Heres What Your Hardship Letter For Loan Modification Needs To Say
When youve made the decision to ask your bank for a loan modification because youre
having trouble affording your mortgage payment and other expenses, two things make up the seemingly simple first steps you need to take: 1) call your bank and let them know that youre facing financial hardship because your financial situation has changed, and that youre having trouble making your mortgage payments and other expenses; and 2) get the hardship letter, financial worksheet, and other modification forms (from your bank or their website) and start filling them out.
For the first step of calling your bank, it can take some time to get through. You can be on hold for 3 to 300 minutes depending on their call volume. Dont give up though. Keep trying to call at different times of the day. Try not to get frustrated and just roll with it its just part of the process.
When you do get through, just stick to a simple explanation and dont give more information that you have to. All youre trying to accomplish is to get your hardship story and request for modification on record with your bank. Just answer their questions and dont volunteer more information than you have to. IF they ask you to read off your expenses before you have completed your financial worksheet (which is a whole other article!), do not rattle any numbers off on the first calls to your bank. Just tell them you have to sit down and check your bills to account for them all. Its also helpful to write your hardship letter before you call so you can have your story right in front of you to help you stick to it.
The hardship letter is one of about 6 pieces of information youll fax in to apply for modification. The letter is where you tell them in your own words why you cant afford your mortgage payments; but its also where you start to prove to them that you QUALIFY for a loan modification and a lower interest rate. Your bank is looking to check off that you meet specific requirements in order to accept your application for loan modification and move your case to the next step.
The specific qualifications they want to see met before they proceed to the actual modification process are that:
Your house is owner occupied, meaning you live in it. (This is most ideal for loan modification but you can still get one if the house is an investment/rental property)
Your current debt-to-income(dti) ratio is over 31%
The amount you owe on your first mortgage equal to or less than $729,750
You have had a change in your financial situation that is making it hard for you to make your monthly mortgage payment. Example situations they look for include:
oLoss of income
oIncrease in expenses due to some event
oIncrease in your mortgage payment
oRecent medical situation increased your expenses (can be physical, mental, or any other problem related to health)
oThat your payment on your first mortgage (including principal, interest, taxes, insurance and homeowner's association dues) is more than 31% of your current income (Obamas Making Home Affordable paperwork goes by Gross income, while banks go by Net go figure!)
Your bank wants to clearly see that you meet these requirements. They scan your hardship letter for key words and then compare its contents with the numbers you fill in on your financial worksheet. Its key that they back each other up, tell the same story, and that the numbers jibe perfectly so that when you subtract your expenses from your income, you have between $200-$300 left over each month. Any more or less will prove to them that you are under or over qualified and therefore, you probably wont get a modification
Believe it or not, its actually GOOD if you currently have an adjustable or negative amortization loan because those are the loans that are being modified more often than not. Theyre the loans the banks and government wants to get stabilized.
Your hardship letter should be well written and filled with emotion as you provide a sequential, event-driven story of how you ended up in financial hardship. Most importantly, be consistent and make sure the hardship story and the numbers you provide on your financial worksheet make one strong, consistent picture. In about 1 1 pages, make sure you:
Include your loan number at the top
ASK for a loan modification in the first sentence
Make it evident that you are capable of earning consistent income, but right now, your hardship and loss of income or increased expenses are making your mortgage and life, in general, unaffordable
Explain any other reasons that are making it difficult for you to afford your mortgage payment
ASK FOR WHAT YOU WANT ask for a low interest rate (2%-3%) for the first 5 years, and then ask that they stretch your loan term out to 40 years, and that the remaining 35 years be at 4% to 5%
Close with a sentence or two that tells them you want to keep you and your family in your home (mention of kids if you have them helps) and that you want to avoid foreclosure and more damage to your credit.
Remember, the numbers on the financial worksheet and the facts in your hardship letter need to work hand in hand. This can be tricky but when you remember that your bank needs to make sure you can afford your new terms, fill in the payment as it would be between 2% and 3%.
For more information and where to find step-by-step instruction on filling out loan modification paperwork, go to www.surviveyourforeclosure.com
by: Elin M Bullmann
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