COPENHAGEN’S winding streets and curved waterways are not obvious places to find the answers to one of finance’s most pressing questions. Yet some argue that it was here, amid the devastation of the city’s great fire of 1795, that a mortgage-lending model was developed that may offer a way to thaw today’s mortgage markets in America and Europe.
Denmark has not escaped the credit crunch entirely. Its economy is contracting, house prices are falling and several of its smaller banks have been bailed out after making risky commercial loans. Nevertheless, the country’s mortgage banks are continuing to sell bonds and issue mortgages at a pace similar to that before the credit crisis. “We have been issuing bonds every day, even in the worst days,” says Henrik Hjortshoj-Nielsen of Nykredit, Denmark’s biggest mortgage lender. “We haven’t seen lower volumes.”
When a Danish mortgage bank grants a mortgage it is obliged to sell an equivalent bond with a maturity and cashflow that matches those of the underlying loan almost perfectly. This may not seem very different from the “originate-to-distribute” securitisation models that flourished in America and parts of Europe in recent years. [...]
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