With a fixed rate, a borrower generally takes a lump sum up front and is assessed interest on that amount. With a variable-rate credit line, by contrast, the borrower only taps the line when he or she needs it and obtains a "growth feature," which, largely because of the borrower's declining life expectancy, increases the available credit line annually.

In the last two years, experts say HUD has unveiled some reverse mortgage products that make them attractive financial planning tools. The HECM Saver, for example, can cut the up-front cost of a reverse mortgage in exchange for a lower borrowed amount.

The "Saver" has a lower up-front mortgage insurance premium-0.01% rather than 2%. On a $250,000 home, according to the National Reverse Mortgage Lenders Association, a borrower would pay just $25 instead of $5,000 on the HE
CM standard up front. The trade-off: The borrower receives 10% to 18% less money.

Reverse mortgages can also be used to purchase a new home with no monthly mortgage payments. Tom Dickson, the national intermediary sales leader for MetLife Bank, Bridgewater, N.J., the largest remaining reverse mortgage player, says these loans open up new financial planning opportunities and can give a client liquidity to help with critical financial planning objectives.

For example, a reverse mortgage might help someone delay Social Security payments to a later date, when they're higher, he suggests. Or the loans might help a client avoid tapping other investments if emergency cash is needed. A reverse mortgage can also help a borrower downsize to a smaller home or condo. "It gives clients choice," he says.

Despite the improvements, reverse mortgages still are heavily criticized for their complexity and high fees. In addition, the quality of counseling, a requirement for seniors to qualify for a reverse mortgage, has come under fire. And lawsuits by the AARP Foundation have been challenging a HUD policy change that threatened to prevent the spouses of deceased borrowers from remaining in their homes.

There are about 500,000 reverse mortgages outstanding, NRMLA says. The number of HUD-issued home equity conversion mortgages peaked at 114,692 in fiscal 2009 (from October 1, 2009 to September 30, 2010). They have since then been declining. There were only 66,497 registered by September 30, 2011.

Nevertheless, the commitment to reverse mortgages remains fierce-despite the economy's toll on strapped borrowers, the charges of misleading sales practices and the dwindling number of loans.

"The department is committed to preserving the HECM program as a sustainable financial option for senior home owners in times of reduced income and dwindling pension funds," HUD spokesman Lemar C. Wooley says. "Many lenders have confirmed their interest in continuing to participate in the program, and HUD is working closely with industry trade groups and lenders to develop policies that will support the HECM program with a focus on strengthening it."

HUD projects demand for the loans will rise again-to 71,000 loans worth nearly $18 billion in fiscal year 2012 and 88,000 loans worth $22.6 billion in fiscal year 2013.