PAG IBIG Housing Loan Progran Guidelines No. 7 to 12

Pag-IBIG Housing Loan Program

For End-User Financing (Cir. 219)

GUIDELINES IMPLEMENTING THE "ABOT-KAMAY PABAHAY" PROGRAM

7. COLLATERAL

The loan shall be secured by collateral consisting of the same residential properties to which the loan proceeds are applied.

7.1 - For loans that are covered by buyback guaranty and are secured by properties which are bought from developers, the security shall consist of a First Real Estate Mortgage or a Contract to Sell (CTS) on the subject properties, fully covering the payment of the obligation, as stipulated in the corresponding loan agreement and promissory note of the borrower (for REM), or the Deed of Assignment (for CTS)

7.2 - For loans which are not covered by buyback guaranty and are secured by properties which are bought from developers, the security shall consist of a Contract-to-Sell on the aforesaid properties, fully covering the payment of the obligation, which shall likewise be stipulated in the Deed of Assignment.

The loan however, may be secured by a First REM instead of a CTS, and exempted from the buyback provision, provided any of the following conditions are complied with:

The borrower pays the advance amortizations for twenty-four (24) months;

The loan-to-collateral ratio does not exceed 70%.

7.3 - For loans which do not belong to the category of developers' accounts, the security shall consist of a First Real Estate Mortgage on the subject properties fully covering the payment of the obligation as stipulated in the corresponding loan agreement and promissory note of the borrower.

7.4 - The property must be covered by an Original Certificate of Title (OCT), Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) issued by the Register of Deeds, free from all liens and encumbrances; and must be registered in the name of:

7.4.1 - Any one or more of the borrowers, (except in the case of accommodation mortgages), in the case of a real estate mortgage (REM)

7.4.2 - The developer or the land owner, if the developer has a Special Power of Attorney under a joint venture agreement, in the case of a Contract to Sell (CTS), provided that the Deed of Assignment of the CTS and the property is annotated in the title in favor of Pag-IBIG Fund

7.5 - Accommodation mortgages shall be allowed only for borrowers who are related up to the first civil degree of consanguinity or affinity, subject to the following requirements:

7.5.1 - The owner shall constitute the first mortgage as accommodation mortgagor, to secure the borrower's loan obligation or give the latter the special power to do so; and

7.5.2 - The borrower shall undertake and sign as co-mortgagor, to fully cover the residential unit and improvements thereon

7.6 - The real estate taxes on the property must be updated as of the quarter immediately preceding the date of loan application, and yearly thereafter during the term of the loan.

7.7 - For developer accounts, the properties subject of the loans shall be appraised by Pag-IBIG Fund in two stages:

7.7.1 - A preliminary appraisal (PA) which may be undertaken prior to actual development and house construction upon the request of the developer, and payment of the corresponding appraisal fees; and

7.7.2 - A collateral inspection/validation to be undertaken upon completion of the house construction and land development servicing the houses constructed, for which a Collateral Appraisal Report (CAR) shall be issued.

The housing unit and the facilities fronting the unit for takeout must be 100% complete, and an occupancy permit presented by the borrower at the time of loan takeout, if the purpose of the loan is to purchase a residential unit (PRU)

Appraisal of developer accounts conducted by the Home Guaranty Corporation (HGC) shall be validated by the Fund

7.8 - For other accounts, the property subject of the loan shall likewise be appraised by Pag-IBIG Fund

8. PARI-PASSU

A Pari-Passu arrangement with any institution acceptable to Pag-IBIG Fund, such as but not limited to provident funds, shall be allowed wherein said institution can extend its own loan (not for Pag-IBIG Fund takeout), in addition to the Pag-IBIG member housing loan, secured by the same collateral, on a pro-rata sharing of the mortgage lien, subject to the following conditions:

8.1 - Pag-IBIG Fund shall have physical possession of the mortgages, regardless of the loan amount extended by the other institution

8.2 - In computing the credit capacity of the borrower, the income already considered in determining the Pag-IBIG housing loan entitlement of the borrower shall be excluded.

