It’s really when huge leverage is granted on assumptions that turn false that the market takes a hit. Especially once the underlying assets must be “marked to market” and the value is nil compared to required assumptions.
I'd be pretty surprised if crypto was widely used enough to have a noticeable effect, especially compared to the trillions of dollars printed the past few years. Though for some reason everyone has started blaming Putin for inflation, so maybe people will just blame the inevitable crash on him too
It's far too small to matter. Add up all the stablecoins, DeFi protocols, etc and you'll arrive at a dollar value smaller than single-day drops in individual stocks this year. It's also likely that there is a larger dollar amount of loans backed by just Tesla stock (via Elon Musk) than all crypto loans put together.
Yes, fair point. I only wonder how highly leveraged crypto is w/r/t the “outside world”. The bubble popping would certainly devastate a lot of people I know who are highly invested in crypto. Whether the unraveling comes from loans or other non-existent collateral (see USDT or even USDC), the effects would be significant.
I have an idea, let's collateralize this mortgage debt into new crypto instruments and rate them A+. Surely everyone wouldn't stop paying their mortgages all at the same time.
Having tried to buy a house with crypto — let me tell you! Prepare for a ride lol
Basically, the easiest way to do it is to take a loan against it at a low interest rate (as there’s collateral) and show you can pay the fees. If you’re buying a home you can use this as a down payment. Then sell the crypto and pay the loan. The main issue with banks is they need to track where your money comes from.
I made a mistake of selling my crypto and trying to use the money for a down payment on one of the properties I was interested in. That was a challenge to “prove” it wasn’t illegal gains. Part of KYC (know your customer) is understanding where their money came from and they aren’t a criminal / terrorist. Luckily, in my case I had other assets so I just shuffled around.
The loan method ensures they know where the money came from (the party lending you money).
Usually crypto-backed loans are made by crypto-focused companies. You can tell BlockFi (for example) you bought $100 of bitcoin 10 years ago and that's good enough for them. But Wells Fargo would require some actual documentation, and (probably?) not even accept crypto as collateral to begin with
Is there a compelling reason why a criminal shouldn't be able to buy a house? Inconveniencing literally everyone over KYC, including non-criminals, to catch a 'criminal' who needs a place to live just seems absolutely insane. Go after people who you have probable cause have committed a crime, not ones you haven't.
The lender is acting at the behest of the government when they follow KYC regulations. The 4th amendment specifically protects against this sort of search of your 'papers'. KYC is a search. It's a government requirement to have your papers searched-- akin to a policeman asking to see your papers before you get the loan. That's a search.
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>If you are stopped by the cops and they ask if they can search your car and you say “yes” then the search is valid. You are allowed to say “no”. They can force the search under certain circumstances.
OK I say no and the policeman has no probable cause to search. What happens next? Am I allowed to continue my elective activity of going down the street, or can the policeman pull out a gun and tell me I'm going to jail if I continue to electively head towards my destination? I think you know the answer -- when I decline the search it has no effect on my elective ability to complete my task of continuing on the roadway. Returning to the loan, the analogy here is I would be allowed to proceed even after declining KYC search.
>You are allowed to say “no”.
Going back to your example of the cops stopping you, when I say no I'm eventually allowed to continue on my way. I'm not turned around and stopped from completing my elective activity. By your logic government could just pass a law that whenever you elect to leave your house, your constitutional rights are waved -- that's just ludicrous and defies reason for having them in the first place. You're not allowed to say 'no' to following the KYC search and keep on going -- It's a forcible search.
If you are stopped by the cops and they ask if they can search your car and you say “yes” then the search is valid. You are allowed to say “no”. They can force the search under certain circumstances.
If you try and get a mortgage loan and the bank asks for details you provide them then the “search” is valid. You are allowed to say “no”. They can’t force the search of you just walk away from the mortgage process.
Which is (yet another) bad example to make your point (even if the point is otherwise valid), since the bank's requirement to verify your identity is itself government-imposed.
The constitution is the supreme law, it applies even to commercial property regulations.
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>Both amendments are restrictions on government, not private entities.
Yes and who imposes the KYC requirement -- government or the private entity? Even when the private entities don't consent, the GOVERNMENT imposes the KYC search therefore 4th amendment applies. Private lender entity is acting as agent of the state who under force of law has been FORCED to follow KYC requirements.
