The First Crypto Mortgage: Bitcoin Continues to Rapidly Expand Across the US Markets

It seems like yesterday that the Bitcoin Futures got approval by a US regulator. The subsequent bitcoin ETFs were the talk of the town in 2021 – and they didn’t disappoint (at least initially). While the move to the derivatives market got equally hailed as dreaded, the ongoing diversification in the crypto industry amid a price stagnation appeals as a natural course for the market. Another touted shift was the expansion in the real estate market, though the starting point appeared dismal. For instance, United Wholesale Mortgage – the second-largest US mortgage lender – announced a move to crypto payments last August. However, despite a resounding response from customers, the company just scrapped the idea shortly afterward. The regulatory uncertainty alongside market volatility – the two main culprits. Regardless, the tide is moving in favor again as the first bitcoin mortgage offering was announced on Tuesday: confirming that while the regulators are lagging in drafting a framework, there is no lag in this crypto revolution.

Milo – a real estate fintech company – announced the launch of the world’s first crypto mortgage: enabling borrowers to leverage their bitcoin holdings to buy real estate in the United States. It is the first time that a brand new asset class (if you can even call it) is intermingling with arguably the most established investment avenues in the US. Josip Rupera – CEO of Milo – stated that customers could obtain bitcoin-backed loans by using their bitcoin holdings as collateral for purchasing a property. Traditionally, the clients had to sell their crypto stack for a down payment. In contrast, Milo now allows US citizens and foreigners to qualify for a US-based mortgage based on their BTC holdings. The company attested that the crypto mortgage would be available early this year: owing to “a large waitlist” for the offering – underscoring the appetite for a crypto-backed mortgage in investors.

Milo (a licensed lender since 2018) also specializes in crypto loans and other traditional mortgage assets. While the specifics are unclear, Rupera clued to a similar mechanism as a crypto loan to be exacted over the crypto mortgages. As per his statement: “Milo’s clients will be able to pledge their bitcoin to purchase property and finally qualify for a low-interest rate 30-year crypto mortgage.” The company clarified earlier that ‘no dollar down payments’ would be required to finance the mortgage: making the procedure faster and efficient. However, an obvious question pops up again: what about the sharp movements in the price of bitcoin acting as collateral?

A mortgage is based on the collateral. Once the bitcoin slips in value, so would the collateral. This problem sounds eerily familiar! The financial crisis in 2008 stemmed from the real estate market as the bursting housing bubble plummeted the home prices vis-à-vis the value of the collateral for the mortgages that subsequently went under. However, the financial market has since come a long way – and so have the mechanisms in place. Similar to other crypto loans, the crypto-mortgage would be launched with a margin-call component. For instance, a purchase of property worth $1 million would require the borrower to pledge – through a third-party custodian – at least $1 million worth of bitcoin. Milo would then underwrite the customer, evaluate the property, validate other aspects of creditworthiness, and ultimately facilitate a successful transaction. If, however, the crypto drops in value, the borrower would be subject to the deficit amount. Milo would allow the borrower to pay in fiat currency or pledge more crypto to adjust the margin account to its minimum maintenance margin i.e. $1 million. The mortgage rate adjustments would follow the same process. Today, the margin-call component is common in traditional mortgages, and Milo currently serves crypto loans – based on a similar transaction mechanism – to applicants from at least 63 countries around the globe. However, the evaluation procedure is still not explicitly defined, making the process tricky – given foreign applicants with no US-based credit history could also apply. Thus, the offering still requires clarification from a regulatory vantage point.

Nonetheless, this bold step marks a much-awaited move of crypto to the mortgage market – an ironic conflation of the riskiest and the safest (arguably) asset classes. According to Rupera, the idea of a crypto mortgage was in work since last year. The goal was to allow crypto holders to bypass the complex hassle with traditional banks and lenders, which barely consider crypto as an asset class. Instead, the company aimed to offer an alternative route to buy real estate without the opportunity cost of selling bitcoin that may eventually skydive in value. This “groundbreaking” offering – as one bitcoin hodler termed it – not only secures the bitcoin holders from losing their holdings but also protects them from inadvertent consequences like taxes on capital gains and complicated paperwork. Ultimately, the risk is inherent; that doesn’t seem to deter the broader market. Instead, innovators are expanding into diverse markets to spread the risk of volatility. Whether those markets dilute the crypto risk or the risk seeps into those markets – only time will tell. In the meantime, Milo estimates that the crypto mortgage market could be worth tens of billions of dollars soon. To put things into a wider perspective, the investors would be able to hold their bitcoin stacks (‘diamond hands’ as they call it) while paying off their mortgages. What better way to have your pie and eat it too!

Syed Zain Abbas Rizvi
Syed Zain Abbas Rizvi
The author is a political and economic analyst. He focuses on geopolitical policymaking and international affairs. Syed has written extensively on fintech economy, foreign policy, and economic decision making of the Indo-Pacific and Asian region.