When I speak to clients about getting a loan modification approved in Utah, one of the most common questions people ask about is what they should write in a hardship explanation.
Here are some tips to help you understand what the bank is looking for, and how you can present them with the right information that will give you the greatest chance to get the kind of modification you are looking for.
Make sure its actually the house or mortgage that’s the problem
Recently a client called telling us how they had tried and tried to get a loan modification but the bank just wouldn’t work with them. After speaking for a bit and asking questions about their finances, it was discovered that their mortgage payment was rather modest, but they had nearly $2,000 dollars a month going out in credit card payments and other debts. The house wasn’t the problem, but its often something people rationalize. They figure its easier to change the mortgage than it is to get rid of their credit card debt. On a fixed income, their best solution was to do something about the debt and leave the house alone.
Understand what qualifies as a hardship and what does not
This point is best made by telling a story of a client I was working with years ago. It was this client that caused me to revise my list of necessary documentation that I give out. One item that is required is a hardship explanation. She was very thorough in explaining what happened. 4 Pages worth of explanation…front and back…in Spanish.
The next day I got a call from the negotiator assigned to the file. I’m paraphrasing but his response went something like this “I just opened your clients file, and noticed that her explanation is 4 pages, front and back and in Spanish”. I replied, “yes it is” with a little laugh. He then asked why she didn’t make her payment and I told him it was because her husband had lost his job. He said “OK thanks, that’s all I needed” and our call ended. The lesson? They don’t care what the reason is. They are simply going by the book. If it fits whats considered a hardship in their eyes, they don’t care about all the details.
Here is a list of what banks will consider a hardship for consideration of a loan modification:
- Divorce
- Death, loss of a spouse or child (due to the expenses)
- Major Medical expense
- Loss of employment or Loss of Income
These are broad parameters are what a bank will consider, so you will need to figure out how to get your situation to fit within one of them. Now, having said that I’m sure someone will make a comment about how they had some situation that didn’t fall under any of these guidelines and got approved…my answer is GREAT, that’s awesome, but I am trying to make this apply to the broadest amount of people and this is what banks look for.
Here are some others that probably fall under one of these different categories that can also be considered a hardship
- Too much debt
- Mortgage payment increases
- Business failure
- Job relocation
- Damage to property
- Military service
- Incarceration
- Tax or insurance increase
Make sure you are doing all you can to help solve YOUR problem
I love what I do, its fun and very rewarding to see someone have the weight of facing foreclosure come off their shoulders. But I have little patience for someone who is just looking to game the system.
When you do an analysis of your budget, make sure you have eliminated all the non essential expenses that you reasonably can. Look for ways that you can make it work before you go asking the bank to make concessions for you.
Talk to a HUD approved counselor
I’m going to say this with a lot of hesitancy. But you should go see one. Why? Because sometimes it actually helps (terrible I know) but its true, they are horribly understaffed and in many cases under qualified to help. But the government in its wisdom (sarcasm) has decided that it will create a plan to help and then under fund it and under staff it so that its demise is inevitable.
In my opinion, the greatest advantage to talking with a HUD approved Counselor is that you get someone to bounce your questions off of who does not have an agenda. They will give you strait answers based on the best information they have available and wont be trying to sell you on an expensive legal service that you probably don’t need.
Having said that, I do believe there is a place for paid loan modification services. What doesn’t exist yet is a way to know who to work with and who not to. So until something comes about to bring fee’s into reality and an ethical framework for what and how clients are given recommendations and what they are being told, I am approaching this field with a huge caveat. I am giving away all of my years of experience and knowledge for free, in hopes that I can help people avoid huge pitfalls and hopefully find a way to save their house in this uncertain time.
