General Inquiries:

Query:  Are Muslims permitted to deal with interest based banks when these banks offer Islamic products and services?

SHAPE™:  In matters of commerce, Muslims are not restricted in dealing with non-Muslims including conventional banks or Investors such as Fredde Mac so long as the non-Muslim party is genuine in the offer of an Islamic product or adheres to the relevant Sharia’a guidelines governing the transaction.  In the case of SHAPE™ products and processes, these are designed by SHAPE™ Financial Corp. and have been reviewed by leading scholars including Sh. Yusuf DeLorenzo, Sh. Nizam Yaquby, and Sh. Ahmed Shleibak.  We are intimately involved in consulting with the Bank to assure that the guidelines are followed.

Query: What benefit is the SHAPE™ process to University Bank and UIFC?

SHAPE™: A community bank like University Bank will offer the SHAPE™ product suite because it is good business.  Banks serving communities with a large number of Muslims are increasingly seeking to offer products like the SHAPE™ suite of products. Moreover, the mortgage refinance boom has ended, and new home buyers are the focus. Therefore, Muslims who are less likely to be home owners, but most likely to be qualified represent an excellent business opportunity-

Query: How does this benefit the community?

SHAPE™: The SHAPE™ processes are designed to be riba free. From a faith, spiritual perspective you may rest assured that you have chosen a product that does not involve something that is either forbidden or doubtful. As we develop the SHAPE™ family of products and services, and we strive to be competitive and have very little price or cost differential compared to other offerings in the market. More importantly, the SHAPE™ process is designed by community members, investing in the community and bringing the profits back to the community in several different ways.

Query:  Are SHAPE™ programs open only to Muslims?

SHAPE™:  No!  SHAPE™ programs are meant to provide a financial advantage to any consumer.  Some of our products in development will be designed without specific “Islamic” jargon.  Nonetheless, SHAPE™ and its scholarly advisors are committed to Islamic values and Sharia’a, and believe that these are beneficial to all.

Query:  Is it ok to simply accept someone’s assertion that a method or contract is Sharia’a compliant?

SHAPE™:  This is an important question.  We recommend that you look to the Sharia’a scholars who have an expertise in financial and commercial transactions.   For instance, does your provider of an Islamic service have a fatwa or relevant supporting Islamic certificate?  Can your provider point you in the direction of a knowledgeable resource person or text, or someone or a resource that you may approach in person, by mail or online?

Query:  I still have questions.  Can either I or my lawyer see your documents in order to be more clear about the system that makes our contract halal?

SHAPE™:  If after reading these answers, you wish to read the primary documents, on an exceptional basis, we are prepared to send a Non-Disclosure Agreement, request your signature and then forward a file to you*.  The purpose is that the document is solely for your review and not to be given to third parties, banks, people who might wish to go into this business, competitors, or dealt with in a way that would accidentally allow these types of people to acquire our proprietary material.

*In some cases a non-refundable charge of $50.00 may apply.

Query:  How can we tell whether a company has a valid fatwa?

SHAPE™:  You should seek a copy, which will have the names of the approving scholars and their signatures.  If they are unknown to you, you should be able to verify their relevant training and capacity to opine on various matters relating to Islam and commerce.

Query:  How can we know if the scholars providing the fatwa are valid?

SHAPE™:  Certain scholars are well known and their certificates or ijazas are publicized.  Others may be qualified, but are less well known, ask for their bio-data, ijazas, or other information that will help you to have comfort in their opinions.

Query:  Where do banks like University Bank and their affiliate UIFC get their money for these programs?

SHAPE™:  Generally, the money comes from one of three sources:  the bank’s broad sources of funds; the capital markets (government sponsored investors in mortgages and their alternatives, large international investors including Islamic and western banks serving Muslim clients, and so on); and, in the case of UIFC through University Bank, an Islamic profit sharing deposit program which seeks to invest in the mortgage alternatives.

The Ijara MALT™ Program:

Query:  Most people who have low down payments need something called private mortgage insurance.  How do you deal with this?  If you have it, who is paying for the PMI?

SHAPE™:  The SHAPE™ Ijara mortgage alternative program requires 20% downpayment, therefore PMI is not required.

Query:  How does property and casualty insurance work in the SHAPE™ program?

