Stablecoin Mortgage Payments

QUESTION 

I have been reading your articles about cryptocurrency and mortgage banking. Thank you for providing these articles. I have shared your website with many people, and I get the hard copy of your articles, which I use in our management meetings. 

I am a member of senior management and on the Board. We are a large lender and servicer in the northeast, with offices in almost all states. Recently, our servicing CFO asked the Board to consider accepting stablecoins for mortgage payments. Our attorneys gave us a demonstration of the various legal complexities. But I want a high-level outline, such as only you can do! 

You should know that most of the Board was not convinced that now is the time to adopt stablecoins (or any crypto) for mortgage payments. We have also been researching crypto-backed mortgages, which seems like a path some of us want to follow. I'm interested in your thoughts on allowing borrowers to make mortgage payments in stablecoin. Maybe, also, you could tell us what you think about crypto-backed mortgages. 

Should lenders accept stablecoin for mortgage payments? 

Are crypto-backed mortgages a better option? 

COMPLIANCE SOLUTION 

CMS Tune-up 

RESPONSE 

The idea of lenders accepting stablecoin for mortgage payments is emerging. Still, it is not a widespread practice and carries significant risks that have prevented adoption by most traditional financial institutions. Some Fintech companies, however, are exploring crypto-backed mortgages, which typically use stablecoins as collateral rather than for monthly payments. For traditional lenders, the risks involved generally outweigh the benefits. 

Please get in touch with me to discuss your plans. Legal risk is only one of several risk variables. We can help you develop rollout implementation strategies. The issues involved cover a wide range of variables, such as legal, regulatory, interest rate, liquidity, operational, market, compliance, reputational, strategic, and prepayment risks. Please view my response as a conversation starter. 

Here are some recent articles I have published on cryptocurrency vis-à-vis mortgage banking. 

·       GENIUS Act: Fool's Gold, 

·       GENIUS Act: Mortgage Banking Ambush, 

·       Cryptocurrency: Risks to Mortgage Banking, 

·       Cryptocurrency Dilemma, and 

·       Challenges of Cryptocurrency Compliance.  

Two types of lenders 

There are two types of lenders in crypto-related mortgage banking. These are: 

Traditional Lenders: Traditional financial institutions are highly regulated and cautious with cryptocurrencies. They typically require that any crypto used for mortgage transactions—including stablecoins—be liquidated into U.S. dollars and held in a verifiable bank account for a period of 30 to 120 days. 

Fintech Crypto Lenders: A niche market of Fintech firms that specialize in crypto-backed mortgages. These lenders offer loans secured by cryptocurrency collateral, often including major stablecoins. Borrowers pledge their crypto assets, and the lender issues the loan in fiat currency. 

Whether a lender should accept stablecoin payments depends on their risk tolerance, regulatory environment, and technological capabilities. 

·       For traditional banks, the regulatory and operational hurdles are high, and the risks often outweigh the potential benefits. Federal mortgage regulations and investor demands for stable, traditional assets reinforce their current cautious approach. 

·       For a niche Fintech lender, the calculation is different. By specializing in crypto-backed loans, they build the necessary infrastructure and accept the higher risks for a target demographic. 

For most borrowers, the most practical approach today is to convert stablecoins into cash well before applying for a mortgage through a traditional lender. As the regulatory landscape and market maturity evolve, perhaps the widespread acceptance of stablecoin mortgage payments may become more common.

GENIUS Act: Fool's Gold

QUESTION 

In the last few weeks, you have been dealing with the controversial subject of cryptocurrency and the GENIUS Act regarding its impact on mortgage banking. I have been worrying about something since the legitimization of cryptocurrency started. 

I am probably the least likely to bring up my concerns about it since I am the CEO of a large lender that would definitely make thousands of mortgage loans if crypto can be used in the loan transaction. But I do not want to originate unstable mortgages! 

I'm not a fool, and I do not want to originate loans based on the modern equivalent of Fool's Gold. 

I sense there is a rat in this stablecoin initiative. And, like so many other things in our government, I think that rat may be people who are going to get superrich, and especially the president of the United States. By the way, I am not a Democrat. I have voted Republican my whole life. I'm sure both Democrats and Republicans are also going to make significant profits in crypto transactions. 

