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Monday, March 9, 2009

Minnesota Offers Islamic Mortgages -- Roadmap for More Stable Housing Market?

A reader eager for conversation directs my attention toward Minnesota, where our progressive neighbors are helping faithful Muslims become homeowners. Minnesota Public Radio reported March 1 on Minnesota's "New Markets Mortgage Program."

Apparently Muslims who take their faith seriously consider paying or charging interest a sin. (Hmm... didn't Christians have a rule like that once upon a time?) That piety makes it kind of tough to buy a house. Realtors® like PP will tell you owning a house is good for the whole neighborhood.

So Minnesota is piloting a new program that helps Muslims get houses without paying "interest." The "Murabaha Agreement" actually sounds like just a word game: the state charges a higher upfront price and works out payments that equal what you and I would pay if we bought at the regular market price and then paid principal and interest over 30 years. but that extra money isn't "interest"; it's "profit." (Financial experts in the audience, feel free to clarify!)

So no welfare, no handouts, just play a word game, increase home ownership, benefit the community. In the middle of a recession, when everybody is desperate to reverse the housing collapse, is there a downside to a program that puts more people in houses?

This program could provoke some fundagelical readers to rediscover the value of the separation of church and state. Minnesota is essentially accommodating Shari'a law, the principles of a specific religious group. If this program favored Muslims, it would deserve a stern boot from the judiciary.

But as far as I can tell, there is no establishment of religion in the New Markets Mortgage Program. The Minnesota Housing website doesn't indicate that the program excludes non-Muslims (come on, Minnesota wouldn't be that stupid, would they?). Minnesota's not even offering a special advantage to Muslims; the state is essentially making available to Muslims a portion of the market that the rest of us carefree usurers already enjoy.

One might make a slightly firmer argument that Minnesota's NMMP violates free-market principles, but that feels thin, too. If the final sale price is equal to the principal and interest of a traditional loan, a Murabaha agreement doesn't skew the market. There's no subsidy of unfair competition. Private sellers are free to jump into the market and try cashing in on this demographic.

Promoting Muslim home ownership might even be good for the economy, immediately and in the long run:

Chicago-based Devon Bank is underwriting the loans for the New Markets program. Devon is one of the largest Islamic lenders in the country. Corporate Counsel David Loundy says he expects the demand for Islamic financing to grow as more Muslims make their home in the U.S. Loundy says Muslims tend to be good risks.

"If they worked so hard to get to this country, they don't want to screw it up now that they are here, so they tend to pay their debts pretty promptly," said Loundy. "In addition, you have a population that is religiously and culturally predisposed against having debt, so they want to pay down their debts as quickly as they can."

The numbers back this up. In its five and a half years offering Islamic lending, Loundy says Devon Bank hasn't lost a penny, though he admits the recession could make that record difficult to sustain as more borrowers face job loss.

But the bad economy is also offering opportunity. With housing prices at rock bottom, officials say the timing couldn't be better to match first time Muslim buyers with foreclosures that need new owners [Jessica Mador, "New Islamic Mortgages Now Available in Minnesota," Minnesota Public Radio, 2009.03.01].

Let's see... A group of hard-working buyers morally opposed to debt. No defaults in five-plus years. Owners eager to occupy foreclosed properties and prevent neighborhoods from falling into abandon. Sounds like America could use a whole lot more Muslim homebuyers!


  1. Cory - here's the pitfall for banks doing it -

    The Fair Housing Act makes it illegal to advertise any preference, limitation or discrimination based on race, color, religion, sex, national origin, source of income, familial status, or an intention to make any such preference, limitation or discrimination.

    For Equal lending, they come into play when a bank, directly or through third parties, engages in any form of advertising of any loan for the purpose of:
    purchasing, constructing, improving, repairing, or maintaining a dwelling or any loan secured by a dwelling.

    The ads must, in a manner appropriate to the advertising medium and format utilized, indicate that the bank makes such loans without regard to race, color, religion, national origin, sex, handicap, or familial status.

    Can't advertise preferences or discrimination - In other words, it's a fine if not impossible balancing act for lenders to do directly.

  2. I'm not a genius, but if you start out with a loan that includes all 30 years of interest, fees, profit, won't you be excessively upside down in your mortgage? If they decide to sell their home and move to another home, how do they determine the payoff? This really sounds like more of the same creative financing we're paying a price for today, only catering to a specific religion. Does their religion say anything about deceit because calling that 30 years of interest "profit" is nothing more than an Islamic smoke screen. When you live here, you should play by the same rules as every other US citizen.

  3. Thanks for the Realtor® perspective, PP! I wondered, too, if a special program just for Mulsims could pass regulatory muster. I thus have to assume that if an atheist like me walked into Minnesota Housing and applied for the NMMP, I could get a Murabaha agreement, too. If not, pow—illegal discrimination.

    Anon, I agree with you, too, that this sounds like a smokescreen, a convenient way to make religion fit market realities. But I'm not sure I see financial danger. The same amount of money is still changing hands—is there anyone negative financial impact?

  4. Wouldn't a true "Islamic mortgage" involve no interest or profit for the lender in any form?


    House price = 200,000

    Buyer pays 40,000 up front

    Then buyer pays 160,000 in equal installments for the period of the loan

    Someone please correct me if I'm wrong ...

  5. Sorry if I don't appreciate the wonderfulness of all this. If Muslims want to live in the US, then live by our rules. If not, go back to a Muslim country. Simple. This is all semantics, a play on words. i.e., I didn't rob that store; I simply transferred money from him to me. This is ridiculous.

