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Unintended Consequences

Therefore, the new legislation, which is meant to help, will make it more difficult and more expensive for society's weakest segments to acquire an apartment.

There is no institution the public hates more than the banks. They take interest, exaggerate their fees and disperse millions to senior officials. So there is nothing less popular than defending them. Alas, sometimes they are also right.

The matter at hand pertains to those who take out mortgages. About 10 years ago, the Knesset passed justified legislation that made it very difficult for the banks to claim mortgage payments from guarantors. It was argued that the banks must first make every effort to collect from the person who actually took out the mortgage, and only if this is impossible - turn to the guarantors.

Banks still have the possibility of evicting the mortgage taker if he stopped making payments and has refused to agree to a deal on restructuring his debt.

Years have passed, history forgotten, and on Tuesday the Knesset Constitution, Law and Justice Committee decided to make it difficult for banks to evict a debtor. If he is finally evicted, the bank is obligated to provide him with alternative housing.

Even today the banks do not rush to evict debtors from their apartments. The process is expensive, complicated, goes through the courts, and in the end the bank loses on the sale of the property. The banks opt to reach an agreement regarding the debt. But still, every year there are around 1,000 mortgage takers who do not pay and reach no agreement with the bank, so the bank evicts them from their apartments.

The Knesset Constitution Committee wanted to protect those 1,000 evicted debtors. But does this really protect the weak? The minute the bank is not able to evict a debtor who does not pay, the risk on mortgages rises, and the bank will have to increase its rates to cover the risk - the interest the bank charges for clients who will be categorized as weak or risky. A large portion of these are in the country's periphery.

Moreover, the value of apartments used as collateral in mortgages will decrease.

As a result, the banks will agree to give these people smaller loans - and this is a population that has relatively little capital.

Therefore, the new legislation, which is meant to help, will make it more difficult and more expensive for society's weakest segments to acquire an apartment.

The situation for the guarantors will also become more difficult because if the bank is unable to claim the apartment without offering alternative housing, its costs will rise and it will require the guarantors to cover the difference. It will then be more difficult to find guarantors, decreasing the likelihood that the same weak population will be able to buy an apartment.

The moment the banks make it difficult to get a mortgage, these people will have to turn to the gray market, or even the black market, and there they will be hit by stinging interest rates and financial difficulties, a phenomenon no one desires.

The committee that has sought to improve the lot of the weak will bring about the exact opposite for tens of thousands of families who will pay more and receive less.