Better Mortgage can reuse the pledged bitcoin, and borrowers cannot recover their crypto until the main conventional mortgage is fully repaid or refinanced.
- Buyers can pledge bitcoin at a 250% ratio to fund a home down payment, though they must still meet standard income and credit rules for the main mortgage.
- Better Mortgage can reuse the pledged bitcoin, and borrowers cannot recover their crypto until the main conventional mortgage is fully repaid or refinanced.
- Price drops in bitcoin don’t trigger margin calls or automatic liquidations. The crypto is only sold if a borrower misses their combined monthly payments.
Better Mortgage may rehypothecate bitcoin pledged by borrowers using its newly available Coinbase-powered home loan, and customers cannot recover the collateral until their conventional mortgage is repaid or refinanced.
The companies made the product generally available last week. Better told CoinDesk that pre-applications have, since the launch to the general public, reached $360 million in requested loan volume, up from the $260 million projected by borrowers who joined its earlier waitlist.
A borrower receives two loans at closing. The first is a standard Fannie Mae-conforming mortgage secured by the home, while the second funds the cash down payment and is secured by the borrower’s bitcoin, as well as a second lien on the same property.
The bitcoin-backed loans begin at a 250% collateral ratio, meaning a buyer must pledge $2.50 of BTC for each $1 borrowed for the down payment. In Better’s example, a buyer purchasing a $500,000 home could pledge $250,000 of bitcoin to fund a $100,000 down payment.
Both loans are originated by Better and collected through one combined monthly payment. At closing, the bitcoin moves from the borrower’s Coinbase account into Better’s custody account on Coinbase Prime.
Better disclosed, however, that it may reuse the pledged bitcoin as long as it keeps an equivalent amount available to return.
Coinbase acts only as the custodian and technology provider and has no role in extending credit or deciding when collateral is liquidated, the companies told CoinDesk.
Bitcoin does not help a borrower qualify for the first mortgage. Applicants must still satisfy Fannie Mae’s ordinary income, credit score and debt-to-income requirements independently of their crypto holdings.
“Nothing in the product converts crypto holdings into qualifying income or waives DTI or credit thresholds,” Better said in written responses. “The Bitcoin loan only solves the cash-for-down-payment problem.”
Pledged bitcoin may be reused
“Better may rehypothecate the pledged bitcoin, provided it keeps equivalent Bitcoin on hand to return the collateral at loan payoff,” the company said.
Rehypothecation allows pledged collateral to be used in another transaction rather than remaining untouched in custody.
In practical terms, the borrower is promised an equivalent quantity of bitcoin when the loan ends, rather than being assured that the same coins will remain untouched throughout it. The arrangement therefore exposes the borrower to Better’s ability to maintain and return that bitcoin, in addition to movements in the value of the crypto and the property.
That turns the borrower’s bitcoin into something closer to an IOU as Better may use the collateral elsewhere while promising to return an equivalent amount later. That cuts against crypto’s post-FTX push for verifiable reserves and leaves borrowers dependent on an intermediary’s ability to return their bitcoin, potentially decades later.
The company said its borrower agreements and custodial arrangements comply with applicable laws, including insolvency rules. It did not explain whether each borrower’s bitcoin is separately identifiable, who holds legal title after rehypothecation or whether the borrower would retain a property claim or become a creditor if Better or one of its financing partners failed.
Borrowers also cannot simply repay the second loan to recover their bitcoin early. Better said the collateral remains pledged until the conforming mortgage is fully repaid or refinanced, even though the bitcoin and second lien secure the separate down-payment loan.
That condition could keep the bitcoin encumbered for the life of a 15- or 30-year mortgage unless the borrower refinances or sells the home. Better’s public page says that a home sale requires the down payment loan to be repaid before the bitcoin is released.
Better’s public page says that a home sale requires the down payment loan to be repaid before the bitcoin is released.
No margin calls
Unlike a typical crypto-backed loan, a decline in bitcoin’s price does not produce a margin call, require additional collateral or trigger an automatic sale.
Even if bitcoin becomes worth less than the loan’s down payment, liquidation occurs only after payment delinquency, the firm said.
A missed combined payment starts the delinquency process. Better said it may liquidate the pledged bitcoin after 60 days, following notice to the borrower, but would sell only enough to repay debt and bring the account current.
Foreclosure on the home may begin after 180 days of delinquency under Fannie Mae guidelines. Better said it must pursue the bitcoin first, but “standard lending remedies” may still apply if selling the collateral leaves a shortfall.
If the home is sold through foreclosure, proceeds first repay the conforming mortgage, then the crypto-backed down-payment loan. Any remaining amount goes to the borrower.
Only bitcoin is currently accepted. The companies’ original March announcement also named USDC, but Coinbase said the partners opted to launch with BTC alone while they evaluate other collateral.
Coinbase One members approved for the product can receive a lender-funded closing-cost credit equal to 1% of the mortgage amount, capped at $10,000.
The firms said 35.9% of current applicants hold more than $500,000 in crypto, and 38% plan to buy in the next three months.
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Anvil: The Missing Collateral Layer
Anvil: The Missing Collateral Layer
Anvil is a shared on-chain collateral layer built on a programmable letter of credit: reserve assets as a guarantee -no loan, no interest, keep custody & yield.
Anvil is a shared on-chain collateral layer built on a programmable letter of credit: reserve assets as a guarantee -no loan, no interest, keep custody & yield.
Why it matters:
Anvil is a shared on-chain collateral layer built on a programmable letter of credit: reserve assets as a guarantee -no loan, no interest, keep custody & yield.
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