Crypto Firm Avoids TradFi Hurdles with Bitcoin-Backed Mortgage Offering

Crypto Firm Avoids TradFi Hurdles with Bitcoin-Backed Mortgage Offering

A cryptocurrency market maker will fund its first Bitcoin-backed mortgage as demand grows for institutional solutions for digital asset whales looking for alternatives to traditional financing.

XBTO plans to close on a multimillion-dollar mortgage in Miami in the coming weeks, with Bitcoin as the loan's sole collateral. It is one of the first cases where the crypto-based loan market is booming.

Although the company - which started as a proprietary trading firm before expanding into other businesses - requires know-your-customer checks and credit checks, there are benefits for investor clients, including the need to sell Bitcoin and earn capital gains.

Joe Haggenmiller, XBTO's Miami-based market manager, told Blockworks that the program would provide underwriting to those who might otherwise be ineligible, including foreigners.

“We’re solving a problem that people have, either because you’re a foreigner or you can’t get an American mortgage for other reasons, and you don’t want to sell your Bitcoins, but you want to buy a fancy apartment.” Haggenmiller said.

Borrowers can access financing worth up to 90% of their mortgage with a 10% Bitcoin down payment on a 15- or 30-year mortgage. The interest rates, Haggenmiller said, will be comparable to traditional mortgages. He declined to name a specific area. The idea is to compare interest rates with jumbo mortgages, which are typically taken out for properties that are too expensive for a conventional loan.

The bet on Bitcoin is bullish. Keep in mind that if the cryptocurrency increases in value over the course of a mortgage - which analysts believe is likely - the homeowner can sell part of their position and put more pressure on the outstanding loan. The deposited Bitcoins, which will undergo know-your-customer (KYC) checks, will be held in a yet-to-be-identified solution.

“There's the old guard of [bitcoin] Maxis who never want to sell Bitcoin, which could be because they think it's going to go to $1 million, could be because they don't want to take a tax hit,” Haggenmiller said. "Maybe they have it in cold storage and don't want to give it away. This is a way for them to come in and buy that fancy condo in Miami with Bitcoin."

Crypto Lenders Milo also offers mortgages backed by digital assets, which the company calls an industry first.

XBTO's initial offering will be limited to Florida mortgages valued at more than $1 million, reflecting the company's desire to focus on large lending opportunities rather than spreading its vetting resources and thinning out staff by focusing on less valuable properties.

This area will likely expand over time – and perhaps include other cryptocurrencies in the future. Another possible, although not immediate, focus: the securitization of loans in order to open up a further pool of financing capital.

The company is partnering with Columbus Capital, a traditional full-service mortgage lender, to assist in lien holder due diligence and underwriting.

“We packaged this into something that looks like a normal mortgage, not just in terms of product,” Haggenmiller said. “We will get all the documents, just like with a normal mortgage, and the application process and maintenance will be the same as any mortgage.”

Although XBTO will require credit scores, Haggenmiller said the company is unlikely to prey on those with lower financial track records when it comes to interest rates - assuming they have the required amount of Bitcoin to put up as collateral.

The company plans to look for red flags in its review process, including a history of missed payments — which Haggenmiller called “thorough.”

XTBO, led by CEO Philippe Bekhazi, has additional business lines including venture capital investments, exchange market making, equipment financing for miners and over-the-counter trading.

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The post “Crypto Firm Sidesteps TradFi Hurdles with Bitcoin-Backed Mortgage Offering” is not financial advice.