SHAPE™:  Ostensibly, programs like SHAPE™ should incorporate this into the lease.  But, we have found it impossible, at this time, to provide reasonable protection at an economic cost.  Moreover, all states, give you the consumer, a priority to select your own asset protection insurance since you will ultimately own the property.  And, you will find that you can usually acquire the insurance more cheaply than we can.  At this time, our providers grant you an agency to acquire the residential insurance under your favorable conditions.

Query:   What do I do about the interest that some state laws require to be paid to me on certain accounts including escrow accounts?

SHAPE™:  SHAPE™ providers are obliged by law to make these payments to you.  The consensus of the scholars is that you should pay such interest earned to charity, but it will not count as either zakat or sadaqat.

Query:  What is rent based on in a SHAPE™ transaction?

SHAPE™:  Each SHAPE™ provider has a different approach to this issue and some may offer you more than one way of doing it.  The general Sharia’a principle is that rent rates  should be mutually agreed by both parties.  In some cases, the provider may use a standard interest oriented benchmark like LIBOR or the 5 year Treasury Note.  At this time, the consensus of the Sharia’a scholars is that such benchmarking is not ideal, but it does not affect the Sharia’a compliance of the transaction.

Query:  What happens if I do not make my payments on time?

SHAPE™:  You will be charged the cost of collection.  We currently work with an independent servicing company called Midwest Loan Services to manage the completed SHAPE™ acquisitions.  They bill their banks $50.00 as their cost of collection.  Any excess over the cost of collection that one of the banks receives will be donated to charity.

Query:  What is the minimum down payment in the SHAPE™ program?

SHAPE™:  The minimum down payment, which we call the initial payment on account because of the structure of the SHAPE™ Ijara program, is 20%.

Query:  May I use down payment assistance programs?

SHAPE™:  SHAPE™ providers currently permit the use of various down payment assistance programs so long as you come up with at least 5% of the cash to fund your initial payment on account.

Query:  Do your providers refinance existing mortgages?

SHAPE™:  The SHAPE™ process may be used to replace an existing mortgage.

Query:  How does a SHAPE™ replacement compare to a standard mortgage refinancing?

SHAPE™:  Generally, the nature of a replacement is distinct from a refinancing, and the title will transfer from a current borrower owner to a trust which will own the home for the benefit of the new investor.

Query:  What happens if I am short of cash for closing costs on my refinance transaction?

SHAPE™:  Depending upon the investment for which you qualified, amounts, other than the 5% of the expected final purchase value may be structured into the value of the Promise to Purchase. 

Query:  May I sub-lease the property?

SHAPE™:  Sub-leasing requires approval from the Bank and may cause a higher rent.

Query:  Sometimes other groups seem to offer very competitive and close to the outside rates, SHAPE™’s 5 year rate seems to be above the norm.  For e.g., a conventional bank’s standard mortgage might be offered at a lower rate.  Why is this?

SHAPE™:  With respect to the University Bank 5 year rate, this is the same offer that a conventional consumer will receive at the bank for a comparable standard mortgage transaction.  Historically, the five year offers from different institutions range widely.  

Query:  Is an Adjustable Rate Lease susceptible to gharar?

SHAPE™:  The scholars over time have allowed a great deal of flexibility in fixing lease rates, which may be fixed for the duration of a tenancy, subject to changes in inflation or other indexes, or changed periodically according to mutually accepted terms.

Query:  Some people say that in both the Islamic and the traditional mortgage systems,  the price of the house is simply the discounted future value of the house plus a rent for staying in that house...nobody will let you stay in the house for free.

SHAPE™:  This is not correct.  In the traditional mortgage system, interest is the “rent” of money and is paid for a loan of money with which you buy a house or refinance an existing loan.  There is no rent of the house as you own the house. 

Query: How is the SHAPE™ Ijara MALT™ lease rate determined? Why is it based off the 5yr T-Bill? How does this gauge the market? Is there anything else that can be used to gauge the market other than an interest rate?

SHAPE™:  All SHAPE™ providers must quote you a lease rate based on an independently verifiable benchmark.  Sadly, no Islamic benchmarks for either property or commerce have been developed and made easily accessible.  Therefore, SHAPE™ providers either use the Treasury Bill or LIBOR indexes.  It is our hope that alternatives will be forthcoming and we do periodically dialogue with our peers in the global Islamic financial services about what should be done to construct the alternatives.  In the meantime, the T-Bill gives you a means to verify rental rates quoted by UIFC.

Query:  Is there any reason the Ijara MALT™ is a 5/1 ARM?

