Real Estate

‘Crypto Mortgage’ Lets Homebuyers Leverage Bitcoin As Collateral

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A “crypto mortgage” that lets homebuyers use their bitcoin holdings as collateral instead of cashing them in seems to be filling an unmet need, with $10 million in loans funded since the product’s April launch.

Miami, Florida-based Milo Credit LLC’s crypto mortgage provides 30-year home loans of up to $5 million with no down payment, credit score or U.S. citizenship requirements.

Like similar crypto mortgage offerings from Figure and Ledn, Milo requires borrowers to put digital wealth up as collateral, in an amount equal to how much they’re borrowing — a $500,000 loan requires $500,000 in digital collateral. But unlike Figure and Ledn, there’s no waiting list for Milo’s crypto mortgage.

If a crypto investor has enough bitcoin to buy a house, why not just cash some out to make a downpayment or fund an all-cash purchase — particularly 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 up in bitcoin or other digital currencies. Often, they’d 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

“Many of them bought bitcoin at $10, $15, $20,” Rupena said. “So they want to continue to hold their digital assets for a longer period of time.”

Milo accepts bitcoin, Ethereum and Coinbase’s stablecoin, USD Coin, as 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 its website, referencing a crypto investor slang term for “buying-and-holding” bitcoin through market ups and downs.

During the past 12 months, a single bitcoin has been worth as much as $68,790 U.S. dollars — an all-time high achieved on Nov. 10, 2021. Since sliding to a 52-week low of $17,709 on June 18, the popular cryptocurrency’s value has rebounded, and it’s recently been trading above $20,000.

But that kind of volatility can create some complexity for crypto mortgage borrowers, since Milo will require them to pledge more collateral if the value of the digital currency they’ve pledged drops by more than 65 percent. Rupena said that so far, Milo hasn’t had to issue any margin calls, which would require borrowers to either transfer more digital assets to the custodian, or pay off some of their loan balance.

If the value of their digital holdings goes up, on the other hand, borrowers are given an annual option of withdrawing the excess amount from the custodian, or having their mortgage rate reduced.

Rates for Milo’s crypto mortgage currently start at 6.95 percent. Rupena said the crypto mortgage is competitive with rates charged by other providers of “non-QM” loans that aren’t eligible for purchase or guarantee by mortgage giants Fannie Mae and Freddie Mac because they don’t meet underwriting standards for qualified mortgages.

Although two non-QM lenders — Sprout Mortgage and First Guarantee Mortgage Corp. (FGMC) — have recently been forced to lay off workers after experiencing difficulties obtaining funding to make new loans, Rupena said Milo is on solid footing.

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. That funding — provided on the strength of Milo’s first product, a mortgage for non-U.S. residents — brought the total venture funding raised to date to $24 million, the company said at the time.

Milo has been keeping some of the mortgages it originates on its balance sheet, and selling others to investors, Rupena said.

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

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

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

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

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

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

For now, Milo is only licensed to make loans to individual homebuyers in California, Colorado, Florida and Texas (it can make loans to investors who buy homes as limited liability companies, or LLCs, in any state). But as the company expands its footprint — and as Figure and Ledn move from waitlisting borrowers to making crypto-backed loans — more homebuyers could soon have the option of leveraging their digital currency investments to buy real estate without being forced to convert them into dollars.

Editor’s note: This story has been updated to clarify that Milo can make loans in any state to investors who have formed limited liability companies (LLCs). 

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