It's been an interesting time for mortgage lenders over the past year and a half or so, with record-low interest rates and surging home prices leading to unprecedented loan demand. So it's not a surprise that several mortgage lenders have chosen to go public while their numbers are looking stellar.
Online mortgage lender Better is joining the party. The innovative lending platform announced plans to go public via SPAC merger, valuing the company at $7.7 billion. Here are the details of the transaction, as well as some key figures investors should keep in mind as they evaluate this lender's public debut.
Better is going public via SPAC
Better announced that it has agreed to a merger with Aurora Acquisition (NASDAQ: AURC), which will effectively take the company public. The deal values Better's business at about $6.9 billion, or $7.7 billion including new cash that will be injected into the business.
As part of the deal, a SoftBank Group subsidiary is committing a $1.5 billion investment (known as a PIPE in SPAC terms), in addition to the $220 million Aurora raised in its initial SPAC IPO. Current Better shareholders are receiving $950 million of the cash committed to the deal, while the rest -- about $778 million after transaction costs -- will be added to Better's balance sheet to help fuel the growth of the company.
The transaction is expected to be finalized by the end of 2021, at which point the SPAC and Better will combine and trade as one company under the Better name.
A great time to be a mortgage lender
Better is a mortgage lender that aims to put the entire home financing process online. It claims the average loan on its platform closes in just 21 days, roughly half the time as with traditional lenders. The platform also offers title insurance, homeowners insurance, and real estate agent services in order to create a one-stop shop for homebuyers.
The recent numbers look stunning. Better funded $24.2 billion in loans in 2020, a year-over-year growth rate of 490%. It provided $7.7 billion in title insurance and $1.4 billion in homeowners insurance, which was 855% and 300% more than in 2019, respectively. Some of this is certainly fueled by the surge in refinancing volume in 2020, but this is still extremely impressive. And Better's addressable market is estimated to be more than $15 trillion in size, so there's still a ton of growth potential.
Better's focus on technology makes it more efficient than most lenders. Its labor cost is 57% lower than the industry average, which not only makes the business more profitable but allows some of the cost advantages to be passed on to customers.