Fannie Mae accepts first crypto-backed mortgage product

Fannie Mae will now accept crypto-backed mortgages via a new product by mortgage company Better Home and Finance and Coinbase.

It’s not the first crypto backed mortgage, but it is the first accepted by Fannie Mae, which is under government conservatorship. The offering allows homebuyers to use their crypto assets as collateral. Fannie Mae will purchase those loans just like any other conforming mortgage.

“We have now finally created the infrastructure rails to enable any tokenized asset in America to be able to be pledged to help someone afford to buy a home,” Vishal Garg, CEO of Better, told CNBC in an interview. “It starts with bitcoin, starts with [USD Coin], but going forward, it can be Apple stock or Amazon stock, or any publicly traded mutual fund, bond fund, something that you might hold in your IRA, you’re going to be able to pledge that to buy a home.”

The idea is to serve Americans who have enough crypto assets to fund a mortgage down payment but do not want to sell those assets, which would both incur taxes and forfeit any future appreciation.

The new mortgage product allows them to keep the cryptocurrency and still secure home financing.

“Token-backed mortgages are a major first step to unlocking homeownership for the younger generations that have struggled with barriers to saving for a traditional down payment,” said Max Branzburg, head of consumer and business products at Coinbase, in a release.

To use the product, a borrower must have a Coinbase account and would take out a regular mortgage with Better as well as a second loan, backed by either bitcoin or USD Coin. The second loan would fund the down payment on the first loan.

Both loans are held by Better, and the crypto assets, once pledged, cannot be traded. Even if the value of the crypto falls, nothing changes on the loans, as long as the borrower keeps making the monthly payments.

As an example, on a $500,000 home, a borrower can pledge $250,000 in bitcoin and get a $100,000 loan to cover the cash down payment. The crypto stays in custody in Better’s Coinbase Prime account for the life of the loan and is returned once the loan is repaid. 

The downside is that the borrower is then paying interest on two loans, which makes it more expensive, but Garg said Better offers lower rates than most competitors, and the rates on the loans and the terms on the loan are the same.

“You’re keeping the appreciation on your asset in the instance of USDC, the holdings that you hold in USDC and the yield you get from that can be used to offset the interest payments on the mortgage,” Garg said.

There is also no private mortgage insurance on the second loan. Borrowers will make one payment to Better, which holds both loans.

Other companies, like Milo, offer crypto-backed loans, but those products aren’t yet compliant with Fannie Mae. They can be far more expensive than the Better product and require all crypto assets to be used as collateral, not just a certain amount.

In general, however, the backing by Fannie Mae, whose conservator, the Federal Housing Finance Agency, has been increasingly bullish on cryptocurrency, seems to open the door for more products like this one.

“I don’t see how the entire real estate industry will not be on the blockchain within 10 years,” said Tony Giordano, a real estate agent specializing in cryptocurrency, on a recent Property Play podcast.

If approved for a loan by Better, Coinbase One members will be eligible for a rebate worth 1% of the mortgage vale, capped at $10,000. Other assets, like ethereum and Solana may be added in the future.