CDA Executive Director Manny Sablan said they would rather amortize the loan further than foreclose properties used as collaterals because of the islands’ economic crisis and in consideration of the borrowers who have made heavy investments.
CDA offers direct and bank guaranteed loans to local residents.
Borrowers must secure the loan through a mortgage, a chattel mortgage or assignment or receivables.
Compared to banks, CDA’s commercial interest rate of 5 to 7 percent is low.
CDA can make a maximum direct loan of up to $1 million.
“Our job is to make sure that when we make that loan, even under the worst condition, the principal should not be jeopardized. We charge interest on the loan to ensure that the funds revolve. To protect the principal, we have to have some type of security,” said Sablan.
But due to the dismal economic condition of the CNMI, a significant number of borrowers are facing difficulty paying their debts.
“Many of these loans have been delinquent for the longest time but foreclosure is our last option,” said Sablan.
The foreclosure needs the local court’s sanction.
But often, Sablan said the amount of mortgage up for foreclosure is insufficient to satisfy the debt.
If the foreclosure is approved to settle the debt to CDA, the delinquent borrower still has to pay CDA a 9 percent post judgment judicial interest.
The foreclosed property will be auctioned. If there are no takers, CDA technically buys the property to offset the loan and have it sold later on.
“It’s a losing proposition for both the borrower and CDA if we go through this arrangement,” said Sablan.
Over the past two years, CDA provided delinquent borrowers with a debt-relief program.
Sablan said this will allow them to pay their debts at an amount convenient for their current economic status.
“We have this debt-relief program. This is for borrowers who are facing financial problems now who have not been able to pay their loans. What we’re doing is we’re restructuring their loans and amortize these loans for 30 years and every three or five years, we review their financial condition. If it improved then the repayment of that loan is increased. The interest rate for that loan is 2 percent,” he said.
