Charge it to the Republic

Many of those who staked everything at Edsa in 1986 had hoped that things would change, beyond just mere democratic space. But there were those who never staked anything in Edsa, yet figured they could make oodles of money by taking advantage of Cory Aquino’s sincere desire to make democracy work for the under-privileged.

The Aquino reform government was held hostage by as many as nine coup attempts, some minor adventurist plots, some as damaging as the 1987 and 1989 coup attempts. But while the coup plotters were busy threatening Cory’s presidency, some who never fought Marcos, in fact, collaborated with the dictatorship till the end, quietly made money. As the late Ricardo Manapat once wrote, “some are smarter than others”, describing men and women who in the heyday of the dictatorship, took advantage of power or proximity to power, to feather their own nests so thickly. In the Cory days, and beyond, there have always been people who made piles and piles of hay, using “other people’s money”. Those other people were/are the taxpayers of this benighted land.

The Wikipedia page on Manny Villar tells us: “After (the) EDSA revolution, Mr. Villar and his colleagues in the Chamber of Real Estate and Builders Associations (CREBA) influenced the Aquino administration in launching an aggressive mortgage financing program, the Unified Home Lending Program (UHLP) of the National Home Finance Mortgage Corporation (NHMFC) and the Pag-Ibig Fund. NHMFC, the financial coordinator of the program, was bankrupted. The funders (SSS, GSIS, Pag-Ibig) were stuck with billions in bad home mortgages covering Villar's houses and flirted with bankruptcy for a while. Eventually, these bad mortgages had to be covered by the national government using its tax revenues.”

Tony Hidalgo, Secretary General of HUDCC during the Ramos administration, put it even more bluntly in emails he wrote about Manny Villar: “He is also guilty of making billions out of government funds for socialized housing through a questionable, unsustainable scheme that nearly destroyed our financial system in the 90's… It's a bit complicated, but I was right there, trying to stop what was essentially Villar's scheme as HUDCC (housing) Secretary-General. Fortunately, we succeeded (Dept. of Finance, Pag-Ibig Fund, SSS, GSIS, HUDCC, HIGC-I was head of the multi-agency Task Force that did this) and avoided a financial disaster in the Philippines that would have preceded the similar one that recently hit the US and hurt the world economy… It started when Cory became president. Villar, through the CREBA he controlled, drafted a socialized housing law to spur low-cost housing in the country. Cory approved it with her emergency powers, not seeing through Villar's scheme… To oversimplify, the law required the SSS, GSIS, and Pag-Ibig Fund to put billions of pesos of their funds each year into a fund for mortgages for low-cost housing (defined initially as 150 thousand maximum, later going up to 250 thousand through the years). This fund would be managed by the National Home Mortgage Finance Corp. (NHMFC - an agency of HUDCC). The NHMFC then established quotas for allocating the annual common funds of SSS, Pag-Ibig, and GSIS based on the building capacities of registered developers. The largest quotas every year were for the Camelia and Palmera (C & P) company of Villar which got a very large chunk of the funds for their home mortgages.”

A research team tried to put numbers on the anecdotal statements of Mr. Hidalgo to get a better sense of how much Manny Villar actually benefited from the UHLP program. How he made his first big “killing”, using public monies. Smart guy Villar truly was, and is. Smart at making obscenely huge amounts of money, using high-finance legerdemain, and later, using politics and the corridors of power to amass more, or to cover-up for his abuse of such power.

An internal HUDCC report dated October 16, 1998 indicated that UHLP takeouts from November 1987 to April 1996 (when the UHLP was terminated) amounted to a staggering 42.123 billion pesos. The beneficiaries of the takeouts were developers/originators that sold lots and/or houses to low-income buyers with financing provided by UHLP. According to HUDCC, the single largest beneficiary of the UHLP program were companies owned/controlled by Manny Villar which accounted for about Php7.8 billion of loan takeouts, or about 18.5% of the total. The report also stated that the collection efficiency (defined as collections received by NHMFC divided by the total amount of principal, interest and penalty payments due) of the Villar corporate flagship was 47.3%, which was lower than the average collection efficiency of 53.7% experienced for all UHLP developers/originators.

