US-listed cryptocurrency exchange Coinbase (COIN) is partnering with Fannie Mae-approved mortgage company Better Home & Finance Holding Co. (BETR), to enable crypto holders to use their digital assets as down payment collateral when buying 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 news release Thursday.
Borrowers pledge bitcoin or USDC stablecoin as collateral to fund their payout, allowing them to keep their assets intact and avoid creating a taxable event by using them. In the case of USDC, they can keep earnings rewards, Coinbase said.
About 41% of American families fail to buy a home because they don’t have enough funds for the down payment, even though they have money elsewhere in savings, Better founder Vishal Garg said in an interview.
Average home buyers have been squeezed by rising interest rates while house prices remain the same, Garg said. Someone looking to buy a $400,000 property, for example, could struggle to find the $40,000 cash down payment and face a quagmire of legal and tax requirements as they try to sell assets to make the money, he said.
Assuming the consumer is a crypto holder on Coinbase, they can avoid having to submit all sorts of “crazy stuff,” Garg said, and simply transfer their digital assets from the exchange to a depot with Better while retaining ownership rights.
If Better had previously accepted crypto as collateral for payout, “we would have funded maybe 40 billion more of consumer demand over the last few years,” Garg added.
There have been other advances in the crypto-backed mortgages, including some that use Coinbase as an escrow. However, the emphasis has tended to be on wealth management and relatively high-end purchases, rather than catering to the average Joe.
In February 2023, Better Amazon (AMZN) allowed employees to pledge their shares as collateral for a loan to cover the down payment on a home purchase, albeit at a slightly higher interest rate.
A Coinbase spokesperson said via email that rates for the crypto-backed mortgages will be higher than a standard 30-year by between half a percentage point and 1.5 percentage points, depending on the consumer profile.
The token-backed mortgages would be free of margin calls and top-ups, according to a press release. If BTC falls in value, the terms of the mortgage remain unchanged and no additional collateral is required. Market movements alone never trigger liquidation, Coinbase said.
Borrowers’ security is only at risk of liquidation in the event of a 60-day payment delay, similar to conventional mortgages, it said.
The product is “as American as apple pie,” Coinbase’s head of consumer and platform business development Mark Troianovski said in an interview with CoinDesk.
“People sitting on Bitcoin or USDC can put a roof over their heads without having to sell it, without having to incur capital gains,” Troianovski said. “We’re giving people access to housing in a way that’s very similar to how private bankers serve some of the wealthiest clients. They’re not selling assets to buy things, they’re actually borrowing against assets.”
