[Senate Hearing 111-34]
[From the U.S. Government Publishing Office]
S. Hrg. 111-34
NOMINATION OF SHAUN DONOVAN
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
ON
NOMINATION OF SHAUN DONOVAN, OF NEW YORK, TO BE SECRETARY OF THE
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
__________
JANUARY 13, 2009
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York JIM BUNNING, Kentucky
EVAN BAYH, Indiana MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey MEL MARTINEZ, Florida
DANIEL K. AKAKA, Hawaii BOB CORKER, Tennessee
SHERROD BROWN, Ohio JIM DeMINT, South Carolina
JON TESTER, Montana DAVID VITTER, Louisiana
HERB KOHL, Wisconsin MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia KAY BAILEY HUTCHISON, Texas
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado
Colin McGinnis, Acting Staff Director
William D. Duhnke, Republican Staff Director and Chief Counsel
Jonathan Miller, Committee Professional Staff
Didem Nisanci, Legislative Assistant
Emma Palmer, Legislative Assistant
Matthew Pippin, Legislative Assistant
David Stoopler, Legislative Assistant
Nathan Steinwald, Legislative Assistant
Jason Rosenberg, Legislative Assistant
Laura Swanson, Legislative Assistant
Mark Oesterle, Republican Counsel
Mike Nielsen, Legislative Assistant
Jennifer Gallagher, Legislative Assistant
Gregg Richard, Legislative Assistant
Courtney Geduldig, Legislative Assistant
Dawn Ratliff, Chief Clerk
Devin Hartley, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
----------
TUESDAY, JANUARY 13, 2009
Page
Opening statement of Senator Dodd................................ 1
Prepared statement........................................... 43
Opening statements, comments, or prepared statements of:
Senator Shelby............................................... 5
Senator Schumer.............................................. 6
Senator Reed................................................. 8
Prepared statement....................................... 44
Senator Bennett.............................................. 9
Senator Menendez............................................. 9
Senator Martinez............................................. 11
Senator Akaka................................................ 12
Senator Casey................................................ 17
Senator Tester............................................... 18
WITNESS
Shaun Donovon, of New York, Secretary-Designate, Department of
Housing and Urban Development.................................. 13
Prepared statement........................................... 45
Response to written questions of:
Senator Dodd................................................. 48
Senator Shelby............................................... 50
Senator Corker............................................... 54
Additional Material Supplied for the Record
Statement of Marty Shuravloff, Chairman of the National American
Indian Housing Council......................................... 55
Letter submitted by the National Association of Real Estate
Brokers--
Investment Division, Inc....................................... 56
Letter submitted by the Metropolitan Council on Jewish Poverty... 57
Letter submitted by Catholic Charities........................... 58
Letter submitted by the Council of Large Public Housing
Authorities.................................................... 59
(iii)
NOMINATION OF SHAUN DONOVAN, OF NEW YORK, TO BE SECRETARY OF THE
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
TUESDAY, JANUARY 13, 2009
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee convened at 10:11 a.m., in room 538, Dirksen
Senate Office Building, Senator Christopher J. Dodd (Chairman
of the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN DODD
Chairman Dodd. I apologize to all of you. This is a sort of
a juggling match going on here today. I said downstairs, it is
sort of like a New York day. Senator Hillary Clinton, we
started her confirmation hearing this morning about 10 minutes
ago in the Hart hearing room, and so as a Ranking Member of
that Committee, I needed to be there for that opening.
Senator Schumer is a very busy person. He is a member of
this Committee today, but also is the presenter of both Senator
Clinton before the Senate Foreign Relations Committee and will
be here shortly to introduce Mr. Donovan, the Secretary-
Designate of the Department of Housing and Urban Development.
What I am going to do is, to get underway here, is make
some opening statements, and as soon as Senator Schumer
arrives, we will pause and allow him to make a formal
introduction of you, Mr. Donovan, if that is all right with
you. I would also note that for those, as well, we have the
confirmation hearing of Arne Duncan, the Secretary-Designate of
Education. So on the three committees on which I serve, Foreign
Relations, chairing Banking, and Health, Education, and
Pensions, we have confirmation hearings going on simultaneously
this morning.
