U.S. homebuyers aren’t interested in paying their mortgages with cryptocurrencies such as Bitcoin.
United Wholesale Mortgage made its public appearance in January through a special purpose acquisition merger (SPAC). started piloting cryptocurrency payments in August, a first in the industry. CNBC’s CEO Mat Ishbia says that the company decided not to test it after it was tested.
“Due to the current combination incumbent costs and regulatory uncertainty within the crypto space, it’s clear that we won’t be able to expand beyond a pilot at the moment,” stated Ishbia.
To test the different cryptos, UWM, a Michigan-based mortgage company, tried them all – ether and dogecoin. They also tested multiple borrowers to see how it would work. UWM accepted its first ever cryptocurrency mortgage payment in September, and five more in October.
However, there wasn’t enough demand. CNBC’s Ishbia says that while borrowers liked it and thought it was cool, the fact that they could transact in crypto wasn’t a driving factor.
He stated that there wasn’t enough demand to push the envelope too far at the end.
This is the latest evidence that cryptocurrency users see it more as an investment than a way to replace money. Although cryptocurrency prices have increased over the past year, it is still rarely used to purchase or sell physical goods. Most investors prefer to hold onto their virtual coins and hope they will rise in value. That’s been a great bet: bitcoin is now worth more than five times what it was last year. Meanwhile, ether has increased more than ten times.
SEC chair Gary Gensler and Janet Yellen, Treasury Secretary, said that they do not intend to impose any restrictions on cryptocurrency trading. The proposed infrastructure bill includes new reporting requirements for cryptocurrency “brokers”. Several prominent players in this space, such as Coinbase and Andreessen Horowitz have asked regulators to provide more clarity.
UWM is the nation’s second largest mortgage lender, after Quicken. The Detroit-based lending giant Rocket Companies operates solely through wholesale channels. This means that UWM employs a team of brokers to connect clients with home loans.
The company does not have cryptocurrencies in its balance sheet. UWM converted the tokens received into fiat currency at point of transaction.
The six homeowners who participated in the experiment may be subject to a tax bill due to the crypto payments they made.
The IRS considers digital currencies such as Bitcoin property. Therefore, crypto mortgage payments are taxable events.
There is always a difference in the price you paid for cryptocurrency (which is called the cost basis) and its market value at the moment you use it. This difference could trigger income capital gains tax, as well as other taxes such sales tax.
“The one thing most people don’t know is that when you use cryptocurrency to purchase a cup or coffee, or any other consumer item, it triggers a capital gain event,” said Shehan Chandrasekera. Shehan Chandrasekera is a CPA and head tax strategy at CoinTracker.io. This digital currency tax software company helps clients track and manage their crypto across virtual wallet addresses.
If enough borrowers take an interest, UWM may be able to pull the project off the shelves in the future.
CNBC’s Ishbia says that crypto’s mainstream status means that it’s possible to make it happen any day. It’s possible now because we know how.