The Home Development Mutual Fund (HDMF), commonly known as Pag-ibig, recently issued bonds that even small-time investors can buy and invest in. Last week, the Pag-ibig Fund announced that they are issuing to the public the new series of Bahay Bonds, a five-year mortgage-backed security aimed at raising P300-600 million that Pag-ibig can use to sustain its housing loan services to beneficiaries.
Pag-ibig Fund’s Bahay or Housing Bonds will pay a coupon rate of 4.80% per year. Each bonds costs only P5,000 making it easier for retail investors to participate in this bond offering.
What is a Mortgage-Backed Security (MBS)?
A mortgage-backed security or MBS is an investment asset that pools the claims on mortgage loans, essentially redirecting the interest and principal payments from a housing loan to investors. Investors of MBS, like Pag-ibig’s housing bonds, ultimately provide funding for the NHMFC’s housing loan program in the Philippines and, in return, investors secure a claim on the cash flows received from the payment of Pag-ibig loans by borrowers.
Isn’t MBS one of the culprits behind the Subprime Mortgage Problem in 2007?
Most analysts do point to securitized subprime mortgages as one of the reasons why the global economic downturn happened starting in 2007. In the United States, a lot of risky MBS proliferated because mortgages were given even to subprime lenders, or the so-called NINJAs — people who have No Income, No Jobs or Assets. These NINJAs eventually had difficulties paying their mortgages which compromised the mortgage-backed securities that had a claim on the mortgages.
So are the Pag-ibig Bahay Bonds risky?
Like any other investment product, Pag-ibig’s housing bonds also hold a certain amount of risk. Relative to other investment instruments such as stocks or corporate bonds, however, it can be said that Pag-ibig’s housing bonds are less risky. This is because certain risks were mitigated by the fact that these bonds are backed by the Philippine government and that Pag-ibig has already issued several similar bonds in the past and has not defaulted.
Pag-ibig has already issued Housing Bonds before?
Yes. Actually they issue bonds regularly as a way of raising funds. Please refer to our article explaining Pagibig’s Housing Bonds that paid a 5.00% net coupon interest then.
How much can I earn from the Bahay Bonds?
Here’s a sample computation of your earnings from the Pag-ibig Bahay Bonds.
Let’s assume you invested the minimum: P5,000.
The bond pays a coupon rate of 4.80% per annum and is exempt from taxes, so every year, your net coupon interest is P240. That’s P5,000 x 4.80%. If the bonds pay interest semiannually, then you will receive P120 every 6 months. At the end of the investment period (5 years), you will get your principal back plus all the accrued, unpaid interest.
How will I receive my interest?
Housing bonds investors will usually be required to open a Land Bank of the Philippines (Land Bank) or Development Bank of the Philippines (DBP) savings account wherein interest earnings will automatically be credited.
Is it possible to sell the bonds prior to maturity?
The bonds are negotiable and are traded, so it is possible to unload the bonds through Land Bank or DBP prior to maturity.
How can I invest in Pag-ibig’s Bahay Bonds?
You may inquire with any Land Bank of the Philippines or Development Bank of the Philippines branch. If their staff are unaware of this offering, you may inquire directly with Pagibig’s Treasury Department. Their contact info is:
- Pagibig Fund Office
- Treasury Department
- 33rd Flr. Petron Mega Plaza, Senator Gil Puyat Avenue, Makati City
- Tel. No. (02) 886-6777