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Digital mortgage lender Better says it’s in growth mode again, hiring industry veteran Chad Smith to supervise operations at its mortgage unit and shifting to a commission-based compensation structure that’s allowed it to hire more experienced loan officers.
In reporting a $51 million first quarter net loss Monday, Better said Q1 mortgage volume was up 25 percent from Q4 2023, to $661 million.
The New York-based lender said it’s on track to originate $800 million in loans in Q2 as it ramps up spending on marketing and advertising while continuing to cut costs in other areas.
This year’s loan production will inevitably fall well short of the $58 billion in loans Better originated in 2021 at the height of the refinancing boom, and might not even equal 2023 loan volume of $3 billion.
But Better founder and CEO Vishal Garg says the company is now learning to find its way in a world where higher rates mean mortgage lenders do the vast majority of their business with homebuyers.
“We’ve adopted a new operating model and compensation structure for our sales teams, with lower basis and higher commissions to better align costs with volumes and drive conversion outcomes — and also enable us to recruit seasoned loan officers and empower them via our tech platform in a way we were never able to do before,” Garg said Tuesday on a call with investment analysts.
Better’s future, Garg said, “lies in Uberizing the loan officer, giving them leads generated by our proprietary tech platform and customer interface, and having them be more productive.”
Better Q1 2024 loan production, by type
Source: Better Home & Finance Holding Company Q1 2024 earnings release.
Better boosted its refinancing volume by 232 percent quarter-over-quarter, to $79 million, and home equity line of credit (HELOC) lending also grew by 54 percent, to $53 million. While purchase lending grew by a more modest 12 percent, to $529 million, homebuyers accounted for 80 percent of Better’s loan originations.
The shift to hiring more experienced loan officers means Better’s loan officers are closing “significantly more loans per month” than other consumer direct lenders, Garg said.
Last year Better loan officers were able to close 17.7 purchase loans per month, compared to “mid single digits” for competing direct lenders, Garg claimed, citing a third-party benchmarking study Better participated in.
“One of the things that these experienced loan officers know how to do — that I would admit that our unexperienced loan officers that we hired primarily for our refinance business in the first 8 years of the company, didn’t know how to do — is talk to the Realtor and inject confidence into the product,” Garg said.
Better is currently advertising openings in sales, mortgage operations, finance, legal and compliance, human resources and data and analytics. Some positions can be filled remotely, while others are based at on-site locations including New York, Las Vegas and Irvine, California. A number of positions are based out or supervised by employees in Better’s offices in Gurugram, India.
“Better is growing again!” Garg posted in April on LinkedIn. “As we are scaling our loan officer teams, we are also looking to recruit sales managers.”
Last week Better hired Smith, who most recently was CEO of Irvine, Calif.-based Mission Loans, to oversee much of that growth.
Chad Smith
Smith, 49, who had previously held executive positions at Discover Home Loans, loanDepot and Caliber Home Loans, was appointed as president and chief operating officer of Better Mortgage Corp. by Better’s board of directors on May 8.
He’ll earn up to $2 million a year in base salary and bonuses, and is eligible to receive up to 8 million in restricted and performance-based shares in Better over a three-year period, the company disclosed Friday.
“With Chad’s valuable experience and deep expertise, I feel confident he will help drive our growth and contribute meaningfully to the success of better,” Garg said on Tuesday’s earnings call. “Chad will be responsible for helping us set our long term strategy and scale our marketing sales and operations teams as well as drive performance and accountability for delivering results that align with our strategic vision.”
While Better is investing in growing its direct-to-consumer business, business-to-business (B2B) business generated close to half (46 percent) of Q1 loan volume.
Better has had a strategic partnership with Ally Bank since 2019, and last fall announced it had teamed with Infosys to launch a “mortgage-as-a-service” platform for lenders.
In another B2B development, in Q1 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.
Kevin Ryan
Better Chief Financial Officer Kevin Ryan said that Better’s “primary targets” on B2B are banks, but “a lot of banks have pulled back in mortgage — it’s been tough to make money for them.”
But home loans are “a core offering for their consumers and anybody who is in consumer banking wants to offer mortgage, and so our dialogues are very strong.”
Ryan said Better has a partnership with Mphasis, a provider of business process services to “hundreds of banks across the United States” which has facilitated introductions.
“The only thing to say about B2B is we love the channel,” Ryan said. Some banks are locked into long-term contracts with tech providers, so signing new partners takes time.
But “We’re going to grow the channel,” Ryan promised. “It’s a big focus of ours.”
Better revenue, expenses and earnings
Source: Better Home & Finance Company Q1 2024 earnings and 2023 annual report.
Better execs are bullish on the prospects for growing the company’s mortgage business, but many investors remain focused on the company’s bottom line.
While Q1 revenue was up 26 percent quarter over quarter, to $22 million, that wasn’t enough to cover $73.6 million in Q1 expenses, down 30 percent from a year ago but up 6 percent from Q4. Spending on marketing and advertising was up 27 percent from Q4, to $4.6 million.
At just over $51 million, Better’s Q1 net loss was down 41 percent from a year ago, but only a slight improvement from Q4
Better had previously announced it would release first quarter earnings before the market opened Tuesday, but ended up releasing them the night before, after markets closed Monday.
Shares in Better, which in the last year have traded for as much as $62.91 on July 28 and as little as 34 cents on Oct. 13, were down 10 percent Tuesday, briefly touching a new 2024 low of 37 cents before rebounding to 42 cents at the close.
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