We know Ireland isn’t Iceland. It’s not Greece, and definitely not Spain. Now we know that when it comes to mortgages, at least, Ireland isn’t Denmark. A Bill (.pdf) introduced by Senator Sean Barrett designed to add the stable Danish mortgage model to the obviously unstable Irish model was shot down by Minister Noonan this week. Simply put, the Bill’s idea is to allow a balance principle to regulate mortgage credit. A 2007 IMF paper on the Danish market (.pdf, again) noted that
The Danish mortgage system is widely recognized as one of the most sophisticated housing finance systems in the world. Through the implementation of a strict balance principle, the system has proved very effective in providing borrowers with flexible, transparent and close-to-capital markets funding conditions. Simultaneously, as pass-through securities, mortgage bonds transfer market risk from the issuing mortgage bank to bond investors. Lastly, strict property appraisal rules and credit risk management by the mortgage banks have also historically shielded mortgage bonds from default risk.
Naturally enough, the Minister felt the need to shoot the Bill down.
The Minister’s reasons are outlined here, but essentially they are:
1. We are not, nor were we ever, Denmark.
2. Changing wholesale to this system has risks, most of which I won’t go into here, but the Danes give defaulting households 6 months and we’d really like that to be longer, say a year.
3. Changing to this system would imply loans at 80% LTV, most banks are at 92% LTV, this would make it more difficult for first time buyers.
4. We’re in the middle of negotiations on the various capital requirements directives, this could throw a spanner in the works with the EU.
Senator Barrett is to be congratulated for bringing a fresh perspective to the Mortgage market in Ireland. It’s a real pity the Bill didn’t get more traction, but hopefully parts of it may make it into other pieces of legislation.