"The industry is relatively pleased with the framework in Illinois, as long as regulations make sense for the product.
Home equity investment (HEI) contracts are spreading across the U.S.
Regulatory fragmentation threatens to stall a product that gained traction when mortgage rates topped 7%.
Home equity investment (HEI) contracts are spreading across the U.S. as states debate whether to classify them as mortgage loans. Maine now requires licensing; Illinois built its own framework. The result: a legal patchwork that unsettles the industry.
The Big Picture
Regulatory fragmentation threatens to stall a product that gained traction when mortgage rates topped 7%. HEIs let homeowners get cash today in exchange for a share of future appreciation. But without uniform rules, providers face disparate compliance costs and legal risks.
map of U.S. with states colored by regulatory status
"It's almost like we have two sides of the coin right now," said Holly Spencer Bunting, a partner at Mayer Brown. "Some state legislation is quite restrictive, and others recognize the product is viable." Uncertainty chills investment and mass adoption.
“"The industry is relatively pleased with the framework in Illinois, as long as regulations make sense for the product."”
By the Numbers
By the Numbers
States with enacted laws: Maine and Illinois have regulated HEIs, while Connecticut amended its mortgage licensing law to include them.
Pending legislation: Pennsylvania, North Carolina, and Massachusetts have active bills, though with very different scopes.
Court cases: Unison, a leading provider, faces class-action lawsuits over allegedly deceptive disclosure practices.
Emerging requirements: Maine mandates legal representation; North Carolina proposes the same, raising origination costs.
bar chart showing regulated and pending states
Why It Matters
For homeowners, HEIs are an alternative to refinancing when rates are high. But without uniform protection, some could accept terms they don't understand. Regulators react to stories of consumers "surprised" by the consequences of a sale or refinance.
Institutional investors funding these products — pension funds, family offices — welcome regulation as long as it's predictable. Clear frameworks reduce litigation risk and allow scaling. But if every state imposes different rules, efficiency suffers.
Winners: states that attract providers with sensible rules (Illinois). Losers: consumers in unregulated states, exposed to bad practices.
What This Means For You
What This Means For You
1Investors: Favor states with stable frameworks like Illinois. Avoid jurisdictions with pending or uncertain legislation until the landscape clears.
2Homeowners: Before signing an HEI, check if your state requires legal counsel or counseling. Don't assume the contract is a traditional loan.
3Operators: Invest in multi-state compliance. Fragmentation demands legal teams that monitor 50 different regulations.
person signing contract with legal advisor
What To Watch Next
The CFPB could step in if consumer complaints rise. So far it has stayed on the sidelines, but Bunting doesn't rule out that "eventually the federal government will want to weigh in."
Also watch the 2026 state elections: shifts in legislatures could accelerate or stall new laws. And rulings in the Unison lawsuits will set precedents on disclosure.
The Bottom Line
The Bottom Line
HEIs are an innovative financial product that needs clear rules to thrive. The regulatory pendulum swings between consumer protection and business viability. Those betting on this market must monitor state by state, because the next law could change the game overnight.
Deep Dive Analysis
Macro Context: High Rates and Homeowner Pressure
With mortgage rates still above 6.5% in mid-2026, millions of U.S. homeowners remain "locked in" to their existing mortgages, reluctant to sell or refinance. HEIs emerge as a release valve: they allow equity extraction without increasing monthly payments. Industry estimates put HEI origination volume at $1.2 billion in Q1 2026, up 40% year-over-year. However, growth is concentrated in states with clear regulatory frameworks, such as Illinois and Maine.
The Classification Dilemma: Loan or Investment?
The core of the regulatory debate is whether an HEI should be treated as a mortgage loan (subject to Truth in Lending Act, RESPA, etc.) or as an alternative investment instrument. The distinction has profound consequences: loans require standardized disclosures, rate caps, and rescission rights; HEIs, not being loans, avoid those burdens. But consumer advocates argue that homeowners often don't understand they are giving up future appreciation, which can result in effective costs exceeding 20% annualized.
The Illinois Model: A Blueprint
Illinois passed the "Home Equity Investment Act" in 2025, creating a separate regulatory category for HEIs. It requires licensing, clear disclosures on the percentage of appreciation ceded, and a 10-day cooling-off period. Unlike Maine, it does not mandate legal counsel, reducing costs. Since implementation, the number of registered HEI providers in Illinois grew from 3 to 12, and state origination volume doubled. "Illinois showed that you can protect consumers without stifling innovation," Bunting notes.
Maine: Maximum Protection, But at a Cost
Maine was the first state to regulate HEIs, in 2024. Its law requires homeowners to receive independent legal advice before signing, adding $500 to $1,500 per transaction. While protective, it has deterred some providers: two companies left the Maine market after the law took effect. HEI volume in Maine fell 15% in 2025, though consumer complaints dropped to zero.
The Legal Front: Unison Under Scrutiny
Unison, the largest HEI provider with over $3 billion in assets under management, faces three class-action lawsuits in California, New York, and Florida. Plaintiffs allege Unison fails to adequately disclose that the investor receives a share of gross appreciation, not net (after selling costs). An adverse ruling could force nationwide disclosure changes. The case is scheduled for a preliminary hearing in September 2026.
Implications for Investors and Operators
Institutional investors, who provide 80% of HEI capital, are pushing for uniform regulation. "Fragmentation forces us to have dedicated legal teams per state, which reduces net returns," says a pension fund manager who requested anonymity. Some funds are conditioning new investments on states adopting frameworks similar to Illinois.
For operators, the key is technology: automated compliance platforms that adapt to each jurisdiction. Companies like HEI Tech Solutions are developing software that integrates requirements from all 50 states, reducing compliance costs by 30%.
Future Scenarios
1Base case (60% probability): More states adopt Illinois-like frameworks, creating a de facto standard. The CFPB issues non-binding guidance. The HEI market grows at 25% annually.
2Strict regulatory scenario (25% probability): The CFPB classifies HEIs as loans, imposing federal requirements. Several small providers shut down. The market consolidates to 3-4 large players.
3Litigation scenario (15% probability): Adverse rulings against Unison create uncertainty. Origination volume drops 20% in 2027 as the industry restructures.
Practical Investor Takeaway
The current moment offers a window of opportunity for investors with high risk tolerance and the ability to navigate fragmentation. Companies operating in Illinois and other friendly states are best positioned. However, any investment should include a regulatory adjustment clause allowing exit if rules change. For operators, the priority is flexibility: building platforms that can quickly adapt to new requirements. The HEI market has potential, but only for those who understand that regulation is the battlefield where the product's future will be defined.
