Fannie Mae and Freddie Mac to count crypto

In a directive issued by the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac have been ordered to prepare proposals for considering cryptocurrency as an asset for single-family mortgage loan risk assessments. This is a significant shift from previous policies, which required any virtual currency to be converted to U.S. dollars before it could be counted towards a borrower’s down payment, closing costs, or reserves.

Key points of the directive and subsequent developments:

No Conversion Required: The new order instructs Fannie and Freddie to explore how to count cryptocurrency holdings without requiring them to be sold and converted into U.S. dollars first.

Regulated Exchanges: The only cryptocurrency assets that would be considered are those that are “evidenced and stored on a U.S.-regulated centralized exchange subject to all applicable laws.”

Risk Mitigation: Fannie and Freddie are directed to consider additional risk mitigation measures to account for the volatility of the crypto market.

Political Context: The FHFA Director, William J. Pulte, stated that the move aligns with the administration’s goal of making the U.S. a leader in the crypto industry. The directive has been met with both support and opposition.

Legislative Action: Republican Senator Cynthia Lummis has introduced a bill, the “21st Century Mortgage Act,” that would codify this directive into law.

Concerns from Lawmakers: A group of Democratic and Independent senators have expressed concerns, arguing that expanding underwriting criteria to include unconverted cryptocurrency assets could pose risks to the stability of the housing market and the financial system. They cite the volatility of crypto assets, the potential for fraud, and the lack of consumer recourse.

The directive marks the beginning of a process. The agencies must now develop proposals, which will then need to be approved by their boards and the FHFA before any changes are implemented. There is no clear timeline for when these changes might take effect.

In a directive issued by the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac have been ordered to prepare proposals for considering cryptocurrency as an asset for single-family mortgage loan risk assessments. This is a significant shift from previous policies, which required any virtual currency to be converted to U.S. dollars before it could be counted towards a borrower’s down payment, closing costs, or reserves.

Key points of the directive and subsequent developments:

No Conversion Required: The new order instructs Fannie and Freddie to explore how to count cryptocurrency holdings without requiring them to be sold and converted into U.S. dollars first.

Regulated Exchanges: The only cryptocurrency assets that would be considered are those that are “evidenced and stored on a U.S.-regulated centralized exchange subject to all applicable laws.”

Risk Mitigation: Fannie and Freddie are directed to consider additional risk mitigation measures to account for the volatility of the crypto market.

Political Context: The FHFA Director, William J. Pulte, stated that the move aligns with the administration’s goal of making the U.S. a leader in the crypto industry. The directive has been met with both support and opposition.

Legislative Action: Republican Senator Cynthia Lummis has introduced a bill, the “21st Century Mortgage Act,” that would codify this directive into law.