Finance of America Companies (FOA) 10-Q 2021 Q2 Quarterly report

0001828937 foa:CommercialLinesOfCreditMember foa:TwoMillionSecuritiesRepoLineMember 2021-01-01 2021-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                 

Commission file number

001-40308

FINANCE OF AMERICA COMPANIES INC.

(Exact name of registrant as specified in its charter)

Delaware	85-3474065
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
909 Lake Carolyn Parkway, Suite 1550,
Irving, Texas	75039
(Address of Principal Executive Offices)	(Zip Code)

(972)

999-1833

Registrant’s telephone number, including area code

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	FOA	The New York Stock Exchange
Warrants to purchase shares of Class A Common Stock	FOA.WS	The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Act).    Yes  ☐    No  ☒

As of August 16, 2021, 59,881,714 of the registrant’s Class A common stock, par value $0.0001 per share, were issued and outstanding

Finance of America Companies Inc.

and Subsidiaries

Table of Contents	Page
Part I—Financial Information		3
Item 1. Financial Statements		3
Consolidated Financial Statements		3
Consolidated Statements of Financial Condition		3
Consolidated Statements of Operations		5
Consolidated Statements of Comprehensive Income		6
Consolidated Statements of Changes in Equity		7
Consolidated Statements of Cash Flows		9
Notes to Consolidated Financial Statements		12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		89

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts or statements of current conditions, but instead represent only management’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. It is possible that our actual results, financial condition and liquidity may differ, possibly materially, from the anticipated results, financial condition and liquidity in these forward-looking statements. The Company’s actual results may differ from its expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions (or the negative versions of such words or expressions) are intended to identify such forward-looking statements. The Company cautions readers not to place undue reliance upon any forward-looking statements, which are current only as of the date of this report. Results for any specified quarter are not necessarily indicative of the results that may be expected for the full year or any future period. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions, or circumstances on which any such statement is based, except as required by law. Such forward-looking statements are subject to various risks and uncertainties including, among others; the effect of the COVID-19 pandemic on the Company’s business; changes in prevailing interest rates or U.S. monetary policies that affect interest rates that may have a detrimental effect on our business; the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors in our markets; our ability to obtain sufficient capital to meet the financing requirements of our business; the use estimates in measuring or determining the fair value of the majority of our assets and liabilities; the possibility of disruption in the secondary home loan market, including the mortgage-backed securities market; and other risks and uncertainties set forth in the section entitled “Risk Factors” included in our Registration Statement on Form S-1 originally filed with the SEC on May 25, 2021, as such factors may be further updated from time to time in the Company’s periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in the Company’s other filings with the SEC.

Website Disclosure

The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s investor relations website at https://www.financeofamerica.com/investors. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting “Email Alerts” under the “News & Events” tab of our investor relations website. Information on the Company’s website is not incorporated by reference herein and is not a part of this Form 10-Q.

Part I—Financial Information

Item 1. Financial Statements

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Financial Condition

(In thousands, except for share data)

	June 30, 2021			December 31, 2020
	Successor			Predecessor
	(unaudited)
ASSETS
Cash and cash equivalents	$	157,336		$	233,101
Restricted cash		354,390			306,262
Reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value		10,316,027			9,929,163
Mortgage loans held for investment, subject to nonrecourse debt, at fair value		5,424,621			5,396,167
Mortgage loans held for investment, at fair value		1,225,090			730,821
Mortgage loans held for sale, at fair value		2,057,542			2,222,811
Debt securities		8,694			10,773
Mortgage servicing rights, at fair value, $65,129 and $14,088, subject to nonrecourse MSR financing liability, respectively		290,938			180,684
Derivative assets		61,811			92,065
Fixed assets and leasehold improvements, net		28,669			24,512
Goodwill		1,298,324			121,233
Intangible assets, net		704,243			16,931
Other assets, net		300,253			300,632
TOTAL ASSETS	$	22,227,938		$	19,565,155
LIABILITIES, CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST (“CRNCI”) AND EQUITY
HMBS related obligation, at fair value	$	10,168,224		$	9,788,668
Nonrecourse debt, at fair value		5,425,732			5,271,842
Other financing lines of credit		3,412,234			2,973,743
Payables and other liabilities		488,735			400,058
Notes payable, net		353,718			336,573
TOTAL LIABILITIES		19,848,643			18,770,884
Commitments and Contingencies (Note 23)
CRNCI (Note 25)		0			166,231
EQUITY (Note 35)
FoA Equity Capital LLC member’s equity		0			628,176
Class A Common Stock (Successor), $0.0001 par value; 6,000,000,000 shares authorized; 59,881,714 shares issued and outstanding at June 30, 2021		6			—
Class B Common Stock (Successor), $0.0001 par value; 1,000,000 shares authorized, 7 shares issued and outstanding at June 30, 2021		0			—
Additional paid-in capital (Successor)		807,521			—
Accumulated deficit (Successor)		(69,548	)		—
Accumulated other comprehensive (loss) income		(27	)		9
Noncontrolling interest		1,641,343			(145	)
TOTAL EQUITY		2,379,295			628,040
TOTAL LIABILITIES, CRNCI AND EQUITY	$	22,227,938		$	19,565,155

See accompanying notes to unaudited consolidated financial statements

3

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Financial Condition

(In thousands)

The following table presents the assets and liabilities of the Company’s consolidated variable interest entities, which are included on the Consolidated Statements of Financial Condition above, and excludes intercompany balances, retained bonds and beneficial interests that eliminate in consolidation.

	June 30, 2021		December 31, 2020
	Successor		Predecessor
	(unaudited)
ASSETS
Restricted cash	$	334,984	$	293,580
Mortgage loans held for investment, subject to nonrecourse debt, at fair value
2021 FASST HB1		506,482		—
2020 RTL1 ANTLR		—		137,989
2019 FASST JR2		437,641		488,760
2020 FASST HB2		397,121		398,480
2018 FASST JR1		395,716		449,069
2019 FASST JR3		370,209		450,703
2020 FASST JR3		341,385		372,015
2019 FASST JR4		331,302		377,265
2020 FASST S3		313,728		316,774
2020 FASST JR2		312,160		341,439
2019 FASST JR1		295,605		331,244
2020 FASST S2		289,129		311,721
2021 FASST JR1		562,333		—
2018 FASST JR2		234,665		264,622
2020 FASST JR4		228,248		237,100
2020 FASST S1		173,955		189,243
2020 FASST JR1		0		263,266
2018 RTL1 ANTLR		0		82,393
2019 RTL1 ANTLR		0		118,161
2020 FASST HB1		0		265,923
2021 RTL1 ANTLR		234,942		—
Other assets		76,056		79,528
TOTAL ASSETS	$	5,835,661	$	5,769,275
LIABILITIES
Nonrecourse debt, at fair value
2021 FASST HB1	$	537,618	$	—
2021 FASST JR1		507,721		—
2020 FASST HB2		445,758		472,074
2019 FASST JR2		425,568		463,568
2018 FASST JR1		405,161		450,268
2019 FASST JR3		374,391		423,406
2020 FASST JR3		316,738		337,024
2019 FASST JR4		316,203		350,514
2019 FASST JR1		301,889		326,367
2020 FASST S2		287,139		298,435
2020 FASST S3		286,549		294,226
2020 FASST JR2		280,978		297,046
2021 RTL1 ANTLR		266,461		—
2018 FASST JR2		240,078		265,695
2020 FASST JR4		198,582		217,362
2020 FASST S1		169,769		181,630
2020 FASST JR1		0		238,438
2020 RTL1 ANTLR		0		140,441
2018 RTL1 ANTLR		0		80,767
2019 RTL1 ANTLR		0		121,580
2020 FASST HB1		0		298,913
Payables and other liabilities		117		291
TOTAL LIABILITIES	$	5,360,720	$	5,258,045
Net fair value of assets subject to nonrecourse debt	$	474,941	$	511,230

See accompanying notes to unaudited consolidated financial statements

4

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share data)

(Unaudited)

	April 1, 2021 to June 30, 2021			January 1, 2021 to March 31, 2021			For the three months ended June 30, 2020			For the six months ended June 30, 2020
	Successor			Predecessor
REVENUES
Gain on sale and other income from mortgage loans held for sale, net	$	187,577		$	291,334		$	298,291		$	428,975
Net fair value gains on mortgage loans and related obligations		131,151			76,663			112,303			125,683
Fee income		90,864			161,371			76,656			146,627
Net interest expense:
Interest income		13,151			12,661			11,507			19,678
Interest expense		(33,626	)		(34,366	)		(33,298	)		(67,230	)
Net interest expense		(20,475	)		(21,705	)		(21,791	)		(47,552	)
TOTAL REVENUES		389,117			507,663			465,459			653,733
EXPENSES
Salaries, benefits and related expenses		274,731			238,530			230,275			374,653
Occupancy, equipment rentals and other office related expenses		6,720			7,597			7,208			14,611
General and administrative expenses		119,301			127,217			81,214			159,780
TOTAL EXPENSES		400,752			373,344			318,697			549,044
OTHER, NET		(2,103	)		(8,862	)		(28	)		(44	)
NET (LOSS) INCOME BEFORE INCOME TAXES		(13,738	)		125,457			146,734			104,645
Provision for income taxes		1,086			1,137			448			766
NET (LOSS) INCOME		(14,824	)		124,320			146,286			103,879
CRNCI		0			4,260			(2,620	)		(18,006	)
Noncontrolling interest		(17,089	)		201			571			800
NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	2,265		$	119,859		$	148,335		$	121,085
EARNINGS PER SHARE (Note 33)
Basic weighted average shares outstanding		59,881,714
Basic net income per share	$	0.04
Diluted weighted average shares outstanding		191,200,000
Diluted net loss per share	$	(0.05	)

See accompanying notes to unaudited consolidated financial statements

5

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

	April 1, 2021 to June 30, 2021			January 1, 2021 to March 31, 2021			For the three months ended June 30, 2020			For the six months ended June 30, 2020
	Successor			Predecessor
NET (LOSS) INCOME	$	(14,824	)	$	124,320		$	146,286		$	103,879
COMPREHENSIVE LOSS ITEM:
Impact of foreign currency translation adjustment		(27	)		(11	)		18			11
TOTAL COMPREHENSIVE LOSS		(14,851	)		124,309			146,304			103,890
Less: Comprehensive loss attributable to the noncontrolling interest and CRNCI		(17,108	)		4,461			(2,049	)		(17,206	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	2,257		$	119,848		$	148,353		$	121,096

See accompanying notes to unaudited consolidated financial statements

6

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(Unaudited)

	FoA Equity Capital LLC Member’s Equity			Accumulated Other Comprehensive (Loss) Income			Noncontrolling Interest			Total
Predecessor:
Balance at December 31, 2019 (audited)	$	482,719		$	(51	)	$	145		$	482,813
Contributions from members		1,042			—			—			1,042
Net (loss) income		(27,249	)		—			229			(27,020	)
Foreign currency translation adjustment		—			(8	)		—			(8	)
Balance at March 31, 2020		456,512			(59	)		374			456,827
Distributions to members		(578	)		—			—			(578	)
Noncontrolling interest distributions		—			—			(310	)		(310	)
Net income		148,335			—			571			148,906
Foreign currency translation adjustment		—			18			—			18
Balance at June 30, 2020	$	604,269		$	(41	)	$	635		$	604,863
Balance at December 31, 2020 (audited)	$	628,176		$	9		$	(145	)	$	628,040
Contributions from members		1,426			—			—			1,426
Distributions to members		(75,000	)		—			—			(75,000	)
Noncontrolling interest distributions		—			—			(620	)		(620	)
Net income		119,859			—			201			120,060
Accretion of CRNCI to redemption price		(32,725	)		—			—			(32,725	)
Foreign currency translation adjustment		—			(11	)		—			(11	)
Balance at March 31, 2021	$	641,736		$	(2	)	$	(564	)	$	641,170

See accompanying notes to unaudited consolidated financial statements

7

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Equity

(In thousands, except share data)

(Unaudited)

	Class A Common Stock				Class B Common Stock												Noncontrolling Interest
	Shares		Amount		Shares		Amount		Additional Paid-in Capital		Accumulated (Deficit)			Accumulated Other Comprehensive Loss			Class A LLC Units		Amount			Total Equity
Successor:
Balance at April 1, 2021		59,881,714	$	6		7	$	—	$	758,243	$	(71,813	)	$	—			131,318,286	$	1,658,545		$	2,344,981
Net (loss) income		—		—		—		—		—		2,265			—			—		(17,089	)		(14,824	)
Noncontrolling interest contributions		—		—		—		—		—		—			—			—		24			24
Noncontrolling interest distributions		—		—		—		—		—		—			—			—		(137	)		(137	)
Vesting of restricted stock units		—		—		—		—		49,278		—			—			—		—			49,278
Foreign currency translation adjustment		—		—		—		—		—		—			(27	)		—		—			(27	)
Balance at June 30, 2021		59,881,714	$	6		7	$	—	$	807,521	$	(69,548	)	$	(27	)		131,318,286	$	1,641,343		$	2,379,295

See accompanying notes to unaudited consolidated financial statements

8

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	April 1, 2021 to June 30, 2021			January 1, 2021 to March 31, 2021			For the six months ended June 30, 2020
	Successor			Predecessor
Operating Activities
Net (loss) income	$	(14,824	)	$	124,320		$	103,879
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:		5,172			(6,277	)		(221,079	)
Net cash  (used in) provided by operating activities		(9,652	)		118,043			(117,200	)
Investing Activities
Purchases and originations of mortgage loans held for investment		(1,241,085	)		(1,151,925	)		(2,056,834	)
Proceeds/payments received on mortgage loans held for investment		689,215			677,777			681,376
Purchases and origination of mortgage loans held for investment, subject to nonrecourse debt		(12,319	)		(12,247	)		(20,429	)
Proceeds/payments on mortgage loans held for investment, subject to nonrecourse debt		251,152			217,452			511,615
Purchases of debt securities		(1,449	)		(557	)		(9,044	)
Proceeds/payments on debt securities		1,888			2,096			26,673
Purchases of mortgage servicing rights		(61	)		(9,014	)		—
Proceeds on sale of mortgage servicing rights		—			7,765			—
Acquisition of subsidiaries, net of cash acquired		(20,000	)		(749	)		364
Purchase of investments		—			—			(2,250	)
Acquisition of fixed assets		(4,915	)		(4,178	)		(4,129	)
Acquisition of deferred purchase price liability		—			—			—
Payments on deferred purchase price liability		(311	)		(657	)		(949	)
Issuance of convertible notes receivable		—			(2,550	)		—
DIP Financing		—			(35,260	)		—
Net cash used in investing activities		(337,885	)		(312,047	)		(873,607	)
Financing Activities
Proceeds from securitizations of reverse mortgage loans, subject to HMBS related obligations		795,334			602,172			898,118
Payments of HMBS related obligations		(597,892	)		(506,142	)		(1,002,412	)
Proceeds from issuance of nonrecourse debt, net		600,595			579,518			1,645,039
Payments on nonrecourse debt		(498,966	)		(658,300	)		(512,689	)
Proceeds from other financing lines of credit		8,758,149			10,027,696			15,347,541
Payments on other financing lines of credit		(8,620,873	)		(9,660,588	)		(15,354,635	)
Debt issuance costs		(580	)		(2,467	)		(2,828	)
Payments on notes payable		—			—			(10,000	)
Principal payments under capital lease obligation		—			—			(415	)
Member contributions		—			1,426			502
Member distributions		—			(75,000	)		—
Settlement of CRNCI		(203,216	)		—			—
Noncontrolling interest contributions		023			—			16
Noncontrolling interest distributions		(137	)		(620	)		(310	)
Net cash provided by financing activities		232,437			307,695			1,007,927
Foreign currency translation adjustment		(1	)		(7	)		5
Net (decrease) increase in cash and restricted cash		(115,101	)		113,684			17,125

9

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	April 1, 2021 to June 30, 2021		January 1, 2021 to March 31, 2021		For the six months ended June 30, 2020
	Successor		Predecessor
Cash and restricted cash, beginning of period		626,827		539,363		382,664
Cash and restricted cash, end of period	$	511,726	$	653,047	$	399,789
Supplementary Cash Flows Information
Cash paid for interest	$	68,186	$	50,071	$	206,536
Cash paid for taxes, net		1,521		63		276
Loans transferred to mortgage loans held for investment, at fair value, from mortgage loans held for investment, subject to nonrecourse debt, at fair value		242,650		283,428		238,811
Loans transferred to mortgage loans held for sale, at fair value, from mortgage loans held for investment, at fair value		03,084		—		777,256
Loans transferred to government guaranteed receivables from mortgage loans held for investment, at fair value, and mortgage loans held for investment, subject to nonrecourse debt, at fair value		79		71		72,469
Loans transferred to mortgage loans held for investment, subject to nonrecourse debt, at fair value, from mortgage loans held for investment, at fair value		505,378		272,098		1,885,291
Loans transferred to mortgage loans held for investment, subject to HMBS, at fair value, from mortgage loans held for investment, at fair value		701,375		42,909		—

See accompanying notes to unaudited consolidated financial statements

10

Finance of America Companies Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	April 1, 2021 to June 30, 2021		January 1, 2021 to March 31, 2021	For the six months ended June 30, 2020
	Successor		Predecessor
Consideration Transferred
Total cash consideration	$	342,270
Blocker rollover equity		221,811
Seller earnout contingent consideration		160,272
Tax receivable agreement obligations to the seller		31,950
Total consideration transferred		756,303
Noncontrolling interest		1,658,545
Total equity value	$	2,414,848
Acquisition Related Activity
Assets Acquired
Cash and cash equivalents	$	336,075
Restricted cash		305,292
Non-cash assets acquired:
Reverse mortgage loans held for investment, subject to HMBS related obligations at fair value		10,071,192
Mortgage loans held for investment, subject to nonrecourse debt at fair value		5,291,443
Mortgage loans held for investment, at fair value		1,100,544
Mortgage loans held for sale, at fair value		2,140,361
Debt securities		9,230
Mortgage servicing rights, at fair value		267,364
Derivative assets		116,479
Fixed assets and leasehold improvements, net		26,079
Intangible assets, net		717,700
Other assets, net		279,155
Total assets acquired	$	20,660,914
Liabilities assumed
HMBS related obligations, at fair value		9,926,131
Nonrecourse debt, at fair value		5,227,942
Other financing lines of credit		3,340,345
Payables and other liabilities		669,048
Notes payable, net		353,924
Total liabilities assumed		19,517,390
Tangible net assets acquired		1,143,524
Goodwill	$	1,271,324

See accompanying notes to unaudited consolidated financial statements

11

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

1. Organization and Description of Business

Finance of America Companies Inc. (“FoA”, “Company”, or “Successor”) was incorporated in Delaware on October 9, 2020. FoA is a financial services holding company which, through its operating subsidiaries, is a leading originator and servicer of residential mortgage loans and provider of complementary financial services.

