Housing loan restrictions

Financing rate limitLifetime Value )

2. A banking corporation shall not approve or execute a housing loan at a financing rate exceeding the following rates:

2.1. Housing loan for the purchase of a property constituting a single-family home – 75%.

2.2. Housing loan for the purchase of a property right constituting a replacement apartment – 70%.

2.3. Housing loan for the purchase of a property intended as an investment apartment – 50%.

3. To approve a housing loan for the purchase of a real estate right that constitutes a sole residence or an alternative residence, the banking corporation shall receive, among other things, an affidavit from the loan applicant, approved by an attorney, regarding the loan applicant's compliance with the conditions required for the apartment to be considered a sole residence or an alternative residence.

The disbursement of the loan as stated will be conditional, inter alia, upon receipt of a copy of the declaration submitted by the loan applicant to the Tax Authority in accordance with Section 73(c) of the Real Estate Taxation Law. Alternatively, the "Acquisition Tax Assessment Notice" issued by the Tax Authority may be used, provided that the bank can distinguish, according to the assessment, between a sole apartment and a replacement apartment. The banking corporation shall keep records of the said documents.

4. A banking corporation shall not approve a housing loan if the total financing percentage of the loan, together with the balance of previous loans secured by the same apartment, exceeds the percentages specified above. In determining the total financing percentage, the banking corporation shall consider all risk characteristics of the customer and the transaction.

Discounted home loans

4a. The valuation of a property for a reduced-price home loan will be carried out according to the following rules:

A banking corporation may establish the value of an asset based on an appraiser's valuation at the time of loan approval.

The appraiser's valuation should take into account all relevant parameters for an apartment in this type of project, including: consideration of the type and characteristics of the project, the target population, the technical specifications of the apartment, the volume of new apartments sold in the area at a reduced price, and so on.

In cases where the appraiser's valuation exceeds NIS 1.8 million, the property's value shall be based on NIS 1.8 million or the purchase price, whichever is higher.

(3) Valuation methods for calculating the asset's value as stated above (purchase price or appraiser's valuation) are based on the assumption that there is no legal impediment to realizing the apartment upon default, in a free market and without restrictions. If the aforesaid assumption is not met, this will be reflected in the valuation. For the avoidance of doubt, registering a caution notice for an amount of a fine to be determined by the state will not be considered a legal impediment, provided that the bank loan funds are given priority over the fine component.

(4) If the program includes penalties for violating the program's terms, such as a requirement to return benefit amounts received by the buyer, or an agreed-upon penalty, these amounts shall be deducted from the apartment's value, unless the bank has a right prior to the state's right to recover the benefit/penalty upon realization of the property.

It is clarified that the buyer must pay at least NIS 100,000 of the purchase amount from their own sources.

Limit on the rate of return on income

5. A banking corporation shall not approve or grant a housing loan with a debt-to-income ratio exceeding 50%.

6. However, regardless of the reduced risk weights set forth in Section 72 of Proper Banking Practice Directive No. 203, if the repayment ratio based on income exceeds 40%, the loan must be assigned a risk weight of 100%.

Limits on the variable interest rate portion of a loan

7. A banking corporation will approve and execute a housing loan only if both of the following conditions are met:

7.1. The ratio of the variable-rate housing loan portion to the total loan shall not exceed

66.66%.

7.2. The ratio of the portion of the loan bearing variable interest—which may change within less than five years from the date the loan was approved or from the date the previous interest rate was set—to the total loan amount shall not exceed 33.331%.

Repayment period limit

8. A banking corporation shall not approve or execute a housing loan with a final repayment period exceeding 30 years.

Application of restrictions on loan recycling

A banking corporation shall not approve or carry out a mortgage refinancing if, as a result of the refinancing, it was created

Deviation from one of the limitations detailed above, or an increased deviation that existed prior to the recycling.

In this regard, "Recycling" Including providing a housing loan for the purpose of repaying an existing housing loan (even if the repaid loan was granted by another banking corporation), all in an amount not exceeding the amount of the repaid loan.

