The parent company of Better Mortgage is going public through a merger with a blank-check firm that is expected to raise $778 million it can use to grow not only its mortgage business, but also its real estate brokerage and title insurance businesses.
Merging with Aurora Acquisition Corp. — a special purpose acquisition company (SPAC) — enables Better HoldCo to fast-track the IPO process. Aurora closed its IPO on March 8. Now, existing backer SoftBank is investing another $1.5 billion in the merger, which is expected to close in the fourth quarter and values the company at $7.7 billion.
“This transaction provides investment capital to accelerate Better’s growth and support our mission to make homeownership simpler, faster, more affordable and more accessible for all Americans,” Better founder and CEO Vishal Garg said in a statement.
The mortgage industry has been riding a boom in refinancing — and tapping Wall Street to raise funds for growth. United Wholesale Mortgage closed what was the largest-ever SPAC deal in January, and Rocket Mortgage parent Rocket Companies raised $1.8 billion in a July 2020 IPO. And just last week, Genworth Mortgage Insurance Corp. announced a partial IPO.
Better Mortgage was the nation’s 33rd largest mortgage lender in 2020, according to to preliminary Home Mortgage Disclosure Act data analyzed by iEmergent. But according to iEmergent, close to 90 percent of the company’s business consisted of refinancing existing loans. Better Mortgage was ranked as the 103rd largest purchase mortgage lender by iEmergent.
Better sees real estate brokerage as a path to growth
One way Better intends to boost its purchase mortgage business is through its real estate brokerage, Better Real Estate LLC, which promises to match homebuyers with “a trusted real estate agent” — and save $2,000 on closing costs if they fund a home purchase through Better Mortgage.
Better Mortgage claims it can help buyers win bidding wars with its “Better Offer” process, which includes a verified pre-approval and pre-offer appraisal.
“By understanding how much you can borrow and how much the property is worth, you can waive contingencies and be as competitive as cash,” Better claims.
In an investor presentation, Better HoldCo reports facilitating $691 million in real estate transaction volume last year. That’s a drop in the bucket compared to industry giants like Realogy Brokerage Group ($184.6 billion in 2020 transaction volume), Compass ($151.7 billion), HomeServices of America ($150.4 billion), eXp Realty ($72.2 billion), and Redfin ($37 billion).
But Better says real estate transaction volume was up 471 percent from 2019 to 2020. This year, it expects to be involved in $2.4 billion in real estate sales, and hit close to $17 billion by 2023, which would put it in the same league as @properties and William Raveis.
In 2020, Better HoldCo says it funded $24.2 billion in mortgages, up 490 percent from 2019. Its ambition is to grow mortgage originations to $181 billion by 2023. Those are the kind of numbers that could place Better high on the list of the nation’s top 10 lenders.
The company says those ambitious claims are backed by a proprietary, data-driven technology platform, “Tinman,” which allows the company’s workers to close an average of 16.2 loans per month, compared to 7.1 for the industry as a whole. Growth is also boosted by partnerships on private label and co-branded financial services with American Express, Ally Financial and Progressive Insurance.
The Better family of companies also provides title insurance through Better Settlement Services, and homeowners insurance policies through Better Cover LLC.
Better reports $7.7 billion in title insurance placed in 2020, up 855 percent from the year before, and $1.4 billion in homeowners insurance, up 300 percent from 2019. Better expects title and homeowners insurance coverage written to exceed $158 billion by 2023.
Better says it plans to launch home services and home improvement loans in the second half of this year, and launch a financial network in the first half of 2022 offering personal loans, auto loans, student loans, credit cards and insurance products.