CLAIM: Mortgage contracts will soon be “null and void” because U.S. banks are switching to digital currency.
AP’S ASSESSMENT: False. Experts say the introduction of a digital currency wouldn’t automatically void home financing agreements, and there are no imminent plans to adopt a nationwide digital currency, regardless. The Federal Reserve has been exploring the idea for years, but has consistently said such a system wouldn’t replace physical cash and any final decision would rest with Congress.
THE FACTS: Social media users are claiming Americans soon won’t have to pay what they owe on their homes because banks are preparing to switch to an all-digital currency.
The claims are being shared in video clips in which various people falsely suggest the U.S. is switching to a digital currency and that the change will directly violate mortgage contracts, meaning people will no longer be legally obligated to make good on the debts.
“If on Monday we begin transfer to a digital currency, your mortgage contract is null and void because the bank cannot change currency,” one user says in a brief clip that has been liked or shared on Facebook more than 250,000 times as of Thursday. “So all of you people, read your contract law and be prepared to go into the bank and tell them when they switch to a digitized currency that they’ve broken their mortgage contract and it is now null and void. And you don’t owe the bank anything.”
But there’s no truth to the notion that the country is ditching the use of physical dollars and coins in favor of a totally digital form of currency any time soon -- nor that doing so would let borrowers off the hook for repayments.
The Federal Reserve, which regulates the country’s monetary system, has been exploring the idea of a so-called “central bank digital currency,” or CBDC, since 2017 but no final decisions have been made.
A spokesperson for the agency declined to comment, instead referring to a Fed website addressing “frequently asked questions” on the issue. According to information on the webpage, the agency is considering a CBDC as a “means to expand safe payment options, not to reduce or replace them.”
It also notes that in March, Federal Reserve Chairman Jerome Powell testified before the House Financial Services Committee that introducing a CBDC is “something we would certainly need Congressional approval for.”
But the idea of digital currency isn’t far-fetched: Americans are already using forms of it on a wide range of financial transactions, including paying their mortgages, says Aaron Klein, a senior fellow at the Brookings Institution, a think tank in Washington, D.C.
“Everyone uses digital currency to pay their mortgage, unless you are taking a briefcase full of cash to your bank every month,” he wrote in an email. “Credit and debit cards, on-line banking, it is all digital money.”
Even if the U.S. established some form of government-backed digital currency, it would not automatically nullify mortgage loans, real estate experts say.
“Virtually all mortgage agreements have safeguards that protect lenders against radical changes and include layers of protection like personal guarantees that keep borrowers on the hook,”
Alfred Fraijo Jr., a land use attorney in Los Angeles, wrote in an email.
Daniel Quan, a real estate professor at Cornell University in Ithaca, New York, agreed, adding that a U.S.-government-based digital currency would still effectively act as U.S. currency.
“Digital currency just facilitates faster transactions in the host country currencies,” he explained in an email. “It’s like a faster way to pay one’s mortgage but denominated in dollars.”
Depending on how a CBDC is designed and implemented, mortgage contracts may need to be updated to reflect the new currency option, acknowledged Shashank Shekhar, CEO at InstaMortgage, a mortgage lender in San Jose, California.
“But again, that does not invalidate the contract itself or reduce the enforceability of the contract,” he wrote in an email.
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This is part of AP’s effort to address widely shared misinformation, including work with outside companies and organizations to add factual context to misleading content that is circulating online. Learn more about fact-checking at AP.
