Byline: By richard siklos section: Section C; Column ; Business/Financial Desk; Pg. Length

ORGANIZATION: Levine, Stuart, & Associates
PERSON: Marcelle S Fischler; Stuart Levine
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LOAD-DATE: March 11, 2007
LANGUAGE: ENGLISH
GRAPHIC: Photo: ROAD MAP -- Stuart R. Levine offers his rules for getting the most out of life. (Photo by Phil Marino for The New York Times)
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Copyright 2007 The New York Times Company

1034 of 1258 DOCUMENTS

The New York Times
March 11, 2007 Sunday

Correction Appended

Late Edition - Final
Crisis Looms In Mortgages
BYLINE: By GRETCHEN MORGENSON
SECTION: Section 1; Column 5; National Desk; NEWS ANALYSIS; Pg. 1
LENGTH: 2651 words
On March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.

What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.

The analyst's untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn't the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago.

Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risky borrowers. Now, as then, bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned. Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending.

Investment manias are nothing new, of course. But the demise of this one has been broadly viewed as troubling, as it involves the nation's $6.5 trillion mortgage securities market, which is larger even than the United States treasury market.

Hanging in the balance is the nation's housing market, which has been a big driver of the economy. Fewer lenders means many potential homebuyers will find it more difficult to get credit, while hundreds of thousands of homes will go up for sale as borrowers default, further swamping a stalled market.

''The regulators are trying to figure out how to work around it, but the Hill is going to be in for one big surprise,'' said Josh Rosner, a managing director at Graham-Fisher & Company, an independent investment research firm in New York, and an expert on mortgage securities. ''This is far more dramatic than what led to Sarbanes-Oxley,'' he added, referring to the legislation that followed the WorldCom and Enron scandals, ''both in conflicts and in terms of absolute economic impact.''

While real estate prices were rising, the market for home loans operated like a well-oiled machine, providing ready money to borrowers and high returns to investors like pension funds, insurance companies, hedge funds and other institutions. Now this enormous and important machine is sputtering, and the effects are reverberating throughout Main Street, Wall Street and Washington.

Already, more than two dozen mortgage lenders have failed or closed their doors, and shares of big companies in the mortgage industry have declined significantly. Delinquencies on loans made to less creditworthy borrowers -- known as subprime mortgages --recently reached 12.6 percent. Some banks have reported rising problems among borrowers that were deemed more creditworthy as well.

Traders and investors who watch this world say the major participants -- Wall Street firms, credit rating agencies, lenders and investors -- are holding their collective breath and hoping that the spring season for home sales will reinstate what had been a go-go market for mortgage securities. Many Wall Street firms saw their own stock prices decline over their exposure to the turmoil.

''I guess we are a bit surprised at how fast this has unraveled,'' said Tom Zimmerman, head of asset-backed securities research at UBS, in a recent conference call with investors.

Even now the tone accentuates the positive. In a recent presentation to investors, UBS Securities discussed the potential for losses among some mortgage securities in a variety of housing markets. None of the models showed flat or falling home prices, however.

The Bear Stearns analyst who upgraded New Century, Scott R. Coren, wrote in a research note that the company's stock price reflected the risks in its industry, and that the downside risk was about $10 in a ''rescue-sale scenario.'' According to New Century, Bear Stearns is among the firms with a ''longstanding'' relationship financing its mortgage operation. Mr. Coren, through a spokeswoman, declined to comment.

Others who follow the industry have voiced more caution. Thomas A. Lawler, founder of Lawler Economic and Housing Consulting, said: ''It's not that the mortgage industry is collapsing, it's just that the mortgage industry went wild and there are consequences of going wild.

''I think there is no doubt that home sales are going to be weaker than most anybody who was forecasting the market just two months ago thought. For those areas where the housing market was already not too great, where inventories were at historically high levels and it finally looked like things were stabilizing, this is going to be unpleasant.''

Like worms that surface after a torrential rain, revelations that emerge when an asset bubble bursts are often unattractive, involving dubious industry practices and even fraud. In the coming weeks, some mortgage market participants predict, investors will learn not only how lax real estate lending standards became, but also how hard to value these opaque securities are and how easy their values are to prop up.

Owners of mortgage securities that have been pooled, for example, do not have to reflect the prevailing market prices of those securities each day, as stockholders do. Only when a security is downgraded by a rating agency do investors have to mark their holdings to the market value. As a result, traders say, many investors are reporting the values of their holdings at inflated prices.

''How these things are valued for portfolio purposes is exposed to management judgment, which is potentially arbitrary,'' Mr. Rosner said.

At the heart of the turmoil is the subprime mortgage market, which developed to give loans to shaky borrowers or to those with little cash to put down as collateral. Some 35 percent of all mortgage securities issued last year were in that category, up from 13 percent in 2003.

