Staff Reports
Peas in a Pod? Comparing the U.S. and Danish Mortgage Finance Systems
Number 848
May 2018

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

Authors: Jesper Berg, Morten Bækmand Nielsen, and James Vickery

Like the United States, Denmark relies heavily on capital markets for funding residential mortgages, and the Danish covered bond market bears a number of similarities to U.S. agency securitization. In this paper we describe the key features of the Danish mortgage finance system and compare and contrast it to the U.S. system. We also note 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 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, contributing to the stability of the Danish market.

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AUTHOR DISCLOSURE STATEMENT(S)
Jesper Berg
I drafted my contributions to the paper while I was Director General of the Danish Financial Supervisor. Until end-September 2015, I was an employee of Nykredit, which is the largest mortgage bank and issuer of covered bonds in Denmark. I still own bonds that are a claim on Nykredit because of earlier delayed compensation. I am a member of the boards of the Danish Economic Society, the Danish Finance Society, and the Danish Foreign Policy Society.

Morten Bækmand Nielsen
I drafted my contributions to the paper while I was Head of Investor Relations at Nykredit. Nykredit is largest lender in Denmark and Europe’s largest issuer of covered bonds backed by mortgages.
I declare that I have no relevant or material financial interests that relate to the research described in this paper.
I represent the Danish covered bond issuer at the Steering Committee of the European Covered Bond Council and am chairman of the organization’s Technical Issues Working Group.
I am a long-standing member of the Danish Financial Analyst Association’s Fixed Income Committee.

James Vickery
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.