A reverse mortgage works best as a line of credit that allows seniors to meet their immediate needs, such as home repairs, while preserving the remaining balance as a nest egg in case of emergencies.

But many seniors have used reverse mortgages as a lifeline to deal with more urgent financial needs, such as avoiding foreclosure and paying off other household debts. And that's gotten some of them into financial hot water -- a situation Uncle Sam is trying to rectify by tightening program guidelines.

The National Council on Aging (NCA) says one-third of its counseling clients have mortgage debt that exceeds 50 percent of the value of their home. Using a reverse mortgage to pay off the existing mortgage and other household debt leaves these borrowers with little equity to fall back on.

As a result, the Federal Housing Administration is experiencing "technical" defaults on reverse mortgages. These are cases in which borrowers can't afford to pay their property taxes and homeowner's insurance.

The losses on these defaults take money from the FHA mortgage insurance fund. So the FHA is moving to tighten its requirements for seniors who apply for an FHA-insured reverse mortgage, which the agency calls a Home Equity Conversion Mortgage.

FHA pioneered the reverse mortgage and introduced the HECM product 24 years ago. Now, for the first time, the agency wants to impose a financial assessment test on borrowers.

The test will determine if the borrowers have enough remaining cash flow to pay their living expenses after meeting their HECM obligation to pay taxes and insurance.

For borrowers who flunk the measure, the lender would be required to use a portion of the loan's proceeds to create an escrow account. The amount of the account is still under discussion within the agency, but under consideration is a set-aside of two to three years' worth of taxes and insurance payments.

But it's also possible that the FHA may decide that every HECM borrower, not just those who fail the test, will have to set aside an amount for taxes and insurance in case of an emergency.

Consumer and industry groups support efforts to shore up the HECM program, which is expected to experience increasing demand from the aging baby boomer generation. But there are some concerns the FHA may tighten too much. Consequently, consumer groups want to be sure there is some flexibility, particularly for low-income seniors.

NCA senior director Ramsey Alwin stressed that the set-aside should take into account the numerous public and private programs that provide property tax relief for seniors.

The nonprofit group that provides HECM counseling operates a website -- benefitscheckup.org -- that lists 160 property tax relief programs across the country. It also lists programs that help with Medicare premiums and co-pays and provide assistance with prescription drug and utility costs.

"The average reverse mortgage borrower can identify $5,500 worth of savings a year" from these assistance programs, Alwin said. "That will free up their limited income and could put them on a better financial footing when it comes to the financial assessment."

Many seniors ended up in technical default because they took out a Standard Fixed Rate HECM loan, which FHA has "temporarily" withdrawn from the market.

The standard fixed-rate product turned out to be risky because the borrower had to take out all the equity at one time in one lump sum. As it turned out, too many people didn't know how to handle such a large amount of cash.

Many also ended up in default because they were facing a financial crisis, such as a foreclosure, and had to act quickly.

Seniors should be looking at the reserve mortgage option "early and often," Alwin advised. And they should decide before a crisis when they want to use home equity to supplement their income.

The NCA has a support tool on its website that helps people think through the implications of a reverse mortgage and consider other options to free up cash.

Alwin also pointed out that FHA offers a line of credit option -- the HECM Saver -- that is more "consumer friendly" than the standard fixed-rate product.

The Saver has lower upfront costs, and because it is an adjustable-rate product, the proceeds of the reverse mortgage don't have to be dispersed all at once. So the borrower can tap into his line of credit only as his needs dictate.

The Saver reverse mortgage allows the borrower to "pay off immediate needs and maintain the nest egg for a rainy day," Alwin said.

Jeff Taylor, a reverse mortgage consultant and the founder of Wendover Consulting, noted that the HECM program primarily offered a line of credit when FHA first rolled it out in 1989.

Despite some aversion to ARM products on the part of consumers, Taylor expects demand will revert back to the line of credit product, the unused portion of which grows annually, much like a savings account.

"We are seeing financial planners across the country taking a second look at the HECM Saver ARM program as an option for many seniors to bridge the gap -- so they don't have to sell their stock portfolios or other investments," Taylor said.

Mortgage rates are on the rise, making it even more difficult to finance a house. But that doesn't mean the market will flounder before it has had a chance to really get going.

