Weiss Ratings, a Florida-based rating and research company, has issued a warning about the dangers of crypto mortgages in light of the current economic climate.
Milo, a digital bank startup from Miami, was a particular focus of the company. It offers 30-year mortgages backed with Bitcoin (BTC), Ethereum(ETH) or stablecoins as collateral. There are no down payments and loan rates ranging from 3.95% to 5.95%.
Jon D. Markman, Weiss analyst, advised caution regarding such mortgages in his May 3 report. He cited the poor performance this year of stocks and crypto, the U.S. housing boom, rising interest rates and the Federal Reserve’s forthcoming policy changes.
The product appears to be a win-win situation, assuming real estate and crypto prices continue to rise… but there are signs that both bets will not be winners in the short term. Bitcoin has fallen 40% since November 2021 when it was $66,000.
He said that U.S. property values are now facing headwinds due to a change of Fed policy and rising interest rates.
Markman concluded that not all crypto risks are bad. However, it could still be in the property industry. He then added, “No matter what the markets do, the potential for success in cryptocurrencies can’t be denied.”
Many stock and crypto investors are worried about the possible market impact of Fed interest rate hikes in 2019. The Fed is trying to reduce inflation.
Both markets are suffering from poor performance due to a variety of factors. Macro analysts Alex Krueger and others have boldly suggested that Fed’s recent announcements this week “will decide the fate of market going forward.”
If the price of BTC/ETH falls significantly in the next few months, Milo users would still have some wiggle room.
The mortgage terms and conditions state that the price of collateralized crypto assets can drop in value without any consequences as long as it does not fall to 35% of the loan amount. To avoid liquidation, users need to top up their collateral within 48-hours of reaching the minimum percentage. Stablecoins can also be used in times of market volatility.
Related: Bitcoin bear market could push BTC price up to $25K according to a trader who has stocks due capitulation
Milo secured $17 million in Series A funding in March. It plans to expand its mortgage products and increase its workforce.
Markman raised concerns about Milo’s “larger scheme to pool crypto-backed mortgages and offer them to asset managers or insurance companies,” comparing it to the behavior that led to the 2009 housing crash.
It’s an interesting strategy, but investors should be cautious, especially with financial stocks, given current market conditions. This should all sound familiar. The Great Recession of 2009 was caused by the sale to unsuspecting asset mangers of risky home loans.
Eileen Wilson –Technology and Energy
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