A new crop of companies has sprung up in recent times offering mortgages backed by BTC and Ethereum, with the clients not having to pay any down payment. While these companies say business is booming, one of the world’s top ratings agency Weiss Ratings has issued a warning against these mortgages saying they look a lot like the lead-up to a 2008-like financial crisis.
Weiss focused its attention on Milo, a Florida company that’s at the forefront of the BTC-backed mortgages. As per a recent Bloomberg report, the company has a waitlist of 8,000 people who want to buy real estate in New York, California and Texas. In the past month, it claims to have issued pre-approval letters on $340 million of mortgages.
“Were going to refine this and get it bigger,” Josip Rupena, the company founder told the outlet. “Milo will be looking to provide other long-term solutions to those with crypto wealth — not just mortgages.”
Milo’s products include 30-year fixed-rate mortgages secured by digital currency holdings, including BTC and ETH, and lending as much as $10 million on homes. The clients get to make their monthly payments in either digital assets or cash with the rates being around 3.95%-5.95%.
Since they don’t liquidate their digital asset holdings, the clients avoid the taxes on capital gains and continue to speculate on future price rises, making it look like a win-win for everyone involved, except it’s not according to Weiss.
The agency notes, “The product seems to be like a win-win, assuming real estate and crypto prices keep rising … except there are signs both bets are unlikely to be winners in the near term.”
Weiss also issued a warning on yet another aspect of the Milo business model. The startup, which recently raised $17 million to continue with its mission, plans to pool BTC-backed home loans and offer them as bonds to asset managers and insurance companies, or even as bonds in a securitization, the founder revealed.
But this could end up being disastrous, Weiss believes, drawing parallels with the 2008 financial crisis.
“All of this should sound familiar. Pooling risky home loans, then selling them to unsuspecting asset managers, was the recipe for the Great Recession of 2009.”
Weiss Ratings agency isn’t the only entity to sound the alarm over the Milo BTC-backed mortgages.
John Kerschner, the head of U.S. securitized products for Janus Henderson Investors stated, “A crypto mortgage seems inefficient given the volatility. People think [BTC] will go to the moon but nobody thought the great financial crisis or Covid was coming. These things happen.”
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