Coinbase and Fannie Mae introduce mortgages secured by cryptocurrency for homebuyers.

The cryptocurrency exchange is collaborating with financial technology mortgage company Better, which is a Fannie Mae-approved mortgage seller.

Coinbase is collaborating with Better to facilitate crypto-backed mortgage down payments. (Coindesk archives)

Key points:

• Borrowers can use bitcoin or USDC as collateral for their down payment, enabling them to retain their assets and avoid a taxable occurrence by utilizing them.
• The Coinbase/Better mortgage is organized as a conforming loan supported by Fannie Mae, which ensures it adheres to the same protections and standards as conventional mortgages.
• According to Coinbase, the crypto-backed mortgages, targeted at typical homebuyers, are “as American as apple pie.”

The U.S.-listed cryptocurrency exchange Coinbase (COIN) is partnering with Fannie Mae-approved mortgage provider Better Home & Finance Holding Co. (BETR) to allow cryptocurrency holders to leverage their digital assets as collateral for down payments when purchasing a home.

This mortgage is structured as a conforming loan supported by Fannie Mae, which means it offers the same safeguards and standards as traditional mortgages, as stated in a press release on Thursday.

Borrowers can utilize bitcoin BTC$69,332.46 or the USDC stablecoin as collateral for their down payment, which allows them to maintain their assets and prevent triggering a taxable event by spending them. In the case of USDC, they can continue to benefit from earnings rewards, according to Coinbase.

Approximately 41% of American households are unable to purchase a home due to insufficient funds for a down payment, despite having savings elsewhere, noted Better founder Vishal Garg in an interview.

Average homebuyers have faced challenges due to rising interest rates while housing prices remain steady, Garg explained. For instance, a person looking to acquire a $400,000 property may struggle to gather the $40,000 cash down payment, facing a complicated web of legal and tax implications when attempting to liquidate assets to meet that amount, he stated.

As long as the consumer is a cryptocurrency holder on Coinbase, they can sidestep the need to file various “complex forms,” Garg mentioned, and simply transfer their digital assets from the exchange to a custody wallet with Better while keeping ownership rights.

If Better had earlier accepted cryptocurrency as down payment collateral, “we would have financed perhaps an additional $40 billion in consumer demand over the last few years,” Garg added.

There have been other innovations in crypto-backed mortgages, including some that designate Coinbase as custodian. However, the focus has typically been on wealth management and higher-end purchases, rather than serving the average consumer.

In February 2023, Better permitted Amazon (AMZN) employees to use their stock as collateral for a loan to assist with the down payment on a home purchase, albeit at a slightly elevated interest rate.

A spokesperson for Coinbase stated via email that the interest rates for the crypto-backed mortgages will be higher than those of a standard 30-year mortgage by between half a percentage point and 1.5 percentage points, depending on the consumer’s profile.

The token-backed mortgages will not carry margin calls or top-up requirements, as per a press release. If BTC decreases in value, the mortgage conditions will remain the same, and no extra collateral will be needed. Coinbase clarified that market fluctuations alone will not trigger liquidation.

Borrowers’ collateral is at risk of liquidation only after a 60-day payment delinquency, akin to traditional mortgages, the company stated.

The offering is “as American as apple pie,” remarked Coinbase’s head of consumer and platform business development, Mark Troianovski, during an interview with CoinDesk.

“Individuals holding Bitcoin or USDC can secure housing without having to sell their assets and without incurring capital gains,” Troianovski stated. “We are providing individuals with access to housing in a manner similar to how private bankers assist some of the wealthiest clients. They do not sell assets to make purchases; rather, they take loans against their assets.”