Guidelines for Developmental Loan Guaranty Program
I. ON THE LOAN
1. Purpose of the Loan
1.1 development of residential subdivision ;
1.2 construction of units eligible for mortgage or take-out financing under the Multi-Window Lending System ; and
1.3 Working capital to the extent of 20% of project cost
No part of the loan shall be used to purchase land and settle existing encumbrance/lien on the property.
2. Loan Amount
The amount of the Developmental Loan shall be based on actual project needs as supported by the cash flow projections but not to exceed P75.0 Million for construction loan and P20.0 Million for working capital loans. The loan amount however, should not exceed sixty percent (60%) of prudent production cost* for cash guaranty coverage and seventy percent (70%) of prudent production cost for bond guaranty coverage.
Prudent production cost shall mean, the relevant cost of the Borrower of the proposed physical improvements, using as basis the standards of HUDCC for land development and construction. The improvements shall include, buildings, utilities within the boundaries of the subject property, cost of land, architect's fees, taxes and interests accruing during the construction, but not including Borrower's profit nor other charges, except for estimated depreciated cost of any existing utilities.
3. Interest Rate
The interest shall be based on prevailing market rates.
4. Loan Releases
Loan releases are in accordace with the Project's requirements, and shall not exceed seventy percent (70%) of the Prudent Production Cost of the Project for Bond Coverage and sixty percent (60%) of the Prudent Production Cost of the Project for Cash Coverage;
5. Loan Term
The term of the loan shall coincide with project completion and repayment of loan as indicated in cashflow projection.
6. Collateral
The collateral should be a first real estate mortgage on real estate property subject of the Development Project free from liens and encumbrances.
Contract receivables may be accepted as additional collateral subject to such terms and conditions as maybe imposed by HGC.
Real estate properties other than the project site shall be eligible as collateral provided it meets the following requirements:
a. Property is fully developed, located in a prime area and registered in the name of the borrower;
b. The property has an existing right of way;
c. The apraisal value is sufficient to meet the LCR requirements for guaranty coverage.
d. All taxes are updated and the property is free form liens and encumbrances;
e. The mortage is annotated on the title.
f. The collateral cover shall be:
Bond Coverage 154%
Cash Coverage 183%
Gross area subject of development should not exceed 10 has. and should be developed in phases of not more than 5 has.
Additional loan for development of succeeding areas shall be made only upon 75% completion of the project and 75% payment of the guaranteed loan.
II. ON THE PROJECT
A. TECHNICAL
1. Site/Location
The site must be approved for development into a housing project by the LGU and/or the Housing and Land Use Regulatory Board (HLURB).
The following criteria must be complied with:
~ site suitability
~ accessibility
~ availability of electrical/water facilities
~ distance within ten (10) km. radius from urban infrastructures such as schools, churches, commercial centers, etc
2. Project Development
2.1 Project Design
The project design, that is, type of land development and type of housing units must:
a. conform with the standards of BP 220 and PD 957, whichever is applicable.
b. address an identified market.
2.2 Necessary Support Facilities
The project may include provision for necessary support facilities in accordance with the standards of the HLURB.
3. Permits/Clearances
The following permits/clearances must have been secured before the initial loan release:
1. Environmental Clearance Certificate by DENR
2. DAR Conversion or Exemption
3. HLURB/LGU Development Permit
4. Balanced Housing
The project must comply with the twenty percent (20%) balanced housing requirement under Sec. 18 of R. A. 7279 otherwise known as the Urban Development Housing Act.
An alternative compliance to the twenty percent (20%) balanced housing as provided under the Amended Rules and Regulations (IRR) of the said Act is through the purchase of Socialized Housing Bonds or Securities by the developer equivalent to twenty percent (20%) of the cost of the main subdivision.
The developer may also enter into a joint project or agreement with either the local government units or any of the housing agencies to develop twenty percent (20%) of the housing project cost or project area.
B. MARKETING
1. Package
Sales package of the housing units to be generated by the project should not exceed Five Million Pesos (P5,000,000.00).
2. Borrower's Financing
Borrowers must have a ready source of buyers' financing documented by way of a Memorandum of Undertaking or Agreement (MOU or MOA) from funding institutions (GFIs or private banks), private commercial banks or companies with their own housing loan program.
C. FINANCIAL
1. Financial Viability
1.1. Profitability
The projections should reflect the project's ability to adequately service and repay all obligations and to generate a return on equity of at least 10% after provisions for income tax.
1.2. Debt-Service Coverage Ratio
Cashflow projections should register positive ending cash balances and a debt-service of at least 1.25:1.
III. ON THE DEVELOPER
1. Equity on the Project
Equity of the developer should at least be forty percent (40%) of prudent production cost for cash guarantee and thirty percent (30%) for bond coverage.
2. Track Record
Borrowers must have a proven record of success in undertaking real estate projects. An assessment shall be made of the success or failure of past and current projects which shall include among other things, feedback from homebuyers, suppliers and contractors.
