Better.com leaders on going public: 'We've been through war together'

August 23, 2023 7:00 AM

Better Home & Finance Team Photo.jpg — Better executives, from left: Chief Revenue Officer Anu Gupta; Chief Administrative Officer Nicholas Calamari; Chief Compliance Officer Paula Tuffin; founder and CEO Vishal Garg; Senior Vice President of Growth Engineering Ziggy Jonsson; and President and Chief Financial Officer Kevin Ryan.

Digital lender Better.com will finally become a publicly traded company more than two years after it announced its Wall Street ambitions.

The debut comes nearly two weeks after shareholders at special purpose acquisition company Aurora Acquisition Corp. voted to combine with the mortgage player. The business combination has closed, the companies said, and Better Home & Finance will begin trading Thursday morning on the Nasdaq stock market under the symbols "BETR" and "BETRW".

"We're really excited to be taking the company public at a time that's obviously a really bad time for the mortgage industry," said Vishal Garg, founder and CEO of Better, and director of Better Home & Finance. "But $550 million of additional capital will position us to be a company that can both survive this downturn but also thrive."

The firm's sponsors, affiliates of SoftBank and NaMa Capital, formerly known as Novator Capital, will provide approximately $565 million in combined capital infusions at the time Better goes public. The funds will rejuvenate the firm which has endured both mass layoffs and significant quarterly and annual losses following the end of the refinance boom.

The company ended last year with just 1,300 team members, a fraction of its 10,400 headcount in 2020, and is reeling from an $889 million loss in 2022, according to Securities and Exchange Commission filings. It's also facing two lawsuits, including one accusing it of misleading investors, although the SEC recently declined to recommend any enforcement action.

Garg, who took a leave of absence amid criticism following an infamous Zoom firing in late 2021, said the company has emerged from its previous struggles much stronger.

The business in the past 20 months undertook two internal cultural reviews, bolstered its leadership, crossed a $100 billion origination threshold and today is promoting its One Day Mortgage and technology bona fides. Better also claims it has decreased its quarterly losses 73% year-over-year, and shed approximately $1 billion in costs.

In an interview with National Mortgage News, Garg, Chairman Harit Talwar and Head of Financial Innovation Nneka Ukpai described how they kept the merger intact, how Better will pivot to meet the market and how it plans to disrupt the industry.

This interview has been edited for clarity and length.

How did you keep this merger intact despite industry headwinds?

Ukpai: We are approximately 45 basis points cheaper than the industry average, and on a $400,000 mortgage, that means a savings of $1,800 a year for a family. That can amount to over $50,000 over the life of a loan. So we are undisputedly cheaper, we are faster. We took the pre-approval process down to milliseconds. We're able to get people pre-approved very quickly but also able to get people a binding commitment letter. They don't have to worry about their financing falling through. We feel like we are underwriting in a way that is so smart that we can guarantee that we can fund the mortgage so we're giving people certainty earlier in the process and easier.

Garg: We went from doing $500 million of loans to doing over $60 billion of loans in the four years between 2017 and 2021. And in 2020 we generated significant profits. There were two things that I think allowed us to keep the merger intact and keep all of our investors on board.

The contraction and the changes that the company went through over the past 18 months were not a result of the company's business model being broken, but were the result of a market where demand phased out. Demand simply dried up, and we were ahead of the curve in downsizing. We were able to bring down our costs by almost $1 billion a year. And that's allowed us to both survive and now be positioned for a period of growth as rates eventually come back down.

How do you reposition your business from a refi market to a purchase market?

Garg: We had to do a very hard pivot. We went from being 90% refi 18 months ago to being 90% purchase today. We realize the most important thing our customers need is certainty and speed. That is why we launched One Day Mortgage eight months ago and why we continue to grow that product. Consumers are delighted with it. They're able to go into a purchase contract and then have a commitment letter that same day. That is really unique in the industry. And it's a product that we have not marketed very aggressively. It's become an increasingly important part of our business and we look forward to sharing more metrics about One Day Mortgage.

