At the ARES conference 2004 in Florida, USA, ScanRate PhD-student Søren Willemann will present the working paper "Reforming Housing Finance - Perspectives from Denmark." This paper is co-authored work with Mikkel Svenstrup, quantitative research, ScanRate.
The working paper examines the effect of introducing a buy-back option, as is known from Danish mortgage backed bonds, to the American market. It is found that the introduction could reduce the borrower contribution fee to the mortgage agencies by 25% and this figure is stable across a variety of economical situations. The reduction is caused by a systematic drop in non-financially motivated defaults and could serve to reduce the contingent liability of the US government. It is further argued that the buy-back option could help government sponsored enterprises such as Fannie Mae and Freddie Mac to reach their long cited goal to increase household ownership for low- and middle income families.
The foundation for this research project was created through research of the effects of buy-back options in the Danish mortgage market.
The working paper in its current state can be downloaded here.