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Hardship Letter for Forbearance vs Loan Modification: Which Should You Ask For?
You know you need help with the mortgage. The servicer’s form asks what you’re requesting, and the two words that keep coming up are forbearance and modification.
Ask for forbearance if the problem has an end date and your income will come back. Ask for a modification if your income has settled at a lower level and the old payment won’t work again. Your hardship letter should make that case, because the servicer reads it to decide which kind of help fits.
What is the difference between forbearance and a loan modification?
Forbearance is a temporary pause or reduction of your payments for a set period. It postpones the payments you skip. It doesn’t forgive them.
A loan modification is a written agreement that permanently changes one or more terms of your loan. That can mean adding the missed payments to the balance, stretching out the term or lowering the rate.
Freddie Mac’s own guide for servicers draws the line the same way. Forbearance is for a current hardship, such as unemployment, where you need temporary relief, and a modification is for a hardship that hasn’t been resolved, where you need a lower payment.
How do I tell which one to ask for?
Answer three questions honestly.
- Does the hardship have an end date? A furlough, medical leave or a gap between jobs usually does, and a permanent pay cut or the loss of a second income usually doesn’t.
- When it ends, can you afford your regular payment again? If yes, forbearance fits, and if no, you need a modification or a different plan for the house.
- Can you afford more than the regular payment for a while? If yes, a repayment plan may cover the missed payments after forbearance ends.
| Your situation | Usually fits |
|---|---|
| Income stopped, but you expect it back soon | Forbearance |
| Income is back to normal, and you’re behind | Reinstatement, repayment plan or deferral |
| Income is lower for good, but steady | Modification |
| You can’t afford the house even at a lower payment | Short sale or deed in lieu |
If you’re between the second and third rows, ask for review for every option. A servicer that receives a complete application more than 37 days before any sale has to evaluate you for all the options available on your loan, not just the one you checked.
How should a forbearance letter read?
It tells the servicer the problem is temporary and shows it. Name the event, give the date it started and the date you expect it to end, and say what you’ll be able to pay after that.
I am asking for a forbearance of [number] months while I am on [unpaid medical leave / furlough]. I expect to return to work and my regular pay on [date]. After that, I expect to be able to resume my regular payment and catch up through [a repayment plan / any option available].
Attach whatever proves the end date, such as a return-to-work letter or a furlough notice. A forbearance request without an end date reads like a modification request that isn’t ready yet.
How should a modification letter read?
It tells the servicer the change is lasting but your income is now stable. The servicer has to see a steady income that can carry a lower payment, or there’s nothing to modify.
I am asking to be considered for a loan modification. Since [event] on [date], my income has been about [amount] a month, down from about [amount], and I don’t expect it to return to the old level. I can afford a payment of about [amount] a month, and I want to keep my home.
If you’re still out of work with no income, a modification is hard to approve, because there’s no income to base a new payment on. In that case, ask about forbearance first and apply for a modification once you have steady income.
For complete sample letters by situation, see these sample hardship letters. For the overall structure, see how to write a financial hardship letter.
What happens when forbearance ends?
The skipped payments come due in some form. The servicer then reviews you for one of these, depending on your loan and your income.
Reinstatement. You pay everything you skipped in one lump sum.
Repayment plan. You pay your regular payment plus an extra amount each month for a set period until you’re caught up.
Payment deferral. On Fannie Mae and Freddie Mac loans, you resume your regular payment, and the missed payments move to a separate balance due when you sell, refinance or pay off the loan. FHA loans use a similar tool called a partial claim, where the missed amount becomes an interest-free second lien on the home, behind the mortgage.
Modification. If you can’t afford the old payment, the servicer can change the loan terms to lower it.
Don’t assume you’ll owe a lump sum, and don’t assume you won’t. Before you accept a forbearance, ask the servicer in writing what your end-of-forbearance options are on your loan.
Can the servicer offer forbearance before my application is complete?
Yes. Federal mortgage servicing rules let a servicer offer a short-term forbearance or repayment plan based on an incomplete application.
If it does, it has to tell you in writing that the offer was based on an incomplete application and that you can still submit a complete one for review of every option. While you keep up with a forbearance offered that way, the servicer can’t start a foreclosure or hold a sale.
That makes short-term forbearance a useful bridge. Keep working on the complete application while you’re in it, so you aren’t starting over when it ends.
What if I asked for the wrong one?
It’s usually fixable. Your circumstances can change during a forbearance, and you can apply for a modification if it becomes clear your income won’t recover.
The risk is time. If you sit in a forbearance without a plan for the end, the arrears grow, and you may face the end date with nothing in place. For the full menu of options, see what loss mitigation is.
What should I do right now?
If you have no sale date, decide which request fits using the questions above and send it with a complete application. If a sale date is set, or a forbearance is ending and the servicer hasn’t offered anything workable, call me at (202) 448-5136. If you already have a lawyer in a filed foreclosure case, call that lawyer.
The consultation is free. I’ll look at your loan, your income and your deadlines in DC, Maryland or Virginia, and tell you which request makes sense.
Don’t wait. A forbearance end date comes faster than most people expect.
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