The Federal Housing Administration clamped down further on reverse mortgages, saying it will no longer insure a variant of the product featuring a fixed rate and a line of credit.

The agency cited the interest rate risk to lenders from such a combination, since it commits them to funding additional draws at a fixed rate even if their own borrowing costs rise. If a lender failed to honor that commitment, the responsibility would then fall on the federal government, the FHA noted in a June 18 letter to originators. Lenders could hedge the risk, but doing so may be so expensive that some would just choose to live with the exposure, the agency fears.

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