A financial mess to untangle

I have observed that everyday without fail in the last several months, the classified ads section of each of the city's three daily newspapers carried notices of extra-judicial foreclosure of real estate mortgages. There were instances when all of such publications published a total of more than ten advertisements of public auction sale in one day.

As I wrote this article yesterday, I had no way of getting prior knowledge if any such notices were to be carried in today's issue of  The Freeman. Certainly, I would have no way of finding out if the issues of the other Cebu papers today would print foreclosure sales notices.  So, before proceeding to finish reading this write up, it may be a good idea to find out if there are foreclosure notices published in this paper and perhaps, later, you may likewise check the other newspapers. It may not be really a scientific way of validating the claim I made in the first paragraph above, but such a process is a helpful indicator.

What foreclosure am I talking about? I refer to the application for extra-judicial foreclosures filed primarily by a government financial institution that has been set up to assist people in their acquisition of  low cost homes. Socialized housing is the name of the game.

Owning a home is among the needs of a family. The rich among us build their palaces in plush subdivisions with nary a problem.  But, it is a challenge to those with marginalized incomes. To them, there is no more dignifying accomplishment than raising a family in the comfort of  their own home.  In approximating their dream, their starting point is almost always a modest residence. Some are happy negotiating to acquire a house on a 40-square meter lot. Others strike some financial arrangements for a 54-square meter home lot while still others are proud to live in a house standing on 108 square meters.

All of  these arrangements are contained in long-term loans, mostly a financial package of a 25-year installment term. If  we were to round up the usual figures of the smallest residential transaction, we would come up with about a four hundred thousand peso deal.

A starter family has to raise ten per cent of the value of the property and files an application for a loan. It is understood that when this equity of about forty thousand pesos is paid (plus some fees) and the loan is approved, the family is allowed to reside in their home lot.  Usually, this is not a hassle for the marginalized families. In fact, they pay up religiously their initial monthly installments.

The problem seems to come after paying several monthly installments. There are two subjects of this problem.  Involved in the first subject are those families who, for one reason or another, lost their capacity to pay subsequent installments like a husband/father losing a job.

The second subject should be a family that begins to realize that the home lot they have so proudly worked to own is not really big. It is, in fact, small for their comfort. Driven by a desire to move up the ladder of social success, they start to look around for bigger accommodation as they attempt, in vain, to dispose their home to the next buyer.

When they find a roomier house, they decide to let go of their equity and earlier installments and consider them as bad investments. So, when the loan is unpaid, because in the first subject, the borrower is unable to pay, and in the second subject, the debtor is unwilling to pay, the financial institution is left with no recourse but to foreclose the real estate mortgage. Unfortunately, there are almost always no participants in the public bidding.

If  we can account the total sum of all of these foreclosed assets, we shall be horrified to find out that the amount of funds represented by these non-performing assets runs into billions of pesos. Yes, this money is unrecoverable since the foreclosed socialized homes are almost impossible to sell. Sadly, the government is left with no remedy to recoup the invested public funds.

I hope that the financial experts in our government work their butts (and minds) off to untangle this mess.