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Mortgage

Better.com, valued at $4B, prepares for IPO in 2021

Digital lender just raised $200 million in a Series D funding round

Add another lender to the IPO clown car: venture-backed Better.com.

The digital lender, run by CEO Vishal Garg, selected Bank of America and Morgan Stanley to prepare an initial public offering slated for 2021, according to sources cited by Bloomberg.

The company will seek to beat the $4 billion valuation it was given in its most recent $200 million Series D funding round, according to Bloomberg’s anonymous sources. Better.com could go public as soon as January.

In early October, as rumors swirled that Better.com was raising a big funding round ahead of an IPO, Garg told FinLedger that Better.com went from losing money to achieving “enviable profit margins.” That was largely due to heavier loan volumes, which have been driven primarily by refinancings.

As for the IPO, “we’ll do it when it’s right,” he told FinLedger Managing Editor Mary Ann Azevedo at the time.

Garg said customers wouldn’t be edged out when the IPO happened.

“One of the core tenets of American capitalism is the ability for your customers to buy your stock,” he said. “If I like Coca Cola, I can buy Coca Cola stock. If I use Microsoft products or Apple products, I can buy Apple stock. I think that trend of startups holding out ’til the growth slows and the consumer can’t participate in disruption is actually a bad one, and I think it leads to bad outcomes.”

Better.com, founded in 2014, raised $235 million last year and has been on a hiring spree ever since. It now has over 3,000 employees, many of whom, about 500, are non-commissioned loan officers. Its backers include L Catterton, Activant Capital, Ally Financial, Goldman SachsKleiner PerkinsPing An InsuranceCiti and American Express. Better.com has raised $410 million since its founding.

The firm, headquartered in New York, is looking to gobble up market share through its tech platform and the convenience it provides prospective borrowers. Better.com sells its mortgages to Fannie Mae and Freddie Mac and then partners with sub-servicers to handle loan servicing.

Per data from Recursion Companies, Better.com originated about $4.6 billion in mortgages during the third quarter, making it the 32nd largest lender in the country. Only nine other lenders sent more loans to Fannie Mae during the third quarter, according to Recursion data.

Like a number of its competitors, Better.com could struggle to maintain such enviable profitability due to larger market forces in the mortgage industry. Most observers believe 2021 will shift from a refi environment to purchase.

Beyond that, Better.com is competing with resurgent retail banks and a slew of newly-capitalized independent mortgage banks.

Since Rocket Companies became the first of the IMBs to tap the public markets in August, several others have followed suit. Guild Mortgage debuted in October, though market volatility led Caliber Home Loans and AmeriHome Mortgage to delay their IPOs.

United Wholesale Mortgage is expected to make its debut via a blank check company in the fourth quarter, at a valuation of $16.1 billion.

LoanDepot this week also announced it was pursuing an IPO, though it has yet to announce how many shares would be sold or the pricing target. Bloomberg previously reported that the California-based lender had been targeting an IPO that would value it between $12 billion and $15 billion.

James Kleimann is the Mortgage Editor of HousingWire. Write to him at jkleimann@housingwire.com

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