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Crypto and Mortgages Don't Mix, Says Weiss Ratings Editor

According to Jon D. Markman, editor at Weiss Ratings, lenders who allow consumers to utilize cryptocurrency to back a mortgage may be increasing risk in the current market. Milo, a Florida-based digital bank, is allowing mortgage investors to utilize digital currencies as security, according to Markman. The tendency, according to Markman, is identical to the risk-associated house loans sold in 2007-2008.

"Pooling risky house loans and then selling them to naïve asset managers was the recipe for the Great Recession of 2009," says Weiss. Homebuyers were able to refinance as long as housing values continued to rise, and everyone, including bondholders, was paid." Markman went on to say:

"When house prices collapsed, however, millions of borrowers with poor credit defaulted. After that, the rest is history."

Higher interest rates, according to Markman, will lower current home prices

The Weiss Ratings study goes on to explain how interest rates are rising as a result of the Fed's recent rate hikes. Higher interest rates often add a lot more to the monthly mortgage expense, according to Markman, and the Weiss editor believes this will eventually depress property prices. "That's why Milo's plans are riddled with red flags," Markman continues. Milo isn't the only company that wants to let individuals use cryptocurrency as a kind of security for a home loan. Abra just announced a partnership with Propy to offer crypto-backed house loans.

Despite rising interest rates, financial stocks have fallen significantly this year, according to the author. Many researchers and economists have recently stated that cryptocurrencies are associated with stock markets this year. While Markman does not feel that crypto and mortgages are compatible, the analysis concludes that the risk of crypto assets is not entirely negative.

"This isn't to argue that all crypto risk is bad," says the editor of Weiss Ratings. "Not in the sense of habitation." Whatever the markets do, the possibility for cryptocurrencies to flourish is real."