The mortgage market is contracting, and a contracting market often brings alternative methods of financing. Keeping this in mind, the Department wants to remind licensees that certain alternative financing options may be residential mortgage loans under the Consumer Loan Act (CLA). One such alternative financing option that we are seeing lately are shared appreciation mortgages (SAMs). SAMs may also be known as shared equity loans, home equity sharing agreements, or partnership loans. There are many different types of SAMs, but there are two business models that are the most prevalent: traditional SAMs and so-called “investor” SAMs.
Traditional SAMs are generally offered during the purchase of a home (or during a loan modification or reverse mortgage) by a lender as a component of the mortgage. The lender may give the borrower a lower interest rate, lower down payment, or another form of assistance in exchange for an agreed-upon percentage of the home’s appreciation. The borrower will make monthly payments to the lender and at the expiration of the term, the borrower will pay the outstanding principal balance of the loan and a percentage of the house’s appreciation. Investor SAMs, on the other hand, generally do not require interest or monthly payments and are generally a silent second mortgage in exchange for a share of the home’s future appreciation or future value.
The CLA defines “loan” as a sum of money lent at interest or for a fee or other charge. Entities offering SAMs or similar products that meet the definition of loan must be licensed under the CLA. Further, licensees offering such products must comply with the disclosure requirements for SAMs or mortgages with shared appreciation provisions under WAC 208-620-510(6).
Licensees should review these provisions and implement them if applicable. We encourage licensees or others providing these types of loans to contact the Department if they are unsure if a product they are offering is a loan under the CLA.