Mortgage Grapevine

New finance program for Muslims in Michigan

Freddie Mac announces my client's new program, and NMN does not carry it. How did they miss it???? This is the Freddie Mac press release:

FOR IMMEDIATE RELEASE
AUGUST 10, 2001
CONTACTS:
Mary Fowlie, Standard Federal Bank, 248-637-2534
Scott Elia, United Mortgage, 248 489-8008
Brad German, Freddie Mac, 703-903-2437


FREDDIE MAC, STANDARD FEDERAL BANK ANNOUNCE NEW ISLAMIC
HOME FINANCING INITIATIVE FOR MICHIGAN FAMILIES
Freddie Mac’s Summer of Homeownership To Help More Observant Muslims
McLean, VA – Freddie Mac announced today a new initiative designed to help Muslims living in Michigan become homeowners while observing traditional Islamic restrictions on paying interest on mortgages and other types of debt. Developed with Standard Federal Bank and Detroit-based United Mortgage of America, the new initiative enables prospective homeowners to enter into long-term lease-purchase arrangements that permit them to later sell the house and profit from any home price appreciation.

Freddie Mac has agreed to invest an estimated $10 million in the purchase of these new lease-purchase mortgages as part of its Summer of Homeownership campaign. Freddie Mac’s “Summer of Homeownership” is a concentrated effort to pioneer new products, initiatives, and technology that will help expand homeownership opportunities to an additional 250,000 to 400,000 prospective homeowners a year.
“Today’s announcement again demonstrates Freddie Mac’s commitment to help America’s newest communities realize the traditional benefits of the American dream of homeownership,” said Saber Salam, vice president of customer strategies and offerings at Freddie Mac. “By working together with United Mortgage and Standard Federal, Freddie Mac is realizing its promise to foster homeownership opportunities in new and exciting ways.”
Under the initiative, prospective homeowners will work with United Mortgage, which will create a limited liability company (LLC) to purchase homes on behalf of the family. The LLC will
purchase the property through a conventional 30-year fixed rate mortgage from Standard Federal Bank. Freddie Mac has agreed to purchase the mortgage.
The prospective homeowner is required to put down 20 percent of the home purchase price and enter into a 10-year lease with an option to buy with the LLC. The prospective homeowner’s monthly rental payments will cover the LLC’s mortgage, tax and insurance payments on the property.
The homeowner may buy the home during the lease term. At the end of the 10-year lease term, the homeowner may extend the lease and purchase option for an additional seven years. The lease allows the prospective homeowner to benefit from price appreciation at any time by exercising the purchase option and then selling the property to a new homebuyer.
“Working with Freddie Mac will enable Standard Federal Bank to serve the growing demand for home financing among Michigan’s observant Muslims,” said Mary M. Fowlie, Group Senior Vice President, Standard Federal Bank. “Today’s announcement underscores our commitment to provide our customers with the opportunity to become homeowners.”
According to Scott Elia of United Mortgage, members of the Michigan Muslim community have been asking for the opportunity to finance homeownership while maintaining their religious convictions. “We have been carefully developing a residential lease and purchase option program and have consulted with the respected scholar, Dr. Muhammad Imran Usmani, our Shariah Advisor, as well as outside legal counsel to develop the model documents and specifications for this program, and to ensure that it satisfies both Islamic principals and secular laws,” added Elia.
Freddie Mac’s agreement to invest in the mortgages underscores its commitment to expand homeownership opportunities for all of America’s households, including the nation’s estimated 2.5 million Muslim households. In March 2001, Freddie Mac became the first major U.S. mortgage investor to back Islamic homeownership when it agreed to buy housing contracts from the Pasadena, Ca. based- American Finance House -- LARIBA. Freddie Mac is also working with other lenders to meet the need for Islamic home financing in America.
Persons interested in learning more about this program are invited to attend an informational meeting on Saturday, August 11, 2001, at the Novi Hilton Hotel between 11a.m. and 2 p.m. The Novi Hilton Hotel is located at 21111 Haggerty Road, Novi, Michigan, north of Eight Mile Road, and west of I-275.

