THE PITCH FROM Hometap — a Boston-based home equity investment company — is simplicity, speed, and transparency. A homeowner applies, if approved, the company gives them a home equity “investment” of cash in exchange for a share of the home value, and the homeowner can use that money however they like.
But Attorney General Andrea Campbell claims the deal is a poison pill. In a lawsuit filed February 19 in Suffolk County Superior Court, Campbell’s office alleges that Hometap engaged in unlawful and predatory practices that targeted financially vulnerable homeowners for profit.
“In reality, this product is vastly more expensive than any common mortgage product on the market—and when consumers cannot pay, Hometap will sell their homes,” the complaint reads. “A significant portion of Hometap’s customers are at risk of losing their homes as a result of not being able to afford the repurchase payment when it comes due,” it further claims.
Instead of cash-out refinancing, a home equity line of credit, or a traditional reverse mortgage, homeowners repay the home equity investment (HEI) money in its entirety plus some appreciation when they sell the house, refinance, or hit the end of the investment term. In Hometap’s case, the term is 10 years.
According to the attorney general, Hometap put consumers at an unreasonably high risk of foreclosure and financial harm by collecting unlawfully high interest when repayment comes around, making mortgage loans without adequate financial assessments or underwriting, offering illegal reverse mortgages that fail to comply with state consumer protection laws, and concealing the high cost and nature of the product.
A spokesperson for Hometap said in a statement that it “firmly believes in the integrity of our products and the financial flexibility they provide to Massachusetts homeowners. We have pursued every possible avenue to engage in constructive dialogue with the Massachusetts Attorney General’s Office. Unfortunately, those efforts have not been reciprocated, and we believe they are pursuing an unfounded lawsuit predicated on meritless claims.”
The spokesperson declined to comment further.
Home equity investments are a growing industry –– the first HEI company launched in 2006 with most competitors entering the mix in 2015 –– that can help homeowners bypass expensive mortgage rates.
HEI companies say that home equity is an overlooked tool in financial security planning, and the mortgage market can be needlessly rigid.
“Homeownership is unique in that the home typically serves two concurrent purposes: it’s a place to live, and it’s also the primary way many homeowners build wealth,” Shoji Ueki, chief growth officer at Point, a home equity investment firm, told Inman, a real estate trade publication, in December. “Whether someone is looking for extra cash to handle rising expenses or planning for long-term security, this equity can offer flexibility and peace of mind. So, instead of thinking of the home as just a place to live, consider it one of the most valuable tools in your retirement toolkit.”
In announcing the suit, Campbell said the first-in-the-nation legal effort is not only aimed at Hometap but will “put other companies on notice that my office will continually seek to protect communities from predatory business practices.”
The Consumer Financial Protection Bureau –– the imperiled federal agency launched in the wake of the 2008 Great Recession to shield consumers from unfair financial practices — has warned that home equity investments are far from a simple contract.
Home equity contracts can be difficult to understand or compare to other options, the bureau concluded in an analysisis of HEIs in January. They are also expensive compared to other home-secured financing options, it found.
Hometap joined the industry in 2018, a period of rapid growth for HEIs that would ramp up in 2023 when companies began pooling these contracts and selling them as securities to be traded in financial markets.
The industry still accounts for a tiny share of loans homeowners take out against their home’s value. The four largest home equity contract companies securitized about 11,000 home equity contracts in the first 10 months of 2024, less than one percent of the 1.2 million home equity lines of credit issued over roughly the same period of time.
According to the Consumer Financial Protection Bureau, complaints from consumers “shows homeowners that felt frustrated or even misled about various aspects of home equity contracts — including confusion about the financing terms, surprise at the size of the repayment amounts, disputes about appraisal values, difficulty with refinancing due to the existence of the home equity contract, and frustration that they felt their only option to get out of the contract was to sell their home.”
On the same day the complaint was filed, Hometap announced a partnership with Heading Home, the Boston area’s largest provider of services for homeless families with children, through its Up & Out program — an effort in which “volunteers purchase and assemble furniture, household goods, and essentials to transform empty apartments into welcoming homes.”
In the February 19 press release, Hometap CEO Jeffrey Glass said the partnership is part of their “commitment to support housing stability across our community. By addressing housing challenges at every level, we can create stronger pathways to sustainable homeownership.”
Campbell’s office argues that Hometap actually devalues homeowners’ equity. It claims a percentage of the value of the home when repayment comes, the AG’s office alleges, which is “far higher” than the percentage paid to the homeowner in the initial investment. The company often pays homeowners just half of the value of the equity it claims, the suit says.
“Although styled as an ‘option’ and characterized by Hometap as an ‘investment,’” the complaint states, “in reality, the Hometap HEI is a loan. In particular, Hometap’s product is an unlawful reverse mortgage product.”
Because of the danger of reverse mortgages, where the amount owed to the lender goes up over time unlike traditional mortgages, these products are federally restricted to individuals over the age of 62.
In Massachusetts, reverse mortgage loans are limited to owner-occupiers over the age of 60 who must receive independent counseling regarding the risks of reverse mortgage loans, plus be given a seven day “cooling off period” to rescind the reverse mortgage loan after entering the contract.
Hometap, the attorney general argues, is effectively skirting these requirements by classifying its product as an investment. The National Consumer Law Center, a nonprofit organization headquartered in Boston focused on issues affecting low-income consumers, described HEIs as an “exploitation” of the country’s $35 trillion home equity market without the regulations directed at traditional mortgages or even reverse mortgages.
“Whatever this product is called, it is a loan masquerading as obligation-free cash,” the consumer rights organization asserted, asserted, advocating for state regulations to address the risks. “The companies that market and sell them often use deception to lure financially struggling consumers into unconscionable, high-priced loans.”
While Campbell’s suit is the first to target the HEI product as a deceptive and illegal reverse mortgage in court, other states, including Connecticut, Maryland, and Washington, have clarified in law or regulation that these are effectively loan programs. No current Massachusetts legislation attempts to tackle the question.
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