Still a small fraction of overall lending activity, reverse mortgage scams appear to be rising in number.

Forbes reports that “Criminal cases are popping up all over involving reverse mortgages, particularly in states, hardest hit by the bursting of the housing bubble. Earlier this month, two people were arrested in Atlanta and charged with trying to profit off a government loan insurance program by posing as real estate agents and luring seniors into fraudulent reverse mortgage loans using altered real estate records and fake documents.” Other scams have apparently  incorporated loan modifications.

Fortunately, cases of outright fraud remain rare. However, stories of misinformation and poor counseling are  commonplace. Reverse mortgage lenders might not understand that they have a fiduciary responsibility to their borrowers. Many lenders adhere loosely to this notion, but in fact, the Federal Trade Commission (FTC) requires all lenders to convey both the benefits and drawbacks of reverse mortgages and to advise their clients accordingly when a reverse mortgage may not be appropriate.

Having learned some strong lessons from the housing boom and bust, the federal government is no longer sitting by idly. Through the Federal Financial Institutions Examination Council (FFIEC), an all encompassing regulator of financial institutions, the FTC is working to “advise lenders of the importance of not making deceptive claims for reverse mortgages and to provide them with concrete guidance as to the circumstances under which claims may be deceptive in violation of Section 5 of the FTC Act.”

In addition, the FTC is trying to form a, “federal-state working group to strengthen law enforcement efforts against illegal practices,” as well as “consumer and business education efforts, such as including a revised consumer brochure, ‘Reverse Mortgages: Get the Facts Before Cashing in on Your Home’s Equity,’ a new business alert to help housing counselors spot and report potentially deceptive claims, and presentations to reverse mortgage industry groups.”

Still, the FTC is mainly effective in punishing fraud – not preventing it. The burden is still on you, the borrower, to be vigilant. If it smells fishy, walk away, or at least seek a second opinion. And lastly, if it seems too good to be true, it probably is.