Loan Modification Protocol

Step 3 of the loan modification protocol...Write a hardship letter.

But First, you may want to read steps 1 and 2 to loan modification protocol

*Briefly explain your predicament.

*Ask for more than you expect.

You never know, you might just get it. And if you don't, you have left yourself some room for negotiation. Here's an example of a hardship letter:

Sample Hardship Letter

December 7, 2008To: ABC Mortgage; account # 058989482

Re: Mortgage loan Modification protocol

I have an adjustable rate mortgage with your company. Recently my rate adjusted and the payment increase was unexpectedly high. I have stretched my budget beyond its limits to afford the payment. I have even resorted to charging every day expenses like gas and groceries on credit cards to avoid being late on my mortgage. My payment is scheduled to adjust again in May 2009.

I am not expecting a pay raise during the next six months. There will be no way I can afford the payment increase that will occur in May. I am writing in the hopes of renegotiating the terms of my mortgage to avoid defaulting on my commitment to you.

Since I purchased my home three years ago, I have done my best to make the payments on time. I value my good payment record and do not want to become a foreclosure statistic. Looking back, I can see that my original loan was not a great one, but it was the only one for which I could qualify. At the time, I was assured that refinancing later would not be a problem, however no one could foresee that housing values would take such a downward turn. I now owe more than my house is worth. Refinancing is not an option for me.

My preference would be to convert my mortgage to a 5% fixed interest rate and reduce my principal balance from $170,000 to $135,000. Recent sales of homes like mine in my area indicate that my home's value is $135,000. Please see the attached Comparative Market Analysis reporting recent home sales.

In researching my situation, I became aware of the Fannie Mae Announcement #06-18 (Oct. 4th 2006) regarding Mortgage Modifications. I believe this addresses my situation.

Please find recent pay stubs attached reflecting my current income. I am also enclosing documentation regarding my budget as well as copies of bank statements and credit card statements showing the living expenses I have charged due to the increase in my mortgage payment.

Thank you so much for your time.

Laura A. Winslow (print your name as it appears on your loan documents, then sign and date).

The above letter is brief and to the point.

*It identifies the source of hardship—the payment adjusted too high.

*It expresses her desire to keep her home and make good on her loan commitment.

*And it asks for specific help—reduced interest rate and reduced principal amount.

Laura may not get all that she is asking for, but she just might.

If not, she has left herself some room for negotiation