Introduction
Towards a LARIBA (Islamic) Mortgage Financing in the United States
Providing an Alternative to Traditional Mortgages
Dr. Yahia K. Abdul-Rahman
And
Abdullah S. Tug
General Manager, American Finance House LARIBA
750 East Green Street, Suite 210, Pasadena, CA 91101
Tel. 626-449-4401
Fax 626-449-5319
www.americanfinance.com
Presented at the Harvard University
School of Law
October 9 and 10, 1998
Issued September 17, 1998
Towards a LARIBA (Islamic) Mortgage Financing in the United States
Providing an Alternative to Traditional Mortgages
Dr. Yahia Abdul-Rahman and Abdullah S. Tug
Introduction
The instinct of owning a place to live in and to produce livelihood has produced a
natural dream for every individual and family. The motor of economic development
throughout history has been through helping people own a home and a means of
transportation. In today's language; owning a house and an automobile. That is why the
backbone of the major developed countries and societies has been the housing and
automobile industries.
The development of mortgage financing in England, Germany and the USA has helped propel
the economies directly and indirectly:
Directly by increasing demand for the products, industries and services associated with
building homes, and
Indirectly by satisfying the natural instinct of ownership in the citizen. Feeling that
he/she own a house; "a piece of the rock", makes the citizen proud of his/her
citizenship, deepens the feeling of belonging to the country, enhances the real estate in
general as owners strive to beautify their owned properties by continually maintaining and
improving it. Finally, owning a home strengthens the feeling of responsibility towards the
citizens' own families and the community at large.
That is why major economic policies in developed nations have been designed to
essentially subsidize the mortgage industry and to a lesser extent the automobile
industry. In the United States, a number of institutions were developed to act as a
catalyst in the promotion and facilitation of owning a home. Examples are:
Federal National Mortgage: was designed to provide ongoing assistance to the secondary
market for residential mortgages by providing liquidity for residential mortgage
investments, thereby improving the distribution of investment capital available for such
mortgage financing.
Federal Loan Home: was chartered by the US Congress in 1970 to create a continuous flow
of funds to mortgage lenders in support of home ownership and rental housing. The company
purchases first lien, conventional, residential mortgages, including both whole loans and
participation interests in such mortgages.
Government National Mortgage Association or GNMA: provides pass through certificates
which have an interest in a pool of single family home mortgages that are insured by the
Federal Housing Administration (FHA) or by the Veteran's Administration (VA)
In fact one of the important parameters used by the Federal Reserve System, (The Fed -
America's Central Bank) in its decision regarding interest rate and monetary policy is the
its impact on the housing industry.
Finally, in an effort to encourage Americans to own homes through mortgage financing,
the US government has made RIBA interest paid through mortgage financing tax deductible.
It is now one of the few deductions left to the average citizen that helps in reducing
taxes.
This paper indirectly poses the question: how, in a world of increasing economic and
political uncertainty, are we to envision means of strengthening civil society and
community? We believe that LARIBA Financing is one such means, and it's eminently doable
and practical one.
