Senate Democrats Probe FHFA Crypto Mortgage Plan Over Volatility and Stability Risks

Five Senate Democrats, including Sen. Jeff Merkley, have launched a formal inquiry into the Federal Housing Finance Agency (FHFA) over its directive to Fannie Mae and Freddie Mac to evaluate cryptocurrency assets in mortgage underwriting processes. The lawmakers, joined by Sens. Elizabeth Warren, Chris Van Hollen, Mazie Hirono, and Bernie Sanders, sent a letter to FHFA Director William Pulte demanding transparency on the agency’s risk assessment framework and its potential implications for housing market stability. The letter emphasizes concerns that incorporating unconverted crypto assets—without converting them to U.S. dollars—into mortgage eligibility criteria could amplify consumer risks, default rates, and systemic instability [1][2].

The lawmakers highlighted crypto’s inherent volatility, noting that sudden price swings could distort borrower affordability assessments. They cited the collapse of high-profile crypto projects and the prevalence of scams as factors that could undermine trust in mortgage evaluations. The letter also questioned potential conflicts of interest, suggesting that FHFA’s ties to the Trump administration and the crypto industry might compromise regulatory impartiality. “Expanding underwriting criteria to include unconverted crypto assets could pose risks to housing market stability and the financial system,” the senators wrote, referencing existing policies that require crypto to be converted into fiat currency before mortgage consideration [3][4].

The proposal marks a departure from current FHFA practices, which mandate conversion of crypto holdings to dollars before assessing borrower eligibility. Proponents argue that the move could streamline access to mortgages for individuals with significant digital assets, aligning with broader efforts to modernize housing finance. However, critics warn that crypto’s price volatility and limited regulatory safeguards create a “house of cards” scenario, where inflated valuations during market booms could mask underlying risks. The lawmakers also emphasized the lack of consumer protections in crypto markets, such as the irreversibility of transactions and the difficulty of tracing fraudulent activity, which could leave borrowers exposed to sudden losses [5][6].

The FHFA has defended the proposal as part of its mandate to adapt to technological advancements, with a spokesperson stating that the agency aims to “modernize mortgage standards.” Yet the lawmakers argue that the plan lacks a comprehensive risk analysis, drawing parallels to pre-2008 financial crisis practices that prioritized innovation over caution. The debate reflects broader tensions in regulating crypto—a sector characterized by rapid innovation but fraught with instability and fraud [7][8].

Analysts remain divided on the proposal’s implications. Some argue that excluding crypto from mortgage considerations risks alienating a growing segment of the population with digital assets as primary financial holdings. Others, however, caution that the absence of robust regulatory frameworks could exacerbate market volatility. The outcome of the Senate probe may determine whether the FHFA revises its approach or advances the plan, with potential ripple effects on housing policy and crypto adoption [9].

Source:

[1] [Democrats Probe Housing Regulator Over Considering Crypto Mortgages](https://cointelegraph.com/news/democrats-probe-housing-regulator-considering-crypto-mortgages)

[2] [Senate Democrats Probe FHFA Over Crypto Mortgage Directive Risk, Conflict Concerns](https://www.ainvest.com/news/senate-democrats-probe-fhfa-crypto-mortgage-directive-risk-conflict-concerns-2507/)

[3] [Senate Democrats Question Housing Agency Over Crypto in Mortgage Plans](https://cryptorank.io/news/feed/242e0-senate-democrats-question-housing-agency-over-crypto-in-mortgage-plans)

[4] [Democrats Probe FHFA's Crypto Mortgage Plan Amid Risks to Housing Stability](https://www.cryptotimes.io/2025/07/28/democrats-probe-fhfa-over-proposed-crypto-mortgage-plan/)

[5] [FHFA Director's Plan to Allow Crypto as Mortgage Asset Under Scrutiny](https://www.businessinsider.com/author/samuel-o-brient)

[6] [Mortgage Finance Sector Reacts to FHFA's Crypto Proposal](https://finance.yahoo.com/sectors/financial-services/mortgage-finance/)

[7] [FHFA’s Stance on Crypto Mortgages: A Balancing Act](https://www.businessinsider.com/category/bitcoin)

[8] [Senate Probes FHFA Over Crypto Mortgage Proposal, Citing Volatility and Conflict of Interest](https://www.ainvest.com/news/senate-probes-fhfa-crypto-mortgage-proposal-citing-volatility-conflict-interest-2507/)

[9] [Senate Inquiry Could Shape Future of Crypto in Housing Policy](https://cointelegraph.com/news/democrats-probe-housing-regulator-considering-crypto-mortgages)