Veteran industry analysts were critical of the news that Fannie Mae and Freddie Mac may begin considering cryptocurrency assets for single-family loan risk assessments.
Bill Pulte, director of the Federal Housing Finance Agency (FHFA), made the announcement Wednesday on social media that he had directed the government-sponsored enterprises (GSEs) to prepare proposals for including crypto holdings in assessments of borrowers’ creditworthiness.
Dan Immergluck, professor emeritus at Georgia State University, commented on LinkedIn, asking facetiously: “What could possibly go wrong?”
Immergluck continued: “Why not go one better? Let lenders count the self-assessed value of all of an applicants’ houseplants, books, artwork and kitchen utensils as assets in mortgage underwriting,” he wrote, using an upside-down smile emoji. “This is basically moving back to the ‘no asset’ lending that helped foment the 2007 crash.”
“No asset” lending refers to prior loan programs with guidelines not requiring borrowers to disclose assets or have assets verified. These “No-Doc” programs led to a large volume of approvals that would not have met today’s tighter lending standards. It caused a flood of foreclosures and contributed to the eventual 2007 housing crisis, which resulted in Fannie and Freddie being taken into federal conservatorship.
Christopher Whalen, chairman of New York-based consulting firm Whalen Global Advisors, said in an email to Scotsman Guide that the proposal is in line with the thinking of President Donald Trump, but is “a really bad idea.”
“Cryptocurrencies like bitcoin that fluctuate in value are really not ‘assets’ under [generally accepted accounting principles] and the laws of most states. These are like poker chips and are properly seen as gaming instruments,” Whalen stated, referring to a June 16 post on his Institutional Risk Analyst blog. “Stablecoins that are pegged to the dollar are a little better, but still not sure they qualify as assets in the context of a mortgage application. A stablecoin sponsored by Fiserv? Maybe.”
A former Department of Housing and Urban Development and GSE leader declined to comment on this matter. “I am trying not to respond to every tweeted idea that has no real meat behind it to save my sanity,” they stated.
Jim Parrott, a nonresident fellow at The Urban Institute, questioned what problem Pulte’s proposal is trying to solve.
“We don’t have a major problem getting those who own bitcoin into homeownership as far as I know,” Parrott told Scotsman Guide in an email. “So they appear to be solving for something else, something not even related to housing: the value of an asset class. It would be hard to imagine something further outside of the mandate of the GSEs than that.”
Parrott also characterized the matter as being a question of risk.
“If all the GSEs do is begin to count crypto as an acceptable asset in their reserve calculations and haircut it appropriately, then it doesn’t seem like that big a deal. But that means a big haircut given the volatility of the asset,” he observed. “Otherwise, we’re using our housing finance utilities to shore up an entirely unrelated asset class, which makes no sense. Do we really want the GSEs to use the government guarantee to place a bet on something as speculative as this?”
The Mortgage Bankers Association (MBA) was more reserved in its evaluation, stating that it welcomes “what should be a collective industry effort to modernize the mortgage underwriting process.”
“Crypto as a reserve asset is one option, and there are many other impactful approaches to rethinking the underwriting of mortgage risk that should be included in the effort,” MBA said in a statement issued after Pulte’s announcement. “FHFA’s New Products and Activities Rule should serve as a starting point for assessing all operational, regulatory and market risks and impacts, which must be considered before any changes are implemented.”
Citing a report from the National Cryptocurrency Association, which found that 55 million U.S. residents hold some form of cryptocurrency, mortgage loan quality automation provider LoanLogics is another industry voice that looks at this order as a way to potentially expand access to homeownership for those with nontraditional income or assets.
Roby Robertson, executive vice president at LoanLogics, stated in a press release that the change “would lend itself to asset-based lending in which the lender proves the borrower has enough assets to cover the mortgage obligations — not exactly an income, but a ‘draw down.’”
Robertson called it “the latest expansion of non-QM lending.” Non-qualified mortgages, which are loans that do not meet the borrowing standards of the GSEs or federal loan programs, have grown in popularity with more U.S. homebuyers having nontraditional income streams and assets.
