Democratic success in the 2010 midterms is intimately tied to the economic recovery. Success in the economy is intimately tied to stabilizing the housing crisis. Therefore, the dour assessment of the Obama Administration’s mortgage modification program looms large – and becomes something the White House must remedy quickly.

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

Mary Kane has a litany of dueling quotes from Treasury and loan servicers each trying to affix blame on the other.

There’s a balance that needs to be struck here and the White House has not figured out the formula. Allowing all the foreclosures to be flushed through the system, aside from putting millions of Americans on the street, risks a double-dip recession. Making temporary loan modifications just kicks the can down the road and does nothing to solve the problem, in fact possibly making it worse. Filling in more permanent loan reductions would amount to a permanent subsidy for the banks. There’s no good solution here.

But there are some that haven’t been tried. Congress could cram down mortgage payments through bankruptcy judges, but they’ve shown little appetite for passing that law. Dean Baker’s own-to-rent idea, where distressed borrowers are moved on to a renting platform, paying a price they can afford and staying in their homes for a number of years, saving the economy from the stress of foreclosure while broadly spreading the economic impact (the borrowers lose equity and the banks get a reduced monthly payment). Or, the government could go back to what they did with the HOLC during the Depression and buy up mortgages for future sales.

We also need to see the impact of these alternative Treasury programs:

In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages — short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.

When you get down to it this looks like the government paying off mortgage companies. But ultimately, with so much hinging on fixing the problem, some conclusion will have to be made.