Press Release
May 28, 2008


Sen. Loren Legarda yesterday urged the Senate to conduct an investigation into the "massive foreclosure of low cost and socialized real estate mortgages sold by the government housing finance agencies to a private corporation" which threatened to throw out thousands of families from their homes.

In Philippine Senate Resolution (PSR) 419, Loren disclosed that thousands of affected families have expressed fears of losing their low cost housing units through massive foreclosures resulting from the "stringent repayment terms" imposed by the Balikatan Housing Finance Corporation (BHFC), the private firm. Among those affected are residents in five subdivisions in Davao City, namely, San Lorenzo Village, El Rio, Rosalina, Kadayawan and Country. They complained that the firm was demanding the payment of the full amount of their arrears within three months or face reappraisal of their outstanding loans to as much as three hundred percent (300%) of the original amount.

Since most of these low-cost housing residents cannot afford the terms imposed by the private firm, they expressed fear that they might be evicted from their homes for which they have already paid substantial sums. Loren said that this is contrary to the state policy of providing socialized housing.

Loren explained that between 1988 and 1996, approximately 220,000 housing loans were extended by the National Home Mortgage Finance Corporation (NHMFC) through its Unified Home Lending Program or UHLP, which was established to meet the housing finance needs of members of public pension fund systems, namely, the GSIS, SSS and Pag-Ibig.

"In 1996, the NHMFC's collection levels dropped below 65% of scheduled payments. In the succeeding years, collections continued to decline, and by 2002, NHMFC's accrued loans reached 53 billion pesos," she noted.

Because of the low repayment rates and huge amounts of uncollected loans, the state-controlled housing finance agencies were prompted to dispose and restructure their loan portfolio with the cooperation of the private sector, Loren stated.

The government housing finance agency took advantage of Republic Act 9182, otherwise known as the Special Purpose Vehicle Act of 2002, which allowed financial institutions to sell non-performing and acquired assets in order to develop the "securitization" of loans.

In 2005, according to Loren, the NHMFC sold its liabilities comprising 53,000 individual loans by low- and middle-income housing units located within 500 housing subdivisions throughout the country. The loans, valued at P13.45 billion, were sold to the Balikatan Housing Finance, Inc. (BHFI), a special purpose company jointly owned by the NHMFC (49% share) and Deutsche Bank Real Estate Global Opportunities (DBGO) (51% share).

The NHMFC also sold the properties to pay for loans extended by the Home Development Mutual Fund (HDMF) or Pag-IBIG, the Social Security System (SSS) and the Government Service Insurance System (GSIS), all government-owned finance corporations.

BHFI then engaged Bahay Financial Services (BFS), an asset management and loan company, to implement its mortgage servicing activities. BFS, through its various loan resolution programs, offered delinquent housing loan borrowers with the "opportunity" to settle long outstanding obligations. As of 2007, the firm has reportedly either successfully turned around or is in active negotiation stage with 24 percent of the more than 52,000 BHFI accounts, Loren stated in her resolution.

However, small borrowers have complained that even though their loan payments were current, the BFS had demanded that they immediately settle their obligations or face legal action.

"Reports point to the impending massive foreclosure of BHFI accounts, which were acquired from government housing agencies at discounted prices only to be resold at higher prices to the original beneficiaries," Loren warned.

"The reported activities of the BFS,," said Loren, "belonging to what the industry calls 'vulture funds', whose main objective is to make a profit from reviving delinquent loans and selling off foreclosed properties, including the BHFI socialized and low cost housing accounts, contradict the government's housing policy of loan restructuring and condoning of debts," Loren declared. She cited Section 9, Article XIII of the Constitution, which expressly mandates the State to undertake, in cooperation with the private sector, a continuing program of urban land reform and housing which will make available at affordable cost, decent housing to under-privileged and homeless citizens in urban centers and resettlement areas;

"Considering the current economic situation, relief must be given to beneficiaries of government housing programs who have defaulted in their loan payments for them to retain their housing units," declared Loren.

To save the small landowners, Loren said there is a need to investigate the activities of the Balikatan Housing Finance Inc. and the Bahay Financial Services "to ensure that undertakings of the private sector with the government housing finance agencies are consistent with the State's housing policy of giving necessary support to the county's low-income housing sector."

She urged the Senate to authorize the Senate Committee on Urban Planning, Housing and Resettlement to inquire, in aid of legislation, into the massive foreclosure of socialized and low cost real estate mortgages sold by the government housing finance agencies to Balikatan Housing Finance, Inc.

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