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Digital mortgage company Better said it is in growth mode again, hiring industry veteran Chad Smith to oversee its mortgage unit operations and moving to a commission-based compensation structure that will allow it to hire more experienced loan officers.
Better, which reported a first-quarter net loss of $51 million on Monday, said mortgage volumes grew 25% in the first quarter from the fourth quarter of 2023, to $661 million.
The New York-based bank said it expects to originate $800 million in loans in the second quarter as it ramps up marketing and advertising spending while continuing to cut costs in other areas.
Loan production this year will inevitably be well below the $58 billion in loans issued at the height of the refinancing boom in 2021, and may even be inferior to the $3 billion in loan volume in 2023.
But Better founder and CEO Vishal Garg said the company is now learning to find its way in a world where higher interest rates mean mortgage lenders do the vast majority of their business working with homebuyers.
“We adopted a new operating model and compensation structure for our sales force, lowering base and increasing commissions to better align costs with sales and drive conversion results, while also allowing us to recruit experienced loan officers and leverage our technology The platform supports them in a way that we’ve never done before,” Garg said on a conference call with investment analysts on Tuesday.
Garg said Better’s future “lies in Uberizing loan officers, providing them with leads generated by our proprietary technology platform and customer interface and making them more efficient.”
Loan production improves in Q1 2024 (by type)
Source: Beautiful Home Financial Holdings Company’s first quarter 2024 financial report.
Better’s refinancing volume increased 232% from the previous quarter to $79 million, and home equity line of credit (HELOC) loans also increased 54% to $53 million. Although home purchase loans grew at a more modest 12% to $529 million, home buyers accounted for 80% of Better’s loan originations.
The shift to hiring more experienced loan officers means Better’s loan officers “close significantly more loans each month than other consumer direct lenders,” Garg said.
Better loan officers were able to close 17.7 purchase loans per month last year, compared with “mid-single digits” at rival direct lenders, Garg said, citing third-party benchmarking research in which Better participated.
“One thing these experienced loan officers knew how to do—and I admit, the inexperienced loan officers we hired primarily for the refinancing business for the first eight years of the company didn’t know how to do it—was deal with real estate. Brokers talk and instill confidence in the product,” Garg said.
Better is currently hiring for vacancies in sales, mortgage operations, finance, legal and compliance, human resources, and data and analytics. Some positions can be filled remotely, while others will need to be filled on-site in locations such as New York, Las Vegas and Irvine, California. Many positions are based in Better’s Gurgaon, India office or are supervised by employees.
“Better yet, grown up again!” Garg posted on LinkedIn in April. “As we expand our team of loan officers, we are also looking to hire a sales manager.”
Last week, Better hired Smith, who most recently served as CEO of Irvine, Calif.-based Mission Loans, to oversee much of that growth.
Chad Smith
Smith, 49, who previously held senior executive positions at Discover Home Loans, loanDepot and Caliber Home Loans, was appointed president and chief operating officer of Better Mortgage Corp. on May 8 by Better’s board of directors.
He will receive an annual base salary and bonus of up to $2 million and will be eligible to receive up to 8 million shares of Better’s restricted and performance-based stock over three years, the company revealed Friday.
“With Chad’s valuable experience and deep expertise, I am confident he will help drive our growth and make a meaningful contribution to our success,” Garg said on Tuesday’s earnings call. “Chad will Responsible for helping us develop long-term strategy and expand our marketing sales and operations teams and drive performance and accountability to deliver results consistent with our strategic vision.”
While Better is investing in growing its direct-to-consumer business, business-to-business (B2B) operations generated nearly half (46%) of first-quarter loans.
Better has had a strategic partnership with Ally Bank since 2019 and last fall announced a partnership with Infosys to launch a “mortgage-as-a-service” platform for lenders.
In another B2B development, Better launched a first-quarter partnership with Beyond.com, which owns brands such as Overstock, Bed Bath & Beyond, Baby & Beyond and Zulily.
Beyond.com customers can now purchase mortgages through Better, and customers who receive a loan receive a free one-year membership in the company’s Welcome Rewards program and can earn up to $500 in Welcome Rewards points at Bed Bath & Beyond.
Kevin Ryan
Better’s chief financial officer, Kevin Ryan, said Better’s “primary target” in the B2B space was banks, but “a lot of banks have canceled mortgages – it’s hard to make money for them.”
But home loans are “a core service for consumers, and anyone in consumer banking wants to provide mortgages, so our conversations are very powerful.”
Ryan said the introduction was facilitated by Better’s partnership with Mphasis, a provider of business process services to “hundreds of banks in the United States.”
“The only thing I can say about B2B is that we love the channel,” Ryan said. Some banks have long-term contracts with technology providers, so signing up new partners takes time.
But “we will expand this pipeline,” Ryan promised. “That’s a focus for us.”
Better income, expenses and benefits
Source: Better Home & Finance Company 2024 first quarter financial report and 2023 annual report.
Better executives are bullish on prospects for growth in the company’s mortgage business, but many investors remain focused on the company’s bottom line.
Although first-quarter revenue increased 26% quarter-on-quarter to $22 million, it was not enough to cover first-quarter expenses of $73.6 million, a 30% decrease from the same period last year, but a 6% increase from the fourth quarter. Marketing and advertising expenses increased 27% from the fourth quarter to $4.6 million.
Better’s first-quarter net loss was just over $51 million, a 41% year-over-year decrease but only a slight improvement from the fourth quarter
Better had previously announced it would release first-quarter earnings before the market opened on Tuesday, but ended up releasing those results the night before after the market closed on Monday.
Better’s stock price, which was as high as $62.91 on July 28 last year and as low as 34 cents on October 13, fell 10% on Tuesday, briefly touching a new 2024 low of 37 cents before rebounding to close at 42 cents.
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