Better Mortgage told CoinDesk it may rehypothecate the bitcoin pledged by borrowers using its Coinbase-powered mortgage product, and customers cannot get their crypto back until the main conventional loan is fully repaid or refinanced. The disclosure lands a week after the two companies made the product generally available.
Pre-applications since the public launch have reached $360 million in requested loan volume, Better said, up from $260 million projected by borrowers on its earlier waitlist. The companies first announced the product in March and opened it broadly on August 26.
How the loan works
A borrower receives two loans at closing. The first is a standard Fannie Mae-conforming mortgage secured by the home. The second funds the cash down payment and is secured by the borrower’s bitcoin plus a second lien on the same property.
The crypto-backed loan starts at a 250% collateral ratio. A buyer purchasing a $500,000 home would pledge $250,000 of bitcoin to fund a $100,000 down payment, using Better’s own example. At closing, the bitcoin moves from the borrower’s Coinbase account into Better’s custody account on Coinbase Prime.
Both loans are originated by Better and collected through one combined monthly payment. Coinbase acts only as custodian and technology provider, the companies said, and plays no role in extending credit or deciding when collateral is liquidated.
Collateral reuse raises questions
Better disclosed in written responses that it may reuse the pledged bitcoin as long as it keeps an equivalent amount available to return. “Better may rehypothecate the pledged bitcoin, provided it keeps equivalent Bitcoin on hand to return the collateral at loan payoff,” the company said.
Rehypothecation means the lender can put pledged assets to further use, for example lending them out or re-pledging them to a counterparty. That is common in traditional securities lending, but it introduces counterparty risk for the borrower. If a counterparty holding re-pledged collateral fails, recovery could depend on that counterparty’s solvency.
The disclosure drew quick scrutiny. An analysis published Sunday noted that Better’s public terms restrict borrowers from selling or re-pledging their tokens without written consent, while the lender’s own reuse right was not spelled out on the pages most borrowers would read.
No margin calls on price drops
Unlike a typical crypto-backed loan, a decline in bitcoin’s price does not trigger a margin call, require additional collateral or cause an automatic sale. Liquidation happens only after payment delinquency. Better said it may sell the pledged bitcoin after 60 days of missed payments, following notice to the borrower, and only enough to repay the debt and bring the account current.
Foreclosure on the home may begin after 180 days of delinquency under Fannie Mae guidelines. Better must pursue the bitcoin first, but standard lending remedies can still apply if selling the collateral leaves a shortfall. Foreclosure proceeds repay the conforming mortgage first, then the crypto-backed loan, with anything left going to the borrower.
Crypto does not help you qualify
Bitcoin holdings do nothing to help a borrower qualify for the main mortgage. Applicants must still meet Fannie Mae’s ordinary income, credit score and debt-to-income requirements. “Nothing in the product converts crypto holdings into qualifying income or waives DTI or credit thresholds,” Better said. “The Bitcoin loan only solves the cash-for-down-payment problem.”
Only bitcoin is accepted. The original March announcement also named USDC, but Coinbase said the partners launched with BTC alone while they evaluate other collateral. Better’s published terms value pledged BTC at 40% of market value for the down-payment loan.
Coinbase One members approved for the product can receive a lender-funded closing-cost credit equal to 1% of the mortgage amount, capped at $10,000. The companies said 35.9% of current applicants hold more than $500,000 in crypto and 38% plan to buy a home within three months.
The product is the first token-backed conforming mortgage in the US market, and its early demand suggests a real audience of crypto holders who want to buy homes without selling their coins. Whether borrowers read the fine print on collateral reuse before signing is another matter.
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