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Consumers may benefit from the Department of Housing and Urban Development’s (HUD)’s changes to its reverse mortgage borrowing guidelines. Helping consumers was not the intent; HUD only changed the guidelines to reduce the defaults that have swamped the agency the past several years. But, the changes are still increasing protections for homeowners by making reverse mortgages more difficult to get.

The new rules require reverse mortgage borrowers to now pay an up-front insurance fee of 2 percent of their loan, as opposed to the former 0.5 percent new borrowers were offered. Also, borrowers will only be able to borrow 58 percent of their home’s equity, as opposed to the 64 percent they were previously able to borrow. Translation: Potential borrowers will find reverse mortgages less enticing, which is a good thing.

Reverse mortgages are in almost every circumstance a poor mechanism for conserving family wealth. The idea behind a reverse mortgage is that it is given to seniors who want to stay in their homes for the remainder of their days. In exchange for giving up the equity in their homes that they have built up over years, seniors receive cash to allow them to live more easily for the remainder of their days. Reverse mortgage lenders recognize that baby boomers are aging out with billions of dollars in equity in their homes. It is those billions that the mortgage industry wants to get its hands on.

Proponents of reverse mortgages will argue that if a reverse mortgage can guarantee that a homeowner will live in their home until the day they die and will provide that homeowner with tens of thousands, or even hundreds of thousands of dollars in exchange for giving up equity in their home, why shouldn’t they accept such a seemingly sweet deal? The obvious answer is that seniors are giving up a huge safety net of home equity that they would otherwise have. But there is a new reason why reverse mortgages are harmful: the proposed tax reforms may leave seniors unable to cover expenses even after giving up equity.