FoA has a controlling financial interest in Finance of America Equity Capital LLC (“FoA Equity” or “Predecessor”). FoA Equity owns all of the outstanding equity interests or has a controlling financial interest in Finance of America Funding LLC (“FOAF”). FOAF wholly owns Finance of America Holdings LLC (“FAH”) and Incenter LLC (“Incenter” and collectively, with FoA Equity, FOAF and FAH, known as “holding company subsidiaries”).

The Company, through its holding company subsidiary, FAH, operates three lending companies, Finance of America Mortgage LLC (“FAM”), Finance of America Reverse LLC (“FAR”), and Finance of America Commercial LLC (“FACo”) (collectively, the “operating lending subsidiaries”). Through FAM and FAR, the Company originates, purchases, sells and securitizes conventional (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as government sponsored entities (“GSEs”)), government-insured (Federal Housing Administration (“FHA”)), government guaranteed (Department of Veteran Affairs), and proprietary

non-agency

residential and reverse mortgages. FACo serves as a specialty finance company which originates a variety of commercial mortgage loans to owners and investors of single and multi-family residential rental properties. The Company, through its other holding company subsidiary, Incenter, has operating service companies (the “operating service subsidiaries” and together with the operating lending subsidiaries, the “operating subsidiaries”) which provide lender services, title services, secondary markets advisory, mortgage trade brokerage, appraisal and capital management services to customers in the residential mortgage, student lending, and commercial lending industries. Incenter operates a foreign branch in the Philippines for fulfillment transactional support.

Impact of the

COVID-19

Pandemic

The

COVID-19

pandemic has adversely impacted global financial markets and contributed to significant volatility in market liquidity and yields required by market investors in the type of financial instruments originated by the Company’s primary operating subsidiaries. The full impact of the

COVID-19

pandemic continues to evolve as of the date of this report. The Company’s management is actively monitoring the global situation and its effect on the Company’s financial condition, liquidity, operations, industry, and workforce. Further, the Company cannot estimate the length or gravity of the impact that the

COVID-19

pandemic will have on the residential mortgage and commercial lending industries. As of June 30, 2021 (Successor), 551 clients, or 0.57% of the total serviced portfolio, have entered into a forbearance plan as a result of the economic impacts caused by

COVID-19.

As the pandemic continues, it has the potential to cause additional volatility in the financial markets and may have an adverse effect on the Company’s results of future operations, financial position, intangible assets and liquidity in fiscal year 2021.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements comprise the financial statements of FoA and its controlled subsidiaries for the Successor period from April 1, 2021 to June 30, 2021 and the financial statements of FoA Equity and its controlled subsidiaries for the Predecessor periods from January 1, 2021 to March 31, 2021 and for the three months ended and six months ended June 30, 2020. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The Consolidated Statement of Financial Condition as of December 31, 2020 has been derived from the audited consolidated financial statements of the Predecessor as of and for the year ended December 31, 2020. In the opinion of management, such financial information reflects all normal and recurring adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. Operating results for the interim period are not necessarily indicative of the results that may be expected for any future period or for the full year. The consolidated interim financial statements, including the significant accounting policies, should be read in conjunction with the audited consolidated financial statements of FoA Equity and notes thereto for the year ended December 31, 2020 (Predecessor).

12

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

On October 12, 2020, the Company, Replay Acquisition Corp. (“Replay”) and FoA Equity entered into the Transaction Agreement pursuant to which Replay agreed to combine with FoA Equity in a series of transactions that resulted in the formation of the Company as a publicly traded company on the New York Stock Exchange (“NYSE”), and the Company controlling FoA Equity in an

“UP-C”

structure (collectively, the “Business Combination”). At the closing of the Business Combination (the “Closing”) on April 1, 2021 (the “Closing Date”), Replay domesticated into a Delaware corporation and the Company was formed. See Note 4—Acquisitions for additional information.

The consolidated financial statements include the accounts of the Predecessor, prior to the Business Combination, which was determined to be FoA Equity, a limited liability company that was formed in July 2020. Prior to the Business Combination, FoA Equity was a wholly owned subsidiary of UFG Holdings LLC (“UFG”). FoA Equity owned all of the outstanding equity interests or had a controlling financial interest in FOAF. FAH and Incenter LLC, which were wholly owned subsidiaries of FOAF, as well as their consolidated operating lending subsidiaries and operating service subsidiaries. See Note 1—Organization and Description of Business for additional information.

The significant accounting policies described below, together with the other notes that follow, are an integral part of the consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its controlled subsidiaries and certain variable interest entities (“VIEs”) where the Company is the primary beneficiary. The Company is deemed to be the primary beneficiary of a VIE when it has both (1) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (2) exposure to benefits and/or losses that could potentially be significant to the entity. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that the Company became the primary beneficiary through the date that the Company ceases to be the primary beneficiary.

FoA Equity consolidates the accounts of Finance of America Commercial Holdings LLC (“FACo Holdings”), which is a direct subsidiary of FAH and an indirect parent company of FACo. Through the date of the Business Combination, the noncontrolling interests of FACo Holdings met the definition of contingently redeemable financial instruments for which the ability to redeem was outside the control of the consolidating entity. The Contingently Redeemable Noncontrolling Interest (“CRNCI”) in this subsidiary was shown as a separate caption between liabilities and equity. Any income or losses attributable to the CRNCI were shown as an addition to or deduction from CRNCI in the Consolidated Statements of Financial Condition. All significant intercompany balances and transactions were eliminated. See Note 25—Changes in CRNCI for further discussion of the CRNCI and additions to or deductions from the CRNCI balance.

Business Combinations

The Company applies the acquisition method to all transactions and other events in which the entity obtains control over one or more other businesses. Assets acquired and liabilities assumed are measured at fair value as of the acquisition date. Liabilities related to contingent consideration are recognized at the acquisition date and

re-measured

at fair value in each subsequent reporting period. Goodwill is recognized if the consideration transferred exceeds the fair value of the net assets acquired.

Under ASC 805 there is an option to apply push-down accounting, which establishes a new basis for the assets and liabilities of the acquired company based on a “push down” of the acquirer’s stepped-up basis. The push-down accounting election is made in the reporting period in which the change-in-control event occurs. FoA has elected push-down accounting for the Business Combination, and will record the push-down entries at FoA Equity.

Goodwill

Goodwill is the excess of the purchase price over the fair value of the net assets acquired. Goodwill is not amortized, but is reviewed for impairment annually as of October 1 and monitored for interim triggering events on an ongoing basis. If certain events occur, which indicate goodwill might be impaired between annual tests, goodwill must be tested when such events occur. In making this assessment, the Company considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, etc. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment. Changes

1

3

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

in economic and operating conditions could result in goodwill impairment in future periods. In testing goodwill for impairment, the Company performs a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill, the Company will compare the fair value of that reporting unit with its carrying value including goodwill. If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss equal to the amount by which the carrying value of the goodwill exceeds the implied fair value of that goodwill.

Intangible Assets, Net

Intangible assets, net, primarily consist of trade names, customer lists, and broker relationships acquired through various acquisitions. Intangible assets are amortized on a straight line basis over their estimated useful lives. Amortization expense of intangibles is included in general and administrative expenses on the Consolidated Statements of Operations. The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

Warrant Liability

The Company accounts for warrants for the Company’s Class A Common Stock as liabilities at fair value within payables and other liabilities on the Consolidated Statements of Financial Condition because the warrants do not meet the criteria for classification within equity. The warrants are subject to remeasurement at each statement of financial condition date and any change in fair value is recognized within other, net in the Consolidated Statements of Operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants.

Tax Receivable Agreement Obligation

In connection with the Business Combination, concurrently with the Closing, the Company entered into Tax Receivable Agreements (“TRA”) with certain owners of FoA Equity prior to the Business Combination (the “TRA Parties”). The TRAs generally provide for the payment by the Company to the TRA Parties of 85% of the cash tax benefits, if any, that the Company is deemed to realize (calculated using certain simplifying assumptions) as a result of (i) tax basis adjustments as a result of sales and exchanges of units in connection with or following the Business Combination and certain distributions with respect to units, (ii) the Company’s utilization of certain tax attributes attributable to Blackstone Tactical Opportunities Associates—NQ L.L.C., a Delaware limited partnership, shareholders (“Blocker GP”), and (iii) certain other tax benefits related to entering into the TRAs, including tax benefits attributable to making payments under the TRAs. These tax basis adjustments generated over time may increase (for tax purposes) the depreciation and amortization deductions available to the Company and, therefore, may reduce the amount of U.S. federal, state and local tax that the Company would otherwise be required to pay in the future, although the IRS may challenge all or part of the validity of that tax basis, and a court could sustain such challenge. The tax basis adjustments upon sales or exchanges of units for shares of Class A Common Stock and certain distributions with respect to Class A LLC Units may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets. Actual tax benefits realized by the Company may differ from tax benefits calculated under the Tax Receivable Agreements as a result of the use of certain assumptions in the TRAs, including the use of an assumed weighted average state and local income tax rate to calculate tax benefits.

The payments that FoA may make under the TRAs are expected to be substantial. The payments under the TRAs are not conditioned upon continued ownership of FoA or FoA Equity by the Continuing Unitholders.

The Company accounts for the effects of these increases in tax basis and associated payments under the TRAs arising from exchanges in connection with the Business Combination as follows:

• records an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted federal and state tax rates at the date of the exchange;

14

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

• to the extent we estimate that the Company will not realize the full benefit represented by the deferred tax asset, based on an analysis that will consider, among other things, our expectation of future earnings, the Company reduces the deferred tax asset with a valuation allowance; and

• initial measurement of the obligations is at fair value on the acquisition date. Subsequently, the liability will be remeasured at fair value each reporting period, with any changes in fair value recognized through earnings.

The Company records obligations under the TRAs resulting from future exchanges at the gross undiscounted amount of the expected future payments as an increase to the liability along with the deferred tax asset and valuation allowance (if any) with an offset to additional

paid-in

capital.

As of June 30, 2021 (Successor), the Company had a liability of $32.8 million related to its projected obligations under the TRA, which is included in deferred purchase price liabilities within payables and other liabilities on the Consolidated Statements of Financial Condition.

Income Taxes

Prior to the Business Combination, a portion of the Company’s earnings were subject to certain U.S. Federal and foreign taxes. Subsequent to the Transaction, the portion of earnings allocable to the Registrant is subject to corporate level tax rates at the federal, state and local levels. Therefore, the amount of income taxes recorded prior to the Business Combination are not representative of the expenses expected in the future.

The computation of the effective tax rate and provision at each interim period requires the use of certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income that is subject to tax, permanent differences between the Company’s GAAP earnings and taxable income, and the likelihood of recovering deferred tax assets existing as of the balance sheet date. The estimates used to compute the provision for income taxes may change throughout the year as new events occur, additional information is obtained or as tax laws and regulations change. Accordingly, the effective tax rate for future interim periods may vary materially.

The Company accounts for income taxes pursuant to the asset and liability method which requires it to recognize current tax liabilities or receivables for the amount of taxes it estimates are payable or refundable for the current year, deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.

The benefit of tax positions taken or expected to be taken in the Company’s income tax returns is recognized in the financial statements if such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents a potential future obligation to the taxing authority for a tax position that was not recognized. Interest costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable and are recognized as general and administrative expenses.

15

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Seller Earnout

The equity owners of FoA Equity prior to the Closing are entitled to receive an earnout exchangeable for Class A Common Stock if, at any time during the six years following Closing, the volume weighted average price (the “VWAP”) of Class A Common Stock with respect to a trading day is greater than or equal to $12.50 for any 20 trading days within a consecutive

30-trading-day

period, 50% of the earnout units issued to sellers (in conjunction with the Sponsor shares defined below, the “Earnout Securities”) will be issued; and if, at any time during the six years following Closing, the VWAP is greater than or equal to $15.00 for any 20 trading days within a consecutive

30-trading-day

period, the remaining 50% of the Earnout Securities will be issued.

The seller earnout is accounted for as contingent consideration and classified as equity. The seller earnout was measured at fair value upon the consummation of the Business Combination, the date of issuance, and will not be subsequently remeasured. The settlement of the seller earnout will be accounted for within equity, if and when, the First or Second Achievement Date occurs.

Sponsor Earnout

The Company classified the Sponsor Earnout Agreement as an equity transaction measured at fair value upon the consummation of the Business Combination, the date of issuance, and will not be subsequently remeasured. Additionally, the settlement of the Sponsor Earnout Agreement will be accounted for within equity, if and when the First or Second Earnout Achievement Date occurs. See Note 34—Sponsor Earnout for additional information

.

Noncontrolling Interest

Noncontrolling interest represents the Company’s noncontrolling interest in consolidated subsidiaries which are not attributable, directly or indirectly, to the controlling Class A Common Stock ownership of the Company. Net (loss) income is reduced by the portion of net (loss) income that is attributable to noncontrolling interests as well as special allocations related to the Amended and Restated Long-Term Incentive Plan (“A&R MLTIP”) as defined in the FoA Equity LLC Agreement.

Equity-Based Compensation

Equity-based compensation with service conditions made to employees is measured based on the grant date fair value of the awards and recognized as compensation expense over the period during which the recipient is required to perform services in exchange for the award (the requisite service period). The Company has elected to use a straight-line attribution method for recognizing compensation costs relating to awards that have service conditions only. Forfeitures are recorded as they occur.

For equity-based compensation where there are market conditions as well as service conditions to vesting, the grant date fair value of the awards is recognized as compensation expense using the graded-vesting method over the requisite service period for each separately vesting tranche of the award as if they were multiple awards.

Earnings Per Share

Basic net income per share is based on the weighted average number of shares of Class A Common Stock issued and outstanding during the Successor period. Diluted net income per share is based on the weighted average number of shares of Class A Common Stock issued and outstanding and the effect of all dilutive common stock equivalents and potentially dilutive share based compensation awards outstanding during the Successor period.

For the Predecessor periods, FoA Equity’s capital structure consisted of a single class of outstanding membership units which were held by one member, UFG. Therefore, the Company omitted earnings per unit for the Predecessor periods presented due to the limited number of LLC unit holders.

Reclassifications

Certain amounts from the prior period consolidated financial statements have been reclassified to conform to the current period financial presentation.

