Tag: אחוזי מימון והון עצמי

I usually try to write about principles rather than politicians personally. Minister Eli Cohen's announcement regarding a ninety percent mortgage financing will be an exception, and I hope a unique one. At first, I dismissed the minister's announcement with a mere shrug. What can you do? In Israel, the Minister of Health is not a doctor, the Minister of Defense is a corporal, and the Minister of Culture is a retired brigadier general. In my opinion, the performance of governments over the generations has been very good relative to objective data, so I am not too excited about it. I thought Eli Cohen's announcement: 

It also falls into the category of a minister who doesn't know what he's talking about and there's nothing to get excited about. But then I checked the resume of Eli Cohen. Minister Cohen holds a degree in economics and served as a lecturer in economics at Tel Aviv University. This means he probably knows that the message below is incorrect, and despite that, he published it. This is already misleading. I will address each sentence of the minister separately. Unfortunately, there is only one accurate sentence in the entire message. Let's begin.

90% Mortgage – Making the Dream of Homeownership a Reality

I have already addressed the fact in a separate article The mortgage on 90% Nobody will approach buying an apartment because the prices will rise. But here I will address the matter. The dream of buying an apartment. The Minister refers to a major financial decision in a family's life as the last of his sales pitches. While excess demand is causing prices to skyrocket, wouldn't it have been more responsible to tell the public that an apartment is a product one can buy or rent, and in many cases, renting is even preferable? Take a couple who want to buy an apartment in Holon for 1,600,000 shekels. They can rent the same apartment for 4,000 shekels per month. The Minister suggests this couple take out a mortgage of 1,440,000 shekels, on which they will pay at least 6,700 shekels (for thirty years). One of two things will happen. Either the couple cannot afford this amount and will collapse in the future, ending up with no apartment and no money, or they can afford it, in which case even in the first scenario, they would have saved, let's say, 2,500 shekels per month. If the couple saves 2,500 shekels per month, they will accumulate 1,600,000 shekels, which will allow them to purchase without a mortgage. In just 24 years (compared to the 30 years it will take him to pay off the mortgage). The 6-year gap is the difference between paying interest to the bank and earning a return (a modest 4%) on our capital. You don’t need to be an economist to understand the function FV In Excel.

When I got married, I personally took out a mortgage of nearly 90% for the apartment, and it was only thanks to that that we were able to buy our first home

Okay, the minister who is supposed to set economic policy for the entire country is referring to a representative sample of... one person. Your Honor, I am convinced that as part of a bachelor's degree in economics, there was a course Statistics without statisticians (I just love writing this) it taught you what a representative sample should be so that you can infer from it about a population. There is no conclusion in the world that can be drawn about a population from a sample of one case.  It is embarrassing to see a minister speaking like an out-of-touch father, pushing his son to make a decision based on something he did, and it is not at all clear whether it was financially sound or not. But beyond the technical aspect, it is worth addressing the example itself. When the minister bought his first apartment, housing prices were likely a quarter of what they are today, and the minister, who was a vice president at an insurance company, likely had a salary of tens of thousands of shekels a month. This means not only is it a sample from one person, but also from a person who is very atypical compared to the population he is addressing. But what about the issue Was it only thanks to that that we managed to buy our first apartment?  Mr. Minister, a good apartment in Holon cost 600,000 shekels in those years. For this, a down payment of 150,000 shekels was needed. Assuming that about 100,000 accumulated in your severance fund over six years. Are you saying that you would not have managed to save an additional 50,000 shekels on your own from a joint salary of tens of thousands of shekels, had you postponed the purchase slightly? Excuse me for intruding on your privacy, but you started it.

All studies indicate that most of those who reach old age without owning a home are condemned to a life of poverty.

All studies indicate that pensioners who own Mercedes cars live well. Is the honorable minister suggesting that Mercedes cars be distributed to ensure pensioners live well? 

This argument misrepresents cause and effect. It is clear that if people like you, Mr. Minister, educate the public that they *must* buy an apartment, then many will want to succeed in doing so, and those who don't succeed will likely remain poor their whole lives and be poor in old age. The "studies" do not explain or describe two things that you, Mr. Cohen, have ignored: 

1. How many people who own their homes live in poverty in old age? 
2. How many people have bought an apartment during their lives and yet reached old age without owning an apartment, for example, due to a risky and excessive mortgage they could not pay?

Economically, Mr. Minister, we have already seen that 30-year-olds who rent and save the difference between rent and mortgage payments will reach full homeownership (as opposed to shared ownership with a bank) much faster. There are many reasons to purchase an apartment besides the economic aspect, but if the economic argument is to be used, it should not be used so absurdly. 

