Key Takeaways
- Better Mortgage has partnered with Coinbase to offer bitcoin-backed home loans available to U.S. applicants nationwide
- Homebuyers must pledge bitcoin at 250% collateral ratio to secure down payment funding while retaining crypto exposure
- The lender retains rights to rehypothecate pledged bitcoin, allowing reuse of collateral with a promise 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 loan application volume since becoming publicly available
Better Mortgage has teamed up with Coinbase to introduce a bitcoin-backed mortgage program allowing homebuyers to leverage their cryptocurrency holdings as down payment collateral. Since opening to the public last week, the initiative has drawn $360 million in loan application requests.
The financing structure involves two separate loans that close simultaneously. The primary loan is a conventional Fannie Mae-conforming mortgage with the property as security. The secondary loan covers the down payment, secured by the borrower’s bitcoin holdings plus a subordinate lien on the residence.
Participants are required to pledge bitcoin valued at 250% of the needed down payment. For instance, someone buying a $500,000 property would need to pledge $250,000 worth of bitcoin to secure a $100,000 down payment.
A single monthly payment covers both financing arrangements. Upon closing, the borrower’s bitcoin transfers from their Coinbase account to Better’s custodial account on Coinbase Prime.
The bitcoin collateral doesn’t factor into mortgage qualification criteria. Borrowers must independently satisfy Fannie Mae’s conventional standards for income verification, credit scores, and debt-to-income ratios.
Understanding the Rehypothecation Risk
Better has acknowledged its right to rehypothecate the bitcoin collateral. This provision allows the company to utilize the pledged assets for alternative purposes while maintaining an obligation to return an equivalent amount.
Essentially, borrowers receive a promise for an equivalent quantity of bitcoin at loan termination rather than their specific coins held in segregated storage. This creates counterparty risk dependent on Better’s capacity to return the bitcoin, potentially many years into the future for standard 30-year mortgages.
The company states its contracts follow relevant regulations, including bankruptcy protections. Yet it hasn’t specified whether individual borrower bitcoin holdings are separately identifiable or outlined borrower protections if Better or its financing partners encounter financial difficulties.
No Liquidation Triggers, But Limited Flexibility
The program differs from typical crypto-backed lending by eliminating margin calls when bitcoin prices decline. Collateral liquidation occurs only following payment defaults.
Better reserves the right to liquidate pledged bitcoin after 60 days of missed payments, following proper borrower notification. Home foreclosure proceedings can commence after 180 days consistent with Fannie Mae protocols.
The down payment loan cannot be prepaid to recover bitcoin early. The cryptocurrency remains encumbered until the conventional mortgage is completely satisfied or the loan undergoes refinancing.
When homeowners sell their property, they must repay the down payment loan before regaining access to their bitcoin.
Currently, only bitcoin qualifies as acceptable collateral. Despite earlier announcements mentioning USDC, stablecoins weren’t included at launch while the companies assess additional collateral alternatives.
Coinbase One subscribers who receive approval can qualify for a lender-provided closing cost credit representing 1% of their mortgage value, with a maximum benefit of $10,000.
According to the companies, 35.9% of existing applicants possess cryptocurrency portfolios exceeding $500,000, while 38% intend to purchase homes within the next three months.
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