Restructuring a mortgage, better known as a loan modification, is the process of changing the terms of the loan to a more favorable agreement for the borrower. It is commonly granted when the borrower is experiencing financial hardship. In order to restructure a mortgage you may have to write what is called a loan hardship letter for the lender to consider.
Restructuring a Mortgage
Mortgage loan restructuring is the process of evaluating an existing loan and changing it to be more affordable for the borrower; it is a permanent change. Changes may include reducing the balance, reducing the rate or extending the mortgage length to lower the remaining payments. It allows the borrower to avoid foreclosure. The terms of a restructuring or loan modification may vary by lender.
Applying for Loan Modification
In order to receive consideration for a mortgage loan restructuring, the applicant must contact the lender with a phone call to start the process. The lender will then ask questions related to income, financial status and assets to help the bank make a decision on whether or not to approve the modification request. Before finalizing this request the borrower usually has to submit a letter in writing describing the situation. It is wise for borrowers to seek the advice of a family lawyer when trying to complete a loan modification, as this can become a complicated matter.
A hardship letter is a note to the lender regarding the loan restructuring request. It details exactly why the borrower needs the change and how he plans to pay for the home going forward. Common causes of a financial hardship include a loss of employment, decreased hours at work or a major unexpected bill that puts a strain on the household income of the borrower.
What to Include
When writing a hardship letter the borrower must include the exact details of her financial problems. First the borrower must identify the type of hardship, such as a situation involving a divorce, loss of employment or military duty. The lender needs to know why the borrower has had trouble making payments and that she fully intends to meet the terms of the new mortgage. If the situation is temporary and the borrower believes it will change in the near future, she must provide this information as well. Finally, a hardship letter should include an itemized household budget so the lender can examine her expenses compared to income.