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Danish Mortgage Credit - Part 1

Danish mortgage bonds have performed well during both the financial crisis and the sovereign debt crisis. In recent months, Danish mortgage bonds have displayed characteristics of assets considered to have safe-haven status during periods of financial turmoil. This development would not have taken place if investors had not regarded Danish mortgage bonds as being among the safest assets. The low credit risk and high liquidity of Danish mortgage bonds are supported by a range of legal and institutional conditions described in the article. This may help provide an understanding of why Danish mortgage bonds stand out as attractive in an international context. The special conditions comprise the close link between loans and bonds, meaning that mortgage banks do not assume significant market risks, the limited credit risk that mortgage banks can assume, the mortgage banks' access to increase their administration margins for all borrowers, access to fast realisation of the mortgaged property relating to a non-performing loan and the clear priority position of investors in the event of compulsory liquidation. At the same time, the mortgage-credit sector is facing challenges that have been highlighted by the crisis. The sector's challenges and approach to them are also described.