SHAPE™:  Currently, UIFC prefers a five year adjustable rent program.  Other providers are considering three and seven year alternatives; and we are all working together to develop fifteen and thirty year fixed rent programs.  The investor preferences are ultimately determined by regulatory and secondary market preferences.

Query:  What exactly is it that is wrong (haram) with insurance? 

SHAPE™:  The concept of insurance is viewed differently in Sharia’a and is more like, but not the same as mutual insurance in the US.  The conventional structure of insurance is to pay money today for the prospect of money tomorrow against a loss of assets or life.  This is similar to the forbidden riba.  In Islamic mutual insurance, or Takaful, the approach is to pool resources together to assist one another in the event of a future loss.  Regrettably, there is no longer a Takaful program available to protect assets, and without any form of casualty insurance, there are no investors.  As a result, it is a condition of necessity, for the SHAPE™ program to incorporate conventional casualty insurance.

Query:  Aren’t you just changing the word interest to profit or rent?

SHAPE™:  There are three acceptable approaches to home acquisition in Islam.  One is a sale, one is rent to own, and one is partnership (with property rental as part of the deal).  The rent paid is explicitly for the use of property.  Or in the sales case, the profit is a mark-up on a base sales price.  The mark up on a sale or the rental income from leased property may both be expressed as a percentage (%) of invested capital.  For example: if the bank earns $10,000 of rent from a $100,000 investment in a house then the bank has a 10% income or yield expressed to you as a 10% lease or profit rate.  Riba, however, is the payment of money for the use of money over time, and this is very similar to the concept of interest in a traditional mortgage loan. 

An accountant may argue that rent in the latter two and profit in the former is interest, but in none of these cases is it riba.  Some accountants argue that anything that may be perceived as generating a benefit from the passage of time has interest in it.  The Sharia’a scholars have not defined riba in this way, rather riba necessarily relates to loans of money or exchanges of money like commodities when they are used as money.

Query:  Isn’t the Islamic system of purchasing houses the same thing, the same mechanics, as the traditional mortgage system only with different labeling?

SHAPE™:  This too is inaccurate.  The process of qualifying a consumer and disclosing costs and risks to a consumer is the same as the mortgage system.  This process is regulated by federal and state statutes in the United States.  Hence, the paperwork is the same or very similar prior to and after making the acquisition, but not the acquisition itself. 

The acquisition mechanics are fundamentally different without creating all of the same rights and obligations as in a traditional mortgage.  Hence, it is not a question of labeling, but of actual structure.

Query:  Someone told me that the papers one signs to apply for and process a purchase with a mortgage alternative are the same as in the traditional mortgage system, why?

SHAPE™:  The documents that one signs, which should normally be customized to reflect the facts of a mortgage alternative, including the application, disclosures, and post closing disclosure documents are mostly governed by federal and state rules.  In fact, UIFC has gone to great expense to modify its documents to reflect correctly the Islamic transaction in compliance with applicable law.  Generally, the government wishes to assure that you are fully aware of the details of a transaction and can compare it to other transactions of a similar nature.  Islamic scholars now agree that these required disclosures help reduce or eliminate gharar.  These materials do not constitute the contract that binds you, the house and the bank or other parties involved.

The Murabaha MALT™ Program:

Query:  How is the Profit Rate determined?

Our profit rate is determined by market conditions at any given period and the amount of profit the investor (University Bank) wishes to make on the transaction.  This will comprise part of the price, and you are free to accept it or reject it under the Islamic principle of offer and acceptance (الإجابة والقبول)

Query: How does the product work?

Murabaha is primarily used for a home purchase. You identify the home you would like to purchase. UIFC purchases the home on your behalf and then sells it to you at a marked up price. You then make equal installment payments toward the balance of the marked up price of the home. 

Query: How is it different from a conventional transaction?

A conventional transaction is a loan of money to you for the purchase of a home on which you pay interest.  A Murabaha transaction is a sale of a home with a deferred payment plan.

Query: How is the structure different from Ijara?

An Ijara is a lease, whereas a Murabaha is a sale.  In an Ijara, a trust is on title to the property, and you enter into a lease-to -own contract with the trust.  In a Murabaha, UIFC will purchase the home on your behalf and then sell it to you at a marked up price on a deferred payment plan. 

Query: What are the costs?

Just as there would be with any home purchase product there are standard costs associated with the Murabaha. Generally, these fees include customary property and credit diligence including an appraisal of the property, your credit report, survey of the property, your application, processing for the transaction, recording, title insurance and standard property sales settlement costs. 

