A loan modification hardship letter is a formal way to request a modification to a loan. This letter is the place where the borrower can express his or her financial troubles in personal terms to have the best chance to stop a foreclosure or receive better terms on an outstanding loan.
Banks and other lenders don’t want to know the life history of a borrower, but they want to know that he or she has a legitimate reason for requesting help.
Two Main Reasons
The two main reasons a borrower needs modification on a loan are job loss and medical issues. However, other reasons may be divorce, death of a spouse, a newborn child, military duty and relocation.
Other possibilities are a failed business or a business that is suffering from an economic slowdown.
Borrowers need to remember that lenders will usually only help if there is something in it for them. Most lenders are not interested in owning and maintaining property or repossessing a virtually worthless car, so they look for ways to avoid a foreclosure lawsuit.
The borrower should clearly explain that due to his or her financial situation, they need help and are not trying to avoid paying their debt.
The letter should have a positive tone that gives the impression that the person is a solid borrower who wants to pay his or her debts and do the right thing. This is not the place to complain about life’s slings and arrows.
The reason for the hardship should be stated matter-of-factly. The borrower should clearly state the ways in which he or she is planning to correct their financial situation.
They may need to give proof that they are searching for a job, or give medical records that show they will be able to work at a specified time. The letter may be the single most important factor in whether a lender will modify a loan.
The lender will want to see the following questions answered:
- Why did the borrower fall behind in payments
- When did the borrower fall behind in payments with specific dates
- Will the financial difficulties be improved and when and how
- What modifications does the borrower want
- How much can the borrower afford to pay on the loan
- If the financial hardship is due to gambling or alcohol, is treatment being sought
If the letter is being written by a loan modification consultant such as an attorney, mortgage broker or realtor, it should be written in the first person voice for the borrower, and the borrower should sign the letter. Personal letters are more likely to be viewed as genuine and not from a template.
Things That Should Not Be Included
There are a few things that should not be included in a loan modification letter. First, the letter should not give a long and detailed narration of the hardship.
The letter should clearly state the facts of the hardship and not exaggerate it. The letter should be honest and not put the blame on someone else for the difficulty.
Below is a sample loan modification hardship letter. Since it is a formal document and will become part of the borrower’s and lender’s permanent file, it should be written in formal business style and sent by certified mail.
The letter should be succinct and not more than one page. The borrower should keep a copy of the letter as well as the receipt that proves the lender received it.
Sample Loan Modification Hardship Letter
City, State, Zip Code
Name of Loan Officer
Name of Lending Institution
Address of Lending Institution
City, State, Zip Code
RE: Loan modification
Dear Name of Loan Officer:
This letter is a formal request for modification of my mortgage. I have fallen behind in payments for the last three months because my wife, Name of Wife, lost her job, which reduced our total income by half. I made the last payment on DATE.
I sincerely want to keep my home and make regular payments, but, at this time, require some modification in the terms of the loan.
I request that the monthly payments be reduced and the delinquent payments be forgiven or recapitalized, so I can catch up and prevent delinquency in the future.
I would appreciate it if we could work together to find a way to normalize my mortgage payments. I fully intend to pay my debt, but need some help until my wife finds another job and our financial situation stabilizes again. She currently has two possible job offers, and will know the results next month.
I apologize for getting behind in my payments, but, as you can see, it was out of my control. I can be reached at Phone Number or at Email Address if you have any further questions. I hope we can meet soon to agree on the terms of a loan modification.
Your Printed Name
Frequently Asked Questions (FAQs)
1. What is loan modification hardship?
Answer: A loan modification hardship is a financial situation that makes it difficult for a borrower to continue making their mortgage payments on time.
2. What are some examples of loan modification hardships?
Answer: Examples of loan modification hardships include loss of income, medical expenses, and unexpected financial burdens such as divorce or the death of a spouse.
3. How can a borrower apply for loan modification hardship?
Answer: A borrower can apply for loan modification hardship by contacting their lender and providing documentation of their financial situation. This may include pay stubs, tax returns, and proof of expenses such as medical bills.
4. What are some common loan modification options for borrowers facing hardship?
Answer: Some common loan modification options for borrowers facing hardship include reducing the interest rate, extending the loan term, and temporarily or permanently deferring payments.
5. Can a loan modification hardship be denied?
Answer: Yes, a loan modification hardship can be denied if the lender does not believe the borrower’s financial situation justifies the modification, or if the borrower does not meet the lender’s eligibility criteria.
However, in some cases, the borrower may appeal the decision or explore other options such as a short sale or foreclosure alternatives.