Better Home and Finance (NASDAQ: BETR) stock dropped 94% on its first day of dealings. BETR was a SPAC IPO and that’s a bad outcome even by the standards of those deals. One of the points we regularly make around here is that a stock price falling immediately after an IPO is a good deal for the company. They’ve been able to sell that new stock at more than its market value - that is a good deal. The technical details of how a SPAC works mean this isn’t quite true for this type of deal. For the reason the price falls is that not many pieces of stock were sold - that’s the bad part about it.
As to what’s done at Better H&F: “ With mortgage rates rising to their highest levels in more than two decades, it might not be the best time for Better Home & Finance, a mortgage origination company, to go public via a deal with a special purpose acquisition company, or SPAC.” And there’s some truth to that. A mortgage origination company makes money on transaction volume - the money risk is laid off onto the public markets and MBS creators and so on. So, if transaction volume has dried up at the top of the interest rate cycle then yes, the business is going to look pretty starved for revenue.
Better Home and Finance stock price from NASDAQ
No one other than a short seller will be happy at that performance. And it’s very, very, difficult to short right at the point of an IPO so there won’t have been many of those. There’s the usual self-congratulatory stuff from the company: “Since Better first announced the business combination with Aurora, the company has doubled down on technology to make itself leaner and more efficient while continuing to improve the homeownership process for its customers.” It may even be true that they’re better than other mortgage companies - but if few people are taking out mortgages this isn’t going to help.
The specific problem is this: “Only a fraction of Better shares were available for trading after a vast majority of investors opted to cash in their investments before the SPAC tie-up was completed, SPAC Research data analyzed by Bloomberg shows.” SPAC investors can take their $10 back if they don’t like the look of the deal. Apparently 95% did so in this case. And that’ll crater a stock price, 95% of stockholders taking the cash and running for the hills.Tr
Weirdly, at this price Better H&F doesn’t look that bad a deal. On one assumption: “Better is expecting a boom in demand for refinancings next year, when the Fed is expected to start cutting interest rates, which in turn would cause Treasury bond yields and mortgage rates to fall, executives said.” Well, maybe that will happen and maybe they’ll be able to capitalise upon it. But that would be, for us, the only reason to take a view on Better H&F.
