When Chris Matta wanted to buy a condo in Jersey City three years ago, he ran into a problem.
Matta, 32, had just left a job as vice president at Goldman Sachs to start Crescent Crypto, a crypto asset management firm, and most of his net worth was tied up in Bitcoin and Ether. Although Matta, now the U.S.-based president of 3iQ Digital Assets, was happy with the career switch, when he wanted to buy real estate, banks like JPMorgan and Bank of America told him he couldn’t get a mortgage in part because of risky assets he owned.
“I kind of got laughed off the phone,” Matta told Fortune.
After being turned away by several banks, he and his wife changed course. Even though both of their names were on the mortgage, they decided to use only the pay stubs from her non-crypto-related job, her tax returns, and her assets for the bank’s verification, which allowed them to get the mortgage they needed to buy the condo.
“Unfortunately a lot of the real estate industry, the traditional mortgage financing space, doesn’t really mesh with the crypto space. It’s not really recognized. In fact, it’s actually a mark against you,” Matta said.
The housing market has never been more crowded, and the pandemic has caused housing prices across the U.S. to soar. Matta represents a growing number of individuals with serious crypto holdings who have the wealth to buy a home but not the dollars, and they have run into trouble when seeking out traditional mortgages. But a new player has emerged to address this gap in the market: crypto mortgage lenders.
Last month, Milo, a crypto lending company, launched a crypto mortgage department where clients can apply to receive a loan to buy U.S. real estate if they put up an equivalent amount of money in Bitcoin. Instead of using a cash down payment, a FICO credit check, or income on a tax return to evaluate a potential borrower’s creditworthiness, Milo evaluates potential borrowers based on their crypto wealth and the value of the property they are hoping to buy. For example, someone looking for a $500,000 mortgage would have to put up $500,000 worth of Bitcoin, Milo CEO and founder Josip Rupena told Fortune.
In exchange for locking up their crypto, borrowers will receive a 30-year mortgage for their home purchase, which can be paid in monthly installments to Milo. Interest rates for the loan range from 5% to 8%, and vary depending on the amount of Bitcoin the individual can put up as collateral.
Rupena says the interest rate will also be adjusted yearly based on the price of Bitcoin: If the price of Bitcoin goes up, borrowers could take out some of their crypto at the one-year mark. If the price of Bitcoin goes down, they may be asked to provide more crypto as collateral. Crypto mortgage borrowers will be able to get their Bitcoin back once they pay the loan in full, and can also avoid selling their crypto to show proof of assets to a traditional lender, and then paying taxes on it, Rupena said.
Rupena told Fortune that there is a waiting list of more than 7,000 people for its crypto mortgage products, but the company hasn’t disbursed its first loan, and he declined to say exactly how many clients the company is currently working with.
“There’s a lot of people that at this point in time have a significant portion of their wealth, and even for some of them, all of their net worth in crypto, and the existing mortgage solutions won’t work for them,” Rupena told Fortune.
Milo claims to be the first crypto loan company that offers a 30-year mortgage, but it is not the only player in the crypto mortgage space. In December, cryptocurrency lender Ledn had a wait-list open for a similar crypto mortgage product. Apart from these real estate specific crypto loans, other companies, including BlockFi, offer crypto collateralized loans that can be used to buy homes. Another lender, Nexo, claimed in 2019 to have given out a “crypto mortgage” to entrepreneur and former actor Brock Pierce to buy a $1.2 million renovated chapel home in Amsterdam.
Traditional mortgage lenders have also tried to blend their businesses with crypto. Last August, the second-largest U.S. mortgage lender, Michigan-based United Wholesale Mortgage, said it would start accepting crypto from its borrowers as part of a pilot program. Six weeks later it stopped accepting cryptocurrencies because of “incremental costs and regulatory uncertainty.”
Still, the number of people who might be interested in a crypto mortgage is fairly limited, according to Matthew Sigel, the head of digital assets research at VanEck, an ETF and mutual fund manager.
Sigel said VanEck does not have a stake in any crypto mortgage companies specifically, but Cadenza Ventures, an early-stage crypto fund that VanEck invested in, was a seed investor in BlockFi, and it has invested in crypto lending companies outside the U.S.
Traditional mortgage lenders issued an estimated $1.61 trillion in loans in 2021, according to the Mortgage Bankers Association. For crypto loan and mortgage products to catch on, Sigel says, they will need to get to the point where clients don’t need to put up as much crypto as collateral, and instead move closer to the 20% down model for mortgages that many banks use. But he thinks that the expansion of these crypto loan products could be a future threat for traditional lenders.
“Their scope is relatively small right now, but this is the tip of the sphere that eventually poses an existential threat to bank profit margins,” Sigel said.
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