Credit relief for CDA borrowers backed

As delinquency rate on loans obtained from the Commonwealth Development Authority reached some 83 percent, the House of Representatives yesterday passed a legislative measure that sought credit relief for delinquent borrowers, such as reduction of interest rates and effective condonation in certain circumstances.

Majority of the House members passed Senate Bill 14-48 with certain amendments, garnering a unanimous vote from nearly all the 16 members who were present, except for Rep. Arnold Palacios, who abstained from the voting. Two other members—House Reps. Janet Maratita and Ray Yumul—were absent.

The House went on with passing the bill despite the opposition of the CDA, which earlier said that legislative intervention to have certain delinquent loans condoned would result in financial disaster to the government’s money-lending agency. The Senate passed the bill last March 23, before tossing it to the House.

While the bill recognized that the high rate of delinquency threatens the CDA’s loan programs, it also emphasized unstable economic conditions that contributed to many borrowers’ inability to repay the loans.

“[The] CDA must make accommodations to assist these borrowers who are currently facing difficult and uncertain times and ensure the repayment of the loans,” it states.

The bill 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 measure states to illustrate this relief.

The bill also seeks to reduce 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.

The House committee on commerce and tourism recommended the passage of the legislative measure in the lower house.

Although the committee stated that the main purpose of the proposed legislation is to ensure that loans are repaid to the CDA, it recognized that the autonomous agency might suffer initially if the bill becomes law.

“It is foreseeable that the CDA may suffer an initial loss to the expected gross income from loan repayments. However, [the bill] provide[s] for full repayment of the principal amounts,” the committee said. “Relief for borrowers that have defaulted or are at risk of defaulting is provided for in the interest obligations, penalty provisions, and foreclosure procedures.”

Among the delinquent loans being pursued by the CDA are those of Sy’s Corp., which is owned by the family of businessman Ronald Sablan, who chairs the Hotel Association of the Northern Mariana Islands. The CDA earlier disclosed that Sablan and the company had been delinquent on the loans for more than five years already, pursuing to collect at least $2.4 million in unpaid loans and interests.

The CDA sued Sablan and the company, seeking the foreclosure of at least four parcels of land mortgaged by the debtors to secure three sets of loans. The mortgaged parcels include a 1,017-square meter lot where the company’s Pacific Gardenia Hotel is located.