Looking to expand their reach and their profits, lenders were far too willing to lend, as evidenced by the creation of new types of mortgages -- known as ''affordability products'' -- that required little or no down payment and little or no documentation of a borrower's income. Loans with 40-year or even 50-year terms were also popular among cash-strapped borrowers seeking low monthly payments. Exceedingly low ''teaser'' rates that move up rapidly in later years were another feature of the new loans.

The rapid rise in the amount borrowed against a property's value shows how willing lenders were to stretch. In 2000, according to Banc of America Securities, the average loan to a subprime lender was 48 percent of the value of the underlying property. By 2006, that figure reached 82 percent.

Mortgages requiring little or no documentation became known colloquially as ''liar loans.'' An April 2006 report by the Mortgage Asset Research Institute, a consulting concern in Reston, Va., analyzed 100 loans in which the borrowers merely stated their incomes, and then looked at documents those borrowers had filed with the I.R.S. The resulting differences were significant: in 90 percent of loans, borrowers overstated their incomes 5 percent or more. But in almost 60 percent of cases, borrowers inflated their incomes by more than half.

A Deutsche Bank report said liar loans accounted for 40 percent of the subprime mortgage issuance last year, up from 25 percent in 2001.

Securities backed by home mortgages have been traded since the 1970s, but it has been only since 2002 or so that investors, including pension funds, insurance companies, hedge funds and other institutions, have shown such an appetite for them.

Wall Street, of course, was happy to help refashion mortgages from arcane and illiquid securities into ubiquitous and frequently traded ones. Its reward is that it now dominates the market. While commercial banks and savings banks had long been the biggest lenders to home buyers, by 2006, Wall Street had a commanding share -- 60 percent -- of the mortgage financing market, Federal Reserve data show.

The big firms in the business are Lehman Brothers, Bear Stearns, Merrill Lynch, Morgan Stanley, Deutsche Bank and UBS. They buy mortgages from issuers, put thousands of them into pools to spread out the risks and then divide them into slices, known as tranches, based on quality. Then they sell them.

The profits from packaging these securities and trading them for customers and their own accounts have been phenomenal. At Lehman Brothers, for example, mortgage-related businesses contributed directly to record revenue and income over the last three years.

The issuance of mortgage-related securities, which include those backed by home-equity loans, peaked in 2003 at more than $3 trillion, according to data from the Bond Market Association. Last year's issuance, reflecting a slowdown in home price appreciation, was $1.93 trillion, a slight decline from 2005.

In addition to enviable growth, the mortgage securities market has undergone other changes in recent years. In the 1990s, buyers of mortgage securities spread out their risk by combining those securities with loans backed by other assets, like credit card receivables and automobile loans. But in 2001, investor preferences changed, focusing on specific types of loans. Mortgages quickly became the favorite.

Another change in the market involves its trading characteristics. Years ago, mortgage-backed securities appealed to a buy-and-hold crowd, who kept the securities on their books until the loans were paid off. ''You used to think of mortgages as slow moving,'' said Glenn T. Costello, managing director of structured finance residential mortgage at Fitch Ratings. ''Now it has become much more of a trading market, with a mark-to-market bent.''

The average daily trading volume of mortgage securities issued by government agencies like Fannie Mae and Freddie Mac, for example, exceeded $250 billion last year. That's up from about $60 billion in 2000.

Wall Street became so enamored of the profits in mortgages that it began to expand its reach, buying companies that make loans to consumers to supplement its packaging and sales operations. In August 2006, Morgan Stanley bought Saxon, a $6.5 billion subprime mortgage underwriter, for $706 million. And last September, Merrill Lynch paid $1.3 billion to buy First Franklin Financial, a home lender in San Jose, Calif. At the time, Merrill said it expected First Franklin to add to its earnings in 2007. Now analysts expect Merrill to take a large loss on the purchase.

Indeed, on Feb. 28, as the first fiscal quarter ended for many big investment banks, Wall Street buzzed with speculation that the firms had slashed the value of their numerous mortgage holdings, recording significant losses.

As prevailing interest rates remained low over the last several years, the appetite for these securities only rose. In the ever-present search for high yields, buyers clamored for securities that contained subprime mortgages, which carry interest rates that are typically one to two percentage points higher than traditional loans. Mortgage securities participants say increasingly lax lending standards in these loans became almost an invitation to commit mortgage fraud. It is too early to tell how significant a role mortgage fraud played in the rocketing delinquency rates -- 12.6 percent among subprime borrowers. Delinquency rates among all mortgages stood at 4.7 percent in the third quarter of 2006.

For years, investors cared little about risks in mortgage holdings. That is changing.

''I would not be surprised if between now and the end of the year at least 20 percent of BBB and BBB- bonds that are backed by subprime loans originated in 2006 will be downgraded,'' Mr. Lawler said.

