Cryptocurrency: Emergence of Nonbank Loan Products

YOUR QUESTION 

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I am the bank CFO who wrote you last year about my concerns regarding the fungibility of cryptocurrency, like that of the dollar. I was concerned and skeptical. Your response was helpful. I distributed it to our Board. Since then, I joined a nonbank as CFO. It is a large wholesale lender that has developed cryptocurrency loans – we literally use crypto to create new loan products. 

Nonbanks have much greater flexibility in cryptocurrency for product development. I have been astonished by the product rollout process and by how particularly high-net-worth and crypto-native borrowers are drawn to using cryptocurrency. I wonder how extensive this trend is spreading in the nonbank mortgage market. 

What do you think nonbanks will do to develop cryptocurrency loan products in 2026? 

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We suggest: 

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1.    Artificial Intelligence Governance Policy 

2.    Artificial Intelligence Use Policy  

3.    Artificial Intelligence Workplace Policy  

4.    Artificial Intelligence Credit Underwriting Policy  

5.    Artificial Intelligence Do & Do Not Policy  

6.    Artificial Intelligence Ethics Policy  

7.    Artificial Intelligence Vendor Management Policy 

8.    Artificial Intelligence Mortgage Fraud Policy 

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RESPONSE 

You asked a thoughtful question last year. Your main concern was that cryptocurrency had the same fungibility as the dollar. Indeed, your specific question was: "Should cryptocurrency be accepted in lieu of dollars for a down payment on mortgages?" 

Nonbanks are using cryptocurrency innovations to gain market share from traditional banks, which remain more constrained by federal safety and soundness regulations regarding crypto exposure. Coming from banking to the nonbank world, you will surely find a strong interest in developing more ways to offer new residential loan products. 

Cryptocurrency continues to grow in popularity. Nonbank mortgage lenders are the primary drivers of cryptocurrency integration in the mortgage market as of 2026. Because they operate with more regulatory flexibility than traditional commercial banks, nonbanks are using crypto to create new loan products, streamline underwriting for digital asset holders, and leverage blockchain to lower operational costs. 

I noted that you referred to two types of cryptocurrency borrowers: high-net-worth and crypto-native. I'm sure most of us know what "high-net-worth" means. 

AI has a significant role. Without AI-driven underwriting, risk modeling, and document automation, crypto mortgages would remain a niche product for wealthy borrowers. I discuss AI below. 

Many may not know what a "crypto-native" borrower is: a cryptocurrency investor with the knowledge to use crypto-financial instruments independently. That is a widely used definition, but in my opinion, it is too broad and a bit misleading, because millions of people in the crypto market should stick to the dollar. Perhaps I will discuss this type of borrower in a future article. 

Cryptocurrency is fundamentally changing mortgage banking in 2026 by shifting from a speculative niche into a recognized asset class for loan qualification and collateral. Key shifts include Fannie Mae's historic decision to accept crypto-backed mortgages and the mainstream integration of digital assets into standard underwriting processes. 

Mainstreaming Integration & New Mortgage Products 

Major financial players have introduced products that treat cryptocurrency as a legitimate financial asset rather than a liability or a "black box". 

For instance, Fannie Mae-Approved Crypto Mortgages launched on March 26, 2026, with Fannie purchasing loans in which Bitcoin or USD Coin (USDC) was used as down-payment collateral.

Non-Delegated Lenders: Quality Control for Non-QM Loans

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QUESTION 

I am one of the underwriters for a non-delegated lender. We received a request from an investor to conduct quality control. My boss says we do not have to do quality control. His position is that, at most, we need only a limited quality control audit. I came from another non-delegated lender, and they always did QC. 

He says we do not have to perform most aspects of QC audits, including credit analysis, re-verifications, credit reports, appraisal reviews, adverse action reviews, EPD issues, and GSE/FHA-VA underwriting reviews. Because we originate non-QM loans, he says QC is minimal. I read your Bulletin 2017-12, and it clearly shows that non-delegated lenders should do QC. 

