Quote:Now that I'm back home (albeit with a sprained ankle and a mangled back--never agree to be the muscle in a move without knowing who your supporting cast will be) and at my computer, I can respond in a little more depth here. RJ, I picked your post to reply to almost at random. There are a handful of points I'd like to make, and one of them is something you've touched on here.

 

I don't know exactly how much of the general population would be considered high risk to mortgage lenders, and I also don't know how many of those are given loans anyway. I do know that lenders control for risk by placing more restrictive terms on applicants they consider to be high risk in terms of higher down payments, higher interest rates, even refusing to write a 30-year loan and insisting on a 15-year loan instead. My issue is simple: would someone applying for a sharia loan be given more favorable terms (by comparison) or underwritten for a loan that a conventional mortgage applicant would not get? If the answer to either of those question is yes, then I have a problem* with the practice.

 

Why the asterisk? Because if anyone and everyone is allowed to receive sharia-compliant loans, then it's not a discriminatory problem at all, and lenders are simply digging a hole for themselves that they'll have to figure a way out of on their own.

 

How should sharia loans be calculated to make it a fair, non-discriminatory practice? For me, it's simple. If a person seeking a sharia loan for a $200k property came to you, use the factors you otherwise would to determine the terms you'd offer them on a 30-year conventional mortgage. For reasons that are too long and complicated to go into here, the only fair way would be to use a conventional mortgage as your benchmark, not FHA or VA terms. If factors in their history would preclude you from offering them a conventional mortgage, they get turned away, period. If the underwriting decision is that they have to pay 25% down and a 5.75% interest rate for 30 years, then they need to produce 25% of what would have been the total principal amount ($200k, not the full loan including service fee) and make equal payments on the remaining 75% of principal and the service fee for the next 30 years. Again, if they can't meet these terms, turn them away.

 

My greatest concern with sharia loans is that they will be abused by those with poor credit or no credit. By their very nature, sharia loans would be subjected to increased scrutiny by the general public. Because the acronym of your choice will be watching them closely, you can bet that there will be cases shoved in front of the press (and the courts) alleging discrimination, collusion, whatever because sharia loan applicants with poor credit or no credit are turned away or given down payment and servicing fee amounts that are higher than what someone with average credit applying for a conventional loan would get. The acronym's argument, of course, would be that something other than creditworthiness is being used as the deciding factor. Do banks hold firm and insist that, based upon their internal policies, they will not adjust the playing field based upon the type of ball being thrown, or will they simply relent and approve or alter the terms of sharia loans to "open the door of home ownership to a broader population"?

 

Again, if sharia-compliant loans are offered to everyone, period, I don't have any particular problem with their being offered, or with the terms of the agreement being screwy compared to traditional loans. If one has to prove anything above and beyond what they'd need to prove for a conventional loan to get a sharia loan, however, then that's a serious problem for me.

 

Also, jagibelieve raised a question a while back about how to build credit history at all without paying interest. There are a few ways out there. The easiest one would be to simply get a credit card (I doubt sharia law envisioned credit cards) and set it to pay off the balance in full each month, thus avoiding credit. The other option, which is an extremely shady one, is to employ the services of a company that will open an interest-free "line of credit" for you. You pay them a set amount each month, and they report that amount as a payment on a line of credit to reporting agencies. It's not exactly conventional, not even entirely legal in some cases, but it's out there and it's not interest.