Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Instructions No. (1 / 2014)

Regulation of Housing Loans and Real Estate Financing
Dynamic LTV Based on the Flexible Standard To all lending institutions operating in Palestine Date: Thursday, March 13, 2014

Based on the provisions of Article (40) of Banking Law No. (9) of 2010 and the Licensing and Supervision System for Specialized Lending Institutions No. (132) of 2011, and aiming to regulate housing loan and real estate financing operations in a manner that contributes to reducing credit risks, the following are the fundamental determinants for granting these loans:

Article (1): Definitions

Real Estate Financing Loans: Real Estate Financing Loans refers to all loans or financings granted to natural and legal persons for the purpose of financing the purchase or construction of a property, including the purchase of land for residential purposes, finishing, or completing construction, provided that such property is mortgaged in favor of the institution or a mortgage financing company.

Housing Loans: Housing Loans refers to all personal loans granted to natural and legal persons for the purpose of financing the purchase or construction of a property, including the purchase of land for residential purposes, finishing, or completing existing construction, without requiring a property mortgage.

Article (2): Granting Conditions

1. Basic Conditions Table Based on Credit Rating:

Credit Rating Code	Loan-to-Value (LTV) Ratio of Estimated Property Value	Upper Limit (Years)	Grant Period
A and B	85%	0-8	25
C	80%	8-18	25
D	60%	18-61	15
E	30%	61-100	7

2. The following clarifies the basic conditions stated in the table above:

a. Clients with Credit Rating A and B: The financing value granted by the institution to the client must not exceed 85% of the estimated property value or the property price according to the sales agreement, whichever is lower, and the financing period must not exceed 25 years from the grant date.

b. Clients with Credit Rating C: The financing value granted by the institution to the client must not exceed 80% of the estimated property value or the property price according to the sales agreement, whichever is lower, and the financing repayment period must not exceed 25 years from the grant date.

c. Clients with Credit Rating D: The financing value granted by the institution to the client must not exceed 60% of the estimated property value due to high credit risks, and the financing period must not exceed 15 years from the grant date.

d. Clients with Credit Rating E: The financing value granted by the institution to the client must not exceed 30% of the estimated property value or the property price according to the sales agreement, whichever is lower, due to the notable increase in credit risks, and the financing repayment period must not exceed 7 years from the grant date.

Article (3): Loans Granted for Residential Purposes

1. In the event of granting loans for residential purposes, the loan value must not exceed $80,000 or its equivalent in other currencies as a maximum, provided that the financing period does not exceed 12 years without the requirement of a down payment or property appraisal.

2. If the financing value exceeds the aforementioned limit, the entire requested financing shall be subject to the granting conditions stipulated in Article (2), without considering the requirement of a property mortgage, while strictly adhering to the property appraisal condition according to Item (7) of Article (4) General Provisions.

Article (4): General Provisions

1. The institution's management bears the decision to grant or deny credit and the resulting consequences.

2. The granting process for clients not classified in the Credit Information System (having no credit rating due to lack of data in the system) shall be conducted as the institution deems appropriate based on the credit study, provided that the credit decision does not conflict with the ceilings and periods specified in these instructions.

3. In the case of joint mortgage loans or housing loans exceeding the ceiling specified in Article (3) Item (1), the determination of granting conditions according to Article (2) shall be based on the credit rating of the primary source of repayment or the highest rating among the loan co-borrowers.

4. The DBR (Debt Burden Ratio) must not exceed 50% of direct obligations relative to the total income verified at the time of granting.

5. The provisions of these instructions apply only to mortgage loans with values less than or equal to $200,000; if the value exceeds this ceiling, the client's credit rating must be A, B, or C only.

6. The institution is permitted to increase the financing-to-property value ratio for borrowers with credit ratings A, B, or C by 5%, provided the institution obtains a default risk guarantee from a specialized financial institution.

7. The estimated value of the property to be financed must be based on the appraisal of two licensed appraisers, and the lower appraisal or the average of the two appraisals shall be adopted.

8. A life insurance policy and a property insurance policy must be issued for all housing and mortgage loans where the grant period and financing balance cover the co-borrowers in the loan.

Article (5): Financing for Property Purchase or Second or More Housing Loans for the Same Borrower

The institution may grant new financing or a new housing loan to the same borrower, provided that the financing-to-estimated-property-value ratio (LTV) does not exceed 40% of the total requested financing, with appropriate guarantees fulfilled according to the institution's credit policy.

Article (6): Entry into Force and Application

These instructions shall take effect from the date of issuance and replace Instructions No. (2014/1) dated 11/03/2014. Any provisions conflicting with them are repealed, and institutions must take measures to formalize their status in accordance with these instructions.

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Palestine Monetary Authority

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