FHFA Recognizes Cryptocurrencies as Collateral for Home Loans

The Federal Housing Finance Agency (FHFA), the regulator of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, has issued a directive recognizing cryptocurrencies as assets in their risk assessments for single-family home loans. This decision, announced by FHFA Director William J. Pulte, marks a significant step towards the mainstream acceptance of digital assets under the administration of former US President Donald Trump. The directive allows cryptocurrencies to be considered as reserve assets for home-loan borrowers, eliminating the previous requirement to convert these assets into US dollars.

The FHFA has overseen Fannie Mae and Freddie Mac since 2008, when both institutions were placed under government conservatorship following the financial crisis. The decision to include cryptocurrencies in mortgage risk assessments aligns with Trump’s goal to position the United States as the global crypto capital. This move reflects the growing mainstream acceptance of digital assets in the country.

Fannie Mae and Freddie Mac play a pivotal role in the US housing market by providing liquidity and stability. They purchase mortgages from lenders, enabling them to issue more loans. The recognition of cryptocurrencies as collateral in the mortgage process is part of a broader trend of digital assets gaining acceptance as mainstream collateral. For instance, JPMorgan is planning to allow select wealth management clients to use crypto-based products, such as Bitcoin (BTC) exchange-traded funds (ETFs), as collateral for financing. Additionally, Circle’s USDC stablecoin is set to become eligible collateral for futures trading starting next year, through a joint initiative by Coinbase Derivatives and a Virginia-based clearinghouse.

The decision to recognize cryptocurrencies as collateral in the mortgage process reflects the growing mainstream acceptance of digital assets. Though niche, there is already a market for crypto-backed mortgage loans, which allow crypto holders to use Bitcoin and Ether (ETH) to finance real estate transactions. Mauricio Di Bartolomeo, co-founder of Bitcoin lending platform Ledn, noted that many Bitcoin holders have used their digital assets as collateral to purchase real estate without selling any of their holdings.

The FHFA’s directive specifies that for cryptocurrencies to be considered by Fannie and Freddie in loans, they must be stored on a “U.S.-regulated centralized exchange subject to all applicable laws.” This requirement ensures that the digital assets used in mortgage applications are secure and compliant with regulatory standards. The move by the FHFA is part of a broader exploration of how digital asset holdings, such as Bitcoin, can be integrated into mortgage qualification processes. This initiative aims to provide more flexible options for mortgage seekers, potentially helping them qualify for home loans amidst a challenging housing market.