Peas in a Pod? Comparing the U.S. and Danish Mortgage Finance Systems

25 Pages Posted: 10 Dec 2018

See all articles by Jesper Berg

Jesper Berg

National Bank of Denmark

Morten Bækmand Nielsen

Nykredit

James I. Vickery

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: December 2018

Abstract

Like the United States, Denmark relies heavily on capital markets for funding residential mortgages, and its covered bond market bears a number of similarities to U.S. agency securitization. This article describes the key features of the Danish mortgage finance system and compares and contrasts them with those of the U.S. system. In addition, it highlights characteristics of the Danish model that may be of interest as the United States considers further mortgage finance reform. In particular, the Danish system includes features that mitigate refinancing frictions during periods of falling home prices, and it offers borrowers the option to repurchase their mortgage at the market price, mitigating “lock-in” effects. Danish mortgage intermediaries also have high capital ratios relative to their risk exposures, a characteristic that contributes to the stability of the Danish market.

Keywords: mortgage, covered bond, securitization, Denmark, United States

JEL Classification: G15, G18, G21, G23, G28

Suggested Citation

Berg, Jesper and Nielsen, Morten Bækmand and Vickery, James Ian, Peas in a Pod? Comparing the U.S. and Danish Mortgage Finance Systems (December 2018). Economic Policy Review, Vol. 24, No. 3, 2018, Available at SSRN: https://ssrn.com/abstract=3298978 or http://dx.doi.org/10.2139/ssrn.3298978

Jesper Berg

National Bank of Denmark ( email )

Havnegade 5
DK-1093 Copenhagen K
Denmark

Morten Bækmand Nielsen

Nykredit ( email )

Kalvebod Brygge 1-3
DK-1780 Copenhagen V
Denmark

James Ian Vickery (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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