Bitcoin (BTC) Mortgages Now Available, But There’s a Catch With Your Collateral

Key Takeaways

• A new mortgage product from Better Mortgage and Coinbase allows U.S. homebuyers to use bitcoin as collateral for down payments
• The program requires a 250% collateral ratio, meaning borrowers must pledge $2.50 in bitcoin for every $1 of down payment
• Better Mortgage retains the right to rehypothecate pledged bitcoin, potentially using borrowers’ crypto for other business purposes
• Crypto collateral remains locked until borrowers completely pay off or refinance their primary mortgage
• The program has attracted $360 million in pre-application volume since its public debut

---

A groundbreaking collaboration between Better Mortgage and Coinbase has introduced a bitcoin-backed mortgage option that enables homebuyers to leverage their cryptocurrency holdings as down payment collateral. The innovative financial product has generated significant interest, accumulating $360 million in loan requests since becoming available to the public recently.

The structure involves two separate loans finalized simultaneously at closing. Borrowers receive a traditional Fannie Mae-conforming home loan secured by the property itself, alongside a secondary down payment loan backed by their bitcoin holdings and an additional property lien.

The collateral requirement stands at 250% of the down payment amount. For instance, someone buying a $500,000 property could use $250,000 worth of bitcoin to secure a $100,000 down payment.

Monthly payments cover both loans in a single combined bill. Upon closing, the borrower’s bitcoin transfers from their Coinbase account to Better’s institutional custody account through Coinbase Prime.

It’s important to note that bitcoin assets don’t count toward mortgage qualification. Applicants must independently satisfy Fannie Mae’s traditional criteria for income verification, credit scores, and debt-to-income ratios.

Understanding the Rehypothecation Risk

Better Mortgage has publicly stated it reserves the right to rehypothecate borrowers’ bitcoin collateral. Essentially, the company can utilize these assets for various business purposes while maintaining an obligation to return an equivalent amount.

What this means in reality is that borrowers receive a promise to get back an equal quantity of bitcoin upon loan completion, rather than having their specific coins held securely in segregated storage. This arrangement creates counterparty risk tied to Better’s solvency and operational continuity, which could extend decades for standard 30-year mortgages.

While Better asserts its agreements meet legal requirements, including bankruptcy protections, the company hasn’t provided clear details about whether individual borrower bitcoin is kept separately identifiable or what protections exist if Better or its financial partners encounter insolvency.

Price Protection But Limited Flexibility

The product differs from typical crypto lending platforms by eliminating margin call requirements when bitcoin prices decline. Liquidation occurs only following payment defaults.

After 60 days of missed payments and proper notification, Better Mortgage may liquidate the pledged bitcoin. Home foreclosure proceedings can commence after 180 days under standard Fannie Mae protocols.

A significant restriction prevents borrowers from making early payments on the down payment loan to retrieve their bitcoin. The cryptocurrency remains inaccessible until the primary mortgage reaches full repayment or undergoes refinancing.

Should borrowers decide to sell their property, they must settle the down payment loan before reclaiming their bitcoin collateral.

Currently, the program exclusively accepts bitcoin. Though USDC appeared in initial announcements, it wasn’t included in the official launch as both companies continue assessing additional collateral types.

Coinbase One subscribers who qualify can access a lender-provided closing cost credit worth 1% of their mortgage value, with a maximum benefit of $10,000.

According to the companies, 35.9% of current applicants possess cryptocurrency holdings exceeding $500,000, while 38% intend to purchase homes within the next three months.

The post Bitcoin (BTC) Mortgages Now Available, But There’s a Catch With Your Collateral appeared first on Blockonomi.

Source: https://blockonomi.com/bitcoin-btc-mortgages-now-available-but-theres-a-catch-with-your-collateral/