My spider-sense is telling me this is all more than a stablecoin solution to a problem that, as far as I can tell, doesn't exist. I am concerned about politicians profiting at the risk of mortgage lenders. So, I am hoping you could tell us your view of how President Trump and other politicians will benefit financially in the stablecoin era. 

How can the President and other politicians benefit personally from the GENIUS Act? 

SOLUTION 

CMS Tune-up®

Compliance Management System
Second Line of Defense

RESPONSE 

In the huge response I have gotten to my recent articles on cryptocurrency and the GENIUS Act – respectively, Cryptocurrency: Risks to Mortgage Banking and GENIUS Act: Mortgage Banking Ambush – several commenters frame their concerns as "controversial." My view, though, is that controversy can be a fearful way to avoid truth. We should stay calm, not get angry, and rationally evaluate an issue. 

Thomas Carlyle paraphrased the Buddha when he said

In a controversy, the instant we feel anger, we have already ceased striving for the truth and have begun striving for ourselves. 

Ultimately, the essence of disputes and our reactions to them can be understood better when we emphasize the importance of seeking truth over personal gain. Thus, I am not concerned about controversy because I strive to resolve issues in a clear, unbiased, factual, and rational way. 

Politicians of both parties seem to be quite bewitched by digital assets in general, and stablecoins in particular. Indeed, one hundred Democrats in the House voted for the Genius Act, many in the Democratic Party leadership. And in the Senate, eighteen Democrats voted for it. Virtually all the Republicans voted for the Genius Act in the House and Senate.[i] 

I can't blame you for being skeptical of the crypto legislation. However, as I stated in my previous articles, there are several positive and negative aspects to consider. That said, unfortunately, some persons may stand to benefit financially. Just like on Wall Street, sometimes insiders can exploit financial opportunities. Congress is no exception. There have been several legislative attempts to prohibit congressional members from trading individual stocks and to prevent financial conflicts of interest. The Democrats have introduced each of them, and nearly all Republicans have opposed them. The most recent legislative effort was introduced by Democrats again in May 2025, called the Ban Congressional Stock Trading Act. 

I'm not so sure you should single out President Trump for special attention. Perhaps his potential gain from the stablecoin legislation is an example of how a system can lead to undesirable consequences. 

Stafford Beer, the British theorist, famously said 

The purpose of a system is what it does. 

In other words, a system can have unintended consequences, it can have undesirable consequences, and just relying on its stated goals can be misleading because rhetoric and intentions may be outweighed by actual behavior and outcomes.

GENIUS Act: Mortgage Banking Ambush

QUESTION 

In your recent article, Cryptocurrency: Risks to Mortgage Banking, you said that you received many inquiries about the GENIUS Act. I was one of those who requested your view. You shared that you would respond to our questions soon. I am writing you again to urge you to offer an article on the GENIUS Act. 

I am a former federal regulator. I read the whole Act. It bothers me that the Act does not adequately protect consumers. And, I am concerned that it adds an element of instability to our banking system. Also, I do not think the mortgage market can be stable if it comes to depend on digital assets. 

So, I am asking you not to wait. I think the GENIUS Act is ambushing the banking sector. We need to know your view of the GENIUS Act since you are an expert in mortgage compliance. Please consider the following questions. 

In layperson's terms, what is the GENIUS Act? 

What are some of the general features of the Act? 

How does the GENIUS Act affect mortgage loans? 

SOLUTION 

CMS Tune-up

RESPONSE 

We received a huge response to the article we published on August 7^th. The article, Cryptocurrency: Risks to Mortgage Banking, sought to answer these two posed questions: 

·       Should cryptocurrency be accepted in lieu of dollars for a down payment on mortgage loans? 

·       How has the Trump Administration supported cryptocurrency? 

Apropos of your being a former federal regulator, in my summary, I wrote:

 

The regulatory uncertainty is extremely concerning. The regulatory environment for crypto-backed mortgages is still evolving and lacks uniformity across jurisdictions. A sudden shift in regulations or government policy regarding digital assets could significantly impact how these loans are structured, taxed, or regulated. 

