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Pag-IBIG Fund FILE COPY

HOME DEVELOPMENT MUTUAL FUND
, Corporate Headquarters
Petron Mega Plaza Building
358 Sen. G. Puyat Avenue, Makati City

LEGAL AND GENERAL COUNSEL GROUP

Privileged and Confidential Jpillera Mu cua F und

Dirt. Services Group
reicoDog by:
MEMORANDUM tin egit ofjska-
OPN-2017031521006

FOR MR. VOLTAIRE M. DELA ROSA

Vice President 7R- N\
—4-
EThRHED
Management Services Group
aTigm"
MS. ANELLA MARIE L. ALLENA Ire
01C, Research and Development Department

FROM THE OFFICER-IN-CHARGE

SUBJECT : PURCHASE OF Pag-IBIG FUND ACQUIRED ASSET AND
AVAILMENT OF A Pag-IBIG FUND HOUSING LOAN FOR
CONSTRUCTION OR HOME IMPROVEMENT

DATE 16 June 2017

This refers to your request for opinion on the appropriate documentation in case
a Pag-IBIG Fund member buys a Pag-IBIG Fund acquired asset through
instalment and avails of a housing loan for house construction or home
improvement, simultaneously or subsequently.

We understand that the existing housing loan of a member-borrower in relation

to a Real and Other Property Acquired (ROPA) is documented through a Deed of
Conditional Sale (Dcs). The proposed grant of housing loan, purposely for house
construction or home improvement on the properly subject mailer of the DCS,
to a member-borrower is a separate and distinct transaction from the existing
housing loan. Hence, the transaction must be covered by a separate Loan
Agreement and a Promissory Note. Meaning, sale of the ROPA through
installment and the grant of housing loan for house construction and home
improvement arc two (2) independent contracts.

Page of 3
It is also noted that under the proposed Guidelines on the Sale of Pag-IFIG Fund
ROPA, there is a provision on forfeiture of payments, as follows,

Forfeiture of Payments and Deduction of Other Charges

6.1 Once the sale of the acquired asset is cancelled as provided in

the immediately preceding section, the following shall be forfeited in
favor of the
Fund:

6.1.1 - Buyer's principal payments not to exceed 10% of the

selling price;

6.1.2 - Accrued interest already paid in case of installment

payment or if there is a change in the mode of payment
reckoned from receipt of the Notice of Approval of Sale up to
the effectivity of the cancellation of sale; and '

6,1.3 Penalty charges, if applicable.

6.2 If the retail buyer already occupied the property at the time of
cancellation of sale, the following charges shall likewise be deducted
from the buyer's payments:

6.2.1 Corresponding applicable rent for the month/5 that

the property has been occupied by the buyer, reckoned from
the date that the buyer pays the 10% of the selling price up
to the time thc subject property has been vacated; and

6.2.2 Unpaid bills and expenses necessary to repair any loss

or damage to the property attributable to the fault of thc
buyer,

6.3 Refund of the excess amount, if any, shall only be made

once the property has been vacated.

Considering that the proceeds of the "house construction or home improvement

loan" will be exclusively used on the property subject of the DCS still registered
in the name of the Fund, implications of the above quoted provision should be
considered in the event the DCS is cancelled due to default on any of the housing
loans by the member-borrower.

Lastly, we recommend the inclusion of the following provisions in the Loan

Agreement, as follows:

Page 2 of .3
 The proceeds of the housing loan for house construction or home
improvement shall be used only and exclusively in the same
property acquired/purchased through installment to ensure that
proceeds will be utilized exclusively in the same acquired asset.

Cross-default provision which states that a default on any one of the

housing loan accounts, DCS or Loan for House Improvement or
House Construction of the member-borrower, shall automatically
mean default on all the housing loan accounts.

Provision on the implications of the forfeiture provision under the

proposed Guidelines on the sale of POPP.

For your consideration.

