Housing body to sell P40-B non-performing mortgages

The National Home Mortgage and Finance Corp. (NHMFC) announced yesterday that global accounting firm Ernst & Young will act as its financial advisor for the sale of some P40-billion worth of non-performing home mortgages.

Housing chief Michael Defensor said NHMFC has signed a contract with Ernst & Young to help the government monetize NHMFC’s non-performing assets.

Ernst & Young is one of the world’s largest financial consulting firms.

Defensor said Ernst & Young was selected from a short list of financial advisors which was later narrowed down to only two: Ernst & Young and BPI Capital.

Finance Secretary Jose Isidro Camacho said the Department of Finance will be depending on Ernst & Young’s recommendations for the disposition of NHMFC’s non-performing home mortgages.

"Part of Ernst & Young’s job will be to determine the treatment of NHMFC’s funding institutions, namely the Government Service Insurance Systems (GSIS) and the Social Security System (SSS).

For the government to monetize its non-performing mortgages in NHMFC, the initial plan is to sell these mortgages at a discount.

Government said it is better to absorb some losses rather than continue sitting on what are otherwise useless assets.

However, this would mean that GSIS and SSS would have to absorb part of the losses. In effect, NHMFC’s funding institutions will not be able to realize any profit from their original investments, let alone recover their original cost.

Initially, GSIS and SSS expressed their desire to be reimbursed by the government when it disposes of the problematic mortgages of the NHMFC.

"Frankly, we don’t know how to do this yet," Camacho said. "I am hoping that the financial advisor would be able to make recommendations on how to handle NHMFC’s funders as well," he added.

Camacho said the government had since the beginning encouraged NHMFC’s prospective financial advisers to talk directly to SSS and GSIS and consider their concerns in the packaging of the entire transaction.

Ernst & Young’s appointment as financial advisor would pave the way for the entry of prospective investors into the problematic but potentially profitable segment of the financial sector.

In wake of the initial success of NHMFC’s effort to dispose of its non-performing home mortgages, the Home Development Mortgage Fund (Pag-IBIG) is also looking for a financial advisor or an asset management committee (AMC) to dispose of P90 billion worth bad loans.

"It is a milestone event in the country’s effort to source funds from the capital market through sale of mortgage holdings of government agencies that could hasten the development of the secondary markets for mortgages," Defensor said.