Halachic Musings

By Rabbi Yair Hoffman

First it was the thrips and aphids in the strawberries. Then it was the copepods in New York City water.

And now, it is mortgages or refinancing from Quicken Loans.

Yes, it seems that using this monolith of an online mortgage originator is a major no-no for Jewish people who wish to keep halachah.

Leading poskim have reached out to the Five Towns Jewish Times and asked that we alert our readers to this topic.

Rav Yisroel Reisman, shlita, a noted posek, rav, rosh yeshiva, and author of ArtScroll’s The Laws of Ribbis, told this author, “We are disappointed that Quicken Loans does not allow the use of a heter iska for those who request to do so. Therefore, we cannot avail ourselves of loans from them. There is 77% Jewish ownership of this company.”

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Philosophical Explanation

Before we get into the details, however, let us try to provide some philosophical explanation. Imagine the following scenario:

The family lives in the Old Country. The eldest son has emigrated; he has made it to New York and has an apartment on the Lower East Side of Manhattan. Another son is about to seek his fortune in New York and needs a place to stay. He arrives at the brother’s house. The brother tells him, “Look, brother, you can stay in my apartment, no problem. And I will even charge you less than the standard rate. It will only be $20 per night!” The parents would certainly be upset at their eldest son’s behavior. This is not the way one behaves with a brother.

By the same token, the Torah views all Jewish people as one family. When a brother or sister needs a loan, therefore, we do not charge them interest, just as we would not charge them rent when they stay by us. Indeed, there are six prohibitions in the Torah associated with charging interest. The prohibition is called “ribbis,” interest, or “neshech.” Anyone who has ever taken out an interest-bearing loan can appreciate the fact that neshech comes from the Hebrew root word “bite.” Interest payments certainly do feel like a serious snakebite.

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Quicken Loans

Quicken Loans offers remarkably reasonable rates and is used by thousands of observant Jews. It is the largest online mortgage lender in the nation, and the second-largest overall. Quicken Loans is located in Detroit, Michigan, and employs over 13,000 people.

The problem is that it is owned by a corporation that is mostly owned and controlled by a Jew named Dan Gilbert, and unless something called a heter iska is implemented by the owner of the corporation, there are numerous prohibitions involved in obtaining a mortgage through this company.

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Heter Iska: A History

A heter iska is essentially a document that converts a monetary loan into a joint business venture, with a silent partner and an active partner. Originally, the idea was based upon a Gemara in Bava Metzia 104b. The active partner accepts responsibility on a certain percentage (often half the amount), while the silent partner accepts responsibility on any profits or losses involving the other portion of the money. The problem is that now there is a ribbis problem the other way. The active partner is working on behalf of the silent partner without pay. This is benefiting the silent partner for use of the money. The solution is that if the silent partner pays the active partner for his work or time, then the ribbis problem is addressed when arrangements were made beforehand. However, since the silent partner is also working for himself, only a minimum or symbolic payment is necessary. The custom is thus for the banker to hand the person taking the loan a $1 bill.

However, this solution was not as financially reassuring to lenders, and thus Rav Yisroel Isserlin (1390—1460), author of the Terumas HaDeshen (#302), developed a concept that the active partner would not be believed to say that there were losses unless two witnesses testified to that effect.

Eventually, the Maharam (Vol. II #216), Rav Menachem Mendel ben Avigdor, the av beis din of Cracow, expanded this concept to also include the active partner not being believed on the profits. He made a number of other tweaks as well. One of them was the institution of a knas, a fine, instead of the active partner taking an oath. The knas could actually be a formula that mimics interest. The Mabit (Vol. I #244) also made some tweaks and updates.

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Are Corporations People Too?

Rav Moshe Feinstein, zt’l (Igros Moshe YD II #62) writes that a person may loan money to a corporation without violating the restriction of ribbis. Some poskim disagree with this leniency. Regardless, even Rav Moshe would agree that the prohibition exists when the borrower is an individual and not a corporation.

Generally speaking, the issue of banking has been the subject of great debate well over a century ago. The Kitzur Shulchan Aruch (65:28) even forbade depositing funds in a bank where they would lend to Jewish clients. The Sho’el u’Meishiv (MK III #31) disagreed, but did agree that a Jewish-owned bank would be subject to issues of ribbis. The Maharam Shick (YD #158) viewed a corporation as a unique entity, but only permitted it to collect rabbinically forbidden ribbis, not regular (biblically forbidden) interest. The Maharshag (YD #5) held a similar view. The previous poskim, however, seemed to view corporations as a form of partnership.

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Personal Loans

But a home mortgage is not necessarily a business venture. Can funds obtained from such a business venture be used for a personal loan?

The Sho’el u’Meishiv (Vol. III #170) rules that it can, but other poskim rule that it cannot, even though the Maharam permitted it as well. Some have developed a method where the acting partner must have certain other assets available that can also earn profits, and that the active partner must take halachic possession of this in order to allow the funds of the silent partner to be used for personal use.

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Legal Enforceability

Does the heter iska have to be a legally enforceable document or may it simply be a halachic document? Dayan Blau, zt’l, held that it did not need to be legally enforceable (see also Sefer Bris Yehuda #40). Others, however, seem to be of the opinion that it does.

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What If It’s

A Done Deal?

What should one do if the loan is already a done deal? May the ribbis be paid anyway? Doesn’t Quicken sell off the loan immediately? Many poskim have stated that the loan must be refinanced as soon as possible. There are some solutions that may perhaps mitigate the problem, such as having the payments made automatically, where the bank is doing it rather than the individual. Others have questioned this approach since the borrower has still arranged for a ribbis payment. Another approach is to make the ribbis portion of the payment hefker (ownerless) and allow someone else to take this money and pay the bank. This is risky because that other party may actually keep that money if he or she wishes. These questions are complex, so each borrower should consult his or her own rav or posek.

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Are Amortization Schedules Halachic?

Another question involves what is halachically considered principal and what is considered interest. There is such a thing as an amortization schedule where, depending upon how far along the loan is, some of each payment is considered principal and some is considered interest. Rav Moshe Feinstein writes (Igros Moshe YD III Hilchos Ribbis 161:23) that until the loan is paid off, all the payments are halachically considered principal.

If this is correct, then the last payments the borrower would be making would be considered ribbis–rather than a portion of the first one or two payments (assuming that it was sold after this point).

Yet this is difficult to consider, since the banking laws in every state provide that the amortization schedule tables determine the payoff amounts and that the consumer must be informed of them. Regardless, each person should ask his rav or posek what part of his payments are considered ribbis and what is considered the principal. It is this author’s contention and understanding that since state law determines what is considered the principal and the interest, the whole loan is halachically considered as a bunch of mini loans bound together.

There is a huge difference in this regard as to how to deal with the payments of the loan that have exceeded the original loan amount.

At this point, however, Quicken does not seem to have agreed to work with a heter iska, so let the borrower beware.

The author can be reached at Yairhoffman2@gmail.com.