Crypto Mortgages Will Soon Be a Reality, But There Could Be Big Hurdles
Cryptocurrencies are becoming increasingly popular all over the world as an alternative to traditional banking systems. In the summer of 2021, the Spanish government introduced a new bill paving the way for borrowers to use digital assets to pay their mortgage installments.
The legislation is aimed at deepening acceptance, regulation, and use of digital currencies. It also enabled the Spanish real estate industry to use crypto to invest in mortgage pools. This encouraged banks to embrace blockchain technology as a secure, reliable means of keeping track of mortgages and insurance.
In January 2022, Milo, a Miami-based fintech startup, announced the launch of the world’s first crypto mortgage. It enables investors to use digital assets to purchase real estate for the first time in the United States.
Currently restricted to Bitcoin users, Milo’s 30-year mortgage loan with be available to both American and international customers purchasing real estate in the United States. The startup has already granted a handful of loans as part of its early-access stage, anticipating rollout of the service to the majority of its applicants in the coming months.
The Milo website explains that instead of selling crypto to finance a down payment to qualify for a mortgage, investors will be able to leverage their crypto to invest directly in real estate. It remains unclear how many Bitcoin will be required to secure a mortgage, or the level of over-collateralization necessary to balance out the volatility of relying on a digital asset.
Announcing the launch, Milo CEO Josip Rupena explained that the concept was developed in response to the stories of crypto investors being forced to cash out their Bitcoin to purchase real estate, only for the digital currency to soar in value later on. Rupena points out that Milo’s crypto mortgages avoid investors missing out if their crypto increases in value. It also helps them avoid unintended tax liabilities created by selling their cryptocurrency to finance their down payment.
Rupena confirmed that Milo had already provided millions of dollars in loans to foreign investors from 63 countries. It thereby enabled non-US-based borrowers to arrange their mortgages, helping them avoid the need to travel to the US, or visit an embassy.
In the United Kingdom, Coadjute announced the launch of the country’s first cryptocurrency for property transactions in September 2021. Coadjute relies on stablecoin, a cryptocurrency tied to reserve assets, such as traditional currency. As the name would suggest, stablecoin was designed to facilitate price stability.
Offering the best of both worlds-diminished volatility combined with the speed, security, and privacy of cryptocurrency payments-stablecoin cryptocurrencies have grown increasingly popular of late. Designed for use only in property transactions, Coadjute’s stablecoin cannot be misappropriated for another purpose.
Speaking with the press, Coadjute’s CEO, Dan Salmons explained that the idea was conceived when the firm noticed that the process of completing property transactions was ripe for innovation. As Salmons points out, for many UK property purchasers, the completion process is far from smooth.
On the day of completion, purchasers are often left waiting for extended periods of time along with their belongings for the realtor to release the keys. The realtor cannot release them until the attorney gives them the go ahead, but the attorney could be tied up with other transactions. All of this typically occurs on a Friday afternoon, with law offices closed at weekends in the UK, posing the very real risk that the purchaser could be left out in the cold if the transaction is not completed by 5p.m.
As Dan Salmons points out, the traditional completion method is not only incredibly convoluted and inefficient, but also vulnerable to fraud. It creates a burden on conveyancers; inefficiency for banks; and worry for buyers and sellers. Coadjute’s solution is to create secure infrastructure that connects all of the different parties that need to move money. The stablecoin cryptocurrency can only be used for property transactions, and it cannot be misappropriated for another purpose.
Across the Atlantic, Milo is not the only US startup eying the crypto mortgage market. In August 2021, United Wholesale Mortgage launched a pilot program testing the waters for crypto mortgage repayments with Bitcoin and Ether. However, the company subsequently abandoned the scheme due to regulatory uncertainty.
Milo’s CEO Josip Rupena comes with an impressive business pedigree, having worked at multinational investment banking giants Goldman Sachs and Morgan Stanley. By January 2021, Milo has raised $6 million in seed funding, its investors including Metaprop, 10X Capital, and QED Investors.
Is it wise to pay your mortgage with Bitcoin? Financial experts advocate caution, describing digital currency as “a bag of magic marbles” that could be worth $11,000 at one time, and $60,000 at another, according to a report published by TIME, citing cryptocurrencies as a “notoriously volatile and speculative asset”.
Cryptocurrency has become an increasingly popular component in the toolbox of everyday investors(5). Nevertheless, many experts remain skeptical, advising against “betting your house on it”. After all, while crypto can create massive gains, it can also take significant tumbles, making it something of a gamble.
Originally published at http://carltonjamesguyana.com on February 17, 2022.