coindesk.com
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.