A new Weiss Rating report has warned about the risks of having mortgages backed by cryptocurrency, especially in the world’s current economic situation.

The Florida-based research firm analyst Jon Markman, in the report, identified the poor performance of crypto and stocks this year, plus the rising interest rates, alongside the policy changes of the Federal Reserve and the housing bubble as reasons investors have to exercise caution with crypto mortgages. 

“The product seems to be like a win-win, assuming real estate and crypto prices keep rising […] except there are signs both bets are unlikely to be winners in the near term. Bitcoin is off by 40% since it reached $66,000 in November 2021.”

The report specifically cited Milo, the digital bank offering 30-year mortgages backed by Bitcoin, Ethereum, and stablecoins. The bank does not mandate borrowers to make any down payments, and the interest rate ranges from 3.95% to 5.95%.

Borrowers can choose to pledge their crypto assets as collateral, allowing them to spend the crypto and enjoy any rise in prices. But if the price should fall, there could be some risk for borrowers.

According to Markman, the plan to pool crypto loans could be very risky, given it was a similar strategy that led to the housing market crash and the Great Recession of 2009.

But the terms and conditions of these loans appear to cover this by providing that the value of collateralized cryptocurrencies must not dip beyond 35% of the total loan amount, after which the user has to top his collateral within 48 hours.

Already, Milo has raised $17 million, and it plans to use these funds for more mortgage products to meet greater demand.

Markman believes that while crypto risk could be bad for the housing sector, it could have some good for others. 

The post Report: Crypto mortgages are too risky appeared first on CryptoSlate.

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