ARTICLE IV 
TAX AND OTHER RELATED ISSUES

Sec.  27. Income Taxation of Special Purpose Entity. - The SPE in the form of an SPC shall be subject to income tax under Section 27(a), Chapter IV of the National Internal Revenue Code of 1997. An SPE constituted as an SPT shall be subject to income tax in accordance with the provisions of Section 61, Chapter X of the same Code.

Sec.  28. Transfer of Assets. - The sale or transfer of assets to the SPE, which includes sale or transfer of any and all security interest thereto, it made in accordance with the Plan shall be exempted from value-added tax (VAT) and documentary stamp tax (DST), or any other taxes imposed in lieu thereof. Except for registration fees with the Commission, all applicable registration and annotation fees to be paid, related or incidental to the transfer of assets, or the security interest thereto, shall be fifty percent (50%) of the applicable registration and annotation fees.

The transfer of assets by dation in payment (dacion en pago) by the obligor in favor of an SPE shall not be subject to capital gains tax as provided under Section 27 (d)(5) of the National Internal Revenue Code of 1997.

Sec.  29. Issuance and Transfer of Securities. - The original issuance of ABS and other securities related solely to such securitization transaction, such as, but not limited to, seller's equity, subordinated debt instruments purchased by the originator, and other related forms of credit enhancement shall be exempt from VAT, or any other taxes imposed in lieu thereof, but subject to DST. All secondary trades and subsequent transfers of ABS, including all forms of credit enhancement in such instruments, shall be exempt from DST and VAT, or any other taxes imposed in lieu thereof.

Sec.  30. Non-Classification of SPE as a Bank, Quasi-Bank or Financial Intermediary. - The SPE, created pursuant to a Plan, shall not be classified as a ban, quasi-bank or financial intermediary under the provisions of the New Central Bank Act, the General Banking Law and the National Internet Revenue Code of 1997, and shall not be subject to the gross receipts tax (GRT) or any other tax imposed in lieu thereof.

Sec.  31. Securities not to be Categorized as Deposit Substitutes. - The ABS issued by an SPE pursuant to the Plan approved by the Commission shall not be considered as deposit substitutes under the laws mentioned in Section 30 hereof: Provided, however, That for purposes of taxation, the yield for the ABS shall be subject to a twenty percent (20%) final withholding tax, except those held by tax-exempt investors.

Sec.  32. Re-transfer of Assets. - Where the implementation of the Plan or the provision of this Act requires or provides a transfer of the assets and collateral back to the Originator or Seller, then the provisions of Section 28 shall apply to such transfer.

Sec.  33. Incentives for Securitization. - In order to promote the securitization of the mortgage and housing related receivables of the government housing agencies as may be determined by the Housing and Urban Development Coordinating Council (HUDCC) and the Department of Finance (DOF), the yield or income of the investor from any low-cost or socialized housing-related ABS shall be exempt from income tax.

Sec.  34. Waiver of Rights. - For purposes of securitization pursuant to this Act, the buyer of real estate on installment payments may agree to waive his rights under Republic Act No. 6552, the provision of Section 7 of the said notwithstanding.

ARTICLE V 
SECONDARY MORTGAGE INSTITUTION

Sec.  35. Registration of Secondary Mortgage Institution (SMI). - An SMI, which shall be primarily responsible in providing liquidity mechanism to primary mortgage lenders/holders as well as in developing a secondary market for mortgage and housing-related ABS, shall also be registered with the Commission.

Sec.  36. Registration of Business and Operational Plan. - The SMI shall also register its business and operational plan with the Commission and shall, as a minimum, be subject to the same disclosure requirements as SPCs.

Sec.  37. Promulgation of Rules. - The Commission, in consultation with the BSP and the Insurance Commission (IC), shall promulgate rule regarding the ownership, organization, capitalization and operation of the SMI.

In promulgating such rules, the Commission shall consider the size of the asset pools to be held by the SMI, the amount of debt to be issued by it, the extent of its operation and the powers of the SMI specified under this Act.

Sec.  38. Powers of the SMI. - For purposes of securitization under this Act and pursuant to the Plan submitted to the Commission, the SMI may perform any or all of the following:  

(a) Wholesale purchase of residential mortgages and housing-related contract receivables;  

(b) Buy and sell residential mortgage and housing-related ABS;  

(c) Provide loans to primary lending institutions against residential mortgages;  

(d) Issue housing-related ABS through an SPE, and issue bonds and other debt instruments;

(e) Perform ancillary functions including, but not limited to, title insurance, through a subsidiary, wholly or partially owned by an SMI, and loan servicing; and  

(f) Perform such other functions as the Commission may determine necessary to mobilize and channel funds from the capital markets to the mortgage and housing finance sector.

Sec.  39. SMI Capitalization and Organizational Requirements. - Any SMI established for the housing sector shall be a stock corporation and shall have a minimum initial paid-up capital of Two billion pesos (P2,000,000,000.00): Provided, That the total obligation of the SMI, including both actual and contingent obligations, shall not exceed fifteen (15) times its paid-up capital: Provided, further, That the actual obligations of the SMI shall not exceed ten (10) times its paid-up capital: Provided, furthermore, That the ratios indicated herein may be adjusted by the Commission with approval of the DOF and BSP upon a showing that the conditions of the secondary and primary markets and the financial viability of the SMI warrant such adjustment: Provided, Finally, That the investment of financial entities in the SMI shall be subjected to and be made to comply with rules and regulations of the appropriate regulatory agency.

