If you are in the foreclosure process, you will undoubtedly be asked to write a hardship letter by your lender. Banks want to understand your situation, and need to know if you are a suitable candidate for modification. The hardship letter is a way of going beyond the numbers, to evaluate your particular situation. This is an important step for anyone considering a loan modification, as well as for persons trying to sell their house to get out of a mortgage, or simply trying to give it back to the bank.
One thing a hardship letter is NOT is a place for a borrower to make excuses, point fingers of blame or vent anger over being in an unfortunate financial situation. Your lender doesn’t usually care what brought you into the situation. He wants to know what chances he has of getting all or at least some of his money back. If you appear to be a good candidate, your lender probably may be willing to offer some kind of loan modification.
Before you sit down to write your hardship letter, first think about who will be reading it. Your audience likely will be a member of the bank’s loss mitigation team, and it’s not a particularly inspiring job. He or she spends 8 to 12 hours a day working on unpleasant and tragic problems. Your reader will be working on hundreds of cases similar to yours at the same time, and will have read possibly thousands of hardship letters before seeing yours. Your audience will be incredibly risk-averse, and work in a highly pressurized atmosphere of saving every penny they can for the bank.
So what does the loss mitigation team want to know? Two things, actually. First, they want to know your circumstances. Why did you stop making payments? Was it a temporary problem such as being downsized from a well-paying job? Or are you permanently unable to work due to injury or other circumstances? Explain your current situation, explaining why you are unable to repay your loan.
The second point you need to make letter is to show the lender that loan modification is part of your overall solution. Is there a chance you may get rehired, or may get a similar position with a different employer? Are you planning on taking several part time jobs until you can regain full employment? Do you have any other sources of income which may relieve your situation in the near future such as an inheritance, the sale of property or other financial benefits? Showing them a workable plan makes you appear to be a good risk.
Keep your letter short. A single page is best. Avoid a rambling explanation of your circumstances and don’t allow yourself any “woe-is-me” tale telling.
After you’ve written your letter, read it over and see if it focuses on your two points. If you find anything that doesn’t talk about defining your situation and how you propose to resolve it, delete it and read it again. This is the beginning of a conversation you will have with your lender. Stick to the facts and focus on your goal, which is convincing your lender that you are a good candidate for loan modification.