Still, the rating agencies have yet to downgrade large numbers of mortgage securities to reflect the market turmoil. Standard & Poor's has put 2 percent of the subprime loans it rates on watch for a downgrade, and Moody's said it has downgraded 1 percent to 2 percent of such mortgages that were issued in 2005 and 2006.

Fitch appears to be the most proactive, having downgraded 3.7 percent of subprime mortgages in the period.

The agencies say that they are confident that their ratings reflect reality in the mortgages they have analyzed and that they have required managers of mortgage pools with risky loans in them to increase the collateral. A spokesman for S.& P. said the firm made its ratings requirements more stringent for subprime issuers last summer and that they shored up the loans as a result.

Meeting with Wall Street analysts last week, Terry McGraw, chief executive of McGraw-Hill, the parent of S.& P., said the firm does not believe that loans made in 2006 will perform ''as badly as some have suggested.''

Nevertheless, some investors wonder whether the rating agencies have the stomach to downgrade these securities because of the selling stampede that would follow. Many mortgage buyers cannot hold securities that are rated below investment grade -- insurance companies are an example. So if the securities were downgraded, forced selling would ensue, further pressuring an already beleaguered market.

Another consideration is the profits in mortgage ratings. Some 6.5 percent of Moody's 2006 revenue was related to the subprime market.

Brian Clarkson, Moody's co-chief operating officer, denied that the company hesitates to cut ratings. ''We made assumptions early on that we were going to have worse performance in subprime mortgages, which is the reason we haven't seen that many downgrades,'' he said. ''If we have something that is investment grade that we need to take below investment grade, we will do it.''

Interestingly, accounting conventions in mortgage securities require an investor to mark his holdings to market only when they get downgraded. So investors may be assigning higher values to their positions than they would receive if they had to go into the market and find a buyer. That delays the reckoning, some analysts say.

''There are delayed triggers in many of these investment vehicles and that is delaying the recognition of losses,'' Charles Peabody, founder of Portales Partners, an independent research boutique in New York, said. ''I do think the unwind is just starting. The moment of truth is not yet here.''

On March 2, reacting to the distress in the mortgage market, a throng of regulators, including the Federal Reserve Board, asked lenders to tighten their policies on lending to those with questionable credit. Late last week, WMC Mortgage, General Electric's subprime mortgage arm, said it would no longer make loans with no down payments.

Meanwhile, investors wait to see whether the spring home selling season will shore up the mortgage market. If home prices do not appreciate or if they fall, defaults will rise, and pension funds and others that embraced the mortgage securities market will have to record losses. And they will likely retreat from the market, analysts said, affecting consumers and the overall economy.

A paper published last month by Mr. Rosner and Joseph R. Mason, an associate professor of finance at Drexel University's LeBow College of Business, assessed the potential problems associated with disruptions in the mortgage securities market. They wrote: ''Decreased funding for residential mortgage-backed securities could set off a downward spiral in credit availability that can deprive individuals of home ownership and substantially hurt the U.S. economy.''

URL: http://www.nytimes.com
SUBJECT: PERSONAL FINANCE (90%); MORTGAGE BANKING & FINANCE (90%); INDUSTRY ANALYSTS (90%); MORTGAGE BACKED SECURITIES (89%); MORTGAGE INVESTMENTS (89%); REAL ESTATE (88%); SARBANES OXLEY ACT (78%); MORTGAGE BANKING (78%); ENTREPRENEURSHIP (78%); HOUSING MARKET (78%); BANKING & FINANCE REGULATION (78%); RESIDENTIAL PROPERTY (78%); CORPORATE WRONGDOING (78%); INSURANCE (72%); BOND MARKETS (74%); HEDGE FUNDS (60%); MORTGAGE LOANS (58%); PRICE INCREASES (50%); BONDS (78%); DEREGULATION (74%); US SARBANES OXLEY ACT (78%) Housing; Mortgages; Credit; Stocks and Bonds; Defaulting; Regulation and Deregulation of Industry; Housing
COMPANY: NEW CENTURY FINANCIAL CORP (92%); BEAR STEARNS COS INC (58%); ENRON CORP (51%); ENRON CREDITORS RECOVERY CORP (51%)
TICKER: BSC (NYSE) (58%)
INDUSTRY: NAICS523110 INVESTMENT BANKING AND SECURITIES DEALING (58%); SIC6211 SECURITY BROKERS, DEALERS, & FLOTATION COMPANIES (58%); SIC4911 ELECTRIC SERVICES (51%); NAICS523110 INVESTMENT BANKING & SECURITIES DEALING (58%)
PERSON: Gretchen Morgenson
GEOGRAPHIC: NEW YORK, USA (79%) UNITED STATES (92%)
LOAD-DATE: March 11, 2007
LANGUAGE: ENGLISH
CORRECTION-DATE: March 20, 2007

