‘Crypto Mortgage’ Allows Buyers to Leverage Bitcoin as Collateral

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A “crypto mortgage” that allows homebuyers to use their bitcoin holdings as collateral instead of cashing them in appears to fill an unmet need, with $10 million in loans funded since the product launched in April.

Milo Credit LLC, based in Miami, Florida crypto-mortgage offers 30-year home loans of up to $5 million with no down payment, credit score or US citizenship requirement.

Like similar crypto mortgage offerings from Figure and ledn, Milo requires borrowers to post their digital wealth as collateral, equal to the amount they are borrowing – a $500,000 loan requires $500,000 in digital collateral. But unlike Figure and Ledn, there is no waiting list for Milo’s crypto mortgage.

If a crypto investor has enough bitcoins to buy a house, why not just withdraw some to pay a down payment or fund a purchase all in cash, especially when Milo charges higher interest rates than traditional mortgage lenders ?

Milo founder and CEO Josip Rupena told Inman that the company’s crypto mortgage clients tend to be long-term investors who have a disproportionate share of their net worth tied to bitcoin or other digital currencies. . Often, they would like to diversify into other assets like real estate — without converting their digital holdings into dollars and potentially triggering “very large capital gains” taxes, he said.

Josip Rupena

“A lot of them bought bitcoin at $10, $15, $20,” Rupena said. “So they want to continue holding onto their digital assets for longer.”

Milo accepts bitcoin, Ethereum and stablecoin from Coinbase, USD Coinas collateral, which is placed with one of two regulated and insured custodians, Gemini or Coinbase, for the duration of the loan.

“Our strategy matches yours – keep HODLing,” Milo boasts on his website, referring to a crypto investor slang term to “buy and hold” bitcoins through market ups and downs.

Over the past 12 months, a single bitcoin has been worth as much as US$68,790 – an all-time high reached on November 10, 2021. Since hitting a 52-week low of $17,709 on June 18, the value popular cryptocurrency has rebounded, and it is recently traded above $20,000.

But this kind of volatility can create some complexity for crypto mortgage borrowers, as Milo will ask them to pledge more collateral if the value of the digital currency they pledged drops by more than 65%. Rupena said that so far Milo has not had to issue margin calls, which would require borrowers to either transfer more digital assets to the custodian or repay part of their loan balance.

If the value of their digital assets increases, on the other hand, borrowers have the annual option to withdraw the excess amount from the custodian or reduce their mortgage rate.

Milo Crypto Mortgage Rates Currently Start at 6.95 percent. Rupena said the crypto mortgage is competitive with rates charged by other “non-QM” loan providers who are not eligible for purchase or collateral from mortgage giants Fannie Mae and Freddie Mac because ‘they don’t meet the underwriting standards for qualified mortgages.

Although two non-QM lenders – Sprout Mortgage and First Guarantee Mortgage Corp. (FGMC) – were recently forced to lay off workers after struggling to secure funds for new loans, Rupena said Milo was on solid ground.

Founded in 2018, Milo announced a $17 million Series A funding round in March, led by California-based venture capital firm M13, with additional participation from seed investors MetaProp and QED Investors. The funding — provided on the basis of Milo’s first product, a mortgage for non-US residents — brought total venture capital funding raised to date to $24 million, the company said at the time. .

Milo kept some of the mortgages it created on its balance sheet and sold others to investors, Rupena said.

“We started the business before COVID happened, and I don’t want to say everything was perfect, but from a financial markets perspective, there are ebbs and flows,” Rupena told Inman. “I think we tried to maintain a diverse set of relationships [with funding sources] …but we feel good that we can continue to develop what we have in place. I think ultimately having more size makes the opportunity more attractive for big players, and I think there’s a lot of capital in the world that wants to do that.

Last year, CNBC Mad Money host Jim Cramer was roasted on Twitter after revealing he sold all his bitcoin holdings when the cryptocurrency surged above $60,000 and used the profits to pay off his mortgage. With interest rates near all-time lows, “it’s like the mortgage is the asset while the house is the liability,” one critic said at the time.

In hindsight, Cramer might have been smart to sell his bitcoin holdings to pay off his mortgage. But for Rupena, the big picture is that digital currencies are increasingly part of the traditional investors’ playbook.

About 12% of first-time buyers sold digital currency holdings to help fund a down payment in the fourth quarter of 2021, up from 8.8% in 2020 and 4.6% in 2019, according to surveys by Redfin.

This helps explain why Rupena sees “a big opportunity” for real estate agents who are able to help crypto investors leverage their digital assets to buy real estate.

“I think it’s definitely not going to go away, and if they’re able to understand [crypto mortgages], they’re going to find themselves able to work with those consumers,” he said. “They’re going to tell their friends, and they’re going to tell their other friends, and eventually they’re going to be able to improve in their business just by working with them.”

For the moment, Milo is only fired to lend to individual home buyers in California, Colorado, Florida, and Texas (it may lend to investors buying homes as limited liability companies, or LLCs, in any state) . But as the company expands its footprint – and Figure and Ledn move from waitlisted borrowers to providing crypto loans – more buyers may soon have the opportunity to leverage their digital currency investments to buy real estate without having to convert it into dollars.

Editor’s note: This story has been updated to clarify that Milo can provide loans in any state to investors who have formed Limited Liability Companies (LLCs).

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Email Matt Carter