Better Home & Finance Holding CoBETR
Better Home & Finance Holding Co Fair Value Disclosure
18. Fair Value Measurements
The Company’s financial instruments measured at fair value on a recurring basis are summarized below:
| December 31, 2025 | |||||||||||||||||||||||
| (Amounts in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Mortgage loans held for sale, at fair value | $ | — | $ | 466,681 | $ | — | $ | 466,681 | |||||||||||||||
Derivative assets, at fair value (1) | — | — | 4,210 | 4,210 | |||||||||||||||||||
Total Assets | $ | — | $ | 466,681 | $ | 4,210 | $ | 470,891 | |||||||||||||||
| $ | — | $ | 2,181 | $ | 250 | $ | 2,431 | ||||||||||||||||
Warrants and equity related liabilities, at fair value (2) | 668 | 808 | — | 1,476 | |||||||||||||||||||
Total Liabilities | $ | 668 | $ | 2,989 | $ | 250 | $ | 3,907 | |||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| (Amounts in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Mortgage loans held for sale, at fair value | — | 399,241 | — | 399,241 | |||||||||||||||||||
Derivative assets, at fair value (1) | — | 1,231 | 1,308 | 2,539 | |||||||||||||||||||
Total Assets | $ | — | $ | 400,472 | $ | 1,308 | $ | 401,780 | |||||||||||||||
Derivative liabilities, at fair value (1)—included within other liabilities | $ | — | $ | — | $ | 86 | $ | 86 | |||||||||||||||
Warrants and equity related liabilities, at fair value (2) | 729 | 678 | — | 1,407 | |||||||||||||||||||
Total Liabilities | $ | 729 | $ | 678 | $ | 86 | $ | 1,493 | |||||||||||||||
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(1)As of December 31, 2025, derivative assets represent IRLCs, and liabilities represent forward sale commitments, IRLCs and interest rate swaps. As of December 31, 2024, derivative assets represent forward sale commitments and IRLCs, and liabilities represent IRLCs.
(2)Fair value is based on the intrinsic value of the Company’s underlying stock price at each balance sheet date and includes certain assumptions with regard to volatility.
Specific valuation techniques and inputs used in determining the fair value of each significant class of assets and liabilities are as follows:
Mortgage Loans Held for Sale—The Company originates certain LHFS to be sold to loan purchasers and elected to carry these loans at fair value in accordance with ASC 825. The fair value is primarily based on the price obtained for other mortgage loans with similar characteristics. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and receipt of principal payments associated with the relevant LHFS.
Derivative Assets and Liabilities—The Company uses derivatives to manage various financial risks. The fair values of derivative instruments are determined based on quoted prices for similar assets and liabilities, dealer quotes, and internal pricing models that are primarily sensitive to market observable data. The Company utilizes IRLCs and forward sale commitments. The fair value of IRLCs, which are related to mortgage loan commitments, is based on quoted market prices, adjusted by the pull-through factor, and includes the value attributable to the net servicing fee. The Company evaluated the significance and unobservable nature of the pull-through factor and determined that the classification of IRLCs should be Level 3 as of December 31, 2025 and 2024. Significant changes in the pull-through factor of the IRLCs, in isolation, could result in significant changes in the IRLCs’ fair value measurement. The value of IRLCs also rises and falls with changes in interest rates; for example, entering into interest rate lock commitments at low interest rates followed by an increase in interest rates in the market, will decrease the value of IRLC. The Company had issuances of approximately $39.2 million and $19.7 million of IRLCs during the years ended December 31, 2025 and 2024, respectively.
