The problems with hardship letters

February 16, 2010
Planet Money got a letter from a correspondent worried about the hardship letter which is required as part of the loan-mod process:

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Planet Money got a letter from a correspondent worried about the hardship letter which is required as part of the loan-mod process:

I am now racked with doubt about what I should put into this letter. Should I make it all Oliver Twist-ish and beg for financial scraps from my lender’s table? Should I make it more utilitarian in scope and just lay out the facts? No one told me that there was going to be a talent portion of this pageant of homeowners walking across the stage of shame and I am honestly perplexed by the judges who will look at my essay and judge whether I made a good enough case to defend my life. I am imagining Simon Cowell, Kara DioGuardi, Randy Jackson and Ellen DeGeneres sitting around a desk with my essay and picking it apart while making snide quips about my writing style, how unflattering of a narrative I chose or how I didn’t take economic hardship and make it my own.

I’m honestly scared about losing my house to an essay of all things, I can’t imagine what it’s like for a lot of Americans who can’t use the English language in a meaningful way to have to fill one of these out, but I am frightened by the notion that I now have to apologize and make a case why I should stay in my home, to beg on paper why I should be spared.

I suspect that a large majority of the people who are asked for a hardship letter do not understand what they’re being asked for, and will end up writing something which at best won’t help and at worst will be positively counterproductive. All requests for a hardship letter should explain exactly what they’re looking for, ideally with examples. And anybody who wants to write one should read two classic posts by the late, great Tanta, explaining exactly what you should and shouldn’t do.

In a nutshell, the hardship letter should explain, in English, what you can afford, what you can’t afford, and why. It should not spend much if any time detailing the circumstances by which you ended up in this situation, or look for sympathy, or really talk much about the circumstances of your hardship at all.

The problem is that outside geeky finance blogs, this is not explained well: even some financial advisors don’t really understand it. And as a result, the hardship letter is yet another means by which lenders find a way to avoid helping distressed homeowners. If it’s really necessary, let’s at least give the borrowers the tools they need to write a good one.


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