Shannon Arnold

A hardship letter is an important part of your loan modification request package. The purpose of the hardship letter is two-fold. In it you briefly explain the financial hardship that triggered your mortgage payment difficulty. That’s followed up by an explanation of how you intend to make future mortgage payments once your loan is modified.

The hardship letter plays a key role in determining whether or not your lender approves your loan modification request. Your lender won’t give you a second chance to submit an improved version of this letter. That’s why it’s crucial to write it correctly the first time.

The biggest mistake borrowers make when writing hardship letters is focusing too much on their financial woes, how unfairly they were treated by their employers, how stressed they feel trying to make ends meet, etc. Lenders don’t want all the drama.

They want a brief explanation of your current financial situation and they want a well laid out plan for the future. They need to feel confident that if they take time to modify your loan, you’ll make the payments.

Having said this, here’s something worth mentioning before going any further. If the reason for your hardship is a job loss, don’t write your hardship letter until you have secured a new job. If you don’t have a job, your loan modification request probably will be denied. Why? Because without a job, you won’t be able to make your mortgage payments, no matter how much they’re modified.

Here are three key points to discuss in your loan modification hardship letter:

1) The hardship

Your lender wants to know the circumstances that have caused you to have trouble making your monthly mortgage payments. For most people the reason is loss of a job or reduced hours. Remember, no drama; just write the facts. The main point to convey is the amount by which your income has been reduced since you were first approved for your mortgage. For example, you could explain that a reduction in weekly hours from 40 to 30 has resulted in a 25% decrease in income. Also include a timeline so lenders can easily follow the chain of events.

2) The impact of the hardship

This is where you explain, succinctly, the juggling act you do when deciding which debt to pay. Here you can also explain the importance of negotiating an affordable mortgage payment as this will allow you and your family (if applicable) to remain in your current home. You can even mention a desire to have your children remain in their currently enrolled schools.

3) Your plan to get back on track

Here you lay out a plan to explain how you intend to get your mortgage payments back on track. Talk about your new job (if applicable) and why you believe it’s a stable position. If you’ve saved the money from the mortgage payments that have been returned, (a situation that happens if your payments were in arrears but you weren’t able to bring the total amount current with a single payment), you could use mention this amount of money now. It’s possible you can use it to your benefit when it’s time to negotiate a loan modification.

These three tips will help ensure you deliver the kind of information lenders expect to see in loan modification hardship letters. As you write your letter remember this: Your situation is unique. It’s not like other people’s who may or may not have been successful with their loan modification requests. Your lender cares only about your situation and your plan when evaluating whether to grant you a loan modification.

Stick to the facts, leave out the drama, and prove you’re worthy of a second chance. That’s what lenders want to see.

It is a well known fact that credit inquiries can have an adverse effect on a credit rating, but not all inquiries weigh equally. Moreover, some credit inquiries actually have no impact on the credit rating at all, while others have the potential to seriously weigh it down, even to the point of having the credit rating slip by a quite a few points. A credit rating is defined as the sum total of all bits and pieces of information that are contained in the credit record. As such, it is made up of any derogatory and also positive notations on the credit profile, late payments, public records like bankruptcies or repossessions, the number of open credit accounts, the ages of the various accounts, and also the number of inquiries from potential new creditors checking out the customer’s credit profile.

A credit inquiry occurs each time a consumer applies for new credit, such as a loan or credit card, but there are also other times that a business may make an inquiry into the consumer’s credit. For example, a person who opens a utility account usually has to undergo a credit check. Landlords will check a potential tenant’s credit profile before deciding to rent a property to her or him. In some cases, even employers pull the credit files on a prospective employee, especially if their company is involved in the financial field or engages in business that involves fiduciary duties to clients or high level of security requirements of various workers.

