Federal Housing Finance Agency Director Bill Pulte says officials are examining Fannie Mae and Freddie Mac’s longstanding participation in mortgage products structured to comply with Islamic prohibitions on interest, bringing new scrutiny to a niche but growing segment of the U.S. financial system.
By yourNEWS Media Newsroom
Federal Housing Finance Agency Director Bill Pulte said the Trump administration is reviewing the role of Fannie Mae and Freddie Mac in home-financing arrangements designed to comply with Islamic law, putting new attention on programs the government-sponsored enterprises have supported for more than two decades.
Pulte, who also chairs the boards of Fannie Mae and Freddie Mac, disclosed the review after White House correspondent Natalie Winters highlighted documents and program materials describing the mortgage giants’ participation in Sharia-compliant financing.
Winters pointed to a Fannie Mae loan classification for “Musharaka Islamic Finance Mortgages” and material indicating that Freddie Mac recognizes financing “designed to comply with Islamic law.”
Pulte responded: “We are looking into this right now. Thanks for mentioning!”
His response was posted on X.
The review centers on an established corner of U.S. housing finance that is structured differently from an ordinary mortgage because traditional Islamic jurisprudence prohibits riba, or interest.
Rather than making a conventional interest-bearing loan, some Islamic home-finance providers use a form of diminishing Musharaka, or shared ownership. Under that model, the customer and financing company jointly acquire the property, and the homeowner gradually purchases the financing company’s ownership interest while also making payments for use of the portion still owned by the company.
Fannie Mae and Freddie Mac, which remain under federal conservatorship and together support a major share of the U.S. residential mortgage market, have participated in the secondary market for such products for years.
Their involvement dates to the early 2000s, when the mortgage companies began acquiring or investing in Islamic home-financing transactions, according to the information provided.
One of the largest companies operating in that market is Guidance Residential, which says it has provided more than $10 billion in financing to tens of thousands of families.
Guidance describes its product as “Islamic co-ownership financing” and says its relationship with the government-sponsored enterprises allows additional investors to participate without converting the transaction into a conventional interest-bearing mortgage.
On its explanation of the arrangement, Guidance says both Freddie Mac and Fannie Mae have participated in its financing model.
“Guidance simply brings on Freddie Mac as an additional investor,” the company states.
Guidance says its contractual structure was developed with assistance from a Sharia supervisory board and 18 law firms so Freddie Mac could participate as an investor without purchasing conventional interest-bearing debt.
Under the model described by the company, Guidance and the customer purchase a home jointly. As payments are made, the homeowner progressively acquires the financier’s ownership position.
The arrangement is designed to produce a home-finance product that performs many of the economic functions of a conventional mortgage while complying with Islamic rules against charging interest.
A May 2026 report by RealClearInvestigations said federal data showed Fannie Mae and Freddie Mac had become the primary investors in Islamic mortgages, providing billions of dollars in secondary-market liquidity.
Pulte’s announcement suggests that FHFA will now examine that relationship under the Trump administration.
The inquiry also places the housing programs within a much larger debate over the expansion of Sharia-compliant finance in the United States.
Islamic finance applies religious standards not only to home purchases but also to banking, securities, investment funds and other commercial transactions.
The prohibition on riba generally prevents observant Muslims from knowingly earning or paying interest. Contemporary Sharia-compliant finance has consequently developed alternative contractual structures intended to replicate the economic purpose of loans and investments without formally using interest-bearing debt.
The Fiqh Council of North America has issued Sharia standards addressing stock investing that extend those considerations into public equities.
According to the material cited, the standards can prohibit investment in companies whose interest-bearing debt exceeds 30% of market capitalization or whose interest-bearing deposits exceed specified limits relative to equity.
The standards also restrict investments in sectors considered inconsistent with Islamic rules, including conventional banking and finance, pork, alcohol and gambling, along with other prohibited industries. The material cited also identifies aerospace and defense businesses and companies doing business with Israel among areas subject to religious restrictions.
The growth of Islamic finance has led major American financial institutions to develop products intended to satisfy such standards. Companies identified in the material include Morgan Stanley, AIG, Bank of America, Wells Fargo, Merrill Lynch, Citicorp, Goldman Sachs and JPMorgan Chase.
Sharia screening has also been incorporated into investment funds and stock indexes. U.S. financial regulators, including the Treasury Department and Securities and Exchange Commission, have dealt with such products as they have entered American capital markets.
