Mortgage Advisors Fly Abroad Amidst Delayed Regulation on Incentives

Non-bank credit companies in Israel are offering lavish "perks," primarily international trips, to mortgage advisors as a reward for referring clients, even as the industry awaits final regulatory decisions. Companies like "Direct Financing," "Alber Mortgages," "LoanWise," and "Gersherim Fund" are advertising destinations such as Las Vegas, Ibiza, New York, and Madrid as incentives for advisors who bring them business. This practice has been ongoing for at least 18 months, with reports highlighting the significant scale of these rewards.

The core issue is the lack of professional and ethical standards for mortgage advisors, including oversight to prevent conflicts of interest, as they can receive payment from both the client and the financing company. With over 60% of the public using advisors for major financial decisions, and potentially higher usage in the non-bank sector, this creates a risk of clients being steered towards suboptimal or more expensive options. Unlike banks, which are prohibited by the Bank of Israel from offering such incentives, non-bank entities supervised by the Capital Markets Authority can provide these rewards.

The Capital Markets Authority published a draft directive in May to ban financial service providers from offering any remuneration to representatives, a move that would cover all real estate-backed loans, including reverse mortgages. The public comment period for this draft ended in mid-June, but the industry fears the Authority is delaying a decision. While the Authority states the comments are being reviewed, the delay leaves companies in uncertainty and potentially vulnerable borrowers paying more.

Even if the directive is finalized, it will only address incentives from credit companies. A separate legislative effort to regulate mortgage advisors themselves, which would place the Ministry of Justice as the regulator, is still in its early stages. This means that excessive fees charged directly by advisors to clients, which can range from tens of thousands to hundreds of thousands of shekels, remain unaddressed. The practice is compared to insurance agents who receive commissions, but unlike insurance, mortgage clients pay substantial fees directly to advisors for supposedly unbiased advice, while also benefiting the advisor through hidden incentives.

"Direct Financing" stated that the competition is open and standard industry practice, and they adhere to the law. "LoanWise" affirmed their commitment to legal practices and compliance with any future regulations.