Standard Federal Bank is headquartered in Troy, Michigan and operates 180 Banking Centers, 13 Home Lending Centers and 950 ATMs throughout Michigan, Indiana and Ohio. As of December 31, 2000, the Bank had assets of $20.5 billion and deposits of $12.3 billion. Standard Federal is a wholly owned subsidiary of ABN AMRO North America, Inc.
United Mortgage of America is an assumed name of E & S Financial Group, Inc., a licensed mortgage broker and lender owned by Edward and Scott Elia. United Mortgage is a HUD approved mortgagee located in Farmington Hills, Michigan, offering mortgage loans in Michigan since 1997.
Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage pass through securities and debt instruments in the capital markets. Over the years, Freddie Mac has opened doors for one in six homebuyers and more than two million renters in America. (More information on Freddie Mac can be found on the company's web site located at http://www.freddiemac.com)
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by Howard Lax August 10, 2001 12:00 AM

IMHO

This program is a joke. I think it is wrong to fabricate programs to try to acheive homeownership for a religious group so they may have the best of both worlds. If they MAKE A CHOICE, STICK TO IT. Whats next ? Interest free 125% loans for the Amish? There are many of the Jewish faith in Michigan who have to be home by dark. That means they cant work the closing shift at McDonalds, not that McDonalds should close at 5pm to accomodate them. Like I said, just my humble opinion.

PEACE

by FROG August 11, 2001 12:00 AM

Note to 125% Lenders:

I can sell any 125% product to the Amish as long as you accept livestock for payment.
by chow August 11, 2001 12:00 AM

Actually, I need to call my lender and let them know that God told me I shouldn´t pay interest either.

Why is Freddie Mac bothering to get into this market? Why bother having a home loan market at all, if the GSEs don´t need to charge interest to fulfill their mandate? To me, that´s discrimination--you´re Muslim so we´ll offer you an interest-free loan, but you Christians will still need to pay 7.25%, properly amortized of course.
by cdunlea August 11, 2001 12:00 AM

Political Correctness.

This is why Fannie and Freddied should be entirely divested from the government. The program isn´t the problem, the problem is that it is ultimately subsidized by you and me in the form of our tax dollars.

Question: Why is this program limited to muslims? Shouldn´t everyone have access to this program?
by NotBornYesterday August 12, 2001 12:00 AM

WELL, NYB you got a point there. As a Baptist, Methodist, Catholic, Methodist. I have to agree.

Does all that make me Christian enough?

Sorry, I just couldn´t decide what I wanted to be when I grew up. Can I have my Intrest Free loan now?
by Slick Willy August 12, 2001 12:00 AM

I just received a divine message from Allah. He told me that he´s not fooled by Freddies trickery, and is declaring a Jihad for this insult. Apparently the GSE infidels will be punished.
If they get a break on interest consider me a convert. I´m changing my name to Kareem Abdul Jabraniac. I´ve got my Cat Stevens albums, my "I went to the Intifada and all I got was this lousy T-Shirt" T-shirt, and 2 gallons of tabouleh......Dearborn here I come!!!!!!!!
by Allineare il Braniac August 13, 2001 12:00 AM

Is it the fact that I recently converted that they have a problem with??? R*****D will now accept camels for payment
since they can not pay for his services with cash.
by Islamanulli August 13, 2001 12:00 AM

The program utilizes standard FHLMC products, and interest at market rates is paid by an intermediary that buys the home and leases it to the consumer (with an option to purchase) on a long term basis. The rent paid by the consumer covers the loan payments and escrow payments. There is no free ride, and the program is more expensive than a mortgage loan due to the cost of setting up and maintaining the non-Muslim intermediary company. However, for those who do not wish to pay interest due to religious reasons, this program provides a means of financing a home. The program is available to anyone with a religious conviction against paying interest, including observant Jews, Christians, etc. If you wish to discuss the terms of the program, you can call me or my clients, Ed and Scott Elia (248) 489-8008. I am writing the documents.

