Why Haven’t Loan Officers Been Told These Facts? Loans Secured By Borrower Assets
High-net-worth individuals typically approach financing major purchases differently than average buyers. Rather than liquidating assets to obtain cash for a purchase, these individuals often choose to borrow against their existing holdings.
Consider Beth, who has approximately $5 million in a stock trading account. She wants to purchase a $2 million home that she hopes to sell at a profit within two years. If Beth sells $2 million in stocks that originally cost her less than $500,000, she will owe the IRS $300,000 and the state of California $200,000 in capital gains taxes. For a short-term purchase, Beth may have better options than taking out a $1.5 million mortgage with all the associated financing charges and costs, or facing a $1.5 million tax exposure. It is also true that this type of buyer can find it difficult to qualify for prime financing. One year, the person makes a million, the next year, the tax returns show they lost $700,000.
Instead, Beth requested a 2 million loan from her investment company, against her stock holdings. Beth keeps the stock, and the loan accrues interest without any payments due or maturity date. Beth will potentially pay less in interest than she would in taxes by going this way. Beth can trade the stocks securing the loan so long as her account value maintains the required margin (LTV).
Initial margins are fixed at 50% of the account value. Once the margin loan is drawn, the borrower must maintain a 35% margin (maintenance margins vary). For example, assume Beth borrows the 2 million on margin. She has 5 million on account or 60% margin, well under the required limit. Six months later, the portfolio value drops to 3 million. The maintenance requirement is lower than the initial limit. However, Beth’s 2 million loan puts Beth’s account perilously close to a maintenance call. She is now at a 67% margin. The next month, the portfolio falls $200,000 to 2.8 million. Beth gets a margin call. Beth must either add cash or securities to her portfolio to return to the 35% margin, or the broker will sell her stocks to raise enough money to pay down her loan to 65% of the portfolio’s value. Forced selling under a margin call can do great injury to investment strategies.
It goes without saying that borrowers utilizing more complex financing should be aware of the risks. But what about more conservative investors? Margin loans typically carry higher interest rates than agency mortgage products. In other words, it might make sense for borrowers to borrow lesser amounts on margin in tandem with traditional mortgage financing. The longer the loan duration, the more favorable traditional mortgage financing becomes.
Investors who are lightly leveraged have little worry about the dreaded margin call. For instance, Frank owns $ 2 million in Bitcoin and requires a $300,000 down payment. He can easily withstand a market sell-off because he is well above the minimum margin requirement. Even if Bitcoin falls to half its current value, Frank is not close to a margin call.
An advantage of margin-type loans over traditional loans is that they do not require debt service. Generally, investors and lenders should not view these loans as traditional debt, so they should not affect the applicant’s debt-to-income ratio (DTI).
Crypto Solutions
How do current credit policies for crypto loans differ from any other liquid asset? When used as collateral for a loan from a trading platform such as Coinbase, it is no different from a margin loan from any investment bank like Fidelity.
Coinbase and other platforms have been offering loans secured by tokens since last year. There is no debt service on a crypto-secured loan. These credit products are basically margin loans and carry the risk of a call.
There are a considerable number of borrowers in situations like Beth’s and Frank’s. The significant appreciation of both cryptocurrencies and the stock market has led to a large number of individuals holding substantial equity, along with attendant tax liabilities.
Marketing
Think of a multi-pronged effort. This involves consumer direct and referral sources. Financial Planners, Wealth Managers, Asset Managers, CPAs, Tax and Estate Attorneys, etc. Consumer direct includes the vacation home, subprime mortgage, and home-flipping spaces.
Notify the Lenders Underwriting Team About the Deal Parameters
Ensure you cite the credit guide, chapter, and verse on the credit submission. See example citations below.
FHA 4000.1 II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. 4. Title II Insured Housing Programs Forward Mortgages
Underwriting the Borrower Using the TOTAL Mortgage Scorecard (TOTAL) Loans secured against deposited funds, where repayment may be obtained through extinguishing the asset and these funds are not included in calculating the Borrower’s assets, do not require consideration of repayment for qualifying purposes.