I would like you to discuss QC requirements for non-delegated lenders. 

Does a non-delegated lender have to do quality control for non-QM loans? 

OUR COMPLIANCE SOLUTIONS 

We recommend the following compliance solutions for quality control support: 

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This is our Second Line of Defense review that focuses on predictable output, reliable data, investor confidence, and reduced production cost. 

RESPONSE TO YOUR QUESTION

The question about a non-delegated lender having to conduct quality control seems to be one of those perennial questions that pop up from time to time. There is no mystery to the requirement. I appreciate that you have been reading our Bulletins. Anyone who wants to subscribe to our free Bulletins, please sign up! 

Whether you are originating QM or non-QM loans, you should be conducting quality control audits. Fannie Mae's non-delegated quality control (QC) requirements include having a comprehensive written QC plan, a process for selecting loans for prefunding and post-closing reviews, and a system for reporting and taking corrective action. 

If you're a non-delegated lender originating QM loans, the QC plan should be independent of the production process, and, among other things, you must conduct a minimum number of prefunding and post-closing QC reviews each month, based on a percentage of total loan volume. 

If you're a non-delegated lender originating non-QM loans, you should have QC processes in place. Because non-QM loans do not meet the criteria for purchase by Fannie Mae or Freddie Mac, the lender assumes all the risk, making a robust QC program essential to manage the loan quality and potential defects. 

Let's look somewhat broadly at the QC requirements. You must have a written QC plan that outlines your QC philosophy, objectives, and risks, with a process for selecting loans for review using random and/or discretionary methods across all products. The QC function must be independent of the production process, or, at a minimum, reviews must be conducted by personnel not involved in underwriting the specific loans subject to audit. 

The QC plan for QM loans must cover both prefunding and post-closing reviews, ensuring compliance with the Fannie Mae Selling Guide, the lender contract, and applicable laws. You can check out Fannie's requirements in the Lender Quality Control Programs, Plans, and Processes section. 

With respect to pre-funding, a minimum number of prefunding reviews must be completed each month, with the loan selection meeting at least the lesser of 10% of the prior month's total loans, 10% of current month projections, or 750 loans. 

Regarding post-closing, loans must be selected for monthly reviews, and the entire QC cycle must be completed within 90 days of loan closing. 

You must have documented procedures for reporting QC findings to management, documenting loan level findings for resolution, and taking timely corrective actions. All QC-related documentation must be retained for at least three years. An internal audit of the QC process itself should be performed annually to ensure compliance with the lender's policies and procedures. Our QC Tune-up®, a Second Line of Defense function, provides such support.

The Comeback of Portable Mortgages

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QUESTION 

Our loan committee wants to originate portable mortgages. I am an old school guy! Is this the new gimmick to generate sales? I don't know, but it doesn't make much sense to me. When I was with Chase back in the eighties, there was a rollout similar to a portable mortgage. Well, it crashed and burned! Yet, now it's back. 

The whole deal mostly rests on the lock-in effect. You should explain it to your readers. And, contrary to the hype I'm hearing, the portable mortgage can lead to increased risk, and prices can go up. On top of that, there's no secondary market. 

Are portable mortgages yet another gimmick to generate sales? 

SOLUTIONS 

We recommend our Compliance Reviews. 

Comprehensive and responsive compliance reviews provide a deep dive understanding of strengths and weaknesses in the implementation of state and federal banking laws, rules, regulatory guidelines, investor expectations, and Best Practices. 

RESPONSE 

I understand your concerns, but I would not assert that private enterprises and government entities are concocting some grand scheme in considering a comeback of portable mortgages. As usual, market histrionics are fluttering about like untethered balloons. 

Granted, many features of portable mortgages pose risks for both homeowners and investors. 

Your memory of the portable mortgage offered by Chase Home Mortgage in the late eighties is correct. So, the basic structure of the portable mortgage goes back to that time. Chase viewed it as experimental in the sense that it was more of a prototype; that is, it was notionally a portable fixed-rate mortgage. 

