Opinion: Margaret Rosenfeld, Chief Legal Officer of Everstake
The recent directive for the Federal Housing Financial Institution (FHFA) to explore how cryptocurrencies are included in single-family mortgage risk assessments is a welcome long-term step.
If implemented, it can allow long-term crypto holders to use their digital assets when they qualify for a mortgage without being forced to settle their mortgage.
To realize that possibility, the resulting proposals must reflect how cryptography actually works. And that means recognizing the legitimacy of an independent digital asset.
FHFA directive misreading
Some people have already misunderstood the directive requiring Crypto to be detained in US-regulated exchanges for counting. It is a serious mistake and contrary to the obvious text of the directive.
“Digital assets must be certified and stored in a US-regulated, centralized exchange in accordance with all applicable laws.”
The phrase “can be saved” is clear. The directive calls for it to be verified and safely handled through US regulated infrastructure, rather than banning assets held elsewhere. Verifiability must be standard rather than a specific custody model.
Independence security case
Independence is not a code fringe activity. It is the foundation of system architecture and security. Compared to centralized exchange, well-managed independence can provide superior transparency, auditability and protection. The collapse of major custodians and central exchanges shows just how possible the actual counterparty risk is.
Well-documented, self-supporting assets are fully auditable, as Onchain Records demonstrates balance and ownership. Additionally, cold storage and non-resistant wallets offer a higher level of security as they reduce single points of failure. Additionally, independent assets are verifiable and third-party tools are already available to prove their wallet holdings and transaction history.
If policymakers exclude these assets from mortgage underwriting, they risk encouraging unsecured practices and punishing users to get the code right simply because they cannot withstand exchanges.
A framework that supports innovation
There is a better path. A sound crypto mortgage framework should allow for both self-supporting and custody holdings, provided they meet the criteria for verifiability and liquidity. You should also apply appropriate valuation discounts (haircuts) to take into account volatility.
Another important requirement is to use a standard risk-based tiering approach to limit the share of Crypto’s total bookings.
Related: US regulators order Fannie Mae, Freddie Mac to consider mortgage code
Finally, regardless of the type of custody, you should require clear documentation on how to verify and pricing. This idea has already been applied to unstable assets such as stocks, foreign currency, and even private stocks. Cryptography must be treated differently.
Don’t force cryptography into an outdated model
The directive has the potential to modernize housing finance in the digital age. However, to be understood, we need to avoid traps that force cryptography to mimic traditional models.
There is no need to flatten the decentralization to fit into the old risk box. You need a smart way to check that. Let’s do this right for the integrity of not only the crypto holders but also the mortgage system itself.
This is just one example of the major challenges facing new crypto policies. Too many rules have been drafted, assuming that everyone, from tax reporting to securities classification, relies on centralized intermediaries. Millions of participants choose an independent or decentralized platform because they value transparency, autonomy, lack of traditional intermediaries and security. Others prefer the regulated custodians that centralization provides.
Both models are legal and effective regulatory frameworks should be aware that users will continue to request different options.
More technical education on distributed technology is essential to fill this gap. Policymakers and regulators need to understand more deeply how decentralization works, why independent things are important, and how tools exist for verifying ownership without relying on third parties.
Without this foundation, the risks of future directives, statements, regulations and laws would make the same mistakes. This overlooks the majority of the ecosystem and fails to explain the full range of participants in the crypto industry.
Opinion: Margaret Rosenfeld, Chief Legal Officer of Everstake.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
