After dropping its interest rate to 2 percent, the Commonwealth Development Authority is offering its borrowers a package to pay off their outstanding loans based on the principal amount over a longer period of time-up to 30 years for some.
CDA acting chief executive officer Oscar Camacho said yesterday that based on the new relief program, CDA would take out the interest, set it aside, and allow the borrowers pay only the principal amount at a 2-percent interest rate.
“Say a borrower has a $500,000 loan with us, then the last time that loan was revised, the principal portion was only $380,000, so you have the $120,000 accrued interest. Now, the typical, conventional loan and the way it was practiced at CDA and other banks is you capitalize that accrued interested so the $120,000 plus the $380,000 becomes the new principal, then you start the new terms and then your new interest rate applies on the $500,000 loan. That's the traditional, conventional way. CDA has gone out of its way to take out the $120,000 accrued interest, set it aside so that it doesn't accrue interest, and the principal of $380,000 will be the one you have to pay with the 2-percent interest rate under a new term of the loan. It will accelerate the payment reduction on the principal portion while the accrued interest is still intact,” said Camacho in an interview yesterday.
This arrangement is subject to review after every three years for a possible rate adjustment.
If the economy and the financial condition improves, the CDA would revise the program. Right now, Camacho said the goal is to help the borrowers come back to meet their obligations the easiest way.
Camacho said qualified borrowers can pay up to 30 years in cases where it would not lose its first lien on mortgaged property.
Each loan is subject to a review every three years.
CDA board chair Vincent Calvo said that CDA would still have the option to foreclose properties in case of defaults.
“But we're offering a very generous program. I'm optimistic that they will be able to be back on track with this new formula,” said Calvo.
The CDA used to implement a 9 percent interest rate for commercial loans and 5 percent for agricultural loans.
In May 2005, the CDA board of directors lifted a five-year moratorium on direct loans and lowered loan interest rates from 9 percent to 7 percent for commercial loans, while that of fishing and farming loans was cut from 5 percent to 4.5 percent.
As of June 2006, CDA cited a total of 216 borrowers, 131 of them considered delinquent, reflecting a 60-percent delinquency rate. The delinquent loans amount to $13.7 million.
About 80 percent of the delinquent cases have been referred to court.
“We're trying to avoid having to refer our cases to court. We're trying to bring our clients back on the table,” Calvo said.
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