Benavente vetoes CDA relief bill

Acting Gov. Diego T. Benavente yesterday disapproved the credit relief bill for delinquent borrowers of the Commonwealth Development Authority.

Benavente signed the four-page veto letter on Sen. Bill 14-48 yesterday afternoon. The letter will be formally transmitted to both houses of the Legislature early today.

Benavente earlier said that he would veto the bill on grounds of unconstitutionality and severe financial impact that the measure could bring to CDA.

Benavente said he conferred with Gov. Juan N. Babauta on the matter before disapproving the bill.

Babauta, who attended the 2004 Business Opportunities Conference in Los Angeles last week, is still off-island and is not expected to be back until this Thursday.

The CDA has vehemently opposed the passage of the bill, saying that both the Covenant and the U.S. Constitution prohibit the passage of a bill like SB 14-48 because it 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 said.

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

The CDA fears that if the measure becomes law, other borrowers would be encouraged to default on their bank loans to be able to access the benefits entailed by the credit relief bill. It said that if the bank borrowers default on their loans, 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.

“The result of SB 14-48 will be 20-year interest free loans to borrowers who are not worthy of such gifts,” CDA said.

Benavente agreed that the credit relief bill is not the proper way to address the problems.

“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, adding that he had to sell a property and give up a business venture to pay off his obligations.

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

S.B. 14-48 seeks to provide relief to delinquent borrowers who have loans administered by the CDA for at least five years. It says that 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.

The bill 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.

It further provides that for 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] 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 those not qualified under these reliefs, 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.