Wednesday, 1 August 2007

Preventing Urban Landlessness: Putting A Cap on the Interest of Loan Agreements with Mortgage of Family Homes as Security

The past few years, Cavite bore witness to the rise of several lending and financing companies and personalities. With an eye to make a quick and effortless buck, they provide credit and financing at iniquitous, unconscionable and exorbitant rates. The prevailing rates stand at 5% monthly interest. Computed at annual rates, it would sum up to a neat 60% interest on loans ranging from P 100,000.00 to P 500,000.00.

What makes it doubly wrong is that these lending and financing companies have taken a liking to requiring residential house and lots as collateral with verbal assurances that they will not foreclose as long as the debtors pay interest monthly. As verbal assurances go, they fly in the face of what these lending and financing companies do when our provincemates fail to pay their obligation.

Of course, our provincemates can run to the courts to have the mortgage instruments reformed and the interest rates lowered to a more equitable and reasonable rate as enunciated in the decisions of the Supreme Court in Spouses Solangon vs Salazar (GR 125944, June 21, 2001) and Medel vs CA (GR 131622, November 7, 1998). However, the nature of judicial proceedings being passive and such remedy largely unknown to our provincemates, rare are instances that victims resort to courts. Sad to say, there remains a prevailing apprehension among our poor provincemates with regards our courts of justice, seeing them as exclusive for those who have money. It also does not help that these lending and financing companies are fronted by supposed lawyers. Thus, they are forced by circumstances to sell their land instead of being judicially or extrajudicially foreclosed by these lending and financing companies.

Letting these credit and financing companies go unfettered in their business would run to the ground the spirit and intent of various social justice legislations, especially those that involve redistributing residential lands to the landless. As it stands, a good number of my oldtime neighbors face the danger of being mere transients.

I gathered that there are pending bills before both Houses of Congress intending to regulate these lending companies and the way they do business. I am referring to House Bill 120 authored by former Representative now Budget Secretary Joey Salceda and its counterpart Senate Bill 1180 introduced by Sen. Ramon B. Magsaysay both titled “AN ACT REGULATING THE ESTABLISHMENT AND OPERATION OF LENDING COMPANIES IN THE PHILIPPINES AND FOR OTHER PURPOSES.”

However, Section 9 of the proposed legislation weakly states:

“Amount and Charges on Loans -An LC shall grant loans in such amounts and reasonable interest rates and charges as may be agreed upon between the LC and the borrower or debtor. Provided, however, that the agreement shall be in compliance with the provisions of Republic Act No. 3765, otherwise known as the Truth in Lending Act and Republic Act No. 7394, otherwise known as the Consumer Act of the Philippines; And provided however, that, the Monetary Board, in consultation with DTI and the industry, may prescribe such interest rate as may be warranted by prevailing economic and social conditions.”

It would be unwise to put a cap on the interest rates on all loan agreements because it might unduly restrict the free flow of capital and trade. What the situation entails, in my opinion, is a legislation that would put a cap on interest rates of loan agreements secured by a mortgage of the residential house and lots of the mortgagor. The Rules of Court under Rule 39, Section 13 exempts the family home from attachment. However, as an exception, the family home can be foreclosed if subject of a mortgage.

Thus, the said legislation should have the following salient features:

a. The cap for the interest rate of loan agreements covered by a mortgage of the mortgagor’s residential house and lot should be pegged at the legal interest rate, 12% per annum.

The Supreme Court’s decisions on matters involving the rate of interest (as stated above in the cases of Solangon vs Salazar GR 125944, June 21, 2001) and Medel vs CA GR 131622, November 7, 1998) have been uniform in this respect.

b. Should be applicable only to residential house and lots with a value of 2 million pesos or below

This proviso is just one of the limitations to make it applicable only to those who belong in the lower brackets of our society. However, to make it applicable nationwide, we may use the zonal valuation of the BIR to determine the proper threshold in the respective provinces or administrative regions.

c. The said house and lot is the family home

The intent of this legislation is the prevention of the uprooting of families and making them mere transients though landlessness. Congress has crafted various legislations to solve landlessness. This proposed legislation intends to make sure that such laws do not go to waste.

d. It is the only house and lot owned by the mortgagor

To prevent abuse, it must be stressed that the subject family home is the only house and lot owned by the mortgagor.

1 comment:

Manila Bay Watch said...

60% in interests? For a 10 year loan? A bit high.

Typically in France it would be 5% per annum in interest so that should amount to less than 50% of the initial value of the contracted loan over 10 years repayment plan.

Banks in France don't require a collateral to obtain a housing loan. The house to be purchased becomes the colateral.

If you ask for a loan, you will be required to produce your "fiches de paie" or salary slips covering a year's work plus some other employment certificates.

No loan can be approved if the future debtor does not take on an insurance cover.

The biggest hurdle a future debtor faces is not so much contracting the loan but the amount of the loan he is entitled to which will be based on his income capacity, basis of his ability to pay.

Definitely more humane and of course, this is so because the whole loan thing is regulated in France (much less so in the UK.)