The underwriting problem crypto built: What regulators and institutions are watching

Cryptocurrency is no longer a peripheral line item in borrower financial profiles. Approximately 30% of American adults now own it. Global ownership has surpassed an estimated 500 million people. The total housing market has crossed the $1 trillion mark multiple times in recent years. These numbers mean that lenders, originators and the regulators overseeing them are encountering digital assets in underwriting files with real regularity, and the frameworks they rely on were not designed for it.

The hard discussions aren’t over whether crypto wealth is real. In many cases, it is substantial. The sticking point is what crypto wealth actually means for underwriting: volatile asset valuation, inconsistent liquidity and documentation that doesn’t map onto existing frameworks.

Why crypto resists standard underwriting

The first problem is volatility. A crypto holding worth $1,000,000 at application may be worth considerably less by the time a loan closes. Equities carry similar risk, but conventional underwriting has developed standardized haircut methodologies for stock portfolios. No equivalent standard exists for digital assets. Each lender is currently making its own call on how much to discount holdings, which produces inconsistency across the market and uncertainty for borrowers who don’t know which valuation will govern their file.

The second is liquidity. Crypto can often be converted to cash, but not always quickly. Exchange delays, wallet access issues and liquidation tax events mean digital assets aren’t cash-equivalent in the way a money market account is. Lenders cannot treat it as such without documentation that goes well beyond a standard account statement.

The third is valuation. There is no agreed pricing source, no standardized snapshot date and no method for reconciling discrepancies across exchanges. Two lenders reviewing the same wallet on the same day can arrive at different figures based on their own internal underwriting criteria. That inconsistency creates real problems for secondary market buyers and securitization, where consistency in how assets are assessed is foundational to how risk is priced.

Documentation adds a fourth layer that sits underneath all three. Proof of ownership requires wallet verification processes most lenders haven’t standardized, and that’s before the question of which tokens actually count. Bitcoin and Ethereum are the only digital assets most lenders will currently consider. A borrower holding significant wealth in Solana, Cardano or any coin with a large but speculative market cap is effectively frozen out. If the majority of a borrower’s wealth is held in a meme coin, the documentation question is beside the point.

Two models, two different risk profiles

Where lenders have extended crypto-related accommodation, it has generally taken one of two forms, and the risk implications are quite different.

The first is asset-based qualification, sometimes called asset depletion. Eligible liquid assets are divided over the loan term to produce an imputed monthly income figure. For crypto holders, this is the model that allows digital wealth to function as a qualifying asset without forcing liquidation. The holdings stay in place, whether in an exchange account or cold storage, provided ownership can be verified. Their value, assessed conservatively, generates the income figure the lender needs. Bitcoin and Ethereum are the assets most lenders will count. Most others won’t make it into the calculation.

The second is crypto as collateral, where the digital asset is pledged against the loan while remaining in the borrower’s possession. The lender and the borrower each have direct exposure to price movements. If the value of the collateral falls below a threshold during the life of the loan, the borrower is subject to margin calls. It is a feature more familiar to securities investors than mortgage holders. Loan-to-value calculations require conservative haircuts, and the ongoing monitoring that a collateralized crypto position demands is exposure most mortgage operations have neither the infrastructure nor the appetite for.

A framework is coming. It just isn’t here yet.

The regulatory picture is still forming, but one development in early 2026 has shifted things more than most. The first Fannie Mae-backed crypto-collateralized mortgage product came to market, a structure allowing conforming loan guarantees on Bitcoin and USDC-backed financing. For an industry watching for signals, that one was hard to miss. GSE-level endorsement of a digital asset-backed mortgage structure will push regulators toward clarity they have so far been avoiding.

Yet the “how” remains largely unsettled. No standardized token eligibility list. No agreed methodology for volatility adjustments. No broadly adopted documentation standards for wallet verification. Lenders in this space are operating on internally developed policies, and those policies vary enough that the same file can be approved at one shop and declined at the next.

Regulators are working through three questions that don’t yet have clean answers: how much systemic risk is actually created by concentrated crypto exposure in borrower portfolios, what documentation genuinely constitutes proof of ownership and whether existing disclosure frameworks hold up when digital assets serve as collateral. Until those questions are resolved, lenders are pricing risk with incomplete information. 

The industry is moving whether frameworks are ready or not

Digital assets are not going to appear less frequently in borrower profiles. Bitcoin and Ethereum now have spot ETFs, which means institutional legitimacy has arrived, whether mortgage frameworks are ready for it or not. The big question is whether the infrastructure exists to assess them consistently, price the risk accurately and produce files that hold up in the secondary market.

Right now, it doesn’t, not uniformly at least. Lenders are operating on divergent internal standards, and that inconsistency costs the market. Borrowers can’t predict their options. Secondary market buyers can’t price risk; they can’t compare. Closing that gap requires industry-level standards on valuation, documentation and token eligibility that simply don’t exist yet.

The institutions best positioned for what follows are treating the gaps as a build list: token eligibility criteria, a documented valuation methodology, wallet verification standards and policies for monitoring collateralized positions. Every lender in this space is already hitting these problems file by file, without consistent answers. The regulatory framework will eventually settle them. But lenders who have worked through them already won’t be starting from scratch when it does.

Eric Bernstein is the President and Co-Founder of LendFriend
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: zeb@hwmedia.com.