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Digital mortgage lender Better increased loan production by 45 percent in the second quarter and is on track to originate over $1 billion in mortgages in Q3 for the first time in two years.
Despite this positive news, investors did not react favorably to the company’s comeback story on Thursday. Better’s shares dropped nearly 20 percent after the company reported a $42 million Q2 net loss and announced a 1-for-50 reverse stock split on Aug. 16 to avoid delisting from the Nasdaq Capital Market.
With Q2 loan production reaching $962 million, Better saw a 41 percent increase in revenue from the previous quarter, totaling $31.4 million.
By maintaining expenses at $73 million, Better managed to reduce its net loss by 18 percent from Q1 and closed the quarter with $507 million in various forms of capital.
Vishal Garg | Better
“We are very pleased with the growth and continued progress towards profitability we demonstrated in the second quarter of 2024, through a continued challenging macro environment with persistently high rates,” Better founder and CEO Vishal Garg said in a statement.
“Our investments in purchase and home equity products, where we see growth being less rate-sensitive, generated sizable outperformance. We also saw strong early performance in sales and operating efficiency through investments in AI and our new commission model.”
Shares in Better, which plummeted over 90 percent last year during the company’s merger with a special purpose acquisition company (SPAC), initially fell 33 percent when markets opened on Thursday after the earnings report. Despite a rebound in afternoon trading, closing at 39 cents, this represented a 19 percent drop from Wednesday’s closing price of 48 cents.
Better’s Efforts to Reduce Losses
By cutting expenses and laying off thousands of workers, Better has managed to reduce its cumulative losses, which reached $1.8 billion through June 30.
The company, which once had 10,400 employees at its peak in 2021, now only has 820 employees. This downsizing has helped Better focus on growth initiatives, such as hiring industry experts and implementing a commission-based compensation structure.
Despite efforts to control expenses, Better has faced challenges in increasing revenue due to high home prices and mortgage rates. Many lenders, including Better, are hopeful that a decrease in mortgage rates will stimulate business growth.
Garg highlighted the company’s focus on reducing expenses while also investing in growth initiatives like marketing and compensation for larger loan production teams to drive higher volumes.
Chief Financial Officer Kevin Ryan emphasized the importance of revenue in returning the company to profitability, rather than just focusing on loan volume.
Kevin Ryan
“What we’re going to try to do in September is do an investor meeting where we actually lay out that math and create specificity [about Better’s path to profitability], but it will be a combination of volume and gain-on-sale margin,” Ryan said. He will be presenting the company’s prospects at investor conferences scheduled for Aug. 14 and Aug. 15.
Better’s gain-on-sale margin in Q2 improved to 2.43 percent, attributed to increased pricing, customer retention efforts, and optimization across their network of loan purchasers.
Better’s Outlook for Q3
*Q3 2022 through Q2 2024 represent actual loans funded. Better estimates Q3 2024 mortgage originations will exceed $1 billion. Source: Better earnings reports.
After funding $58 billion in mortgages during the 2021 refinancing boom, Better experienced a significant decrease in originations last year due to rising mortgage rates. The company’s efforts to adapt to these market changes are evident in its strategies to increase revenue and improve profitability.
Better’s latest offering of a home equity line of credit (HELOC) has been a success, generating $67 million in originations in 2023. Moving into Q2 of 2024, Better saw a significant increase in loan production, with purchase mortgages accounting for 83 percent of their $962 million total, followed by HELOCs at 9 percent and refinancing at 8 percent.
Better is optimistic about the future, expecting total loan originations to exceed $1 billion in Q3 for the first time since 2022. CEO Garg believes that new regulations for real estate agents, effective August 17, will work in Better’s favor as buyers are more likely to do online research to find both an agent and a mortgage, ultimately leading them to Better’s platform.
To further expand their services, Better is launching a program called Better Duo, which will allow real estate agents to work as W-2 employees and obtain a dual license to originate mortgages. This program is currently being piloted in 27 states and Washington, D.C.
With these strategic moves and innovations, Better is positioning itself for significant growth and disruption in the mortgage industry.