Home loans: Hardships Qualifying for Loan Modifications

The new government has introduced many loan modification programs. These are meant to help the genuine borrowers in financial trouble. The hardships which qualifies borrower for availing these loans have to be convincing and authentic. The change in the economy and housing market should have brought about changes causing the borrower to default and these reasons have to be clearly stated in the hardship letter of the loan modification application.

This is a list of seven hardships which are generally approved for loan modification programs.

1. Job loss - the recession has seen many people being laid off without any fault of theirs. Loss of job can bring the person to financial difficulties and hence default of mortgage payments. Most people do not have emergency funds that can be used to tide over four to five months. People with family find it difficult to even pass one month before financial strain sets in.
2. Reduction in income - Many companies are good enough to retain their employees but the employees are asked to take salary cuts in order to stay back.   People prefer salary cuts to losing jobs and stay on. The recession is taking a toll on these people too. Though they have a job their income has been greatly reduced because of which they opt to pay for their living expenses first rather than mortgage payments and default on them.
3. Divorce - due to the recession divorce rates have also gone down. This could be the one good thing happening. Divorces are expensive and throw the finances of those involved into a mess. Lenders are well aware of this and consider divorce as an acceptable hardship for defaults on their loan payments and therefore acceptable also for loan modification programs.
4. Medical emergencies - Medical emergencies can occur at any time and with proper proof can be acceptable as hardship for loan modification application. Expenses increase with medial needs and can wipe out savings thus forcing the borrower to default on mortgage payments.
5. Death of family member - In the event of death of an earning member of family, the finances would have to be sorted out and sometimes there may be shortage of cash until finances are fixed. In the event of death of the only earning member of family things can get bad to worse and repayment installments are the last priority.
6. An increase in monthly installment due to ARM increase - Adjustable rate mortgage (ARM) monthly payment change according to change in rate thus with an increase in rate the monthly installment increases causing the borrower to default the payment due to unavailability of funds.
7. Temporary setbacks - There can be temporary events that caused the borrower to default on repayments. Sometimes more than one reason could be the culprit of defaults by borrower. All these plausible reasons are eligible for loan modification programs.

The people are going through very bad financial situation and the programs launched by the government are for their benefit. They should make use of them to stabilize their finances as well as the country’s economy.