Miami firms now offer home loans in crypto, but many traditional lenders doubt such practice will gain scale.
3 min
Some Miami developers have enabled buyers to purchase homes in cryptocurrency since at least 2021. Now a pair of Miami lenders is going one step further by offering home mortgages in digital currencies.
Milo, a fintech company in the lending business, made the first crypto home loan in March, when it provided a 30-year mortgage in bitcoin for a Miami duplex.
The firm says the early response among other crypto-oriented home buyers has been so enthusiastic that it is already looking to double the size of its Miami office to 100 employees to handle the anticipated demand.
XBTO, another cryptofinance company with offices in Miami, said it is also gearing up to offer crypto mortgages this year, in partnership with a traditional Miami-based mortgage lender.
“Between crypto millionaires who don’t want to sell their cryptocurrency and foreign buyers who have trouble entering the market, we see a huge demand,” says Joe Haggenmiller, head of markets for XBTO.
Kieran Gibbs is one of the newcomers to the city who has expressed interest. The professional soccer player from the U.K. moved to South Florida last year to play for the local Inter Miami CF. He said that he has been receiving half of his salary in bitcoin since January and that he is in talks with XBTO to secure a crypto mortgage.
“I’m renting my property at the moment and I’d like to buy,” Mr. Gibbs said. “The trouble is I haven’t been here for long enough to get enough credit, so it’s difficult for me at the moment to get a mortgage.”
Crypto mortgages are structured much like traditional mortgages and are lent out to home buyers in dollars but are meant to appeal to people who have large crypto holdings they don’t want to convert to dollars.
These mortgages require additional collateral in the form of a cryptocurrency, and the agreements allow the lender to take ownership of the home and the additional collateral in the event of default. If the value of crypto falls, the borrower may have to put up more crypto or other collateral.
Many traditional lenders are sceptical that loans in digital currency will ever gain scale, and analysts list numerous risks and complications when lending in crypto.
For one, they point to the legal pitfalls of engaging in a space that is still largely unregulated. Volatile fluctuations in the price of digital currencies could mean that lenders may require a borrower to put up additional collateral if the crypto price drops significantly.
“Anyone in the digital asset space should proceed with a great degree of caution,” says Richard Levin, an attorney and chair of the fintech and regulation practice at the law firm Nelson Mullins Riley & Scarborough LLP.
Even proponents of these loans say that the new companies are already encountering logistical issues.
“Integrating the legacy mortgage system with the new crypto environment is an operational nightmare,” says Lorenzo Delzoppo, an attorney who specializes in disruptive technology and who is consulting XBTO as they finalize their mortgage product.
Still, he adds, “It’s all incredibly exciting.”
Crypto mortgages are only the latest way that Miami businesses have experimented with the nexus of real estate and digital currencies, a trend that is on display this week during Miami’s bitcoin conference and other crypto-related gatherings.
Propy, a property-tech company whose chief executive resides in Miami, made headlines in February for being the first to process a U.S. real-estate transaction as a nonfungible token, or NFT.
Real-estate developer PMG, in a partnership with the crypto-derivatives exchange FTX, said it has accepted more than $20 million in cryptocurrency payments toward preconstruction purchases of about 60 condo units at its E11even Hotel & Residences.
Lofty, a condo project in Miami’s Brickell district, is providing a digital NFT art piece as an amenity along with the purchase of a unit.
Milo, meanwhile, is offering interest rates for crypto mortgages between about 4% and 6%, which skew a bit higher than what banks tend to charge for dollar-based loans. The 30-year fixed-rate mortgage averaged 4.67% last week, according to mortgage-finance company Freddie Mac.
The crypto lender allows borrowers to take out loans of up to 100% of the purchase price by pledging their bitcoin as collateral. XBTO will require purchasers to put down 10%.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: April 5, 2022.
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Report by the San Francisco Fed shows small increase in premiums for properties further away from the sites of recent fires
3 min
Wildfires in California have grown more frequent and more catastrophic in recent years, and that’s beginning to reflect in home values, according to a report by the San Francisco Fed released Monday.
The effect on home values has grown over time, and does not appear to be offset by access to insurance. However, “being farther from past fires is associated with a boost in home value of about 2% for homes of average value,” the report said.
In the decade between 2010 and 2020, wildfires lashed 715,000 acres per year on average in California, 81% more than the 1990s. At the same time, the fires destroyed more than 10 times as many structures, with over 4,000 per year damaged by fire in the 2010s, compared with 355 in the 1990s, according to data from the United States Department of Agriculture cited by the report.
That was due in part to a number of particularly large and destructive fires in 2017 and 2018, such as the Camp and Tubbs fires, as well the number of homes built in areas vulnerable to wildfires, per the USDA account.
The Camp fire in 2018 was the most damaging in California by a wide margin, destroying over 18,000 structures, though it wasn’t even in the top 20 of the state’s largest fires by acreage. The Mendocino Complex fire earlier that same year was the largest ever at the time, in terms of area, but has since been eclipsed by even larger fires in 2020 and 2021.
As the threat of wildfires becomes more prevalent, the downward effect on home values has increased. The study compared how wildfires impacted home values before and after 2017, and found that in the latter period studied—from 2018 and 2021—homes farther from a recent wildfire earned a premium of roughly $15,000 to $20,000 over similar homes, about $10,000 more than prior to 2017.
The effect was especially pronounced in the mountainous areas around Los Angeles and the Sierra Nevada mountains, since they were closer to where wildfires burned, per the report.
The study also checked whether insurance was enough to offset the hit to values, but found its effect negligible. That was true for both public and private insurance options, even though private options provide broader coverage than the state’s FAIR Plan, which acts as an insurer of last resort and provides coverage for the structure only, not its contents or other types of damages covered by typical homeowners insurance.
“While having insurance can help mitigate some of the costs associated with fire episodes, our results suggest that insurance does little to improve the adverse effects on property values,” the report said.
While wildfires affect homes across the spectrum of values, many luxury homes in California tend to be located in areas particularly vulnerable to the threat of fire.
“From my experience, the high-end homes tend to be up in the hills,” said Ari Weintrub, a real estate agent with Sotheby’s in Los Angeles. “It’s up and removed from down below.”
That puts them in exposed, vegetated areas where brush or forest fires are a hazard, he said.
While the effect of wildfire risk on home values is minimal for now, it could grow over time, the report warns. “This pattern may become stronger in years to come if residential construction continues to expand into areas with higher fire risk and if trends in wildfire severity continue.”
