Weiss Ratings warns about crypto mortgage risks

In comparison, according to a report published by Weiss Ratings, Florida-based rating and research company Weiss Ratings is warning about the risks of crypto mortgages in the current US economic climate.

Currently, mortgage interest rates in the US are rising rapidly. At this week's Federal Open Market Committee (FOMC) meeting, people generally expect the Federal Reserve Governor to raise short-term interest rates by 50 basis points, and hinted that more interest rates will be raised soon. Interest rates on US mortgages are rising at their fastest rate in 35 years. Since January, the average interest rate on 30-year fixed mortgages is 5.5%, up 71%. Higher interest rates can add hundreds of dollars to the borrower's monthly costs. Ultimately, these increases should result in fewer buyers and lower house prices.

Meanwhile, a Miami startup is using cryptocurrency to securitize home loans. Florida's digital bank Milo offers 30-year mortgages using Bitcoin, Ether, or stablecoins as collateral. The company requires zero down payment and its loan interest rate varies between 3.95% and 5.95%. Its larger plan is to pool crypto-backed home loans and make them available as bonds to asset managers and insurers. The plan seemed familiar, pooling risky home loans, then selling them to unsuspecting asset managers, and eventually triggering a global economic crisis.

In the report, Weiss analyst Jon D. Markman urged caution with such mortgages due to poor performance in stocks and cryptocurrencies this year, the US housing bubble, rising interest rates, and upcoming policy changes from the Federal Reserve. Markman said, “This product appears to be a win-win, assuming real estate and cryptocurrency prices continue to rise unless there are signs that either bet is unlikely to be a winner in the short term. But since reaching $66,000 in November 2021, Bitcoin has dropped 40%.”

Markman concludes: “US real estate prices are now facing negative factors from the Federal Reserve's policy changes and rising mortgage interest rates. Not all crypto risks are bad, but it could happen in the real estate sector. Regardless of what the market is doing, the potential for cryptocurrency success is real.”

Author: Zeqi YI

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