However, true portability has never been achieved in this country. This is because of the prevalence of "due-on-sale" clauses that require the loan to be paid off when a home is sold. I remember that E-Trade offered a version in the early 2000s as a portable "option." Around that time, my firm provided compliance guidance to E-Trade in its development of mortgage banking compliance, but a compliance review of the portable "option" was not in our remit. The fact is, portable mortgages have remained niche products, at best. And for good reason, which I will explain shortly. 

One reason it did not catch on is obvious: the U.S. mortgage industry's structure, in which loans are often sold to investors or entities like Fannie Mae and Freddie Mac, has historically not supported portability. 

No portable mortgages are currently allowed by Fannie Mae and Freddie Mac, but the Federal Housing Finance Agency (FHFA) is now actively evaluating whether to implement them in the future. Current news reports that the FHFA is working with Fannie Mae and Freddie Mac to determine how to make these loans possible in a safe and sound way, which strikes me as quite a heavy lift. Currently, Fannie and Freddie only allow fixed-rate loan transfers in limited situations, such as due to the death or divorce of the original borrower. 

The "hype" you are hearing concerns the GSE approval of portable mortgages, based on the claim that they could make it easier for homeowners to move and keep their lower interest rates, thereby unlocking more homes for sale. Maybe so. Then again, maybe not. 

Let's tack down a few important details about the structure of portable mortgages. 

A portable mortgage is a home loan that allows a homeowner to transfer their existing interest rate and terms to a new property when they move. In theory, this can save the homeowners money on closing costs and help them avoid taking out a new loan at a potentially higher interest rate. Nevertheless, the new property must meet the lender's criteria, and the homeowner must requalify financially. 

PORTABLE MORTGAGE TRANSACTIONS 

Here is a brief outline of how the portable mortgage works: 

·       Transferring the Loan 

When selling one home and buying another, the existing mortgage is "transferred" to the new property.

Qualified Mortgages: Third-Party Processing Fee in Points & Fees Test

QUESTION

With respect to the Qualified Mortgage points and fees calculation, we currently include third party processing fees.  However, it is our understanding that many of the larger companies in the industry exclude third party processing fees from the points and fees calculation. We would also like to do so provided we are comfortable with the legality of the practice.

ANSWER

A very good question and in the absence of further guidance from the regulators, a lender’s position on the issue depends on investors overlays and the lender’s appetite for risk.    

One of the characteristics of a qualified mortgage is that points and fees may not be excessive. The limits on points and fees vary depending on the loan amount and are adjusted annually for inflation by the CFPB. 

Currently, those limits are as follows:

o   3%, of the loan amount on a loan exceeding $105,158;

o   $3,155, for a loan greater than or equal to $63,995, but less than $105,158;

o   5 percent of the loan amount, for a loan greater than or equal to $21,032, but less than $63,995;

o   $1,052, for a loan greater than or equal to $13,145, but less than $20,000: 8 percent of the loan amount, for a loan amount less than $12,500.[i]

As to the inclusion or exclusion of a third-party processing fee, some lenders/investors assume the position that the processing fee is part of the origination fee and therefore, even if payable to a third party, must be included in the points and fees test. 

By contrast, many take the position, based upon the regulatory authority cited below, that so long as the fee meets the following criteria, it may be excluded from the QM points and fees test:

• The processor or processing company is not affiliated with the lender or the broker
• As the creditor, the lender receives no direct or indirect compensation in connection with the charge
• The third party processing fee is bona fide and reasonable
• The processing company is properly licensed and registered with NMLS to perform processing services if required by the law of the state in which the subject property is located
• If state law does not require the company to be licensed and registered, the individual contract processor must be licensed and registered with NMLS to perform processing services
• The third party processing fee should be disclosed on the LE in Section B “Services the Borrower Did Not Shop For”
• The third party processing fee must be paid directly to the third party processor or processing company
• The law of the state in which the subject property is located does not prohibit charging a consumer a contract processing fee in addition to origination fees
• A copy of the invoice is retained in the loan file and the fee amount matches the amount on the Loan Estimate and Closing Disclosure.

