Finance of America Companies Inc. (FOA) stock intrinsic value fair value estimate & owner earnings analysis

Finance of America is one of the largest US reverse-mortgage lenders. It originates federally insured Home Equity Conversion Mortgages (HECMs) under the FHA program and its own non-agency HomeSafe loans, pools the HECMs into Ginnie Mae HMBS bonds and the proprietary loans into its own securitizations, services the loans and keeps the residual interest. It became a pure reverse-mortgage business after leaving forward mortgages and other lines in 2022-2023 and buying American Advisors Group (AAG) in March 2023. On June 30, 2026 it bought the reverse-mortgage origination and servicing business of Onity Mortgage (about $5.6 billion of HMBS-funded loans) for about $124 million, of which about $32 million is still to be paid. About 44% of its loan book is secured by homes in California. How we measured earnings. Reported operating cash flow (about -$430 million in 2025) cannot be used: the company books the loans it makes as investments and the bond proceeds that turn its origination profit into cash as financing, so the operating line shows mostly costs. We started instead from net income from continuing operations (including the share belonging to holders of the operating partnership's units, which exchange one-for-one into Class A shares), added back amortization of acquired intangibles and other non-cash items, and - the judgement that matters most - removed the gains and losses from re-marking the loan book for changes in interest rates, home prices and other model assumptions. Those marks added $147 million in 2025, $56 million in 2024 and $59 million in 2023, but cost $369 million in 2022 and $12 million in the first half of 2026; together they are a loss of about $118 million since 2022, so we do not count them as earnings. The routine run-off of the book (about -$154 million in 2025) is kept as a real cost. We also treat the accretion of the discount on the corporate notes as a claim to be repaid rather than an annual cost. On this basis owner earnings were about -$163 million in 2023 (the AAG integration year, which we exclude as unrepresentative), -$24 million in 2024 and +$22 million in 2025: roughly break-even across the two full years since the business took its current shape, a middle value of about $0.02 per share. The 2025 improvement of about $46 million was not extended in 2026: in the first half, origination gains rose 25% but expenses rose 21%, and the company lost $35 million before tax after a $31 million second-quarter write-down of the book. So the base case does not assume the improvement continues. Debt and other claims. The borrowings that fund the loans (HMBS obligations, securitization debt and warehouse lines, about $36 billion) are the raw material of a lender, so we value earnings after all interest and do not deduct that debt. Two claims still rank ahead of common shareholders: the $50 million of 9% Series A preferred stock sold in December 2025 (we count about $58 million, because it costs more than our 6% discount rate) and about $41 million by which the face value of the corporate notes exceeds their book value, left over from the 2024 note exchange and repayable at face. Corporate notes total about $358 million: $150.8 million of 8.875% senior secured notes, of which $60 million is due November 30, 2026 and the rest can be extended to November 2027; a $20 million related-party note due in 2026; $146.8 million of 10% exchangeable secured notes due 2029; and $40 million of convertible notes due 2028. Unrestricted cash was $85 million at June 30, 2026, before the remaining $25 million Onity payment due in the third quarter. We count about 17.7 million shares, including exchangeable units and restricted stock units, after the company bought back Blackstone's entire stake at $10 per share in two steps (December 2025 and February 2026). Base case: core earnings stay near the break-even level of 2024-2025. Growth in origination volume depends on the market and on market-share gains, so it is not credited; Onity is treated as bought at a fair price for the assets received, neither adding nor subtracting value. On its own earnings the business is worth only about $2 million; after about $100 million of senior claims the common is worth about -$5.51 per share. In other words the company appears to owe roughly $98 million more than its demonstrated earning power supports, even though its fair-value balance sheet shows about $196 million of tangible equity for common holders. That equity is tied up in running the lending operation and, on the record so far, produces nothing that owners can take out. Bear case: core earnings fall back to the 2024 level of about -$24 million a year, as the first half of 2026 suggested with costs outrunning origination gains. The November 2026 and 2027 note maturities have to be refinanced at around 12%, and by the time the exchangeable notes mature in 2029 a restructuring or heavy dilution leaves little for shareholders. The business is then worth about -$85 million before the $100 million of senior claims, about -$10.39 per share: the company would owe roughly $184 million more than it is worth. Bull case: the 2025 result of about $22 million in owner earnings proves to be the new normal and holds indefinitely. It rests on the company's position as the largest HECM lender under a federal program in place since 1989, on the AAG brand kept alive by marketing spend that is already charged against earnings (replacing the acquired intangibles as they amortize), and on the added Onity servicing book. At 6% that is worth about $374 million for the business; after $100 million of senior claims, about $15.45 per share. What would make this wrong: earnings excluding market marks turning clearly and consistently positive would move the value toward the bull case, while another rate shock like 2022 could wipe out the thin equity cushion (about $0.4 billion against $37 billion of assets). Margin-of-safety price: price alone is not enough. The margin-of-safety price applies only if the company shows it can sustain at least its 2025 level of core earnings for a full year and refinances its 2026-2027 senior notes without issuing new common stock. If that happens the business would be worth about the bull value of $15.45 per share, and given the heavy leverage, thin equity and reliance on securitization markets a margin of safety of about 55% is warranted, which gives a margin-of-safety price of about $7.00 per share.