Crypto meets home loans: The rise of bitcoin-backed HELOCs

The positive vibes coming out of the Trump Administration towards cryptocurrency are spilling over into its presence in the home lending business.

That will likely drive further growth in both new and existing offerings of products linked to Bitcoin and other digital tokens.

At one point after the election, Bitcoin was trading at just under $106,500, although recently it has been in a slide, briefly dropping under $80,000 on Feb. 27 before rebounding to hit $84,756 during trading the following day. While it spiked back up over $94,000 in the immediate aftermath of the president's crypto strategic reserve announcement, by 3:30 p.m. eastern time on March 3, it was back to $86,166.

Figure Markets, which is a pioneer in using blockchain to support residential lending, is bringing to market a Bitcoin-backed home equity line of credit product. Figure Technology Solutions recently entered into a private lending joint venture with Sixth Street.

It is the first time the HELOC funds can be directly converted to Bitcoin rather than cash, the company said, with the cryptocurrency held in escrow.

Figure did its first loan in 2018, the first securitization in 2020 and three years later its first AAA-rated securitization, said Mike Cagney, its CEO, in an interview with National Mortgage News. So far it has done around $43 million of loans on the blockchain.

The company has gone beyond HELOCs and into other forms of lending. "One of the things we initially were looking at back in the day was the Bitcoin mortgage," said Cagney. "Where, if you had a million dollars in Bitcoin, we would let you buy a million-dollar home with effectively no underwriting."

However, this idea emerged just as Bitcoin prices crashed, and interest in Bitcoin mortgages disappeared. Today, with cryptocurrency gaining mainstream acceptance—even earning the president's endorsement—the landscape has shifted, Cagney argued.

"People want exposure to crypto and this is a way for them to use their home equity to get that exposure," he said. "It's really just a vehicle in which you can tap your home equity and use those proceeds as collateral and be able to borrow more than you'd be able to if you were buying a pool, or consolidating your debt, or doing other stuff that people do to use HELOCs for."

The product works like a traditional HELOC, with a draw period, depending on the term of the loan, of between three to five years. It's open and unlimited draws during that time and borrowers can pay back and take out additional proceeds, he noted.

"You could draw $1 of cash or $2 of Bitcoin. You can mix it up… as long as you're putting that Bitcoin as collateral, gives you the option of choosing between cash and coin," Cagney said.

Right now, Americans hold $30 trillion of unencumbered home equity.

"It's not crazy for me to think that 10% of those people would like to use that home equity to buy Bitcoin," Cagney said. "Close to 30% of U.S. investors hold crypto and so at 10% there's a $3 trillion demand for this out there."

Another company combining crypto and mortgage is Milo. The Miami-based firm just announced it has done $65 million in total volume for its crypto mortgage offerings since it started in 2021.

Milo works with funds in either Bitcoin or Ethereum. Many of its clients have owned crypto currencies for a long time and don't want to sell it in order to finance their property, explained Josip Rupena, Milo's CEO. Besides no longer owning the digital currency that is likely to continue to appreciate in value, a sale would trigger a taxable event.

So in using that crypto as security, Milo is able to provide 100% loan-to-value financing for the home. "They will transfer that Bitcoin to us through Coinbase," Rupena said. "It sits there in cold storage, and then when they pay back the loan, it gets released and it goes back to them."

Events like the so-called "crypto winter" might have held back growth. The more favorable stance on crypto from the federal government is a positive for Milo to continue to expand its market, Rupena said.

It was after the May 2022 collapse of Luna and TerraUSD cryptocurrencies that Milo brought another product to market, a cash-out refinance that works similar to the purchase mortgage by allowing borrowers to access 100% of their home's equity by pledging their crypto assets and the property to secure the loan.

A likely purchase mortgage customer for Milo's product is one that has been on the sidelines, not because of the affordability issue, but because they wanted to keep their crypto rather than sell it to finance their home buy.

"We are seeing that they're able to take advantage of a flat and sometimes declining real estate market, and they're not having to compete against so many people like in the previous few years where every home for sale right was being bid up," said Rupena

"The market has changed, [and] our customers are getting an opportunity to finally buy those homes, because the markets are coming in their direction from price perspective as well as the existence of Milo."

The fact that other firms want to enter this area is healthy for the future, especially since "everybody has a different take on what a product should be or how it could be structured," Rupena said, adding it is good for consumers to have more choices.

When Milo entered this market, a lot of discussion took place regarding how things could go wrong, but not so much as to why it could succeed, he said.

"We've seen it succeed for so many of our clients where they bought homes and their Bitcoin appreciated and their home appreciated, and it turned out incredibly well for them as a wealth creating tool," Rupena said. "Comparatively, I don't think that there's any other traditional mortgage product that comes even close to the benefits to the consumer that our crypto mortgage has."