Shares in Better, the company whose CEO fired 900 workers via Zoom earlier this year, experienced a significant decline of more than 95% on Thursday. The online mortgage lender recently went public through a merger with a special purpose acquisition company (SPAC), Aurora Acquisition Corp. However, this move was met with investor indifference, likely influenced by the current high mortgage rates. Better’s merger with Aurora, which was initially announced in 2021 but faced delays due to regulatory scrutiny and layoffs, was finally completed on Thursday. The newly merged entity, Better Home & Finance Holding, saw a sharp decrease in its share price, with shares falling to as low as 77 cents during early trading and closing down 93% at $1.15.
SPACs are shell companies that raise funds through public listings, intending to acquire a private company and take it public. In the case of Better, 95% of Aurora shareholders chose to redeem their shares before the merger. This resulted in the SPAC’s trust account having approximately $24 million in June, down from about $283 million at the end of last year. Such low public share availability typically indicates a higher susceptibility to volatility. Better did not provide an immediate comment on the share price movement.
The completion of Better’s merger with Aurora will inject $550 million from SoftBank into the mortgage lender. This capital infusion will be used to expand Better’s mortgage product offerings according to CEO Vishal Garg, as stated in a recent interview with Reuters. Better’s decision to go public is occurring amidst a surge in mortgage rates, with the popular 30-year fixed rate reaching its highest level since December 2000. This escalation has led to a significant decline in mortgage applications, reaching a 28-year low, as reported by the Mortgage Bankers Association. The rise in home-loan rates is influenced by the increasing yields on US government bonds, which have reached their highest level since the 2007-2009 financial crisis.
While Better experienced substantial growth during the initial stages of the COVID-19 pandemic when mortgage rates dropped, the company has faced challenges as rates continue to rise. It reported a net loss of $89.9 million in the first quarter of this year. However, Better anticipates a surge in demand for refinancing next year, coinciding with expected interest rate cuts by the Federal Reserve. These rate cuts would subsequently lead to lower Treasury bond yields and mortgage rates. CEO Garg expressed optimism about the company’s prospects, citing the additional $550 million capital infusion from SoftBank as a means to innovate and cater to customer needs. Better Home & Finance began trading on the Nasdaq on Thursday.
The SPAC market experienced significant growth in 2021 due to ultra-low interest rates. However, it quickly drew the attention of the Securities and Exchange Commission (SEC), concerned about potential investor disadvantages. The combination of Federal Reserve interest rate hikes and an SEC crackdown led to a decline in the SPAC market, causing an increase in redemption rates.
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