Cryptocurrency and mortgage financing

Crypto Nightmare For Borrower

We recently had a borrower liquidate funds after a flurry of trades – resulting in demands for YEARS of bank statements by the underwriter (because she’s required to “source” every dollar that goes into a transaction). And – this was all because cryptocurrency was one of the assets traded by the borrower. 

We of course made an appeal for the underwriter to lighten the requests, but the underwriter refused to budge. We apologized profusely to the borrower and managed to close on time, but we felt awful for the borrower during that closing process.

Because crypto is gaining popularity as a novel form of investment, I want to emphatically recommend that borrowers avoid using crypto as a source of funds for mortgage transactions – as the “paper-trailing requirements” and the crypto limitations can cause extreme headaches and frustrations.  I should add though that this recommendation only applies to our best “A paper” investors and loan programs, as there are loan programs that are “crypto-friendly,” but the rates are much higher.

I should also note that there is a spirited debate around crypto’s long-term viability as an investment, a currency hedge and as a currency itself, but this blog is not about that at all.  It is only about how crypto assets and liquidations impact mortgage qualifications.

Crypto Takeaways For Lenders, Agents, And Clients

For most types of mortgage financing, the takeaway is “avoid crypto if possible.”  Most of our best jumbo investors, for example, won’t let our borrowers go near crypto.

And, below are Fannie Mae’s crypto guidelines (summarized and condensed for clarity):

Cryptocurrency is generally not allowed as an asset at close. To use crypto at all, borrowers have to show crypto assets have been liquidated and transferred to a checking account. Importantly, we also need to confirm cryptocurrency purchases were made using eligible funds by documenting the purchase trail.  In other words, borrowers can’t use a credit card to buy crypto and then liquidate that crypto for a down payment.

The crypto eligibility verifications are easier said than done, as underwriters require ALL bank and investment account statements showing (1) when the crypto was initially purchased; (2) the crypto balances throughout the ownership period; (3) the value of the crypto at time of liquidation; and (4) proof that the funds derived from the liquidation were deposited in the checking account.

Here is a summary of what some of our top jumbo investors say about crypto: 

  • One top investor prohibits ANY accounts where crypto transactions have been recorded. If there is even $1 deposited from Coinbase, for example, the entire account is unusable – and yes, we also find this crazy!
  • Other investors prohibit the use of crypto, but allow accounts where transactions have been recorded as long as the funds are “backed out” and not used in any way towards the home purchase.
  • And finally, several less favorable jumbo investors (with higher rates) allow crypto funds to be used directly, but the documentation requirements are onerous (similar to the examples above) and very frustrating for borrowers.

Because crypto can foster so many problems, our current “Actions to Avoid” on our website specifically cautions against the use of crypto, as do our pre-approval letter emails.

Guidelines Can (And Do) Change

I want to finally add that guidelines can and will change. A great example is the much more flexible treatment of restricted stock units (a form of stock-based compensation) that we see today.  Similarly, it is very likely that crypto guidelines will change as well, and we will of course keep the world posted. 😊

In the meantime, enjoy these luxury properties recently purchased by the “Crypto Kings” with deep pockets.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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