The 4th Amendment does not restrict the demands that one party in a transaction can make of the other. It doesn't comment on contracts between private parties at all.
Similarly, the 1st Amendment does not prevent victims of sexual abuse from signing a contract that forbids them from talking about it.
Both amendments are restrictions on government, not private entities.
However you cannot sign away you’re right to do so - I.e. you can sign the contract and then violate the contract and then nothing happens until someone sued you for breach of contract. The devil is in the details, though. Similarly you also can’t sign away your right to bear arms or sign yourself or children into slavery. Your wife can’t sign away her right to vote. Etc.
You can absolutely sign away your right to bear arms. Imagine, for example, a Disney star signing away her right to carry a machine gun into public places. You can sign away most of your rights.
You can't sign your children into slavery anymore in the US, but that's a special case that violates someone else's civil rights. Selling children and other people into slavery was legal for a big chunk of US history and was not fixed by the Constitution or the original Bill of Rights, but by the 13th Amendment.
You can’t sell yourself into slavery either. The Disney example isn’t a case of signing away rights. You can enter into agreements to do and not do certain things but your rights are not signed away. For example: you can sign a contract that says you’ll never say “Disney Sucks”. You can then go on the street and scream it at the top of your lungs. You’ll be sued by Disney for breaching a contract, but the status of your right to exercise freedom of speech has not changed. You won’t go to jail, for example. It’s not a criminal matter.
The government can (arguably unconstitutionally) take away those rights after due process. KYC doesn't involve even probable cause a crime has occured.
Felon in possession laws are also laughably stupid and a horrible example of government tyranny. Someone who say illegally harvested or transported a lobster or had pot at the wrong time in the wrong state isn't less deserving of defending his family than the guy with a misdemeanor for DUI. I applaud any felon who continues to carry, knowing if they otherwise carry themselves honorably they are extremely unlikely to be caught conceal carrying. Thankfully projects like the fgc-9 3d-printed gun make it effectively impossible to stop felons from acquiring firearms and restores their 2nd amendment rights.
I was talking in the context of private entities. Though the government may be able to deprive convicted felons of certain rights (idk the details) it can’t deprive you of Constitutional rights (in theory). For the government to generally deprive someone of their rights it would be inherently unconstitutional. Obviously they can and do literally do this to people via edge cases they can’t do so legally - it would be a contradiction.
Because it's not a search - you're consenting to it as part of something you are doing that is not a right (getting a mortgage, getting a home). The moment the scenario shifts from "this is done to you" to "this is a prerequisite to a thing you are doing" then you have basically no rights.
>Because it's not a search - you're consenting to it as part of something you are doing that is not a right (getting a mortgage, getting a home). The moment the scenario shifts from "this is done to you" to "this is a prerequisite to a thing you are doing" then you have basically no rights.
It is something done to you. It doesn't matter whether you and the lender consent to it happening or not, the law _requires_ it. It's a search of your 'papers' at behest of government. Just because the end goal is elective doesn't mean 4th amendment is bypassed. For instance, buying a bottle of water isn't a 'right' but electing to do so doesn't allow the government to inspect your bank account, even by proxy (by requiring the seller).
You are confused. You can decline to have your papers searched by declining to participate in the activity. Therefore, no matter how unfair, it is not forcible. If the government passed a law forbidding the sale of water to people who did not consent to a search, that would also be lawful. The Constitution does not forbid bad laws.
The law isn’t so cut and dry like that. The court would absolutely rule that since water is an unavoidable necessity that this constitutes an unreasonable search. But I agree that if challenged they would be fine with a search when applying for a mortgage.
Yes, there would be a gradient somewhere. If that law extended to the point where you couldn't get utility water without a background check, some judge would find cause to throw it out mainly because of how silly it was. But on the other hand the water content of even a mildly alcoholic beverage doesn't make showing ID an unreasonable search. There are lots of ways the government can twist your arm into a "search" through this opt-in approach.
AFAIK, modern KYC (or at least, pre-2001) traces back to the 1980s and war on cocaine, when Treasury-relevant amounts of money were flowing across borders.
It was decided it was easier to trace the money than the drugs.