I JR.
ATTY. MARCIAL e PIME EL,
BIC-Vice Preszdent

ATTY. DEBORAH R. CAPRI

GIG, CBLAD/ Attorney V

ATTY ZA G. DALANAO
Attorney Legal Department

ATTY. FAI . U dORNICO

Attorney CBLAD

Page 3 of 3
 Pag-IBIG Fund
Corporate Headquarters
Fetron MegaPlaza Bldg
358 Sen. Gil Puyat Avenue
makati City

MEMORANDUM

FOR THE SENIOR MANAGEMENT COMMITTEE

FROM THE VICE PRESIDENT

Management Services Group

DATE . 4 February 2015

SUBJECT. ADDITIONAL AMENDMENTS TO THE PREVAILING Pag-IBIG FUND

RETAIL HOUSING LOAN PROGRAMS

Pursuant to the meetings of the Multi-Functional Team (MFT) for Home Lending
Operations meeting, we are submitting the proposed additional amendments to the
prevailing retail housing loan guidelines,

LEGAL BASIS

Section 13 of the Code of Corporate Governance (GCG MC No. 2012-07) provides that
Management stands as the center of decision making for the day-to-day operations of the
GGCC The said provision alsa states that Management determines the GOCC's
activities by putting the targets set by the Board in concrete terms and by implementing
basic strategies for achieving those targets.

As provided in the Pag-IBIG Fund Circular Nos. 310 and 312, the Senior Management
Committee may amend, revise or modify the guidelines in furtherance of the objectives
of the program. provided that the amendments, revisions or modifications adopted are
consistent with the mandate of the Fund under its existing charter and existing laws.

BACKGROUND

Current State of Affairs

During the previous meefings of the MFT for Home Lending Operations, the following
issues and provisions were discussed in the review of the implementation of the existing
Pag-IBIG Fund retail housing loan guidelines:

1. Liability of the Borrowers in a Tacked Loan

Tacked loans are allowed under Item No 4.1 4 of Circular No. 310, or the Amended
Guidelines on the Pag-IBIG Fund End-User Home Financing Program, which states
that maximum of three {3) qualified Pag-IBIG members may be tacked into a single
loan which is secured by the same collateral: provided, they are related within the
second civil degree of consanguinity or affinity."
 While tacked loans are allowed in the prevailing guidelines, there is a need to
determine the extent of the principal borrower and the co-borrower's obligation in the
subject housing loan. In the legal opinion issued by the Legal and General Counsel
Group last 12 December 2013, co-horroweds shall be jointly and severally liable with
the principal borrower for the loan but only to the extant of his/her loan value.

However, the MFT for Home Lending Operations, in its meeting last 9 December
2014, recommended to delete the clause but only to the extent of hisiber loan
value". The deletion will remove the limit in the liability of the housing loan borrowers.
This shall render each of them solidarily liable for the entire loan obligation. In effect,
it will resolve the issues in cases where one of the borrowers dies and there still
remains Cr, outstanding housing loan

Insurance Coverage

In the 2rd paragraph of Item No 9 1 of Circular No 310, it is provided that In the case
of borrowers who are tacked into a single loan, the principal borrower and his co-
borrowers shall each be covered by the MITI to the extent of their individual loan
entitlements. As such, the Mill premium shall be the aggregate of the premiums
corresponding to each borrower. Thus, should any of the borrowers die, only his
portion of the entire loan shall be extinguished by MRIC

Further, Item No. 15.2 of Circular No. 310 states that the event of death, PagrIBIG
Fund shall apply the proceeds of the member's mortgage redemption insurance (MRI)
to his outstanding housing loan balance, and the excess, if any, shall be paid to the
member's designated beneficiaries. However, in case the insurance proceeds shall
not be sufficient to pay the member's housing loan balance fully. the Fund shall offset
the remaining amount against the member's TAV. Should the member's TAV still not
suffice, the Fund shall require the member's heirs/beneficiaries to settle any remaining
balance in full or under a revised amortization scheme for a period not longer than the
remaining term of the loan:

The NWT for Home Lending Operations, in its meeting last 9 December 2014,
discussed the proposed business rules and illustrations pertinent to the insurance
coverage. Should the obligation of the principal borrower and the co-borrowers be
deemed solidary in nature, in case of death of any of the borrowers, the MFT for Home
Lending Operations recommended that the full amount of the insurance proceeds
must be applied to the outstanding balance. And, if the outstanding balance has been
fully paid, any excess in the insurance proceeds must be given to the deceased
borrower's designated benef ciary/ies and in the absence of the latter, to the
borrower's heirs If the insurance proceeds is insufficient to cover the outstanding
housing loan balance, the surviving co-borrowers must be liable to pay the same.

3, Loan Documentation for Developer-Assisted Housing Loans

Under Item No. 111.2.4 of Circular No 344, or the Guidelines Implementing the Peg-
!BIG Fund Takeout Mechanism for Developer-Assisted Housing Program, 'the Fund
and the developer shall execute a Deed of Absolute Sale (DOAS) for the residential
unit chosen by the Peg-1131G member-buyer The Fund, in turn, shall execute a Deed
of Conditional Sale (DOS) in favor of the Pag-IBIG member-buyer." The coverage of
the Circular is optional for accredited developers for six (6) months from the effectivity
of the guidelines on 24 July 2014. Thereafter, the coverage shall be mandatory
 The use of the DCS under Circular No. 344 gave nee to the concern on the payment
of Value Added Tax (VAT) for the sale of adjacent real properties pursuant to the
Bureau of Internal Revenue (SIR) Revenue Regulations No. 13 - 2012, which
prompted Pag-IBIG Fund to subsequently issue Circular No. 349, otherwise known as
the Interim Documentation Policies Item No. 1 of which stipulates that instead of the
Deed of Conditional Sale (DCS). the Deed of Assignment of Contract to Sell (CTS)
with Special Power of Attorney, and CTS shall be used for the processing of
developer-assisted housing loan applications. This, in effect, restored the previous
documentation format - CTS.

Sec, 2 of the said BIR regulation states that, this includes sale, transfer or disposal
within a 12-month period of two or more adjacent residential lots house and lots or
other residential dwellings in favor of one buyer from the same seller, for the purpose
of utilizing the lots, house and lots or other residential dwellings tic one residential
area wherein the aggregate value of the adjacent propedres exceeds P1.919,500 00,
for residential lots and P3,199,200.00 for residential house and lots or other residentral
dwellings.

However, in the recent meeting between Pag-11316 Fund and the BIR, the latter
resolved that transactions involving the sale of adjacent properties of real estate
developers to Pag-IBIG Fund documented under DCS shall not be covered by the
said BIR regulation The rationale behind this resolutron is that the end-users of the
subject housing units are the housing loan borrowers, not the Fund.

4. Loan Documentation for Additional Loans

Under Item No. 10 g of Circular No. 310, "the additional loan shall be secured by the
same collateral as that of the orioinal housing loan. The borrower shall execute an
Addendum to the First Real Estate Mortgage on the subject properly to fully cover the
payment of the additionaUconsolidated loan as stipulated in the correspondrng loan
agreement and promissory note of the borrower.

For CTS account originally taken out under the (Magaang Pabahay" Program, the
consolidated loan shall be secured by a First Real Estate Mortgage on the subject
property to fully cover the Payment of the obligation as stipulated in the corresponding
promissory note of the borrower. In connection thereto, the borrower shall pay for the
unpaid monthly payments that would cover the expenses lo be incurred in the
conversion of the CTS to REM. The consideration of the DOAS shall be the contract
price appearing in the CTS. Male that or the Loan and Mortgage Agreement shall be
the consolidated loan amount '

