Reforming Housing Finance: Perspectives from Denmark

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  • Søren Willemann, Denmark
  • Mikkel Svenstrup, Denmark
We investigate the effect of adding a distinct feature of the Danish mortgage market to the US market, namely a buyback option, which enables mortgagors to buy back their share of the mortgage-backed security at market price. Extending a standard referenced pricing-model, we find that the introduction of the buyback option reduces the credit spread required by the financial intermediary with 23%, potentially reducing the contingent liability of the US government. Furthermore, the buyback option protects households against the risk of being locked in after an increase in interest rates. In particular, this could benefit low-to-middle income households.
Original languageEnglish
JournalJournal of Real Estate Research
Pages (from-to)105-129
Number of pages25
Publication statusPublished - 2006

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