Of Note:Home Ownership the Islamic Way: Sharia-Compliant Mortgages in the United States Jennifer Murray With as many as 130,000 homeowners facing foreclosure each month in the United States, homeowners with adjustable-rate mortgages worry about making mortgage payments as adjustable rates climb.1 While these adjustable rates understandably cause homeowners sleepless nights, at least most homeowners do not consider their mortgages a sin. For many Muslim would-be homeowners, however, neither a fixed nor an adjustable-rate mortgage is acceptable. Quranic prohibitions against interest (riba)2 and uncertainty (gharar)3 render mortgages available in the United States to be considered forbidden under Islam by many U.S. Muslims.4 Increasingly, U.S. commercial lending institutions are responding to the growing market among Muslims for Sharia-compliant mortgages that satisfy Quranic prohibitions against interest and uncertainty. Pioneer institutions such as LaRiba in California, Guidance Financial Group in Virginia, Devon Bank in Chicago, and University Bank in Ann Arbor, Michigan offer Sharia-compliant mortgages in a majority of U.S. states. Lenders create Sharia-compliant mortgages through several financing mechanisms. Under murabaha financing,5 a lender buys a home on behalf of the homebuyer and sells it to the homebuyer at cost plus a pre-defined profit. The pre-determined profit margin for the lender eliminates interest charges, while a fixed schedule of payments eliminates uncertainty in the contract. Devon Bank claims its murabaha financing allows homeowners to make payments identical to those under a fixed rate mortgage.6 Ijarah-wal-iqtina7 financing is similar to a rent-to-own program in which a lender purchases a home on behalf of a homebuyer, who then buys the property at cost over time while simultaneously paying rent, earning sole ownership of the property upon full payment. Devon Bank likens this arrangement to an adjustable-rate mortgage.8 Musharakah9 financing is another rent-to-own program, but the lender and homebuyer are co-owners of the property. The homebuyer pays rent and part of the principal, with the lender's share in the property diminishing [End Page 93] with every payment made by the homebuyer. Musharakah's co-ownership model also includes profit and loss sharing in the case of the sale of the property.10 Institutions offering these financing instruments must secure sanctioning from Muslim scholars, most often from the Sharia Supervisory Board of America or from prominent scholars such as Sheikh Yusuf Qaradawi and Sheikh Muhammad Taqi Usmani. These new 'Islamic mortgages' expand Muslim home ownership which has lagged behind overall home ownership rates; even in states like Michigan, where the Muslim population has steadily increased over the last ten years, Muslim home ownership rates are as much as seven percent lower than the state average.11 The ability of LaRiba and Devon Bank to partner with the government sponsored enterprise Freddie Mac12 expands the liquidity of these institutions, allowing them to offer more mortgages and increase the possibilities of home ownership for U.S. Muslims. For many Muslims who continued to lease despite their desire to become homeowners, who were forced to save hundreds of thousands of dollars to pay for a home in cash, or who simply swallowed their feelings of guilt and took a regular mortgage,13 these methods of Islamic financing provide a viable, guilt-free alternative to standard mortgages. That sense of peace ensures the market for these mortgages will continue to increase, even as other homeowners suffer sleepless nights. Notes Marks, Alexandra, and Ron Scherer. "As US Foreclosures Mount, States Step In." Christian Science Monitor, April 5, 2007, USA section, page 1. For Quranic passages on riba, see 2:278, 2:275, 2:276, 3:130, 4:161, and 30:039. For Quranic passages on gharar, see 2:219, 5:90. For several examples of Hadith concerning gharar, see Vogel, Frank E., and Samuel L. Hayes, III. Islamic Law and Finance: Religion, Risk, and Return. Edited by Mark S.W. Hoyle. The Hague: Kluwer Law International, 1998. Healy, Patrick O'Gilfoil. "For Muslims, Loans for the Conscience." New York Times, August 7, 2005, section 11, page 1. Murabaha is "resale with specification of gain." Wehr, Hans. The Hans Wehr Dictionary...
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