The 1998 HUDCC report does not provide the total amount of payments due. However, present NHMFC records show that, as of December 31, 2002 (i.e., before the UHLP portfolio was restructured and partially sold), the amount of unpaid principal was about Php33 billion, or approximately 78% of the original Php42 billion of takeouts. Since the Villar companies’ overall collection efficiency was lower than the average for the entire UHLP portfolio, we can assume that the amount of unpaid principal for Villar companies is also more than the average. However, even if Villar’s past due equaled the average, this would mean that the Unified Home Lending Program was unable to collect at least 78% – or about Php6 billion – of the Php7.8 billion principal amount of loans it granted buyers of Villar-developed properties.

Another big developer, by the way, is E.B. Villarosa (there must be something in the names) with an awful collection efficiency of only 25.7%. But Villarosa (any relation to Girlie, the acting Pa-La-Ka chair who is chummy-chummy with Villar, I have not bothered to research)

Between 1987 to 1996, companies owned or controlled by Manny Villar obtained takeouts for their end-buyers totaling approximately 7.776 billion pesos, or about 18.5% of the total takeout amount of Php42.123 billion. As a group, Villar companies obtained the largest amount of takeouts from the UHLP program. The term “takeout” only applies to the original principal amount of the loan obtained by the end-buyers of the houses/lots sold by the developers/originators; at the UHLP annual interest rates of 9%, 12% or 16% (depending on the size of the takeout) – which were subsidized rates and therefore much lower than prevailing market interest rates – the total debt amounts (consisting of the original principal amounts plus cumulative interest and penalties since 1987) would have amounted to over Php71 billion by December 31, 2002.

The UHLP’s collection efficiency actually fell after 1992 (i.e., the year that Villar became a congressman), with its overall collection efficiency dropping from 62.3% from 1987‑June 1992 down to 48.1% from July 1992‑April 1996; during the two periods, the collection efficiency of the Villar companies deteriorated dramatically from 60.8% for the 1987‑June 1992 period down to 39.3% from July 1992 onwards.

The amount of UHLP takeouts increased significantly after 1992. From November 1987 through June 1992, UHLP takeouts averaged about Php220 million per month (or around Php2.6 billion per year). However, from July 1992 through April 1996, takeouts nearly tripled, averaging approximately Php647 million per month (or about Php7.8 billion per year) despite the fact that collection efficiency dropped from 62.3% to 48.1%. Total takeouts by Villar companies increased from around Php38 million per month before July 1992 to about Php122 million per month after he became a congressman. To quote Winnie Monsod, “Being in public office surely has paid off for [Manny Villar].”

To run a successful business, several key operating risks have to be addressed. These risks include selling risk, pricing risk and collection risk. You need to find buyers for your product or service. You need to be able to sell at prices that cover your cost plus overhead, and make a profit as well. And you need to collect enough of your sales to be able to stay in business.

In the case of low-cost housing, the demand was, and is, significant. The problem was the capacity of prospective buyers to pay for the units they purchased. But what if you pass on the risk to government, and just sell units without paying heed of whether the buyers can or cannot pay the future installments on their housing units? The government thus foots the bill, while the real estate developer just keeps building and selling houses to people who may not have the capability to pay, to begin with. Sell and sell, and dump the receivables to government, its housing agencies, its pension funds.. Great business, neh? Just pass the bill to the collective Juan de la Cruz..

The key flaw in the UHLP/NHMFC program lay in government providing a 100% takeout, and in allowing the real estate developers to trick it into being responsible for collecting from the end-buyers.

We are not certain about the profit margins of the Villar socialized housing units. But it would seem apparent that if the NHMFC was unable to collect on 78% of the principal amount of the takeouts and Villar’s firms accounted for 7.8 billion pesos of the takeouts, then his companies made billions, while government held the proverbial empty bag of delinquent payments, and in some cases, even “ghost” buyers and therefore, non-existent “receivables”.

So this is the provenance of Villar’s first billions. He got it from government, which in turn charged the whole mess to the people of this ever-benighted land.

(banayo_at@yahoo.com)

LITO BANAYO
MALAYA Column for Tuesday, 27 April 2010