New Finance Model Offers Brokers Alternative to Traditional Home Equity Loans

By Michelle Bell

Cornerstone Financing is making a play for the mortgage broker space with the launch of Prime HEI, a program designed to offer homeowners access to home equity without the burden of traditional loans. The program, built on the foundation of Cornerstone’s existing CHEIFS product, aims to provide a modern financial solution—but it arrives at a time of increased regulatory scrutiny surrounding the rapidly evolving landscape of home equity investment products.

Prime HEI allows approved mortgage brokers to offer clients a means of unlocking home equity for a variety of uses – from funding insurance policies to making investments – without incurring debt, interest, or mandatory monthly payments. The model is intended to appeal to a segment of homeowners who might not qualify for HELOCs or home equity loans, or who prefer a different approach to accessing their home’s value.

“We’ve seen growing demand from the mortgage broker community for a modern, prime HEI alternative to HELOCs and CES,” explained a Cornerstone co-CEO. “Brokers have been asking for a solution for clients focused on preserving liquidity and optimizing long-term wealth.”

A Shifting Landscape: The Rise of Home Equity Investments

Prime HEI enters a market experiencing both rapid growth and increasing regulatory headwinds. While traditional home equity loans and lines of credit remain popular, a new category of “home equity investment” products has emerged in recent years. These products, including those offered by companies like HECM and Unlock, operate by providing homeowners with a lump sum of cash in exchange for a share of their future home appreciation.

These agreements are often structured as investments rather than loans, allowing companies to avoid certain lending regulations. However, this classification has come under intense scrutiny from consumer advocates and regulators alike. The Consumer Financial Protection Bureau (CFPB) recently issued a report and consumer advisory, arguing that many of these agreements function as de facto loans and should be subject to the same consumer protections.

The CFPB’s concerns center on the potential for high costs, complex terms, and the risk of homeowners losing significant equity or even their homes. The agency has warned consumers to be wary of products that claim to be “not a loan” but still involve an obligation to repay a deferred debt. A recent court ruling in the Ninth Circuit Court of Appeals further solidified this stance, classifying certain home equity investments as loans subject to consumer protection laws.

“There’s a lot of debate about whether these products truly offer homeowners a better deal,” said one consumer finance expert. “While the absence of monthly payments is appealing, the cost of sharing future appreciation can be substantial, especially if the home’s value increases significantly.”

Regulatory Uncertainty Looms

The regulatory landscape surrounding Prime HEI and similar products is complex and evolving. State regulators in California, Arizona, and Colorado – key launch states for the program – are likely to be closely monitoring these agreements to ensure they comply with applicable lending and consumer protection laws.

“The key issue is whether these products are being marketed and structured in a way that is transparent and fair to consumers,” explained a state banking regulator. “We’re looking closely at the disclosures, the terms and conditions, and the overall cost to the homeowner.”

Cornerstone asserts its commitment to compliance, stating that Prime HEI is structured in a compliant way and is designed to avoid the pitfalls of some other home equity investment products. The company emphasizes the benefits for borrowers who may not qualify for traditional loans.

Broker Opportunity, Consumer Risk?

The launch of Prime HEI is a calculated move to tap into a growing demand for alternative financial solutions. Mortgage brokers are increasingly looking for ways to offer clients more flexible and innovative options. The program offers brokers a competitive compensation structure and dedicated support from Cornerstone’s underwriting team.

“Brokers are always looking for ways to differentiate themselves and provide more value to their clients,” said an industry analyst. “Prime HEI offers them a unique product that can appeal to a specific segment of homeowners.”

However, the program also raises questions about the responsibility of brokers to ensure that clients fully understand the risks and costs associated with these agreements. Given the regulatory uncertainty and the potential for confusion, brokers must exercise due diligence and provide clear and transparent disclosures.

“It’s crucial for brokers to understand the intricacies of these products and to explain them to their clients in a way that is easy to understand,” said a mortgage industry veteran. “They need to be able to answer questions and address concerns, and to ensure that clients are making informed decisions.”

Lessons from CHEIFS: A Foundation for Prime HEI

Prime HEI builds upon Cornerstone’s existing CHEIFS product, a program that has been available to financial advisors for several years. CHEIFS allows homeowners to access equity for similar purposes – funding insurance policies, investments, and other financial goals – but is distributed through a different channel.

While direct customer satisfaction data for CHEIFS is limited, the fact that Cornerstone is expanding into the wholesale market with Prime HEI suggests a level of confidence in the underlying model.

“We’ve learned a lot from working with financial advisors through CHEIFS,” said a Cornerstone spokesperson. “We’re applying those lessons to Prime HEI to create a program that is both beneficial for homeowners and compliant with all applicable regulations.”

However, the success of Prime HEI will ultimately depend on its ability to navigate the complex regulatory landscape and to earn the trust of both homeowners and brokers. As the home equity investment market continues to evolve, transparency, consumer protection, and responsible lending practices will be critical to ensuring that these products deliver on their promise of financial empowerment.