Seattle Moves To Make Available “Sharia Mortgages” To Conform Mortgages To Islamic Law

262px-Flag_of_Seattle.svgIn a controversial move, Seattle is pushing to establish new financing packages that conform with Sharia law to allow greater homeownership among Muslims. Islam prohibits the payment of interest and some Muslims are therefore unable to buy homes under standard mortgage agreements. The most for more inclusive options has led to a backlash by critics who charge that it could be a new avenue for terrorist financing or constitute special treatment for one religion.

This is not the first time that this controversy has arisen. In 2008, Rep. Frank Wolf, R-Va., and then-Rep. Sue Myrick, R-N.C., sent AIG then-Chairman Edward Liddy a letter condemning the company’s move to offer Sharia-compliant insurance programs:

“You may defend your decision to offer Sharia products and will probably state that they have no real ties to Sharia law, and therefore pose no threat. You are wrong. Like Britain, the way to America’s legal code is through its wallet, and if Sharia law gains a strong footing in the United States, it will be through Sharia finance and Sharia products.”

There was even a lawsuit brought by The Thomas More Law Center against then-Treasury Secretary Henry Paulson and the Federal Reserve in 2008 over AIG’s actions. It was an extremely weak lawsuit that predictably failed.

I fail to see the serious threat of terrorist financing or operations due to the availability of Sharia-compliant mortgages. Indeed, I am surprised that the market did not already move to accommodate such demands from customers. Likewise, I would expect to see different types of packages offered as an accommodation for different religious values.

What I find fascinating is the rather artificial way of avoiding the Sharia prohibition that seems entirely acceptable by the Islamic community. All the banks do is take the interest and add that figure to the cost of the loan as “profit.” Thus the bank holds the property until payment of an agreed-upon price that includes “profit.” The sale price is made in installments with the monthly rate set . . . you guessed it . . . on the projected interest rates. Despite the transparent use of interest under another name, that seems to satisfy Sharia law.

As always, my inclination is to leave such matters to the market. So long as there is no discrimination or favoritism given on rates or “profits”, I fail to see the basis for governmental intervention to stop it.

What do you think?

111 thoughts on “Seattle Moves To Make Available “Sharia Mortgages” To Conform Mortgages To Islamic Law”

  1. As I stated before, if there is no prohibition against PAYING interest, as opposed to RECEIVING or DEMANDING it, this whole issue is moot.

  2. DBQ:

    I suspect the details include a similar word game granting a non-interest discount for early payments. The whole thing seems clearly cosmetic.

  3. Then again–anything run by any kind of bank–it’s not for charity. Debt IS slavery. I’m sure there will never be a populist mortgage that is completely innocent in intent/effect. Like hedge funds betting that loans would fail, there’s always an angle. There’s never a situation that isn’t about drift-netting up the resources of borrowers (ha–unless you’re the bank itself borrowing $ at zero % or so.)

    By the way–the DARK act–hope that doesn’t pass. Our cartels are oil and gas, pharmaceutical, food and water, and a few more. This is one. Call your representatives–I did.

  4. Of course they won’t end up redlining borrowers or blockbusting communities, right?

    Camels nose under the tent?

  5. Dust Bunny Queen refusing to give sharia-compliant loans to non-Muslims would be a clear breach of the civil rights act. Another wild-eyed objection bites the dust.

    Tony Sidaway.

    You are obviously unable to understand finance OR math. My examples show that Sharia Law loans are a crock and terrible for those who DO understand finance and have some capacity to budget their money.

    I would be upset if I were forced to accept a Sharia compliant loan. It is an actuarial trick on the borrower because it eliminates (IF I understand it correctly) the ability to reduce the total payout of a loan by paying down principle faster and eliminating the costs of interest.

    The DISPARATE OUTCOME effect would be if the Banks do not put the entire amount of imputed interest into the principle of the loan based on the term of the loan.

    I would try to explain it to you like you were a 5 year old, but I don’t think you have reached that level of cognition.

  6. If this is what it takes to avoid paying 375 k over time on a 70k loan, and being at the mercy of the cabal who sets interest rates, sign me up for Islam. The money-lenders got kicked out of the temple but “Christian” bankers forgot about that long ago.

    1. Jack – I think you will notice the lack of money changers on the steps of Christian churches. They have not forgotten.

  7. bam bam if your friend po wants to nutbagsplain to umpteen million Muslims that they’re doing their religion all wrong, then I wish them the best of luck.

  8. Ooops….Eliminate the line that says Total interest over life of loan = $179,673.77 in the example of Bi monthly payments ……. Interest paid = $151,625.62 is the correct figure for that example.

    I accidentally copied and pasted the figure from the first example..

    Anyway. Go play with the calculator It is cool.

  9. Dust Bunny Queen refusing to give sharia-compliant loans to non-Muslims would be a clear breach of the civil rights act. Another wild-eyed objection bites the dust.

  10. I’m quite sure that po will weigh in on this, but I always thought that it was against Islamic law to RECEIVE interest on money, where a Muslim could not ACCEPT or DEMAND the payment of interest. If that is the case, then the PAYMENT of interest, to another party–a non-Muslim owned bank, for example–would be in compliance with Islamic law.