As with most “grey area” issues, you should check with your investor as to their specific overlays and requirements.

Regulatory Authority 

(Emphasis added.)

12 CFR 1026.43(b)(9) Points and fees has the same meaning as in §1026.32(b)(1).

12 CFR 1026.32(b) Definitions. For purposes of this subpart, the following definitions apply:

(1) In connection with a closed-end credit transaction, points and fees means the following fees or charges that are known at or before consummation:

(i) All items included in the finance charge under §1026.4(a) and (b), except that the following items are excluded:

* * *

(D) Any bona fide third-party charge not retained by the creditor, loan originator, or an affiliate of either, unless the charge is required to be included in points and fees under paragraph (b)(1)(i)(C), (iii), or (iv) of this section;

(iii) All items listed in §1026.4(c)(7) (other than amounts held for future payment of taxes), unless:

(A) The charge is reasonable;

(B) The creditor receives no direct or indirect compensation in connection with the charge; and

(C) The charge is not paid to an affiliate of the creditor.

Official Commentary, Paragraph 32(b)(1)-2

2. Charges paid by parties other than the consumer. Under §1026.32(b)(1), points and fees may include charges paid by third parties in addition to charges paid by the consumer. Specifically, charges paid by third parties that fall within the definition of points and fees set forth in §1026.32(b)(1)(i) through (vi) are included in points and fees. In calculating points and fees in connection with a transaction, creditors may rely on written statements from the consumer or third party paying for a charge, including the seller, to determine the source and purpose of any third-party payment for a charge.

i. Examples—included in points and fees. A creditor's origination charge paid by a consumer's employer on the consumer's behalf that is included in the finance charge as defined in §1026.4(a) or (b), must be included in points and fees under §1026.32(b)(1)(i), unless other exclusions under §1026.4 or §1026.32(b)(1)(i)(A) through (F) apply. In addition, consistent with comment 32(b)(1)(i)-1, a third-party payment of an item excluded from the finance charge under a provision of §1026.4, while not included in the total points and fees under §1026.32(b)(1)(i), may be included under §1026.32(b)(1)(ii) through (vi). For example, a payment by a third party of a creditor-imposed fee for an appraisal performed by an employee of the creditor is included in points and fees under §1026.32(b)(1)(iii). [See comment 32(b)(1)(i)-1.]

ii. Examples—not included in points and fees. A charge paid by a third party is not included in points and fees under §1026.32(b)(1)(i) if the exclusions to points and fees in §1026.32(b)(1)(i)(A) through (F) apply. For example, certain bona fide third-party charges not retained by the creditor, loan originator, or an affiliate of either are excluded from points and fees under §1026.32(b)(1)(i)(D), regardless of whether those charges are paid by a third party or the consumer. (Emphasis added.)

Joyce Wilkins Pollison
Director/Legal & Regulatory Compliance
Lenders Compliance Group

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[i] All fee and loan amounts are indexed for inflation. Section 1026.43(e)(3)(ii) provides that the limits and loan amounts in § 1026.43(e)(3)(i) are recalculated annually for inflation by the CFPB using the CPI-U index in effect on June 1. On August 30, 2017, the CFPB issued its Annual Threshold Adjustments for 2018 which modify the limits and loan amounts set forth herein. Those adjustments should be reviewed and implemented each year.

Managing Risk of Non-QM Mortgages to Self-Employed Borrowers

QUESTION

How do I offer Non-QM mortgages to Self-Employed Borrowers in my local market and still manage the risks?