So with that said, let me turn, if I can, to an opening
comment on Mr. Donovan. I commend him for his willingness to
take this tremendous responsibility of serving as the Secretary
of HUD. This is a very, very challenging job and I think all of
us are very excited about your nomination, I say, Mr. Donovan.
I want to welcome my colleagues, first of all, back to the
Committee on Banking, Housing, and Urban Affairs for the first
hearing of the 111th Congress. As you know, the Committee was
extremely busy, to put it mildly, and productive, I might add,
in the previous Congress, and I expect this year to be every
bit as busy with an agenda that is already extremely crowded.
As my colleagues know, this Thursday, January 15, the
Committee will hold its second hearing to consider the
nominations to the Securities and Exchange Commission, the
Federal Reserve Board, and the Council on Economic Advisors,
and we have tentatively scheduled a hearing for the 27th of
this month on the Madoff securities fraud issue. I have
distributed a draft agenda to Committee members on both sides
and I am consulting with all members to develop a schedule for
upcoming hearings as the Committee and the Congress continue to
be confronted with the very fragile financial system.
Today, we are considering the nomination of Mr. Shaun
Donovan, Commissioner of the New York City Department of
Housing, Preservation, and Development, to become the Secretary
of the Department of Housing and Urban Development. Let me
point out that we are extending to Mr. Donovan this morning the
same courtesy we showed to our colleague, Senator Mel Martinez,
my good friend from Florida, for whom the Committee under
Chairman Senator Sarbanes also held a nomination hearing for
the job of Secretary of HUD prior to the President actually
taking office, and I don't think a bad precedent to be setting
given certainly the issues we are facing today, but also to
allow an administration to get up and moving as quickly as
possible.
It is our view now, particularly given the urgency of our
economic situation, that we ought to help get the President's
cabinet in place as quickly as possible.
Senator Schumer has arrived. I announced you would be here
shortly.
Mr. Donovan, let me welcome you to the Committee. You have
been nominated for a job fraught with significant challenges.
Yet for that very reason, I think there are some tremendous
opportunities, as well, not only for you, but for our country.
For the past 3 or 4 years, the country has been facing a
growing housing problem that had its origins in the scourge of
predatory lending that has resulted in record high foreclosure
rates. This housing crisis has been a primary cause of the
deepening recession to which none of us are immune. Across the
country, between 9,000 and 10,000 home owners face foreclosures
every single day in our nation. Foreclosures in my State are up
71 percent over last year and it is expected that we will have
more than 13,000 subprime foreclosures in the next 2 years on
top of the 17,000 that have already occurred in Connecticut.
And my State is not anywhere near as adversely affected as the
States of California and Arizona, Nevada, Florida, others that
are facing far more serious problems with the foreclosure
rates.
Nationwide, cities such as Bridgeport, Connecticut, which
have inordinately high rates of subprime loans, are struggling
to keep themselves afloat as those loans reset one by one and
families find themselves with nowhere, or very few places to
turn.
I recently met with the leaders in my own State where I
heard about he toll this crisis is taking in the minority
community, particularly. Some say this crisis will result in
the net loss in home ownership rates for African-Americans,
wiping out a generation of wealth gains and opportunities.
But let there be no doubt that this crisis today affects
every American in one way or another. In all, by some counts,
we can expect some eight million homes to go into foreclosure
absent some form of additional action.
Unfortunately, the current administration was slow to
acknowledge the housing problem, and when it finally did, it
was timid, in my view, in its response. Even now, as
foreclosures tear apart neighborhoods and wreak havoc on our
economy, the administration unfortunately has refused to use
the authority of funds that we gave it in the Emergency
Economic Stabilization Act to tackle the foreclosure crisis
head-on, despite the Congress's crystal clear intent when that
law was written.
Surprisingly and unfortunately, in my opinion, HUD has not
played a central role in addressing the housing crisis.
Frankly, it has been, to quote last Friday's National Journal,
and I quote them here, ``at best a second-string player,'' end
of quote, following in the wake of other governmental
departments with far less expertise in housing than the
professionals at HUD.
Indeed, as the cover page of CQ Weekly says, ``The housing
crisis remains at the core of the economic woes,'' end of
quote. Put simply, we cannot address our economic crisis until
we address the underlying housing crisis, and to do that we
need an active, aggressive, and well-run HUD with leadership
that is confident in its mission and unafraid to act. As
President Obama himself has said, HUD's role has never been
more important, and I agree with him.
