Pfandbriefe – Tinkering with the specialist principle

The German Mortgage Bank Association – or the Verband Deutscher Hypothekenbanken (VDH) to give the organization its proper title – is expecting amendments to the German Mortgage Bank Act to come into force next year. Some proposed changes, particularly the idea of adding derivatives to Pfandbrief collateral pools, have caused sharp intakes of breath, because of the counterparty risk that would be introduced to the book. Suddenly, the hidebound VDH is recast as a revolutionary body.