US Senators Demand Clarity on Crypto-Backed Mortgage Policy After 2023 Bank Failures

A coalition of five U.S. Senators—Jeffrey Merkley, Elizabeth Warren, Chris Van Hollen, Mazie Hirono, and Bernie Sanders—has issued a formal letter to Federal Housing Finance Agency (FHFA) Director William Pulte, demanding clarity on a controversial policy that allows unconverted cryptocurrency holdings to be considered in mortgage applications. The June 25 directive, which instructs Fannie Mae and Freddie Mac to evaluate verified crypto assets on U.S.-regulated exchanges as eligible reserves for single-family home mortgages, has sparked bipartisan concern over systemic risks and governance gaps [1]. Lawmakers emphasized that the initiative could reintroduce vulnerabilities similar to those observed during the 2023 regional bank collapses, where crypto exposure exacerbated financial instability [1].

The Senators requested the FHFA release comprehensive documentation, including a full risk assessment, approval timelines, and criteria for cryptocurrency eligibility. They also questioned the agency’s internal governance, highlighting Pulte’s dual role as FHFA Director and Chair of the Enterprises’ Boards, which they argue undermines oversight. Pulte’s spouse is reportedly holding up to $2 million in crypto assets, prompting further scrutiny over potential conflicts of interest and whether he has sought ethics guidance or divested [1].

While the FHFA has defended the policy as limited in scope to U.S.-regulated exchanges, critics argue that even this narrow approach lacks transparency. The housing finance system, valued at $12 trillion, could face destabilizing pressures from crypto’s inherent volatility. Proponents of the initiative contend that recognizing crypto in mortgage underwriting aligns with evolving financial trends, particularly for younger investors who view digital assets as a core component of their wealth. However, lawmakers insist that any policy intersecting with critical economic sectors must undergo “rigorous, independent scrutiny” before implementation [1].

The debate reflects broader ideological divides in Congress over crypto’s role in traditional finance. Advocates push for innovation and expanded homeownership opportunities, while regulators prioritize mitigating risks to financial stability. The FHFA’s directive has yet to gain widespread traction among financial institutions, many of which remain cautious about crypto’s valuation challenges, liquidity concerns, and default risks. This hesitancy underscores the unresolved tensions between technological progress and regulatory caution, with the outcome potentially shaping future approaches to crypto integration in mainstream finance [1].

The Senators’ intervention also aligns with broader legislative scrutiny of financial regulators, including recent bipartisan critiques of Federal Reserve policies. While distinct from the crypto-backed mortgage plan, these discussions highlight a consistent emphasis on safeguarding established monetary frameworks against disruptive innovations. The outcome of this debate will likely hinge on balancing innovation with safeguards to prevent a recurrence of past crises, setting precedents that extend beyond the housing market to the broader financial ecosystem [1].

Source: [1] [title: US Senators Sound Alarm Over Crypto-Backed Mortage Plan] [url: https://coinmarketcap.com/community/articles/68865fba2e0e3479f4a2fe29/]