Unfortunately, HUD has been mismanaged and ridden with
scandal in the last several years. Let me be clear that these
problems did not arise, I might point out, under the very able
leadership of our colleague on this Committee, Mel Martinez,
who did a remarkable job, in my view, while he was at HUD,
understood these issues, came from a background committed to it
with his own previous experience in Florida.
I would also say that in recent weeks, Senator Preston, who
has been the new Secretary of HUD, a nomination we moved very
quickly through this Committee, as my colleagues will recall, I
think has done a very, very good job. He has had a short
tenure, but done a very good job over these last several
months.
But fundamentally, HUD has been left adrift at a time when
bold leadership and clear direction were never more important.
Just last week, I learned about the Wright family in my home
State of Connecticut, and every one of my colleagues can share
similar stories. The Wrights are a middle-class, working-class
family from Windsor, Connecticut, and they are right now in
danger of losing their home. Like thousands of families across
the country, the Wrights were lured into a mortgage they were
sure they could afford, but they discovered they can't, not
because they acted irresponsibly, but Mrs. Wright became
pregnant with her second child and she ran out of her paid sick
time that she had been afforded as a teacher. For those reasons
and circumstances, their income has declined, costs have risen,
and all of a sudden that home, which was the source of the
great wealth creation for that middle-class family, is now in
danger of being lost. There are literally millions of Wright
stories all across this country of ours.
Mr. Donovan, this is the kind of story being repeated in
every community across our nation. With the right leadership, I
believe HUD can be an effective partner in helping families
such as the Wrights. This is an opportunity you have to restore
HUD as a leading voice in addressing the crisis facing our
country today.
I would say to my colleagues that Mr. Donovan is the most
experienced nominee for HUD Secretary this Committee has seen
in a long time. Certainly Mel Martinez, as I mentioned, did a
remarkable job and brought a strong background experience to
the issue, as did Andrew Cuomo when he served as Secretary of
HUD. But it is important to understand the background of Mr.
Donovan. I think you will all be heartened by the wealth of
knowledge he brings to this nomination.
In addition to degrees in architecture and public
administration, Mr. Donovan has run the Multi-Family Program at
the Federal Housing Administration, was for a time the Acting
Housing Commissioner. He has worked in the private nonprofit
sector as a housing developer and has worked as a managing
director of a large multi-family mortgage company. Since 2004,
Mr. Donovan has been the Commissioner of New York City's
Department of Housing Preservation and Development, and in that
role managed 2,800 employees and helped develop and manage
Mayor Bloomberg's New Housing Marketplace Plan, which I am sure
Senator Schumer may reference in his introduction, one of the
most remarkable plans not only in New York's history, but
anywhere in this country, a very exciting idea.
Beyond the statistics and the numbers that so dramatically
underscore Mr. Donovan's accomplishments, I want to welcome him
for the kind of leadership and vision that I am confident he
will bring to the Department at a time when such leadership is
so desperately needed.
For example, as early as 2004, before most of the rest of
the country was focused on the subprime crisis and foreclosures
they would lead to, Mr. Donovan told a Newsweek reporter that
he was worried about the coming flood of foreclosures. That is
at least a year and a half before other people were even
talking about the issue at all. He warned about the impact it
would have on homeowners and neighborhoods across this country.
Mr. Donovan sees the role of HUD as being more than a
caretaker for physical housing structures or as a mortgage
insurance company. Mr. Donovan, I believe, understands the
danger of stovepiping within this arena and sees HUD as the
Federal Government's primary tool to help build communities, an
agency that helps provide housing opportunities for homeowners,
for renters along a spectrum of incomes and ages. He also
understands, in my view, the need to coordinate housing with
transportation, including public transportation and transit, to
improve access to jobs and other economic opportunities. We had
the chance to discuss this in a meeting we had in our office
and I was impressed that you understood the holistic approach
to the housing job and function and the problems that we need
to address.
And finally, Mr. Donovan is a man, I think, of integrity,
who has shown a proven ability to work constructively with all
interested parties. We have letters that I am going to ask
consent to be included in the record from a wide variety of
housing groups, from realtors to home builders, Low-Income
Housing Coalition, and many, many others, all expressing very
enthusiastic support for your nomination.