1

6

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Recently Adopted Accounting Guidance

Standard	Description	Effective Date	Effect on Consolidated Financial Statements
ASU 2016-13 , Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, ASU 2020-03, Codification Improvements to Financial Instruments	Requires use of the current expected credit loss model that is based on expected losses (net of expected recoveries), rather than incurred losses, to determine our allowance for credit losses on financial assets measured at amortized cost, certain net investments in leases and certain off-balance sheet arrangements. Replaces current accounting for purchased credit impaired (“PCI”) and impaired loans. Amends the other-than-temporary impairment model for available for sale debt securities. The new guidance requires that credit losses be recorded through an allowance approach, rather than through permanent write-downs for credit losses and subsequent accretion of positive changes through interest income over time.	January 2020	The Company determined that certain servicer advances and other receivables, net of reserves included in other assets are within the scope of ASU 2016-13. The Company determined that these receivables have limited expected credit-related losses due to the contractual servicing agreements with agencies and loan product guarantees. Furthermore, the Company determined that for outstanding servicer and other advances, the majority of estimated losses are attributable to losses due to operational servicing defects and credit-related losses are not significant because of the contractual relationship with the agencies. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.
ASU 2018-17 , Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities	The amendments in this Update require that indirect interests held through related parties under common control be considered on a proportional basis when determining whether fees paid to decision makers or service providers are variable interests. These amendments align with the determination of whether a reporting entity within a related party group is the primary beneficiary of a VIE.	January 2020	The Company adopted this guidance using the prospective method of adoption. Adoption of this standard did not have a material impact on the consolidated financial statements.
ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment	Historical guidance for goodwill impairment testing prescribed that the Company must compare each reporting unit’s carrying value to its fair value. If the carrying value exceeds fair value, an entity performs the second step, which assigns the reporting unit’s fair value to its assets and liabilities, including unrecognized assets and liabilities, in the same manner as required in purchase accounting and then records an impairment. This ASU eliminates the second step. Under the new guidance, an impairment of a reporting unit’s goodwill is determined based on the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to the reporting unit.	January 2020	The Company adopted this guidance using the prospective method of adoption. Adoption of this standard did not have a material impact on the consolidated financial statements.

17

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Standard	Description	Effective Date	Effect on Consolidated Financial Statements
ASU 2018-13 , Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement	The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurements, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. Certain disclosure requirements were either removed, modified, or added. This guidance removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 fair value measurement methodologies, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to for the disclosure of a) changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and b) the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.	January 2020	The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
ASU 2018-15 , Intangibles—Goodwill and Other—Internal- Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract	The amendments in this Update align the requirements for capitalizing implementation costs incurred in a service-contract hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).	January 2020	The Company adopted this guidance using the prospective method of adoption. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes	This amendment simplifies various aspects of the guidance on accounting for income taxes.	January 2021	The Company adopted this guidance using the prospective method of adoption. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

18

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Recently Issued Accounting Guidance, Not Yet Adopted as of June 30, 2021

Standard	Description	Date of Planned Adoption	Effect on Consolidated Financial Statements
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ASU 2021-01, Reference Rate Reform (Topic 848): Codification Clarification	The amendments in this Update provide temporary optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Offered Rate (“LIBOR”) or other interbank offered rates expected to be discontinued. In January 2021,FASB issued an Update which refines the scope of ASU Topic 848 and clarifies the guidance issued to facilitate the effects of reference rate reform on financial reporting. The amendment permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements and calculating price alignment interest in connection with reference rate reform activities.	TBD	This ASU is effective from March 12, 2020 through December 31, 2022. If LIBOR ceases to exist or if the methods of calculating LIBOR change from the current methods for any reasons, interest rates on our floating rate loans, obligation derivatives, and other financial instruments tied to LIBOR rates, may be affected and need renegotiation with its lenders. The Company continues to assess the potential impact that the adoption of this ASU will have on the Company’s consolidated financial statements and related disclosures.
ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation(Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options	The amendments in this Update affect all entities that issue freestanding written call options that are classified in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Topic 260, Earnings Per Share.	January 2022	This ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The adoption of this standard is not expected to have any material impact on the Company’s consolidated financial statements as it currently does not apply.

19

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

3. Variable Interest Entities and Securitizations

The Company determined that the SPEs created in connection with its securitizations are VIEs. A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is the entity that, through its variable interests has both the power to direct the activities that significantly impact the VIE’s economic performance and the obligations to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

FACo

FACo securitizes certain of its interests in fix & flip mortgages. The transactions provide debt security holders the ability to invest in a pool of performing loans secured by an investment in real estate. The transactions provide FACo with access to liquidity for the loans and ongoing management fees. The principal and interest on the outstanding debt securities are paid using the cash flows from the underlying loans, which serve as collateral for the debt.

In April 2021, FACo executed its optional redemption of outstanding securitized notes related to the 2018, 2019, and 2020 ANTLR securitizations. As part of the optional redemption, FACo paid off notes with an outstanding principal balance of $175.3 million. The notes were paid off at par.

FAR

FAR securitizes certain of its interests in

non-performing

reverse mortgages and

non-agency

reverse mortgage loans. The transactions provide investors with the ability to invest in a pool of reverse mortgage loans secured by

one-to-four-family

residential properties. The transactions provide FAR with access to liquidity for these assets, ongoing servicing fees, and potential residual returns. The principal and interest on the outstanding certificates are paid using the cash flows from the underlying reverse mortgage loans, which serve as collateral for the debt. The securitizations are callable at or following the optional redemption date as defined in the respective indenture agreements.

In February 2021, FAR executed its optional redemption of outstanding securitized notes related to outstanding nonperforming HECM securitizations. As part of the optional redemption, FAR paid off notes with an outstanding principal balance of $294.2 million. The notes were paid off at par.

In April 2021, FAR executed its optional redemption of outstanding securitized notes related to outstanding

non-agency

reverse mortgage securitizations. As part of the optional redemption, FAR paid off notes with an outstanding principal balance of $239.8 million, accrued interest of $6.3 million and discount of $3.7 million.

In their capacity as servicer of the securitized loans, FACo and FAR retain the power to direct the VIE’s activities that most significantly impact the VIEs economic performance. FACo and FAR also retain certain beneficial interests in these trusts which provide exposure to potential gains and losses based on the performance of the trust. As FACo and FAR have both the power to direct the activities that significantly impact the VIE’s economic performance and the obligations to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the definition of primary beneficiary is met and the trusts are consolidated by the Company through its FACo and FAR subsidiaries.

Certain obligations may arise from the agreements associated with transfers of loans. Under these agreements, the Company may be obligated to repurchase the loans, or otherwise indemnify or reimburse the investor for losses incurred due to material breach of contractual representations and warranties. There were 0 charge-offs associated with these transferred mortgage loans related to the standard securitization representations and warranties obligations for the Successor period from April 1, 2021 to June 30, 2021 or the Predecessor period from January 1, 2021 to March 31, 2021. There were also 0 charge-offs associated with these transferred mortgage loans for the Predecessor periods for the three months ended June 30, 2020 or for the six months ended June 30, 2020.

20

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The following table presents the assets and liabilities of the Company’s consolidated VIEs, which are included in the Consolidated Statements of Financial Condition and excludes intercompany balances, except for retained bonds and beneficial interests (in thousands):

	June 30, 2021			December 31, 2020
	Successor			Predecessor
ASSETS	��
Restricted cash	$	334,984		$	293,580
Mortgage loans held for investment, subject to nonrecourse debt, at fair value
2021 FASST JR1		562,333			—
2021 FASST HB1		506,482			—
2019 FASST JR2		437,641			488,760
2020 FASST HB2		397,121			398,480
2018 FASST JR1		395,716			449,069
2019 FASST JR3		370,209			450,703
2020 FASST JR3		341,385			372,015
2019 FASST JR4		331,302			377,265
2020 FASST S3		313,728			316,774
2020 FASST JR2		312,160			341,439
2019 FASST JR1		295,605			331,244
2020 FASST S2		289,129			311,721
2021 RTL1 ANTLR		234,942			—
2018 FASST JR2		234,665			264,622
2020 FASST JR4		228,248			237,100
2020 FASST S1		173,955			189,243
2020 FASST JR1		—			263,266
2020 RTL1 ANTLR		—			137,989
2018 RTL1 ANTLR		—			82,393
2019 RTL1 ANTLR		—			118,161
2020 FASST HB1		—			265,923
Other assets		76,056			79,528
TOTAL ASSETS	$	5,835,661		$	5,769,275
LIABILITIES
Nonrecourse debt, at fair value
2021 FASST HB1	$	537,618		$	—
2021 FASST JR1		534,444			—
2020 FASST HB2		448,333			474,599
2019 FASST JR2		447,966			487,966
2018 FASST JR1		412,370			458,279
2019 FASST JR3		394,096			445,691
2020 FASST JR3		333,373			354,762
2019 FASST JR4		332,846			368,963
2019 FASST JR1		317,778			343,544
2020 FASST S2		302,253			314,144
2020 FASST S3		301,631			309,713
2020 FASST JR2		296,093			313,057
2021 RTL1 ANTLR		268,428			—
2018 FASST JR2		243,734			269,741
2020 FASST JR4		209,035			228,804
2020 FASST S1		178,704			191,189
2020 FASST JR1		—			250,988
2020 RTL1 ANTLR		—			140,839
2018 RTL1 ANTLR		—			80,767
2019 RTL1 ANTLR		—			127,981
2020 FASST HB1		—			298,914
Payables and other liabilities		117			291
TOTAL VIE LIABILITIES		5,558,819			5,460,232
Retained bonds and beneficial interests eliminated in consolidation		(198,099	)		(202,187	)
TOTAL CONSOLIDATED LIABILITIES	$	5,360,720		$	5,258,045

21

FAM

FAM securitizes certain of its interests in agency-eligible residential mortgage loans. The transaction provides investors with the ability to invest in a pool of mortgage loans secured by

one-to-four-family

residential properties and provides FAM with access to liquidity for these assets and ongoing servicing fees. The principal and interest on the outstanding certificates are paid using the cash flows from the underlying mortgage loans, which serve as collateral for the debt. In May 2021, FAM established the Hundred Acre Wood Trust 2021-INV1 (“HAWT 2021-INV1”) trust for the sole purpose of acquiring mortgage loans for securitization. In June 2021, FAM executed the HAWT 2021-INV1 securitization, where FAM’s beneficial interest in the securitization is limited to its U.S. Risk Retention Certificates,

a

5

% eligible vertical interest in the Trust. The Company determined that the securitization structure meets the definition of a VIE and concluded that the Company does not hold a significant variable interest in the securitization and that the contractual role as servicer is not a variable interest and does not give the Company the power to direct the activities that most significantly affect the economic performance of the VIE. The transfer of the loans to the VIE was determined to be a sale. The Company derecognized the mortgage loans and did not consolidate the trust.

FAM’s continuing involvement with and exposure to loss from the VIE includes the carrying value of the retained bond, the servicing asset recognized in the sale of the loans, servicing advances in the role as servicer, and obligations under representations and warranties contained in the loan sale agreements. Creditors of the VIE have no recourse to FAM’s assets or general credit. The underlying performance of the mortgage loans transferred has a direct impact on the fair values and cash flows of the beneficial interests held and the servicing asset recognized.

As of June 30, 2021 (Successor), the interests retained upon transfer of the mortgage loans consisted of an interest in each class of securities issued by the VIE and had an initial fair value of $15.7 million. The servicing asset recognized upon sale of the mortgage loans to the VIE had an initial fair value of $1.1 million. Cash proceeds from the securitization were $299.0 million. The Company recorded a gain on sale on the securitization of $12.5 million.

The following table presents a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor and that were not consolidated by the Company:

	June 30, 2021		December 31, 2020
	Successor		Predecessor
Unconsolidated Securitization Trusts:
Total collateral balances – UPB	$	300,318		$0
Total certificate balances	$	300,047		$0

As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), there were $0.1 million of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 60 days or less past due.

22

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

4. Acquisitions

On October 12, 2020, the Company, Replay and FoA Equity entered into a Transaction Agreement (the “Transaction Agreement”) pursuant to which Replay agreed to combine with FoA Equity in a series of transactions that resulted in the Company becoming a publicly-traded company on the New York Stock Exchange (“NYSE”) and controlling FoA Equity in an

“UP-C”

structure. At the Closing on April 1, 2021, Replay domesticated into a Delaware corporation, and the Company was formed. Following the Closing, the public investors hold Class A Common Stock representing approximately a 31.3% economic interest, and BTO Urban Holdings L.L.C., a Delaware limited liability company (“BTO Urban”), Blackstone Family Tactical Opportunities Investment Partnership – NQ – ESC L.P., a Delaware limited partnership (“ESC”), Libman Family Holdings LLC, a Connecticut limited liability company (“Family Holdings”), The Mortgage Opportunity Group LLC, a Connecticut limited liability company (“TMO”), L and TF, LLC, a North Carolina limited liability company (“L&TF”), UFG Management Holdings LLC, a Delaware limited liability company (“Management Holdings”), and Joe Cayre (each of BTO Urban, ESC, Family Holdings, TMO, L&TF, Management Holdings and Joe Cayre, a “Seller” and, collectively, the “Sellers” or the “Continuing Unitholders”) retain a 68.7%

economic interest in FoA Equity in the form of Class A LLC Units. Additionally, the Company issued to the Continuing Unitholders shares of Class B Common Stock, which have no economic rights but entitle each holder to a number of votes that is equal to the aggregate number of Class A LLC Units held by such holder on all matters on which shareholders of the Company are entitled to vote generally. Subsequent to the Closing, the Company controls FoA Equity as the sole appointer of the board of managers and is a holding company with no assets or operations other than its equity interest in FoA Equity.

The Business Combination was accounted for using the acquisition method with the Company as the accounting acquirer. Under the acquisition method of accounting, the Company’s assets and liabilities were recorded at carrying value, and the assets and liabilities associated with FoA Equity were recorded at estimated fair value as of the Closing Date. The excess of the purchase price over the estimated fair values of the net assets acquired was recognized as goodwill. For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination. The determination of whether control has been obtained begins with the evaluation of whether control should be evaluated based on the variable interest or voting interest model. If the acquiree is a variable interest entity, the primary beneficiary would be the accounting acquirer. FoA Equity met the definition of a variable interest entity, and the Company was determined to be the primary beneficiary.

As a result of the Business Combination, the Company’s financial statement presentation distinguishes FoA Equity as the “Predecessor” through the Closing Date. FoA is the “Successor” for periods after the Closing Date. As a result of the application of the acquisition method of accounting in the Successor period, the consolidated financial statements for the Successor period are presented on a full

step-up

basis, and are therefore not comparable to the consolidated financial statements of the Predecessor period that are not presented on the same full

step-up

basis.

The consolidated financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods. Rather, any provisional amount adjustments will be recognized during the reporting period in which the adjustments are determined. The Company will also be required to record, in the same period’s consolidated financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting had been completed at the Closing Date. The purchase price allocation, while provisional, has been substantially completed. The allocation will be finalized as soon as practicable, but no later than one year from the Closing Date.

 

The following table summarizes the provisional estimated fair value of consideration transferred, noncontrolling interest equity value, assets acquired and liabilities assumed in conjunction with the Business Combination (in thousands):

23

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Consideration transferred:
Total cash consideration	$	342,270
Blocker rollover equity		221,811
Seller earnout contingent consideration (1)		160,272
Tax receivable agreement obligations to the seller		31,950
Total consideration transferred		756,303
Noncontrolling interest		1,658,545
Total equity value	$	2,414,848
Assets acquired:
Cash and cash equivalents	$	336,075
Restricted cash		305,292
Reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value		10,071,192
Mortgage loans held for investment, subject to nonrecourse debt, at fair value		5,291,443
Mortgage loans held for investment, at fair value		1,100,544
Mortgage loans held for sale, at fair value		2,140,361
Debt securities		9,230
Mortgage servicing rights, at fair value		267,364
Derivative assets		116,479
Fixed assets and leasehold improvements, net		26,079
Intangible assets, net (2)		717,700
Other assets, net		279,155
Total assets acquired	$	20,660,914
Liabilities assumed:
HMBS related obligations, at fair value	$	9,926,131
Nonrecourse debt, at fair value		5,227,942
Other financing lines of credit		3,340,345
Payables and other liabilities		669,048
Notes payable, net		353,924
Total liabilities assumed	$	19,517,390
Net identifiable assets acquired		1,143,524
Goodwill (3)	$	1,271,324

(1) Represents the estimated fair market value of earnout shares issued to Sellers, which will be settled with shares of Class A Common Stock and is accounted for as equity classified contingent consideration. These estimated fair values are preliminary and subject to adjustments in subsequent periods.

(2) Intangible assets were identified that met either the separability criterion or contractual legal criterion. The evaluations of the facts and circumstances available as of April 1, 2021, to assign provisional fair values to assets acquired and liabilities assumed are ongoing, including the assessments of the economic characteristics of intangible assets. These evaluations may result in changes to the provisional amounts recorded based on third-party valuations performed. The indefinite lived trade names and definite lived trade names intangible assets represent the values of all the Company’s trade names. The broker/customer relationships intangible asset represents the existing broker/customer relationships.

