A start-up called Milo started offering 30-year mortgages backed by cryptocurrencies. The company is working with more than 700 potential borrowers on pre-approvals and has made $5 million to $10 million in loans.
How does it work
It seems that most of these services use a third party to keep the Bitcoin until you pay off the loan. This could also be achieved with a multisig wallet. They however require 100% of the home value as collateral as a minimum, going up to 2:1 or 3:1 ratio from there for the best rates. Therefore why they do not ask for actual money down, they do require a guarantee in the form of Bitcoin.
Overall it seems that people who can afford to do this are remarkably more qualified than your average homebuyer with 5% down maxing out their debt to income ratio.
On one hand it seems just a more tax-friendly way to cash-out crypto: instead of paying taxes on the sale, you move the money to a mortgage sort of fund, avoiding potential capital gains taxes and moving the money out of crypto. Sounds smart, right?
Good idea, but…
It is however reminiscent of the not-so-long-ago 2008 crisis. Back in the day, lenders required Bear Stearns to provide additional cash on their loans because the collateral (subprime bonds) was rapidly falling in value. This is the equivalent of a margin call for an individual investor with a brokerage account.
This is what caused Bear Sterns to fail. Their collateral (mortgage bonds) plummeted in value, JP Morgan then got their landline phone and called the folks at Bear Sterns and asked them to post more cash. This is known as a collateral call.
It seems that no matter how smart it can be from a tax standpoint, Bitcoin and Crypto volatility are still huge issue. Can we really consider them a solid collateral?