Recently, an analyst who works at Weiss Ratings, the only financial rating agency that grades cryptoassets, issued a dire warning over cryptoasset-backed mortgages, saying they present a significant risk.
According to a report by Cointelegraph, Weiss, which is based out of Florida, Weiss analyst Jon D. Markman released a report on May 2 that looks at the risks of crypto-collateralized mortgages and the start-ups that have begun to offer them to consumers. Markman told consumers to be careful before wading into the new mortgage market.
In particular, the report focused on Miami-based FinTech startup Milo, which offers 30-year mortgages backed by Bitcoin, Ethereum, or stablecoins as collateral. The firm has been promoting its crypto mortgages with zero down payments and loan rates between 3.95% and 5.95%.
Markman warned clients to be cautious when looking into a crypto-backed mortgage, arguing that the poor performance of cryptoassets and stocks this year represent a bad signal for the housing market. He also noted rising interest rates coming from the U.S. Federal Reserve and the possibility of the U.S. housing bubble popping in the near future.
The product seems to be like a win-win, assuming real estate and crypto prices keep rising … except there are signs both bets are unlikely to be winners in the near term. Bitcoin is off by 40% since it reached $66,000 in November 2021. And U.S. property prices now face headwinds from a change in Fed policy and rising mortgage rates.
While Markman was not opposed to all crypto-based risk, he did compare the combination of crypto and mortgage loans to the subprime market that caused the Great Recession of 2009. The Weiss analyst also noted the rapid increase in domestic mortgage rates, which have increased 71% since January.
According to a report by Barron’s last month, Milo CEO Josip Rupena says the firm has been working with more than 700 potential borrowers on pre-approvals and has made $5-$10 million in loans. Rupena also stated that the startup is currently accepting USD Coin, Gemini Dollar, and Terra stabelcoins, which are pegged to the value of $1.
The rBarron’s report cites similar efforts by companies to offer crypto-backed mortgages, including startups Figure Lending and Ledn, which both report having a waiting list for loans.
Daniel Wallace, general manager of Figure Lending, explained his company’s process to Barron’s, stated:
If you custody $1 million of Bitcoin or ether, we’ll give you $1 million in a loan. That means you’re not financing a loan out of pocket—there’s no down payment.
The report also mentions that crypto loans may be more streamlined than those offered through banks. Milo says it is able to close a loan in two to three weeks and does not require a FICO credit check. The company relies upon a verification of identity and the source of funds to comply with “know your customer” regulations, but is otherwise minimal in its documentation requirements.
The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.