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Denmark's Genius Housing Fix

businessinsider.com

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Re: Denmark's Genius Housing Fix

#41

Post by s1artibartfast »

SoftTalker wrote: post #27
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.

Both are forcing the bank to take action, but I think that switching like for like is less of an imposition than a forcing the bank to sell.

It is interesting that banks dont already offer this for a fee. Im not too knowledgeable on the topic, but wonder if it has do with how mortgages are bundled, and the cost/paperwork of unwinding that.

Re: Denmark's Genius Housing Fix

#42

Post by orochimaaru »

frumper wrote: post #24
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,…

Yes - I don’t disagree. But provided those conditions are met I’m sure a blended rate could be arrived at that is much lower than market rate.

If the goal is to make it easier to move I think there are options. But I don’t see anyone rushing to exchange a 2.65% loan for 8%. I mean at that rate it makes more sense to rent your home than to sell it.

Re: Denmark's Genius Housing Fix

#43

Post by fshbbdssbbgdd »

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.

The fact that some people payoff early factors into the market value of mortgage debt, and therefore the interest rate that is offered. So if it were easier to transfer the debt when moving, the risk profile would be different, and the rate you got in the first place would be different.

Re: Denmark's Genius Housing Fix

#44

Post by frumper »

orochimaaru wrote: post #42
frumper wrote: post #24

Earlier quoted context omitted.

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,…

Yes - I don’t disagree. But provided those conditions are met I’m sure a blended rate could be arrived at that is much lower than market rate. If the goal is to make it easier to move I think there are options. But I don’t see anyone rushing to exchange a 2.65% loan for 8%. I mean at that rate it makes more sense to rent your home than to sell it.

This blending rate would just be subsidizing the have's at the expense of the have nots. It would be a market advantage to existing low rate holders going into the next 2 decades.

Re: Denmark's Genius Housing Fix

#45

Post by fshbbdssbbgdd »

s1artibartfast wrote: post #41
SoftTalker wrote: post #27

Earlier quoted context omitted.

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.

Both are forcing the bank to take action, but I think that switching like for like is less of an imposition than a forcing the bank to sell. It is interesting that banks dont already offer this for a fee. Im not too knowledgeable on the topic, but wonder if it has do with how mortgages are bundled, and the cost/paperwork of unwinding that.

The fact that someone who needs to sell will pay back the principal is valuable to the bank. If a bank starts offering the option to get out of the loan at a lower price, it would impair the value of that loan. The only way to make this happen would be to include it in the original terms of the loan (where this feature would be worked into the market math that sets the interest rate) or if the government changes the rules (which would result in a hole in balance sheets as the value of the debt falls).

Re: Denmark's Genius Housing Fix

#46

Post by gopher_space »

skybrian wrote: post #25

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.

This seems like it might give investors flexibility as well. What does it mean for long-term investments if people start paying their mortgages early?

Re: Denmark's Genius Housing Fix

#47

Post by munch117 »

SoftTalker wrote: post #27
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.

How would the current value be determined? The lender has no incentive to offer you a competitive price, when your alternative is to pay the loan in full.

The point of the Danish system is that it's a market system through and through. No one needs to twist the arms of lenders to make them "allow" something.

Re: Denmark's Genius Housing Fix

#48

Post by TaleAsOldAsTime »

ranger_danger wrote: post #9
TaleAsOldAsTime wrote: post #5

> Fewer sellers means buyers compete for a smaller pool of available homes, driving up prices Uh? This is just moving the tokens around. Those sellers are still going to live somewhere, so they're either going to buy again or enter the rental market. So the "pool of available homes" is not improved by this maneuver, like, at all. At best the buyer and seller for a given transaction end up just trading places and rent…

> trading places Sounds like socialism with extra steps.

[flagged]

Re: Denmark's Genius Housing Fix

#49

Post by SoftTalker »

munch117 wrote: post #47
SoftTalker wrote: post #27

Earlier quoted context omitted.

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.

How would the current value be determined? The lender has no incentive to offer you a competitive price, when your alternative is to pay the loan in full. The point of the Danish system is that it's a market system through and through. No one needs to twist the arms of lenders to make them "allow" something.

There is a straightforward way to value a mortgage loan because they are bought and sold every day.

The value calculation might have to change, as noted by fshbbdssbbgdd, but it's possible, since the Danish system calculates a value on the bonds that represent the mortgage. To me it seems like less overhead to forego the step of issuing the bonds and just make the mortgage work like the bonds would.

Re: Denmark's Genius Housing Fix

#50

Post by skybrian »

gopher_space wrote: post #46
skybrian wrote: post #25

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.

This seems like it might give investors flexibility as well. What does it mean for long-term investments if people start paying their mortgages early?

People often do pay off mortgages early, for example when they move. This option would let them do it cheaper, making it more attractive.
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