I'm sure you understand the implications. 

I will provide a brief outline of the GENIUS Act (the acronym of Guiding and Establishing National Innovation for US Stablecoins Act), which was signed into law on July 18, 2025. The hype about it is that it represents the first comprehensive federal legislation in the United States addressing the regulation of stablecoins. 

By the way, I wish Congress would stop naming bills and acts in acronyms. It's really kind of silly. Supposedly, it is done for mnemonic reasons, but I see it more as branding, salesmanship, and maybe practical convenience. While acronyms may be helpful, they can also be misleading. Some acronyms are created to sound good, like the GENIUS Act, even if they don't accurately reflect the content of the bill. I wonder if there's a whole department in Congress set up to devise acronyms for legislation. But let's move on! 

KEY ASPECTS OF THE GENIUS ACT 

Purpose 

Ostensibly, the GENIUS Act is being promoted to foster innovation, maintain the dollar's global standing, and combat illicit activity. 

The Act has the preliminary makings of a potential regulatory framework that provides some clarity to encourage innovation and adoption in the stablecoins industry. But details matter, which I'll get to shortly. 

As to maintaining the US dollar's global standing, if you read my article on cryptocurrency's risk to mortgage banking (cited above), you probably already know my view of this aspiration. By requiring stablecoin reserves to be backed with US dollars and Treasuries, the Act seeks to strengthen the dollar's role as the global reserve currency. However, among other things, the government does not back cryptocurrency accounts and holdings in online wallets. They are not insured by the government like US bank deposits. It is prone to scams, thefts, and cyber hacks. And, there are no organizations that protect against crypto losses. I'm not convinced that the Act overcomes these challenges sufficiently to protect the consumer.

Cryptocurrency: Risks to Mortgage Banking

QUESTION 

My bank's management is deciding whether to accept cryptocurrency in down payments on mortgage loans. We have a large third-party originator channel. These TPOs are both banks and nonbanks, and some of them want to accept cryptocurrency rather than dollars. Frankly, I am very concerned about it. I don't think crypto is stable. 

On top of that, the Trump Administration wants to make crypto a legitimate asset, like the dollar. I believe they want to use it as part of our reserve currency. I know how Bitcoin works. A reliable, inherent standard, such as the GDP or other statistical metrics, does not influence it directly. There's no underlying metric other than market demand. 

As my bank's CFO, I do not feel that cryptocurrency should have the same fungibility as the dollar. I am worried that we are diminishing our reserve currency status. I know your newsletter is widely read and you don't shy from controversy, so I am hoping that your feedback will provide more perspective than all the pros and cons we're hearing in the news. 

Should cryptocurrency be accepted in lieu of dollars for a down payment on mortgage loans? 

How has the Trump Administration supported cryptocurrency? 

SOLUTION 

Policies Tune-up® 

RESPONSE 

Thank you for your kind words. I've been told the newsletter is popular. The subscriber base is very large. As to shying away from controversy, sometimes people would rather go to their silos than consider different viewpoints. Fortunately, based on the feedback, almost all our subscribers are genuinely interested in exploring various perspectives on legal and regulatory compliance. There is a political tint to regulations and legislation that is unavoidable. These do not get promulgated in a vacuum. And, if you're expressing concern, you can be sure that many other individuals are expressing similar concerns, whatever the topic. 

So, I do not shy away from controversy. And I ask you also not to be shy of controversy in your questions and comments. I read every one of them and answer most! 

Let's first discuss whether cryptocurrency is safe versus the dollar. Conceptually, I think it's possible to outline a response based on four categories: backing and regulation, volatility and potential for loss, insurance and consumer protections, and security and scams. This composite may be helpful in establishing a comparison, given that the dollar is a worldwide reserve currency that investors in dollar-denominated assets continually evaluate in terms of the foregoing categories. 

The following sets forth a brief comparative outline. We will provide a table of this outline if you request it here. 

