Moon Mortgage, a new lender that will use cryptocurrency as part of the loan security, recently raised $3.5 million in a seed round as it prepares to bring its product to market.
The fundraising was led by CoinFund and Cadenza Ventures, which both invested $1.65 million in the business.
In its flagship product, a borrower seeking a property valued at $1 million, for example, would need to put Bitcoin or Ethereum or a combination thereof of an equal amount into a custodial account as part of the security for the loan, said Moon Mortgage co-founder and CEO Aaron Nevin. But in addition to controlling the crypto currency, Moon Mortgage has a traditional first-lien position on the property's title.
"It's really engineered to be as similar to a conventional mortgage as possible," Nevin said. "We wanted to build out a product geared towards those investors who are looking for asset backed loans."
That gives Moon 200% collateralization. "We have a traditional lien against the real estate, as well as control and custody of those crypto assets on behalf of the borrower," Nevin said. "It's serviced like any conventional mortgage."
Moon is the latest entrant into this emerging market. At the start of the year, Milo Credit announced it was offering a product that used
Moon Mortgage uses Anchorage Digital as its custodian. By putting the cryptocurrency under a custodial arrangement, Moon has a level of protection for its security interest, Nevin explained.
"It's just we recognize there was a problem for crypto investors who couldn't qualify for conventional mortgages despite having all of these crypto assets locked up in a wallet," Nevin said.
Moon will produce non-qualified mortgage jumbo and superjumbo loans, which in some ways are underwritten similar to bank-statement loans. But these borrowers might not have been able to meet the underwriting criteria for those mortgages, which has been the case for Nevin himself, as well as Moon's other founder Tristan Marino.
"I've been a founder for most of my career, and all of my net worth was tied up in startup equity and crypto assets so a bank wouldn't touch me with a 10-foot pole," Nevin said. "And we had to get creative."
Even as a real estate investor, his background couldn't move the needle toward getting approved for a mortgage.
"It was that frustration that ultimately led us down the path of building out what we like to call a common sense mortgage lender," Nevin said. "If you have plenty of assets you should be able to get a mortgage."
That's where the crypto portion comes in, to provide Moon with risk management against potential default.
Crypto values have been trending downward in recent weeks, an event some describe as
Moon, which will start lending in December, is currently licensed to do owner-occupied properties in Florida, Texas and Colorado and it can lend on investment properties anywhere else in the U.S. The company can eventually bring its asset-backed crypto mortgage product to international markets as well.
While neither Nevin nor Marino have mortgage industry experience, "we have a good advisory team though that makes up for that shortcoming," he said.
Moon Mortgage is handling the servicing function in-house. "With a crypto element involved it gets a little bit more complicated and we felt that the best way to get our customers, as well as the ultimate debt buyer, the best experience possible was to support the whole process for them," Nevin explained.
The crypto mortgage is for people like one potential client Moon has been speaking with, who has over $100 million in assets, but no W-2 wage statement, so they don't qualify for a loan.
"We want to prove that these loans are safe, and that we're able to service them and manage the crypto assets," Nevin said. "And then from there, hopefully it will begin to extend to more hybrid products."
Moon looks to underwrite the borrower, not just the property, even though it is an asset-based product.
Now the beauty of real estate is the stability; the downfall is the lack of liquidity," Nevin said. "The beauty of crypto is the liquidity but not the stability. So by blending the two assets, I think we're really beginning to enter an interesting, entirely new asset class that we're really excited about working on."
