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Denmark's Genius Housing Fix

businessinsider.com

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Re: Denmark's Genius Housing Fix

#21

Post by marcinzm »

bryanlarsen wrote: post #11
baal80spam wrote: post #10

My DK friends say that housing prices in København are outrageous. Did the genius fix work only locally?

Most countries outside of the US also have a "fix" for this specific problem just by not having 30 year fixed rate mortgages. For example in Canada most fixed rate mortgages are only fixed for 5 years. So we don't have the mortgage lock in effect that the US has, but that's only one cause out of dozens for outrageous housing prices.

As I understand it, the Canada housing market is significantly more broken than the US one overall:

https://awealthofcommonsense.com/2023/09/the-u-s-housing-mar...

Also, isn't there now a massive concern about large scale loan defaults and bankruptcies the next time mortgage rates reset in Canada?

Re: Denmark's Genius Housing Fix

#23

Post by babypuncher »

bryanlarsen wrote: post #11
baal80spam wrote: post #10

My DK friends say that housing prices in København are outrageous. Did the genius fix work only locally?

Most countries outside of the US also have a "fix" for this specific problem just by not having 30 year fixed rate mortgages. For example in Canada most fixed rate mortgages are only fixed for 5 years. So we don't have the mortgage lock in effect that the US has, but that's only one cause out of dozens for outrageous housing prices.

Thank fuck my mortgage rate is locked in. I refinanced when rates were at rock bottom, I'd hate to see what my mortgage payment would look like today if my bank was allowed to raise it.

Re: Denmark's Genius Housing Fix

#24

Post by frumper »

orochimaaru wrote: post #12

If I already have a Fannie/freddie loan - why not allow me to maintain the same rate for the remaining loan and have the new interest rates for any delta. This would encourage movement without all the complexity of this scheme. The money is already owed to the these entities at that rate. Allow folks to keep the rate on that amount even if they move.

It's owed to these entities at that rate for a specific amount of time. Swapping homes should then mean that the new home is on a payment timeline of whatever the remaining term is, not reset to 30 years. You'd also need to have not increased the loan amount for the math to work out, so either you'd need to sell the old home for more than what the new one costs, or come up with the difference in cash. On top of that, the original loan is backed with the old home as collateral, so the new home would also need to be worth at least as much as the remaining balance.

Re: Denmark's Genius Housing Fix

#25

Post by skybrian »

It does sound like a good system since it gives the homeowner more flexibility. But call options aren’t free, so I wonder if it also makes getting a mortgage a little more expensive?

The mortgage becomes a bond that’s less valuable to the investor, so they would want a higher interest rate up front to make up for it.

Re: Denmark's Genius Housing Fix

#26

Post by bwanab »

This document explains the Danish system in some detail: https://finansdanmark.dk/media/raim0hhz/den-klassiske-realkr....

Toward the end of the document, there is a discussion of how the Danish mortgage system has fared in the various financial crises of the past 50 years starting with the twin oil shocks of the 1970s. Evidently it has been much more stable than the US system during that era. If for no other reason, the US should look at this system seriously.

Re: Denmark's Genius Housing Fix

#27

Post by SoftTalker »

jpurnell wrote: post #2

In the Danish system, each mortgage is backed by a matching bond. Thus, mortgage holders have two ways to pay off their mortgage: 1) pay the monthly payments or 2) buy the matching bond and, in effect, extinguish the mortgage. The latter option is valuable because when interest rates rise, the price of mortgages fall.

Instead of the complexity of issuing these bonds, would it not be a lot simpler to just allow borrowers to buy back their mortgage at its current value, which is what any other buyer of that loan would do. Mortgage loans are bought and sold all the time, for their current value. Just allow the original borrower be able to do that.

Re: Denmark's Genius Housing Fix

#29

Post by kredd »

baal80spam wrote: post #10

My DK friends say that housing prices in København are outrageous. Did the genius fix work only locally?

It’s the same problem in every desirable major city in the world, especially if you do relative comparisons within the country. Demand won’t die unless we start seeing widespread depopulation that can’t be offset through immigration, and from the supply side, it’s in the best interest of the homeowners (majority of the voter base) to keep the prices high. Basically, our best bet is to slow down the housing inflation, rather than deflation. Since it won’t happen easily, and if it happens, there will be bigger and worse problems.

I might be wrong, but that’s what I gather while renting in one of the hot spots of extreme housing prices (Vancouver).

Re: Denmark's Genius Housing Fix

#30

Post by brabel »

bryanlarsen wrote: post #11
baal80spam wrote: post #10

My DK friends say that housing prices in København are outrageous. Did the genius fix work only locally?

Most countries outside of the US also have a "fix" for this specific problem just by not having 30 year fixed rate mortgages. For example in Canada most fixed rate mortgages are only fixed for 5 years. So we don't have the mortgage lock in effect that the US has, but that's only one cause out of dozens for outrageous housing prices.

You guys have 30 year fixed rate mortgages???? How the hell can that work? How can banks predict with any accuracy the interest rates for that kind of period?

I had a 3-year fixed rate mortgage some 5 years ago, fixed at the rate of the time which was historically extremely low (below 2% pa), before the interest rates skyrocketed, and was really happy :D I had a couple of years on those rates... but then I went to re-negotiate and it was best to get just floating rates as the banks were all panicking and would only freeze rates for 3 years at outrageous levels... I think I got floating rates at around 3.5% or 4.0% (it has gone down since). I imagine it would be extremely dangerous for a bank to just have frozen my rates for 30 years anywhere near that historical low, so you would have to pay a huge margin for them to take that risk , no?

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