How to write an effective Hardship Letter

The Hardship Letter tends to be the component of the Mortgage Loan Modification process that is most intimidating to applicants.

KEEP YOUR HARDSHIP LETTER SHORT AND TO THE POINT.

Your provider will be reading thousands upon thousands of letters. Yours should be unique, striking just the right balance between detail and summary. They want to know the basic facts of how you got where you are, not your whole life history. One page is ideal, two is fine if needed. Three -- you risk incurring reader hostility.

BE DIGNIFIED, NOT PATHETIC

You'll want to go into detail, but not too much. For instance, you needn't divulge embarrassing or humiliating details about your health issues to the bank underwriter who will be reading your letter. Your medical file is private. Simply stating that you had 'health issues' or 'medical bills' should be enough. You don't need to outline the details of your diverticulitis, your polyps, or your ingrown toenails.

Also, too many pathetic details piled on top of one another can have an unintended comic effect. Your goal is not to be "Queen for a Day" - that old daytime TV show where the most pathetic housewife won the brand new washer/dryer.

When I asked Chase what they wanted to see in the letter, my advisor said, "Tell us what the circumstances were that led to your hardship. But we know." In other words, there was a near-crash of the global economy and everybody's hurting. They know that. All you're doing is personalizing it.

SHOW HARDSHIP, NOT HELPLESSNESS

Your bank wants to know that you'll be able to meet your obligations in the future, once the monthly payment is reduced. Let them know about your plans to make payments, about how tomorrow is going to be different from yesterday.

MAJOR REASONS FOR HARDSHIP

Reduced income
Increased interest, as for instance on an Adjustable Rate Mortgage
Illness or medical bills
Failed business
Military duty
Death of spouse or co-borrower
Divorce or separation

Don't despair if your situation does not fit into the above categories. There are many paths to hardship, just tell them what yours is.

I'm going to give you a sample hardship letter. But do try and personalize it. When I was going to write mine, I looked around on the web and found some forums where people were posting their letters to get feedback. They all seemed to have this line: "Our #1 goal is to keep our home and we would really appreciate the opportunity to do that." I can just imagine the underwriter reading that line for the 10,000th time and running screaming from his office. So please don't copy/paste. Try to put it in your own, natural words.

SAMPLE HARDSHIP LETTER:

Your name
Your address

Date

Lender's name
Loan number

To Whom It May Concern: / or Dear (Lender's name):

Thank you for reviewing the circumstances that caused us to fall behind in our mortgage payments. / or

Thank you for taking the time to review the circumstances that have led to our request for a loan modification.

(in other words, be polite, be gracious, be thankful and get on with it.)

The primary cause for our current hardship is a reduction in self-employed business earnings due to the poor global economy. (or: Due to the recent adjustment in the interest rate on the mortgage I have with your company, I am finding it very difficult to meet the new payment.) (in other words, fill in the blank with your particular situation.)

We feel that a loan modification which would reduce our monthly payment would allow us to pull through this difficult time.

(Now be upbeat about the future: Perhaps you've got something rosy to look forward to if only outside circumstances would cooperate)
I have recently taken on freelance work which I hope will continue to increase my income. / or
Although my employer reduced my hours, when the economy improves I hope to go back to working full time.

(You might add something in here about how much your home means to you, or how you are connected to the area or neighborhood.)
We are very committed to keeping our home. We chose this neighborhood for its school system, and our children would suffer greatly should we lose our house to foreclosure. We are therefore highly motivated to stay current with our payments in the future, and feel strongly that a loan modification will allow us to do that.

Thank you for your help in this matter.

Sincerely,

Borrower's Signature
Borrower's Name
Date

Co-Borrower's Signature
Co-Borrower's Name
Date


Now, was that so very hard? Of course it was. By the time you finish writing it, you'll have a few new gray hairs. And you will be sorely tempted to hire a company just to do that part of it. There's one thing that you will notice about companies that have posted Sample Hardship Letters: many of them make the kind of mistakes in their letters that indicate they are not native English speakers. Run away. Run away fast. There are so many predators out there who are willing to take advantage of you in your hardship. That's why it's probably best to go the official route through a HUD advisor. As Chase told me, companies that help you file don't have an edge with the lender.

And that's because: The final decision will be based on your financial information. If you make too much or too little, you will not get a modification.

I think the best strategy would be to take your total income and figure out what 31% of that is. That's how much your total PITIA payments - Principal, Interest, property Taxes, property Insurance and homeowner's Association dues - should be. Is it within the bank's reach to lower that amount through a modification? If not, is there anything you can do to qualify? Take a part-time job, work freelance.

If the financials are not in line with a modification, the best hardship letter in the world isn't going to obtain one.

So have courage, don't fret, just be direct and to the point, and best of luck writing your Hardship Letter.