Statutory characteristics  

The foundation of the Danish mortgage credit model that offers these unique qualities is the statutory framework of the system and the way in which the mortgage banks have chosen to carry out their lending activities within this framework.

Competitive prices are ensured by protecting the bond holders from possible losses. In the Danish mortgage credit system, bond holders are very well protected. That is why the bonds issued by the Danish mortgage banks are traded as highly secure investments in the capital market.
 

The most significant statutory framework consists of the following:
 

• As a ground rule, the mortgage banks may only grant loans against a mortgage on real property within a fixed lending limit (loan-to-value/LTV). However, a mortgage bank may grant loans without a mortgage on real property to public authorities or to borrowers who have obtained a guarantee from a public authority.
• The valuation of the real property and the calculation of the loan amount take place in compliance with a set of rules laid down by the Danish FSA.
• The loan may solely be funded through the issuance of bonds. This means that the mortgage bank does not have access to raise finance in the money market to fund its mortgage lending.
• The issuance of bonds by the mortgage banks is subjected to a balance principle. The balance principle ensures that the mortgage bank does not assume significant risk in connection with its mortgage lending activities and the funding of the loans. This is true for interest rate risk, liquidity risk, currency risk etc.
• The bond holders have a preferential status in the event of the bankruptcy of a mortgage bank. However, there has never been a bankruptcy in the more than 200 year long history of Danish mortgage credit.