Credit relief bill likely to be vetoed

Acting Gov. Diego T. Benavente indicated he is inclined to veto the controversial credit relief bill on grounds of unconstitutionality and severe financial impact that the measure could bring to the Commonwealth Development Authority.

Benavente said, however, that that he would confer first with Gov. Juan N. Babauta, who is attending the 2004 Business Opportunities Conference in Los Angeles, before finally acting on Senate Bill 14-48 possibly today or tomorrow.

Babauta’s legal counsel, Steven Newman, also questioned the constitutionality of the bill.

“There have been concerns raised on the constitutional problems it has,” Benavente said.

The CDA assailed the legality of the measure, saying both the Covenant and the U.S. Constitution prohibit its passage. The CDA said the passage of the bill into law would impair the obligations of contracts.

“If an agreement [i.e., a loan document] is valid when it is made, then it cannot be rendered invalid by a subsequent act of the Legislature,” the CDA stated in a position paper released Wednesday.

Benavente also said that CDA’s concern that the measure would bankrupt the agency is sufficient reason to veto the bill.

The CDA expressed fear that, if the measure becomes law, other borrowers would be encouraged to default on their bank loans in order to come under the control of the agency and to access the benefits entailed by the credit relief bill.

“If the bank borrowers default, then CDA will be faced with bank demands for $13 million. With only $7 million in reserve, CDA would not be able to cover its debt under these guarantees and would be insolvent,” the CDA said.

Benavente added that the credit relief bill is not the proper way to address the problems of delinquent CDA borrowers, disclosing that he himself once had a delinquent loan with the CDA.

“As someone who had had a loan with the CDA and who had default problems, I’ve never really felt that I could have been relieved. I’ve always felt obligated to pay that loan back,” he said.

He said he had to sell a property and give up a business venture to pay off his obligations. He said that, while the CDA has tried to provide borrowers technical assistance in managing businesses, the agency “did not do enough.” He said the CDA should also ensure that sufficient technical assistance—not just financial help—is provided to clients.

One option that could help delinquent borrowers settle their obligations is refinancing, Benavente added.

S.B. 14-48 seeks to provide relief to delinquent borrowers who have loans administered by the CDA for at least five years. According to the bill, relief may be provided if the loans have been the subject of court judgments, have been defaulted on, or at risk of being defaulted on if relief is not afforded.

It seeks to prevent the CDA from filing foreclosure or default collection proceedings—or any court proceeding—on any delinquent loan without first meeting with the borrower and making “good faith attempt” to resolve the outstanding indebtedness.

“For qualified borrowers who have paid CDA an amount of money sufficient to cover the principal amount of the loan plus any costs incurred in default collection proceedings, CDA shall consider the loan paid in full and discharge the debtor, guarantor, and others obligated on said loan from further liability,” the bill states.

“[The] CDA shall waive accrued interest and penalties, reduce monthly payments, and/or extend terms of payment so that the principal loan amount may be paid in a regular and systematic manner and ultimately permit qualified borrowers to repay the principal amount borrowed,” it states further.

The bill wants to declare the loan as fully paid upon foreclosure of the collateral and the expiration of the redemption period to recover the property. It seeks to prevent the CDA from collecting on delinquent loans beyond the amount of the collateral property. “There shall be no deficiency judgments entered.”

The bill also seeks to reduce the annual interest rate on all outstanding loans to between 4-9 percent.

For qualified borrowers who do not qualify for the enumerated relief, the bill provides that the CDA shall not apply more than one-half of each future payment to interest, regardless of accrued interests and penalties.