As HEI regulation expands, states debate loan classification

States are moving in different directions as lawmakers and regulators define and oversee shared equity homeownership products. Some pending legislation is restrictive, while other states recognize the products as viable and regulate them accordingly. Maine issued guidance treating shared equity homeownership products as mortgages requiring licensing, and that approach was later incorporated into state law. Pennsylvania and North Carolina have pending proposals with different scopes, including North Carolina’s extensive plan to classify the products as loans with mortgage licensing and additional restrictions, and Pennsylvania’s expanded bill adding consumer protection provisions. Illinois finalized a comprehensive regulatory framework under its Residential Mortgage License Act. Consumer protection is a central focus, especially disclosures and ensuring borrowers understand long-term contractual consequences.

"States are moving in different directions as lawmakers and regulators attempt to define and oversee HEIs. It's almost sort of like we have two sides of the coin right now, Bunting said in an interview with HousingWire. Some state legislation that's pending is quite restrictive, and then other states recognize that the product is a viable product. Maine recently joined the short list of states to formally address the products, Bunting said."

"Before legislation was enacted there, the state's mortgage regulator issued guidance that treated HEIs as mortgages and requiring licensing, an approach that was later incorporated into state law. Other states are considering similar measures. Bunting pointed out that Pennsylvania and North Carolina have pending legislation related to HEIs, although the proposals differ in scope."

"Bunting said North Carolina's proposal is particularly extensive and would classify HEIs as loans while imposing mortgage licensing requirements and additional restrictions. Pennsylvania's bill began as a narrow amendment to state usury laws but has since expanded to include consumer protection provisions similar to those adopted in Maine. Bunting's comments come just days after Illinois finalized a comprehensive regulatory framework for shared equity products under its Residential Mortgage License Act."

"A central focus of state legislation has been consumer protection, particularly around disclosures and ensuring borrowers understand the long-term implications of the agreements. Bunting said regulators have been influenced by stories of borrowers who say they were surprised by the contractual consequences of certain events, such as a s"

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