A loan modification letter is a written request from a borrower to a lender to change the terms of the loan from the previously agreed contract, according to Loansafe.org. Borrowers usually request loan modifications due to financial hardship.
Loan modification letters are brief, clear explanations to lenders that justify changes in the terms of loans to prevent default or foreclosure, explains HSH.com. Borrowers at risk of falling behind on a loan or who are already delinquent can request that lenders allow more lenient payment terms or a lower interest rate. HSH.com recommends that loan modification letters state the requested modification, the reason for the request and the likelihood of modification resulting in resumed regular payments.
Borrowers request modifications due to divorce, death, job loss, business failure or prolonged illness, according to LoanSafe.org. Increasingly, borrowers are requesting modifications to adjustable rate mortgages, which are loans originally structured with increasing payments during their term.
When a borrower is at risk of foreclosure due to late or nonexistent payments, a loan modification can be in the best interest of the lender as well as the borrower. However, lenders review modification requests deliberately, and the process can take as long as a year, says LoanSafe.org. To prevent further hardship, borrowers should request modifications as soon as the need becomes apparent.