In March and April, the number of reverse mortgages backed by the government jumped nearly 20% from the same period last year. In April alone, the government insured 11,660 reverse mortgages, the highest monthly total since the government-backed program began in 1990. By contrast, the number of new home-equity loans, which similarly allow homeowners to tap the equity in their homes, fell around 70% in the first quarter from the prior-year period, according to Inside Mortgage Finance.

More seniors are turning to reverse mortgages to supplement their retirement savings, which in some cases have been decimated by stock-market losses. At the same time, more seniors now qualify for a reverse mortgage since Congress in February raised the maximum home value that seniors can borrow against to $625,500 from $417,000. The bill also capped reverse-mortgage origination fees at 2% on the first $200,000 and 1% on any amount over that, with fees not to exceed $6,000. Other upfront costs include an insurance premium and closing costs.

In a reverse mortgage, the bank makes payments to the homeowner instead of the homeowner making payments to a bank. To qualify for such a mortgage, a senior must be at least 62 years old and have a lot of equity in the home.

The way it works is this: Say a senior owns a house worth $500,000 that has a $50,000 mortgage. The senior might get a $250,000 reverse mortgage to pay off the existing loan and then have $200,000 left over. The homeowner could get that as a lump sum or a line of credit, and wouldn't have to pay it back until he moved or died and the house was sold. The bank is repaid, including interest, from proceeds of the sale.

For lenders, the risk is that when it is time to sell the home, it will be worth less than the amount lent. As housing prices have plummeted, concern has grown that losses from these loans have mounted. Nearly all private offerings of reverse mortgages have disappeared, leaving the Federal Housing Administration as the only game in town. The FHA doesn't make any loans, but it insures lenders against any losses on federally-insured loans, called Home Equity Conversion Mortgages.

Congress's decision to raise the loan limits allowed Suzanne Huntington, 64, to get a $285,000 reverse mortgage on her $480,000 home in Laguna Nigel, Calif., last month. She used the proceeds to pay off the existing mortgages on the house, which totaled $282,000. Now she no longer has to make monthly payments.

As a result, the recently retired accountant says her husband, a heavy-equipment operator, will be able to retire this month. While they would have had enough in savings and pensions to pay their mortgage after retiring, "we wouldn't have a lot left over," says Ms. Huntington, who says her 401(k) retirement savings took a hit in the stock-market downturn.

While reverse mortgages are more popular than ever, more borrowers are finding that their homes are worth much less than they believed, and they may be unable to qualify. Around one-third of borrowers who might have closed reverse mortgages two years ago no longer have enough equity in their homes to qualify, says Jeff Lewis, chairman of Generation Mortgage Co., an Atlanta brokerage. Around 85% of his reverse-mortgage customers are retiring their existing mortgages.

The amount of losses in the reverse-mortgage business as a result of the housing bubble won't be known for years. But the Department of Housing and Urban Development, which runs the FHA, asked for nearly $800 million in taxpayer money next year to boost its loan-loss reserves due to deteriorating home prices. It is the first taxpayer subsidy in the 20-year history of the program. "Needless to say, this program is very sensitive to the projected path of long-term house price appreciation," HUD Secretary Shaun Donovan told industry leaders last month at a conference.

Some say that the subsidy is a sign that the FHA needs to raise the insurance premiums borrowers pay that normally cover losses. "The government is giving people too much money," Mr. Lewis says. Mr. Donovan says the agency opted against increasing insurance premiums on seniors "given the current pressure on retirement savings."

Indeed, brokers point to retirement savings gutted by stock-market declines as a big reason for renewed interest in reverse mortgages. "People are trying to recover or buy some time before their retirement holdings need to be liquidated," says Eric Bachman, chief executive of Golden Gateway Financial, an Oakland, Calif., brokerage.

After he heard about friends having their lines of credit pulled by their lenders, Lou Grushen, 77, in April used his reverse mortgage to secure a new line of credit on his Fullerton, Calif., home. The new line, worth $320,000, extinguished $122,000 in debt on an existing line of credit. He had been using that credit line to pay taxes that resulted from withdrawing from his retirement account, which had fallen around 30% in value. "When the stock market went down, I was really in trouble," says Mr. Grushen.

Another reason for the growing demand: A tough housing market has made it harder for seniors to sell their homes and downsize. Brokers also say seniors are increasingly using reverse mortgages to pay off loans that have reset to higher payments. "There's definitely an increased cognizance of its value as...a bailout option," says Peter Bell, president of the National Reverse Mortgage Lenders Association.

Actuarial tables determine how much money borrowers can withdraw from their home. While a 62-year-old borrower might qualify for a loan worth 57% of the home's value, a 94-year-old borrower could receive as much as 85% of the property's value, says Michael Branson, chief executive of All Reverse Mortgage Co. in Garden Grove, Calif.

But financial advisers say that reverse mortgages aren't for everyone and shouldn't always be a first choice, particularly because the loans are expensive. That means the loans "make the most sense for somebody that doesn't have much in the way of other savings," says David Certner, legislative policy director for the AARP. He says that the loans can cost as much as 10% of a home's value over the life of the loan in fees.

Policymakers have also warned that seniors may be particularly susceptible to aggressive marketing that encourages them to use cash from a reverse mortgage for risky and fee-laden insurance or annuity products. Comptroller of the Currency John C. Dugan called for more consumer protections for reverse mortgage borrowers in a speech Monday.

Also, fees for the mortgages are steep, and restrictions are tightening. Fannie Mae is the predominant buyer of the government-insured mortgages. But the mortgage-finance giant has been trying to encourage private investors to buy reverse mortgages by steadily boosting the amount of money it makes by purchasing the loans, which reduces the size of the reverse mortgage.

But brokers say this has been causing a problem. Sudden pricing changes by Fannie have disrupted transactions because borrowers sometimes qualify for less money at closing than they did when they applied for the loan, they say.

If the size of the loan falls below the amount needed to extinguish a borrower's existing mortgage, then the borrower may be unable to do a reverse mortgage. "It can cause a hardship," says Mr. Bell of the National Reverse Mortgage Lenders Association. "Now it means they need to come up with other cash to cover the shortfall or they can't go ahead and do the reverse mortgage."