Written by: Boaz Sobrado

Translated by: Chopper, Foresight News

Twelve years ago, Vishal Garg personally experienced the challenges of buying a home, and since then he has been seeking solutions. "At that time, I realized that I had to sell assets and pay capital gains taxes to convert them into cash to pay for the house. Why can’t I directly pledge assets instead of having to liquidate them for cash?" said the CEO of Better Home & Finance in an interview.

What complicates matters is the order of the transaction process. "What happens if I make an offer and do not secure the house? But the real estate agent will ask you to have cash ready, otherwise the seller won’t seriously consider your offer. Homebuyers are forced to sell assets and pay taxes before they know if their offer has been accepted."

In March of this year, Better, in collaboration with Coinbase, launched a solution. Borrowers can pledge Bitcoin or USDC to receive two loans: one being a first-lien mortgage loan that complies with Fannie Mae standards, and the other an independent private finance loan for the down payment, with crypto assets as collateral, accompanied by a second lien on the property. The Wall Street Journal reported that Fannie Mae accepted mortgage loans backed by crypto assets for the first time. In early June, a couple in their early thirties in Ann Arbor, Michigan completed the first loan under this model. Better revealed that prior to the official launch of the product in the summer, the potential loan volume corresponding to the waiting list was about $250 million, with 41% of applicants lacking sufficient cash to cover the down payment.

Regarding the funding entities for the loan assets, Garg stated: "These assets meet the investment criteria of banks, and several banks are lined up to acquire and take on these loans, including some of the largest banks in the U.S." He believes this will become an important channel for the formal integration of digital assets into the banking system.

Real Costs and Mortgage Rules

The loan-to-value ratio directly determines the target audience for the product. Pledging Bitcoin requires meeting a 250% collateral requirement; if the down payment loan amount is $100,000, then $250,000 worth of Bitcoin is needed as collateral; the collateral rate for stable USDC is 125%. This product does not have a margin call mechanism, and a drop in bitcoin prices will not change the terms of the mortgage loan. Only if the borrower is in default for 60 consecutive days will asset liquidation be triggered, with standards consistent with conventional compliant mortgage loans.

This mechanism is clearly logically designed, aimed at buyers who are "asset-rich but cash-poor." Data from real estate research firm Redfin shows that recently, 12.7% of young homebuyers have used crypto assets to raise their down payment. According to the National Association of Realtors, by the end of 2025, the median age of first-time homebuyers will reach a historical high of 40 years, while the proportion of first-time buyers among all buyers will hit a historical low of only 21%. (The Mortgage Bankers Association has disputed this number, citing federal loan data.) Census data shows that in the second quarter of this year, the homeownership rate for those under 35 was only 35.2%.

Using assets continuously held by borrowers to issue loans is not a new model. Doug Ricketts, co-founder and CEO of PayJoy, stated on the podcast "On The Margin" that smartphones can serve a similar role as property collateral. "Our initial innovation was to use phones as collateral; in a sense, smartphones are equivalent to the property in mortgage business." PayJoy provides lending services to populations in Latin America, Africa, and South Asia with weak credit history; if users default, device functionalities are locked, which is widely known as the digital collateral model.

Ricketts has a clear bottom line regarding collateral pricing logic: "When lending to low-income groups, one model is to charge extremely high interest rates, allowing many users to default and relying on a few borrowers to generate high returns. But this is not PayJoy's route." PayJoy only charges a one-time fixed fee, without accruing rolling interest, which is very rare in the consumer credit technology sector.

Seven Senators Call for a Halt

On April 30, seven senators sent a letter to Federal Housing Finance Agency (FHFA) Director William Pulte, naming Better and Coinbase, demanding that regulators "revoke relevant approvals and prohibit government-supported enterprises from taking on risks related to crypto assets." The letter was led by Dick Durbin and Elizabeth Warren, with signatories including Jeff Merkley, Chris Van Hollen, Richard Blumenthal, Bernie Sanders, and Mazie Hirono.

