Senator moves to regulate home equity investments at the federal level

U.S. Senator Jeff Merkley has introduced the Home Equity Lending Integrity Act, which would amend the Truth in Lending Act to classify home equity investments (HEIs) as residential mortgage loans. This legislation aims to subject the growing HEI market to federal consumer protections, disclosure requirements, and Consumer Financial Protection Bureau oversight. For the residential mortgage sector, this represents a major step toward standardizing a product that has gained popularity among homeowners who are often excluded from traditional credit markets.

The proposed Home Equity Lending Integrity Act seeks to amend Section 103 of the Truth in Lending Act (TILA) to define home equity investments and clarify that they fall under the existing mortgage framework. Introduced by Senator Jeff Merkley, the bill aims to resolve the debate over whether HEIs—which provide upfront cash in exchange for a share of future home value—should be treated as investments or loans. If enacted, the legislation would require HEI providers to comply with the same federal disclosure and consumer protection standards as traditional residential mortgages, while directing the Consumer Financial Protection Bureau (CFPB) to establish regulations for enforcement and civil liability.

Demand for HEIs has surged as traditional financing becomes harder to secure, with the Urban Institute reporting that approximately 35% of applications for cash-out refinances and HELOCs were denied in 2024. The product is particularly popular among underserved demographics; about one-quarter of HEI users have credit scores below 600, and more than 40% are aged 55 or older. Between 2015 and 2025, major providers including Point, Hometap, and Unlock originated roughly 54,000 agreements. These arrangements typically allow homeowners to access about 15% of their home's value without monthly payments, settling the obligation only when the home is sold or the investor's stake is bought back.

Industry leaders have expressed a mix of support and caution regarding the new scrutiny. Cliff Andrews, president of the Coalition for Home Equity Partnership, stated that the market's scaling naturally invites regulatory attention, while Unlock CEO Jim Riccitelli noted that the current "regulatory mismatch" is a byproduct of a new financial category forming. Legal experts like Holly Spencer Bunting of Mayer Brown point out that state-level oversight is currently uneven, with some states proposing restrictive laws while others view HEIs as viable products. The federal bill includes a "sense of Congress" provision asserting that the amendment is a clarification of existing law, intended to establish a uniform national framework despite varying state approaches.