FHFA Directive on Bitcoin in Mortgage Risk Assessments May Overlook Self-Custodied Assets and Increase Counterparty Risk

Key Points

1. The FHFA's directive clarifies that self-custodied crypto assets can be recognized in mortgage underwriting if they are verifiable through transparent, auditable means.

2. Self-custody reduces counterparty risks compared to centralized exchanges, which have faced issues like collapses, and can be verified using onchain tools.

3. The proposed framework for crypto mortgages focuses on verifiability, liquidity, and risk management, including measures like valuation haircuts and tiered risk limits.

4. Education and technical expertise are highlighted as essential for bridging the knowledge gap in crypto regulation and ensuring effective implementation.

5. The initiative represents a step toward modernizing housing finance by integrating self-custodied crypto holdings, pending industry collaboration and ongoing education.