Crypto Holdings Could Be Considered in Mortgage Applications

The United States Federal Housing Finance Agency (FHFA) will explore whether cryptocurrency holdings can be factored into banks’ mortgage qualification evaluations.

William Pulte, director of the FHFA, which supervises Fannie Mae and Freddie Mac, has instructed the agencies to develop a proposal to consider cryptocurrency as a reserve asset when evaluating risks in single-family home loans.

Pulte also directed the agencies that their mortgage risk assessments should not require cryptocurrency assets to be converted to US dollars.

Only crypto assets “that can be evidenced and stored on a US-regulated centralized exchange subject to all applicable laws”  are to be considered in the agencies’ proposal.

The directive also requires Fannie Mae and Freddie Mac to develop internal adjustments to account for the cryptocurrency market’s volatility and ensure that risk-weighted reserves, including cryptocurrency, do not undermine underwriting standards.

Historically, cryptocurrency has been excluded from underwriting frameworks because of its volatility, regulatory uncertainty, and challenges in verifying reserves.

Until January 23, most major banks were unable to offer crypto-backed loans or mortgages. This restriction stemmed from the US Securities and Exchange Commission’s accounting guidance SAB 121, which required listed companies to report crypto assets held for clients as liabilities on their balance sheets.

The decision to include cryptocurrency comes amid growing institutional adoption of cryptocurrency across banking, payments, and federal policy.

The order stated:  “Cryptocurrency is an emerging asset class that may offer an opportunity to build wealth outside of the stock and bond markets.”