CAARMA calls for better protection as more seniors turn to reverse mortgages
Consumer advocates are raising alarms about the growing risks of “abusing” reverse mortgages, putting senior borrowers at risk of losing their homes.
The Consumer Advocates Against Reverse Mortgage Abuse (CAARMA), a nonprofit organization, is highlighting the potential dangers of reverse mortgages, particularly for seniors who may not fully understand the terms of these complex loans.
Reverse mortgages allow homeowners aged 62 or older to borrow money against their home equity, receiving payments either as a lump sum, monthly installments, or a line of credit. Unlike traditional mortgages, borrowers aren’t required to make monthly payments.
The loan becomes due when the homeowner sells the house, moves out, or dies, at which point the full loan, along with interest and fees, must be repaid. However, if the loan cannot be repaid, the house is typically sold to cover the debt.
While reverse mortgages can offer financial flexibility, CAARMA founder Sandy Jolley warned that they also come with risks.
Jolley founded CAARMA in 2015 after witnessing her own parents fall victim to a predatory reverse mortgage. Her organization is working to reform the home equity conversion mortgage (HECM) program, the most common type of reverse mortgage, which is insured by the Federal Housing Administration (FHA).
The popularity of reverse mortgages surged during the pandemic, reaching its highest level of monthly activity in March 2022 since 2011, according to data from Reverse Market Insight. However, the increase in demand has also been accompanied by a rise in defaults and foreclosures, which often happen when borrowers fail to meet the loan’s requirements, such as maintaining home repairs, paying property taxes, and keeping up with homeowners insurance.
CAARMA argued that the complexity of reverse mortgages leaves many borrowers—particularly older adults—confused about the true terms of the loan. This confusion often leads to devastating financial consequences, including the loss of the family home.
Read more: DC revives reverse mortgage assistance program for seniors facing foreclosure
The group is also concerned about the financial health of the FHA’s Mutual Mortgage Insurance Fund (MMIF), which insures HECM loans. According to CAARMA, the MMIF is $14.5 billion in debt, raising concerns about the sustainability of the program.
Despite a recent report from the Department of Housing and Urban Development (HUD) showing positive financial performance due to home appreciation, advocates say more must be done to ensure that the program is fair and sustainable for borrowers.
CAARMA has launched several initiatives to address these issues, including providing action letters to borrowers explaining the terms and requirements of reverse mortgages. The organization has also engaged in lobbying efforts.
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