US Recognizes Cryptocurrency as Borrowers’ Assets in Mortgage Loan Reviews

FHFA Announces Guidance: "Assets Recognized Even Without Liquidation"

The Integration of Cryptocurrency Begins... Addressing Volatility Remains a Challenge

The two major US government-sponsored mortgage institutions, Fannie Mae and Freddie Mac, have decided to include cryptocurrency as an asset for evaluation when assessing the assets of individuals applying for mortgage loans. Since Fannie Mae and Freddie Mac purchase mortgage bonds from banks, in effect, banks are also expected to recognize cryptocurrency as assets in their loan evaluation process. However, how to reflect the volatility of cryptocurrency value in assessments remains a challenge.

The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, instructed on the 25th (local time) to create a plan to recognize cryptocurrency held by borrowers as assets when assessing 'single-family mortgage' risks, even without liquidating those assets. On this day, the FHFA issued this guidance signed by the agency's director, William Pulte.

Director Pulte also stated in a post on X (formerly Twitter), "This move aligns with President Donald Trump's vision to make the US the 'world's cryptocurrency capital.'"

In the guidance, Director Pulte mentioned that considering additional assets like cryptocurrency can help Fannie Mae and Freddie Mac better evaluate the overall financial status of borrowers, and this can "promote continued homeownership for borrowers with high credit scores." He also defined cryptocurrency as an "emerging asset that can accumulate wealth outside the stock and bond markets," recognizing its expanding role in household financial assets. However, the guidance did not specify which types of virtual currencies the two agencies should consider.

Fannie Mae and Freddie Mac are organizations that provide stable capital flows to the US mortgage market so that as many Americans as possible can own homes. Banks and financial institutions offer mortgage loans to individuals, then sell those bonds to Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac pool these bonds, securitize them, and issue government-backed mortgage-backed securities (MBS). From an investor’s perspective, buying government-guaranteed securities allows for a stable investment. By selling mortgage bonds to Fannie Mae and Freddie Mac, banks and financial institutions secure capital, allowing them to lend to more borrowers quickly.

What the FHFA is now promoting is to include cryptocurrency in the scope of assets considered when Fannie Mae and Freddie Mac purchase mortgage bonds from banks.

As the two agencies back more than half of the entire US mortgage market, the new guidance effectively opens the door for cryptocurrency to be used in qualifying for mortgage loans. So far, using cryptocurrency for home purchases has been rare. According to a survey by the National Association of Realtors (NAR) of home buyers from July 2023 to June 2024, only 1% of people used proceeds from cryptocurrency sales for down payments. CNBC interpreted this as a signal of a new era, marking the integration of cryptocurrency into traditional financial infrastructure.

New York = Park Shin-young, Correspondent nyusos@hankyung.com