Allen Price will quickly correct you if you call home equity investment (HEI) customers \u201cborrowers\u201d or the product a \u201cloan.\u201d<\/p>\n
\u201cThese are not borrowers because they are not borrowing money. This is not a loan but a contract,\u201d said Price, head of sales at BSI Financial Services<\/a><\/strong>, which services HEI portfolios for top originators in the space.<\/p>\n That distinction sits at the center of a growing identity debate for HEIs \u2014 one now spilling into lawsuits, regulatory scrutiny and broader questions about where the product fits in the housing finance ecosystem. In some cases, it has led companies to pull back from certain markets or avoid the product altogether.<\/p>\n Under an HEI<\/a>, a homeowner receives upfront cash in exchange for a share of the home\u2019s future value. They remain in the property, cover taxes, insurance and maintenance, and either settle when the home is sold or buy back the investor\u2019s stake.\u00a0<\/p>\n The pitch is simple \u2014 no monthly payments. That makes the product appealing to homeowners who can\u2019t or don\u2019t want to take on new debt<\/a>, particularly those shut out of traditional credit markets.<\/p>\n Data from the Urban Institute<\/strong><\/a> on shared equity products (SEPs) helps to explain the demand. In 2024, roughly 35% of applications for cash-out refinances, home improvement loans and home equity lines of credit (HELOCs) were denied, compared to just 9.8% of home purchase loans. About one in four HEI users had credit scores<\/a> below 600 \u2014 levels that typically preclude mortgage financing.<\/p>\n Homeowners who utilize HEIs typically tap about 15% of their home value, and more than 40% of these consumers are 55 or older<\/a>. While still a niche product, the market has scaled as the three largest providers \u2014 Point<\/strong>, Hometap <\/strong>and Unlock<\/strong> \u2014 originated roughly 54,000 agreements between 2015 and 2025, according to the research.<\/p>\n \u201cThe products are becoming more popular for a lot of homeowners. The market is scaling and, as such, that necessarily is going to raise regulatory attention,\u201d said Cliff Andrews, president of the Coalition for Home Equity Partnership <\/strong>(CHEP), a trade group founded in 2024 by Hometap, Point and Unlock that was later joined by Splitero<\/strong>. \u201cWe welcome the regulatory attention.\u201d\u00a0<\/p>\n Litigation is also building across states. <\/p>\n In Colorado<\/a>, a lawsuit filed in April alleges homeowners were \u201ctrapped\u201d in contracts that could require up to $278,000 to exit after receiving about $87,000 upfront. The plaintiffs claim the product was marketed as a \u201csimple, debt-free alternative.\u201d And a class-action suit filed in California<\/a> in March alleges a $97,000 payout in 2017 grew to $375,000 after eight years, implying an effective interest rate near 35%.<\/p>\n As early HEI vintages reach maturity, homeowners are starting to confront the reality of repaying a share of their home\u2019s appreciation. That dynamic is already fueling disputes, although Price said cases remain limited relative to the total number of originations.<\/p>\n \u201cConsumers are now realizing in real time, my house appreciated X percent over the past five, six, seven, eight years, and I need to give the originator 20% or 30% of that,\u201d Price said. \u201cCompanies understand that once that redemption period begins, there\u2019s going to be some angst around giving up that share of appreciation. The lawsuits are expected.\u201d<\/p>\n There\u2019s an ongoing, unsettled debate about whether HEI products carry an implicit rate and could be characterized as a loan.\u00a0<\/p>\n \u201cIt is absolutely accurate to market and describe shared-equity products as non-interest-based products,\u201d said Jim Riccitelli, CEO at Unlock<\/a>. \u201cBut it is critically important to understand the distinction between an interest rate, which applies to a loan, and an investment rate of return, which applies to a shared-equity product. <\/p>\n \u201cThat said, no interest rate doesn\u2019t mean no cost or \u2018no payment obligation,\u2019 and shared-equity products are never marketed that way.\u201d<\/p>\n For Andrews, the legal challenges are increasingly less about how HEIs function and more about how they\u2019re disclosed. Some disputes, he said, may stem from earlier vintages or uncapped structures. Today, most originators include homeowner protection caps \u2014 typically limiting investor returns to 18% to 20% annually \u2014 to mitigate extreme outcomes.<\/p>\n \u201cWe\u2019ve heard that this [the product] is going to lead to forced sales and this is equity stripping,\u201d Andrews said. \u201cThe present value benefit of these products is almost dismissed.\u201d<\/p>\n Riccitelli said that none of the originator members of the CHEP has ever initiated a foreclosure<\/a>.<\/p>\n But consumer attorneys take a different view. <\/p>\n Thomas Scott-Railton of Gupta Wessler LLP<\/strong>, who has represented consumers<\/a> in several recent lawsuits, argues the products fit within the definition of a mortgage. He said some legal challenges center on disclosure rules, but they also raise issues around state interest rate limits and federal prohibitions on mandatory arbitration agreements. Viewed through a mortgage lens, he said, the products are illegal.\u00a0<\/p>\n \u201cCourts have said \u2014 and this principle goes back hundreds of years \u2014 that when you\u2019re evaluating loan products, you have to look at substance over form,\u201d Scott-Railton said. \u201cWhen it comes to predatory lending<\/a>, ever since there was the first law capping interest rates, there\u2019s been a product designed to make loans look like something else.