2

4

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Identifiable intangible assets	Provisional Fair value (in thousands)		Provisional Useful life (in years)
Indefinite lived trade names	$	178,000		N/A
Definite lived trade names		8,800		10
Broker/customer relationships		530,900		8-15
Total	$	717,700

(3) Goodwill represents the excess of the gross consideration transferred over the provisional fair value of the underlying net tangible and identifiable intangible assets acquired. Goodwill represents future economic benefits arising from acquiring FoA Equity, primarily due to its strong market position and its assembled workforce that are not individually identified and separately recognized as intangible assets. Approximately  $ 85.2   million of the goodwill recognized is expected to be deductible for income tax purposes. 

There were certain transaction expenses contingent on the Closing (i.e. the

change-in-control

event). Given these expenses were triggered by the successful Closing of the Business Combination, the payment of $

5.0

 million is considered to have been incurred “on the line”, i.e., these expenses are not presented in either the predecessor or successor periods.

The following unaudited pro forma financial information presents the results of operations as if the Business Combination had occurred on January 1, 2020. The unaudited pro forma results may not necessarily reflect the actual results of operations that would have been achieved nor are they necessarily indicative of future results of operations.

(in thousands)	For the three months ended June 30,				For the six months ended June 30,
	2021		2020		2021		2020
Pro forma revenues	$	387,014	$	454,249	$	895,203	$	639,377
Pro forma net income		19,672		100,413		111,055		7,121
Pro forma net income attributable to controlling interest		6,748		27,492		37,734		12,985
Pro forma net income (loss) attributable to noncontrolling interest		12,924		72,921		73,321		(5,864	)

Renovate America Inc.

On March 26, 2021, in order to expand it’s product base to home improvement loans, the Company acquired certain assets and operations of Renovate America Inc. (“RAI”), that constitute a business for purposes of ASC 805, in a business combination for

 $

43.5

million predominantly paid in cash at closing. A fair value estimate of

$

36.0

million in net assets were acquired with the purchase, consisting primarily of purchased loans, with the remaining

$

7.5

million of the purchase price being allocated to goodwill.

Parkside

On May 14, 2021, in order to further strengthen its position in the wholesale mortgage originations, the Company acquired certain assets and operations of Parkside Lending, LLC (“Parkside”), that constitute a business for purposes of ASC 805, in a business combination for

$

20.0

million cash paid at closing. The Company acquired certain key contracts and real property leases, as well as proprietary materials, intellectual property, and workforce. In addition to the initial cash purchase price, an earnout liability of $7.0 million was recorded for future contingent consideration payments that are tied to Parkside achieving certain specified profitability metrics, with the offset allocated to goodwill. The total amount of cash consideration and earnout liability of $27.0 million have been allocated to goodwill.

The RAI and Parkside transactions will be accounted for using the acquisition method. Under the acquisition method of accounting, RAI and Parkside’s assets and liabilities will be recorded at estimated fair value as of the acquisition dates with the excess of the purchase prices over the estimated fair values of the net assets acquired, if applicable, recognized as goodwill. Additional disclosures required by ASC 805 with respect to the RAI and Parkside acquisitions have been omitted because the information is immaterial to the financial statements.

2

5

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

5. Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on the assumptions market participants would use when pricing an asset or liability and follows a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

All aspects of nonperformance risk, including the Company’s own credit standing, are considered when measuring the fair value of a liability.

Following is a description of the three levels:

Level 1 Inputs: Quoted prices for identical instruments in active markets.

Level 2 Inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs: Instruments with unobservable inputs that are significant to the fair value measurement.

The Company classifies assets in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy for the Successor period from April 1, 2021 to June 30, 2021 or for the Predecessor period from January 1, 2021 to March 31, 2021. There were no transfers for the Predecessor for the three months ended and six months ended June 30, 2020.

Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and the details of the valuation models, key inputs to those models and significant assumptions utilized. Within the assumption tables presented, not meaningful (“NM”) refers to a range of inputs that is too broad to provide meaningful information to the user or to an input that has no range and consists of a single data point.

Reverse Mortgage Loans Held for Investment, Subject to HMBS Related Obligations, at Fair Value

HECM loans securitized into Ginnie Mae (“GNMA”) HMBS are not actively traded in open markets with readily observable market prices.

The Company values HECM loans securitized into GNMA HMBS utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio using prepayment, borrower mortality, borrower draw and discounts rate assumptions management believes a market participant would use in estimating fair value. The significant unobservable inputs used in the measurement include:

Conditional Repayment Rate—The Company projects borrower prepayment rates which considers borrower age and gender and is based on historical termination rates. The outputs of borrower prepayment rates, which include both voluntary and involuntary prepayments, are utilized to anticipate future terminations.

Loss Frequency and Severity—Termination proceeds are adjusted for expected loss frequencies and severities to arrive at net proceeds that will be provided upon final resolution. Loss frequency and severity represent the frequency of losses and the losses associated with loans that are liquidated through a foreclosure sale, net of claim proceeds. Historical experience is utilized to estimate the loss rates resulting from scenarios where FHA insurance proceeds are not expected to cover all principal and interest outstanding and, as servicer, the Company is exposed to losses upon resolution of the loan. Loss frequency and severity are based upon the historical experience with specific loan resolution waterfalls.

2

6

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Due and Payable Triggers—The input for terminations not attributable to an FHA assignment is based on historical foreclosure and liquidation experience.

Discount Rate—derived based upon reference to yields required by market participants for recent transactions in the HECM loan bulk market adjusted based upon weighted average life of the loan portfolio. This rate reflects what the Company believes to be a market participant’s required yield on HECM loans of similar weighted average lives. The yield spread is applied over an interpolated benchmark curve or as a spread over a collateral forward curve.

Average Draw Rates—The draw curve is estimated based upon the historical experience with the specific product type contemplating the borrower’s age and loan age.

Changes to any of these assumptions could result in significantly different valuation results. The Company classifies reverse mortgage loans held for investment as Level 3 assets within the GAAP hierarchy, as they are dependent on unobservable inputs.

The following table presents the weighted average significant unobservable inputs used in the fair value measurement of reverse mortgage loans held for investment, subject to HMBS related obligations, for the periods indicated:

	June 30, 2021					December 31, 2020
	Predecessor					Successor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Conditional repayment rate		NM		20.3	%		NM		20.0	%
Loss frequency		NM		4.3	%		NM		4.4	%
Loss severity		4.9% - 11.7%		5.2	%		5.1% - 13.3%		5.4	%
Discount rate		NM		1.9	%		NM		1.6	%
Average draw rate		NM		1.1	%		NM		1.1	%

The Company aggregates loan portfolios based upon the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided above are based upon the range of inputs utilized for each securitization trust.

Mortgage Loans Held for Investment, Subject to Nonrecourse Debt, at Fair Value

Reverse Mortgage Loans

Reverse mortgage loans held for investment, subject to nonrecourse debt, include HECM loans previously purchased out of GNMA HMBS pools and non

FHA-insured

jumbo reverse mortgages, which have been subsequently securitized and serve as collateral for the issued debt. These loans are not traded in active and open markets with readily observable market prices. The Company classifies reverse mortgage loans held for investment, subject to nonrecourse debt as Level 3 assets within the GAAP hierarchy.

HECM Buyouts—Securitized (Nonperforming)

The Company values nonperforming securitized HECM buyouts utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using conditional repayment, loss frequency and severity, borrower mortality, and discount rate assumptions management believes a market participant would use in estimating fair value.

27

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The following table presents the weighted average significant unobservable inputs used in the fair value measurement of nonperforming securitized HECM buyouts for the periods indicated:

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Conditional repayment rate		NM		40.6	%		NM		42.9	%
Loss frequency		25.0% - 100.0%		52.5	%		25.0% - 100.0%		54.8	%
Loss severity		4.9% - 11.7%		7.0	%		5.1% - 13.3%		7.5	%
Discount rate		NM		3.6	%		NM		4.1	%

The Company aggregates loan portfolios based upon the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided above are based upon the range of inputs utilized for each securitization trust.

HECM Buyouts—Securitized (Performing)

The Company values performing securitized HECM buyouts utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using conditional repayment, loss frequency and severity, borrower mortality, and discount rate assumptions management believes a market participant would use in estimating fair value.

The following table presents the weighted average significant unobservable inputs used in the fair value measurement of performing securitized HECM buyouts for the periods indicated:

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Weighted average remaining life in years		NM		8.7			NM		8.5
Conditional repayment rate		NM		13.7	%		NM		14.7	%
Loss severity		4.9% - 11.7%		8.6	%		5.1% - 13.3%		7.7	%
Discount rate		NM		3.4	%		NM		3.5	%

The Company aggregates loan portfolios based upon the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided above are based upon the range of inputs utilized for each securitization trust.

Non-Agency

Reverse Mortgage—Securitized

The Company values securitized

non-agency

reverse mortgage loans utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio using loan to value, repayment, pool-level losses, home price appreciation, and discount rate assumptions. The following table presents the significant unobservable inputs used in the fair value measurements of

non-agency

reverse mortgage loans for the periods indicated:

28

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Weighted-average remaining life in years		NM		7.1			NM		6.9
Loan to value		0.1% - 75.7%		50.0	%		9.0% - 73.1%		48.2	%
Conditional repayment rate		NM		19.2	%		NM		18.7	%
Loss severity		NM		10.0	%		NM		10.0	%
Home price appreciation		3.9% - 8.8%		5.9	%		1.1% - 8.9%		5.6	%
Discount rate		NM		3.7	%		NM		3.6	%

The Company aggregates loan portfolios based upon the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided above are based upon the range of inputs utilized for each securitization trust.

Commercial Mortgage Loans

Fix & Flip—Securitized

The securitized Fix & Flip loans are short-term loans for individual real estate investors, with terms ranging from

9-18

months. This product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.

The Company utilized the following weighted average assumptions in estimating the fair value of securitized Fix & Flip mortgage loans for the periods indicated:

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Prepayment rate (SMM)		NM		15.3	%		NM		17.1	%
Discount rate		5.1% - 10.0%		5.1	%		6.7% - 10.0%		6.7	%
Loss frequency		0.3% - 77.2%		0.7	%		0.2% - 44.0%		0.6	%

The Company aggregates loan portfolios based upon the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided above are based upon the range of inputs utilized for each securitization trust.

Mortgage Loans Held for Investment, at Fair Value

Reverse Mortgage Loans

Reverse mortgage loans held for investment, at fair value, consists of originated or purchased HECM and

non-agency

reverse mortgage loans not yet securitized, unsecuritized tails, and certain HECMs purchased out of GNMA HMBS (“Inventory Buyouts”) that the Company intends to securitize for purposes of serving as collateral for future securitization transfers.

Originated or purchased HECM loans held for investment are valued predominantly by utilizing forward HMBS prices for similar pool characteristics and based on observable market data. These amounts are further adjusted to include future cash flows that would be earned for servicing the HECM loan over the life of the asset.

Unsecuritized tails consists of performing and nonperforming repurchased loans. The fair value of performing unsecuritized tails are valued at current pricing levels for similar GNMA HMBS. The fair value of nonperforming unsecuritized tails is based on expected claim proceeds from the Department of Housing and Urban Development (“HUD”) upon assignment of the loans.

29

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The fair value of repurchased loans is based on expected cash proceeds of the liquidation of the underlying properties and expected claim proceeds from HUD. The primary assumptions utilized in valuing nonperforming repurchased loans include loss frequency and loss severity. Termination proceeds are adjusted for expected loss frequencies and severities to arrive at net proceeds that will be provided upon final resolution, including assignments to FHA. Historical experience is utilized to estimate the loss rates resulting from scenarios where FHA insurance proceeds are not expected to cover all principal and interest outstanding and as servicer, the Company is exposed to losses upon resolution of the loan.

The Company classifies reverse mortgage loans held for investment, at fair value as Level 3 assets within the GAAP hierarchy.

Inventory Buyouts

The fair value of Inventory Buyouts is based on the expected cash proceeds of the liquidation of the underlying properties and expected claim proceeds from HUD. The primary assumptions utilized in valuing Inventory Buyouts include loss frequency and loss severity. Termination proceeds are adjusted for expected loss frequencies and severities to arrive at net proceeds that will be provided upon final resolution, including assignments to FHA. Historical experience is utilized to estimate the loss rates resulting from scenarios where FHA insurance proceeds are not expected to cover all principal and interest outstanding and as servicer, the Company is exposed to losses upon resolution of the loan.

The Company values Inventory Buyouts utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using conditional repayment, loss frequency and severity, borrower mortality, and discount rate assumptions management believes a market participant would use in estimating fair value.

The following table presents the weighted average significant unobservable inputs used in the fair value measurement of Inventory Buyouts classified as reverse mortgage loans held for investment for the periods indicated:

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Conditional repayment rate		NM		45.8	%		NM		44.0	%
Loss frequency		NM		53.6	%		NM		46.9	%
Loss severity		NM		9.4	%		NM		10.5	%
Discount rate		NM		3.6	%		NM		4.1	%

Non-Agency

Reverse Mortgage Loans

The fair value of

non-agency

reverse mortgage loans is based on values for investments with similar investment grade ratings and the value the Company would expect to receive if the whole loans were sold to an investor.

The Company values

non-agency

reverse mortgage loans utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio using prepayment, home price appreciation, pool-level losses, cost to service, and discount rates.

30

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The following table presents the weighted average significant unobservable inputs used in the fair value measurement of

non-agency

reverse mortgage loans classified as reverse mortgage loans held for investment for the periods indicated:

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Weighted-average remaining life in years		NM		8.0			NM		8.0
Loan to value		0.4% - 62.8%		44.6	%		0.1% - 62.1%		44.0	%
Conditional repayment rate		NM		16.9	%		NM		16.8	%
Loss severity		NM		10.0	%		NM		10.0	%
Home price appreciation		3.9% - 8.8%		5.9	%		1.1% - 8.9%		5.5	%
Discount rate		NM		3.7	%		NM		3.6	%

Commercial Mortgage Loans

Fix & Flip

The Fix & Flip loans are short-term loans for individual real estate investors, with terms ranging from 9—18 months. This product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.

The Company utilized the following weighted average assumptions in estimating the fair value of Fix & Flip mortgage loans for the periods indicated:

	June 30, 2021
	Successor
	Range of Input		Weighted Average of Input
Prepayment rate (SMM)		NM		12.5	%
Discount rate		NM		5.4	%
Loss frequency		NM		0.4	%

As of March 2021, management made the decision to change the classification of fix & flip loans from mortgage loans held for sale, at fair value, to mortgage loans held for investment, at fair value.

Agricultural Loans

The agricultural loans are government-insured loans made to farmers to fund their inputs and operating expenses for the upcoming growing season with terms ranging from 7—17 months. The product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.

The Company utilized the following assumptions in estimating the fair value of agricultural loans for the periods indicated:

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Discount rate		NM		4.7	%		NM		6.4	%
Prepayment rate (SMM)		10.0% - 100.0%		28.3	%		0% - 1.0%		0.7	%
Default rate (CDR)		NM		1.0	%		0% - 2.0%		0.4	%

31

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Mortgage Loans Held for Sale, at Fair Value

Reverse Mortgage Loans

Reverse mortgage loans held for sale, at fair value, consists of unpoolable loans that the Company intends to sell to third party investors. Reverse mortgage loans held for sale consists primarily of performing repurchased loans. The fair value of performing unpoolable loans is based on expected claim proceeds from HUD upon assignment of the loans. In certain instances the loan balance may exceed the maximum claim amount (“MCA”). In these instances, the fair value is based on expected proceeds from sale of the underlying property and any additional HUD claim proceeds. The Company classifies reverse mortgage loans held for sale as Level 3 assets within the GAAP hierarchy.

Residential and Commercial Mortgage Loans

Mortgage loans held for sale include residential and commercial mortgage loans originated by the Company and held until sold to secondary market investors. The Company primarily originates conventional GSEs and government (FHA and Department of Veterans Affairs) residential mortgage loans (collectively “residential mortgage loans held for sale”) and recourse and nonrecourse commercial mortgage loans to owners and investors of single and multi-family residential rental properties (“commercial loans held for sale”).

Residential Mortgage Loans

The Company originates or purchases mortgage loans in the U.S. that it intends to sell to FNMA, FHLMC, and GNMA (collectively “the Agencies”). Additionally, the Company originates or purchases mortgage loans in the U.S. that it intends to sell into the secondary markets via whole loan sales. Mortgage loans held for sale are typically pooled and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality. In addition, the Company may originate loans that do not meet specific underwriting criteria and are not eligible to be sold to the Agencies. Two valuation methodologies are used to determine the fair value of mortgage loans held for sale. The methodology used depends on the exit market as described below:

Loans valued using observable market prices for identical or similar assets

—This includes all mortgage loans that can be sold to the Agencies, which are valued predominantly by published forward agency prices. This will also include all

non-agency

loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair value), or quoted market prices for similar loans are available. As these valuations are derived from quoted market prices, the Company classified these valuations as Level 2 in the fair value disclosures. During periods of illiquidity of the mortgage marketplace, it may be necessary to look for alternative sources of value, including the whole loan purchase market for similar loans, and place more reliance on the valuations using internal models. Due to limited sales activity and periodically unobservable prices in certain of the Company’s markets, certain mortgage loans held for sale portfolios may transfer from Level 2 to Level 3 in future periods.

