Homeowners in the United States collectively have trillions of dollars of equity in their homes. Most plan to use it for a wide range of goals, including paying for retirement or at-home care, leaving money to their children, paying down debts, paying for college, making home repairs, starting a business, and other nonpurchase reasons.
The traditional tools for accessing this equity are highly regulated home equity loans (including reverse mortgages). But some people who want to access their equity without selling the home lack the income or credit to qualify for a traditional mortgage.
In recent years, new business models have emerged offering products that purport to help people access their equity without a loan. These products come in different forms, but the basic transaction provides homeowners with a cash advance in exchange for a share of the future value of their home. For-profit companies market these products in various ways, calling them “shared appreciation contracts,” “option contracts,” or home equity sharing agreements. Wall Street calls them “home equity investments.” Some have also called it “home equity stealing.” For the purposes of this issue brief, we will refer to these contracts as home equity investment loans, or “HEIs.”
Whatever this product is called, it is a loan masquerading as obligation-free cash. The companies that market and sell them often use deception to lure financially struggling consumers into unconscionable, high-priced loans. The time has come for policymakers to protect homeowners from the risks this product poses and those who may abuse it. HEI loans are really just another form of mortgage and should be regulated like other forms of mortgage credit.
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