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Better co-founder and CEO Vishal Garg returned to the public eye Wednesday, taking the stage at Inman Connect New York to announce a plan to save his company and revolutionize homebuying: the “One Day Mortgage.”
With a deadline for taking his company public looming, Garg pitched a roomful of real estate industry movers and shakers Wednesday on the implications of Better’s new one-day mortgage process. The audience of agents and industry leaders at the Hilton Midtown in Manhattan was perhaps the biggest Garg has faced since the infamous 2021 Zoom call that kicked off a series of layoffs that ultimately cost more than 10,000 Better employees their jobs.
One Day Mortgage is not a mortgage prequalification or preapproval, Garg said. It’s a full-blown automated approval process for Fannie Mae- and Freddie Mac-eligible loans, and Garg thinks Better can process about two-thirds of purchase loan applications in as little as 12 hours.
If that turns out to be the case — Better says it’s been achieving those kind of results since test-launching One Day Mortgage during the second week of January — real estate agents and their clients may be very interested.
“With a one-day mortgage, you could have a three-day closing,” Garg told Inman before taking the stage at Connect. “With a One Day Mortgage, you have no disadvantage versus a cash buyer. With a One Day Mortgage, everyone becomes a cash buyer.”
Moderator Clelia Peters, managing partner at Era Ventures, kicked off her one-on-one discussion with Garg by acknowledging “that it’s been kind of a tough couple of years in some ways, for Better and for you as the CEO of Better as well.”
Better’s roller coaster ride and mass layoffs, as well as reports that Garg sometimes treated his employees with a lack of respect, led some critics to question whether he should be running the company, Peters noted.
Garg was contrite, saying “so much of that criticism was well founded.”
But the audience at Connect applauded One Day Mortgage, with Peters declaring that “this is an important announcement for the industry writ large.”
Looking for partners
Drastic cost-cutting measures implemented by Better last year whittled the company’s workforce down to 1,300 people. During the pandemic-fueled refinancing boom, Better’s payroll peaked at 11,500 workers, of whom close to 90 percent are gone. According to the Nationwide Multistate Licensing System, Better subsidiary Better Mortgage sponsors 136 mortgage loan originators, down from 1,444 last March.
Garg told Inman that he’ll need help from real estate agents if he’s to grow his company again — this time, by originating purchase mortgages instead of refinancing existing loans.
“The strategy for marketing this to consumers is to create so much utility that the product sells itself,” Garg said. “The reason I’m launching this at Inman is we need partners. We want Realtors who want to close, not three days faster, but 30 days faster. And we will empower them to be able to offer this to their customers.”
Better is now making its One Day Mortgages available in all 50 states to homebuyers who are salaried employees making down payments of at least 3 percent on home purchases, and who can qualify for a conforming mortgage with Fannie Mae or Freddie Mac. So self-employed gig workers and borrowers seeking jumbo loans aren’t eligible.
(In the fine print on its website, “One Day Mortgage Terms & Conditions,” Better warns that borrowers who are eligible for the One Day Mortgage aren’t guaranteed to receive a “conditional underwriting determination” within 24 hours of locking a rate. Better Mortgage “does not guarantee that a conditional approval in connection with a conditional underwriting determination will result in the final underwriting approval” and says “customers will be required to provide additional information and documentation after receiving a conditional underwriting determination” in order for Better Mortgage to make a final underwriting determination.)
Garg said Better is “very hungry for partnerships” not only with individual agents and real estate brokerages (who can email agents@better.com), but homebuilders and other lenders.
Under a 2021 pilot program in nine states, Ally Home originated $10.4 billion in mortgages through its “powered by Better” direct-to-consumer channel. The partnership — which also included an investment in Better by Ally’s strategic investment arm, Ally Ventures — has since been expanded nationwide.
Garg said Better has a “very strong relationship” with Ally, which won high marks for customer satisfaction in last year’s J.D. Power mortgage originator rankings.
“We are in the early innings of our relationship with them,” Garg said of Ally. That said, “We would be happy to do One Day Mortgages on behalf of other lenders.”
SPAC merger hopes still alive
Better originated $58 billion in loans in 2021, when low rates incentivized millions of homeowners to refinance, and the company’s streamlined process helped offer competitive rates land a healthy slice of that business.
Vishal Garg
The idea that Better may now be on the cusp of a comeback in purchase lending could help convince investors to stick with the company’s plans to go public through a merger with a special purpose acquisition company (SPAC), Aurora Acquisition Corp.
Aurora was initially required to finalize its merger with Better Holdco — the parent company of Better Mortgage Corp., Better Real Estate LLC, Better Settlement Services LLC, and Better Cover LLC — by the end of 2021.
But the terms of the deal were revised the day before Garg fired approximately 900 Better employees over a Dec. 1, 2021 Zoom call. After the call went viral, Garg and Better’s board announced he’d be taking a leave of absence.
The deadline for closing the SPAC merger deal has been pushed back several times, most recently to March 8, 2023. On Jan. 19, Aurora informed investors that it would be seeking their approval to push the merger deadline back again, to Sept. 30.
“It is hard to overestimate the importance of One Day Mortgage to Better, its customers, and the real estate ecosystem as a whole,” said Novator Capital partner Prabhu Narsimhan, in a statement. Narsimhan is a Better shareholder who’s slated to join the company’s board.
Garg said he can’t comment on whether One Day Mortgage will help Better’s prospects of going public.
“I can comment that I think it will be Earth shattering, really big and impactful for consumers everywhere who are seeking to buy a home,” he said. “And if we take care of the consumer, everything else will take care of itself.”