Meh I'm fine with a few coke dealers getting away if it means the intrusiveness on the innocents ends. I'd rather 10 coke dealers get away than a single innocent person be forced to undergo a warrantless KYC search to get a loan.
It's compelled by law and done at behest of government, it's a search of your 'papers'.
If it were voluntarily you could continue with the transaction if the two private parties were OK with going forward without KYC. The analogy here is when stopped by a policeman and asked to search, you can decline and continue walking on with your voluntary activity -- if the policeman told you that you had to turn around and stop your voluntary activity for declining the search then it would violate the 4th amendment and the search would be involuntary. In this case the voluntary activity is engaging in services that involve government-imposed KYC.
No, criminals can buy houses just fine. This is about giving them a loan and expecting them to pay it back over a long period of time. It's a huge risk.
If the buyer is going to...go to jail...or get murdered...or have some other unpredictable interruption in their ability to make payments- or just decide to defraud the lender- the lender is not to get their interest and principal. And maybe the house is not going to be maintained. The lien on the house is not really the backstop someone might think it is. Beyond that, foreclosing is terrible from a property valuation perspective.
It's not the criminality per se. It's the unpredictability that criminality necessarily beds down with.
Beyond that, when you are a lender who relies on the state for sanctioned violence, when you don't have your own goon squad or worse- lending to people who are not going to comply with or be responsive to state-sanctioned violence- you actually really cannot be more stupid with your money.
> Is there a compelling reason why a criminal shouldn't be able to buy a house?
Buying real estate, like art, is a classical strategy to launder money.
I suspect you're confusing the meaning of criminal as being "that guy has a criminal record" instead of "that guy is actively committing crimes and wants to launder the ill-gotten gains".
Yeah, one lender I worked with had tons of problems with small venmo transactions in and out of accounts. They wanted paper trial on the trivial funds back to a to a traditional bank
I tried to get a $500k mortgage a year ago. I had recently formed a new bootstrapped startup and wasn't taking a salary for myself, so I had no income. However I had 800+ credit score and a few million in liquid assets (not even crypto, just boring index funds) and could not get a mortgage whatsoever despite trying through multiple lenders. One even asked if anyone would be willing to cosign and suggested my parents. Ended up just paying cash.
Yes, I had a very similar situation to you; startup (I took a salary though as we were profitable from day 1) and assets enough (nothing to do with crypto). Banks don't like any risk or differentiation of process; it is just easier to just say no. Even if you have the cash to pay for the house (which I did in my case); you can pay for the house in cash but the banks still, in some situations (like having a startup) they won't give you a mortgage (in my case, I knew I could get a far better interest rate for my money than the interest rate of taking a mortgage, so I didn't want to put my money in).
Isn't it a good thing that persons such as yourself can't take advantage of government-subsidized interest rate arbitrage? Obviously no one should get these artificially low interest rates subsidized government, but I don't see a compelling reason why someone rich enough to a house outright should be afforded the opportunity to arbitrage interest rates via exploitive government policies.
Same situation myself[0] except credit score 775, and I could get a mortgage, but, no matter what % the down payment, the interest rate wouldn't be below 5%, at a time when conventionals that were Fannie-flippable were getting under 3. (This situation exists because Fannie buys without consideration for long-term interest rates or the impact of a higher down payment after some threshold.)
I believe most of the caution comes from the fact that the government is the largest buyer of the loan. The bank or your originator is not keeping the loan on it's balance sheet, and they will not be able to sell it unless it conforms to standard requirements.
Uh... so that's how US is able to get these 30-year fixed-interest mortgages? Effectively, by having the government to be the actual lender here – while the banks are tasked with rubber-stamping on the risk assessment (“yup, looks like a standard loan to us”) and then raking in guaranteed, immediate profit after selling the loan and not caring about it anymore? (Well, unless they sell too many shitty loans, in which case they'd supposedly get their license revoked.)
Eh not so much “how they are able to”. At least as far as I know.
But the banks have much more stringent regulations and verifications and aren’t just rubber-stamping loans anymore like they did before 2008. The rubber-stamping stuff has moved to crypto and stock exchanges.
Yes, the 30 year mortgage wouldn’t exist without government backing.
