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Federal Housing Administration

Retirement: Reverse mortgages get a makeover

Low rates on savings and longer life expectancies have sent retirees scrambling for new sources of income.

Enter the reverse mortgage, which allows homeowners to convert their home equity into cash. Over their 29-year history, reverse mortgages have earned a bad rep, thanks to smarmy TV ads and fears that borrowers could easily lose their home to the bank.

But the Federal Housing Administration, which insures home equity conversion mortgages (or HECMs), as reverse mortgages are formally known, has made rule changes that have reduced the cost of these products and the risk to borrowers. Before the changes took effect, as many as 10 percent of loans went into default because...