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Office of the Lieutenant Governor Division of Banking and Insurance Virgin Islands #5049 Kongens Gade, Charlotte Amalie, St. Thomas, USVI 00802-6487 @ (340) 774-7166 @ Fax (340) 774-9458 1131 King Street, Suite 101, Christiansted, St. Croix, USVI 00820 @ (340) 773-6459 @ Fax (340) 719-3801 Bulletin 2016-1 Reverse Mortgage A growing number of homeowners, who are 62 years and older, are considering a reverse mortgage as a means of obtaining additional cash in hand to supplement their income after retirement, pay for healthcare expenses, make home repairs, or for other purposes. This Bulletin is created to provide homeowners information on reverse mortgages and how they work. A reverse mortgage is a type of mortgage in which a homeowner can borrow money against part of the equity or the value of the homeowner’s home. Specifically, it allows homeowners to convert part of the equity in their home into cash without having to sell their home or pay additional monthly bills. The cash received is usually tax free. However, repayment of the reverse mortgage loan is required once the borrower dies; permanently vacates the home; or the home is sold. Due to increasing publicity about reverse mortgages and the potential impact of reverse mortgages on homeowners age 62 and older as well as their families, it is necessary that the Office of the Lieutenant Governor, Division of Banking and Insurance (“Division”) address this topic. A reverse mortgage can be complicated and might not be right for you. As such, the Division encourages homeowners seeking this type of mortgage to evaluate the different type of reverse mortgages available to them; the implication of reverse mortgages; and whether a reverse mortgage meets their overall financial needs. Prior to obtaining a reverse mortgage the homeowner should comparison shop before he or she decides on a lender. More specifically, the homeowner should compare reverse mortgage options, terms and fees from various lenders. There are three kinds of reverse mortgages: (1) single purpose reverse mortgages — offered by some state and local government agencies, as well as non-profits and are the least Mortgage Loan balance decreases Loan balance increases (homeowner are generally only required to pay up to appraised value) You have substantial equity in home You have little equity in your home after obtaining a reverse mortgage Property passes upon death by intestate, will or trust Heirs have the option of repaying the mortgage without selling home Closing costs based on the amount of loan Closing costs based on appraised value It is important to note, title to the property is not transferred when the homeowner gets a reverse mortgage. The homeowner still owns the home and has title to the property. When the homeowner dies, the spouse, or the estate has the option to repay the loan. Sometimes that means selling the home to repay the loan. The property is only subject to a transfer to a lender when repayment of the loan becomes due and the loan is not repaid. Most reverse mortgages have something called a “non-recourse” clause. This means that the homeowner or spouse cannot owe more than the value of the home when the loan becomes due and the home is sold. With a HECM, generally, if the homeowner or the homeowner’s heirs want to pay off the loan and keep the home rather than sell it, they would not have to pay more than the appraised value of the home. Additionally, where the home is jointly owned, if one spouse signed the reverse mortgage paperwork and the other did not, in certain situations, the non- signing spouse may continue to live in the home even after the signing spouse dies if he or she pays taxes and insurance, and continues to maintain the property. But the non-signing spouse will no longer receive payment since he or she was not part of the loan agreement. To that end, the Division encourages homeowners to consider the above-mentioned in determining whether to obtain a reverse mortgage. For further information, please contact the Federal Trade Commission (Consumer Information) at www.consumer.ftc.gov or U.S. Department of Housing and Urban Development at www.hud.gov Dated: February... 24 , 2016 Osbert E. Potter Lieutenant Governor/Chairman of the Virgin Islands Banking Board