But the government doesn’t hold the loans for long. If they conform they are bundled and sold off. The government will back the mortgages in the bonds indirectly if they fail (which is why they need to conform to certain standards).
Well, that was the original
Plan but with quantitative easing the federal reserve bought a lot of the bonds as well.
Mortgage default rate in the US is extremely low, so empirically speaking I wouldn't worry about that. If anything the issue is that banks aren't able to lend to diverse borrowers, so you have to have income to get a loan, as is the complaint of the GP.
The government buys some loans (the Fed has been purchasing mortgage-backed securities since the start of the pandemic), but generally, mortgages are bought by private investors. If the loans are "agency" loans (Fannie, Freddie, FHA), investors are guaranteed the principal of the loan if the borrower defaults.
I can tell you that the agencies definitely do not rubber stamp the underwriting of the loans. If you make an underwriting mistake, you may have to buy the loan bank from the investor and it will impact your perceived loan quality and the prices you can get for your loan pipeline.
I don't think you're disagreeing with the core point. By guaranteeing (some) mortgages, and setting standards for what mortgages it guarantees, Fannie et al have the effect of being a buyer for all those mortgages, even if it's private investors actually buying them. And since they are such preferential terms, such agencies effectively create an artificial class of lower-rate mortgages whose interest rates you can't get even if you reduce the risk by other means.
Correct, I'm not exactly disagreeing, but just explaining how it actually works.
Actually, in many cases, Fannie and Freddie (known as the GSEs) literally do buy the mortgages, through a program known as the cash window [1]. Some of these they hold in portfolio, but others they sell to the private market. But the GSEs aren't technically part of the government. They are specially chartered publicly traded companies, which are currently controlled by the government agency FHFA (confusingly completely distinct from the FHA) since going into conservatorship in 2008, as a result of the subprime crisis.
In any case, it's important to note that the GSEs are profitable businesses, not part of the welfare state. They are able to guarantee conforming loans because
- the underwriting criteria actually accurate reflect risk of default and loss
- risk is shared with the loan servicer and for higher loan-to-value mortgages, private mortgage insurers.
I yap on about this because it's actually a pretty fascinating bit of public policy and financial engineering, with the result of extending massive, long-term, fixed-rate, affordable loans to regular-ass people (with a free borrower option to terminate the interest costs through prepayment, to boot!) AND create an asset class for investors that is almost as liquid and riskless as treasury bonds. The liquidity of that secondary market is what allows rates to be so low, compared to custom-underwritten products geither lent from a bank's own portfolio or securitized into private-label mortgage-backed securities. The biggest bit of controversy I know of is that it tends to fuel home price growth, benefiting propery owners over those who buy in later.
In my experience, lenders only care that funds are seasoned - i.e. that they've been in your account for a few months before the mortgage. They mostly care that the sourcing of those funds isn't some kind of temporary arrangement just to qualify for the loan.
I had the same problem with my first mortgage in 2020. Only the lending company didn’t tell me I couldn’t use the cashed out crypto funds until after I had already done the exchange. So I ended up generating a ton of capital gains tax on money I couldn’t even use.
Funny that the US government had no problem believing the money was legit when it came time to pay taxes.
Quick note- IRS deliberately does not care about the criminal or non-criminal origin of income. All income in dollars from any source/activity is subject to tax.
Paying tax in and of itself is never illegal. Paying more tax than you owe is not illegal either. As far as taxes go, the only illegal thing is “not guessing the number right” and flat out refusing to pay.
Obtaining money through criminal activity is a crime, but that's a different crime that does not have anything to do with paying taxes.
It is a crime to knowingly accept money obtained through illicit activity, but guess what – the prosecutor for that crime is the government itself! You can't sue the government for unwillingness to prosecute.
This is probably misleading as most people present it.
The IRS does require you to report illegal earnings. But the justice department can also use that against you[0].
There’s quite a bit more case law on the matter, but tl;dr is that it’s a very fluid and ill-defined area of law. Personally I expect tax returns to be used as evidence more in the future, rather than less.
Misleading article. The defining feature of a mortgage loan is, in fact, that it is backed by real property (i.e, a house). These seem more like loans, secured by crypto, used to buy houses
I looked into Milo a couple weeks ago and it seems like a complex financial product, compared to a traditional fixed-rate conforming loan. The interest rate depends on the value of your collateral and you are subject to the risk from the change in the value of your collateral [1].