Additional loan is defined as a housing loan availed while the borrower has an existing
housing loan under the same or another loan program of the Fund, which shall be
covered by the same collateral. However, the additional loan and the Dosting housing
loan shall be consolidated into one housing loan. Based on the legal opinion last
0January 2015, for housing loans documented under DCS, there will be novation due
to the availment of an additional loan since it will result in the change in the loan
amount, loan term and interest rate. Hence, the old contract will be terminated in place
of the new one. Pursuant to Article No, 1291, Sec. 6 of the New Civil Code on
Novaff on, obligations may be modified by changing their objector principal conditions.
5. Payment of Appraisal Pees

Based on the record of the Housing Loans Accounting Group, from Year 2010 to 2010,
an annual average of 2,102 housing loan applications were cancelled generally due
to non-compliance with the requirements As provided in Circular No 310 and 312,
only the processing fee of P1,000.00 shall be paid by the borrower upon housing loan
application and the remaining Processing fee of P2.000 shall be paid upon loan
takeout. Hence, in case of cancellation of Fag-IBIG housing ban application pnor to
loan takeout, Pag-IBIG Fund can no longer recover the expenses incurred in the
appraisal of the property.

TheMFT for Home Lending Operations has recommended that the approved
appraisal fees by the Senior Management Committee last 21 July 2014 for retail
housing loan accounts and developer-assisted housing loan accounts be paid upfront
and deducted from loan takeout proceeds respectively.

Objectives

Determining the extent of the obligation is for the protection of the interest of housing loan
borrowers themselves and Peg-IBIS Fund The same is essential in establishing the
sales/mortgage redemption insurance coverage for the subject housing loan. In case of
death of any of the borrowers, it will likewise be indicative of the appropriate application
of insurance proceeds, and the assumption of obggation of the surviving borrowers if the
same is insufficient to cover the outstanding housing loan balance.

The Proposal will also prompt the shift in the documentation of developer-assisted
housing loan accounts from GTS to DOS as intended under Circular No 340

Project Brief

The amendments will be applicable to the proposed Modified EUF Guidelines and the
Amended Affordable Housing Guidelines and will be essential in their implementation.
Likewise, Circular Nos. 343 and 349. or the Guidelines Implementing the Peg 4BIG Fund
Home Rehabilitation/Reconstruction Loan Program and the Interim Documentation
Policies respectively will be revised accordingly.

Likewise, the proposed Guidelines on the Standard Fees for Activities Related to
Processing of Pag-IBIG Housing Loans will he modified to cover the appropriate payment
of appraisal fees.

RECOMMENDATIONS

The Management Services Group and the Mn for Home Lending Operations
recommend the following for Skeels consideration and approval

1 Liability of the Housing Loan Borrowers in a Tacked Loan

A maximum of three (3) qualified Fag-ISIS members may jointly apish( for a housing
loan. Co-borrower/s must likewise pass the eligibility requirements tor a Pag-1131G
housing loan. They shall be jointly and severally liable with the principal borrower for
the loan.
•

Payment of Insurance Premiums and Application of Insurance Proceeds

2.1 Payment of MortgagerSales Redemption Insurance MIII/SRI) Premium

In the case of borrowers who are tacked into a single loan, the principal borrower
and his co-borrowers shall each be covered by the MRIISRI to the extent of their
individual loanable amounts The MR1/5131 premium shall be the acgregate of the
premiums corresponding to each borrower.

2 2 Application of Insurance Proceeds

In the event of death of ekher the principal or the co-borrower. Pag.1141G Fund
shall apply the proceeds of the borrower's MRI/SRI to the outstanding housing
Loan balance. The excess, if any, shall be paid to the deceased borrower's
designated beneficiaries and in the absence of tho latter, to the borrower's heirs.

However, in case the insurance proceeds shall not he sufficient to fully pay the
borrower's housing loan balance, the Fund shall require the surviving housing
loan borrowers to settle any remaining balance in full or under a revised
amortization scheme for a period not longer than the remaining term of the loan.
If the surviving borrowers fail to do so, the Fund shall enforce its remedies under
the contract entered into by the borroweris and the Fund.

