A new Department of Housing and Urban Development rule could result in fewer and smaller reverse mortgages being made in the short term. Lenders nevertheless welcomed the change, saying greater regulatory clarity boosts the product's long-term prospects.

Under the new regulation, when a reverse mortgage borrower dies or moves out, a spouse who is not listed as a borrower will be allowed to remain in the home provided certain conditions are met. To account for the risk that a younger surviving spouse will fall behind on property taxes or homeowners insurance, or stay in the home a long time, HUD is reducing the proceeds a borrower can extract from the home.

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