From their FAQs, it's not clear to me whether your house is at risk if your crypto collateral gets liquidated, but you stay current on your mortgage. But your rate will go up if your collateral value goes down, so you might no longer be able to afford your loan. It sounds like if you get liquidated, they keep the liquidated USD as collateral [2], and if you defaulted, that would be credited to your loan balance (but this is not stated in their FAQs).
From an investor perspective, if I'm understanding this product, this should be pretty safe. You still have a lien on the home as collateral, along with the cryptocurrency. They mention an appraisal, so I'm guessing the loan-to-value ratios are still capped at 100% (they won't lend you more than the home is worth). The crypto liquidates at 35% of value, so that means in a default, they just need to recovery 65% of the home value to be made whole.
Still, might be less hassle to just liquidate the crypto yourself, buy straight cash, and realize the tax gains.
You can also borrow against your crypto on much better terms via Compound[1].
Wrapped bitcoin (a bitcoin claim ticket trading on the ethereum network) has a collateral factor of 70%[2], meaning you can borrow against that much value, and the loan value just has to stay below that to prevent liquidation. For ETH, the figure is 82%.
You could borrow a stablecoin, on which the rates are ~1% (FEI) to ~4% (DAI) and convert those to dollars. (Or do the same with some other non-stablecoin crypto.)
Of course, then there'd be the question of how that affects your mortgage application process otherwise. What do you need to tell them about this loan? It's effectively like a pawn loan: fully collateralized and no ability to gain priority in payment in court. From the lender's perspective, it's like you already sold it, but with the option to buy back. (Not legal advice.)
85 comments
[ 3.7 ms ] story [ 157 ms ] threadCould crypto be a loose thread that unravels the proverbial “financial blanket”?
For example: https://www.imf.org/-/media/Files/Publications/GFSR/2021/Oct....
Basically, the easiest way to do it is to take a loan against it at a low interest rate (as there’s collateral) and show you can pay the fees. If you’re buying a home you can use this as a down payment. Then sell the crypto and pay the loan. The main issue with banks is they need to track where your money comes from.
I made a mistake of selling my crypto and trying to use the money for a down payment on one of the properties I was interested in. That was a challenge to “prove” it wasn’t illegal gains. Part of KYC (know your customer) is understanding where their money came from and they aren’t a criminal / terrorist. Luckily, in my case I had other assets so I just shuffled around.
The loan method ensures they know where the money came from (the party lending you money).
If this was so simple and possible, every criminal would be laundering money this way, wouldn't they?
Isn't crypto generally far too volatile to serve as collateral?
Is there a compelling reason why a criminal shouldn't be able to buy a house? Inconveniencing literally everyone over KYC, including non-criminals, to catch a 'criminal' who needs a place to live just seems absolutely insane. Go after people who you have probable cause have committed a crime, not ones you haven't.
It’s no more a “search” than the bank asking to prove your identity when opening an account.
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>If you are stopped by the cops and they ask if they can search your car and you say “yes” then the search is valid. You are allowed to say “no”. They can force the search under certain circumstances.
OK I say no and the policeman has no probable cause to search. What happens next? Am I allowed to continue my elective activity of going down the street, or can the policeman pull out a gun and tell me I'm going to jail if I continue to electively head towards my destination? I think you know the answer -- when I decline the search it has no effect on my elective ability to complete my task of continuing on the roadway. Returning to the loan, the analogy here is I would be allowed to proceed even after declining KYC search.
>You are allowed to say “no”.
Going back to your example of the cops stopping you, when I say no I'm eventually allowed to continue on my way. I'm not turned around and stopped from completing my elective activity. By your logic government could just pass a law that whenever you elect to leave your house, your constitutional rights are waved -- that's just ludicrous and defies reason for having them in the first place. You're not allowed to say 'no' to following the KYC search and keep on going -- It's a forcible search.
If you try and get a mortgage loan and the bank asks for details you provide them then the “search” is valid. You are allowed to say “no”. They can’t force the search of you just walk away from the mortgage process.
Yes, you allowed to continue down the street.
