Amidst the financial storm of 2023, Better Home & Finance (BETR) navigated choppy waters, emerging leaner and seemingly poised for growth. The company slashed expenses by a staggering 71%, focused on efficiency, and strategically bolstered its cash reserves. Now, as the mortgage market tentatively peeks out from under the shadow of high interest rates, Better is gearing up for a new battle – and one overlooked weapon in their arsenal may just be the key to their future success: Home Equity Lines of Credit (HELOCs).

While much of the earnings call focused on strategic pivots like the shift to a commission-based loan officer model and the expansion of B2B partnerships, a closer look reveals a compelling narrative surrounding HELOCs. It's a tale of a largely forgotten financial product, ripe for reinvention in a market primed for its resurgence.

HELOCs, for those unfamiliar, have been relegated to the financial backwaters for nearly two decades. Remember those pre-2008 days when homeowners readily tapped into their home equity, fueled by soaring property values and easy credit? Those days are long gone, replaced by a cautionary tale of overleveraging and financial instability.

But things are different now. Home values, despite recent dips, remain significantly elevated from pre-pandemic levels. Meanwhile, many homeowners find themselves with stubbornly high mortgage rates locked in during the recent interest rate surge. Enter HELOCs, offering a potentially lower-cost alternative to credit cards and personal loans – a lifeline in a world where consumer debt is again on the rise.

Here's where Better comes in. They've recognized this untapped potential, not only acknowledging the need for consumer re-education about HELOCs, but also taking concrete steps to modernize the product itself. Their "One Day HELOC," promising a commitment letter within a single day, stands in stark contrast to the traditionally cumbersome HELOC application process. It's a bold move, a clear signal that Better intends to be at the forefront of this potential HELOC revolution.

The numbers tell a nascent but promising story. In Q1 2024, Better's HELOC volume increased by a healthy 54% compared to Q4 2023. While still a small fraction of their overall loan volume, the company is actively expanding HELOC marketing and production capacity, hinting at a significant ramp-up in the coming quarters.

Beyond the direct-to-consumer market, Better sees an opportunity to leverage its technology and expertise by providing HELOC as a service to banks. Many financial institutions, particularly those with robust mortgage servicing books, lack a dedicated HELOC offering. Better, with its streamlined digital platform, is perfectly positioned to fill this void, further diversifying its revenue streams and accelerating HELOC adoption.

This brings us to the intriguing question: could HELOCs be the sleeping giant that propels Better's growth beyond 2024? There are several factors that suggest this could be the case.

First, consider the sheer size of the potential market. With trillions of dollars in home equity sitting untapped, even a modest shift towards HELOC utilization could translate into substantial origination volume. Moreover, industry forecasts predict a near doubling of the refinance market by 2025, suggesting a broader appetite for home equity solutions.

Second, Better is uniquely equipped to capitalize on this opportunity. Their technology-driven approach, coupled with a laser focus on operational efficiency, allows them to offer competitive rates and a streamlined customer experience. The move towards a commission-based loan officer model, while primarily aimed at boosting purchase conversion, should also benefit HELOCs by incentivizing loan officers to actively promote this product.

Finally, consider the macro environment. As interest rates stabilize and home values remain elevated, the allure of HELOCs is likely to grow, particularly for homeowners seeking to consolidate debt or fund home renovations. Better's early investments in HELOC technology and marketing position them to capture a significant share of this emerging market.

Of course, there are risks and challenges. Consumer awareness of HELOCs remains low, requiring sustained educational efforts. Competition will inevitably intensify as other lenders recognize the potential of this resurgent product. And the broader economic outlook remains uncertain, potentially dampening consumer demand.

However, the potential upside of a HELOC-driven growth story for Better is compelling. If they successfully reintroduce and reinvent this financial product for a new generation of homeowners, the results could be transformative.

Hypothetical Impact of HELOC Growth on Better's Loan Volume

The following table illustrates a potential scenario for Better's HELOC origination volume based on certain assumptions about market growth and market share capture.

These are just preliminary estimates, but they illustrate the potential scale of this opportunity. As Better continues to invest in HELOC technology, marketing, and partnerships, this often-overlooked product could become a crucial driver of their future success.

"Fun Fact: Did you know that Better was initially called "Mortgage as a Service"? That's right, the company originally focused solely on providing its technology platform to other lenders before pivoting to a direct-to-consumer model. This early commitment to technological innovation has continued to shape their journey, paving the way for their foray into the digital HELOC space."