The FHFA has directed Fannie Mae and Freddie Mac to prepare proposals for consideration of cryptocurrency as an asset for reserves in their single-family risk assessments, without a conversion to dollars.
“Cryptocurrency is an emerging asset class that may offer an opportunity to build wealth outside of the stock and bond markets,” FHFA Director William J. Pulte wrote in a statement posted on social media.
Cryptocurrency has not typically been considered in the mortgage risk assessment process for loans delivered to Fannie Mae and Freddie Mac without converting the cryptocurrency into dollars.
“The FHFA has now determined that the consideration of additional borrower assets in the Enterprises’ single-family mortgage loan assessments may enable the Enterprises to assess the full spectrum of asset information available for reserves and to facilitate sustainable homeownership to creditworthy borrowers,” Pulte wrote.
He directed Fannie Mae and Freddie Mac to only include cryptocurrency assets that can be evidenced and stored on a U.S. regulated centralized exchange.
He added that each Enterprise must consider additional risk mitigants based on their own assessments, including adjustments for market volatility and ensuring risk-based adjustments to the share of reserves comprised of cryptocurrency.
Pulte said the Enterprises must consider additional risk mitigants based on their own assessment, including adjustments for market volatility and ensuring sufficient risk-based adjustments to the share of reserves comprised of cryptocurrency.
He said that any changes must be approved by the boards of directors of the Enterprises before they are submitted to the FHFA.
In a related development, Sen. Cynthia Lummis, R-Wy. has introduced the 21st Century Mortgage Act, which would require government-sponsored enterprises to consider digital assets when assessing single-family mortgage eligibility. She said her legislation would codify Pulte’s plan by prohibiting the forcing of crypto assets into dollars.
“We’re living in a digital age, and rather than punishing innovation, government agencies must evolve to meet the needs of a modern, forward-thinking generation,” Lummis said.
Democratic Senators were much more skeptical of the proposal, sending Pulte an eight-page letter that includes a series of questions about the plan.
“Expanding underwriting criteria to include the consideration of unconverted cryptocurrency assets could pose risks to the stability of the housing market and the financial system,” Senate Banking, Housing, and Urban Affairs ranking Democrat, Sen. Elizabeth Warren, D-Mass., and Sens. Jeff Merkley, D-Ore; Chris Van Hollen, D-Md; Mazie Horono, D-Hi; and Bernie Sanders, I-Vt., wrote in the letter.
They continued, “To the extent that historical volatility and liquidity persists even as the market matures, a borrower using crypto faces an increased risk that they may not be able to exit a crypto position and convert to cash at a price that would allow them to buffer against risk of mortgage default. Crypto is also subject to heightened risks of loss due to scams, cyber hacks, or physical theft, which could leave homeowners vulnerable to losing their crypto assets with little hope of recovery.”
They ask for detailed information about how the Enterprises will develop their proposals, the FHFA’s assessment of possible risks and benefits and how the agency plans to gather stakeholder feedback.
The Senators said that it is crucial that while Pulte said that he issued the order following significant studying, the letter includes no information about the process the Enterprises will use to develop their proposals, the FHFA’s assessment of possible risks and benefits or how it will gather stakeholder feedback.
They also pointed out that Pulte’s wife holds up to $2 million in crypto assets, raising allegations of a possible conflict of interest.
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