CORRECTION: A chart with a front-page news analysis article on March 11 about a looming crisis in the mortgage market mislabeled the size of the market that trades mortgage-backed securities. It trades in hundreds of billions of dollars a day, not hundreds of millions.
GRAPHIC: Chart: ''A Booming Market''Mortgage-backed securities boomed along with the housing market as consumers borrowed ever more and took equity out of their homes. Now that housing has cooled, troubles in risky loans are causing tremors in this $6.5 trillion market.Graph tracks home equity extraction . . . since 1991 as the following: a percentage of disposable incomea percentage of gross domestic product*Graph tracks mortgage-backed securities issuance (both public agencies and private entities) since 1999.Graph tracks mortgage-backed securities trading (public agencies only) since 1999.*2006 figure is an estmate based on the first two quarters(Source by Portales Partners

Securities Industry and Financial Markets Association)(pg. 25)

DOCUMENT-TYPE: News Analysis
PUBLICATION-TYPE: Newspaper

Copyright 2007 The New York Times Company

1035 of 1258 DOCUMENTS

The New York Times
March 11, 2007 Sunday

Late Edition - Final

Between Black and Immigrant Muslims, an Uneasy Alliance
BYLINE: By ANDREA ELLIOTT
SECTION: Section 1; Column 1; Metropolitan Desk; DISTANT BROTHERS: Bridging a Divide; Pg. 1
LENGTH: 4292 words
Under the glistening dome of a mosque on Long Island, hundreds of men sat cross-legged on the floor. Many were doctors and engineers born in Pakistan and India. Dressed in khakis, polo shirts and the odd silk tunic, they fidgeted and whispered.

One thing stood between them and dinner: A visitor from Harlem was coming to ask for money.

A towering black man with a gray-flecked beard finally swept into the room, his bodyguard trailing him. Wearing a long, embroidered robe and matching hat, he took the microphone and began talking about a different group of Muslims, the thousands of African-Americans who have found Islam in prison.

''We are all brothers and sisters,'' said the visitor, known as Imam Talib.

The men stared. To some of them, it seemed, he was from another planet. As the imam returned their gaze, he had a similar sensation. ''They live in another world,'' he later said.

Only 28 miles separate Imam Talib's mosque in Harlem from the Islamic Center of Long Island. The congregations they each serve -- African-Americans at the city mosque and immigrants of South Asian and Arab descent in the suburbs -- represent the largest Muslim populations in the United States. Yet a vast gulf divides them, one marked by race and class, culture and history.

For many African-American converts, Islam is an experience both spiritual and political, an expression of empowerment in a country they feel is dominated by a white elite. For many immigrant Muslims, Islam is an inherited identity, and America a place of assimilation and prosperity.

For decades, these two Muslim worlds remained largely separate. But last fall, Imam Talib hoped to cross that distance in a venture that has become increasingly common since Sept. 11. Black Muslims have begun advising immigrants on how to mount a civil rights campaign. Foreign-born Muslims are giving African-Americans roles of leadership in some of their largest organizations. The two groups have joined forces politically, forming coalitions and backing the same candidates.

It is a tentative and uneasy union, seen more typically among leaders at the pulpit than along the prayer line. But it is critical, a growing number of Muslims believe, to surviving a hostile new era.

''Muslims will not be successful in America until there is a marriage between the indigenous and immigrant communities,'' said Siraj Wahhaj, an African-American imam in New York with a rare national following among immigrant Muslims. ''There has to be a marriage.''

The divide between black and immigrant Muslims reflects a unique struggle facing Islam in America. Perhaps nowhere else in the world are Muslims from so many racial, cultural and theological backgrounds trying their hands at coexistence. Only in Mecca, during the obligatory hajj, or pilgrimage, does such diversity in the faith come to life, between black and white, rich and poor, Sunni and Shiite.

''This is a new experiment in the history of Islam,'' said Ali S. Asani, a professor of Islamic studies at Harvard University.

That evening in October, Imam Al-Hajj Talib 'Abdur-Rashid drove to Westbury, on Long Island, with a task he would have found unthinkable years ago.

He would ask for donations from the immigrant community he refers to, somewhat bitterly, as the ''Muslim elite.''

But he needed funds, and the doors of immigrant mosques seemed to be opening. Imam Talib and other African-American leaders had formed a national ''indigenous Muslim'' organization, and he knew that during the holy month of Ramadan, the Islamic Center of Long Island could raise thousands of dollars in an evening.

It is a place where BMWs and Mercedes-Benzes fill the parking lot, and Coach purses are perched along prayer lines.

In Harlem, many of Imam Talib's congregants get to the mosque by bus or subway, and warm themselves with space heaters in a drafty, brick building.

