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Dutch coalition party blasts government-backed mortgage bonds

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Liberal party and coalition partner VVD in the Netherlands has said it remains very critical of the National Mortgages Institution (NHI), which is to issue government-backed mortgage bonds to institutional investors. 

Speaking at the international IIR securitisation event in Amsterdam last week, Roald van de Linde, MP for the VVD, questioned investors’ motives for wanting the government to be involved in the NHI.

“It’s either a matter of running less risk or gaining higher returns,” he said.

The NHI – still under construction – is meant to relieve banks’ balance sheets, and is expected to attract €50bn of investment from institutional investors over the next five years.

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“[But] as we understand it,” Van de Linde said, “banks must keep the most risky mortgages, so this won’t solve their liquidity problem.”

The liberal MP suggested that foreign investors failed to understand the concept of the National Mortgage Guarantee (NHG), the already existing guarantee scheme for mortgage lenders for properties worth up to €290,000.

“Dutch pension funds probably don’t invest in local mortgages because NHG mortgages don’t return enough due to low interest rates,” Van de Linde said.

“Mortgages with no or less government backing are more attractive, and yield approximately a 1% higher return.”

In his opinion, the market must do without guaranteed mortgages portfolios and come up with its own hedging arrangements.

Van de Linde further indicated that the VVD was very worried about the exposure of the Dutch state to the housing market.

“We would also like to limit the NHG,” he said.

However, the MP added that his party would approach the NHI proposals from the Cabinet with an open mind.

Rob Koning, director of the Dutch Securitisation Association (DSA) and closely involved in designing the NHI, stressed that the vehicle was meant for bad times, when the markets were unavailable.

“Moreover, we assume that it could take up to 10 years before the €50bn has been invested,” he said, adding that the amount could be raised to €80bn during a next crisis.

Koning denied that the current NHI design would pose any risk to the Dutch government.

However, he declined to provide further details about the scheme, which is in its final stage of preparation.

The NHI will require political backing from not only the Dutch Parliament but also the European Commission.

The other coalition partner, the labour party PvdA, said it did support the principle of government-backed mortgage bonds, but it emphasised that pension funds should also be prepared to invest in mortgages without a government guarantee.

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