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Hardship letters are like any type of tale, they must be clear, they must be simple, and must drive your argument like a B52 in a battlefield – powerfully. Unfortunately, many loan modifications get thrown in the wrong stack simply because homeowners fail to explain their situation effectively.

Step 1. KISS

Keep it simple stupid! The hackneyed cliché holds true in hardship letters also. Loss mitigation departments, those that have the fascinating job of reading about every lender and his mother´s problems are overwhelmed with loan modification applications. They don´t want your autobiography, they certainly do not want 10 pages of you crying on their corporate shoulder. A good hardship letter does not have to be more than a page long.

Step 2. Address the Hardship clearly.

The key point you need to make is why you can´t afford your current mortgage, or why you won´t be able to once your mortgage rate adjusts or some other tragedy occurs. This needs to be specific, vague musings on how difficult life is will get you nowhere. Try for a reduction in income, the death of a spouse, illness or a change in the interest rate. It needs to be something specific you can prove not some vague musings on the difficulties of life.

Step 3. Express commitment.

It is very important you make it crystal clear you WANT TO PAY FOR YOUR MORTGAGE. As you probably guessed lenders do not appreciate borrowers changing their mind on paying for a loan they were very happy to sign for when they wanted to buy their home with somebody else´s cash. The letter needs show you do not want to continue delinquent, or become delinquent, but you want to find a solution so you can keep your home and they can get paid for the loan.

Let us illustrate these three points with a sample letter that follows these three steps.

You can use this sample and apply it to your personal circumstances. Keep in mind there is no one “RIGHT WAY” of writing a hardship letter, although there are plenty of wrong ways.

Some feel that a handwritten letter is more personal and has more chances of being empathized with. However, this only works if the handwriting is clear enough to be read easily.

Date:

To: (Lender Name)

Address of lender.

Re: Loan Number. (It is always a good idea to give all the reference numbers and information you can to  make things as easy as possible for the loss mitigation officer, keeps him in a good mood)

(STEP 1. Remember to keep it simple and short)

To Whom It May Concern: (Generally it is better to address a specific person, however your hardship letter will probably be read by many people so there is not great advantage in being specific in this case)

The purpose of this letter is to explain the reasons why I am behind in my mortgage payments (or will be soon due to the hardship you are about to explain). After exhausting all my resources I have only one alternative left and that is to apply for a mortgage loan modification.

The main reason I am late in my payments is (STEP 2. Here is where your hardship reason comes, keep it simple and clear, and avoid vague generalities). This has caused me to become further and further behind in my payments. I cannot refinance my home because the value of my home has dropped by xxxx (this  is generally viewed as a preferable option to lenders so it is a good idea to explain why it is not possible, which with the number of underwater homes is not difficult)

I am confident that if I obtain a loan modification I will be able to afford my mortgage and pay for the modified loan. I trust you will consider working with me on resolving this situation. (STEP 3. Show you are eager to pay for your mortgage if you are granted a loan modification)

Sincerely and Respectfully,

Your signature,

Co-Borrower Signature (if applicable)

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A loan modification is a loan modification, right? If it helps you avoid a foreclosure on your home it is good news, right? Not necessarily. It is a little more complicated than all that.

HAMP is a Government sponsored loan modification program. This might not give you much peace of mind but the truth is that mortgagees that are part of this program must follow certain requirements in order to receive the incentives the Government offers for loss mitigation actions, another name for loan modifications.

These requirements have been recently (Nov. 23^rd 2009) updated and include:

1)      Mortgagees must reduce the interest rate of a loan modification to the market rate. Market rate is defined by the Government as the most recent Freddie Mac Weekly Primary Mortgage Survey Rate for a 30 year fixed-rate conforming mortgage.

2)      The Mortgagee must re-amortize the total unpaid amount due over a 360 month period from the due date of the first installment of the modified loan. This is code for: the bank has to offer you a 30 year fixed-rate loan at the market rate.