Before the terrorist attacks of Sept. 11, Imam Talib had only a distant connection to the Islamic Center of Long Island. In passing, he had met Faroque Khan, an Indian-born doctor who helped found the mosque, but the two had little in common.

Imam Talib, 56, is a thundering prison chaplain whose mosque traces its roots to Malcolm X. He is a first-generation Muslim.

Dr. Khan, 64, is a mild-mannered pulmonologist who collects Chinese antiques and learned to ski on the slopes of Vermont. He is a first-generation American.

But in the turmoil that followed Sept. 11, the imam and the doctor found themselves unexpectedly allied.

''The more separate we stay, the more targeted we become,'' Dr. Khan said.

Each man recognizes what the other has to offer. African-Americans possess a cultural and historical fluency that immigrants lack, said Dr. Khan; they hold an unassailable place in America from which to defend their faith.

For Imam Talib, immigrants provide a crucial link to the Muslim world and its tradition of scholarship, as well as the wisdom that comes with an ''unshattered Islamic heritage.''

Both groups have their practical virtues, too. African-Americans know better how to mobilize in America, both men say, and immigrants tend to have deeper pockets.

Still, it is one thing to talk about unity, Imam Talib said, and another to give it life. Before his visit to Long Island last fall, he had never asked Dr. Khan and his mosque to match their rhetoric with money.

''You have to have a litmus test,'' he said.One Faith, Many Histories

Imam Talib and Dr. Khan did not warm to each other when they met in May 2000, at a gathering in Chicago of Muslim leaders.

The imam found the silver-haired doctor faintly smug and paternalistic. It was an attitude he had often whiffed from well-to-do immigrant Muslims. Dr. Khan found Imam Talib straightforward to the point of bluntness.

The uneasy introduction was, for both men, emblematic of the strained relationship between their communities.

Imam Talib and other black Muslims trace their American roots to the arrival of Muslims from West Africa as slaves in the South. That historical link gave rise to Islam-inspired movements in the 20th century, the most significant of which was the Nation of Islam.

The man who founded the Nation in 1930, W. D. Fard, spread the message that American blacks belonged to a lost Muslim tribe and were superior to the ''white, blue-eyed devils'' in their midst. Under Mr. Fard's successor, Elijah Muhammad, the Nation flourished in the 1960s amid the civil rights struggle and the emergence of a black-separatist movement.

Overseas, Islamic scholars found the group's teachings on race antithetical to the faith. The schism narrowed after 1975, when Mr. Muhammad's son Warith Deen Mohammed took over the Nation, bringing it in line with orthodox Sunni Islam. Louis Farrakhan parted ways with Mr. Mohammed -- taking the Nation's name and traditional teachings with him -- but the majority of African-American adherents came to embrace the same Sunni practice that dominates the Muslim world.

Still, divisions between African-American and immigrant Muslims remained pronounced long after the first large waves of South Asians and Arabs arrived in the United States in the 1960s.

Today, of the estimated six million Muslims who live in the United States, about 25 percent are African-American, 34 percent are South Asian and 26 percent are Arab, said John Zogby, a pollster who has studied the American Muslim population.

''Given the extreme from which we came, I would say that the immigrant Muslims have been brotherly toward us,'' Warith Deen Mohammed, who has the largest following of African-American Muslims, said in an interview. ''But I think they're more skeptical than they admit they are. I think they feel more comfortable with their own than they feel with us.''

For many African-Americans, conversion to Islam has meant parting with mainstream culture, while Muslim immigrants have tended toward assimilation. Black converts often take Arabic names, only to find foreign-born Muslims introducing themselves as ''Moe'' instead of ''Mohammed.''

The tensions are also economic. Like Dr. Khan, many Muslim immigrants came to the United States with advanced degrees and quickly prospered, settling in the suburbs. For decades, African-Americans watched with frustration as immigrants sent donations to causes overseas, largely ignoring the problems of poor Muslims in the United States.

Imam Talib found it impossible to generate interest at immigrant mosques in the 1999 police shooting of Amadou Diallo, who was Muslim. ''What we've found is when domestic issues jump up, like police brutality, all the sudden we're by ourselves,'' he said.

Some foreign-born Muslims say they are put off by the racial politics of many black converts. They struggle to understand why African-American Muslims have been reluctant to meet with law enforcement officials in the wake of Sept. 11. For their part, black Muslim leaders complain that immigrants have failed to learn their history, which includes a pattern of F.B.I. surveillance dating back to the roots of the Nation of Islam.

The ironies are, at times, stinging.

''From the immigrant community, I hear that African-Americans have to learn how to work in the system,'' said Nihad Awad, the executive director of the Council on American Islamic Relations, adding that this was not his personal opinion.

