Fannie Mae is now accepting crypto-backed mortgages through a new mortgage lender product Better home and better finances And Coinbase.
It’s not the first crypto-backed mortgage, but it is the first accepted by Fannie Mae, which is under government conservatorship. The offering allows home buyers to use their crypto assets as collateral. Fannie Mae will purchase these loans like any other conforming mortgage.
“We have finally created the infrastructure to allow any tokenized asset in America to be mortgaged to help someone afford to buy a home,” Better CEO Vishal Garg said in an interview with CNBC. “It starts with Bitcoin, starts with [USD Coin]but in the future it could be Apple stock or Amazon stock or a publicly traded mutual fund or a bond fund or something that you might hold in your IRA. You can mortgage it to buy a house.
The idea is to serve Americans who have enough crypto assets to fund a down payment on a mortgage but do not want to sell those assets, which would both incur taxes and result in the loss of any future appreciation.
The new mortgage product allows them to retain cryptocurrency while still ensuring secure home financing.
“Token-backed mortgages are an important first step in unlocking homeownership for younger generations who struggle with barriers to saving for a traditional down payment,” Max Branzburg, head of consumer and business products at Coinbase, said in a press release.
To use the product, a borrower must have a Coinbase account and take out a regular mortgage with Better as well as a second loan secured by either Bitcoin or USD Coin. The second loan would finance the down payment on the first loan.
Both loans are held by Better and the crypto assets can no longer be traded once pledged. Even if the value of the cryptocurrency decreases, the loans will not change as long as the borrower continues to make monthly payments.
For example, a borrower on a $500,000 home can pledge $250,000 in Bitcoin and take out a $100,000 cash loan to cover the down payment. The cryptocurrency will remain in Better’s Coinbase Prime account for the life of the loan and will be returned once the loan is repaid.
Get Property Play straight to your inbox
CNBC’s Property Play with Diana Olick covers new and evolving opportunities for real estate investors, delivered weekly to your inbox.
Sign up here to get access today.
The downside is that the borrower then pays interest on two loans, making it more expensive, but Garg said Better offers lower interest rates than most competitors and the interest rates on the loans and the terms of the loan are the same.
“You retain the appreciation of your assets in the case of USDC, the holdings you hold in USDC and the return you get from them can be used to offset the interest payments on the mortgage,” Garg said.
There is also no private mortgage insurance for the second loan. Borrowers make a payment to Better, which holds both loans.
Other companies like Milo offer crypto-collateralized loans, but these products are not yet compatible with Fannie Mae. They can be far more expensive than the Better product and require the use of all crypto assets as collateral, not just a specific amount.
In general, however, the support of Fannie Mae, whose conservator, the Federal Housing Finance Agency, is increasingly bullish on cryptocurrencies, seems to open the door for more products like this.
“I can’t imagine that the entire real estate industry won’t be on the blockchain within 10 years,” Tony Giordano, a real estate agent specializing in cryptocurrencies, said on a recent Property Play podcast.
If Better approves a loan, Coinbase One members are entitled to a refund of 1% of the mortgage value, up to a maximum of $10,000. More assets like Ethereum and Solana could be added in the future.
Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.