How to Write a Mortgage Hardship Letter

Have you fallen on hard times and now find yourself behind on your mortgage payments? If so, the first order of business is to let your lender know why that happened and how you intend to repay the outstanding debt. Learn how to write a mortgage hardship letter that may help your lender decide to work with you to become current with your payments and avoid losing your home to foreclosure. #
Tips on How To Write a Mortgage Hardship Letter

1. Don't delay in communicating your situation to your mortgage lender
2. Have a good understanding of your finances by developing a budget before beginning your letter
3. Determine if you would rather sell or keep your home, and convey that to the lender
4. Write a letter that is organized and informative about your situation
5. Thank the lender for his or her time

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Disclaimer
The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.

Introduction

* A financial hardship letter is an appeal by homeowners to their mortgage lenders that explains their inability to keep their home loan payments current, and to request that the lender work with them to devise a plan to prevent a foreclosure on their homes. Lenders are intent on receiving a return on their investment and do not want a loan default on their record. For this reason, many are willing to work with homeowners if they are convinced that the homeowner has the means to repay them, and will be able to bring the mortgage payments up to date.
* Many banks are receiving government incentives to help distressed homeowners stay in their homes, which has led in many cases to their putting foreclosures on hold. Negotiation and communication with your mortgage holder is essential—it may very well keep you from losing your home and help you to get back on your financial feet.
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Step 1: Assess Your Financial Health
(Creative Commons photo by Roque Sun Media)

* Determining your financial health is crucial to understanding what steps are necessary to save your mortgage from default. Begin the process by honestly answering the following questions:

1. What caused your inability to repay the loan?
1. An illness?
2. Job loss?
3. A death in the family?
4. A change in your mortgage repayment terms?
5. Did you purchase more home than you could afford?
2. Is the issue a short- or long-term problem?
3. How much equity is in your home?
4. Do you know your FICO credit score? The results will determine if refinancing or a lower payment is available to you.MyFICO.com: MyFICO1

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Step 2: Create a Budget
(Creative Commons photo by Jamin Gray)

* Determine what payments you can afford by creating a budget.

1. Write down your full monthly income, be it from a paycheck, investments, or support payments.
2. Take a look at your credit card statements, your checking account ledger, and bills to determine what payments are due each month.
3. Take special note of how much your mortgage payment is, and what percentage of your income it accounts for.
4. Record these monthly debts and subtract them from your monthly income.
5. Assess if there are any monthly debts you can get rid of, like a premium cable bill or membership in a country club.

* If, after calculating your budget and cutting costs, you are not able to meet your monthly mortgage payment, you will have a negative balance.
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Step 3: Determine Your Objectives

* After you have determined your financial situation and understand what you are consistently able to repay on a monthly mortgage, decide what your goal will be when you approach your mortgage lender.

1. Do you want to save your home from foreclosure? (Additional information can be found on Mahalo's How to Stop Foreclosure, How to Refinance a Mortgage to Prevent Foreclosure, How to Avoid Foreclosure with a Mortgage Modification and How to Avoid Foreclosure on a Fannie Mae Mortgage pages.)
1. If you have good credit and a hefty amount of equity in your home, you may want to ask the lender to allow you to refinance your home, which would lower your existing payments. (Additional information can be found on Mahalo's How to Refinance a Mortgage page.)
2. Consult your budget to determine if this is financially possible; if not, is it possible to take on additional employment to make up the deficit?
3. Be brutally honest with yourself—is it a feasible reality or a dream?
2. Would you prefer to sell your home?
3. Are you trying to stay in the home for a few months while you look for a new place to live?
4. Do you want to change the terms of your mortgage by removing a balloon payment or a variable interest rate? (See additional information on Mahalo's How to Modify Your Mortgage page.)
5. Are you hoping that your mortgage company will allow you a forbearance agreement? (This is an agreement that they will not foreclose on your home and will help you devise a plan to get your payments current.)Investopedia: Mortgage Forbearance Agreement3
6. Do you want to file a chapter 13 bankruptcy plan to repay your debts over a fixed period of time? This agreement does not allow a creditor to begin or continue collection proceedings against you and will not allow a mortgage holder to foreclose on your home.US Courts.gov: Chapter 134
7. Do you want the option of a short sale of your home? (This is a sale that occurs when a lender accepts less money than you owe to them.)Realtor.org: Field Guide to Short Sales (March 2009)5

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Step 4: Write the Letter
(Creative Commons photo by a.drian)

* Once you have determined what your intentions are regarding your home, and what exactly you're planning to request of your mortgage lender, you can begin to formulate what you will write in the hardship letter itself.

