Understanding Crypto Mortgages
In a world where your house can now be an asset class for cryptocurrencies, things are getting interesting—or maybe a tad risky? Florida-based Weiss Ratings recently raised some eyebrows with warnings about crypto-backed mortgages. These mortgages, especially those offered by Milo, a Miami startup (not to be confused with your favorite coffee shop), promise 30-year loans collateralized by Bitcoin, Ether, or stablecoins. Sounds great, right? Well, not so fast.
What Milo Brings to the Table
Milo offers zero down payment options and interest rates that range between a tempting 3.95% and 5.95%. But here’s the kicker: under current economic conditions, should you risk your financial future on a promise backed by volatile digital currencies? Weiss analyst Jon D. Markman thinks we should be very cautious.
The Warning Signs
According to Markman, this year has not been kind to stocks and cryptocurrencies alike. With Bitcoin having plummeted around 40% since its peak of $66,000 in November 2021, it seems like a precarious time to jump into crypto mortgages. Moreover, the U.S. housing market is facing challenges from rising interest rates and potential policy changes from the Federal Reserve. Markman puts it bluntly: “There are signs both bets are unlikely to be winners in the near term.”
The Good, The Bad, and The Ugly
Markman isn’t entirely against the idea of cryptocurrencies, however. He points out that while crypto carries inherent risks, it can also offer opportunities for real gains. The key is navigating these opportunities wisely without falling into the same traps that caused the 2008 financial crisis.
Collateral and Safety Nets
Let’s break down the security features of Milo’s mortgages. In case the price of your backed crypto assets tanks, you won’t face immediate liquidation as long as the value doesn’t dip below 35% of the total loan amount. If you don’t want to wake up to a nasty surprise, you’ll have to add more collateral within 48 hours of hitting that threshold. It’s a bit of a financial balancing act, and who doesn’t love juggling money while standing on a tightrope?
What Lies Ahead?
Milo managed to snag $17 million in Series A funding back in March. Exciting times ahead, or ticking time bomb? Markman suggests the venture’s plan to pool these crypto-backed home loans into bonds for asset managers raises some red flags reminiscent of risky behavior leading up to the 2009 crash.
Concluding Thoughts
Studying Milo’s approach brings to light important takeaways for potential borrowers. While the prospect of owning a home financed through digital assets is intriguing, the underlying risks may outweigh the rewards. As the Fed prepares to make serious announcements regarding interest rates, it might be wise for investors to buckle their seat belts.
