Make Sure a Reverse Mortgage Is Right for You

"We're seeing activity, but we don't have the statistics to say it's a trend," Carter says.

The economy has changed in ways that could drive an increase in reverse mortgage fraud. The loans have been growing more popular as Baby Boomers look for ways to retire comfortably; 107,367 Home Equity Conversion Mortgage cases were endorsed for insurance from October to September 2007, compared to 76,282 in the comparable period of 2006 and only 157 in 1990, according to the U.S. Department of Housing and Urban Development.

Meanwhile, housing values have begun to fall in recent years, leading to a rise in mortgage fraud reports generally.

"All these people that used to work in predatory lending are looking for things to do," says Prescott Cole, senior staff attorney at the San Francisco consumer advocacy group California Advocates for Nursing Home Reform. Some are trying to make money now by pushing inappropriate reverse mortgages instead, he says.

In many of these cases, people are putting funds raised from reverse mortgages into problematic annuity investments.

For example, Los Angeles resident Mary Munoz was persuaded to borrow $209,282 by taking out a reverse mortgage from the Delaware corporation Financial Freedom in September 2004, when she was 76 years old. She then bought a deferred annuity with an initial premium payment of $60,000 that charged penalties for withdrawing money during the first 10 years, on the understanding that the investment would grow her assets and pay off the reverse mortgage after her death.