A report published on May 2 by the rating agency Weiss Ratings warns that crypto-backed mortgages “spell risk.” Weiss editor Jon D. Markman said backing a mortgage with crypto is an “interesting strategy,” but stressed that during these market conditions “investors should be skeptical.”
Weiss Ratings Editor Doesn’t Believe Crypto and Mortgages Mix
Jon D. Markman from Weiss Ratings says lenders who permit people to use cryptocurrency to finance a mortgage could be adding to market risks. Markman gives Milo, a Florida-based digital bank that allows mortgage investors to use digital currency as collateral, as an example. In Markman’s opinion, the trend is similar to the risk-associated home loans that were sold in 2007-2008.
“Pooling risky home loans, then selling them to unsuspecting asset managers, was the recipe for the Great Recession of 2009,” the Weiss editor insists. As long as housing prices continued to climb, homebuyers were able to refinance and everyone got paid, including bondholders.” Markman continued:
Millions of low-credit borrowers became bankrupt after the collapse in housing prices. Rest is history.
Markman Thinks that Higher Interest Rates will Lower Home Prices
The Weiss Ratings report further discusses how interest rates are rising thanks to the Federal Reserve’s recent rate hikes. Markman said that interest rates are generally higher than normal. In time, however, Weiss editors believe it will reduce home prices. “That’s why plans at Milo are fraught with warning signs,” Markman adds. Milo isn’t the only company that allows people to use cryptocurrency as collateral to secure a loan. Abra has partnered recently with Propy to offer home loans that are crypto-backed.
The author mentions that the value of financial stocks is down significantly this year even though interest rates have been rising. Recent reports have shown that cryptocurrencies and equities markets are closely linked. While Markman doesn’t believe crypto and mortgages mix, the end of the report notes that crypto asset risk is not 100% negative.
“This isn’t to say all crypto risk is bad,” the Weiss Ratings editor concludes. “Just not in the housing sense. No matter what the markets are doing, the potential to succeed in cryptocurrencies is real.”
Let us know your thoughts on the Weiss Ratings recent report that claimed crypto-backed loans are dangerous. Comment below and let us know how you feel about the subject.
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