The sale of mortgages by the National Home Mortgage Finance Corp. (NHMFC) to Deutche Bank Real Estate Global Opportunities (Deutche Global) was part of the cleaning-up that had to be done to the housing sector, Vice president and Housing and Urban Development Coordinating Council (HUDCC) chairman Noli De Castro said.

De Castro explained that the P42 billion borrowed by NHMFC from the Social Security System (SSS), Government Service Insurance System (GSIS) and Pag-IBIG Fund has be paid as well as the corresponding interest and penalties. He said the loan has ballooned to more than P80 billion inclusive of principal, interest and penalties.

The Vice President explained that the sale was the first step in turning around the NHMFC so that it can perform its mandate of developing secondary mortgage market and promoting the growth of sustainable source of funding the housing sector.

The revitalized NHMFC recently issued P2.1 billion worth of Bahay Bonds which was accepted enthusiastically by local investors.

“A substantial number of borrowers have not been paying regularly the loans that they obtained for the NHMFC under the Unified Home Lending Program (UHLP). The issues with the sale came out when the servicing corporation, Balikatan Housing Finance Corp., started to undertake serious efforts to collect form the borrowers. Now the borrowers realized that they have to pay their loans, which some of them were not accustomed to,” De Castro said.

“Imagine, the P42 billion NHMFC loan has ballooned to more than P80 billion inclusive of principal, interest and penalties. What happened was that because borrowers did not pay through the years, NHMFC defaulted also on its payment to these funders. Mabuti pa ang individual borrowers, may condonation ng penalties and interests. But NHMFC does not have this recourse, even in the ensuring restructuring agreements with the funders,” he added.

NHMFC has to settle soonest for the government not to be forced to bail out its loan because the funds lent by the funders are private funds coming from the contributions of the members of these pension and provident fund agencies.

The UHLP was a financing program implemented by the government from 1988 to 1996  catering to individual borrowers. The UHLP’s repayment record was around 40 percent which led to the accumulation by NHMFC of non-performing loans in its portfolio.

These non-performing loans were classified by NHMFC according to degree of delinquency and the most delinquent accounts were sold to Deutche Global. Most of these delinquent accounts have not been paid for 10 to 15 years and have a collection efficiency of less than 10 percent.

Finance Undersecretary Roberto Tan clarified yesterday that the sale of mortgages by the NHMFC to Deutche Global and the corresponding joint venture partnership are an effective means of maximizing recovery from non-performing loans of the government corporation.

Tan said such arrangement is within the bounds of the current legal and regulatory environment of the country.

“Transaction like this are quite common in other economies and are done by financial institutions to convert non-performing loans into cash. The sale of NHMFC’s delinquent accounts to DBGO is an efficient approach to cleanup and strengthen the books of the corporation which would enhance its role in providing financial sustainability in the housing sector,” Tan said.

The national Treasurer pointed out that the sale pursued good governance policies, particularly the development of a sound financial sector, strongly addressing the weaknesses of the housing finance sector in regard to non-performing assets, encouraging private sector investments in the sector, rehabilitating distressed portion of NHMFC portfolio, and improving the liquidity in the financial system.

Reprinted from THE PHILIPPINE STAR   - Friday July 10, 2009