Your letter should include the following information:

1. Essential introductory info:
1. Names of the borrowers
2. Address of the property
3. Date of the letter
4. Your phone number
5. The mortgage loan number
2. The reason for your letter (i.e. you are currently unable to make your payments).
3. The circumstance that caused you to be unable to keep your mortgage payment current (i.e. a death, illness, job loss, etc.).
4. How that circumstance has affected your income (i.e. it has cut your income, delayed your income, etc.).
5. Your belief as to whether the situation is permanent or temporary.
6. The goal of the letter (to keep your home and work out a repayment plan, to sell the home, etc.).
7. What you intend to do to resolve your financial indebtedness.USALS: How to Write a Hardship Letter6
8. The amount you are reasonably able to afford on a monthly basis.
9. A thank you for taking the time to review your letter.
10. Information about your enclosures and why you have included them. Enclosures should include:
1. Your average monthly income (pay stubs).
2. Evidence that you have had financial hardship (unpaid collection notices for bills and current bank statement).
3. The budget you have created that shows your monthly expenses.
11. Information that is specific to your request:
1. Short sale: Explain that you would like to have time to list the home for sale, avoid foreclosure and help them retain as much money as possible in the process.
2. Loan modification: Let the lender know that you have rectified or improved on the circumstances that caused the initial payment problems, such as through a new job or a second income. Provide them with a repayment plan and let them know how hard you intend to work to stay in your home.

* When writing your mortgage hardship letter, do not:

1. Explain or divulge everything that led up to the default.Calculated Risk: How Not to Write... (May 22, 2008)7
2. Try to make the mortgage holder feel sorry for you—it may backfire.
3. Present yourself as unable to repay the loan.
4. Give a vague or rambling description of what you intend to accomplish with the letter.
5. Place blame on the mortgage holder.
6. Present untruthful information.

* Stick to the facts and keep the letter simple and to the point. Do not elaborate on the details or make excuses for your inability to pay on time. The mortgage lenders have seen many of these letters and are unmoved by long drawn-out stories. Be practical and express your needs clearly. The mortgage company is merely interested in your intentions and how you expect to remedy your payment deficit.Active Rain: Writing a Hardship Letter...8

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Conclusion

* Be encouraged to know that missing a mortgage payment is not immediate cause for losing your home. Be upfront with the mortgage lender about your financial situation and your need for his help. You may be pleasantly surprised at how willing he is to help you get back on track and save your home from foreclosure.
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When law suits are settled, damages may be awarded in a lump sum, or a series of payments. A settlement which is awarded in a series of payments over time is called a structured settlement. Structured settlements are generally created by using a third party intermediary to provide the financing.

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* State and federal law may restrict the sale of structured settlements, and there are many legal complications that can arise. Since you'll be exchanging cash for the right to receive future payments, you'll want to make sure that you are protected.

1. Work with an established broker.
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Facts on consolidation of student loans

Chances are if you take on student loans to finance your studies you have been, or at least will receive calls and offers by mail to consolidate your student loans. There are indeed many advantages to consolidate your student loans. In addition to gaining a fixed interest rate, you can also potentially reduce your monthly payments. In case you start to experience financial difficulties, you May also be able to take advantage of flexible payment options with a student loan. Unlike other types of debt consolidation student loan consolidation gives you the opportunity to combine your loans into one package more attractive. You can also do not have to worry about being rejected because of a bad credit rating and interest on the loan May be tax deductible. In addition, in the event of your death your survivors will not have to worry about paying back because the  debt will be discharged. 

If you have a variable interest rate on student loans, consolidation loan can also help block a lower rate before the rate hike next year. Over the duration of the loan, this step can actually help you save a huge sum of money. Of course, in addition to the benefits there are also disadvantages that you should be aware. One of the most important things is that if you end up lowering your monthly payment you are actually extending the duration of the loan and that means you pay more over the term of the loan by additional d 'interest. You can still enjoy other benefits of consolidation loans for students without this drawback, however. It just does not reduce your payments unless it is really necessary. In reviewing the donors for a student loan consolidation, it is important to always compare the conditions of each offer made for you. Consider the interest rate and length of repayment terms to ensure you get the best deal possible. If you have a mixture of both federal and private student loans, you should also note that if both types of loans are available to be consolidated May it not be a good idea to consolidate your federal loans and private loans in the same package. There are provisions on private loans that are not required on federal student loans, for example, deferrals, tax deductions on interest, no forgiveness of debt for death and no forgiveness for the loan work in some areas. In the case of a mixture of private and federal governments, it is generally advisable to go ahead and consolidate private loans separately by the Confederation of loans so that you can retain benefits for federal loans . By understanding all factors related to the consolidation of student loans, you'll be in a better position to take a more informed decision regarding your finances.

