One of the requirements for most loan modifications is a hardship letter or affidavit. A hardship letter is a written explanation as to what event(s) caused you or will soon cause you to fall behind on your mortgage.
The mortgage servicing company is looking to see if your hardship is long term or short term, and if they give you a modification, will you be more likely or less likely to make the modified payments.
It is best to describe in dollars and cents how much income you have lost or how much your hardship has cost you, and how much you want your payments dropped. Don't leave them up to guessing what they should give you.
The hardship letter acts like a roadmap describing your inability to meet your financial obligations and what you are doing about overcoming your hardship. Please keep in mind that your are composing the hardship letter to make a point, efficiently and concisely.
The hardship letter should not be more than two pages ideally. Keep the hardship letter short and to the point and ask for what you specifically from the mortgage servicer and describe how the payment you are seeking will help cure or minimize your hardship.
Usually 1 or at maximum 2 pages is more than enough to get your point across. If you are unemployed, make sure you indicate what you are doing to find work and how much you are making monthly from unemployment or odd jobs.
Here is an example list of hardships that servicers consider during the loan workout and loss mitigation process:
*Adjustable Rate Mortgage Reset- Payment Shock due to payments going up - usually because of negatively amortizing loan "recasting" to higher payments
*Illness
*Loss of Job
*Reduced Income
*Failed Business
*Job Relocation
*Death of Spouse or Co-Borrower Death
*Incarceration
*Divorce
*Marital Separation
*Military Duty
*Reduced Income
*Medical Bills
*Damage to Property (natural disaster or unnatural)
*Other (Please Specify)
Now that you understand what your lender or servicer is looking for, it’s time to sit down and write a hardship letter. Some samples are below for you to use as you wish. Make sure you make it unique to your situation. Remember that your hardship letter is only one piece of the loan workout process, but key in helping you avoid foreclosure. You will still need to jump a few hurdles with your lender before they will approve you any kind of work out plan.
All hardship letters or affidavits should have the following at the top:
Date:
regarding loan #
For Mortgage Borrower (s):
Address: Street city and state, zip
Property address if different from residence
Example Hardship Letter 1:
To Whom It May Concern:
Explanation of events leading to my hardship In (month) of (year), I lost my job due to the decline in the economy and was forced to rely on my self employed business that I have owned for several years focusing on low cost and high quality handyman and light construction services for middle income households.
At the time I was laid off I was making $6,200 per month. As of March, 2011, I am making $5,123 per month and my wife is making $380 per month. I have had to build this business back up to support my family and suffered extreme loss of income making the transition as evidenced above.
On top of this we’ve had to deal with expensive medical and dental expenses that I have had to incur and have now been able to settle for less than owed. Due to the challenges mentioned above, we have exhausted our reserves and have been relying on credit cards to get by from the time I was laid off until about March of this year.
Fortunately my business has been getting better and with the help of this modification in bringing my full principal and interest and taxes and insurance payments to 31% of my gross income, I know we will be able to once again be a good borrower with you and always pay on time. We appreciate all that you are doing for us at this difficult time.
Sincerely and Respectfully,
Borrower’s Signature
Date
Co-Borrower’s Signature
Date
Example 2:
Dear Loss Mitigation Department:
I am writing this letter in an effort to prevent the foreclosure of my home. I understand my responsibility and obligation to the lender but a number of unforeseen events lead to my failure to make my mortgage payments and I have fallen seriously behind.
(This is just an example, explain your circumstances here)
In July of 2009, I was hospitalized for emergency surgery on a ruptured hernia in my stomach. After the surgery, I was off work for five months in recovery, I returned to work in February, 2010. Shortly after my return, my employer of 17 years suffered a heart attack and because of the following lack of management, work slowed to a crawl and I realized that I had to find a new job.
All of these circumstances left me with barely any income for almost ten months, which is why we fell so far behind. Our loan adjusted and our payments also increased during this period. (Explain income here)
Presently, my income has been restored. I was fortunate to find a new employer in April, 2011. I am an independent contractor for Stevens Worldwide Van Lines and after a month of unpaid training, I am now earning approximately $8,000 per month before taxes.
My primary goal is to stay in our home, continue to raise our family and ultimately pass our home on to my children, free and clear. Operation HOPE, a national non-profit organization has been providing me with guidance, including the completion of the enclosed budget.
Although property values have been significantly reduced in my area, I want to remain in our home and believe the value of the property will increase in the next 10 years, and the market value will exceed the loan balance.
I ask for your assistance in converting the adjustable loan to a fixed rate loan and the interest rate to the current market rate, I also ask that you allow me to make interest only payments for 3-5 years and allow me to pay all past-due principal and interest in a one-time payment if the home is sold or when the loan matures.
As you are aware, a foreclosure this year will result in a substantial loss to the lender or investor and will adversely affect my family. Please review the information provided to help me structure a modification plan that will allow me and my family to remain in our home. If you should need to contact me, I can be reached at the number below.
Sincerely and Respectfully,
Borrower’s Signature
Date
Co-Borrower’s Signature
Date
Example 3:
To Whom It May Concern:
I am writing this letter to explain my unfortunate set of circumstances that have caused us to become delinquent on our mortgage. We have done everything in our power to make ends meet but unfortunately we have fallen short and would like you to consider working with us to modify our loan. Our number one goal is to keep our home and we would really appreciate the opportunity to do that. The main reason that caused us to be late is (insert reason here and don’t be too lengthy and long winded) Soon after being late and our income not being nearly enough, we had fallen further and further behind. Now, it’s to the point where we cannot afford to pay what is owed to (lender). It is our full intention to pay what we owe. But at this time we have exhausted all of our income and resources so we are turning to you for help. (The approximate date of hardship and we believe that our situation is Temporary or will be Permanent.) Our situation has got better because (reason here) and we feel that a loan modification would benefit us both. We would appreciate if you can work with us to lower or delinquent amount owed and or payment so we can keep our home and also afford to make amends with your firm. We truly hope that you will consider working with us and we are anxious to get this settled so we all can move on.
Sincerely and Respectfully,
Borrower’s Signature