Democrats investigate whether housing regulators are considering the use of Crypto Assets in mortgages.

A group of Senate Democrats has launched an investigation into Federal Housing Finance Agency Director William Pulte, centering on his proposal to consider Crypto Assets in mortgage applications.

Five Democratic senators in the United States are investigating the head of the country's housing finance agency, focusing on his plans to incorporate Crypto Assets into certain mortgage approval processes.

Senators led by Jeff Merkley sent a letter on Friday to Federal Housing Finance Agency (FHFA) Director William Paulat, asking him to explain his plan "to fully assess the potential risks and benefits of the order, as well as its impact on the U.S. real estate market and financial system."

Senators Elizabeth Warren, Chris Van Hollen, Mazie Hirono, and Bernie Sanders also jointly signed this letter, requesting Pulte to provide a response by August 7.

Last month, Pulte ordered the housing mortgage purchase entities Fannie Mae and Freddie Mac to prepare a proposal outlining how to consider the holdings of Crypto Assets in the risk assessment of single-family mortgages without converting the Crypto Assets into US dollars.

Since 2008, the Federal Housing Finance Agency has been regulating Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation). After the financial crisis triggered by the collapse of the subprime mortgage market in 2008, both companies were placed under government oversight.

Buyers' concerns about the risks of Crypto Assets have intensified.

Senators stated that Pulte's plan "could pose unnecessary risks to consumers and seriously affect the safety and stability of the U.S. housing and financial markets."

They pointed out that under current policies, Fannie Mae, Freddie Mac, or any other federally-backed mortgage issuer does not allow lenders to consider Crypto Assets in mortgage decisions unless they are first converted to USD.

Senators also added that Crypto Assets have always been highly volatile and illiquid, and they are concerned that borrowers using Crypto Assets face "increasing risks that they may not be able to exit their Crypto Asset positions at prices that can buffer against mortgage default risk and convert them to cash."

Excerpt from a letter from Democratic Senator to William Purtell. Source: U.S. Senate Committee on Banking, Housing, and Urban Affairs.

Senators stated: "Crypto Assets face significant risks of loss due to fraud, cyber hacking, or physical theft, which could easily result in homeowners losing their crypto assets, with little hope of recovery."

Democrats claim that the order may have conflicts of interest.

Senators have also expressed concerns about how the Federal Housing Finance Agency, Fannie Mae, and Freddie Mac will prevent conflicts of interest with individuals connected to Crypto Assets, "which could unduly influence their proposals," which involve President Donald Trump and his family.

The Trump family is deeply involved in the Crypto Assets industry, with connections to a token trading platform, a stablecoin, a cryptocurrency mining business, and various meme coins and non-fungible tokens.

Senators also questioned Purtell, stating that financial disclosures showed his spouse held up to $2 million in Crypto Assets, "raising further concerns about potential conflicts of interest."

They added that there is a "serious conflict of interest" because Pulte's order stipulates that Fannie Mae and Freddie Mac must obtain approval from their respective boards before advancing reforms, but Pulte is the chairman of the boards of both organizations. They also accused him of colluding with "industry allies."

Senators want a clearer understanding of the order.

Senators also claimed that Pulte's order is vague, failing to mention how Fannie Mae and Freddie Mac will formulate proposals, the Federal Housing Finance Agency's assessment methods for risks and returns, and how the agency will collect feedback.

They further stated: "Given that the Federal Housing Finance Agency previously failed to adequately regulate activities related to Crypto Assets, it is especially important to clarify this order." They pointed out that during the banking crisis in 2023, three banks collapsed, "partly due to the operational risks brought about by the growth of cryptocurrency business."

The organization also pointed out that Fannie Mae found in 2021 that using Crypto Assets and stablecoins for deposits, payments, or collateral was the "least attractive application" of blockchain in the industry.

They asked Purt to answer a series of questions, including sharing communications regarding Crypto Assets, the process for approving orders, and how he would avoid conflicts of interest, among others.