For one thing, loan volumes usually boom when interest rates start to rise. That's the period when all those would-be buyers and refinancers who have been sitting on the fence decide it's the proverbial "right time" to take the plunge. After all, prices are still down substantially from the market peak. While you may no longer be able to nail a rate of 4 percent or less, a loan at 4.5 percent is still better than one at 5 or 6.

Real estate and mortgages have never been totally predictable. While rising rates should choke off refinancings, there are always niche markets that are going to go the other way. And the government has extended its popular HARP refinancing program so there will be a market, though no one can guess how large, for refinancing --regardless of what interest rates do.

Another niche currently booming is housing bonds. According to Thomson Reuters stats in The Bond Buyer, a trade newspaper, housing bond volumes have doubled so far in 2013. Last year through May, $3.1 billion of these instruments had been issued through 101 offerings. This year through May, that number is $6.2 billion through 140 offerings.

In general, consumers can't invest directly in housing bonds, but low- to moderate-income buyers and first-timers can still benefit from them. Housing bond proceeds are used by state housing finance agencies to buy down interest rates on residential mortgages for qualified borrowers.

When rates got down as low as 3.5 percent, how much of a break could there be? In other words, how low can you go? In New Mexico and some other states, the answer is: as low as 1 percent.

Housing finance agencies (HFAs) always manage to offer healthy discounts, even in a low-rate environment. And now that rates are rising, these state agencies will have a little more wiggle room to offer even more options. The result should be increased demand for more housing bonds.

But even before rates have made a serious turn upward, housing bonds are receiving a bump from a new structure that copies probably the most successful mortgage bonds of all time: the mortgage-backed security. The structure is called a "passthrough," and it is for investors who buy these securities in a "secondary" mortgage market designed to pump more lending cash into the system.

A passthrough functions much the way it sounds: The bank or agency that collects the mortgage payment takes a cut for its trouble and then passes through the rest of the money to the investor.

Trillions of dollars of mortgage-backed securities have used this structure. But with housing bonds, the passthrough has a provision investors are going to like:

In the typical passthrough, when a mortgage that has been bundled into the security prepays -- say, for instance, you sell your house and move, paying off your original mortgage and getting another one somewhere in its stead -- the money returns to the housing agency, which reinvests it in more affordable housing. But with the new structure, the investor receives the money, not the HFA.

Last year, according to The Bond Buyer, Minnesota became the first state to use a housing bond passthrough. Illinois, Indiana and Florida have since followed.

The HFAs are important players in the rental market, too. They administer a key federal program called the Low Income Housing Tax Credit, a major boon to the construction of new, affordable multi-family units.

Here's how this program works: HFAs take applications from developers in their states and, through a complex points system, decide to fund projects with the highest scores. Packagers called syndicators sell the tax credits to investors. Any investor can buy tax credits, whether or not they have any real interest in housing, and many do because they receive a double benefit. Not only do they get a tax credit, they can buy the credits at a discount that varies depending on market conditions.

But the net effect is that the investor is buying an equity-stake in these lower-income rental projects, helping to make them possible. Often, their investment is not enough to fund the deal completely. But in most cases, financing packages are cobbled together using tax credit money, money from the Affordable Housing Program of the nearest of the 12 Federal Home Loan banks, the Department of Housing and Urban Development's HOME funds and other sources.

This is how affordable housing projects get stitched together like the quilts your grandmother used to make. And because these finance quilts are made through the hard work of dedicated people all over the country, many families get to stay warm in new or existing houses or apartments they are able to afford -- no matter if interest rates are going up or down.

How hard do you think it might be to obtain a mortgage on a patch of real estate in Yellowstone Park? If you answered "pretty difficult," you'd be right.

But there are more than 40 million acres of land in the United States where it has been nearly as daunting to get a piece of the American Dream as it would be to put up a house next to Old Faithful.

The land in question is called trust land, and it is owned by the federal government, much as our national parks are. It is held "in trust" for American Indian tribes on their reservations.

Just how hard is it to get a mortgage on trust land? The Government Accountability Office did a survey some years ago and found just 91 mortgages were made on all of the country's reservations during the five years between 1992 and 1996. And Indian Country, in aggregate -- not all reservation land is in trust; there is private property there as well -- is about as big as Utah. In short, Indian Country has been a mortgage nonstarter.

