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Challenges
US banking and mortgage has an intensive regulatory landscape. Before implementing cryptocurrency, it needs to be closely reviewed and understood for its implications and regulatory fitment.
Fannie Mae and Freddie Mac are instructed to consider risk mitigants, such as adjustments for market volatility and capping the percentage of a borrower’s assets that may be comprised by cryptocurrency. This indicates that lenders will likely apply substantial discounts to the stated value of crypto holdings and require additional documentation.
Prior to this directive, the consensus among many mortgage lenders was to avoid crypto due to its volatility and murky regulatory landscape. However, some non-agency lenders (those not backed by Fannie Mae and Freddie Mac) have already been exploring crypto-backed mortgages.
Historically, if cryptocurrency was to be used for a down payment or reserves, it had to be liquidated into US dollars and held in an eligible asset account for a period (e.g., two months), with documented evidence of the transaction. Income paid in cryptocurrency could not be used to qualify for a mortgage application and the monthly payments on debts secured by cryptocurrency had to be included in the borrower’s debt-to-income ratio.
While this is a path leading and futuristic step to be ready for the next generation, it needs to be closely reviewed and understood for its implications and regulatory fitment. Additionally, there are other federal agencies as well that would play a substantial role, which needs to be reviewed from a larger perspective and see how it will span out in the intensively regulatory landscape for the US.
- Securities and Exchange Commission (SEC): Regulates cryptocurrencies classified as securities.
- Commodity Futures Trading Commission (CFTC): Classifies Bitcoin and Ethereum as commodities and supervises their derivatives and futures contracts.
- Internal Revenue Service (IRS): Considers cryptocurrencies as property for tax purposes, meaning transactions are subject to capital gains taxes. Strict record-keeping is required.
- Office of the Comptroller of the Currency (OCC): Manages national banks’ involvement in crypto-related activities and has issued guidance on risk management for banks holding crypto assets on behalf of customers.
- Financial Crimes Enforcement Network (FinCEN): Focuses on anti-money laundering (AML) and know-your-customer (KYC) compliance for crypto exchanges.