Voices of Power: Shaun Donovan
INTERVIEW OF SHAUN DONOVAN, Secretary of Housing and Urban Development
Thursday April 9, 2009
MS. ROMANO: Welcome, Shaun Donovan, President Obama's new Secretary of Housing and Urban Development. Thank you for joining us today. SECRETARY DONOVAN: It's great to be here. Thanks for doing this.
MS. ROMANO: You take over the agency at a perilous time in our economy. Housing prices are plummeting, the agency is demoralized, and we're facing a tidal wave of foreclosures. So who do you decide who to help? Who gets to save their house?
SECRETARY DONOVAN: Well, one of the things I think that we've to be clear about is that everybody benefits by stopping foreclosures. Everybody benefits by the actions that we've taken to lower interest rates. This is not about picking and choosing. This is about helping to save communities.
The analogy I would use is when somebody's house is on fire, you don't stop the fire trucks to ask what led to the fire before deciding to put out the fire. And right now, foreclosures are pushing down everybody's property values. We've to make sure that we're helping as many people as can be successful homeowners in the long term by having an aggressive comprehensive plan. Having said that, we do have to make choices.
As the President said clearly, we can't nor should we help everybody. We're going to help people who live in their homes. This is not help that we're providing to investors or flippers who just got into buying homes as an investment and really made some reckless decisions. We're going to help people who live in their homes, and we're going to help people who can be successful long term.
And third and most importantly, we don't want to repeat the mistakes that got us into this problem in the first place. So we're going to check people's incomes. We're going to make sure they're telling us the truth about what they earn, and we're going to make sure that we don't have fraud or other kinds of problems that really got us into the fix we're in, in the first place.
END CHAPTER 1
CHAPTER 2 OPEN
MS. ROMANO: One of the categories of helping homeowners is to help those who are current, who have jobs, and President Obama has used the term "responsible homeowners." Define that for us. Who is a responsible homeowner?
SECRETARY DONOVAN: Well, first of all, it's a homeowner. It's somebody who's living in the home. Our assistance is targeted to people where the home is the place where they raise their family, where it's going to really benefit their family, not that it's an investment that they've been speculating in properties. That is first and foremost.
Second of all, "responsible" means that they're willing to tell the truth. They're not going to lie about their income, that they're not going to be--there's not going to be fraud or misuse of taxpayer dollars. That's responsible.
And then I think in the long term, "responsible" means this has to be somebody who's going to make the effort to pay their bills on time, that they're going to--those are tough decisions sometimes, given what's happening in the economy.
They're going to stretch to be able to be successful in the long term and--because if--we can modify a mortgage today, but, if it ends up in foreclosure a year from now, we haven't done any good. We've to make sure that we're doing this program and providing this assistance in a way that helps people long term and ultimately will help to keep people in their homes year after year, not just for a few weeks or a few months.
MS. ROMANO: But aren't you asking the taxpayers to subsidize some of these homeowners who made bad decisions? They might have overbought or taken out the wrong kind of loan. What do you say to taxpayers?
SECRETARY DONOVAN: A couple of things I would say. First of all, let's put this in perspective. There are a range of efforts that we've made to help turn around the housing market. You look at interest rates today, we've taken a set of actions within the administration that have driven interest rates to the lowest level they've been since we started keeping numbers in 1971. Who does that benefit? That benefits anyone who's got a mortgage and is refinancing, who's looking to buy a home today, and the people who are going to be able to do that are the ones with good credit records, who have paid their bills.
So we've provided an enormous amount of help to anybody with a good credit record, who can go out and buy a home today. We've provided first-time home buyer assistance through the recovery bill, through a tax credit. So that's helping a very, very broad range of Americans. If you look at the numbers of who's refinancing today, huge benefits, and that puts, in general, an average of $1,500 to $2,000 a year into families' pockets that can then go ahead and help the economy recovery, because that's spending that they can dedicate to other things, that they desperately need or buy a car again. So there's a huge range of things that we're doing that go beyond just modifying mortgages for the people most at risk.
