Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2025

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements comprise the financial statements of FOA and its controlled subsidiaries. The condensed 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. SEC. The accompanying condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of its financial condition as of September 30, 2025, its results of operations for the three and nine months ended September 30, 2025 and 2024, and its cash flows for the nine months ended September 30, 2025 and 2024. The Condensed Consolidated Statement of Financial Condition at December 31, 2024 was derived from audited financial statements but does not contain all of the footnote disclosures from the annual financial statements. Operating results for the interim periods are not necessarily indicative of the results that may be expected for any future period or for the full year. The condensed consolidated financial statements, including the significant accounting policies, should be read in conjunction with the consolidated financial statements and notes as of and for the year ended December 31, 2024 within the Company’s Annual Report on Form 10-K, as amended by the Company’s Annual Report on Form 10-K/A (“Form 10-K”). The significant accounting policies, together with the other Notes to Condensed Consolidated Financial Statements, are an integral part of the condensed consolidated financial statements. The significant accounting policies in the Form 10-K have been updated below for certain reverse mortgage loans that are held for sale and our notes payable.

Beginning with the Company’s first quarter 2025 Form 10-Q, Gain on sale and other income from loans held for sale, net, was combined with Fee income in the Condensed Consolidated Statements of Operations due to minimal activity related to the wind-down of business lines that were not part of our unified modern retirement solutions platform.

Loans Held for Sale, at Fair Value

As of June 30, 2025, certain reverse mortgage loans that were previously classified as loans held for investment, at fair value, were transferred to loans held for sale, at fair value, due to the Company’s decision to sell the loans. Loans held for sale, at fair value, is included in Other assets, net, in the Condensed Consolidated Statements of Financial Condition and primarily represents reverse mortgage loans originated and held by the Company until sold to the secondary market. The difference between the cost basis of loans and their expected margin on sale is recognized at time of origination in Net origination gains in the Condensed Consolidated Statements of Operations.

Fair value changes after loan origination, but before loan sale, are recorded in Fair value changes from market inputs or model assumptions in the Condensed Consolidated Statements of Operations.

Loans held for sale, at fair value, also include residential mortgage loans originated and held by the Company until sold to the secondary market. Residential mortgage loans had a fair value of $0.9 million and $3.5 million as of September 30, 2025 and December 31, 2024, respectively, and an unpaid principal balance (“UPB”) of $1.2 million and $4.3 million as of September 30, 2025 and December 31, 2024, respectively. As of September 30, 2025 and December 31, 2024, there were $0.7 million and $1.6 million, respectively, in UPB of residential mortgage loans that were 90 days or more past due and on non-accrual status.

Notes Payable

Notes payable, with the exception of the Convertible Notes (as defined in Note 10 - Notes Payable), are recorded at amortized cost. The interest recognized on notes payable is based on the stated interest rates of the debt and is recorded in Non-funding interest expense, net, in the Condensed Consolidated Statements of Operations.

For notes payable recorded at amortized cost, the issuance costs and discounts are initially capitalized as part of the notes payable balance and are amortized over the expected life of the note using the effective interest method. These expenses are recorded in Non-funding interest expense, net, in the Condensed Consolidated Statements of Operations.

The Company has elected the fair value option for the Convertible Notes. Refer to Note 5 - Fair Value for additional information. Issuance costs related to notes payable recorded at fair value are expensed as incurred and recorded in General and administrative expenses in the Condensed Consolidated Statements of Operations. The changes in fair value of the Convertible Notes are recorded in Other, net, in the Condensed Consolidated Statements of Operations.

Refer to Note 10 - Notes Payable for additional information.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates regarding loans held for investment, HMBS related obligations, and nonrecourse debt are particularly subject to change. Actual results may differ from those estimates and assumptions due to factors such as changes in the economy, interest rates, secondary market pricing, prepayment assumptions, home prices, or discrete events affecting specific borrowers, and such differences could be material.

Recently Adopted Accounting Guidance

Standard

Description

Effective Date

Effect on Consolidated Financial Statements

Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09 that enhances annual income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation, and by requiring disclosure of the amount of income taxes paid disaggregated by federal, state, and foreign taxes, as well as disaggregated by material individual jurisdictions.

January 1, 2025

This ASU will result in additional income tax disclosures in our Form 10-K, but the Company does not expect it will have a material impact on our consolidated financial statements.

Recently Issued Accounting Guidance, Not Yet Adopted as of September 30, 2025

Standard

Description

Date of Planned Adoption

Effect on Consolidated Financial Statements

ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03 which is intended to improve disclosures by providing more detailed information about the types of expenses in commonly presented expense captions in the income statement.

For the year ending December 31, 2027 and interim periods beginning in 2028.

This ASU will result in additional expense disclosures, but the Company does not expect it will have a material impact on our consolidated financial statements.

Adoption of this ASU should be applied on a prospective basis, but retrospective application is permitted.

ASU 2024-04, Debt - Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments

In November 2024, the FASB issued ASU 2024-04 which is intended to clarify the requirements for determining whether to account for certain early settlements of convertible debt instruments as induced conversions or extinguishments.

For the year ending December 31, 2026 and interim reporting periods beginning in 2026.

The Company does not expect this ASU will have a material impact on our consolidated financial statements.

Adoption of this ASU can be applied on a prospective or a retrospective basis.

ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets

In July 2025, the FASB issued ASU 2025-05 which is intended to provide a practical expedient to measure credit losses on accounts receivable and contract assets.

For the year ending December 31, 2026 and interim reporting periods beginning in 2026.

The Company does not expect this ASU will have a material impact on our consolidated financial statements.

Adoption of this ASU should be applied on a prospective basis.

ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software

In September 2025, the FASB issued ASU 2025-06 which amends guidance related to accounting for the development costs of internal-use software.

The Company plans to early adopt on January 1, 2026, using a prospective transition approach.

The Company does not expect this ASU will have a material impact on our consolidated financial statements.

Finance of America Companies Inc. 10-Q