Better.com is Using AI to Disrupt the Mortgage Market

How can technology such as artificial intelligence (AI) revolutionize lending? That’s the central question Better Home & Finance [BETR] — better known as Better.com — is asking. 

Founded in 2014, the homeownership company has always been technology-forward, funding its first mortgage loan entirely online in 2015. In the decade that followed, Better.com has focused on fully digital offerings, becoming the first fintech to fund $100bn of home loans entirely online in 2022. 

Leah Price joined the company earlier this year as Vice President of Better’s Tinman AI Platform with the express goal to “disrupt” the entire mortgage stack. Prior to that, she worked at the Federal Housing Finance Agency (FHFA), where she led the Office of Fintech and the Office of the Chief AI Officer, as well as Figure Technology Solutions [FIGR] and Fannie Mae. Much of her career, especially her time at FHFA, has involved “taking a bird’s eye view of everything that was going on in fintech and AI in the mortgage industry and assessing where we were”. 

Better.com always stood out. “They were always seen as an industry leader, really pushing the envelope,” Price explains. “They were the go-to for any innovative tool we wanted to test out in the market.”

In the latest edition of OPTO Sessions, Price sits down to discuss Better’s competitive advantage, and how its industry-leading AI tools are set to help it capture a larger slice of the market. 

Better Does It Best

When Price decided to return to the private sector after working at FHFA, she looked around the mortgage industry and realized how far behind it had fallen in terms of technology. 

“About 85% of lenders are on one large technology service provider’s platform,” she explains. “That’s huge market share. And this platform was built in the 1990s … It’s a mainframe system. They’re still doing their cloud migration.”

In contrast, at Better is a “lender that has invested over a billion dollars in technology and AI. They can now allow other lenders to use this software. And I [wanted] to lead that charge.”

She compares Better and its Tinman AI solution to Amazon [AMZN] and AWS. While still in its early days, Better is pivoting “from just being a mortgage lender to now being an enterprise platform service provider” — one with the potential to completely transform how mortgage lending works. 

Better’s software offers a number of advantages for lenders and borrowers. By leveraging AI systems at multiple layers of operations, it is able to reduce cost and improve outcomes. “Our defect rates, because of all of that automation, are much lower than the industry average,” Price notes.

“It’s also much less expensive for us to be able to manufacture a loan,” Price explains. “There are all kinds of ways we leverage AI within our platform that cut costs that we have to pay to loan officers, underwriters and processors.”

Experience is another key advantage, with few companies boasting the same track record when it comes to digitally fulfilled loans. “One of the selling points here is Better’s platform is battle-tested on $100bn-worth of loans,” Price explains.

Those loans translate into data that Better can use to train and improve its in-house models: in this way, Better has “what no other vendor on the market has… data in-house to train their models.”

The numbers speak for themselves. “In our system, loan officers can handle three times as much volume as they can with other lenders. Our processors and underwriters can handle 10 times as much volume… which makes it cheaper for the borrower in the end. Those cost savings, we always pass on to the borrower.”

Better Bots 

A key part of Better’s customer interface is its numerous chatbots, including its Betsy chatbot and a newly developed mortgage advisor bot. Price admits that these could seem like a gimmick to investors, who may wonder what the benefit of speaking to a bot versus a human might be for potential customers. 

Some of the advantages of working with AI agents are pretty straightforward. “Soon you’ll be able to speak to one of our avatars in the middle of the night.” Additionally, lenders using Better’s software have the opportunity “to rebrand Betsy to meet their needs… The sky’s the limit in terms of the ability to customize this tool.”

While more use cases may be uncovered as the technology sees more adoption, Price has identified two customer segments that are likely to benefit from the chatbots. For one, first-time homebuyers may “have no idea how the process works and feel embarrassed that they don’t know.” They are likely to appreciate help from an agent that has “unlimited time and is not judgmental,” Price says. “You can ask it questions over and over again and it doesn’t get frustrated.”

This capacity to listen is part of what has made AI chatbots such as OpenAI’s ChatGPT so popular among consumers in such a short time, she adds. “That’s actually rare in the world these days, to have someone deeply listen to every word that you’re saying, think about it and come back with a really rational response.”

Another important customer segment is the ageing population, who “are sitting on a significant amount of home equity [and] are thinking about reverse mortgages,” Price notes. “That is a huge segment that’s probably underserved by all of these genAI tools that are out there right now.”

In the end, these bots may end up being Better’s secret weapon for stickiness, Price says. “Getting a mortgage is a pretty joyless experience. I want to get feedback on what types of personalities create a more positive experience for people. There’s no reason why it has to be so dry.”

Land and Expand

In the pivot to becoming a software provider, and expanding in a sector that is notoriously slow-moving, Better has adopted a strategy that Founder and CEO Vishal Garg has termed “land and expand”. To prove the efficacy of their software solutions, “our approach is to go with the biggest provider in a given vertical,” Price explains. Rather than starting with smaller players, “we’ll aim for the largest bank in the country, and that’s how we’ll prove it out.” The idea is that, when other companies in the space see the advantage the big players get from using Better’s technology, they’ll be quick to sign up. “I sense FOMO in our industry,” she admits.

Having built “best-in-class” software solutions, the next step in Better’s growth story will involve more marketing than product development. “Now the investment and the cost is really associated with building up a team that can sell and scale this software.”

Part of the way that Better is aiming to expand its market share is by tying its financial success to its client’s successes. “Our pricing model is very disruptive,” Price admits. Instead of charging an implementation fee upfront, Better focuses on the successful underwriting of loans as a revenue event. 

“When a borrower comes in to our website or talks to Betsy, whatever front door the borrower gets through, a loan is underwritten and [that] is the revenue event for us,” she explains. “We only charge at that revenue event for our customer, so we are 100% aligned with other lenders making money.”

This model, in turn, has the potential to create a value chain that keeps driving benefits for Better, its lenders and borrowers. “I want to be totally aligned with my customers. I want to be totally aligned with the other vendors that are a part of the process so that they also see benefit from all of this volume coming towards us.”

Once Better has captured a larger market share in the homeownership space, there’s the chance for it to take what it’s learned and apply it to other lending segments. “We want to be Stripe for loans,” Price says. “Mortgages are the most highly regulated and the most complex [loans]… so we’ve climbed Mount Everest... After that, personal loans [and] auto loans are a piece of cake compared to everything else we’ve already done.”

For now, however, the opportunity to transform a slow-moving market is part of what drives Price. “I’m so excited about the possibility to disrupt a market that wants to be disrupted.”