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Sep. 2, 2009

HUD Secretary on Housing

It’s nine months into President Obama’s new administration, and an opportune time to catch up with the new Department of Housing and Urban Development (HUD) Secretary, Shaun Donovan. MHN’s Keat Foong, executive editor, talks to Secretary Donovan about his housing philosophy, his top priorities and HUD’s accomplishments thus far. 

MHN: How would you describe the current state of housing in the U.S.?

Donovan: Well, obviously, we are facing the greatest economic crisis our country has seen since the Great Depression—and it’s rooted in our housing market. But of course, before there was a foreclosure crisis in this country, there was an affordable rental housing crisis. And it’s still going on. 

So you have it exactly right in that the lack of affordable rental options is a serious problem. That’s why we’re committed to building a comprehensive national housing policy that stems the tide of foreclosures, with efforts like Making Home Affordable and the Neighborhood Stabilization Program, while offering a variety of measures to tackle the housing affordability gap that has deepened the housing crisis in many ways.

MHN: Hypothetically, how do you think we can best address the shortage of affordable housing in this country?

Donovan: It’s not an exaggeration to say that the need for HUD’s Multifamily Housing Programs has never been greater—and their importance in addressing the shortfall of affordable housing throughout the country is absolutely critical. Right now, over six million households lack either quality housing or affordable housing.

That’s why HUD’s proposed Fiscal Year 2010 budget includes $1 billion to capitalize the National Housing Trust Fund—which represents the first major federal housing production program since the creation of the HOME program in 1990—and is a critical component of HUD’s overall strategy to address our national affordable housing shortfall.

We are also focused on modifying existing programs to make them as flexible as possible to meet current market demands. For instance, we are working to improve coordination between FHA’s insured programs and Low Income Housing Tax Credits (LIHTC) to facilitate more development of affordable insured housing. We are also re-working two existing insured programs to increase liquidity for both construction and permanent financing, and are revising our environmental practices so that they’re not overly restrictive and preventing us from developing multifamily housing.

Low-income families across the country spend nearly 60 percent of their budgets on housing and transportation costs alone, so we are also working more collaboratively with other federal agencies such as the Environmental Protection Agency, and the Departments of Transportation, Energy and Education to ensure that HUD-financed housing is located in sustainable communities with access to transportation, jobs and education. 

President Obama’s Recovery Act and HUD’s FY 2010 budget offer us critical tools to address the affordable housing shortage. Both the Recovery Act and our budget make the clearest statement in a generation that the federal government intends to get back into the business of affordable rental housing—from our $4 billion investment in our nation’s 1.2 million units of public housing to our $2 billion injection into the Neighborhood Stabilization Program, to the $2.25 million in HOME funding to stabilize projects financed by the Low Income Housing Tax Credit.

We designed our FY 2010 budget to build on all of these investments—to aggressively ramp up the federal commitment to the assisted housing stock in our budget—both through a major preservation bill making its way through Congress and through our proposal to build on the successes of HOPE VI, called Choice Neighborhoods.

Our budget also increases funding for the Housing Choice Voucher program by $1.8 billion. As a result of years of short-funding and raiding reserves, we have seen the number of vouchers in use fall, and even some families terminated from the program. We are committed to making sure that this does not happen in the current fiscal year—and to putting the program on a sound footing going forward.

MHN: What are the greatest impediments to overcoming the nation’s housing crisis? Why is it so difficult?

Donovan: Obviously, the first challenge we have before us as an agency—and as a country—is to address the foreclosure crisis. Central to making that possible is the President’s Making Home Affordable plan, to help millions of homeowners across the country keep their homes, targeting those who have made every effort to stay current on their mortgage payments. To date, well over a million homeowners have received information about the plan. Thirty-eight participating servicers have extended offers on over hundreds of thousands of trial modifications so far.

We are starting to see progress. Sales of new single-family homes were up 11 percent in June—the largest monthly increase in eight years—and home prices are stabilizing. We’re on track to do exactly what we’d said we would when we announced the program in February.

But we have to keep the pressure on. Last month, Secretary Geithner and I wrote the executives of participating mortgage-servicing firms—and we said that we expected them to step up their modification efforts and dedicate senior liaisons authorized to work directly with us on all aspects of the program.

We need servicers to commit more resources to the modification process—that’s why we’ve begun to publicly report results under the program and told all participating servicers that we expect them to modify at least half a million loans by the first of November. We will also begin identifying how long it takes for borrowers to get a response, the accuracy of the information they’re being provided and how long it takes for applications to be completed.

All of these efforts combined should signal to your readers—and to every American—that the Obama Administration is absolutely committed to the success of the Making Home Affordable program and to helping as many families as possible during this difficult time.

MHN: What goals does President Obama want to reach in the area of housing by the end of his term? How much of this has he accomplished?

