Monday, January 18, 2010

Mortgage Modifications for New Cars

Jason Axelrod learned that the hard way.

Axelrod, a municipal employee who lives outside Chicago, entered a trial mortgage modification program this spring.

He had not fallen behind in his mortgage, but he was finding it harder to make ends meet after his overtime was cut and his property taxesskyrocketed. Told it would not hurt his coveted 750 score, Axelrod secured a $565 reduction in his monthly payments.

And to his horror, his credit score has plummeted to 644.

"It's completely destroyed my credit," said Axelrod. "If I had known it would affect my score, I would have never entered the program."

Axelrod is already feeling the impact of his lower credit score. He ordered a new car this summer, believing it would come with a lower monthly payment.
It arrived in mid-December.

But because of his newly blemished credit background, his two credit unions turned him down for a car loan. His dealership told him the best he could get is a 12% rate, a hefty hike from the 4.7% he was paying before.

Lets review, based on a reduction in income Mr Axelrod needed to get a loan modification. Mr Axelrod noticed that after not meeting his originally contracted debt obligation his credit score fell. Why should that affect his score, clearly a new lender would not be interested in knowing Mr Axelrod could not meet his previous obligations, LOL.

Lastly Mr Axelrod is upset because it is hurting his ability to buy a new car. To be fair, he claims it is to reduce his monthly payment. Of course, this neglects the fact that what is lower than a new car payment is no car payment at all. Thats right if Mr Axelrod were to have paid all of his contractual obligations on time he would soon have no car payment and be better off.

This is also another case of why this blog is called Economic Stimulus? as the government pays lenders to give better terms to debtors like Mr Axelrod, savers are helping finance his new car purchase. Is that the America way?

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