Better Home & Finance Holding (BETR.O) experienced a significant drop in its shares, plummeting more than 93% on Thursday. The online mortgage lender went public through a merger with a blank-check company just as mortgage rates reached their highest point in two decades. The company, backed by SoftBank (9984.T), completed its combination with special purpose acquisition company (SPAC) Aurora Acquisition Corp after facing regulatory scrutiny and layoffs.
Better Home & Finance Holding made headlines in December 2021 when it laid off 900 employees via Zoom. The company’s profits have been negatively impacted by high mortgage rates, which have dampened demand for home loans. Shares in the newly merged entity finished the session down 93.4% at $1.15.
SPACs are shell companies that raise funds through a public listing with the intention of acquiring a private company and taking it public. In the case of Better, 95% of Aurora shareholders redeemed their shares, leaving the SPAC’s trust account with approximately $24 million at the end of June. This low number of publicly available shares makes the stock more prone to volatility.
The completion of the merger with Aurora will provide Better with a $550 million infusion from SoftBank. CEO Vishal Garg stated that the funds will be used to expand the company’s mortgage product offerings. Better experienced significant growth during the COVID-19 pandemic when mortgage rates were low, generating over $850 million in revenue in 2020. However, the company has struggled as rates have risen, reporting a net loss of $89.9 million in the first quarter of this year.
U.S. mortgage rates continue to surge, with the popular 30-year fixed rate reaching its highest level since December 2000. This has led to a decrease in mortgage applications, with the Mortgage Bankers Association reporting a 28-year low. The surge in rates is attributed to the increase in yields on U.S. government bonds, which influence home-loan rates and have reached their highest level since the 2007-2009 financial crisis.
The SPAC market experienced significant growth in 2021 but has faced scrutiny from the U.S. Securities and Exchange Commission (SEC). Concerns about investors receiving unfair deals and SEC crackdowns have dampened the SPAC market, leading to increased redemption rates. The SEC previously requested information on Better’s business transactions and allegations of misleading statements. However, the agency recently concluded its probe and will not be recommending an enforcement action, clearing the path for the merger to close.
Better anticipates a boom in demand for refinancings next year when the Federal Reserve is expected to start cutting interest rates. This would cause Treasury bond yields and mortgage rates to fall. CEO Vishal Garg believes that this is an opportune time for the company, with an additional $550 million from SoftBank enabling Better to continue innovating and serving its customers.
Reporting by Hannah Lang in Washington and Lance Tupper in New York; Editing by Michelle Price, Jonathan Oatis, and Marguerita Choy
