Massachusetts consumers who have gone all in on the cryptocurrency craze received some potentially good news in late June, courtesy of Federal Housing Finance Agency director Bill Pulte.
In an order signed Pulte directed Fannie Mae and Freddie Mac to develop a plan to consider cryptocurrencies as an asset when assessing borrower risk. The move is an additional step in bringing digital currencies into the financial mainstream.
The move was positively received by members of the real estate and cryptocurrency communities, which characterized it as a way to expand homeownership to consumers who may not have more traditional assets, such as savings or retirement accounts. According to Matthew Ping, principal broker at Porcupine Real Estate in New Hampshire, the main impact of the directive is to expand the types of eligible assets borrowers can use during the mortgage qualification process.
“Any coin that’s held on a U.S. exchange, such as Coinbase, could be considered,” Ping says. “Even something as silly as Fartcoin — yes, it’s a real thing — could… help someone qualify for a mortgage.”
Currently, if a buyer wants to obtain a mortgage to purchase a home and most of their assets are in cryptocurrency, they must sell their coins and convert them into cash to demonstrate they have enough funds in reserve to qualify for the loan. They also have to pay capital gains tax once they liquidate their digital assets (and paying more taxes, although sometimes necessary, is always a bummer).
Ping goes on to note that home sellers could also benefit by expanding the pool of potential buyers to include those who have most of their wealth tied up in digital currencies.
Despite all this enthusiasm, the move to include crypto in assessing creditworthiness isn’t without risk. Digital assets are incredibly volatile. Ping points out that if a significant downturn wipes out most of a coin’s value, it “would reduce the borrower’s asset qualifications, potentially leading to them qualifying for a lower amount or no mortgage at all.”
Of course, this is all still in the early stages. The reliability of using digital assets to secure a home loan will depend on the guidelines that Fannie and Freddie develop to safeguard against those big value swings.
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