New Proposal for Crypto Consideration in Mortgage Applications
The head of the Federal Housing Finance Agency (FHFA), which supervises Fannie Mae and Freddie Mac, has called for the mortgage giants to evaluate cryptocurrency holdings from homebuyers when determining eligibility for mortgage purchases from banks. William Pulte, the FHFA director, issued a directive on Wednesday for the agencies to create a proposal that includes cryptocurrency as a possible asset in their risk assessments for single-family home loans. He emphasized that cryptocurrency assets should not need to be converted to U.S. dollars for the purposes of these assessments. Additionally, the proposal will only consider cryptocurrencies that can be verified and stored on U.S.-regulated centralized exchanges compliant with all relevant laws.
Current Landscape of Cryptocurrency in Home Buying
The use of cryptocurrency in real estate transactions has been relatively minimal. A recent survey by the National Association of Realtors revealed that merely 1% of homebuyers who made a down payment between July 2023 and June 2024 utilized funds from cryptocurrency sales. Traditionally, banks that issue mortgages eligible for purchase by Fannie Mae and Freddie Mac have not acknowledged a borrower’s cryptocurrency holdings until they were liquidated into U.S. dollars. Daryl Fairweather, chief economist at Redfin, stated, “This is a significant victory for cryptocurrency proponents advocating for crypto to be recognized on par with other asset classes.”
Impact on Borrower Creditworthiness and Market Dynamics
Currently, investments in stocks are recognized as valid assets that contribute to the reserves banks require from borrowers. However, more unstable assets like individual stocks or cryptocurrencies may face further scrutiny from lenders, as Fairweather pointed out. She noted, “As long as lenders appropriately account for the volatility of cryptocurrencies, it is reasonable for these investments to be included in reserve calculations.” This policy shift aims to broaden the criteria banks use to assess a borrower’s creditworthiness, potentially allowing more prospective homebuyers to secure loans. It also acknowledges the increasing acceptance of cryptocurrencies as viable alternatives to traditional investment vehicles such as stocks and bonds.
Next Steps for Fannie Mae and Freddie Mac
The FHFA’s directive requires Fannie Mae and Freddie Mac to develop their proposals “as soon as reasonably practical.” These two entities, which have been under government conservatorship since the 2008 financial crisis, play a critical role in purchasing mortgages that align with their risk standards from banks, thereby enhancing liquidity in the housing market. Together, they guarantee approximately half of the $12 trillion U.S. home loan market, serving as a foundational element of the American economy.
Potential Changes in Buyer Eligibility
Danielle Hale, chief economist at Realtor.com, highlighted that if Fannie Mae and Freddie Mac accept cryptocurrency as valid collateral, this could significantly encourage banks to modify their lending practices. Many potential buyers may have felt compelled to liquidate their cryptocurrency holdings to qualify for a mortgage, which could have deterred them from pursuing homeownership. Under the new policy, these individuals may now qualify without needing to sell their assets, thereby broadening the pool of potential homebuyers.
Current Trends in the U.S. Housing Market
The U.S. housing market has been experiencing a downturn since early 2022, following the rise of mortgage rates from historically low levels during the pandemic. Home sales plummeted last year, reaching the lowest figures seen in nearly three decades, and the market has remained sluggish this year due to high mortgage rates and rising home prices, keeping many prospective buyers at bay. As of April, an analysis by Redfin indicated that there were nearly 34% more sellers than buyers actively looking for homes in the U.S. market.
