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>These bonds are considered to be very stable, about the same quality as state bonds >can usually recover most of the money through a forced sale This exact l

>These bonds are considered to be very stable, about the same quality as state bonds >can usually recover most of the money through a forced sale This exact line of thinking is what led to the US real estate crash in 2008/2009

FelixGommen 7y ago
Well in principle yes, but in reality no. The Danish system for financing real estate have historically been extremely stable. Olau explains it above
jjwhitaker 7y ago
It's a gross simplification, but with the volume that is Danish housing vs demand for said housing the risk is very low. One of many issues leading into the 2008 crash was how Us mortgages were bundled, rated AAA, then resold as an investment tool. However, the ratings were falsely boosted to promote investment and when the underlying junk mortgages fell through and demand fell off a cliff with the rest of the economy there was no way to flip foreclosed housing to make up losses. In this case, Danish mortgages are not bundled, rated falsely positive, and not sold as an investment tool like in 2008. Current US auto loans may be much more similar than these Danish loans.
- kasey_junk 7y ago
  > In this case, Danish mortgages are not bundled, rated falsely positive, and not sold as an investment tool like in 2008. Danish loans are definitely securitized and sold as investment tools. They are a classic interest rate risk hedge. It’s been a while since I was adjacent to them but the bigger difference in Danish mortgage backed securities were a) no governmental guarantee on them b) less protections for the borrowers than in the US c) no derivatives d) much smaller market & e) much longer history. So credit risk, which is what ratings agencies nominally judge is likely not a problem. Interest rate risk is though, but given its more straight forward, it’s what investors are looking for exposure to & there is low leverage it’s unlikely to cause systemic collapse.
  - thedudeabides5 7y ago
    low leverage in proportion to the total asset value But what’s that total asset value if interest rates are 10% (vs -1%)?
barry-cotter 7y ago
That’s true, except that you can only get a loan in Denmark if you have 20% of the purchase price to put down as collateral. That means sub prime mortgage lending doesn’t exist in Denmark and that combined with liar/NINJA loans was a substantial contribution to the US housing crash, together with securitisation. If it had been impossible to securitise mortgages with less than 20% down in collateral the housing crash would have been a non event in the financial markets.
- e_d_e_v 7y ago
  > the lenders will only lend up to 80% of the value of the house (an ordinary bank loan must be used for the remaining fraction) From olau's explanation, it seems that there is enough money flowing, that more than 80% can be financed (in some way) even if it is not in a single or collateral-backed loan.
  - olau 7y ago
    Indeed. I think the situation currently is that you need 5% in downpayment yourself, then the bank can supply the 15% (at a much higher, individual rate) and the real-estate lender will provide the most secure 80%.
olau 7y ago
This is not really my area of expertise, and it's unclear whether you're basing this comment upon an actual analysis or it's just a quick remark? I was trying to explain how the bond rates can go so low. The real-estate lenders have rigid policies in place as for who can get a loan. Of course, enough correlated failures, and the system goes down. But there was a crashing housing bubble in Denmark too in 2008/2009, and to the best of my knowledge none of real-estate lenders went down, although they did increase their fees to cover losses. Banks were crashing, though, until the bailouts started. I personally think that the overall system would be more healthy if the real-estate lenders and banks in general did not protect their investors against losses, but just passed them on so you avoid this sure-everything-is-fine until it crashes. But again I don't know much about the banking world. Maybe that idea is too complicated.

FelixGommen 7y ago

Well in principle yes, but in reality no. The Danish system for financing real estate have historically been extremely stable. Olau explains it above

jjwhitaker 7y ago

It's a gross simplification, but with the volume that is Danish housing vs demand for said housing the risk is very low. One of many issues leading into the 2008 crash was how Us mortgages were bundled, rated AAA, then resold as an investment tool. However, the ratings were falsely boosted to promote investment and when the underlying junk mortgages fell through and demand fell off a cliff with the rest of the economy there was no way to flip foreclosed housing to make up losses. In this case, Danish mortgages are not bundled, rated falsely positive, and not sold as an investment tool like in 2008. Current US auto loans may be much more similar than these Danish loans.

kasey_junk 7y ago
> In this case, Danish mortgages are not bundled, rated falsely positive, and not sold as an investment tool like in 2008. Danish loans are definitely securitized and sold as investment tools. They are a classic interest rate risk hedge. It’s been a while since I was adjacent to them but the bigger difference in Danish mortgage backed securities were a) no governmental guarantee on them b) less protections for the borrowers than in the US c) no derivatives d) much smaller market & e) much longer history. So credit risk, which is what ratings agencies nominally judge is likely not a problem. Interest rate risk is though, but given its more straight forward, it’s what investors are looking for exposure to & there is low leverage it’s unlikely to cause systemic collapse.
- thedudeabides5 7y ago
  low leverage in proportion to the total asset value But what’s that total asset value if interest rates are 10% (vs -1%)?

barry-cotter 7y ago

That’s true, except that you can only get a loan in Denmark if you have 20% of the purchase price to put down as collateral. That means sub prime mortgage lending doesn’t exist in Denmark and that combined with liar/NINJA loans was a substantial contribution to the US housing crash, together with securitisation. If it had been impossible to securitise mortgages with less than 20% down in collateral the housing crash would have been a non event in the financial markets.

e_d_e_v 7y ago
> the lenders will only lend up to 80% of the value of the house (an ordinary bank loan must be used for the remaining fraction) From olau's explanation, it seems that there is enough money flowing, that more than 80% can be financed (in some way) even if it is not in a single or collateral-backed loan.
- olau 7y ago
  Indeed. I think the situation currently is that you need 5% in downpayment yourself, then the bank can supply the 15% (at a much higher, individual rate) and the real-estate lender will provide the most secure 80%.

olau 7y ago

This is not really my area of expertise, and it's unclear whether you're basing this comment upon an actual analysis or it's just a quick remark? I was trying to explain how the bond rates can go so low. The real-estate lenders have rigid policies in place as for who can get a loan. Of course, enough correlated failures, and the system goes down. But there was a crashing housing bubble in Denmark too in 2008/2009, and to the best of my knowledge none of real-estate lenders went down, although they did increase their fees to cover losses. Banks were crashing, though, until the bailouts started. I personally think that the overall system would be more healthy if the real-estate lenders and banks in general did not protect their investors against losses, but just passed them on so you avoid this sure-everything-is-fine until it crashes. But again I don't know much about the banking world. Maybe that idea is too complicated.