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Science Forum Index » Economy Forum » Your House Foreclosed? ISLAMIC FINANCE REPRESENTS A...
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| uUGLY2... |
 Posted: Tue May 13, 2008 5:45 am |
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"The mortgage industry may be in meltdown, but at least one class of
lender appears to be flourishing: Islamic finance companies that offer
Muslim home buyers alternative arrangements such as lease-to-own deals
so they can avoid making the sort of interest payments that many
believe their religion forbids."
"The drop in prices in many regions has brought homes back within
reach of first-time buyers, who make up a sizable chunk of Islamic
financiers' customers. And the drumbeat of negative publicity about
the practices of subprime mortgage lenders has amplified the distrust
and discomfort the conventional mortgage industry already inspired in
many Muslims."
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"A Higher Law for Lending"
"Business is up at Islamic finance firms, which don't charge interest
and weren't part of the mortgage debacle"
By N.C. Aizenman
Washington Post Staff Writer
Tuesday, May 13, 2008; D01
The mortgage industry may be in meltdown, but at least one class of
lender appears to be flourishing: Islamic finance companies that offer
Muslim home buyers alternative arrangements such as lease-to-own deals
so they can avoid making the sort of interest payments that many
believe their religion forbids.
Officials at Guidance Residential, a Reston company that has financed
more than 5,000 home purchases since it began in 2002, said the
company is having its best year yet, with business up 7 percent in the
first quarter of 2008 from the first quarter of 2007.
At University Islamic Financial, which began in Ann Arbor, Mich., and
expanded its operations to Maryland, Virginia and five other states
last year, officials said the number of home-financing applications
quadrupled from last March to this March.
Representatives of the four major Islamic home-finance institutions in
the United States said they do not track the reasons customers choose
them over conventional mortgage brokers. Several speculated that it
was due to the natural growth of what is still a fledgling retail
industry, as well as two side effects of the mortgage crisis: The drop
in prices in many regions has brought homes back within reach of first-
time buyers, who make up a sizable chunk of Islamic financiers'
customers. And the drumbeat of negative publicity about the practices
of subprime mortgage lenders has amplified the distrust and discomfort
the conventional mortgage industry already inspired in many Muslims.
"Folks have to be questioning the methods used by conventional
mortgage companies over the last three or four years based on what's
happening today," said Hussam A. Qutub, a spokesman for Guidance. "And
I think that makes more people think, 'Well what about the emergence
of this [Islamic-] compliant financing industry? Let me give it a look
and educate myself about it to see if it could perhaps be more
beneficial to me.' "
That was the prevailing sentiment among potential customers who
approached an advertising booth staffed by Guidance representatives at
the annual spring fair held by the All Dulles Area Muslim Society in
Sterling on a recent weekend.
Nabila Zerrarka, an Algerian-born woman wearing a white-and-green
headscarf and pushing a stroller, wanted to find out if Guidance's
home-finance options were more straightforward than those offered by
traditional mortgage brokers.
"Deep down, I don't feel comfortable paying interest because it is
against my beliefs," said Zerrarka, 29, who is searching for her first
home and has already obtained a prequalification letter for a
conventional loan from Bank of America. "But I also feel it's against
my financial interests to pay interest. . . . What we've seen is that
with interest-bearing loans, there are all these gimmicks and hidden
costs and tricks that they can surprise you with. . . . If there is a
possibility of doing it the Islamic way, we'd like to explore it."
Mounir Elhaj, 45, a native of Sudan who works at a moving company,
wanted to know how Guidance deals with customers who fall behind on
their payments. He said he recently helped move a woman whose house
was foreclosed on after she missed payments.
"She had been paying her mortgage for 17 years, and the bank still
took her house," Elhaj said to the Guidance sales representative. "So
I want to know if I bought a house and then fail to pay, can you help
me?"
