MCLEAN, VA. - Freddie Mac announced Wednesday that it is investing in home financing contracts that are acceptable under Islamic religious law, which prohibits the payment of interest.

Freddie Mac said it had invested close to $1 million in contracts from American Finance House Lariba, a Pasadena, Calif., lender that offers special home financing for Muslims.

American Finance House negotiates rental payments based on the property's sale price. The contracts use standard real estate financing documents in accordance with state and local law and are serviced like conventional Freddie Mac mortgages, Freddie said.

American Finance House is offering the product in 15 states: Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, Oregon, Texas, Virginia, and Washington. Availability is pending in Alabama, Connecticut, Nevada, North Carolina, Pennsylvania, and Ohio.

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