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Guarantee Model to Cure Housing Gap

businessmirror.com.ph | September 4, 2013

By Cai U. Ordinario

Reactivating the automatic guarantee offered by the National Home Mortgage Finance Corp. (NHMFC) could help plug the housing deficit by providing much-needed housing finance to millions of Filipinos. 

This was part of the findings of the study authored by Philippine Institute of Development Studies (PIDS) Senior Research Fellow Marife Ballesteros and Real Estate Research Institute Foundation President Daisy Dulay, who is also NHMFC vice president for securitization. 

The study, “Feasibility of Mortgage-backed Securitization for the Underserved Housing Market in the Philippines,”  which was released on Tuesday, said the potential for growing the housing-finance system is large considering the high housing demand and rapid urbanization in the Philippines. To date, the study stated, the country’s housing gap is at 3.8 million units. 

“The NHMFC should be able to provide a guarantee for timely payment of principal and interest of the MBS [mortgage-backed securitization] issued under any of its programs. The ‘NHMFC Guarantee,’ should be activated, which is provided under its original charter, or Presidential Decree 1267,” the study said. 

To undertake this, the study proposed that the activation of the NHMFC guarantee capacity be initially limited to P10 billion to P20 billion a year. This is after an initial infusion of additional capital of at least P10 billion. 

It added that this amount would allow for a P20 billion to P40 billion worth of new housing units each year. This is assuming that two issuances are made in a year. This could triple as NHMFC increases its organizational efficiencies further. 

The authors also argued that a cap on the sovereign guarantee for NHMFC issuances will limit the contingent liability exposure of government to a manageable and fixed level while, at the same time, forces the NHMFC to perform with utmost due diligence.

“The ability to use the capital markets as a source of housing finance ensures sustainability of funds
versus using the government or the pension funds to reduce the housing gap. Securitization presents a long-term solution to an ever-present problem of funding for the housing industry,” the study stated. 

Instituting due diligence or strengthening it will also prevent the NHMFC from suffering the same fate as Fannie Mae and Freddie Mac in the United States. 

The study said by the end of August 2008, Fannie Mae’s capitalization was at $7.6 billion, compared to $38.9 billion at the end of 2007; Freddie Mac was $3.3 billion compared to $22 billion of the last year. 

The subprime crisis in the US collapsed the US housing market in 2008 and snowballed into the global economic crisis in 2009. To date, the US and other severely affected regions like Europe have not fully recovered from the crash. 

“The experience of the US subprime crisis shows further what needs to be avoided in the process of securitization. This experience highlights the need for rigorous evaluation of mortgages to be securitized and the dangers of relaxing underwriting standards. The experience also revealed the conflict of interest among players and the important role that credit-rating agencies play in at least mitigating these frictions. It is also important that originators should have adequate capital so that warranties and representations can be taken seriously,” the study said. 

The authors said NHMFC’s initial securitization issuances were successful and twice oversubscribed. But to enhance its role, the government also needs to strengthen the housing finance industry and rationalize the role of Home Guarantee Corp., Home Development and Mutual Fund or the Pag-IBIG Fund and NHMFC. 

The study also recommended that the government develop standardized housing-loan documents and quality underwriting through mortgage insurance and integrate/create credit-information database for all housing-loan borrowers. 

The authors also urged the government to provide incentives to securitization through tax exemptions, reactivation of NHMFC limited sovereign guarantee, recognition of MBS bonds and NHMFC issuances as compliance to statutory liquidity requirements of financial institutions, etc.

The Philippines’s outstanding real-estate portfolio of banks reached P676 billion by the end of 2012. This corresponds to an annual growth of 20 percent since 2006. 

The study said this also represents an average of 17 percent of the total loan portfolio of banks. Universal and commercial banks have kept real-estate loans within the ceiling but thrift banks show a higher ratio of 32 percent.

Home finance represents 39 percent of the country’s overall real-estate lending of banks, which has been expanding at the slow pace of 13 percent annually, or 8 percent at constant prices. Thrift banks have a larger portfolio of home financing compared to commercial and universal banks at above 20 percent since 2006.


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CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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