Query: Does it have private mortgage insurance (PMI)?

On properties where you are not able to place a down payment of 20% or greater, we will be obliged to insure ourselves.  We will add this charge to the price of the house and you will be free to accept the house price as adjusted or to reject it.  We will disclose to you this price element.  You do not contract to pay PMI on a monthly basis, and we do not increase the rate as other financial institutions may do. 

Query: How is the Mark-up determined?

The marked up price is determined by the rate of profit attractive to UIFC or any Murabaha Investor.

Query: What happens if I want to pay off early? How is the payoff amount determined?

Though we are not obligated under Sharia guidelines to collect less than the full contracted amount, consistent with Quranic encouragement to be kind to debtors, as well as U.S. law, the Murabaha Vendor will accept an early payment and forgive a portion of the mark up as indicated in the allocation schedule.  This is based on (an amortization of) the number of months you have lived in the home versus the number of months remaining on your contract. 

Query: How much of my payment goes to pay off the Installment balance?

The installment balance is the entire marked up price, thus your entire payment, minus any escrows (property taxes and home owners insurance), go toward paying off the installment balance. 

Query: What are the late fees for late payments?

There is a flat fee of $50 that is used to compensate for the cost of collection.  We do not charge you an arbitrary percentage of your monthly payment as others may.  This is paid to a third party company that makes collections on our behalf.

Query: Do I have to escrow my taxes and insurance?

Yes.  Our program collects taxes and insurance on a monthly basis into an escrow account from which we will disburse payments to the taxing authority and insurance provider on a timely basis.  This insures that you are never in default due to a failure to pay taxes or maintain required property insurance. 

Query: How much do I have to put down?

Under most circumstances, the standard minimum down payment for the Murabaha program is 12%.  However, under special conditions down payments of 5% or less are acceptable.

Query: What is the difference between an Installment Contract and a Note?

The Installment Contract is a contract signed by two parties which reflects the nature of the Murabaha, which is the sale of property.  The Note reflects the nature of a conventional mortgage, which is a loan of money with interest. 

Query: Can my Installment payment change? What if I make a large principal payment?

Your installment payment cannot change, even when making a large principal payment.  It cannot change because it would mean a change in the original contract. 

Query: Do I get to keep all the profit when I sell?

Yes.  The property belongs to you and is held in your name, and title is given to you, so you are entitled to all the proceeds from the sale of the property. 

Query: Does my realtor need to know anything special?

Yes.  Because this is not a conventional mortgage, we have a separate and different set of documents that need to be signed at closing.  Most title companies are not familiar with our unique set of documents, and in an effort to streamline your closing, we advise you to hold your closing at First American Title as we have established a relationship with them for you, and they are familiar with the uniqueness of this transaction.  Additionally, since UIFC will actually purchase the home from the seller, all parties need to be aware of this.  Prior to closing, both parties will need to sign an addendum to the purchase agreement acknowledging this fact.

Query: Does the seller need to know anything special?

Yes.  Because this is not a conventional mortgage, we have a separate and different set of documents that need to be signed at closing.  UIFC will actually purchase the home from the seller, and the seller should be aware of this.  Prior to closing, both you and the seller will need to sign an addendum to the purchase agreement acknowledging this fact. 
Also, sellers normally choose the title company where their transaction will close and most title companies are not familiar with our unique set of documents.  In an effort to streamline your closing, we recommend that you hold your closing at First American Title, as we have established a special relationship with them for you, and they are familiar with the uniqueness of this transaction. 

Query: Can I refinance into a Murabaha?  Can I refinance out of a Murabaha?

If you are the owner of your property, with no partners, you are not able to use our Murabaha program to replace an existing mortgage. You will only be able to apply our Murabaha program if you are not the majority owner of a property; you may apply our Murabaha program if there is another entity on title to the home currently, which entity will not be on title after replacing that financing through our Murabaha program. 

You are allowed to refinance out of our Murabaha program at any time you wish.  We do not have a pre-payment penalty. 
Query: Would my Homestead tax exemption be affected?

No, you are on title to the home, and have every right to a Homestead tax exemption, just as you would for any primary residence. 

Query: Why is First American Title Insurance Company recommended for these transactions?

We have established a relationship with First American Title Insurance Company, and have educated them on the uniqueness of our transactions.  It is important that all of your closing documents are processed and recorded properly, and we can assure you that First American Title will do so. 