The number of days from the date of the IRLC to expiration of the rate lock commitment outstanding as of December 31, 2025 and 2024 was approximately, on average, 44 days and 54 days, respectively. The Company attempts to match the maturity date of the IRLCs with the forward commitments. Derivatives are presented in the consolidated balance sheets under derivative assets, at fair value and derivative liabilities, at fair value. During the year ended December 31, 2025, the Company recognized $2.8 million of gains and $6.2 million of losses related to changes in the fair value of IRLCs and forward sale commitments, respectively. During the year ended December 31, 2024, the Company recognized $0.5 million of losses and $5.2 million of gains related to changes in the fair value of IRLCs and forward sale commitments, respectively. Gains and losses related to changes in the fair value of IRLCs and forward sale commitments are included in gain on loans, net within the consolidated statements of operations and comprehensive loss. Unrealized activity related to changes in the fair value of forward sale commitments were $2.5 million of losses and $5.7 million of gains, included in the $6.2 million of losses and $5.2 million of gains, during the years ended December 31, 2025 and 2024, respectively.
In order to manage interest rate risk on our Loans Held for Investment portfolio, we entered into pay-fixed, receive-floating interest rate swap contracts to hedge against exposure to changes in the fair value of Loans Held for Investment resulting from changes in interest rates. The interest rate swaps are carried at fair value on a recurring basis and the fair value is estimated using market observable inputs such as interest rate yield curves and discount rates. We also consider counter-party credit risk in valuing our derivatives. During the year ended December 31, 2025, the Company recognized $0.2 million of losses related to changes in the fair value of interest rate swaps.
The notional and fair value of derivative financial instruments were as follows:
| (Amounts in thousands) | Notional Value | Derivative Asset | Derivative Liability | ||||||||||||||
| Balance as of December 31, 2025 | |||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| IRLCs | $ | 271,373 | $ | 4,210 | $ | 250 | |||||||||||
| Forward commitments | $ | 286,000 | — | 554 | |||||||||||||
| $ | 4,210 | $ | 804 | ||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||
| Interest rate swaps | $ | 268,768 | $ | — | $ | 1,627 | |||||||||||
| Total | $ | 4,210 | $ | 2,431 | |||||||||||||
| Balance as of December 31, 2024 | |||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| IRLCs | $ | 129,900 | $ | 1,308 | $ | 86 | |||||||||||
| Forward commitments | $ | 158,000 | 1,231 | — | |||||||||||||
| Total | $ | 2,539 | $ | 86 | |||||||||||||
Derivatives Designated as Hedging Instruments—The Company designates these interest rate swap contracts as fair value hedges that qualify for hedge accounting under ASC 815, Derivatives and Hedging. We elected to account for the fair value hedges using the portfolio layer method in accordance with ASU 2022-01. We record the interest rate swaps in the line item "Derivative liabilities, at fair value" on our consolidated balance sheet. For qualifying fair value hedges, both the changes in the fair value of the derivative and the portion of the fair value adjustments associated with the portfolio layer attributable to the hedged risk are recognized into earnings as they occur. Derivative amounts impacting earnings are recognized consistent with the classification of the hedged item in the line item "Loans Held for Investment " as part of interest income, a component of consolidated net income. During the year ended December 31, 2025, the Company recognized $0.1 million in interest income on the fair value hedge interest rate swaps.
In the fiscal year ended December 31, 2025, fair value hedging transactions were executed in which approximately $269 million notional pay -fixed interest rate swaps were consummated with maturities of approximately five years, wherein the Company pays a weighted average fixed rate of approximately 3.7% and receives daily interest based on the Sterling Overnight Index Average (“SONIA”).
Warrant and equity related liabilities—The warrant liability consists of Warrants and certain shares issued to Novator Capital Sponsor Ltd. (the "Sponsor”), a related party, that are subject to transfer restrictions contingent on the price of Class A common stock exceeding certain thresholds (the "Sponsor-Locked-Up Shares"). The warrants consist of the Company's publicly traded warrants ("Public Warrants") and private warrants to acquire shares of Aurora that have been converted into warrants to acquire shares of Class A common stock ("Private Warrants," and together with the Public Warrants, the “Warrants”). The Public Warrants trade on the Nasdaq under the ticker symbol “BETRW” and as such is considered a Level 1 input from an active market to derive the value. The Private Warrants and Sponsor-Locked up Shares, although not publicly traded on an active market, use inputs from the publicly traded Public Warrants and the Company’s publicly traded Common Stock, respectively, and are further calibrated using unobservable inputs representing Level 2 measurements within the fair value hierarchy.