At the heart of the conflict is a question of leadership. Much to the ire of African-Americans, many immigrants see themselves as the rightful leaders of the faith in America by virtue of their Islamic schooling and fluency in Arabic, the original language of the Koran.

''What does knowing Arabic have to do with the quality of your prayer, your fast, your relationship with God?'' asked Ihsan Bagby, an associate professor of Islamic studies at the University of Kentucky in Lexington. ''But African-Americans have to ask themselves why have they not learned more in these years.''

Every year in Chicago, the two largest Muslim conventions in the country -- one sponsored by an immigrant organization and the other by Mr. Mohammed's -- take place on the same weekend, in separate parts of the city.

The long-simmering tension boiled over into a public rift with the 2000 presidential elections. That year, a powerful coalition of immigrant Muslims endorsed George W. Bush (because of a promise to stop the profiling of Arabs).

The nation's most prominent African-American Muslims complained that they were never consulted. The following summer, when Imam Talib vented his frustration at a meeting with immigrant leaders in Washington, a South Asian man turned to him, he recalled, and said, ''I don't understand why all of you African-American Muslims are always so angry about everything.''

Imam Talib searched for an answer he thought the man could understand.

''African-Americans are like the Palestinians of this land,'' he finally said. ''We're not just some angry black people. We're legitimately outraged and angry.''

The room fell silent.

Soon after, black leaders announced the creation of the Muslim Alliance in North America, their first national ''indigenous'' organization.

But the fallout over the elections was soon eclipsed by Sept. 11, when Muslim immigrants found themselves under intense public scrutiny. They began complaining about ''profiling'' and ''flying while brown,'' appropriating language that had been largely the domain of African-Americans.

It was around this time that Dr. Khan became, as he put it, enlightened. A few weeks before the terrorist attacks, he read the book ''Black Rage,'' by William H. Grier and Price M. Cobbs. The book, published in 1968, explores the psychological woes of African-Americans, and how the impact of racism is carried through generations.

''It helped me understand that even before you're born, things that happened a hundred years ago can affect you,'' Dr. Khan said. ''That was a big change in my thinking.''

He sent an e-mail message to fellow Muslims, including Imam Talib, sharing what he had learned.

The Harlem imam was pleased, if not yet convinced.

''I just encouraged the brother to keep going,'' Imam Talib said.An Oasis in Harlem

One windswept night in Harlem, cars rolled past the corner of West 113th Street and St. Nicholas Avenue. A police siren blared as men huddled by a neon-lit Laundromat.

Across the street stood a brown brick building, lifeless from the outside. But upstairs, in a cozy carpeted room, rows of men and women chanted.

''Ya Hakim. Ya Allah.'' O wise one. O God.

Imam Talib led the chant, swathed in a black satin robe. It was Ramadan's holiest evening, the Night of Power. As the voices died down, he spotted his bodyguard swaying.

''Take it easy there, Captain,'' Imam Talib said. ''As long as you don't jump and shout it's all right.''

Laughter trickled through the mosque, where a translucent curtain separated men in skullcaps from women in African-print gowns.

''We're just trying to be ourselves, you know?'' Imam Talib said. ''Within the tradition.''

''That's right,'' said one woman.

The imam continued: ''And we can't let other people, from other cultures, come and try to make us clones of them. We came here as Muslims.''

He was feeling drained. He had just returned from the Manhattan Detention Complex, where he works as a chaplain. Some of the mosque's men were back in jail.

''We need power,'' he said quietly. ''Without that, we'll destroy ourselves.''

Since its birth in 1964, the Mosque of Islamic Brotherhood has been a fortress of stubborn faith, persevering through the crack wars, welfare, AIDS, gangs, unemployment, diabetes, broken families and gentrification.

The mosque was founded in a Brooklyn apartment by Shaykh-'Allama Al-Hajj K. Ahmad Tawfiq, a follower of Malcolm X. The Sunni congregation boomed in the 1970s, starting a newspaper and opening a school and a health food store.

With city loans, it bought its current building. Fourteen families moved in, creating a bold Muslim oasis in a landscape of storefront churches and liquor stores. The mosque claimed its corner by drenching the sidewalk in dark green paint, the color associated with Islam.

The paint has since faded. The school is closed. Many of the mosque's members can no longer afford to live in a neighborhood where brownstones sell for millions of dollars.

But an aura of dignity prevails. The women normally pray one floor below the men, in a scrubbed, tidy room scented with incense. Their bathroom is a shrine of gold curtains and lavender soaps. A basket of nylon roses hides a hole in the wall.

Most of the mosque's 160 members belong to the working class, and up to a third of the men are former convicts.

Some congregants are entrepreneurs, professors, writers and musicians. Mos Def and Q-Tip have visited with Imam Talib, who carries the nickname ''hip-hop imam.''

Mosque celebrations are a blend of Islam and Harlem. In October, at the end of Ramadan, families feasted on curried chicken and collard greens, grilled fish and candied yams.