According to the projected mortgage growth in relation to the current situation, it will be state-guaranteed, so the banks' risk level will not increase

Esteemed Minister, we know that the citizens of the country are weaker and therefore less important than the banks. But to rub it in our faces like this? Let's get something straight, sir, there's no such thing. The State Oh State guarantee.  Is taxpayer Or guarantees The taxpayer.  In the US, when banks chose to give out reckless loans, the government chose to rescue part of them by transferring taxpayer money for the bailout. For other banks, like Lehman Brothers, the government chose not to help, and they collapsed. I'm glad you think banks are more important than the public, so you're cutting out the middleman and not waiting for the banks to get into trouble before the government can decide whether to let them fail or rescue them. Instead, you're suggesting preemptively making taxpayers pay the debts of others who acted irresponsibly (on your advice). Why should the taxpayer pay the debts of irresponsible people? 

Wishing everyone a happy new year, a year of new beginnings

I am happy that there is at least one sentence in the entire message that I can completely agree with. I join in the congratulations and wish everyone a happy holiday and a happy new year. 

In response to people who told the minister he was causing the subprime crisis, the minister gave the following astounding answer in various ways: 

I am convinced that Minister Cohen knows that the subprime crisis is not a crisis of collapsing banks, but a crisis of general economic collapse. The fact that the minister preemptively declares that the government (the taxpayer, mind you?) will pay in advance the debts of those who will not repay these loans further reduces the banks' motivation to conduct thorough borrower checks, and this is precisely the definition of subprime. Cohen's successor in office will not care if the Israeli economy is in crisis due to a bank collapse or because the current government has committed to repaying defaulted loans in large volumes. 

An interview with me on Reshet Bet regarding the 90% mortgage program for first-time homebuyers. My comments are detailed further in this article

Can you smell the scent of elections? It seems the Finance Minister isn’t just sensing it—he’s also anticipating the results. One of the unpleasant outcomes for the Finance Minister is the rise of a new political force—Orly Levy-Abekasis’s party.  Levi-Abekasis has been trying for several years to pass the 90% Mortgage Financing Bill. In my opinion, this is a terrible proposal, and indeed, experts at the Bank of Israel and the Ministry of Finance itself have opposed it for years. But now, ahead of the elections, as the failure of the overarching goal of Kahlon’s appointment as Finance Minister—lowering housing prices—becomes clear, the Finance Ministry is trying to pull a rabbit out of a hat in the form of this very proposal. In this article, I will explain why, in my opinion, a move that supposedly "will make things easier for young people" will actually do the exact opposite.

First of all, a good word

Program "Discount housing" Full In disadvantages For the families who will purchase their apartments through this program. This brief overview cannot cover them all. But for many families, this was the only option for purchasing an apartment because it allowed them to finance it through 90% mortgage financing (for apartments with a market price below 1.8 million shekels). There was no logical reason to discriminate against “Price for the Resident” buyers compared to other buyers. Now, if this proposal is approved, that gap will be closed. Of course, closing it by reducing the financing percentage in the “Price for the Resident” program would have been more economically sound, but we’ll discuss that another time (or in the comments section).

Families' purchasing power won't really improve through the plan.

Straight from the first semester of the Introduction to Economics course: The price depends on demand. If there is a given quantity of a product (a scarce product), then the more people want to buy it, the higher its price rises. This can be demonstrated with two extreme examples:

1. Instead of a 90% mortgage, the Treasury allows you to take out a 110% mortgage (after all, you need to buy furniture too). This isn’t so far-fetched, and banks do offer loans without full collateral. In this case, it’s clear that more apartments will be within reach of a family earning, say, 15,000 shekels. More families will compete for the apartment, and when the landlord has to choose between more families, he can raise the price to filter out all but those earning 50,000 shekels who can afford the high monthly payment required by a 110% mortgage on the apartment. 
2. Instead of the current 75% mortgage, the Ministry of Finance has decided that no mortgages will be granted at all. In other words, if an apartment costs one million shekels, you must come up with one million shekels in cash. In such a case, it is clear that fewer people will be able to purchase the apartment, and the price will likely drop by at least half a million shekels—an amount that people will be able to scrape together here and there. 

This is not just a theory from the economics faculty; it's happening again and again in different places and industries. For example, in 2013, the government decided to strengthen Jerusalem and give a grant of 100,000 shekels to any family that bought their first apartment there. The result was that more people could afford to buy apartments in Jerusalem and the contractors Apartment prices have risen. It's important to understand that this is not a criticism of the contractors. Every business is created to make a profit, and even in the cucumber industry, the price has gone up after hail destroyed many crops and supply decreased.

So what is a ninety percent mortgage financing plan expected to cause? A rise in prices will eventually mean that even those who could supposedly buy their first apartment with just a 10% down payment will no longer be able to do so, because the price of that apartment will rise to such an extent that their 10% down payment will no longer be enough for the apartment they wanted in the first place. Those who could afford to purchase the apartment with 25% in equity at the previous price will buy it at a higher price, as their 25% has eroded to, say, 15%, and their debt burden has increased significantly.

