Illinois creates regulatory framework for home equity investments

"The final regulation integrates HEIs into the existing mortgage licensing framework under Public Act 103-1015. It establishes operating requirements and restrictions specific to shared equity contracts. It also creates a new standardized disclosure form designed to show homeowners the potential costs of shared equity products through cost-scenario tables. And it introduces fit-for-purpose alternatives to certain traditional mortgage rules, including the ability-to-repay standard, to address structural differences between shared equity contracts and mortgage loans."

"CHEP said the new disclosure form substantially incorporates its proposed model structure and approach for explaining costs and tradeoffs to homeowners. The approach in Illinois stands in stark contrast to a recently adopted law in Maine, which received support from the state's consumer protection bureau and the National Consumer Law Center."

"Jim Riccitelli, CEO of Unlock, a leading HEI provider, told HousingWires Reverse Mortgage Daily (RMD) that the changes in Maine effectively bar the products from being offered there. Maine's law was modeled on mortgage loan statutes without adequate adjustment for the structural differences that make shared-equity products work, Riccitelli said."

"The result is a framework that cannot be operationalized not because the goal of consumer protection is wrong, but because the wrong tool was applied to the job. So you will not see any shared-equity products offered in Maine, and Maine homeowners will unfortunately not have the opportunity to avail themselves of the benefits they offer."

Illinois finalized a shared equity framework through a multistage, stakeholder-driven process with more than 120 changes between initial and revised public notices. The final regulation incorporates higher education institutions into the existing mortgage licensing framework under Public Act 103-1015. It sets operating requirements and restrictions specific to shared equity contracts and creates a standardized disclosure form using cost-scenario tables to show homeowners potential costs. The regulation also introduces fit-for-purpose alternatives to certain traditional mortgage rules, including an adjusted ability-to-repay standard, to reflect structural differences between shared equity contracts and mortgage loans. The disclosure form substantially follows a proposed model for explaining costs and tradeoffs. The Illinois approach contrasts with Maine, where a mortgage-statute-based model is said to effectively prevent product offerings due to inadequate structural adjustment.

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