Written by: Internal Analysis & Opinion Writers
A new debate is emerging in Washington as lawmakers push back against a controversial move by Federal Housing Finance Agency (FHFA) Director Bill Pulte, who has instructed Fannie Mae and Freddie Mac to explore the use of cryptocurrency in mortgage underwriting. The initiative would permit borrowers to include crypto assets held on U.S.-regulated exchanges in their financial reserves—even without converting them to dollars—raising alarms among Senate Democrats.
In a formal letter issued on July 25, a group of Senate Democrats including Jeff Merkley, Elizabeth Warren, Chris Van Hollen, Mazie Hirono, and Bernie Sanders demanded answers from the FHFA on the basis for the new directive. Their concerns center on crypto volatility, liquidity risks, and the lack of regulatory safeguards associated with digital currencies.
The senators warned that incorporating unconverted crypto into mortgage assessments could pose serious risks to borrowers and the broader housing finance system. They stressed that cryptocurrencies are notoriously volatile and may not be easily converted to cash when needed, especially during periods of financial distress or market instability.
Lawmakers also raised red flags about possible conflicts of interest stemming from Pulte’s dual role as FHFA Director and Chair of the Boards of both Fannie Mae and Freddie Mac. They expressed concern over recent GSE board appointments with direct ties to the crypto industry, suggesting this could compromise the independence of policy decisions.
In a swift response on the legislative front, Senator Cynthia Lummis introduced the “21st Century Mortgage Act” just four days later. The bill seeks to formalize Pulte’s initiative by requiring Fannie and Freddie to include crypto assets as acceptable reserves in mortgage underwriting, even if they are not converted to U.S. dollars.
Industry response to the crypto proposal has been divided. Some mortgage professionals see potential in the idea, believing it could help non-traditional borrowers who lack liquid assets but hold significant investments in cryptocurrency. Others argue the policy lacks clarity and that the GSEs have not outlined how crypto will be valued, assessed for risk, or integrated into pricing models.
Financial analysts caution that crypto assets may not be stable or reliable enough to serve as part of mortgage qualification criteria. They cite the absence of consistent pricing methods, standard valuation protocols, and the speculative nature of digital currencies as key challenges for lenders attempting to underwrite responsibly.
The senators' letter requested that FHFA clarify whether it conducted a formal risk assessment or consulted external experts before issuing the directive. They also demanded a detailed explanation of how the agency evaluated systemic risks and ensured that taxpayer-backed institutions are protected from losses stemming from crypto exposure.
This controversy arrives as the FHFA continues navigating a broader effort to modernize mortgage lending standards. While the agency has signaled its intention to explore innovative credit access strategies, critics argue that crypto should not be at the forefront of that agenda without a solid regulatory framework in place.
Many in the housing policy space worry that implementing such a policy too quickly could lead to unintended consequences, including heightened exposure to asset bubbles or manipulation of borrower financial profiles. Others argue that innovation in underwriting must be balanced with the need for consistency, reliability, and transparency.
For now, Fannie Mae and Freddie Mac are expected to begin developing draft proposals in response to the directive, though the ultimate fate of the initiative may depend on congressional scrutiny, public comment, and internal debate. Lawmakers from both parties appear ready to engage in deeper discussion over whether digital assets have a place in federally backed home lending.
As the FHFA faces mounting questions, the central issue remains whether crypto’s volatility and regulatory uncertainty make it too risky to include in a system meant to provide stable, affordable home financing. The outcome of this debate could help define the boundaries of innovation in mortgage lending for years to come.
