Senate Bill Classifies Home Equity Investments as Mortgages, Subjecting Them to Federal Consumer Protections

For millions of Americans, their home is their largest financial asset, but accessing that wealth traditionally requires taking on monthly debt. In recent years, a new financial product—the Home Equity Investment (HEI)—has surged in popularity by offering homeowners upfront cash with zero monthly payments.[3]

Instead of charging a fixed interest rate, HEI providers take a percentage of the home's future appreciation, collecting their share when the property is eventually sold or the contract matures. Because these products are structured as "investments" or "option contracts" rather than traditional debt, they have largely operated outside the strict bounds of federal mortgage regulations.[2]

That regulatory gray area may soon disappear. The Home Equity Lending Integrity Act (S. 4803), introduced in the U.S. Senate by Senator Jeff Merkley (D-OR), aims to formally classify HEIs as residential mortgage loans.[1]

If passed, the legislation would subject the rapidly growing HEI market to the federal Truth in Lending Act (TILA), bringing these agreements under the oversight of the Consumer Financial Protection Bureau (CFPB) and mandating standardized consumer disclosures.

To understand why this legislative shift matters, it is essential to understand the mechanics of an HEI. Unlike a Home Equity Line of Credit (HELOC) or a second mortgage, an HEI does not involve a loan balance, a fixed interest rate, or a monthly repayment schedule.[3]

A homeowner might receive $50,000 today in exchange for granting the HEI company a 15% or 20% stake in the home's future value. The homeowner continues to live in the property, pays the property taxes, and maintains the home just as they normally would.

The appeal is obvious for cash-strapped, "house-rich" consumers—particularly seniors or those with credit scores too low to qualify for traditional bank loans. The upfront cash can be used to pay off high-interest credit card debt, fund medical expenses, or cover home renovations without adding a new monthly bill to the household budget.[2][3]

However, the lack of a monthly payment masks the true cost of the capital. When the home is sold, or when the contract reaches its maturity date—typically 10 to 30 years later—the homeowner must pay back the original advance plus the investor's share of the home's appreciation.[2]

Because the final repayment amount is tied to future real estate prices, it is virtually unknowable at the time of signing. In rapidly appreciating housing markets, homeowners can find themselves owing a lump sum that equates to an annualized interest rate far higher than any traditional mortgage.[2]

Consumer advocates argue that this structure strips equity from vulnerable homeowners who do not fully grasp the long-term financial consequences. Without the standardized disclosures mandated by TILA, consumers cannot easily compare the cost of an HEI against a HELOC or a reverse mortgage.[1][2]

The Home Equity Lending Integrity Act seeks to close this loophole by amending Section 103 of TILA. By explicitly defining an HEI as a transaction secured by a dwelling where a consumer receives money in exchange for a future interest in the property, the bill forces these products into the established mortgage framework.

Under TILA, HEI providers would be required to provide clear, standardized disclosures detailing the potential annualized cost of the agreement. The bill also directs the CFPB to issue specific regulations governing enforcement and civil liability for HEI providers that violate consumer protection standards.[1]

The federal push follows a wave of recent action at the state level. In April 2026, Maine became the first state to pass comprehensive legislation classifying shared appreciation agreements as consumer loans, mandating independent counseling and a three-day right to cancel.

Other states have taken even more aggressive measures. Illinois recently adopted regulations that impose a strict 36% annualized percentage rate (APR) repayment cap on shared appreciation agreements, rendering any noncompliant contract null and void.[1]

Meanwhile, the Pennsylvania House of Representatives passed a bill by a bipartisan 190-11 margin that would subject HEI companies to transparency requirements and prohibit appraisal discounting practices that artificially reduce a home's value at the start of the contract.

The HEI industry has pushed back against the effort to shoehorn their products into traditional mortgage laws. The Coalition for Home Equity Partnership (CHEP), an industry group formed by major HEI providers, argues that applying TILA to equity-sharing contracts is fundamentally incompatible with how the products work.[3]

Industry representatives point out that because there is no loan balance or fixed interest rate, calculating a standard APR is impossible without making speculative assumptions about future home prices. They argue that over-regulation could kill a vital financial lifeline for homeowners who are locked out of the traditional credit market.[3]

Despite the regulatory uncertainty, the secondary market for HEIs is booming. Wall Street has shown a strong appetite for the asset class, with HEI-backed securitizations expanding from just two transactions in 2021 to over $1 billion in issuance in 2024, and projections exceeding $2 billion for 2025 and 2026.

This influx of institutional capital makes federal clarity all the more urgent. A patchwork of state laws creates compliance headaches for nationwide providers and uneven protections for consumers depending on where they live.

While the Home Equity Lending Integrity Act is still in its early stages before the Senate Committee on Banking, Housing, and Urban Affairs, its introduction signals a growing consensus that the era of unregulated home equity sharing is coming to an end. For consumers, the shift promises a future where unlocking home wealth comes with the transparency and safeguards they deserve.[1][4]