8.3 - In case of default, the following shall apply:

d) Cross-default - Default in the monthly payments for either amortization shall constitute default in both.

e) Foreclosure - When foreclosure becomes necessary or advisable, proceedings may be initiated either by the Fund or the originating institution upon mutual agreement by both parties.

f) Proceeds - Foreclosure proceeds shall be divided according to the ratio of loan exposure of the Fund and the originating institution after deducting all the legal and incidental expenses.

9. INSURANCE

The borrower shall be compulsorily covered by mortgage/sales redemption insurance and fire insurance:

9.1 Mortgage/Sales Redemption Insurance (MRI/SRI) - A borrower who is not beyond sixty-five (65) years old and six (6) months at the time of housing loan application shall be covered by the MRI/SRI, provided that he/she shall not be over seventy (70) years old on his birthday nearest the date the original housing loan expires. The MRI/ SRI coverage of the borrower shall be subject to the schedule of insurance in the Pag-IBIG Fund Master Policy.

In the case of borrowers who are tacked into a single loan, only the principal borrower shall be covered by the MRI/SRI to the full extent of the loan. Thus, the entire loan shall be extinguished by the MRI/SRI, should the principal borrower die. On the other hand, the principal borrower shall continue to amortize the entire loan, should one or both of his co-borrowers die.

9.1.1 - Interim Coverage

The interim MRI/SRI coverage on the principal borrower under the automatic coverage system shall take effect on the date of the issuance of the Notice of Approval (NOA) or Letter of Guaranty (LOG) by Pag-IBIG Fund.

9.1.2 Regular Coverage

a) The regular coverage shall be a non-medical yearly renewable term insurance (YRT) for which Pag-IBIG housing loan borrowers shall pay a uniform premium rate effective on the date of loan-takeout.

b) The amount of coverage shall be the original amount of the loan.

9.2 - Fire and Allied Perils Insurance - The borrower shall obtain fire and other allied perils insurance on the property mortgaged or subject of the Contract to Sell for an amount equivalent to the appraised value of the residential unit or the loan amount, whichever is lower.

9.3 - Premium Payments - The annual premium for the first year of coverage shall be prepaid and shall be deducted from the loan proceeds upon loan takeout. Premiums due for the second year, and every year thereafter that the insurance coverage is in force shall be prepaid on a monthly basis and shall be collected together with the monthly loan amortization.

9.4 All housing loan applicants registered under the Pag-IBIG Overseas Program and working overseas shall be charged an additional two pesos per thousand of coverage per year (P2.00/P1,000/annum).

9.5 No Evidence Limit (NEL) - The NEL shall be P2,000,000. As such, all borrowers up to 60 years old with loans of up to P2,000,000 shall no longer be subjected to underwriting approval.

9.6 Borrowers over 60 years old shall be required to submit a Health Statement Form (filled out by the applicant in his own handwriting, duly signed and dated, and witnessed by two persons) for underwriting approval.

9.7 FME for POP members over sixty (60) years old - The full medical examination (FME) report may be dispensed with for loan applicants under the Pag-IBIG Overseas Program who are over 60 years old. In its place, the Health Statement Form shall be submitted, filled out by the applicant in his own handwriting, duly signed and dated, and witnessed by two persons. The applicant shall also be required to submit a copy of the result of his medical examination conducted prior to his assignment overseas as required by his employment agency.

Should the applicant's health be found "sub-standard", the corresponding sub-standard rating shall be applied, and the applicant shall also be charged the additional extra premium.

10. PREPAYMENT

10.1 - A borrower shall be allowed to prepay his loan in full or in part without prepayment penalty, pursuant to Republic Act 7394.

10.2 - Accelerated payments - any amount paid in excess of the required monthly amortization shall be applied automatically to principal, unless otherwise expressly requested by the borrower.

The treatment of excess payment the borrower prefers must be noted on/properly disclosed in the Pag-IBIG Fund Receipt (PFR).

11. DEFAULT

11.1 The borrower shall be considered in default when he or any of his co-borrowers fails to pay any three (3) consecutive monthly amortizations and/or monthly membership contributions and other obligations on the loan.

