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Purists' Reservations
Daoud Hawa, center, talks with Ahmad Ashkar, left, as Daoud Hawa hosts a dinner party to break Ramadan fast with some Muslim friends at his home in Herndon, Va. Daoud Hawa, a real estate agent, used an Islamic loan to buy a townhouse in Fairfax and then a conventional one to buy a single family home in Herndon. Now he's trying to refinance his Herndon house with an Islamic loan.
(Jahi Chikwendiu -- The Washington Post)
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"It's no different than going to the eye doctor for a toothache because I trust the eye doctor," said Dawer, who joined Guidance from Morgan Stanley, where he was a senior vice president. "We're aware that our number one challenge today is educating the community about how our Islamic mortgage works because Islamic financing is still very new to this country."
Even though Islam has been around since the 7th century, colonialism wiped out the practice of Islamic finance and trade for 300 years, several experts on the topic said. The concept reemerged in the post-colonial era, starting with the creation of Islamic banks in Egypt in the 1960s and focusing mostly on high-worth institutional investors.
Estimates on the size of the Islamic finance industry vary from $500 billion to $750 billion worldwide. A report by the International Organization of Securities Commissions found that there were more than 265 Islamic banks in at least 39 countries outside the United States as of two years ago.
In this country, that type of financing has trickled down to the retail level with the advent of Islamic mortgages, which gained more acceptance when the Office of the Comptroller of the Currency in the late 1990s issued some rulings that made them easier to integrate into the U.S. regulatory framework.
Then mortgage giant Freddie Mac entered the Islamic market in 2001 followed by Fannie Mae in 2003, creating more liquidity for this type of financing. Fannie Mae does not disclose how much business it does with Islamic firms, except to say it works only with American Finance House Lariba in Pasadena, Calif., which operates in 29 states. Freddie Mac bought more than $100 million in Islamic single-family mortgages last year, a tiny fraction of the $382 billion in purchases it made that year. It has worked with American Finance as well as Guidance Financial, Devon Bank in Chicago and University Bank in Ann Arbor, Mich.
"We were able to do that because the contracts were written on standard real estate documentation," said Brad German, a Freddie Mac spokesman. "So we felt legally protected if there was a default or foreclosure."
The maximum size of any single-family mortgage Fannie Mae and Freddie Mac can buy in most parts of the country is currently $417,000, based on a government formula. As with the broader mortgage market, Islamic firms that work with other investors can offer more money than that, as Guidance does.
The Reston company, a subsidiary of the global privately owned investment firm Capital Guidance, said it can now finance a transaction of up to $1.25 million, far more than the $360,000 it offered Hawa three years ago.
That means Hawa believes he can now make a pilgrimage to Mecca with a clear conscience.
"One of the criteria is to be debt-free when you go," Hawa said. "If I can refinance the Islamic way, I will be debt-free."
Staff writer S. Mitra Kalita contributed to this report
