Five United States Senate Democrats have initiated an inquiry into the strategy of the head of the country’s housing finance agency, specifically regarding his proposed approach to evaluating the inclusion of cryptocurrency within the approval process for mortgage loans. The investigation, spearheaded by Senator Jeff Merkley, involved a formal letter dispatched to Federal Housing Finance Agency (FHFA) Director William Pulte on Friday, demanding a comprehensive explanation of Pulte’s plan and its potential implications for the U.S. housing market and the broader financial system.
Senators Elizabeth Warren, Chris Van Hollen, Mazie Hirono, and Bernie Sanders also signed the letter, setting an August 7th deadline for Pulte to furnish a response. This action follows last month’s directive from Pulte, ordering mortgage purchasers, Fannie Mae and Freddie Mac, to prepare a proposal outlining how they could assess cryptocurrency holdings in their risk evaluations for single-family mortgage loans – without necessitating a conversion to U.S. dollars.
The FHFA has overseen Fannie Mae, the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corporation, since 2008. Following the 2008 financial crisis, stemming from the collapse of the subprime mortgage market, both agencies came under increased government scrutiny and oversight.
Significant concerns have been raised about the potential risks posed by cryptocurrency to both consumers and the stability of the U.S. housing market. The senators assert that Pulte’s plan “could introduce unnecessary risks to consumers and pose serious safety and soundness concerns for the U.S. housing and financial markets.” Current policy dictates that Fannie Mae, Freddie Mac, or any federally-backed mortgage issuer does not permit lenders to consider crypto holdings in mortgage determinations unless these holdings have first been converted to U.S. dollars.
The senators highlighted the historical volatility and liquidity limitations frequently observed within the crypto market as a key factor of concern. They believe that borrowers using cryptocurrency face a heightened risk of being unable to liquidate their crypto positions and convert them to cash at a price that would allow them to mitigate the risk of mortgage default.
Furthermore, the Democratic senators voiced serious apprehension regarding potential conflicts of interest. They point to William Pulte’s spouse holding up to $2 million in cryptocurrency as a particular cause for concern, questioning how this situation might influence the agency’s proposals and oversight. The senators also criticized Pulte’s management of the boards of Fannie Mae and Freddie Mac, alleging that he has stacked these boards with industry allies.
The senators argued that Pulte’s order lacks essential clarity, failing to detail how Fannie Mae and Freddie Mac will develop a proposal, the FHFA’s risk assessment process, or the mechanism for gathering stakeholder feedback. This lack of transparency is compounded by previous failures of the FHFA to adequately supervise crypto-related activity. Recent events, including the 2023 banking crisis, where three banks collapsed in part due to “run risks posed by growing lines of cryptocurrency-based business,” underscore the urgency of this issue.
In 2021, Fannie Mae found that the use of crypto and stablecoins for deposits, payments, or collateral was the “least appealing application” of blockchain technology within the industry. The senators emphasized the importance of addressing these concerns proactively. The group is requesting a detailed response from Pulte, including information on communications surrounding crypto, the approval process for the order, and a strategy for managing conflicts of interest.