When evaluating the potential for impact on your credit score, there are some inquiries into your credit that do not harm the credit rating. If a creditor with whom you have already established credit does check your credit report, there is no harm to be found and it will not adversely affect your credit rating. This reveals that only inquiries by new creditors can actually decrease your credit score by a point or so. Some creditors check the credit profiles of their consumers every month, most notably those with skyrocketing rates for consumers whose credit is less than good. Wanting to establish early on where a consumer’s credit rating is heading, they sometimes attach a credit interest rate hike to an adverse notation on a credit profile.

On the other hand, if a consumer is in the market for a new mortgage loan or even a car loan, it stands to reason that s/he will shop around to find the best rate. This results in a great number of credit inquiries being noted on the credit profile. Credit reporting agencies understand this practice and rather than allowing the credit profile to dip bit by bit, they simply count all these inquiries against the overall credit score after a 30 day period has passed. This ensures that the consumer receives the most competitive offer for credit while at the same time it also remains true to the creditors who expect to see the number of actual credit rating inquiries made on a particular consumer profile.

In order to find out more about debt settlement, you can visit our site Debt-Settlement411.com.

Krista Scruggs is an article contributor to Debt-Settlement411.com. Debt-settlement411.com is an informative site about debt settlement which also connects consumers with service providers that can help them avoid bankruptcy. We have several Debt Settlement companies within our network, each with their own strengths and specialties. Depending on your specific situation (the amount of debt owed, nature of your debt, your credit, your hardship, and any other unique situation you might be in), we will match you up with the right company.

A short sale refers to the sale of a piece of real estate at a price that is insufficient to meet the current mortgage obligations recorded against the property. In other words, if the house is mortgaged for $450,000 but it is sold for only 400,000, the fact that the payoff is short by $50,000 makes this a short sale.

Lately the short sale is a practice mortgage lenders are accepting from homeowners who prove that they are unable to stop foreclosure proceedings on their homes from going forward. Although the bank stands to lose money in the short sale, the vast majority of financial institutions will accept such sales upon application by the borrower.

Although at face value this appears to be a somewhat nonsensical way of doing business for a bank, there are some bona fide reasons that make this a preferred method of dealing with defaulting loans. Essentially, there are three main reasons currently identified why banks are more willing than ever to go ahead with this kind of business deal.

1. Foreclosures are costly and lengthy procedures that drain a lot of additional funds from a bank. Since the properties sit empty for a period of time, there is the chance of vandalism that will further decrease the actual value of the real estate. A short sale avoids foreclosure proceedings and also protects the bank’s interest by keeping the real estate owner occupied until the time of sale.

2. Auction sales of foreclosed properties no longer pack in the buyers the way they used to. A softening real estate market has potential buyers making bids with desperate sellers and rather than bidding on foreclosed on properties that did not receive the care a sale minded seller would exercise. This of course forces banks to sometimes sell foreclosed properties at cut rate prices, greatly diminishing any funds they might hope to recover.

3. Asset protection is the number one goal of lending institutions that are currently suffering from the close scrutiny of the FDIC. Subprime mortgages have led to a great many banking institutions losing interested investors as their books reflect an abundance of bad debt. Short sales are the currently best loved method for making the bad debt go away and increasing the recovery of funds on properties that are headed for foreclosure.

Permitting those who simply want out of their real estate but live in an area where the real estate market has significantly softened to the point of making a profitable sale next to impossible is not the intention of the program. At the same time, those who have defaulted on their loans but have assets that could be converted to cash in order to meet the obligations of the mortgage will not be considered eligible. Banks insist that prior to applying for a short sale option, the borrower needs to have exhausted all reasonable means of curing a default. One of these options is a mortgage loan modification which you can find out more about on the site that we recommend: www.loan-modification411.com. Borrowers interested in finding out if they meet the qualifications for a short sale program should contact their lender as soon as possible before a foreclosure actually takes place.