However, if you go for an in-house loan modification or even for a mortgage refinance your mortgagee is not required to follow these rules. This doesn’t mean the in-house mortgage modification will be bad or any worse than the HAMP loan modification. You might find your mortgage provider is really generous and wants to improve the Government’s deal out of the goodness of his heart. No? You don’t think that is likely?

The problem is that even the relatively good terms HAMP loan modifications offer are no guarantee you will get approved or that you will even get a decision on your loan modification before your mortgage forecloses. Lenders use this fact to push borrowers into choosing a bad loan modification in the belief that a bad loan mod in the hand is worth two in the bush. Is that true?

The alternative to the HAMP loan modification or in-house mortgage modification is to simply walk away from your mortgage, but that is another story.

In conclusion, only you can decide if a loan modification is the right move for you, but if you do decide to go for a loan modification it is most likely you will get a better deal if you go with a HAMP loan modification. Unfortunately many banks are using the fact that HAMP loan modifications are slow and hard to get to push their own in-house subprime loan modifications.

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Have you ever heard about having your cake and eating it? That’s what many mortgage providers are trying to do with loan modifications. How so? As it is well known the Government offers lenders incentives for processing loss mitigation actions. Loss mitigation action is code for loan modifications. What has been the result of the Government’s loan modification incentive program?

Banks, lenders and servicer have of course gladly accepted these “incentives” for processing loan modifications. But what has been the result for borrowers?

Mortgage Letter 2009-35 sent to all Government approved mortgagees on September 23^rd 2009 provides a surprisingly honest picture. This letter is quite interesting as an exercise in stating the obvious and calling mortgagee providers thieves to their greedy faces.

The second paragraph of Mortgage Letter 2009-35 is priceless:

The recent economic slow-down has increased demand for loss mitigation actions, including but not limited to, loan modifications.  Recent industry studies of these loan modifications revealed that borrowers who experienced an increased mortgage payment on a modified loan had a significantly higher re-default rate than borrowers whose loan modification provided a lower payment.

If you thought loan modification research studies were a waste of time, think again. The Government has come up with a breakthrough. Borrowers in financial trouble are more likely to re-default on their mortgages when their monthly mortgages are increased! Shocking.

I’m sure David H. Stevens, Assistant Secretary for Housing, the author of the letter, knew he was stating the obvious because the in the very next paragraph he hits the mortgage industry with a brutal honesty that is refreshing to say the least:

FHA reviewed its recent insured loan modifications and found that, generally, they resulted in higher payments to the borrower. The higher payment was the result of not lowering the interest rate to the current market rate and/or not extending the term to the maximum of thirty years authorized under 24 CFR 203.616.  Generally, the loan modifications simply capitalized the past due amounts and allowable charges and did not extend the term of the loan.

May I personally congratulate Mr Stevens, or whoever writes his letters, on the construction of that paragraph. There is nothing we didn’t know there but it is nice when a Government official simply goes out on a limb and says it.

So this is the picture: Banks provide loan modifications to troubled home owners which generally don’t reduce their monthly payments and simply add on the late charges and interest to the mortgage without even extending the loan term and get an incentive from the Government for their troubles.

The above mentioned letter set out that these practices were to stop in a 30 day period from the date of the letter, that was the end of November 2009, and that any loan modifications where the interest rate was not reduced would not apply for a loan modification incentive. I guess it is a start.

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The Loan Modification Program is not exactly 2009 success story. Out of the 750,000 trial loan modifications around 31,000 have become permanent, not great odds even if you are a betting man (or woman).

What makes things worse is that in order to manage such a volume of trial loan modifications for HAMP (Home Affordable Modification Program) servicers are employed to do the paperwork and provide advice for the borrower. However some of these servicers have been known to provide bad advice, ask for illegal contracts to be signed and other examples of malpractice.

Keeping away from bad egg servicers is important if you are to be successful in your loan modification. This article will provide some pointers on what to look for to set apart the good from the bad and the ugly of HAMP servicers.

Unfortunately bad HAMP servicers are a uncomfortable reality. Just this week Ohio Attorney General Richard Cordray filed a lawsuit against Barclays Capitol Real Estate working as HomeEq Servicing.

