As the Trump administration pushes crypto further into the mainstream, some lenders are testing whether digital assets can open the door for borrowers who don't fit the traditional mold and whether the trade-off is worth the risk.
In June, the Federal Housing Finance Agency director Bill Pulte
In September, UMortgage, a mortgage lending brokerage that operates in 48 states and Washington D.C., closed a $4 million non-qualified mortgage loan in which the borrower qualified using digital assets. (Non-QM loans are those that fall outside of the standards set by Fannie Mae and Freddie Mac, making them a natural fit for non-traditional assets like crypto to be used in underwriting calculations.) It was the first crypto-backed mortgage for the company and one of the industry's first examples of a crypto-based asset depletion loan, a mortgage that lets borrowers qualify based on their liquid assets, like savings, investments or retirement funds, rather than their job income.
"He was just so thankful," Tyler Hodgson, who closed the deal, said of the borrower. "He's like, 'Man, it's been a long time coming. [I've] been renting for 15 years and wanted to get into homeownership, but I've tried a couple times in the past and just couldn't do it because my income was not traditional.'"
Plenty of potential borrowers could be in that position. Fourteen percent of U.S. adults own bitcoin or other cryptocurrencies, according to a
Milo, a Miami-based fintech that specializes in crypto mortgage lending, launched one of the first crypto-backed mortgages in April 2022 and has since completed nearly $90 million in transactions, with the majority coming over the past year. The company recognized that many hopeful buyers are capable of homeownership but don't want to sell their crypto and lose out on potential earnings, CEO Josip Rupena said.
Hodgson, Umortgage's executive vice president of growth, said that crypto can provide additional transparency for some lenders during the transaction. If they are granted access to the borrower's crypto wallet, lenders can track the financial health of a borrower through the life of the loan, and detect a potential default sooner. Traditional loans do not offer the same level of visibility, as bank accounts, checking accounts and stock portfolios are private.
"Once that [traditional] loan closes, you don't know that borrower's financial picture until they all of a sudden miss a payment, and then they miss another payment, ... and now all of a sudden you've got a delinquent loan," Hodgson said. "[Crypto wallets are] maybe not the perfect picture, but it could give [lenders] insights into the borrowers financial health going in the future."
Milo's loans are dual collateralized by the property and the borrower's digital assets. This structure enables Milo to underwrite at a higher loan-to-value ratio, while providing additional security for the lender.
"It allows us to underwrite and qualify a person in a different way than you do a traditional mortgage, where the only first line of defense ... is, 'I hope they put a big enough down payment. I hope there's equity in there. I hope I can foreclose,'" Rupena said. "We have Bitcoin that comes in that's very liquid, that allows us to potentially control some of the severity."
If a borrower were to miss payments, Milo could then sell off some of their crypto to make sure they're current.
But there are drawbacks that continue to keep major lenders on the sidelines.
Crypto is one of the most volatile assets. Its shaky track record is enough to spook some lenders. Bitcoin experienced four retraces (short-term price pullbacks) of 50% or more from 2013-2022, with the largest drop in a single day, roughly 50%, coming on March 12, 2020, which is known as the Covid Crash, according to
A lack of regulatory clarity has contributed to some of the volatility. Without a solidified agreement as to how crypto should be regulated globally, any stance taken by a major country, such as China banning it in 2021, can significantly impact the price.
Additionally, the lack of oversight increases holders' susceptibility to fraud and scams, cyberattacks and market manipulation.
As a result, lenders have sought to protect themselves from such risks, with the most common being major haircuts during the loan application process, which are discounts applied to the crypto's market value when calculating its collateral value.
UMortgage takes a 50% haircut when assessing crypto for loans, while Figure, a blockchain-native capital marketplace, also deploys a crypto cap.
"If you could qualify for $10,000 a month as your income qualification, maybe we would only allow you to have 10% of that or 15% of that additional ... even if you had a couple million of crypto," Figure Chief Capital Officer Todd Stevens said.
Rupena is strongly against taking a haircut. Instead, Milo holds a 35% baseline for its customers, meaning if a borrower's assets fall by 65% or more, they have to post more collateral, usually enough to get back to 50% of what was originally assessed, or Milo will reduce the loan balance, Rupena said.
"Our perspective is that we don't think that there's any merit," he said. "It's an arbitrary number. Like why is it 50% instead of 70%, or 90%, or 100%. You say the asset is volatile. Okay, well then build that into your structure. So I don't necessarily think the idea of a haircut for an asset depletion on crypto is probably the right way of thinking about it."
Some major banks have begun to welcome crypto and expand their services, but JPMorgan Chase is one the first to allow borrowers to use it as collateral for a loan, although a bit differently. The bank's program, set to launch by the end of the year, will let clients use Bitcoin and Ethereum for secured loans, and a third-party custodian will safeguard them.
Milo, UMortgage and Figure believe more regulatory clarity, which may come sooner rather than later with the GENIUS Act and Digital Asset Market Clarity Act, and their success will pave the way for conventional lenders to get more involved.
But Chris Whalen, chairman at Whalen Global Advisors, has doubts. He has not seen many changes among conventional lenders in the crypto space because manual underwriting is expensive and time consuming.
"That ultimately is the question, how much risk does the lender want to take?" Whalen said. "Because if that loan goes sideways and Fannie and Freddie turn around and reject the insurance claim because [the lender] didn't do a good job of underwriting the loan, [they] have a problem."
Efficiency and limiting costs are essential when processing these assets, and spending extra time and money verifying them adds up, Whalen said. He only sees conventional lenders getting involved if interest rates rise again and application activity drops.
In the meantime, UMortgage has a few crypto-backed loans in progress, but has been hampered by a lack of investors. Hodgson reached out to many non-qualified mortgage investors and only got a yes from LendSure.
But Milo has seen a rise in interest.
"More people are open to having the conversation, where in the past two years, that wasn't even something that they were going to discuss," Rupena said. "Now it's about companies like ours and others to basically highlight what are the benefits for both lender and customer, and more importantly, what is the size of this market and that emphasis that it is growing."
