The mortgages and car loans market will be opened to private investors through P2P platforms, according to a change recently inserted into a draft bill on the subject.
Private investors do not regard the interest rate offered on mortgages as attractive, but the mortgages offered through P2P will not be restricted by some of the rules applying to the mortgage banks, so that the ratio of the mortgage to the total price of the housing unit can be higher than the limit set by the Supervisor of Banks.
The government bill on the subject will probably be brought for its first Knesset reading after the Passover holiday. The mortgage market is estimated at NIS 340 billion, but over 90% of the credit in it is supplied by the banks. The volume of housing loans provided by non-banking investment institutions is only NIS 5 billion. The car loans market is estimated at NIS 10 billion.
Opening the mortgage and car loans market was decided by a ministerial team headed by former Ministry of Finance legal advisor Adv. Yoel Briss, following a public hearing conducted on the legislative memorandum for the fourth section of the financial services supervision bill, which concerns P2P loan platforms.
Four P2P companies operating in Israel appeared at the hearing: Blender, Tarya, e-loan, and Creditplace. The companies convinced the members of Briss's team that the legislative memorandum, which currently requires the depositing of the loan repayments in the lender's bank account, should be changed.
This requirement is designed to prevent money laundering in the framework of the AML-KYC "know your customer" rules. The P2P companies persuaded the Briss team that the bank accounts of suppliers of durable goods, such as housing and cars, who are personally known to the P2P companies, and for whom the companies are responsible, should be exempt from this requirement. The possibility of granting mortgages will require the P2P companies to establish a mechanism for assessing value, assigning liens, and foreclosing properties purchased with the loans. Some of the costs of the mechanism will also be included in the price of the loan.
The companies will also be required keep a minimum amount of capital in a trustee account for funding the necessary foreclosures. The money will be accessible to the lenders if the P2P company goes bankrupt.
The possibility of channeling the loan repayments to the bank account of the contractor, auto agent, or other supplier of a durable item significantly lowers the cost of the loan for the borrower, because it makes it possible to issue a lien on the asset against the loan through a mortgage, putting a lien on a car, or in some other way. In this way, lenders can also be sure that the money will really be used to purchase the asset, not for something else.
Briss, who presented the change at a conference held yesterday, was asked whether it was theoretically possible to use a P2P company to bypass the restrictions currently applying to mortgages, such as increasing the proportion of financing to 90% or more of the value of the housing unit. He answered that the rules for this matter had been set by the new capital market regulator, but that he believed that the platforms could be used to supplement the mortgage in purchasing a home.
Briss explained that most of the mortgage restrictions imposed by the Supervisor of Banks were due to concern about the banks' stability and protecting the depositors' money. This concern does not apply to the P2P companies.
The Briss team has been working on the non-banking financial services bill for two years. The first sections of the bill dealing with non-banking credit and currency changing service providers have already been approved on their second and third Knesset readings. The third section, which deals with non-profit entities, such as charity funds, passed its first reading, after being split off from the economic arrangements bill and brought to the Knesset Finance Committee, which is due to submit it for its second and third readings.
The section dealing with P2P loan companies is the fourth and last section of the bill. No special delay in its Knesset passage is anticipated.
The bill is scheduled to take effect on June 1, but the minister of finance is likely to postpone the date, due to the many technical difficulties involved in issuing licenses and controlling share permits to over 2,500 credit concerns to which the law applies.
One pertinent question is whether the P2P companies will take up the challenge by becoming active in this market. It appears that there is a dispute between them. Some of them say that the interest rate in the business is not attractive enough, especially for mortgages, or that there are not enough private individuals willing to provide loans for the long periods prevailing in mortgages, while the operating costs for such loans are high. Other companies believe that taking up such activities is part of the P2P sector's evolution, and if the barriers are removed in the right way, such activity could take place.
The P2P sector is just beginning in Israel. Companies in this field have begun doing business in the past three years. Up until now, they have provided less than NIS 250 million in loans (official figures for loans are not published). The introduction of supervision for these companies is likely to increase the public's trust in them, and enable them to increase their volume of business.
Published by Globes [online], Israel Business News - www.globes-online.com - on March 8, 2017
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