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BBVA Mortgages Domenech Predicts 7% Mortgage Rate This Year
Still would be attractive to homebuyers compared with rates of over 10% during 90s
By LUIS A. RAMOS
May 20, 2004
This is still the best time to buy and sell property in Puerto Rico, said Ricardo Domenech, senior vice president of BBVA Mortgage.
During a recent interview with CARIBBEAN BUSINESS, Domenech noted mortgage rates on the island fluctuated between 7.4% and 6.625% between January 2002 and May 2004, with an average of 6.43%. Last week, Freddie Mac reported its Primary Mortgage Market Survey revealed the 30-year fixed-rate mortgage averaged 6.12%. Freddie Mac is a government-sponsored enterprise that buys conventional residential mortgages from mortgage bankers, transferring the risk from the banks and allowing them to provide mortgages to those who otherwise wouldnt qualify.
In general, said Domenech, mortgage rates over the past few years havent wavered much from their historic lows; 2003 saw rates hit a 40-year low of 5.875%. Recently, however, mortgage rates have been moving upward slightly.
Many in the industry contend, however, that interest rates are simply returning to their normal market levels. Domenech predicts interest rates will rise to some 6.5% by mid-May (becoming the floor rate) and will reach 7% by years end (making it the top rate). That, he said, would still be attractive compared with the over-10% rates of the 1990s.
"Increases in interest rates typically surface as a function of secondary-market buyers [Freddie Mac, Fannie Mae, etc.] demand for a particular yield on their investment," said Domenech. "These entities buy most of the mortgage notes issued by banks. Secondary-market certificates are, in this case, backed by mortgage-note obligations and provide long-term investments that may be tax-exempt."
Secondary-market investors could, for example, place a purchase order under the single-family program for a 30-year mortgage at 6.12% to be executed within 60 days. The prevailing weekly interest rate to the consumer for this transaction would be determined by adding a bank servicing fee, expressed as a percentage of the commitment rate (the rate secondary-market lenders offer banks for their mortgage notes), to the investors expected net yield of 6.12%. Mortgage lenders then settle origination fees, discount offers, and mortgage insurance items at the local level.
Domenech noted that in the past, the Office of the Commissioner of Financial Institutions regulated prevailing mortgage rates in Puerto Rico, those touted to consumers. Today, however, they fluctuate freely on the market, making them the basis of competition among mortgage lenders. As a result, lenders have been advertising variable interest rates, balloon payments, and value-added products to attract homebuyers.
"We can expect future mortgage transactions to become more about convenience. Customers will be directed more by what they can pay on a monthly basis," said Domenech.
This Caribbean Business article appears courtesy of Casiano Communications.