\u201d<\/p>\n In one of his cases, a homeowner\u00a0in New Jersey received just under 44% of her home\u2019s value but was\u00a0required to repay 70%, with a capped annual return rate of 18%.<\/p>\n \u201cThe caps are set so high that they don\u2019t meaningfully protect consumers compared to traditional mortgage products,\u201d he said. \u201cThey don\u2019t shield borrowers from the biggest risk, which is a large balloon payment that often forces a home sale to repay it.\u201d<\/p>\n Federal oversight of HEIs remains limited, with the Consumer Financial Protection Bureau <\/strong>(CFPB<\/a>) largely leaving enforcement to states.\u00a0<\/p>\n According to the Urban Institute research, the products fall under a mix of federal and state laws \u2014 including the Fair Credit Reporting Act, Federal Trade Commission Act and Fair Housing Act \u2014 as well as broader prohibitions on unfair, deceptive or abusive acts and practices. But they are not classified as \u201ccredit\u201d under the Truth in Lending Act.<\/p>\n The result is a patchwork of interpretations, with some states moving to regulate HEIs under mortgage frameworks. States including Colorado, Connecticut, Georgia, Illinois, Maryland, North Carolina, Oregon, Washington and Wisconsin have taken steps in that direction, according to the Urban Institute.\u00a0<\/p>\n In Washington<\/a>, a federal appeals court ruled that Unison<\/strong>\u2019s flagship product meets the definition of a reverse mortgage under state law.\u00a0\u00a0The company did not reply to HousingWire<\/strong>\u2018s request for comment on this story.<\/p>\n The most high-profile case is in Massachusetts<\/a>, where Attorney General Andrea Joy Campbell sued Hometap, alleging the product functions as an illegal reverse mortgage. The case is now in discovery, with an October 2026 deadline. <\/p>\n Campbell alleges the company \u201cdeliberately markets\u201d to \u201chouse-rich, cash-poor\u201d homeowners, including older borrowers and those with low credit scores, while Hometap has previously called the lawsuit \u201cunfounded\u201d and \u201cmeritless.\u201d Hometap deferred to CHEP for this story.<\/p>\n In Maine<\/a>, meanwhile, Gov. Janet Mills recently signed legislation to adopt a comprehensive statewide HEI framework, defining the products as \u201cshared appreciation mortgage loans.\u201d The law targets features that advocates like the National Consumer Law Center<\/strong> say can lead to large, unpredictable lump-sum payments and forced home sales.<\/p>\n Andrews said the outcome in Maine was \u201crushed,\u201d not \u201cevidence-based,\u201d and imposed mortgage-style requirements that the product cannot easily meet. \u201cWhen you can\u2019t comply, you can\u2019t operate. So, it functionally becomes, unfortunately, a de facto ban.\u201d<\/p>\n CHEP says it is working with states including Maryland, Connecticut, Illinois, Washington and Oregon on legal frameworks. It defends licensing, supervision, enhanced disclosures, counseling, cost caps, rescission periods and foreclosure protections.<\/p>\n Because HEIs are structured as equity investments rather than traditional credit, the lack of a tailored regulatory framework continues to create uncertainty, the Urban Institute said. Unlike mortgages, HEIs have no amortization, stated interest rate or monthly payments (making APR disclosures difficult), and underwriting is based on the amount of home equity rather than income or credit.<\/p>\n \u201cA clearer, standardized regulatory framework designed to fit the unique structure of SEPs would improve consumer protections while lowering the cost of capital and, ultimately, the cost of these products to homeowners,\u201d Urban Institute <\/strong>researchers Laurie Goodman and Katie Visalli wrote.<\/p>\n Regulatory uncertainty is rippling into the secondary market for HEIs<\/a>. Credit rating agencies are factoring uncertainty into their ratings, which directly affects securitization structure and costs. Because of this risk, lower-risk tranches are smaller than they otherwise might be, raising funding costs.<\/p>\n Securitization in the space is still relatively new. Unlock executed the first deal in 2021 that included HEI assets, while Point completed the first all-SEP securitization that same year. Unlock followed with the first rated SEP securitization in 2023. Today, Unlock, Hometap, Point, Splitero and Unison all have outstanding deals, with most of these companies contributing collateral to 2025 issuances.<\/p>\n \u201cFrom an investor\u2019s perspective, the appetite for the product is still very strong,\u201d Price said. \u201cIt has always been understood and always been expected that as the shared equity product continues to mature, that the regulatory and the compliance landscape would catch up.\u201d<\/p>\n Still, not all players are staying the course. Redwood Trust<\/strong><\/a>, which entered the space in early 2025, exited a few months ago as part of a broader shift toward a more capital-efficient model.<\/p>\n \u201cWe are actively reallocating both capital and human resources away from more balance sheet-intensive activities and toward our core mortgage banking platforms, where we see stronger near-term growth, more consistent returns, and the ability to better leverage third-party capital at scale,\u201d a Redwood spokesperson said. \u201cWe continue to believe in the long-term relevance of HEI as a product.\u201d\u00a0<\/p>\n Traditional reverse mortgage players<\/a> are also watching from the sidelines.<\/p>\nNon-interest-based product?<\/h2>\n
Product under scrutiny<\/h2>\n
Capital markets adjust<\/h2>\n