To fix broken mortgage markets, look to Denmark

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IT MATTERS when mortgages malfunction. Home loans underpin tens of trillions of dollars of financial assets, not to mention some of life's most important transactions. And though the rich world is mercifully free of the tearaway lending that caused the global financial crisis of 2007-09, mortgage markets remain riddled with problems. The sharp rise in interest rates over the past year and a half has exposed them.

In America buyers have long enjoyed 30-year fixed-rate prepayable mortgages courtesy of the federal government. It implicitly guarantees mortgage-backed securities that are sold to investors through agencies such as Fannie Mae and Freddie Mac. The average 30-year rate stands at over 7.2%, the highest since 2001. It is now clear that anyone who borrowed in, say, early 2021, when the rate was 2.7%, secured the deal of a lifetime—especially as house prices have gone on to rise by nearly a third.

This article appeared in the Leaders section of the print edition under the headline "Great Danes"

From the September 2nd 2023 edition

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