Home Guaranty Corporation Act of 2000

State policy, aims, and objectives

The State must undertake, in cooperation with the private sector, a continuing nationwide housing program that makes available at affordable cost decent housing.
Housing is treated as a catalyst of economic growth and development, and the State must strengthen, promote, and support housing production and finance activities.
The State integrates housing credit guaranty laws to ensure continuous funding support for urban and rural housing, resettlement, sites and services development, and renewal of blighted areas.
The State must enhance low-income groups’ ability to acquire decent and low-cost housing by support mechanisms that render acquisitions affordable.
The State must establish a strong and sustainable housing finance program with complementary support systems that provide cheap, long-term capital.
The State must increase private sector participation in mainstream housing finance for development and end-user financing requirements.
The State must encourage the flow of private funds for mass housing development and homebuyers’ financing through a viable system of mortgage and credit guaranty.
Local government units must actively participate in socialized housing programs through adequate measures for housing development in their areas.
The State must strengthen the Corporation’s capital base and optimize National Government and Corporation resources so homeless families across the nation can benefit from the government’s guaranty facilities.
The State must serve housing requirements of the underprivileged and those gainfully employed, especially those not covered by GSIS, SSS, and HDMF.
The State must institutionalize and promote aided self-help in homeownership through support facilities that enhance low-income groups’ capability to acquire decent housing.

Corporation: name, term, and governance

The Home Insurance and Guaranty Corporation is renamed as the Home Guaranty Corporation with principal office in Metropolitan Manila.
The Corporation may establish offices, agencies, subsidiaries, or branches anywhere in the Philippines as required by operations and determined by its Board of Directors.
The Corporation is governed by a Board of Directors composed of seven (7) members.
The Board includes:
- the Secretary of the Department of Finance as ex officio Chairman;
- the Chairman of the Housing and Urban Development Coordinating Council (HUDCC) as ex officio Vice Chairman;
- the Director General of NEDA as ex officio member;
- the President of the Corporation as member; and
- three (3) members appointed by the President of the Philippines for a term of five (5) years.
Appointees to the three (3) positions must be of good moral character, unquestionable integrity, known probity and patriotism, with expertise and experience of at least ten (10) years in business, finance, and the professions.
Board decisions are made by the vote of the majority of all its members.
The Chairman presides; the Vice Chairman assists and acts in the Chairman’s absence or incapacity.
Board members are entitled to per diem for each meeting attended at an amount fixed by the Board in accordance with existing laws, rules, and regulations.

Capital, net worth allocations, and Board duties

The Corporation’s authorized capital stock is Fifty billion pesos (P50,000,000,000) divided into fifty million (50,000,000) common shares with a par value of One thousand pesos (P1,000) per share.
Of the authorized capital stock increase of Forty-seven billion five hundred million pesos (P47,500,000,000), Seven billion five hundred million pesos (P7,500,000,000) must be subscribed and paid in cash by the Government of the Republic of the Philippines upon approval of the Act, and appropriated out of the funds of the National Treasury not otherwise appropriated.
Future National Government equity must be included in the annual General Appropriations Act.
No portion of the authorized capital stock shall accrue to any National Government agency or instrumentality, including government-owned or controlled corporations.
The use of net worth is limited as follows:
- at least 40% must be allocated exclusively for socialized housing (distributed equitably among all regions, to the extent practicable);
- at least 30% must be allocated exclusively for low-cost housing (distributed equitably among all regions, to the extent practicable);
- at least 20% must be allocated exclusively for medium-cost housing (distributed equitably among all regions, to the extent practicable); and
- not more than 10% may be allocated for open housing.
Investments in any establishment or enterprise (public or private) are subject to the same net worth allocation limitations and the limitations specified in Chapter III.

President and corporate officers

The President of the Corporation is appointed by the President of the Philippines for a term of five (5) years, unless removed for cause.
The President must have good moral character, unquestionable integrity, known probity and patriotism, and at least ten (10) years expertise and experience in business, finance, and the professions.
The President receives compensation, allowances, and other emoluments as determined by the Board.
The President:
- prepares the Board meeting agenda and submits policies and measures needed to carry out the Act;
- executes and administers Board-approved policies and measures;
- represents the Corporation in dealings with government offices, agencies, instrumentalities, and public or private persons and entities domestic or foreign; and
- performs other duties delegated by the Board.
The Executive Vice President, who is General Manager, is appointed by the Board and acts as President during the President’s absence.

