President-elect Barack Obama's nominee for housing secretary pledged Tuesday to mount a more aggressive response to the foreclosure crisis as he prepares to take the helm of an agency under fire for being slow to react to the end of the U.S. housing bubble.
Shaun Donovan, the 42-year-old commissioner of New York City's Department of Housing Preservation and Development, has received acclaim for his leadership of an effort to add 165,000 reasonably priced homes to New York's ultra-expensive housing stock by 2013.
He will face more sweeping challenges in taking over the Department of Housing and Urban Development, which lawmakers say has failed to respond effectively to the surge of foreclosures and defaults.
"Housing is at the root of the market crisis we are now experiencing, and HUD must be part of the solution," Donovan said at his Senate confirmation hearing Tuesday, where he was warmly received.
Lawmakers want Donovan to take a central role in developing the Obama administration's economic plans. The department "has been sitting at the kid's table, and it's time for that to change," said Sen. Robert Menendez, D-N.J.
HUD has been led by Steve Preston, former head of the Small Business Administration, since the agency's former chief, Alphonso Jackson, resigned last April amid a criminal investigation and allegations of political favoritism.
While Preston won praise during his short tenure, Sen. Christopher Dodd, D-Conn., said the department had been "left adrift at a time when bold leadership and a clear direction were never more important."
Donovan's appearance on Capitol Hill comes as lawmakers press to spend up to $100 billion of the remaining $350 billion in financial bailout money to help struggling borrowers avoid foreclosure.
Obama on Monday asked President George W. Bush to submit a request to Congress so that the remaining $350 billion would be available quickly after the inauguration next Tuesday, and Bush agreed to do so.
Democrats want to give Obama's chosen treasury secretary, Timothy Geithner, until March 15 to work with Donovan and Sheila Bair, chairman of the Federal Deposit Insurance Corp., to figure out a new foreclosure relief plan.
So far, federal efforts to confront the mortgage crisis have had disappointing results.
A new program launched in October, called Hope for Homeowners, was supposed to allow 400,000 troubled homeowners swap risky loans for traditional 30-year fixed-rate loans with lower rates. But the early results have been disappointing, with fewer than 400 applications since the program started.
One big challenge for Donovan will be the mortgage market's increasing dependence on loans backed by the Federal Housing Administration, which is part of HUD. It now guarantees 21 percent of new home loans, up from about 4 percent in 2005.
Some lawmakers are worried that the government will wind up on the hook should defaults and foreclosures surge further among FHA loans. "I believe the FHA program poses significant risks to taxpayers, and therefore requires diligent oversight," said Sen. Richard Shelby, R-Ala.
Donovan was acting commissioner of the FHA during the transition from the administration of President Bill Clinton to President George W. Bush.
Donovan, a Harvard-educated native New Yorker with masters' degrees in public administration and architecture, took a leave of absence as housing commissioner in order to campaign for Obama.
He worked as an architect in New York and in Italy and was an assistant secretary for multifamily housing at HUD during the Clinton administration, and then a visiting scholar at New York University.
Obama's housing plans, as spelled out during his campaign and the current transition, include enacting a 90-day foreclosure moratorium for some homeowners, allowing bankruptcy judges to alter the terms of home loans and enacting a 10 percent refundable tax credit on mortgage interest.