Sat Jul 12th, 2008 at 12:36:49 PM EST
Say hello to mister Teaser Rate Mortgage. He's a new arrival in Denmark, but he has relatives in the USA, UK and elsewhere.
A friend just tipped me off about this juicy bit of news from Børsen (lit. The Exchange - think the WSJ except borderline sane), which I'll translate below the fold.
|Nykredit under hård kritik for nyt boliglån||Nykredit harshly criticised for new type of mortgage|
|11-07-2008 08:25 af Jørgen Andresen||11-07-2008 08:25 by Jørgen Andresen|
|Realkreditinstituttet Nykredit er kommet under kraftig beskydning for en ny type boliglån, der starter med en kunstig lav rente, som så stiger år for år. Det skriver Jyllands-Posten.||The mortgage broker Nykredit has come under heavy fire for a new kind of mortgage which starts out with an artificially low interest rate that then climbs year by year. So writes Jyllands-Posten.|
|[...]||[Snip guy from the Copenhagen Bizniz Skool linking teaser-rate mortgages to the subprime crisis]|
|JP er i besiddelse af dokumenter der viser, at Nykredit tilbyder specielle lån til Andelsboligforeninger, der starter på 4,35 pct. og stiger med 0,115 procentpoint hvert år indtil det lander på 5,285 pct. efter 10 år.||JP [Jyllands-Posten - Jake] has acquired documents showing that Nykredit offers special mortgages to Andelsboligforeninger [I don't know how to translate this; it's a kind of quasi-communal ownership structure, where each homeowner buys a share in the organisation and then pays a monthly fee - in exchange, the organisation takes care of mortgages, repairs and in some cases utilities - Jake], which start out at 4.35 per cent and climb by 0.115 percentage points until they reach 5.285 per cent after ten years.|
|[...]||[Snip same guy saying pretty much the same thing]|
This story (also in Danish), from epn.dk (I don't know these guys, but it looks like it's the place Børsen plagiarised their newsflash from) has a couple of even more juicy bits. According to epn.dk, Nykredit didn't exactly go out of their way to inform the general public of what they are doing. Second, the new mortgages have the option of not repaying anything on the principal for the first twenty years. Last, epn.dk points out a fact that I had initially overlooked - while these mortgages are not "subprime" in the sense that they are marketed to borrowers with a subprime credit rating (because that Is Not Done on the Danish mortgage market - you are either credit-worthy or flat out of luck), the choice of andelsboligforeninger as customers for these new loans decouple the individual borrower from the loans, thus providing a potential for "primewashing" subprime borrowers through andelsboliger.
Of course, this will require the co-operation of other types of credit lines as well, because a subprime borrower will typically not be able to pony up the 40-80 k€ normally required in up-front payment for a share in an andelsboligforening. However, the amount you have to borrow to acquire a share in an andelsboligforening is, as you can see, typically about an order of magnitude less than what you need to borrow to buy a house or apartment.
Finally, I wish to give you an impression of the situation on the Danish financial markets - albeit as perceived through the occasionally murky crystal ball of our finance newsies (and their editors). So here comes a sample of "related current news" from Børsen's website:
|Milliardlussing til bank-aktionærer|
Af MICHAEL STENVEI
Pengeinstitutter: Roskilde Banks aktionærer mistede fredag mere end 850 mio. kr., da aktiekursen styrtdykkede. Mange lokale har investeret i aktien. Læs artikel
Borgmester: Roskilde vil mærke bankkrise
Bankdirektør erkender svigt
|Billion-crown beatdown for bank shareholders|
By MICHAEL STENVEI
Financial institutions: Roskilde Bank's shareholders lost more than 850 million crowns (€ ~114 million) when the stock price took a nose dive. Many locals have invested in the stock. Read whole article
Mayor: Roskilde will feel the bank crisis
Bank CEO acknowledges failures
So this is the happy, stable and booming financial environoment into which Nykredit has been quietly introducing teaser-rate (and possibly, though unlikely, subprime) mortgages by the back door. Now there's a thought calculated to make people sleep more soundly at night...