A new bill introduced in the U.S. Senate seeks to integrate cryptocurrency into the mortgage approval process, potentially opening doors for younger homebuyers and modernizing the housing finance system. The "21st Century Mortgage Act," proposed by Senator Cynthia Lummis, aims to require government-sponsored enterprises like Fannie Mae and Freddie Mac to consider digital assets when evaluating mortgage eligibility.
This legislation responds to a growing trend of young Americans holding cryptocurrency as a primary means of wealth building. With homeownership rates among those under 35 at a historic low, Lummis argues that outdated lending criteria are failing a generation. The bill seeks to address this by allowing borrowers to leverage their crypto assets without requiring conversion to U.S. dollars. This aligns with a recent directive from Federal Housing Finance Agency (FHFA) Director William Pulte, who instructed Fannie Mae and Freddie Mac to explore incorporating crypto as reserve assets in mortgage risk assessments.
The proposed law has multiple potential benefits for prospective homebuyers. It could provide quicker access to credit for individuals who may lack strong traditional financial backgrounds. By recognizing crypto as a legitimate asset, the bill could streamline the mortgage process and allow borrowers to avoid the tax implications associated with selling their crypto holdings. It may also improve approval odds, as reserve assets are considered a compensating factor in underwriting.
However, the proposal also faces significant criticism, primarily centered on the volatility and risk associated with cryptocurrencies. Senators Elizabeth Warren, Bernie Sanders, and other Democrats have voiced concerns that incorporating digital assets into mortgage underwriting could destabilize the housing market and the broader financial system. They argue that the fluctuating value of cryptocurrencies could expose both borrowers and lenders to heightened risk. A sudden downturn in the crypto market could affect the collateral backing the loan, increasing the lender's risk.
Furthermore, critics worry that relying on crypto holdings instead of traditional income verification and credit history could erode crucial safeguards in assessing repayment capacity. Some experts caution that this approach could mirror the risky lending practices that contributed to the 2008 financial crisis. Concerns also exist around the practical challenges of valuing and verifying digital assets, as well as ensuring compliance with anti-fraud and money laundering regulations.
Despite these concerns, Senator Lummis and other proponents of the bill maintain that it is a necessary step towards modernizing the housing finance system and promoting financial inclusion. They argue that government agencies must adapt to the growing prevalence of digital assets and create pathways for young Americans to achieve homeownership. The bill also stipulates that borrowers would not be forced to convert their cryptocurrency into U.S. dollars.
The "21st Century Mortgage Act" is one of several crypto-related bills that the Senate may consider. Its future will likely depend on bipartisan support and the resolution of technical challenges related to crypto valuation and regulatory compliance. As the debate unfolds, the bill highlights the broader discussion about the role of digital assets in the financial system and the need for updated regulations that protect consumers while fostering innovation.
