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This article is part of The Rooftop, a blog and multimedia series from �鶹������ý’s Future of Land and Housing program. Featuring insights from experts across diverse fields, the series is a home for bold ideas to improve housing in the United States and globally.

Homeowners in the U.S. hold in home equity. Many plan to use this equity, the single largest source of family wealth, to fund retirement, pay for long-term care, make home repairs, help children with education costs, or as an inheritance for future generations. For decades, homeowners have borrowed against this accrued equity primarily through regulated financial products such as home equity lines of credit (HELOCs) and reverse mortgages, but a new business model has emerged that undermines homeownership as a path to financial and housing stability.

Home Equity Investment (HEI) loans are home-secured mortgage loan products offered by private companies to existing homeowners, including those who are cash and credit-constrained and cannot qualify for traditional loans to cover major life expenses.�� HEI loans provide the homeowner a cash advance in exchange for a share of the home’s future value. And while HEI loans are marketed as a flexible option for underserved homeowners, the reality is that these products transfer wealth from homeowners and their families to institutional investors, and can result in financial ruin for the homeowner.�� HEIs are part of a growing class of financial products, including , , and , that avoid marketing themselves as loans in order to avoid oversight.��

The availability of HEI loans is growing quickly, with loans in , up from just 131 areas in 2020. Investors are accruing billions more to build the HEI market; one company has acquired an additional to invest in these products.��

HEI loans have fixed terms (typically 10–30 years), and when the term ends—or when the homeowner sells, refinances, transfers the property, or breaches a contract term—the homeowner must repay the HEI lender with a single balloon payment equaling a percentage of the home’s current value or appreciation in value. If the homeowner cannot pay, the company will force a sale or foreclose on the home. And while companies promote HEI loans as a safe alternative to traditional mortgage loans, or even a to access home equity for the wealthy, in reality HEI loans threaten the financial stability of homeowners with limited resources. Because homeowners cannot easily tell how much they will owe at the end of the loan term, they enter the contract without this information and often face default and foreclosure when the amount comes due.

The median HEI customer is in their fifties with significant home equity, as the found in 2025. However, many borrowers have no or low income and lower credit scores; these factors often are the very reason borrowers agreed to an HEI loan in the first place.��

The risks of HEI loans, further described below, are even higher for Black and Latino homeowners. According to (NCRC), Black and Hispanic households derive nearly half of their total net worth from home equity, while white households derive less than one-fifth of their wealth from their primary residence. Without more robust oversight, especially from states, homeowners with HEI loans face the danger of losing significant equity—and their homes.

While HEI loans can provide access to cash based on accrued home equity, they present significant risks to homeowners, including large balloon payments and other costs, home loss, limits on future housing options, and interference with many of the rights of homeownership.

A primary risk of HEI loans is that they are structured with a single balloon payment at the end of the term. This financing mechanism, in which a lump sum is due at the end of the loan term, is pernicious because many homeowners do not have the means to pay tens or even hundreds of thousands of dollars all at once. The result, for most homeowners, is the forced sale of the home. Moreover, when the home is sold, a large chunk of the proceeds will go to the HEI lender (and another portion will fund the costs of the home sale, which are not shared by the HEI company). The loan proceeds will also include an additional payment to the HEI lender for the high fees charged at the outset. As a result, the home sale, in addition to causing displacement, is unlikely to provide the homeowner with the expected nest-egg savings to pay for the next home, retirement expenses, or other family costs.

The risks of balloon payments are well-documented, including by a on HEI loans. The impact on homeowners is also clear from these homeowner stories from recent litigation:

Angela Roberts, a New Jersey homeowner and single mother of a child with a disability,�� was facing serious financial distress when she took out a loan from Unlock. In just three-and-a-half years, her payment obligation to Unlock had ballooned to more than 90% over the original advance—and it kept increasing every year. Paying off Unlock would have required her to sell her home (and cover the costs).�� Unlock ultimately settled with Ms. Roberts (a case in which the CFPB originally in support of the plaintiff), after a federal judge indicated that she would rule that the company’s product was a disguised residential mortgage loan under the Truth in Lending Act.

 

Charles Boyd and Janine Olson, two older homeowners in Washington state caring for a disabled adult son, were similarly trapped in an HEI loan from Unison.�� Between that payment, their first mortgage, and the fact that the Olsons would have to cover the home sale costs, they would receive very little for a home they had been paying off since the 1980s. Unison settled the Olsons’s case after unanimously held that the company’s product was a mortgage loan under Washington law.

Beyond balloon payments, HEI loans pose additional risks to homeowners. While mortgage loans, by law, may not include forced arbitration provisions that deny harmed borrowers access to the court system, HEI companies claim their loans are not mortgages and include forced arbitration language in their contracts, which many homeowners may not know is unenforceable.�� HEI contracts also deny heirs the chance to stay in the home and assume the loan after the borrower passes away. They also place other limitations on the use of the home, such as prohibitions on renting it out or spending extended periods not living in the home, which particularly impacts members of the military or people needing extended periods of medical care outside the home.

HEI lenders claim their product is not a loan but rather an “option contract,” because they might theoretically not seek to get repaid (in practice, HEI lenders always exercise the option to realize income). This distinction is important because whereas mortgage loans are subject to a range of federal and state rules, true option contracts are exempt from core mortgage lending requirements, which require advance disclosures, a review of the borrower’s ability to repay the loan, a ban on forced arbitration, and rules regarding loan fees.��

that the current generation of HEI loans do, in fact, create a debt and are loans subject to both state and federal lending laws. And states are passing laws clarifying that HEI loans are residential mortgage loans. In April, became the first state in the nation to create essential consumer protections for HEI loans. Even for those states that have not directly addressed the question, HEI loans generally qualify as loans under existing state laws and definitions of “loans” or “credit.”��

, state policymakers must provide protections for homeowners obtaining HEI loans. States should clarify that HEI loans are mortgage loans subject to all state residential mortgage laws and should increase enforcement against companies that mislead consumers or violate lending laws or laws prohibiting unfair or deceptive acts. States also should mandate critical safeguards, including: foreclosure protections and usury limits; contractual repayment caps; company-paid closing costs; and the guaranteed availability of a market-rate refinance option at the end of the contract. Without these protections, this risky product, which is growing quickly in the market, will bring housing instability and financial loss to families around the nation.

Editor’s note: The views expressed in the articles on The Rooftop are those of the authors alone and do not necessarily reflect the opinions or policy positions of �鶹������ý.��