NG pushes law on use of foreclosed assets in housing projects

The Arroyo administration will push for the creation of a law that will pave the way for the sale to government of some P70 billion worth of assets foreclosed by banks. The move is in support of the low-cost, mass-housing programs of the Housing Urban Development Coordinating Council (HUDCC).

Finance Secretary Jose Isidro Camacho said that with a law in place, "government will have a legal framework with which to work out a settlement of the banks’ foreclosed properties with government."

Specifically, government can now discuss previous proposals of the Bankers Association of the Philippines (BAP) to swap its foreclosed properties with government bonds, with the proceeds going into mass housing programs led by HUDCC.

The BAP earlier offered two options for the sale of its members’ foreclosed assets to the government. BAP, the umbrella organization of the 45 commercial banks in the country, offered its foreclosed assets to serve as the "nucleus" for government’s housing plan.

The first option involves securitizing the banks’ foreclosed assets. Securitization is the process of converting bank loans and other assets into marketable securities for sale to investors. It allows firms or agencies to remove non-performing assets from their balance sheet. It also allows them to make new loans from the proceeds of securities sold to investors. Present laws do not allow the conversion to be tax-free as documentary stamp taxes are slapped on investors who buy securities.

The second option is the creation of a special purpose vehicle or an asset management company (AMC) that will act as an intermediary between the government and the banks.

An AMC is an entity that will buy and sell banks’ bad debts and acquired assets at a discount.

The government will issue long-term bonds which will be swapped with the banks’ parcels of land.

The banks, in turn, could sell the securities in the secondary market and thus improve their liquidity.

The swap scheme is considered to be less complicated since there would be no need to securitize the assets. To date, the country has yet to come up with a securitization law.

Camacho said however, that Malacañang could be prodded to certify as urgent the proposed Securitization Act authored by House Speaker Jose de Venecia.

The proposed legislation also calls for the elimination of the capital gains tax which, serves as a disincentive for those wanting to dispose or sell foreclosed properties.

"The end-all and be-all will be to facilitate the business of securitization to cover others that need to be securitized, but will focus primarily on housing mortgages," Camacho said.

In her State of the Nation Address, President Arroyo asked government financial institutions like the Social Security System and the Government Service Insurance System to allot at least P20 billion to jump-start government’s housing project.

On the other hand, local commercial banks’ non-performing loans or NPLs rose significantly at the height of the Asian financial crisis in 1998 as banks had difficulty collecting past due loans.

Banking analysts said that based on the current 17.2 percent NPL of the country’s 45 commercial banks, the existing NPLs now total P278.390 billion out of a total loan portfolio of about P1.571 trillion.