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Could This SPAC Be the Best Mortgage Stock to Buy Now?

By Matthew Frankel, CFP® and Jason Hall - Jun 29, 2021 at 7:46AM

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Several mortgage lenders have gone public recently, but this could be the most disruptive.

Several mortgage originators have gone public in the past six months or so, and with record-high refinancing volume and a surge in purchase mortgage applications, it's not surprising that these businesses want to complete IPOs while the numbers look great. But Better, which recently agreed to go public via SPAC merger with Aurora Acquisition (AURC 0.10%), could be the most interesting. In this Fool Live video clip, recorded on June 15, contributors Matt Frankel, CFP, and Jason Hall, along with chief growth officer Anand Chokkavelu, discuss the company and whether they'd invest. 

Anand Chokkavelu: No. 15 is Matt Frankel with Aurora Acquisition Corp, the SPAC that is really Better.

Matt Frankel: I threw this one into the mix, as opposed to some of the bigger mortgage lenders. Aurora Acquisition Corp, first of all, is acquiring Better Mortgage. They're taking Better public. I chose this instead of some of the bigger mortgage players because they are the more disruptive one in my opinion. Better Mortgage, they're aiming to bring a tech focus to the mortgage lending industry. It really improves the process. There are a lot of consumer pain points in the mortgage industry and it's not just the time to close which Better has improved upon. They closed their average loan in 21 days as opposed to the 42-day industry average. They also allow people to check their rates in three seconds, literally. You can get an approval in three minutes. You can lock your rate within 15 minutes of going to the site. That's pretty impressive. In my lifetime, I've gotten probably a total of almost 10 mortgages. I would say that in my lifetime, out of those 10 mortgages, they all took longer than 15 minutes to lock my rate. I can tell you that much, other than Better.

Jason Hall: Just to lock the rate?

Frankel: Right, just to lock the rate. The numbers have been impressive. You'll notice a ton of mortgage issuers have gone public lately and it's easy to see why. Rates have been low. Everybody's refinancing. I'm pretty sure we all have. Jason actually refinanced with Better just like I did.

Hall: With Better, yeah.

Frankel: Better's loan volume was up 490% year over year in 2020.

Chokkavelu: That sounds so made up.

Frankel: Well, you have to take it with a big grain of salt. Because when they're pretty much giving mortgages away, when mortgage rates are 2% and 3%, everybody is refinancing.

Chokkavelu: I refinanced twice. There you go.

Frankel: Right. Not only that, but Better specializes in refinancing. So of course, their numbers are going to look fantastic. Take them with a grain of salt. But it's really the disruptive nature of their business. Just from a business standpoint, their labor cost is more than 50% lower than the industry average, because of how tech focused they are. The average loan processor on their staff closes more than double the loans of the average mortgage processor. A lot of efficiencies in this business. Because it's a SPAC IPO that has not been completed, we don't have a ton of real numbers yet which is I think why most of us ranked this so low. There's just a whole lot we don't know. I don't want to speak for the other guys, but I have a feeling that it's something to do with it. Just to reiterate with what Anand was saying at the beginning, our rankings were all over the place with this so much that none of us ranked as less than 12, but in the aggregate, it was our lowest ranking stock. We didn't agree too much on a lot of these, but we all had decided 11th or 12th. There's that. Either of you have anything to add with Better?

Chokkavelu: Just in general, some of it is possibly my ignorance. With all the different market providers, Rocket (RKT 1.06%) is one that we didn't rank today, but has gone public and certainly is trying to make mortgages easier as well. With all of them, just I have a hard time wrapping my head around, putting everything in context with the refi boom, and just how good a period of time it is.

Frankel: Just to give you some context, Better did $24 billion of loan volume last year. After that, 490% growth. To put that in prospective, Rocket did $107 billion last quarter.

Hall: Right. I'll say this again. My anecdotal experience, it was so sleek, I don't want to say effortless, but it was by far the easiest, simplest mortgage refinance experience I've ever had. Anecdotally, I know that that probably did affect my score, but I can also say that the financials look very good. I rated them higher than the rest. I finally rated them as 11th. The reason I did was because this is still a cyclical industry. At some point, there's going to be a turn in the cycle for a period of time. It will be interesting to see, are they going to outgrow the next turn in the cycle? How is it going to affect our business? That's probably the biggest reason I didn't rank them higher, is track record.

Anand Chokkavelu, CFA has no position in any of the stocks mentioned. Jason Hall has no position in any of the stocks mentioned. Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Aurora Acquisition Corp. Stock Quote
Aurora Acquisition Corp.
$9.86 (0.10%) $0.01
Rocket Companies, Inc. Stock Quote
Rocket Companies, Inc.
$10.49 (1.06%) $0.11

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