FNMA Seller Guide B3-4.3-15, Borrowed Funds Secured by an Asset (10/30/2009)
When qualifying the borrower, the lender must consider monthly payments for secured loans as a debt. If a secured loan does not require monthly payments, the lender must calculate an equivalent amount and consider that amount as a recurring debt. When loans are secured by the borrower’s financial assets, monthly payments for the loan do not have to be considered as long-term debt.
BEHIND THE SCENES: AI, Crypto, and the Evolving Mortgage Economy
Better.com, Coinbase, Hugh Frater
Meet Tinman®, Betsy,™ and Frater: The New Top-Producing Team
Token-Backed, Conforming Mortgage
What is a token-backed conforming mortgage? For starters, to label the primary financing as “token-backed” is a bit of a misnomer. FNMA is not buying token-backed mortgages (yet). Alternatively, if interpreting “token-backed” as referring to a solution structure, the description works. In other words, the mortgage solution includes secondary financing that is token-backed or secured.
If you are not working at Better.com, you probably do not have the same crypto solution available. However, originators must dispel the notion that crypto financing is limited to Better.com (Better). Any mortgage originator can market to homebuyers with substantial cryptocurrency holdings but who lack sufficient cash for a down payment. See this week’s LOSJ, “Why Haven’t Loan Officers Been Told These Facts? Loans Secured By Borrower Assets”
It is true, though, that Better.com is offering something novel, and it is indeed uncommon, innovative, and exciting. The solution involves two loans. The primary is a standard agency product. The true “token-backed” mortgage is the secondary financing that Better provides for the down payment. The secondary financing from Better.com is similar to a down payment assistance program or to other types of simultaneous-closing (piggyback) mortgages. Like any other simultaneous closing, the junior lien holder takes a subordinate second mortgage. However, Better will maintain a superior security posture by employing a financing strategy known as blanket financing, which is a prevalent form of credit facility in the commercial financing sector. Although Better is susceptible to the inherent security risks associated with subordinate financing, it effectively mitigates these risks by also collateralizing the borrower’s cryptocurrency holdings.
For example, Pat has three Bitcoins, currently valued at approximately $200,000 USD. Currently, Better.com limits the loan program to “gold-standard tokens” such as Bitcoin and the stablecoin, US Dollar Coin (USDC, a Coinbase offering). The maximum loan amount for down payment funds is a set percentage of the pledged crypto. 40% for Bitcoin and 80% for USDC. The second mortgage terms are identical to the first mortgage (e.g., same duration and interest rate).
Crypto-Backed Mortgages: Fungible or Non-Fungible Tokens
Not all tokens are the same. Fungibility in this context refers to a tokens interchanebleness with similar tokens, much like the way currency works. Non-fungible tokens are not interchangeable in the way that fungible tokens are. How these tokens are stored and securitized is outside the scope of this article.
Bitcoin is probably the most well-recognized fungible token with a market value of over one trillion U.S. Dollars (USD). There are about 20 million Bitcoins in circulation. Non-fungible tokens can get a little strange. For example, consider the “Bored Ape Yacht Club,” a non-fungible token, which grants its owner unique ape images, often used as online profile pics. Would you expect lenders to accept a Bored Ape Yacht Club token as security anytime soon? Who knows. This world and everything in it gets weirder by the day.
Why Doesn’t the Buyer Liquidate the Crypto and Use Cash for the Down Payment?
This Better product is attractive to crypto investors who are either bullish on crypto’s upside or who stand to pay significant capital gains taxes on crypto profits (See this week’s LOSJ, “Why Haven’t Loan Officers Been Told These Facts? Loans Secured By Borrower Assets”)
For example, if you had invested $20,000 in Bitcoin back in 2015 when it was priced at $200, that investment would now be worth approximately $13,350,000 (which is half of its high mark last year!). If you decided to take $500,000 in profits for a down payment, your federal capital gains tax could amount to nearly $100,000. But let’s be real: if you made over $13 million from a $20,000 investment, you probably wouldn’t be too concerned about a $100,000 federal tax bill or an $800,000 mortgage. Crypto multi-millionaires are unlikely to be the target market.