Loans valued using internal models

– To the extent observable market prices are not available, the Company will determine the fair value of mortgage loans held for sale using a collateral based valuation model, which approximates expected cash proceeds on liquidation. For loans where bid prices or commitment prices are unavailable, these valuation models estimate the exit price the Company expects to receive in the loan’s principal market and are based on a combination of recent appraisal values, adjusted for certain loss factors. The Company classifies these valuations as Level 3 in the fair value disclosures.

Commercial Mortgage Loans

The Company primarily originates two separate commercial loan products that it classifies as held for sale: Single Rental Loan (“SRL”) and Portfolio Lending.

32

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

SRL

The SRL product is designed for small/individual real estate investors looking to purchase and then

rent-out

a single property. These are

30-year

loans with fixed interest rates typically between 5.0%—8.0%. This product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.

The Company utilized the following weighted average assumptions in estimating the fair value of SRL mortgage loans held for sale for the periods indicated:

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Prepayment rate (CPR)		1.0% - 17.0%		14.0	%		1.0% - 17.1%		15.4	%
Discount rate		NM		3.3	%		NM		5.0	%
Default rate (CDR)		1.0% - 54.0%		2.4	%		1.0% - 64.9%		3.6	%

Portfolio Lending

The Portfolio product is designed for larger investors with multiple properties. Specifically, these loans are useful for consolidating multiple rental property mortgages into a single loan. These loans have fixed coupons that typically range from 5.0%—6.2%, with 5 and

10-year

balloon structures, as well as a 30 year structure. This product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.

The Company utilized the following weighted average assumptions in estimating the fair value of Portfolio mortgage loans held for sale for the periods indicated:

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Prepayment rate (CPR)		0.0% - 14.8%		8.1	%		0% - 15.0%		9.3	%
Discount rate		NM		3.8	%		NM		4.9	%
Default rate (CDR)		1.0% - 27.1%		1.7	%		1.0% - 42.7%		2.0	%

Fix & Flip

The Fix & Flip loans are short-term loans for individual real estate investors, with terms ranging from

9-18

months. This product is valued using a discounted cash flow model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.

The Company utilized the following weighted average assumptions in estimating the fair value of fix & flip mortgage loans for the periods indicated:

	December 31, 2020
	Predecessor
	Range of Input		Weighted Average of Input
Prepayment rate (SMM)		NM		12.4	%
Discount rate		6.7% - 10.0%		7.2	%
Loss frequency		NM		0.8	%

33

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

As of March 2021, management made the decision to change the classification of fix & flip loans from mortgage loans held for sale, at fair value, to mortgage loans held for investment, at fair value.

Mortgage Servicing Rights (FAM)

As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), the Company valued mortgage servicing rights internally. The significant assumptions utilized to determine fair value are projected prepayments using the Public Securities Association Standard Prepayment Model, discount rates, and projected servicing costs that vary based on the loan type and delinquency. The Company classifies these valuations as Level 3 since they are dependent on unobservable inputs.

Fair value is derived through a discounted cash flow analysis and calculated using a computer pricing model. This computer valuation is based on the objective characteristics of the portfolio (loan amount, note rate, etc.) and commonly used industry assumptions (PSAs, etc.). The assumptions taken into account by the pricing model are those which many active purchasers of servicing employ in their evaluations of portfolios for sale in the secondary market. The unique characteristics of the secondary servicing market often dictate adjustments to parameters over short periods of time.

Subjective factors are also considered in the derivation of fair values, including levels of supply and demand for servicing, interest rate trends, and perception of risk not incorporated into prepayment assumptions.

Fair value is defined as the estimated price at which the servicing rights would change hands in the marketplace between a willing buyer and seller. The valuation assumes that neither party would be under any compulsion to buy or sell and that each has reasonably complete and accurate knowledge of all relevant aspects of the offered servicing. The fair values represented in this analysis have been derived under the assumptions that sufficient time would be available to market the portfolio.

The following tables summarize certain information regarding the servicing portfolio of retained MSRs for the periods indicated:

	June 30, 2021			December 31, 2020
	Successor			Predecessor
Capitalization servicing rate		1.0	%		0.8	%
Capitalization servicing multiple		3.8			3.2
Weighted-average servicing fee (in basis points)		25			25

The significant assumptions used in estimating the fair value of MSRs were as follows (in annual rates):

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Weighted average prepayment speed (CPR)		5.7% - 19.9%		10.1	%		6.6% - 24.9%		12.1	%
Discount rate		NM		10.4	%		NM		12.1	%
Weighted average delinquency rate		1.2% - 9.1%		1.3	%		1.2% - 9.2%		1.3	%

The following table summarizes the estimated change in the fair value of MSRs from adverse changes in the significant assumptions (in thousands):

34

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

	June 30, 2021
	Successor
	Weighted Average Prepayment Speed			Discount Rate			Weighted Average Delinquency Rate
Impact on fair value of 10% adverse change	$	(10,734	)	$	(10,921	)	$	(138	)
Impact on fair value of 20% adverse change		(20,763	)		(21,093	)		(348	)

These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.

Investments, at Fair Value

The Company invests in the equity of other companies in the form of common stock, preferred stock, or other

in-substance

equity interests. To the extent market prices are not observable, the Company engages third-party valuation experts to assist in determining the fair value of these investments. The values are determined utilizing a market approach which estimates fair value based on what other participants in the market have paid for reasonably similar assets that have been sold within a reasonable period from the valuation date. The Company classifies these valuations as Level 3 in the fair value disclosures.

Derivative Assets and Liabilities

Some of the derivatives held by the Company are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 1. In addition, the Company enters into IRLCs with prospective borrowers. Commitments to fund residential mortgage loans with potential borrowers are a binding agreement to lend funds to these potential borrowers at a specified interest rate within a specified period of time. The fair value of IRLCs is derived from the fair value of similar mortgage loans or bonds, which is based on observable market data. Changes to the fair value of IRLCs are recognized based on changes in interest rates, changes in the probability that the commitment will be exercised (pull through factor), and the passage of time. The expected net future cash flows related to the associated servicing of the loan are included in the fair value measurement of IRLCs. The Company adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. Given the unobservable nature of the pull through factor, IRLCs are classified as Level 3.

In addition, the Company executes derivative contracts, including forward commitments, TBAs, interest rate swaps, and interest rate swap futures, as part of its overall risk management strategy related to its reverse mortgage and commercial loan portfolios. The value of the forward commitments is estimated using current market prices for HMBS and are considered Level 3 in the fair value hierarchy. TBAs are valued based on forward dealer marks from the Company’s approved counterparties and are considered Level 2 in the fair value hierarchy. The value of interest rate swaps and interest rate swap futures is based on the exchange price or dealer market prices. The Company classifies interest rate swaps as Level 2 in the fair value hierarchy. The Company classifies interest rate swap futures as Level 1 in the fair value hierarchy. The value of the forward MBS is based on forward prices with dealers in such securities or internally-developed third party models utilizing observable market inputs. The Company classifies forward MBS as Level 2 in the fair value hierarchy.

HMBS Related Obligations, at Fair Value

The HMBS related obligation valuation considers the obligation to pass FHA insured cash flows through to the beneficial interest holders (repayment of secured borrowing) of the HMBS securities and the servicer and issuer obligations of the Company.

35

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The valuation of the obligation to repay the secured borrowing is estimated using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The estimated fair value of the HMBS related obligations also includes the consideration required by a market participant to transfer the HECM and HMBS servicing obligations including exposure resulting from shortfalls in FHA insurance proceeds.

The Company’s valuation considers assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for repayment, costs to transfer servicing obligations, shortfalls in FHA insurance proceeds, and discount rates. The significant unobservable inputs used in the measurement include:

Borrower Repayment Rates—the conditional repayment rate curve considers borrower age and gender is based on historical termination rates.

Discount Rate—derived based on an assessment of current market yields and spreads that a market participant would consider for entering into an obligation to pass FHA insured cash flows through to holders of the HMBS beneficial interests. Yield spread applied over interpolated benchmark curve or as a spread over collateral forward curve.

The following table presents the weighted average significant unobservable inputs used in the fair value measurement of HMBS related obligations for the periods indicated:

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Conditional repayment rate		NM		20.2	%		NM		19.9	%
Discount rate		NM		1.7	%		NM		1.4	%

Nonrecourse Debt

Reverse Mortgage Loans

Outstanding notes issued that are securitized by nonrecourse debt are paid using the cash flows from the underlying reverse mortgage loans, which serve as collateral for the debt. Nonrecourse debt is estimated using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The significant unobservable inputs used in the measurement include:

Weighted Average Remaining Life—The projected remaining life is based on the expected conditional prepayment rate, which is utilized to determine future terminations.

Borrower Repayment Rates—The conditional repayment rate curve considers borrower age and gender is based on historical termination rates.

Discount Rate—derived based on an assessment of current market yields and spreads that a market participant would consider for entering into an obligation to pass FHA insured cash flows through to holders of the HMBS beneficial interests. Yield spread applied over interpolated benchmark curve or as a spread over collateral forward curve.

The Company’s valuation considers assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for prepayment and discount rates. The following table presents the weighted average significant unobservable inputs used in the fair value measurements of nonrecourse debt for the periods indicated:

36

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Performing/Nonperforming HECM securitizations
Weighted-average remaining life (in years)		0.6 - 1.2		0.9			0.2 - 1.5		1.0
Conditional repayment rate		19.6% - 29.1%		23.9	%		34.3% - 56.3%		42.8	%
Discount rate		NM		2.1	%		NM		3.1	%
Securitized Non-Agency Reverse
Weighted-average remaining life (in years)		1.3 - 2.1		1.9			0.3 - 2.7		2.1
Conditional repayment rate		20.6% - 31.2%		25.6	%		19.6% - 35.8%		23.9	%
Discount rate		NM		2.0	%		NM		2.2	%

Commercial Mortgage Loans

Outstanding nonrecourse notes issued that are securitized by loans held for investment, subject to nonrecourse debt, are paid using the cash flows from the underlying mortgage loans. The fair value of nonrecourse debt is estimated using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability.

The Company’s valuation considers assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for prepayment and discount rates. The Company estimates prepayment speeds giving consideration that the Company may in the future transfer additional loans to the trust, subject to the availability of funds provided for within the trust. The following table presents the significant unobservable inputs used in the fair value measurements of nonrecourse debt for the periods indicated:

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Nonrecourse debt
Weighted-average remaining life (in months)		NM		3.8			1.9- 4.1		3.4
Weighted-average prepayment speed (SMM)		NM		17.1	%		17.7% - 32.0%		21.4	%
Discount rate		NM		2.5	%		NM		5.8	%

Deferred Purchase Price Liabilities

Deferred purchase price liabilities are measured using a present value of future payments which considers various assumptions, including future loan origination volumes, projected earnings and discount rates. As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), the Company utilized discount rates ranging from 12% to 30% to value the deferred purchase price liabilities. The liabilities as of June 30, 2021 (Successor) include provisional estimates for the seller earnout provision related to the Parkside asset purchase agreement that were based on the information that was available as of the acquisition date. Refer to Note 4—Acquisitions for additional details regarding these acquisitions. As this value is largely based on unobservable inputs, the Company classifies this liability as Level 3 in the fair value hierarchy.

3

7

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Tax Receivable Agreement

As a result of the Business Combination, the Company is a party to the tax receivable agreements (“TRAs”) with the Sellers. The fair value of the TRA obligation is derived through the use of a DCF model. The Company classifies the TRA obligation as Level 3 in the fair value hierarchy.

Nonrecourse MSR Financing Liability, at Fair Value

The Company has agreed to sell to certain third parties the right to receive all excess servicing and ancillary fees related to identified mortgage servicing rights in exchange for an upfront payment equal to the entire purchase price of the identified mortgage servicing rights.

Consistent with the underlying mortgage servicing rights, fair value is derived through a discounted cash flow analysis and calculated using a computer pricing model. This computer valuation is based on the objective characteristics of the portfolio (loan amount, note rate, etc.) and commonly used industry assumptions (PSAs, etc.). The assumptions taken into account by the pricing model are those which many active purchasers of servicing rights employ in their evaluations of portfolios for sale in the secondary market. The unique characteristics of the secondary servicing market often dictate adjustments to parameters over short periods of time.

Subjective factors are also considered in the derivation of fair values, including levels of supply and demand for servicing, interest rate trends, and perception of risk not incorporated into prepayment assumptions.

The Company classifies the valuations of the nonrecourse MSR financing liability as Level 3 in the fair value disclosures.

The significant assumptions used in estimating the fair value of the outstanding nonrecourse MSR financing liability were as follows (in annual rates):

	June 30, 2021					December 31, 2020
	Successor					Predecessor
	Range of Input		Weighted Average of Input			Range of Input		Weighted Average of Input
Weighted average prepayment speed (CPR)		6.0% - 16.0%		9.2	%		6.9% - 12.7%		11.6	%
Discount rate		10.9% - 11.0%		11.0	%		11.7% - 12.0%		12.0	%
Weighted average delinquency rate		NM		1.0	%		NM		1.8	%

The following table summarizes the estimated change in the fair value of the nonrecourse MSR financing liability, at fair value from adverse changes in the significant assumptions (in thousands):

	June 30, 2021
	Successor
	Weighted Average Prepayment Speed			Discount Rate			Weighted Average Delinquency Rate
Impact on fair value of 10% adverse change	$	(1,231	)	$	(2,112	)	$	(23	)
Impact on fair value of 20% adverse change		(2,889	)		(4,552	)		(58	)

These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.

38

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Retained Bond

The retained bonds represents the U.S. Risk Retention Certificates, a 5% eligible vertical interest in the Company’s unconsolidated VIE, HAWT

2021-INV1.

The beneficial interests retained consisted of an interest in each class of securities issued by the Trust. Because of the nature of the valuation inputs and due to the lack of observable market prices or data the Company classifies retained bonds as Level 3 assets within the GAAP hierarchy. Quarterly, management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal valuation model.

Warrants

The Company has determined that the warrants acquired with the Business Combination are subject to treatment as a liability. The warrants issued are exercisable for shares of Class A Common Stock of FoA at the share price on the date of exercise. The warrants are publicly traded and are valued based on the closing market price of the applicable date of the Consolidated Statements of Financial Condition. Accordingly, the warrants are classified as Level 1 financial instruments.

