Several mortgage companies have gone public in the past six months or so, and with record high refinancing volumes and a spike in mortgage applications, it’s no surprise that these companies are looking to complete their IPOs when the numbers look great. But Better, which recently agreed to go public as a result of the SPAC merger with Acquisition of Aurora (NASDAQ: AURC)might be the most interesting. In that Fool Live video clip, written on June 15Fool.com contributors Matt Frankel, CFP and Jason Hall, along with Chief Development Officer Anand Chokkavelu, discuss the company and whether they will invest.
Anand Chokkavelu: Number 15 is Matt Frankel of Aurora Acquisition Corp, SPAC, which really is the best.
Matt Frankel: I added this to the mix, unlike some of the larger mortgage lenders. Aurora Acquisition Corp primarily acquires Better Mortgage. They take Better to the public. I chose it over some of the big mortgage players because they are more damaging in my opinion. Better Mortgage, they aim to bring attention to technology in the mortgage lending industry. This really improves the process. There are many consumer pain points in the mortgage industry, and this is not just a time that Better has improved its position. They closed their average loan in 21 days, up from the industry average of 42 days. They also allow people to test their speed in literally three seconds. You can get approval in three minutes. You can block your bet within 15 minutes after you go to the site. This is impressive. In my entire life, I have received a total of almost 10 mortgages. I would say that out of these 10 mortgages in my entire life, it took everyone more than 15 minutes to lock in my rate. I can tell you a lot besides “Better”.
Jason Hall: Just to block the speed?
Frankel: Okay, just to lock in speed. The numbers are impressive. You’ll notice that a ton of mortgage issuers have gone public lately and it’s easy to see why. The rates were low. Everyone refinances. I’m pretty sure we all have. Jason actually refinanced Better, just like me.
Hall: With Better, yes.
Frankel: Better loans grew 490% year over year in 2020.
Chokkavelu: Sounds so made up.
Frankel: Well, you have to take this with a grain of salt. Because when they give out mortgages pretty much, when mortgage rates are 2% and 3%, everyone refinances.
Chokkavelu: I refinanced twice. That’s all.
Frankel: Right. Moreover, Better specializes in refinancing. So, of course, the number will be fantastic. Treat them with suspicion. But in reality, this is the destructive nature of their business. From a business perspective, their labor costs are more than 50% lower than the industry average due to how technology-oriented they are. The average loan processor in their staff closes more than twice as many loans as the average loan processor. There is a lot of efficiency in this business. Since this is a SPAC IPO that hasn’t been finalized, we don’t have a ton of real numbers yet, so I think most of us rate it so low. We just don’t know a lot. I don’t want to speak for other guys, but I feel like it has something to do with it. To echo what Anand said at the beginning, our ratings were so high that none of us rated below 12, but collectively, these were our lowest-rated stocks. We didn’t really agree on many of them, but we all chose 11th or 12th. This. Do any of you have anything to add with Better?
Chokkavelu: In general, perhaps this is my ignorance. With all the different suppliers of the market, Rocket (NYSE: RKT) this is one that we did not rate today, but it went public and is certainly trying to simplify mortgages as well. With all of them, it’s just hard for me to wrap my head around putting everything in context with the refinancing boom, and how good a time frame is.
Frankel: Just to give you some context: Better made a $ 24 billion loan last year. After that, the growth is 490%. By comparison, Rocket made $ 107 billion last quarter.
Hall: Right. I’ll say it again. My anecdotal experience, it was so smooth, I hate to say it was easy, but it was the easiest and easiest mortgage refinancing experience I have ever had. Oddly enough, I know this probably really influenced my assessment, but I can also say that the financials look very good. I rated them above the rest. As a result, I gave them 11th place. The reason I did this was because it is still a cyclical industry. At some point in the cycle there will be a turn for a while. It will be interesting to see if they outgrow the next round of the cycle. How will this affect our business? This is probably the biggest reason I didn’t rank them higher is the track record.
This article represents the opinion of an author who may disagree with the “official” recommendation position of the premium consulting service Motley Fool. We are colorful! Bidding on an investment thesis – even our own – helps us all to be critical about investing and make decisions that help us become smarter, happier, and richer.