U.S. Housing Authorities Direct Fannie Mae Freddie Mac to Explore Cryptocurrency as Mortgage Reserve Capital

Federal housing authorities in the U.S. have taken a significant step towards integrating cryptocurrency into the mainstream financial system by directing Fannie Mae and Freddie Mac to explore the use of digital assets as mortgage reserve capital. This move, announced on June 25 by U.S. Federal Housing Finance Agency (FHFA) Director William J. Pulte, marks a notable shift in how borrower risk assessments are conducted for mortgage loans.

The directive from the FHFA instructs both Fannie Mae and Freddie Mac to develop proposals for incorporating cryptocurrency as a reserve asset in their risk models. This initiative aims to enhance the accuracy of borrower reserve evaluations by allowing digital assets to be considered without the need for conversion to U.S. dollars. Traditionally, crypto assets had to be liquidated before they could be considered in mortgage assessments, a practice that this new directive seeks to change.

Pulte highlighted the significance of this move, stating that it aligns with the vision to make the United States a global leader in cryptocurrency. He emphasized that this directive is part of a broader effort to recognize the potential of digital assets in providing alternative wealth pathways for borrowers. The FHFA believes that broader asset inclusivity could strengthen the housing finance system by offering more diverse options for borrowers to demonstrate their financial stability.

The directive specifies that any cryptocurrency considered as a reserve asset must be verifiable and held on U.S.-regulated centralized exchanges. The FHFA also mandates that the assessment must address volatility and apply risk-based discounts, ensuring that the integration of digital assets is done responsibly. Each enterprise’s board must approve the proposals before they can be implemented, adding a layer of oversight to the process.

While this move is seen as a significant step towards the mainstream adoption of cryptocurrency, it is not without its critics. Concerns about market instability and the legal grey area surrounding digital currencies have been raised. However, proponents of cryptocurrency view this directive as a pivotal institutional endorsement, affirming the financial relevance of digital assets and supporting their responsible adoption through regulatory oversight and prudential risk measures.

This shift in policy could serve as a model for other federal agencies reassessing the role of digital assets in the economy. By recognizing cryptocurrency as a viable asset in mortgage loan risk assessments, the FHFA is paving the way for broader acceptance and integration of digital assets into the financial system. This move not only enhances the accuracy of borrower reserve evaluations but also opens up new avenues for sustainable homeownership, potentially benefiting a wider range of borrowers.