• A financial hardship letter is an appeal by homeowners to their mortgage lenders that explains their inability to keep their home loan payments current, and to request that the lender work with them to devise a plan to prevent a foreclosure on their homes. Lenders are intent on receiving a return on their investment and do not want a loan default on their record. For this reason, many are willing to work with homeowners if they are convinced that the homeowner has the means to repay them, and will be able to bring the mortgage payments up to date.
• Many banks are receiving government incentives to help distressed homeowners stay in their homes, which has led in many cases to their putting foreclosures on hold. Negotiation and communication with your mortgage holder is essential—it may very well keep you from losing your home and help you to get back on your financial feet.

• Determining your financial health is crucial to understanding what steps are necessary to save your mortgage from default. Begin the process by honestly answering the following questions:

1. What caused your inability to repay the loan?
   1. An illness?
   2. Job loss?
   3. A death in the family?
   4. A change in your mortgage repayment terms?
   5. Did you purchase more home than you could afford?
2. Is the issue a short- or long-term problem?
3. How much equity is in your home?
4. Do you know your FICO credit score? The results will determine if refinancing or a lower payment is available to you.MyFICO.com: MyFICO

• Determine what payments you can afford by creating a budget.

1. Write down your full monthly income, be it from a paycheck, investments, or support payments.
2. Take a look at your credit card statements, your checking account ledger, and bills to determine what payments are due each month.
3. Take special note of how much your mortgage payment is, and what percentage of your income it accounts for.
4. Record these monthly debts and subtract them from your monthly income.
5. Assess if there are any monthly debts you can get rid of, like a premium cable bill or membership in a country club.

• If, after calculating your budget and cutting costs, you are not able to meet your monthly mortgage payment, you will have a negative balance.About.com: How To Create a Budget

• After you have determined your financial situation and understand what you are consistently able to repay on a monthly mortgage, decide what your goal will be when you approach your mortgage lender.

1. Do you want to save your home from foreclosure? (Additional information can be found on Mahalo's How to Stop Foreclosure, How to Refinance a Mortgage to Prevent Foreclosure, How to Avoid Foreclosure with a Mortgage Modification and How to Avoid Foreclosure on a Fannie Mae Mortgage pages.)
   1. If you have good credit and a hefty amount of equity in your home, you may want to ask the lender to allow you to refinance your home, which would lower your existing payments. (Additional information can be found on Mahalo's How to Refinance a Mortgage page.)
   2. Consult your budget to determine if this is financially possible; if not, is it possible to take on additional employment to make up the deficit?
   3. Be brutally honest with yourself—is it a feasible reality or a dream?
2. Would you prefer to sell your home?
3. Are you trying to stay in the home for a few months while you look for a new place to live?
4. Do you want to change the terms of your mortgage by removing a balloon payment or a variable interest rate? (See additional information on Mahalo's How to Modify Your Mortgage page.)
5. Are you hoping that your mortgage company will allow you a forbearance agreement? (This is an agreement that they will not foreclose on your home and will help you devise a plan to get your payments current.)Investopedia: Mortgage Forbearance Agreement
6. Do you want to file a chapter 13 bankruptcy plan to repay your debts over a fixed period of time? This agreement does not allow a creditor to begin or continue collection proceedings against you and will not allow a mortgage holder to foreclose on your home.US Courts.gov: Chapter 13
7. Do you want the option of a short sale of your home? (This is a sale that occurs when a lender accepts less money than you owe to them.)Realtor.org: Field Guide to Short Sales (March 2009)

• Once you have determined what your intentions are regarding your home, and what exactly you're planning to request of your mortgage lender, you can begin to formulate what you will write in the hardship letter itself.

Your letter should include the following information:

1. Essential introductory info:
   1. Names of the borrowers
   2. Address of the property
   3. Date of the letter
   4. Your phone number
   5. The mortgage loan number
2. The reason for your letter (i.e. you are currently unable to make your payments).
3. The circumstance that caused you to be unable to keep your mortgage payment current (i.e. a death, illness, job loss, etc.).
4. How that circumstance has affected your income (i.e. it has cut your income, delayed your income, etc.).
5. Your belief as to whether the situation is permanent or temporary.
6. The goal of the letter (to keep your home and work out a repayment plan, to sell the home, etc.).
7. What you intend to do to resolve your financial indebtedness.USALS: How to Write a Hardship Letter
8. The amount you are reasonably able to afford on a monthly basis.
9. A thank you for taking the time to review your letter.
10. Information about your enclosures and why you have included them. Enclosures should include:
    1. Your average monthly income (pay stubs).
    2. Evidence that you have had financial hardship (unpaid collection notices for bills and current bank statement).
    3. The budget you have created that shows your monthly expenses.
11. Information that is specific to your request:
    1. Short sale: Explain that you would like to have time to list the home for sale, avoid foreclosure and help them retain as much money as possible in the process.
    2. Loan modification: Let the lender know that you have rectified or improved on the circumstances that caused the initial payment problems, such as through a new job or a second income. Provide them with a repayment plan and let them know how hard you intend to work to stay in your home.

• When writing your mortgage hardship letter, do not:

1. Explain or divulge everything that led up to the default.Calculated Risk: How Not to Write... (May 22, 2008)
2. Try to make the mortgage holder feel sorry for you—it may backfire.
3. Present yourself as unable to repay the loan.
4. Give a vague or rambling description of what you intend to accomplish with the letter.
5. Place blame on the mortgage holder.
6. Present untruthful information.

• Stick to the facts and keep the letter simple and to the point. Do not elaborate on the details or make excuses for your inability to pay on time. The mortgage lenders have seen many of these letters and are unmoved by long drawn-out stories. Be practical and express your needs clearly. The mortgage company is merely interested in your intentions and how you expect to remedy your payment deficit.Active Rain: Writing a Hardship Letter...

• Be encouraged to know that missing a mortgage payment is not immediate cause for losing your home. Be upfront with the mortgage lender about your financial situation and your need for his help. You may be pleasantly surprised at how willing he is to help you get back on track and save your home from foreclosure.