Nearly half of Better’s mortgage business now comes from partners


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Technology-based mortgage lender Better has seen its market share shrink by more than 70 percent in the last year as it focuses on making more profitable loans, and now depends on B2B partnerships with companies like Ally Bank and American Express for nearly half of its business.

That’s according to parent company Better Home & Finance Holding Company’s first earnings release as a public company, which was among a slew of disclosures filed with the Securities and Exchange Commission Monday.

Better, which went public last week after completing a merger with a special purpose acquisition company (SPAC), reported a net loss of $135.4 million during the first six months of 2023, compared to a net loss of $399.3 million during the first half of 2022.

Better also disclosed that on July 24, it agreed to pledge $5 million in cash as collateral to Fannie Mae, after failing to meet the mortgage giant’s Fannie Mae’s financial requirements “due to the company’s decline in profitability and material decline in net worth.” Better said it remains in compliance with minimum net worth, minimum capital ratio and minimum liquidity requirements set by Fannie Mae, Freddie Mac and the Department of Housing and Urban Development.

Shares in Better, which lost more than 90 percent of their value when the company made its Nasdaq debut Thursday, fell 14 percent after Monday’s earnings release.

Launched in 2016, Better was profitable in 2020, generating $172 million in profits as homeowners rushed to refinance their mortgages at historic low rates. But when rates climbed and the refi boom went bust, the New York-based lender started racking up losses, which now total $1.3 billion through June 30.

Better refi volume down 97% from a year ago

Better H1 2023 originations by type

Source: Better Home & Finance earnings report.

During the first half of this year, refinancing volume for the mortgage industry as a whole was down 77 percent, to $133 billion, according to a recent estimate by Fannie Mae. Better’s refi volume dropped by 97 percent over the same period, from $4.94 billion during the first half of 2022 to $131 million.

As interest rates have risen, Better has been competing with other lenders to provide mortgages to a shrinking pool of homebuyers, and Better’s purchase loan volume has also fallen off more drastically than the industry as a whole.

While Fannie Mae estimates that industry purchase loan originations were down 29 percent during the first half of 2023, to $628 billion, Better saw purchase loan originations decline by 66 percent during the same period, to $1.61 billion.

All told, Better estimates that its market share has declined by 71 percent in the past year, to 0.2 percent of the market.

“The mortgage market remains competitive among lenders, given the interest rate environment and we continue to focus on originating the most profitable business available to us,” Better disclosed to investors. “As a result, we have pulled back on our most unprofitable channels, resulting in further declines to market share.”

While Better is making fewer loans, its focus on making more profitable loans helped boost gain-on-sale margin — the premium Better earns when it sells loans in the secondary market — from 0.99 percent during the first half of 2022 to 2.34 percent in H1 2023.

Better’s B2B channel accounts for 43% of originations

Better H1 2023 originations by channel

Source: Better Home & Finance earnings report.

Better has made a name for itself as a direct lender, providing an easy online application process and offering competitive rates. But in search of more profitable loans, Better has become more reliant on its “B2B” (business-to-business) channel.

While originations through the direct and B2B channels have both shrunk, the $748 million originated through the B2B channel during the first half of 2023 accounted for 43 percent of Better’s total loan originations, up from 37 percent during the same time a year ago.

Better’s B2B channel includes an “integrated relationship” with Ally Bank, with Better’s technology platform and team members powering Ally’s mortgage lending from end-to-end.

Better also has advertising relationships with partners like American Express, which bring borrowers to Better by offering incentives and discounts to consumers. American Express card members are offered a $2,000 statement credit if they take out a conforming mortgage with Better, or $6,000 if they take out a jumbo loan exceeding the $726,200 conforming loan limit in much of the country.

Ally announced a strategic partnership with Better in 2019 in which Better sells, processes, underwrites and closes Ally’s digital mortgage offerings, while Ally retains control of marketing, advertising and loan pricing.

The partnership — which also included an investment in Better by Ally’s strategic investment arm, Ally Ventures — was initially piloted in nine states, with Better authorized to operate under the URL allyhomeloans.com.

According to Ally Financial’s most recent quarterly report to investors, Ally originated $464 million in mortgages in the first six months of 2023 through its “powered by Better” direct-to-consumer channel, or 62 percent of Better’s B2B originations.

“Although we aim to expand our B2B channel, as of June 30, 2023, our relationships are primarily comprised of our integrated relationship with Ally Bank (which is our only current integrated relationship) and our B2B customer acquisition channel advertising relationships, including our advertising relationship with American Express,” Better disclosed to investors.

While Better slashed marketing and advertising expenses by 76 percent during the first half of the year, to $12 million, spending on technology and product development was down more modestly, dropping 35 percent to $45.9 million. Better employed 120 people in technology and development roles as of June 30, down from 195 at the same time a year ago.

Before closing its SPAC merger deal last week, Better co-founder and CEO Vishal Garg told Inman the company would use some of the more than $500 million in merger proceeds to hire mortgage loan officers, coordinators, processors and underwriters and “aggressively” partner with real estate agents to grow its business.

Having shuttered the company’s real estate brokerage arm in June, Garg said Better is seeking to partner with Realtors by pairing borrowers who come to Better to get preapproved for mortgages with agents in their local markets.

“We are focused on improving our platform and plan to continue making investments to build our business and prepare for future growth,” Better said in its earnings report. “We plan to continue to invest in technology to improve customer experience and further drive down labor costs through automation, making our platform more efficient and scalable.”

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