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Buying Real Estate with Crypto: New Mortgages Are Backed by Coins

71 points by lxm 5y ago

skunkworker 5y ago
If stablecoins like Tether crash, the house of crypto cards could come tumbling down with it.
sebmellen 5y ago
Can we tell whether or not crypto has caused financial contagion, and, if so, to what degree? Could crypto be a loose thread that unravels the proverbial “financial blanket”?
- throwanem 5y ago
  In retrospect, after the crash.
- ianai 5y ago
  It’s really when huge leverage is granted on assumptions that turn false that the market takes a hit. Especially once the underlying assets must be “marked to market” and the value is nil compared to required assumptions.
- ______-_-______ 5y ago
  I'd be pretty surprised if crypto was widely used enough to have a noticeable effect, especially compared to the trillions of dollars printed the past few years. Though for some reason everyone has started blaming Putin for inflation, so maybe people will just blame the inevitable crash on him too
- tyrfing 5y ago
  It's far too small to matter. Add up all the stablecoins, DeFi protocols, etc and you'll arrive at a dollar value smaller than single-day drops in individual stocks this year. It's also likely that there is a larger dollar amount of loans backed by just Tesla stock (via Elon Musk) than all crypto loans put together.
  - sebmellen 5y ago
    Yes, fair point. I only wonder how highly leveraged crypto is w/r/t the “outside world”. The bubble popping would certainly devastate a lot of people I know who are highly invested in crypto. Whether the unraveling comes from loans or other non-existent collateral (see USDT or even USDC), the effects would be significant. For example: https://www.imf.org/-/media/Files/Publications/GFSR/2021/October/English/ch2.ashx https://www.imf.org/-/media/Files/Publications/GFSR/2021/Oct....
cercatrova 5y ago
I have an idea, let's collateralize this mortgage debt into new crypto instruments and rate them A+. Surely everyone wouldn't stop paying their mortgages all at the same time.
- rmbyrro 5y ago
  This is brilliant, because Bitcoin price only goes UP, so the guarantee is rock solid.
- topspin 5y ago
  What could possibly go wrong?
lettergram 5y ago
Having tried to buy a house with crypto — let me tell you! Prepare for a ride lol Basically, the easiest way to do it is to take a loan against it at a low interest rate (as there’s collateral) and show you can pay the fees. If you’re buying a home you can use this as a down payment. Then sell the crypto and pay the loan. The main issue with banks is they need to track where your money comes from. I made a mistake of selling my crypto and trying to use the money for a down payment on one of the properties I was interested in. That was a challenge to “prove” it wasn’t illegal gains. Part of KYC (know your customer) is understanding where their money came from and they aren’t a criminal / terrorist. Luckily, in my case I had other assets so I just shuffled around. The loan method ensures they know where the money came from (the party lending you money).
- rmbyrro 5y ago
  And why doesn't KYC get in the way of offering crypto as collateral for a loan? If this was so simple and possible, every criminal would be laundering money this way, wouldn't they?
  - ______-_-______ 5y ago
    Usually crypto-backed loans are made by crypto-focused companies. You can tell BlockFi (for example) you bought $100 of bitcoin 10 years ago and that's good enough for them. But Wells Fargo would require some actual documentation, and (probably?) not even accept crypto as collateral to begin with
    - sofixa 5y ago
      > not even accept crypto as collateral to begin with Isn't crypto generally far too volatile to serve as collateral?
- notch656a 5y ago
  >they aren’t a criminal / terrorist. Is there a compelling reason why a criminal shouldn't be able to buy a house? Inconveniencing literally everyone over KYC, including non-criminals, to catch a 'criminal' who needs a place to live just seems absolutely insane. Go after people who you have probable cause have committed a crime, not ones you haven't.
paulpauper 5y ago
crypto keeps falling. better get out while you can.
fishtockos 5y ago
Misleading article. The defining feature of a mortgage loan is, in fact, that it is backed by real property (i.e, a house). These seem more like loans, secured by crypto, used to buy houses
black_13 5y ago
trog 5y ago
Buying real estate with poorly understood, super complex, obscure, crappy financial instruments?! Where do I sign up?! Apropos of nothing how do I do A Big Short in 2022?
- xuki 5y ago
  As I understand you need to call Brad Pitt first.
acjohnson55 5y ago
I looked into Milo a couple weeks ago and it seems like a complex financial product, compared to a traditional fixed-rate conforming loan. The interest rate depends on the value of your collateral and you are subject to the risk from the change in the value of your collateral [1]. From their FAQs, it's not clear to me whether your house is at risk if your crypto collateral gets liquidated, but you stay current on your mortgage. But your rate will go up if your collateral value goes down, so you might no longer be able to afford your loan. It sounds like if you get liquidated, they keep the liquidated USD as collateral [2], and if you defaulted, that would be credited to your loan balance (but this is not stated in their FAQs). From an investor perspective, if I'm understanding this product, this should be pretty safe. You still have a lien on the home as collateral, along with the cryptocurrency. They mention an appraisal, so I'm guessing the loan-to-value ratios are still capped at 100% (they won't lend you more than the home is worth). The crypto liquidates at 35% of value, so that means in a default, they just need to recovery 65% of the home value to be made whole. Still, might be less hassle to just liquidate the crypto yourself, buy straight cash, and realize the tax gains. [1] https://help.milocredit.com/en/articles/5915495-can-the-interest-rate-of-my-crypto-mortgage-change https://help.milocredit.com/en/articles/5915495-can-the-inte... [2] https://help.milocredit.com/en/articles/5915515-how-much-can-my-crypto-collateral-drop-in-value-before-my-asset-is-liquidated https://help.milocredit.com/en/articles/5915515-how-much-can...
- SilasX 5y ago
  You can also borrow against your crypto on much better terms via Compound[1]. Wrapped bitcoin (a bitcoin claim ticket trading on the ethereum network) has a collateral factor of 70%[2], meaning you can borrow against that much value, and the loan value just has to stay below that to prevent liquidation. For ETH, the figure is 82%. You could borrow a stablecoin, on which the rates are ~1% (FEI) to ~4% (DAI) and convert those to dollars. (Or do the same with some other non-stablecoin crypto.) Of course, then there'd be the question of how that affects your mortgage application process otherwise. What do you need to tell them about this loan? It's effectively like a pawn loan: fully collateralized and no ability to gain priority in payment in court. From the lender's perspective, it's like you already sold it, but with the option to buy back. (Not legal advice.) [1] Defi lending: https://compound.finance/ https://compound.finance/ [2] https://compound.finance/markets/WBTC2 https://compound.finance/markets/WBTC2

