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Investors in tech-driven mortgage lender Better Home & Finance are cheering its plans to restructure more than half a billion dollars in debt, which the company said Monday will improve its balance sheet and position the company to grow and return to profitability.
Better will retire $534 million in convertible notes held by investor SB Northstar LP in exchange for $110 million in cash and $155 million in new notes at a 6 percent interest rate due in 2028. The notes that are being retired carried a 1 percent rate and were due in 2028.
Vishal Garg
“This transaction will create approximately $265 million of positive pre-tax equity value for the company and its shareholders, as well as create a path to long-term value creation for our equity holders,” Better CEO Vishal Garg said in a statement. “We continue to invest in building the leading AI platform in the mortgage industry, and fulfilling our mission of making homeownership cheaper, faster and easier, and just plain better for all Americans.”
Shares in Better, which in the last 12 months have changed hands for as much as $30 and as little as $7.71, initially jumped 27 percent Monday on news of the debt restructuring, which is expected to close by April 28. After briefly climbing above $13 from Friday’s close of $10.28, shares in Better gave up some of those gains but closed up 21 percent at $12.40.
Better’s board of directors in January approved a $25 million share repurchase program, a strategy that often signals company executives think their shares are undervalued.
Better, which did a booming business in refinancing during the pandemic when mortgage rates hit historic lows, struggled when interest rates rebounded and has racked up $1.9 billion in losses since its inception.
The New York-based lender inched toward profitability in 2024 as growth in home equity and refinancing helped the company grow funded loan volume for the first time in three years even as it slashed expenses.
Better finished 2024 with 1,250 employees — down 88 percent team from a Q4 2021 peak of 10,400 — but claimed its adoption of AI will fuel more profitable growth, with loan fulfillment costs that are 35 percent lower than the industry average of $9,000 per loan.
Revenue, expenses, earnings moving in right direction
Source: Better Home & Finance Holding Company earnings reports.
Better’s automated “One Day Mortgage” product represented 73 percent of all direct-to-consumer lending in Q4, helping the company achieve loan fulfillment costs it says are 35 percent lower than the industry average of $9,000 per loan.
While Better racked up a $206 million 2024 net loss, that was an improvement from $536 million in 2023 and $888.8 million in 2022.
Purchase mortgage lending accounted for nearly 74 percent of Better’s business last year, even though business from homebuyers was down 3 percent year from 2023, to $2.65 billion.
At $479 million, 2024 home equity funding volume was up 86 percent from a year ago, while refinancing volume grew by 56 percent, to $463 million.
But Better is losing one of its biggest partners this year, Detroit-based Ally Financial Inc., which announced in January that it was laying off hundreds of employees and getting out of the mortgage business.
Ally originated $1 billion in mortgages in 2023 through its partnership with Better and is also an investor in the company, which went public in a 2023 special purpose acquisition company (SPAC) merger.
While Better once relied on its business-to-business (B2B) partnerships for nearly half of its business, the partner channel accounted for only 19 percent of Q4 2024 loan volume.
Better executives have said they plan to grow the company’s partner channel by offering its technology through co-branded or white-label solutions.
In November, Better announced a partnership with NEO Home Loans to use Better’s Tinman technology stack to power local loan officers.
Better hired NEO Home Loans executives Ryan Grant and Danny Horanyi to lead the “NEO Powered by Better” partnership and build out a distributed retail channel.
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