Coinbase (NASDAQ: COIN) and Better Mortgage (NASDAQ: BETR) announced the first Fannie Mae-backed mortgage secured by Bitcoin (CRYPTO: BTC) and USD Coin (CRYPTO: USDC) in March. Instead of using cash for a down payment, homebuyers can leverage their Bitcoin or USDC holdings to secure a mortgage.
Better claims that 41% of its pre-approved customers qualify for a mortgage based on credit and income, but lack the cash for a traditional down payment. Therefore, allowing younger homebuyers to use their digital assets as collateral could reduce that percentage.
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That idea sounds speculative, but a Michigan couple recently closed the country’s first Bitcoin-backed mortgage through Better and Coinbase. Coinbase held the couple’s tokens as collateral, and Better funded the mortgage. Better and Coinbase plan to expand those mortgages to more qualified borrowers nationwide throughout the summer.
Will crypto-backed mortgages catch on?
The idea of investment-backed mortgages isn’t new. Homebuyers who own a lot of stocks but don’t have much cash can use a pledged-asset mortgage (PAM) to pledge a portion of their stock portfolio to the lender as collateral, rather than making a cash down payment.
Therefore, Coinbase and Better are merely extending that idea to cover cryptocurrencies. Gen Z and younger Millennials in the U.S. also tend to own more cryptocurrencies than stocks, according to the FINRA Investor Education Foundation, so Bitcoin and stablecoin-backed mortgages could actually attract a lot of attention from those younger investors.
Coinbase and Better also aren’t the first companies to dabble in Bitcoin-backed mortgages. However, those earlier products weren’t secured by Fannie Mae, were tightly pegged to Bitcoin’s price swings, and were exposed to margin calls if Bitcoin’s price plummeted.
Coinbase and Better’s mortgages aren’t subject to margin calls because they use two separate loans — a traditional one that covers the entire home and a second token-based one that covers only the down payment. The second one is intentionally over-collateralized in Bitcoin (250%) or USDC (125%) to offset the market’s volatility.
That certainly makes it seem like a better product. Still, it probably won’t gain much momentum beyond a niche of crypto investors who are sitting on tens of thousands of dollars in Bitcoin or USDC, don’t want to liquidate any of those holdings, and are in the market for a new home.