The term “loan modification” denotes a lending industry provision that allows mortgage lenders to accept applications for revisions to existing home loans from borrowers. These days, it is considered a last minute effort to avoid foreclosure on a property and at the same time allowing the borrower to continue living in the home and also resuming ownership of it, seeking to rework some of the loan’s terms to make the overall loan one that the borrower can live with.

There are times, however, when a loan mod is not the answer for a borrower and he might need to consider a short sale or other methods of dealing with the difficulty experienced in making mortgage payments. For example, if the homeowner is not yet in pre-foreclosure status, behind on at least two consecutive mortgage payments, lenders do not consider them good candidates. Instead, they are required to work with the lender – or other lenders – to find refinancing for their existing loans.

Moreover, if your inability to meet your monthly mortgage obligation is based on your choosing the wrong mortgage product at the onset, having failed to adequately disclose your earnings or lack thereof, or simply cannot show any event that is the immediate cause for your problems keeping up with the mortgage, you may not be a good candidate and the lender may not be sympathetic to your cause. Loan modifications are for consumers who can afford the home, but due to events beyond their control can no longer afford the payment at the present time.

A mod is also not a recognized form of loan preservation if you are not currently employed. Banks and independent lenders recognize that modification gives a chance to a homeowner who has a good probability of continuing regularly scheduled monthly payments, reimbursing the bank not only for the missed interest and principal, but also for the fees and late charges that have been accrued as the loan headed toward foreclosure. Someone currently unemployed or without a verifiable income is not a good credit risk and the bank will consider severing ties sooner rather than later in their best interest.

Finally, a homeowner who is seeking a loan modification for a secondary home, investment property, or vacation residence most likely will not get the go ahead from the banks. Mortgage lenders are willing to work with homeowners who are seeking to save their primary residence from foreclosure, not those who are attempting to preserve a secondary asset or money making opportunity. To find out more about loan modifications you can visit: www.loan-modification411.com.

In a day and age where foreclosure signs are dotting the neighborhoods in the same way that sold signs used to be seen up and down the streets just a few short years ago, lenders are struggling to keep investors interested in them with a mountain of bad debts on the books. What seemed to be a seemingly bottomless pit of potentially unreached consumers that could be wooed with the help of subprime mortgage products is now turning into a nightmare that puts banks in the crosshairs of the FDIC and possible fraud probes.

To this end, banks are searching for a way out from under the sudden collapse of the subprime mortgage market and they believe to have found it with the help of a new loan revision tool called the loan modification. Lenders can mitigate losses with this tool because it enables them to turn potentially disastrous loans into bottom line pleasers simply with the stroke of a pen and a few adjustments. Best of all, none of the late fees, outstanding charges, missing principal or unpaid interest have to be forgiven but can be rolled into the reworked terms of the loan.

Loan mods are offered to consumers who are struggling to make their mortgage payments on a monthly basis and who have fallen behind on mortgage payments to such an extent that foreclosure appears imminent. Lender and borrower renegotiate the terms of the current mortgage and sometimes a change of the loan product, such as from adjustable rate mortgage to fixed rate loan, or a reduction of the interest rate may be all that is needed to once again make the monthly payment affordable for the home owner. With the property saved, and the mortgage reinstated, the lender has not lost any money but instead preserved another loan from going bad.

On the other hand, lenders are drawing the line and are willing to foreclose on real estate that is not used as a primary residence. Similarly, if the borrower cannot prove satisfactorily that a sudden change in income is causing the inability to pay, or that a change in loan terms will result in the borrower once again being able to make the payments as specified, mortgage lenders will not take the risk of once again having to initiate foreclosure proceedings in the foreseeable future and instead will it consider a wise business decision to severe the business ties the first time around.

Since there is no income lost to the bank and since the consumer is also able to retain home, loan, and credit rating, this is a win-win solution for all parties involves. Consumers are wise to weigh their options when it comes to foreclosure and while surrendering the home or selling it is sometimes a good decision, for a family intent on making their home loan work for them and keeping their home in the process, a loan modification is the perfect tool of accomplishing this goal.