Turning your house into a Bitcoin engine? Americans are really starting to do this

Author: Matthew Goldstein, Source: The New York Times, Compiled by: BitpushNews

The largest mortgage financing company in the United States will begin accepting cryptocurrencies as assets in mortgage applications, which is another major move by the Trump administration to introduce 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 buyer’s cryptocurrency investments as part of their overall wealth when assessing whether they can afford a mortgage. Traditionally, mortgage lenders consider a buyer’s cash savings and stock investments.

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

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

For years, the cryptocurrency market and its many supporters have pushed regulators in this direction, raising concerns among consumer advocates that the lightly regulated and volatile investment asset is being tied to an area as critical to the economy as the housing market.

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

“In a world where regulatory enforcement has been largely put on hold, boundaries are being breached very quickly,” said Tyler Gellasch, a former lawyer at the Securities and Exchange Commission 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 Redfin, a residential real estate brokerage.

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

“The intersection of crypto and real estate has evolved 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 directive would have allowed Mr. Doss to keep some of his cryptocurrency holdings. It said homebuyers no longer had to sell their crypto to get cash during the mortgage qualification process.

Crypto’s influence in the housing market is growing as home sales have stalled, leaving many people 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 them, Milo, founded by former Morgan Stanley financial adviser Josip Rupena, offers investors a way to get a home loan using Bitcoin as collateral.

For a $1 million home, investors deposit $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 loan 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 customers 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 welcomes 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 make a down payment. His company finances 100% of the transactions, something most banks won’t do, and the FHFA’s new rules on cryptocurrencies 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’s decision.

Other companies are helping homeowners use their home equity to buy cryptocurrencies. The strategy is 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 use the cash from the deals to pay for home renovations or their children’s college tuition, they’re using 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 make loans to homeowners based on the value of their home’s equity to buy Bitcoin. These companies typically profit by sharing in the increase in value when the homeowner sells the home.

These deals are attractive because homeowners don’t have to make monthly payments during the life of the agreement, as they would with a traditional home equity loan.

As a safeguard, some companies also place a lien on the home for the life of the contract, which can be as long as a decade in some cases.

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

Consumer advocates see reason for concern.

“My overall impression is that any lien placed on your house to buy cryptocurrency is a terrible idea,” said Andrew Pizor, a senior attorney at the National Consumer Law Center, which specializes in mortgage financing. “It’s your home, and you have to proceed with caution.”

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

Representatives of the companies involved say concerns about consumers being taken advantage of are overblown. Most potential customers are wealthy investors. The companies also say 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. Prahl 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 buys Bitcoin according to a formula based on a person's real estate equity and then deposits the cryptocurrency into a secure account. At the end of the transaction, the individual and the company share the profit.

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

“This is an alternative way to tap into business equity without disrupting business operations,” Mr. Pullet said, “and not having to make any payments is a real killer feature.”

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

In a post about the new policy on the X platform, Mr. Pullet said he made the decision to have Fannie Mae and Freddie Mac count cryptocurrencies as a homebuyer’s asset after “extensive research.”

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