U.S. homebuyers aren't interested in cryptocurrency payments for their mortgages like bitcoin.
United Wholesale Mortgage made its public debut in January through a special purpose acquisition merger (SPAC). In August, the company began piloting cryptocurrency payments, a first in the industry. CNBC now has Mat Ishbia, CEO of United Wholesale Mortgage, telling CNBC that the company decided not to test it.
"Due to the current combination incumbent costs and regulatory uncertainty within the crypto space," stated Ishbia.
To test the process, UWM, a Michigan-based mortgage company, tried three types of crypto bitcoin, dogecoin, and ether with multiple borrowers. 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 said 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.
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 "HODL" (hold onto your virtual coins) and hope they will rise in value. It's a good bet that bitcoin has risen more than tenfold in the past year than it did a year ago.
Janet Yellen, Treasury Secretary, and Gary Gensler, SEC chair, said that they do not intend to impose any restrictions on cryptocurrency trading. The proposed infrastructure bill does contain new reporting requirements for "brokers" in cryptocurrency trading. Several prominent players in this space, such as Coinbase and Andreessen Horowitz have asked regulators to clarify.
UWM is the second-largest mortgage lender in the country after Quicken. The Detroit-based lending company owned by Rocket Companies operates exclusively 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 and makes it a taxable event to make a crypto mortgage payment.
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 thing that a lot 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," Shehan Chandrasekera, a CPA, head of tax strategy at CoinTracker.io. This digital currency tax software company helps clients track their crypto across virtual addresses and manage tax obligations.
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 is becoming more mainstream and can be turned on anytime. We are able to do it right now.