Crypto holders may soon find it easier to acquire mortgages, as William Pulte, director of the FHFA, has issued a directive that could lead lenders to consider cryptocurrency assets during the mortgage application process.
On June 25, the regulator overseeing Fannie Mae and Freddie Mac ordered the housing giants to take crypto into consideration as an asset for single-family mortgage loan risk assessments. In an X post, Pulte stated that this move aligns with President Trump’s vision of making the US the crypto capital of the world.
While Fannie Mae and Freddie Mac do not directly issue mortgages, they have the authority to set rules for the types of mortgages they are willing to purchase. This directive could allow individuals to obtain a mortgage without needing to convert their cryptocurrency into US dollars, enabling them to retain their crypto assets while securing a home loan. The primary question remains whether this is a prudent decision for risk assessment.
The Volatility of Cryptocurrency
Cryptocurrency is known for its significant volatility. An asset's price can fluctuate dramatically within short periods, moving from yearly lows to all-time highs rapidly. For example, Bitcoin's price has experienced substantial swings, dropping from an all-time high to a lower value within weeks, only to see significant increases over a year.
Predictions for cryptocurrency values, such as Bitcoin surpassing the $200k mark by the end of 2025, have been made, but market sentiment can shift quickly, leading to potential downturns. These dramatic price movements, which can be more pronounced than those in currency pairs and stocks, can work both for and against crypto owners.
Using cryptocurrency as collateral for mortgages could allow homeowners to avoid converting their coins to fiat currency with the hope of future price increases. However, the inverse is also true; a significant price drop could lead to the liquidation of a homeowner's crypto holdings, resulting in devastating consequences. Therefore, meticulous monitoring of price movements would be essential to prevent such disasters.
The Practicality of Crypto as a Source of Funding
Crypto-backed mortgages are not entirely new, as several companies already offer such services. For instance, fintech company Milo allows buyers to use their digital assets as collateral, potentially securing up to 100% financing without selling Bitcoin or Ethereum. However, a common requirement from most crypto mortgage providers is 100% collateralization. This means that for a $400,000 house, an individual would need to pledge at least $400,000 worth of cryptocurrency.
In contrast, when using fiat currency, mortgage applicants typically need to make cash deposits ranging from 5% to 10%. Federal Housing Administration (FHA) loans can even go as low as 3.5% for the down payment, allowing individuals to secure the remaining funds from other sources and manage monthly repayments.
Furthermore, lenders predominantly accept Bitcoin (BTC) and Ethereum (ETH), with some extending to stablecoins like USDT and USDC. Individuals holding other cryptocurrencies such as Dogecoin (DOGE) or Solana (SOL) might not be eligible in the current landscape. An increase in the number of tokens considered by Fannie Mae and Freddie Mac during the application process would be beneficial for a wider range of crypto owners.
Benefits of Accepting Crypto for Mortgages
Acknowledging the current challenges faced by crypto owners seeking to enter the real estate market is important. Skepticism surrounding digital currencies, often due to limited information and their volatile nature, causes many lenders to avoid these assets. This makes it a difficult task for crypto owners wishing to invest in real estate, as they are often required to convert their assets into fiat currency.
In some countries, lenders may penalize applicants whose financial statements include cryptocurrency transactions, leading to a higher likelihood of loan rejection. Lenders often perceive crypto as difficult to trace and highly volatile, with some associating it with illicit activities, thus reducing the chances of loan approval. This perception is an unfair bias that needs to be addressed.
With government approval for crypto-backed mortgages, it will become more accessible for crypto owners to have fair opportunities in property ownership. They may be viewed as being in a stronger financial position to meet their payment obligations.
The FHFA's directive has not yet specified which tokens will be accepted. However, any accepted asset must have verifiable evidence, be stored on a US-regulated centralized exchange, and comply with applicable laws. There is considerable anticipation to observe the outcomes as cryptocurrency gains allowance as collateral for mortgages in the US.