Every successful loan modification begins with a complete loan modification package, and no loan modification package is complete without a detailed hardship letter. The hardship letter is the only place within your loan modification package where you, the homeowner, get to share your story, your perspective and your desires.
The hardship letter is your voice. How well you write it may determine how much you’re heard.
Below are the 5 key components of an effective loan modification hardship letter:
1. The Basics
Too often, homeowners take the time and energy to write fantastic hardship letters only to leave out important information like their name or loan number. I always advise my clients to write the following on the top left hand corner of their hardship letters:
- To: [Lender name]
- Attn: [Usually Loss Mitigation or the name of your negotiator/ underwriter]
- From: [Your name]
- Address: [Subject property address]
- Loan Number: [Loan number]
- RE: Loan Modification Request
Be sure to leave plenty of room at the top of the page for faxing mishaps that may cut off on conceal your information.
2. Your Hardship
This is where you will explain to your lender exactly what led to your mortgage troubles. Explain in four or five sentences what changed in your life that forced you to default on your mortgage or is making default imminent. It’s important to let your lender know that until this unforeseen event, you paid your mortgage on time.
Some common hardships are:
- Loss of employment
- Loss of income
- Divorce or separation
- Illness or injury
- Death of a spouse
- Excessive debt
- Adjustable rate mortgage (ARM) that has adjusted or is due to adjust making mortgage payments unaffordable
3. What You Have Done to Improve Your Situation
It is important to make your lender aware of everything you are doing to remedy your financial troubles. Mention any attempts you made to refinance your mortgage and why you didn’t qualify. Describe any changes to your budget to curtail spending, if you have taken a part-time job or have eliminated any credit card debt. Provide any relevant information that shows your lender you are doing everything you can to honor your financial obligations.
4. Your Intentions
The most important point you must make to your lender is that you want to keep your home and explain the reasons why. Don’t be afraid to tap into your emotions here. If this is the home in which you raised your children, let your lender know that. If this is the home you intended to retire in, let them know that as well. Take the opportunity to respectfully make suggestions as to what your lender can do to help you stay in your home. Explain your ideal mortgage payment (approximately 30% of your gross income). Ask your lender to forbear any delinquent mortgage payments so that you don’t have to reinstate your loan with cash money. Ask if they will consider reducing your outstanding loan balance if you owe significantly more than your home is worth. This is where you give your lender your wish list, so ask away.
5. The “B” Word
“Bankruptcy” is not a word lenders like to hear. However, the mere mention of the “B” word oftentimes is one of the ways to get lenders to be more receptive to loan modification requests. If you were to file bankruptcy, foreclosure proceedings would stop, at least temporarily. Your lender would have to invest time and money to move the foreclosure process along. Sometimes mentioning to your lender that you are seriously considering filing bankruptcy but would rather modify your loan may be enough to redirect the process to your benefit. For honesty’s sake, if you decide to use the “B” word, I suggest you meet with a bankruptcy attorney for one of those free consultations.
One more thing:
Keep your hardship letter to one page in length if possible. If your hardship letter is two pages in length, then include the information on the top left hand corner on both pages along with page numbers to indicate there are two pages in your letter.