There are people who might have made difficult decisions. They might have not understood the mortgage that they were taking out because they were taken advantage of by--by a lender. There are people who made mistakes, but I certainly wouldn't say that it's their fault, that they--that they could have known, given the way that they were taken advantage of. And I think there are a set of those folks that we need to help.
And we also need to focus in the longer term, in the bigger picture, that we've got to stop this decline in housing values. And what we're seeing is, in December, 45 percent of all home sales were distressed sales. If we don't begin to turn that around and limit the number of foreclosures, everybody's housing value is going to suffer. Our estimate is that we can help to save $6,000 per house in value. This is not for people who are being foreclosed on today. This is for every homeowner in America, an average of $6,000 by helping to limit foreclosures, the way we're doing in our plan. So we have to remember this is helping everybody.
MS. ROMANO: A recent study just a few days ago on--on some of these modifications suggested it wasn't working as well as it could. 26 percent still went into default. Only 10 percent had their mortgages actually lowered. How do you interpret that report?
SECRETARY DONOVAN: Well, that report, I believe, supports exactly what we're doing in the program. What it showed was that many so-called modifications have actually led to no difference in payment or an increase in payments in many cases for--for borrowers.
What it showed was that where there's actually a reduction in payments, there's long-term success for those homeowners. People do much better when you lower payments and make them affordable than these other so-called modifications, which actually keep payments the same or increase them.
So I saw it, and in fact, if you look at the report, some of the language in it directly supports the way that we're setting up our plan to create a standard that is truly affordable for borrowers. 31 percent debt-to-income ratio is the right standard. It's widely accepted, and if we can get to that level, as we do in our plan, we believe that that sets us up, based on the results of the study, for long-term success for homeowners.
ENDIT CHAPTER 2
MS. ROMANO: What are the chances that the government will pour all these billions of dollars into saving the housing market and it just won't work, you'll just have spent all this and have nothing to show for it?
SECRETARY DONOVAN: Well, we obviously spent a significant amount of time and effort looking at models, looking at research, and we've had very broad support, not just from experts, but also broadly from the American people. Reactions have been, generally, very positive about the actions that we've taken for--to turn around the housing market, and I think we're starting to see early signs of that. I wouldn't--
MS. ROMANO: What are those signs?
SECRETARY DONOVAN: I wouldn't say they're a trend yet, but some early indications of home sales starting to turn around, particularly in the hardest-hit markets like California, Nevada, Arizona, Florida as well, beginning to see an increase in volume in sales. So I think there are some early indications--as well as housing construction. The starts and the permit numbers were up slightly in the first few months of this year. So we're starting to see some early indications, I think, that there's some rays of hope.
And I think, in fact, the timing of our actions to bring down interest rates have been particularly important in terms of starting to get people back into the market. Many people sitting on the sidelines, not being confident that there would be a recovery in the housing market, I think we've helped really to push a lot of those folks off the fence to get in--into the market and begin buying again.
MS. ROMANO: Are the rates low enough? They were last night, what, 5.1? Would you like to see them go a little lower? Some people think they could still go lower.
SECRETARY DONOVAN: Well, at least the averages across 30-year loans have been well below 5 percent the last few weeks, and we have, I think, gotten--as I said earlier, we've gotten to the point where there really has been a marked increase in refinancing activity. We're beginning to see early signs that more buyers are coming into the market to purchase homes, not just to refinance. So I think there are some early signs that rates have been brought down to a point where it's really making a difference in the market.
MS. ROMANO: Has the market bottomed out in your view?
SECRETARY DONOVAN: I think that it really depends on--on the place. When we talk about the housing market, what we're actually talking about is neighborhoods and places all over the country.I think there are definitely signs that in the places that have been hardest hit, we may have hit bottom already.
MS. ROMANO: Such as?