  11. Rick yeah I think you’ve nailed down exactly why so many people are running around as if the sky had fallen. They equate the availability of choice in the finance market with its opposite. A mayor is trying to make it easier for people to get loans, but somehow the extreme right has translated it into “they’re trying to make us all comply with Sharia law.” This is a case where basic education in civics would help. The chance of Seattle’s mayor wanting to outlaw the charging of interest on home loans is zero, it just isn’t necessary and it would get everybody righteously angry.

  12. Also….because this point needs to be made separately…..

    IF the banks are giving a lesser amount for imputed interest to the Sharia Loans than would be charged to the normal loans when paid out over the full term of the loan…..then there would be a very good case for DISPARATE treatment and DISPARATE OUTCOME, based on religion.

    Discrimination against the non Muslims. We know how the Supreme Court feels about that. Don’t we.

    Just sayin’

  13. I think that on an actuarial basis a Sharia Law mortgage is a trick on the stupid Muslims and a big profit for the banks.

    If you take a 30 year mortgage and add in the projected accumulated interest into the entire payment it would look like this: (if you use this calculator remove the property tax and PMI figures)

    Mortgage = $250,000
    Interest rate = 4%
    Total interest over life of loan = $179,673.77
    Total amount of loan+ interest = $429,673.77
    Monthly payment = $1,193.54

    Now then…when you make a payment on an installment loan each month more goes to principle and less to interest. This is because, behind the scenes the loan interest is calculated on the remaining principle balance, [by days and each time a payment is made….trust me….I used to have to hand calculate these installment loans way back when we didn’t have computers to think for us], which reduces each month and reduces drastically as time goes on.

    If I understand it correctly, (if not then let me know) the Sharia loan would just ADD onto the principle the total amount of the interest that would be paid. SO…..that even if you decide to pay more on your monthly mortgage or make principle reductions the total amount of the loan or amount would be the same either way since the interest is now considered principle instead of principle and estimated interest. 429.673.77 / 360 = $1,196.54…..same amount monthly.

    In our current system IF you decided to pay more monthly or make principle reductions or pay more often than just a month, you would be saving a great deal on the total amount you would pay. At the same website you can see that just paying twice a month the same amount of money as a once monthly payment you save a bunch and pay off your mortgage earlier.

    Mortgage = $250,000
    Interest rate = 4%
    Total interest over life of loan = $179,673.77
    Bi monthly payment =$596.77
    Interest paid = $151,625.62

    Amount SAVED = $28,048.15

    You don’t get to save that if the Sharia loan adds the interest into the entire payment and it doesn’t reduce over time.

    What if you pay extra every month. In the Sharia loan you will pay off earlier. In the nasty American loan you will not only pay off earlier but also save a ton of money. Let’s say you pay an extra $200 a month $1393.54 instead of the $1193.54 you will save $48,059.94 in interest paid. SAVED.

    The bank loses $48,059.94. You WIN!. In the Sharia loan. you can pay off early but you don’t save anything because it is all principle.

  14. The time to object would be if the government mandates all contracts conform to Muslim requirements, which they could justify under disparate impact theory. I’d also personally criticize any company switching all contracts to this format [perhaps believing one contract meeting all needs is easier to manage] on the grounds that it is confusing to non-sharia knowledgeable customers.

    Just another point of reference that disparate impact theory is bunk.

  15. wonderer that’s an interesting question. I suspect they simply adjust the principle of the loan upwards to cover any increased tax liability.

  16. Is this really any more of an issue than having Kosher or Halal foods in grocery stores? Seriously, if you take the word “Sharia” out of the product name, all they’re doing is packaging/presenting the same loan a little differently and marketing to a population that is interested. Any of the posters on this board could take out the same type of loan.

    What I don’t see presented in the original post is whether or not the “profit” component can be deducted from income taxes. That might require a change in the Internal Revenue Code, which I would have more of a problem with.

  17. I can buy a set of tires on “90-days, same as cash” terms. Certain stores will furnish my entire house with multi-year, interest-free financing.

    This is a controversy in search of an issue.

  18. I. Annie you realise nobody is proposing any change in the law, right? Seattle’s leadership is just trying to encourage some of the city’s richest people, who have not entered the property market purely because of their religious objections to most forms of finance available to them. No bending of the constitution, no religious accommodation, just a strategic attempt to open up new markets.

  19. Exactly Annie. It seems the same people who defend Christian’s right to discriminate under the guise of religious rights refuse to accept the rights of Muslims.

  20. Paul C Schulte, actually it was Pope Benedict in 2009 who excoriated the flaws of market capitalism and under whom the Vatican recommended Islamic finance methods. But this condemnation of usury has long been Catholic doctrine, right back to before the reformation.

    1. Tony Sidaway – do you blame Pope Benedict instead of Pope Francis? If you are going to blame the current pope you say the Pope did it. If you blame it on an earlier Pope, then you name the Pope. When a new Pope enters the office, there are changes.

Comments are closed.