FHFA Orders Fannie Mae Freddie Mac to Consider Crypto in Mortgages

The US Federal Housing Finance Agency (FHFA) has directed mortgage giants Fannie Mae and Freddie Mac to develop and submit proposals that would allow crypto assets to be included in mortgage underwriting without a mandatory USD conversion. The directive, signed on June 25 by William Pulte, the Director of the FHFA, came shortly after Pulte indicated that the housing finance regulator would explore the possibility of including crypto as part of the asset evaluation in mortgage qualifications.

Strategy’s Executive Chairman, Michael Saylor, offered to share the company’s BTC credit model, which was created to evaluate creditworthiness based on Bitcoin assets, with Pulte. This model addresses loan duration, collateral, Bitcoin price fluctuations, and risk projections. In response, Pulte said he would review Strategy’s model.

Under the new order, government-sponsored enterprises must consider only crypto assets that can be verified and held on US-regulated centralized exchanges operating within appropriate legal frameworks. The order also requires both enterprises to incorporate risk mitigation measures, including adjustments for market volatility and appropriate risk-based modifications to the portion of reserves held in crypto assets.

This directive marks a significant shift in the traditional mortgage underwriting process, which has historically relied on more conventional forms of wealth assessment. The move is aimed at modernizing the mortgage industry by acknowledging the growing importance of digital assets in the financial landscape. Previously, banks seeking to issue mortgages that qualify for purchase by Fannie Mae and Freddie Mac have not typically considered a borrower's cryptocurrency holdings until they were sold. This approach limited the ability of individuals with substantial crypto assets to leverage their holdings for home purchases. The new directive aims to change this by allowing lenders to factor in a borrower's cryptocurrency as part of their overall financial profile, potentially expanding access to homeownership for a broader range of individuals.

The consideration of cryptocurrency as a valid asset for mortgage eligibility is a strategic move that reflects the evolving nature of personal finance. As digital currencies gain wider acceptance and usage, it is becoming increasingly important for financial institutions to adapt their policies to accommodate these new forms of wealth. By doing so, Fannie Mae and Freddie Mac are positioning themselves to better serve a diverse range of borrowers, including those who have significant investments in cryptocurrency.

This development also underscores the growing influence of digital assets in the broader economy. Cryptocurrencies, once seen as a niche investment, are now being recognized as a legitimate form of wealth that can be used to secure major financial commitments, such as home loans. This recognition is likely to encourage more individuals to explore cryptocurrency as a viable investment option, further integrating digital assets into the mainstream financial system.

The directive from the federal government agency is a clear indication of the regulatory environment's willingness to embrace innovation in the financial sector. By encouraging Fannie Mae and Freddie Mac to consider cryptocurrency as a valid asset, the agency is paving the way for a more inclusive and forward-thinking approach to mortgage lending. This move is expected to have a positive impact on the housing market, as it opens up new opportunities for individuals with substantial crypto holdings to become homeowners.

In summary, the directive to consider cryptocurrency as a valid asset for home loan eligibility is a significant step forward in the integration of digital assets into the traditional financial system. It reflects the growing importance of cryptocurrency in personal finance and the need for financial institutions to adapt to this evolving landscape. By embracing this change, Fannie Mae and Freddie Mac are positioning themselves to better serve a diverse range of borrowers and contribute to a more inclusive housing market.