History rarely repeats itself word for word, but it often rhymes with unsettling familiarity. The echoes of the 2008 financial crisis, brought about by poor underwriting and irrational exuberance, seem to be reverberating once again. This time, the refrain is not “stated income” but “cryptocurrency as an asset.”
Recently, the Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac to consider a proposal that would allow certain cryptocurrencies to be treated as assets when assessing a borrower’s reserves. These digital holdings, so long as they are stored on a regulated U.S. exchange, may be counted toward a borrower’s financial readiness, and most importantly, without conversion to U.S. dollars.
Although modernizing financial frameworks is both admirable and necessary, it is important to remember the sobering lessons of our past.
The Art of Caution in Lending
Before the 2008 financial crisis, we saw a deterioration in the basic art of credit assessment. Lenders abandoned verification, investors ignored risk, and mortgage originators operated under the cheerful assumption that the price of housing could never decline. It was, to borrow a phrase by famed economist John Maynard Keynes, “a triumph of hope over experience.”
The Nature of Sound Collateral
There is, I submit, a fundamental distinction between wealth and its illusions. Crypto assets, however fashionable, are among the most volatile and least secure of modern financial instruments. To treat them on par with more stable reserves, such as cash, government securities, or even broadly diversified equities, is to confuse the froth of the market with its substance.
Cryptocurrencies do not represent productive enterprises, nor do they yield predictable income. Their value is not derived from underlying earnings or contractual obligations, but from speculative demand and shifting sentiment. In short, they are not a store of value in any traditional sense. To accept crypto as collateral is to invite the very sort of misjudgment that allowed “liar loans” to flourish—loans that required no verification of income, no proof of capacity, and no risk.
Today, we are asked to believe that digital tokens may serve as reliable indicators of financial health—the same digital tokens that can experience –99% crashes. Even ignoring the volatility, the notion introduces profound uncertainty into the financial system. And uncertainty, unlike calculable risk, is the very condition most fatal to orderly economic life.
The Dangers of Moral Hazard
What makes this proposal so concerning is that Fannie Mae and Freddie Mac are not mere private entities, but government-sponsored enterprises. Their endorsement carries weight and influence across the financial spectrum. If they begin to underwrite loans with crypto-based reserves, banks and lenders will follow suit, and a meritless fringe practice becomes mainstream.
It begs the question: is this policy shift driven by sound judgment or by the hope that innovation alone can overcome instability? Innovation is not a substitute for caution, especially when the stability of the housing market, the very foundation of middle-class wealth, is at stake.
Real Wealth vs Perceived Wealth
In a world increasingly seduced by abstraction, we must return first to principles. Real wealth is grounded in utility, productivity, and the confidence that tomorrow will be shaped by something firmer than speculation. Crypto, however ingenious in its architecture, is not the foundation upon which to build a mortgage market.
The housing crisis of 2008 was not inevitable. It was the result of bad policy, poor incentives, and the abandonment of old-fashioned vigilance. If cryptocurrency is allowed to play the same role in distorting underwriting standards that liar loans once did, we may find ourselves repeating history.
The Risks of Cryptocurrency as an Asset
If Fannie Mae and Freddie Mac proceed down this unsteady path of allowing speculative digital assets to distort the careful calculus of mortgage underwriting, we must ask: can your community association truly withstand another systemic shock?
Should this policy be enacted, it will mark not progress but repetition, a return to the cycle of exuberance followed by collapse. A pattern we know too well. Between 2007 and 2014, delinquency rates soared, and the solvency of associations was jeopardized. Though memory may fade, consequences do not.
Learn From the Past
Now is the time to act with foresight. Whether we like it or not, Fannie and Freddie may decide to push forward onto shaky ground in the name of progress. If that happens, your community needs protection against the tremors of reckless lending and the delinquencies that follow suit.
In matters of finance, delay is often the costliest of errors. Anticipate the waves and meet them, not with despair, but with preparation. Partner with a collections solution that knows a thing or two about resolving difficult HOA and condo association delinquencies. One that places no financial burden on the association. One that prepares communities not through panic, but through consideration and experience.
At Axela, we strive to support communities struggling with delinquency issues—the same issues we very well may see if prospective borrowers can treat cryptocurrency as an asset. Contact us today for a free collections analysis and start preparing the financial possibilities created by unpredictable cryptocurrency.
