Legislators have been debating how fast government-sponsored enterprises Fannie Mae and Freddie Mac should move toward counting cryptocurrency toward loan qualification, and mortgage companies also need to decide how quickly they'll respond.
Sen. Cynthia Lummis, R-Wyo., has introduced a bill pushing
Meanwhile, although some fintechs have
Mortgage executives weighing the GSEs' emerging crypto policy and whether to add such loans to their portfolios should consider the following.
Why to consider getting involved and where to start
"I think the time to move in terms of developing a strategy and a compliance program is now for a few reasons," said Emily Goodman, partner at financial sector consultancy FS Vector. "One is the total addressable market of digital asset holders that are seeking liquidity."
"It's hard to argue that it's a TAM that's getting smaller, and the fact that Fannie and Freddie haven't yet submitted or shared their proposal doesn't mean that there can't be a lot of work that gets done to start to, for example, develop your underwriting program," Goodman said.
Around one-fifth or 55 million U.S. households own digital assets, according to the National Cryptocurrency Association report published earlier this year. Calculations done to arrive at this number were based on a supplement to the Current Population Survey compiled by the U.S. Census Bureau. The incidence also is derived from a Harris Poll survey of 53,805 adults to reach 10,000 crypto holders with adjustments for nonresponse and other factors.
The majority or 67% of crypto holders are men, according to the report. Two thirds of all holders are under 45. Fifteen percent are over 55.
Senator Lummis cites the fact that the majority of crypto holders are younger as a reason to back her 21st Century Mortgage Act, which would require Fannie and Freddie to consider crypto in qualifying borrowers. She noted that homeownership for those under 35 is 36.6%, which is a historically low level.
"The American dream of homeownership is not a reality for many young people. This legislation embraces an innovative path to wealth-building keeping in mind the growing number of young Americans who possess digital assets," she said in a press release.
Nearly one-third or 33% of households under 35 who hold crypto assets make $150,000 to $500,000, 31% earn $75,000 to $150,000, 26% have an income of less than $75,000, 5% are high net worth individuals making $1 million-plus, and 4% generate $500,000 to $1,000,000 income per year, data analyzed in the NCA report. Rounding and nonresponse account for the remaining percentage.
To get a sense of how much of a difference counting crypto would make for these households when it comes to qualifying for
"Even if you decide, 'no, we don't want to get into this right now,' it should be a deliberate decision informed by an analysis of the potential net new customers and those from your existing customer base who you can deepen a relationship with," Goodman said.
Lenders considering making loans based in part of crypto assets also may want to consider the potential for expanded use cases.
"If you take a really broad view of what a digital asset includes in the future, and what your digital wallet will hold in the future, then it really starts to be very interesting," Goodman said.
Fifteen percent of crypto holders have used it to acquire real estate with blockchain tokenization, according to the National Cryptocurrency Association, which ranks this at the end of a list of use cases in one part of its report.
Risks and compliance requirements to consider
The Democratic senators concerned about considering unconverted crypto in qualifying loans at the GSEs cite some risks that fintechs in the space consider common in asset-based loan decisions, namely that any recovery will depend on what the market value is at the time.
"To the extent that historical volatility and liquidity persists even as the market matures, a borrower using crypto faces an increased risk that they may not be able to exit a crypto position and convert to cash at a price that would allow them to buffer against risk," the senators wrote.
The Financial Industry Regulatory Authority calls crypto "extremely volatile" and "less liquid than more traditional financial instruments like stocks and bonds." Some assets and entities that offer them also are unregistered. They might lack investor protections and be more susceptible to fraud.
The Trump administration is working to establish clearer laws and regulation around crypto, including
Also Fannie and Freddie are likely to take into consideration the fact that some types of crypto have held up better than others amid market volatility and the level of risk could vary when they decide on how to value them in the context of loan qualification, Goodman said.
Mortgage companies exploring crypto use cases, including as collateral, must also navigate emerging state-level licensing requirements.
"Just about every state we've talked to at this point, when it comes to the consumer lending side, many of them said, 'We believe this will require a license,'" she said.
