Better Home & Finance (BETR) Q4 2023: Expenses Down 71% as New Commission Model Targets Conversion Gap

2024-03-28 | By EarningsIQ Research

Better Home & Finance executed a dramatic expense reset in 2023, slashing costs by 71% and pivoting to a commission-based loan officer model that aims to close a critical conversion gap against industry peers. With B2B partnerships driving over half of Q4’s loan volume and the Tinman platform powering rapid product launches, the company is betting on operational leverage and automation to capture share as the mortgage cycle turns. Investors should watch for execution on volume growth, margin lift, and proof that the new sales strategy can materially improve unit economics as market demand recovers.

Summary

  • Commission Model Overhaul: BETR shifted its salesforce to a commission-based structure to address lagging application-to-loan conversion rates.
  • Expense Reset Unlocks Flexibility: Deep cost cuts and a strong cash position support measured growth as mortgage demand stabilizes.
  • B2B and Automation Expansion: New partnerships and Tinman platform advances position BETR to scale with minimal incremental cost.

Business Overview

Better Home & Finance operates a technology-driven mortgage origination platform, offering digital home loans, real estate, and insurance products. The company generates revenue through direct-to-consumer (DTC) channels and B2B “mortgage as a service” partnerships, using its proprietary Tinman automation platform to lower costs and accelerate loan processing. In 2023, purchase loans comprised 91% of volume, with B2B now exceeding half of quarterly originations.

Performance Analysis

BETR’s Q4 results reflect a business in transition, with revenue and loan volume down sharply from pandemic-era peaks but operational losses narrowing considerably. The company funded $527 million in loans for the quarter, modestly ahead of guidance, and achieved a 50% sequential improvement in adjusted EBITDA loss. Expense discipline was the defining theme, with total costs down 71% year-over-year, led by a 74% reduction in mortgage platform expenses and a 68% cut in marketing spend. The cost reset enabled BETR to end 2023 with $554 million in cash and equivalents, a 60% increase from the prior year, providing crucial liquidity for measured growth initiatives.

Channel mix shifted notably: B2B partnerships accounted for 51% of Q4 loan volume, up from 45% for the full year, reflecting traction with new partners like Infosys and Beyond.com. Purchase loans dominated at 91% of volume, as the company leaned into real estate agent relationships and launched new products including VA, FHA, and one-day HELOCs. Importantly, Tinman-enabled “one-day mortgage” loans made up 83% of DTC originations (excluding HELOCs), underscoring the platform’s automation advantage. While revenue per loan is trending up as service levels rise, overall conversion rates remain a key area for improvement relative to industry benchmarks.

  • Conversion Gap Remains Material: BETR funds less than 10% of applications versus 20–40% for peers, a gap the new commission model directly targets.
  • B2B Growth Diversifies Risk: Over half of Q4 volume now comes from B2B, reducing reliance on DTC and customer acquisition spend.
  • Tinman Drives Product Velocity: The platform now supports rapid launches (e.g., one-day HELOC, VA/FHA), broadening addressable market and improving customer experience.

Expense containment and capital raise from the go-public transaction have positioned BETR to lean into growth as the mortgage market stabilizes, but execution on conversion and margin expansion will be critical in 2024.

Executive Commentary

"We reduced total expenses by approximately 71% year-on-year and by over $1.1 billion since 2021. Specifically, year-over-year in 2023, our mortgage platform expenses declined 74%, marketing and advertising expenses declined 68%, technology and product development expenses declined 32%, and general and administrative expenses declined 22%, where the expense decline was partially offset by increased costs of going public."

Vishal Garg, Founder and Chief Executive Officer

"Our fourth quarter volume was 49% generated through our direct-to-consumer channel, and 51% through our B2B channel, and with 91% purchase loans, 5% refinance loans, and the remainder was HELOC dollar volume. Excluding HELOC in the fourth quarter, 83% of our direct-to-consumer channel loans were one-day mortgage loans, where we generate a commitment to the customer within one day."

Kevin Ryan, President and Chief Financial Officer

Strategic Positioning

1. Commission-Based Sales Model to Close Conversion Gap

BETR’s most significant strategic shift is its move to a commission-based loan officer model for the DTC channel, replacing the prior fixed-compensation, customer service-oriented approach. This pivot is designed to address sub-10% application-to-funding conversion rates, which lag industry norms by a wide margin. Early pilots with seasoned, commission-incentivized loan officers have shown “dramatic” conversion improvement, and the company has now fully transitioned its salesforce, aiming for better alignment between compensation, production, and customer nurturing through the longer purchase journey.

2. B2B Partnerships Expand Non-Captive Distribution

Partnerships with brands like Infosys and Beyond.com have become a core growth lever, enabling BETR to originate loans with minimal customer acquisition cost. B2B now drives over half of quarterly volume, with economics that vary from referral bounty models to white-label mortgage-as-a-service for banks. These partnerships diversify revenue streams, reduce reliance on direct marketing, and validate Tinman’s value proposition for external institutions.

