United Wholesale Mortgage CEO Mat Ishbia made headlines with the announcement his company—one of the largest lenders in the U.S.—plans to start accepting Bitcoin as payment for mortgages later this year. “That’s something that we’ve been working on,” Ishbia said, “and we’re excited that hopefully, in Q3, we can actually execute on that before anyone in the country because we are a leader in technology and innovation.”
Ishbia’s announcement puts his company on the front line of the debate over the potential dangers of novel techno-currencies like Bitcoin.
Bitcoin is among the class of financial products known as “cryptocurrencies,” digital currency systems developed and traded using a variety of computational and security networks. The process of developing and obtaining cryptocurrencies can seem incomprehensible to non-experts like a typical homebuyer. But the raw numbers are readily understandable enough: The crypto market now comprises well over $2 trillion worldwide.
Bitcoin, being the best-known of all cryptocurrencies, makes up the largest share of the market, which might explain Ishbia’s willingness to start accepting it as a form of payment. Still, many experts have warned cryptocurrency itself is inherently unstable and should be used as a medium of exchange only with significant caution.
Analysts say it’s impossible to predict the future of cryptocurrencies or their impact on traditional markets. Bank of England Governor Andrew Bailey has declared himself “skeptical about crypto-assets, frankly, because they’re dangerous and there’s a huge enthusiasm out there.”
University of Queensland economist John Quiggin compared “the crypto market to “the dot com bubble of the 90s,” telling CNNMoney: “While you have just a small number of people speculating in stuff — if they lose their money, they lose their money. Once you get embedded in the financial system there are bigger problems.”
Like many financial sectors, the mortgage industry has stayed away from accepting crypto as a form of payment, making Ishbia’s announcement of UWM’s Bitcoin plans all the more notable. Indeed, the mortgage industry has at times reportedly penalized borrowers for simply being associated with Bitcoin in any way. At least one consumer has claimed to have been rejected for a loan because he made a significant chunk of money in trading the cryptocurrency.
Asked about UWM’s decision to enter the crypto market, several experts told The Mortgage Note it raises red flags.
Willem Buiter, a visiting professor of public affairs at Columbia University and former Global Chief Economist at Citigroup said he knew of “no other major institutions that have agreed to be paid in bitcoin.”
“UWM and other enterprises agreeing to accept bitcoin will only make material additional income if there is a significant number of potential clients that will only do business with them if they can pay with bitcoin,” he said. “I consider that unlikely.”
“If a potential mortgage borrower is technologically sophisticated enough to be able to pay with bitcoin,” he continued, “he or she is highly likely to be able to pay using conventional electronic payment methods.”
Buiter speculated whether UWM, upon receiving a bitcoin payment, will “immediately convert the bitcoin into U.S. dollars, or does it stay invested in bitcoin – an extremely volatile, high-risk cryptocurrency.”
David Sacco of the University of New Haven’s Pompea College of Business finance department told the Mortgage Note that “given the volatility of bitcoin in terms of its dollar value, any businesses that start accepting it are actually adding problems from an accounting and business perspective.”
“They need to track bitcoin and convert it as they receive it in order to minimize earnings and revenue volatility unless they have some expertise in managing bitcoin trading risk,” he said.
“Having said that,” he added, “I think most companies that announce this are looking for the publicity and marketing benefit of the announcement. I have been asked to comment on a dozen stories like this in the past eight or nine months, so it does generate some level of publicity for these companies. I suspect that in practice there are very few transactions actually being processed using bitcoin.”