Better Home & Finance Holding Co., the parent of digital lender Better.com, narrowed its net loss between the third and fourth quarters of 2023 by more than 80%, driven by expense cuts to its platform and marketing efforts.
Going forward, Better is focused on driving market share and reaching profitability in the medium term. The digital lender made changes in its commercial operating model to achieve this goal and will continue to invest in Tinman, its proprietary technology platform.
Better posted a GAAP net loss of $59.5 million in Q4 2023, down from a loss of $339.4 million in Q3 2023, according to its 8-K filing with the Securities and Exchange Commission (SEC) on Thursday.
For all of 2023, the New York-based digital lender reported a GAAP net loss of $534.4 million, a 39% improvement from a loss of $879.6 million in full year 2022.
“Throughout the year, we’ve been laser focused on prioritizing expense reductions and improving our unit economics while continuing to invest in the proprietary technology that underlies our competitive advantage,” Vishal Garg, CEO and founder of Better, told analysts during an earnings call.
The operating model change involved Better pivoting to hiring experienced loan officers on commission-based compensation plans. Previously, the lender had higher fixed-cost components and no commissions for its loan officers.
“Now we are hiring seasoned purchase loan officers with experience in nurturing customers in a higher rate environment,” Garg said.
“We are pleased to see early conversion improvements from this new operating model from the seasoned sales talent we are hiring, as well as better alignment between our production output and costs. Further, the seasoned loan officers are providing an increased level of service to consumers that enable us to improve revenue for loans while remaining market competitive.”
In Q4 2023, Better generated a funded volume of $527 million across 1,633 loans, beating its goal of about $500 million that was shared in its third-quarter earnings call. The lender posted production of $3 billion across 8,569 loans in full year 2023.
For comparison, Better’s production volume was $11 billion in 2022 and $57 billion in 2021, when interest rates were lower and refinance opportunities were plentiful.
About 49% of its Q4 2023 production volume was generated through its direct-to-consumer channel, while 51% came from its business-to-business (B2B) channel.
Approximately 91% of the company’s volume last year consisted of purchase loans, with refis accounting for 5% and the remaining share coming from home equity lines of credit (HELOCs).
Better has been launching digital products with its proprietary technology, including digital VA loans and a one-day mortgage product. About 80% of the mortgages at Better are now being funded as one-day products, Garg noted.
Earlier this month, Better launched a one-day HELOC product that provides approval decisions to consumers within 24 hours of locking their interest rate.
While Better’s products are “highly aligned to where the market is going,” the company has less than half a percent of the market share, Garg said.
Priorities for 2024
Better will focus on increasing market share through investments in automation and further expense cuts, which is designed to lead to profitability in the medium term. The digital lender plans to improve customer conversion efforts by turning website visitors into funded loan customers, and by expanding customer acquisition via new marketing channels and new partnerships.
For the first quarter of 2024, the digital lender expects to generate a funded loan volume of $600 million to $650 million.
Having more liquidity will help the company achieve its vision and corporate objectives, president and chief financial officer Kevin Ryan said.
Better ended last year with $554 million in cash, restricted cash and short-term investments, a 60% increase compared to December 2022.
“In short, we funded the balance sheet. We are now well capitalized for growth as our cash position provides us with the liquidity to continue executing against our vision and corporate objectives,” Ryan said.
“We received strong relationships with our financing counterparties to manage mortgage working capital even in this low-volume environment. As of Dec. 31, 2023, we had three warehouse facilities for a total capacity of $425 million.”
Executives noted that the company is watching how the agent commission settlement by the National Association of Realtors (NAR) will impact the mortgage industry. They noted that Better Duo, the lender’s dual licensing program, should “play very well” in the new market structure.
“This is going to drive more consumers online,” Garg said. “So, we think that in the best-case scenario, consumers are going to have to figure out how to pay for a Realtor and they’re going to come to try to figure out how much they can afford.
“… The more (consumers) get online, the more they will find us, and the more they’ll find our value propositions of speed, certainty and price attractive along with the service offerings that we’re doing.”
Better is confident that its development of a “supervised learning network“ will further automate many parts of the mortgage process.
“Now where this goes forward is … to make it easier for consumers to be matched to the right loan officer, be matched to the right loan product, as well as all of the back-end processes which require human intervention and some use of human logic for those processes to then be done by the machine itself,” Garg said.