Why was Barclays sued? Although the complaints filed against Barclays are still to be proven and we all like to think we are innocent until proven otherwise, it will prove a good example for the point this article is making. Which is, choose your HAMP servicer wisely.

HomeEq was accused of:

1)      Violating Ohio’s Consumer Sales Practices Act (CSPA) through incompetent and inefficient service. More specifically HomeEq failed to return customer calls or reply to inquiries, lost borrowers paperwork and more importantly failed to provide timely and affordable loss mitigation options to their customers.

2)      Not reacting to repeated warnings by the  Attorney’s office. According to the Attorney General Richard Cordray, ample time has been provided to servicers in Ohio and  elsewhere to change their ways and stop their negligent behavior.

HomeEq services more than 10,000 subprime loans in Ohio alone, becoming a HAMP participant in August. HomeE            q is not exactly overachieving in the loan mod department being one of the lowest performing servicers.

Not surprisingly HomeEq feels the complaint is groundless and that they are commited to quality customer service and to work with financially distressed borrowers… bla,bla, bla.

What signs identify Roque Hamp Servicers?

There are many, too many to number but some big ones stand out.

-          For instance if your mortgage servicers asks you to sign one sided agreements that obviously are biased toward the lender the alarm bells you are hearing are not imaginary.

-          Upfront fees. It is illegal to ask for fees for servicers that have not been supplied.

-          If you are asked to waive your right to defense by a HAMP servicer, run, they are trying to take your for a ride.

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Are Loan Modifications Worth the Hassle?

Loan modifications can help you or can sink you. They can give you a break and allow you to afford your monthly payments or even pay off your mortgage sooner or with a lower interest. Unfortunately they can be the worst financial mistake you ever made. This has caused many to ask themselves if weighed in the balance of common sense are loan modifications worth the time and hassle.

The quick answer is quite predictably, it depends.

It depends why you want the loan modification and what kind of loan modification you need.

There are two main reasons for loan modification we will analyze in this article, financial duress and trying to get a better deal.

Loan modifications for those in financial difficulties.

In the last year the number of mortgage foreclosures  due to financial duress has reached the estimated number of 4.5 million. These homeowners cannot meet there monthly commitments and are defaulting on their home mortgages. Loan modifications for them are a must if they want to keep their home. The governments worldwide, and the U.S are no exception, are doing a lot to supply ways out for those that cannot afford their mortgages. In these cases loan modifications are very often worth it. What can you do to save your home with a loan modification?

However let’s start with a fact that many ignore, loan modifications don’t have to cost you anything. In their most basic form they are an agreement between you and your bank’s loss mitigation sector. As we have repeatedly said in our articles foreclosures are a lose-lose situation, the client loses, the bank loses and the economy as a whole suffers. This means that banks will work with you, up to a point, to modify your mortgage if you are undergoing financial hardship.

A loan modification could increase the time you have to pay back your mortgage, reducing the monthly payments but increasing the overall cost of the loan or mortgage. A loan modification could also consolidate a number of debts into one large loan which could also reduce the monthly expenses of a family.

Loan modifications for those in search of a better deal.

The current drop in interest rates has caused many to wish their interest rate was as low as the current going rate. It’s like when you buy yourself a new car and find out 2 weeks later they dropped the price by $5,000 you obviously wish you had waited but nobody is going to buy it off you now and resell at a lower price.

Happily some banks are willing to do that with your mortgage. This can produce great savings on homeowners that can reduce their mortgage’s interest rate. There is the danger of hidden costs and increased debt.

Many loan modifications can look great and shiny from a distance but hide closing fees and other nasty surprises. Before you sign anything ask for a detailed summary of costs and savings and make sure what closing fees your current lender demands and what expenses your new lender is willing to cover.
If in doubt contact a qualified financial adviser that can help you make sure there are no surprises in your loan modification.

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2. Mortgage Modifications, Mine Field Or Land Of Milk And Honey
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