Weiss Ratings Voiced Concern Over Crypto-Backed Mortgages Amid Market Uncertainty

Cryptocurrency-backed mortgages are repleted with risks akin to those responsible for the 2009 recession, said the US-based rating company Weiss Ratings. Referring to Miami startup Milo, a digital bank that offers crypto-backed home loans, the firm noted that the plans “are fraught with warning signs.” 

Milo Home Loans With Digital Assets as Collateral

Milo helps customers buy US real estate by pledging digital assets as collateral. According to its website, the project has processed over 1,200 applications from 63 countries and financed $300 million. The business is based on a model where crypto-backed home loans are sold as bonds to asset managers and other financial sector investors. 

“It’s an interesting strategy … but given current market conditions, investors should be skeptical, especially with financial stocks,” the Weiss report reads, suggesting that this exactly was the “recipe” for the Great Recession of 2009. 

When the housing prices were on the rise, homebuyers were able to refinance thanks to easy credit and insufficient regulation. The strategy worked fine with everyone, including the bondholders, getting paid.

But when the housing prices crashed, lending to the real estate sector became unviable, and the refinancing was not as easy as before. This forced millions of borrowers to default on their mortgage loans, leading to a global financial crisis.   

The Weiss Rating report noted that Milo offering digital-assets-backed mortgages that even forego the down-payment sounds familiar to the pre-2009 situation.  

“Many economists see parallels … and investors need to see the bigger picture of how this impacts the financial industry as a whole,” it reads. 

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Homebuyers have been paying high prices, thanks to the Fed Reserve’s cheap money policies over the past several years. This trend has continued in the face of fewer new homes than the number of homebuyers. This trend is…

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