Senator moves to regulate home equity investments at the federal level

A bill introduced in the U.S. Senate would amend the Truth in Lending Act (TILA) to explicitly include home equity investments (HEIs) within the law’s definition of residential mortgage loans — a move that would subject the growing financial product to federal consumer lending protections.

Introduced by Sen. Jeff Merkley (D-Ore.), the Home Equity Lending Integrity Act would amend Section 103 of TILA to define a home equity investment and clarify that these transactions fall under the law’s mortgage framework.

The measure was referred to the Senate Committee on Banking, Housing, and Urban Affairs. If enacted, legislation would require HEIs to comply with the same federal disclosure and consumer protection requirements that apply to many traditional residential mortgages.

It also directs the Consumer Financial Protection Bureau (CFPB) to issue regulations that govern enforcement and civil liability for violations that involve HEIs.

The bill includes a “sense of Congress” provision stating that lawmakers view the amendment as a clarification of existing law rather than a substantive change to how TILA should be administered.

Under an HEI, a homeowner receives upfront cash in exchange for a share of the home’s future value. They remain in the property while covering taxes, insurance and maintenance, and they settle when the home is sold or buy back the investor’s stake.

The pitch of no monthly payments makes the product appealing to homeowners who can’t or don’t want to take on new debt — particularly those shut out of traditional credit markets.

Some have argued that distinction makes HEIs an investment rather than a loan. The proposed legislation would largely resolve that debate under TILA by expressly defining these arrangements as home equity investment loans when they are secured by a home and require repayment based on the property’s value.

Growing market draws scrutiny

Demand for HEIs has grown as higher borrowing costs have made traditional financing more difficult for some homeowners.

According to the Urban Institute, about 35% of applications for cash-out refinances, home improvement loans and home equity lines of credit were denied in 2024, compared with 9.8% of home purchase loans. About one-quarter of HEI users had credit scores below 600, levels that often make conventional mortgage financing difficult.

The research also found that homeowners typically access about 15% of their home’s value through an HEI, while more than 40% of users are age 55 or older. Between 2015 and 2025, the three largest providers — Point, Hometap and Unlock — originated roughly 54,000 agreements.

“The 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,” said Cliff Andrews, president of the Coalition for Home Equity Partnership. “We welcome the regulatory attention.”

But as HEIs have expanded, they’ve attracted greater legal and regulatory attention. Consumer advocates have questioned whether homeowners fully understand how repayment is calculated and how much they may ultimately owe if their homes appreciate significantly.

“The core issue is a regulatory mismatch,” Unlock CEO Jim Riccitelli said. “What’s happening with shared-equity products is what happens in category formation of any new and fast-growing product category.

“Existing rules and regulations weren’t designed for the structure of a shared-equity product, and what we’re seeing is exactly what new financial product category formation looks like: growth, scrutiny, regulatory efforts that are at times flawed and are at times good, and then clearer definition and workable solutions.”

States take different approaches

Oversight of HEIs remains uneven across the country as states weigh how to regulate the products.

Holly Spencer Bunting, a partner at law firm Mayer Brown, said lawmakers and regulators have taken differing approaches as they attempt to define and oversee HEIs.

“It’s almost sort of like we have two sides of the coin right now,” Bunting said. “Some state legislation that’s pending is quite restrictive, and then other states recognize that the product is a viable product.”

If Congress ultimately approves the Home Equity Lending Integrity Act, it would establish a uniform federal framework under TILA for home equity investments even as states continue to pursue their own regulatory approaches.

This article was written by Jonathan Delozier and generated with the assistance of HousingWire Automation. It was reviewed by a HousingWire editor before publication.