Florida-based rating and research firm Weiss Ratings has issued a warning about the risks of crypto mortgages given the current economic climate in the United States.
The firm placed particular emphasis on Milo, a Miami-based digital banking startup that offers 30-year mortgages backed by Bitcoin (BTC), Ethereum (ETH), or stablecoins as collateral. The company does not require initial payments and its active rates vary between 3.95% and 5.95%.
In the May 3 report, Weiss analyst Jon D. Markman urged caution with these types of mortgages, citing the underperformance of stocks and cryptocurrencies this year, the US housing bubble, rising interest rates and upcoming policy changes by the Federal Reserve.
“The product appears to be a win-win, assuming real estate and cryptocurrency prices continue to rise…unless there are signs that both bets are unlikely to be winners any time soon. Bitcoin is down 40% since hitting $66,000 in November 2021.
“And US house prices are now facing headwinds from a change in Fed policy and rising mortgage rates,” he added.
Markman concluded that not all risks in crypto are bad, but it could be in real estate , before adding: “No matter what the markets do, the potential for success in crypto is real.”
Many cryptocurrency and stock investors have been negative about the potential market impact of serious rate hikes this year as the Federal Reserve aims to stoke inflation.
With both markets suffering from lackluster performance due to a variety of factors, macro analysts like Alex Krueger have boldly suggested that the Fed’s latest announcements this week “will determine the fate of the market.”
However, leaving the housing market out of the equation, if the price of BTC or ETH were to drop significantly in the coming months, there seems to be quite a bit of wiggle room for Milo users.
According to the terms of the mortgage, the price of the collateralized crypto assets “may decline in value without consequence as long as it does not fall below 35% of the total loan amount.” To avoid liquidation, users must top up their collateral within 48 hours of reaching the minimum percentage. While stablecoins could also be used during periods of market volatility.
Related: Bitcoin’s ‘bear market’ could send BTC price to $25,000, says a trader whose stocks are capitulating
Milo raised $17 million in Series A funding in March and plans to continue developing its mortgage products to meet increased demand while increasing headcount.
However, Markman also expressed concern that Milos’ “biggest plan is to bundle cryptocurrency-backed mortgage loans and offer them as bonds to asset managers and insurance companies,” comparing it to behavior that led to the housing market crash. from 2009.