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>Both amendments are restrictions on government, not private entities.
Yes and who imposes the KYC requirement -- government or the private entity? Even when the private entities don't consent, the GOVERNMENT imposes the KYC search therefore 4th amendment applies. Private lender entity is acting as agent of the state who under force of law has been FORCED to follow KYC requirements.
Similarly, the 1st Amendment does not prevent victims of sexual abuse from signing a contract that forbids them from talking about it.
Both amendments are restrictions on government, not private entities.
You can't sign your children into slavery anymore in the US, but that's a special case that violates someone else's civil rights. Selling children and other people into slavery was legal for a big chunk of US history and was not fixed by the Constitution or the original Bill of Rights, but by the 13th Amendment.
For example, judges can tell convicts not to buy or carry firearms.
Felon in possession laws are also laughably stupid and a horrible example of government tyranny. Someone who say illegally harvested or transported a lobster or had pot at the wrong time in the wrong state isn't less deserving of defending his family than the guy with a misdemeanor for DUI. I applaud any felon who continues to carry, knowing if they otherwise carry themselves honorably they are extremely unlikely to be caught conceal carrying. Thankfully projects like the fgc-9 3d-printed gun make it effectively impossible to stop felons from acquiring firearms and restores their 2nd amendment rights.
It is something done to you. It doesn't matter whether you and the lender consent to it happening or not, the law _requires_ it. It's a search of your 'papers' at behest of government. Just because the end goal is elective doesn't mean 4th amendment is bypassed. For instance, buying a bottle of water isn't a 'right' but electing to do so doesn't allow the government to inspect your bank account, even by proxy (by requiring the seller).
yeah ok until a court challenge occurs
It was decided it was easier to trace the money than the drugs.
“Oh that $5M I have? That’s not from selling cocaine that’s from when I sold my house!”
And it's not a few coke dealers, it's tens (hundreds?) of billions in illicit money being laundered by the major banks.
If it were voluntarily you could continue with the transaction if the two private parties were OK with going forward without KYC. The analogy here is when stopped by a policeman and asked to search, you can decline and continue walking on with your voluntary activity -- if the policeman told you that you had to turn around and stop your voluntary activity for declining the search then it would violate the 4th amendment and the search would be involuntary. In this case the voluntary activity is engaging in services that involve government-imposed KYC.
If the buyer is going to...go to jail...or get murdered...or have some other unpredictable interruption in their ability to make payments- or just decide to defraud the lender- the lender is not to get their interest and principal. And maybe the house is not going to be maintained. The lien on the house is not really the backstop someone might think it is. Beyond that, foreclosing is terrible from a property valuation perspective.
It's not the criminality per se. It's the unpredictability that criminality necessarily beds down with.
Beyond that, when you are a lender who relies on the state for sanctioned violence, when you don't have your own goon squad or worse- lending to people who are not going to comply with or be responsive to state-sanctioned violence- you actually really cannot be more stupid with your money.
Buying real estate, like art, is a classical strategy to launder money.
I suspect you're confusing the meaning of criminal as being "that guy has a criminal record" instead of "that guy is actively committing crimes and wants to launder the ill-gotten gains".
I once had someone challenge me as to why I had 4 bank accounts, so I can only imagine what they thought of crypto.
The best recommendation here is to get chummy with a credit union leader, then you can find ways to break outside of this issue.
[0] https://news.ycombinator.com/item?id=31220794
But the banks have much more stringent regulations and verifications and aren’t just rubber-stamping loans anymore like they did before 2008. The rubber-stamping stuff has moved to crypto and stock exchanges.
But the government doesn’t hold the loans for long. If they conform they are bundled and sold off. The government will back the mortgages in the bonds indirectly if they fail (which is why they need to conform to certain standards).
Well, that was the original Plan but with quantitative easing the federal reserve bought a lot of the bonds as well.
The government buys some loans (the Fed has been purchasing mortgage-backed securities since the start of the pandemic), but generally, mortgages are bought by private investors. If the loans are "agency" loans (Fannie, Freddie, FHA), investors are guaranteed the principal of the loan if the borrower defaults.
I can tell you that the agencies definitely do not rubber stamp the underwriting of the loans. If you make an underwriting mistake, you may have to buy the loan bank from the investor and it will impact your perceived loan quality and the prices you can get for your loan pipeline.
