Key Points
- A new bitcoin-backed home loan program from Better Mortgage and Coinbase is now accepting applications nationwide
- Homebuyers must pledge bitcoin at 250% of the down payment amount as collateral without liquidating their cryptocurrency
- The lender retains the right to rehypothecate pledged bitcoin, allowing them to use the collateral elsewhere with a commitment to return equivalent amounts
- Bitcoin remains locked until the primary mortgage is completely paid off or the loan is refinanced
- The program has generated $360 million in pre-application volume since becoming publicly available
A groundbreaking bitcoin-backed mortgage program from Better Mortgage and Coinbase now enables homebuyers to leverage their cryptocurrency holdings as down payment collateral. Since opening to the public last week, the initiative has accumulated $360 million in requested loan volume through pre-applications.
The financing structure involves two simultaneous loans at closing. One is a conventional Fannie Mae-conforming home loan secured against the property. The other is a down payment loan backed by the borrower’s bitcoin holdings and a subordinate lien on the residence.
Participants must commit bitcoin at a 250% collateralization threshold. For instance, someone buying a $500,000 property would need to pledge $250,000 worth of bitcoin to secure a $100,000 down payment.
The two loans are combined into a single monthly payment obligation. Upon closing, the borrower’s bitcoin transfers from their Coinbase account to Better’s custody account on Coinbase Prime.
The bitcoin collateral doesn’t contribute to mortgage qualification. Borrowers must independently satisfy Fannie Mae’s conventional requirements for income verification, credit score thresholds, and debt-to-income ratios.
Understanding the Rehypothecation Risk
Better has acknowledged it reserves the right to rehypothecate the collateralized bitcoin. This authorization allows the company to deploy the collateral for additional purposes while maintaining an equivalent amount for future return.
Effectively, borrowers receive a commitment for an equivalent bitcoin amount when the loan concludes, rather than their specific coins held in segregated storage. This creates exposure to Better’s capacity to fulfill that obligation, potentially spanning decades for a 30-year mortgage term.
Better stated its contracts align with relevant regulations, including bankruptcy provisions. The company hasn’t specified whether individual borrowers’ bitcoin is maintained as separately identifiable assets or outlined borrower protections if Better or its financing partners become insolvent.
No Margin Calls, But Restricted Access to Collateral
The program differs from typical crypto-collateralized lending by eliminating margin calls when bitcoin prices decline. Liquidation occurs only following payment defaults.
Better may liquidate pledged bitcoin following 60 days of payment delinquency, after providing borrower notification. Home foreclosure proceedings can commence after 180 days according to Fannie Mae protocols.
Borrowers cannot make early repayment of the down payment loan to reclaim their bitcoin. The cryptocurrency remains secured until the conventional mortgage is entirely satisfied or refinanced.
When a borrower sells the property, the down payment loan requires full repayment before bitcoin release.
Currently, only bitcoin serves as acceptable collateral. While USDC appeared in preliminary announcements, it wasn’t included at launch as the companies assess additional collateral alternatives.
Coinbase One subscribers who receive approval for the program qualify for a lender-provided closing cost credit worth 1% of the mortgage value, with a $10,000 maximum.
The companies reported that 35.9% of existing applicants possess over $500,000 in cryptocurrency, while 38% intend to purchase a home within the next three months.
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