Supporters describe that accommodation as an example of the financial system creating products for customers whose religious beliefs restrict the use of conventional interest-bearing finance.
Critics view the development more broadly and argue that government participation in religiously structured finance deserves greater scrutiny.
The Washington-based Center for Security Policy has been among the most outspoken critics.
“The Treasury Department and other agencies of the U.S. government have been warned repeatedly, and in detail, that Sharia-compliant finance is used [by Islamist activists] to legitimate and facilitate the penetration of Sharia [in American society],” the organization has argued. “As such, it is inherently antithetical to American law.”
Those are the organization’s conclusions and remain disputed by advocates of Islamic finance, who argue that Sharia-based investment standards are comparable in principle to other forms of values-based investing.
Supporters have pointed, for example, to environmental, social and governance investing, in which investors exclude or favor companies according to nonfinancial criteria.
The dispute becomes more contentious over a Sharia principle sometimes described as “purification.”
Some Islamic finance standards permit investments in otherwise acceptable companies that receive limited interest income, but require the investor to donate the portion of profits attributed to prohibited income.
Critics have raised concerns over where such charitable payments ultimately go.
The Thomas More Law Center has challenged government accommodation of Sharia-compliant financial products, arguing that some Islamic charities have supported organizations hostile to the United States or linked to groups including Hamas.
The Center for Security Policy has gone further, claiming Sharia-compliant finance “amounts to a way to dress up substantial opportunities for illegal material support for terror as a protected religious practice of tithing.”
That allegation represents the position of the organization and its allies rather than a conclusion established merely by participation in Islamic finance.
Critics have also argued that growing Sharia-screened investment funds could eventually give religiously guided investors greater influence over corporate governance.
“The mere threat to withdraw approval of large pieces of a bank’s lending portfolio, for example, because another part of the enterprise is doing business with, say, Israel, may be sufficient to enforce what amounts to a boycott of the Jewish state,” the Center for Security Policy said.
One fund cited in that debate is the U.S.-based Amana Mutual Funds Trust, described in the material as holding approximately $6.4 billion in assets and positions in 33 American companies.
Its holdings have included major technology companies such as Google, Apple, NVIDIA and Microsoft.
Amana was described in a 2005 Washington Post report in connection with organizations the Justice Department identified as being part of the Muslim Brotherhood network, according to the material provided.
Following the Israel-Gaza war, some Amana investors also advocated divestment from companies including Google and Microsoft because of services those companies provided to the Israeli military.
Sharia-compliant securities are commonly reviewed through standards developed by Islamic scholars and organizations, including the Accounting and Auditing Organization for Islamic Financial Institutions, or AAOIFI.
Financial institutions have consequently hired Islamic legal scholars and religious advisers to serve on Sharia supervisory boards that determine whether financial products and investments satisfy those requirements.
“Investment banks and other financial institutions have been hiring Muslim religious authorities to sit on corporate Sharia-compliant finance boards that directly influence the investment of billions of U.S. dollars,” the Center for Security Policy warned.
Opponents describe that structure as the development of a “parallel financial system,” while banks and Islamic finance providers say they are responding to legitimate consumer demand in a competitive market.
Demographic and financial growth are major factors behind that expansion.
A Federal Reserve Bank of Richmond publication cited expectations that the Muslim population would grow approximately twice as fast as the non-Muslim population through 2030 and noted “a large latent demand” for Islamic financial products in the United States.
More recent market estimates cited in the material put the worldwide Islamic finance industry at nearly $6 trillion.
Cognitive Market Research has estimated the potential North American market at more than $1 trillion, citing among the factors “a growing Muslim population, rising awareness of Sharia-compliant financial products, and favorable regulatory environments.”
Britain provides another example of Islamic finance entering a Western financial system.
In 2014, the United Kingdom became the first non-Muslim country to issue a sovereign Sharia-compliant bond, known as a sukuk. The British Islamic finance market is now described in the provided material as exceeding $9 billion.
London has also developed financing arrangements intended to prevent Muslim students from being required to pay interest on government student loans.
Patrick Sookhdeo, a London scholar and critic of Sharia finance, argues that the financial system can become part of a broader political strategy.
“Islamic banking and finance is one of the multiple tools they use to further their cause,” Sookhdeo says. “It is economic jihad – a key and integrated part of the larger civilizational jihad.”
Other financial specialists strongly reject that characterization.
They describe Islamic banking primarily as a religiously permissible or ethical financial alternative and argue that limitations on excessive interest-bearing debt may, in some circumstances, reduce exposure to highly leveraged financial structures.
