Milo, a Miami-based digital lender, announced last week that it is rolling out a crypto mortgage product to clients with digital currency.
Josip Rupena, the CEO of Milo, hopes that his mortgage product will allow borrowers who may not be able to qualify for a conventional mortgage to have a shot at a 30-year mortgage, backed by a bitcoin pledge.
Currently, the cryptocurrency universe is worth over $1.7 trillion though it has nosedived in the last week, down from about $3 trillion.
HousingWire sat down with Rupena this week to learn about how a crypto mortgage transaction works, why a borrower would opt for a crypto mortgage, volatility, and what the future of crypto holds for the mortgage industry.
Editor’s note: This interview has been edited for length and clarity. It was also conducted when crypto’s market cap was about $3 trillion.
Maria Volkova: Is the crypto a deposit of sorts? Can you explain to me a little bit how this transaction works?
Josip Rupena: It’s not a deposit. It’s going to go to a third-party custodian that we work with, and then that amount is going to be held there. It’s a pledge. So, what that means is that in the event that the consumer can’t make their mortgage payments, we have a claim on the actual crypto.
MV: Is Bitcoin kept as collateral through the life of the loan?
JR: Yes, we require them to keep Bitcoin collateral through the life of the loan. Once a client pays off the loan, the Bitcoin will go back to their digital wallet and the lien on the property will be removed. The exact unit amount of bitcoin (i.e. 10 bitcoin) would go back to them, and may be worth more or less in dollar terms than when they originally took out the loan.
MV: Who is your target audience for this product?
JR: What we’re seeing is that a crypto consumer tends to skew younger, so I would say that it’ll range from 20’s to 40’s. And I would say probably the average is going to be someone in the 30-year-old range.
MV: In Milo’s press release, there was mention of a waitlist for the crypto mortgage. How many customers are waiting in line to get a crypto mortgage?
JR: Since we launched that waiting list a little over a week ago, I believe we have over 5,800 people on that list. And we expect demand to continue to grow as new people hear about what we’re doing and more importantly, they start to see that there’s an opportunity for them to now diversify and buy real estate. We’ve been really overwhelmed by the amount of interest in people reaching out to us.
MV: If a borrower has $1 million in crypto why would they opt for a crypto mortgage instead of liquidating their Bitcoin and buying a house with cash?
JR: I think the primary reason is the opportunity cost. So, when someone has amassed a significant portion of wealth that’s comprised of crypto it becomes a very big opportunity cost to sell it, if you believe that it’s going to continue to rise over the coming years. And the other aspect is, if you do sell, there’s a likelihood that that’s going to trigger a taxable event.
And then the third reason is that today, for someone that has crypto, it is challenging for them to qualify for a conventional loan. If they have to liquidate their crypto wealth, it becomes more challenging for them to be able to qualify, and a lot of people that have crypto, well, they may not have all the qualifications, to be able to qualify for a conventional loan. You may be able to have enough for a down payment, but you still need to qualify for a mortgage. So that’s what we’re really trying to solve for is if you’re trying to do this transaction, then can we put it all together and be a turnkey solution.
MV: Your mortgage product is built around the idea that Bitcoin has value, and it will continue to grow, but what happens if Bitcoin is devalued?
JR: It’s a great question. And it’s one that we think a lot about the structure and sort of risk parameters. For a consumer that pledges Bitcoin, there will be a margin call and if the value of Bitcoin drops below a certain percentage, that will trigger an event where we may have to liquidate to stay within our risk parameters of what we’re comfortable with.
But for most consumers that have Bitcoin, this is usually not the only amount of Bitcoin that they have, so it’s likely that they would have the desire to pledge more, because again, they don’t really want to sell the Bitcoin because of volatility around it.
I think that if you would have asked me five years ago, with the asset class being $200 to $300 billion in aggregate, like the digital asset class, then you would say, yes, there’s a likelihood that it could go down significantly. But I think if you fast forward today, the asset class is close to $3 trillion, and the reality is that it’s here to stay.
I think that the expectation is that there will be volatility within the asset class, but I don’t think it disappears, by any means.
MV: Are there plans to securitize the product? And who is funding this initiative?
JR: Yes, at some point, we’re going to look at that. And we have several relationships with institutional capital partners for what we are doing.
On the side of you know, who’s taking the risk? We’ve been fortunate to have great investors, equity investors into our company and that’s allowed us to go out and be a direct lender. And we have good institutional relationships as well, with partners that help us have more capital. But that’s all possible because we have great investors that are allowing us to really be innovative, and being a venture backed company.
MV: What do you see being the future of crypto and mortgages?
JR: There have been different companies trying to approach it from different perspectives. Our mindset around this is to help consumers that have digital wealth, be able to buy real estate and today that there’s a big friction point around that, so we’re trying to solve it from that side of the equation. I think that there’s a lot of people that are trying to solve through blockchain with title and records, and you know, the closings. So, there’s a lot of people looking at it from a pure infrastructure perspective, we’re looking at it from a consumer solution perspective.