Subprime Mortgage Crisis sa Pinas - Can it happen?

**Galactus** · September 23rd, 2008 05:46 PM

Another main reason pala why it can't happen here is the lack of a reputable credit rating agency with the capability of rating securities. Sure, there's PhilRatings, but it only rates corporate commercial papers (mainly short- and long-term bonds). Investment houses have their own ratings provided by their research department, and you can be sure as hell that it will be biased.

In the US kasi, packaged mortgage loans were rated as investment grade by credit rating agencies (Moody's, S&P, etc), due to Enron-type accounting, which is why financial institutions bought them. Nung bumili yung isang bangko, bumili na rin yung iba, follow the leader kumbaga. Credit rating agencies are generally held in wide regard kasi.

Eh dito sa Pinas, wala nun. I should know. I worked with credit bureaus for almost 10 years.

**Galactus** · September 24th, 2008 01:28 PM

For those in the Philippines, look around you... doesn't this sound very familiar? Check out all the "easy payment schemes" of a number of real estate companies who advertise that you can buy a condo for "only P12k a month".

Well... this is a bit different... you can't pay for the condo, it reverts to the company and they just sell it to another sucker... errh... buyer (I know some people who were conned into this because they didn't read the fine print).

This is a well-known misconception nowadays. The condo unit ownership doesn't revert to the developer after a set number of years (usually 50), but to the Condominium Corporation, which is usually formed by the condo unit owners of a particular building, as stated in the Master Deed of Restrictions.

IMO, the developer can't have its cake and eat it too. It can't "sell" the property, then after 50 years, re-sell it again to another dunce. That would constitute unjust enrichment, and is specifically prohibited by law.

Re: payment schemes, some seem to be legit. Megaworld has a 0% interest, No Downpayment plan for several of its projects. (We got one in Manhattan Garden). I would be more cautious of low monthly amortizations, requiring little or no equity.

**uls** · September 24th, 2008 02:00 PM

Mas nainiwala ako sa human nature.

Kung sa States or dito sa Pinas... Greed is greed.

If people have an opportunity to make a lot of money, they will exploit that opportunity.

If u have a govt agency writing checks to the private sector, sigurado the private sector will abuse it.

If u have Philheath or whatever agency writing checks to private hospitals, asahan mo, there will be private hospitals who will overcharge the govt agency.

If u have a war veterans' pension fund or a retirees' pension fund writing checks to beneficiaries, asahan mo, there will be individuals who aren't beneficiaries who receive checks.

And if u have a govt agency buying mortgages from the private sector, asahan mo...

**tidus1203** · September 24th, 2008 04:06 PM

^^Here is the thing uls, securitizing mortgages is ok its the mortgage backing it that is important. In the US kasi nagkaroon ng easy credit for people with poor credit. Sa Pilipinas very strict ang house lending even now even if they securitized it. And I am sure even the banks here can draw lessons to what happen to the US.

**uls** · September 24th, 2008 04:28 PM

^^^ i understand that sir Tidus.

our banks are very strict coz they keep the mortgage loans on their books.

Traditional banking...

Nagpautang ang bangko, gusto ng bangko mabayaran ang interest+principal, so maingat sya kung sino papautangin nya.

But when the risk is transfered... (hindi na traditional banking)

The bank creates the loan, and a govt agency buys the loan, balik agad ang capital ng bangko, no more risk to the bank.

So there's really no motivation for the bank to be strict in choosing customers. Coz a govt agency will buy the loan from them anyway.

that's my point.

If the risk is transfered to someone else, the bank's tendency would be to lower its lending standards to create and sell more loans.

Yan na ang motivation nya ngayon... dun na sya kumikita e...

Gumawa at magbenta ng loans.

---

then on the govt agency's side, it would be buying loans with questionable standards. Turning them into securities and selling them to investors.

**niky** · September 24th, 2008 05:02 PM

Originally Posted by Galactus

This is a well-known misconception nowadays. The condo unit ownership doesn't revert to the developer after a set number of years (usually 50), but to the Condominium Corporation, which is usually formed by the condo unit owners of a particular building, as stated in the Master Deed of Restrictions.

IMO, the developer can't have its cake and eat it too. It can't "sell" the property, then after 50 years, re-sell it again to another dunce. That would constitute unjust enrichment, and is specifically prohibited by law.

Re: payment schemes, some seem to be legit. Megaworld has a 0% interest, No Downpayment plan for several of its projects. (We got one in Manhattan Garden). I would be more cautious of low monthly amortizations, requiring little or no equity.

Oh... what I meant was that if you can't pay the monthlies, they can just default you on the unit... (is this right?)

What happened in the US is that they ended up with tons of properties that were nowhere near the amount they were mortgaged for, thanks to terrible fund mismanagement. I don't think that will happen here now, since the Asian Financial Crisis already showed us how dangerous over-valuation could be.

We're simply not in bubble mode... lending is already tight in the Philippines thanks to current BSP regulation (which was a direct result of the crisis)... so while we may be hit by backlash, the same domestic situation won't... or shouldn't... happen here, again.

