Use Crypto to Help Buy a Home? Who the Real Winner Could Be. — Barrons.com

By Shaina MishkinBitcoin could get more closely woven into the homebuying process. But the Federal Housing Finance Agency's recent directive on the subject isn't a turning point for mortgage finance — yet, at least.Fannie Mae and Freddie Mac, two mortgage finance giants under government conservatorship, must "prepare a proposal for consideration of cryptocurrency as an asset for reserves in their respective single-family mortgage loan risk assessments, without conversion of said cryptocurrency to U.S. dollars," Bill Pulte, the head of the FHFA, wrote in a Wednesday directive."Today is a historic day in the cryptocurrency industry and the mortgage industry, whereby Fannie Mae and Freddie Mac are now positioned to involve cryptocurrencies in mortgages," Pulte added on the social networking website X.The proposal instructs Fannie Mae and Freddie Mac, which buy mortgages from lenders, package them into securities, and guarantee them for investors, to study using cryptocurrency to evaluate a borrower's mortgage risk. "Additionally, each enterprise is directed to consider additional risk mitigants per their own assessment, including adjustments for market volatility and ensuring sufficient risk-based adjustments to the share of reserves comprised of cryptocurrency," the order says.It is, perhaps, a bigger moment for cryptocurrency than for the U.S. housing market. Estimates vary as to how many U.S. households hold crypto: the Federal Reserve Bank of St. Louis in March estimated that about 4.3% of U.S. households 65 or younger owned cryptocurrency, based on their analysis of 2022 Survey of Consumer Finances data. Morning Consult's quarterly survey showed that 17% of U.S. adults said they own the digital currency earlier this year.For cryptocurrency investors, it is likely another sign of the Trump administration's commitment to digital currency, following January's "Strengthening American Leadership in Digital Financial Technology" executive order and March's order announcing a cryptocurrency reserve.It's also another sign of evolution in the housing market. The Mortgage Bankers Association said in a statement 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 many other impactful approaches to rethinking the underwriting of mortgage risk that should be included in the effort."But for the mortgage process, the FHFA directive doesn't seem like a "game changer, at least not at this stage," says Keith Gumbinger, the vice president at mortgage website HSH.com.That is for a few reasons. For one, there's no immediate change from the directive itself, since it will take time to prepare the proposals. And it seems related only to assets in relation to mortgage risk, Gumbinger notes, not using cryptocurrency as an income source for qualifying for a loan."It simply would allow someone who is required to hold cash reserves as a risk offset for mortgage qualification to not have to cash out their crypto holdings to raise those funds," Gumbinger notes.Still, the results could be a plus for some borrowers — particularly younger ones with significant value tied up in cryptocurrency, notes Morristown, N.J.-based real estate agent and mortgage lender Michael Read. "Crypto is something that comes up more and more now," he says.Incorporating cryptocurrency into the risk assessment process would potentially save crypto-holders who need to prove reserves the headache — and expense — of liquidating their holdings and paying taxes, notes HSH's Gumbinger. The companies are likely to establish the value of cryptocurrency holdings at about 70% to 80% of their market value, he adds.That could make a difference for would-be buyers who don't want to pull their cryptocurrency out of the market. "Nobody loves to liquidate," says Read.Write to Shaina Mishkin at [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.