Democrat Lawmakers Probe FHFA Over Crypto Mortgage Proposal Amid Stability Concerns

A group of five U.S. Senate Democrats has initiated an inquiry into the Federal Housing Finance Agency (FHFA), targeting Director William Pulte over his directive to explore incorporating cryptocurrencies into mortgage approval processes. The lawmakers, led by Senator Jeff Merkley and including Warren, Van Hollen, Hirono, and Sanders, sent a letter to Pulte on August 2, demanding clarity on the risks and benefits of the proposal. The letter, which requests a response by August 7, argues that allowing crypto assets—without conversion to U.S. dollars—into mortgage eligibility assessments could expose borrowers to heightened financial instability [1].

The FHFA’s recent order instructs Fannie Mae and Freddie Mac to develop a framework for evaluating crypto holdings in risk assessments for single-family mortgages. This move has sparked concerns among lawmakers, who highlight crypto’s historical volatility, liquidity challenges, and susceptibility to fraud as key risks. They warn that borrowers relying on crypto could face difficulties converting assets to cash during emergencies, increasing the likelihood of mortgage defaults. “Crypto is subject to heightened risks of loss due to scams, cyber hacks, or physical theft,” the senators stated, emphasizing the lack of consumer protections in digital assets [1].

The inquiry also scrutinizes potential conflicts of interest tied to the Trump family’s involvement in crypto ventures, including a trading platform, stablecoin, and mining operations. Pulte’s spouse, who holds up to $2 million in crypto, has further raised questions about impartiality. Lawmakers noted that Pulte, as chair of both Fannie Mae and Freddie Mac’s boards, could face conflicts in overseeing the agencies’ proposals [1].

The probe reflects broader skepticism about the FHFA’s ability to manage crypto-related risks amid a housing market still recovering from the 2008 crisis. The senators pointed to the 2023 banking collapse of three institutions—partly attributed to crypto-related run risks—as evidence of inadequate oversight. They also cited Fannie Mae’s 2021 internal assessment, which deemed crypto and stablecoins “least appealing” for mainstream financial applications [1].

The lawmakers’ letter criticizes the FHFA’s directive as vague, lacking details on how Fannie Mae and Freddie Mac will draft proposals or evaluate risks. They also question Pulte’s authority, given his dual role as FHFA director and board chair for the entities under review. The request for transparency includes demands for communications on crypto, approval processes, and steps to mitigate conflicts of interest [1].

The outcome of the investigation could influence federal regulators’ approach to integrating digital assets into traditional finance. While proponents argue blockchain technology could enhance transparency, critics stress the FHFA’s mandate to prioritize stability and accessibility. The inquiry underscores a partisan divide: some lawmakers advocate for cautious innovation, while others push for stricter safeguards. The Biden administration’s recent emphasis on curbing crypto-related money laundering further complicates the landscape [1].

For the FHFA, the scrutiny highlights the tension between fostering innovation and upholding consumer protection. If the agency proceeds with its exploration, it would set a precedent for federal engagement with crypto in core economic sectors. Conversely, halting the initiative could reinforce regulatory caution. Either way, the probe signals growing scrutiny of crypto’s role in finance and the need for robust safeguards.

Source: [1] [Cointelegraph] [https://cointelegraph.com/news/democrats-probe-housing-regulator-considering-crypto-mortgages]