Shares in online mortgage lender Better Home & Finance Holding (BETR.O) experienced a massive drop of over 93% on Thursday as investors showed little interest in the company. The plummet comes as mortgage rates have reached their highest levels in two decades.
Better had recently completed its merger with special purpose acquisition company (SPAC) Aurora Acquisition Corp, which was backed by SoftBank (9984.T). The deal faced numerous challenges, including regulatory scrutiny and layoffs at Better. The company made headlines in December 2021 when it laid off 900 employees via Zoom. Since then, it has struggled to maintain profits due to the impact of high mortgage rates on loan demand.
The newly merged entity, Better Home & Finance Holding Co, saw its shares finish 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 this case, 95% of Aurora shareholders chose to redeem their shares before the merger, leaving the SPAC’s trust account with approximately $24 million, significantly lower than the $283 million it had at the end of last year. Such low availability of publicly traded shares often leads to heightened stock volatility.
Better has not yet responded to requests for comment on the significant drop in its share price. However, its CEO, Vishal Garg, stated in an earlier interview with Reuters that the completion of the merger with Aurora would provide the mortgage lender with $550 million from SoftBank, enabling it to expand its mortgage product offerings.
The company experienced significant growth during the COVID-19 pandemic when mortgage rates plummeted. However, as rates have risen, Better has struggled, reporting a net loss of $89.9 million in the first quarter of this year.
The Mortgage Bankers Association reported that U.S. mortgage rates continue to surge, hitting the highest level since December 2000. This has led to a decline in mortgage applications to a 28-year low. The surge in rates is in response to yields on U.S. government bonds, which influence home-loan rates, reaching their highest levels since the 2007-2009 financial crisis.
The SPAC market, which saw significant growth in 2021 amid ultra-low interest rates, has faced scrutiny from the U.S. Securities and Exchange Commission (SEC). The agency was concerned that investors were not receiving fair deals in SPAC mergers. The SEC’s crackdown, along with interest rate hikes by the U.S. Federal Reserve aimed at controlling inflation, have dampened the SPAC market and increased redemption rates.
Better and Aurora were under SEC scrutiny, with a request for information regarding business transactions and allegations of misleading statements made in a lawsuit. However, the SEC recently concluded its probe and will not recommend any enforcement action, allowing the Better-Aurora merger to proceed.
Executives at Better predict a surge in demand for refinancing next year when the Federal Reserve is expected to start cutting interest rates. This would cause Treasury bond yields and mortgage rates to fall, providing a more favorable market for Better’s operations.
“We think that this is a really great time for us to be out there, capitalized with an additional $550 million from SoftBank that will enable the company to continue to innovate and serve its customers,” stated CEO Vishal Garg.
Better Home & Finance Holding’s stock drop serves as a reminder of the volatile nature of the market, particularly for newly merged entities.