Just before the afternoon prayer, a lean man in a black turtleneck rose to give the call. He was Yusef Salaam, whose conviction in the Central Park jogger case was later overturned.

Many of the mosque's members embraced Islam in search of black empowerment, not black separatism. They describe racial equality as a central tenet of their faith. Yet for some, the promise of Islam has been at odds with the reality of Muslims.

One member, Aqilah Mu'Min, lives in the Parkchester section of the Bronx, a heavily Bangladeshi neighborhood. Whenever she passes women in head scarves, she offers the requisite Muslim greeting. Rarely is it returned. ''We have a theory that says Islam is perfect, human beings are not,'' said Ms. Mu'Min, a city fraud investigator.

It was the simplicity of Islam that drew Imam Talib.

Raised a Christian, he spent the first part of his youth in segregated North Carolina. As a teenager, he read ''The Autobiography of Malcolm X'' twice. He began educating himself about the faith at age 19, when as an aspiring actor he was cast in a play about a man who had left the Nation of Islam.

But his conversion was more spiritual than political, he said.

''I'd like to think that even if I was a white man, I'd still be a Muslim because that's the orientation of my soul,'' the imam said.

He has learned some Arabic, and traveled once to the Middle East, for hajj. Yet he feels more comfortable with the Senegalese and Guinean Muslims who have settled in Harlem than with many Arabs and South Asians.

He is trying to reach out, but is often disappointed.

In November, he accepted a last-minute invitation to meet with hundreds of immigrants at the Islamic Cultural Center of New York, an opulent mosque on East 96th Street.

The group, the Coalition for Muslim School Holidays, was trying to persuade the city to recognize two Muslim holidays on the school calendar. The effort, Imam Talib learned, had been nearly a year in the making, and no African-American leaders had been consulted.

He was stunned. After all, he had led a similar campaign in the 1980s, resulting in the suspension of alternate-side parking for the same holidays.

''They are unaware of the foundations upon which they are standing,'' he said.Backlash in the Suburbs

Brush Hollow Road winds through a quiet stretch of Long Island, past churches and diners and leafy cul-de-sacs. In this tranquil tableau, the Islamic Center of Long Island announces itself proudly, a Moorish structure of white concrete topped by a graceful dome.

Sleek sedans and S.U.V.'s circle the property as girls with Barbie backpacks hop out and scurry to the Islamic classes they call ''Sunday school.''

It is a testament to America's influence on the mosque that its liveliest time of the week is not Friday, Islam's holy day, but Sunday.

Boys in hooded sweatshirts smack basketballs along the pavement by a sign that reads ''No pray, no play.'' Young mothers in Burberry coats exchange kisses and chatter.

For members of the mosque -- many of whom work in Manhattan and cannot make the Friday prayer -- Sunday is the day to reflect and connect.

The treasurer, Rizwan Qureshi, frantically greeted drivers one Sunday morning with a flier advertising a fund-raiser.

''We're trying to get Barack Obama,'' Mr. Qureshi, a banker born in Karachi, told a woman in a gold-hued BMW.

''We need some real money,'' he called out to another driver.

The mosque began with a group of doctors, engineers and other professionals from Pakistan and India who settled in Nassau County in the early 1970s.

''Our kids would come home from school and say, 'Where is my Christmas tree, my Hanukkah lights?' '' recalled Dr. Khan, who lives in nearby Jericho. ''We didn't want them to grow up unsure of who they are.''

Since opening in 1993, the mosque has thrived, with assets now valued at more than $3 million. Hundreds of people pray there weekly, and thousands come on Muslim holidays.

The mosque has an unusually modern, democratic air. Men and women worship with no partition between them. A different scholar delivers the Friday sermon every week, in English.

Perhaps most striking, a majority of female worshipers do not cover their heads outside the mosque.

''I think it's important to find the fine line between the religion and the age in which we live,'' said Nasreen Wasti, 43, a contract analyst for Lufthansa. ''I'm sure I will have to answer to God for not covering myself. But I'm also satisfied by many of the good deeds I am doing.''

She and other members use words like ''progressive'' to describe their congregation. But after Sept. 11, a different image took hold.

In October 2001, a Newsday article quoted a member of the mosque as asking ''who really benefits from such a horrible tragedy that is blamed on Muslims and Arabs?'' A co-president of the mosque was also quoted saying that Israel ''would benefit from this tragedy.''

Conspiracy theories about Sept. 11 have long circulated among Muslims, and Dr. Khan had heard discussion among congregants. Such talk, he said, was the product of two forces: a deep mistrust of America's motives in the Middle East and a refusal, among many Muslims, to engage in self-criticism.

''You blame the other guy for your own shortcomings,'' said Dr. Khan.

