Obama Taps N.Y. Housing Chief To Oversee a More Active HUD

By Michael A. Fletcher and Carol D. Leonnig
Washington Post Staff Writers
Sunday, December 14, 2008

President-elect Barack Obama has picked New York City housing commissioner Shaun Donovan to be secretary of housing and urban development, a post that Obama said would play a lead role in his administration's efforts to stem the rising tide of foreclosures and rebuild the nation's efforts to expand homeownership.

Speaking yesterday during his weekly address, Obama also said that he had asked his economic team to develop a "bold plan" to dramatically increase the number of people who can stay in their homes despite being threatened with foreclosure.

Obama's pledge to ramp up the federal government's efforts to slow foreclosures came just days after he said he would plow ahead with plans to expand health-care coverage and look for ways to slow its spiraling costs. He also has promised a huge stimulus package that he said would include infrastructure outlays the scale of which have not been seen in more than 50 years, when construction began on the interstate highway system.

Together, the plans, while still to be fleshed out, would mean a huge federal commitment, even as the budget deficit hurtles toward $1 trillion. But Obama has called the spending necessary to restart the stalled economy and lay a solid foundation for growth.

"In the end, expanding access to affordable housing isn't about just caring for the least fortunate among us and strengthening our middle class -- it's about ending our housing mess, climbing out of our financial crisis and putting our economy on the path to long-term growth and prosperity," he said.

In turning to Donovan to lead HUD, Obama is tapping someone with broad experience in many of the critical issues confronting the department. Before taking the reins of New York's Department of Housing Preservation and Development in 2004, Donovan was managing director of Prudential Mortgage Capital's $1.5 billion affordable-housing investments.

Donovan, 42, also has worked as HUD's head of multifamily housing and as acting commissioner of the Federal Housing Administration under President Bill Clinton, so he knows the inner workings of an agency now expected to be a front-line player in staving off millions of foreclosures.

In October, the FHA launched a program to help homeowners trade in their toxic mortgages for affordable, government-insured FHA mortgages. Some argued that the program was a case of too little, too late, because it is expected to help only 13,000 owners refinance their loans by year's end.

Donovan's challenge would be to help dramatically increase the volume of business. The Congressional Budget Office has estimated that HUD has the ability to help 400,000 families negotiate lower monthly mortgage payments and stay in their homes over the next three years.

"One in 10 families who owns a home is now in some form of distress, the most ever recorded," Obama said yesterday. "This is deeply troubling. It not only shakes the foundation of our economy but the foundation of the American dream. There is nothing more fundamental than having a home to call your own. It's not just a place to live or raise your kids or return after a hard day's work. It's the cornerstone of a family's financial security."

If he is confirmed by the Senate, Donovan is likely to also find himself working to shore up the FHA's finances when it is supposed to be saving homeowners. The agency has been given responsibility for modifying and guaranteeing a larger portion of loans on the open market than in any of the previous years of the Bush administration -- when subprime lenders dominated the market. However, in the coming weeks, the agency is expected to report record losses of government-guaranteed loans.

Donovan has had four years of experience trying to preserve affordable housing in the nation's largest city, as federal funds have been dialed back. For the past decade, the country's 1,900 public housing authorities have been functioning on 80 to 91 cents for every dollar HUD acknowledges they need. Consequently, they have been putting off maintenance and have a $20 billion repair backlog.

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