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Looking at last year’s numbers, digital mortgage lender Better looks like just a shell of its former self, when the company’s sleek process fueled exponential growth during the pandemic as homeowners flocked to refinance.
In reporting 2023 earnings Thursday, Better revealed it funded just $3 billion in mortgages last year, or about 5 percent of the $58 billion in loans it originated in 2021 at the height of the refinancing boom.
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But on a call with investment analysts, Better CEO Vishal Garg sounded optimistic about the future, saying the company has made fundamental changes to its business model that will help it pivot to providing purchase loans to homebuyers.
Those changes include hiring more experienced loan officers, signing more B2B partnerships like a recently launched initiative with Bed Bath & Beyond parent company Beyond.com, and onboarding real estate agents who represent buyers and training them to also make mortgage loans (a nascent program called “Better Duo”).
Better trims 2023 loss by 39%
Source: Better Home & Finance Holding Company earnings reports.
While Better racked up a $534 million loss for the year, most of the damage was done in Q3, when Better ended up $340 million in the red. After laying off thousands of workers and slashing $1.1 billion in annual expenses since 2021, Better’s 2023 net loss represented a 39 percent drop from a year ago, while the $59 million Q4 net loss was down 83 percent from Q3.
Vishal Garg
“Over the past two years, we have been intensely focused on significantly reducing expenses and maximizing corporate efficiency during a highly challenging macro environment,” Garg said on a call with investment analysts. “Signs that the mortgage market is beginning to turn mean it’s time for us to thoughtfully lean into growth to make sure we are ready when consumer demand returns, and that we capture increased market share across purchase, refi and HELOCs.”
Despite continuing to rack up losses, Better has some room to maneuver, having ended the year $554 million of cash, restricted cash, and short-term investments after going public in August by completing a merger with a special purpose acquisition company (SPAC).
Mortgage volume shrinks in pivot to homebuyers
Source: Better Home & Finance Holding Company earnings reports.
While Better expects to do more business in 2024 while keeping expenses in line with 2023, the company won’t be ramping up purchase mortgage originations as rapidly as it scaled up refinancings during the pandemic.
As mortgage rates plummeted to historic lows, Better’s mortgage originations grew almost fivefold, to $24.2 billion, and then more than doubled in 2021, to $58 billion.
That growth unwound even more quickly as mortgage rates rebounded, falling to $11.4 billion in 2022 and $3 billion last year.
Having funded just 1,633 mortgages in the final three months of 2023 totaling $527 million, Better says it expects Q1-funded loan volume of between $600 million and $650 million.
Pivot to homebuyers
Refinancing accounted for just 7 percent of Better’s funded loan volume last year, with homebuyers taking out purchase mortgages accounting for 91 percent of the company’s business and home equity lines of credit (HELOCs) the rest.
Better sees hiring experienced loan officers on commission-based compensation plans — a “significant deviation” from the company’s original model — as crucial to doing more business with homebuyers.
“We are pleased to see early conversion improvements from this operating model pivot and the seasoned sales talent we are hiring, as well as greater alignment between our production volume and costs,” the company said in its earnings announcement.
While the vast majority of Better’s refinance business was “D2C” — direct to consumer — it’s become more reliant on its “B2B,” or business-to-business partnerships.
Better, which has had a strategic partnership with Ally Bank since 2019, in November announced a collaboration with Infosys to launch a white-labeled “mortgage-as-a-service” platform for lenders.
During the first quarter, Better launched a partnership with Beyond.com, which owns brands including Overstock, Bed Bath & Beyond, Baby & Beyond and Zulily.
Beyond.com customers can now shop for a mortgage with Better, earning those who take out a loan a free year of membership in the company’s Welcome Rewards program and up to $500 in Welcome Rewards points to spend at Bed Bath & Beyond.
Garg said Better is also focused on growing its real estate agent relationships, “as they are key to the consumer experience.”
Better is partnering with local agents and other local service providers involved in the home purchase process and bringing them into the better ecosystem.
Better hiring real estate agents to originate loans
Better Duo is currently available in 26 states and Washington, D.C. Source: Better Mortgage.
One way it’s doing that is through a pilot program called Better Duo. In states where it’s allowed, Better is hiring real estate agents who work with buyers as W-2 employees, and helping them obtain a dual license allowing them to originate mortgages.
While the program is just getting off the ground, Garg said Better Duo currently has 48 producing real estate agents and mortgage loan originators, up from 12 in Q4 2023.
“The fact that we have Realtors who are signing up to become loan officers on our platform shows you how advanced our platform has become in terms of purchase mortgages,” Garg said. “We built it from scratch from the ground up, we just didn’t reconfigure the refi product to do purchase. We’ve built a product that Realtor are adopting and saying, ‘Yeah, I want to be a loan officer on this platform.'”
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