Loan Modification Hardship Letters- What You Need To Know

A hardship letter is an important part of your loan modification request package. The purpose of the hardship letter is two-fold. In it you briefly explain the financial hardship that triggered your mortgage payment difficulty. That’s followed up by an explanation of how you intend to make future mortgage payments once your loan is modified.

The hardship letter plays a key role in determining whether or not your lender approves your loan modification request. Your lender won’t give you a second chance to submit an improved version of this letter. That’s why it’s crucial to write it correctly the first time.

The biggest mistake borrowers make when writing hardship letters is focusing too much on their financial woes, how unfairly they were treated by their employers, how stressed they feel trying to make ends meet, etc. Lenders don’t want all the drama.

They want a brief explanation of your current financial situation and they want a well laid out plan for the future. They need to feel confident that if they take time to modify your loan, you’ll make the payments.

Having said this, here’s something worth mentioning before going any further. If the reason for your hardship is a job loss, don’t write your hardship letter until you have secured a new job. If you don’t have a job, your loan modification request probably will be denied. Why? Because without a job, you won’t be able to make your mortgage payments, no matter how much they’re modified.

Here are three key points to discuss in your loan modification hardship letter:

1)   The hardship

Your lender wants to know the circumstances that have caused you to have trouble making your monthly mortgage payments. For most people the reason is loss of a job or reduced hours. Remember, no drama; just write the facts. The main point to convey is the amount by which your income has been reduced since you were first approved for your mortgage. For example, you could explain that a reduction in weekly hours from 40 to 30 has resulted in a 25% decrease in income. Also include a timeline so lenders can easily follow the chain of events.

2)   The impact of the hardship

This is where you explain, succinctly, the juggling act you do when deciding which debt to pay. Here you can also explain the importance of negotiating an affordable mortgage payment as this will allow you and your family (if applicable) to remain in your current home. You can even mention a desire to have your children remain in their currently enrolled schools.

3)   Your plan to get back on track

Here you lay out a plan to explain how you intend to get your mortgage payments back on track. Talk about your new job (if applicable) and why you believe it’s a stable position. If you’ve saved the money from the mortgage payments that have been returned, (a situation that happens if your payments were in arrears but you weren’t able to bring the total amount current with a single payment), you could use mention this amount of money now. It’s possible you can use it to your benefit when it’s time to negotiate a loan modification.

These three tips will help ensure you deliver the kind of information lenders expect to see in loan modification hardship letters. As you write your letter remember this: Your situation is unique. It’s not like other people’s who may or may not have been successful with their loan modification requests. Your lender cares only about your situation and your plan when evaluating whether to grant you a loan modification.

Stick to the facts, leave out the drama, and prove you’re worthy of a second chance. That’s what lenders want to see.