He visited synagogues and churches after the article ran, reassuring audiences that the comments did not reflect the official position of the mosque, which condemned the attacks.

But to Congressman Peter T. King, whose district is near the mosque, that condemnation fell short. He began publicly criticizing Dr. Khan, asserting that he had failed to fully denounce the statements made by the men.

''He's definitely a radical,'' Mr. King said of Dr. Khan in an interview. ''You cannot, in the context of Sept. 11, allow those statements to be made and not be a radical.''

When asked about Mr. King's comments, Dr. Khan replied proudly, ''I thought we had freedom of speech.''

It hardly seems possible that Mr. King and Dr. Khan were once friends.

Mr. King used to dine at Dr. Khan's home. He attended the wedding of Dr. Khan's son, Arif, in 1995. At the mosque's opening, it was Mr. King who cut the ribbon.

After Sept. 11, the mosque experienced the sort of social backlash felt by Muslims around the country. Anonymous callers left threatening messages, and rocks were hurled at children from passing cars.

The attention waned over time. But Mr. King cast a new light on the mosque in 2004 with the release of his novel ''Vale of Tears.''

In the novel, terrorists affiliated with a Long Island mosque demolish several buildings, killing hundreds of people. One of the central characters is a Pakistani heart surgeon whose friendship with a congressman has grown tense.

''By inference, it's me,'' Dr. Khan said of the Pakistani character. (Mr. King said it was a ''composite character'' based on several Muslims he knows.)

For Dr. Khan, his difficulties after Sept. 11 come as proof that Muslims cannot stay fragmented. ''It's a challenge for the whole Muslim community -- not just for me,'' he said. ''United we stand, divided we fall.''The Litmus Test

Imam Talib and his bodyguard set off to Westbury before dusk on Oct. 14. They passed a fork on the Long Island Expressway, and the imam peered out the window. None of the signs were familiar.

He checked his watch and saw that he was late, adding to his unease. He had visited the mosque a few times before, but never felt entirely at home.

''I'm conscious of being a guest,'' he said. ''They treat me kindly and nicely. But I know where I am.''

At the Islamic Center of Long Island, Dr. Khan was also getting nervous. Hundreds of congregants had gathered after fasting all day for Ramadan. The scent of curry drifted mercilessly through the mosque.

Dr. Khan sprang to his feet and took the microphone. He improvised.

''All of us need to learn from and understand the contributions of the Muslim indigenous community,'' he said. ''Starting with Malcolm X.''

It had been six years since Imam Talib and Dr. Khan first encountered each other in Chicago. Back then, Imam Talib rarely visited immigrant mosques, and Dr. Khan had only a peripheral connection to African-American Muslims.

In the 1980s, the doctor had become aware of the high number of Muslim inmates while working as the chief of medicine for a hospital in Nassau County that oversaw health care at the county prison. His mosque began donating prayer rugs, Korans and skullcaps to prisoners around the country. But his interaction with black Muslim leaders was limited until Sept. 11.

After Dr. Khan read the book ''Black Rage,'' he and Imam Talib began serving together on the board of a new political task force. Finally, in 2005, Dr. Khan invited the imam to his mosque to give the Friday sermon.

That February, Imam Talib rose before the Long Island congregation. Blending verses in the Koran with passages from recent American history, he urged the audience to learn from the civil rights movement.

Dr. Khan listened raptly. Afterward, over sandwiches, he asked Imam Talib for advice. He wanted to thaw the relationship between his mosque and African-American mosques on Long Island. The conversation continued for hours.

''The real searching for an answer, searching for a solution, was coming from Dr. Khan,'' said Imam Talib. ''I could just feel it.''

Dr. Khan began inviting more African-American leaders to speak at his mosque, and welcomed Imam Talib there last October to give a fund-raising pitch for his organization, the Muslim Alliance in North America. The group had recently announced a ''domestic agenda,'' with programs to help ex-convicts find housing and jobs and to standardize premarital counseling for Muslims in America.

After the imam arrived that evening and spoke, he sat on the floor next to a blazer-clad Dr. Khan. As they feasted on kebabs, the doctor made a pitch of his own: The teenagers of his mosque could spend a day at Imam Talib's mosque, as the start of a youth exchange program. The imam nodded slowly.

Minutes later, the mosque's president, Habeeb Ahmed, hurried over. The congregants had so far pledged $10,000.

''Alhamdulillah,'' the imam said. Praise be to God.

It was the most Imam Talib had raised for his group in one evening.

As the dinner drew to a close, the imam looked for his bodyguard. They had a long drive home and he did not want to lose his way again.

Dr. Khan asked Imam Talib how he had gotten lost.

''Inner city versus the suburbs,'' the imam replied a bit testily.

Then he smiled.

''The only thing it proves,'' he said, ''is that I need to come by here more often.''