3

9

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis (in thousands):

	June 30, 2021
	Successor
	Total Fair Value		Level 1		Level 2		Level 3
Assets
Reverse mortgage loans held for investment, subject to HMBS related obligations	$	10,316,027	$	—	$	—	$	10,316,027
Mortgage loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans		5,189,679		—		—		5,189,679
Fix & flip mortgage loans		234,942		—		—		234,942
Mortgage loans held for investment:
Reverse mortgage loans		1,020,143		—		—		1,020,143
Fix & flip mortgage loans		44,578		—		—		44,578
Agricultural loans		160,369		—		—		160,369
Mortgage loans held for sale:
Residential mortgage loans		1,908,107		—		1,896,654		11,453
SRL		96,569		—		—		96,569
Portfolio		52,866		—		—		52,866
Mortgage servicing rights		290,938		—		—		290,938
Investments		6,000		—		—		6,000
Derivative assets:
Forward commitments, TBAs, and Treasury Futures		1,187		32		319		836
IRLCs		34,647		—		—		34,647
Forward MBS		996		—		996		—
Interest rate swap futures		24,981		24,981		—		—
Other assets:
Retained bonds		15,671		—		—		15,671
Total assets	$	19,397,700	$	25,013	$	1,897,969	$	17,474,718
Liabilities
HMBS related obligation	$	10,168,224	$	—	$	—	$	10,168,224
Nonrecourse debt:
Nonrecourse debt in VIE trusts		5,360,603		—		—		5,360,603
Nonrecourse MSR financing liability		65,129		—		—		65,129
Deferred purchase price liabilities:
Deferred purchase price liabilities		11,663		—		—		11,663
TRA obligation		32,810		—		—		32,810
Derivative liabilities:
Forward MBS		4,364		—		4,364		—
Forward commitments, TBAs, and Treasury Futures		1,176		31		34		1,111
Interest rate swap futures		13,789		13,789		—		—
Warrants		19,261		19,261		—		—
Total liabilities	$	15,677,019	$	33,081	$	4,398	$	15,639,540

40

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

	December 31, 2020
	Predecessor
	Total Fair Value		Level 1		Level 2		Level 3
Assets
Reverse mortgage loans held for investment, subject to HMBS related obligations	$	9,929,163	$	—	$	—	$	9,929,163
Mortgage loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans		5,057,624		—		—		5,057,624
Fix & flip mortgage loans		338,543		—		—		338,543
Mortgage loans held for investment:
Reverse mortgage loans		661,790		—		—		661,790
Agricultural loans		69,031		—		—		69,031
Mortgage loans held for sale:
Residential mortgage loans		2,080,585		—		2,069,957		10,628
SRL		60,467		—		—		60,467
Portfolio		38,850		—		—		38,850
Fix & flip mortgage loans		42,909		—		—		42,909
Mortgage servicing rights		180,684		—		—		180,684
Investments		18,934		—		—		18,934
Derivative assets:
Forward commitments and TBAs		1,806		—		722		1,084
IRLCs		87,576		—		—		87,576
Interest rate swaps and interest rate swap futures		2,683		186		2,497		—
Total assets	$	18,570,645	$	186	$	2,073,176	$	16,497,283
Liabilities
HMBS related obligation	$	9,788,668	$	—	$	—	$	9,788,668
Nonrecourse debt:
Nonrecourse debt in VIE trusts		5,257,754		—		—		5,257,754
Nonrecourse MSR financing liability		14,088		—		—		14,088
Deferred purchase price liabilities		3,842		—		—		3,842
Derivative liabilities:
Forward MBS		18,634		—		18,634		—
Forward commitments and TBAs		1,332		—		248		1,084
Interest rate swaps and interest rate swap futures		755		186		569		—
Total liabilities	$	15,085,073	$	186	$	19,451	$	15,065,436

41

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3, in thousands):

	Successor
	Assets
June 30, 2021	Mortgage loans held for investment			Mortgage loans held for investment, subject to nonrecourse debt			Mortgage loans held for sale			Derivative assets			Mortgage servicing rights			Retained Bonds			Investments
Beginning balance, April 1, 2021	$	11,171,736		$	5,291,444		$	135,681		$	38,574		$	267,364		$	—		$	9,470
Total gain or losses included in earnings		153,690			80,408			1,816			(3,066	)		(26,536	)		666			(3,470	)
Purchases, settlements and transfers:
Purchases and additions, net		1,428,976			22,041			256,438			—			50,110			15,078			—
Sales and settlements		(615,958	)		(522,141	)		(275,956	)		(25	)		—			(73	)		—
Transfers in/(out) between categories		(597,327	)		552,869			42,909			—			—			—			—
Ending balance, June 30, 2021	$	11,541,117		$	5,424,621		$	160,888		$	35,483		$	290,938		$	15,671		$	6,000

	Successor
	Liabilities
June 30, 2021	HMBS related obligations			Derivative liabilities			Deferred purchase price liabilities			Nonrecourse debt in VIE trusts			Nonrecourse MSR financing liability			TRA Liability
Beginning balance, April 1, 2021	$	(9,926,132	)	$	(936	)	$	(3,214	)	$	(5,205,892	)	$	(22,051	)	$	—
Total gains or losses included in earnings		(44,651	)	$	—			(1,760	)		(32,601	)		4,123			(860	)
Purchases, settlements and transfers:
Purchases and additions, net		(795,333	)		—			(7,000	)		(796,376	)		(47,201	)		(31,950	)
Settlements		597,892			(175	)		311			674,266			—			—
Ending balance, June 30, 2021	$	(10,168,224	)	$	(1,111	)	$	(11,663	)	$	(5,360,603	)	$	(65,129	)	$	(32,810	)

	Predecessor
	Assets
March 31, 2021	Mortgage loans held for investment			Mortgage loans held for investment, subject to nonrecourse debt			Mortgage loans held for sale			Derivative assets			Mortgage servicing rights			Investments
Beginning balance, January 1, 2021	$	10,659,984		$	5,396,167		$	152,854		$	88,660		$	180,684		$	18,934
Total gain or losses included in earnings		132,499			(37,757	)		2,764			(50,040	)		20,349			(9,464	)
Purchases, settlements and transfers:
Purchases and additions, net		1,143,109			21,064			175,551			—			74,978			—
Sales and settlements		(534,738	)		(360,128	)		(152,579	)		(46	)		(8,647	)		—
Transfers in/(out) between categories		(229,118	)		272,098			(42,909	)		—			—			—
Ending balance, March 31, 2021	$	11,171,736		$	5,291,444		$	135,681		$	38,574		$	267,364		$	9,470

42

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

	Predecessor
	Liabilities
March 31, 2021	HMBS related obligations			Derivative liabilities			Deferred purchase price liability			Nonrecourse debt in VIE trusts			Nonrecourse MSR financing liability
Beginning balance, January 1, 2021	$	(9,788,668	)	$	(1,084	)	$	(3,842	)	$	(5,257,754	)	$	(14,088	)
Total gain or losses included in earnings		(41,434	)	$	—			(29	)		(30,770	)		390
Purchases, settlements and transfers:
Purchases and additions, net		(602,172	)		—			—			(575,668	)		(8,353	)
Sales and settlements		506,142			148			657			658,300
Ending balance, March 31, 2021	$	(9,926,132	)	$	(936	)	$	(3,214	)	$	(5,205,892	)	$	(22,051	)

	Predecessor
	Assets
December 31, 2020	Mortgage loans held for investment			Mortgage loans held for investment, subject to nonrecourse debt			Mortgage loans held for sale			Derivative assets		Mortgage servicing rights		Debt securities			Investments
Beginning balance, January 1, 2020	$	10,894,577		$	3,511,212		$	182,973		$	14,008	$	2,600	$	102,260		$	20,508
Total gain or losses included in earnings		627,251			304,663			(2,158	)		74,470		4,562		2,288			(5,512	)
Purchases, settlements and transfers:
Purchases and additions, net		3,616,667			136,838			409,467			182		173,522		24,489			3,938
Sales and settlements		(1,536,977	)		(1,285,902	)		(605,018	)		—		—		(129,037	)		—
Transfers in/(out) between categories		(2,941,534	)		2,729,356			167,590			—		—		—			—
Ending balance, December 31, 2020	$	10,659,984		$	5,396,167		$	152,854		$	88,660	$	180,684	$	—		$	18,934

	Predecessor
	Liabilities
December 31, 2020	HMBS related obligations			Derivative liabilities			Deferred purchase price liabilities			Nonrecourse debt in VIE trusts			Nonrecourse MSR Financing Liability
Beginning balance, January 1, 2020	$	(9,320,209	)	$	(68	)	$	(4,300	)	$	(3,490,196	)	$	—
Total gain or losses included in earnings		(359,951	)		(834	)		(3,014	)		(294,802	)		798
Purchases, settlements and transfers:
Purchases and additions, net		(2,051,953	)		(182	)		(138	)		(3,110,368	)		(15,101	)
Sales and settlements		1,943,445			—			3,610			1,637,612			215
Ending balance, December 31, 2020	$	(9,788,668	)	$	(1,084	)	$	(3,842	)	$	(5,257,754	)	$	(14,088	)

43

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Fair Value Option

Presented in the tables below are the fair value and unpaid principal balance (“UPB”) at June 30, 2021 (Successor) and December 31, 2020 (Predecessor), of assets and liabilities for which the Company has elected the fair value option (in thousands):

Successor:
June 30, 2021	Estimated Fair Value		Unpaid Principal Balance
Assets at fair value under the fair value option
Reverse mortgage loans held for investment, subject to HMBS related obligations	$	10,316,027	$	9,406,924
Mortgage loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans		5,189,680		4,615,128
Commercial mortgage loans		234,941		229,858
Mortgage loans held for investment:
Reverse mortgage loans		1,020,143		879,794
Commercial mortgage loans		204,947		202,195
Mortgage loans held for sale:
Residential mortgage loans		1,908,107		1,858,087
Commercial mortgage loans		149,435		144,789
Liabilities at fair value under the fair value option
HMBS related obligations		10,168,224		9,406,924
Nonrecourse debt:
Nonrecourse debt in VIE trusts		5,360,603		5,276,781
Nonrecourse MSR financing liability		65,129		65,129
Predecessor:
December 31, 2020	Estimated Fair Value		Unpaid Principal Balance
Assets at fair value under the fair value option
Reverse mortgage loans held for investment, subject to HMBS related obligations	$	9,929,163	$	9,045,104
Mortgage loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans		5,057,624		4,457,805
Commercial mortgage loans		338,543		333,344
Mortgage loans held for investment:
Reverse mortgage loans		661,790		589,429
Commercial mortgage loans		69,031		69,127
Mortgage loans held for sale:
Residential mortgage loans		2,080,585		2,000,795
Commercial mortgage loans		142,226		140,693
Liabilities at fair value under the fair value option
HMBS related obligations		9,788,668		9,045,104
Nonrecourse debt:
Nonrecourse debt in VIE trusts		5,257,754		5,155,017
Nonrecourse MSR financing liability		14,088		14,088

44

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Net Fair Value Gains on Mortgage Loans and Related Obligations

Provided in the table below is a summary of the components of net fair value gains on mortgage loans and related obligations (in thousands):

	April 1, 2021 to June 30, 2021			January 1, 2021 to March 31, 2021			For the three months ended June 30, 2020			For the six months ended June 30, 2020
	Successor			Predecessor
Net fair value gains (losses) on mortgage loans and related obligations:
Interest income on mortgage loans	$	173,940		$	160,568		$	217,841		$	401,513
Change in fair value of mortgage loans		84,983			(51,346	)		180,904			82,338
Change in fair value of mortgage backed securities		—			—			(1,470	)		817
Fair value gains on mortgage loans		258,923			109,222			397,275			484,668
Interest expense on related obligations		(113,474	)		(119,201	)		(127,488	)		(261,845	)
Change in fair value of derivatives		(46,478	)		43,972			8,567			(5,743	)
Change in fair value of related obligations		32,180			42,670			(166,051	)		(91,397	)
Fair value losses on related obligations		(127,772	)		(32,559	)		(284,972	)		(358,985	)
Net fair value gains on mortgage loans and related obligations	$	131,151		$	76,663		$	112,303		$	125,683

As the cash flows on the underlying mortgage loans will be utilized to settle the outstanding obligations, the Company’s own credit risk would not impact the fair value on the outstanding HMBS liabilities and nonrecourse debt.

Fair Value of Other Financial Instruments

As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), all financial instruments were either recorded at fair value or the carrying value approximated fair value. For financial instruments that were not recorded at fair value, such as cash and cash equivalents including restricted cash, servicer advances and other financing lines of credit, the carrying value approximates fair value due to the short-term nature of such instruments.

45

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

6. Reverse Mortgages Portfolio Composition

The table below summarizes the Company’s serviced reverse mortgage portfolio composition and the remaining UPBs of the reverse mortgage loan portfolio (in thousands):

	June 30, 2021		December 31, 2020
	Successor		Predecessor
Reverse mortgage loans:
Reverse mortgage loans held for investment, subject to HMBS related obligations	$	9,406,924	$	9,045,104
Reverse mortgage loans held for investment:
Non-agency reverse mortgages		536,739		215,688
Loans not securitized (1)		254,004		168,292
Unpoolable loans (2)		80,487		197,395
Unpoolable tails		8,564		8,054
Total reverse mortgage loans held for investment		879,794		589,429
Reverse mortgage loans held for investment, subject to nonrecourse debt:
Performing HECM buyouts		276,177		141,691
Nonperforming HECM buyouts		634,342		538,768
Non-agency reverse mortgages		3,704,609		3,777,346
Total reverse mortgage loans held for investment, subject to nonrecourse debt		4,615,128		4,457,805
Total owned reverse mortgage portfolio		14,901,846		14,092,338
Loans reclassified as government guaranteed receivable		49,813		49,255
Loans serviced for others		18,099		123,324
Total serviced reverse mortgage loan portfolio	$	14,969,758	$	14,264,917

(1) Loans not securitized represent primarily newly originated loans.

(2) Unpoolable loans represent primarily loans that have reached 98% of their MCA.

The table below summarizes the owned reverse mortgage portfolio by product type (in thousands):

	June 30, 2021		December 31, 2020
	Successor		Predecessor
Fixed rate loans	$	5,181,814	$	5,010,659
Adjustable rate loans		9,720,032		9,081,679
Total owned reverse mortgage portfolio	$	14,901,846	$	14,092,338

46

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

7. Reverse Mortgage Loans Held for Investment, Subject to HMBS Related Obligations, at Fair Value

Reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value, consisted of the following for the dates indicated (in thousands):

	June 30, 2021		December 31, 2020
	Successor		Predecessor
Reverse mortgage loans held for investment, subject to HMBS related obligations—UPB	$	9,406,924	$	9,045,104
Fair value adjustments		909,103		884,059
Total reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value	$	10,316,027	$	9,929,163

8. Mortgage Loans Held for Investment, Subject to Nonrecourse Debt, at Fair Value

Mortgage loans held for investment, subject to nonrecourse debt, at fair value, consisted of the following for the dates indicated (in thousands):

	June 30, 2021		December 31, 2020
	Successor		Predecessor
Mortgage loans held for investment, subject to nonrecourse debt—UPB:
Reverse mortgage loans	$	4,615,128	$	4,457,805
Commercial mortgage loans		229,858		333,344
Fair value adjustments		579,635		605,018
Total mortgage loans held for investment, subject to nonrecourse debt, at fair value	$	5,424,621	$	5,396,167

The table below shows the total amount of mortgage loans held for investment, subject to nonrecourse debt that were greater than 90 days past due and on

non-accrual

status (in thousands):

	June 30, 2021			December 31, 2020
	Successor			Predecessor
Loans 90 days or more past due and on non-accrual status
Mortgage loans held for investment:
Fair value:
Commercial mortgage loans	$	33,764		$	32,377
Total fair value		33,764			32,377
Aggregate UPB:
Commercial mortgage loans	$	34,159			33,888
Total aggregate UPB		34,159			33,888
Difference	$	(395	)	$	(1,511	)

47

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

9. Mortgage Loans Held for Investment, at Fair Value

Mortgage loans held for investment, at fair value, consisted of the following for the dates indicated (in thousands):

	June 30, 2021		December 31, 2020
	Successor		Predecessor
Mortgage loans held for investment—UPB:
Reverse mortgage loans	$	879,794	$	589,429
Commercial mortgage loans		202,195		69,127
Fair value adjustments		143,101		72,265
Total mortgage loans held for investment, at fair value	$	1,225,090	$	730,821

10. Mortgage Loans Held for Sale, at Fair Value

Mortgage loans held for sale, at fair value, consisted of the following for the dates indicated (in thousands):

	June 30, 2021		December 31, 2020
	Successor		Predecessor
Mortgage loans held for sale—UPB:
Residential mortgage loans	$	1,858,087	$	2,000,795
Commercial mortgage loans		144,789		140,693
Fair value adjustments		54,666		81,323
Total mortgage loans held for sale, at fair value	$	2,057,542	$	2,222,811

The table below shows the total amount of mortgage loans held for sale that were greater than 90 days past due and on

non-accrual

status (in thousands):

	June 30, 2021			December 31, 2020
	Successor			Predecessor
Loans 90 days or more past due and on non-accrual status
Mortgage loans held for sale:
Fair value:
Residential mortgage loans	$	11,453		$	10,628
Commercial mortgage loans		3,203			5,051
Total fair value		14,656			15,679
Aggregate UPB:
Residential mortgage loans		12,594			13,236
Commercial mortgage loans		3,360			5,317
Total aggregate UPB		15,954			18,553
Difference	$	(1,298	)	$	(2,874	)

The Company originates or purchases and sells mortgage loans in the secondary mortgage market without recourse for credit losses. However, the Company at times maintains continuing involvement with the loans in the form of servicing arrangements and the liability under representations and warranties it makes to purchasers and insurers of the loans.

48

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The following table summarizes cash flows between the Company and transferees as a result of the sale of mortgage loans in transactions where the Company maintains continuing involvement with the mortgage loans (in thousands):

	April 1, 2021 to June 30, 2021			January 1, 2021 to March 31, 2021			For the three months ended June 30, 2020			For the six months ended June 30, 2020
	Successor			Predecessor
Cash flows:
Sales proceeds	$	5,181,557		$	6,387,933		$	2,631,554		$	2,868,960
Fair value of retained beneficial interest (1)		49,308			66,400			43,500			44,855
Gross servicing fees received		14,278			13,877			1,544			1,824
Repurchases		(6,818	)		(4,144	)		(3,380	)		(8,547	)
Gain		197,129			284,948			282,424			291,671

(1) Fair value of retained beneficial interest includes retained servicing rights and other beneficial interests retained as of the statement of financial condition date.

