According to Bank of Israel data, last November, 2.5% of mortgages were taken at LTV ratios of more than 90%. 3.9% were taken at LTV ratios between 75-90%, and 33.6% at LTV ratios between 60-75%. In other words, despite Bank of Israel limitations and prohibitions on high LTV ratio mortgages, people are still receiving them.
If a bank agrees to grant a high leverage mortgage, the purchasers will most likely insure themselves through EMI - Ezer Mortgage Insurance Company Ltd. of the Harel Group. If borrowers fail to make their mortgage payments, the responsibility is transferred to EMI, which is a monopoly in its field. "We complement what the banks do by enabling them to widen the number of options available to clients," said EMI senior VP Tsila Daskal. "In this way, a young couple with little capital, and no rich father, can purchase an apartment and stop paying rent."
With respect to mortgages taken at the highest LTV ratio (90%), the rule of thumb is that for each NIS 450,000 of the mortgage, borrowers pay EMI a premium of NIS 100 a month. For example, a house that was purchased for NIS 1.8 million costs another NIS 400 a month.
On the face of it, it seems that higher financing equals higher risk to borrowers, Daskal admits. But according to its data, the rate of borrowers who make their mortgage payments more than three months behind schedule and are insured by EMI is 2.94%, compared with 4.6% of total mortgage owners.
"In Israel homes are not considered to be stocks. In the US, if the price falls, then the owner stops paying the mortgage. Loans in Israel are recourse, which is very different from the situation overseas. In general a borrower in the US can decide to bring the keys back to the lending bank, and be done with it." The main risk factors are a rise in unemployment rates or a rise in interest rates. "In a large number of insurance-related law suits in which we have been involved, we paid the loan when the reason for failure was an event that took place during the term of the loan, such as a divorce of a layoff.
EMI is supervised by the Commissioner of Insurance, and therefore its premium rates are uniform. Underwriting decisions are either approved or denied. In other words, EMI cannot charge higher premiums for clients who seem riskier. So, how can the lower rate of late payments be explained? "We are able to achieve these results because of the double filtering system, which finds the smaller holes," Daskal explains. EMI's rejection rate stands at 15%.