The Saudi Arabian Monetary Authority (SAMA) has issued new mandatory instructions to banks and mortgage finance companies operating in the Kingdom regarding the provision of mortgage financing to individuals.
The Authority’s decision was based on the powers granted to it under relevant laws, regulations, and directives. The decision aims to enable customers to make informed decisions when applying for mortgage financing and to protect the rights of all parties involved in mortgage financing transactions, and to strengthen the procedures for granting financing to preserve the soundness and growth of the mortgage sector. SAMA has instructed these banks and companies not to enter into any mortgage financing contracts with individuals until these instructions are fulfilled and documented in the financing file.
According to the new instructions, SAMA has directed mortgage lenders (banks and finance companies) that, when a customer applies for a residential mortgage product, to request and review the information necessary to understand the customer’s financial circumstances and to form a clear picture of the customer’s ability to meet the obligations arising from the requested financing, thereby enabling the lender to assess the suitability of the product for the customer, The lender may not offer a mortgage financing proposal if the results of the assessment of the customer’s ability to meet obligations do not comply with the lender’s approved credit granting policies, provided that such policies are consistent with the instructions of the Saudi Arabian Monetary Authority.
The Saudi Arabian Monetary Authority (SAMA) has also emphasized that mortgage lenders must provide the customer with an explanation of the proposed mortgage product, specifically clarifying the most important terms and conditions of the financing contract to be signed and outlining the risks associated with the product, This explanation must be provided and discussed with the customer, and all of the customer’s inquiries must be answered by a responsible and qualified employee. The explanation and discussion must be in a language the customer understands and must be presented in a simple and clear manner. The lender must document the provision of this explanation, and the lender shall not submit a real estate financing offer unless it is satisfied that the customer understands the terms and conditions of the requested financing and the associated obligations.
In accordance with the new instructions, the Saudi Arabian Monetary Authority (SAMA) has required lenders, when presenting a real estate financing offer to a customer, to ensure that its validity period is no less than 15 business days from the date of delivery to the customer, and that the offer must include clear, printed copies containing all the information from all documents, in the same format and form as would be used if the mortgage contract were to be signed, and that the offer must include a number of documents, including the mortgage contract and its attachments, the mortgage offer disclosure form, and the Acknowledgment of Credit Risk for Variable-Rate Mortgage Financing form, for variable-rate mortgage financing products. The instructions also emphasize the need to document the customer’s receipt of these documents.
The lender must also allow the customer to take these documents out of the lender’s premises, and the customer must also be allowed to show them to whomever they choose to seek opinions and advice. At the same time, the instructions emphasize that the lender may not enter into any mortgage financing contract unless it provides these documents to the customer and allows them to take them from its premises.
SAMA has required banks and finance companies, well in advance of the expiration of the offer they have made to the customer, to appoint a qualified credit advisor with sufficient knowledge of retail mortgage products, to provide the customer—in person or by phone — a clear explanation of the nature of the proposed mortgage financing and the risks it entails, the terms and conditions of the contract, and the repricing mechanism (if any), and to answer all of the customer’s inquiries in this regard with complete transparency and clarity, while ensuring that the credit advisor is not the same employee who communicated with the customer prior to presenting the offer or who presented the offer to them, and that documenting the communication with the credit advisor is a fundamental requirement for finalizing the contract, Such communication must be documented via audio recording or by having the client sign a form confirming the meeting with the advisor. Furthermore, the lender may not enter into any mortgage contract unless the credit advisor has provided the required explanation to the client, answered all of the client’s inquiries, and documented this, The Authority also emphasized that there must be a waiting period of no less than five business days from the date the client receives the mortgage financing offer, to enable the client to review the offer, speak with the credit counselor, and consult with whomever they choose.
It also required the lender to urge the customer not to take any action regarding the property during the five-day period, such as making a down payment or paying a deposit, stressing that the lender is not permitted to enter into any real estate financing contract before the waiting period has expired.
The Saudi Arabian Monetary Authority (SAMA) has instructed banks and mortgage finance companies to immediately take the necessary steps to ensure full compliance with the above instructions no later than 01 / 12/1439 AH, corresponding to August 12, 2018 AD, noting that it will verify compliance with these instructions and take regulatory action against those who fail to comply.
SAMA calls on customers of banks and finance companies to always assert their rights and follow up with the bank or company regarding this matter; in the event of a lack of response, to file a complaint with the Consumer Protection Department via the “SAMA Cares” website at samacares.sa or by calling the toll-free number 8001256666.
