Industry coalition lauds adoption of home equity investment regulations in Illinois

Regulators in Illinois have approved what a group of home equity investment (HEI) providers calls the most comprehensive state regulatory framework to date for shared equity products, a fast-growing alternative to traditional home equity loans and reverse mortgages.

The rule was adopted under the Illinois Department of Financial and Professional Regulation (IDFPR)’s mortgage licensing regulations. It governs shared equity products, which Illinois law refers to as shared appreciation agreements, according to a recent announcement from the Coalition for Home Equity Partnership (CHEP).

The framework brings shared equity products under the state’s Residential Mortgage License Act of 1987 and is intended to balance consumer protections with continued access to the products. Home equity investments, or shared equity agreements, typically allow homeowners to access cash in exchange for a share of future home price appreciation instead of taking on new monthly debt.

Details of the Illinois rule

The rule is the result of a multistage, stakeholder-driven process in which IDFPR made more than 120 changes between the first and second public notices of the proposal, CHEP said. Participants in the process included consumer advocates, industry providers and other interested parties.

The final regulation integrates HEIs into the existing mortgage licensing framework under Public Act 103-1015. It establishes operating requirements and restrictions specific to shared equity contracts.

It also creates a new standardized disclosure form designed to show homeowners the potential costs of shared equity products through cost-scenario tables. And it introduces “fit-for-purpose” alternatives to certain traditional mortgage rules, including the ability-to-repay standard, to address structural differences between shared equity contracts and mortgage loans.

CHEP said the new disclosure form substantially incorporates its proposed model structure and approach for explaining costs and tradeoffs to homeowners.

The approach in Illinois stands in stark contrast to a recently adopted law in Maine, which received support from the state’s consumer protection bureau and the National Consumer Law Center. Jim Riccitelli, CEO of Unlock, a leading HEI provider, told HousingWire‘s Reverse Mortgage Daily (RMD) that the changes in Maine effectively bar the products from being offered there.

“Maine’s law was modeled on mortgage loan statutes without adequate adjustment for the structural differences that make shared-equity products work,” Riccitelli said. “The result is a framework that cannot be operationalized — not because the goal of consumer protection is wrong, but because the wrong tool was applied to the job. So you will not see any shared-equity products offered in Maine, and Maine homeowners will unfortunately not have the opportunity to avail themselves of the benefits they offer.”

Broader context

Shared equity and home equity investment products have grown in recent years as homeowners with significant untapped equity look for non-debt options to access cash amid higher interest rates.

The products have also drawn scrutiny from law firms and regulators concerned about consumer understanding of the complex long-term pricing and contract terms contained in HEIs.

While HEIs remain small in scope, reverse mortgage professionals have expressed caution or outright opposition to the products.

“We should have no filter to talk about these products,” REVERSE plus co-founder Dan Hultquist said earlier this month at the Reverse Mastermind Summit. “Understand what they are and do your research. If you don’t recognize how predatory these products are, do the math. …  If I have my way, those products will be banned,” he said.

Illinois joins Connecticut and Maryland, which previously adopted more limited frameworks for these arrangements. CHEP characterized the Illinois rule as the most comprehensive so far and “a regulatory beacon” for other states considering how to oversee the sector. The group expects the framework to influence development of more uniform national standards over time.

For mortgage lenders and housing finance professionals, the rule signals several key trends:

• States are moving shared equity products into existing mortgage regulatory regimes rather than treating them as unregulated alternatives.
• Regulators are prioritizing standardized consumer disclosures that clearly explain long-term cost scenarios and equity-sharing mechanics.
• Providers that operate nationally may face growing pressure to align their contracts and compliance programs with emerging state models like Illinois

A clearer regulatory structure could also impact partnerships between shared equity providers, lenders and real estate brokerages, as compliance expectations and licensing obligations become more defined.

The regulatory framework has been finalized and will move into an implementation phase under IDFPR oversight. CHEP said it plans to continue working with Illinois regulators as they put the framework into practice — and with officials in other states that are considering similar rules.

Details on effective dates, licensing impacts and operational requirements for existing shared equity providers in Illinois will be critical for compliance officers, legal teams and capital providers involved in these products.

Neil Pierson reported and wrote this article with drafting assistance from HousingWire Automation, an editorial tool that helps transform announcements and industry data into HousingWire-style news coverage.