CHICAGO — In naming his choice for housing secretary, President-elect Barack Obama on Saturday rounded out his economic team and gave new prominence to the mortgage crisis that has dragged the country into a recession.
The selection of Shaun Donovan as secretary of Housing and Urban Development puts the current New York City housing commissioner at the forefront of one of the more nettlesome economic challenges confronting the new administration — the soaring foreclosures that are threatening homeownership nationwide.
The Federal Reserve estimates that lenders are on track to initiate 2.25 million foreclosures this year, more than doubling the annual pace before the crisis set in. What’s more, falling housing values and a plunging stock market have contributed to $2.8 trillion in lost household wealth in the third quarter.
Donovan joins a team led by Tim Geithner, Obama’s nominee for Treasury secretary, and Larry Summers, who will chair Obama’s National Economic Council. Obama has his team working on an ambitious economic recovery plan that includes saving or creating 2.5 million jobs over the next two years.
Stemming foreclosures and stabilizing the battered housing market will be daunting tasks that have already bedeviled Congress and the Bush administration.
“We need to approach the old challenge of affordable housing with new energy, new ideas, and a new, efficient style of leadership,” Obama said upon naming Donovan during his Saturday radio address. “We need to understand that the old ways of looking at our cities just won’t do.”
Donovan will inherit various tools to confront the problem. Obama wants to use the second half of a $700 billion financial industry rescue plan to help stem foreclosures. Congress this year also put in place a $300 billion program designed to let troubled homeowners swap risky loans for more affordable ones, though few have applied. Moreover, homeowners have continued to default on mortgages despite government efforts to lower interest rates and modify repayment terms.
With one in 10 U.S. homeowners delinquent on mortgage payments or in foreclosure, Obama said Donovan will bring “fresh thinking, unencumbered by old ideology and outdated ideas” at the Housing and Urban Development Department to help resolve the housing and economic crisis.
Donovan, head of New York’s Housing Preservation and Development Department, is a former Clinton administration HUD official with a national reputation for curtailing low-income foreclosures, developing affordable housing and managing the nation’s largest housing plan.
Obama’s housing plans, as spelled out during his campaign and the current transition, include:
Enacting a 90-day foreclosure moratorium for homeowners “who are acting in good faith.”
Getting Treasury and HUD to coordinate with state housing agencies to restructure mortgages.
Reforming the bankruptcy code to help homeowners.
Enacting a 10 percent refundable tax credit on mortgage interest.
“This plan will only work with a comprehensive, coordinated federal effort to make it a reality,” Obama said. “We need every part of our government working together from the Treasury Department to the Federal Deposit Insurance Corporation, the agency that protects the money you’ve put in the bank.”
As New York Mayor Michael Bloomberg’s top aide for housing, Donovan kept foreclosures to a minimum in the city’s low- and moderate-income homeownership plan, with just five of 17,000 participating homes failing. He oversaw the creation of the $200 million New York Acquisition Fund, a collaboration involving the city, foundations and financial institutions. It is intended to help small developers and nonprofit groups compete for land in the private market.
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