Recognizing Religion in the Mortgage Market

Posted: Mar 11, 2009 10:42 AM
This is something I've heard very little reported about in the mainstream media. Minnesota is becoming the first state to make new mortgages available to individuals based strictly on their faith. While there are a few private banks and lenders who offer this type of mortgage in the U.S., Minnesota’s state-agency-provided “Islamic mortgages” are a first - and they raise some interesting questions.

For instance:  Is faith a precondition for these mortgages?  Would any prospective homebuyer – Jewish, Christian, atheistic -- be able to take this deal if she wanted to?  And, do these homebuyers qualify for the home mortgage interest deduction – that is, until President Obama takes it away as recommended in his budget?

According to reporting by the Minnesota Public Radio, essentially, the way the program works is that the state buys a home and resells it to the buyer at a higher up-front price.  The borrower supposedly pays the same amount as everyone else in the end but without “paying interest,” which is against Islamic law. According to MPR,  Islamic law makes exceptions to the ban on interest "if one's family is at stake," but many faithful worshipers of Islam would rather stay clear.

Give the story a read for yourself. I applaud private lenders for filling this niche in the market – such innovation is what makes a capitalist economy strong, but when government takes the reins and taxpayers assume the costs, we should answer all the questions first.