Fannie Mae accepts first crypto-backed mortgage product
Fannie Mae will now accept crypto-backed mortgages through a new product from the mortgage company Better Home and Finance And coinbase.
This is not the first crypto-backed mortgage, but it is the first mortgage accepted by government-sponsored Fannie Mae. The offering allows home buyers to use crypto assets as collateral. Fannie Mae will purchase these loans just like any other conforming mortgage.
“We’ve now finally created the infrastructure rails that will enable any tokenized asset in America to be able to make a commitment to helping someone afford to buy a home,” Better CEO Vishal Garg told CNBC in an interview. “It starts with Bitcoin, [USD Coin]”But down the road, whether it’s Apple stock or Amazon stock or any publicly traded mutual fund, bond fund, something you can hold in your IRA, you’ll be able to commit to buying a house.”
The idea is to serve Americans who have enough crypto assets to fund a mortgage down payment but do not want to sell those assets; this will result in both tax and any future depreciation.
The new mortgage product allows them to hold cryptocurrency and still secure home financing.
“Token-backed mortgages are an important first step in unlocking homeownership for younger generations struggling with barriers to saving for a traditional down payment,” Max Branzburg, head of consumer and business products at Coinbase, said in a statement.
To use the product, the borrower must have a Coinbase account and take out a regular mortgage with Better, as well as a second loan backed by bitcoin or USD Coin. The second loan will cover the down payment on the first loan.
Both loans belong to Better, and once pledged, crypto assets cannot be bought or sold. Even if the value of the cryptocurrency drops, nothing changes with the loans as long as the borrower continues to make monthly payments.
As an example, on a $500,000 home, the borrower might pledge $250,000 in bitcoin and take out a $100,000 loan to cover the cash down payment. The crypto will remain in custody in Better’s Coinbase Prime account for the life of the loan and will be returned once the loan is repaid.
The downside is that the borrower pays interest on two loans, making it more expensive, but Garg said Better offers lower rates than most competitors, and the loan rates and loan terms are the same.
“In the USDC example you are protecting the appreciation in value of your asset, the assets you hold in USDC and the return you get from that can be used to offset mortgage interest payments,” Garg said.
The second loan also does not include private mortgage insurance. Borrowers will make a single payment to Better, which holds both loans.
Other companies like Milo offer crypto-backed loans, but these products are not yet compatible with Fannie Mae. They can be much more expensive than the Better product and require the use of all crypto assets as collateral, not just a certain amount.
But overall, support from Fannie Mae, whose guardian, the Federal Housing Finance Agency, is increasingly bullish on cryptocurrency, looks set to open the door for more products like this.
“I don’t see how the entire real estate industry won’t be on blockchain in 10 years,” Tony Giordano, a real estate agent specializing in cryptocurrency, said in a recent Property Play podcast.
If loan approval is received by Better, Coinbase One members will be eligible to receive a rebate of 1% of the mortgage value, with a cap of $10,000. Other assets such as Ethereum and Solana may be added in the future.
