Democrats probe housing regulator over considering crypto in mortgages

Five US Senate Democrats have probed the head of the country’s housing finance agency over his plan to consider how crypto can be counted in the approval process for certain mortgages.

The senators, led by Jeff Merkley, sent a letter to Federal Housing Finance Agency (FHFA) director William Pulte on Friday asking him to explain his plan “to fully assess the potential risks and benefits of your order and its implications for the U.S. housing market and financial system.”

Senators Elizabeth Warren, Chris Van Hollen, Mazie Hirono and Bernie Sanders also co-signed the letter, which asks Pulte for a response by Aug. 7

Last month, Pulte ordered home mortgage purchasers Fannie Mae and Freddie Mac to prepare a proposal on how they can consider crypto holdings in their risk assessments for single-family mortgage loans, without converting the crypto to US dollars.

The FHFA has overseen Fannie Mae, or the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corporation, since 2008. Both were placed under the government’s watch after the 2008 financial crisis, caused by the collapse of the subprime mortgage market.

Concerns raised over crypto risks for home buyers

The senators said Pulte’s plan “could introduce unnecessary risks to consumers and pose serious safety and soundness concerns for the U.S. housing and financial markets.”

Under current policy, they said that Fannie Mae, Freddie Mac, or any other issuer for federally-backed mortgages does not permit lenders to consider crypto in mortgage determinations unless it’s first been converted to US dollars.

The senators added that crypto has historically seen high volatility and liquidity crunches, airing concern that borrowers who use crypto face “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 of mortgage default.”

An excerpt of the Democratic Senators’ letter to William Pulte. Source: US Senate Committee on Banking, Housing, and Urban Affairs“Crypto is also subject to heightened risks of loss due to scams, cyber hacks, or physical theft, which could leave homeowners vulnerable to losing their crypto assets with little hope of recovery,” the senators said.

Democrats say order could be conflict of interest

The senators added they’re also concerned about how the FHFA, Fannie Mae and Freddie Mac will prevent conflicts of interest for those with ties to crypto “that could unduly influence their proposals,” including President Donald Trump and his family.

The Trumps are deeply involved in the crypto industry, having ties to a trading platform with a token, a stablecoin, a crypto mining business and various memecoins and non-fungible tokens.

The senators also took aim at Pulte, saying financial disclosures show his spouse holds up to $2 million in crypto, which “raises additional concerns about your potential conflicts.”

They added that there is “a serious conflict” as Pulte’s order said Fannie Mae and Freddie Mac must get approval from their respective boards before moving ahead with changes, but Pulte is the chair of each organization’s board, which they also accused him of stacking with “industry allies.”

Senators want more clarity on order

The senators also claimed Pulte’s order was vague and included no information on how Fannie Mae and Freddie Mac would develop a proposal, the FHFA’s assessment of risks and benefits, or how the agency would gather feedback.

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“Clarity on this order is especially critical given FHFA’s previous failures to adequately oversee crypto-related activity,” they added, noting the 2023 banking crisis, where three banks collapsed “in part due to run risks posed by growing lines of cryptocurrency-based business.”

The group also noted that Fannie Mae found in 2021 that the use of crypto and stablecoins for deposits, payments, or collateral was the “least appealing application” of blockchain in the industry.

They asked Pulte to respond to a series of questions, including sharing communications on crypto, the process for approving the order and how he will recuse from conflicts of interest, among others.

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