3 Loan Documentation for Developer-Assisted Housing Loans

For developer-assisted housing loans, the title of the properly subject of the loan shall
be transferred in the name of the Fund Costs for the transfer of title shall be for the
account of the developer. A DOS shall be entered between the Fund and the borrower.

However upon the written request of the borrower, and provided the loan-to-
appraised value does not exceed fifty percent (50%), the housing loan account may
be a REM account The Developer shall execute a 00AS in favor of the borrower,
who shall, execute a mortgage on the properly in favor of the Fund

4 Documentation of Additional Housing Loans

4.1 For housing loans documented under REM, the additional loan shall be secured
by the same collateral as that of the original housing loan. The borrower shall
execute an Addendum to the First Real Estate Mortgage on the subject property
to fully cover the payment of the addrtional/consolidated loan as stipulated in the
corresponding loan agreement and promissory note of the borrower.

4.2 For developer-assisted housing loans documented through DCS, the borrower
shall execute a revised DCS to fully cover the consolidated loan as stipulated in
the corresponding promissory note of the borrower.

In case the existing housing loan IS a CIS account. such CIS account shall be
Converted into REM. The REM shall secure the consolidated loan by a First REM
on the subject property to fully cover the payment of the obligation as stwulated
in the corresponding promissory note of the borrower. In connection thereto, the
borrower shall pay for the expenses to be incurred in the conversion of the CTS
to REM The consideration of the Deed of Absolute Sale shall be the contract
price appearing in the CTS, while that of the Loan and Mortgage Agreement shall
be the aggregate loan amount.
5 Payment of Appraisal Fee

Appraisal Fee mode of Payment

Retail P2,000 Upfront, upon filing of HL application
Developer-Assisted P1,000 Deduction from takeout proceeds

Fo your consideraton and PProval Thank y u

VOLTAIRE IN, DELA ROSA

 HOME DEVELOPMENT MUTUAL FUND

CERTIFICATION

To VI/Bom IF May CONCERN:

This is to sedgy that during the Meeting of the Senior Management Committee (WC}
on 09 February 2015! held at the Fag-ISIS Fund Conference Room, 741- Floor, JELP
Business Solutions Center, Mandaluyong City, the OVP-Management Services Group
(MSG) presented the proposed Additional Amendments to the Prevailing Pag-IBIG
Fund Retail Housing Loan Programs.

The SMC gave the following directives:

I. Liability of the borrowers in a tacked loan.

a. MSG to extract the number of tacked loans

b The changes should be made clear to the borrowers. Explain to them that
thew is only one loan that should he paid in full every month.

2. Insurance Coverage:

a. Revise the wordings in the proposal to mean that insurance coverage is for
each borrower (individual insurance coverage).

b. The changes should also be made clear to the borrowers As far as insurance
is concerned, each co-borrower should pay their individual insurance
premiums

c. The excess payments in so far as the insurance of a deceased borrower is

concerned, shall redound to the benefit of the designated beneficiarrhes

3. Loan documentation for developer-assisted housing loan

Confirm the Funds legal position on the exemption from taxes of the Deed ot
Conditional Sale transaction.

4. Loan documentation for additional loans

 The proposal and answers to possible issues on the mirth:anal loan are still
vague. Review and present again to the SMC

5 Payment of appraisal fees:

Approved, as presented. For Retail, appraisal fee is P2,000, paid upfront upon
tiling of loan appllcation. For Developer-Assisted, appraisal fee is P1.000.
deducted from the takeout proceeds.

Issued this 270 day of February 7015 for whatever legal purpose it may serve.

..AAL0;v
0
ATTY. 'CAREN-LEI WFRANGO-GARCIA
Special UMsfilant to the Corporate Head II
SM Secretariat

CC: OISCEO-Horne Lending Operations Cluster

OVP-Legal and General Counsel Group
0 V P-MAGAG EMEN r St. RVI 0E5 GROUP