Street.

Cook eventually moved into the asset management sector, working with Prudential and JP Morgan as Chief Investment Officer, and Chief Business Officer at Freddie Mac. While with Freddie Mac, she learned the ins and outs of business operations, and managed the mortgage business through the best and worst of times.

In 2016, she joined Finance of America Companies. Cook recently spoke with MReport to discuss why capital markets have become so attractive to lenders and how Finance of America Companies was built to withstand an ever-evolving marketplace.

M// We know that many lenders today are striving to tap into the public capital markets. Could you detail some of the trends and factors that are influencing those moves? 

Cook// For Finance of America, it had always been our plan to be a public company. The firm was started about seven years ago with private investors, and we've spent that time building a company that ultimately would go public. 

Being public is attractive because it gives you the flexibility to access capital. The debt capital markets, over time, will ultimately allow us to continue to invest in the business. I think if you look at the peer group, we can speculate as to why so many mortgage companies are coming today. It's certainly due in part because there is this tailwind of a robust economic environment for mortgage companies. For Finance of America in particular, it was always part of our roadmap. 

M// You mentioned some of the tailwinds we are seeing. What are you seeing from your perspective and what is benefiting the lending market as we enter 2021? 

Cook// Finance of America is different from some of the companies we are often compared to. 

One of the fundamental differences is that we have five business segments. We have three lending segments: mortgage, reverse mortgage, and commercial. We have a fee-for-service business called Incenter, and we have a portfolio management business. This was purposely designed to generate cycle-resistant earnings. 

When you look at the tailwinds, the reason we like those five business segments is the tailwinds are different. 

In the forward mortgage business, it's historically-low rates and a huge amount of refinances. Eighty-five percent of the forward mortgage market is eligible for refinance. 

In the reverse mortgage market, it's different. It's the aging Baby Boomer demographic that hasn't saved enough for retirement, wants to age in place, and has a lot of equity in their home. So we believe, over time, that will increase our reverse business. 

In the commercial space, where we do primarily investor lending, the aging housing stock in the U.S. is approximately 37-years-old, as Baby Boomers want to live in or rent something new. There's a huge demand to finance those assets, either from a fix-and-flip perspective or long-term. 

Our fee-for-service business is totally uncorrelated. We own a title company, an appraisal company, and a company that does fulfillment for student lending. That's all fee-for-service, and is totally differentiated from the lending businesses. 

Portfolio management is the fifth, where we are doing our own securitizations and are managing third-party funds. 

When you think about the way Finance of America Companies structured its business, it was deliberate, and we looked at the long-term tailwinds that support each of those businesses. 

M// Obviously, this past year has been about as unpredictable as one we've ever seen. Looking ahead, what do you expect to see changing on the housing market front? I know there's been talk of more origination and less refi. Is that something you're seeing, and what else are you anticipating? 

Cook// It's really hard to predict three to four months out, and how it might really change from today, but here are the things you're going to be thinking about. 

With historically low rates, a very accommodating Fed is likely going to support the financial markets for some period of time. The refi wave will probably continue for a good part of this year. 

In the longer run, what everybody is also considering is, what does the market look like on the other side of this? There will be increased household formation. Even if, due to COVID-19, you saw some demographics where people who were living in an urban setting moved back home for a short period of time. I think that's a short-term implication. Over the next couple of years, whether you look at Fannie Mae or the Mortgage Bankers Association (MBA), all were predicting an increase in purchase and a decline in refis. 

In the mortgage market, how long will these good times roll? You must assess how you are as a company, and how are you preparing for the other side of the pandemic. We think Finance of America Companies is really well-positioned, and love our diversified platform.