However, what about the more common scenarios? Consider the investors who have made $100,000, $400,000, or even a million from their crypto investments. These individuals still require mortgages and also want to avoid unnecessary taxes. That is the broader prospect market that Better is targeting. The good news, you don’t need to work at Better.com to market crypto solutions to these individuals. See this week’s LOSJ, “Why Haven’t Loan Officers Been Told These Facts? Loans Secured By Borrower Assets”
The Better.com Offer
What makes the Better offering different is that it uses a crypto loan to manage it subordiante mortgage risk. But this blanket financing may be less than ideal for some borrowers. Better takes 250% crypto to credit hedge.
For example, if the borrower wants a $200,000 down payment, they must pledge at least $500,000 of crypto to Better. That is steep. Furthermore, Better takes a second mortgage position on the subject property, thereby preventing the borrower from further leveraging the property until the Better lien is released. That is a lot of security for Better. The borrower purchases a $1 million home, obtains an FNMA first of $800,000, gets a Better $200,000 second, but pledges $1,500,000 in equity ($500,000 in crypto and $1,000,000 in real estate)! As a lender, you must love the ingenuity and security.
The advantage to the borrower of the Better solution, at least on the surface, the crypto-secured loan is not callable. So if the price of Bitcoin tanks, Better won’t demand additional security or liquidate the pledged security. However, Better controls the pledged crypto. This could be bad for the borrower. If Bitcoin is at $66,000 today and this time next year falls to $25,000, most investors would like the option to sell before the investment ends in the gutter. Unless the borrower can pay off the Better second, this could be exactly what happens.
Under the Hood
How is Better.com able to offer a 30-year portfolio loan at the same price as an agency product? Likely, the interest rate for the primary mortgage will be higher than the standard agency rates. Better.com plans to securitize these down payment loans by issuing a stablecoin, potentially called a “Home Token.” Perhaps, Hotokens for short—what will they think of next?
This approach is more innovative than traditional securitizations, which involve layers of intermediaries that charge various fees. These fees often lead to lower returns for investors and higher costs for borrowers. For example, consider the FHA 30-year mortgage. The rate for consumers is around 6.00% with a 1-point origination fee. On the same day, investors in GNMA mortgage-backed securities (MBS) can achieve returns of under 4.00%. So, where does the 200-basis-point difference go? It first goes to you! Loan originators, then to servicers, then to the MBS sponsor, and finally to the middleman who sells it to investors. Don’t forget the GNMA insurance.
Enter DeFI
Token-based trade or decentralized finance is commonly known as DeFi. Better.com will enter the DeFi ecosystem through a vendor that will tokenize down payment loans. Meaning that on the investor side, Better offers a securitized token that may also generate yield. Tokens with yield are a hot topic in finance and regulation today. It remains unknown whether these tokens will be backed solely by the second mortgages securing the financed homes, by the pledged cryptocurrency, or by a combination of both.
What is different about the Better.com secondary financing?
Generally, when borrowing on margin, the borrower risks a margin call. If the collateral loses value below a specified margin (think LTV), the borrower must add more security (“top off”) to the account or risk liquidation of the account or a portion of it. In other words, if the market crashes, which is usually the worst time to sell, that is exactly when they sell the borrowers’ securities held for collateral. The Better second mortgage offering is not subject to a margin call.
FHFA Directive Bill Pulte, FHFA Director, June 25, 2025, X Posting
“After significant studying, and in keeping with President Trump’s vision to make the United States the crypto capital of the world, today I ordered the Great Fannie Mae and Freddie Mac to prepare their businesses to count cryptocurrency as an asset for a mortgage.”
Better.com Adds High-Powered Human Capital to the Team
NEW YORK–(BUSINESS WIRE)– Better Home & Finance Holding Company (NASDAQ: BETR) (“Better,” the “Company,” “we” or “our”), the leading AI-powered homeownership company, today announced that Hugh Frater, a founding partner and former managing director of BlackRock and former CEO of Fannie Mae, has been appointed to its Board of Directors, effective March 23, 2026. Frater brings decades of experience across capital markets, housing finance, and corporate leadership to help guide Better’s long-term strategy as it scales the Tinman AI Platform.
