The Federal Home Loan Mortgage Corporation, more commonly referred to as Freddie Mac, has recently issued Bulletin 2021-36, which details how the company will deal with cryptocurrency. The new bulletin is meant to address the growing influence of these digital assets, and the extent to which they are now publicly traded. However, cryptocurrency advocates are unlikely to be pleased with Freddie Mac’s assessment, which puts little faith in their stability as an asset.
What is Cryptocurrency?
Cryptocurrency is the term for a type of digital asset that is, ostensibly, meant to act as a type of digital currency. Rather than being maintained by a central agency or authority, however, cryptocurrency is managed via a decentralized record-keeping system known as the blockchain. This system is maintained via cryptography, which encrypts both the transaction and the identities of both the buyer and seller, permitting anonymous (or pseudo-anonymous) transactions via cryptocurrency exchanges.
What Does the Bulletin Say?
First, cryptocurrency cannot be used directly to pay back installments in a mortgage, and cannot be used as part of the calculation of a person’s assets to determine if they qualify for a mortgage. If someone wants to use cryptocurrency to pay for a mortgage, they must convert it to US dollars. In addition, monthly payments on debts secured by cryptocurrency must be included in a borrower’s debt payment-to-income ratio, and in cases where someone must demonstrate if they have sufficient income to establish continuance, that income cannot come from cryptocurrency.
Why Are They So Restrictive About Cryptocurrency?
Freddie Mac has taken an incredibly restrictive stance on the use of cryptocurrency, but its position is warranted. By its own estimation, cryptocurrency is simply considered far too unreliable to be considered reliable to either secure loans or act as an asset that can be used to pay back mortgage obligations. Its price volatility and lack of institutional backing, along with the amount of suspicious financial activity associated with cryptocurrency, simply makes it too unreliable to be treated in the same way that other assets would be.
Why Issue This Bulletin Now?
Despite all the issues with cryptocurrencies, the fact of the matter is that they are more popular now than they have ever been. In addition, more and more companies have begun investigating cryptocurrency as a potential investment vehicle, increasing the likelihood that someone may attempt to use these assets as a means of securing a mortgage. However, Freddie Mac has put its foot down on the matter, signalling a great deal of hesitation when it comes to embracing this new type of digital asset.
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