Finance of America: Pioneering the Reverse Mortgage Revolution in an Undervalued Aging Population Market

The reverse mortgage market, long overlooked by mainstream investors, is poised for a seismic shift as the aging population increasingly seeks solutions to unlock home equity. At the forefront of this transformation is Finance of America Companies Inc. (FOA), a leader in reverse mortgage innovation that has leveraged digital transformation, strategic product development, and financial discipline to outperform industry benchmarks. With a current P/E ratio of 4.39—a stark discount to both its historical averages and industry peers—FOA represents a compelling investment opportunity in a niche market with explosive long-term potential.

A 35% Growth Story: FOA's Dominance in a Shrinking Industry

While the broader reverse mortgage sector has struggled with declining production volumes—U.S. HECM endorsements hit a 20-year low of 26,521 in FY 2023–24—FOA has defied the trend. The company reported a 19% year-over-year increase in reverse mortgage funded volume in 2024, with $1.93 billion in total production. However, the real story lies in its proprietary HomeSafe Second product, a closed-end second-lien reverse mortgage that grew nearly 400% year-over-year in 2024. This product, now available in additional states and through wholesale partners, has become a cornerstone of FOA's growth strategy, capturing a significant share of the non-agency reverse mortgage market.

Critically, FOA's Q4 2024 performance exceeded expectations, with $534 million in funded volume and a 73% year-over-year increase in non-agency reverse mortgage production. These figures underscore FOA's ability to innovate in a stagnant market, positioning it as a clear leader in a sector where competitors are retreating.

Digital Transformation: Streamlining Operations for Scalability

FOA's success is not just a function of product innovation but also a strategic overhaul of its operational framework. The company has invested heavily in digital tools to streamline loan processing, reduce costs, and enhance customer experience. By integrating its retail platform and automating underwriting workflows, FOA achieved a 10.7% revenue margin in 2024, up 1.5 percentage points from 2023. This margin expansion, coupled with a $48 million reduction in cost base expenses, has created a lean, efficient business model capable of scaling rapidly.

The company's digital-first approach also extends to its capital markets operations. FOA completed its largest securitization transaction to date in 2024, leveraging both new and seasoned collateral to strengthen its balance sheet. This agility in capital structuring has allowed FOA to maintain liquidity even as industry-wide challenges persist.

A P/E Ratio That Defies Logic: FOA's Attractive Valuation

Despite its robust growth and operational improvements, FOA trades at a P/E ratio of 4.39, a figure that is 93% below its 6-year average of 67.47 and 552% lower than its 4-quarter average. This valuation is not only a sharp discount to its historical norms but also a stark contrast to its peers. For context, the peer average P/E is 17.9x, while the broader U.S. Diversified Financial industry trades at 17.2x. FOA's valuation is further highlighted by its 4.6x P/E ratio in another data set, reinforcing the consistency of its undervaluation.

This disconnect between FOA's fundamentals and its stock price is a classic case of market underappreciation. The company's earnings power—bolstered by its 19% volume growth, margin expansion, and a 421% increase in tangible net worth—suggests that the current P/E ratio is unsustainable. With the potential implementation of HMBS 2.0, a regulatory initiative expected to boost liquidity and reduce capital costs, FOA's valuation could see a dramatic re-rating.

Long-Term Growth Drivers: Aging Population and Home Equity Demand

The demographic tailwind behind FOA's strategy is undeniable. By 2035, the U.S. population aged 65 and older is projected to reach 78 million, with home equity representing a critical asset for retirement planning. Yet, reverse mortgage adoption remains low, with only 0.1% of U.S. homeowners utilizing these products. FOA is uniquely positioned to bridge this gap, offering solutions that align with the financial needs of retirees while generating recurring revenue through servicing and securitization.

Moreover, FOA's focus on non-agency reverse mortgages—which are less constrained by government-insured HECM regulations—provides a scalable alternative to the struggling agency market. As HMBS 2.0 gains traction, FOA's proprietary product suite could capture a larger share of this growing segment.

Investment Thesis: A High-Conviction Play

For investors seeking exposure to a high-growth, undervalued sector, FOA presents a rare opportunity. The company's 35%+ growth in key product lines, industry-leading operational efficiency, and discounted valuation create a compelling risk-reward profile. While the broader reverse mortgage market faces headwinds, FOA's strategic focus on digital innovation, product diversification, and capital discipline positions it to outperform.

Key risks include regulatory delays in HMBS 2.0 and continued interest rate volatility. However, FOA's strong balance sheet, cost reductions, and market leadership mitigate these concerns. With a forward-looking guidance of $2.4–2.7 billion in 2025 origination volume—a 26%–42% increase from 2024—the company is well on its way to becoming a dominant force in the home equity solutions space.

Conclusion: Time to Act on an Undervalued Leader

Finance of America's combination of market-leading growth, digital innovation, and attractive valuation makes it a standout in the reverse mortgage sector. As the aging population increasingly seeks ways to monetize home equity, FOA's strategic positioning and operational excellence provide a clear path to long-term value creation. For investors with a high-conviction, transformational mindset, FOA is not just a stock—it's a gateway to the future of retirement finance.

Investment Recommendation: Buy FOA at current levels, with a target price of $30–$35 over the next 12–18 months, reflecting a re-rating to industry-competitive P/E multiples and execution of its 2025 guidance.