“Hugh has helped shape the modern housing finance system from the ground up. He’s exactly the kind of leader you want in the room when you’re rebuilding housing finance,” said Vishal Garg, CEO and Founder of Better. “From helping build BlackRock as a founding partner to growing Berkadia into a leading agency lending an investment sales platform to leading Fannie Mae through one of the most complex periods in mortgage history, he brings a level of perspective that very few people have. As we use AI to make the mortgage experience, faster, easier, and cheaper for Americans through Better’s AI-native Tinman Platform, Hugh’s experience will be critical at the board level in guiding our long-term strategy.”
Frater was a founding partner of BlackRock, where he helped build the global leader in fixed income and mortgage-backed securities into the world’s largest asset management company. His early work played a key role in shaping the modern mortgage capital markets ecosystem, connecting institutional investors to US housing finance.
He later served as Chief Executive Officer and Board Member at the Federal National Mortgage Association (Fannie Mae) from 2018 to 2022, where he guided the organization through one of the most volatile periods in the US mortgage market. Prior to his role at Fannie Mae, he served as CEO and Chairman of Berkadia Commercial Mortgage LLC, a leading commercial and agency real estate lending and investment sales platform.
“The mortgage banking industry has long been ready for innovation, modern consumers are demanding it and Vishal and Better have consistently pursued that vision. Better’s combination of technology, data and automation has proven to make housing finance more efficient and affordable over the last decade,” said Frater. “To tackle the housing affordability crisis, we need a transparent system that connects capital with a variety of housing needs and does so at the best practical cost to consumers. Tinman provides a thoughtful approach to delivering more housing, and I’m excited to support the Board as their team continues to scale and deploy the platform to lenders, banks, and fintechs across the country.”
Frater currently serves on the boards of directors of Hippo Holdings Inc. (NYSE: HIPO), Vessel Technologies, Findigs, and the Bipartisan Policy Center. He has spent his career at the intersection of global capital, housing finance, and corporate leadership.
“We’re delighted to welcome Hugh to Better’s Board of Directors,” shared Harit Talwar, Chairman of the Better Board. “Better is well positioned to redesign the traditional mortgage process and deliver a superior customer experience as well as attractive returns to shareholders with its AI-native platform, Tinman. Hugh’s experience, insights and judgement will be invaluable along the Company’s journey.”
Frater’s appointment reflects Better’s continued focus on strengthening its board to guide the Company’s next phase of growth as an AI platform bringing the entire industry forward. Better reported its Q4 2025 earnings earlier this month, signifying rapid growth and technological progress:
- In Q4 2025, Funded Loan Volume grew 56% year over year versus industry growth of 4%, while revenue grew 77% year over year
- Tinman AI Platform Funded Loan Volume reached $646 million in Q4 2025, up 34% quarter-over-quarter, representing more than 40% of Funded Loan Volume, and exceeding prior guidance of $600 million
- Tinman AI Platform partnerships launched in Q4 2025 grew approximately 100% month-over-month throughout Q4 in initial rollout to less than 1% of partners’ combined customer base of over 150 million customers
- In Q4 2025, Better launched Credit Karma Home Loans powered by Better in partnership with Intuit Credit Karma, one of the largest consumer finance platforms in the United States with more than 140 million members using the Tinman AI platform
About Better Home & Finance Holding Company
Better Home & Finance Holding Company (NASDAQ: BETR) is the first AI-native mortgage and home equity finance platform, and first fintech to fund more than $110 billion in loan volume. Since 2016, Better has leveraged its industry-leading AI platform, Tinman®, to achieve a singular mission of making homeownership cheaper, faster, and easier for all Americans. Tinman® allows customers to see their rate options in seconds, get pre-approved in minutes, lock in rates, and close their loan in as little as three weeks. In addition, Betsy™, leveraging Tinman MCP, the first AI loan agent built exclusively for the mortgage industry, is revolutionizing the homebuying journey by delivering timely application status updates to consumers, answering questions, and moving their loan application along 24/7/365. Better’s mortgage offerings include GSE-conforming mortgage loans, FHA and VA loans, and jumbo and Non-QM mortgage and home equity loans. Better serves customers in all 50 US states and the United Kingdom.
See the Better.com token-backed offering terms here: Better.com
FNMA B3-4.1-04, Virtual Currency (05/04/2022)
FNMA B3-4.3-15, Borrowed Funds Secured by an Asset (10/30/2009)
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