Better funds $1B in mortgages in Q3 but still $54M in the red

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Digital mortgage lender Better originated more than $1 billion in mortgages during the third quarter for the first time in two years, but posted a $54.1 million loss as the company staffed up and boosted spending on marketing and advertising.

Better’s net loss for the quarter was up 31 percent from Q2 but down 85 percent from a year ago, when the company was $353.9 million in the red, helping company founder and CEO Vishal Garg’s efforts to put a positive spin on the results.

Having made the pivot from a market dominated by refinancing to serving homebuyers, Garg said Better’s continued investment in technology gives it a cost advantage over competitors, and that expanded partnerships with retail lenders will help fuel growth.

Better launched a generative, voice-based AI loan assistant called Betsy in October that it says will help keep costs down, and on Wednesday announced a new partnership with NEO Home Loans to use Better’s Tinman technology stack to power local loan officers.

While expenses were up 13 percent from Q2, to $82.9 million, “We still believe we are significantly more efficient than the industry average as it relates to production cost,” Garg said on a call with investment analysts.

Garg said Better’s average cost to sell and process a mortgage is more than 35 percent below the industry average of close to $9,000 per loan.

“We believe our continued investments in technology will significantly drive down our costs further, resulting in improved operating efficiency and superior customer experience,” Garg said.

Shares in Better, which in the last year have traded for as little as $13.69 and as much as $45.50, were down 4 percent from Tuesday’s closing price of $14.80 after the company released earnings Wednesday morning.

Better’s $1B Q3

At $1.035 billion, Better’s third-quarter mortgage originations were up 8 percent from Q2 and 42 percent from a year ago.

Much of that growth was driven by refinancing ($130 million in Q3 originations) and home equity loans, including home equity lines of credit (HELOCs) and closed-end second-lien loans ($166 million).

Purchase loans are the name of the game

But the $739 million in purchase mortgages funded during the quarter still accounted for nearly three-quarters of Better’s Q3 originations, with 25 percent of originations coming through partnerships with other lenders like Ally Bank.

It’s a remarkable turnaround for a company that used to rely almost entirely on its direct-to-consumer channel — people coming to the company’s website — to refinance homeowners’ existing mortgages.

“Three years ago, when [mortgage] rates first started picking up, 5 percent of our volume was purchase, and 95 percent of our volume was refinancing,” Garg said. “We’ve had a tough couple of years, but we have pivoted the company super hard, and now 71 percent of our volume is purchase mortgage, which I think is bigger than the bulk of our direct-to-consumer online peers.”

Garg said Better will continue “cracking the code” on purchase mortgages with new partnerships that have retail operations in local markets.

In conjunction with its earnings release, Better announced that it’s hired the executive team from NEO Home Loans to build out a distributed retail channel that will rely on Better’s technology to power local loan officers.

NEO Home Loans executives Ryan Grant and Danny Horanyi are now Better employees, spearheading the “NEO Powered by Better” partnership.

“The Neo team just joined us, so it’s still early days, but we look forward to welcoming their 50-plus loan officer branches serving customers across 48 states to join forces with better and together change the way customers navigate their homeownership journey,” Garg said.

A subsidiary of Luminate Bank, Minneapolis-based NEO Home Loans employs or sponsors 515 mortgage loan originators who work out of 67 branch locations around the U.S., according to records maintained by the Nationwide Multistate Licensing System.

Better’s earnings call also showcased the capabilities of the company’s new voice-based generative AI loan assistant, which it’s calling Betsy.

In announcing Betsy’s launch in October, Better said it leverages AI and large language models (LLMs) “to accelerate a customer’s entire mortgage journey from pre-approval start to closed loan.”

In addition to collecting and verifying loan application data, Betsy is integrated with Better’s technology stack, Tinman, giving it access to all relevant facts of a loan application.

“This contrasts with traditional mortgage industry software, where information is spread across multiple systems and datasets such as Point of Sale, CRM, Loan Origination System, Document Management System, and Pricing Engine,” Better said.

On Wednesday’s earnings call, Better played a clip from a demonstration showing how Betsy could help a prospective borrower referred by LendingTree explore their options for a $50,000 home equity line of credit.

Better has worked with Bland AI, a startup that builds “hyper-realistic AI agents,” to develop Betsy.

Bland AI, which emerged from stealth mode in August by announcing a $16 million Series A financing round led by Scale Venture Partners, said customers like Better and Sears are using its technology to deploy custom AI agents to answer or send phone calls and extract relevant data back to a company’s existing systems.

“Companies like Better.com are using Bland to make sure their sales teams are only talking to people who they can help,” Bland AI said in a Sept. 23 blog post. “No leads misunderstanding their services, no one lost in the shuffle, no one wasting time.”

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Email Matt Carter