Reforming Housing Finance - Perspectives from Denmark

Mikkel Svenstrup () and Soren Willemann ()
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Mikkel Svenstrup: ScanRate Financial Systems, Denmark, Gustav Wieds Vej 10, 8000 Aarhus C, Denmark
Soren Willemann: Aarhus School of Business, Department of Accounting, Finance & Logistics, Fuglesangs Alle 4, 8210 Aarhus V, Denmark

Journal of Real Estate Research, 2006, vol. 28, issue 2, pages 105-130

Abstract: This paper investigates the effect of adding a distinct feature of the Danish mortgage market to the market in the United States. This feature, a buyback option, enables mortgagors to buy back their share of the mortgage-backed security at market price. Extending a standard referenced pricing model, the findings indicate that the introduction of the buyback option reduces the credit spread required by the financial intermediary by 23%, potentially reducing the contingent liability of the U.S. government. Furthermore, the buyback option protects households against the risk of being locked in after an increase in interest rates. This could be of particular benefit to low-to-middle income households.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2006
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