Mishandling of loans forced the adoption of credit relief bill—Fitial

House Speaker Benigno Fitial chided the Commonwealth Development Authority yesterday over its high loan delinquency rate, saying the situation would not have occurred if proper lending practices had been in place.

Fitial, however, commended the present management of the CDA, saying its stringent opposition to a measure that seeks to grant relief to some of CDA’s delinquent borrowers means that the agency is now serious about the proper implementation of the loan program.

“I am glad that the present CDA management does not look favorably upon the Legislature’s decision to grant debt relief to CDA borrowers who stand to lose their properties through foreclosure proceedings,” the Speaker said in a media release. “I am glad because it clearly shows that CDA is now serious about guarding against delinquencies and imposing proper screening and controls, so that situations like this never happen again.”

While Fitial conceded that the CDA rightfully criticized the Legislature for pushing for credit relief to delinquent borrowers, he said the lawmakers were compelled to consider the plight of the borrowers, many of whom might lose their homes and ancestral lands through collateral foreclosures, amid a protracted economic downturn.

“The Legislature could not turn a blind eye to the suffering of local families who are about to lose their homes and inherited properties, which they are only borrowing from future generations,” Fitial said.

House leadership spokesman Charles Reyes added that the CDA is not a profit institution, but was created to help the community. He also said that there is strong political will to preserve ancestral lands.

Senate Bill 14-48, which is now before the governor’s desk for approval to become law, recognized that the high delinquency rate threatens the CDA’s loan programs, but it also emphasized the unstable economic conditions that contributed to many borrowers’ inability to repay the loans.

It stated that the CDA should “make accommodations to assist these borrowers who are currently facing difficult and uncertain times and ensure the repayment of the loans.”

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 bill also seeks to reduce annual interest rate on all outstanding loans to between 4-9 percent. Reyes said these rates are reasonable, considering the general downtrend in loan interest rates.

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.

Fitial reiterated that the Legislature would not have introduced and adopted the credit relief bill “if proper lending policies based on sound economic and financial practices had been in force from CDA’s inception.”

“I trust that this will be the last time the Legislature will be compelled to provide debt relief to CDA borrowers because CDA will exercise more lending prudence and due diligence from now on,” Fitial added.