Hardship Letter for Home Loan Modification

Alternatives to Obtaining a Hardship Letter for Loan Modification

Another question related to hardship letters that people often ask is, "What is a Deed In Lieu of Foreclosure Agreement?" In the last 5 years, the number of homeowners that have had a foreclosure filed against them is approaching the 9 million mark. If the recession has hit you hard and you’re struggling to keep up with your mortgage payments, you’re probably wondering how you are going to stop your name from being added to that ever-growing list. The thing to remember is that you do have options available to you that will stop you from getting dragged into the depressing process of a foreclosure and a deed in lieu is one of those options.

What is a Deed In Lieu Agreement?

This is where you hand over ownership of your property to the lender and in exchange they’ll forgive either the entire outstanding balance on your loan or the majority of it. It’s important to note that you have to come to this agreement voluntarily, so unless you approach the lender formally and make it known that you would like to go down this route, nothing is going to happen.

Situations Where You Should Consider A Deed In Lieu

A deed in lieu is not the perfect solution to your financial woes, lets clear that up to start with. But in some situations, like those listed below, it might be a viable option and is certainly better than foreclosure.

If you’re really finding it difficult to keep up with mortgage installments and this situation isn’t likely to improve anytime soon. This could happen if you’ve unexpectedly lost your job or sustained an injury that prevents you from earning.

If you’ve already missed mortgage payments and are just praying that a foreclosure notice doesn’t drop through the letterbox.

If your mortgage is “underwater”, meaning the outstanding balance on your loan is greater than the actual market value of your house.

If you’ve notified your lender that your current monthly installments are more than you can afford, but the lender wasn’t willing to refinance or modify your mortgage.

Benefits of a Deed in Lieu Settlement Over Foreclosure

The primary reason why you’d be better offer volunteering for a deed in lieu, is that it will reflect better on your credit report than a foreclosure would. A foreclosure makes you a financial leper for seven years, during which time creditors won’t want to touch you. Going this route, you might have a mortgage application accepted just two years down the line.

This option will also serve to either wipe out or drastically decrease the remaining balance on your mortgage although this will depend on how big the balance is and the current market value of your home.

Obviously you avoid the whole foreclosure process, where the lender will legally “take” your home from you, which can be a lengthy, costly and very stressful process.

Although a deed in lieu is still something you’d rather not have to experience, it’s certainly a favorable alternative to going through a foreclosure. You do need to consider though that it’ll still have a negative impact upon your credit score and you’ll naturally forfeit your home so don’t commit to this option before seeking the advice of an attorney. In fact using an attorney to negotiate the terms of the agreement would be advisable too.

Home Loan Modification and the Making Home Affordable Program

The following is a list of the current Home Loan Modification options offered under the MHA plan (taken from www.makinghomeaffordable.gov): Home Affordable Modification Program SM (HAMPSM), Principal Reduction Alternative SM (PRA), Second Lien Modification Program (2MP), FHA Home Affordable Modification Program (FHA-HAMP), USDA’s Special Loan Servicing, Veteran’s Affairs Home Affordable Modification (VA-HAMP), Home Affordable Foreclosure Alternatives Program (HAFA), Second Lien Modification Program for Federal Housing Administration Loans (FHA-2LP), Home Affordable Refinance Program (HARP), FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance), Home Affordable Unemployment Program (UP), Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HHF)