71 points by lxm 5y ago

If stablecoins like Tether crash, the house of crypto cards could come tumbling down with it.

Can we tell whether or not crypto has caused financial contagion, and, if so, to what degree? Could crypto be a loose thread that unravels the proverbial “financial blanket”?

throwanem 5y ago
In retrospect, after the crash.
ianai 5y ago
It’s really when huge leverage is granted on assumptions that turn false that the market takes a hit. Especially once the underlying assets must be “marked to market” and the value is nil compared to required assumptions.
______-_-______ 5y ago
I'd be pretty surprised if crypto was widely used enough to have a noticeable effect, especially compared to the trillions of dollars printed the past few years. Though for some reason everyone has started blaming Putin for inflation, so maybe people will just blame the inevitable crash on him too
tyrfing 5y ago
It's far too small to matter. Add up all the stablecoins, DeFi protocols, etc and you'll arrive at a dollar value smaller than single-day drops in individual stocks this year. It's also likely that there is a larger dollar amount of loans backed by just Tesla stock (via Elon Musk) than all crypto loans put together.
- sebmellen 5y ago
  Yes, fair point. I only wonder how highly leveraged crypto is w/r/t the “outside world”. The bubble popping would certainly devastate a lot of people I know who are highly invested in crypto. Whether the unraveling comes from loans or other non-existent collateral (see USDT or even USDC), the effects would be significant. For example: https://www.imf.org/-/media/Files/Publications/GFSR/2021/October/English/ch2.ashx https://www.imf.org/-/media/Files/Publications/GFSR/2021/Oct....

cercatrova 5y ago

I have an idea, let's collateralize this mortgage debt into new crypto instruments and rate them A+. Surely everyone wouldn't stop paying their mortgages all at the same time.

rmbyrro 5y ago
This is brilliant, because Bitcoin price only goes UP, so the guarantee is rock solid.
topspin 5y ago
What could possibly go wrong?

