Mortgages tailored to Islamic home buyers in USA

University Islamic Financial Corporation
Bank of Whittier
Guidance Residential
American Finance House Lariba
Devon Bank

A customer showed up at little Devon Bank on Chicago’s North Side, asking for a loan to open a neighbourhood shop. But there was a hitch, the would-be borrower explained: « We can’t pay any interest. Can you help? » At the time, seven years ago, the answer was: « Nope, » recalls David Loundy, Devon’s vice president and legal counsel.

That was then. Since fielding that first request, Devon Bank has transformed itself into a specialist in the kind of no-interest Islamic financing the customer was seeking. Islamic financing now accounts for more than 75% of the bank’s mortgage portfolio, and Devon has made mortgages compliant with Islam’s sharia law in 36 U.S. states, Loundy says.

Devon Bank, responding to local customers in a neighbourhood filled with Pakistani and Middle Eastern immigrants, stumbled onto something big: Islamic finance is booming worldwide, fuelled by the windfall from sky-high oil prices and a return to a more strict interpretation of the holy Quran across the Islamic world. Once Devon Bank introduced sharia-compliant mortgages and other loans, « People started coming out of the woodwork, » Loundy says.

In a report last month, credit-rating agency Moody’s Investors Service said that the global Islamic finance market has grown about 15% in each of the past three years and is now worth about $700 billion worldwide. The heavyweights of global finance have taken notice: Citigroup, HSBC, Deutsche Bank and others have affiliates devoted to Islamic finance.

Giant mortgage investor Freddie Mac began buying sharia-compliant mortgages in 2001. Freddie Mac today continues to buy from four banks that together originate mortgages nationwide. In addition to Devon, Freddie Mac buys mortgages from Guidance Residential in Reston, Va.; University Bank in Ann Arbor, Mich.; and American Finance House Lariba in Pasadena, Calif.

Freddie Mac spokesman Brad German says the company bought more than $250 million in Islamic mortgages in 2007, but volume is slipping as the housing market declines. The mortgages are « a steady, if modest, niche, » German says.

An Islamic mortgage looks like a lease-to-own deal. The bank, not the borrower, buys the house. The borrower makes instalment payments to the bank for a period of years, at the end of which he or she gets the title to the house. The bank’s profit technically comes from renting the house, not lending the money. Loundy notes that Islamic mortgages are more costly than traditional mortgages because they involve paperwork for two home sales: the first by the bank, the second by the borrower after the instalment payments are finished.

By Paul Wiseman, USA Today

University Islamic Financial Corporation (UIFC)

UIFC, currently with over $35 million in assets, has the largest balance sheet of any retail Islamic banking enterprise in the U.S. and holds both Islamic financings and Islamic deposits offering the Islamic community the opportunity to support a virtuous cycle of investment in compliance with the Sharia’a. UIFC offers the only Islamic Sharia’a FDIC-insured Deposits (offered through University Bank) and originates Islamic Sharia’a home financings as agent for University Bank. UIFC’s products have received favorable legal rulings (fatawa) from some of the leading Islamic legal scholars in the U.S. and the world. University Bank also has a master commitment with one of the Government Sponsored Enterprises to create a secondary market for UIFC’s Sharia’a compliant home financings nationwide.

Ann Arbor-based University Bancorp owns 100% of University Bank whose subsidiaries service a total of over $4.4 billion in financings. University Bank is an FDIC-insured, locally owned and managed community bank, and is the only financial institution headquartered in Washtenaw County rated « Outstanding » by the FDIC for Community Service and Community Reinvestment. University Bank also engages in Islamic Banking through 80%-owned University Islamic Financial Corporation, the first and only Islamic Banking subsidiary of a bank in the U.S. University Islamic Financial offers home mortgage alternative financing, the only FDIC-insured Islamic deposits (offered through University Bank) and Islamic equity mutual funds (offered through University Insurance & Investments). University Bank also specializes in mortgage subservicing and mortgage origination primarily serving over 250 credit unions (representing 2.6% of all credit unions in the U.S.) through its Houghton-based 80%-owned subsidiary, Midwest Loan Services, Inc. In 2007, University Bank was selected as the « Community Bankers of the Year » by U.S. Banker magazine.

Stephen Lange Ranzini, President and Chairman of Ann Arbor’s University Bank®
Source: University Bank

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