Ally Financial takes a big hit on investment

Online bank recorded a $136 million impairment

Online bank Ally Financial recorded a $136 million impairment related to its investment in struggling digital mortgage lender, bank executives said Wednesday during the company’s third-quarter earnings call.

The bank disclosed to shareholders and analysts that the $136 million impairment was a “nonmarketable equity investment” related to its mortgage business.

“Following the impairment, our investment has a remaining carrying value of $19 million, so this has been effectively derisked,” CEO Jeff Brown said on the call., founded by Vishal Garg in 2014, grew tremendously during the pandemic, capitalizing on a historic refinancing wave and homeowners’ growing comfort in an all-digital mortgage experience. Better grew from roughly 2,000 employees and $4.9 billion in volume in 2019 to 10,000 employees and $58 billion in origination volume in 2021.

But the company – which has raised $905 million across several funding rounds and got a $750 million loan from SoftBank in 2021 – has run into major trouble. It took a major public relations hit when Forbes reported on Garg’s aggressive management style and past controversies, as well as the infamous mass layoff on Zoom.

Better is also facing a lawsuit from Sarah Pierce, its former CFO, that claims she was pushed out after complaining that the company’s “black box” financial were misleading investors. The Securities and Exchange Commission took notice.

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But above all else, Better’s biggest problem appears to be about fundamentals. The company continues to lose tons of money – it lost $221 million in the first quarter – and it’s struggled to gain traction in a purchase market that is also slowing.

The company’s plan to go public via a special purpose acquisition with Aurora Acquisition Corp., initially slated for the fourth quarter of 2021, is unlikely to happen given market conditions.

In recent weeks, Garg has sought out the press to tout its new direction, which includes a “Zillow-like website for mortgage applicants to find homes they can afford,” according to Insider. Better is also building a home-action tool that the company believes will allow preapproved mortgage holders to bid on homes and purchase them without broker fees.

Ally, one of the country’s largest vehicle lenders, invested in Better in 2019, though it wasn’t clear at the time how large its investment was.

In the first half of 2022, Better originated $8.7 billion, slipping to the 34th largest mortgage lender in America. Its origination volume dropped 67% from last year, according to Inside Mortgage Finance. Among the top 50 lenders, only Freedom Mortgage had a bigger decline in origination volume, at 75%.

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