What’s happening to the housing market right now is very reminiscent of what economist Milton Friedman once said, “The government solution to a problem is usually as bad as the problem.” At least that’s what a key government panel thinks. The Obama administration is now in hot water for allegedly failing in most housing-related issues.

The Congressional Oversight Panel, which is an independent and non-partisan commission conceived by the Congress, has been heatedly criticizing the government for its apparent inefficient handling of the foreclosure prevention program and the recent foreclosure fraud. To this, Treasury Department’s housing rescue chief Phyllis Caldwell – the administration’s representative – has refused to provide answers to the basic questions.

The housing market – and with that the economy in general – is facing a possible double dip as prices head south and the Federal Housing Finance Agency predicting a return of June 30, 2010 prices by 2013. Since a change in trend does not seem to be in the horizon, the Obama administration has been getting negative feedback on its attempts to make things better.

Independent experts may be praising the government for buffering the negative effects of the current record home repossessions but they are still very critical of the overall situation. Other experts even go as far as saying that instead of helping fix the problem, the government has prolonged it and even delayed the recovery. The consensus is that path to jumpstarting the economic recovery has not been tread by the government.

Last Wednesday, during the Congressional Oversight Panel’s hearing, the administration’s foreclosure prevention program was bashed for not being able to provide the relief the economy needed and for even posing false expectations to homeowners. Twenty months from its implementation, the government’s foreclosure prevention program has managed to retain 640,300 homeowners in their homes. Sadly, this number is far outnumbered by those kicked out of the program – 729,000.

The reason the administration’s solutions are not working is that it aims to balance the solution with the preservation of the banks’ capital structure. COP panel member Damon Silvers says both just cannot co-exist.

Further criticisms are being thrown at the government for how it has responded to the issue of fraud and robo-signing haunting the foreclosure proceedings. Though both the administration and financial regulators have pledged review of the issue, no one knows how comprehensive the review is. And just recently, the administration officials have said that “there is no evidence of systemic risk.”

Maybe it is about time the government listens to these criticisms and goes beyond the solutions it is currently offering – not just to silence the negative feedback but also to try and really salvage the economy. Perhaps by doing that, the housing market will do a slow turnaround and avoid a predicted double dip.