    Next Muslims will be demanding their own courts and laws, oops, they already do in some countries in Europe. That's coming here, slow but sure. This is a prime example.

    I would lobe to see this challenged in the courts, before Obama has a chance to load them with lefty leaning libs who don't plan to follow our Constitution.

  6. Anon 3:46: what rules aren't the Muslims in this situation following? I wonder if these Murabaha agreements might not actually be a disadvantage: for instance, if those payments are called profit instead of interest, the buyer can't deduct the mortage payment from his taxes, can he?

    But I'm still not sure about that, and I welcome further comment: are these loans special treatment? a mingling of church and state? a cheesy dodging of strict adherence to the Koran? or just a good way to increase home ownership where the buyers and their neighbors (i.e. us!) wins?

  7. Let's say a Lutheran church dogma stated no interest and therefore the state would change the mortgage rules for the Lutheran religion. Can you imagine the uproar there would be from all those who want complete separation of church and state, and from the ACLU. But evidently no uproar here. It is mixing state and church, no way around it, except that it involves Muslims instead of Christians.

  8. Actually, strict Christian dogma says "no interest." Christians just capitulated to commercialism long ago. ;-)

    Sorry, Anon 6:14, my question remains: what rules are being changed? I haven't seen any evidence that non-Muslims can't apply for these mortgages. More importantly, I wonder if anyone other than Muslims or other folks with deep moral opposition to "interest" would even want to sign up for one. Can anyone show me any special financial advantage provided by this program?

  9. Maybe the Muslims, since they don't object to profit, will keep their home just long enough to make a sizeable profit, sell the home and send the money back to their home country where weapons can be purchased and used against us in the future. If we're going to bend to Islamic Law with modified mortgages, we're already doomed.

  10. I could sell my nice little lake house for a nice house and buy ingredients for meth for chemical weapons with the profit; should SDHDA have denied me a first-time homebuyers' mortgage? I'm hearing anti-Muslim sentiment, but I'm still not hearing the explanation of the unfair advantage or constitutional violation inherent in the program. Anyone?

  11. I don't think people are anti-Muslim, but I do think there is reasonable fear of Islamic extremists infiltrating our economic system and wanting our economy to bend to serve their individual religious needs. That is the conflict. Any time government makes exceptions for specific religions, we're heading down a slippery slope. Maybe we should ban pork or simply not offer beef on Fridays by government mandate. I realize this Islamic Mortgage is available to anyone, but it is specifically designed for Islamics. Muslims are not bad, but Islamic extremists are bad for this country.

  12. The problem is the slippery slope. Footbaths in colleges. Mortages for Muslims. I don't care if you claim anyone can apply; this is for Muslims and they are still paying interest, just semantics in how it's shown in the contract. If they truly don't want to pay interest, then save and buy the house with cash! This is ridiculous. Ask some of hte European countries how Muslim beliefs and law are slowly being insinuated into their countries. Example is that the Dutch filmmaker was banned from even entering Britain recently, but a Muslim extremist was welcomed. And look at the way Muslims, 9/11, etc are portrayed in our history books in school. People who complain of the unrealistic portrayal are painted as racists.

    Anyone is welcome in our nation. But it is OUR nation, OUR laws, etc. If they don't like them or refuse to abide by them, then stay in a country where they are more comfortable and that recognizes their laws etc.

  13. Anon 7:11: Oh no, trust me: we're up to our eyeballs in anti-Muslim sentiment. And I don't think the homebuyer in the original MPR report is an Islamic extremist.

    Slippery slope: no one is getting a free ride here. As far as I can tell, the deal is worse financially (no tax break for interest) than a regular mortgage. There's no law being changed or rule being bent. Banks are simply creating an additional financial product. I still don't see any mandates or any infringements on non-Muslim rights. I agree it's a rather cheesy word game, but no one has convinced me of the harm.

  14. I'm not in the least bit afraid that this program will increase Islamic terrorism against the US.

    Other than allowing a buyer to slip through some loophole in religious law the only benefit that I can see is to the lender and the government.

    With a traditional mortgage if the borrower decides to sell before the end of the mortgage they only pay off the principle portion because the interest hasn't accrued yet. With the "Islamic mortgage" everything is principle so to pay off early the borrower pays all the principle plus all the interest that would have been accrued had they continued to own the property. Score one for the banks.

    Cory is right that with the "Islamic mortgage" since there is no interest charged then there is no home mortgage interest deduction. Score one for the government.

  15. principal

    Go back to 6th grade Nick.

  16. Before everyone gets all comfy cozy with this policy created for a "specific" socio/religious group I suggest they familiarize themselves with Shari'a Law and how it is "implemented" in Islamic countries. Islam is not just a religion, it is an all encompassing social system. Monkeying with our legal system because of someone's perception of "Sin" is a slippery slope indeed. As soon as the words state and religion are involved we should all have our antennas up. Also "no establishment of religion" and "separation of church and state" are bandied about as if they mean the same thing. God is mentioned and it is assumed that we are all talking about the same God. This is America, we have American Law. We have a Constitution. This isn't about welfare, or neighborhoods, or God, it's about upholding the validity our existing law, which is being challenged. A law that is already for everyone, Muslim, Jew, Christian, Atheist, Wiccan, Hindu, Buddhist, Agnostic, follower of the Spaghetti Monster or whatever. I do not want to live under Shari'a Law or have my personal, legal, social, or property rights in anyway effected by it. If you cannot live under American Law maybe you need to move. Americans do need to pay attention to what is happening in Europe with regard to the negative aspects of socio/religious fundamentalism because it can happen here.


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