Corporation powers and functions

The Corporation is authorized, in addition to powers under Section 36 of the Corporation Code, to:
- promote homebuilding and land ownership with primary preference to the homeless and underprivileged;
- guaranty payment in favor of any natural or juridical person of mortgages, loans, and other credit facilities/receivables arising from financial contracts exclusively for residential purposes and necessary support facilities;
- assist private developers to undertake socialized, low, and medium-cost mass housing projects by encouraging private funds through long-term mortgages, guaranties, and incentives;
- develop and sustain a secondary mortgage market for housing using guaranty coverage to encourage public trading of housing mortgages, mortgages-related bonds, debentures, notes, and securities;
- underwrite, purchase, own, sell, mortgage, or otherwise dispose of stocks, bonds, debentures, securities, and other evidence of indebtedness issued in connection with the Act’s enumerated powers, but shall not engage in direct mortgage lending activities;
- borrow money and/or issue bonds, debentures, securities, collaterals, notes, and other local currency obligations with the approval of the President after consultation with the Monetary Board of the Bangko Sentral ng Pilipinas, and issue foreign currency obligations with President approval in consultation with the Monetary Board and the Secretary of Finance;
- ensure aggregate principal obligations of all mortgages and accounts guaranteed under the Act are not exceeded by such issuance “in no case”;
- issue such obligations under terms and conditions in the Act and Corporation rules, and set an interest rate fixed by the Corporation;
- secure such obligations with Corporation assets including stocks, bonds, debentures, and other securities it underwrites, purchases, or holds;
- issue and offer obligations for sale at prices the Corporation determines;
- grant tax exemption for principal and interest (except estate, inheritance, and gift taxes) as later provided in the Act; and
- register bonds at the request of holders under Corporation rules.
The Corporation must also support aided self-help:
- provide technical guidance;
- guaranty loans to families on first liens on house and land with other security and conditions as it determines, providing for ultimate recovery of principals; and
- do other relevant and significant acts for the program.
The Corporation may adopt and use a corporate seal, enter into contracts, sue and be sued in courts of competent jurisdiction, and acquire and dispose of real and personal property and interests necessary to carry out its purposes.
The Corporation may do acts necessary or convenient to accomplish its purposes or objectives and may exercise powers a natural person can do, as authorized by law.

Credit guaranty eligibility and structure

A credit guaranty is available only if the account satisfies the eligibility requirements for the applicable housing type and loan purpose.
For developmental loans (bond guaranty coverage): the principal obligation must not exceed seventy percent (70%) of the prudent production cost of the project.
For developmental loans (cash guaranty coverage): the principal obligation must not exceed sixty percent (60%) of the prudent production cost of the project.
Developmental loan eligibility includes:
- improvements for a developmental builder constructing not less than twenty (20) dwellings at one time under a single-mortgage with a release clause allowing subsequent sale of each completed house with land; and
- loans for advances of funds used to purchase materials in anticipation of mass construction and standardization of parts when allowed in the Corporation’s discretion.
Developmental loan eligibility also includes rental projects with at least twenty (20) units and principal obligation including initial service charges, appraisal, inspection, and other fees approved by the Corporation.
“Prudent production cost” is determined under prevailing industry standards, and the builder must submit certified bills of sale and other evidence; the Corporation is the sole judge of the prudence of expenditure necessary to comply with plans and specifications.
For single family residence, the principal obligation limits are:
- 100% of appraised value for socialized housing packages;
- 90% for low-cost housing packages;
- 80% for medium-cost housing packages; and
- 70% for open housing packages.
The Corporation may set downward limits on total amounts to be guaranteed for the programs, adjusted to prevailing economic and financial conditions, subject to concurrence of the Monetary Board of the Bangko Sentral ng Pilipinas.
A guaranty must be secured by a first lien on real estate or other rights in rem, including leasehold rights under a lease for not less than twenty (20) years from the date the guaranty was executed, held by a qualified lender or trustee determined by the Corporation as responsible and able to service the guaranteed account.
The mortgage rights or other rights in rem must be duly annotated on the title or otherwise effectively protected.
The credit must be intended for production and/or acquisition of residential lots or houses and mass housing construction, including improvements and repairs.
The account must contain complete amortization provisions satisfactory to the Corporation requiring periodic payments by the borrower not in excess of reasonable ability to pay, and complying with the required loan-to-collateral ratio determined by the Corporation.
The maturity must be satisfactory to the Corporation but must not exceed thirty (30) years.
The account must contain terms and provisions on insurance, repair, alterations, payment of taxes, default, reserves, delinquency charges, foreclosure proceedings, anticipation of maturity, additional and secondary liens, and other matters the Corporation prescribes in its discretion.
Eligible real properties may be held by:
- the National Government, provincial/city/municipal governments, or government-owned or controlled corporations and agencies;
- specified private corporations and financial/lending entities, including developmental builders, associations, cooperative societies acting as legal agents of owner-occupants, and trusts formed to rehabilitate slum or blighted areas or provide housing for rent or sale, possessing necessary incidental powers; or
- an individual owner or joint-owners.