The core reason cited by the senators is the 250% collateral requirement that Better claims represents prudent risk control. The letter stated: "This mechanism requires homebuyers to present crypto assets worth up to 2.5 times the down payment amount to qualify for a loan. This itself acknowledges that crypto assets are high-risk; furthermore, buyers need to pay interest on both loans simultaneously." The legislators estimated that the combined financing cost could be as much as 1.5 percentage points higher than standard Fannie Mae mortgage rates and warned: "The high burden may lead borrowers to give up on repayment altogether, with the ultimate losses potentially borne by American taxpayers." They requested a response from regulators by May 30, but the FHFA has not publicly responded to date.

Alys Cohen from the National Consumer Law Center and Corey Frayer from the Consumer Federation of America published a more radical commentary in June, concluding that the federal government "could repeat the mistakes that led to the 2008 foreclosure crisis." Their conclusion was that this is not a consumer-focused financial innovation, but a trigger for disaster.

The market conditions also cast a shadow over this business. Bitcoin hit a peak of around $123,000 in October last year, but fell to around $62,800 in February this year, and has remained in the $60,000 range throughout July, with prices now only half of the peak.

Garg's Long-term Layout

Bitcoin is just the beginning. "Currently we support Bitcoin and USDC, and we plan to incorporate various mainstream tokenized assets in the future, including equity tokens from companies like SpaceX, Tesla, Coinbase, Better, Apple, and Amazon." Garg stated that the project will not support meme coins, only selecting assets with liquidity and institutional interest, with Ethereum and Solana being the next batch to be launched.

He has a further vision: parents can pledge retirement account assets to assist their children in buying homes, which resonates with the crypto asset pension track. In the future, homebuyers only need to take photos of property listings and let software handle all the processes. "AI smart agents can submit home purchase applications on the Better platform, automatically calculating the maximum bid limit. In the long run, ordinary people can hold shares of property and flexibly exchange different homes. Right now, this is difficult to realize, and the only obstacle is the complex transaction friction."

The underlying basis for this vision is a judgment regarding the asset allocation trends of young people. "Today's young people lack assets that can hedge against inflation and share the benefits of rising home prices."

The Controversy Behind Token Pledge

The tokenized equity business faces a critical question without a unified answer: what legal rights do holders of tokens actually possess? Currently, the "tokenization of everything" sector is generally troubled by this issue. Chan Ahn, founder and CEO of Tessera, revealed on the podcast "On The Margin" that the company launched its SpaceX tokenization product in February. He candidly acknowledged the characteristics of the business model, "the platform deliberately does not set a KYC process, which is not an oversight." The original intention of the project is to lower the entry barrier— the private equity market has long relied on complicated procedures, high minimum investment thresholds, and geographic restrictions to keep 99.9% of ordinary investors out.

Chris Turner, co-founder of Kula, differentiated in the same podcast that the vast majority of tokenized assets only represent the contractual rights to asset earnings, rather than equivalent to holding the underlying assets; another mode allows the token to be the asset, where holding the token is equivalent to owning the underlying asset. The two types represent fundamentally different rights. For mortgage loan underwriters, it is essential to distinguish which category of rights is held when conducting collateral valuation.

Meanwhile, Better is reconstructing its financing channels. In February of this year, the company partnered with Framework Ventures, planning to leverage the stablecoin ecosystem Sky to inject up to $500 million in funding. Framework Ventures is also investing $45 million for a stake of about 10%. Better expects this adjustment to lower capital costs by over 100 basis points. The company claims that after tokenized financing is put in place, there is an opportunity to bring client loan rates below 5%, while industry-wide rates are generally above 6%.

The company urgently needs to lower funding costs. In the first quarter, Better issued loans totaling $1.64 billion, a year-on-year increase of 89%, with revenue reaching $47.5 million, but still incurred a loss of about $70 million. Since 2016, the company has issued loans exceeding $110 billion; in December 2021, it laid off 900 employees in a single online meeting, and Garg has continuously faced external criticism regarding this matter.

The considerable pressure has not weakened his determination to bet on this track. "The worst outcome is that the product launches and nobody pays attention, but that’s not the reality." Regarding the industry outlook, he stated: "It’s important not only to dream about the future but also to actively create it."