Buying Real Estate with Crypto: New Mortgages Are Backed by Coins
bloomberg.com
bloomberg.com
Basically, the easiest way to do it is to take a loan against it at a low interest rate (as there’s collateral) and show you can pay the fees. If you’re buying a home you can use this as a down payment. Then sell the crypto and pay the loan. The main issue with banks is they need to track where your money comes from.
I made a mistake of selling my crypto and trying to use the money for a down payment on one of the properties I was interested in. That was a challenge to “prove” it wasn’t illegal gains. Part of KYC (know your customer) is understanding where their money came from and they aren’t a criminal / terrorist. Luckily, in my case I had other assets so I just shuffled around.
The loan method ensures they know where the money came from (the party lending you money).
If this was so simple and possible, every criminal would be laundering money this way, wouldn't they?
Isn't crypto generally far too volatile to serve as collateral?
Is there a compelling reason why a criminal shouldn't be able to buy a house? Inconveniencing literally everyone over KYC, including non-criminals, to catch a 'criminal' who needs a place to live just seems absolutely insane. Go after people who you have probable cause have committed a crime, not ones you haven't.
It’s no more a “search” than the bank asking to prove your identity when opening an account.
---------------
>If you are stopped by the cops and they ask if they can search your car and you say “yes” then the search is valid. You are allowed to say “no”. They can force the search under certain circumstances.
OK I say no and the policeman has no probable cause to search. What happens next? Am I allowed to continue my elective activity of going down the street, or can the policeman pull out a gun and tell me I'm going to jail if I continue to electively head towards my destination? I think you know the answer -- when I decline the search it has no effect on my elective ability to complete my task of continuing on the roadway. Returning to the loan, the analogy here is I would be allowed to proceed even after declining KYC search.
>You are allowed to say “no”.
Going back to your example of the cops stopping you, when I say no I'm eventually allowed to continue on my way. I'm not turned around and stopped from completing my elective activity. By your logic government could just pass a law that whenever you elect to leave your house, your constitutional rights are waved -- that's just ludicrous and defies reason for having them in the first place. You're not allowed to say 'no' to following the KYC search and keep on going -- It's a forcible search.
If you try and get a mortgage loan and the bank asks for details you provide them then the “search” is valid. You are allowed to say “no”. They can’t force the search of you just walk away from the mortgage process.
Yes, you allowed to continue down the street.
----------
>Both amendments are restrictions on government, not private entities.
Yes and who imposes the KYC requirement -- government or the private entity? Even when the private entities don't consent, the GOVERNMENT imposes the KYC search therefore 4th amendment applies. Private lender entity is acting as agent of the state who under force of law has been FORCED to follow KYC requirements.
Similarly, the 1st Amendment does not prevent victims of sexual abuse from signing a contract that forbids them from talking about it.
Both amendments are restrictions on government, not private entities.
You can't sign your children into slavery anymore in the US, but that's a special case that violates someone else's civil rights. Selling children and other people into slavery was legal for a big chunk of US history and was not fixed by the Constitution or the original Bill of Rights, but by the 13th Amendment.
For example, judges can tell convicts not to buy or carry firearms.
Felon in possession laws are also laughably stupid and a horrible example of government tyranny. Someone who say illegally harvested or transported a lobster or had pot at the wrong time in the wrong state isn't less deserving of defending his family than the guy with a misdemeanor for DUI. I applaud any felon who continues to carry, knowing if they otherwise carry themselves honorably they are extremely unlikely to be caught conceal carrying. Thankfully projects like the fgc-9 3d-printed gun make it effectively impossible to stop felons from acquiring firearms and restores their 2nd amendment rights.
It is something done to you. It doesn't matter whether you and the lender consent to it happening or not, the law _requires_ it. It's a search of your 'papers' at behest of government. Just because the end goal is elective doesn't mean 4th amendment is bypassed. For instance, buying a bottle of water isn't a 'right' but electing to do so doesn't allow the government to inspect your bank account, even by proxy (by requiring the seller).
yeah ok until a court challenge occurs
It was decided it was easier to trace the money than the drugs.
“Oh that $5M I have? That’s not from selling cocaine that’s from when I sold my house!”
And it's not a few coke dealers, it's tens (hundreds?) of billions in illicit money being laundered by the major banks.
If it were voluntarily you could continue with the transaction if the two private parties were OK with going forward without KYC. The analogy here is when stopped by a policeman and asked to search, you can decline and continue walking on with your voluntary activity -- if the policeman told you that you had to turn around and stop your voluntary activity for declining the search then it would violate the 4th amendment and the search would be involuntary. In this case the voluntary activity is engaging in services that involve government-imposed KYC.
If the buyer is going to...go to jail...or get murdered...or have some other unpredictable interruption in their ability to make payments- or just decide to defraud the lender- the lender is not to get their interest and principal. And maybe the house is not going to be maintained. The lien on the house is not really the backstop someone might think it is. Beyond that, foreclosing is terrible from a property valuation perspective.
It's not the criminality per se. It's the unpredictability that criminality necessarily beds down with.
Beyond that, when you are a lender who relies on the state for sanctioned violence, when you don't have your own goon squad or worse- lending to people who are not going to comply with or be responsive to state-sanctioned violence- you actually really cannot be more stupid with your money.
Buying real estate, like art, is a classical strategy to launder money.
I suspect you're confusing the meaning of criminal as being "that guy has a criminal record" instead of "that guy is actively committing crimes and wants to launder the ill-gotten gains".
