The Community Mortgage Programme in the Philippines

General experience

The Philippines government launched a community mortgage programme in 1988 through the national Home Finance Corporation to help poor urban households acquire title to the land they occupy and develop the site, and their housing, in "blighted and depressed" areas. The Community Mortgage Program allows organized communities to borrow as a group to purchase land using the same land as collateral for their loan. The community may also borrow for site development and house construction or improvement. The program also assists communities who voluntarily choose to relocate themselves.

Loan ceiling was set at P 30,000 (US$ 1,100)for rawland and P 45,000 (US$ 1,650)for developed lots per family. The ceiling was later increased to P 60,000 for developed lots within highly urbanized areas. Developed lots are defined as those lots with access to electricity and potable water. The loans are payable up to a maximum term of 25 years at 6% per annum. The commercial interest rates in the Philippines ranges from 18 to 30% per annum.

The process

To qualify the program, the community must fulfill the following major requirements:

1. The community must register its association with the appropriate government agency.

2.The community must secure a voluntary agreement to sell from the landowner.

3. The loan amount is based on the lowest value of the following factors:

Buying price of the property and/or the cost of development; the loan affordability of the association, which is roughly calculated as twenty times the total monthly income of their members. The appraised market value of the property. Properties already occupied by the prospective beneficiaries does not require appraisal, provided the buying price does not exceed P 6,000,000 (US$ 240,000); Program ceiling, such as P 30,000 for rawland.

4. Submission of loan documents, inclusing a Lease Purchase Agreement signed between the community association and the individual member beneficiary.

Role of the social organization

The community association collect the monthly amortization from their members and turn them over to NHMFC (National Home Mortgage Finance Corporation). They shall also keep individual records of paid and unpaid amortization. So long as the collective titles to the property remain with the association, any default in payment by the members will be considered the default of the whole membership. It is the responsability of the association to find a qualified substitute borrower who shall assume the rights and obligations of the defaulting member.

Role of the NGO

The community association requires the services of a loan originator, which may be a non-government organization, a local government unit or other government and commercial entities. The originator helps the community organize and prepare documents. The originator also signs an involvement warranty committing itself to continue assisting the community for at least 2 year or until the community loan has been individualized or converted into individual mortgages. For its services, the program pays the originator P 500 (US$ 20)for each memeber-beneficiary of the projects taken out.

Type of partnership Government/NGO

The program was conceptualized by a Task Force composed of government officiales from the Housing and Urban Development Coordinating Council (HUDCC), National Home Mortgage Finance Corporation (NHMFC)and the Presidential Commission for the Urban Poor (PCUP). The Task Force was formed to develop a program to overcome the problem of financing among the urban poor to own their land and houses. Both community-based organizations and NGOs (and municipal government)can take out loans and provide assistance in organizing member beneficiaries and informing them about loan availability.

Level and types of impacts

As of February 28, 1993, the Community Mortgage Programme has assisted 208 communities with 27,705 members and a total loan value of P 568,035,018.98. Another 69 communities with 6,600 members and a total loan value of P 151,582,211.68 have Letters of Guaranty, that is, their loan application has been approved and will be paid as soon as the landowner transfer the Title of Ownership to the community association. 533 projects with 69,229 members and a total loan value of P 1,396,530,264.87 have been granted purchase commitment lines and are now in various stages of loan processing.

Although it is now facing a problem of fund sourcing, this program because of its political attraction will continue and even expand and improve. The only drawback would be the extremely high rate of increase in the price of land. This would render it unaffordable for the urban poor even under the long term and low interest loans offered by the Community Mortgage Program.