Though loan modification agreements are approved of on a case-by-case basis, banks typically understand hardship in one of the following ways:
Disability or illness
Lenders may approve of a loan modification because you or your spouse has fallen on sudden, irremediable disability or illness. In such a case, a bank will approve a loan modification because your family finds itself living on reduced income as a result of disability or illness.
It must be proved to the lender that you or your spouse is suddenly a reduced income-earner. The lender may require proof from your doctor or healthcare provider attesting to your situation.
Ballooning unemployment is one of the primary reasons homeowners are now in trouble and seeking a mortgage loan modification. Reduced income potential because of unemployment may qualify you for a loan modification. Consult with your bank, as many have different loan modification practices and policies where unemployment is concerned.
Family divorce or death
Divorce often brings about new financial hardship. Divorce is almost always costly because of associated legal fees. Any case where a family is split—especially in the case of death— typically reduces the finances of the individuals involved. Consult your attorney during divorce proceedings about your loan modification options.
Drastically reduced income
Most importantly, you need to show your bank that you are reduced income-earner, and it is impossible for you to pay on your original loan as agreed.