Better Home & Finance (BETR) Q1 2024: B2B Pipeline Expands as HELOC Volume Jumps 54%

May 14, 2024 | By EarningsIQ Research

Better Home & Finance reignited origination growth in Q1, outpacing sector peers via disciplined cost leverage and a sharp pivot to B2B and HELOC innovation. Management’s focus on experienced loan officer productivity, digital product expansion, and a robust B2B pipeline positions the company for medium-term margin improvement, though the path to profitability still depends on sustained volume gains and partner conversion.

Summary

• B2B Channel Momentum: Partner pipeline accelerated, with banks seeking cost-efficient mortgage tech.
• HELOC and Refi Drive Growth: Non-purchase products outpaced purchase originations as consumer demand shifted.
• Operating Leverage Emerges: Revenue growth sharply outpaced expense increases, signaling scalable model execution.

Business Overview

Better Home & Finance (BETR) is a digital-first mortgage originator offering purchase, refinance, and home equity line of credit (HELOC) products primarily through direct-to-consumer and business-to-business (B2B) channels. The company generates revenue via loan origination fees, gain-on-sale margins (the spread earned when loans are sold to investors), and net interest income from invested cash. Major segments include purchase loans, refinance, HELOCs, and a growing B2B “mortgage as a service” platform, underpinned by proprietary technology (Tin Man) designed to automate and streamline the mortgage process.

Performance Analysis

Q1 marked a decisive return to growth for Better, with funded loan volume and revenue both rising over 25% sequentially—a sharp contrast to the flat or declining volumes seen across much of the mortgage sector. HELOC and refinance products were the standout drivers, with HELOC volume up 54% and refi surging 232% quarter-over-quarter, reflecting consumer appetite for liquidity as high mortgage rates persist. Purchase loan growth was more modest at 12%, but management remains optimistic as the home buying season ramps up.

Operating discipline was evident: total expenses grew just 7% sequentially, while revenue expanded 26%. This gap signals emerging operating leverage, a core management focus. The company’s gain-on-sale margin improved to 2.37% from 2.03% for the full year 2023, attributed to better pricing, reduced concessions, and optimized loan sales execution. Marketing spend rose 27% as customer acquisition efforts scaled, yet overall cost management remained tight, with year-over-year expenses down 30%.

• Channel Mix Shift: Direct-to-consumer accounted for 54% of funded volume, with B2B partners contributing a robust 46%.
• Cash Position Strength: Over $500 million in cash and short-term investments provides ample liquidity for growth and strategic flexibility.
• Loan Officer Productivity: Experienced hires closed an average of 17.7 purchase loans per month versus peer averages in the single digits, underscoring the impact of the new compensation and operating model.

While profitability remains a medium-term target, the quarter demonstrated that volume and margin gains can scale faster than expenses—a critical proof point for the business model as market conditions evolve.

Executive Commentary

Strategic Positioning

1. B2B “Mortgage as a Service” Channel Expansion

Leadership is aggressively pursuing B2B partnerships with banks and financial institutions as many traditional players retreat from mortgage origination. The company’s technology platform, Tin Man, is pitched as a turnkey solution for banks seeking to offer mortgages without heavy infrastructure investment. Dialogue and pipeline activity are at all-time highs, though management cautions that integration cycles are long due to entrenched legacy contracts and bank sector priorities. This channel accounted for 46% of Q1 volume, and success here is pivotal for longer-term scale and margin improvement.

2. HELOC and Home Equity Innovation

HELOC demand is rising quickly as consumers seek liquidity without refinancing at higher rates. Better’s “one-day HELOC” product, which can deliver a commitment letter within 24 hours, is positioned to capture first-mover advantage in a largely unbranded market. Management sees the HELOC segment as being in its “first inning,” with substantial runway as consumer awareness builds and marketing ramps. The company is also collaborating with personal loan and home improvement lenders to offer HELOC as a service, broadening distribution.

