Despite ongoing legal scrutiny, leaders at the helm of home equity investment platforms see a silver lining: emerging regulatory clarity that could unlock further growth and mainstream adoption.
At an industry conference on Thursday, executives from various HEI platforms said regulation would bring about uniformity in disclosures, subsequently making it easier to create more products.
"I think that with regulation, we're going to start to see some standardization and how that's disclosed to the consumer," said Heather Cantua, deputy managing partner at law firm Scale, at the Information Management Network's HEI and Home Equity Capital Markets Conference.
Some of the leading providers of HEIs, also known as shared appreciation agreements, have attempted to initiate the conversation surrounding regulation with individual states. Three companies, Hometap, Point and Unlock Technologies, launched the industry network
Proper regulation begins with informing the borrower, said Stephanie Damsky, director of capital markets at Splitero. Several consumer plaintiffs in
"It's vastly important that the homeowner understands the product that they are taking out, and it is something that I think all the players in the space are really focused on," Damsky said.
"Homeowner education is incredibly important as is understanding what a repayment table looks like, trying to put everything in plain English," she continued.
To that end, Point, as well as other leading companies, have already made it a priority to create appropriate consumer notifications and tools, such as tables detailing amounts owed at various points in the contracts' terms to comply with some states' rules.
"We also build multiple interactive calculators through our full process, so homeowners can see exactly, and they can play with the calculator," said Jordan Fox, Point's head of investor relations.
"This needs to be more defined as black and white in this gray area we operate in. What the disclosures look like or what the education can look like can lead to a lot of investor uncertainty, and Point is trying to define all of that." said Fox.
As regulatory uncertainty falls away, investors will then likely move in to provide more of the
Initial investor interest in HEI secondary sales are coming from the likes of hedge funds, rather than from the traditional buyers that support closed-end seconds and home equity lines of credit,
"They're probably more inclined to take risk and look past or deal with the regulatory risk on more of an allocation level, as opposed to worrying about it. And specifically within the asset, I would say that they're being compensated for that — that first-mover advantage," Arens said.
"Ultimately, I think as the regulations come together, you'll see longer term capital getting involved."
Appropriate regulation, though, means making a clear differentiation between HEI products and mortgages, a point of contention in
Cantua pointed to new legislation
"I think that it will likely become a model for future states, where it's actually regulating this product itself, instead of trying to force it into a mortgage loan context," she said.
As regularity clarity forms, the financial opportunities presented by offering home equity transactions will even entice traditional mortgage lenders to offer HEIs themselves, Arens suggested.
"The mortgage banking industry has really kind of stayed clear of HEI in any sort of material way, but I think those things are changing as regulations come into play or get defined," he said.
"Everyone is talking about the opportunity, so I think it's just a matter of when they can get involved without putting their franchise at risk."
As regulations take shape, HEIs could evolve from a niche product into a mainstream financial tool—one that even traditional lenders may soon embrace.
