The auction gavel is due to fall on more homes, as repossessions are skyrocketing. Image from Wikimedia Commons.

The dismal saga of the real estate industry in America continues, and despite the occasional bright spot, there is still plenty of bad news to go around. Sales were boosted for some time by the home buyer tax credit. Foreclosures were barely helped by the loan modification program from the government. Not only did few homeowners actually have their bank loans and homes saved by the program, but repossessions have actually increased. In fact, repossessions increased by 25 percent since last year.

Repossessions skyrocket

The number of repossessions has shot through the roof since 2009. According to a recent report by RealtyTrac, repossessions are higher than have been recorded since the recession began. The number of repossessions in August 2010 was up to 95,364, according to Bloomberg. RealtyTrac has never recorded that large a number of repossessed homes in its existence. The number of repossessed homes, where a homeowner has to vacate the premises and the loan company tries to resell it, have only increased. Since August of 2009, repossessions increased 25 percent.

Foreclosures decrease

However, there is some good news. Overall foreclosure and default notices decreased by 5 percent since July of this year. That being said, there is a difference between foreclosures and repossessions. A foreclosure is when mortgage holders have fallen into default, and the bank begins a legal process to get them out of the homes. There also are ramifications, such as the mortgage holder being responsible for any lost revenue when the home sells. Repossessions are just when the bank or finance company kicks a delinquent homeowner out but doesn’t start any legal proceedings, and just resell the home.

Foreclosure inventory increasing

There is an incredible stockpile of available homes, some at discount prices. It isn’t as if you can buy a home with a small cash advance, but if you can get the financing, a good home can be acquired at a great price. As it stands today, one in every 381 homes in America has received a foreclosure notice.

Sources

Bloomberg

Before a person decides to cosign a loan, it is important to consider the risks involved. Many who haven’t done so have come to regret it. Often, their decisions have resulted in bad credit ratings and the need for emergency cash to bail themselves out of someone else’s debt. Simply put, when a cosigner is required for a loan, it is because the person attempting the purchase is a poor credit risk. Therefore, if the lender, after studying a person’s income and spending habits, isn’t willing to take a chance on lending money, why should anyone else? This may sound harsh and cruel, but it is a reality that mustn’t be overlooked if a person hopes to maintain their own good credit rating.

Emotions and money

Unfortunately, most people make the decision to cosign a loan based upon emotions. After all, the person asking is usually a relative, or a very close friend, who approaches during a time of need. This person has the money for a down payment and the only thing stopping them from finalizing their purchase is their own shaky credit or lack of adequate income. They are told that they can seal the deal, so to speak, if they can find someone else with good credit to sign on the dotted line and claim responsibility for the loan if they default. Most people find it hard to resist a loved one who approaches them to cosign a loan. This isn’t because they want to obligate themselves to someone else’s debt, but because they feel an emotional need to help.

Learning to say ‘No’

It can be difficult to say no to a loved one in need, but it is sometimes necessary to do exactly that. A good credit rating takes time and discipline to build. Having good credit destroyed by someone else’s misfortune or lack of discipline is not something that people look forward to. Therefore, it is important that people learn to say no when appropriate.

Saying ‘Yes’

Of course, there are some who will believe in a person’s ability to pay off a loan despite professional calculations to the contrary. Sometimes this works out for all parties involved and sometimes it doesn’t. Therefore, when one has agreed to cosign a loan on another’s behalf, there are a few things that they should be prepared for.

With car loans and home mortgages, especially, if payments are missed, lenders do not typically contact a cosigner until the car or home has been repossessed. By this time, the damage is done and the repossession has been added to the cosigner’s credit report. A cosigner also may be contacted again to pay any remaining difference between the original loan amount and the below market price that repossessed cars and homes are sometimes sold for.

So, before agreeing to cosign a loan, people with good credit should weigh their decisions very carefully. They must be clear on whether they are feeling led to cosign by their emotions and whether they can afford the risk involved. Being firm and honest about one’s decision to not cosign a loan can be tough, but the result of not doing so can be even harder to bear.