SECRETARY DONOVAN: California, Arizona, Florida, the markets really that have seen the biggest declines. I think it's fair to say that there are markets that are still declining at this point, but, overall, our sense is that, given the actions that we've taken, given the early results that we're starting to see, that we're very hopeful that the market is trending back upwards by the end of the year.
MS. ROMANO: How much attention are you playing to the commercial markets? Last week, the Hancock Tower in Boston sold for half of its value two years ago, and some investors and businessmen think once that crashes, it's going to be a tsunami. Did you hear about that?
SECRETARY DONOVAN: Clearly, the biggest focus has been on the single-family market and what we call the residential market, but the commercial market is very important as well, and I think the biggest issue: it's not the same. We're not going to have a program to modify mortgages on the commercial side because it's just not the same as keeping homeowners in their homes. It doesn't have the same focus for us on the commercial side. It's just a different situation.
What--there is clearly a lack of capital that's been available in--on the commercial side since the--the credit markets really collapsed late last year, and at this point, our big focus is--as it is more broadly in the economy--is to get credit flowing again, and so we're looking at a range of options right now.
Secretary Geithner, as part of the Financial Stability Plan, has been very clear that we have a range of credit markets that we have to get going again, that are critical to the functioning of the commercial markets: apartment buildings, office buildings, a whole range of different--along with how are folks going to buy cars, how are people going to send their kids to college.
Credit is absolutely critical to the lifeblood of our economy, and so, more broadly, we have been focused across the administration on ways that we can begin to get those credit markets flowing again, and commercial lending is--is a very important part of that.
MS. ROMANO: HUD has long been considered a second-tier agency, and I think one of your mentors actually said it's like sitting at the kids' table. How did you find the agency when you arrived? You had talked about bad morale. Tell us a little bit about that.
SECRETARY DONOVAN: Well, I think the--if--if you've heard any of the back-and-forth at my confirmation hearing, there was a lot of discussion about this, which table--
MS. ROMANO: Right.
SECRETARY DONOVAN: --would HUD be--would we--
MS. ROMANO: Right, exactly.
SECRETARY DONOVAN: --be sitting at.
And I think it's fair to say that at a time when the country's gone through a significant housing crisis, that HUD was not a strong voice at the table, that in the prior administration, we had not been really at the grown-up table talking about the solutions to the housing crisis.
And while I think there have definitely been some challenges, the morale at HUD was not where it should have been, that the early months of the Obama administration have made a real difference in terms of the way folks at HUD feel about the work that they do.
People come into the public sector because they care about what the public sector can accomplish. They're certainly not here for the pay, for the bonuses. They're here because they care about what the agency can do.
And in the early months, with our being very much at the grown-up table around the discussion of the housing crisis, being a key player in putting together the President's housing plan, in the work that we're already starting to do around energy, the discussions we've had with the Department of Transportation, the Department of Education, we're very much at the grown-up table, and I think that's created an excitement about the President that--and about what HUD can accomplish; that is, it's enormously gratifying to me.
MS. ROMANO: Did you realize that you may have some serious work to do when Nancy Pelosi couldn't remember your name?
SECRETARY DONOVAN: I don't--
MS. ROMANO: Oh, she--at an event, she started talking about the HUD Secretary, and she said it twice, and then an aide had to hand her a card. You missed that.
SECRETARY DONOVAN: Well, we're--we're all new working together, and I actually at this point have gotten to know Speaker Pelosi very well. And we're working very well together.
MS. ROMANO: Tell us about Michelle Obama's visit to the agency.
SECRETARY DONOVAN: It happened in the first couple weeks of my being at HUD. I think I said to somebody that day, "If Michelle Obama came to HUD every week, I would be the greatest HUD Secretary in the history of the agency in the employees' minds." It was an incredibly moving experience for me, for her to be here.
