Home Equity Products Face Expanding Regulatory Patchwork

Home equity investment products, such as shared appreciation agreements and home equity agreements, have recently come under scrutiny from regulators and industry groups.

The crux of the debate is whether these products should fall under existing regulatory regimes for mortgage loans, which would require substantive adaptations to address the unique characteristics of HEI products, or whether they should be treated as a distinct category, adopting new laws and regulations that provide comparable mortgage loan protections.

This article provides a high-level analysis of recent federal and state laws and bills intended to regulate HEI products.

Recent Federal Proposal

S. 4803, also known as the Home Equity Lending Integrity Act, was introduced in the U.S. Senate on June 17.

The proposed act would amend the Truth in Lending Act's definition of residential mortgage loan to include HEI products and direct the Consumer Financial Protection Bureau to create implementing regulations for such products. The proposed act states that this amendment does not make a substantive change to TILA, but adding a new product to TILA's purview would be a sea change in the regulation of HEI products.

The bill does not propose any revisions to the operational aspects of TILA to accommodate the unique characteristics of HEI products as compared to traditional residential mortgage loans and, presumably, relies on the CFPB's future regulations to address all of the critical details for the products. This places a great deal of weight on the CFPB to properly and promptly issue regulations that make sense for the HEI industry.

When reverse mortgage loans were brought within TILA, that classification was coupled with product-specific requirements and exemptions, including a dedicated disclosure regime under Regulation Z, Section 1026.33, and express exemptions from the ability-to-repay rules and the TILA-Real Estate Settlement Procedures Act integrated disclosures applicable to forward mortgages.

Any regulation of HEI products under TILA would similarly require product-specific requirements and exemptions of that kind.

The CFPB's own position on how to regulate HEI products is unsettled. On Jan. 15, 2025, just days before the change in presidential administration, the Biden-era CFPB filed an amicus brief in Roberts v. Unlock Partnership Solutions AOI Inc. before the U.S. District Court for the District of New Jersey, arguing that the defendant's HEI product satisfied TILA's definition of credit and did not qualify for Regulation Z's regulatory exception for option contracts and investment plans.

On Feb. 19, 2025, however, the CFPB under the Trump administration moved to withdraw that brief and asked the court to strike it from the record.

This illustrates just how unsettled the question of whether HEI is a residential mortgage loan remains even within the CFPB, and it foreshadows the same definitional fight that S. 4803 would resolve legislatively.

State Law Updates

Like the proposed act at the federal level, some states have recently addressed HEI products by extending existing mortgage loan frameworks, while others have created new regulatory regimes specific to these products.

Extending Existing Mortgage Frameworks

Connecticut, Maine and Maryland have each taken the approach of treating HEI products as a subset of existing mortgage or consumer credit law. Bills introduced in North Carolina and Pennsylvania during the respective 2026 legislative sessions underscore the difficulties legislatures face in regulating HEI products under requirements designed for forward mortgage loans.

Connecticut

Connecticut's recently enacted legislation took a broad approach, amending the state's existing consumer credit and lending laws to add required disclosures for shared appreciation agreements alongside updates to other consumer lending categories.

Connecticut General Statutes Annotated, Section 36a-498i, has been in effect since Oct. 1, 2025, and requires disclosures within three business days of application. The disclosures cover four broad categories: (1) consumer warnings; (2) deal terms and structure; (3) valuation methodology; and (4) repayment scenarios and cost calculations, including examples at the five-year, 10-year, 15-year and 30-year settlement points run across five value scenarios.

While the disclosure obligations will impose a meaningful burden on HEI providers, Connecticut's amendments do not appear to directly limit HEI product characteristics, such as minimum terms or interest rate caps. This approach is likely more workable for HEI providers, as they will not necessarily have to change the characteristics of HEI products offered in Connecticut to comply with state law.

In the 2026 legislative session, however, the Connecticut General Assembly considered H.B. 5209, which would have subjected shared appreciation agreements to the state's usury provisions, capped the homeowner's share of third-party fees and mandated a refinance obligation at maturity. The bill never moved out of committee.

Maine

Maine enacted L.D. 1901, An Act to Regulate Shared Appreciation Agreements Relating to Residential Property, on an emergency basis on April 13, bringing shared appreciation mortgage, or SAM, loans within Maine's Consumer Credit Code as a type of consumer loan.

The law codifies and expands a Maine Bureau of Consumer Credit Protection advisory ruling that took effect Oct. 29, 2025, which had already determined that SAMs are consumer credit transactions and SAM providers must be licensed as supervised lenders; that determination applies retroactively to Oct. 29, 2025, rendering void any noncompliant SAM originated in Maine on or after that date.

Beyond licensing, the enacted law requires mandatory U.S. Department of Housing and Urban Development-approved counseling; independent legal representation for the homeowner, the absence of which creates a presumption of unconscionability; and detailed disclosures, including an APR calculated using a real estate appreciation index. It also prohibits various loan terms such as prepayment penalties. Violations constitute a per se unfair or deceptive practice, creating various consequences, including up to $10,000 in penalties per violation.