The company in SEC filings has acknowledged negative headlines and layoffs have impacted both customer and employee morale. Do you think Better has rehabilitated its image?

Talwar: We are very proud of our culture, and I think our culture is better today than it ever was. Our culture is defined by our obsession with the customer. [Our] ratings and rankings in the J.D. Power survey are better than ever. We have a very committed workforce. Yes, we've had to make hard decisions about rightsizing. But that's what everybody has to do.

Garg: We have been through war together now. With the team that we have, we've been through a lot. And our customers have kept on coming. One of the things I thought about when I took my break and then I came back was ultimately, the job wasn't done yet. We have yet to make mortgages fully automated. We have yet to make mortgages fully instant. We're just at the very, very early beginnings of it. Ultimately, we've continued to do what we say we do best, which is make mortgages cheaper, faster and easier for our customers. And so I would say our customer ethos is stronger than ever before. Our customer value proposition is stronger than it's ever been before.

What are Better’s plans for its products moving forward?

Garg: Our goal is to boost the visibility of One Day Mortgage and also make it applicable across the board. Right now, One Day Mortgage is focused on conventional mortgages, Fannie Mae, Freddie Mac. We're working to expand One Day Mortgage to jumbo, to [Federal Housing Administration] and to [Veterans Affairs]. Within One Day Mortgage itself, we're working to make it faster within the one-day process and to actually automate more and more of the appraisal and title process and the closing process so that we can actually drive to a fully zero human-touch mortgage product.

What will Better do with Tinman, its loan origination system?

Garg: Tinman is the core engine behind making everything at Better work. And it's unique in the industry to take a consumer from click to close. It's the first new LOS that's been created in the industry since Ellie Mae created Encompass and Black Knight has Empower. We look forward to growing its presence in the industry by powering not only Better's mortgage operations, but the mortgage operations of many other banks and financial institutions.

Ukpai: Having a fully rules-based decision engine is really good for everyone because it leads to more equitable lending decisions. Having all of the underwriting guidelines across the board codified into a decision engine that matches the borrower with the best possible product is good for everyone.

Talwar: We do believe that we have this opportunity and, in fact, responsibility to make our superior technology platform available to disrupt a legacy industry, and therefore we are in very advanced conversations with partners. Already some banks, for example, Ally Bank, use our platform. We think that is an area of growth and opportunity to disrupt a legacy industry with our technology platform.

What are Better’s plans for its other divisions, like Better Real Estate?

Garg: We continue to expand those parts of our business. And we continue to automate more and more parts of the process there to make the algorithms that run those businesses — whether it's recommending the homeowners insurance policy for you, or recommending the right Realtor for you.

Ukpai: With our real estate business, even though we pivoted to a partner model, the real estate folks that we had in-house, about 90% of them signed up for our partner model. We're looking forward to partnering with Realtors and giving their borrowers a benefit for coming and working with Better.

How do you think the housing market will evolve? And how will you generate demand if rates continue to stay high?

Garg: We don't know when rates will drop. But the one thing is, a One Day Mortgage means a one day refi. And that's something that no one else offers in the market today. And we think that will enable us to capture even more of market share than we did last time around when the mortgage boom took place.

Talwar: Our goal is to build a business and a company which does extremely well across cycles. In addition to mortgages, we've started in a small way, and have been very encouraged with the results of [home equity lines of credit], because in the current high interest rate environment, a HELOC rate, although higher than in the past, is still a much cheaper alternative to other forms of lending available to the customer. People shy away from it because of it being a cumbersome process. But we made that process very simple.

Why should mortgage professionals join Better?

Garg: We are actively hiring loan officers, processors, coordinators and underwriters, and we're seeing amazing demand for those positions. I think the reason we see that demand is that our software Tinman makes loan officers about five times more productive than traditional software platforms like Encompass. And that is a real selling point to loan officers that want to spend their time servicing customers rather than spend their time doing administrative tasks.