‘Crypto Mortgage’ allows home buyers to use Bitcoin as collateral

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A “crypto loan” that allows home buyers to use their bitcoin holdings as collateral instead of redeeming them appears to fill an unmet need, with $ 10 million in loans financed since the product’s launch in April.

Miami, Florida-based Milo Credit LLCs crypto loans provide 30-year mortgages of up to $ 5 million with no down payment, credit score or US citizenship requirements.

Similar to similar crypto loan offers from Figure and Ledn, Milo requires borrowers to put digital wealth as collateral, in an amount equal to how much they borrow – a $ 500,000 loan requires $ 500,000 in digital security. But unlike Figure and Ledn, there is no waiting list for Milo’s crypto loans.

If a crypto investor has enough bitcoin to buy a house, why not just take out a little to make a down payment or finance a cash purchase – especially when Milo demands higher interest rates than traditional mortgage lenders?

Milo founder and CEO Josip Rupena told Inman that the company’s cryptocurrency customers tend to be long-term investors who have a disproportionate share of their net worth tied up in bitcoin or other digital currencies. They often want to diversify into other assets such as 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 for $ 10, $ 15, $ 20,” Rupena said. “So they want to keep their digital assets for a long 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, during the loan.

“Our strategy is in line with yours – keep HODLing,” Milo boasts on its website, referring to a crypto-investor slang term for “buy-and-hold” bitcoin through ups and downs in the market.

Over the past 12 months, a single bitcoin has been worth as much as $ 68,790 – a record high reached on November 10, 2021. Since falling to a 52-week low of $ 17,709 on June 18, the popular cryptocurrency value has picked up again and it has recently traded above $ 20,000.

But that kind of volatility can create some complexity for borrowers of cryptocurrencies, since Milo will demand that they provide more security if the value of the digital currency they have promised falls by more than 65 percent. Rupena said that so far Milo has not had to issue any margin calls, which will require borrowers to either transfer more digital assets to the custodian, or pay down some of the loan balance.

If, on the other hand, the value of their digital holdings increases, borrowers will have an annual opportunity to withdraw the excess amount from the custodian, or have their mortgage interest rate reduced.

Prices for Milos crypto loans currently start at 6.95 percent. Rupena said the mortgage is competitive with rates charged by other “non-QM” loan providers who are not eligible for the purchase or guarantee of mortgage giants Fannie Mae and Freddie Mac because they do not meet qualifying mortgage guarantee standards.

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

Milo was founded in 2018 and announced a $ 17 million round of financing in Series A in March, led by California-based venture capital firm M13, with additional participation from seed investors MetaProp and QED Investors. That funding – given because of Milo’s first product, a non-US mortgage – brought the total venture funding raised so far to $ 24 million, the company said at the time.

Milo has kept some of the mortgages it comes from on the balance sheet, and sold others to investors, Rupena said.

“We started the company before COVID happened, and I do not want to say that everything was perfect, but from a capital market perspective, it is high tide,” Rupena told Inman. “I think we’ve tried to maintain a varied set of relationships [with funding sources] … But we feel good that we can continue to expand what we have in place. I believe in the end that having a larger size makes the opportunity more convincing for larger players, and I think there is a lot of capital in the world that wants to do that. “

Last year, CNBC Mad Money host Jim Cramer was fired on Twitter after revealing that he had sold all of his bitcoin holdings when the cryptocurrency rose above $ 60,000, and used the profits to pay down the mortgage. With interest rates close to historic lows, “it is as if the mortgage is the asset while the house is the obligation,” a critic weighed in at the time.

In retrospect, Cramer may have been smart to sell his bitcoin holdings to pay down the 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 finance 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.

It helps explain why Rupena sees “a great opportunity” for real estate agents who are able to help crypto investors use their digital assets to buy real estate.

“I think it definitely does not go away, and if they are able to understand [crypto mortgages], they will find themselves able to work with these consumers, ”he said. “They are going to tell it to their friends, and they are going to tell it to their other friends, and in the end, they will be able to get better at their business just by working with them.”

Currently, Milo is licensed only in California, Colorado, Florida and Texas. But as the company expands its footprint – and as Figure and Ledn move from putting borrowers on a waiting list to providing crypto-supported loans – more homebuyers may soon have the opportunity to leverage their digital currency investments to buy real estate without being forced to convert them to dollars.

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Email Matt Carter