Maine took an approach similar to that of the proposed TILA amendments, and many of the same issues have already begun to surface. The now-enacted legislation creates additional SAM-specific legal requirements, but it also brings SAMs under an existing regulatory framework that is only tailored to traditional loan products.

Maryland

Maryland was the first state to adopt regulations specific to shared appreciation agreements. Code of Maryland Regulations 09.03.15, adopted by the Office of Financial Regulation, treats shared appreciation agreements as mortgage loans under existing licensing law, but overlays a product-specific disclosure regime.

Lenders must provide disclosure within 10 business days after a completed application and a commitment at least 72 hours before settlement if the disclosed terms are subject to change, and they must calculate an annualized cost for each repayment scenario using the APR methodology of Regulation Z, Appendix J.

Notably, Maryland pioneered the ability-to-repay accommodation later adopted in Illinois: A lender is deemed to have given due regard to a borrower's ability to repay if the required disclosures are provided, the agreement requires no periodic payments prior to termination and the term of the agreement is at least five years.

North Carolina

North Carolina's H.B. 1211, the Home Equity Investment Loan Act, was filed in the North Carolina House of Representatives on April 30, and would also regulate HEI products as residential mortgage loans, requiring licensing, detailed disclosures, housing counseling and a refinance option at maturity.

Critically, the bill would let HEI providers elect either a share of appreciation capped at 10% of the increase in the property's value, or a share capped at 10% of the property's value at the time of payment. The bill has been referred to committee, but it has not drawn support and is not expected to move to session.

Pennsylvania

Pennsylvania has also moved to extend mortgage-style regulation to HEI products. H.B. 2120 would create licensing, oversight and compliance requirements for shared-equity providers, administered by the Pennsylvania Department of Banking and Securities.

The bill passed the Pennsylvania House of Representatives by a 190-11 vote on June 2, and is now before the Pennsylvania Senate Banking and Insurance Committee.

Notably, the bill started as a simple amendment to the state's usury statute before being revised into a more tailored framework. The bill is not expected to move out of committee this year.

Creating a New Regulatory Regime

Illinois

Illinois has taken a different approach. On June 1, the Illinois Department of Financial and Professional Regulation adopted comprehensive new regulations governing shared appreciation agreements under the Residential Mortgage License Act.

The final rule reflects more than 120 changes made between the first and second notices in response to stakeholder comments and working sessions facilitated by the Illinois Joint Committee on Administrative Rules.

The regulations build on existing mortgage licensing requirements, but also add requirements tailored to HEI products, including a model "Illinois Shared Appreciation Agreement (Estimate/Closing) Disclosure," mandatory counseling, property valuation rules, detailed cost scenario tables and a 36% APR repayment cap.

Illinois provides a comprehensive but workable regulatory framework from the HEI provider perspective.

For example, a common concept in the traditional mortgage space is the requirement that the lender calculate whether the borrower has the ability to repay the loan before origination. This calculation is contingent on factors, such as the principal balance of the loan, that are not necessarily easily translatable in the HEI-product context. The Illinois law recognizes HEI products may not be able to comply with such a calculation.

Instead, HEI providers are deemed to have satisfied their ability to repay obligations if they provide state-required disclosures, and the HEI product does not require periodic payments and lasts for at least five years.

Other aspects of the regulations may be restrictive, such as the 36% APR repayment cap, but they do not necessarily create a legal roadblock requiring significant reworking of common HEI products.

Looking Ahead

What matters most for industry participants is whether amendments recognize the unique characteristics of HEI products and are tailored accordingly.

As states take differing approaches to HEI regulation, providers will face meaningful regulatory burdens. Products structured to comply with one state's mortgage framework may not necessarily satisfy another state's purpose-built regime. And the scope of applicable requirements, from licensing to disclosure to rate caps, can differ significantly depending on which model a state adopts.

We expect requirements to keep varying from state to state as more jurisdictions act, with no uniform standard likely anytime soon, although the recent progress in Illinois is encouraging.

This same tension is what makes the fate of S. 4803 so consequential. Unlike a state-by-state patchwork, folding HEI products directly into TILA's existing definition of residential mortgage loan would impose, in one stroke and nationwide, the full body of federal mortgage loan requirements on a product that was not designed around those requirements.

As the Illinois and Maine experiences illustrate, whether such a change helps or effectively eliminates the industry will depend entirely on whether Congress or the CFPB builds in the kind of product-specific accommodations, such as tailored ability-to-repay substitutes and purpose-built disclosure forms, that have allowed HEI products to continue operating while providing proper homeowner protections.

As reflected in the Maryland and Illinois frameworks, the alternative approach is a purpose-built regime that regulates shared equity agreements, as a distinct product category, with protections equivalent in scope, impact and spirit to mortgage loan regulation.

Republished with permission. This article, "Home Equity Products Face Expanding Regulatory Patchwork," was published in Law360 on September 3, 2026.