Danish Politics and the Rural Mortgage Market

By Tom
Updated on

Danish Politics and the Rural Mortgage Market

On a no-charge channel in Denmark there are regular transmissions from parliament and public committee deliberations. While normally they are like watching paint dry – though you could be excused for suspecting they had forgotten the paint.

But they occasionally offer you an glance into the workings of crisis management

They can give you a more realistic assessment of how politicians actually do their job – and some of them are better than their tabloid reputation.
There was Thursday a consultation with the secretary for banks – the ex-communist (he was chairman of the party!) Ole Sohn. The subject was that the mortgage banks refused to finance home sales in rural Denmark – in fact anything but greater Copenhagen.
The official explanation from the mortgage banks was that they would not be able to sell foreclosed property and they had had losses outside metropolitan Copenhagen.
Now the show took off. The pointed questions from the committee members were answered by the secretary: Well, they controlled their mirth – barely – especially the secretary was strained as he repeated the mortgage banks explanations and reasoning.

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The committee chairman wondered how the comparatively low rural prices – and thinner population – could cause such significant losses.

He requested further information – actually right down to foreclosure level for the bigger foreclosures and the lowest administrative level for the rest.
The secretary was more than cooperative – and he promised (with a sadistic grin and evil gleam in the eye) to furnish further information.


The real reasons for the refusal to provide finance to home owners in rural area are more probably:

  1. Denmark is approximately like Vermont – small with good road and lots of public transportation so the term rural is a strictly relative term
  2. The fact is that house prices in the “rural” part of the country are much, much lower – about a factor 10 – than in Copenhagen. In fact you can service real estate debt on social benefits.
  3. The disadvantage to the mortgage banks is that the low prices outside greater Copenhagen will undermine the mortgage banks efforts to keep house prices high.
  4. If the house prices fall further the number of foreclosures pending will tear the carpet away under their feet – there will be no security behind their bonds: The Loan-to-Value  (officially not under 80% in any one case) will skyrocket – it is already around 77% on average.

This state of affairs is not unknown to neither the committee members nor the secretary. The fact that the politicians barely maintain decorum (and they are midlevel representatives) is ominous for the banks. If the mortgage banks do not play ball there is not one politician that will pause or arrest the hand on the axe.

There are other indications:

The National Statistic Office has started publishing more detailed statistics on real estate sales and prices – and published at irregular intervals with preliminary figures. The significance is that it indicates a need for information ahead of something violent – just like the collection of meteorological data before a nuclear test.

There is another angle to this:

Before October 2008 everybody relied on the mortgage banks statistics, but there was a subtle change after the autumn 2007 when the mortgage bank had to send out a major revision – and it was probably a clerical error. But what wasn’t a clerical error was the termination of any indication of the names of the mortgage banks. There has been other statistics inexplicably changed and delayed – the regional reform did indeed form a good pretext as administrative boundaries were changed.
The same reforms have led to a more centralized government control – by the Statistical Office – with the figures. Not only that, but “clerical errors” are not liable to happen as often, and the figures are available earlier.
It is a political axiom that you don’t change administrative procedures unless there is a very, very good reason. Another political axiom is that if you are caught “fixing” figures – you are OUT. There is little doubt that the brusque EU treatment of Greece in some degree is due to the deliberate falsifications of economic figures.
Generally I’m surprised how little the information in administrative measures is mentioned when the business reporters pontificate their infinite wisdom.  Maybe I shouldn’t be, as the selection of data by spin doctors is highly selective and by no means exhaustive nor always relevant. But it is a warning to private investors – if you are not able to filter the wheat from the spam, how can you expect to get a return on your investment?

These days all investment in financial securities is done with confidence/reservation/distrust to the politicians.

Sometimes you are better served with looking around – and lift the glance from charts and listen to common sense.

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