Icelandic taskforce mulls Danish system, but rationale questioned

The adoption of elements of Denmark’s mortgage finance system is being explored by a taskforce that will next month present a report to the Icelandic government on possible changes to the country’s mortgage finance model.

The minister of social affairs and housing, Eygló Harðardóttir, last autumn appointed a committee to look into possible changes to the Icelandic model. The taskforce, including politicians and representatives of other interested parties, is due to report to the government by the end of February on the outcome of its investigations and any proposals for legislation, Soffía Eydís Björgvinsdóttir, a legal professional and chair of the committee, told Nordic FIs & Covered.

Minister of social affairs and housing, Eygló Harðardóttir

An agreement to look into the Danish housing finance system has emerged from dialogue between the taskforce and a larger group of a broad mix of interested parties, according to Björgvinsdóttir.

“There was a discussion about whether we should make changes to the Icelandic housing loan system and if so, which changes we would suggest,” she said. “For the past two years or so the Danish mortgage system has been under discussion, at least its main features of specialised mortgage banks and the balance principle, and it was suggested that this be looked at.”

The Icelandic Confederation of Labour is understood to be a proponent of the Danish system, having been reported to have proposed a restructuring of the Icelandic mortgage system along Danish lines as long ago as February 2013.

Mortgage lending in Iceland has predominantly been channelled through the government institution, Housing Financing Fund (HFF), which issues bonds in the market to finance its lending. However, HFF had to be bailed out in 2012 and has required further government support.

Meanwhile, the country’s major banks — which were themselves earlier nationalised — also provide mortgage financing and issuers such as Arion Bank and Íslandsbanki have sold covered bonds under the covered bond legislation introduced in 2008 to refinance this.

Eiríkur Magnús Jensson, head of funding in Arion Bank’s treasury, said that he does not see the benefit of Iceland adopting the Danish model as it does not address the problems faced by HFF.

“HFF has been having defaults in its portfolio and therefore there have been government equity injections every year, which of course is unfortunate,” he said. “So the question has been how to fix it.

“But HFF’s problems have nothing to do with whether or not it is using the Danish covered bond system — it is to do with decisions made by management and various governments. There might be role that government can play on the social side, through guarantees or direct lending, but I don’t see the need to change our covered bonds.”

Jensson said that Arion and the country’s other banks have been taking market share from HFF.

“We are doing fine just now and offering better rates than HFF, which is of course a government-owned entity operating with a government guarantee in a free market, which has in many ways skewed competition for years,” he said.