I once had someone challenge me as to why I had 4 bank accounts, so I can only imagine what they thought of crypto.
The best recommendation here is to get chummy with a credit union leader, then you can find ways to break outside of this issue.
But the banks have much more stringent regulations and verifications and aren’t just rubber-stamping loans anymore like they did before 2008. The rubber-stamping stuff has moved to crypto and stock exchanges.
But the government doesn’t hold the loans for long. If they conform they are bundled and sold off. The government will back the mortgages in the bonds indirectly if they fail (which is why they need to conform to certain standards).
Well, that was the original Plan but with quantitative easing the federal reserve bought a lot of the bonds as well.
The government buys some loans (the Fed has been purchasing mortgage-backed securities since the start of the pandemic), but generally, mortgages are bought by private investors. If the loans are "agency" loans (Fannie, Freddie, FHA), investors are guaranteed the principal of the loan if the borrower defaults.
I can tell you that the agencies definitely do not rubber stamp the underwriting of the loans. If you make an underwriting mistake, you may have to buy the loan bank from the investor and it will impact your perceived loan quality and the prices you can get for your loan pipeline.
Earlier comment with context: https://news.ycombinator.com/item?id=31000286
Actually, in many cases, Fannie and Freddie (known as the GSEs) literally do buy the mortgages, through a program known as the cash window [1]. Some of these they hold in portfolio, but others they sell to the private market. But the GSEs aren't technically part of the government. They are specially chartered publicly traded companies, which are currently controlled by the government agency FHFA (confusingly completely distinct from the FHA) since going into conservatorship in 2008, as a result of the subprime crisis.
In any case, it's important to note that the GSEs are profitable businesses, not part of the welfare state. They are able to guarantee conforming loans because
- the underwriting criteria actually accurate reflect risk of default and loss
- risk is shared with the loan servicer and for higher loan-to-value mortgages, private mortgage insurers.
I yap on about this because it's actually a pretty fascinating bit of public policy and financial engineering, with the result of extending massive, long-term, fixed-rate, affordable loans to regular-ass people (with a free borrower option to terminate the interest costs through prepayment, to boot!) AND create an asset class for investors that is almost as liquid and riskless as treasury bonds. The liquidity of that secondary market is what allows rates to be so low, compared to custom-underwritten products geither lent from a bank's own portfolio or securitized into private-label mortgage-backed securities. The biggest bit of controversy I know of is that it tends to fuel home price growth, benefiting propery owners over those who buy in later.
[1] https://www.machinesp.com/post/a-close-look-at-the-gse-cash-...
Funny that the US government had no problem believing the money was legit when it came time to pay taxes.
Brilliant, when you think about it.
Obtaining money through criminal activity is a crime, but that's a different crime that does not have anything to do with paying taxes.
It is a crime to knowingly accept money obtained through illicit activity, but guess what – the prosecutor for that crime is the government itself! You can't sue the government for unwillingness to prosecute.
No but selective enforcement could invalidate enforcement of the law, per equal protection clause of the 14th amendment.
https://www.irs.gov/publications/p17#en_US_2021_publink10001...
Has to be mentioned explicitly despite often, but not always, being illegal.
There’s quite a bit more case law on the matter, but tl;dr is that it’s a very fluid and ill-defined area of law. Personally I expect tax returns to be used as evidence more in the future, rather than less.
0: https://scholarlycommons.law.wlu.edu/cgi/viewcontent.cgi?art...
From their FAQs, it's not clear to me whether your house is at risk if your crypto collateral gets liquidated, but you stay current on your mortgage. But your rate will go up if your collateral value goes down, so you might no longer be able to afford your loan. It sounds like if you get liquidated, they keep the liquidated USD as collateral [2], and if you defaulted, that would be credited to your loan balance (but this is not stated in their FAQs).
From an investor perspective, if I'm understanding this product, this should be pretty safe. You still have a lien on the home as collateral, along with the cryptocurrency. They mention an appraisal, so I'm guessing the loan-to-value ratios are still capped at 100% (they won't lend you more than the home is worth). The crypto liquidates at 35% of value, so that means in a default, they just need to recovery 65% of the home value to be made whole.
Still, might be less hassle to just liquidate the crypto yourself, buy straight cash, and realize the tax gains.
[1] https://help.milocredit.com/en/articles/5915495-can-the-inte...
[2] https://help.milocredit.com/en/articles/5915515-how-much-can...
Wrapped bitcoin (a bitcoin claim ticket trading on the ethereum network) has a collateral factor of 70%[2], meaning you can borrow against that much value, and the loan value just has to stay below that to prevent liquidation. For ETH, the figure is 82%.
You could borrow a stablecoin, on which the rates are ~1% (FEI) to ~4% (DAI) and convert those to dollars. (Or do the same with some other non-stablecoin crypto.)
Of course, then there'd be the question of how that affects your mortgage application process otherwise. What do you need to tell them about this loan? It's effectively like a pawn loan: fully collateralized and no ability to gain priority in payment in court. From the lender's perspective, it's like you already sold it, but with the option to buy back. (Not legal advice.)
[1] Defi lending: https://compound.finance/
Could crypto be a loose thread that unravels the proverbial “financial blanket”?
For example: https://www.imf.org/-/media/Files/Publications/GFSR/2021/Oct....
Apropos of nothing how do I do A Big Short in 2022?