US home finance company Better Mortgage and crypto asset exchange Coinbase announced on August 26 local time that they had opened a home loan combining bitcoin collateral to the general public. The two companies said this is the first conforming mortgage structured in this way. The product bundles two loans. One is a standard first-lien mortgage that conforms to the guidelines of Fannie Mae, the US government-sponsored housing finance enterprise, and the other is a separate loan used to fund the down payment on the home. The down payment loan takes both the bitcoin the user has deposited and a second lien on the home as collateral. The two loans carry the same interest rate and the same repayment term, so the user repays them through a single monthly payment. Better handles origination and servicing, and Coinbase neither originates nor services the loans. The collateralized bitcoin (BTC) is moved from the user's Coinbase account to a custody account that Better has opened at Coinbase Prime, the institutional custody service, and is held there until the down payment loan is repaid. At present, bitcoin is the only crypto asset accepted as collateral for the down payment loan. The value of the bitcoin collateral must be at least 250% of the down payment loan amount. Additional collateral will not be demanded, and the bitcoin will not be disposed of, merely because the market price has fallen. However, if payments are 60 days delinquent, Better may sell the collateralized bitcoin, and at 180 days of delinquency, foreclosure proceedings on the home begin separately in accordance with Fannie Mae guidelines. Members of Coinbase One, the paid subscription service, receive a lender credit upon loan approval equal to 1% of the home financing amount, up to a maximum of $10,000, applied toward the closing costs of the home transaction. Because Better originates both loans and the collateralized bitcoin is held in a custody account in Better's name, this product is not an onchain loan.
Better and Coinbase Open Bitcoin-Collateralized Home Loan to the Public: Down Payment Loan Takes a Second Lien on the Home
Metanomia View
What matters more than the statement that bitcoin has entered home finance is the question of what that bitcoin is actually collateralizing. What conforms to Fannie Mae guidelines is the first-lien mortgage, while the down payment loan takes both the bitcoin and a second lien on the home. The two loans are separate contracts, but they are bundled into a single monthly payment, so if the same delinquency continues, the risk of the bitcoin being sold and the risk of foreclosure on the home arise at different points in time. If a similar product is considered in Korea, disclosure should cover not only when and by whom the collateral is disposed of, but also how any assets remaining after disposal are returned and what happens to the deposited assets if the lender goes bankrupt.