Seniors who wish to use the equity in their homes to improve their later years are the primary beneficiary of a new federal policy that limits the origination fee lenders can charge on reverse mortgages backed by the government.

Previously, lenders making reverse loans insured by the Federal Housing Administration - called HECMs, or home equity conversion mortgages could charge as much as they wanted. Worse, only $1,800 of the origination fee could be paid from the loan proceeds, so borrowers had to dip into their own pockets to come up with the difference.

Now, under a new directive from the Department of Housing and Urban Development, lenders only can charge a fee of $2,000 or 2 percent of the maximum loan amount, whichever is lower. FHA loan limits vary from place to place and range from $121,450 to $219,849.

In addition, the new cap must include all additional fees paid to loan correspondents or brokers who process but do not actually fund the mortgages. And HUD says the entire fee can be financed as part of the loan amount, meaning borrowers will no longer have to go out-of-pocket to get at their equity.

In another major announcement, meanwhile, HUD also said it would make HECMs available in Texas, heretofore the only state where seniors have been unable to obtain a reverse mortgage. The decision follows approval by Texas voters in November to amend the state's constitution to allow reverse loans.

For the uninitiated, a reverse mortgage enables senior home owners 62 or older to covert a portion of their equity into tax-free income without having to sell their homes, give up title or take on a new monthly payment. The loans are not repayable until the borrower passes away, sells the house or moves out for good. Moreover, the total amount owed can't exceed the value of the property.

Reverse loans aren't cheap, but borrowers can use the proceeds any way they want. Most use them to make home improvements so they can live more comfortably or to pay for health care.

The changes announced by HUD were praised by the National Reverse Mortgage Association, which has been lobbying for them for some time. They "promise to significantly help senior homeowners and lenders," said the group's president, Peter Bell.

Even though the law in Texas does not permit reverse loans as lines of credit, which is the most popular method among borrowers for taking their equity, the Texas decision is especially helpful, said Bell. "Texas is a huge market," he explained, adding that the Home Keeper, a version of the reverse mortgage sponsored by Fannie Mae, should probably become available there soon as well.