Applicability

10. The limit on the financing rate (Lifetime Value) This provision shall not apply to housing loans exceeding 50% that are funded by the State and guaranteed by it (to the extent of collection). The other restrictions shall not apply to housing loans that are fully funded by the State and guaranteed by it (to the extent of collection).

11. The limitations set forth in Sections 5 and 6 above (limitations on repayment rate from income) shall not apply to housing loans detailed in Sections 12.1 and 12.2 below.

12. A banking corporation may choose not to apply the restrictions set forth in Section 7 above (restrictions on the portion of the loan bearing a variable interest rate) to the housing loans listed below, if the ratio of the total variable-rate housing loans to the total housing loans for which preliminary approval was granted during any calendar quarter does not exceed 66.661% and 33.331% (in accordance with Sections 7.1 and 7.2 above):

12.1. Bridge loans with an original repayment period of up to three years.

12.2. General purpose loans of up to NIS 120,000.

12.3. Foreign currency or foreign currency-linked housing loans granted to a non-resident.

13. The restrictions set forth in this directive shall not apply to housing loans granted by a banking corporation in accordance with agreements signed with government representatives, to public employees, to teaching staff, and to beneficiaries of the security system.¹, in an amount not exceeding NIS 50,000. When there is a guarantee from the Ministry of Defense for housing loans provided by a banking corporation to eligible persons in the security system, and the bank holds a legal opinion confirming that the guarantee meets all the eligibility conditions for recognition as a credit risk reduction as stated in instruction 203, the limitations established in this instruction shall not apply to loans as aforesaid, even if they are for higher amounts.

Increased risk weight for leveraged loans with variable interest rates

14. Pursuant to the Supervisor's letter regarding "Leveraged Loans for Housing with Variable Interest Rates" dated October 28, 201010LM0781, Attached Appendix B'), certain loans specified therein, which were granted on or before December 31, 2012, were assigned a risk weight of 100%. Banking corporations may reduce the risk weight for these loans to 75%.

Additional capital requirement on outstanding housing loans

14A. For the purpose of calculating the capital requirement as set forth in Proper Banking Practice Directive No. 201, the banking corporation must increase its Tier 1 capital target by a percentage equal to 11% of the outstanding balance of housing loans.

Group provision for credit losses on housing loans

15. In accordance with the instructions and directives of the Supervisor of Banks, banking corporations must examine and, as needed, update the methods they apply for determining collective provisions for credit losses on housing loans. Banking corporations will ensure that the methods they apply take into account all factors affecting the collectibility of these loans. Attached In Appendix C' Examples of factors that may be relevant to the recovery prospects of housing loans.

16. Accordingly, starting with the public reports for the second quarter of 2013, banking corporations must ensure that the balance of the group provision for credit losses held in respect of residential loans does not fall below 0.351% of the balance of such loans as of the reporting date. This does not apply to housing loans for which a provision is held based on the depth of delinquency or an individual provision.

Ministry of Defense employees (and its subordinate units) and their retirees, civilian employees of the IDF, career military personnel and IDF retirees, IDF veterans, individuals entitled to benefits from the Disabled Veterans Administration and individuals entitled to benefits from the Families and Commemoration Administration.

Appendix A – Income Return Rate Definition

1. "Return on Income" It is the ratio between the monthly repayment and the disposable monthly income. For this purpose:

1.1. "Monthly repayment" This is the monthly payment used to repay a housing loan requested by a customer. The full approved credit limit must be taken into account when calculating the monthly repayment.

When it comes to bullet and balloon loans, you need to consider the monthly interest payment. For grace period loans, you need to consider the expected monthly payment at the end of the grace period.

1.2. "Net monthly income" It is the net monthly income minus fixed expenses. "Net monthly income" is all income of the borrower that meets all of the following conditions:

1.2.1. The income is paid regularly and on an ongoing basis;

1.2.2. The banking corporation has appropriate documentation supporting the income or the right to receive it;

The banking corporation has proof of payment, such as deposits or transfers to the borrower's bank account.

"Fixed expense" is an expense arising from a borrower's obligation with a remaining term exceeding 18 months. This includes factoring in alimony and monthly repayments for any loan with a remaining term exceeding 18 months that was not included in the monthly repayment calculation (including housing loans previously granted to the borrower, including by another banking corporation).

