The digital homeownership platform and self-styled disruptor to the mortgage industry will be using the RefiNow program offered by Fannie Mae to give lower-income and low-FICO borrowers a chance to refinance their loans when the government-sponsored agency launches the program on June 5. The RefiNow program is estimated to open eligibility to 2 million U.S. borrowers and could save each of them up to $3,000 annually.
Better’s end goal is the current white whale of lending: building a one-stop-shop that covers every aspect of home buying. Founder and CEO Vishal Garg compared it to grocery shopping and how each type of food has its own aisle in the market. He wants to modernize the mortgage process in the same way that supermarkets brought all the purveyors under one roof.
“We tell investors that ultimately there's a big difference between us and a traditional mortgage company,” Garg said. “All our technologies are developed in house, we control the platform. What you're buying is something that is going to really Uber-ize the home journey.”
Below is a discussion with Garg about the state of the mortgage industry, generating value for shareholders and his response to allegations of creating a hostile work environment. His answers are excerpted and edited for length and clarity.
How much do you expect the RefiNow program will boost the overall dwindling refinance activity? How much volume are you expecting it to bring in for Better?
I don't expect it to be able to actually boost a lot of refi activity because I think most other lenders are ignoring it. There's no systematic way for them to identify these customers and then market to these customers. If you think about the major online comparison sites, none of them really allow any filtering by debt-to-income ratio or credit denial reasons and delinquency.
It's our estimate that the average loan balance for these is going to be about $135,000, which, for a traditional mortgage originator working in a commissioned environment, is not a loan that they would want to do.
We think that our digital-first model will enable us to finance billions of dollars of loans to this customer base, primarily because for us, it doesn't make a difference whether it's a $135,000 loan or a $500,000 loan. We don't have any commissions and our manufacturing costs of making these loans is quite low, probably about 60% lower than the industry average.
Better experienced massive growth in the past few years in employees, lending volume, investments and valuations. What are the biggest challenges in managing rapid growth?
I think the biggest challenge is preserving culture, making sure when you grow from 70 people to 7,000 people that you maintain that customer-first culture.
We still drive every day as hard as we did two, three, four, five years ago. And I think that's tough. We have a really great core team and a really great group of people that we hired through pandemic and brought into this industry. And I think they're all believers. Amid all this rapid growth, we don't forget the people that brought us there: the customers.
I would say the biggest thing going forward is to make sure that people are coming to Better for the right reasons — to make home buying better for all Americans. People who are givers, not takers. People who want to be in a fast growth company, people who are goal-oriented and achievement-oriented. Not role-oriented or title-oriented.
You said the new capital inflow from your upcoming IPO is to help with company expansion. How do you plan to deliver steady growth to your shareholders with mortgage volumes declining?
We're expanding the full suite of products that we deliver to our customers to make their lives easier. Home inspection, appraisal, title, homeowners insurance, life insurance, disability insurance. Each and every one of those verticals push to make the process as seamless as possible for the consumer. It's a combination of people, product, technology all coming together. It’s the whole stack all in one place.
Every American consumer wants one place to go for their home, rather than the 15 places they go today. I think there's a race to try to make that happen. That's what's made Walmart a great company. That's what's made Costco a great company. That's what made Amazon a great company. Customer-first, low-cost providers.
We're not going to deliver steady growth, we're gonna deliver explosive growth. We’re slightly less than a 1% market share today. There's a long way to go between 1% and then 10%, 20% and 40%. Ultimately, it's our understanding that about only 18% of Americans shop around to get the best rate when they pick who they want to finance their home. So that tells us we should easily be able to grow to 18% market share, because everyone searching for a better rate should come to Better. Beyond that, we have to engage in financial education so that all Americans take advantage of a better rate. And then hopefully, that can help us double or triple our market share.
I'm not better all the time. I'm learning how to get better every day. I push really hard. That article highlighted that we had teammates that weren't delivering to the standards I hold myself to with respect to customers. I still respond to customer queries. If you've ever created an account and you email me as a customer, I'll email you back. And so if I hold myself to those standards, I hold everyone else to those standards too.
It's not easy. But growing 100x in the past three years isn't for the faint of heart or the faint of will. If you don't want to hold yourself accountable to a customer's needs, then you should probably go and work somewhere else... I think the number one thing that the article said was they didn't think that we would be able to grow or keep going. And I think numbers speak louder than words.
What are you most confident about with the lending market in the next year?
The only thing I’m confident about is volatility. Right now, we've seen rates go up because of the vaccine and the resurgence of economic activity. How long is that going to last? People are talking about the Federal Reserve tapering its bond buying. What does that mean for the secondary spread that dictates mortgage lenders’ profits?
There's very little housing inventory. We've heard 60% of millennial homebuyers prefer to buy a new house, but the home builders aren't building new houses. So the millennials have to be open to buying old houses and then the people that own those old houses need to be able to sell and go somewhere else that's affordable. We're starting this decade off with a lot of volatility and questions.
In a congressional hearing, top officials from the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said no new rules will be adopted or proposed this year.
The Federal Housing Administration wants to make it easier for mortgage applicants to use rental income received from boarders in the underwriting process.