11. Mortgage Servicing Rights, at Fair Value

The servicing portfolio associated with capitalized servicing rights consists of the following (in thousands):

	June 30, 2021			December 31, 2020
	Successor			Predecessor
Fannie Mae/Freddie Mac	$	29,705,985		$	20,501,504
Ginnie Mae		553,800			1,727,831
Private investors		332,402			40,027
Total UPB	$	30,592,187		$	22,269,362
Weighted average interest rate		3.0	%		3.1	%

The activity in the loan servicing portfolio associated with capitalized servicing rights consisted of the following (in thousands):

	April 1, 2021 to June 30, 2021			January 1, 2021 to March 31, 2021			For the three months ended June 30, 2020			For the six months ended June 30, 2020
	Successor			Predecessor
Beginning UPB	$	26,675,358		$	22,269,362		$	402,852		$	288,057
Originated MSR		5,139,859			6,312,227			6,849,850			6,986,237
Purchased MSR		5,537			866,806			—			—
Payoffs, sales and curtailments		(1,228,567	)		(2,773,037	)		(40,859	)		(62,451	)
Ending UPB	$	30,592,187		$	26,675,358		$	7,211,843		$	7,211,843

49

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The activity in the mortgage servicing rights asset consisted of the following (in thousands):

	April 1, 2021 to June 30, 2021			January 1, 2021 to March 31, 2021			For the three months ended June 30, 2020			For the six months ended June 30, 2020
	Successor			Predecessor
Beginning balance	$	267,364		$	180,684			3,119		$	2,600
Originations		50,049			65,964			43,561			44,855
Purchases		61			9,014			—			—
Sales		—			(8,647	)		—			—
Changes in fair value due to:
Changes in market inputs or assumptions used in valuation model		(16,051	)		35,109			(2,749	)		(3,424	)
Changes in fair value due to portfolio runoff and other		(10,485	)		(14,760	)		(1,247	)		(1,347	)
Ending balance	$	290,938		$	267,364		$	42,684		$	42,684

The value of MSRs is driven by the net cash flows associated with servicing activities. The cash flows include contractually specified servicing fees, late fees, and other ancillary servicing revenue. The fees were $13.7 million for the Successor period from April 1, 2021 to June 30, 2021 and $13.0 million for the Predecessor period of January 1, 2021 to March 31, 2021. Fees for the Predecessor were $1.7 million and $1.8 million for the three months ended and six months ended June 30, 2020, respectively. These fees and changes in fair value of the MSRs are recorded within fee income on the Consolidated Statements of Operations.

The following table provides a summary of the loan servicing portfolio delinquencies as a percentage of the total number of loans and the total unpaid balance of the portfolio:

	June 30, 2021						December 31, 2020
	Successor						Predecessor
	Number of Loans			Unpaid Balance			Number of Loans			Unpaid Balance
Portfolio delinquency
30 days		0.4	%		0.4	%		0.5	%		0.5	%
60 days		0.0	%		0.0	%		0.1	%		0.1	%
90 or more days		0.1	%		0.1	%		0.2	%		0.1	%
Total		0.5	%		0.5	%		0.8	%		0.7	%
Foreclosure/real estate owned		0.0	%		0.0	%		0.0	%		0.0	%

12. Derivative and Risk Management Activities

The Company’s principal market exposure is to interest rate risk, specifically long-term U.S. Treasury and mortgage interest rates, due to their impact on mortgage-related assets and commitments. The Company is also subject to changes in short-term interest rates, such as LIBOR, due to their impact on certain variable rate asset-backed debt such as warehouse lines of credit. Various financial instruments are used to manage and reduce this risk, including forward delivery commitments on mortgage-backed securities or whole loans and interest rate swaps.

The Company did not have any derivative instruments designated as hedging instruments or subject to master netting and collateral agreements as of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), for the Successor period from April 1, 2021 to June 30, 2021 and the Predecessor period from January 1, 2021 to March 31, 2021. The Company also had no derivative instruments designated as hedging instruments or subject to master netting and collateral agreements for the Predecessor period for the three months ended and six months ended June 30, 2020.

50

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The following tables summarize the amounts recorded in derivative assets and payables and other liabilities, related to derivative liabilities, in the Consolidated Statements of Financial Condition for the periods indicated (in thousands):

	June 30, 2021
	Successor
	Derivative assets							Derivative liabilities
	Fair value		Notional amount		Unrealized gains (losses)			Fair value		Notional amount		Unrealized gains (losses)
Interest rate lock commitments	$	34,647	$	2,539,030	$	(52,929	)	$	—	$	—	$	—
Forward commitments, TBAs securities, and treasury futures		1,187		895,807		(619	)		1,176		954,493		156
Interest rate swaps and futures contracts		24,981		4,616,698		22,298			13,789		1,082,600		(13,034	)
Forward MBS		996		802,500		996			4,364		1,988,500		14,271
Net fair value of derivative financial instruments	$	61,811	$	8,854,035	$	(30,254	)	$	19,329	$	4,025,593	$	1,393

	December 31, 2020
	Predecessor
	Derivative assets							Derivative liabilities
	Fair value		Notional amount		Unrealized gains (losses)			Fair value		Notional amount		Unrealized gains (losses)
Interest rate lock commitments	$	87,576	$	2,897,479	$	73,568		$	��	$	13,822	$	68
Forward commitments, TBAs securities, and treasury futures		1,806		399,612		968			1,332		389,422		(1,248	)
Interest rate swaps and futures contracts		2,683		1,386,400		2,324			755		744,500		(617	)
Forward MBS		—		—		(348	)		18,635		3,187,000		(16,587	)
Net fair value of derivative financial instruments	$	92,065	$	4,683,491	$	76,512		$	20,722	$	4,334,744	$	(18,384	)

The Company is exposed to risk in the event of

non-performance

by counterparties in their derivative contracts. In general, the Company manages such risk by evaluating the financial position and creditworthiness of counterparties, monitoring the amount of exposure and/or dispersing the risk among multiple counterparties. While the Company does not presently have master netting arrangements with its derivative counterparties, it does either maintain or deposit cash as margin collateral with its clearing broker to the extent the relative value of its derivatives are above or below their initial strike price. The Company pledged deposits of $4.1 million and $12.0 million as of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), respectively. Total margin collateral is included in other assets, net, in the Company’s Consolidated Statements of Financial Condition.

13. Goodwill

Goodwill consisted of the following (in thousands):

	April 1, 2021 to June 30, 2021		January 1, 2021 to March 31, 2021		For the three months ended June 30, 2020		For the six months ended June 30, 2020
	Successor		Predecessor
Beginning balance	$	0	$	121,233	$	121,137	$	121,137
Additions from acquisitions		1,298,324		7,517		617		617
Ending balance	$	1,298,324	$	128,750	$	121,754	$	121,754

51

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

For the Successor period, the goodwill beginning balance was established as a result of the Business Combination and changes during the period are attributable to additional acquisitions. Refer to Note 4—Acquisitions for additional details regarding these acquisitions. The Company did 0t identify any impairment for the Successor period from April 1, 2021 to June 30, 2021, the Predecessor period of January 1, 2021 to March 31, 2021 nor the Predecessor periods for the three months ended and six months ended June 30, 2020. Goodwill is reviewed for impairment utilizing a qualitative assessment or a quantitative goodwill impairment test and determined that it was more likely than not that no impairment of goodwill existed as of the evaluation date.

The amount of goodwill allocated to each reporting unit consisted of the following (in thousands):

	June 30, 2021		December 31, 2020
	Successor		Predecessor
Reporting units:
Mortgage Originations	$	711,306	$	44,429
Reverse Originations		404,441		—
Commercial Originations		75,350		43,113
Lender Services		100,128		25,247
Portfolio Management		7,099		8,444
Total goodwill	$	1,298,324	$	121,233

14. Intangible Assets, Net

Intangible assets, net, consisted of the following (in thousands):

June 30, 2021	Amortization Period (Years)		Cost		Accumulated Amortization			Net
Successor:
Non-amortizing Intangibles
Trade name		N/A	$	178,000	$	—		$	178,000
Total non-amortizing intangibles			$	178,000	$	—		$	178,000
Amortizing Intangibles
Broker/customer relationships		8 - 15	$	530,900	$	(13,237	)	$	517,663
Trade names		10		8,800		(220	)		8,580
Total amortizing intangibles			$	539,700	$	(13,457	)	$	526,243
Total intangibles			$	717,700	$	(13,457	)	$	704,243

52

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

December 31, 2020	Amortization Period (Years)		Cost		Accumulated Amortization			Net
Predecessor:
Non-amortizing Intangibles
Domain name		N/A	$	5,422	$	—		$	5,422
Total non-amortizing intangibles			$	5,422	$	—		$	5,422
Amortizing Intangibles
Customer list		5 - 12	$	12,754	$	(5,100	)	$	7,654
Broker relationships		10		7,627		(5,429	)		2,198
Trade names		5 - 20		2,495		(1,487	)		1,008
Technology assets		5		805		(156	)		649
Total amortizing intangibles			$	23,681	$	(12,172	)	$	11,509
Total intangibles			$	29,103	$	(12,172	)	$	16,931

Amortization expense was $13.5 million for the Successor period from April 1, 2021 to June 30, 2021 and $0.6 million for the Predecessor period from January 1, 2021 to March 31, 2021. Amortization expense for the Predecessor was $0.6 million and $1.3 million for the three months ended and six months ended June 30, 2020, respectively.

The estimated amortization expense for each of the five succeeding fiscal years and thereafter as of June 30, 2021 (Successor) is as follows (in thousands):

Year Ending December 31,	Amount
2021	$	26,914
2022		53,828
2023		53,828
2024		53,828
2025		53,828
Thereafter		284,017
Total future amortization expense	$	526,243

53

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

15. Other Assets, Net

Other assets, net, consisted of the following (in thousands):

	June 30, 2021		December 31, 2020
	Successor		Predecessor
Right-of-use assets	$	62,835	$	46,609
Government guaranteed receivables		48,087		46,481
Receivables, net of allowance of $1,452 and $788, respectively		48,666		67,011
Loan subject to repurchase from GNMA		30,027		42,148
Prepaid expenses		26,070		17,536
Retained bonds		15,671		—
Investments, at fair value		6,554		18,934
Servicer advances, net of allowance of $2,002 and $1,661, respectively		6,318		5,795
Deposits		2,438		14,188
Receivable from clearing organization		2,041		2,043
Other		51,546		39,887
Total other assets, net	$	300,253	$	300,632

As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), there were $368.6 million and $380.3 million, respectively, of foreclosure proceedings in process, which are included in mortgage loans held for investment, at fair value, on the Consolidated Statements of Financial Condition.

16. HMBS Related Obligations, at Fair Value

HMBS related obligations represent the issuance of pools of HMBS, which are guaranteed by GNMA, to third-party security holders. The Company accounts for the transfers of these advances in the related HECM loans as secured borrowings, retaining the initial HECM loans in its Consolidated Statements of Financial Condition as reverse mortgage loans held for investment, subject to HMBS related obligations, and recording the pooled HMBS as HMBS related obligations. Monthly cash flows generated from the HECM loans are used to service the outstanding HMBS.

HMBS related obligations, at fair value, consisted of the following (in thousands):

	June 30, 2021			December 31, 2020
	Successor			Predecessor
GNMA loan pools—UPB	$	9,406,924		$	9,045,104
Fair value adjustments		761,300			743,564
Total HMBS related obligations, at fair value	$	10,168,224		$	9,788,668
Weighted average remaining life		4.4			4.5
Weighted average interest rate		2.6	%		3.0	%

The Company was servicing 1,765 and 1,693 GNMA loan pools at June 30, 2021 (Successor) and December 31, 2020 (Predecessor), respectively.

54

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

17. Nonrecourse Debt, at Fair Value

Nonrecourse debt, at fair value, consisted of the following (in thousands):

	Issue Date	Class of Note	Final Maturity Date	Interest Rate		Original Issue Amount		June 30, 2021		December 31, 2020
								Successor		Predecessor
Securitization of nonperforming HECM loans:
2021 FASST HB1	February 2021	A, M1, M2, M3, M4, M5	February 2031		0.9%—9.0%	$	571,448	$	537,299	$	—
2020 FASST HB2	July 2020	A, M1, M2, M3, M4, M5	July 2030		1.71%—7.75%		594,171		446,413		476,147
2020 FASST HB1	February 2020	A, M1, M2, M3, M4, M5	February 2030		2.0%—6.0%		373,912		0		298,883
Securitization of non-agency reverse loans:
2021 FASST JR 1	April 2021	A1, A2	April 2026		1.5%—2.0%		562,512		512,794		—
2019 FASST JR2	June 2019	A, A2	June 2069		2.0%		499,000		406,709		440,141
2018 FASST JR1	May 2018	A	May 2068		4.3%		559,197		386,548		428,671
2019 FASST JR3	September 2019	A	September 2069		2.0%		450,104		359,772		404,057
2020 FASST JR3	August 2020	A, A2	August 2025		2.0%—3.0%		360,713		315,570		337,099
2019 FASST JR4	November 2019	A	November 2069		2.0%		365,685		305,097		335,945
2019 FASST JR1	March 2019	A	March 2069		2.0%		347,000		288,654		309,840
2020 FASST S3	December 2020	A1, A2	December 2025		1.5%—2.5%		313,357		288,383		297,871
2020 FASST S2	June 2020	A1, A2	March 2025		2.0%		320,460		286,734		299,401
2020 FASST JR2	May 2020	A1A, A1B, A2	May 2023		0.0%—2.0%		305,658		277,694		291,827
2018 FASST JR2	December 2018	A	December 2068		4.5%		280,400		229,872		253,325
2020 FASST JR4	October 2020	A, A2	August 2025		2.0%—3.0%		241,664		197,970		217,385
2020 FASST S1	March 2020	A1, A2	March 2025		2.0%—3.7%		199,000		168,761		181,059
2020 FASST JR1	April 2020	A, A2	April 2023		2.0%		254,805		0		240,563

55

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

	Issue Date	Class of Note	Final Maturity Date	Interest Rate		Original Issue Amount		June 30, 2021		December 31, 2020
								Successor		Predecessor
Securitization of Fix & Flip loans:
2021 RTL1 ANTLR	April 2021	A1, A2, M	November 2024 (A1); January 2025 (A2); May 2025 (M)		2.1%—5.4%		268,511		268,511		—
2020 RTL1 ANTLR	May 2020	A1, A2	May 2022 (A1, A2)		6.9%—8.0%		306,517		—		140,072
2018 RTL1 ANTLR	September 2018	A1, A2, A-VFN, M	July 2022 (A1, A2); March 2023 (M)		4.3%—7.4%		210,296		—		80,949
2019 RTL1 ANTLR	March 2019	A1, A2, A-VFN, M	June 2022 (A1, A2); January 2023 (M)		4.5%—6.9%		217,100		—		121,772
Total nonrecourse debt									5,276,781		5,155,007
Nonrecourse MSR financing liability, at fair value									65,129		14,088
Fair value adjustments									83,822		102,747
Total nonrecourse debt, at fair value								$	5,425,732	$	5,271,842

Nonrecourse MSR Financing Liability, at Fair Value

The Company has agreements with third parties to sell beneficial interests in the servicing fees generated from certain of its originated or acquired mortgage servicing rights. Under these agreements, the Company has agreed to sell to the third parties the right to receive all excess servicing and ancillary fees related to the identified MSRs in exchange for an upfront payment equal to the entire purchase price of the identified mortgage servicing rights. These transactions are accounted for as financings under ASC 470

, Debt

and included in nonrecourse debt, at fair value in the Consolidated Statements of Financial Condition.

The Company elected to measure the outstanding financings related to the nonrecourse MSR financing liability, at fair value, as permitted under ASC 825

, Financial Instruments

, with all changes in fair value recorded as a charge or credit to fee income in the Consolidated Statements of Operations. The fair value on the nonrecourse MSR financing liability is based on the present value of expected future cash flows to be paid to the third parties with the discount rate approximating current market value for similar financial instruments. See Note 30—Related Party Transactions for additional information regarding the nonrecourse MSR financing liability.