Howard Lax
Lipson, Neilson, Cole, Seltzer & Garin, PC
Troy, MI
(248) 649-7200
by Howard Lax August 13, 2001 12:00 AM

So Howard, Any 501-C-3 can do this? Okay, what type of rates are we looking at? High enough to off set the taxes? Let´s dig a little deeper here.
by chow August 13, 2001 12:00 AM

Very clever, this is an ad in disguise.
by fonzanulli August 13, 2001 12:00 AM

Well I do a lot of business with ABN, so I would like a little feedback for the "Teaming Millions", since I know half the brokers on this board, do business with one of the divisions of ABN. Talk to us Howard. My AE isn´t.
by chow August 13, 2001 12:00 AM

This is a "pilot program," and not a mainstream program. My client is the only one offering the pilot program. My client is not charging points (there are some processing fees to offset costs). There is a lease servicing fee built into the rent payment (necessitated by the program parameters set by FHLMC), and the profit margin is structured as a percentage of the financing (the higer the rent, the more the dollar figure), again necessitated by FHLMC parameters. Most of the profits will be placed in a reserve fund to cover default and property liquidation costs.

Interest rates and closing fees charged to my client will be based on market interest rates, although they may be somewhere between owner occupied and investor rates. This needs to be negotiated.

The purchase price is based on the remaining balance of the mortgage financing, with a credit for the escrow balance. Hence, there is no lender fee on the back end.

The costs paid by the homeowner for this financing program are more than an A+ borrower will pay, but less than most subprime programs. Remember that FHLMC will not tolerate anything they consider "predatory" and FHLMC sets limits on total compensation. This program is not subsidized. It is a legit business venture that aims to make everyone a fair profit.

I also think that those brokers who think that individuals who will not pay interest should not finance a home are too closed minded to serve their community. Do these individuals also believe that people who do not speak English should not buy a home or live in this country? Where did their grandparents come from?

You are right that this program could have been developed by a non-profit or a charitable organization, but my client is a for profit entity. A non-profit would not be able to pay the costs of legal fees and the religious law advisor to set up this program. It will be a long time before my client sees any money from this program.

In the meantime, if you have someone who will not do business with you because they will not pay interest, you could point them in the direction of this alternative finance program, or others that FHLMC is considering. This board is full of messages that ask for help doing deals that the poster cannot do. I am simply pointing out one more alternative that may help some of you in an unusual situation.


by Howard Lax August 14, 2001 12:00 AM

This is a "pilot program," and not a mainstream program. My client is the only one offering the pilot program. My client is not charging points (there are some processing fees to offset costs). There is a lease servicing fee built into the rent payment (necessitated by the program parameters set by FHLMC), and the profit margin is structured as a percentage of the financing (the higer the rent, the more the dollar figure), again necessitated by FHLMC parameters. Most of the profits will be placed in a reserve fund to cover default and property liquidation costs.

Interest rates and closing fees charged to my client will be based on market interest rates, although they may be somewhere between owner occupied and investor rates. This needs to be negotiated.

The purchase price is based on the remaining balance of the mortgage financing, with a credit for the escrow balance. Hence, there is no lender fee on the back end.

The costs paid by the homeowner for this financing program are more than an A+ borrower will pay, but less than most subprime programs. Remember that FHLMC will not tolerate anything they consider "predatory" and FHLMC sets limits on total compensation. This program is not subsidized. It is a legit business venture that aims to make everyone a fair profit.

I also think that those brokers who think that individuals who will not pay interest should not finance a home are too closed minded to serve their community. Do these individuals also believe that people who do not speak English should not buy a home or live in this country? Where did their grandparents come from?

You are right that this program could have been developed by a non-profit or a charitable organization, but my client is a for profit entity. A non-profit would not be able to pay the costs of legal fees and the religious law advisor to set up this program. It will be a long time before my client sees any money from this program.

In the meantime, if you have someone who will not do business with you because they will not pay interest, you could point them in the direction of this alternative finance program, or others that FHLMC is considering. This board is full of messages that ask for help doing deals that the poster cannot do. I am simply pointing out one more alternative that may help some of you in an unusual situation.


by Howard Lax August 14, 2001 12:00 AM

Smells like an AD to me!
by Secret! August 14, 2001 12:00 AM

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