FHFA Could Expose Homebuyers To Greater Counterparty Risk

Opinion by: Margaret Rosenfeld, chief legal officer of Everstake

The Federal Housing Finance Agency’s (FHFA) recent directive to explore how cryptocurrency might be included in single-family mortgage risk assessments is a welcome and long-overdue step.

If implemented, it could allow long-term crypto holders to use their digital assets when qualifying for a mortgage without being forced to liquidate them.

To realize its potential, the resulting proposals must reflect how crypto actually works. And that means recognizing the legitimacy of self-custodied digital assets.

Misreading the FHFA directive

Some have already misread the directive requiring crypto to be custodied on a US-regulated exchange to count. That would be a serious mistake — and contrary to the plain text of the directive.

“Digital assets… must be capable of being evidenced and stored on a US-regulated, centralized exchange subject to all applicable laws.”

The phrase “capable of being stored” is clear. The directive calls for assets to be verified and safely handled through US-regulated infrastructure, not for a ban on assets held elsewhere. Verifiability must be the standard, not a specific custody model.

The security case for self-custody

Self-custody is not a fringe activity in crypto. It is the foundation of the system’s architecture and security. Compared to centralized exchanges, well-managed self-custody can offer superior transparency, auditability and protection. Collapses of major custodians and centralized exchanges have shown how real counterparty risk can be.

Properly documented, self-custodied assets can be fully auditable, as onchain records demonstrate balance and ownership. They also offer a higher level of security, since cold storage and non-custodial wallets reduce single points of failure. In addition, self-custodied assets are verifiable, with third-party tools already available to attest to wallet holdings and transaction history.

If policymakers exclude these assets from mortgage underwriting simply because they aren’t exchange-custodied, they risk incentivizing less secure practices and penalizing users for doing crypto correctly.

A framework that supports innovation

There’s a better path. Any sound crypto mortgage framework should allow both self-custodied and custodial holdings, provided they meet standards of verifiability and liquidity. It should also apply appropriate valuation discounts (haircuts) to account for volatility.

Another key requirement is…