Securities regulator Joseph Borg caused a firestorm of warnings when, earlier this week, he told CNBC that people were taking out mortgages to buy bitcoin.
“We’ve seen mortgages being taken out to buy bitcoin. Yes, sure,” Borg said to disbelieving anchors Monday. “People borrow money. People do credit cards, equity lines.”
CNBC’s hosts couldn’t believe it.
“No. No. No. No. No. Please do not do this,” CNBC correspondent Bertha Coombs tweeted.
But professionals in the lending and cryptocurrency industries aren’t so sure the warning is necessary. The homeowner who takes out a second mortgage for quick cash to finance his bitcoin purchase–the volatile digital currency has been on an impressive upswing lately, to $16,500 this week compared to around $800 in January 2017–is an urban myth to most lenders. And they don’t necessarily view a bitcoin-motivated mortgage as any worse than other reasons behind home refinancing.
“If somebody wants to take cash out of their home to do that, it’s the same to me as if you wanted to take money out of your home to pay college tuition or renovate your bathroom,” said Shane Force, a residential mortgage consultant with Atlantic Home Loans in New Jersey. “It doesn’t make a difference to us as long as you have equity in your home and the customer is qualified.”
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The creative way of getting enough cash to buy bitcoin makes sense to cryptocurrency enthusiasts who invested long before bitcoin had any mainstream appeal.
“I don’t think you can look at the returns and not be drawn in by something like bitcoin,” said cryptocurrency day trader Josh Olszewicz. “It’s worked out for people so far. But it works out until it doesn’t.”
Olszewicz said he remembered chatter on Reddit as far back as 2013 from users who considered similar decisions, like converting their life savings to bitcoin. Things go the other way too, with home-buyers trying to make down payments with bitcoin or get their bitcoin declared an asset to secure a closing.
But regulators and mortgage brokers are slow to catch up with a cryptocurrency that can jump $1,000 in value in one day. Force said he hasn’t received any guidelines or directives on accepting bitcoin from Fannie Mae and Freddie Mac.
Even if turning to home refinancing to buy bitcoin is the same as taking out a mortgage to renovate a bathroom in the long run, it sounds riskier to most people.
“Taking out a loan — especially a mortgage loan where a family’s house is the collateral — for a speculative investment is generally not a good idea,” said Lawrence White, an economics professor at New York University’s Stern School of Business who has studied mortgage markets. “And bitcoin is — at best — a speculative investment.”
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