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Throwing good money after bad? I'm afraid we still need a big painful reset.

Published on Wednesday, April 14, 2010 by ABC News
Watchdog Group: Obama's Mortgage Aid Plan Wastes Billions
by Matthew Jaffe

The Obama administration's embattled mortgage aid plan is coming under fresh criticism from a government watchdog who says the program is wasting billions of taxpayer dollars simply to delay -- rather than prevent -- foreclosures.

Underwater: Obama's mortgage-modification plan has done little to help owners facing foreclosure while putting taxpayers on the hook for hundreds of billions in losses. Above, a foreclosed home in California. (Getty)
In the last year, the Treasury Department's $75 billion Home Affordable Modification Program (HAMP) has been blasted by Democrats, Republicans and watchdogs alike.

Despite a flurry of recent changes to the program, the Congressional Oversight Panel, chaired by Harvard Prof. Elizabeth Warren, outlines a slew of criticisms in a new report to be released today.

http://www.commondreams.org/headline/2010/04/14" onclick="window.open(this.href);return false;

So true...

... meanwhile, the first time homebuyer tax credit, which has absolutely been a lifeline in helping move distressed REO's and short sales in the "sand states," is set to expire in two weeks with no talk of renewal.

You think the recovery in real estate is slow now? Let that tax credit go away and see what happens...

To some extent, you don't mind the delaying of bad things (i.e. more foreclosures). It was sort of the rationale for some of the stimulus spending that went to stave off job losses at the state government level. You want to limit the bad news during the worst of the recession for fear that the bad news will self perpetuate and fear will drive the economy further into the ground. But eventually, you have to allow bad things to work themselves out. There were and still are plenty of people living in homes they can't possibly ever afford, and there's no way to just force banks to eat it by making them redraft loans for these homes that people might be able to afford after the redrafts. And even if you did, what about the vast majority of folks who only borrowed what they could afford whose home values would stay low for even longer if you did have a way to just rewrite the terms on certain loans?

Ultimately, you just need to swallow the medicine and move on. At some point, we just need to let the foreclosures happen and let the market clear and move on. Kinda like what we'll have to do eventually with GM and Chrysler - you can only prop up losing bets for so long before it starts to hurt more than help.