Five US Senate Democrats have probed the head of the countryโs 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 โto fully assess the potential risks and benefits of your order and its implications for the U.S. housing market and financial system.โ
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.ย
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 governmentโs 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 Pulteโs plan โcould introduce unnecessary risks to consumers and pose serious safety and soundness concerns for the U.S. housing and financial markets.โ
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 itโs 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 โan 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.โ
โCrypto 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,โ the senators said.
Democrats say order could be conflict of interest
The senators added theyโre also concerned about how the FHFA, Fannie Mae and Freddie Mac will prevent conflicts of interest for those with ties to crypto โthat could unduly influence their proposals,โ 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 โraises additional concerns about your potential conflicts.โ
They added that there is โa serious conflictโ as Pulteโs 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 organizationโs board, which they also accused him of stacking with โindustry allies.โ
Senators want more clarity on order
The senators also claimed Pulteโs order was vague and included no information on how Fannie Mae and Freddie Mac would develop a proposal, the FHFAโs assessment of risks and benefits, or how the agency would gather feedback.
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โClarity on this order is especially critical given FHFAโs previous failures to adequately oversee crypto-related activity,โ they added, noting the 2023 banking crisis, where three banks collapsed โin part due to run risks posed by growing lines of cryptocurrency-based business.โ
The group also noted that Fannie Mae found in 2021 that the use of crypto and stablecoins for deposits, payments, or collateral was the โleast appealing applicationโ 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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