By John San Filippo
In a July 19, 2022 press release, fintech and direct lender Milo announced that it reached the $10 million mark in funded mortgage loans. While that number may not seem impressive in the grand scheme of mortgage lending, this milestone is significant for one reason: All of the Miami, Fla.-based company’s mortgage loans are secured in part by pledged cryptocurrency assets, specifically either Bitcoin or Ethereum. Finopotamus spoke with Founder and Chief Executive Officer Josip Rupena to learn more about this first-to-market loan product.
According to Rupena, Milo’s mortgage product is designed for consumers who may be unable to qualify for a traditional mortgage, but have substantial crypto assets. The program requires a one-to-one pledge of crypto assets equal to the amount of the loan. These loans can be made with no money down.
Double the Collateral
“In this case, we have two forms of collateral – the pledge and the real estate,” explained Rupena. “With that, we're able to get comfortable with lending to an individual that perhaps couldn't qualify for a conventional loan, given the composition of their wealth and a number of other factors.”
Despite the non-traditional nature of the loan, Rupena said that Milo is still committed to thorough due diligence. “We're running know your customer (KYC), anti-money laundering (AML), making sure that there isn't anything that jumps out,” said Rupena. “We're doing an analysis on the digital asset as well – where it's been, making sure that there isn't anything that's been tainted with the digital asset.” That’s in addition to the steps common to all mortgages, such as appraisals and title searches, he added.
In terms of the pledged crypto assets, the program works much like a secured credit card program you might see in a credit union. For a million-dollar loan, for example, the borrower needs to pledge $1 million in any combination of Bitcoin and Ethereum. While the borrower retains ownership of the assets, they remain in Milo’s custody for the life of the loan. Because these are interest-only loans, the loan balance normally doesn’t decrease.
Rupena added that Milo takes into account that cryptocurrency prices fluctuate, meaning the value of the pledged assets may dip below the loan balance. The program provides a substantial cushion. “If the value of the collateral goes down by 65% or more, the borrower will be faced with a request to deposit more or reduce their loan balance,” said Rupena. He added that most Milo borrowers are market savvy and many have pledged additional funds as a proactive measure.
Rupena said he first conceived of Milo as a crypto lender during his time working with institutional investors and high-net-worth individuals at Morgan Stanley. When he started Milo, the company focused on helping international clients obtain real estate loans, noting that many of these people were buying real estate without any loans. “Everybody told me that it's because they don't want to borrow,” said Rupena, “but the reality was it's because they didn't even try most of the time and they could afford to basically buy these properties without a mortgage.”
As cryptocurrency became more mainstream in recent years, Milo shifted its focus to crypto-secured lending. “With everything that happened last year and seeing that the asset class as a whole was growing, we went back to crypto and saw that no one had really solved for that.” He said the consumer desire was still there and that his team had acquired sufficient expertise underwriting for a less conventional borrower, having funded over $100 million in transactions for international consumers.
Not for Everyone
“Our borrowers typically range from 25 to 55 years old,” said Rupena “These tend to be individuals that have owned Bitcoin for longer periods of time. Many of them bought Bitcoin when it was $10. Many of them bought it when it was a hundred, $500, a thousand dollars.” In short, Milo isn’t likely to lend to someone who has only recently invested in cryptocurrency.
“Our program is definitely for individuals that understand volatility,” he added. “They understand that there is a tremendous amount of value that is created if they hold for longer periods of time. We are seeing people that are very motivated by continuing to own crypto and are excited about the prospect that with our product, they can continue to do that, but at the same time, start to invest and diversify their wealth.”
Compliance Is Key
Fintechs have a reputation for either willfully or inadvertently ignoring regulatory and compliance issues. Such is not the case with Milo, Rupena assured Finopotamus. “Mortgage is heavily regulated,” said Rupena. “That means depending on where you're doing business and depending on a state-by-state basis, you may or may not have to be licensed. You definitely have to follow a lot of regulations and norms that are in place to protect consumers post-financial crisis.” He added that Milo is “fully licensed, fully insured, and fully audited.”
Looking for Partners
“Milo is a direct lender,” noted Rupena. “That means that we find consumers that could potentially use our solution and ultimately the capital that's deployed for that is ours.” He said the company has “great” investors and has raised more than $24 million, which has enabled the company to lend its own money. However, the fact that Milo’s business is highly scalable “allows other financial institutions that we work with and banks and other partners, to be able to give us more capacity, to go out and do more and more loans.”
Rupena noted that Milo is looking for partners that understand mortgage lending, as well as the opportunity that the company has created with crypto assets. “We’re looking for partners that value how we think about building a long-term, sustainable business that cannot only thrive in really, really great environments, but can also thrive through periods like the one that we're experiencing right now. We definitely are always looking for the right partners.”
“A product like this is really something that consumers can leverage to diversify the majority of their crypto wealth,” concluded Rupena. “Sitting on 95% of your wealth tied in Bitcoin where you have these selloffs is probably unhealthy for you. Fundamentally crypto is like real estate in that these are long-term assets and people should be thinking about them in the context of years and not in the context of months.”