That's been changing in the years since that GAO survey. Lenders and tribes have come up with workarounds, like the leasehold mortgage. There, the tribe assigns a lease to one of its members for reservation land. The lender gets a security interest only in the improvements, not the land.

But for the most part, lenders aren't happy with half of their usual collateral.

Enter the federal government. In 1995, the Department of Housing and Urban Development started the HUD 184 mortgage. This was an effort to duplicate the kind of private mortgages most Americans can get in their neck of the woods. It's a pretty sweet deal for the lender, too. Uncle Sam guarantees 100 percent of a lender's outlay. That's right: It's practically impossible for a lender to lose money on a HUD 184 loan.

From a slow start, the HUD 184 has developed into a considerable success story. As of the end of the last federal fiscal year, HUD had guaranteed $2.7 billion in mortgages to individual American Indians and Indian tribes.

Granted, not all of that was on reservation trust land. In fact, the majority of the loans have been on private property, called "fee simple" by the lawyers. But according to Tom Wright, who heads the program at HUD, most of the loans have been either on reservation or within a few miles of tribal homelands. And the credit quality of the loans has been sensational. As of the end of fiscal 2010, less than 1 percent were in foreclosure.

Some 2,000 mortgages have been made on trust land since the program's inception. Compared to the 91 in the GAO survey, that's a twentyfold increase. And in addition to the HUD program, a Department of Agriculture mortgage has also made some inroads into Indian Country. The Rural Housing Service Section 502 and Section 504 mortgages include both guaranteed loans and direct mortgages from lenders.

Who takes an interest in these remote rural areas with their scattered populations? Well, at least 100 lenders have qualified to do HUD 184s, including Wells Fargo and other large lenders. Why? For a nationwide lender, reservations are part of their footprint, no matter how remote. And these are primo loans when it comes time for complying with the Community Reinvestment Act.

The Census Bureau estimates that as of 2011, there were 5.1 million American Indians or Alaska Natives in the United States, including those who classified themselves as members of more than one race. More than a million of them live in Indian areas. Moreover, the Native population is growing by leaps and bounds -- 27 percent between 2000 and 2010. And there is pent-up demand on reservations among the tens of thousands of people who hold government or casino jobs.

A complication with reservation land is that not all of it is trust land. Over the years, tribes and individuals have sold off land to raise cash, leaving a "checkerboard" effect. The sold-off land then reverts to private property, or fee simple, status. Often enough, lenders take the path of least resistance and make mortgages on the private property parts of reservations where the land issues aren't as complicated.

One case where mortgages have taken a true foothold into trust land comes from the Bay Mills Indian Community in the Upper Peninsula of Michigan. The 3,400-acre reservation, nestled on the shores of Lake Superior, isn't checkerboarded. And its leaders have adopted homeownership as a public policy.

Cheryl Causley, housing director for the Ojibwe tribe, said that as of last year, 74 of 324 homes on the reservation have mortgages on them. And she knows of six more mortgages closed for tribal members this year. That means 20 percent of the houses on tribal trust land have mortgages -- quite a high percentage.

What's the key to this success? Unemployment is fairly low, 12 percent or so, with the tribe's two casinos providing jobs to lots of tribal members. A job, you might remember, is a very hopeful sign that a borrower will repay a mortgage. And the tribe has built relationships with several lenders through the HUD and USDA mortgage programs.

There are still real estate issues at Bay Mills. For one thing, the reservation is landlocked, despite being on the shores of one of the Great Lakes. There aren't a lot of lots on which to build. Why? When Uncle Sam drew up the reservation boundaries, he included lots of what's officially known as wetlands. You would call them swamps, and they're not great for homebuilding.

But where there's a will, there's a way. The tribe negotiated a land swap with the U.S. Forest Service for a nice dry hilltop site where it will build 78 single-family homes and a commercial area, once it can raise the estimated $6 million pricetag.

There's another successful mortgage strategy that can be brought to bear on Indian Country. Remember those 91 mortgages made during five years of the 1990s? They were made to just two of our more than 500 tribes. One of the tribes was in Wisconsin, the other in the Pacific Northwest, but they had something in common. They were part-owners of the lenders who extended their members the mortgage finance.