The Palestine Monetary Authority (PMA) has launched a data base for housing and real estate mortgage loans starting the second quarter of 2011. This data base reflects the PMA's attempt to develop work procedures, systems, and supervisory instruments in order to transform into a central bank and monitor various risks faced by different economic sectors, especially the housing and real estate mortgage sector. The new data base will include detailed information on different aspects of the financial portfolio of the real estate sector.
It is a data base for the collection and automatic provision of demographic and financial data on bank loans extended to the housing and real estate sector; it aims at determining the interest rate and Loan to Value (LTV) terms of such loans, which will allow for better management of the credit risk facing the real estate sector. The data base has benefited from John Geanakoplos' paper on the leverage cycle in the real estate mortgage market.
- To meet requirements for transformation into a modern fully-fledged central bank;
- To provide an accurate, comprehensive, and updated data base on the volume and value of loans to the housing and real estate mortgage sector in Palestine.
- Provision of a data base that performs as a an Early Warning System (EWS) indicating credit risks faced by the housing and real estate mortgage sector;
- Analysis of the risks faced by the sector via monitoring borrowers' behavior and the financing portfolio according to the main loan categories;
- Regulation of the Loan to Value (LTV) ratio in accordance with the extent of the credit risk in the real estate mortgage sector;
- Enhancement of the monetary policy via regulation of the interest rate with a view to avoid one of the most important reasons for the international financial crisis (as the fall or rise of the interest rate borrowers' behavior and the financial positions of lending institutions);
- Regulation of terms of lending to the housing and real estate mortgage sector, given that lending by banks and other lending institutions to this sector (a most important reason for the latest international financial crisis) involved high risks, insufficient collaterals and high interest rates.
- Production of reports showing accurate statistical and supervisory data for the issuance of the laws and instructions needed for the regulation of the housing and real estate mortgage sector;
- Reduction of the terms for collaterals and guarantees of loans to the real estate mortgage sector;
- Management of the geographical distribution risks of the portfolio of loans to the housing and real estate mortgage sector.
Effect of Development of a Credit Information Bureau on Housing and Real Estate Mortgage Lending
The PMA has developed a credit information data base and an associated credit scoring system for all borrowers from the banking sector and institutions for specialized lending. The data base contains comprehensive financial and demographic information including the borrower's evaluation score and probability for delinquency. As a result, banks' facilities to the construction and real estate sector has increased by 16 percent by end-August 2011 on end-2010; and over the same period, the non-performing loans in the same sector dropped from 9 percent to 6 percent. Attached data indicate that loans by banks and institutions for specialized lending to the housing and real estate mortgage sector at end-August 2011 stood at 9.3 percent of their total facilities.