One of the last regulatory hurdles in the way of developing Israel's mortgage-backed securities market was removed at the beginning of the month, when the nation's parliamentary finance committee agreed to exempt MBS deals from stamp duty.

According to Shy Talmon, the Treasury's accountant-general, the decision removes the last fiscal obstacle blocking a secondary mortgage market and comes after an earlier decision to exempt the sale of mortgages from value added tax. Mortgage-backed paper will now have the same fiscal treatment as other bonds, he said.

However, one London-based securitization professional, who is currently talking to Israeli banks about possible MBS deals, said that the country still lacks an ideal regulatory environment. "There are a few legal changes that would be helpful, but deals are still perfectly possible, if somewhat complicated," the pro said.

He added that the necessary legislation is likely in the medium-term as the authorities now view MBS positively, hoping it will free up capital, thereby increasing liquidity and sharpening competition among lenders.

Jill Zelter, managing director of Fitch IBCA, which recently published a mortgage default model for the country, agreed that Israeli mortgages will make for complicated MBS deals. She said that many mortgages are provided jointly by banks and the government and that loans can be secured on more than one property. "You can also move your loan when you move houses, so you can buy a new house and they will do an appraisal on the house and allow you to transfer the loan to it," she explained. "It's definitely a very complicated market."

Several Israeli mortgage lenders are examining MBS transactions (ASRI, 5/3/99 p.2), with Tefahot Israel Mortgage Bank at the head of the queue. Tefahot is said to be working on a $100 million shekel-denominated private placement deal that is expected to close in the next two months. Sources expect that the first internationally placed MBS deal will not come until next year.

If Tefahot's transaction is successful it will be the first MBS deal in Israel since a small, private placement for Carmel Mortgage Bank in 1991.

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