TLDR
FHFA asked Fannie Mae and Freddie Mac to evaluate crypto in mortgage risk reviews.
Senate Democrats cite crypto volatility and liquidity concerns.
Lawmakers question Pulte’s crypto ties and board authority roles.
Senators demand answers on process, oversight, and transparency by August 7.
A group of Senate Democrats has raised concerns about a new directive from the head of the Federal Housing Finance Agency. The directive asks mortgage giants Fannie Mae and Freddie Mac to explore how cryptocurrency could be used in mortgage evaluations.
Senators Question Crypto Use in Mortgage Lending
Five Senate Democrats sent a letter to FHFA Director William Pulte asking for detailed explanations of his recent directive. The letter was signed by Senators Jeff Merkley, Elizabeth Warren, Bernie Sanders, Chris Van Hollen, and Mazie Hirono.
They are asking how the agency plans to study the risks and benefits of allowing crypto assets in mortgage applications. The letter points to possible risks to consumers and the broader housing market.
Pulte had instructed Fannie Mae and Freddie Mac to prepare proposals that explore whether cryptocurrency holdings could be considered during mortgage risk assessments. This would apply without converting the assets into U.S. dollars.
Under the current rules, crypto assets are not allowed to be counted unless first converted to cash. The senators questioned the logic behind this shift and urged caution, especially given the unpredictable nature of crypto markets.
Concerns About Crypto Market Volatility
The senators expressed worry about the high volatility and liquidity risks that come with cryptocurrency. They warned that borrowers who use crypto assets may not be able to convert them quickly or at a good price.
They also pointed to past incidents where crypto investors faced losses due to scams, hacks, or theft. “Crypto is also subject to heightened risks of loss due to scams, cyber hacks, or physical theft,” the letter said.
This could lead to homeowners being financially unprotected, which might increase the chances of loan defaults. The senators said they want to ensure that any such changes do not increase risk for either borrowers or the housing system.
Conflict of Interest Concerns Raised
The senators also questioned whether Pulte has a conflict of interest in issuing this order. According to their letter, financial records show Pulte’s spouse owns up to $2 million in cryptocurrency.
They also raised questions about possible political connections to crypto, referencing the Trump family’s various ties to digital assets. These include links to crypto tokens, a trading platform, and non-fungible tokens (NFTs).
The senators said Pulte’s role as chair of the boards of both Fannie Mae and Freddie Mac could also lead to a lack of oversight. They accused him of placing industry allies on the boards, which could influence decision-making on the proposals.
Lawmakers Request Clear Process and Oversight
The letter also criticized the lack of detail in Pulte’s directive. The senators said it lacked information on how the proposals would be developed, assessed, or reviewed.
They called for a full explanation of how the FHFA would study the proposals, who would be involved, and how public input would be gathered. They also noted that Fannie Mae had previously found crypto assets to be one of the least useful blockchain applications for the housing sector.
The senators have asked Pulte to respond to their questions by August 7. These include details about internal discussions, how conflicts will be handled, and the overall process behind the order.
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