Discrimination against first-time homebuyers will primarily harm them.

Superficially, it seems logical. The state primarily helps those who don't have an apartment at all. These are the youngest and neediest couples, and therefore they should be helped especially. Intentions are one thing, and results are another. One of the most important things for a family is long-term financial planning. With such planning, the family acquires what they need at a given moment and progresses slowly. If, for example, moving apartments costs 50,000 shekels (mover, lawyer, broker, etc.), then it's logical to initially buy a cheaper apartment and then, say, in 6 years when the family grows, move to a larger apartment. This will likely be much cheaper than paying interest and other expenses on an expensive apartment from the start. Moreover, they say, 'Man makes plans, and God laughs." Imagine a childless couple buying a five-room apartment because they are planning for three children. In the next stage, they find themselves in an expensive apartment with a large mortgage, but they need the money precisely for fertility treatments. 

Let’s go back to our family, which has 150,000 shekels. They decide that, at this stage, a three-bedroom apartment costing one million shekels will suffice—meaning a mortgage of 850,000 shekels, or 85% financing. 

Six years later, the family decides to sell the apartment and purchase an apartment worth 1,500,000 shekels with two additional rooms. She sells her apartment and receives 1,000,000 shekels, from which she repays a mortgage of 800,000 shekels (in six years, the mortgage decreased by 50,000 shekels) and now has 200,000 shekels. 

Oops! Six years ago, as a first-time homebuyer, the family could have purchased the five-bedroom apartment for 1,500,000 shekels with a down payment of 150,000 shekels and a mortgage of 90%. Now, with only 200,000 shekels and a mortgage of 70% allowed for a replacement apartment, the family cannot purchase the five-room apartment. 

Absurd. A family that wants to upgrade has more money, but despite that, they can't upgrade their residence and remain stuck in an apartment unsuitable for their needs. Couples should consider this before purchasing their first apartment. They will actually be pushed by the treasury to purchase an apartment that is not suitable for them Only because of the understanding that in the future they will not be able to upgrade to a more suitable apartment. This way, the Treasury causes families to take a big risk right at the start of their lives when they are economically inexperienced. For example, regarding the cost of raising children or at the beginning of their careers. Regarding careers. 

Regulatory Stability - End of Season Sale, Today Only

Until six years ago, it was possible to take out a mortgage with 95% financing. This option has been discontinued. In order to reduce housing prices. The intention to backtrack and reinstate the 90% mortgage financing will lead the public to believe that this decision, too, is temporary and could change again soon. In this situation, families who had no intention of purchasing an apartment will push themselves to make a purchase they did not intend to make, simply out of fear that the benefit will be canceled in the near future and they will lose it. 

Few will risk and many will pay

Banks are experts in risk management. They understand that a mortgage with 90% financing is risky. Just imagine a scenario in which the price of the apartment drops by 10% (after all, that was The Treasure Guarantee (at the beginning of the term), and then the banks have more liabilities than collateral. Until about six years ago, there were 90% financing mortgages, but then the bank required repayment insurance through an external insurance company for these loans. Thus, if the borrower failed to pay the mortgage, the insurance company shared the risk with the bank and paid the mortgage in the borrower’s place. This time as well, the Ministry of Finance understands that the banks will not want to grant risky 90% loans to almost anyone. Reestablishing the EMI company is likely impractical, and the Ministry of Finance does not want to offer a "benefit" that no one will be able to take advantage of, so they came up with an idea. The "government" will provide a guarantee for 90% loans and compensate the banks if such a loan goes unpaid. Why did I put "government" in quotation marks? Because there is no such thing as the government. The government has no money; it has the ability to collect money. Every time you hear that the government intends to pay for something, convert that in your mind toThe taxpayer. So the Ministry of Finance and the Ministry of Economy are pushing the public into deals that are way beyond their capabilities, and in the event the risk materializes and the family cannot pay. The taxpayer will repay the loan in his place. In my opinion, insuring risky loans against the risk of banks, the most powerful entity in the country, is really not the taxpayer's job. 

And what would have been better to do?

It appears that the Ministers of Finance and Economy, both from the Kulanu party, have despaired of lowering housing prices. The attempt to control the housing market by managing it with the "Discount Housing" program is not succeeding because contractors are simply halting construction not covered by the program, supply is decreasing, and there are no solutions for those who don't want to buy lottery tickets. The price of an apartment includes over a third in taxes. The Treasury could decide to reduce taxes on apartments, as Lapid tried to do. The Treasury could encourage contractors to build more apartments, as Sharon, may he rest in peace, did when he was the Minister of Housing and there was a need to absorb a million (!) immigrants from the Soviet Union. And the Treasury could reduce demand, for example, by issuing Apartment price-linked bonds This way, families' money won't be eroded while they wait to purchase an apartment, thereby reducing demand. 

