Danish housing bubble prompts industry to look to german model

Denmark's home-loan industry, the world's biggest issuer of mortgage-backed covered bonds, is looking to Germany to avoid a repeat of the housing bubble that sent Scandinavia's weakest economy to the brink of a recession.

Realkredit Danmark A/S, Denmark's second-largest mortgage lender, wants the $495 billion industry to reject loan applications if house prices exceed what German banks call the mortgage lending value, which strips out temporary price fluctuations to arrive at a long-term valuation.

"When mortgage banks come forward and say, 'We cannot go to market value,' that would send a powerful signal" that there's a bubble in the making, said Klaus Kristiansen, executive vice president of asset liability management at Realkredit Danmark, the mortgage unit of Danske Bank A/S. "Those warnings weren't clear enough in the 2000s."

Denmark is the only Nordic country at risk of lurching into a recession, as falling house prices and rising joblessness erode consumer confidence and undermine demand. Household sentiment dropped this month to its lowest in more than two years. The government on Nov. 3 cut its forecast for private spending this year to a 0.6 percent contraction, versus its previous estimate for 0.3 percent growth.

Source: SFGate.com