The Bank of Israel is attempting to regulate the activity of external mortgage consultants used by banks, while the Antitrust Authority is investigating whether their actions are causing a decline in competition over mortgage lending. "Globes" has obtained a letter sent yesterday by Supervisor of Banks Dr. Hedva Ber to the heads of the banks requiring them to establish rules within three months for working with the new external mortgage consultants.
Over the past year, some of the banks decided to drastically reduce their work with these advisors. This detracted from competition in mortgages, while mortgage interest rates have soared during the past two years, even though the Bank of Israel interest rate has not changed.
One of the main sections in Ber's draft instructions states that the banks must allow the external mortgage consultant to work with them without the customer's presence, "particularly at the initial stage of obtaining agreement in principle for the loan," Currently, some of the banks do not allow particulars to be given and or offers to be made to the consultant without the customer's presence - a measure that significantly reduces the attractiveness of the service provided by consultants, who have to take customers with them to all the meetings.
The new instruction is valid except in cases in which the bank has grounds for concern about the customer's welfare, or for suspicion that the consultant is engaging in improper activity. Despite the possibility of the consultant representing the customer when the latter is not present, the Bank of Israel stresses that the customer must come to the bank and meet with the bank's representatives at least once in the process of taking a loan, probably in order to verify that the particulars provided are correct, and that the customer is aware of the proposal and understands it well.
The Bank of Israel does not intend to begin supervising the external mortgage consultants, who are currently unsupervised. It is requiring the banks to establish rules for working with the consultants that will enable the latter to go back to working as they did previously. Among other things, the banks will have to verify that the consultant has explicit written authorization from the customer to act in his or her name, as well as clarifying the substance of the connection between the consultant and the customer. In addition, the banks will have to take measures to minimize the legal risk liable to result from the external consultant's involvement, "including preserving the customer's privacy and the duty to act with transparency and fairness towards him," the Bank of Israel writes. The bank must also establish rules for delivering documents and disclosing information through the consultant in order to avoid a situation in which forged documents are provided, as happened in certain cases in the past. The Bank of Israel is instructing the banks to establish these rules by early May.
Ber is saying that as soon as the new final regulation goes into effect, the bank must make it clear to the customer the consequences of the external consultant's involvement in the process of taking a loan, "especially the absolving of the bank from responsibility for the representative's actions and recommendations," the document states. It also makes it clear that the bank is barred from paying or providing any benefits whatsoever to the external advisor for his or her consultation.
Complaints about the banks and the consultants
The activity of external mortgage consultants has greatly expanded in recent years, following the housing market boom, among other factors.
The mortgage consultants do the mortgage shopping among the banks, negotiate in the customers' names, and help them find suitable financing packages on better terms. Their payment usually amounts to several thousand shekels. "Mortgage consultation has grown by leaps and bounds in recent years, following the increase in the volume of mortgage loans and the number and complexity of mortgage tracks. The mortgage consultants help customers make one of the most momentous decisions in their lives. The consultants also contribute to greater competition between the banks through their comparisons between the loan terms at a number of banks," the Bank of Israel explains in the instruction. At the same time, "A mortgage consultant does not need a license, so almost anyone can represent himself as one," the Bank of Israel notes.
In effect, there is currently almost no supervision of external mortgage consultants. Four banks reported last year to the Bank of Israel several cases of fraud and forgery committed by people calling themselves mortgage consultants; these cases caused damage to both the customers and the banks. Some of the banks toughened their policy on working with mortgage consultants, but some consultants claimed that the banks were preventing the consultants from helping to bolster competition and lower prices.
One manifestation of this more stringent policy was the compiling by some banks of a closed list of consultants with whom they were willing to work. Other banks forbade their employees from making offers or negotiating with the consultant when the customer was not present. Since external consultancy and their relations with the banks are unregulated, the banks could set any policy they wished. This tougher policy led to protests and complaints, which were passed on to the Bank of Israel, mainly by the consultants. The Bank of Israel subsequently began a round of talks with the banks on this subject. The Bank of Israel realized that there were two ways of handling the matter. One consists of supervising the external mortgage consultants and introducing licensing for them, which involves allocating resources to the regulator, and is regarded as a long and rather difficult process.
The other and simpler alternative is to publish regulations for the banks for working with the mortgage consultants. This solution, however, in effect transfers the responsibility to the banks. Incidentally, three months ago, the Knesset held a debate about the rise in mortgage prices, and the subject of the consultants was raised. "In view of the situation, the Bank of Israel Banking Supervision Department has decided to establish principles for working with mortgage consultants. The goal of establishing these principles is to ensure that customers who want mortgage consultants to represent them will be able to obtain such representation, while at the same time reducing as much as possible the risk to which the banks and the customers are liable to be exposed," the Bank of Israel wrote in explaining its decision to publish the instructions. In that Knesset debate, Antitrust Authority director general Michal Halperin announced that she would assess the increase in mortgage prices and the decline of competition in the sector.
"Globes" reported last month that the Antitrust Authority's evaluation was likely to focus on mortgage consultants, rather than suspected fixing of prices and interest rates. The Antitrust Authority believes that mortgage consultants constitute a factor that can encourage competition in the banking system, and is therefore examining their effect on the extent of competition and ways of bringing them back to the market. Now, simultaneously with the Antitrust Authority's probe, it appears that the Bank of Israel is intervening and publishing rules designed to return the consultants to the market. The main rules for the banks concerning mortgage consultants are:
* A customer seeking to use a representative in taking a mortgage must not be refused.
* The bank can allow the consultant to be present without the customer during part of the process, especially in the initial phase.
* The customer must come to the bank at least once during the mortgage taking process.
* The bank shall not pay the consultant or give him any benefit in exchange for his advice to the customer.
* The bank must take measures to minimize the legal risks resulting from the consultant's involvement, including maintaining the customer's privacy.
* Rules must be set for delivery of the customer's documents by the consultant.
Published by Globes [online], Israel Business News - www.globes-online.com - on February 1, 2017
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