US-listed cryptocurrency exchange Coinbase (COIN) is working with Fannie Mae-approved mortgage firm Better Home & Finance Holding Co. (BETR) to allow cryptocurrency 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 Thursday news release.
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 when spending them. In the case of USDC, they can keep the profit rewards, Coinbase said.
About 41% of American families can’t buy a home because they don’t have enough funds for a down payment, even though they have money in other savings, Better founder Vishal Garg said in an interview.
Average home buyers have been pressured by increases in interest rates while home prices have stayed the same, Garg said. Someone looking to buy a $400,000 property, for example, might struggle to find the $40,000 cash down payment and face a quagmire of legal and tax requirements when trying to sell assets to reach that amount, he said.
As long as the consumer holds cryptocurrency on Coinbase, they can avoid having to file all kinds 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 cryptocurrencies as collateral for the down payment, “we would have funded perhaps $40 billion more in consumer demand over the past few years,” Garg added.
There have been other developments in cryptocurrency-backed mortgages, including some that use Coinbase as a custodian. However, the emphasis has tended to be on wealth management and relatively high-end purchasing, rather than serving the average citizen.
In February 2023, Better allowed Amazon (AMZN) employees to pledge their shares as collateral for a loan to cover a down payment on a home purchase, albeit at a slightly higher interest rate.
A Coinbase spokesperson said via email that rates on cryptocurrency-backed mortgages will be higher than standard 30-year rates by between half a percentage point and 1.5 percentage points, depending on the consumer profile.
Token-backed mortgages would be free of margin adjustments and top-ups, according to a press release. If the value of BTC falls, the mortgage terms remain unchanged and no additional collateral is required. Market movements alone never trigger a liquidation, Coinbase said.
Borrowers’ collateral is at risk of liquidation only in the event of a 60-day late payment, similar to conventional mortgages, he said.
The product is “as American as apple pie,” Coinbase head of platform and consumer business development Mark Troianovski said in an interview with CoinDesk.
“People who have Bitcoin or USDC can put a roof over their head without needing to sell it, without needing to incur capital gains,” Troianovski said. “We’re giving people access to housing in a very similar way to how private bankers serve some of the wealthiest clients. They’re not selling assets to buy things; they’re actually borrowing against assets.”
