Arnold Kling writes:

1. The U.S. is the only country with the 30-year fixed-rate mortgage. Other countries get along fine without it.

The claim in the first sentence is false.

30-year fixed-rate mortgages are very common in Denmark and until recently they accounted for the vast majority of residential mortgages.

He continues:

2. The core of my argument against the thirty-year fixed-rate mortgage is that without government intervention I believe that more borrowers would prefer mortgages where the interest rate is fixed or a shorter period, like five years.

The thirty-year fixed-rate mortgage includes both a default option and a prepayment option.

Danish 30-year FRMs have prepayment and delivery options. They are full recourse, so there is not a default option as that term is commonly understood in the US. A 20 percent down payment is usually required, but borrowers are allowed to take out a separate, non-securitized, loan for the down payment.

The Danish government is not directly involved in the mortgage market with institutions such as Fannie Mae or Freddie Mac. All the mortgage banks are privately or mutually owned. There may or may not be an implicit government guarantee backing the bonds, but this has not been seriously tested since the system began in 1795. There has never been a default that involved a loss of principal for bondholders. There have been several credit events involving delayed interest payments, none of them within living memory.

Here’s the information on mortgage bonds issued by Realkredit Danmark, the largest of the mortgage banks:

The first line is for a 30-year bond with a 4 percent coupon, current traded at 96.534 percent of par. The pre-tax yield is 4.95 percent, which is also the yield on mortgages financed with this bond (plus a surcharge paid to the lender, usualy about 50 bp).

Arnold Kling’s argument may still be correct, but the first factual claim in his post is false.