Fannie and Freddie Will Now Have to Short Your Crypto
So, here’s a new thing: the federal government has decided that your crypto portfolio—your Bitcoin, your Ethereum, your lingering Dogecoin bag—can help you qualify for a mortgage.
This is not quite “buy a house with Bitcoin.” That would be too fun. No, this is more bureaucratic: the Federal Housing Finance Agency says that if you’re applying for a mortgage backed by Fannie Mae or Freddie Mac, you can count your crypto holdings as part of your “asset reserves.” That means your Coinbase wallet is now officially money-like. It’s mortgage-relevant. It counts.
Crypto people rejoiced. Washington has finally recognized their tokens as legitimate financial assets—part of the American dream, if not quite legal tender. And yes, sure, it’s a win. But also, it’s kind of a trap.
Because here’s the thing: once Fannie and Freddie start counting crypto as an asset, they also start having crypto risk. And once you have crypto risk, you need to hedge crypto risk. And the way you hedge crypto risk is by building a structure that lets you short crypto.
So now, thanks to a rule designed to help crypto-holders buy homes, we are going to need a bunch of brand-new synthetic crypto shorting instruments, sold to the GSEs, structured by banks, and inevitably traded by hedge funds.
It’s basically the 2005 subprime CDS trade, but this time the toxic collateral is digital and the mortgage borrowers are, presumably, wearing laser-eyed “HODL” T-shirts.
The GSEs Will Now Be Long Crypto
Let’s walk through it.
You’re applying for a mortgage. Fannie and Freddie want to know that if things go sideways—your furnace explodes, your job vanishes, your roof caves in under an unexpected April snowstorm—you’ll still be able to make your payments. So, sometimes they ask for “reserves,” especially if your income is irregular or your loan-to-income ratio is a little tight. Historically, this meant cash, brokerage accounts, maybe a 401(k). Now it also means crypto.
Specifically, it means crypto that you hold on a regulated U.S. exchange or could hold on an exchange if you wanted to. (This part will matter in a moment.)
So, your $50,000 in Bitcoin is now making you a safer borrower, in theory. Except: Bitcoin is volatile. If it drops 40 percent, your reserves drop 40 percent. You are now more likely to default. Multiply that across a few hundred thousand borrowers, and you’ve just introduced systematic crypto risk into mortgage underwriting.
Which means Fannie Mae is long on crypto now. Whether it wants to be or not.
Fannie doesn’t take unhedged positions in volatile speculative assets. That’s not its thing. So, they’re going to want to hedge this exposure.
But how do you hedge “crypto reserve exposure in conforming mortgage loans”?
There’s no product for that. Not yet. But there will be. Wall Street will build it.
Probably it’ll be a swap. Or a structured note. Something bespoke. Maybe an index—the “FHFA-Eligible Crypto Basket”—priced and maintained by some helpful trading desk, backtested with great confidence intervals, hedged with CME futures, and available in a variety of tranches.
The first buyer will be Fannie. The second will be Freddie. The third will be a hedge fund that simply wants to bet that crypto-backed borrowers are more fragile than they look.
And just like that, you’ve created a market for shorting crypto exposure inside the housing system.
This might not matter immediately. Crypto-reserve loans will initially be tiny. But if the crypto enthusiasts are right and crypto ownership keeps expanding, crypto reserve loans will become more common.
The Regulators Have to Rethink Crypto Regulation—Again
The FHFA said only crypto held on regulated U.S. exchanges will count, which makes sense if you’re trying to screen out sketchy offshore assets or self-custodied tokens named after frogs.
But there’s a catch: the people regulating those exchanges—SEC, CFTC, maybe the OCC if you squint—weren’t planning for their listings to be used to collateralize mortgages.
They were thinking about investor protection, fraud prevention, and market manipulation. They were not thinking: “Hey, this token might help someone qualify for a house in Schenectady.”
So, now those regulators need to coordinate with FHFA. Because they’re not just regulating trading venues anymore. They’re regulating a conduit to the mortgage market. Crypto regulation now stretches into one of the world’s largest and most important financial markets: the secondary market for GSE mortgage bonds.
You can imagine the meetings now.
“We’re considering whether to let this token continue trading—wait, how many MBS pools does it backstop?”
The SEC has to think about systemic risk in Bitcoin because Bitcoin is now in the mortgage system.
Meanwhile, In the Secondary Market…
Let’s say all this goes through. Fannie buys loans with crypto-backed reserves. They package them into mortgage-backed securities and sell them to investors.
Now what?
Will the FHFA disclose how many crypto-supported loans are in a pool? Will investors demand a premium to hold high-crypto MBS? Will pools get sliced into “crypto-heavy” and “crypto-light” tranches and trade differently?
Or maybe—most amusingly—they don’t disclose anything and instead try to evenly distribute crypto borrowers across all MBS pools so no one can tell. That’s fine, except then all the pools carry the same added volatility. And that might mean all the pools need to yield more.
So, congratulations. Crypto made your mortgage more expensive—not because you bought crypto, but because your neighbor did.
Be Careful What You Wish For
This whole thing was supposed to legitimize crypto by saying, “Look, these assets are real. You can use them to support your claim to financial stability.”
But what it really does is make crypto a mortgage risk factor. And then it demands that mortgage institutions hedge that risk, and that requires shorting crypto.
So, the first major U.S. housing policy to embrace crypto will create a new structured finance product designed to bet against crypto wealth. The biggest beneficiaries will be the guys on Wall Street creating and selling this new product. That might even be enough to entice Fabrice “Fabulous Fab” Tourre out of academia to return to Wall Street.
That’s the real legacy here: a world in which your internet tokens are finally treated like real money because they can now be collateralized, pooled, tranched, and shorted.
Honestly, they should just tokenize the tranches now and get it over with.
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