Government financial institutions and government-owned or-controlled corporations, may collectively hold and own up to a maximum of thirty percent (30%) of the SMI's capital: Provided, That such investment does not conflict with their existing charters

A government financial institution may invest up to a maximum of ten percent (10%) of its total investible funds in housing-related assets or five percent (5%) in non-housing related assets: Provided, That such investment does not exceed five percent (5%) of the total amount of each ABS issue.

Within ten (10) years of its incorporation, the SMI shall offer and list at least twenty percent (20%) of its common shares in the stock exchange, which period shall be extendible only upon approval of the Commission in instances where the lace of financial viability of the SMI warrants such extension.

Sec.  40. Prohibited Activities of the SMI. - The SMI shall be prohibited from:

(a) Originating or financing individual mortgage loans;

(b) Providing loans to other parties engaged in a business other than that approved in the Plan submitted to the Commission: and

(c) Providing capital equity to other companies.  

Sec.  41. Extension of Benefits to the SMI. - The benefits provided to the transactions entered into by the SPCs under Sections 28 to 33 of this Act shall also be granted to the same transactions entered into by the SMIs for purposes of securitization in accordance with the provisions of this Act.

Sec.  42. Dissolution of the SMI. - The Commission shall order the dissolution and liquidation of the SMI upon a finding that it;

(a) Cannot continue to undertake its business; or  

(b) Is not operation actively; or  

(c) Is engaging in activities that conflict with its objectives as an SMI; or

(d) Has fulfilled a condition for dissolution specified in its Articles of Incorporation.

ARTICLE VI

RATING SYSTEM

Sec.  43. Rating ABS. - No ABS shall be issued unless such ABS has been rated by a duly accredited credit rating agency.

Sec. 44. Credit Rating Agency. - Every credit rating agency which now exists or which may hereafter be formed shall be subject to the provisions of this Act.

Sec.  45. Accreditation of Credit Rating Agency. - No credit rating agency shall commence rate-making operations pursuant to this Act until it shall have obtained an accreditation from the Commission under such rules and regulations as the Commission may deem appropriate.

Sec.  46. Examination of Credit Rating Agencies. - Credit rating agencies shall be subject to examination by the Commission as the latter may deem warranted: Provided, That the Commission shall conduct an examination of the credit rating agencies at least once every three (3) years.

Sec.  47. Noncompliance of Accredited Rating Agencies. - The Commission may suspend or revoke the accreditation given to any credit rating agency which fails to comply with the Commission's lawful order within the time limited by such order, or any extension thereof which the Commission may grant.

ARTICLE VII 
PENAL PROVISIONS

Sec.  48. Penalties. - Any person who violates any of the provisions of this Act, or the rules and regulations promulgated by the Commission under authority hereof, or any person who, in a registration statement, notice, or Plan filed under this Act, makes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, shall, upon conviction, suffer a fine of not less than Fifty thousand pesos (P50,000.00) nor more than Five million pesos (P5,000.00) or imprisonment of not less than six (6) years and one (1) day nor more than twenty-one (21) years, or both in the discretion of the court. If the offender is corporation, partnership or association or other juridical entity, the penalty may in the discretion of the court be imposed upon such juridical entity upon the officer or officers of the corporation, partnership, association or entity responsible fro the violation, and if such officer is an alien, he shall in addition to the penalties prescription prescribed, be deported without further proceedings after service of sentence.  

ARTICLE VIII 
MISCELLANEOUS PROVISIONS

Sec.  49. Implementing Rules and Regulations (IRR). - The Commission, in coordination with the BSP, DOF and the IC, shall promulgate the implementing rules and regulations which shall be submitted to the Congressional Oversight Committee which shall review, revise and approve the same: Provided, That the Commission BSP, DOF and the IC may continue to issue separate regulations that will apply exclusively to the institutions under their respective jurisdiction, consistent with the IRR as approved by the Congressional Oversight Committee.

Sec.  50. Congressional Oversight Committee. - There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of the Representatives. The members from the Senate shall be appointed by the Senate President with at least two (2) Senators representing the Minority. The members from the House of Representatives shall also appointed by the Speaker with at least two (2) members representing the Minority. After the Oversight Committee has approved the IRR, it shall thereafter become functus officio, and therefore cease to exist.

Sec.  51. Repealing Clause. - All laws, executive orders, rules and regulations, and parts thereof which are inconsistent with this Act are hereby repealed or amended accordingly.

Sec.  52. Separability Clause. - If for any reason any article or provision of this Act or any portion therefore or application of such article, provision, or portion thereof to any person, group, or circumstance is declared invalid or unconstitutional, the remainder of this Act shall not be affected by such decision.

Sec. 53. Effectivity Clause. - This Act shall take effect fifteen (15) days after its complete publication in the Official Gazette or in at least two (2) newspapers of general circulation, whichever comes earlier.   
 

Approved: March 19, 2004