It was shortly before Christmas 2021 when Kennis Schummer received a letter that changed his life.

Schummer, a 64-year-old jingle writer turned retail manager, had seen the value of his modest ranch-style home near Pensacola, Florida, balloon during the pandemic. Like a lot of homeowners, Schummer was keen to convert some of his theoretical wealth into real cash. His home needed a new roof and floors, and friends sometimes joked that it was "stuck in the '70s," but tapping into the amassed equity seemed difficult. The traditional options all involved taking out additional loans, and Schummer couldn't afford more monthly payments.

Then came the letter. It was from a California-based company called Point, which proposed an unorthodox solution: Instead of Schummer borrowing money against the current value of the house, Point offered to pay Schummer a lump sum of cash in exchange for a share of his home's future appreciation. In essence, the company was betting that the price of his house would keep climbing, and it wanted to get in on the action. These kinds of deals, often referred to as home-equity-sharing agreements or home-equity investments, have existed on the fringes of housing finance for decades. But Point is one of a handful of relatively young companies, backed by some of the world's biggest investors, that are hoping to take the products mainstream.

Schummer had never heard of this kind of thing, but he was intrigued. His accountant assured him that home-equity investments, done with the right company, were legit, albeit uncommon. In spring 2022, after some researching and number crunching, Schummer promised Point 64.9% of any appreciation on his home in exchange for $60,000 in cash. That may sound like a huge chunk of his future wealth, but Schummer is far from alone in taking this kind of deal.

Though home-equity investments remain niche, the emerging industry is raising some concerns. Consumer advocates and financial advisors I spoke with worried that homeowners might not fully grasp what they're getting into or lack the financial acumen to decide whether the deal is right for them. The contracts are structured so that investors are heavily favored to make a profit, regardless of the twists and turns in the market. Laurie Goodman, a fellow at the nonpartisan think tank Urban Institute, told me home-equity investments represented "a great deal for the investor."

"If it's a good deal for the investor," Goodman added, "it may well be a bad deal for the borrower."

The success or failure of home-equity investments could shape the future of homeownership in America. As the deals gain acceptance on Wall Street, they could determine who will reap the outsize profits of the next housing boom — regular homeowners or the investors who sensed opportunity decades earlier.

American homeowners are undeniably rich on paper. Between the beginning of 2020 and the third quarter of 2023, US households gained a staggering $12.6 trillion of equity in their homes, reaching a record $32.6 trillion in total, according to the Federal Reserve. That kind of money could go a long way toward paying medical bills, clearing out high-interest debts, or covering emergency costs. But there are all kinds of reasons — such as poor credit or unstable employment — someone might have a hard time tapping into their equity. Homeowners also might simply be unsatisfied with the most popular debt options, which look a lot less attractive with today's steep interest rates.

In their pitches to homeowners, companies like Point emphasize that their offers are not loans — the owner technically isn't taking on more debt. Instead, they settle up sometime in the future, as much as 10 or even 30 years down the line. To come up with the cash, the owner can sell, refinance, or borrow more money to pay out the investor. If the home's value has gone up, everyone wins; sell it for a loss, and the investor might share in that downside. It's framed as a partnership, not a transaction.

In terms of consumer demand, we haven't even scratched the surface. Most consumers don't even know what this is.

Here's how it works: When he decided to cut a deal with Point, Schummer had $122,000 left to pay on his mortgage. An appraiser valued his home at $275,000, but for Point's purposes, his house was worth only $231,000 — the company applied a 16% discount to provide Point with some downside protection in the event that prices fell. When he eventually settles up with the company, Schummer will have to pay back the original $60,000, plus 65% of any appreciation on his home's value. Schummer gets quarterly estimates from Point on what that amount would be — with his home's value now estimated at $295,900, he'd owe a little more than $80,000. (Point caps its returns so that the annual percentage rate of the deal doesn't exceed 17%.) The deal will technically last for 30 years, but Schummer can choose to end it at any point by paying out the company. If a customer like Schummer refuses to settle up at the end of the contract, the companies have the right to force a sale of the home. But executives I spoke with stressed that they'd take such drastic action only after they'd exhausted all other options.

As of now, these deals mostly appeal to those who don't qualify for traditional loans or are saddled with other high-interest debt. But for companies such as Point, the explosion of home equity over the past few years represents a massive opportunity.

"Over time for us, the customer becomes everybody," Eoin Matthews, the chief business officer and a cofounder of Point, told me recently. "And I don't mean that in a 'conquer the world' type of way. What I really mean is, you're trying to make the product more and more attractive and more viable for homeowners."

In the past decade, Point and its competitors — Hometap, Unlock, Unison, EquiFi, and Splitero, among others — have made big strides toward broader acceptance. Larger investment groups such as Bain Capital, Palisades Group, and Redwood Trust have piled in to either invest in the companies themselves or buy up their home-equity contracts. Hometap recently announced that it had made $1 billion in home-equity investments, the equivalent of more than 10,000 contracts, since its founding in 2017; more than $730 million of that was deployed in just the past couple of years. Jim Riccitelli, the CEO of Unlock, told me he believed the industry could eventually grow to "trillions of dollars" in size once more people realized this kind of financing is available.

"In terms of consumer demand, we haven't even scratched the surface," Riccitelli said. "Most consumers don't even know what this is."

To keep growing, these companies need to convince both regular homeowners and major investors that they offer a superior alternative to traditional home-equity loans — a true win-win, not just an option of last resort.

That's where things get complicated.

