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How to Write a Letter of Hardship for Loan Modification

A hardship letter is a letter prepared by a borrower who has requested a loan modification from their lender.  The letter is part of a loan modification application and allows borrowers the chance to explain to their lender, in their own words and outside of any standard forms, the circumstances of their financial hardship, the reason a loan modification will help, and how the borrower expects to stay out of debt if issued the loan modification.

There is no real standard format that must be used when writing a hardship letter, but it is generally agreed that the letter should be typed and double spaced to allow for ease of reading.  A size 12 font is ideal.  It is a good idea for the borrower writing the letter to make the letter as easy to read as possible because the person reviewing the letter no doubt reviews dozens of letters a day.  This little step will be much appreciated by the reader and will help ensure that nothing the borrower has to say is skipped or ignored.

The content of the letter should be nothing but fact.  Speculations and accusations are a no no.  Lenders hear sob stories on a daily basis, what the borrower needs to do now is convince the lender that a loan modification is the right choice for every party involved.  The borrow should explain to the lender how the loan modification will help avoid foreclosure and how the loan modification will help the borrower ensure that all of their debts are paid off.  It is also a good idea to mention how the borrower intends on staying out of debt once the loan modification is approved.

For example, a lender would much rather hear that monthly savings would be used to pay down high interest credit cards rather than that the savings are going to be used to fund the purchase of a new motorcycle.  In one instance the borrower is able to show maturity and a real plan for the future, in the other instance, the borrower comes off as irresponsible and likely not a good candidate to be trusted with a loan modification.

The lender must be sure that their borrower can be trusted with a loan modification because lenders don’t like to back a losing horse.  If it becomes evident through the process that the lender is likely to fall right back into debt, even after the loan modification, the lender is likely to deny approval on the grounds that foreclosure would ultimately be more than likely, loan modification or no loan modification.

Once the hardship letter is completed it should not be longer than a couple of pages (assuming the text is typed and double spaced).  It should be checked for accuracy and coherence by a legal professional who can offer guidance based on their experience in dealing with lenders.  The hardship letter should be treated with the caution of any other legal document.  The borrower should be nothing but sure that they are willing to sign their name to the document because that single document may be the only thing separating a loan modification approval and a loan modification denial.