Premiums, appraisal/inspection charges, and coverage limits

The Corporation must fix guaranty premium rates in accordance with sound actuarial practice and risk characteristics.
No guaranty premium may be fixed below:
- one-half of one percent (1/2 of 1%) of the outstanding principal for socialized housing;
- three fourths of one percent (3/4 of 1%) for low-cost housing;
- one percent (1%) for medium-cost housing; and
- one and one-half percent (1.5%) for open housing.
Guaranty premiums are payable by the mortgagee or guaranteed entity either in cash or in debentures issued by the Corporation at present value, in the manner prescribed by the Corporation.
The Corporation may charge and collect reasonable fees and amounts to implement its guaranty programs.
The Corporation may also charge reasonable appraisal fees and inspection fees during construction for properties/projects offered for guaranty.
The Corporation must guaranty payment of the balance outstanding and due on the guaranteed principal obligation, plus interest and yields up to specified annual ceilings:
- 11% per annum for socialized housing packages;
- 10% per annum for low-cost housing packages;
- 9.5% per annum for medium-cost housing packages; and
- 8.5% per annum for open housing packages.
Guaranty account composition requirements apply:
- at least 40% of guaranty accounts for socialized housing packages;
- at least 30% for low-cost housing packages;
- at least 20% for medium-cost housing packages; and
- not more than 10% for open housing packages.
Housing ceilings for socialized, low-cost, medium-cost, and open housing are jointly determined by HUDCC and NEDA.
Those ceilings may be reviewed or revised to conform to prevailing economic conditions, but not more often than once every two (2) years.
The Corporation must allocate guaranty obligations fairly and equitably among regions “as much as possible and practicable.”

Guaranty limitations and regulatory concurrence

All guaranties are subject to the following limitations:
- extension of guaranty for developmental projects for any one institution/entity cannot exceed three (3) times the net worth of that institution/entity at any time;
- extension of guaranty does not exempt BSP-regulated banks and financial institutions from complying with single borrower limits set by the Monetary Board of the BSP;
- the aggregate amount of outstanding obligations cannot exceed twenty (20) times the capital and surplus of the Corporation at any time;
- guaranteed bonds, debentures, commercial papers, and other securities sold to the public remain subject to registration requirements under the Revised Securities Act;
- the Corporation must set aside 5% of its annual net operating revenues before interests as reserve or sinking fund to answer for guaranty calls; and
- rules on ceilings and limitations are subject to Monetary Board concurrence.

Payment of guaranty calls mechanics

When default occurs as determined by the Corporation’s regulations, the guaranteed entity is entitled to the guaranty benefit upon:
- prompt conveyance to the Corporation of the right to the property securing the guaranteed obligation; and
- assignment to the Corporation of all claims of the mortgagee against the mortgagor under the guaranteed obligation.
After conveyance and assignment, the guaranteed entity’s obligation to pay premium charges ceases.
The Corporation must pay at its option in cash and/or issue debenture bonds equivalent to the guaranteed obligation.
The balance outstanding and due is determined according to the Corporation’s rules and regulations.
Debentures must follow Corporation-set terms and include provisions for redemption if any, and may be in coupon or registered form.
Debentures issued under this Section for mortgages/loans guaranteed under Chapters III and IV must:
- be executed in the name of the Home Guaranty Corporation as obligor;
- be signed for the Corporation by the President using written or engraved signature;
- be negotiable;
- be exempt from taxation as specified in the Act;
- be exempt from attachment, execution, or seizure;
- be redeemable at the option of the Corporation at or before maturity;
- be fully guaranteed as to principal and interest by the Republic of the Philippines;
- be dated as of the date the mortgagee conveys and assigns its rights and valid claims; and
- bear interest not exceeding the interest rate of the principal obligation.
Debenture interest is payable semi-annually on January 1 and July 1 each year.
Debentures mature ten (10) years after issuance or three (3) years after July 1 following the maturity of the mortgage on the property (whichever is shorter).
The mortgagee may use debentures to pay guaranty premium due to the Corporation, at its option.
If the net amount realized from sale/disposition of property conveyed and associated assigned claims exceeds the debentures’ face value plus cash paid plus all interest paid, the excess must be paid to the mortgagor.
The aggregate amount of all debentures, securities, and evidences of indebtedness issued under this Section is determined by the Corporation with approval of the President of the Philippines after consultation with the Monetary Board of the BSP, and cannot exceed the aggregate outstanding principal obligations of all mortgages insured under the Act.
The Corporation may release part of mortgaged property from the mortgage lien pursuant to the mortgage or, if absent, on terms and conditions it prescribes.

