Last week, Federal Housing Finance Agency (FHFA) Director Sandra Thompson issued a game-changing directive. This effort seeks to fundamentally remake the U.S. housing finance system. Unlike other federal regulators, this agency has not shied away from directing Fannie Mae and Freddie Mac to take bold action. At a minimum, however, they should now be making explicit judgments about cryptocurrency, as an asset, in their risk assessments and underwriting of single-family mortgage loans.
This directive comes on the heels of increasing adoption of cryptocurrencies by other institutions. Banks and federal policies are helping to spearhead this dangerous, rising trend. The FHFA’s announcement is a historic turnaround. This is an important recognition of digital assets as legitimate components of financial portfolios that should be allowed to positively impact mortgage lending.
Fannie Mae and Freddie Mac are currently charged with creating pilots that include digital assets in their lending practices. Yet the directive goes on to insist that borrowers cannot be asked to surrender their crypto assets. They won’t have to exchange them into U.S. dollars before closing on a loan. This added flexibility might open the doors for many more people to use their cryptocurrency assets to back mortgages.
The FHFA’s directive emphasizes the potential of cryptocurrency, stating, “Cryptocurrency is an emerging asset class that may offer an opportunity to build wealth outside of the stock and bond markets.” This view reflects both history and a larger trend, as cryptocurrencies have gained more acceptance lately as legitimate financial tools.
As Fannie Mae and Freddie Mac develop their proposals, the impact of this directive could be significant. Both organizations have had to adapt to the changing financial reality. Their inclusion into mortgage risk assessments is just one example of how mainstream finance is incorporating digital currencies into their practice.
“to make the United States the crypto capital of the world” – Pulte
The FHFA’s move reflects a recognition that digital assets are becoming a significant part of many individuals’ financial portfolios. Millions of people invest in crypto for the first time each day. Financial institutions will need to change their practices if they are to effectively reach this ever-changing population of borrowers.