Coinbase, Fannie Mae bring crypto-backed mortgages to homebuyers

The crypto exchange is working with financial technology mortgage firm Better, a Fannie Mae-approved mortgage seller.

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What to know:

• Borrowers pledge bitcoin or USDC as collateral to fund their down payment, allowing them to keep their assets intact and avoid a taxable event by spending them.
• The Coinbase/Better mortgage is structured as a conforming loan backed by Fannie Mae, meaning it carries the same protections and standards as traditional mortgages.
• Coinbase said the crypto-backed mortgages, aimed at regular homebuyers, are “as American as apple pie.”

U.S.-listed cryptocurrency exchange Coinbase (COIN) is working with Fannie Mae-approved mortgage firm Better Home & Finance Holding Co. (BETR), to enable crypto holders to use their digital assets as down payment collateral when buying a home.

The mortgage is structured as a conforming loan backed by Fannie Mae, meaning it carries the same protections and standards as traditional mortgages, according to a press release on Thursday.

Borrowers pledge bitcoin BTC$69,247.59 or the USDC stablecoin as collateral to fund their down payment, allowing them to keep their assets intact and avoid creating a taxable event by spending them. In the case of USDC, they can keep earnings rewards, Coinbase said.

Some 41% of American families fail to buy a home because they don't have enough funds for the down payment, even though they have money elsewhere in savings, Better founder Vishal Garg said in an interview.

Average homebuyers have been squeezed by increases in interest rates while house prices stay the same, Garg said. Someone looking to buy a $400,000 property, for example, might struggle to find the $40,000 cash down payment, and face a quagmire of legal and tax requirements when trying to sell assets to make the amount, he said.

Provided the consumer is a crypto holder on Coinbase, they can avoid having to file all manner of “crazy stuff,” Garg said, and simply transfer their digital assets from the exchange to a custody wallet with Better while retaining ownership rights.

If Better had previously been accepting crypto as downpayment collateral, "we would have funded maybe 40 billion more of consumer demand over the past few years,” Garg added.

There have been other advances in the crypto-backed mortgages, including some that use Coinbase as custodian. However, the emphasis has tended to be on wealth management and relatively high-end purchases, rather than catering to the average Joe.

In February 2023, Better allowed Amazon (AMZN) employees to pledge their stock as collateral for a loan to cover the down payment on a house purchase, albeit at a slightly higher interest rate.

A spokesman for Coinbase said via email that the rates for the crypto-backed mortgages will be higher than a standard 30-year by between half a percentage point and 1.5 percentage points, depending on the consumer profile.

The token-backed mortgages would be free of margin calls and top-ups, according to a press release. If BTC drops in value, the mortgage terms remain unchanged and no additional collateral is required. Market movements alone never trigger liquidation, Coinbase said.

Borrowers’ collateral is at risk of liquidation only in the event of a 60-day payment delinquency, similar to conventional mortgages, it said.

The product is “as American as apple pie,” said Coinbase's head of consumer and platform business development, Mark Troianovski, in an interview with CoinDesk.

“People who are sitting on Bitcoin or USDC can put a roof over their head without needing to sell it, without needing to incur capital gains,” Troianovski said. “We are giving people access to housing in a way that is very similar to how private bankers serve some of the wealthiest customers. They don't sell assets to buy stuff; they actually take loans against assets.”

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