The recent directive from the Federal Housing Finance Agency (FHFA) proposes exploring the potential use of cryptocurrency in mortgage risk assessments, which may open new opportunities for digital asset holders.
Understanding the FHFA Directive
FHFA is considering the inclusion of cryptocurrency in mortgage risks. If this initiative is implemented, long-term crypto holders could use their digital assets to qualify for a mortgage without needing to sell them. However, it is crucial to interpret the directive correctly, as there may be misconceptions about the requirement for assets to be held on US-regulated exchanges.
Benefits of Self-Custody
Self-custody is not a fringe activity in crypto; it forms the foundation of the system's architecture and security. When properly managed, it can offer greater transparency and protection compared to centralized exchanges. Additionally, self-held assets can be completely auditable and secure. Excluding such assets from mortgage underwriting poses a risk of incentivizing less secure practices.
Need for an Innovative Model
To effectively implement this initiative, a model that accommodates both self-custodied and custodial assets should be established. Meeting appropriate standards for verifiability and liquidity is crucial. Cryptocurrency needs to be integrated into a modern mortgage framework without forcing it into outdated models, laying the groundwork for future growth and education.
The FHFA directive has the potential to modernize mortgage finance for the digital age. It is essential to recognize various models of crypto asset custody and integrate them into the existing mortgage system to avoid issues stemming from misunderstandings.
