The Hardship Letter

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HOMEOWNERS having trouble paying their mortgages may try to elicit sympathy from their lenders in long, emotional letters laden with woe. Although the institution you’re applying to has a heart” observed Erika M. Kay, Real Estate Broker-Owner with Independent Broker Consultants in Corona, California, “It does not.”

Still, lenders do look for what is known as a hardship letter when a borrower applies for a loan modification. Such a letter is a requirement for modification applications under the government’s Making Home Affordable program.

A hardship letter is not the basis for modification approval — that depends on the borrower’s financials and the intricacies of the various government and in-house lender programs. Rather, the purpose of the hardship letter is to explain upfront, in simple language, why borrowers missed payments, and what they propose as a solution.

Ms. Kay advises her clients that less is more when it comes to writing a hardship letter. The lenders’ loss mitigators, faced with mountains of modification requests, are unlikely to spend time reading more than the first few lines of each letter. And there is always the risk that borrowers who go on at length could unknowingly trip themselves up with unnecessary details that raise red flags for a mitigator. “I am a firm believer in giving them exactly what they need and nothing more,” Ms. Kay said.

The hardship letter should open with a succinct explanation of why the borrower stopped paying the mortgage. The letter should cite a specific hardship, like a lost job, illness or reduced income. “It can be anything, really, as long as it’s reasonable and not, ‘I did it on purpose,’ ” Ms. Kay said.

Next, the letter should briefly cite any steps the borrowers took to avoid defaulting on their loan, like cutting household expenses or tapping into savings. If their financial situation has since improved, or is likely to, borrowers should mention that as evidence that their hardship was temporary and won’t hamper their ability to make payments on a modified loan.

Finally, the letter should state exactly what borrowers are applying for. Is their proposed solution a lower interest rate, lower payments, a principal reduction or short sale payoff? Borrowers who are underwater — that is, owe more on their mortgage than their property is worth — may ask their lender to consider a short sale, in which the house is sold to another buyer for less than the amount owed.  Erika Kay advises that homeowners considering a short sale apply before putting their house on the market.

The fact that a home has lost considerable value should not be cited as the sole hardship. The borrower might include that information in the hardship letter, but he or she must also explain the inability to pay the mortgage, Ms. Kay said. In the case of a short sale, the hardship might be the borrower’s need to sell right away because of a job transfer or long-awaited employment opportunity elsewhere.

“It should be a very clear and honest letter of what exactly is going on,”  and most important,  they should write the hardship letter themselves. The letter need not be written by hand, but, Ms. Kay said, “it definitely has to be in their words.”

Erika M. Kay, Broker/Owner, Property Manager
Short Sale & Foreclosure Specialist (NARSFR)
SRES (Senior Real Estate Specialist)
Certified e-PRO

Independent Broker Consultants
1655 E 6th St. Ste A-1, Corona, CA, 92879
Office: 951-734-6447 - Direct: 951-545-3786
E-mail: - Website:
CAL BRE #008047509