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Freddie Mac To Invest In Islamic Mortgages
WASHINGTON, April 3 (IslamOnline & News Agencies) - In a move that will make the buying of homes by American Muslims much easier, mortgage investing giant Freddie Mac has announced that it will be investing $1 million in contracts from the American Finance House - LARIBA.
The Pasadena, California, based LARIBA, which has acquired the status of being the first Islamic financial institution to achieve Freddie Mac Seller/Servicer status, developed a home finance model for Muslim families who are barred by Islamic law to pay interest on mortgages or other kinds of debts.
"Today's announcement is a milestone. It shows how Freddie Mac and its lender partners continue to explore new ways to help diverse communities, like the American-Muslim community, take advantage of homeownership opportunities in America," said Saber Salam, vice president of customer strategies and offerings at Freddie Mac.
"By supporting Islamic model mortgages, Freddie Mac is realizing its mission to foster homeownership opportunities in new and exciting ways," Salam said.
Previously, a small number of independent Islamic financial institutions designed mortgages to permit Muslims to bypass the interest payments attached to conventional home financing. But the activities of these few institutions have been hampered due to their limited access to capital.
Freddie Mac's decision to purchase Islamic mortgages changes that. Freddie Mac, a quasi-government corporation that buys and sells mortgages on the secondary market, currently provides financing for about one in six home sales in the nation.
Yahia Abdul-Rahman, author and expert on Islamic banking and finance who founded LARIBA in 1987 said, "Today's news is historic. Many American-Muslim families have stayed out of the housing market for years because they are not allowed by Islamic jurisprudence to pay, receive or be charged interest."
"Working with Freddie Mac will provide American Finance House - LARIBA with much needed liquidity to meet the growing demand for Islamic home financing in the American-Muslim community.
"This also will provide, in the near future, members of the community, who want to invest their savings according to Islamic law, with proper Islamically- sanctioned investment instruments."
The LARIBA model allows the prospective homeowner to establish a jointly negotiated maximum monthly payment based on the property's sale and rental value.
Islamic home financing through LARIBA is currently offered in 15 states: Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, Oregon, Texas, Virginia and Washington. Availability is pending in six more states: Alabama, Connecticut, Nevada, North Carolina, Pennsylvania, and Ohio.
Abdul-Rahman says that Freddie Mac investment has allowed LARIBA to increase its home loans, which previously averaged about two per month, to 10 in a week. Required down payments have also been slashed to 20% and maximum repayment periods tripled to 30 years.
Freddie Mac's Salam says that Islamic mortgages could churn out as many as 50,000 home loans totaling $5 billion over 5 years.
Apart from LARIBA, Freddie Mac is also working with other lenders to cater to the home financing needs of 7 million American Muslims. The company plans to eventually pool the loans and sell them to investors and mortgage-backed securities, especially those belonging to Islamic nations.
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