For new Borrowers who will be engaging in housing development, an assessment shall be made on the management's capability and tie-up with other professional groups i.e. project, construction, and marketing management groups, to assist them in project implementation.
3. Credit Worthiness
The Borrowers must have a good credit standing among banks, financial institutions, its trade suppliers and other government housing agencies.
4. Single Borrower's Limit
HGC's exposure for developmental projects for the account of any one institution or entity shall not, at any time, exceed three (3) times the networth of such institution or entity.
IV. ON THE HGC AUTOMATIC GUARANTY COVERAGE
1. Automatic Guarantee Coverage
An automatic guarantee coverage of Developmental Loans enrolled against the Development Guaranty Line shall be granted for the first (1st) year. Thereafter, an audit shall be conducted prior to renewal of the coverage to determine the financial institution's compliance to HGC's guidelines.
2. Borrowers whose loan shall be enrolled for guaranty coverage shall be required to submit a certification from HUDCC that they have no pending issues with the shelter agencies.
3. The financial institution shall conduct an evaluation of each project, i.e, financial analysis, credit investigation and title verification in accordance with HGC's set of evaluation policies and procedures;
4. The appraisal function which determines project cost as well as maximum loanable amount may be done by the financial institution or HGC. In the event, the financial institution opts to do the appraisal, the financial institution shall warrant that the appraisal meets the minimum requirements of HGC's appraisal guidelines and standards. HGC, however, reserves the right to conduct a post-audit;
5. HGC shall guarantee the outstanding principal balance of the loan plus interest based on the type of housing package that will be offered by the guaranteed project, as shown below:
Type of Housing Package Guaranteed Interest
Socialized (P300,000 & below) 11.0 %
Low Cost (Above P300,000 to P3.0M) 10.0 %
Medium Cost (Above P3.0M to P4.0M) 9.5 %
Open Housing (Above P4.0M to P10.0M) 8.5 %
The respective ceilings may be revised based on the prevailing economic conditions.
5. Tax exemption on the interest income of the guaranteed loan shall be as follows:
Sales Package per Unit Generated by the Project
P300,000 & below - 11.0%
P300,000 to P3.0M - 10.0%
P3.0M to P4.0 M - 9.5%
P4.0 M to P5.0 M - 8.5%
6. The type of guaranty coverage shall be Bond Guaranty Coverage but HGC has the option to pay in cash subject to availability of funds.
7. The guarantee premium and other fees are as follows.
Sales Packages Guaranty Premium Bond Coverage
Less than P 300,000
.25%
P 5,000
P 300,000 to P 3.0M
.25%
5,000
Above P3.0M up to P4.0M
.25%
10,000
Above P4.0M up to P10.M
.25%
10,000
* One time payment upon enrollment account.
Reduced premuim of ten (10) basis points shall be given if principal is reduced by 50% on the principal repayment schedule. Premuim will be increased by fifteen (15) basis points on outstanding and future enrollments if a claim is made.
Premium rates are subject to adjustments based on an assessment of risk position in accordance with sound actuarial principles.
8. Tax extension on the interest income of the guaranteed loan shall be as follows
Sales Package per Unit Generated by the ProjectP 300,000 & below - 11.0%
Above P 300,000 to P3.0 M - 10.0%
Above P 3.0M to P4.0 M - 9.5%
Above P 4.0M to P10.0 M - 8.5%
9. The extension of guaranty for Developmental Projects for the account of any institution or entity shall not, at any time, exceed three (3) times the net worth of such institution or entity;
10. Total guarantees exteded for developmental loans shall not exceed 10% of the outstanding guaranty portfolio at any given time and annot exeec 1.764 times the net operating revenues or earnings before interest and taxes (EBIT).
