Loan modifications and hardship letters

When applying for a loan modification it is mandatory that a hardship letter accompanies the application forms. This hardship letter is the deciding factor in the approval of the loan modification. The hardship letter is a letter in which the borrower can state his financial problems and the reasons for application for a modification of his existing loan or mortgage. It is important that the hardships quoted in the letter are genuine and the borrower is making an earnest statement of his financial affairs in order to get the modification approved.

The letter should depict the family’s current financial situation. The steps taken to deal with the strain should be clearly outlined and the reasons leading to the strain should be explained in detail with proof since sometimes the lender do a check on the borrower. There are certain hardships which are accepted and are eligible for a loan modification process. The hardship letter also should indicate how the borrower plans to close the modified loan and the source of the money that is going to be used for making monthly repayment installments.

Given below are the usual acceptable hardships:

• Loss of employment which leads to a reduction in the monthly income of the family concerned.
• Death of the owner, or the person who was responsible for making payments. Death of a spouse or a family member is also eligible for modifications.
• Sudden medical emergencies that caused a strain on the financial situation of the family.
• Divorce is a very common and acceptable hardship since there could be a reduction in income or loss of property etc which might have caused financial troubles.
• Relocation for employment is also acceptable since the sudden requirement for money could cause a strain.
• Those with adjustable rate mortgages come across financial difficulties when the rate of interest is on an upward swing. Some borrowers find it difficult to pay the installment of the month with an increased rate of interest and hence apply for a modification.

Thus it is very important to state the reason for hardship and write it in a very convincing manner so that the lenders understand the difficulties faced by the borrower and decides to approve the loan modification application. The letter should be concise and a frank narration of the concerned family’s financial situation. Never try to act smart with the lenders by supplying falsifications. They are professionals in the field and would catch out the frauds immediately.

An ideal letter of hardship for a loan modification should be

• About one or two pages long.
• Explaining the circumstances leading to hardship simply and efficiently.
• The steps taken to bring the situation under control should be indicated very convincingly.
• Outline the plan for future finance management so that the lenders have some confidence in the borrower.
• Ask for a second chance to save your home and persuade him subtly to believe in your responsibility and trust you with a modification.

A well written hardship letter is every loan modification’s requirement.