Homeowners having trouble paying their mortgage are often required to write a hardship letter when applying for a loan modification.  Such a letter is a requirement for modification applications under the government’s Making Home Affordable program.

  • A hardship letter is not the basis for modification approval – that depends on the borrower’s financials and the intricacies of the various government and in-house lender programs.  The purpose of the hardship letter is to explain upfront why borrowers missed payments, and what they propose as a solution.
  • Some housing experts recommend that homeowners write short letters, using the philosophy that “less is more.”  The lenders’ loss mitigators, faced with mountains of modification requests, are unlikely to spend time reading more than the first few lines of each letter.  Also, there is the risk that borrowers who go on at length could unknowingly trip themselves up with unnecessary details that raise red flags for a mitigator.
  • The hardship letter should open with a succinct explanation of why the borrower stopped paying the mortgage.  The letter should cite a specific hardship, like a lost job, illness, or reduced income.
  • Next, the letter should briefly cite any steps the borrower took to avoid defaulting on their loan, like cutting household expenses or tapping in to savings.
  • If the borrower’s financial situation has since improved, or is likely to, borrowers should mention that as evidence that their hardship was temporary and won’t hamper their ability to make payments on a modified loan.
  • Finally, the letter should state exactly what borrowers are applying for.  Is the proposed solution a lower interest rate, for example, or a principal reduction?
  • Borrowers who are underwater – those who owe more on their mortgage than their property is worth – may ask their lender to consider a short sale, in which the house is sold to another buyer for less than the amount owed.

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