Iran and Consumer Mortgage Rates

So yesterday it was reported that the United States executed a drone strike against one of Iran’s top military/political figures (Qasem Soleimani) to prevent a future attack on American diplomats in the Middle East. Soleimani was killed and tensions between the United States and Iran have exploded.

The Market Reaction:

Stocks have sold off and bonds have rallied as investor fear of a prolong conflict increase. When these sort of things happen, international crisis, conflict or war, I get asked a specific question from my clients. And that question is -

How will this crisis impact mortgage rates?

It’s an excellent question without a simple answer. Earlier today I updated my site with a detailed explination on war, crisis and the impact to mortgage rates. The quick answer is there will probably be little to no movement with consumer mortgage rates. Investors in Mortgage Backed Securities view these events as temporary as do mortgage lenders. Because of that MBS rarely follow through on a signficant rally and if they do mortgage companies rarely pass along the gains to consumers.

Why?

It’s nothing personal and it’s not mortgage companies being greedy. The fact is that when the market moves lower on a short term basis and the makes a sharp reversal mortgage companies are at risk for losing money; lots of money. Especially if the Mortgage Backed Securities market moves beyond where it was prior to the event.

If this goes on for a whille; 3-4 weeks and it looks like there is no end in sight then you will probably see mortgage rate improve however that improvement might be limited.