Aktuelle risici i dansk realkredit

Paw Mønster Becker & Mark Severinsen

Student thesis: Master thesis


The main purpose of this thesis is to investigate the contemporary risks of the Danish mortgage credit system as well as the management of these risks. The Danish mortgage credit system has for several years been considered a model mortgage system but with the product development in the latest years, and with the rise of the interest-only loans as well as the adjusted rate mortgages, the system is exposed to new risks, and some suggest that the mortgage system is not as stable as it used to be. In our analysis of the credit risk we find that the expiry of the interest-only loans could be a severe risk for the MCI’s. In the years from 2005-2008 the interest-only loans grew in popularity meaning that in the next years we will see a rise in the expiry of these. Thus, the payment on the loans could rise by up to 600%, meaning that the probability of default of these homeowners will rise. Furthermore we find that the agricultural mortgage borrowers could be a more risky group of borrowers as these are exposed to a significant correlation risk. As the circumstances are at the moment, the Danish agriculture is in a distressed state, and several borrowers could be in danger of defaulting, as they also tend to have the more risky interest-only and adjusted rate mortgages. When analysing the interest risk, we find that a lot of borrowers are exposed to a change in the interest rates. We do, however, also find that the average borrowers should be able to handle a raise in the interest rate, and that the risk does not seem as significant as other risks. As a lot of borrowers tend to choose loans based on a short maturity, the price risk is very limited. Especially considering that the loans with a 30-year maturity are callable at face value, the price risk is limited to the 10 year adjusted rate mortgages. The lock-in risk is in general limited to a few bond series. We do however find that the product development in Danish mortgages have a tendency to dilute the bond series, and thus increasing the risk of a high ownership concentration and increasing the lock-in risk. The main risk of the Danish mortgage credit system is the refinancing risk and the connected systemic risk. The ongoing need for available short-term financing has exposed the Danish mortgage credit system to a significant systemic risk as rapid changes in interest rates by financial turmoil or a defence of the pegged exchange rate, could lead to a problematic refinancing of the ARMs and rapidly increasing interest rates on the mortgage loans. This could lead to an increase in defaults for the MCIs and the increasing credit risk could lead to a higher yield requirement and a further increasing of the interest rates. This could again lead to more defaults, until the refinancing of ARMs would be a spiral of increasing rates, higher credit risk and more defaults. Considering the exposure to the systemic risk we discuss who has the final responsibility for the future of the Danish mortgage credit system. The MCIs do not seem to assess the risk in the same way as the Danish government, and considering that the MCIs probably are too big to fail, it seems that it is up to the government to regulate the system in order to protect itself from being forced into an expensive bailout.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2015
Number of pages125