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Vishal Garg is the CEO & Founder of Better.com (NASDAQ: BETR), a publicly traded online mortgage lender that has funded more than $100 billion in mortgage volume in the last decade.
Prior to going public in 2023, they raised capital from a long list of VCs, including Activant, Softbank, AmEx, Citi, and Goldman among others.
In this episode, we discuss:
How Better’s business volume exploded in 2020 & 2021, but later dropped 99% in a matter of months
“In 2020, our revenue went up by 880%... volume went up by 500%.”
“The market deteriorated before before our eyes. So we are, I think the biggest failing was not recognizing how much the fortunes of the company are tied to the macro market and the interest rates.”
Better dot com experienced an extraordinary surge in business volume during 2020 and 2021, primarily driven by two key factors – COVID and interest rates. The pandemic led to a significant drop in rates, making mortgage refinancing highly attractive and driving unprecedented volumes. In addition, in-person and traditional banking channels were less accessible due to lockdowns, pushing consumers towards Better’s online alternative. The company capitalized on this shift and scaled its operations to handle the increased demand. Their revenue soared by 880%, with loan volumes skyrocketing from $4.5 billion in 2019 to over $24 billion in 2020, eventually reaching $60 billion in 2021 (!). But the party came crashing down quickly…
The rapid rise in interest rates that began in early 2022 marked the beginning of mayhem for Better. As inflation crept up and the 10-year bond yield increased, demand for refinancing plummeted 99%. Given that 95% of Better's business volume was reliant on their refinancing product at that time, the cost of acquiring new leads also rose sharply, and the company's workforce, which had expanded from 1,500 to over 10,000 employees to meet previous demand, became unsustainable.
An inside look into Vishal’s controversial decision to let go 900 people over zoom
“Over the past two years, for an average mortgage, the amount of refinancing volume has come down by almost 99%. So which is pretty significant…”
“The first thing I was thinking was, as a leader of the company, I should take responsibility for the fact that we're now downsizing. I wasn't gonna hide behind an HR person… Now, I clearly bungled it”
Vishal’s most controversial decision to date was to slash 900 employees over a zoom call led by him. He says that he wanted to lead from the front, but made serious mistakes in the execution. As the CEO, he felt it was his responsibility to lead both the company’s growth and its contraction, and he intended to demonstrate accountability and transparency by doing it himself. However, the execution revealed a significant lack of empathy and awareness of the emotional impact on employees and he probably did not listen to executives and advisors close to him. He now acknowledges that his delivery failed to adequately convey the gravity of the situation and the feelings of those affected.
Better’s latest product innovations
“80% of the mortgages that we do today are one day mortgages. So it's not a gimmick, it's not something that applies to 5% of the mortgages we do.”
Despite the controversy, Better.com has continued innovating. Launched in 2023, their One-Day Mortgage product allows customers to go from clicking on their website to receiving a mortgage commitment letter within just one day, often taking as little as eight hours. This service has been so successful for Better, that today it represents 80% of the mortgages processed by them. By leveraging advanced machine learning and a sophisticated rules engine, Better.com has automated the majority of backend processes involved in mortgage approval, drastically reducing the time and effort typically required. The service is built on a supervised learning network, which ensures accuracy and efficiency by maintaining strict guardrails and pathways. According to Vishal, the One-Day Mortgage enables potential homebuyers to compete effectively against cash offers or iBuyers, giving them with immediate financial assurance when entering into a property contract.
The current state of the residential real estate market, on-balance sheet vs off-balance sheet… and a lot more!
“We went public at the absolute worst time in the past three decades for a mortgage company to go public.”
Vishal’s Book Recommendation: The Hard Thing About Hard Things, by Ben Horowitz
“I went through the process of having to downsize the past two years, which was a pretty dark period for us. I would read that book every six months.” Amazon Link
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Vishal Garg, CEO of Better.com - Tough Lessons, Rebuilding a Company Culture, Pioneering the One Day Mortgage