Company: FOACW
Filing Date: 2025-03-14
Form Type: 10-K
Source: 0001828937-25-000009
Chunk: 194

Company: Finance of America Companies Inc.
Filing Date: 2025-03-14
Form: 10-K
Item: Item 3
Chunk 194
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 our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Fair Value of Certain Reverse Mortgage Loans and Related Obligations

The Company’s balance of reverse mortgage loans classified as Loans held for investment, subject to nonrecourse debt, at fair value, was $9.3 billion, and Loans held for investment, at fair value, was $520 million as of December 31, 2024. The Company’s balance of Nonrecourse debt, at fair value, was $9.0 billion as of December 31, 2024. As described in Notes 7 and 13 to the Company’s consolidated financial statements, these amounts include non-agency reverse mortgage loans and nonrecourse debt associated with non-agency reverse mortgage loans. The Company has elected to account for these assets and liabilities at fair value and determines the fair value by estimating the fair value of future cash flows associated with the assets and liabilities.

The fair value of these reverse mortgage loans and the related obligations are classified as Level 3 in the valuation hierarchy, and a significant unobservable assumption used in the valuation of the reverse mortgage loans and related obligations is the yield spread component of the discount rates. 

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We have identified the yield spread component of the discount rates used in the valuation of these non-agency reverse mortgage loans and related obligations as a critical audit matter because of (i) the significant judgments made by management in determining the yield spread component of the discount rates and (ii) the high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the appropriateness of the yield spread component of the discount rates, including specialized skill and knowledge needed.

The primary procedures we performed to address this critical audit matter included: 

•Utilizing personnel with specialized skill and knowledge in valuation to assist in assessing the reasonableness of the methodology utilized by management to determine the discount rates, including the basis for the yield spread component of the discount rates.

•Assessing the reasonableness of the yield spread component by (i)  evaluating the relevancy and reliability of the source of the benchmark yield spread information, (ii) agreeing the benchmark yield spread information to the third-party report, (iii) testing the completeness and accuracy of the underlying transaction