A federal agency is cracking down on predatory lending practices that often hurt Somali Muslims

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For years, Fartun Weli has been frustrated by the way low-income Somali Muslims in Minnesota have been targeted by shady home sellers who infiltrate the community — exploiting Islamic principles to protect the poor.

Weli said many refugee immigrants are unfamiliar with the official home buying process and often have little or bad credit. Although they qualify for traditional mortgages, they are uncomfortable with typical financing options because Islamic law prohibits interest on loans.

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In comes a private seller who offers houses that look cheap without interest. In the sale, both parties agree on an immediate price, with a down payment and monthly installments. The seller claims there is no interest payment because no bank is involved. But no banks also mean no appraisals, allowing sellers to increase the price without asking about the condition of the home.

Typically, the seller legally owns the home until all loans are paid off and all terms of sale are met, while the buyer takes ownership responsibilities such as paying property taxes, repairs to habitable standards and all ongoing maintenance.

“This is a community that has been lied to,” said Weli, who leads Isuroon, a nonprofit that supports Somali refugee immigrant women and their families living in Minnesota. “There’s a lot that just folds quietly. Most of our families don’t talk about it.

The Consumer Financial Protection Bureau now promises to scrutinize bad deals in this format, known as contract for deed. It also urges people to report these fraudulent and predatory loans.

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Contract for deed is an alternative form of seller financing where a private seller or a group of investors comes to a loan agreement with the buyer without many regulations and banking and mortgage protections. But the federal watchdog agency announced earlier this month that it had to enforce the rules — effectively putting private sellers on notice that they are also subject to the Truth in Lending Act as banks, lenders and brokers.

In the field hearing in St. Paul, Minnesota on August 13, CFPB Director Rohit Chopra highlighted how predatory credit has particularly affected the Somali Muslim community in Minnesota, where many have been resettled from the Somali Civil War in recent decades, explaining how the family’s housing situation can be derailed by hidden balloon payments and uninhabitable property.

Chopra says it has become a trap and churn system, where buyers are set up to fail and sellers can resell their homes on terms to other families.

“We really need to make sure that when people are struggling financially, sometimes they know who to ask for help, when to report it and what we can do to make them feel comfortable and safe to talk,” Chopra said.

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The Pew Charitable Trusts report about 1.4 million Americans will use a contract for deed to buy a home by 2022. Tara Roche, who leads Pew’s housing policy initiative, said part of the problem with trying to manage is that some states think they are at the bottom. contract law rather than housing law, and some lawmakers see the sale of a home as a private contract between two people without the need for government oversight.

“The reality is that the seller has all the power over the terms and conditions of the contract,” Roche said. “Unbalanced through the legal framework.”

The National Association of Realtors said that while they appreciate the crackdown on predatory lending, they want to ensure that buyers who have traditionally used contracts for deeds – also known as land contracts – will not be affected.

“For some home buyers, especially in rural and farming communities, land contracts have worked. The CFPB must ensure that safe, alternative products are available to these communities if land contracts become more limited,” according to a statement by the real estate trade group.

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Others called for more regulations by state lawmakers to help low-income communities and vulnerable immigrants.

“We’ve known for a long time that communities of color and immigrants are targeted, but the additional targeting based on religious beliefs is especially troubling,” said Sarah Bolling Mancini, director of advocacy at the National Consumer Law Center, which called for the policy. reforms include requiring that the sale be recorded in deed records. “The most important thing is that we do not allow the contract to be in a gray area where there is no protection from the buyer or the tenant.”

In the case of Somali Muslims in Minnesota, the contract for deed continues to appeal because mainstream Islamic law considers the concept of paying or receiving money as interest on a loan a sin of greed, said Yasir Qadhi, an Islamic scholar and chairman of the Fiqh Council. from North America.

“We believe that interest is an unfair tool, that people with wealth can use their wealth as a means to become richer by taking advantage of the poor,” Qadhi said. “In our faith, giving loans is an act of charity, not business.”

Weli said he hopes the latest move by the CFPB will lead to more awareness in the Somali refugee community and also lead to more resources for immigrants to gain financial literacy to help them become less vulnerable.

“There is something about being an immigrant and being a refugee. You plan well and work hard,” Weli said. “It’s about home ownership, that’s the main goal. It’s part of feeling safe.”

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