Payao, however, was surprised in late 2007 to receive a foreclosure notice from Balikatan Housing Finance Inc., a company created to absorb the high delinquent loans saddling the National Home Mortgage and Finance Corporation (NHMFC).

The South Villa 2 housing units were among those classified as “high delinquent” loans that sent the NHMFC reeling in the 1990s, a condition that the country’s financial experts regarded as the Philippines’ early version of the US subprime mess that recently sent banks around the globe to the brink of collapse.

Choking in toxic debts, the NHMFC was only able to avert its own collapse by auctioning off these highly delinquent loans in the market in 2004. The sale involved 52,000 high delinquent loans, with an outstanding principal balance of P12 billion ($214 million at the 2004 exchange rate of $1=P56.039) and a total amount due of P30 billion ($535 million). Among these accounts, were 6,000 housing units in Davao City, involving 16 low cost subdivisions including the South Villa Heights.

Deutsche Bank purchased the non performing loans and together with the NHMFC, put up the Balikatan—a company 49 per cent owned by NHMFC and 51 per cent owned by Deutsche Bank—and its holding company Bahay Financing Services Inc. to carry out its restructuring program.

Lawyer Gerald Paez, head of the Balikatan corporate communication development, defined “highly delinquent” accounts as those which were not paid in the last 15 years.

City officials, however, questioned the government agency’s sell off, saying that it is a remission of the government’s duty to provide affordable housing to its citizens.

Danilo Dayanghirang, city councilor, said Celso de los Angeles, who has been involved in the controversial Legacy deal, used to sit as chair of the NHMFC Board when the government agency initiated the sell off of the delinquent loans. Mayor Rodrigo Duterte also appealed to President Arroyo to temporarily put a cap on the foreclosure order and to give homeowners more affordable payment terms.

Although the government had created the NHMFC in 1977 to develop and provide a secondary market for home mortgages, NHMFC was also mandated to complement the government’s low cost housing program.

Experts believe the secondary mortgage market will “unlock” opportunities in banks to lend more to the housing sector at affordable rates by allowing the NHMFC—borrowing
funds from the SSS, the GSIS and the Pag-ibig—to buy these mortgages and securitize it to potential investors.

But in 1986, the Aquino government issued Executive Order 90, placing on the NHMFC’s hands the management and development of the Unified Home Lending Program (UHLP), which finances housing for the poor.

Borrowing P42 billion funds from Social Services System (SSS), the Government Services Insurance System (GSIS) and the Home Development Mortgage Fund (HDMF) more popularly known as Pag-ibig, the NHMFC provided mortgage financing to approximately 220,000 homeowners from 1987 to 1996.

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