Better and Coinbase Launch Crypto-Backed Mortgages Amid Regulatory Scrutiny

Written by: Boaz Sobrado

Compiled by: Chopper, Foresight News

Twelve years ago, Vishal Garg personally experienced the challenges of buying a home, and since then, he has been seeking a solution. “At the time, I realized I had to sell assets, pay capital gains tax, and convert everything to cash to make the down payment. Why can’t I just pledge my assets instead of being forced to liquidate them for cash?” said the CEO of Better Home & Finance in an interview.

More complicated is the sequence of the transaction process. “What if I place a bid but don’t end up getting the house? Yet the real estate agent requires me to have cash ready, or the seller won’t take my offer seriously. Buyers are forced to sell assets and pay taxes before even knowing if their offer has been accepted.”

In March of this year, Better partnered with Coinbase to launch a solution. Borrowers pledge Bitcoin or USDC to secure two loans: a first-lien mortgage meeting Fannie Mae standards, and a separate private financing loan to cover the down payment, backed by crypto assets and accompanied by a second lien on the property. On the same day, The Wall Street Journal reported that Fannie Mae accepted crypto-backed mortgages for the first time. In early June, a couple in their early thirties from Ann Arbor, Michigan, completed the first loan under this model. Better revealed that, prior to the product’s official summer launch, the waitlist represented approximately $250 million in potential loans, with 41% of applicants lacking sufficient cash to cover a home down payment.

Regarding the entities that would take over loan assets, Garg said: "These assets meet banks' investment criteria, and multiple banks are already lining up to acquire and take over these loans, including major U.S. banks." He believes this will become a crucial channel for digital assets to formally integrate into the banking system.

The loan-to-value ratio directly determines the target audience for the product. To collateralize with Bitcoin, a 250% collateralization requirement applies; if the initial loan amount is $100,000, then $250,000 worth of Bitcoin is required as collateral. For USDC, which has stable pricing, the collateralization requirement is 125%. This product does not include a margin call mechanism—declines in Bitcoin’s price will not alter the loan terms. Asset liquidation is triggered only if the borrower fails to make payments for 60 consecutive days, consistent with standard compliant mortgage lending practices.

This mechanism is designed with a clear logic for homebuyers who have sufficient assets but lack liquid funds. Data from real estate research firm Redfin shows that recently, 12.7% of young homebuyers have used cryptocurrency assets to fund their down payments. According to the National Association of Realtors, by the end of 2025, the median age of first-time homebuyers will reach a record high of 40, while the proportion of first-time buyers among all homebuyers will hit a record low of just 21%. (The Mortgage Bankers Association disputes this figure, citing federal loan data.) Census data shows that in the second quarter of this year, the homeownership rate for individuals under 35 was only 35.2%.

Lending against assets that borrowers continuously hold is not a new model. Doug Ricketts, co-founder and CEO of PayJoy, said on the podcast "On The Margin" that smartphones can serve a role similar to real estate collateral. "Our original innovation was to set the phone as collateral—in a sense, the smartphone is like the house in a mortgage business." PayJoy provides lending services to populations in Latin America, Africa, and South Asia with limited credit histories; if users default, their device functionality is locked—commonly known as the digital collateral model.

Ricketts has a clear底线 on collateral pricing: “Lending to low-income populations can involve charging extremely high interest rates and relying on defaults from many users to generate high returns from a few borrowers. But that’s not PayJoy’s approach.” PayJoy loans charge only a one-time fixed fee, with no compounding interest—a rarity in the tech-enabled consumer lending space.

On April 30, seven senators sent a letter to FHFA Director William Pulte, naming Better and Coinbase, and urged the regulator to “revoke relevant approvals and prohibit government-sponsored enterprises from assuming risks related to crypto assets.” The letter was led and signed by Dick Durbin and Elizabeth Warren, with additional signatories including Jeff Merkley, Chris Van Hollen, Richard Blumenthal, Bernie Sanders, and Mazie Hirono.

