What is the Write-Down of a Mortgage?

A mortgage write-down is when a lender reduces the mortgage loans principal amount a borrower owes. It is the borrower who initiates the write-off process. He or she persuade the lender to write off a certain percentage of the loan initially given to him or her to purchase a house.

Back to:BANKING, LENDING, & CREDIT INDUSTRY

How Does the Write-Down of a Mortgage Work?

Mortgage write down is an alternative for those borrowers who are struggling financially and do not want the lender to initiate a foreclosure on their houses. The borrower usually writes to the lender demonstrating his or her inability to pay back what he or she borrowed. The persuasion is always a plea to the lender to reduce the mortgage loans principal amount. However, for a borrower to convince a lender to write off part of a mortgage loan given to him or her is always not an easy task. Before a lender decides to write down a mortgage loan, the borrower must have convincing proof of his or her inability to repay the loan. Note that a lender may be willing to initiate a mortgage write down if a borrower loses his or her source of income like a job or an investment. However, the borrower must give the lender tangible proof indicating a reduction in income or financial difficulties. Some of the documents that a borrower can give to the lender as proof include the following:

• Paycheck stubs showing wage reduction
• Copies of termination letter
• Bank account recent statements
• Credit card bills

How to Secure a Mortgage Write Down

The lenders average foreclosure cost is usually $50,000. So, if as a borrower you are not willing to lose your home to foreclosure, then a mortgage write-down may remain your last option. All you need to do is to convince the lender to approve your write down a request. The first step is to write down a hardship letter spelling out all of your financial hardships. The financial hardship should be genuine and able to move the lender to take action. Examples of financial problems you can mention in the letter may be as follows:

• Loss of a job or other source of income such as investment
• Illness or injury and, therefore, making you unable to work
• Reduction of your wages by the employer due to tough economic situations
• Copies of doctor and hospital bills

In case your mortgage writes down request gets approved, what a lender does is to slash a certain percentage of the principal balance you owe. The initiation of a mortgage write-down leads to a reduction on your monthly mortgage payment. It basically reduces the loan burden the borrower is facing. The assumption is that when the principal amount reduces, it enables the borrower to meet the loan obligation without straining financially. The move eventually prevents the possibility of the borrower defaulting on the loan. There are two methods a lender can use to reduce the borrowers loan principal balance upon approval. The first method is that a lender may directly reduce the principal amount. The second method is where a lender reduces the principal amount through a government program known as federal government affordable modification program. The program gives financial incentives to lenders who agree to do modification on home loans, especially for those struggling homeowners. The lenders who agree to this program provide the following relief to the borrowers:

• Slashes the interest rates on the mortgage loan
• Revise the terms of the principal amount to reduce the burden of loan repayment

Generally, as a borrower, you need to seek the opinion of your mortgage lender about the program. Your lender should tell you whether or not it is willing to participate in the program. Nonetheless, as a borrower, you are not eligible to participate in this program if your mortgage loan is either guaranteed or under the ownership of Freddie Mac or Freddie Mac.

The Bottom Line

Generally, banks do not agree to mortgage write down unless the situation is extremely bad. For instance, a bank can only approve after it has completely squeezed every cent from the borrower. Also, after it is sure that the borrower has no other hidden asset in his or her name that can be used to settle the loan.