Are Crypto-Backed Mortgages as Bananas as They Sound?

tech.hindustantimes.com:

If you entered a contest to see who could design a financial instrument to lose the most money the fastest, you would struggle to come up with a better idea than taking home mortgages backed by crypto, slicing them into mortgage-backed securities and selling them at the moment the global financial system is being bludgeoned by pandemic, war and Jerome Powell.

And yet here we are: Bloomberg News reports the hot new thing in finance is the nouveau crypto riche putting up their expensive digital assets as collateral to buy expensive houses using a more-or-less traditional mortgage, but with no dead-tree dollars down. The brainchild of a company called Milo Credit — based in America’s Crypto Capital, Miami — this offering goes a little further than what we’ve seen so far, which has included the use of crypto for home down-payments and apartment deposits and the occasional crib selling as an NFT.   

Naturally the world’s MBS sausage-makers want in. “We see a lot of interest in this area and expect it will develop into a new asset class,” a Sidley Austin lawyer tells Bloomberg.

For sure! But each one of these things should be sold with a pair of asbestos gloves to handle them, given the layers of red-hot risk being piled on at every step.

First you’ve got the collateralization with crypto, a famously stable asset that rose 305% in 2020 and has plunged 40% lately. This helps crypto owners avoid cashing out and paying taxes to raise dollars. But the loan terms subject them to possible capital calls or even property seizure if the “crypto-to-loan amount” — a series of words if ever there was one — crosses certain thresholds. Those thresholds seem pretty steep — a 65% drop in collateral value, for example. But given how much crypto