**tidus1203** · September 24th, 2008 05:15 PM

Originally Posted by uls

^^^ i understand that sir Tidus.

our banks are very strict coz they keep the mortgage loans on their books.

Traditional banking...

Nagpautang ang bangko, gusto ng bangko mabayaran ang interest+principal, so maingat sya kung sino papautangin nya.

But when the risk is transfered... (hindi na traditional banking)

The bank creates the loan, and a govt agency buys the loan, balik agad ang capital ng bangko, no more risk to the bank.

So there's really no motivation for the bank to be strict in choosing customers. Coz a govt agency will buy the loan from them anyway.

that's my point.

If the risk is transfered to someone else, the bank's tendency would be to lower its lending standards to create and sell more loans.

Yan na ang motivation nya ngayon... dun na sya kumikita e...

Gumawa at magbenta ng loans.

---

then on the govt agency's side, it would be buying loans with questionable standards. Turning them into securities and selling them to investors.

Understood that there is a tendency to lend recklessly if the risk can be passed on but even with that fact I don't see any reckless lending here. Atsaka it will likely only work on a bubble environment and we don't have a bubble here. Remember if you securitize the mortgage there should be investors willing to buy it for it to be spread out, if housing prices are not really that rising enticingly enough (absent of a bubble) wala ding gano bibili ng securities so the banks are still stuck with the loans.

**Gen. Miting** · September 25th, 2008 07:18 AM

although it may sound bad -> the reckless lending and borrowing. America has proved that it's both good and bad.

for one thing, they became a superpower on taking/making opportunities out of nothing. nothing meaning pareho lang pala nila tayo, limited funds and resources. they borrow a lot as in a hundred or a thousand times more than we do, and yet they have become the most influential and the most respectable race/culture/people in this world.

crunching numbers have its advantages bec. it can bail us out of a foreseen crisis or it can provide measures to avoid mistakes/misfortunes but the opportunity is as just as finite as the output computation of crunching numbers.

sa America, iba eh. given all these events right now, i will not be surprised that they can be up again in no time. kung sa'tin Asians nangyari 'to, we'll all fall into despair and depression.

America has proved that it's not all about money. strong leadership + strong citizenry are the best meter for success. numbers are secondary.

hindi naman tayo stranger dito. this has happened to us na nga but people just fail to realize it. for example, look at Subic when the American bases left. if the people in Subic succumbed to the fear na there's no more hope in store for them now that the Americans are gone, then wala nga mangyari. pero all it took was voluntary effort of all citizens, kahit walang sweldo muna, to save Subic + a charismatic leader during those times. Look at subic today.

kaya *uls, your view of human nature is more like animal instinct nature. dog eat dog, survival of the fittest, sun tzu art of war in the financial systems and all that stuff. I believe otherwise ...

**uls** · September 25th, 2008 10:07 AM

Got it Tidus.

Gen. Miting,

i dont really get what your point is...

My point is this --- the market is driven by Greed and Fear. Human nature.

Greed causes bubbles. Fear causes bubbles to deflate.

The mortgage lending mess that happened in the States was first driven by GREED.

Mortgage loan orginators were creating and selling loans to financial institutions.

Financial institutions were buying mortgage loans and securitizing them and selling them to investors.

Mortgage loan originators could barely keep up with the demand.

They had to create loans as fast as they can. They lowered their lending standards to allow anyone to get a housing loan.

The mortgage loan originators made tons of money creating and selling mortgage loans to the financial institutions.

Then when the borrowers started to default on loan payments, the whole racket fell apart.

FEAR took over.

Demand for the securities fell.

The financial institutions stopped buying mortgage loans from the loan originators.

The loan orginators saw their business dry up. Many of them shut down.

---

Now, what does this have to do with the Phils.?

We have a govt agency that buys mortgage loans and turns them into securities and sells them to investors. the NHMFC.

I'm not saying what happened in the States is happening here.

I'm saying it can happen.

It's the same business model.

Though everyone else in this thread says subprime can't happen here coz we have different rules here.

i understand that.

But humans are humans.

Greed can make people bend rules (or break them).

Dito pa... when did rules stop anyone from doing what they wanna do?

that's my whole point.

**Gen. Miting** · September 25th, 2008 08:25 PM

i'm just saying that what's happening right now is a challenge for the Americans and for the rest of the world.

if we will all look at it a bigger picture, what we have are undervalued mortgaged houses, default payments and failing financial institutions. the recession, the depression, people losing their jobs and so on and so forth are still not happening.

if we are to seek refuge in math/accounting/economics or numbers, then we are all doomed. given the odds, the numbers will always point to the undesirable.

all it takes is to do opposite, selfless acts to weather this crisis. let go, give in, lose more, accept the events positively in exchange for a better future.

we are also capable of doing this as well as we are capable of greed and fear. it's a two-coined thing. that's why I sited the Subic example. and that is also, how i define being human.