lettergram 5y ago

Having tried to buy a house with crypto — let me tell you! Prepare for a ride lol Basically, the easiest way to do it is to take a loan against it at a low interest rate (as there’s collateral) and show you can pay the fees. If you’re buying a home you can use this as a down payment. Then sell the crypto and pay the loan. The main issue with banks is they need to track where your money comes from. I made a mistake of selling my crypto and trying to use the money for a down payment on one of the properties I was interested in. That was a challenge to “prove” it wasn’t illegal gains. Part of KYC (know your customer) is understanding where their money came from and they aren’t a criminal / terrorist. Luckily, in my case I had other assets so I just shuffled around. The loan method ensures they know where the money came from (the party lending you money).

rmbyrro 5y ago
And why doesn't KYC get in the way of offering crypto as collateral for a loan? If this was so simple and possible, every criminal would be laundering money this way, wouldn't they?
- ______-_-______ 5y ago
  Usually crypto-backed loans are made by crypto-focused companies. You can tell BlockFi (for example) you bought $100 of bitcoin 10 years ago and that's good enough for them. But Wells Fargo would require some actual documentation, and (probably?) not even accept crypto as collateral to begin with
  - sofixa 5y ago
    > not even accept crypto as collateral to begin with Isn't crypto generally far too volatile to serve as collateral?
notch656a 5y ago
>they aren’t a criminal / terrorist. Is there a compelling reason why a criminal shouldn't be able to buy a house? Inconveniencing literally everyone over KYC, including non-criminals, to catch a 'criminal' who needs a place to live just seems absolutely insane. Go after people who you have probable cause have committed a crime, not ones you haven't.

paulpauper 5y ago

crypto keeps falling. better get out while you can.

fishtockos 5y ago

Misleading article. The defining feature of a mortgage loan is, in fact, that it is backed by real property (i.e, a house). These seem more like loans, secured by crypto, used to buy houses

black_13 5y ago

trog 5y ago

Buying real estate with poorly understood, super complex, obscure, crappy financial instruments?! Where do I sign up?! Apropos of nothing how do I do A Big Short in 2022?

xuki 5y ago
As I understand you need to call Brad Pitt first.

acjohnson55 5y ago

I looked into Milo a couple weeks ago and it seems like a complex financial product, compared to a traditional fixed-rate conforming loan. The interest rate depends on the value of your collateral and you are subject to the risk from the change in the value of your collateral [1]. From their FAQs, it's not clear to me whether your house is at risk if your crypto collateral gets liquidated, but you stay current on your mortgage. But your rate will go up if your collateral value goes down, so you might no longer be able to afford your loan. It sounds like if you get liquidated, they keep the liquidated USD as collateral [2], and if you defaulted, that would be credited to your loan balance (but this is not stated in their FAQs). From an investor perspective, if I'm understanding this product, this should be pretty safe. You still have a lien on the home as collateral, along with the cryptocurrency. They mention an appraisal, so I'm guessing the loan-to-value ratios are still capped at 100% (they won't lend you more than the home is worth). The crypto liquidates at 35% of value, so that means in a default, they just need to recovery 65% of the home value to be made whole. Still, might be less hassle to just liquidate the crypto yourself, buy straight cash, and realize the tax gains. [1] https://help.milocredit.com/en/articles/5915495-can-the-interest-rate-of-my-crypto-mortgage-change https://help.milocredit.com/en/articles/5915495-can-the-inte... [2] https://help.milocredit.com/en/articles/5915515-how-much-can-my-crypto-collateral-drop-in-value-before-my-asset-is-liquidated https://help.milocredit.com/en/articles/5915515-how-much-can...

SilasX 5y ago
You can also borrow against your crypto on much better terms via Compound[1]. Wrapped bitcoin (a bitcoin claim ticket trading on the ethereum network) has a collateral factor of 70%[2], meaning you can borrow against that much value, and the loan value just has to stay below that to prevent liquidation. For ETH, the figure is 82%. You could borrow a stablecoin, on which the rates are ~1% (FEI) to ~4% (DAI) and convert those to dollars. (Or do the same with some other non-stablecoin crypto.) Of course, then there'd be the question of how that affects your mortgage application process otherwise. What do you need to tell them about this loan? It's effectively like a pawn loan: fully collateralized and no ability to gain priority in payment in court. From the lender's perspective, it's like you already sold it, but with the option to buy back. (Not legal advice.) [1] Defi lending: https://compound.finance/ https://compound.finance/ [2] https://compound.finance/markets/WBTC2 https://compound.finance/markets/WBTC2