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As one of only a few states considering more stringent regulation of the home equity investment (HEI)/home equity contract product category, lawmakers in the state of Washington have requested an academic study to assess the impacts on state residents who may use an HEI to tap into their home equity.
The Washington State Department of Financial Institutions has commissioned a formal academic study on the topic of HEI products. It will be undertaken through the Evans Policy Innovation Collaboration (EPIC) at the University of Washington in Seattle.
The principal investigator of the study is Mariana Amorim, an associate professor in the department of sociology at Washington State University.
Amorim specializes in research on families, social policies and household economics, and will lead the study commissioned by the Department of Financial Institutions. The study will “investigate and analyze the impact of [HEIs], an emerging financial instrument,” according to a bulletin published by WSU.
“I was trained as a family demographer, and a lot of my work is about how people exchange time and money through family networks to allow everyone to thrive,” Amorim told the university.
“When families lack a private safety net, and when the government isn’t providing public support, families end up resorting to what is often called a shadow safety net, which are very expensive ways of accessing money.”
HEIs operate by giving a homeowner a single, upfront payment in exchange for a portion of the property’s future value. The companies offering them have often aimed to contrast these offerings with reverse mortgages, or other more traditional home equity tapping products like a home equity line of credit (HELOC).
“Home equity investments are a new way for consumers to access the wealth in their homes. It is not technically a loan but an option agreement. Yet, from the consumers’ perspective they are seen as akin to existing mortgage loans,” Amorim said.
The HEI market is currently small but is described as “rapidly growing.” WSU cited Consumer Financial Protection Bureau (CFPB) data on the space published shortly before the dismissal of former director Rohit Chopra, along with emerging consumer confusion around the products that have, in some cases, led to litigation.
Amorim also offered a point of comparison between HEIs and reverse mortgages in the educational arena.
“Some products out there, like reverse mortgages, require customers to partake in a counseling session before receiving the loan,” she said. “But for home equity investments, there are very few standardized requirements for companies on how to educate and inform consumers about how HEIs work.”
Amorim said that HEI products “are not currently included in Washington state’s Consumer Loan Act, which establishes basic protections for consumers,” the bulletin explained. “However, the current study is working closely with both the Department of Financial Institutions and companies active in the HEI market, sharing industry data and information through a collaborative effort.”
HEI products in Washington and a few other states have come under broader scrutiny in recent months.
Late last year, a lawsuit between an HEI provider and a cadre of its former customers in Washington spilled into public view during a court hearing. That case features plaintiffs who argue that HEIs are reverse mortgages — at least under state law.
The plaintiffs in that case also say that one company in question isn’t operating under the regulations that govern reverse mortgage products as it relates to things like interest rates or counseling requirements.
Earlier this year, the attorney general of Massachusetts filed a lawsuit against an HEI provider, alleging that its product constitutes an offer of “illegal reverse mortgages that fail to comply with state consumer protection laws.”
The companies in these cases — Unison and Hometap, respectively — deny the allegations and dispute the characterizations that plaintiffs have made about their HEI products.
