New York Times: Turning a House into a Bitcoin Engine?

Original source: The New York Times

Compiled by: BitpushNews

The largest U.S. mortgage finance company will begin accepting cryptocurrencies as assets in mortgage applications, another major step by the Trump administration to bring digital currencies into the mainstream financial system.

This week, President Trump’s housing chief, William Pulte, said he would instruct the nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, to consider a homebuyer’s cryptocurrency investments as part of their overall wealth when assessing whether they can afford a mortgage. Traditionally, mortgage lenders consider a homebuyer’s cash savings and stock investments.

Fannie Mae and Freddie Mac, key components of the housing market, buy mortgages from banks and set a series of criteria to decide which borrowers will receive a mortgage.

The announcement by Federal Housing Finance Agency (FHFA) Director Mr. Pulte on Wednesday comes as more Americans have been using digital currencies to buy homes and new companies are being formed to help them buy real estate using their cryptocurrency holdings.

The cryptocurrency market and its many backers have been pushing regulators in that direction for years, raising concerns among consumer advocates that the lightly regulated and volatile investment asset is being lumped in with an area as vital to the economy as the housing market.

And Mr. Trump has gone from being a critic of cryptocurrencies to a big supporter.

“In a world where regulatory enforcement has been largely on hold, boundaries are being breached very quickly,” said Tyler Gellasch, a former Securities and Exchange Commission lawyer who now runs the Healthy Markets Association, a financial industry trade group.

But demand is growing among homebuyers and cryptocurrency enthusiasts. About 14% of homebuyers said they planned to sell crypto assets to raise cash for a down payment on a home, up from 5% in 2019, according to a recent survey by residential real estate brokerage Redfin.

David Doss sold some of his cryptocurrency holdings in 2017 to raise cash for a down payment on a house in New Jersey. He said he would have preferred a way to keep his cryptocurrency while receiving the equivalent in cash, but that option didn’t exist when he bought the house.

“The intersection of crypto and real estate is developing pretty quickly,” said Mr. Doss, who advises wealthy investors on cryptocurrency investments. “It’s the oldest asset class meeting the newest asset class.”

Mr. Pulte’s order, which said homebuyers would no longer have to sell their cryptocurrencies to obtain cash during the mortgage qualification process, would have allowed Mr. Doss to keep some of his cryptocurrency holdings.

Cryptocurrencies are gaining traction in the housing market as home sales have stalled, leaving many unable to sell or buy homes or tap into their home equity through loans.

Some startups are already pitching cryptocurrencies as a way to break through the current market difficulties and revive home sales.

One of the companies, called Milo, founded by former Morgan Stanley financial adviser Josip Rupena, offers investors a way to get home loans using Bitcoin as collateral.

For a $1 million home, the investor deposits $1 million worth of Bitcoin, which Milo places in a secure account. The company then provides $1 million in cash to purchase the home.

Milo then issues a mortgage for the same amount, which the homebuyer is ultimately responsible for repaying. The interest rate is typically a few percentage points higher than a regular mortgage, but the benefit to the customer is that they don’t have to sell any cryptocurrency or pay capital gains taxes. When the mortgage is paid off, Milo returns the Bitcoin to the investor.

Mr. Rupena said he has underwritten $65 million of such mortgages and that he welcomed the FHFA’s shift in policy on cryptocurrencies.

Unlike most bank mortgages, such as those purchased by Fannie Mae and Freddie Mac, Mr. Rupena’s company does not require homeowners to put down a down payment. His company finances 100% of the transactions, something most banks won’t do, and the FHFA’s new rules on cryptocurrency are unlikely to change that.

“This is the first step toward giving cryptocurrencies the same status as other assets,” Mr. Rupena said of the FHFA decision.

Other companies are helping homeowners use their home equity to buy cryptocurrencies, a strategy similar to so-called home equity investment contracts, which provide homeowners with a lump sum cash payment in exchange for the right to share in the appreciation of their home’s value.

But unlike homeowners who used the cash from the transaction to pay for home improvements or their children’s college tuition, they used it to buy just one thing: Bitcoin.

“Turn your home into a Bitcoin acquisition engine,” a startup called Horizon said in a post on the X platform.

Here’s how it typically works: Some companies lend money to homeowners to buy bitcoin based on the value of their home’s equity. These companies typically profit by sharing in the increase in value when the homeowner sells the home.

Such deals are attractive because, over the life of the agreement, the homeowner does not have to make monthly payments like they would with a traditional home equity loan.

As a safeguard, some companies will also place a lien on the home for the duration of the contract (some contracts can be as long as ten years).

Horizon launched its service last month at a bitcoin conference in Las Vegas, where Trump’s two sons were keynote speakers.

Consumer advocates see reason for concern.

“My overall impression is that placing any lien on your house for the purpose of buying cryptocurrency is a terrible idea,” said Andrew Pizor, a senior attorney at the National Consumer Law Center who specializes in mortgage financing. “This is your home, and you have to proceed with caution.”

All of these projects are in their early stages, so it’s too early to tell how influential they will ultimately be.

Representatives of the companies involved said concerns that consumers were being taken advantage of were overblown. Most potential customers are wealthy investors. The companies also said they intend to comply with existing federal and state laws.

Harry W. Prahl, 35, who has been investing in Bitcoin since 2016, expressed interest in using the equity in his home and several apartment buildings he owns to buy more of the cryptocurrency.

Mr. Prall has been in talks with a company called Sovana, founded by a former Google executive, to use some of his real estate assets as collateral to buy more Bitcoin. Sovana would buy Bitcoin according to a formula based on the individual’s real estate net worth, then deposit the cryptocurrency into a secure account. At the end of the transaction, the individual and the company would share the profits.

If the bitcoin loses value, the owner must make up the difference.

“It’s an alternative way to leverage business equity without disrupting operations,” Mr. Prall said. “And the fact that you don’t have to pay anything is a real killer feature.”

While the details of the FHFA policy shift are sketchy, it ostensibly marks a change in the Trump administration’s oversight of Fannie Mae and Freddie Mac, which under past administrations tended to be risk-averse after the companies nearly collapsed when millions of homeowners defaulted on their mortgages during the financial crisis.

Mr. Pulte said in a post about the new policy on Platform X that he made the decision to have Fannie Mae and Freddie Mac include cryptocurrencies as a homebuyer’s asset after “extensive research.”

He added that this was “in response to President Trump’s vision to make the United States the cryptocurrency capital of the world.”