Finding Mortgage Relief Options

A homeowner’s hardship affidavit or hardship letter is a formal request to modify a home loan, to assist the mortgage borrower through financial problems.

Some lenders don’t require the document. Their websites guide the borrower through the loan change request without asking for a form or letter. But many lenders, including those backed by Freddie Mac and Fannie Mae, publish an official form.

What Situations Constitute Hardship?

Owners of homes can run into unexpected financial problems at any point, for many reasons. Take a look at Fannie Mae’s form to see how the lender will need to understand a borrower’s situation.

To take just a few common examples, hardships can be caused by:

• Reduction in pay — including through a loss of employment, reduction in hours, disability, or divorce. Pew Research observes that 15% of adults lost work in 2020. Most of those who did were people of modest income.

• Increase in household expenses — such as a rise in an adjustable-rate mortgage, uninsured medical bills (whether for the borrower, or someone the borrower cares for), or rising property taxes.

• Overwhelming debt, such as credit card bills, home equity loans, or other types of debt. In excessive debt situations, the borrower in need of assistance may be expected to attend debt counseling sessions.

• Reduction in assets, specifically cash reserves. In times of recession, this situation becomes widely possible for people with home loans.

☛ It’s not a figment of our imagination: our dollars have been rapidly losing buying power. In April 2022, inflation reached its highest rate in 40 years. Homeowners are now bracing for a possible recession in 2023-24.

Sometimes hardship is expected to be prolonged, such as in times of widespread recession. Hardships can also be temporary setbacks, where the situation is likely to improve. The lender needs clearly presented details to assess the likelihood that the borrower can recover from current difficulties. If that’s likely, a modification could help the owner stay in the home.

What Is the Process for a Hardship Modification?

Fill-in forms like Fannie Mae’s are known as boilerplate affidavits. On these forms, homeowners declare whether they intend to keep the home or sell it, and the specific reasons they need the lender’s assistance.

The boilerplate affidavit form, if required by the mortgage company, might need to be accompanied by a one-page hardship letter. Plainly and concisely, but in sufficient detail, it states why the borrower cannot afford to pay the mortgage under its current terms, and what the borrower wants to do. The borrower’s current situation will indicate what kind of solution will fit.

In the letter’s introduction, a borrower should state the date and the loan account number, and briefly set forth the specific challenge faced by the household. Then, the borrower should detail the situation. A lender wants to know things like:

• Is the borrower asking the company to temporarily suspend payments due?

• Is the borrower requesting a modification for the mortgage?

• Is the borrower seeking to walk away from the property?

• What are the specific financial reasons for hardship, and how do these factors support the owner’s future intention?

• Has the borrower taken certain precautions to avoid a mortgage default? What has been done?

• Is the borrower continuing to invest in the home’s value? Are there specific home improvements the borrower has made?

• One what date did the financial hardship arise? What other events and dates are significant?

• How long does the borrower expect financial difficulties to last? Six months or less? Or is this a long-term or indefinite situation?

After detailing the situation, the borrower signs and dates the affidavit form and/or letter. The homeowner’s hardship reasons and future intentions, along with all the backup financial information the borrower supplies, guides the next phase of the process.

What Happens When a Homeowner Submits the Hardship Affidavit?

So, the borrower sends in the request. The company receives it. What now?

The mortgage company will pull the borrower’s (and any co-borrower’s) credit report. The federal government may inspect the affidavit and request documentation to back up anything the borrower has stated.

For a borrower who intends to stay in the home, the lender now must issue a decision on the matter of whether to support the borrower’s request for a loan modification or forbearance.

If possible, the lender should attempt to suspend or modify a mortgage for the financially stressed borrower. Or the lender might extend the term of the loan to let the borrower make smaller payments (although this solution will add to the interest a homeowner must ultimately pay off). The lender’s loss mitigation department doesn’t want to be in the business of letting borrowers walk away, because defaults are expensive for lenders.

But if saving the mortgage is just not possible, the borrower might be seeking assistance in a short sale, or a deed in lieu of foreclosure.

☛ Need to know more? Deeds.com offers an article to help explain the difference between a short sale and a deed in lieu of foreclosure.

How Can a Borrower Improve the Chances of a Successful Hardship Letter?

The best way to approach a hardship letter is with brevity, honesty, and a clear idea of what will ultimately work to bring about the best possible result, in a way both the lender and the borrower can easily grasp and consider reasonable.

It’s important to be clear about the assistance requested and the desired outcome from the assistance. This way, the lender can have something concrete to accept, or from which to come to a compromise.

It’s a good idea for the borrower to ask a trusted person to look over the letter and advise on how it might be as clear, effective, and reasonable as possible. The letter needs to stick to facts rather than feelings.

All that said, borrowers need to respect their emotions. Financial inequality is growing; stressed mortgage borrowers are not imagining that.  

☛ When looking for credit repair guidance, always select an approved credit counselor. Avoid credit repair scams. Steer clear of businesses that offer no written contract detailing the consumer’s rights. Avoid services that encourage borrowers to make inaccurate statements, or services that claim to wipe out negative credit history.

These Are Challenging Days. Keeping a Home Is Important.  

The coronavirus pandemic hit modest-income households hardest. At the same time, the middle class has been shrinking over the past five decades. The economic blows of the pandemic came on top of an increasing inequality gap. Federal stimulus packages bolstered households in 2020-21, but inflation is rapidly eroding that boost.

Some sole homeowners are making creative decisions to acquire or maintain home ownership — such as transferring their house titles into tenancies in common. By entering a shared real estate investment arrangement, they can keep building protective equity for their futures.

And they are reaching out for help. Lenders and mortgage companies have now spent years guiding borrowers through unprecedented financial stress. Submitting a hardship letter might just be what the determined borrower needs to weather the turbulence of these times.

Supporting References

Fannie Mae, Making Home Affordable Program: Hardship Affidavit.

Tim Smart for U.S. News & World Report: Pew: Covid-19 Hurt Lower- and Middle-Income Americans the Most as Middle Class Shrinks Over Past 50 Years (Apr. 20, 2022; citing recent reports from Rakesh Kochbar and Stella Sechopoulos of the Pew Research Center).

Photo credits: Tima Miroschnichenko and Anna Shvets, via Pexels.