Maine has become the first state to regulate home equity investment loans, adding new consumer protections for a type of high-risk mortgage product.
The law, signed by Gov. Janet Mills last week, regulates shared appreciation mortgage loans, in which homeowners receive cash up front in exchange for a future interest in their home’s value. Repayment is unknown at the outset and comes due as a lump-sum balloon payment, often far exceeding the original amount received and sometimes forcing homeowners to sell.
The loans are marketed nationwide, particularly to older adults with substantial equity, and homeowners with lower credit scores, according to the National Consumer Law Center, a Boston-based nonprofit that submitted written testimony in support of the bill.
The group contends that the loans strip equity, depleting assets needed for retirement, health care, or family wealth transfer.
Hometap, a Boston-based financial technology company, submitted written testimony opposing the bill. It had warned that the legislation would wrongly treat shared appreciation home equity investments like traditional loans and impose a de facto ban that would limit consumer choice and alternative ways to access home equity.
Maine’s ‘groundbreaking bill’
LD 1901, “An Act to Regulate Shared Appreciation Agreements Relating to Residential Property,” was sponsored by state Rep. Arthur Bell, D-Yarmouth, and signed into law by Maine’s Democratic governor on April 13.
Mills is running for the U.S. Senate seat currently held by U.S. Sen. Susan Collins, R-Maine, the longtime incumbent.
The law adds several consumer protections, including clearer disclosures of true loan costs, required housing counseling and access to legal representation and limits on unreasonable restrictions on how homeowners can use or maintain their property.
It also gives homeowners the right to assert claims or defenses against any future holder of the loan.
“With the signing of this groundbreaking bill, Gov. Janet Mills brings transparency and fairness to the home equity investment loan process,” said Andrea Bopp Stark, a senior attorney at the National Consumer Law Center.
“This legislation applies comprehensive boundaries to a complex financial product that is often marketed and sold without regard for the long-term impacts on homeowners,” she added.
