[laboratorymice]

This sounds strange. Banks typically hedge their fixed rate loan portfolio because there aren't many equivalent long-dated fixed-rate funding sources available to them. If the US market is such that borrowers can repay early or renegotiate long-dated fixed-rate mortgages without penalties, the banks are practically guaranteed significant losses when fixed-rates decline. Do US banks just charge higher spreads than European ones to compensate for this? That sounds undesirable, similar to tax loopholes: everyone pays more to compensate the enlightened few that actually take advantage of something that _everyone_ would want to do.

[dagw]

The US mortgage market is essentially backstopped by the US government. Banks can sell the fixed rate mortgages to a government backed bank at a guaranteed rate and so don't have to hold the interest rate risk on their books. The US government (both parties) has long believed that home ownership is important and have a lot of policies to encourage it, this is one of them.

[evandijk70]

You can repay early in the Netherlands as well. A friend of mine works for a major bank to hedge the risk of their mortgage portfolio. He mentioned once that the biggest risk for Dutch banks is not the risk of default, but risk of early repayment. This always surprised foreign investors when they did due diligence to invest in Dutch mortgages.

There are ways they use to hedge for this risk. I don't know if this is desirable, but that is probably the case in the US as well.