Better.com continues to invest in AI even as its earnings suffer

Better Home & Finance Holding Co., the parent of digital lender Better, reported a net loss of $54.1 million in the third quarter of 2024 during an earnings call on Tuesday. By comparison, the company lost $41.4 million in Q2 2024 and $353.9 million in Q3 2023.

Better reported third-quarter revenue of $29 million, down from $32.3 million in the prior quarter but up from $4.9 million in the same period a year ago. The company’s earnings release noted a nonrecurring gain of $5.5 million in Q2 2024 related to mark-to-market impacts on its lock pipeline. 

The New York-based digital homeownership platform saw its revenue take a dip as it continues to invest in artificial intelligence (AI) and build out its retail channel. Founder and CEO Vishal Garg made a eye-popping statement when he opined that “in the next 10 years, 99% of the (mortgage) tasks will be completed by bots and 1% by humans.” 

“The bulk of the tasks that are required to process a mortgage are going to be performed by AI bots over the next 10 years,” Garg said in an interview with HousingWire. “And I think the reason why is if you look at all the discrete tasks that go alongside making a mortgage — whether it’s collecting information, processing documents, staring and comparing between a paystub and a W2, and what the consumer inputted on the screen — those are all things that a computer can do far, far better than a human.”

The company posted an adjusted EBITDA loss of $38.7 million in Q3, compared to $23.3 million in the prior quarter and $53.9 million in the same period last year.

The company also reported a funded loan volume of $1.035 billion for Q3 2024, up 42% year over year and up 8% quarter over quarter, with 71% of this volume attributed to purchase loans. Its funded volume was also driven by growth in refinance and home equity originations, including home equity lines of credit (HELOCs) and closed-end second-lien mortgages.

“In Q3 we continued leaning into growth, driving a quarter-over-quarter increase in funded loan volume in line with the guidance we provided last quarter, alongside increases in our growth expenses including loan team compensation and marketing,” chief financial officer Kevin Ryan said during the earnings call.

Better reported that it ended Q3 2024 with $480.1 million in cash, restricted cash, short-term investments and self-funded loans.

“We are pleased with the year-over-year growth we achieved in Q3 and the opportunity to help thousands of Americans achieve their homeownership goals this quarter,“ Garg said in a statement. “Our team delivered these results despite limited interest rate relief and continued macro headwinds.”

Other highlights from Better included positive early results from its AI investments, namely with “Betsy,” a tool that assists customers with the mortgage process from preapproval through closing. Betsy uses Better’s loan engine, Tinman, and is a product the company hopes to white label and bring public in the near future, Garg confirmed on the earnings call. He added that since Betsy is so new, there was no concrete data available to report for Q3. 

Better’s earnings report also included the announced hiring of the executive team from NEO Home Loans to build out a distributed retail channel. The goal is to combine Better’s AI technology with NEO’s local loan expertise to increase market reach, especially in the purchase mortgage segment. NEO was previously expected to close in early 2025.

“We expect to bring on their retail branches, which are about 50 retail branches, onto our better platform,” Garg said on the call. “What that means specifically is that NEO Home Loans will be operating on Tinman, leveraging Better’s platform to service the customers that they currently have.”

Garg included that the investment in NEO comes directly from Better’s balance sheet and will operate under a typical profit-and-loss model. In terms of compensation, Garg said that he envisions a different model than Better’s call-center loan officers.

“Our first competitive advantage is our manufacturing cost per loan is significantly lower and our productivity per loan officer is significantly higher, even for purchase transactions,“ Garg explained.

“And two, we’re going to be able to offer customers things like one-day mortgage and one-day HELOC, which are things that you know traditionally are not available in the retail channel. And then three, the NEO loan officers are going to get the benefit of being able to serve Better’s customer base in the local markets you know that they operate in.”

Garg said that the company’s persistent investments in AI aren’t going to halt hiring activities anytime soon.

“We’re going to continue to add people thoughtfully. One of the things that we have been doing when we’re adding people is measuring their adaptability to technology and to technology doing the task for them,” he said. “We’re pretty proud to say of the folks that we’ve onboarded this year, a very significant majority of them have done well on the Tinman platform, and have gone from doing two loans a month to doing 10 loans a month.” 

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