Summary

The 90% mortgage proposal is bad for young couples, bad for banks, and bad for the public as a whole. The only positive aspect of this proposal is that it eliminates the discrimination that previously existed between buyers of “Price for the Resident” homes and buyers of pre-owned or new-construction homes on the open market. The proposal stems solely from political motives, as the Treasury has apparently given up on the possibility of demonstrating success in lowering housing prices before the elections. 

6/11/2012

At the end of October, the Bank of Israel published new guidelines that limit the percentage of financing a home buyer can receive from a bank as a mortgage.

Click here to read the Bank of Israel directive

According to the Bank of Israel's directive, apartment buyers will be divided into three groups:

First-time homebuyers.

b. Home upgraders – Homeowners who buy an apartment but commit to selling their currently owned apartment.

c. Investors.

Each borrower will be classified by the bank into one of three groups. The borrower's eligibility for a specific financing percentage will be determined by their group classification:

A. First-time homebuyers can receive a mortgage from the bank for 75% of the value of the home they are purchasing.

B. Homebuyers may receive from the bank 70% of the value of the apartment purchased with a mortgage.

C. Investors can obtain a mortgage from the bank for 50% of the value of the apartment being purchased.

The bank will classify a customer into one of three groups using a declaration that the customer will bring to the bank after filling it out with a lawyer and the lawyer signs it.

The use of an EMI company to obtain loans with higher financing percentages will no longer be possible from now on. In light of this, the EMI company announced to the stock exchange that it will not accept new customers. The company will operate on a reduced scale, serving its existing customers.

A previous directive from the Bank of Israel, which stipulated that a loan exceeding 60% is considered a high-risk loan and therefore the bank granting such a loan is subject to a fine, remains in effect. As a result, for loans exceeding 60%, borrowers receive less favorable terms from the bank.

The Bank of Israel is trying to achieve two goals through this directive:

1. Improvement in the robustness of banks. The Bank of Israel is concerned that most of the banks" credit is concentrated in one sector (real estate) and thus the banks' risk will increase due to a problem in this sector.

2. A decrease in apartment prices. Following the Bank of Israel's directive, fewer people will be able to purchase apartments. Demand will decrease, and consequently, the Bank of Israel hopes that housing prices will fall.

Time will tell if prices will actually drop following this directive.

בנק ישראל הנו האחראי על יציבות המערכת הבנקאית. כחלק מאחריות זו מוציא הבנק מידי פעם הנחיות אשר אמורות לשפר את יציבות הבנקים. הנחיות אלו עולות כסף אשר מגולגל בדרך כלל אל הלקוחות. בשנת 2011 הוציא בנק ישראל הנחיה לבנקים לדווח ולשים בצד קרן אשר נועדה להתמודד עם משכנתאות מסוכנות. הנחיה זו קרויה בשם המקצועי דרישה להלימות הון – בנק ישראל הגדיר משכנתאות מסוכנות ככאלו בהן אחוז המימון הנדרש הוא מעל 60%. בכך החמיר בנק ישראל את התנאים שהיו עד 2011 ואשר ראו בהלוואות של עד 75% כהלוואות בטוחות.

המשמעות עבור הלקוחות הינה שהבנק נדרש לשים כסף בצד כמעין ביטוח עבור כל הלוואה של מעל 60% מימון. פעולה זו עולה לבנק כסף רב ולכן בהלוואות של מעל 60% מימון, הבנק נותן תנאים פחות טובים ללקוחות. במידה ואתם גבוליים מבחינת ה- 60 אחוזי מימון, כדאי לעשות מאמץ גיוס כספים נוספים אפילו באמצעות הלוואה מסחרית משלימה כדי לקחת משכנתא של פחות מ- 60% וכך לקבל תנאים טובים למשך כל חיי המשכנתא.

בניגוד למדרגת ה- 75% מימון בה הבנקאי יאמר ללקוח שהוא צריך להוסיף למשכנתא עלויות ביטוח החזרים חיצוני – EMI וכן את מחיר ביטוח זה. במדרגת ה- 60% מימון, הבנקאי בדרך כלל אינו אומר ללקוח כלום אלא פשוט מציע תנאים פחות טובים.

חשוב לזכור, ערך הדירה כפי שהבנק רואה אותו אינו מחיר הדירה כפי שרשום בחוזה הרכש שלכם אלא הערך הנמוך מבין החוזה והערכת השמאי. השמאי רואה את החוזה לפני שהוא נותן את הערכתו ובדרך כלל הערכת השמאי נמוכה מהמחיר בחוזה. במקרים גבוליים זה עלול להזיק לכם ולכן כדאי לקחת מקדם ביטחון מסוים.