Donovan: President Obama and I believe a home is the foundation upon which we build our lives, raise our children and plan for our futures. A home is the source of our stability and the building block with which we forge neighborhoods and build the communities that are the engines of our economic growth. And unfortunately, that foundation has been seriously eroded by our ongoing housing crisis.

Our goal has been to stabilize and rebuild this critical foundation—and to lay the groundwork for long-term, sustainable growth, helping to realize President Obama’s vision for the strong, inclusive and sustainable communities our country needs to thrive and prosper in the years to come. 

Although we’re only a little more than six months into President Obama’s first term, we’ve already begun to lay that groundwork, through our Choice Neighborhoods Initiative to link housing more closely with school reform and early childhood innovations and through our Sustainable Communities Initiative to integrate our housing and transportation systems. Both are proposed in  HUD’s Fiscal Year 2010 budge, and we’re excited about what they mean for the future of housing and community revitalization in America.
 
MHN: In past years, housing was hardly mentioned as a national priority. Has that changed? How high is housing as a priority on the President’s domestic agenda?

Donovan: Well, when you have a global economic crisis that began in America’s housing markets, priorities can change pretty quickly. While I don’t want to put a number on it, I think there is no question that addressing the housing crisis and keeping American families in their homes is one of the highest priorities for President Obama. 

But the measure of our success ought not to be whether we can climb out of the hole we’re in—we absolutely will—but rather whether we can put ourselves on a sound footing for decades to come. I think we can, but that work needs to start now.  As the President’s Chief of Staff, Rahm Emanuel, likes to say: “A crisis is a terrible thing to waste.” 

MHN: What are your top priorities at HUD currently? To what extent has it been accomplished?

Donovan: As I said, job number one is to stop foreclosures—and Making Home Affordable is on track to do what we expected in the volume we expected.

At the same time, HUD has a big role to play in helping our communities recover and stabilizing our neighborhoods. We have been quite literally at the center of the Administration’s response to the economic crisis in many ways. Starting in February, HUD began investing nearly $14 billion under the Recovery Act in our communities—three quarters of which we allocated in the first week. In addition to the $4 billion to making improvements to public housing, that funding includes $2 billion for project-based rental housing and $1.5 billion to prevent homelessness.

I also mentioned the Neighborhood Stabilization Program earlier. We’re investing an additional $2 billion in it to help communities purchase and convert foreclosed and abandoned properties into new affordable housing, land banks or other options that preserve neighborhoods. At the same time, we’re using those dollars to encourage state and local governments to develop new and innovative ways to improve public housing and rebuild communities. In fact, right now, HUD has made the most competitive dollars available in its history.

When it comes to putting Recovery Act funds to work creating jobs, aiding states and jump-starting shovel-ready projects, we’re right on-schedule—in many cases, ahead of schedule. That doesn’t mean we’re in recovery yet, but we have created the stability necessary to get us there and are laying the foundation for long-term growth.

Reforming and modernizing the Federal Housing Administration is also one of my top priorities. Just as it did when President Franklin Roosevelt created it 75 years ago during the Great Depression, FHA is once again playing a critical counter-cyclical role during a downturn in our housing markets, stepping in to ensure access to homeownership for families when banks can’t—or won’t. And if we needed any evidence of that, we need only look at FHA’s share of the mortgage market.  Only three years ago, it was less than 2 percent. Today, it’s nearly 24 percent.   

Obviously, we’d prefer the private market to be playing a bigger role, but this crisis reminds us that the viability of FHA is essential to the stability of our housing markets. We just brought Dave Stevens on board to help us bring FHA into the 21st century. As FHA Commissioner, he is going to bring a more focused risk-management approach at the same time he works to develop products and pricing structures that drive innovation, like energy-efficient mortgages. And obviously, we need FHA to be offering products that help us address the existing crisis in the housing markets. 

Changing the way FHA does business is essential to changing the way that HUD does business—and essential to the long-term stability of our economy. 

MHN: Which is of greater commitment for HUD under the Obama Administration: for-sale  or rental housing?

Donovan: It’s a balance. Homeownership is incredibly important, but if this crisis has taught us anything, it’s that it is long past time we had a balanced, comprehensive national housing policy—one that supports homeownership, but also provides affordable rental opportunities and ensures nobody falls through the cracks.�

MHN: HUD has proposed to eliminate the Bush Administration’s flagship American Dream Downpayment (ADDI) program, to assist first-time homeowners with down payment and closing costs. Will that program still exist in a different form having been consolidated into another proposed program?

Donovan: Since the HOME program already supports a wide range of affordable housing production activities, including downpayment assistance, we took steps with the proposed Fiscal Year 2010 budget to permanently streamline and simplify by consolidating ADDI back into the HOME program—which will continue to support downpayment assistance.