As of December 31, 2025 and 2024, Level 3 instruments include IRLCs. The following table presents the rollforward of Level 3 IRLCs:
| Year Ended December 31, | |||||||||||
| (Amounts in thousands) | 2025 | 2024 | |||||||||
| Balance at beginning of period | $ | 1,222 | $ | 1,640 | |||||||
| Change in fair value of IRLCs | 2,738 | (418) | |||||||||
| Balance at end of period | $ | 3,960 | $ | 1,222 | |||||||
Counterparty agreements for forward sale commitments contain master netting agreements, which contain a legal right to offset amounts due to and from the same counterparty and can be settled on a net basis. The table below presents gross amounts of recognized assets and liabilities subject to master netting agreements.
| (Amounts in thousands) | Gross Amount of Recognized Assets | Gross Amount of Recognized Liabilities | Net Amounts Presented in the Consolidated Balance Sheet | ||||||||||||||
| Offsetting of Forward Commitments - Assets | |||||||||||||||||
| Balance as of: | |||||||||||||||||
| December 31, 2025: | $ | — | $ | — | $ | — | |||||||||||
| December 31, 2024 | $ | 1,249 | $ | (18) | $ | 1,231 | |||||||||||
| Offsetting of Forward Commitments - Liabilities | |||||||||||||||||
| Balance as of: | |||||||||||||||||
| December 31, 2025: | $ | 46 | $ | (600) | $ | (554) | |||||||||||
| December 31, 2024 | $ | — | $ | — | $ | — | |||||||||||
Significant Unobservable Inputs—The following table presents quantitative information about the significant unobservable inputs used in the recurring fair value measurements categorized within Level 3 of the fair value hierarchy:
| December 31, 2025 | |||||||||||
| (Amounts in dollars, except percentages) | Range | Weighted Average | |||||||||
| Level 3 Financial Instruments: | |||||||||||
| IRLCs | |||||||||||
| Pull-through factor | 0.03% - 99.60% | 69.2 | % | ||||||||
| December 31, 2024 | |||||||||||
| (Amounts in dollars, except percentages) | Range | Weighted Average | |||||||||
| Level 3 Financial Instruments: | |||||||||||
| IRLCs | |||||||||||
| Pull-through factor | 0.45% - 100.00% | 74.8 | % | ||||||||
U.S. GAAP requires disclosure of fair value information about financial instruments, whether recognized or not recognized in the consolidated financial statements, for which it is practical to estimate the fair value. In cases where quoted market prices are not available, fair values are based upon the estimation of discount rates to estimated future cash flows using market yields or other valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimates of fair value in both inactive and orderly markets. Accordingly, fair values are not necessarily indicative of the amount the Company could realize on disposition of the financial instruments in a current market exchange. The use of market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts.
The estimated fair value of the Company’s cash and cash equivalents, restricted cash, warehouse lines of credit, and escrow funds approximates their carrying values as these financial instruments are highly liquid or short-term in nature. The following table presents the carrying amounts and estimated fair value of financial instruments that are not recorded at fair value on a recurring or non-recurring basis:
| As of December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| (Amounts in thousands) | Fair Value Level | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||||
| Short-term investments | Level 1 | $ | 103,607 | $ | 103,849 | $ | 53,774 | $ | 53,791 | ||||||||||||||||||||
| Loans held for investment | Level 3 | $ | 725,584 | $ | 745,367 | $ | 113,144 | $ | 113,348 | ||||||||||||||||||||
| Convertible Notes | Level 3 | $ | — | $ | — | $ | 519,749 | $ | 371,160 | ||||||||||||||||||||
| Senior Notes | Level 3 | $ | 198,802 | $ | 135,916 | $ | — | $ | — | ||||||||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 13, 2026 | Showing above |
| 2024 | Mar 19, 2025 | |
| 2023 | Apr 8, 2024 | |
| 2022 | Apr 17, 2023 | |
| 2021 | Mar 25, 2022 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.