The representative, Amr Mohamed, smiled magnanimously. "Yes, we can,"
he said, adding that Islamic law, known as sharia, forbids businesses
from profiting from a customer's financial hardship. So if a customer
is late on payments, Guidance charges him or her a flat administrative
fee to cover processing costs but none of the percentage-based
penalties and additional fees that conventional mortgage companies can
pile on.
Islamic home financing aims to offer Muslim buyers the same
opportunities as conventional lenders but with a twist that gets
around sharia's prohibition against the payment of riba. Generally
defined as excessive gain, riba has over the years come to be
considered the equivalent of making money by renting money -- in other
words, charging interest -- because the borrower shoulders risk while
the lender is guaranteed a return.
In one of the alternative arrangements offered by Islamic finance
companies, the company buys the house, then sells it to the home buyer
in fixed monthly installments at an agreed-upon marked-up price. The
markup rate is kept competitive with the prevailing interest rate on a
conventional mortgage. So apart from a few additional transaction
costs from the atypical nature of the arrangement, the buyer's monthly
payment is roughly equivalent to what it would be with a conventional
mortgage.
A second option is for the financier and the home buyer to enter a
lease-to-own contract similar to those used to buy cars. Once again,
the rental portion of the monthly payment is kept equivalent to
prevailing interest payments. The third model, which is favored by
Guidance, is also based on a lease-to-own arrangement, except that the
buyer and the finance company form a limited-liability entity to own
shares of the property.
All three arrangements got a major boost in 2001 when Freddie Mac
agreed to begin buying them on the secondary market, ultimately
including not just Guidance and University Islamic, but also Devon
Bank in Chicago and American Finance House Lariba of Pasadena, Calif.
Last year, Freddie Mac bought more than $250 million in Islamic home
loans -- a tiny fraction of the corporation's $1.77 trillion business
but nonetheless a slight increase over previous years, according to
spokesman Brad German.
While Islamic finance companies have convened boards of prominent
scholars to certify that their finance arrangements comply with
sharia, not all Muslim thinkers are convinced that they are necessary.
Mahmoud Amin el-Gamal, an economics professor at Rice University
specializing in Islamic finance, noted that even in Muslim countries,
sharia-based financing was developed in only the past several decades.
And he argued that because conventional mortgages are secured by a
physical good, namely the home, that is usually the only asset the
lender can repossess if the borrower fails to repay, such loans should
not be considered the equivalent of making money by renting money.
In any case, el-Gamal maintained, Islamic home-finance products are so
closely modeled on conventional mortgages as to constitute a
distinction without a difference.
"This is an industry that preys on people's religious insecurities by
selling them a product that they claim is different when it's not.
It's false advertising, and it's a case of supply creating demand," El-
Gamal said.
But Hirsi Dirir, a Somali-born technology analyst who recently
obtained financing from Lariba to buy a townhouse in Annandale, said
such objections pale in comparison with the peace of mind he has
gained from making the extra effort to adhere to his faith.
"I wish I could avoid everything that Islam doesn't allow, but I
can't," said Dirir, 32. "So if I have the opportunity and the choice
to avoid interest, then it's very important to me not to mess with
it."
Rizwan Jaka, 35, president of the All Dulles Area Muslim Society and
one of the first to buy a home with Islamic financing in the
Washington area, also said the emergence of such arrangements
constitutes an important milestone in the integration of Muslims in
the American mainstream.
"It definitely marks a coming of age for us. . . . It's part of the
whole process of being a part of this country while being able to have
our faith accommodated," he said. "The American dream is to purchase a
house, and the American Muslim dream is to be able to do so in an
Islamic manner."
http://www.washingtonpost.com/wp-dyn/content/article/2008/05/12/AR2008051202740.html |
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| Filthy Democrat... |
| Posted: Tue May 13, 2008 1:35 pm |
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Guest
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I can see all those ghetto folk lining up to secure one of these
interest-free "free" homes! |
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