Through the Recovery Act, we’re also allowing homebuyers to apply the Administration’s new $8,000 first-time homebuyer tax credit toward the purchase costs of an FHA-insured home. State Housing Finance Agencies and many non-profits will be able to “monetize” up to the full amount of the tax credit, so that borrowers can immediately apply the funds toward their downpayments. 

This is particularly important to low- and moderate-income families whose access to special affordable housing programs relies on FHA financing. Given FHA’s current market share, we expect thousands of families to purchase a home by allowing this tax credit to be applied toward their FHA-insured mortgage.

MHN: Is HUD increasing the intensity of Fair Housing enforcement compared to the previous Administration?

Donovan: It’s no secret that the minority community was one of the primary victims of the subprime mortgage crisis. So for me, just as important as stopping foreclosures is ensuring that this crisis never happens again. That’s why we’ve requested $37 million for an agency-wide initiative to Combat Mortgage Fraud and Predatory Practices—a third of which will go to curbing discrimination through increases in HUD’s fair housing activities.

That is also why I’m excited about my new Assistant Secretary for Fair Housing and Equal Opportunity, John Trasvina. He previously served as president and general counsel of the Mexican American Legal Defense & Educational Fund and brings the kind of expertise and energy we need to build relationships and vigorously enforce the law when it comes to housing discrimination.  

We’re making changes. HUD’s Office of Fair Housing and Equal Opportunity now has fair housing brochures, vital documents and other information in English, Spanish and 11 other languages. You will be seeing and hearing our PSAs on predatory lending on Spanish language radio, TV and in print.

We will also work closely with the Department of Justice to enforce the federal protections against hate crimes and defend people’s right to live where they choose without fear of intimidation or violence.  And we will use the strong new protections in the Safe Mortgage Licensing Act and the Real Estate Settlement Procedures Act to tell those who discriminate or prey upon seniors or people who face cultural or language barriers that they can’t get away with it anymore.

Lastly, earlier this summer, I joined President Obama as he unveiled the Administration’s plan to create a Consumer Financial Protection Agency that focuses exclusively on protecting consumers – and nowhere is the need clearer than mortgage lending.  I’m optimistic about what the President’s plan means for HUD and for our housing markets – but above all, what it means for affirmatively furthering fair housing in this country. 

MHN: Do you have any plans for the FHA multifamily insurance program? What is the update on replenishing the staffing levels at the FHA multifamily department as members of staff retire?

Donovan:
Our goal for FHA’s Multifamily Insured Programs is to ensure that they are designed in ways that meet the needs of diverse markets throughout the country, that they are a catalyst for providing liquidity and that they are used increasingly to build and preserve affordable rental housing in addition to market-rate developments.

We have already taken steps to revise the Section 223(f) program to increase liquidity for permanent financing and are exploring ways of providing a similar boost for the Section 221(d)(4) program to increase construction financing liquidity.

As part of the budget process for Fiscal Year 2011, we are exploring ways to use FHA to develop more affordable housing. This will build upon efforts already underway to collaborate more closely with the Department of Treasury to make FHA and Low-Income Housing Tax Credits work better together and to develop ways to respond to market-driven opportunities such as over-leveraged buildings.

We are also exploring ways to further streamline application procedures and to use technology and automation more effectively to ensure that staff are prepared to handle future increases in FHA volume. We also recognize the need to consistently improve processing timeframes and we have taken a number of steps already to do this, and plan to do more in 2010 and beyond.

MHN: Are there any housing policy lessons you have learned, and bring to HUD, from your service as Commissioner of the New York City Department of Housing Preservation and Development, and from your previous experience in the housing sector, including a prior position at HUD?

Donovan:
In my experience, the most exciting and innovative ideas around planning come from localities.  When I was in New York, the inclusionary zoning we implemented allowed the city to build new communities from former industrial and manufacturing areas in a diverse way to serve a range of incomes. We were also planning 25 years down the road, discussing how we could create homes for almost a million more New Yorkers and cut carbon emissions 30 percent by 2030.

Those kind of ambitious goals were liberating, but they also challenged us to work together in unprecedented new ways as a city. To break down the kind of silos that too often mean that housing policy is formulated in one building by one set of people, while, say, transportation policy is formulated completely independently.  That’s what we need to do at HUD and across the federal government. 

Instead of being a barrier to change, HUD needs to be a facilitator. It needs to be a leader.

MHN: How would you describe your personal housing philosophy? What about housing interests you?

Donovan: At its most basic, our mission centers around a pretty basic idea—that when you choose a home, you don’t just choose a home. You also choose the schools your child attends, you choose transportation to work.  You choose a community—a place to put down roots, a place to build your lives, raise your children.

That’s why I think housing is, fundamentally, a civil rights issue.  If there isn’t equal access to safe, affordable housing, there isn’t equal opportunity.  It’s that simple.

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