Senate Probes FHFA Over Crypto Mortgage Proposal Citing Volatility Conflict of Interest

Senate Democrats have launched an investigation into the Federal Housing Finance Agency (FHFA) over its directive to explore incorporating cryptocurrency into mortgage risk assessments without converting it to U.S. dollars. The bipartisan group, led by Senator Jeff Merkley, sent a letter to FHFA Director William Pulte demanding explanations for the proposal, which seeks to evaluate crypto assets directly in mortgage approvals. The letter, co-signed by Senators Elizabeth Warren, Chris Van Hollen, Mazie Hirono, and Bernie Sanders, requests a response by August 7, emphasizing concerns over consumer risk, financial stability, and potential conflicts of interest [1].

The senators argue that crypto’s inherent volatility and liquidity challenges could expose borrowers to heightened default risks. They note that current federal policy prohibits using crypto in mortgage determinations without first converting it to fiat currency, a safeguard the senators claim the FHFA’s proposal undermines. The letter highlights historical crypto market crashes, liquidity crunches, and the risk of cyberattacks, scams, or theft, which could leave homeowners unable to access their assets during financial stress [1].

The probe also scrutinizes potential conflicts of interest tied to FHFA leadership and political figures. Pulte’s spouse holds up to $2 million in crypto, while the Trump family has extensive crypto industry ties, including a trading platform, stablecoin, and mining operations. The senators allege that Pulte’s dual role as FHFA director and chair of Fannie Mae and Freddie Mac’s boards creates a conflict, as he would oversee proposals without independent board review. They further accuse Pulte of stacking the boards with “industry allies,” raising questions about impartiality [1].

The FHFA’s directive has drawn broader skepticism about its ability to manage crypto risks, particularly in a housing market still recovering from the 2008 crisis. The senators referenced the 2023 banking collapse of three institutions, partly attributed to crypto-related business risks, as evidence of regulatory gaps. They also noted Fannie Mae’s 2021 assessment that crypto and stablecoins had limited appeal for mainstream financial applications, underscoring doubts about the feasibility of the proposed changes [1].

The inquiry seeks greater transparency in the FHFA’s process, including how it plans to assess risks, engage stakeholders, and ensure accountability. The senators’ letter demands detailed responses on Pulte’s communications regarding crypto, the decision-making framework for the order, and steps to avoid conflicts of interest. Their concerns reflect a growing debate over crypto’s role in traditional finance, with critics warning of systemic risks and proponents arguing for innovation [1].

The probe adds to a series of congressional actions targeting crypto integration in financial systems. Similar skepticism has been observed in state-level proposals and regulatory discussions, where volatility and consumer protection remain central issues. The outcome could influence broader crypto policy, particularly if the FHFA’s approach is seen as either a pioneering step or a regulatory overreach [2].

Source: [1] [title: Democrats probe housing regulator over considering crypto in mortgages] [url: https://cointelegraph.com/news/democrats-probe-housing-regulator-considering-crypto-mortgages]

[2] [title: Democrat Lawmakers Probe FHFA Over Crypto Mortgage Proposal Stability Concerns] [url: https://www.ainvest.com/news/democrat-lawmakers-probe-fhfa-crypto-mortgage-proposal-stability-concerns-2507/]