Consumer Advocates Against Reverse Mortgage Abuse (CAARMA) Definition

What is CAARMA?

Consumer Advocates Against Reverse Mortgage Abuse (CAARMA) is a 501(c)(3) nonprofit organization that seeks to reform the reverse mortgage system in the United States. Reverse mortgages allow people age 62 or older to take out loans secured by the equity in their home. They can receive the loan in the form of a lump sum, a series of regular monthly payments or a line of credit. They don’t have to pay off the mortgage every month like with a traditional mortgage. Instead, as long as they pay home insurance, taxes, and keep the house in good repair, the loan only becomes due when they sell the house, vacate the house, or die. At this point, the loan must be repaid in full, plus interest and fees, either by the owner or his heirs. Unfortunately, this can often only be done by selling the house.

Consumer advocates say the system is ripe for predatory lending and scams that benefit older people, who may not be able to understand the terms of the loans they sign. It can also negatively impact their heirs, who can lose their expected inheritance through no fault of their own.

CAARMA says it exists to make the Home Equity Conversion Mortgage (HECM) program run by the Federal Housing Administration (FHA) “responsive, safe and smart.” HECMs are federally insured and are the most common form of reverse mortgage in the United States. CAARMA ultimately wants to reduce the number of HECM foreclosures and make the FHA’s Mutual Mortgage Insurance Fund (MMIF), which insures all FHA-backed mortgages, more sustainable.

Key points to remember

  • Consumer Advocates Against Reverse Mortgage Abuse (CAARMA) is a non-profit organization that seeks to reform the reverse mortgage system in the United States.
  • CAARMA engages in advocacy and has several initiatives aimed at increasing awareness of the terms of reverse mortgages, making them more age-friendly, and making the system more fair and open to community input.
  • CAARMA was founded by consumer advocate Sandra Jolley in 2015, who claims her parents were supported by a predatory reverse mortgage.

Understanding CAARMA

California-based financial consultant, whistleblower and consumer advocate Sandy Jolley founded CAARMA in 2015. The advocacy work grew out of a painful personal experience for Jolley, after her parents were taken over by a predatory reverse mortgage.

CAARMA argues that the reverse mortgage system is not suitable for seniors or the federal government. Many who sign reverse mortgages may not be aware of the specific terms they are agreeing to or the long-term implications of a reverse mortgage. For example, about half of non-borrowing surviving spouses will not be able to stay in their home after the borrowing spouse dies, according to a figure cited on the CAARMA website.

Additionally, CAARMA points out that the MMIF, which covers FHA’s HECMs, is “$14.5 billion in the red.” However, this may be somewhat mitigated by the latest MMIF report from the U.S. Department of Housing and Urban Development (HUD), which noted positive financial performance of the HECM portfolio for the first time since 2015, due to the nationwide home appreciation.

CAARMA has launched several advocacy initiatives, including action letters to borrowers to explain the terms and requirements of reverse mortgages. The group also lobbied federal agencies. In 2020, CAARMA sent a letter to the Federal Deposit Insurance Corporation (FDIC), the federal agency that oversees credit unions, expressing its opposition to a proposal that would have made changes to the Community Reinvestment Act of 1977 (CRA). That letter, signed by Jolley, argued that it would have been unwise to establish new regulations during the pandemic, as it is unclear how such regulations will affect the broader economy. Instead, CAARMA argued that ARC should allow for greater community contribution to reinvestment.

Example of Reverse Mortgage Abuse

Jolley’s parents, Pat and Dick Hickerson, were tricked into signing a reverse mortgage they didn’t need, according to CAARMA partner site Elder Financial Terrorism. After his father, Dick, learned he was dying of metastatic cancer, the couple were denied long-term care insurance coverage based on medical history, including that Pat, Jolley’s mother, suffered from Alzheimer’s disease. Dick responded to a TV commercial featuring actors espousing the perks of reverse mortgages (none of which applied to them, the site notes), and a salesperson soon came over and had them sign a reverse mortgage. They had a HUD counseling session over the phone with no verification of their ability to understand what was going on. Ultimately the property was sold by the family after Dick’s death without allowing the family to redeem the property.

Jolley herself has been recognized as a whistleblower against the company which she says took advantage of her parents. In 2017, the U.S. government awarded Jolley $1.6 million, the most authorized amount under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, for his involvement in whistleblower activities against the manager of Financial Freedom loans. This company was run by Steven Mnuchin, known in the media by his nickname “Foreclosure King”, who was the CEO of OneWest Bank, which owned Financial Freedom. Mnuchin would later become head of the US Treasury under the Donald J. Trump administration. Financial Freedom has agreed to pay the federal government more than $89 million to settle bogus reverse mortgage claims.


The amount of increase in HECM just between 2001 and 2008

Scams vs Predatory Reverse Mortgages

Reverse mortgages provide a target-rich environment for scammers and predatory lenders, which means homeowners considering them need to be vigilant. A 2019 survey by USA today claimed that risky reverse mortgages were presented to older people as risk-free money, especially in the wake of the Great Recession.

An increasing number of these mortgages have defaulted in recent years, rising from 2% of loan terminations in 2014 to 18% in 2018. This is mainly due to borrowers not meeting occupancy conditions or paying not their taxes and/or insurance, according to information from a 2019 report by the US Government Accountability Office.

There have also been outright scams. It is common for seniors to be targeted by television and radio advertisements, investment seminars, billboards, door-to-door mailings or local churches. The scammers convince the owner to allow them to take out a HECM in the owner’s name. They then pay a royalty to the owner while keeping most of the money generated for themselves.

Another scam can occur when a fraudulent appraisal is given that inflates the value of the home. With the inflated estimate, the scammers will attempt to convince the homeowner to take out a reverse mortgage: the loan will also be inflated by the bogus estimate. If they can convince the homeowner to take out a reverse mortgage, the scammers will file the paperwork to complete the loan in order to collect the money or title to the home, according to a warning from AARP, the interest group for people of retirement age in the United States.

What is CAARMA?

Consumer Advocates Against Reverse Mortgage Abuse (CAARMA) is a nonprofit organization that seeks to reform the reverse mortgage system in the United States through better safeguards for seniors.

What is a Reverse Mortgage?

A reverse mortgage is a loan secured by the equity in your home. It pays you an income stream until you leave your home, with no loan payments required. It becomes payable in full, including costs and accrued interest, when the mortgagor sells the home, vacates the home, or dies.

What are the disadvantages of a reverse mortgage?

Organizations such as CAARMA insist that reverse mortgages are too often predatory, with homeowners not understanding the obligations they are assuming. When the loan comes due, the house often has to be sold to pay it off, which can render a spouse homeless and deprive the heirs of their expected inheritance.

The essential

Reverse mortgages are intended to serve as a means of accessing cash for people age 62 and older. They have become increasingly common during the pandemic, reaching their highest level of monthly volume since March 2011 in March 2022, according to Reverse Market Insight. However, defaults and foreclosures can occur due to their abuse, according to advocacy groups such as CAARMA.

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