11. The credit supervision and monitoring of the Project shall be done by the BANK subject to submission of quarterly status to HGC;
12. The BANK shall execute the following warranties:
a. The documents evidencing the Development Loan and the mortage/collateral securing the repayment thereof are valid, binding and enforceable against the Borrower;
b. The BANK has undertaken all requisite credit investigation, appraisal and credit analysis in approving the Developmental Loan in accordance with HGC's Developmental Guaranty Line Guidelines;
c. The OCT/TCT/CCT of the mortgaged properties is free from all liens, charges, claims, and other encumbrances other that the one constituted in favor of the BANK;
d. The loan Collateral Ratio on the Developmental Project does not exceed:
- seventy percent (70%) of Prudent Production Cost of the Project for Bond Coverage- sixty percent (60%) of Prudent Production Cost of the Project for Cash Coverage;
e. The Developmental Loan shall not exceed P75.0M and three times the Networth of the Borrower as declared in the audited and BIR-filed financial statements;
f. The BANK has notified the Borrower that the Development Loan is covered by HGC guaranty;
g. The BANK shall undertake credit supervision of the Project in accordance with the guidelines prescribed in Annex "D" of the Contract;
h. Loan releases are in accordance with the Project's requirements, and shall not exceed seventy percent (70%) of the Prudent Production Cost of the Project for Bond Coverage and sixty percent (60%) of the Prudent Production Cost of the Project for Cash Coverage or P75.0 M;
i. The schedule of development, disposition and marketing of the Project are in accordance with the business plan approved by the BANK;
j. The Developmental Loan and sales proceeds shall be used exclusively for the development and payment of related costs and expenses of the Project;
k. Releases of the OCT/TCT/CCT are in accordance to the redemption formula prescribed by HGC;
I. All permits and licenses from appropriate government agencies necessary for the development and marketing of the Project have been obtained by the Borrower;
m. The project has complied with the Balanced Housing requirement provided under Section 18 of Republic Act No. 7279 otherwise known as the Urban Development Housing Act of 1992 which mandates subdivision developers to develop socialized housing component equivalent to twenty percent (20%) of the total land area or project cost of the main subdivision project or to invest in socialized housing bonds; and
n. The project and the Borower have passed the rating prescribed by HGC for acceptance of oan for guaranty coverage.
13. Project/s of any company belonging to the group of companies under the financial institution and all other DOSRI accounts (per CB definition of DOSRI) shall be referred to HGC for evaluation;
14. The BANK shall have the option to renew the insurance coverage for the second and subsequent years upon HGC's conduct of an audit on the overall status of the Project subject of development, timely payment of the annual guaranty premium and issuance of the necessary warranties as referred to in item no. 12;
15. A call on the HGC guaranty shall be made upon default which is defined as follows:
Mode of Payment Min. No. of Installment In Arrears
Monthly 6
Quarterly 2
Semi-annual / Annual 1
16. The HGC shall not accept call on the guaranty for incomplete development based on project timetable.
17. Inability of the borrower to secure buyer's financing shall likewise be a ground for denial of call. Although a commitment for buyer's financing is a requirement prior to extension of guaranty, the funders have the option to cancel the commitment if the developer fails to comply with the requirements.
18 . The BANK shall within thirty (30) calendar days from date of Default transmit to HGC the Guaranty Call;
19. The HGC shall make payment of the Guaranty Call within thirty (30) calendar days from it sreceipt of the following documents:
a. Deeds of Assignment and Conveyance of the BANK's rights and interest over the mortgaged properties which must be free from liens and encumbrances except the guaranteed mortgage and undamaged by fire;
b. Original copies of all contracts such as REM, loan agreement and PN
c. Owner's copies of the OCT, TCT, CCT with the dead of Assignment and Conveyance annotated thereon;
d. Fire Insurance policy duly endorsed in favor of HGC; and
e. Tax declarations and official receipts evidencing realty tax payments on the mortgaged properties.
20. HGC, through its duly authorized representatives and during reasonable hours, may inspect the titles, PNs, LA and other documents pertaining to any or all the insured mortagages to satisfy itself of compliance with its requirements;
21. The Bank shall be given six (6) months from approval of the Development Guaranty Line to build-up the accounts for enrollment. If the approved line remains unutilized after the prescribed period of six (6) months, HGC shall either cancel the guaranty line or charge the commitment fee thereafter. The commitment fee to be charged shall be 1/10 of 1% of the amount of the unutilized portion of the approved line. The commitment fee shall be converted or credited as premium payment in direct proportion to the amount of guaranty availment. The formula for crediting the amount of premuim for every enrollment shall be based on the following formula:
Amount of enrollment
Premium Credit (P) = ---------------------------- x commitment fee
Approved line
If after six (6) months period provided above, the total amount of the Developmental Guaranty Line or the remaining portion thereof remains unutilized, HGC shall have the following options:
a. Continue its commitment to guaranty future availments on the Developmental Guaranty Line; or
b. Cancel the unavailed balance of the Developmental Guaranty Line and forfeit the commitment fee.
22. HGC may cancel the line under any of the following circumstances:
a. Audit of the Developmental Guaranty Line indicates violations against the warranties issued.b. The credit evaluation guidelines and procedures of the BANK are no longer acceptable to HGC
c. The BANK is unable to perform tha accounts management and credit supervision functions required by HGC.
d. The Developmental Guaranty Line has been unavailed for six (6) months from execution of the contact of guaranty;
e. The BANK has been declared insolvent or has filed for suspension of payment with the Securities and Exchange Commision or other appropriate government agencies
f. Total claims reach 100% of premuim payments received for the year
The cancellation of the Developmental Guaranty Line shall be without prejudice to the rights of the BANK on Developmental Loans enrolled prior to cancellation.
23. HGC may amend any of the aforesaid terms and conditions upon mutual consent of the parties' duly authorized representatives, provided they are consistent with the provisions of R.A. 8763 or the HGC Charter.