Crypto-Backed Mortgages on the Rise Despite Crypto Market Pullback

Key Insights:

• In the US, crypto-backed mortgages are on the rise.
• Homebuyers can avoid capital gains tax by placing crypto as collateral for home loans.
• The increase in crypto-backed mortgages comes despite a bearish start to 2022, raising concerns for one rating agency.

Crypto-backed mortgages are the latest product to hit the US housing market, which enjoyed a stellar 2021.

Increased crypto adoption has given rise to digital asset banks and mortgage lenders. The City of Miami is particularly active in the digital asset space. Mayor Francis Suarez and Florida State Governor Ron DeSantis are crypto advocates.

With the State of Florida and the City of Miami looking to become an innovative crypto hub, Weiss Ratings sounds the alarm bell.

Weiss Ratings sounds alarm bell over crypto-backed mortgages

On Tuesday, Weiss Ratings published an article raising concerns over crypto-backed mortgages.

The report highlights that ‘a Miami startup is racing to securitize home loans with cryptocurrency.’

Florida-based digital bank Milo is accepting crypto to secure home loans. Milo plans to expand this further by offering these as mortgage-backed securities to asset managers and insurance companies.

Weiss Ratings refers to the pooling of risky home loans and the Great Recession of 2009.

In the final week of April, US mortgage rates stood at 5.10%, up a whopping 212 basis points compared with April 2021. US house prices have also risen sharply, while mortgage rates have surged in response to inflation and market sentiment toward Fed monetary policy.

In February, the S&P/CS HPI Composite – 20 n.s.a was up 20.2% year on year.

While house prices and mortgage rates have been on the risen, bitcoin (BTC) and the broader crypto market have fallen.

With Bitcoin and the broader market showing a strong correlation with the NASDAQ and the Fed about to embark on a journey toward monetary policy normalization, crypto-backed mortgages could be in for a hard landing.

According to the report, CEO Josip Rupena claims there is a waitlist of 8,000 homebuyers in Texas, California, and New York.

The demand is unsurprising when considering homebuyers can borrow up to 100% of the purchase price, with mortgage rates as low as 3.95%. Homebuyers don’t need to sell their crypto, with Milo accepting bitcoin, ethereum (ETH), and stablecoin as collateral.

Miami in overdrive to become a digital asset hub and center of innovation

Following Milo into the crypto-backed mortgage space is crypto firm XBTO. In April, FX Empire reported that XBTO was in the process of completing a multi-million-dollar Bitcoin-collateralized mortgage in Miami.

The increased activity in the crypto space stems from aspirations to become an innovative crypto hub.

In January, Mayor Suarez confirmed that he would take his first three paychecks in BTC. The City of Miami also launched MiamiCoin (MIA) in June 2021, the first CityCoins to market.

Powered by Stacks (STX), CityCoins is “a protocol that enables smart contracts on the Bitcoin network.” Miners can forward STX into the Stacks protocol. CityCoins miners receive 70% of all stacked STX tokens in MiamiCoin. Miners can then mine the rewarded MIA to earn BTC rewards.

The remaining 30% goes to City Wallets. In the case of Miami, Mayor Suarez can either exchange the accrued tokens for fiat or mine the STX tokens to earn BTC.

It remains to be seen how US lawmakers and the SEC view crypto-backed mortgages. A Bitcoin slid to sub-$30,000, and a rise in crypto-backed mortgages would test the water.