A report published on May 2 by the rating agency Weiss Ratings warns that crypto-backed mortgages “spell risk.” Weiss editor Jon D. Markman said backing a mortgage with crypto is an “interesting strategy,” but stressed that during these market conditions “investors should be skeptical.”
Weiss Ratings Editor Doesn’t Believe Crypto and Mortgages Mix
According to the editor at Weiss Ratings, Jon D. Markman, lenders who allow people to use crypto to back a mortgage might be adding more risk to current market conditions. Markman uses the firm Milo as an example, as the Florida-based digital bank is allowing mortgage investors to use digital currencies as collateral. In Markman’s opinion, the trend is similar to the risk-associated home loans that were sold in 2007-2008.
“Pooling risky home loans, then selling them to unsuspecting asset managers, was the recipe for the Great Recession of 2009,” the Weiss editor insists. As long as housing prices continued to climb, homebuyers were able to refinance and everyone got paid, including bondholders.” Markman continued:
However, when housing prices imploded, millions of low credit score borrowers defaulted. The rest is history.
Markman Believes Higher Interest Rates Will Lower Current Home Prices
The Weiss Ratings report further discusses how interest rates are rising thanks to the Federal Reserve’s recent rate hikes. Typically, Markman says, higher interest rates add a lot more to the monthly mortgage cost and in time the Weiss editor believes it will lower home prices. “That’s why plans at Milo are fraught with warning signs,” Markman adds. Milo is not the only firm looking to allow people to use crypto as collateral for a home loan. Abra just recently partnered with the company Propy to offer crypto-backed home loans as well.
The author notes that financial stocks are down considerably this year despite the fact that interest rates are rising. In recent times, a great number of analysts and economists have said cryptocurrencies are correlated with equities markets this year. While Markman doesn’t believe crypto and mortgages mix, the end of the report notes that crypto asset risk is not 100% negative.
“This isn’t to say all crypto risk is bad,” the Weiss Ratings editor concludes. “Just not in the housing sense. No matter what the markets are doing, the potential to succeed in cryptocurrencies is real.”
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