Fannie Mae and Freddie Mac's federal regulator has directed the two enterprises to form rules around considering cryptocurrency assets in mortgage applications.
The new rule won't come into immediate effect. The order, signed June 25 by Federal Housing Finance Agency (FHFA) Director William J. Pulte, requires Fannie and Freddie to "prepare a proposal for consideration." And it could take several months or more for a final rule to be implemented.
Fannie and Freddie back over half of the mortgages in the U.S., says Fox Business. And the rest of the mortgage industry often picks up on policy changes on their part.
Will Homebuyers Be Able to Use Crypto For Their Mortgage?
There are two main ways crypto can be used in mortgage applications.
- Asset reserves
- Down Payments.
This directive is aimed at asset reserves. Here's a snapshot on what could change under new rules.
Asset Reserves
Fannie and Freddie may start allowing certain cryptocurrencies as "reserves" without the borrower selling and converting to USD. Borrowers may be able to hold onto their crypto and avoid capital gains taxes, while qualifying for a mortgage more easily.
For example, a homebuyer applies for a home loan. The Fannie Mae underwriting system requires six months of mortgage payments in reserve, perhaps due to a low credit score or other risk factor in the file. The applicant has $5,000 in USD, but $50,000 in bitcoin. Previously, they would not be approved, as $5,000 would not cover six months of payments. The bitcoin could help them meet the reserve requirement under proposed rules.
Down Payments
So, will the new rules allow direct crypto down payments? No. It appears crypto rules for down payments will remain unchanged. Applicants will have to convert the crypto to USD, place it in a U.S. financial institution, and keep a paper trail.
To use their crypto directly, they will have to use a specialized crypto mortgage lender.
Still, under the proposed rule change, crypto could push a borderline applicant over the line or earn them a lower mortgage rate. Lenders like to see (and will typically reward) assets that could help someone cope through a challenging financial period.
Likely Guardrails
The FHFA order set some ground rules for Fannie and Freddie's proposals. Those include:
- Not all cryptocurrencies will be eligible. Bitcoin would likely be OK as the dominant currency, but others will be acceptable only if the agencies deem them eligible.
- Fannie and Freddie may allow borrowers to count only a certain percentage of the assets as reserves. In FHA lending, as an example, borrowers may only use 60% of retirement funds as asset reserves to account for volatility and taxes.
- The agencies will only consider cryptocurrency stored on a U.S.-regulated centralized exchange, subject to all applicable laws, says Pulte's directive.
When Can Homebuyers Expect the New Rules?
It's important to note that the directive didn't change lending rules. It only directed the agencies to prepare a proposal "as soon as reasonably practical."
And any rule changes would need to be approved by each agency's Board of Directors prior to FHFA review.
Once a proposal is approved, Fannie Mae and Freddie Mac must update algorithm-based underwriting systems that lenders use to approve applications.
Considering all the steps, it could be months or longer before borrowers are able to leverage any rule changes.
But for crypto holders who aspire to be homeowners, this is a welcome step in the evolution of lending. Soon, they may be able to leverage large crypto holdings to help them be approved for a mortgage, without selling valuable crypto or incurring large tax bills.
