Massachusetts Ag Sues Hometap Over ‘illegal Reverse Mortgage’

The Attorney General of Massachusetts has filed suit against home equity contract provider Hometap, alleging that the company “pervasively and systematically violated the state’s consumer protection laws, including mortgage and foreclosure prevention laws, putting financially vulnerable homeowners at high risk of losing their homes.”

The suit goes on to claim that Hometap’s primary product offerings — which give the company a share of a client’s future home value in exchange for what it calls “debt-free cash” — constitutes an offer of “illegal reverse mortgages that fail to comply with state consumer protection laws.”

The allegation echoes criticisms levied against the home equity contract industry by other states and the Consumer Financial Protection Bureau (CFPB). For its part, Hometap told HousingWire’s Reverse Mortgage Daily (RMD) that its efforts to engage with the attorney general’s office have “not been reciprocated,” calling the lawsuit “unfounded” and “meritless.”

The lawsuit

Attorney General Andrea Joy Campbell filed the lawsuit this week in Suffolk County Superior Court. The suit alleges that Hometap has concealed the “high cost and nature” of its home equity contract products, which are also known as home equity investments (HEIs).

“Amidst a growing affordability crisis, our lawsuit alleges that Hometap deliberately preyed upon financially vulnerable homeowners for profit, stripping them of their hard-earned home equity and putting them at unreasonably high risk of foreclosure,” Campbell said in an announcement of the filing.

“Our lawsuit seeks to not only hold Hometap accountable for its unlawful practices, but also put other companies on notice that my office will continually seek to protect communities from predatory business practices.”

Among the core issues, the AG alleges that Hometap charges “unlawfully high interest” and offers “fast cash” to its clients without “assessing financial factors such as income, employment, and assets other than their home.”

The company “deliberately markets its product to ‘house rich, cash poor’ homeowners that have substantial home equity but insufficient income or other assets, including the elderly, retirees, those with low credit scores, and those with unpaid credit cards, student loans, or other debt,” Campbell alleges.

‘Illegal reverse mortgage’ allegation

Home equity contract products do not have a minimum age requirement, a chief difference between these offerings and reverse mortgages.

In the U.S., the Federal Housing Administration (FHA)’s Home Equity Conversion Mortgage (HECM) program features a minimum age requirement of 62. Proprietary products offered directly by reverse mortgage lenders have age requirements that, in some cases, go down to 55.

While Hometap asserts that its product offerings are an “investment” and do not constitute a loan, Campbell’s office instead contends that Hometap offers an “unlawful reverse mortgage,” which she says is supported by the product’s features.

“A reverse mortgage is one or more advances of money secured only by a borrower’s primary residence, based on the property’s equity or future appreciation, that does not require any payments until the loan becomes due, all of which the [attorney general’s office (AGO)] asserts are features of Hometap’s HEI,” the office stated.

Because of that, Hometap has failed to comply with Massachusetts requirements that govern reverse mortgage activity in the state, the office alleges. These requirements include (but are not limited to) reserving reverse mortgages for those at least 60 years old, a seven-day cancellation period and a third-party counseling requirement.

“The AGO asserts that Hometap’s conduct deprives consumers of important protections against losing their homes, because the only lawful reverse mortgage loans available in the Commonwealth become due only when a borrower moves out, sells the home, defaults, or dies,” the office explained.

The suit goes on to allege that Hometap has engaged in “deceptive” marketing practices, including “pervasively obscur[ing] its devaluation of homeowners’ equity throughout its marketing materials.” The AGO claims that “the product is actually far more costly to homeowners than its marketing suggests.”

Hometap response, recent HEI scrutiny

RMD reached out to Hometap for comment on the lawsuit.

“Hometap firmly believes in the integrity of our products and the financial flexibility they provide to Massachusetts homeowners,” the company said in a statement. “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 home equity contract industry has been under intensifying scrutiny for the past few months. A lawsuit against another provider in Washington state similarly alleges that these products constitute a “a reverse mortgage stripped of the essential safeguards meant to protect homeowners,” according to perspective from an attorney representing the plaintiffs in that case.

In January, the CFPB under the leadership of former director Rohit Chopra published a report that takes a closer look at home equity contracts and repeatedly compares their product features to reverse mortgages.

The bureau also filed an amicus brief in a New Jersey lawsuit, stating its position that a home equity contract counts as a residential mortgage, and it often aimed to corroborate that perspective with comparisons to reverse mortgages.