56

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

18. Other Financing Lines of Credit

The following summarizes the components of other financing lines of credit (dollars in thousands):    

						Outstanding Borrowings at
						June 30, 2021		December 31, 2020
Facility	Maturity Date	Interest Rate	Collateral Pledged	Total Capacity (1)		Successor		Predecessor
Mortgage Lines:
March 2022 $300M Facility	March 2022	LIBOR + applicable margin	First Lien Mortgages	$	300,000	$	192,417	$	182,015
March 2022 $200M Facility	March 2022	LIBOR + applicable margin	N/A		200,000		189,464		302,877
May 2022 $200M Facility	May 2022	LIBOR + applicable margin	First Lien Mortgages		200,000		189,050		109,463
February 2022 $300M Facility	February 2022	LIBOR + applicable margin	First Lien Mortgages		300,000		186,754		0
July 2021 $200M Facility (2)	July 2021	LIBOR + applicable margin	First Lien Mortgages		200,000		167,207		122,075
October 2021 $200M Facility	October 2021	LIBOR + applicable margin	First Lien Mortgages		200,000		166,564		158,114
March 2022 $225M Facility	March 2022	LIBOR + applicable margin	First Lien Mortgages		225,000		163,678		154,097
March 2022 $200M Facility	March 2022	LIBOR + applicable margin	First Lien Mortgages		200,000		155,468		97,225
March 2026 $150M Facility - MSR	March 2026	LIBOR + applicable margin	MSRs		150,000		125,113		0
April 2022 $250M Facility	April 2022	LIBOR + applicable margin	First Lien Mortgages		250,000		122,412		225,837
May 2022 $350M Facility	May 2022	LIBOR + applicable margin	First Lien Mortgages		350,000		102,332		283,821
October 2021 $250M Facility	October 2021	LIBOR + applicable margin	First Lien Mortgages		250,000		65,541		170,174
August 2021 $200M Facility	August 2021	LIBOR + applicable margin	First Lien Mortgages		200,000		59,663		126,047
August 2021 $300M Facility (2)	August 2021	LIBOR + applicable margin	First Lien Mortgages		300,000		40,562		15,719
Securities Repo Line	N/A	LIBOR + applicable margin	Mortgage Related Asset		13,951		13,951		—
February 2021 $50M Facility - MSR (3)	February 2021	Prime + applicable margin; 5.00% floor	MSRs		50,000		—		50,000
June 2023 $300M Facility	June 2023	LIBOR + applicable margin	First Lien Mortgages		300,000		—		—
Subtotal mortgage lines of credit				$	3,688,951	$	1,940,176	$	1,997,464
Reverse Lines:
October 2021 $400M Facility	October 2021	LIBOR + applicable margin	First Lien Mortgages	$	400,000	$	257,257	$	84,124
April 2022 $250M Facility	April 2022	LIBOR + applicable margin	First Lien Mortgages		250,000		214,245		173,484
$200M Repo Facility	N/A	Bond accrual rate + applicable margin	Mortgage Related Assets		200,000		176,549		174,578
February 2024 $90M Facility	February 2024	LIBOR + applicable margin	MSRs		90,000		89,497		0
December 2021 $100M Facility	December 2021	LIBOR + applicable margin	First Lien Mortgages		100,000		89,226		61,220
March 2022 $100M Facility	March 2022	LIBOR + applicable margin	First Lien Mortgages		100,000		87,936		15,803

57

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

								Outstanding Borrowings at
								June 30, 2021		December 31, 2020
Facility	Maturity Date	Interest Rate		Collateral Pledged		Total Capacity (1)		Successor		Predecessor
June 2022 $75M Facility	June 2022		LIBOR + applicable margin		First Lien Mortgages		75,000		72,479		11,423
April 2022 $52.5M Facility	April 2022		LIBOR + applicable margin		Mortgage Related Assets		52,500		52,500		50,239
April 2022 $50M Facility	April 2022		Prime + applicable margin; 6.00% floor		Unsecuritized Tails		50,000		38,757		37,442
April 2022 $45M Facility	April 2022		9.00%		Mortgage Related Assets		45,000		28,220		26,875
June 2022 $200M Facility (2)	June 2022		LIBOR + applicable margin		First Lien Mortgages		200,000		26,883		128,723
August 2021 $50M Facility	August 2021		LIBOR + applicable margin		First Lien Mortgages		50,000		24,329		2,860
$1.2M Repo Facility	N/A		LIBOR + applicable margin		Mortgage Related Assets		1,215		1,215		1,188
Subtotal reverse lines of credit						$	1,613,715	$	1,159,093	$	767,959
Commercial Lines:
September 2022 $150M Facility	September 2022		LIBOR + applicable margin		Encumbered Agricultural Loans	$	150,000	$	112,229	$	52,300
April 2023 $145M Facility	April 2023		LIBOR + applicable margin		First Lien Mortgages		145,000		86,055		100,070
February 2022 $150M Facility	February 2022		LIBOR + applicable margin		First Lien Mortgages		150,000		33,768		—
November 2023 $65M Facility	November 2023		LIBOR + applicable margin		First Lien Mortgages		65,000		30,528		28,064
August 2022 $75M	August 2022		2.50% - 3.25%		Encumbered Agricultural Loans		75,000		24,746		—
August 202 2  $25M Facility	August 2022		10.00%		Second Lien Mortgages		25,000		20,900		21,475
$4M Securities Repo Line	N/A		LIBOR + applicable margin		Mortgage Related Assets		4,024		4,024		—
February 2022 $150M Facility	February 2022		LIBOR + applicable margin		First Lien Mortgages		150,000		715		—
$2M Securities Repo Line	N/A		Distributed Bond Interest + 50 bps		Mortgage Related Assets		—		—		6,411
Subtotal commercial lines of credit						$	764,024	$	312,965	$	208,320
Total other financing lines of credit						$	6,066,690	$	3,412,234	$	2,973,743

(1)   Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements, including asset-eligibility requirements. Capacity amounts presented are as of June 30, 2021.

(2)   See Note 36 - Subsequent Events for additional information on facility amendments.

(3)   The February 2021 $50M facility - MSR was paid off and terminated in February 2021.

58

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

As of June 30, 2021 (Successor) and December 31, 2020 (Predecessor), the weighted average outstanding interest rates on outstanding debt of the Company were 2.57% and 3.15%, respectively.

The Company’s borrowing arrangements and credit facilities contain various financial covenants which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements. As a result of market disruptions and fair value accounting adjustments taken in March 2020 resulting from the

COVID-19

pandemic, FACo was in violation of its first, second, and third quarter 2020 profitability covenants with two of its warehouse lenders. The Company received waivers of these covenant violations from both lenders as well as amendments to profitability covenants for the remaining quarters of 2020.

As a result of impacts from the Business Combination, FAM was not in compliance with the lender adjusted tangible net worth quarterly and

two-consecutive

quarter requirements by FNMA as detailed below. The Company received a waiver for the covenant violations from FNMA. As of June 30, 2021 (Successor), the Company had obtained waivers for these covenant violations and was in compliance with all other financial covenants.

The terms of the Company’s financing arrangements and credit facilities contain covenants, and the terms of the Company’s GSE/seller servicer contracts contain requirements that may restrict the Company and its subsidiaries from paying distributions to its members. These restrictions include restrictions on paying distributions, whenever the payment of such distributions would cause FoA to no longer be in compliance with any of its financial covenants or GSE requirements. Further, the Company is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of the Company (with certain exceptions) exceed the fair value of its assets. Subsidiaries of the Company are generally subject to similar legal limitations on their ability to make distributions to FoA.

59

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

As of June 30, 2021 (Successor), the maximum allowable distributions available to the Company based on the most restrictive of such financial covenant ratios is presented in the table below (in thousands, except for ratios):

Successor
Financial Covenants	Requirement		June 30, 2021		Maximum Allowable Distribution (1)
FAM
Adjusted Tangible Net Worth	$	150,000	$	191,383	$	41,383
Liquidity		40,000		60,697		20,697
Leverage Ratio		15:1		13.3:1		21,591
Material Decline in Lender Adjusted Net Worth:
Lender Adjusted Tangible Net Worth (Quarterly requirement)	$	294,790	$	191,383	$	(103,406	)
Lender Adjusted Tangible Net Worth (Two-Consecutive Quarterly requirement)		215,803		191,383		(24,419	)
FACo
Adjusted Tangible Net Worth	$	85,000	$	93,411	$	8,411
Liquidity		20,000		28,579		8,579
Leverage Ratio		6:1		3.6:1		37,192
FAR
Adjusted Tangible Net Worth	$	398,288	$	449,271	$	50,983
Liquidity		20,000		25,120		5,120
Leverage Ratio		6:1		3.6:1		180,788
Material Decline in Lender Adjusted Net Worth:
Lender Adjusted Tangible Net Worth (Quarterly requirement)	$	302,921	$	448,047	$	145,126
Lender Adjusted Tangible Net Worth (Two-Consecutive Quarterly requirement)		354,344		448,047		93,703

(1) The Maximum Allowable Distribution for any of the originations subsidiaries is the lowest of the amounts shown for the particular originations subsidiary.

60

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

As of December 31, 2020 (Predecessor), the maximum allowable distributions available to the Company based on the most restrictive of such financial covenant ratios is presented in the table below (in thousands, except for ratios):

Predecessor
Financial Covenants	Requirement		December 31, 2020		Maximum Allowable Distribution (1)
FAM
Adjusted Tangible Net Worth	$	125,000	$	289,163	$	164,163
Liquidity		40,000		56,775		16,775
Leverage Ratio		15:1		9.3:1		110,267
Material Decline in Lender Adjusted Net Worth:
Lender Adjusted Tangible Net Worth (Quarterly requirement)	$	210,428	$	282,062	$	71,634
Lender Adjusted Tangible Net Worth (Two-Consecutive Quarterly requirement)		93,763		282,062		188,299
FACo
Adjusted Tangible Net Worth	$	85,000	$	126,672	$	41,672
Liquidity		20,000		46,385		26,385
Leverage Ratio		6:1		1.7:1		90,782
FAR
Adjusted Tangible Net Worth	$	300,000	$	474,128	$	174,128
Liquidity		20,000		36,425		16,425
Leverage Ratio		5.5:1		2.5:1		258,615
Material Decline in Lender Adjusted Net Worth:
Lender Adjusted Tangible Net Worth (Quarterly requirement)	$	314,091	$	472,458	$	158,367
Lender Adjusted Tangible Net Worth (Two-Consecutive Quarterly requirement)		205,619		472,458		266,839

(1) The Maximum Allowable Distribution for any of the originations subsidiaries is the lowest of the amounts shown for the particular originations subsidiary.

61

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

19. Payables and Other Liabilities

Payables and other liabilities consisted of the following (in thousands):

	June 30, 2021		December 31, 2020
	Successor		Predecessor
Accrued compensation expense	$	131,831	$	150,214
Accrued liabilities		97,902		83,427
Lease liabilities		64,496		48,250
Deferred tax liability, net		28,455		—
GNMA reverse mortgage buy-out payable		32,607		32,317
Liability for loans eligible for repurchase from GNMA		30,027		42,148
Derivative liabilities		19,329		20,722
Warrant liability		19,261		—
Estimate of claim losses		11,839		8,609
Deferred purchase price liabilities		44,473		3,842
Repurchase reserves		8,515		10,529
Total payables and other liabilities	$	488,735	$	400,058

Warrants

Prior to the Business Combination, Replay issued 28,750,000

units, consisting of one ordinary share and

one-half

of one redeemable warrant (each, a “Public Warrant” or “Warrant”), resulting in 14,375,000 Public Warrants.

Each Warrant is now exercisable for a share of FoA Class A Common Stock. As of June 30, 2021 (Successor), there were

14,375,000

Public Warrants outstanding.

The

W

arrants will expire April 1, 2026, five years after the completion of the Business Combination. The Company may call the

W

arrants for redemption:

• in whole and note in part;

• at a price of $0.01 per warrant;

• upon a minimum of 30 days’ prior written notice of redemption;

• if, and only if, the last reported closing price of the Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders; and  

Each Warrant entitles the holder to purchase one ordinary share at a price of $11.50 per share, subject to adjustment for reorganization and/or extraordinary dividends event, as described in the warrant agreement.

If the Company calls the Warrants for redemption, management will have the option to require all holders that wish to exercise the warrants to do so on a “cashless basis,” as described in the warrant agreement.

6

2

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The Company has determined that the Warrants are subject to treatment as a liability. As of the Closing of the Business Combination on April 1, 2021 and as of June 30, 2021 (Successor), the Warrants had a fair value of $18.0 million and $19.3 million,

respectively. These liability-classified Public Warrants are out of the money and thus have no impact on diluted EPS.

20. Leases

The Company’s lease portfolio is comprised primarily of real estate and equipment agreements. Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in other assets, net, and payables and other liabilities, respectively, on the Consolidated Statements of Financial Condition, as of June 30, 2021 (Successor) and December 31, 2020 (Predecessor). The Company does not currently have any finance leases in which it is the lessee. Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

For operating leases, the lease liabilities are initially recognized based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. This incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment and given similar credit risk. The lease term for all of the Company’s leases includes the noncancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease. The Company includes these options in the lease term when it is reasonably certain of exercising them.

ROU assets are further adjusted for lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term and is recorded in general and administrative expenses in the Consolidated Statements of Operations. The Company recognizes variable lease payments associated with the Company’s leases when the variability is resolved. Variable lease payments are recorded in general and administrative expenses in the Consolidated Statements of Operations along with expenses arising from fixed lease payments.

The table below summarizes the Company’s operating lease portfolio (in thousands):

	June 30, 2021			December 31, 2020
	Successor			Predecessor
Right-of-use assets	$	62,835		$	46,609
Lease liabilities	$	64,496		$	48,250
Weighted-average remaining lease term (in years)		6.61			3.61
Weighted-average discount rate		7.08	%		7.42	%

The table below summarizes the Company’s net operating lease cost:

	April 1, 2021 to June 30, 2021			January 1, 2021 to March 31, 2021			For the three months ended June 30, 2020			For the six months ended June 30, 2020
	Successor			Predecessor
Operating lease cost	$	5,591		$	5,490		$	7,046		$	13,658
Short-term lease cost		888			1,035			(593	)		1,438
Total operating and short term lease cost		6,479			6,525			6,453			15,096
Variable lease cost		1,997			1,808			718			1,422
Sublease income		(516	)		(464	)		(574	)		(1,270	)
Net lease cost	$	7,960		$	7,869		$	6,597		$	15,248

63

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The table below summarizes other information related to the Company’s operating leases:

	April 1, 2021 to June 30, 2021		January 1, 2021 to March 31, 2021		For the three months ended June 30, 2020		For the six months ended June 30, 2020
	Successor		Predecessor
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,291	$	5,423	$	6,255	$	12,540
Leased assets obtained in exchange for new operating lease liabilities		22,752		701		1,134		4,598

The following table presents a maturity analysis of operating leases and a reconciliation of the undiscounted cash flows to lease liabilities as of June 30, 2021 (Successor):

2021	$	10,083
2022		16,846
2023		13,104
2024		9,025
2025		6,045
2026		3,585
Thereafter		24,742
Total undiscounted lease payments		83,430
Less: amounts representing interest		(18,934	)
Total lease liabilities	$	64,496

21. Notes Payable, Net

Senior Unsecured Notes

In November 2020, FOAF issued $350.0 million aggregate principal amount of senior unsecured notes (the “Notes”). Interest is payable semi-annually in arrears on May 15 and November 15 beginning on May 15, 2021. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by FoA Equity and each of FoA Equity’s material existing and future wholly-owned domestic subsidiaries, excluding certain subsidiaries who are not able to guarantee due to tax, contractual or regulatory reasons.

At any time prior to November 15, 2022, FOAF may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount thereof, plus the applicable premium as of the redemption date under the terms of the indenture and accrued and unpaid interest. The redemption price during each of the twelve-month periods following November 15, 2022, November 15, 2023 and at any time after November 15, 2024 is 103.938%, 101.969% and 100.000%, respectively, of the principal amount plus accrued and unpaid interest thereon. At any time prior to November 15, 2022, FOAF may also redeem up to 40% of the aggregate principal amount of the notes at a redemption price equal to 107.875% of the aggregate principal amount of the senior unsecured notes redeemed, with an amount equal to or less than the net cash proceeds from certain equity offerings, plus accrued and unpaid interest.

Upon the occurrence of a change of control, the holders of the Notes will have the right to require FOAF to make an offer to repurchase each holder’s Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest.

The Notes contain covenants limiting, among other things, FOAF and its restricted subsidiaries’ ability to incur additional debt or issue certain preferred shares, incur liens, make certain distributions, investments and other

64

Finance of America Companies Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

restricted payments, engage in certain transactions with affiliates, and merge or consolidate or sell, transfer, lease or otherwise dispose of all or substantially all of FOAF’s assets. These incurrence based covenants are subject to exceptions and qualifications. Many of these covenants will cease to apply during any time that the Notes have investment grade ratings and no default has occurred and continuing. The Company was in compliance with all required covenants related to the Notes as of June 30, 2021 (Successor).

Financing Agreements

As a part of the Company’s acquisitions of certain subsidiaries, the Company entered into various note agreements with the sellers. In addition, in 2017, the Company entered into an agreement for the purchase of computer hardware and equipment which was financed by notes payable to the seller with monthly payments through January 2021.

A summary of the outstanding notes payable, net, is presented in the table below (in thousands):

Description Maturity Date Interest
Rate June 30,
2021 December 31,
2020