A surprise visitor you’d rather not see

You might get a surprise visit this month from someone who will make your eyes pop out, but it’s not gonna be Santa. This article from the Philippine Daily Inquirer entitled As bad loans are cleaned up, small borrowers suffer  tells of an increasing number of small borrowers who are getting visits from companies they have never heard of before, demanding payment for loans they thought were current.

Such was the experience of Alex Maravilla, who bought a small home in Bacoor, Cavite through a 25-year home loan from National Home Mortgage and Finance Corp. His housing loan was sold by NHMFC along with other sour loans to Balikatan Housing Finance Inc., whose portfolio was managed by Bahay Financial Services (BFS).

BFS is in a growing industry that believes it can make money by going after accounts that the banks have already written off. They will charge higher rates, of course, plus a host of other fees. From what I understand of how the industry works, the collection game can turn nasty. If the collection efforts do not succeed, BFS can still make money by selling foreclosed assets.

Just how big is the issue?

Daxim Lucas pointed out in his article close to P97 billion worth of loans have already been sold by banks to what the industry calls “vulture funds.” P100 billion more of soured loans is waiting in the wings.

The story, however, has an interesting twist. Maravilla all the while thought his loan was current, as he was paying for his amortizations via automatic salary deduction and here lies the lesson. To make sure you won’t face the same fate, it makes sense to stay informed on the status of your loan. Whether you are paying for it yourself, or via salary deduction, always make sure you get an up-to-date listing of your payments from the bank or financial institution.

Second, if you foresee that things are going to be tight for you financially, inform your banker – don’t hide from him. It’s expensive for banks to write off loans, so they would rather restructure than sell your account to the nearest vulture fund.

Third, keep track of payment due dates. You wouldn’t believe how many credit records have been ruined by mere forgetfulness. Being sloppy can be a costly mistake.

Fourth, be cautious about signing as loan co-makers or guarantors. You don’t want to be hounded by collectors for loans you didn’t make. It will look very harmless at the time you are signing, so watch out!

So What Chocnut snippets

Notwithstanding subprime credit fears, the expected China meltdown and local apprehensions, the stock market this year has been awash with cash. The Philippine Stock Exchange said firms raised P88.4 billion in the stock market through initial public offerings, sale of additional new shares, stock rights and private placements. This is a 57% increase over the Dec. 2006 level.

In 2008, First Metro expects four companies to raise P34 billion through IPOs. This could include Cebu Pacific and three yet-unidentified firms (a conglomerate, a property company and a retailing firm). Bangko Sentral ng Pilipinas says the economy is healthy enough to withstand shocks from the subprime crisis.

Cielito F. Habito wrote in his column why oil prices are rising, and he explained further what one commenter in this blog pointed out: why are oil prices still going up even with the peso appreciation?

Conspiracy or not, oil prices are on the rise and the effects on the economy will be significant. While the peso appreciation helps cushion the impact, the numbers tell the story: a peso rise from 56 to 43 per dollar is an appreciation of 23 percent, but an oil price rise of $60 to $100 per barrel is a rise of 66 percent. “Talong-talo pa rin.” (We’re still on the losing end).

Finally, there is P30 billion available for lending to Pag-ibig members next year. I still have to find out what the process is like and whether the loans are truly 6% per annum, but taking advantage of offers like this should be a no-brainer for money-smart persons

Bottom-line: be smart when it comes to managing personal debt. Stay informed, be proactive and take advantage of good offers if you can’t avoid borrowing.

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