Better Mortgage: Home Financing for the Modern Market
August 17, 2020 | Abree Murch
Anyone who has purchased — or tried to buy — a house knows that financing can be extremely stressful. Through his own personal experience, Better Mortgage founder and CEO Vishal Garg learned firsthand that the way people buy homes in America is riddled with inefficient processes, outdated technology, and general frustration. So he translated his experience into a business case and went on to start Better Mortgage.
Vishal has delivered now on his vision of streamlining the mortgage process to eliminate fees, unnecessary steps, and in-person appointments. The Better platform’s efficiency not only makes it easier to buy a home, but it translates into better rates and happier customers. Earlier this year, Better announced that it grew applications 200% during the pandemic and funded $1.4 billion of loans in the month of April alone. The company has also announced partnerships with major financial players like Ally Financial (the former GMAC), American Express, and Compass.
Today, with mortgage rates at historical lows, nearly all American homeowners are in the money to refinance. This refinancing boom has helped drive Better’s rapid growth. In fact, the $1.4 billion of funded loans in April 2020 is as much as the company funded in all of 2018, demonstrating 12x growth in 16 months.
Cutting Out the Middleman
Better’s mortgage lending platform is designed to re-engineer the way people finance their homes. Today, the platform originates loans for both new home purchases and refinancings. In addition, the company has expanded into ancillary mortgage services such as title insurance and homeowner’s insurance. Better has re-architected the way people secure mortgages through their technology platform by effectively cutting out the middleman (a commissioned loan officer) in order to be the low-cost provider for the residential mortgage market. The benefit of Better’s platform is that the entire mortgage process from application to closing can be done 100% digitally. Consumers who would like a white-glove service are able to work directly with a non-commissioned loan officer. This approach ensures that Better offers extremely competitive rates and pricing for their customers versus a traditional lender. Moreover, Better significantly reduces the time required to close on a mortgage versus a traditional lender. In a post-COVID world, Better’s seamless process with no in-person meetings is especially attractive.
What We Liked About the Deal
As we performed our diligence on Better, a number of distinct strengths became apparent:
- Strong management team. CEO Vishal Garg founded a similar business in the lending space, MyRichUncle, which went public in 2005. The CFO at the time, Howard Katzenberg, who helped us get into the deal, had deep operating experience in both strategy and finance from his prior role as CFO for On Deck Capital, which went public in 2014. CTO Erik Bernhardsson was previously the head of Machine Learning at Spotify, and his technical expertise have been instrumental in developing Better’s borrower-lender matching algorithm.
- Established co-investors. The company’s backers range from Goldman Sachs to Kleiner Perkins and Pine Brook Road Partners. Other investors include Ally Financial, American Express, and Citi.
- Innovative technology. The traditional mortgage origination business is archaic and inefficient. Better’s platform seamlessly matches a borrower to a lender using proprietary data points. Moreover, they have a mortgage buyer network of 25+ counterparties, which comprises over 70% of the mortgage market.
- Enormous potential market. The U.S. mortgage market is enormous — with over $25 trillion in homes — and can support multiple players with $1+ billion valuations. Additionally, the emergence of COVID-19 has increased demand for online lending solutions as public safety measures call for reducing in-person transactions.
How We’re Involved
Alumni Ventures Group deployed capital in Better Mortgage’s Series C round of financing which included Kleiner Perkins, Goldman Sachs, American Express and Citi. Triphammer Ventures, our fund for Cornell alumni and friends, led AVG’s participation in the round, alongside sibling funds Fission Ventures (for Columbia alumni and friends), Towerview Ventures (for Duke alumni and friends), and the AVG Total Access Fund.