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Better.com lays off LOs, secures $750M cash injection

Digital lender hopes to increase market penetration in purchase mortgages

HW+ vishal garg
Better.com founder and CEO Vishal Garg

Digital mortgage lender Better.com is laying off 9% of its workforce ahead of a $750 million cash injection from financial backer SoftBank Group. Company officials say the moves will allow refi-heavy Better to increase its strength in a mortgage market that is increasingly becoming purchase-focused.

The layoffs were announced by the New York-based company on Tuesday in a Zoom meeting with CEO Vishal Garg.

Company sources told HousingWire that refi-focused, salaried loan officers made up the majority of the hundreds of employees who received pink slips. Better’s loan officers do not receive commissions.

Following the layoffs, the company expects to have close to 9,000 employees at the end of the year, a source said.

 Better confirmed the layoffs, but wouldn’t discuss them on the record.

The company plans to automate some of its refi processes and is now focused on purchase operations, one company official, who requested anonymity, said.

In November, Better disclosed to the Securities and Exchange Commission that it projected it would lose between $85 million and $100 million in the third quarter, and that losses would likely widen in the fourth quarter. In the second quarter the digital mortgage lender also reported a net loss of $86 million.

Like many of its nonbank rivals, Better, which plans to go public via a SPAC merger, has forecasted an overall slowdown as demand for refinancings dries up and purchase business is constrained by historically low inventory.

Better said in its S-4 that it expects its gain-on-sale margin to compress during the fourth quarter of 2021, “due in part to competitive price in a market where volumes are expected to contract.”

In conjunction with the layoffs, Better’s SPAC partner, blank-check firm Aurora Acquisition Corp. and venture capital company SoftBank announced an amendment to an earlier financing agreement and will dole out $750 million of a total $1.5 billion in committed funding to Better—immediately.

The remaining $750 million will be distributed to the company in the form of a convertible note at Better’s option within 45 days after the closing of Better’s merger with Aurora, the company said in a statement.

The company noted that the $750 million bridge financing will push Better’s balance sheet to over $1 billion of cash and cash equivalents.

In a statement, Kevin Ryan, chief financial officer at Better, told HousingWire that “a fortress balance sheet and a reduced and focused workforce together set us up to play offense going into a radically evolving homeownership market.”

Furthermore, Garg, the founder of Better, said in a statement that the COVID bump that helped “sustain legacy players” in the industry over the past 18 months “is fading and we expect a large number of our competitors to scale back their automation and vertical integration efforts.”

“This is exactly the time for us to lean in and accelerate our customer-focused product innovation, and grow our B2B business, which we believe provides us with greater defensibility in a tougher mortgage market,” he added. “The incremental $750 million of capital in the form of a commitment to fund a convertible note, on top of the $750 million of cash coming immediately to the balance sheet, will help us to do exactly that.”

Better.com planned to make its public debut in the fourth quarter of 2021, however, a source with direct knowledge of Better’s plans to go public said it would be virtually impossible at this point.

“The S-4 hasn’t been declared effective and once it is, you’re probably four weeks at least until the vote and closing,” the source said. “All in, this is probably better from Better’s point of view (more cash to the balance sheet) but will be interesting to see the terms of the convertible notes that may be issued after closing.”

The filing noted that the fluctuations in interest rates – which affect refis more than purchase business – and a recent reorganization of Better’s sales and operations teams has put pressure on the company’s net income and will continue to do so for the foreseeable next quarter, as the company attempts to find footing in a purchase market.

Meanwhile, Chicago-based Interfirst Mortgage, another refi-heavy shop whose inexperienced LOs also do not receive commissions, also announced layoffs. Of the 77 employees that will be laid off, 49 of them are loan officers.

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