Armando Falcon on the movement of the FHFA to Crypto Hypotheken

Falcon sat down with Housing To offer his perspective as a pastor of Pulte’s and to present the new digital asset practice of Falcon Capital Advisors who advises mortgage providers on how they can be safely included in their company crypto and other digital currency.

This interview has been edited for length and clarity.

Sarah Wolak: Can you tell me about your background as a regulator for the companies sponsored by the government (GSEs) and what you are doing today?

Armando Falcon: I left the government about 20 years ago. I went to the Adviesbuseek with another group of people and finally founded my own company. And so for the past 17 years I have built a management consultancy focused on not only the mortgage market, but also at credit markets and capital markets.

I think we have built up a nice niche business to offer Basic Management Consulting Services, and we are trying to be in front of developments in the mortgage market. A few years ago I saw that there was a growing movement in the Enote initiative. So I was an e-Note Digital Mortgage Practice Group within the company, and I now have a team of people there who concentrate on that.

When we see the markets moving in a certain direction, we try to tune in to where the market is going and helping customers benefit from new opportunities, because the mortgage market always evolves. And that kind leads to the entire cryptocurrency world.

Wolak: Can you tell me about your latest division, advisers of digital assets?

Falcon: We have looked at what is going on with the world of digital currency. We see digital assets, as many people say, as a crypto – and that refers to digital currencies in general – but the entire digital space is more than crypto.

It is also different types of assets, such as NFTs, and therefore this practice group, as soon as the Trump administration decided that they wanted to bring a regulatory structure into the world of digital currency, wider, digital assets, we thought that if this market starts to develop within a well-established regulatory framework, then our customers and new customers may need some help.

Our first webinar will be in a few weeks, and that will focus primarily on the emerging role of crypto in housing financing.

Wolak: Can you share some of the developments that you will discuss, in particular about the guideline of Fannie and Freddie to prepare for Crypto?

Falcon: Director Pulte has ordered the GSEs to reconsider how crypto is used or not in the insurance process. And so we will talk about some of the implications of this when it goes ahead, and where potential originators and serviceers and investors should think of when that starts to be implemented.

Wolak: What are some things they should take into account?

Falcon: We have to think about what the risk is. Do they have the risky appetite and the right risk management practices internally to arise in the way in which the Bureau Crypto is used in the insurance process?

Like something else, they will be able to decide whether they want to enter into this kind of mortgage programs or not. They will have to consider what the competitive benefits and disadvantages are if they are not involved.

So the next step is to ensure that they have a complete compliance regime, the correct risk management practices, the correct amount of policy and procedures, training for all their staff, and to ensure that their entire investor network is tailored to the origin of these types of mortgages.

Wolak: What about the obstacles for the GSEs when developing the framework to accept crypto?

Falcon: They must ensure that it is done in a very safe and solid way. The last thing they want to do is authorize something that creates unintended consequences.

It is one thing to say that crypto is allowed in the insurance process to get a mortgage. It is something else to ask, well, what kind of crypto? There are many types of cryptocurrencies that exist, except only Bitcoin.

Does the crypto have to have a certain amount of market volume so that it is very liquid? Does it have to be traded on a fair, so that it is freely bought and sold and converted into cash, if necessary? All these things have to find out to ensure that it is not the wild west, right?

Wolak: What do you think based on your experience, what do you think for Fannie and Freddie to safely and accurately integrate crypto into risk models while they are progressing in this process?

Falcon: I think a good step might take this as a pilot program, rather than on a large scale to transfer. It would be logical to start with only the pilot program, so the originators, some participants in the pilot program on the origin side, can perform some transactions. They can find out if there are hidden risks they did not expect or problems with the transaction itself.

The same for the regulator – they can assess the transaction and see how it went and decide whether risk management and internal checks were sufficient.

Wolak: How do you see the FHFA guideline?

Falcon: I only see this as part of the constant evolution of the mortgage market. You know, I mentioned enotes earlier. Who would have ever guessed that we would have paperless mortgages? There were many obstacles to get to this point where enotes are now being accepted by investors and by the founders.

Itin mortgages are now also very well accepted in the industry, and investors put money in it. Perhaps Crypto is eventually treated, just like a form of currency.

So that is certainly something that can handle the insurance process and that can find out investors. Are there differences in those mortgages of a different kind of traditional mortgage? I think the industry is very capable of sorting this out.