Consumer Advocates Against Reverse Mortgage Abuse (CAARMA)

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 for people age 62 or older to take out loans secured against their home equity. They can receive the loan as a lump sum, a series of regular monthly payments, or a line of credit. They don’t have to pay down the mortgage every month, as with a traditional mortgage. Instead—as long as they pay homeowners insurance, taxes, and keep the home in good repair—the loan only becomes due when they sell the house, move out of it, or die. At that point, the loan must be paid back in full, along with interest and fees, by either the homeowner or their heirs. Unfortunately, this often can be done only by selling the house.

Consumer advocates see the system as ripe for predatory lending and scams that take advantage of older people, who may not be able to understand the terms of the loans that they’re signing. It can also adversely impact their heirs, who may lose their expected inheritance due to no fault of their own.

CAARMA says that it exists to make the home equity conversion mortgage (HECM) program run by the Federal Housing Administration (FHA) “suitable, safe, and smart.” HECMs are federally insured and the most common form of reverse mortgage in the U.S. CAARMA ultimately wants to reduce the number of HECM foreclosures and make the FHA’s Mutual Mortgage Insurance Fund (MMIF)—which insures all mortgages that are guaranteed by the FHA—more sustainable.

Understanding CAARMA

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

CAARMA holds that the reverse mortgage system doesn’t suit older people or the federal government. Many of those signing reverse mortgages may not be aware of the specific terms to which they are agreeing or the long-term consequences of a reverse mortgage. For example, about half of surviving non-borrowing spouses will not be able to stay in their home after the borrowing spouse dies, according to a figure quoted on CAARMA’s website.

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

CAARMA has launched several advocacy initiatives, including action letters to borrowers intended to explain the terms and requirements of reverse mortgages. The group has also lobbied federal agencies. In 2020, CAARMA sent a letter to the Federal Deposit Insurance Corp. (FDIC), the federal agency that oversees credit unions, expressing opposition to a proposal that would have made changes to the 1977 Community Reinvestment Act (CRA). That letter, signed by Jolley, argued that it would have been reckless to make new regulations during the COVID-19 pandemic, as it is unknown how those regulations will affect the broader economy. Instead, CAARMA argued, the CRA should allow greater community input into reinvestment.

Example of Reverse Mortgage Abuse

Jolley’s parents, Pat and Dick Hickerson, were hoodwinked into signing a reverse mortgage that they didn’t need, according to CAARMA’s partner site, Elder Financial Terrorism. After her father, Dick, learned he was dying of metastatic cancer, the couple was denied coverage for long-term care insurance due to medical history, including the fact that Pat, Jolley’s mother, was suffering from Alzheimer’s disease.

Dick responded to a television ad featuring actors espousing the benefits of reverse mortgages (none of which applied to them, the site notes), and a salesperson promptly came and had them sign for a reverse mortgage. They had a HUD counseling session over the phone without verification of their capacity to understand what was transpiring. Ultimately, the property was sold out from under the family after Dick died, without allowing the family a chance to buy back the property.

Jolley herself has been recognized as a whistleblower against the firm that she says took advantage of her parents. In 2017, the U.S. government awarded Jolley $1.6 million, the most allowed under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, for her involvement in whistleblowing activities against loan servicer Financial Freedom. That company was run by Steven Mnuchin, known in media by his nickname the “Foreclosure King,” who was the chief executive officer (CEO) of OneWest Bank, which owned Financial Freedom. Mnuchin would later become U.S. Treasury secretary under the Donald Trump presidential administration. Financial Freedom agreed to pay the federal government more than $89 million to settle false claims related to reverse mortgages.

Scams vs. Predatory Reverse Mortgages

Reverse mortgages offer a target-rich environment for scammers and predatory lenders, which means that homeowners considering them have to be vigilant. A 2019 investigation by USA Today claimed that risky reverse mortgages have been pitched 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, going from 2% of loan terminations in 2014 to 18% in 2018. This is mostly due to borrowers failing to meet occupancy requirements or pay their taxes and/or insurance, according to information from a 2019 report from the U.S. Government Accountability Office.

There also have been outright scams. It’s common for older people to be targeted through television and radio ads, investment seminars, billboards, home mailers, or local churches. The scammers convince the homeowner to allow them to take out an HECM in the homeowner’s name. They then pay the homeowner a fee while keeping most of the generated money for themselves.

Another scam can occur when a fraudulent appraisal is given that inflates the value of the home. With the inflated estimate, the perpetrators of the scam will attempt to convince the owner to take out a reverse mortgage; the loan also will be inflated based on the bogus estimate. If they successfully convince the owner to take out a reverse mortgage, the scammers will file the paperwork to close on the loan to collect on the money or the home’s title, according to a warning from AARP, the interest group for retirement-age people in the U.S.

The Bottom Line

Reverse mortgages are meant to serve as a way to access cash for those age 62 or older. They have become increasingly common during the pandemic, hitting in March 2022 their highest monthly volume level since March 2011, according to Reverse Market Insight. However, loan defaults and foreclosures can arise due to their abuse, according to advocacy groups such as CAARMA.