In a recent bulletin published by Freddie Mac, Bulletin 2021-36, the major mortgage lender addressed concerns surrounding the use of cryptocurrency in mortgage lending. The bulletin helps to clear certain issues surrounding the use of the controversial digital assets, which have been a source of legal confusion since they were introduced. However, advocates for cryptocurrency are unlikely to be pleased by the bulletin, which is likely to inform lending practices throughout the finance sector.
What is Freddie Mac?
The Federal Home Loan Mortgage Corporation, known informally as Freddie Mac, is one of the largest mortgage lenders in the United States. The company is estimated to have made more than $9 billion in income in 2020, with total assets valued at over $2 trillion. Freddie Mac is, unlike most other mortgage lenders, backed by the federal government, giving it a reputation for reliability and a substantial amount of influence in its industry.
What is Cryptocurrency?
Cryptocurrency is the term used to refer to a type of digital asset that is traded on online markets, whose value is dictated by decentralized record-keeping systems rather than central authorities. The record-keeping systems, which operate using a technology known as the blockchain, are heavily encrypted, as are the exchanges that trade in cryptocurrency. This allows cryptocurrency traders to pseudo-anonymously engage in transactions involving the digital assets, without the need to go through banks, brokerages or other similar financial institutions.
What Do the Guidelines Say?
In short, Freddie Mac has advised its lenders not to accept cryptocurrency directly for mortgage payments, and income paid to someone in the form of cryptocurrency cannot be used to determine if they qualify for a mortgage. In addition, cryptocurrency cannot be used in the calculation of assets as a basis for repaying loans, but they must be included in a borrower’s debt payment-to-income ratio. Finally, if someone wishes to use cryptocurrency to pay off their mortgage obligations, they must first convert it to US dollars.
How Does This Affect People Looking for a Mortgage?
For the vast majority of borrowers, this new guidance will mean little. However, for people who are looking to use cryptocurrency to qualify for mortgages, or as a way of repaying mortgages, this new bulletin is a serious blow. Until cryptocurrency becomes more reliable as an asset, Freddie Mac has determined that it is too unstable and uncertain for mortgage transactions. In other words, if you want to get a mortgage or pay off your mortgage, cryptocurrency is unlikely to be of help in the near future.
At David J. Lorber & Associates, PLLC, we assist clients throughout New York who are looking to buy or sell real estate. We will guide you through the process and help you minimize your legal and financial risks. Call us at (631) 750-0900 or contact us online to schedule your Free consultation at our Setauket office.