The Home Guaranty Corporation is mandated under R.A. 8763 to extend guarantees on housing loans and other credit facilities to encourage funders and financial institutions to provide financing for home acquisition and mass housing development. The HGC guaranty provides the following benefits to its clients:

• Risk Cover - If a guaranty call is approved, HGC pays 100% of the outstanding principal balance and guaranteed interest of up to 11%.




Housing Package	% of Guaranty Coverage
	Outstanding Principal Loan	Interests / Yields
Socialized Housing (P450,000 and below)	100	11.0
Low-Cost Housing (above P450,000 to P3.0M)	100	10.0
Medium Cost Housing (above P3.0M to P4.0M)	100	9.5
Open Housing (above P4.0M)	100	8.5




• Tax incentive - Interest income on housing loans up to the extent of 11% is exempt from all forms of taxation while the account is current.




Housing Package	Extent of Tax-Exemption of Interests / Yields Earned
Socialized Housing (P450,000 and below)	11.0 %
Low-Cost Housing (above P450,000 to P3.0M)	10.0 %
Medium Cost Housing (above P3.0M to P4.0M)	9.5 %
Open Housing (above P4.0M)	8.5 %




• Sovereign Guaranty - The HGC guaranty carries the unconditional guaranty of the Republic.


• Zero-Risk Classification - HGC-guaranteed loans have zero risk weight. Banks are exempt from providing risk capital reserves on HGC-guaranteed loans.


• Higher Loan Values - The Bangko Sentral ng Pilipinas allows a higher loan value, specifically up to 90% of appraised value of the collateral for loans up to P3.0 million and covered by an HGC guaranty.

A call on the guaranty is made in the event of payment default, which is generally defined as non-payment of six(6) monthly amortizations. HGC requires the assignment of the defaulted mortgage or the property subject of the cancelled Contract to Sell (CTS) to effect payment of the guaranty claim.

The two basic guaranty programs are the retail and developmental guarantees. The retail guaranty covers individual housing loand and contract-to-sell receivables while the developmental guaranty covers construction loans to developers for the development of subdivisions, townhouses, condominiums, apartments and dormitories.

Until the 1990s, HGC extended guarantees on the so-called Asset Participation Certificates (APCs) that were issued against a pool of assets. Proceeds from the APCs issued were used to fund housing-related urban renewal initiatives and other mass housing projects.

At present, a guaranty on housing-related securities and securitized assets is classified under retail since it is extended to the individual mortgages or receivables backing the security. The idea is to ensure that the cash flows and values supporting the issued securities are intact and guaranteed. For selected issuances such as the Pag-IBIG housing bonds, HGC guarantees the explicit commitments embodied in the bonds.

The guaranty coverage may either be under a cash, standard, bond or cash flow guaranty coverage. These are defined as:

• Cash - Payment of guaranty claim in cash.


• Standard - Payment of guaranty claim shall be made in the form of HGC debenture bonds if default occurs during the first 5 years of guaranty coverage. Cash payment will be made if the default occurs after the 5th year.


• Bond - Payment of guaranty claim shall be made in the form of an HGC debenture bond.


• Modified Cash Flow Guaranty - Payment of guaranty claim shall follow the amortization schedule of the defaulted borrower but the interest component shall be limited to the guaranteed rate.

HGC debenture bonds are classified as government securities. The debentures are negotiable, exempt from taxation, and fully guaranteed by the Republic of the Philippines. The interest of the bonds is the lowest of the prevailing market rate as posted in the PDEX, the mortgage or CTS rate, or 8.5% p.a. Its maturity ranges from 3 to 10 years.

HGC is also mandated to administer the Cash Flow Guaranty Component of the Abot Kaya Pabahay Fund (AKPF) to provide credit insurance on the socialized housing loans extended by the Government Financial Institutions (GFIs) such as the SSS, GSIS and HDMF. The AKPF is a subsidy fund. As such, the guaranty is premium-free. The AKPF Cash Flow Guaranty does not offer any tax incentive.

The payment of AKPF guaranty claim is made in two tranches. Initial payment consists of 80% of the outstanding principal balance plus guaranteed interest for 3 months and foreclosure expenses. The 20% balance is paid upon disposition of the property.