AgentMortgage

3 ways Danish mortgage market trumps U.S.

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The housing finance system of the U.S., once viewed by many as a model, is now a shambles. The underwriting rules applicable to nine of every 10 mortgage loans, stipulating who is and who is not eligible for the loan, are dictated by an arm of the federal government: Fannie Mae, Freddie Mac, FHA, VA and USDA. The sliver of the market not touched by those agencies is dominated by a small group of too-large-to-fail bank holding companies.

Before the crisis, the nonfederalized part of the market was much larger because it was supported by a private secondary market. Lenders originating loans that did not meet the requirements of any of the federal agencies could sell them in the private secondary market. But that market collapsed in 2007 and has yet to reopen.

One result has been a sharp widening of the yield spread between conventional loans that can be sold to Fannie Mae and Freddie Mac, and those that can't. Today, the spread between a $417,000 loan purchasable by the...