Earlier comment with context: https://news.ycombinator.com/item?id=31000286
Actually, in many cases, Fannie and Freddie (known as the GSEs) literally do buy the mortgages, through a program known as the cash window [1]. Some of these they hold in portfolio, but others they sell to the private market. But the GSEs aren't technically part of the government. They are specially chartered publicly traded companies, which are currently controlled by the government agency FHFA (confusingly completely distinct from the FHA) since going into conservatorship in 2008, as a result of the subprime crisis.
In any case, it's important to note that the GSEs are profitable businesses, not part of the welfare state. They are able to guarantee conforming loans because
- the underwriting criteria actually accurate reflect risk of default and loss
- risk is shared with the loan servicer and for higher loan-to-value mortgages, private mortgage insurers.
I yap on about this because it's actually a pretty fascinating bit of public policy and financial engineering, with the result of extending massive, long-term, fixed-rate, affordable loans to regular-ass people (with a free borrower option to terminate the interest costs through prepayment, to boot!) AND create an asset class for investors that is almost as liquid and riskless as treasury bonds. The liquidity of that secondary market is what allows rates to be so low, compared to custom-underwritten products geither lent from a bank's own portfolio or securitized into private-label mortgage-backed securities. The biggest bit of controversy I know of is that it tends to fuel home price growth, benefiting propery owners over those who buy in later.
[1] https://www.machinesp.com/post/a-close-look-at-the-gse-cash-...
Funny that the US government had no problem believing the money was legit when it came time to pay taxes.
Brilliant, when you think about it.
Obtaining money through criminal activity is a crime, but that's a different crime that does not have anything to do with paying taxes.
It is a crime to knowingly accept money obtained through illicit activity, but guess what – the prosecutor for that crime is the government itself! You can't sue the government for unwillingness to prosecute.
No but selective enforcement could invalidate enforcement of the law, per equal protection clause of the 14th amendment.
https://www.irs.gov/publications/p17#en_US_2021_publink10001...
Has to be mentioned explicitly despite often, but not always, being illegal.
There’s quite a bit more case law on the matter, but tl;dr is that it’s a very fluid and ill-defined area of law. Personally I expect tax returns to be used as evidence more in the future, rather than less.
0: https://scholarlycommons.law.wlu.edu/cgi/viewcontent.cgi?art...
Apropos of nothing how do I do A Big Short in 2022?
From their FAQs, it's not clear to me whether your house is at risk if your crypto collateral gets liquidated, but you stay current on your mortgage. But your rate will go up if your collateral value goes down, so you might no longer be able to afford your loan. It sounds like if you get liquidated, they keep the liquidated USD as collateral [2], and if you defaulted, that would be credited to your loan balance (but this is not stated in their FAQs).
From an investor perspective, if I'm understanding this product, this should be pretty safe. You still have a lien on the home as collateral, along with the cryptocurrency. They mention an appraisal, so I'm guessing the loan-to-value ratios are still capped at 100% (they won't lend you more than the home is worth). The crypto liquidates at 35% of value, so that means in a default, they just need to recovery 65% of the home value to be made whole.
Still, might be less hassle to just liquidate the crypto yourself, buy straight cash, and realize the tax gains.
[1] https://help.milocredit.com/en/articles/5915495-can-the-inte...
[2] https://help.milocredit.com/en/articles/5915515-how-much-can...
Wrapped bitcoin (a bitcoin claim ticket trading on the ethereum network) has a collateral factor of 70%[2], meaning you can borrow against that much value, and the loan value just has to stay below that to prevent liquidation. For ETH, the figure is 82%.
You could borrow a stablecoin, on which the rates are ~1% (FEI) to ~4% (DAI) and convert those to dollars. (Or do the same with some other non-stablecoin crypto.)
Of course, then there'd be the question of how that affects your mortgage application process otherwise. What do you need to tell them about this loan? It's effectively like a pawn loan: fully collateralized and no ability to gain priority in payment in court. From the lender's perspective, it's like you already sold it, but with the option to buy back. (Not legal advice.)
[1] Defi lending: https://compound.finance/
[2] https://compound.finance/markets/WBTC2