Palestine Monetary Authority Issues New Instructions Regulating Housing and Real Estate Mortgage Lending Based on the Dynamic Loan to Value (LTV) Ratio

Palestine Monetary Authority (PMA) issued new instructions aiming at regulating housing and real estate mortgage lending to fit borrowers' financial capabilities, which will contribute to decreasing the risks of mortgage portfolio loans. This entailed linking housing and real estate mortgage conditions with the borrower's rating in the credit scoring system. The system depends on a set of elements, most important among which is the borrower's current and historical commitment to repay their credit installments on due dates. This means that the higher the borrower's credit scoring is, the greater his opportunities are to borrow more widely, for longer periods, and with reasonable interest rates. 

These new instructions gave priority to borrowers with high credit scoring and allowed borrowers with low credit scoring greater chances to adjust their status by fulfilling their obligations. This enabled them to enjoy the privileges specified and granted by the new regulations.

Dr. Jihad Al Wazir, Governor of PMA, emphasized that these new instructions have been enacted to ensure granting loans to citizens who want to purchase apartments in line with their needs and financial capabilities. This orientation is considered fundamental for responsible lending and prudent credit risk management. The new instructions will prevent real estate assessors and lending institutions from making immature credit decisions, thus averting a real estate bubble in Palestine. The instructions will positively affect borrowers' credit conduct as banks' clients become familiar with the credit scoring system and get stimulated to maintain good scores. Also the instructions will allow other clients to improve their credit scores, thus enabling them to borrow more widely to own the appropriate apartment or real estate.

It is worth mentioning that linking the borrowers' financial capabilities to the credit scoring system based on the Dynamic (LTV) Ratio is a policy uniquely developed by the PMA among central banks of the Middle East and the world. The development of a Credit Scoring System by PMA has allowed it to adopt prudent supervisory and risk management policies for real estate portfolio loans in line with the best international standards and practices. These instructions have been issued after holding a series of consultative meetings with the banking system, which expressed its satisfaction with, and encouragement for, the PMA's new approach.

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