If Better is not able to raise additional funding by closing the merger with Aurora and going public, Garg says that won’t neccessarily be the end of the company.
“We’re extremely well capitalized,” he said. “We’ve retained a large chunk of the $750 million that we got from Softbank in November of 2021. And we believe that the company should go public because the company is turning the corner and coming back really, really strong.”
If it’s a success, Better’s One Day Mortgage could also prove to be something of a personal vindication for Garg, who was often pilloried for what some perceived to be a callous attitude toward employees as the company shed thousands of workers.
When Garg took a leave of absence at the end of 2021, CFO Kevin Ryan took over as interim CEO, and the company’s board of directors hired an independent outside firm to do a leadership and cultural assessment.
“The recommendations of this assessment will be taken into account to build a long-term sustainable and positive culture at Better,” the board informed employees at the time. “We have much work to do and we hope that everyone can refocus on our customers and support each other to continue to build a great company and a company we can be proud of.”
Although more layoffs ensued last year as losses piled up — and stock market regulators launched an investigation into potential violations of federal securities laws — Garg was quickly reinstated as CEO, and has said he has no plans to leave the company he founded in 2014 to launch Better Mortgage in 2016.
The Henry Ford (or Elon Musk) of mortgages
In a conversation with Inman this week, Garg compared himself to Henry Ford and Elon Musk, recounting how after resuming his CEO duties, he went behind the scenes at Better’s mortgage “factory” and figured out how to reconfigure the assembly line to crank out mortgages at an unheard of pace.
“We know all the things that happened in 2022 with Better,” Garg said. “About six months ago, I went back into the factory and said, ‘You know, I’m going to be able to fix this. I’m going to be able to make a lot of things work, but how are we going to deliver the value to the consumers that they actually expect?'”
Garg said that he noticed that “a small percentage of our customers were able to get through our process and get a full commitment letter from us in 24 hours. I said, How is that happening? How are we doing that? If we can do it for those customers, why can’t we do it for many, many, many more customers?”
As it turned out, customer preferences were an important factor. Those who were getting through the process quickly tended to choose “the more digital means of identity verification, income verification, employment verification, tax return verification,” Garg said. “We had teed up all of these things, but it was like we were telling people to assemble their own Tesla, right?”
So Garg said he started “reconfiguring the assembly line, changing the data inputs, and introducing some machine learning into the underwriting process and a significantly better version of digital queuing into the process, leveraging our 24-7 resources that we run as a company.”
Better, he said, has “reimagined the assembly line, almost like what Henry Ford did and then what Elon did with Tesla for the Model 3 … so that we can deliver a binding commitment letter to 65 percent of American consumers within 24 hours. And that changes the game.”
Better’s insights into investor requirements
Other lenders like Rocket Mortgage and UWM have been investing in the kind of technology Better is using to automate processing of borrower applications. But Garg thinks Better’s got an edge on the other end as well — a marketplace that gives him up-to-date insights on the requirements of investors who fund most mortgage loans.
Last summer, in an announcement that attracted little attention outside the mortgage industry, Better announced it was partnering with data analytics giant Palantir Technologies to launch Tinman Marketplace.
“Tinman Marketplace empowers One Day Mortgage by taking in all of the investor requirements and the investor bids and enabling the underwriting process to seamlessly adapt based on the investor the mortgage is getting delivered to,” Garg said of the marketplace’s role in the process. “And no system of its kind exists in the mortgage industry today. We had to build it completely from scratch.”
Garg thinks it would be “extremely difficult” for a competitor to replicate One Day Mortgage, which requires taking customers through an automated flow and seamlessly figuring out what data elements they can provide and which can be acquired from third parties, and ordering them in the right fashion.
“You create a waterfall of rules that trigger for that consumer so they can get a mortgage in one day,” Garg said. Without all those elements in place, “You can’t make any of this happen.”
Prospects for a comeback
Last year’s rapid runup in interest rates was a crushing blow to many mortgage lenders who scaled up to cash in on the boom in refinancing during the pandemic as Federal Reserve policies brought rates to record lows. Low mortgage rates also helped fuel double digit home price appreciation that priced many would-be homebuyers out of the market.
But with the Fed signaling that it’s nearing the end of its rate hike campaign and a potential recession on the horizon, many economists expect rates to ease this year, and for home price appreciation to slow or reverse in many markets.
“I look at our business prospects and I say they are likely better today than they were last year where the real estate market was heavily disadvantaged,” Garg said. “Rates were rising, and consumers were just saying no, I’m out of the game. At least rates have stabilized. There’s a path to them potentially going lower — gravity works in both ways.”
Garg said Better has already made the pivot to making purchase loans the core of its business, and is ready to scale that business up.
“At the peak in 2021, 90 percent of our business was refinance,” Garg said. “This year, 90 percent of our businesses is purchase. So we have done tens of billions of dollars of purchase mortgages originated on the Internet, closed on time and with great customer satisfaction. This product is particularly relevant for purchase. One Day Mortgage changes the purchase game more than it changes the refinance game.”
If Better does have a second act as an innovator in purchase mortgages, Garg said it has the capacity to scale up quickly.
“As a company we grew during COVID to have a mortgage business that was bigger than Bank of America’s mortgage business on the retail side,” Garg said. “We can scale dramatically to meet the demands of the volume.”
Although Better plans to be “staffing up slowly this year,” Garg said that “this time, we’re not going to scale by hiring 10,000 people. This time we’re going to scale from technology. and that’s what we believe is going to be amazing.”
Editor’s note: This story was updated to include details from Better’s “One Day Mortgage Terms & Conditions,” and to note that while Better was founded in 2014, Better Mortgage launched in 2016.
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