U.S.-listed cryptocurrency exchange Coinbase (COIN) is working with Fannie Mae-approved mortgage company Better Home & Finance Holding Co. (BETR) to allow crypto holders to use their digital assets as down payment collateral when purchasing a home.
The mortgage is structured as a conforming loan backed by Fannie Mae, meaning it has the same protections and standards as traditional mortgages, according to a press release issued Thursday.
Borrowers pledge Bitcoin or the USDC stablecoin as collateral to fund their down payment, allowing them to keep their assets intact and avoid creating a taxable event by spending them. In the case of USDC, they can keep the rewards, Coinbase said.
About 41% of American families fail to purchase a home because they don’t have enough funds for the down payment, even if they have money elsewhere in their savings, Better founder Vishal Garg said in an interview.
Average buyers have been hurt by rising interest rates while property prices remain the same, Garg said. For example, someone looking to buy a $400,000 property might struggle to come up with the $40,000 down payment and find themselves facing a quagmire of legal and tax requirements when trying to sell assets to get the amount, he said.
Provided the consumer is a crypto holder on Coinbase, they can avoid having to deposit all sorts of “crazy stuff,” Garg said, and simply transfer their digital assets from the exchange to a custodial wallet with Better while retaining ownership rights.
If Better had previously accepted crypto as down payment security, “we would have funded maybe 40 billion more in consumer demand over the last few years,” Garg added.
There has been further progress in cryptocurrency-backed mortgages, some of which use Coinbase as a custodian. However, the focus has been on wealth management and relatively high-end purchases, rather than the needs of the average person.
In February 2023, Better allowed Amazon (AMZN) employees to pledge their shares as collateral for a loan to cover the down payment for a home purchase, albeit at a slightly higher interest rate.
A Coinbase spokesperson said via email that cryptocurrency-backed mortgage rates will be higher than a standard 30-year term by half a percentage point to 1.5 percentage points, depending on the consumer profile.
Token-backed mortgages would be free of margin calls and earnouts, according to a press release. If the value of BTC falls, the terms of the mortgage remain unchanged and no additional collateral is required. Market movements alone never trigger liquidation, Coinbase said.
Borrowers’ guarantees are only at risk of being liquidated in the event of a 60-day default, as is the case for conventional mortgage loans, it specifies.
The product is “as American as apple pie,” Mark Troianovski, Coinbase’s head of consumer and platform business development, said in an interview with CoinDesk.
“People who are sitting on Bitcoin or USDC can put a roof over their heads without needing to sell it, without needing to realize capital gains,” Troianovski said. “We give people access to housing in a way very similar to the way private bankers serve some of the wealthiest clients. They don’t sell assets to buy things; they actually take out loans against assets.”
