Better reshapes LO comp as its losses shrink

Digital lender Better Home & Finance has ditched its compensation model from the refinance boom, a move it made as the lender trimmed quarterly losses.

The company posted a $59 million net loss in the fourth quarter in its second earnings report since going public last summer, it announced Thursday. That was an 83% improvement from the $340 million net loss over the third quarter, which was exacerbated by a financial repercussion from its merger to go public.

Better executives are bullish on future performance after shifting loan officer pay last year to commission-based compensation plans, moving on from no-commission, fixed-compensation for LOs stemming from the low-rate environment of years past. 

"We are pleased to see early conversion improvements from this new operating model and the seasoned sales talent we are hiring, as well as better alignment between our production output and cost," said Vishal Garg, founder and CEO, in a conference call Thursday morning. 

The business reported $527 million in funded loan volume in the fourth quarter, and $3 billion across 8,569 loans for the year. The recent three-month stretch of production was a slide from $731 million in funded loan volume in the third quarter.

For the year, Better disclosed a $534 million net loss, a sizable decline from the $879 million loss over 2022. The lender also posted a $303.8 million net loss in 2021. It recorded major deficits in its massive, lengthy downsizing from over 10,000 employees to a little over 1,000. 

The company also cut its expenses by nearly $1 billion, or 71% last year to $366 million in 2023.

Better also recorded $9 million in total revenue ending December, and $77 million for the year. After receiving a $565 million capital infusion at the time of its merger, it reported $554 million in cash, restricted cash and short-term investments as of Dec. 31. 

Among other product rollouts during the quarter, the Manhattan-based firm promoted Better Duo, which allows third-party real estate agents to become licensed loan originators. The program counts 48 producing agents this quarter, compared to 12 at the end of last year, and follows Better's restructuring of its agent program last summer. Garg said the initiative is poised to appeal to homebuyers who may now have to weigh how to pay Realtor commissions. 

In recent months, Better has rolled out digital Department of Veterans Affairs loans and a one- day home equity line of credit product, which it reported jumped nearly 500% in volume in the prior 12 months. It also revealed it extended its white-label mortgage service to Beyond Inc., the e-commerce giant that owns Overstock.com and Bed Bath & Beyond. 

Garg also addressed the company's stock price, which was $0.52 per share as of midday, suggesting Better would undertake a reverse stock split or similar measure to be authorized at the firm's yet-to-be announced annual meeting. 

Executives repeatedly touted Better's new LO comp model as cause for optimism. During a period with 20,000 application starts, Better funded less than 10%, Garg said. More experienced LOs can help the company reach competitors which fund applications at rates between 20% to 40%.

"[It's] a real business model pivot and we hope can help narrow the gap and dramatically improve unit economics between us and the rest of the industry," said Garg.