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As if the economic crisis brought on in large part by the government buying homes for poor minorities never happened, Minnesota’s state government has found another “underserved group” with a “home ownership gap” that it must help out: Muslims who can’t buy homes because Islamic sharia prohibits charging and paying interest. Meet America’s newest sharia lender: the state of Minnesota.

I wonder if Minnesota’s government would move in to help if a Christian sect had objections to lending at an interest.

Ed Morrissey: “Gee, what a surprise — government distorts the lending market again”:

How does it work?  The state buys the home and then sells it to the buyer at an inflated price, more or less masking the market interest rate as principle.  They they set a 30-year payment schedule where the family pays down the debt, but without any interest.  The state makes a profit eventually, and people get to buy homes rather than rent.

My objections to this have less to do with the religious aspects of this than the intrusion of the state into a private lending market.  Other private lenders had begun meeting the market demand by crafting shari’a loan models themselves.  The state’s entry into this market will act to push others out, as the state has more lending power and more credibility than private lenders do.  That essentially steals capital from the market, and it also reverses the tax flow, as profit in the private market would generate revenue to the state.  Minnesota is cheating itself in this transaction.

Moreover, our state faces a $7 billion shortfall over the next two years.  Why are we buying houses for people at six figures a throw in exchange for monthly payments over the next 30 years?  The capital we have needs to go to more legitimate state functions, instead of distorting the lending market once again.  And how well qualified are these buyers, anyway?  As we discovered in the Community Reinvestment Program, when the government pushes loans to an “underserved market,” it usually means significantly increased risk.  Will the state foreclose on delinquent borrowers?

Gee, what a surprise — government distorts the lending market again.  And while I’m mainly discounting the religious angle of this story, it’s interesting to note that the usual “separation of church and state” argument from the Left has been conspicuously absent here.  Is it a legitimate function of American government, at the state or federal level, to set itself up as a lender just to help a religious sect get around its own set of beliefs?  I’d say no.

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