Adam Rust, the director of financial services for the Consumer Federation of America, was skeptical in 2017 when he first heard of home-equity-sharing agreements. Home-equity gains seemed like the one area of household assets "that had not yet been tapped by venture capitalists," Rust told me recently. That appeared to be changing as investors began circling homeowners' nest eggs. Rust wasn't just concerned about homeowners promising away a chunk of their future equity, which, especially for low-income families, represents one of the biggest portions of household wealth in the US. He was also troubled by the complexity of the product and how difficult it might be for an average consumer to calculate just how much they could be giving up. Rust played around with various scenarios in a spreadsheet, acknowledging that his comparisons required whipping out the kinds of obscure calculations you'd pick up in business school — net present value, internal rate of return, etc.

"I can do that, but most consumers can't," Rust told me.

Rust also worries about the lack of a standard product. Point offers one flavor of home-equity investments: Its contracts come due in 30 years, and the company invests in future appreciation — if the value of the home goes from $200,000 to $400,000, then Point just gets a chunk of the $200,000 increase, plus the original cash amount it gave to the homeowner. Other companies, such as Unlock, offer contracts up to 10 years and a different structure in which they simply get a share of the total value of the home. In other words, they'll give you a percentage of your home's value today, in cash, in exchange for a bigger percentage sometime in the future. Say, for instance, you own a home worth $1 million, and you want to take out $100,000. Unlock could give you that $100,000 for a 20% stake in your home. In 10 years, the home's value has grown to $1.2 million. The payment to Unlock would be $240,000, or 20% of that ending value.

You can imagine how things get muddled. Companies offer different timelines, and while the basic formula is roughly the same — cash today for a stake in your home tomorrow — the variations could have consequences for how much you eventually end up paying. Do you go with the company that offers a 10-year timeline or a 30-year one? Do you make a deal based on your home's total value in the future, or how much it'll appreciate?

"For consumers, I think it can be very confusing," Rust told me. "I'm worried that people will pick products that aren't suitable."

Riccitelli and other executives in the space argued their offerings weren't necessarily more complicated than, say, a home-equity line of credit, which includes payments that can change over time based on how much money you borrow and how interest rates fluctuate.

"I don't think the product is more difficult. I think it's different," Riccitelli said. "Almost all financial products have some level of complexity to them. Look at the regular, old mortgage loan, just a 30-year fixed loan. Does the average customer understand how loan amortization is calculated?"

While companies love to tout that home-equity investments are not a loan, consumer advocates and financial planners worry that the marketing pitch covers up the real cost of the decision.

"It's a great marketing piece to say, 'This isn't a loan — you're not making any monthly payments.' It's a really attractive sell," Jordan Gilberti, a senior lead planner at the investment-advisory company Facet, told me. "But on the other hand, there is a cost to it. There's a cost to every type of product like this."

This may sound like semantics, but the distinction between a loan and equity investment affects how the product is regulated. Mortgage loans require a different licensing process, as well as much-stricter disclosures and protections for consumers. So far, federal courts have upheld these deals as options contracts, not loans. But some states, including Connecticut and Maryland, have already amended their statutes so that home-equity investments are regulated like mortgage loans, meaning more guardrails for homeowners.

"As the product becomes more popular, there is a risk that more regulators may take a closer look at it," said Holly Bunting, a partner at the law firm Mayer Brown who specializes in consumer financial services and regulations.

And even if consumers feel comfortable enough to sign on to the deals, what happens once the contract runs its course? Point, founded in 2015, is such a new company that it hasn't yet had to confront a situation where a homeowner can't pay up. But Matthews told me the company had now settled up with nearly 3,000 homeowners — if customers didn't know what they were getting into, he said, you'd expect to see more widespread complaints. Matthews acknowledged that consumer advocates were fair to be protective of homeowners' nest eggs, but he called it "very idealistic" to think owners wouldn't have good reasons to touch their home equity earlier than they'd envisioned.

"There's a lot of events along the way that real people have," Matthews said. "The alternative, which could be catastrophic for that homeowner, may be taking on debt that they can't manage or having to sell a home that they don't want to sell."

It's possible that a home-equity investment will work out to be more expensive than if you'd just borrowed the money, Jeffrey Glass, the CEO and cofounder of Hometap, said. But customers are also ascribing real value to the flexibility of that cash, Glass added — there's no lender demanding payment each month, and homeowners can use that money to do all kinds of other things in the meantime.

"What they're saying is, 'OK, I know my house will probably go up in value and the cost of this HEI will probably be more than if I had borrowed,'" Glass told me. "But I get all this other benefit in between now and then, and it's worthwhile to me."

A lot of the people I've talked to believe home-equity investments are destined to remain a niche product, something that appeals only to homeowners who find themselves in a bind and don't have other good options. But others are placing massive bets that these deals will find a broader audience. If home-equity investments do take off, their rise will add to the wider reckoning over who gets to benefit from rising home prices — regular homeowners or the cash-flush investors who are best positioned to bet on the market.

Those kinds of questions amount to background noise for Schummer, the Florida resident who made a deal with Point. In the nearly two years since he signed on, he told me, he's had no second thoughts. He knows the bill will eventually come due, but in the meantime, his home has undergone a makeover: new floors, roof, appliances, windows, and a fence to mark the edge of his property. Schummer said that while the deal might not be for everyone, it felt right for him.

"At a time when I really needed to do some things, this was not only the best, it probably was the only way I was going to get it done," Schummer told me. "I've had a smile on my face about that part of my life ever since."

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