3. Loan Officer Productivity and Technology Leverage

Better is “Uberizing” the loan officer role by recruiting experienced staff, aligning compensation to volume, and leveraging its proprietary tech to boost productivity. Recent hires are converting more leads and closing more loans than industry peers, especially in the purchase segment. The Tin Man platform automates workflows and drives customer conversion, with management targeting further improvements in unit economics and conversion rates as the tech and talent flywheel spins up.

4. Operating Leverage and Cost Control

Expense growth remains tightly managed despite higher marketing and origination activity. The company expects total expenses to be roughly flat year-over-year even as revenue rises, with automation and vendor cost reductions offsetting growth investments. The variable compensation model for sales teams ensures scalability without fixed cost drag, and ongoing automation is expected to drive further margin gains.

Key Considerations

This quarter marks a strategic inflection as Better pivots from retrenchment to measured growth, balancing volume recovery with margin discipline and B2B expansion.

Key Considerations:

• B2B Pipeline Conversion Pace: While partner interest is high, actual onboarding and revenue realization may lag, making timing and scale of B2B contributions a key variable.
• HELOC Brand Leadership Opportunity: The “one-day HELOC” could define category leadership if consumer education and digital marketing scale effectively.
• Loan Officer Model Scalability: Sustaining high productivity as volumes increase will test the tech-driven operating model and compensation alignment.
• Margin Sustainability: Gain-on-sale margin improvements are promising, but competitive pricing and macro shifts could pressure spreads.
• Cash Utilization Strategy: With a sizable cash reserve, capital allocation toward tech, marketing, or M&A could accelerate growth or buffer volatility.

Risks

The primary risk remains the uncertain pace of housing market recovery and consumer demand for purchase loans, which still comprise the majority of originations. B2B partner onboarding is slow and subject to external bank priorities and tech migration timelines. HELOC category growth depends on successful consumer education and may face competitive entry. Margin gains could reverse if pricing competition intensifies or if market rates shift unexpectedly. The path to profitability is contingent on sustained volume and margin expansion, which is not guaranteed in a volatile macro backdrop.

Forward Outlook

For Q2 2024, Better guided to:

• Funded loan volume above $800 million, a 20%+ sequential increase
• Continued operating leverage as revenue growth outpaces expense growth

For full-year 2024, management maintained guidance:

• Total expenses to be approximately flat versus 2023, with higher revenue expected

Management highlighted several factors that will shape forward performance:

• Ongoing investment in Tin Man technology to boost conversion and reduce costs
• Expansion of experienced loan officer hiring and variable compensation to drive volume without fixed cost inflation
• Scaling of B2B and D2C acquisition channels to broaden customer reach

Takeaways

Better’s Q1 results demonstrate that disciplined growth and digital innovation can drive operating leverage even in a tepid mortgage market.

• Volume and Margin Rebound: Sequential growth in both funded volume and gain-on-sale margins signals underlying business model resilience and demand for non-traditional mortgage products.
• B2B and HELOC as Growth Engines: The company’s pivot to B2B partnerships and digital HELOC offerings positions it for outsized share gains if execution remains strong and partner conversion accelerates.
• Profitability Watch: Investors should monitor expense discipline, B2B conversion timelines, and margin durability as leading indicators for the path to sustainable profitability.

Conclusion

Better Home & Finance delivered a quarter of renewed growth, with strong signals in B2B pipeline, HELOC adoption, and operating leverage. While execution risk remains, the company’s tech-enabled model and channel diversification lay the groundwork for medium-term margin improvement and market share gains as the housing cycle turns.

Industry Read-Through

Better’s results highlight a broader shift within the mortgage industry toward technology-driven origination and alternative home equity products. The rapid growth in HELOC demand and the company’s early-mover advantage with a digital “one-day HELOC” set a new standard for speed and convenience that traditional banks may struggle to match. The surge in B2B interest underscores how legacy financial institutions are seeking to outsource or partner for mortgage capabilities rather than invest in their own platforms, signaling a secular trend toward platformization. Peers with strong tech stacks and B2B readiness are likely to benefit, while originators reliant on pure purchase volume or legacy processes may face continued headwinds.

BETR Financials Mortgage B2B HELOC Technology Origination Digital