Fannie Mae now will accept its first crypto-backed mortgages via a new product by mortgage company Better Home and Finance and Coinbase.
While not the first crypto-backed mortgage in the market, it is the first accepted by the GSE, and allows homebuyers to use their crypto assets as collateral. Fannie Mae will purchase those loans just like any other conforming mortgage.
“We have now finally created the infrastructure rails to enable any tokenized asset in America to be able to be pledged to help someone afford to buy a home,” Vishal Garg, CEO of Better, told CNBC in an interview. “It starts with bitcoin, starts with [USD Coin], but going forward, it can be Apple stock or Amazon stock, or any publicly traded mutual fund, bond fund, something that you might hold in your IRA, you’re going to be able to pledge that to buy a home.”
Wouldn’t Have to Sell Crypto Assets
The program is intended to serve those Americans who have enough crypto assets to fund a mortgage down payment but do not want to sell those assets. That would incur taxes and forfeit any future appreciation.
In other words, it allows them to keep the cryptocurrency and still secure home financing.
“Token-backed mortgages are a major first step to unlocking homeownership for the younger generations that have struggled with barriers to saving for a traditional down payment,” said Max Branzburg, Head of consumer and business products at Coinbase, in a release.
Here’s how it works.
A borrower must have a Coinbase account and would take out a regular mortgage with Better as well as a second loan, backed by either bitcoin or USD Coin. The second loan would fund the down payment on the first loan, CNBC reported.
Both of the loans would be held by Better, and once pledged, the crypto assets cannot be traded. Even if the value of the crypto falls, nothing changes on the loans, as long as the borrower keeps making the monthly payments, CNBC said.
Here’s an example.
On a $500,000 home, a borrower can pledge $250,000 in bitcoin and get a $100,000 loan to cover the cash down payment, according to CNBC. The crypto stays in custody in Better’s Coinbase Prime account for the life of the loan and then is returned once the loan is repaid.
Interest on Two Loans
Is there a downside? Yes, the borrower is paying interest on two loans, which makes it more expensive, but Garg said Better offers lower rates than most competitors, and the rates on the loans and the terms on the loan are the same.
“You’re keeping the appreciation on your asset in the instance of USDC, the holdings that you hold in USDC and the yield you get from that can be used to offset the interest payments on the mortgage,” Garg said.
Also, CNBC said there no private mortgage insurance on the second loan. Borrowers will make one payment to Better, which holds both loans.
While other companies such as Milo offer crypto-backed loans, but those products are not compliant with Fannie Mae yest. They can be far more expensive than the Better product and require all crypto assets to be used as collateral.
