US Lawmakers Propose Including Crypto Holdings in Mortgage Underwriting

US lawmakers have introduced H.R. 4374, a bill that would require federal mortgage regulators and lenders to consider borrowers’ crypto holdings in brokerage accounts during the mortgage underwriting process. Filed on July 14, the bill directs agencies to update programs, standards, and systems to reflect crypto balances held on regulated exchanges when assessing mortgage creditworthiness. It has been referred to the House Financial Services Committee and the Committee on Veterans’ Affairs for review.

This legislative move aims to recognize digital assets as a viable component of a borrower's financial profile, potentially allowing individuals to retain their crypto holdings without liquidating them to qualify for a mortgage. The bill, if passed, would mark a significant shift in how lenders assess a borrower's eligibility for a mortgage, integrating cryptocurrency into traditional financial evaluations.

The proposed legislation comes at a time when the US housing sector is exploring ways to incorporate cryptocurrency into mortgage underwriting. The Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac to consider the inclusion of digital assets in their underwriting guidelines. This directive reflects a growing recognition of the role that cryptocurrencies play in the financial lives of many Americans and the need for regulatory frameworks that can accommodate these new assets.

The bill is part of a broader effort by Congress to establish federal regulations for the cryptocurrency industry. The Guiding and Establishing National Innovation for U.S. Stablecoins, or GENIUS Act, is one of the first pieces of federal crypto-regulation being considered. This legislation aims to provide a comprehensive framework for the regulation of stablecoins, which are a type of cryptocurrency designed to maintain a stable value relative to a reference asset, such as the US dollar.

The inclusion of cryptocurrency holdings in mortgage underwriting could have significant implications for borrowers. If approved, borrowers would be able to retain their digital assets instead of converting them to fiat currency to qualify for a mortgage. This would allow individuals to maintain their investment in cryptocurrencies while still accessing traditional financial services. However, the bill also raises questions about the potential risks associated with including volatile assets in mortgage underwriting. Lenders will need to develop robust risk management strategies to mitigate the potential impact of fluctuations in cryptocurrency values on mortgage portfolios.

The proposed legislation is part of a broader trend of state and federal lawmakers addressing the impact of cryptocurrency mining and usage in their respective jurisdictions. Many state legislative bodies have passed or are considering legislation to regulate cryptocurrency mining and its environmental impact. The federal government is also exploring ways to integrate digital assets into existing financial regulations, reflecting a growing recognition of the importance of cryptocurrencies in the modern economy.

The bill's introduction comes as the US housing sector continues to grapple with the challenges posed by the COVID-19 pandemic. The pandemic has highlighted the need for innovative solutions to address housing affordability and accessibility, and the inclusion of cryptocurrency in mortgage underwriting could be one such solution. By recognizing digital assets as a viable component of a borrower's financial profile, lenders could expand access to mortgage financing for individuals who may not have traditionally qualified for a loan.

The proposed legislation also reflects a broader shift in the financial industry towards greater integration of digital assets. Many financial institutions are exploring ways to incorporate cryptocurrencies into their products and services, and the inclusion of digital assets in mortgage underwriting could be a significant step in this direction. However, the bill also raises questions about the potential risks associated with including volatile assets in mortgage portfolios, and lenders will need to develop robust risk management strategies to mitigate these risks.

In conclusion, the introduction of a bill to include cryptocurrency holdings in mortgage underwriting represents a significant development in the evolving landscape of digital assets and traditional finance. The proposed legislation reflects a growing recognition of the importance of cryptocurrencies in the modern economy and the need for regulatory frameworks that can accommodate these new assets. However, the bill also raises important questions about the potential risks and challenges associated with including volatile assets in mortgage portfolios, and lenders will need to develop robust risk management strategies to mitigate these risks.