ANSWER

There are two main risks to address. First is the legal/regulatory risk. I am forced to defer into the future the discussion of how to manage this risk. There are no clear answers due to the lack of any state and federal regulatory enforcement actions or case law and judicial precedents with Non-QM loan products designed for the Self-Employed. The issue arises from the subset of Self-Employed Borrowers who are unable or unwilling to submit 2 years of 1040s and sign a 4506T for lenders to verify their income using the traditional methods as outlined in QM Ability to Repay (ATR) regulations.

So that leaves us with the second risk, the one risk we can manage today: the credit risk. Let's begin by defining in our credit policies the benchmark mortgage risk, using the average rate of foreclosure to compare and adjust the risk of foreclosure to keep this product within acceptable risk levels. Your benchmark product is a 30-year fixed rate loan to finance the purchase or rate & term refinance of a single family, detached property with a max 80% LTV/CLTV, a FICO Floor of 700, a max DTI of 43% (or less), full documentation as defined by Ability to Repay (ATR) regulations, and 3 months of cash reserves. This loan will have an average foreclosure rate of 1.3%. [Moody's Analytics, March 11, 2011]

And, speaking of "pricing," use your Fannie/Freddie 30-year fixed rate pricing.

The challenge is how do you manage the risk of loss in foreclosure when you waive the requirement for 2 years 1040s and a signed 4506T? The answer is you manage it by managing the layering of risk for this loan product. This is done by adjusting your credit policy for this product to arrive at an expected foreclosure rate at or below your benchmark loan policy. This Alt Doc product could be called a "24-month Bank Statement Loan" or a "Collateral Loan". When you move to Alt Docs, the incremental foreclosure risk increases 3 times or 300% to 3.9%; a level that is unacceptable. You want to lower this risk to below 1.3%, your benchmark average foreclosure rate.

At 70% LTV/CLTV, the average foreclosure rate is 0.2%. [Moody's Analytics, March 11, 2011] With Alt Docs, the average foreclosure rate increases 3 times that average, to 0.6%, well below the benchmark product risk profile defined in your credit policy above. An average foreclosure rate of 0.6% vs 1.3% for the benchmark leaves you a good margin for error.

Three additions to this Alt Doc credit policy are: 1) a max 36% DTI, to allow for greater borrower discretionary income to support a higher standard of living, as many of these loans will be Jumbo's, 2) a 6 months cash reserves, and 3) a max 65% LTV/CLTV (viz., I have heard this number cited many times over in my mortgage banking career as "the LTV breakeven at foreclosure").

So, let's recap this new credit policy for your "self-employed alt doc loans": owner-occupied, single family, purchase or rate & term refinance, max 65% LTV/CLTV, 700 FICO Floor, max 36% DTI, and 6 months reserves. You may also want to ask the borrower to sign a well worded "Affidavit of Borrower's Ability to Repay" as part of a future legal defense, if needed.

Market this product to your self-employed customers and in your local lending market(s). It is best to price this product to your benchmark full doc product above. Why? We have managed the risk with credit policy, not pricing. And, hold these loans in your portfolio. Or, as I like to say, "eat your own cooking".

If you do not have a loan portfolio (mortgage banker or broker), you will need to price this loan at 100-200 BP higher interest rate, based on your investor's pricing, and follow that investor's product guidelines (max LTV of 50-60%?). You will need balance sheet $$$ Capital for your 5% "risk retention," as these loans will sooner or later be sold into the Wall Street capital markets in a Private MBS.

Make sure your warehouse bank is on board, unless the loan is approved, closed, and funded by the investor (including the LE & CD). Set up a loan loss reserve (min. 20 BP of the UPB?). Lastly, negotiate the R&W in the Purchase and Sale Agreement limiting your fraud/misrepresentation liability to only the documents you verify. Otherwise you are making a 30-year R&W and will be liable for legal costs and any foreclosure losses (as we have seen, property values can rise and fall over time, changing your risk profile). This product will be a huge challenge for non-depositories.

Remember, you still have a yet-to-be-quantified regulatory and legal risk. Happy lending!

Ben Niles

Director/Client Relations

Lenders Compliance Group