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High delinquency rate blamed on bad apartment loans
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Posted on Feb 04 2000
Loans issued to borrowers who ventured into apartment-type businesses have been contributing to the high delinquency rate reported by the Commonwealth Development Authority which reached about 15 percent last year.
According to CDA Board Chairman John S. Tenorio, only about 40 percent of loans approved by the Development Authority for apartment-type businesses have been paid so far.
Mr. Tenorio said CDA stopped issuing loans for such ventures since six years ago while pointing out that the credits involved between 15- and 20-year payment agreements which explains why more than half of the loans remain unpaid.
Government records disclosed that the second largest category of loans issued by CDA was for apartments; the third largest was for fishing.
At the end of 1997, CDA had a reserve for bad loans of more than $9 million, equivalent to roughly 30 percent of the outstanding loans.
This, coupled with the adverse effects of the regional economic contraction, has apparently resulted to a sharp increase in the number of delinquent borrowers. CDA registered a 15 percent delinquency rate last year.
From 1986 to 1997, CDA lent out over $46 million, granting the single largest loan ever for the consolidation of various debts of a long-established company in the Northern Marianas.
However, Mr. Tenorio has attributed the increase in the delinquency rate to the new payment scheme recently implemented by the Development Authority which gives borrowers a longer grace period.
“It’s more like of a voluntary increase on the part of CDA because we have lengthened the grace period and cut down on the borrowers’ monthly payment to help clients avoid foreclosures,” he said.
Under existing local statutes, loans are considered non-performing if borrowers failed to service their monthly obligation within 90 days.
Mr. Tenorio said CDA has been working out with borrowers on an agreeable reduced amount to prevent any setback in the payment of their loans, adding that the new payment scheme has been working well.
He explained that in the absence of a healthy economy, CDA deemed it necessary to stretch out loans and implement a reduced payment system in at least two years.