The core argument raised by the senators is precisely Better’s claimed 250% collateral requirement, which it presents as a sign of sound risk management. The letter states: “This mechanism requires homebuyers to hold crypto assets worth up to 2.5 times the down payment amount to qualify for a loan—acknowledging in itself that crypto assets are high-risk. In addition, homebuyers must pay interest on two separate loans.” The congressional team estimates that the combined financing cost could be as much as 1.5 percentage points higher than standard Fannie Mae mortgage rates, warning: “The heavy burden may prompt borrowers to simply default, ultimately leaving American taxpayers to bear the losses.” They have requested a response from regulators by May 30, but the Federal Housing Finance Agency has not yet publicly replied.

In June, Alys Cohen of the National Consumer Law Center and Corey Frayer of Consumer Reports jointly published a commentary with a more aggressive perspective: the federal government "could be repeating the mistakes that led to the 2008 housing foreclosure crisis." They concluded that this is not consumer-oriented financial innovation, but a catalyst for disaster.

Market conditions have cast a shadow over this business. Bitcoin reached a high of approximately $123,000 in October last year, then dropped to around $62,800 in February this year, and remained stagnant in the $60,000 range throughout July, now worth only half of its peak.

Bitcoin is just the beginning. “Currently, we support Bitcoin and USDC, and we plan to integrate a wide range of mainstream tokenized assets, including equity tokens from companies such as SpaceX, Tesla, Coinbase, Better, Apple, and Amazon,” said Garg. The project will not support meme coins, instead focusing on assets with strong liquidity and institutional interest; Ethereum and Solana will be the next tokens to launch.

He has a more ambitious vision: parents could stake assets from their retirement accounts to help their children buy homes, aligning with the crypto asset pension sector. In the future, homebuyers would only need to take a photo of a property, and software would handle the entire process. “AI agents on the Better platform would submit home purchase applications and automatically calculate the maximum bid. In the long term, ordinary people could hold fractional ownership of properties and flexibly swap between different homes. Right now, this is difficult to implement—the only barrier is the complexity of transaction friction.”

Beneath this concept is an assessment of the asset allocation trends among young people. "Today's young people lack assets that can hedge against inflation and share in the benefits of rising housing prices."

The tokenized equity business faces a critical question without a unified answer: what legal rights do token holders actually possess? Currently, this issue plagues the entire “tokenization of everything” sector. Chan Ahn, founder and CEO of Tessera, revealed on the podcast “On The Margin” that the company launched its tokenized SpaceX product in February. He openly acknowledged the business model’s distinctive feature: “The platform deliberately does not implement a KYC process—not due to oversight.” The project’s original intent was to lower barriers to entry—private markets have long excluded 99.9% of retail investors through complex procedures, high minimum investment thresholds, and geographic restrictions.

Kula co-founder Chris Turner made a distinction on the same podcast: the vast majority of tokenized assets represent only contractual rights to asset returns, not direct ownership of the underlying asset; another model achieves token-as-asset, where holding the token is equivalent to owning the underlying asset. There is a fundamental difference between the two. For mortgage loan underwriters, it is essential to determine which type of ownership interest they hold when conducting collateral valuation.

Meanwhile, Better is restructuring its funding channels. In February of this year, the company partnered with Framework Ventures to deploy up to $500 million in funding through the stablecoin ecosystem Sky, with Framework Ventures also investing $45 million for approximately a 10% equity stake. Better expects this adjustment to reduce its cost of capital by more than 100 basis points. The company states that, following the implementation of tokenized financing, it may be able to bring customer loan rates below 5%, while industry-wide rates typically exceed 6%.

The company urgently needs to reduce its cost of capital. In the first quarter, Better's loan origination reached $1.64 billion, an 89% year-over-year increase, with revenue of $47.5 million, yet it still incurred a loss of approximately $70 million. Since 2016, the company has originated over $110 billion in loans total; in December 2021, it conducted a single online layoff of 900 employees, and Garg has faced ongoing public scrutiny over this matter for years.

Heavy pressures have not weakened his determination to bet on this sector. "The worst-case scenario is that the product launches and no one cares—but that’s not what’s happening." Speaking on the industry’s prospects, he said: "Don’t just fantasize about the future; it’s more important to build it yourself."