Democratic senators announced they would investigate the head of the Federal Housing Finance Agency’s proposal to push Freddie Mac and Fannie Mae to include cryptocurrency as an asset when determining mortgage risk.
A proposal to let Fannie Mae and Freddie Mac to include cryptocurrencies as an asset in mortgage lending evaluations for single-family homes was unveiled by FHFA director William Pulte in June.
Even though the idea was well received by many Republican officials, Democratic senators Jeff Merkley and others are starting to look into Pulte’s plan.
Chris Van Hollen, Mazie K. Hirono, Bernie Sanders, and Elizabeth Warren are also members of the group.
Hazards for house buyers
The senators wrote the head of FHFA to ask for more details about the plan. Noting the significance of the housing market to the overall economy, they pointed out the significant volatility of cryptocurrency and quoted consumer advocates who have voiced concerns about linking the “lightly regulated and highly volatile investment asset” to it.
Hardworking people in Oregon and around the nation suffered the price when the 2008 financial crisis demonstrated that reckless investments may cause the housing market to collapse. Crypto presents significant threats to the housing market’s stability. “We need to address this risk,” Sen. Merkley stated.
The letter also mentions a research published by Fannie Mae at the end of 2024, which stated that the “least appealing application” of blockchain technology was cryptocurrency, private coins, and stablecoins as collateral.
They dispute a claim made by Pulte that cryptocurrency might be regarded as an asset without being converted to US dollars.
According to the letter, extending underwriting standards to take into account unconverted crypto assets might jeopardize the stability of the financial system and the housing market.
The senators also draw attention to the possible danger associated with cryptocurrency liquidity, citing a research from the Corporate Finance Institute that characterizes the market as being significantly less expansive and liquid than traditional financial markets in which professional investors would typically engage.
They also mention that they are worried about the tremendous volatility in cryptocurrencies.
A borrower who uses cryptocurrency runs a higher chance of not being able to sell their position and convert it to cash at a price that would enable them to cushion against the risk of mortgage default, to the extent that historical volatility and liquidity endure even as the market develops.
A possible conflict of interest
Concerns about Trump and other government officials’ conflicts of interest with connections to the cryptocurrency business are also raised in the letter.
Such conflicts, according to the senators, might “unduly influence their proposals” for future policies.
Addressing Pulte directly, the letter stated, “You are the current Chair of each Board, and you have stacked the Boards with members who represent FHFA personnel and your industry allies.”
