A Look At Senator Cynthia Lummis’ “21st Century Mortgage Act”, To Allow Cryptos as Collaterals in Mortgages

US Senator Cynthia Lummis introduced the 21st Century Mortgage Act to allow cryptocurrency holdings to be considered as collateral in mortgage applications without requiring conversion to US dollars. The bill codifies a June 2025 directive from the Federal Housing Finance Agency (FHFA) instructing Fannie Mae and Freddie Mac to explore incorporating digital assets into mortgage underwriting.

Lummis argues this could boost homeownership among younger Americans, citing US Census data showing only 36% of those under 35 own homes, while 21% of US adults hold crypto, with two-thirds under 45. A similar House bill, the American Homeowner Crypto Modernization Act, was introduced by Representative Nancy Mace on July 14, 2025.

Opposition comes from Senate Democrats like Elizabeth Warren, who warn that crypto’s volatility and liquidity issues could destabilize the housing market and financial system. Critics, including Senators Bernie Sanders and others, have urged the FHFA to assess risks thoroughly. The bill’s fate in Congress remains uncertain, but it reflects growing momentum to integrate digital assets into traditional finance, as seen globally with initiatives like Bitcoin-backed mortgages in Australia.

By allowing crypto assets to be used as collateral without requiring conversion to US dollars, borrowers may avoid liquidation costs, capital gains taxes, or market timing risks associated with selling volatile assets. This could preserve more of their wealth, enabling larger down payments or stronger loan applications, potentially securing lower interest rates due to improved loan-to-value (LTV) ratios.

Lenders may offer competitive rates to attract younger, crypto-savvy borrowers, especially if Fannie Mae and Freddie Mac standardize crypto collateral valuation, reducing perceived risk. Crypto’s volatility could lead to higher interest rates for some borrowers. Lenders might impose risk premiums to account for potential price swings in assets like Bitcoin or Ethereum, which could increase borrowing costs compared to traditional collateral like cash or securities.

If the FHFA establishes conservative valuation methods (e.g., using a 90-day average crypto price), this could stabilize underwriting but might undervalue assets, potentially leading to higher LTV ratios and elevated interest rates. The bill could spur competition among lenders, encouraging innovative mortgage products tailored to crypto holders. For example, hybrid loans blending crypto and fiat collateral might emerge, potentially lowering costs for borrowers with diversified portfolios.

However, if crypto collateral leads to defaults due to market crashes, lenders might tighten terms or raise rates broadly, impacting all borrowers. Many younger Americans, particularly those under 45 (who make up two-thirds of crypto holders), may have significant crypto wealth but limited liquid cash or traditional credit history.

The bill could allow these individuals to leverage their digital assets to qualify for mortgages, bypassing barriers lke high cash down payment requirements or stringent debt-to-income (DTI) ratios. This could democratize homeownership for populations historically excluded from credit markets, such as freelancers or gig economy workers with crypto income streams.

Traditional credit scoring models rely on income, credit history, and liquid assets. Incorporating crypto assets introduces complexity, as lenders must assess the value and stability of decentralized, non-traditional assets. Without standardized valuation protocols, some borrowers might face delays or rejections, perpetuating access barriers.

The bill’s reliance on FHFA guidance suggests potential for uniform standards, but until implemented, lenders may hesitate, limiting immediate benefits. By recognizing crypto as collateral, the bill could reduce reliance on traditional credit lines, benefiting those with poor or no credit history but substantial crypto holdings. This aligns with global trends, like Australia’s Bitcoin-backed mortgage programs.

However, critics like Senator Elizabeth Warren highlight risks of systemic instability if crypto market volatility leads to widespread defaults. This could prompt regulators to impose stricter criteria, potentially offsetting inclusion gains by raising barriers for riskier borrowers. The bill’s success depends on FHFA’s ability to develop robust risk assessment frameworks.

If lenders perceive crypto collateral as too risky, they might demand higher credit scores or additional fiat collateral, maintaining barriers for some applicants. Conversely, if adopted broadly, the policy could encourage alternative credit models, reducing dependence on traditional metrics like FICO scores and opening homeownership to a broader demographic.

If crypto-backed mortgages gain traction, they could increase housing demand, potentially driving up home prices and indirectly raising borrowing costs. This might exacerbate affordability challenges in high-cost markets. Critics’ concerns about crypto’s volatility could lead to cautious lending practices, limiting the bill’s impact on reducing credit barriers.

A crypto market crash could also trigger defaults, affecting mortgage-backed securities and broader financial stability. Similar initiatives, like Australia’s crypto mortgage programs, suggest potential for success but also highlight the need for clear regulatory guardrails to manage risks.

The bill could lower mortgage interest costs and credit barriers for crypto holders by enabling asset-backed borrowing and fostering financial inclusion. However, its success hinges on effective risk management, standardized valuation, and lender adoption. Without these, volatility concerns and regulatory caution could limit benefits, potentially increasing costs or maintaining barriers for some borrowers.