Better Home & Finance Holding Company: Navigating Challenges and Preparing for the Future

Better Home & Finance Holding Company, a technology-driven organization seeking to disrupt the home finance industry, has released its financial results for the three and six months ended June 30, 2024. The report provides insights into the company’s performance, challenges, and strategic initiatives as it navigates the evolving mortgage market.

Financial Performance Overview

For the three months ended June 30, 2024, Better Home & Finance reported total net revenues of $32.2 million, a slight increase from $31.1 million in the same period of 2023. The company’s gain on loans, net, which represents revenue generated from its mortgage production process, decreased by 11% to $24.2 million, while other revenue, which includes income from non-mortgage product offerings, decreased by 39% to $2.9 million. However, the company’s net interest income improved significantly, turning a loss of $41,000 in the second quarter of 2023 into a gain of $5.2 million in the current quarter.

For the six months ended June 30, 2024, Better Home & Finance reported total net revenues of $54.5 million, an increase of 10% from $49.7 million in the same period of 2023. Gain on loans, net, remained relatively flat at $39.9 million, while other revenue decreased by 41% to $5.7 million. Net interest income, on the other hand, increased substantially from $880,000 in the first half of 2023 to $8.9 million in the current period.

Operational Highlights and Challenges

Better Home & Finance’s key business metrics provide insights into its operational performance. The company’s Funded Loan Volume, which represents the aggregate dollar amount of all loans funded, increased by 5% to $962 million in the second quarter of 2024 compared to the same period in 2023. However, for the six-month period, Funded Loan Volume decreased by 8% to $1.6 billion. This decline was primarily driven by a decrease in Purchase Loan Volume, which fell by 18% year-over-year.

The company’s Refinance Loan Volume, on the other hand, increased by 21% to $159 million in the first half of 2024 compared to the same period in 2023. This growth was likely driven by the prevailing interest rate environment, which has made refinancing more attractive for homeowners.

Another notable development was the introduction of the HELOC (Home Equity Line of Credit) product in the first half of 2023, which gained significant traction in the second quarter of 2024, with HELOC Loan Volume reaching $90 million. This diversification of the company’s product offerings is a strategic move to address the evolving needs of its customer base.

The company’s Gain on Sale Margin, which represents the gain on loans, net, as a percentage of Funded Loan Volume, decreased by 38 basis points to 2.52% in the second quarter of 2024 compared to the same period in 2023. This decline was primarily due to a positive mark-to-market impact on loans that the company had repurchased in the second quarter of 2023, which was not present in the current quarter. However, the company saw a benefit in the second quarter of 2024 from a positive mark-to-market impact on its Interest Rate Lock Commitments (IRLCs).

Expense Management and Operational Efficiency

Better Home & Finance has been proactive in managing its expenses to improve operational efficiency. Compensation and benefits expenses increased by 4% in the second quarter of 2024 compared to the same period in 2023, primarily due to an increase in stock-based compensation. The company has reduced its headcount, which led to a decrease in compensation and benefits that was offset by the increase in stock-based compensation.

General and administrative expenses increased by 19% in the second quarter of 2024, driven primarily by higher insurance expenses related to the company’s transition to a public company. However, for the six-month period, general and administrative expenses decreased by 1%, as the company was able to reduce rent and occupancy expenses and professional services costs.

The company’s technology expenses saw a significant decline, decreasing by 41% in the second quarter of 2024 and 53% in the first half of the year, compared to the same periods in 2023. This was achieved through a reduction in costs associated with software vendors, driven by a decrease in headcount and the replacement of certain vendors with more cost-efficient alternatives.

Marketing and advertising expenses, on the other hand, increased by 175% in the second quarter of 2024 and 20% in the first half of the year, as the company focused on growth initiatives to drive volume through its existing channels and test new marketing strategies.

Regulatory Compliance and Nasdaq Listing

Better Home & Finance is subject to various local, state, and federal regulations related to its loan production, including requirements from agencies such as the Consumer Financial Protection Bureau, the U.S. Department of Housing and Urban Development, and the Federal Housing Administration. The company is also required to meet certain minimum net worth, capital ratio, and liquidity requirements established by government-sponsored enterprises (GSEs).

As of June 30, 2024, the company was in compliance with all necessary requirements. However, on March 12, 2023, and May 19, 2023, the company failed to meet additional financial requirements due to a decline in profitability and net worth. This permitted the GSEs to declare a breach of the company’s contract, but the company has since instituted additional financial requirements and remains in compliance as of June 30, 2024.

Additionally, the company’s Class A common stock is listed on the Nasdaq Capital Market, and it has received an extension from Nasdaq to regain compliance with the $1.00 per share requirement for continued inclusion on the exchange. If the company fails to regain compliance by October 7, 2024, it may face delisting, which would constitute a fundamental change under the indenture for the company’s Convertible Note and require the redemption of the note prior to maturity. The company is exploring options to address this potential scenario and maintain its Nasdaq listing.

Outlook and Strategic Initiatives

Better Home & Finance is focused on improving its platform and making investments to build its business and prepare for future growth. The company plans to continue investing in technology to enhance the automation of the home finance process, with the goal of reducing the cost to produce a loan and creating a platform with all homeownership products embedded into a highly automated, single flow.

The company is also focused on diversifying its revenue streams by expanding and enhancing its Better Plus offerings, which include real estate services, insurance services, and international lending activities. While the real estate services segment saw a significant decline in revenue, the international lending business continued to grow, and the insurance services segment remained relatively stable.

To drive customer acquisition and conversion, Better Home & Finance is leveraging its direct-to-consumer (D2C) and business-to-business (B2B) channels. The company’s D2C Loan Volume increased by 28% in the second quarter of 2024 compared to the same period in 2023, while B2B Loan Volume decreased by 25% during the same period.

Overall, Better Home & Finance is navigating a challenging mortgage market environment, marked by rising interest rates and lower home sales and refinancing activity. The company is focused on improving operational efficiency, diversifying its product offerings, and investing in technology to enhance the customer experience and drive long-term growth. As it addresses regulatory compliance requirements and works to maintain its Nasdaq listing, Better Home & Finance is positioning itself to capitalize on the evolving needs of the home finance market.