Housing MarketMortgageOrigination

Better reports improved net loss of $45.5 million in Q2

Better's origination volume was $900 million across 2,421 loans in Q2; market share dropped to 0.2% as of June 30, 2023.

Better Home & Finance Holding, the digital lender that debuted on Nasdaq last week, reported a net loss of $135.4 million in the first half of 2023, an improvement from nearly $400 million in the same period last year, according to its 8-K filing with the Securities and Exchange Commission (SEC) on Monday. 

Better is focused on originating profitable business while pulling back from unprofitable channels, which resulted in the company shutting down its real estate arm and laying off employees in June. CEO Vishal Garg said in an interview with HousingWire that the company targets mortgage marketplace and white-label technology models.

While Better didn’t break out Q2 earnings numbers, considering the firm posted a net loss of $89.9 million in Q1, the digital lender reported an improved net loss of $45.5 million from April to June.

Better — which went public after merging with special purpose acquisition company (SPAC) Aurora Acquisition Corp. on Thursday — funded a loan volume of $1.7 billion across 4,768 loans in the first six months of 2023. In Q2, Better’s origination volume was $900 million across 2,421 loans, compared to production of $800 million across 2,347 loans funded in Q1.

Of the $1.7 billion in production volume in the first half of 2023, refis accounted for $131 million and purchase loans consisted of $1.6 billion. Better’s funded loan volume of $1.7 billion in the first half of 2023 declined from $9.7 billion during the same period in 2022.

The lender’s gain-on-sale margin increased to 2.34% for the six months ended June 30, 2023, from 0.99% for the six months ended June 30, 2022. The jump in gain-on-sale margin resulted from “market volatility which positively impacted our mortgage platform revenue,” its 8-K filing states.

Better’s total market share of 0.2% during the six months of 2023 declined from 0.7% in the same period in 2022.

“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. As a result, we have pulled back on our most unprofitable channels, resulting in further declines to market share,” according to its filing.

In Q2, Better decided to wind down its in-house real estate agent business to focus on partnering with third-party real estate agents. The pivot was aimed at providing customers with real estate agent services, a business model that better aligns costs with transaction volumes, particularly in market environments with decreased mortgage volumes.

The company’s latest filing shows the firm had less than five agents as of June 8, 2023, declining from 470 agents as of December 31, 2021, and about 80 agents as of December 31, 2022. 

Total operating expenses dropped to $183.9 million for the six months ended June 30, 2023, driven by lower funded volume as well as reductions in headcount-related costs and other operating expenses resulting from restructuring initiatives. Compared to the same period in 2022, operating expenses declined by 80% from $903.7 million.

Better scaled down about 91% of its workforce over an 18-month period to 950 team members as of June 8, from 10,400 employees in Q4 2021. 

“As we have reduced headcount drastically in previous years and have continued headcount reductions in the first and second quarters of 2023, and expect to continue through 2023, we expect employee-related costs to decrease as a smaller administrative function is needed to support an organization with a much lower headcount,” the disclosure states. 

Filings show Better completed the acquisition of Birmingham Bank – a regulated U.K bank – in April 2023. The company acquired 100% of the equity of Birmingham for a total consideration of $19.3 million – consisting of $15.9 million in cash and $3.4 million in deferred consideration.

The acquisition allows Better to grow and expand existing operations in the U.K. by enabling it to offer online deposits to consumers and hold U.K. residential mortgages, the company said. 

Back in April, Better announced plans to create 40 jobs in Birmingham over the next three years following the buyout in fields such as business development, savings management, marketing, operations, finance, risk management and IT.

Its 8-K filing revealed that Fannie Mae notified Better about failing to meet the agency’s financial requirements due to the company’s decline in profitability and material decline in net worth. 

“Subsequent to June 30, 2023, as a result of failing to meet FNMA’s financial requirements, the Company has entered into a Pledge and Security Agreement with FNMA on July 24, 2023, to post additional cash collateral starting with $5.0 million, which will be held through December 31, 2023,” the filing stated.

The company had cash and cash equivalents of $109.9 million as of June 30, 2023, down from $318 million on December 31, 2022. 

Better’s stock opened for trading at $1.20 on August 28. They were down about 93% from $17.45 when blank check company Aurora closed for trading on the stock exchange on August 23.

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