Crypto-Backed Mortgages Take a Leap

Key Insights:

• Crypto-backed mortgages are on the rise in the United States.
• By keeping crypto as collateral for home loans, homeowners can avoid capital gain tax.
• One of the rating agencies raised its concern as there is an increase in crypto-backed mortgages despite a bearish start in 2022.

The U.S. housing market has been hit with crypto-backed mortgages, which enjoyed a fantastic year in 2021.

Digital asset banks and mortgage lenders are on the rise as the adoption rate of crypto has increased. The City of Miami is at the forefront of digital asset space activity, as Mayor Francis Suarez and Florida State Governor Ron DeSantis actively advocate cryptocurrencies.

Ratings Experts have raised an alarm bell as the State of Florida, and the City of Miami are becoming innovative hubs for cryptocurrency. A published article raising concern over crypto-backed mortgages was out last Tuesday.

The report revealed that one of the startups in Miami is racing to securitize home loans by using cryptocurrency as collateral.

Milo, a digital bank based in Florida to secure home loans, accepts crypto. After offering mortgage-backed securities, Milo intends to expand into asset management and insurance companies.

Experts remind us of the Great Recession of 2009, where risky home loans were pooled.

U.S. mortgage rates stood at 5.10% in 2022, surging to a record high of 212 basis points compared with April 2021. The inflation and market sentiments increased due to Federal monetary policy, affecting the increasing U.S. house price that has risen sharply along with the mortgage rates.

The S&P/CS HPI Composite – 20 n.s.a. was up 20.2 % year over year in February. Although there is an increase in house prices and mortgage rates, Bitcoin (BTC) and other cryptocurrency markets are bearish.

Crypto-backed mortgages are heading towards difficult times as Bitcoin and the broader crypto market strongly correlates with NASDAQ. At the same time, the Federal Reserve is about to initiate its journey towards the normalization of policies.

As per the reports, roughly 8,000 homebuyers in Texas, California, and New York are on a waitlist. It is no surprise that the homebuyers can borrow up to 100% of the purchase price with mortgage rates around 3.95%. Moreover, as Milo accepts Bitcoin, Ethereum (ETH), and stablecoin as collateral, the homebuyers don’t have to sell their cryptocurrencies.

Miami is racing toward becoming a Digital Asset Hub and Innovation Center.

XBTO is following Milo’s footsteps while entering into crypto-backed mortgage space. As per a recent report published in April, in Miami, XBTO was close to completing a multi-million-dollar Bitcoin-collateralized mortgage.

The aspiration to become an innovative crypto hub has increased the activities in the crypto space.

In January, mayor Suarez declared that he would be accepting the first three paychecks in Bitcoin. The City of Miami launched in June 2021 its own MiamiCoin (MIA), one of the first CityCoins in the market.

CityCoins powered by Stacks (STX) is a protocol enabling smart contracts on the Bitcoin network. STX can be forwarded into the Stacks protocol by miners. In MiamiCoin, CityCoins miners receive 70% of all stacked STX tokens. The rewarded MIA can be mined by the miners to receive Bitcoin rewards.

The rest of the 30% goes to the City Wallets. In the case of Miami, Mayor Suarez has the option of either exchanging these accrued tokens for a fiat currency or mining the STX tokens to receive Bitcoin.

However, it is still unclear how U.S. lawmakers and the SEC will view mortgages backed by crypto. Moreover, it would be a testing time as Bitcoin has slumped to $30,000, and there is a sharp increase in crypto-backed mortgages.