Senate Democrats Probe FHFA Over Crypto Mortgage Directive Amid Risk and Conflict Concerns

Five U.S. Senate Democrats have launched an investigation into the Federal Housing Finance Agency (FHFA) over its directive to explore the use of cryptocurrency in mortgage underwriting. The bipartisan probe, led by Sen. Jeff Merkley and co-signed by Sens. Elizabeth Warren, Chris Van Hollen, Mazie Hirono, and Bernie Sanders, targets William Pulte, the agency’s director, who ordered Fannie Mae and Freddie Mac to draft proposals on incorporating crypto assets into risk assessments for single-family mortgages without converting them to U.S. dollars [1]. The senators demanded a response by August 7, raising concerns about the potential risks to consumers and the broader financial system.

The FHFA, which oversees Fannie Mae and Freddie Mac, has historically maintained strict mortgage standards following the 2008 financial crisis. Under current policy, federally backed mortgages require crypto assets to be converted to cash before being considered for loan eligibility. The Democrats argue that Pulte’s plan introduces unnecessary volatility, as crypto markets are prone to liquidity crises and price swings that could leave borrowers unable to convert assets into cash during emergencies. “Borrowers risk defaulting if they can’t exit a crypto position at a price that buffers against mortgage risks,” the senators warned, citing historical patterns of digital asset instability [1].

The inquiry also scrutinizes potential conflicts of interest. Pulte’s spouse holds up to $2 million in crypto, while the Trump family’s ties to crypto ventures—including a trading platform, stablecoins, and mining operations—raise questions about undue influence. Critics highlight that Pulte chairs both Fannie Mae and Freddie Mac’s boards, creating a conflict as he would oversee the approval process for his own directive. The senators accused him of “stacking” the boards with industry allies, further complicating oversight [1].

The probe underscores broader tensions between innovation and regulation. While Pulte’s directive aims to modernize housing finance, the Democrats emphasize the need for clarity on how Fannie Mae and Freddie Mac will develop proposals, assess risks, and solicit feedback. They also reference the 2023 banking crisis, where crypto-related business lines contributed to bank failures, as evidence of systemic vulnerabilities. The FHFA’s past oversight lapses, including a 2021 Fannie Mae report downplaying crypto’s utility in payments and collateral, further justify the call for accountability [1].

The senators requested detailed responses on communication records, approval processes, and conflict-of-interest mitigation strategies. Their letter stresses that the agency must align its crypto exploration with its mandate to promote housing stability and consumer protection. Failure to address these concerns could amplify existing inequalities or create new pathways for financial instability, particularly in a sector foundational to the U.S. economy.

The investigation highlights the political stakes in crypto regulation. Democrats’ focus on risk mitigation reflects a broader regulatory agenda, while potential opposition from pro-crypto factions could shape future policy debates. The FHFA’s response will likely influence legislative efforts to define crypto’s role in traditional finance, balancing innovation with safeguards for vulnerable markets.

Sources:

[1] [title1] [https://cointelegraph.com/news/democrats-probe-housing-regulator-considering-crypto-mortgages]

[2] [title2] [https://www.tradingview.com/news/top-providers/cointelegraph/]