Consumer Advocates Against Reverse Mortgage Abuse (CAARMA) Definition

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Consumer Advocates Against Reverse Mortgage Abuse (CAARMA) Definition

What Is CAARMA?

A 501(c)(3) nonprofit group called Consumer Advocates Against Reverse Mortgage Abuse (CAARMA) works to improve the reverse mortgage system in the US.

People 62 years of age and older may get loans backed by the equity in their homes by using reverse mortgages. A line of credit, a series of regular monthly installments, or a flat amount are all possible loan delivery methods. As opposed to a conventional mortgage, they are not required to make monthly mortgage payments. Instead, the loan only becomes due when the borrower sells the house, vacates the property, or passes away—as long as they pay the property taxes and insurance and maintain the house in good shape. After then, either the homeowner or their heirs are required to repay the loan in full, plus interest and fees. Unfortunately, doing so often requires selling the home.

Advocates for consumers believe that the system is ideal for frauds and predatory lending that prey on elderly individuals who may not be able to grasp the conditions of the loans they are signing. Additionally, it may have a negative effect on their heirs, who can unjustly forfeit their anticipated inheritance.

According to CAARMA, its goal is to “appropriate, safe, and smartly” improve the Federal Housing Administration’s (FHA) home equity conversion mortgage (HECM) program. The most popular kind of reverse mortgage in the United States is a HECM, which is federally insured. CAARMA’s ultimate goals include lowering the frequency of HECM foreclosures and improving the sustainability of the Mutual Mortgage Insurance Fund (MMIF), which covers all mortgages backed by the FHA.

Key Takeaways

  • A nonprofit organization called Consumer Advocates Against Reverse Mortgage Abuse (CAARMA) is working to change the reverse mortgage industry in the US.
  • CAARMA works in advocacy and has a number of projects aimed at raising knowledge of reverse mortgage terms, improving their suitability for senior citizens, and improving the system’s equity and accessibility to community feedback.
  • Consumer advocate Sandra Jolley, who claims that her parents were victimized by a fraudulent reverse mortgage, launched CAARMA in 2015.

Understanding CAARMA

CAARMA was established in 2015 by California-based financial analyst, whistleblower, and consumer advocate Sandy Jolley. Jolley’s traumatic personal experience, in which her parents were victimized by a predatory reverse mortgage, inspired her advocacy efforts.

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According to CAARMA, neither the federal government nor elderly persons are served by the reverse mortgage system. It’s possible that many people who sign reverse mortgages are unaware of the exact conditions to which they are consenting or the long-term effects of a reverse mortgage. For instance, according to a statistic on CAARMA’s website, around half of surviving non-borrowing spouses won’t be able to remain in their house if the borrowing spouse passes away.

Additionally, CAARMA notes that the MMIF, which handles HECMs for the FHA, is “$14.5 billion in the hole.” This may, however, be slightly offset by the most recent MMIF report from the U.S. Department of Housing and Urban Development (HUD), which highlighted the HECM portfolio’s first profitable year since 2015 as a result of national home appreciation.

CAARMA has started a number of advocacy projects, such as action letters to borrowers that outline the conditions and specifications of reverse mortgages. The organisation has also lobbied government institutions. The Government Deposit Insurance Corp. (FDIC), the federal organization in charge of monitoring credit unions, received a letter from CAARMA in 2020 expressing objection to a plan to amend the Community Reinvestment Act of 1977. (CRA).Jolley, the author of the letter, stated that it would have been dangerous to enact new laws during the COVID-19 epidemic since it is unclear how they would impact the overall economy. Instead, the CRA should permit more community involvement in reinvestment, according to CAARMA.

Example of Reverse Mortgage Abuse

Elder Financial Terrorism, a partner website of CAARMA, claims that Jolley’s parents, Pat and Dick Hickerson, were duped into approving a reverse mortgage that they didn’t need. Due to their medical history, which included the fact that Jolley’s mother Pat had Alzheimer’s disease, the couple was refused coverage for long-term care insurance when Dick discovered he was dying of metastatic cancer.

A salesman soon arrived and had them sign for a reverse mortgage after Dick replied to a television commercial showcasing performers endorsing the advantages of reverse mortgages (none of which related to them, the website says). They engaged in a HUD counseling session over the phone without having their comprehension level established. After Dick passed away, the family’s home was ultimately auctioned off without giving them an opportunity to repurchase it. As a whistleblower against the company that she claims exploited her parents, Jolley has gained recognition. The maximum amount permitted by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 was given to Jolley in 2017 for her role in whistleblower actions against loan servicer Financial Freedom: $1.6 million. The CEO of OneWest Bank, which controlled Financial Freedom, and was also known in the media as the “Foreclosure King,” Steven Mnuchin, ran that business. Later, Mnuchin would hold the position of Treasury Secretary for the United States during the Donald Trump administration. In order to resolve false allegations about reverse mortgages, Financial Freedom consented to pay the federal government more than $89 million.

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1,300%

The amount of increase in HECMs from just 2001 to 2008

Scams vs. Predatory Reverse Mortgages

Homeowners seeking reverse mortgages must exercise caution because they provide fraudsters and unscrupulous lenders with a wealth of potential victims. According to a USA Today study published in 2019, dangerous reverse mortgages have been advertised to senior citizens as risk-free investments, particularly in the years after the Great Recession.

Since 2014, 2% of these mortgages had been terminated due to default; by 2018, that amount had risen to 18%. According to data from a 2019 analysis from the U.S. Government Accountability Office, this is mostly because borrowers don’t satisfy occupancy criteria or don’t pay their taxes and/or insurance.

There have also been overt frauds. Older folks are often targeted by advertisements on television and radio, investment seminars, billboards, home mailers, and local churches. The con artists persuade the homeowner to give them permission to get a HECM in the name of the homeowner. They then charge the homeowner a fee, retaining the majority of the proceeds for themselves.

Another scam that could take place is when the value of the house is inflated by a false evaluation. The scammers will use the exaggerated estimate to try to persuade the owner to get a reverse mortgage; the loan will also be exaggerated based on the false estimate. According to a warning from AARP, the U.S. interest organization for persons in retirement, if fraudsters are successful in convincing the owner to take out a reverse mortgage, they will submit the papers to close on the loan in order to acquire the money or the home’s title.

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What is Consumer Advocates Against Reverse Mortgage Abuse (CAARMA)?

Consumer Advocates Against Reverse Mortgage Abuse (CAARMA) is a nonprofit group that works to improve elder protections in the American reverse mortgage system.

What is a reverse mortgage?

A reverse mortgage is a loan that is backed by the equity in your property. You won’t need to make loan payments since you will get a regular revenue stream until you move out of your house. When the mortgagor sells the house, vacates the property, or passes away, the whole amount becomes payable, including fees and interest that has accumulated.

What are the downsides of a reverse mortgage?

Reverse mortgages, according to groups like CAARMA, are often exploitative and cause homeowners to assume commitments they are unaware of. When the loan is due, it often involves selling the house to pay it off, which may leave a spouse without a home and prevent heirs from receiving the inheritance they were expecting.

The Bottom Line

Reverse mortgages are designed to provide those 62 and older a method to access money. According to Reverse Market Insight, they have increased in frequency during the epidemic, reaching their greatest monthly volume level since March 2011 in March 2022. However, advocacy organizations like CAARMA claim that its misuse might lead to loan defaults and foreclosures.

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