National Home Mortgage Finance Corp. (NHMFC), a government agency in charge of subsidized and low-income housing in the Philippines, is talking to several foreign investment banks about raising funds, either through a bulk sale of its assets or issuing mortgage-backed securities.

Salomon Smith Barney, Lehman Brothers and Goldman Sachs have all expressed interest in tendering an offer for the NHMFC's outstanding loans, according to trade secretary Jose Pardo. "We are planning to liquidate these receivables in order to raise cash for the government for re-lending to housing," he said recently.

Inviting foreign bank participation is the best way to recover part of the NHMFC's receivables that the government may eventually have to write off, he added.

What happens next is still unclear. "Whether the foreign buyers intend to securitize the assets or administer them, is really up to them. The main idea is to sell off all the assets [so that] the government can try to salvage as much money as possible," commented Edwin Fernandez, senior vice-president of Urban Bank in Manila, which is also interested in purchasing and servicing NHMFC's loans.

Re-selling the assets back into the domestic market would be easier than repackaging them into offshore securities, suggested one banker. "There is demand for peso paper now, and getting a currency swap beyond one year for a large amount would be difficult," he noted.

The NHMFC has long been plagued by financial problems and a rising number of non-performing loans in recent years, in large part due to an inefficient administration and collection system.

"NHMFC has maybe one or two offices but it was lending all over the Philippines, which is more than 7,000 islands at high tide. It's a nightmare collecting all of these housing loans," commented Fernandez. The NHMFC will make a funding decision after due diligence on its portfolio is completed, he added.

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