Last week, a UMortgage originator took to LinkedIn to announce a unique loan he was working on — a $4 million non-QM loan for a borrower using cryptocurrency through an off-exchange XRP wallet to qualify. Industry observers say the deal highlights both the potential and the challenges of bringing digital assets into housing finance.
The development comes after Federal Housing Finance Agency Director Bill Pulte issued a directive to Fannie Mae and Freddie Mac in June to begin preparing for the use of crypto in single-family mortgages.
Tyler Hodgson, UMortgage’s executive vice president of growth and the man behind the deal, told HousingWire that this was the first crypto asset depletion loan he’s done. He arranged the loan through LendSure Mortgage after multiple lenders declined to consider the borrower’s crypto assets. The borrower lacked traditional income documentation but held significant cryptocurrency reserves.
How it was structured
“We did an upfront preapproval on this loan. This guy is buying an $8 million house, so typically, they would go up to like 70% or 75% LTV on this product. But we hit the max loan amount, where they capped us out at $4 million. [We] got him approved using that cryptocurrency as an income source,” Hodgson said.
“Obviously, he’s liquidating some of the cryptocurrency for the down payment,” he added. “But you know, for these crypto investors with substantial funds … they could go buy the house [in] cash, but he’d rather leverage and borrow $4 million, and that’s another $4 million that he can leave invested for more gains and also delay paying capital gains tax on all of it.”
Under the structure, the lender treated the borrower’s crypto wallet as a source for asset depletion — a common method in which net assets are divided over 60 or 120 months to calculate qualifying income.
While most lenders require cryptocurrency to be liquidated and deposited into a bank account before counting toward income, Hodgson said that LendSure accepted proof of ownership from the borrower’s private wallets.
That proof, Hodgson said, came through a process known as “Proof of Satoshi,” in which small test transfers verify that the borrower controls the wallets in question.
Unlike assets held on public exchanges such as Coinbase, private wallets are harder to authenticate but are often preferred by long-term investors.
“From an underwriting standpoint, it’s almost more transparent than a brokerage account, because anyone can see wallet balances on the blockchain,” Hodgson said. “From a servicing perspective, they could even continue to monitor these wallets after closing. … They could notice, ‘Oh, is this person depleting their cryptocurrency? Are they moving it around somewhere else?’ It gives you transparency into the financial health of this.”
The 30-year fixed-rate loan carried terms similar to other non-QM asset depletion products, with no special disclosures required, he added. But Hodgson acknowledged that it was hard to find an investor for this specific loan.
“A lot of the other non-QM lenders I reached out to said no,” he admitted. “LendSure, luckily, was accepting that this is kind of, you know, proof of ownership of these assets. I know that some of the opposition to cryptocurrency in the mortgage space probably comes from people who have concerns with not only the volatility of potential values of cryptocurrency, but also proof of ownership.”
Why regulators worry
With regulators allowing banks to take crypto custody — and Fannie and Freddie beginning to accept Bitcoin as mortgage collateral — compliance questions remain.
Thomas Grundy, director of U.S. regulatory consulting for Wolters Kluwer‘s financial and corporate compliance division, said the newly passed GENIUS Act — the first regulatory framework for stablecoins — signals new growth opportunities in crypto, particularly for early adopters.
But Senate Democrats Sens. Jeff Merkley (D-Ore.), Elizabeth Warren (D-Mass.), Chris Van Hollen (D-Md.), Mazie Hirono (D-Hawaii) and Bernie Sanders (I-Vt.) have raised concerns to the FHFA about the potential risks of using unconverted cryptocurrency assets in mortgage underwriting.
Some argue that the new legislation and new lending workarounds are side effects of nontraditional investing habits, new styles of employment and financial habits.
“Given the unpredictable nature of digital assets, it is safe to say that crypto-backed, non-qualified mortgage pricing will vary from that of a traditional asset-depletion loan,” Grundy said. “This is based on a myriad of factors such as collateral stability, loan-to-value ratios, overcollateralization and reserve requirements.”
The shift is being felt most in the non-QM market, and Grundy says the sooner borrowers can leverage digital assets, the sooner they can achieve homeownership.
“We now live in an age of crypto-focused investors looking to leverage their crypto investments to achieve the dream of homeownership,” Grundy said. “Crypto-backed non-qualified mortgages are gaining acceptance and helping borrowers meet reserve requirements, all while avoiding liquidation of crypto investments and the associated capital gains tax.”
