Foreclosures have gotten a bad rap lately, with politicians desperate to prevent them. But foreclosures actually represent one of the best paths to recovery, writes real-estate consultant Ramsey Su in the Wall Street Journal. The people facing foreclosure would be much better served walking away from the negative-equity McMansions destroying their balance sheets. Credit scores can be rebuilt.
Credit markets, meanwhile, will balk at any loan modification, thanks to what now looks like a flawed securitization model. Holders of junior tranches simply have no incentive to agree to a modification. Besides, “loan modification is not only ineffective, it is evil,” Su writes. “Coercing borrowers to continue paying a mortgage on a home that is hopelessly overvalued…is predatory lending.” (Read more foreclosures stories.)