Backing and Regulation 

US Dollar (Fiat Currency) 

The US dollar is a centralized fiat currency, meaning it's issued, backed, and maintained by the government and is considered legal tender. It's regulated by central authorities like the Federal Reserve, which works to minimize inflation and maintain economic stability. It is not backed by a physical commodity such as gold or silver. Instead, its value is derived from the trust and confidence that people place in the issuing government and the stability of the economy it represents. 

Characteristics of a fiat currency are that it is government-issued, not backed by a commodity, its value is based on trust and confidence, it is always a controlled supply, and it is legal tender. 

As I see it, any fiat currency has pros and cons. On the pro side, it offers economic stability, especially by governments and central banks controlling the money supply and interest rates, the goal of which would be to reduce economic downturns. It is flexible, too, because governments can expand or contract the money supply to combat inflation and stimulate economic growth. And, as I said above, it can support international trade, because it facilitates international transactions without necessitating trading partners and countries to stockpile physical commodities like gold to back their currencies. 

Cryptocurrency Dilemma

QUESTION 

Our compliance department notified us that the government has stopped criminal, regulatory, anti-money laundering enforcement of the crypto sector. We are a bank that accepts cryptocurrency transactions. For instance, we accept cryptoassets such as Bitcoin. 

One of my tasks is to monitor the cryptocurrency exchange platforms. I want to know the extent to which it is necessary to monitor these platforms if there is not going to be any enforcement. Are we wasting our time? I realize that government officials want to deregulate crypto, but it seems a stretch to allow the exchange platforms to bear no accountability. I hope you can shed some light on this subject. 

If there is not going to be enforcement of regulations involving cryptocurrency, to what extent is it necessary to monitor exchange platforms? 

SOLUTION 

- AML TESTING
- AML TRAINING
- AML RISK ASSESSMENT 
- AML PROGRAM [Written Policy]

RESPONSE 

On April 7, 2025, Todd Blanche, the Deputy Attorney General in the DOJ, issued a memorandum containing the following statement: 

''The Department of Justice is not a digital assets regulator.''[i] 

The memorandum was issued a couple of weeks after President Donald Trump pardoned several cryptocurrency executives and a company that had pleaded guilty to anti-money laundering compliance violations.[ii] 

The Justice Department has decided to stop pursuing those cases altogether. That means, in substance, that the DOJ will no longer pursue litigation or enforcement actions that effectively superimpose regulatory frameworks on the digital assets sector. 

In other words, there is a focus on deregulating the cryptocurrency industry. The Justice Department will no longer target virtual currency exchanges, "mixing and tumbling" services, and offline wallets for the acts of their end users and unwitting violations of regulations. 

Furthermore, the memorandum makes clear that prosecutors are directed not to charge regulatory violations in cases involving digital assets, including unlicensed money transmitting, violations of the Bank Secrecy Act, unregistered securities offering violations, and other registration requirements under the Commodity Exchange Act. When there are cases involving digital assets, prosecutors are now directed to pursue illicit financing by the culpable individuals and enterprises themselves – but not against the platforms they use to conduct the illegal activity. 

DISBANDED OVERSIGHT

Mr. Blanche also disbanded the Justice Department's National Cryptocurrency Enforcement Team, effective immediately, and directed the Market Integrity and Major Frauds Unit to cease cryptocurrency enforcement and instead focus on other priorities, such as immigration and procurement frauds. 

You mention that your task is to monitor the cryptocurrency exchange platforms. It appears the DOJ has changed its focus away from regulating the platforms themselves, seemingly interested in only the illicit transactions of bad actors who use the platforms. To me, this seems like going after bad drivers while doing nothing to put stop signs on the road itself to protect pedestrians. 

Cryptoasset exchange platforms are subject to certain regulatory oversight, but the level and nature of that oversight vary depending on the specific jurisdiction and the nature of the cryptoassets being traded. In the US, platforms that trade cryptoassets that are securities are subject to registration and regulation as national securities exchanges. Additionally, platforms may need to register as Money Services Businesses (MSBs) with the Financial Crimes Enforcement Network (FinCEN). The Commodity Futures Trading Commission (CFTC) also regulates crypto derivatives. A regulatory referral about an cryptocurrency exchange platform to the DOJ may now not be prosecuted with respect to illicit activity conducted by the platform itself.