“Muslim investors are increasingly concerned not just with riba (interest and debt-financing) and gambling, but also with the ethical impact of their capital – [and] rightly so,” Islamic finance and investment specialist Ibrahim Khan said.
The modern Islamic finance industry itself is relatively recent even though the religious and contractual principles on which it draws are centuries old.
A lengthy analysis published by the Center for Security Policy traces the contemporary development of Sharia-compliant finance to political, religious and economic changes that accelerated during the 20th century.
According to that account, classical Islamic jurisprudence contained numerous rules governing contracts and commerce, but there was no separate industry known as Sharia-compliant finance before the modern era.
Even around the beginning of the 20th century, Islamic legal authorities continued debating whether the religious prohibition applied to all interest or primarily to usurious forms of interest, according to the analysis.
That debate changed as Muslim political thinkers confronted the fall of the Ottoman Empire after World War I and the growing influence of Western political and commercial institutions.
Thinkers including Maulana Abul Ala Mawdudi advocated an explicitly Islamic political and economic order. Religious authorities subsequently developed rulings rejecting interest-bearing deposits and encouraging the creation of Islamic banks.
Over time, the standards expanded beyond interest to address excessive uncertainty, speculation and investment in businesses considered religiously prohibited.
Modern Sharia finance attempts to reconcile those prohibitions with contemporary commercial activity by restructuring transactions into approved contractual forms.
One example is a cost-plus sale. Instead of lending money at interest for a purchase, a financier can acquire an asset and resell it to the customer at a predetermined profit, with the purchase price repaid over time.
Other models use leasing, sale-leaseback arrangements, partnerships or combinations of traditional contract forms.
Diminishing Musharaka, the model relevant to the current Fannie Mae and Freddie Mac controversy, relies on shared ownership rather than a conventional lender-borrower relationship.
Under that structure, the customer gradually buys out the financial institution’s ownership position until the customer owns the property outright.
The Center for Security Policy’s historical analysis described Sharia finance as one of the fastest-growing portions of international finance.
At the time reflected in that older discussion, estimates placed roughly $800 billion worldwide in Sharia-compliant transactions or investments, including approximately $200 billion in assets managed by Sharia-compliant banks, with annual industry growth estimates of 15% to 20%.
The report attributed much of that early expansion to growing wealth and liquidity in Muslim oil- and gas-producing states.
It also identified sukuk, or Sharia-compliant bonds, as one of the fastest-growing portions of the industry. The historical figures cited approximately $80 billion in outstanding sukuk at the end of the second quarter of 2007 and another $37.3 billion issued during the following quarter — roughly twice the amount issued during the comparable period a year earlier.
That influx of capital helped create an international ecosystem of financial institutions, accounting firms, law firms, advisers and asset managers specializing in Sharia-compliant transactions.
American firms became participants as investment banks underwrote sukuk, Dow Jones and Standard & Poor’s developed Sharia-screened equity indexes, asset managers created compliant mutual and hedge funds, and U.S. banks introduced Islamic home-financing and credit products.
Federal banking regulators eventually addressed the legality of the arrangements, while at least one state tax authority considered how such transactions should be treated for tax purposes, according to the Center’s historical account.
That decades-long evolution forms the backdrop for Pulte’s newly announced review.
The immediate issue before FHFA is narrower than the larger ideological argument surrounding Islamic finance: whether, and under what terms, Fannie Mae and Freddie Mac should continue supporting home-financing transactions intentionally structured around Islamic religious restrictions.
Fannie and Freddie’s participation has provided secondary-market liquidity that enables companies such as Guidance Residential to finance substantially more homes than they could solely with their own capital.
Supporters say that allows Muslim Americans who object to interest-bearing mortgages for religious reasons to purchase homes through alternative contracts while operating within U.S. financial and property law.
Critics contend federal entities should examine whether government-sponsored mortgage companies should accommodate financing structures expressly designed around Sharia standards and whether any broader financial, legal or national-security implications have received adequate scrutiny.
The source material says that national-security analysts including the Center for Security Policy have pressed those concerns for years, while Islamic finance advocates maintain that the products are simply religiously and ethically screened financial instruments available in a diverse market.
Pulte has not announced what specific action FHFA could take, whether the review will result in changes to Fannie Mae or Freddie Mac policies, or whether officials have identified any wrongdoing.
For now, his statement establishes that the federal regulator overseeing both mortgage giants is examining the programs.
“We are looking into this right now,” Pulte said.
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