And the thing I probably remember most was walking behind here when after we'd finished the formal program, she went to meet a lot of the employees. Many of them had waited three or four hours from the moment that they heard she was coming earlier that day, had rushed down to wait in line to be able to shake her hand and say hello. And probably half the people that I got to, to shake their hand, after she said hello to them were either in tears or had fainted at that point because they were so excited.
MS. ROMANO: Literally fainted?
SECRETARY DONOVAN: There were a couple of people who were--had become weak and were--had fainted. It was so powerful to them to meet the first African-American First Lady of the country, the kind of person that she is, the warmth that she has. She really--she's a remarkable person and it was a great day for me.
MS. ROMANO: What did that one act do for morale at HUD that day?
SECRETARY DONOVAN: We very clearly were at the grown-up table in the mind of the employees because of that visit and because of so many things that have happened since then. It meant a great deal for her to be here so early on in the administration.
MS. ROMANO: Well, that's great. Well, thank you very much.
SECRETARY DONOVAN: Thank you.
MS. ROMANO: Great.
SECRETARY DONOVAN: Thank you.
END CHAPTER 3
MS. ROMANO: You used to work at the FHA, and the FHA, a depression-era agency that's helped a lot of people with first-time loans, it's hurting right now. There are some issues. Can you talk about that a little bit?
SECRETARY DONOVAN: Absolutely. FHA is performing an absolutely critical function right now. One of the main reasons that it was created in the first place was to ensure that at times just like this, when there are moments of crisis in the credit markets, when mortgage capitals stops flowing to homeowners, which is absolutely critical for our economy to allow people to buy homes, to make sure that they can refinance when they need to, that--that function is absolutely central to our neighborhoods and our families.
So FHA was created with very much that purpose in mind: when the private market, for whatever reason, can't provide that mortgage capital, that we've a way to do that. And consequently, FHA's share of the market has grown substantially. If you look just at new home buyers, we're roughly about a third of all loans today and about a quarter of the market overall together.
MS. ROMANO: Should it be that big? Should they have a third of the market?
SECRETARY DONOVAN: I think right now, we're providing an absolutely critical service to the American people to ensure that they can continue to have credit. So I do think it's critical that we respond to and be able to provide this level of financing in the market. We do--in the end, our goal is to make sure that the private market is able to return in the right way, with responsible lending, with the right kinds of products, and FHA will be ready to step back as soon as the private market is up and running again, but for now, I think--to me, it's not a question of either/or should FHA be doing it.
This is what the American people need. They're asking for FHA products. It's--it's, for many people, the best option out in the marketplace right now, and so we have to respond to that and be able--be ready to provide the financing that they need.
MS. ROMANO: However, it's been independently funded for all of these years and--I'm sorry. I'm going to have to do that again. However, it's been independently funded for all these years, and its reserves are depleted. So are we looking at another bailout?
SECRETARY DONOVAN: Well, I don't think it'd be a surprise to anyone that at a time when the mortgage market is going through the biggest upheaval that it's had since the Great Depression, that FHA's reserves would be under strain.
Certainly, the losses in FHA are up from where they have been. We've seen, particularly in certain markets, a big jump in foreclosures in FHA, but, fundamentally, there are also some good signs in FHA.
The credit scores of borrowers in FHA, as the volume has expanded, have actually gone up substantially. We've also seen that FHA hasn't been as heavily invested in some of the markets that have been hit hardest, like California and Arizona, Florida, some of those markets.
So I think there is a mixed set of signs. We're looking at it very closely right now, and one of the decisions we're going to have to make is not just about whether there ought to be some taxpayer support for FHA, if need be--and we haven't made that decision yet--but also how do we--how do we price those products. We can--we do have decisions where we could decide to actually charge more for the products. On the other hand, does that really serve consumers right now, homeowners, when they really need FHA the most? So we're looking at those decisions. We're running the numbers, and we'll have some final decisions about where we think FHA is going in the next few weeks.
END CHAPTER 4
MS. ROMANO: Did you work closely with Secretary Geithner in New York?
