Better Mortgage could potentially rehypothecate bitcoin deposited by consumers utilizing its newly launched Coinbase-backed home financing plan, and buyers are unable to retrieve their assets until the primary conventional home loan is settled or refinanced.
Both enterprises made the offering publicly available last week. Better informed CoinDesk that pre-application requests have reached $360 million in desired loan volume since the widespread introduction, climbing from the $260 million initially anticipated by individuals on its previous waiting list.
A borrower secures a pair of loans upon closing. The initial agreement is a standard Fannie Mae-approved home loan backed by the property, while the secondary loan finances the cash deposit and is secured by the customer’s bitcoin alongside a secondary lien on that same real estate.
These bitcoin-secured loans start with a 250% collateral requirement, indicating that a purchaser must lock up $2.50 worth of BTC for every single dollar borrowed toward the down payment. In Better’s illustration, someone acquiring a $500,000 house could pledge $250,000 in bitcoin to support a $100,000 deposit.
Better issues both notes and collects them via a single monthly installment. Upon finalization, the bitcoin transitions out of the customer’s personal Coinbase profile and into Better’s custodial vault managed by Coinbase Prime.
Nevertheless, Better revealed that it might reuse the committed bitcoin provided it maintains an equivalent balance available for restitution.
The firms explained to CoinDesk that Coinbase functions strictly as the custodian and technological supplier, taking no part in issuing debt or determining when collateral gets liquidated.
Cryptocurrency does not assist a borrower in qualifying for the primary mortgage. Candidates must still independently satisfy Fannie Mae’s standard guidelines regarding earnings, credit ratings, and debt-to-income limits irrespective of their digital asset holdings.
“Nothing in the offering transforms crypto assets into qualifying earnings or bypasses debt-to-income or credit limits,” Better noted in written replies. “The Bitcoin facility solely addresses the cash-for-down-payment hurdle.”
Pledged bitcoin may be reused
“Better has the right to rehypothecate the secured bitcoin, on the condition that it retains matching Bitcoin reserves to give back the collateral when the loan settles,” the enterprise stated.
Rehypothecation permits locked collateral to be deployed in alternative financial activities rather than sitting dormant in safe storage.
Operationally, the client is promised an identical volume of bitcoin at the conclusion of the financing period, rather than a guarantee that the exact individual coins will remain untouched throughout the term. Consequently, this arrangement exposes the user to Better’s capacity to preserve and refund that cryptocurrency, in addition to market fluctuations affecting both the digital token and the real estate.
This dynamic transforms the participant’s bitcoin into something resembling an IOU since Better can deploy the assets elsewhere while pledging to deliver an equivalent amount down the line. Such a framework runs counter to the digital asset sector’s post-FTX push toward transparent reserves and leaves consumers reliant on an intermediary’s ability to hand back their cryptocurrency, potentially decades later.
The company noted that its customer contracts and custody frameworks adhere to relevant regulations, including bankruptcy guidelines. It did not clarify whether every user’s bitcoin is individually tracked, who retains ownership rights following rehypothecation, or whether the consumer keeps a property interest or simply becomes a general creditor if Better or one of its funding collaborators encounters financial distress.
Furthermore, purchasers cannot simply settle the secondary loan to reclaim their bitcoin ahead of schedule. Better indicated that the collateral stays locked until the conforming home loan is fully cleared or refinanced, even though the cryptocurrency and secondary lien secure the distinct deposit financing.
This restriction could keep the bitcoin tied up for the entire duration of a 15-year or 30-year mortgage unless the client refinances or sells the property. Better’s informational site specifies that disposing of a home demands the deposit loan to be fully settled prior to the release of the bitcoin.
Better’s informational site specifies that disposing of a home demands the deposit loan to be fully settled prior to the release of the bitcoin.
No margin calls
Unlike standard crypto-backed borrowing arrangements, a drop in bitcoin valuations does not trigger a margin call, demand extra collateral, or prompt an automatic sell-off.
Even if bitcoin falls below the value of the home deposit, liquidation only happens subsequent to payment default, according to the business.
A missed unified payment initiates the default procedure. Better stated it could liquidate the pledged bitcoin after 60 days following formal notification to the consumer, but would only sell enough to cover the debt and bring the ledger current.
Asset seizure and foreclosure on the house can commence after 180 days of default according to Fannie Mae policies. Better stated it is required to pursue the bitcoin first, though “standard lending remedies” might still apply if liquidating the collateral leaves a financial deficit.
If the property gets sold through foreclosure, funds initially clear the conforming mortgage, followed by the crypto-secured down-payment loan. Any remaining balance goes to the purchaser.
At present, only bitcoin is accepted. The enterprises’ initial March announcement also mentioned USDC, but Coinbase stated the collaborators decided to roll out exclusively with BTC while they review other types of collateral.
Coinbase One subscribers cleared for the service can obtain a lender-provided closing-fee credit matching 1% of the mortgage value, restricted to a maximum of $10,000.
The organizations noted that 35.9% of active applicants possess exceeding $500,000 in digital assets, and 38% intend to purchase property within the next three months.
Originally published at https://www.coindesk.com/business/2026/09/06/better-and-coinbase-s-bitcoin-backed-mortgages-can-reuse-borrowers-collateral.