Republic guaranty and tax exemption rules

The Republic of the Philippines fully and unconditionally guarantees payment by the Corporation of the principal sums and interest of the bonds, debentures, collateral, notes, or other obligations issued or incurred under the Act.
The Republic must pay principal and interest if the Corporation fails to do so, and the guaranty must be expressed on the face of the certificate of indebtedness.
The Republic’s guaranty under this mechanism is capped so that the aggregate amount of such obligations does not exceed the limit prescribed under Section 5(f) of the Act.
The Republic also fully and unconditionally guarantees the Corporation’s guaranty obligations for principal and interest up to the housing interest ceilings (socialized 11%, low-cost 10%, medium-cost 9.5%, open 8.5%).
The Republic’s guaranty of the guaranty obligations must be expressed on the face of the debenture bonds.
The aggregate amount of outstanding obligations under the Republic’s guaranty mechanism cannot exceed twenty (20) times the capital and surplus of the Corporation.
The Republic succeeds to the rights of bondholders/debenture holders to the extent of payments made, unless the Corporation refunds the amounts within a reasonable time.
Interests and yields earned or accumulated on mortgage, debentures, bonds, notes, mortgage and asset-backed securities, interest under a lease, and other credit instruments are exempt from taxation to the same extent provided in Section 15(a) of the Act.
The Corporation may increase the exemption limit in varying amounts reflective of the State’s social concerns.
Increasing the exemption limit requires approval of the President of the Philippines upon recommendation of the Monetary Board of the BSP.
The Corporation cannot exercise the increased exemption authority more often than once every five (5) years.

Building and loan associations, open-end mortgages

The Corporation may issue contracts of guaranty, under its rules and regulations, for the accounts of building and loan associations to encourage savings accumulation and home financing through local mutual thrift institutions.
When guaranteed by the Corporation for housing development, such associations must lend only on security of first liens upon real estate located within an area determined by the Corporation.
The Corporation may subscribe for preferred shares in such associations, with preferences as to assets, and dividends if earned after expenses and provision for reasonable reserves, to the same extent as other shareholders.
The Corporation must not subscribe unless, in its judgment, funds are necessary to encourage reasonable local home financing in the community served.
Upon liquidation, shares held by the Corporation must be retired on the same basis as payments made to other shareholders under existing laws.
When guaranteed, building and loan associations (including franchises, capital, reserves, surplus, loans, receipts, and incomes) are exempt from all taxation now or hereafter imposed by the Government.
The Corporation may guaranty advances for improvement or repair of mortgaged property under an open-end mortgage clause where a dwelling designed for residential use is located on the property.
The Corporation may add the value of open-end advances to the original principal obligation for purposes of computing debenture amounts.
The Corporation may require payment of charges, including charges in lieu of guaranty premiums, as appropriate for guarantying open-end advances.
Only advances that substantially protect or improve the basic liability or utility of the property are eligible.
No open-end advances are eligible if the amount of the advances plus the unpaid balance of the original principal obligation exceeds the amount of the original principal obligation, unless the mortgagor certifies the proceeds will fund construction of additional rooms or enclosed space as part of the dwelling.
Guaranty of open-end advances is not considered in determining the aggregate amount of principal obligations of mortgages that may be guaranteed under the Act.

Investment of funds, secondary market support

Corporate funds not needed for current operations must be deposited with any government bank approved by the Board or invested in government-guaranteed bonds or obligations (as to principal and interest).
The Corporation may purchase in the open market debentures issued under the Act, and the debentures purchased must be cancelled and not reissued.

