If it feels like the mortgage industry has waited forever for Bitcoin integration, it’s because it has.
Price volatility and lack of centralization kept cryptocurrencies from gaining traction in U.S. lending, but that hasn’t stopped momentum abroad. A Spanish draft bill introduced in late July would legalize mortgage and insurance payments through crypto.
If passed into law, Spanish banks and companies engaging in blockchain technologies would receive major breaks on taxes and patent costs. The legislation also calls for establishing a council for public blockchain advisory. It’s part of Spain’s larger effort to regulate the crypto market and fight tax fraud.
Across the Atlantic, El Salvador made history on June 9 by becoming the first country in the world to adopt Bitcoin as legal tender. On the same day, the U.S. Federal Reserve proposed a central bank digital currency it designed, but was met with bipartisan apprehension.
That same concern has prevented many private lenders from entering the crypto, Bruce Mizrach, an economics professor at Rutgers University said.
“In my view, housing finance companies would prefer payment in assets like USD or stablecoins,” he said. “If a mortgage company wanted crypto exposure, it could also buy it directly rather than receiving it from clients.”
Moreover, Fannie Mae and Freddie Mac don’t yet recognize any digital coins as currency for real estate finance transactions and guidelines for conventional and conforming loans do not allow them. If a borrower converts any cryptocurrency to dollars, it has to “season” by sitting in an acceptable asset account for two months before being eligible to be used toward a government-sponsored enterprise-backed mortgage, said Jess Kennedy co-founder and COO at Beeline.
“Fannie even requires a paper trail showing that funds from a crypto account were owned by the borrower prior to being liquidated into U.S. dollars,” she said.
Some in the industry predicted technology-forward markets will use digital coins in mortgages by the end of 2021. However, widespread adoption would require federal buy-in and regulation stands as the tallest hurdle to that happening.
Attempts to legislate the U.S. cryptocurrency market have been made, mainly behind the Token Taxonomy Act, introduced multiple times to the House of Representatives by Ohio Republican Warren Davidson. The act aims to clarify how digital coins are defined for business purposes, excluding them as securities and creating tax exemptions and reductions for exchanges and gains.
“I expect crypto to integrate into housing finance in many ways, assuming the regulatory environment does not foreclose the disruption,” said Daniel Payne, attorney and fintech and blockchain practice group leader at Murphy & McGonigle. “Lenders may need to become comfortable with stablecoins, which solve the volatility obstacle. If they’re willing to accept stablecoins as payment and can secure custody of those digital assets, then they can develop mortgage products that borrowers can pay back in crypto.”
The $1 trillion infrastructure bill currently before the Senate could get the regulatory ball rolling if passed. It would represent the first American cryptocurrency legislation, with provisions that include a tax on revenue and transfers to help pay for the infrastructure outlays. As cryptocurrency popularity and influence grows, it should only be a matter of time before financial institutions offer to accept it.
While stopping short of welcoming crypto as payment, Canadian lender and finance company Mogo launched a Bitcoin rewards program in March for its borrowers. Those taking out a loan or refinancing could receive up to $3,100 of the digital currency, depending on the mortgage amount. Although programs like this haven’t sprung up on U.S soil yet, it could be a creative approach for lenders to capture market share when volume slows and competition increases.
“Mortgage products have almost become a commodity — everyone tends to compete on rates and points — so there’s a desperate need for lenders to find ways to differentiate their offerings,” said Rick Sharga, executive vice president of RealtyTrac. “An incentive like Bitcoin will only be attractive to a certain segment of the audience, probably young adults, but might be a good way for a lender to aggressively target that segment.”