3. Tinman Automation as Competitive Moat

Tinman, BETR’s proprietary automation platform, underpins the company’s ability to offer “one-day mortgage” and “one-day HELOC” products, expand into new loan types (e.g., VA, FHA), and drive cost per loan down materially. Management frames Tinman as a supervised learning network with rules engine and emerging AI capabilities, aiming to further automate underwriting and customer matching. Tinman’s scalability is central to BETR’s plan to deliver lower rates, higher approval certainty, and faster close times than legacy rivals.

4. Flexibility to Lean Into Growth

With a fortified balance sheet and expense base reset, BETR is positioned to increase customer acquisition and origination capacity as the mortgage market stabilizes. The company plans to ramp digital marketing in high-ROI channels, selectively hire experienced loan officers, and expand HELOC marketing to capture rising demand. Management is explicit that expense growth will be tightly controlled and variable, with total costs guided to remain flat year-over-year even as volume rises.

5. Margin Expansion Focus

BETR is actively raising price and limiting concessions, leveraging improved service levels to drive gain-on-sale margins closer to industry averages. The company has tested higher pricing with limited impact on conversion, and sees its historical low-cost positioning as a base from which to judiciously expand unit economics, particularly as the salesforce transitions to higher-touch, commission-driven engagement.

Key Considerations

2023 marked a foundational reset for BETR, with the company emerging from a period of aggressive cost containment and operational overhaul. The focus now shifts to execution on volume, margin, and product expansion as the mortgage cycle turns.

Key Considerations:

  • Conversion Rate Remains Critical Watchpoint: The move to commission-based loan officers is designed to close a significant conversion gap; sustained improvement is needed to justify higher acquisition and personnel spend.
  • B2B Channel Reduces Customer Acquisition Risk: Partnerships provide volume with minimal marketing outlay, but scaling white-label and referral models requires continued investment in Tinman capabilities and partner onboarding.
  • Product Breadth Expands Addressable Market: Launches in VA, FHA, and HELOC segments broaden BETR’s reach, but require Tinman to adapt to more complex underwriting and regulatory requirements.
  • Expense Base Now Highly Variable: The shift to commission comp and digital marketing enables rapid scaling or contraction as market conditions evolve, supporting profitability targets even if volume recovery is gradual.
  • Regulatory and Market Structure Changes: The NAR settlement and CFPB scrutiny of “junk fees” could accelerate digital adoption and price competition, potentially advantaging BETR’s low-cost, transparent model.

Risks

Execution risk is elevated as BETR leans into growth, especially given historical underperformance on conversion and the challenges of scaling a new sales model. Regulatory scrutiny around mortgage fees could compress industry economics, though BETR’s low-fee positioning may offer some insulation. The company’s stock price remains below $1, triggering potential reverse split considerations to maintain Nasdaq listing. Market recovery timing and competitive responses from legacy lenders and digital peers also pose material uncertainties.

Forward Outlook

For Q1 2024, BETR guided to:

  • Funded loan volume of $600 to $650 million, up 14% to 23% sequentially
  • Expense base approximately flat year-over-year despite growth investments

For full-year 2024, management maintained guidance:

  • Total expenses flat versus 2023, with volume growth and margin improvement targeted

Management highlighted several factors that will influence results:

  • Continued investments in Tinman automation and product expansion
  • Measured hiring of experienced loan officers tied to market demand and conversion trends
  • Potential for refinance market to double by 2025, per MBA and Fannie Mae forecasts
  • Active evaluation of measures to address sub-$1 stock price, including possible reverse split

Takeaways

BETR’s expense reset and shift to a commission-driven salesforce mark a decisive pivot toward scalable, market-competitive operations. The company’s ability to drive conversion rates, leverage Tinman automation, and expand B2B partnerships will determine whether it can translate cost discipline into profitable growth as mortgage demand recovers.

  • Conversion Improvement is the Linchpin: Early results from the new sales model are promising, but sustained gains are needed to close the unit economics gap with industry peers.
  • Automation and B2B Diversification Provide Optionality: Tinman’s product velocity and partner traction offer multiple growth vectors beyond traditional DTC marketing.
  • 2024 is a Prove-It Year: Investors should track volume growth, margin expansion, and expense discipline as key signals of BETR’s ability to capitalize on a stabilizing mortgage cycle.

Conclusion

Better Home & Finance enters 2024 with a streamlined cost base, a retooled sales strategy, and a robust cash position to support measured growth. While B2B momentum and Tinman automation offer clear upside levers, the company’s long-term trajectory hinges on its ability to materially improve conversion and unit economics as market demand returns. Execution against these priorities will determine whether BETR can move from reset to sustainable, profitable scale.

Industry Read-Through

BETR’s aggressive cost reset and pivot to commission-based sales reflect broader pressures facing digital mortgage originators as the industry emerges from a cyclical trough. The growing importance of B2B “mortgage as a service” partnerships suggests that traditional banks and digital platforms alike are seeking scalable, tech-enabled origination solutions. Tinman’s rapid product launches and automation focus signal a rising bar for operational efficiency and customer experience across the sector. Regulatory scrutiny of fees and the NAR settlement may accelerate digital adoption and price transparency, advantaging low-cost, automation-first models. Incumbents and fintechs should monitor BETR’s execution as a bellwether for digital disruption and margin dynamics in mortgage and adjacent home finance markets.

BETR Financials Mortgage Automation B2B partnerships Digital lending Expense management