11.2 - At point of default, the outstanding loan, together with accrued interest, penalties, fees and other charges, shall become immediately due and demandable. The said amount shall likewise be subject to the following:

11.2.1 - A penalty equivalent to 1/20 of 1% of the total amount due (comprised of the principal, accrued interests, insurance premiums, and penalties already incurred on unpaid amortizations) for every day of delay.

11.2.2 - It shall continue to bear interest at the stipulated rate from the time the outstanding loan become due and demandable.

11.3 Pag-IBIG Fund may adopt the following remedies:

a. Cancellation of the CTS;

b. Call against the warranty of the developer to buy back the defaulting account

11.3.2 - For Loans Secured By Real Estate Mortgage (REM)

a. The account shall be endorsed for foreclosure

b. Default shall also constitute a lien on the Total Accumulated Value (TAV) of the member's savings with Pag-IBIG Fund.

What is a Mortgage?

A mortgage loan is a loan secured by real property through the use of a note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.

A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.

Basic concepts and legal regulation

According to Anglo-American property law, a mortgage occurs when an owner (usually of a fee simple interest in realty) pledges his interest as security or collateral for a loan. Therefore, a mortgage is an encumbrance on property just as an easement would be, but because most mortgages occur as a condition for new loan money, the word mortgage has become the generic term for a loan secured by such real property.

As with other types of loans, mortgages have an interest rate and are scheduled to amortize over a set period of time; typically 30 years. All types of real property can, and usually are, secured with a mortgage and bear an interest rate that is supposed to reflect the lender's risk.

Mortgage lending is the primary mechanism used in many countries to finance private ownership of residential property. For commercial mortgages see the separate article. Although the terminology and precise forms will differ from country to country, the basic components tend to be similar:

• Property: the physical residence being financed. The exact form of ownership will vary from country to country, and may restrict the types of lending that are possible.
• Mortgage: the security created on the property by the lender, which will usually include certain restrictions on the use or disposal of the property (such as paying any outstanding debt before selling the property).
• Borrower: the person borrowing who either has or is creating an ownership interest in the property.
• Lender: any lender, but usually a bank or other financial institution.
• Principal: the original size of the loan, which may or may not include certain other costs; as any principal is repaid, the principal will go down in size.
• Interest: a financial charge for use of the lender's money.
• Foreclosure or repossession: the possibility that the lender has to foreclose, repossess or seize the property under certain circumstances is essential to a mortgage loan; without this aspect, the loan is arguably no different from any other type of loan.

Many other specific characteristics are common to many markets, but the above are the essential features. Governments usually regulate many aspects of mortgage lending, either directly (through legal requirements, for example) or indirectly (through regulation of the participants or the financial markets, such as the banking industry), and often through state intervention (direct lending by the government, by state-owned banks, or sponsorship of various entities). Other aspects that define a specific mortgage market may be regional, historical, or driven by specific characteristics of the legal or financial system.

Mortgage loans are generally structured as long-term loans, the periodic payments for which are similar to an annuity and calculated according to the time value of money formulae. The most basic arrangement would require a fixed monthly payment over a period of ten to thirty years, depending on local conditions. Over this period the principal component of the loan (the original loan) would be slowly paid down through amortization. In practice, many variants are possible and common worldwide and within each country.

Lenders provide funds against property to earn interest income, and generally borrow these funds themselves (for example, by taking deposits or issuing bonds). The price at which the lenders borrow money therefore affects the cost of borrowing. Lenders may also, in many countries, sell the mortgage loan to other parties who are interested in receiving the stream of cash payments from the borrower, often in the form of a security (by means of a securitization).

Mortgage lending will also take into account the (perceived) riskiness of the mortgage loan, that is, the likelihood that the funds will be repaid (usually considered a function of the creditworthiness of the borrower); that if they are not repaid, the lender will be able to foreclose and recoup some or all of its original capital; and the financial, interest rate risk and time delays that may be involved in certain circumstances.

Mortgage loan types

There are many types of mortgages used worldwide, but several factors broadly define the characteristics of the mortgage. All of these may be subject to local regulation and legal requirements.

