In the latest legal development surrounding home equity investment products, a bill introduced in Washington State could add licensing requirements for its originators as soon as next year.
If passed, HEI platforms will need a license to operate in the state beginning July 1, 2026. The bill also adds several other regulations that mandate consumer disclosures and detail how home appraisal values are to be determined.
The legislation, filed last week by Democratic Reps. David Hackney, Amy Walen and Sharon Wylie,
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The bill stipulates that originators would be required to provide a "clear and conspicuous statement" to customers of the potential for property loss by failing to adhere to contract terms. Other rules will require companies to detail itemized fees in origination and servicing of such contracts, as well as adjustments, and provide final amounts due to both client and originator parties at the end of the agreement.
Amounts, including the potential final home value based on various rates of appreciation, would be shown for different settlement lengths ranging from three to 30 years.
Critics of HEI platforms have said the lack of consumer disclosures is causing elevated customer financial distress and foreclosures for their customers, likening some of the companies to subprime lenders prior to the Great Financial Crisis. With some customers unable to qualify for traditional lending products, they have signed agreements unaware of possible consequences, consumer advocates say, leading to calls for HEI contracts to be classified as home loans.
The regulation would apply to some of the leading HEI companies in the current marketplace, including Hometap, Point, Splitero, Unlock Technologies and Aspire, a subsidiary of Redwood Trust.
Currently, Connecticut and Maryland already classify HEI products as mortgages. Washington's bill would place companies under a category of laws that apply to miscellaneous loans rather than mortgages and represents the state's second attempt to regulate such companies after a similar law failed in 2024.
Elsewhere in the legislation, terms would prohibit the annualized cost of any shared appreciation contract to exceed 25% and require a homeowner to maintain at least 10% of equity in their property following a draw. A three-day opt-out period would also come into effect allowing the consumer to withdraw from the agreement.
The bill also laid out explicit rules aimed to eliminate conflicts over appraised value of customers' homes.
"All appraisals or other valuation reports must meet industry standards and be conducted by an independent third party, unless an affiliated appraisal or valuation is disclosed and consented to in writing by the homeowner," the legislation said.
The latest attempt at regulation comes as the home equity investment segment rides a wave of growth and venture capital interest, with their offerings providing a possible alternative to refinances
In a current legal case, the Consumer Financial Protection Bureau recently issued an amicus brief, in which it clearly stated its position that
Meanwhile, a different provider, the now-defunct Easyknock, finds itself the subject of lawsuits or enforcement actions across the country after some former customers ended up in foreclosure. While it emerged victorious in one of the cases, Easyknock shut its doors abruptly in December, resulting in a demand