SECRETARY DONOVAN: I did. He was a terrific colleague there. The Fed in New York is one of the best organizations in the country, maybe in the world in terms of their research about housing and the work that they've done. They do a lot of work on affordable housing as well.
We saw each other regularly at dinners, at events. We planned conferences together. We had a lot of--of interaction, and it was--I gained a huge respect for the work that Tim did in New York--
MS. ROMANO: And did that facilitate--
SECRETARY DONOVAN: --and the kind of thinker that he is.
MS. ROMANO: --working together here and accomplishing the things you have to do?
SECRETARY DONOVAN: Absolutely. We began, even before the inauguration, working very closely together in planning the housing work that we would need to do, to try to return the housing market to a--moving in the right direction, and--and it helped us get right off on the--on the right foot together.
MS. ROMANO: You worked for Mayor Bloomberg in New York and then decided to join the Obama administration. What made you decide to join the administration, and how was it telling Mayor Bloomberg that you were going to leave?
SECRETARY DONOVAN: Well, for me, the opportunity to serve in this administration was a once-in-a-lifetime opportunity. This is perhaps--given that I've worked in housing my entire career, this is perhaps the single job in the world where I feel like I can have the most impact working for the single President in the history of the nation that I would most want to work for, at a time, frankly, when we need HUD to be an effective agency more than any time in its history.
So it really is an enormous opportunity to serve the country that, I think it's fair to say, would never come again. So it was--while it was a difficult decision to leave my home, to uproot my family and everything that comes with this kind of change, and to leave a job that I loved, it wasn't a hard decision when it came down to it.
MS. ROMANO: And telling Mayor Bloomberg?
SECRETARY DONOVAN: Well, I had a call telling me about the opportunity to be HUD Secretary 10 minutes before walking into a room filled with 1,200 people, the biggest housing event of the year in New York City, where the Mayor was speaking, and I was accepting a Public Service Award right after the Mayor was speaking.
MS. ROMANO: Goodness.
SECRETARY DONOVAN: So it was quite a moment to get that call, quote emotional, frankly, to be speaking in front of so many colleagues and friends that I'd worked with for 5 years as commissioner. And the Mayor gave his speech, a terrific speech. I came up and accepted my award and was very thankful, walked off the stage, walked up to the Mayor and said, "You're not going to believe this, but I just got the call."
And he was--I think he knew that we had been--that it was a possibility. I had been very honest with him about the interviewing process and what was--what was happening, and ultimately, I think he cares that we have an opportunity to serve the country at a time when it--when it really needs it. So he was very, very supportive--
MS. ROMANO: It must have been--
SECRETARY DONOVAN: --and excited for me.
MS. ROMANO: --a very exciting day.
SECRETARY DONOVAN: It was quite a day and quite a moment.
MS. ROMANO: Now, you mentioned uprooting your family, and I had read that you were still commuting to Brooklyn.
SECRETARY DONOVAN: I am right now.
MS. ROMANO: Okay.
SECRETARY DONOVAN: We--I have young boys, 7 and 9.
MS. ROMANO: Oh, okay.
SECRETARY DONOVAN: So we're trying to figure out the right timing for them to be able to move to Washington and--
MS. ROMANO: But you will be moving here?
SECRETARY DONOVAN: --be all together. That is definitely our plan.
MS. ROMANO: Okay. And I read somewhere that you, at first in your young career, might have wanted to be a car designer.
SECRETARY DONOVAN: I was.
MS. ROMANO: And would we be in this mess right now in the auto industry if you were designing cars?
SECRETARY DONOVAN: I don't know that I can take credit for--for that. Certainly not. But I was--I've always been somebody who loved to build things from a very early age. My--my dad and I used to build model cars and just about everything else that we could--we could find.
Then I certainly--I had spent a summer working in Detroit when I was in college and have always loved cars and have passed that onto my children. They can name just about every make and model on the road today at 7--
MS. ROMANO: What do you--
SECRETARY DONOVAN: --and 9 years old.