In addition to the foregoing, rent expenses of a borrower who is not going to reside in the acquired dwelling shall also be deducted from the monthly income, even if the remaining period of the lease agreement is less than 18 months.

1.3. When calculating the repayment rate from income, in addition to the borrower's income, half of the disposable monthly income of a relative of the borrower who is not acquiring rights in the real estate may be recognized (hereinafter – "The closest"provided that all of the following conditions are met with respect to the relative:

1.3.1. He is a first-degree relative (spouse, father, mother, brother, sister, son, and daughter).

1.3.2. The relative serves as a guarantor for the loan.

1.3.3. The bank conducted a repayment capacity test for the relative, as is conducted for the borrower himself.

1.3.4. The relative pays the amount of 20% or more from their own bank account

Monthly.

To avoid doubt, it is not possible to recognize more than half of the disposable monthly income of a relative who is not a real estate owner, even if the relative signed the loan agreement as a borrower.

Notwithstanding the foregoing, the full disposable monthly income of the borrower's spouse may be recognized, provided they meet all the above conditions and reside with the borrower in the apartment.

2. This definition replaces the existing definition in Supervisory Reporting Directive No. 876.

Appendix B'

Jerusalem, 20 Cheshvan 5771 October 28, 2010

10LM0781

REG10.148.013

To Whom It May Concern

Banking Corporations – To the Director General

Subject: Leveraged Loans for Housing with Variable Interest Rates

Introduction –

Further to my letters of August 18, 2009, regarding "Variable Rate Housing Loans," and July 11, 2010, regarding "Developments in Housing Loan Risks," and in light of the possible implications of the continuation of the trend described therein, I have found it necessary to determine as follows:

Settings

2. "Adjustable-rate mortgage A housing loan, or part of it, whose interest rate may change over the loan period.

3.    "The financing rate (Lifetime Value)" – As defined in Section 14 of the Supervisory Reporting Directive 888A Regarding

"Home loans.

The new guidelines:

4. With respect to housing loans that meet both of the following criteria: (a) the loan-to-value ratio is higher than 60%;

(b) The ratio of the portion of the housing loan provided at a variable interest rate to the total housing loan provided to the borrower is equal to 25% or more.

The risk weight (as defined in Proper Banking Practice Directive No. 203) for the portion of the loan extended at a variable interest rate will be 100% (instead of 35% or 75%, depending on the loan’s characteristics).

5. The foregoing shall not apply to:

5.1. Housing loans where the loan amount approved to the borrower, including amounts not yet drawn,

Under 800,000 ILS;

5.2. Housing loans granted to borrowers who meet the Ministry of Construction and Housing criteria for receiving state housing assistance.

6. The guidelines included in this letter will apply to loans approved on or after October 26, 2010.

Sincerely,

Roni Hizkiyahu, the Supervisor of Banks

Appendix C – List of Relevant Parties

For collection chances

Here is a list including examples of factors that may be relevant to the recovery prospects of housing loans, including factors that certain banking corporations have addressed in their provisioning methods. This list is not exhaustive. A banking corporation shall consider which factors are most relevant to recovery prospects, including additional factors, if necessary, and how they should be taken into account when determining provisioning.

1. The quality of information within the banking corporation and the scope and depth of management and board oversight of the risk characteristics of housing loans;

The volume of loans granted during periods of relatively rapid credit growth;

The extent of loans in arrears, or for which waivers or deferrals of principal or interest were granted;

4. The scope of loans given at financing rates (Lifetime ValueHigh;

5. The scope of large loans and loans to borrowers whose current or potential repayment of loan payments constitutes a significant proportion of their fixed income;

6. Volume of loans with longer repayment periods;

7. Scale of loans with significant bullet and balloon features;

8. The volume of loans in which the borrower is exposed to a significant contractual increase in payments, including loans with variable interest rates;

9. The scope of loans secured by a subordinate lien, where no lien exists, or where the bank's security interest is unsecured;

10. The scope of loans for which the information the banking corporation has on the borrower, their liabilities, and income, or on collateral, at the time of granting the loan is incomplete, updated, and verified;

11. The scope of loans intended for the purchase of investment apartments.

Updates