Capital markets pique the interest of lenders
Editor’s Note: This Q&A appears in the April 2021 edition of ReportM journal, available here.
Patricia Cook is CEO of Finance of America Companies. Finance of America offers a range of financial products, including mortgages, reverse mortgages, business loans, and other services to lenders.
After graduating with a Bachelor of Education from Saint Mary’s College, Cook became interested in sales and financial services. She received her MBA from the Stern School of Business at New York University and joined Salomon Brothers at a time when there weren’t many female MBAs on Wall Street.
Cook eventually joined the asset management industry, 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 handled the mortgage industry through its best and worst.
In 2016, she joined Finance of America Companies. Cook recently spoke with ReportM to discuss why capital markets have become so attractive to lenders and how Finance of America Companies was designed to withstand an ever-changing market.
M // We know that a lot lenders today strive to tap public capital markets. Could you detail some of trends and factors influencing these movements?
Cook // For Finance of America, this has it has always been our intention to be a public enterprise. The company was started about seven years ago with private investors, and we spent that time setting up a business that would eventually become public.
Being public is attractive because It gives you flexibility to access Capital city. Tdebt capital markets, over time, we will eventually 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. IIt is certainis lying payable in part because there is this tailwind of a robust economic environment for mortgage companies. For America’s Finance in particular, it was always part of our roadmap.
MYu noted some of the tailwinds we are seeing. What you are see from your point of view and what benefiting the loan market at the dawn of 2021?
Cook // America’s Finances is different of some of the companies we are often compared.
OOne of the fundamental differences is that we have five business segments. We have three loan segments: Mortgage, Reverse Mortgage, and Commercial. WWe have fees-a service business called Incenter, and we have a portfolio management business. This was deliberately designed to generate cycle-resistant income.
WWhen you look at the tailwinds, the reason we love these five business segments is that the tail winds are different.
In the area of ââterm mortgage loans, Iit’s historically-low rates and a huge amount of refinances. Eighty-five percent forward mothe mortgage market is eligible for refinancing.
In the reverse mortgage Marlet, it’s different. It’s aging Baby Baby boomer demographics who 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, it will increase our reverse activity.
Im the commercial space, where we mainly grant loans to investors, the aging housing stock in the U.S. is about 37 years old-old woman, like baby Boomers want to live or rent something new. There is a huge request for funding these assets, either from a patch-and-reverse or long-term perspective.
Oyour fee-for-service business is totally uncorrexalted. We own a securities company, a valuation company and a company that deals with student loans. It’s all service charge, and is totally differentiatinged loan companies.
Portfolio management is the fifth, where we carry out our own securitizations and are management of third party funds.
Wwhen you think of the way American Corporate Finance structure his business was deliberate, and we looked at the long-term positive winds that support each of these companies.
M // OObviously, this past year has been about as unpredictable as ever. THEfor the future, what do you expect to see o changen the front of the housing market? I know there ‘we talked about more origin and less refi. East that something you see, aAnd what else are you waiting for?
Cook // Iit’s really hard to predict in three or four months, and how he mit really changes from today, but here are the things youwill think about it.
With hhistorically low rate, a very accommodatingeat Fed is likely will support the financial mmarkets for a while. The refi vague will probably continue a good part of this year.
ILonger term, what everyone also considers is what the market looks like on the other side? There will be to augmentfacilitated household formation. Eeven if, due to COVID-19, you’ve seen demographics where people who lived in urban areas go back home for a short time. I thinks it’s a short-term implication. Over the next two years you watch Fannie Mae or the Mortgage Bankers Association (MBA), all predicted an increase in purchases and a lower refis.
Im the mortgage Marlet, how long will be these good times roll? You must evaluate how you are as a company, and how are you prepare for the other side of the pandemic. We think American Corporate Finance is really good-positioned, and love our diverse platform.