In a daring move amid the highest mortgage rates in over two decades, Better Home & Finance, a mortgage origination company, has decided to go public through a special purpose acquisition company (SPAC) deal. Despite the less-than-ideal timing, the company completed its merger with Aurora Acquisition Corp. (ticker: AURC), a SPAC, this Tuesday. As shares and warrants of the merged entity started trading under the tickers "BETR" and "BETRW" respectively, Aurora ceased to exist, marking a new chapter for Better Home & Finance. Investors, however, are advised to tread with care.

The primary motivation behind this bold move is funding, according to Better CEO Vishal Garg. The company has secured $565 million in capital, mainly in convertible notes from affiliates of SoftBank (9984.Japan). Garg remains optimistic about the company’s growth prospects, especially as interest rates normalize. Better claims to offer lower mortgages than other originators and promises a 24-hour turnaround from application to commitment letter, thanks to its “supervised learning engine.” This technology matches customers to the most appropriate loan product, analyzing customer data against rules for different types of mortgages.

Better Home & Finance Goes Public Amid Rising Mortgage Rates

Despite mortgage rates climbing to their highest levels in over two decades, mortgage origination company, Better Home & Finance, recently decided to go public through a merger with a special purpose acquisition company (SPAC), Aurora Acquisition Corp. Investors, however, should tread carefully.

A Risky Move in a Challenging Market

Better Home & Finance completed the merger with Aurora on Tuesday, leading to the commencement of trading of the combined company’s shares and warrants under the tickers “BETR” and “BETRW,” respectively. This move effectively sees Better taking over Aurora’s stock listing, leading to Aurora’s dissolution.

Vishal Garg, Better’s CEO, expressed that the primary motivation for the merger was funding, with the company receiving $565 million in capital, primarily in convertible notes from SoftBank affiliates. Garg remains optimistic about the business’s growth prospects, especially when interest rates normalize.

Aiming for Efficiency and Competitive Edge

Better Home & Finance claims to offer mortgages that are 0.45 percentage point lower than other originators, with a 24-hour turnaround from application to commitment letter. The company attributes this efficiency to its "supervised learning engine" that matches customers to the most suitable loan product by analyzing customer data against different mortgage rules.

Better plans to utilize the funds from the SPAC deal to enhance its loan origination platform and improve efficiency. However, the company’s sky-high valuation at $14 billion, based on the post-merger fully diluted share count, raises eyebrows given its revenue of only $383 million last year and a loss of $889 million.

A Rocky Road to Public Trading

The journey to this merger was not smooth for Aurora and Better, with the agreement being amended five times since the initial agreement in May 2021. Furthermore, Better has had to navigate a challenging rate environment that has been less than favorable for mortgage originators.

In 2022, the rapid rise in rates led to a significant decline in the mortgage loan volume to $2.3 trillion, almost half of the $4.4 trillion originated in 2021. Despite these challenges, Garg maintains that the company is becoming more efficient, thus reducing its burn rate.

Takeaways

Better Home & Finance’s decision to go public amidst rising mortgage rates is a bold move. However, the high valuation of the company and the dilution of shares are notable concerns for potential investors. The company’s future success will largely depend on its ability to effectively utilize its capital to improve efficiency and stay competitive in the challenging mortgage market.