CDA eyes stricter regs in loan approval

The Commonwealth Development Authority may have to require borrowers to undergo loan counseling soon if only to make sure they will not remiss on their monthly payment obligations once their credit applications are approved.

CDA Board Chair John S. Tenorio said completion of a series of loan counseling sessions is one of the new requirements being looked at by the government’s lending arm in its efforts to address problems on swelling delinquency rate.

Mr. Tenorio said the move may also be taken to untangle numerous loan applications now pending before the development authority because of the ever growing demand for fresh money by the business sector due to economic slowdown.

According to the CDA chief, discussions are now underway to impose stricter requirements on the processing and approval of loan applications in order to determine who among the agency’s clients are really in need of fresh capital and who among them are actually good payers.

“We might impose new restrictions like additional requirements because we have been swamped with too many loan applications, and we want to be sure that the available money goes to those who need them most and those who can pay us back,” he told an interview.

An indication of a distressing growth in the number of remiss borrowers, CDA has recorded a two percent increase in delinquency rate during the first three months of the year.

The two percent rise in the January-March loan payment delinquency brought to 15 percent the development authority’s overdue collectibles. CDA reported a 13 percent delinquency rate by end-December 1999.

If the increase in the delinquency rate of the government’s prime lending agency would continue at the first quarter level, it may translate to more than $2 million in unpaid and overdue collectibles from its $80 million portfolio each year.

Records obtained from CDA noted that the financial institution’s monthly collections fell by more than 40 percent from the average $700,000 to only $400,000 during the first three months of the year.

Mr. Tenorio noted the importance of a good credit history in a borrower’s future loan applications, while stressing that the agency’s move to educate its clients is primarily aimed at curbing the agency’s increasing loan delinquency rate.

Derelict borrowers are less likely to obtain loans from either government or private financial institutions even if they are able to settle their existing obligation.

Financial institutions are very particular in the consistency of the borrowers’ ability to pay their monthly obligations. This is one of the reasons behind the development authority’s decision to mobilize its people to conduct a series of consultations with existing borrowers.

The new measure also restructures debts provided by CDA in what seems to be a step taken to help businesses keep afloat in light of the CNMI’s contracting economy.

The flexible payment scheme was instituted to prevent more foreclosures, especially by businesses who have existing loans from the development authority.

Majority of those who are not able to meet the terms of their loan agreement are operating either tourism-related or apartment-rental businesses.