Definitions governing the Act

“Bond guaranty coverage” is guaranty coverage entitling the guaranteed entity to claim payment in the form of debenture bonds upon call on the guaranty.
“Cash guaranty coverage” is guaranty coverage entitling the guaranteed entity to cash payment upon call on the guaranty.
“Developmental loan” is a loan whose proceeds are used for housing subdivision development or construction of residential houses.
“Guaranty premium” is the fee charged by the Corporation for extension of the guaranty.
“Housing finance” is the comprehensive funds flow system covering the entire housing provision cycle from identification of financial requirements, fund sourcing, including lot acquisition, development and construction, to end-buyers financing.
“Maturity date” is the date when mortgage indebtedness would be extinguished if paid in accordance with periodic payments under the mortgage.
“Mortgage” is a first mortgage on real estate in fee simple, or on the interest of the lessor or lessee under a lease for not less than twenty (20) years, executed from the date of execution, upon which there is located or is to be constructed buildings designed principally for residential use.
“First mortgage” includes common first liens securing advances on real estate or unpaid purchase price, together with the credit instruments secured thereby, including forms such as bonds, notes, stocks, mortgage and asset-backed securities, trust mortgages, or deed of trust securing notes and bonds.
“Mortgagee” is the original lender and its successors and assigns, including holders of bonds, notes, stocks, mortgage and asset-backed securities, and other credit instruments issued under a trust mortgage or deed of trust acting through a trustee.
“Mortgagor” is the original borrower and its successors and assigns.
“Net worth” means the paid-up capital plus fifty percent (50%) of retained earnings of the Corporation.
“Open housing” is housing packages with cost above medium-cost packages set in Section 15 but not costing more than Five million pesos (P5,000,000).
“Prudent production cost” includes builder costs for physical improvements (buildings, utilities within property boundaries, land cost, architects’ fees, taxes, and interest accruing during construction) but excludes builders’ profit and other charges, except estimated depreciated cost of existing utilities.
“Rental housing” means housing occupancy permitted by the owner in consideration of agreed charges, whether or not the agreement entitles the occupant to ownership over time.
“Secondary mortgage market” is a market where existing mortgages are sold to and bought by the public.
“Single family residence” is a residential structure designed to include one dwelling.
“Slum or blighted area” is any area where dwellings predominate and are detrimental to safety, health, or morals due to dilapidation, overcrowding, faulty arrangement or design, lack of ventilation, light, or sanitation facilities, or combination of these factors.
“Builder Developer” is the person or entity that develops raw land for housing.

Developer/builders warranties to purchasers

The Corporation must require guaranteed sellers, developers/builders, funders, and other persons it requires to become warrantors to deliver to purchasers or owners a warranty that the dwelling is constructed in substantial conformity with plans and specifications used for Corporation valuation.
The Corporation must deliver to the developer/builder/seller/funder or other warrantor written approval of any amendment, change, or variation the Corporation deems a substantial amendment, and must file a copy of that written approval with the amended plans and specifications.
The warranty applies only to substantial nonconformity incidents for which the purchaser/homeowner gives written notice to the warrantor within two (2) years from the date of conveyance of title or initial occupancy (whichever first occurs).
No other rights or privileges of the purchaser/homeowner under any other law or instrument are prejudiced.
Any amendment, change, or variation of plans and specifications must have prior written approval of the Corporation.

Financing institutions’ participation and secondary market

Banks, trust companies, personal finance companies, mortgage companies, building and loan associations, savings and loan associations, installment lending companies, insurance companies, the GSIS, the SSS, the Development Bank of the Philippines (DBP), and other government financing institutions or government-owned or controlled corporations are authorized to invest part of their funds for loans/advances of credit contemplated by the Act and for purchases of obligations representing those loans/advances, notwithstanding contrary charter or bylaws provisions.
Housing loans within the loan ceiling fixed by the Corporation granted by those institutions must be guaranteed by the Corporation under the Act.
Mortgagee institutions participating in the mortgage guaranty program must be bound by the terms and conditions of guaranteed mortgage loans approved by the Corporation.
Amounts invested by these entities in financing or mortgage loans for housing development under the Act must be guaranteed both as to principal and interest by the Corporation and the Government of the Republic of the Philippines.
Government financing institutions are authorized to constitute the secondary market for guaranteed mortgages by:
- purchasing, servicing, or selling mortgages guaranteed under the Act; and
- subject to Monetary Board approval of the BSP, issuing bonds, debentures, securities, collaterals, and other obligations against the security of mortgages guaranteed under the Act, in amounts and proportion to the face value set by their boards.
Such issued obligations are negotiable and exempt from taxes on both principal and interest, subject to Section 19.

Homeowners’ associations oversight transfer

Powers, authorities, and responsibilities vested in the Corporation with respect to homeowners