While a handful of mortgage businesses,
Even with a large, passionate following, digital currencies won't ever grab a significant share in mortgage lending given
With no clear rules behind digital currencies, "It's not really clear that there's a path to scale and significant profitability," he said.
"There's no political will to create a regulatory regime or some kind of legal regime that will really bring this mainstream," he added.
Government-sponsored agencies, whose decisions instigate changes in the industry, have expressed no willingness to move the needle either. Policies prohibit consideration of crypto income in underwriting, while also specifying that any digital currencies must be converted into U.S dollars if used for down payments or fee remittances.
Along with lack of regulation, most consumers' limited understanding about how the notoriously volatile assets can be used in the mortgage origination process means the challenge of issuing them would outweigh the effort lenders would need to put in.
"We feel that extreme volatility and risk is something that we cannot work with," said Desh Weragoda, chief technology officer at Mbanc, the California-based lender specializing in non-QM and other offerings not guaranteed by GSEs. Mbanc first began offering a crypto product in mid 2021 before discontinuing it a year later.
Crypto mortgages are limited to a handful of people "and does not service the issue that most people are experiencing right now — home affordability," Weragoda said.
A small but focused marketplace
While the particular slice of the mortgage-industry pie might be small and restricted to a specific subset of consumers, it's large enough for at least two South Florida-based companies to introduce loan products allowing crypto investors to use their assets as collateral backing a property purchase. And the offerings rolled out despite recent failures of crypto trading exchanges failing and drops in value.
Milo Credit first announced its bitcoin-backed purchase mortgage in early 2022, with production since its launch now totaling over $10 million, the company claims. Milo followed it up with a
In April, Moon Mortgage similarly began originating mortgages backed by the same three digital currencies for both residential and investor properties, in addition to a trade-and-borrow product allowing clients to finance loans tied to their cryptocurrency values. A savvy, strong borrower base who wants to tap into the value of assets without unloading them supports the case for these types of offerings, according to the company's leadership.
"I'd say most of our consumers at this point are the early adopters of bitcoin and ethereum. They've made a lot of their wealth through this space and built in this space," said Moon Mortgage CEO Aaron Nevin.
"These are individuals who have no interest in selling their bitcoin and ethereum. They're long-term believers and want to hold it."
The investor preference to hold on to their digital assets is also likely behind the lack of traction for acceptance in mortgage transactions. After unveiling plans to accept bitcoin for mortgage payments in 2021, United Wholesale Mortgage, dropped the program just weeks later, citing limited interest and demand from its clients.
The particular idiosyncrasies of crypto investors means the product will likely only remain a niche offering. "If you understand the general home buyer, they don't have the crypto necessary to participate in the product," Weragoda said.
Volatility and controversy seem to make no difference
"Most of our clients that are in the crypto mortgage side, they tend to be more affluent from a crypto network perspective," said Milo Credit CEO Josip Rupena.
"So the volatility — they understand. You can say that the reason why they've made that wealth is because of volatility, and they understand it cuts both ways," he added. Despite the swings in value over the past year, Rupena says none of his crypto mortgage customers have been margin called to up their collateral, and they have paid as expected.
In May 2022, bitcoin was valued at approximately $35,000 per coin just weeks before news of trouble at Celsius Networks emerged over the summer. Two months later, the digital currency was trading in the $19,000 to $21,000 range, where it largely wavered until scandals involving FTX and its CEO Sam Bankman-Fried began landing in news cycles in November. Bitcoin hit a low of $15,760, in the middle of that month, losing over half its value in a little over six months.
Ethereum experienced similar swings, trading from over $2,500 a year ago to under $1,000 two months later. Since early January, its value has risen 60% from $1,200 to $1,918.
The underlying reasons behind industry scandals had more to do with poor leadership than inherent flaws of investing in cryptocurrency investing, according to Nevins.
"Most of these issues that have come about in the last year — these were really ego problems. They were not crypto problems, and so we think we'll, in due time, return to the traditional volatility that we see in the crypto markets and that this sector is only going to grow," Nevins said.
The road ahead depends on regulators
"This is a very small segment of the population who are going to finance real estate or use real estate to finance something else," he said.
But it isn't stopping mortgage companies from testing its potential in the residential marketplace. Moon's residential product became available in three states on launch, and while Milo focused on investment properties for much of the mortgage's first year of existence, data from customers shows growing interest in using digital assets for primary home purchases, Rupena said.
Any widespread uptake, though, depends on having something resembling a uniform regulatory framework in place,
Despite digital currencies' history and reputation as being lawless, some regulation from the likes of the Federal Reserve or other government agencies are welcome by some in the space, as it might strengthen the industry.
"I think that the government needs to do more on a federal level to essentially create a rule basket for everyone so we can all move on a more unified front," Nevins said.
For lenders of crypto-collateralized mortgages, specifically, greater federal regulation would ease licensing requirements open up growth opportunities, encouraging innovation and potentially more product offerings, compared to the current way of doing business.
"Unless the Fed kind of gets a move on with taking a leadership stance on regulation, I think there's a high likelihood it ends up falling to the states, and we just have a repeat of every other licensing hassle on a state-by-state level which makes entrepreneurship that much harder," Nevins said.