Query: If there is no interest on the Murabaha transaction, will I still get a 1098-INT statement for income tax purposes?

As a financial institution, we are only able to show profit on the financing of a home in one fashion.  Thus we will issue a 1098-INT which you may choose to use to deduct from your taxes. 

Query: Can I make automatic payments?

Yes, this can be taken care of by our sister company, Midwest Loan Services, who services all our transactions. 

Query: Can I view my home financing balance and details online?

Yes, this information can be viewed online here. 

Query: What happens if you have to foreclose?

Should you not make the payments for which you contracted; the investor will take title and possession of the property. Should the property be sold for more than you owe, the profit may go to the investor subject to applicable law.

Query: What happens to the home if the titleholders die?

It will transfer to your estate as identified in your will, or if you have no will, the transfer will be directed by the state’s laws. 

Query: Do I need to ask permission prior to putting the home up for sale?

No, you own the home, and are able to market the property as you wish. 

Query: Can I use the Murabaha financing to purchase investment properties?

Yes, you may use our Murabaha program to purchase investment properties of 1-4 units. 

Query: Is it more difficult to qualify for Murabaha than conventional financing?

No, we have the same qualification process, no more or less stringent. 

Query: Does UIFC have a fatwa for the Murabaha product? Can I get a copy? Who has issued it?

Yes, UIFC has an operational fatwa from scholars who are globally reputable in the Islamic Financing industry.  It is available online (http://www.universityislamicfinancial.com) for review by anyone or contact an Islamic Banker and a copy will be sent to you. 

Query: When am I allowed to lock in my profit rate?

Once you have submitted a signed application, an application deposit of $300.00 (refundable at closing) to your Islamic Banker, and the closing date of your transaction has been determined, you are able to lock in the current profit rate.

Query: What states can I get Murabaha financing in?

Currently UIFC is only licensed for home finance business in the states of Michigan, Ohio, Indiana, New Jersey, Virginia, Maryland and Texas. Our home financing products are only available to individuals who would like to purchase in these states. 

Query: Where does UIFC get its funds to purchase and finance the Installment transaction?

UIFC is a Sharia compliant subsidiary of University Bank and uses the funds of Sharia depositors to purchase the selected home from the seller.

Query: Who owns the Installment transaction after closing?

UIFC acts as an agent for University Bank to buy and sell homes.  As a technical matter of Sharia, that investor and any of its business partners may ultimately hold the right to collect installment payments. 

Depository Products:

Query:  Does the profit sharing account apply to checking?

SHAPE™:  Checking accounts are not profit sharing for a number of reasons including their distinct nature compared to other forms of deposit.  However, your checking account funds are used specifically to help fund UIFC’s Sharia’a compliant investments. 

Query:   Can the profit sharing account go to a zero or negative balance?

SHAPE™:  No.  Deposit account regulation, as currently interpreted by the FDIC, insured consumer deposits cannot lose capital, let alone go to zero.  But, if there is no profit, then there will not be any earning on the account.

Query:  Is the SHAPE™ Profit Sharing Money Market Account liquid?

SHAPE™:  Under banking regulations, a licensed FDIC bank like University Bank offering a money market account must agree to redeem part or all of any such account to the depositor upon demand.  It is completely liquid under the concept of continuing Mudaraba.

Query:  What does the SHAPE™ Profit Sharing Money Market Account invest in?

The SHAPE™ Profit Sharing Money Market Account and specially designated interest free checking accounts (available upon request) at University Bank invest only in the SHAPE™ Redeemable Lease program and other eligible Islamic instruments of UIFC.

Query:  What is in it for University Bank and UIFC to offer these riba-free deposits?

SHAPE™:  University Bank has a distinguished history of serving its community and meeting the varied needs of diverse consumers, helping them to access safe and sound banking products and services at a fair price.  By doing so, University Bank hopes to grow its profits and serve the community at the same time.

Query:  If this is an Islamic program, why must there be FDIC insurance?

SHAPE™:  Under current FDIC rules, all consumer deposits less than $100,000 must be insured against capital loss. 

Query:  What happens if I draw my SHAPE™ Money Market account to less than $500?

SHAPE™:  At University Bank, you may draw your account down to close to zero.  Below $500 you pay a $2.00 monthly service charge.  But, your principal deposit decrease below the deposited amount should the performance of the Islamic portfolio become negative and start losing money. 

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SHAPE™ Financial Corp. and University Islamic Financial Corp.