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.
Making sense of the story
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
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.
Find the full story of the New York Times article here: