Digital Lender Merges With Public Co. as Mortgage Rates Begin to Fall

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Digital mortgage lender Beeline Loans Inc. has signed a merger agreement with Eastside Distilling Inc. (EAST:NASDAQ), which produces award-winning craft spirits in Portland, Oregon, and operates a digital can printing business. While it may not seem like these companies have anything to do with each other, it is Beeline's innovative AI technology that will aid in Eastside's operations.

The deal gives Eastside access to Beeline's end-to-end artificial intelligence (AI)-enhanced platform targeting millennials, Gen Z and so-called "gig workers." Beeline gains the opportunity to create shareholder liquidity and grow its asset value as mortgage rates are expected to fall.

"The combined company will have the scale necessary to leverage the investment in a public company structure while providing growth capital to each business," the companies said in a release on September 19.

According to Benzinga, Eastside's share price soared by almost 162% following the disclosure of the merger agreement, which has been approved by the boards of both companies and is expected to close later this year. Eastside reported gross sales of US$3.1 million in the second quarter, digitally printing 6 million cans.

"Mortgage origination has yet to fully experience the dynamic and exciting transformation seen in other financial services sectors," said Beeline Founder and Chief Executive Officer Nick Liuzza. "Our disruptive, cloud-based, go-to-market strategy targets Millennials and Gen Z borrowers. The benefits of operating in the public markets to help Beeline achieve its goals are significant."

Eastside Chief Executive Officer Geoffrey Gwin said Beeline's platform presents opportunities to Eastside's shareholders and brings a "talented team and innovative technology."

"This development offers tremendous potential for our stakeholders," Gwin said. "Nick and his team have demonstrated remarkable innovation and share a vision that aligns perfectly with our strategic objectives."

The Catalyst: Industry Finding Some Relief

The Federal Reserve announced a half-point reduction in interest rates, the first in four years, on Wednesday and signaled more to come.

"Any immediate impact on the housing market, however, should be minimal because expectations of the Fed's move have long been priced into mortgage rates," noted Alex Perry for Bloomberg, who also reported that many brokers and experts are optimistic loan costs will lessen over time.

"That eventually would bring more buyers and sellers into a market that's been starved for inventory and coming off its worst spring selling season in more than a decade," Perry noted.

Navy Federal Credit Union Economist Robert Frick told MarketWatch that he agreed. "I fully expect that [the 30-year mortgage rate] will settle below 6% in the next month or two," he said.

Mortgage rates reached historic lows during the peak of the COVID-19 pandemic in 2020, NPR reported, bottoming out below 3% for a 30-year fixed-rate mortgage. However, they climbed to nearly 8% last during rising inflation.

But there may be no reason to wait for rates to go lower for some buyers. "Here's the thing: Lower mortgage rates may not make it easier to buy a home," Laurel Wamsley wrote in the NPR piece. "In fact, it could make it more difficult and lead to higher home prices. That's because lower mortgages are likely to lure more buyers back to the market, bringing in more competition for a limited supply of houses."

According to a Wall Street Journal article in August, a record-high 8.5% of U.S. homes now have an estimated value of US$1 million or more, more than double the 4% from before the pandemic.

But relief may be coming. Wamsley noted that home inventories, which could drive down prices, are "finally inching up across the country."

Gen Z, Millennials Embrace Gig Economy

Beeline, which has an online portal and AI-powered chatbot that connects with consumers and quickly evaluates their eligibility for loans. It is working to make this process easier for homebuyers, especially younger ones and those with non-traditional "gig economy" incomes who may not usually qualify. High costs and long closing times can also be barriers.

"The cost to generate a mortgage can be as high as US$13,000 while taking 30 to 45 days to close and that's not fair to the borrower," Liuzza said. "It Is often a deeply frustrating process for homebuyers seeking a mortgage. We have built a front-end platform with proprietary AI to decrease turn times and lower costs. We now want to focus our efforts on the back end of the process. Leveraging capital through the public markets will allow Beeline to continue to build stronger mortgage technology creating better outcomes for consumers.”

According to Baseline, 53% of Gen Z and 50% of Millennials are embracing the gig economy. Those workers often find it difficult to qualify for mortgages because they are freelance or paid in non-traditional ways like cash, check, or debit card deposits.

According to Business Research Insights, the global Gig Economy market size was US$355 billion in 2021 and is expected to reach US$1.86 trillion in 2031, exhibiting a compound annual growth rate (CAGR) of 16.18% during the forecast period.

'Get a Home Loan From Your Sofa'

Beeline caters to those workers and allows customers to "get a home loan from your sofa" and apply for a mortgage in less than 10 minutes.

The company said this digital approach to conventional mortgage lending will increase engagement with young people who have been hesitant to buy homes in recent years.

Beeline's chatbot, named Bob, is available 24 hours a day and is capable of answering complex questions. Based on these conversations, Bob will provide the customer with a personalized quote. A representative of the company stated that the chatbot "poses highly personalized product-specific questions to generate a quote in real-time." The company has expanded its offerings to offer better service for Hispanic customers, as well.

Beeline offers a variety of options, including refinancing, to consumers through the digital platform. It has built its premise on making homeownership more accessible to a wider, more diverse market, making it an attractive prospect if mortgage rates continue to fall.

The company launched its proprietary front-end mortgage platform during Q3 of 2020 and closed 1,500 mortgages by the end of 2021, and 2024 is expected to be Beeline's strongest year.   

"These young entrepreneurs are judged on old models of assessing risk," Liuzza noted of some of these younger customers. "There are a lot of bankable gig employees who are being shut out of home ownership."

Author Chris Thompson reviewed the company for Smart Asset and praised its "simple, easy-to-use online application process."

"As an online mortgage lender, everything Beeline Loans offers is accessible through your computer or smartphone," he wrote.

Robinhood revolutionized the stock-buying industry by fractionalizing stocks, allowing people who previously were excluded from the stock market to enter the industry. Beeline is now doing for mortgages what Robinhood did for the stock market, and it's powered by AI.

Beeline Loans is a private company, and the company reports that its largest shareholder is founder Liuzza. According to Beeline, it has invested US$40 million in the company. It reports that the Cavalry Investment Fund, Atalaya, and Ellington have made significant investments in the company.

According to Reuters, about 12% of Eastside Distilling is owned by insiders and management, and about 19% by institutions. The rest is retail.

Top shareholders in Eastside include Bigger Capital Funds LP with 16.24%, Board Member Robert P. Grammen with 5.09%, Interim CEO Gwin with 2.96%, Elizabeth Ann Levy-Navarro with 2.1%, and Board Member Eric Jon Finnsson with 1.07%.

Eastside has a market cap of US$1.44 million with  and trades in a 52-week range of US$2.98 and US$0.48.