On January 15, the CFPB published a report focusing on the home equity contracts, also known as home equity investments (HEIs). As described by the CFPB, these financial products allow homeowners to receive an upfront payment in exchange for a future lump sum repayment based on the home’s value. Home equity contracts can be used for debt consolidation and home improvements and are frequently marketed as alternatives to traditional home equity lines of credit or reverse mortgages.
The report sets forth several of the CFPB’s concerns with HEIs. According to the CFPB, homeowners must repay a potentially large amount, often significantly higher than the initial payment, by the end of the contract term or upon a triggering event like a home sale. The repayment amount is unpredictable because it is generally based on the value of the home at settlement. The CFPB claims that HEIs are generally more expensive than other home-secured financing options, with settlement amounts growing at rates of 19.5-22 percent annually in the early years. The CFPB also expresses concern about the complexity of these contracts and “non-standardized disclosures” which the Bureau contends can make them difficult to understand. The CFPB states it will continue to “monitor and review the home equity contract market to ensure compliance with federal consumer financial laws.”
