By Hannah Lang and Lance Tupper
(Reuters) -Shares in Better Home & Finance Holding plummeted more than 93% on Thursday as investors snubbed the online mortgage lender, which went public via a blank-check company merger just as mortgage rates have hit two-decade highs.
Backed by SoftBank (TYO:9984), Better completed its combination with special purpose acquisition company (SPAC) Aurora Acquisition Corp, capping a rocky deal that was first announced in 2021 but delayed amid regulatory scrutiny and layoffs at Better.
The company hit the headlines in December 2021 after it laid off 900 employees via Zoom, and has since seen its profits dented as high mortgage rates have dampened demand for home loans.
Aurora went public in March 2021. Shares in Better Home & Finance Holding Co, the newly merged entity, finished the session down 93.4% at $1.15.
SPACs are shell companies that raise funds through a public listing with the goal of acquiring a private company and taking it public. Investors in the SPAC typically have the option to redeem their shares before the merger.
In Better's case, 95% of Aurora shareholders redeemed their shares, leaving the SPAC's trust account with roughly $24 million at the end of June from about $283 million at the end of last year, filings show. Typically, a small amount of publicly available shares makes a stock prone to volatility.
The company did not immediately respond to a request for comment on the share price move.
The completion of Better's merger with Aurora will provide the mortgage lender with an infusion of $550 million from SoftBank, which it will use to expand its mortgage product offerings, CEO Vishal Garg told Reuters in an interview earlier this week.
Better enjoyed huge growth during the onset of the COVID-19 pandemic when mortgage rates cratered, notching more than $850 million in revenue in 2020, filings show. But it has struggled as rates have risen, reporting a net first quarter loss of $89.9 million in July.
U.S. mortgage rates continue to surge, with the popular 30-year fixed rate last week hitting the highest level since December 2000, helping drive mortgage applications to a 28-year low, the Mortgage Bankers Association said on Wednesday.
That came after yields on U.S. government bonds that influence home-loan rates surged to the highest since the 2007-2009 financial crisis.
BETTER OUTLOOK
Amid ultra-low interest rates, the SPAC market exploded in 2021, but quickly drew scrutiny from the U.S. Securities and Exchange Commission, concerned some investors were getting a raw deal. Since then, U.S. Federal Reserve interest rate hikes aimed at taming inflation and an SEC crackdown have put a damper on the SPAC market, and redemption rates have risen.
The SEC last year requested information on Garg's business transactions and allegations made in a lawsuit that he and Better provided misleading statements.
The agency informed Better and Aurora this month that it had concluded its probe and would not be recommending an enforcement action, according to a regulatory filing, clearing the path for the deal to close.
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.
"We think that this is a really great time for us to be out there, capitalized with an additional $550 million from SoftBank that will enable the company to continue to innovate and serve its customers," Garg told Reuters.