Better.com discloses another massive loss, new SEC probe

Better.com posted a net loss of $327.7 million in the first quarter and cut approximately 72% of its workforce over a six-month period, according to a new disclosure.

The Securities and Exchange Commission is also investigating the lender for possible violations of federal securities laws following accusations it misled investors, special-purpose acquisition company Aurora Acquisition Corp. said in its filing Thursday with the federal agency. Both companies said they are cooperating with the probe.

The anticipated merger with the SPAC to take Better public is now expected to be completed in the third quarter, according to the disclosure. In a press release, Better didn’t address the contents of the SEC filing but instead touted the company’s growth. 

“I’m gratified to my Better colleagues and teammates that even in a tough economic environment we continue to serve customers and attract top talent,” said CEO Vishal Garg.

Better backed Garg as CEO in the filing, citing his leadership since he founded the company in 2015 and his efforts to improve workplace culture. In the press statement, Aurora CEO Arnaud Massenet and Chief Investment Officer Prabhu Narasimhan said Better’s commitment to improving its financial discipline gave them confidence in the business. 

The lender’s net loss in the first three months of the year exceeded its reported net loss of $303.8 million for the entirety of 2021. It’s also an enormous drop from Better’s $82.2 million worth of net income in the first quarter last year, when the firm was enjoying the market’s record-high origination activity and refinance boom.

The lender funded approximately 19,000 loans in the first quarter compared to 38,000 in the same stretch last year. Its gain-on-sale margin was 1.21% over the year’s first three months, a decline of approximately 194 basis points compared to 3.01% in the first quarter of 2021.

Rising interest rates and declining mortgage volume have hampered revenue as has the costs of negative media coverage associated with massive layoffs, the disclosure said. Better, as of May 15, had a workforce of 2,900 team members, 41% of whom are based in India, down from a peak of 10,400 employees during the fourth quarter last year. In addition, it has slashed its roster of real estate and insurance agents in the Better Plus line of business from 1,800 to 600.

Since the end of March, Better has incurred costs between $39.4 million to $43.4 million primarily consisting of one-time termination benefits for laid-off workers. A disastrous firing of 900 staffers over Zoom in December cost the company $14.4 million, the disclosure revealed.

“Further, the decision to retain Mr. Garg was poorly received by some employees, a number of which have now left Better,” the filing said. “Others who remain or remained for some period of time expressed displeasure, which has been damaging to morale.”

Better admitted Garg’s retention would make it harder to recruit qualified workers. The company said it plans to conduct a second independent review of its internal culture later this year, after an earlier evaluation following last December’s layoff.

In a federal whistleblower retaliation lawsuit, Garg is accused of violating state labor laws over December’s firing, among other civil counts, by his former second-in-command, Sarah Pierce. Thursday’s disclosure acknowledged the lawsuit and described it as in its early stages.

The SEC’s queries to Better and Aurora covered allegations made in Pierce’s lawsuit, along with documentation around Better’s operations and materials related to Garg’s actions, the filing said. As of Thursday afternoon, attorneys in Pierce’s case, which is taking place in a New York federal court, haven’t filed any new motions after last week’s letters from defendants sought to dismiss the complaint.  

An attorney for Pierce last week said Better was allegedly “dangerously close” to dipping below a cash-level reserve required by its warehouse line of credit to fund mortgages, according to a source with close knowledge. Better said Thursday it was in compliance with its line-of-credit covenants as of March 31.

The company also said it entered into an agreement to buy an unnamed United Kingdom banking entity for approximately $13.8 million. It purchased London-based online mortgage broker Trussle Lab last year.

The lender touted its Better Cash Offer program unveiled at the end of last year as well, one of a number of newer competitive offerings by lenders to address soaring home prices. Better’s Cash Offer program reported $107.2 million in revenue but incurred $107.7 million in expenses over the first three months of the year, according to the filing. 

If the Aurora merger isn’t completed by Sept. 30, the agreement can be terminated, the filing said. If the merger isn’t finished by March 8, 2023, Aurora will dissolve and redeem public shares.