“I’ve talked to so many of these borrowers,” Gouge told Mortgage Professional America. “I was doing a lot of rate and term refinances and leaving these second liens in place. People were crying on the phone with me because they had no idea what they got into. Some people were pointing to the consumer and saying, ‘Well, they should have known better. They should have read it.’
“But who reads every page of 130-page financial documents when you’re buying a house? They bordered on predatory in my opinion. I’ve warned people that’s something to look out for.”
A lifeline with weights attached
Shared equity loans are a type of loan where borrowers sell a portion of the equity in their home to help close the loan. While the Consumer Financial Protection Bureau (CFPB) issued guidance on these types of loans in 2022, many remain in existence, and borrowers often lack an understanding of the potential issues associated with them.
“Someone who is in the market for a second lien, whether it’s a HELOC, shared equity, any type of second-lien product, they’re going to look at different options,” Gouge said. “Without knowing, they think shared equity is a smarter way to access their home equity. They can borrow money, sometimes with no payments.
“But you have to realize what you’re getting yourself into, because you’re essentially partnering with or selling a portion of your equity. Over the course of 10 or 20 years, you just don’t pay attention. Then, all of a sudden, ‘Oh, I borrowed $100,000, now I owe them $328,000.’ That’s interesting.”
