I seem to be mostly posting about fiat stuff today. forgiveness please.
"We closed on our home and my Bitcoin stayed intact. We didn’t have to liquidate, didn’t have to time the market""We closed on our home and my Bitcoin stayed intact. We didn’t have to liquidate, didn’t have to time the market"
It sounds like you have to deposit your bitcoin as collateral in Coinbase (ie you have to give up custody), but apparently this does not count as selling your bitcoin, so it does not trigger capital gains?
The first loan was closed by Joe and Amy, a married couple in their early 30s in Ann Arbor, Michigan, who were preparing for the next chapter of their lives with a growing family. Joe, a software engineer, and Amy, a graduate student, had built meaningful savings in digital assets but faced the same obstacle that stops millions of qualified buyers: insufficient cash for a traditional down payment. Rather than liquidating their long-term Bitcoin position, incurring capital gains taxes, and forfeiting future upside, they pledged their crypto as collateral and successfully purchased their first home.
Also this from the Coinbase/Better website:
And here's how they describe the flow:
Initially supporting Bitcoin and USDC, the product allows borrowers to pledge digital assets as collateral, enabling them to secure a mortgage without liquidating their holdings.
Coinbase got approval for this concept back in March (#1460598) although it's been getting teased for more than year #1015495, #979062, #1028480.
Womp womp! There are a couple of major caveats to this announcement!
First, it is inaccurate to say that Fannie Mae backs the loan. This loan is a second lien on a home which has a primary mortgage backed by Fannie Mae. Fannie Mae likely has no involvement with this secondary loan.
Second, this requires heavy overcollateralization. Bitcoin is valued at 40% of market value, which means to borrow $1 you'll need to pledge $2.5 worth of Bitcoin.
In addition to the overcollateralization of your Bitcoin, the loan is also secured by a second-lien on your property. So if you fail to pay the loan, they could potentially go after both your bitcoin and your property.
The main positive would be that the interest rate on this second lien will be the same as for your primary mortgage. This would typically be a better rate than what you would get on traditional second-lien mortgages.
Mostly, it seems like a bad deal for borrowers who have other sources of credit. However, if you have a lot of extra bitcoin doing nothing, but not much cash for a downpayment, this could get you the cash needed at a decent interest rate.
This is very helpful context, thank you. I should probably have dug a bit deeper into the announcement.
I just have a (too deep and useless) fascination with mortgage market structure. My phd dissertation was on mortgages.