• Interest: interest may be fixed for the life of the loan or variable, and change at certain pre-defined periods; the interest rate can also, of course, be higher or lower.
• Term: mortgage loans generally have a maximum term, that is, the number of years after which an amortizing loan will be repaid. Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization.
• Payment amount and frequency: the amount paid per period and the frequency of payments; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.
• Prepayment: some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of a penalty to the lender for prepayment.

Adjustable rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive. Since the risk is transferred to the borrower, the initial interest rate may be from 0.5% to 2% lower than the average 30-year fixed rate; the size of the price differential will be related to debt market conditions, including the yield curve.

Additionally, lenders in many markets rely on credit reports and credit scores derived from them. The higher the score, the more creditworthy the borrower is assumed to be. Favorable interest rates are offered to buyers with high scores. Lower scores indicate higher risk for the lender, and higher rates will generally be charged to reflect the (expected) higher default rates.

A partial amortization or balloon loan is one where the amount of monthly payments due are calculated (amortized) over a certain term, but the outstanding principal balance is due at some point short of that term. This payment is sometimes referred to as a "balloon payment" or bullet payment. The interest rate for a balloon loan can be either fixed or floating. The most common way of describing a balloon loan uses the terminology X due in Y, where X is the number of years over which the loan is amortized, and Y is the year in which the principal balance is due.

Loan to value and downpayments

Upon making a mortgage loan for purchase of a property, lenders usually require that the borrower make a downpayment, that is, contribute a portion of the cost of the property. This downpayment may be expressed as a portion of the value of the property (see below for a definition of this term). The loan to value ratio (or LTV) is the size of the loan against the value of the property. Therefore, a mortgage loan where the purchaser has made a downpayment of 20% has a loan to value ratio of 80%. For loans made against properties that the borrower already owns, the loan to value ratio will be imputed against the estimated value of the property.

The loan to value ratio is considered an important indicator of the riskiness of a mortgage loan: the higher the LTV, the higher the risk that the value of the property (in case of foreclosure) will be insufficient to cover the remaining principal of the loan.

Value: appraised, estimated, and actual

Since the value of the property is an important factor in understanding the risk of the loan, determining the value is a key factor in mortgage lending. The value may be determined in various ways, but the most common are:

1. Actual or transaction value: this is usually taken to be the purchase price of the property. If the property is not being purchased at the time of borrowing, this information may not be available.
2. Appraised or surveyed value: in most jurisdictions, some form of appraisal of the value by a licensed professional is common. There is often a requirement for the lender to obtain an official appraisal.
3. Estimated value: lenders or other parties may use their own internal estimates, particularly in jurisdictions where no official appraisal procedure exists, but also in some other circumstances.

Standard or conforming mortgages

Many countries have a notion of standard or conforming mortgages that define a perceived acceptable level of risk, which may be formal or informal, and may be reinforced by laws, government intervention, or market practice. For example, a standard mortgage may be considered to be one with no more than 70-80% LTV and no more than one-third of gross income going to mortgage debt.

A standard or conforming mortgage is a key concept as it often defines whether or not the mortgage can be easily sold or securitized, or, if non-standard, may affect the price at which it may be sold. In the United States, a conforming mortgage is one which meets the established rules and procedures of the two major government-sponsored entities in the housing finance market (including some legal requirements). In contrast, lenders who decide to make nonconforming loans are exercising a higher risk tolerance and do so knowing that they face more challenge in reselling the loan. Many countries have similar concepts or agencies that define what are "standard" mortgages. Regulated lenders (such as banks) may be subject to limits or higher risk weightings for non-standard mortgages.

Repaying the capital

There are various ways to repay a mortgage loan; repayment depends on locality, tax laws and prevailing culture.

Predatory mortgage lending

There is concern in the U.S. that consumers are often victims of predatory mortgage lending[2]. The main concern is that mortgage brokers and lenders, operating legally, are finding loopholes in the law to obtain additional profit. The typical scenario is that terms of the loan are beyond the means of the borrower. The borrower makes a number of interest and principal payments, and then defaults. The lender then takes the property and recovers the amount of the loan, and also keeps the interest and principal payments, as well as loan origination fees.