The Danish Mortgage Finance Model
(from Absolute Return Partners a London based private partnership www.arpllp.com September 2011).
The story begins with the great fire of 1795 which destroyed nearly one quarter of Copenhagen. Funding was required to rebuild the city and some egghead came up with the idea of issuing bonds to fund the massive capital requirement. As a result, the first mortgage association was established in 1797. The adoption of the Constitution of the Kingdom of Denmark Act in 1849 provided the first regulatory framework and Danish mortgage financing has ever since been tightly regulated, ensuring an entirely unblemished track record with not a single default to report in over 210 years. Even in 1813, when the Kingdom of Denmark defaulted, the mortgage bond system survived intact. Even more impressively, the combined loss ratio for all Danish mortgage credit institutions (MCIs) has never exceeded 1% in any one year
– a number most other countries can only dream of.
Denmark has the best mortgage system in the world. It is transparent and inexpensive. The interest rate of a mortgage loan and the prepayment price are directly reflected in the price of the mortgage bonds funding the loan. And everybody can monitor bond prices daily – for instance in newspaper price lists. Interest rates mirror the prices investors pay for the bonds. And Danish mortgage bonds are attractive due to their high security level, leading to low mortgage rates. Read the Whole Report
Absalon Project (Absalon) will market the Danish Mortgage Solution on a worldwide basis. Absalon is an extension of a partnership between affiliates of VP SECURITIES A/S and Soros Fund Management that was established back in 2005 with the purpose to implement the Danish Mortgage Model in Mexico. This project was successfully carried through with the creation of a mortgage servicing company in Mexico named HiTo that issued the first loans based on the Danish Mortgage Model just before Christmas 2007. Since then HiTo has introduced more loan types to the Mexican market and is issuing loans on a weekly basis, using the solution provided by Absalon.
There are many more studies at the Absalon Project download page: http://absalonproject.com/downloads