Senate Democrats Investigate FHFA Regarding Employment of Cryptocurrency in Mortgage Risk Evaluations
In a recent letter to the Federal Housing Finance Agency (FHFA) Director William Pulte, a group of Senate Democrats have expressed their reservations about the FHFA's plan to explore using cryptocurrency in mortgage risk assessments without conversion to US dollars [1][2][3][4].
The senators, led by Elizabeth Warren, Bernie Sanders, and others, have highlighted the ongoing volatility and illiquidity of cryptocurrencies as potential risks for borrowers who rely on crypto assets to secure mortgage loans [1][3][4]. They have urged the FHFA to conduct a comprehensive risk assessment of the policy, emphasizing potential dangers such as difficulty converting crypto to cash at stable prices, increased market speculation, housing price inflation, and potential destabilization of the financial system if crypto values unexpectedly drop [1][3][4].
The Democrats argue that despite the crypto market's maturation, its historical unpredictability makes it unsuitable as stable collateral for long-term loans like mortgages [3]. They have also raised concerns about conflicts of interest, as the FHFA director's spouse reportedly holds up to $2 million in cryptocurrency, which could potentially question the director's impartiality [1].
Meanwhile, Republican Senator Cynthia Lummis has introduced the 21st Century Mortgage Act to codify the FHFA’s June directive and enable crypto assets to be recognized as legitimate collateral in mortgage applications [1][2][4]. The aim is to help younger Americans access housing more easily without converting crypto to fiat currency. However, the Democratic opposition has called for thorough evaluation before proceeding, highlighting a divide in Congress regarding the incorporation of digital assets into traditional housing finance [1][2][3].
The concerns of the Senate Democrats are not unfounded. The collapse of three banks associated with crypto exposures in 2023 underscored the potential dangers [5]. Borrowers might struggle to convert crypto into cash when needed, increasing the chance of mortgage default during market downturns [6].
In light of these concerns, the senators are seeking detailed answers on the FHFA's assessment process, including information on the agency's communication, review steps, and conflict-of-interest protocols [1]. They believe that a full understanding of the risks involved is crucial before any decisions are made that could potentially impact the housing market and overall financial system.
References: [1] Smith, J. (2025, July 25). Senate Democrats Urge FHFA to Halt Crypto Mortgage Plan. The Hill. Retrieved from https://thehill.com/policy/finance/584940-senate-democrats-urge-fhfa-to-halt-crypto-mortgage-plan
[2] Goldman, M. (2025, July 26). Senate Democrats Question Crypto in Mortgage Lending. Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2025-07-26/senate-democrats-question-crypto-in-mortgage-lending
[3] Warren, E. (2025, July 24). Letter to FHFA Director William Pulte. Retrieved from https://www.warren.senate.gov/files/documents/2025-07-24_Letter_to_FHFA_Director_William_Pulte.pdf
[4] Lummis, C. (2025, June 15). The 21st Century Mortgage Act. Retrieved from https://www.lummis.senate.gov/news/press-releases/lummis-introduces-21st-century-mortgage-act
[5] Johnson, K. (2023, March 15). Three Banks Collapse Due to Crypto Exposures. The New York Times. Retrieved from https://www.nytimes.com/2023/03/15/business/three-banks-collapse-due-to-crypto-exposures.html
[6] Brown, J. (2023, April 1). Crypto Volatility and Mortgage Defaults: A Growing Concern. Forbes. Retrieved from https://www.forbes.com/sites/johntbrown/2023/04/01/crypto-volatility-and-mortgage-defaults-a-growing-concern/?sh=5e7f23f6690a
- The Senate Democrats, including Elizabeth Warren and Bernie Sanders, have voiced their apprehensions about the Federal Housing Finance Agency's (FHFA) plans to examine using cryptocurrency in mortgage risk assessments without converting to US dollars, citing the instability and illiquidity of cryptocurrencies as potential hazards for borrowers who utilize crypto assets as mortgage security.
- The Democrats cautioned the FHFA against implementing the policy without a complete risk assessment, expressing concerns about problems like trouble converting crypto to cash at stable prices, increased market speculation, housing price inflation, and potential financial system instability if crypto values suddenly plummet.
- In contrast, Republican Senator Cynthia Lummis has proposed the 21st Century Mortgage Act to authorize the FHFA’s June directive, allowing crypto assets to be considered valid collateral in mortgage applications with the goal of helping younger Americans obtain housing more easily without converting crypto to fiat currency.
- The Democratic resistance has emphasized the necessity for a thorough evaluation before moving forward, bringing attention to a partisan divide in Congress over the integration of digital assets into traditional housing finance, with references to the collapse of three banks associated with crypto exposures in 2023 and the increased risk of mortgage defaults during market downturns.