MS. ROMANO: --drive? What do you drive?
SECRETARY DONOVAN: I actually drive a MINI Cooper, believe it or not.
MS. ROMANO: Oh. Oh, oh, right.
SECRETARY DONOVAN: Not that I get to drive much these days, but--
MS. ROMANO: Good answer, good answer. Economy.
SECRETARY DONOVAN: Yes. Very fuel efficient--
MS. ROMANO: Very fuel efficient.
SECRETARY DONOVAN: --and a lot of fun. The boys--the boys love it.
END CHAPTER 5
MORTGAGE COLLAPSE…/NOT EVERYONE SHUD OWN A HOUSE..
MS. ROMANO: You ran the New York City Housing Department in 2007 when the market crashed. Did you see it coming? At what point did you know that there was a problem?
SECRETARY DONOVAN: I think there were definitely some early signs that we were headed for trouble in the housing market, and in fact, in 2005, we started an effort called "Preserve Assets and Community Equity" that started to really look at, in the neighborhoods that we served, the--some of the egregious practices that we're--we were seeing on the lending front.
Put more counseling resources out there to help families who were being taken advantage of, and that effort, a couple of years later, we expanded dramatically into something called the New York--Center for New York City Neighborhoods, which is targeted at getting education and outreach to families that are--are struggling.
One of the things that you see--and this is very important on the Making Home Affordable Program that we put together with the President--that oftentimes, families who are in this situation of being behind on their mortgage, they're paralyzed with fear. They are embarrassed to pick up the phone to ask for help, and so we have to get the efforts right on the modification.
We think we've done that, but, at the same time, we have to make sure that people know about what we're going, that on--people on the ground, like housing counseling agencies--there are 2,600 of them that HUD supports--have the information and the resources they need to be able to connect with people and to make sure they're getting the help on the ground in communities around the country.
And so that was the kind of effort that we started very early on in New York when there were the first signs that this was--was happening, and I think one of the lessons that's very important about this is that we shouldn't--we shouldn't take from this crisis that homeownership is not an option for low and moderate income people.
We have to get back to basics in the way that we do it. We have to provide a regulatory structure within the housing market that provides fair, honest information to families, that protects them from the worst kind of practices that we saw, but, if you do this right, you can make people successful as homeowners.
We did over 17,000 units of homeownership in our housing plan in New York with only five foreclosures, and I think that's really an indication that if you do it right, if we get back to basics about how this is--how lending is done, that we can make the American dream a dream again and not a nightmare for so many families.
MS. ROMANO: Well, part of the problem and part of the reason we got into this mess is because bankers were telling some people that they could own a home and offering them these unreasonable rates. Should every American own a home? I mean--
SECRETARY DONOVAN: No. Not every American wants to be, nor should be, a homeowner. I think what's critical, though, what got us into the mess was a set of mortgage products that shouldn't be offered.
We shouldn't make loans to people when we know they can't afford them. We shouldn't set people up for failure by having rates that increase dramatically. We shouldn't be making loans that are only successful if house prices keep rising indefinitely.
So--and again, I think those things--when I say let's get back to basics in the way that we do lending, that's the way FHA does lending, 30-year fixed rate, making sure that people can be successful long term in homeownership.
MS. ROMANO: How do you tell some homeowners that they should be renters, or do you?
SECRETARY DONOVAN: Ultimately, if a family can find a home that they can afford and they want to become homeowners, they should always have that option, and one of the things that we do here at HUD is try to make sure that there is housing that's affordable to families.
The real problem here is not whether or not to become a homeowner, but can you find a home that you can afford and a mortgage product that will help you be successful in the long term, and we want to make sure through a regulatory structure that provides better and clearer information to consumers, that limits these kind of products that got us into trouble, and also the kind of counseling and assistance, education, that HUD has been a very important part of providing for--for decades now.