Bipartisan Senate Warns of Systemic Risks From Crypto Mortgage Collateral Expansion

A growing number of U.S. senators have voiced bipartisan concerns over a federal proposal to expand mortgage underwriting by allowing crypto assets as collateral, warning of potential systemic risks to financial stability and consumer protections. The initiative, which aims to integrate blockchain-based assets into traditional lending frameworks, has drawn sharp criticism from lawmakers across party lines, who argue the move could amplify market volatility, undermine transparency, and create regulatory gaps [1].

The debate centers on a draft bill introduced by the Senate Banking Committee, which seeks to address crypto market oversight by building on recent House legislation [3]. Critics, however, contend that linking mortgages to highly volatile crypto assets could destabilize the housing market and leave borrowers exposed to sudden losses. “This is a reckless experiment with the livelihoods of American homeowners,” one senator stated during a closed-door briefing, citing the lack of safeguards against abrupt asset devaluation or fraud [1].

Lawmakers have also raised alarms about potential weaknesses in Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols, emphasizing that opaque crypto transactions could facilitate illicit activity or tax evasion [1]. The fragmented legislative landscape adds urgency to the issue, as the House and Senate remain divided on how to address crypto’s regulatory gaps. While the House has focused on consumer protections, the Senate’s draft bill prioritizes market oversight, leaving banks and mortgage lenders in a regulatory gray zone [3].

Industry stakeholders are similarly split. Fintech firms argue that crypto integration could democratize access to credit, while traditional financial institutions warn of reputational and operational risks. Analysts note that the outcome of this debate could reshape mortgage finance, either cementing crypto’s role in mainstream finance or reinforcing its status as a speculative niche [1].

The 2025 legislative session will be pivotal. Lawmakers have proposed a bipartisan working group to evaluate the risks and benefits of crypto-driven mortgage expansion, though no timeline has been set. For now, the initiative remains a focal point in the broader struggle to balance innovation with stability in an increasingly digital economy [1].

Source: [1] [US Senators Raise Red Flags Over Crypto-Driven Mortgage Expansion Plan] [https://news.bitcoin.com/us-sens...]

[3] [Capital Markets : Law360 : Legal News & Analysis] [https://www.law360.com/capitalmarkets...]