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There will, however, be conditions when the bank will be allowed to change your fixed rate. Lets say, if you default on one or more of your payments, this can cause the student loan consolidation rate to increase. You can also apply for a loan with the variable (or adjustable) student loan consolidation rate. This means that your consolidation loan low rate student rate will change depending on the current economic conditions. If average interest rates in the economy increase, so will your rate. On the other hand, if the average rates are going down, your rates will decrease too. It is up to you to decide which rate – variable or fixed – will provide you with the consolidation loan lowest rate student interest rate. Different economic conditions will call for different selections. It is important to understand that whether you are applying for the consolidation student loan, quick settlement loan online or other type of loan, you should always focus on reducing the student loan consolidation rate or some other type of interest rate.

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In order to qualify for a government student loan consolidation the consolidator needs to meet a few eligibility requirements. The first prerequisite requires a potential consolidator to have more than one government student loan, also referred to as a federal student loan. The borrower must also be in good favor with the lenders. At least three payments should have been made, or the borrower should still be within the first 6-months grace period. Consolidation can occur with various options like subsidized and  unsubsidized. 

 

While the two types can be combined and allow the borrower to have one payment, the lender will keep the two types separated for better management purposes. After the combination of all financial credits for the borrower, the lender is responsible for making payments for each advance. Thus, consolidation occurs. The government student loan consolidation may also incorporate private financial advances into the consolidation, but many financial advisors warn against such incorporation. When private and individual lender amounts incorporate with federal loans, the combination will cause the benefits originally associated with the private and individual lends to vanish. Some feel that the combination is worth the risk and the combination offers better benefits than originally associated with the financial advances. About four options are available for borrowers to choose from concerning repayment. The options surrounding the government student loan consolidation have a number of advantages and disadvantages. The advantages range from no fees for the consolidating process to the simplicity of the application process. Since borrowers are already paying a premium dollar amount for an education, the government offers students a break by not charging a fee for the application process and by offering lower interest rates. In view of the fact that most processes offer a stretched out payment period for up to 30 years, the smaller monthly payment offers recent graduates a sort of payment debt relief. The stretched out loan period and low interest rates can save a payee up to 53% in each month's payment. The government student loan consolidation offers low locked-in-rates, which presents additional savings to a student since interest rates tend to fluctuate and rise. As with most debt settlements found after college, government options provide a graduate with other benefits that include deferment of payment, if unforeseen problems arise, and forbearance options associated with deferments. Disadvantages appear with a fusion of debt as well. Sometimes combining debt can lead to larger financial obligations. A consolidation may also lead to higher interest rates. A borrower must be aware of the amount of his or her financial obligations. Higher interest rates can happen depending on the types and dollar amounts involved and may vary depending on what previous rates were. The government student loan consolidation gives a borrower lower monthly payments because the payments extend over a long period. Because of the stretch in time, more interest is paid. When payments are made as scheduled, more money is paid, in the end, than originally borrowed. However, if a borrower has already made payments and has paid a large portion of the bill, a fusion of the financial debts may not be advantageous. Many consolidators now also require a certain dollar amount before a merging of financial debts is considered. So, if a student has several loans but the total amount is small, an application is sometimes rejected. In today's society, more people are aware of and try to establish a good credit report. As a result, a graduate may make a wise decision in consolidation. No credit check transpires in applying for a federal consolidation program. In using government student loan consolidation, the graduate is helping his or her credit rating! Most graduates have up to eight different financial advances or more. Each financial lend is considered a debt and is looked at with negativity. When debt fusion occurs, the multiple debts look paid and only one outstanding bill remains. In the eyes of other creditors and even potential employers, the fewer debts a person has, the better. A larger benefit associated with credit checks and scores rests in early payoff methods. If a borrower can pay off the balance ahead of schedule, no penalty is placed on the person. An early payoff is a huge incentive for applying for federal consolidation. A person can have lower payments on their college bill upon graduation and have the opportunity to make larger payments or an early pay off when money is sometimes more plentiful. However, if an early payoff is desired, a person must plan and budget accordingly. Even making an extra payment or paying an extra portion each month can decrease a loan more quickly. "When thou shalt vow a vow unto the Lord thy God, thou shalt not slack to pay it: for the Lord thy God will surely require it of thee..." (Deuteronomy 23:21).

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