Chairman Dodd. So Mr. Donovan, we welcome you to the
Committee. The leadership you offer to this critically
important Department, and more importantly, the hope that you
offer millions of our families at this uncertain moment. I look
forward to your testimony, and after I give my colleague here,
Senator Shelby, former Chairman of the Committee, a chance for
an opening statement, we will turn to Senator Schumer for
purposes of introduction and then we will get to you, Mr.
Donovan.
Senator Shelby?
STATEMENT OF SENATOR SHELBY
Senator Shelby. Thank you, Chairman Dodd. Thank you for
calling today's hearing on the nomination of Mr. Shaun Donovan
to serve as Secretary of the Department of Housing and Urban
Development. You are expediting it, and I think you should in
this situation.
I look forward to the Committee officially receiving that
nomination and having the opportunity to review your record in
depth, but right now, I want to welcome you to the Committee
and to your family, the same thing, and I know you will
introduce them in a few minutes.
Mr. Donovan, his previous experience, as Senator Dodd has
said, at HUD as Deputy Assistant Secretary for Multi-Family
Housing and in New York City, where he presently serves as
Commissioner of Housing. I hope that this experience will allow
you to get a quick start on addressing, as Senator Dodd pointed
out, HUD's many longstanding deficiencies.
In particular, I am very concerned about the financial
health of the Federal Housing Administration. We talked about
that in my office. While most mortgage delinquencies have been
concentrated in the subprime area, market, FHA has not been
immune and has experienced a similar increase in its own
delinquencies. I believe the FHA program poses significant risk
to taxpayers and therefore requires diligent oversight by you,
Mr. Secretary. This situation is one that requires your
immediate attention, I believe, after you are confirmed as HUD
Secretary.
Unfortunately, FHA is not HUD's only troubled program.
There are many other HUD programs, including the Section 8
voucher program and the Public Housing Program that are also in
need of review and reform.
Mr. Donovan, the task of reforming and ensuring the
efficient operation of the Department present significant
challenges. I believe, however, that the greatest
responsibility that you would have as the incoming Secretary
will be to address, as Senator Dodd has mentioned, the
unprecedented crisis in the housing market. The sooner housing
markets stabilize based on sustainable fundamentals, the sooner
I believe we will see a recovery in the market and in our
economy. Short of that, I think we are in for some deep
trouble.
I look forward to hearing your plans somewhat this morning
on how to reform HUD programs, and more importantly, how HUD
can help stabilize--I know you can't do it by yourself--our
nation's housing markets.
Once again, we appreciate your appearance. We look forward
to your tenure and helping you along.
Chairman Dodd. Thank you very much, Senator Shelby.
Let me notify my colleagues that when Senator Schumer
completes his introduction, I will then be turning to my
colleagues if any of you would like to make some opening
comments before hearing from our nominee.
Chuck, you are a busy guy this morning. We've been running
around here, and I appreciate your patience.
STATEMENT OF SENATOR SCHUMER
Senator Schumer. Thank you, Mr. Chairman. I want to thank
you and Ranking Member Shelby for the honor of introducing
Shaun Donovan.
Before I begin, Mr. Chairman, I do want to say these--these
have been just amazing times for the country and for the
Committee and we couldn't be under better leadership than yours
and I really thank you for stepping up to the plate at a time
when the country so much needs it. Thank you, and I want to
thank Senator Shelby, as well, for his passion, keeping our
feet to the fire through these times, as well, which proves a
very important and salutary function.
Mr. Chairman, I am really honored to be here to introduce
Shaun Donovan as nominee for HUD. After being relegated to the
shadows for so long, housing is now front and center on our
national agenda. And at this crucial time, there is no one who
has more experience, stronger judgment, and a better sense of
balance to take the helm at HUD than Shaun Donovan.
In history, there has been a great debate over whether the
times make the man or the man makes the times. Shaun Donovan is
the perfect person for these troubled times in housing and he
will clearly improve our housing policy in a dramatic way,
changing the times.
Shaun's career has ensured that he has seen the housing
universe from all sides. He has worked for housing nonprofits,
as you mentioned, Mr. Chairman. He has worked at HUD as the
Deputy Assistant Secretary for Multi-Family Housing and as
Acting FHA Commissioner; in the private sector, with Credential
Mortgage Capital, focused on FHA and affordable housing
investments; and most recently as one of the best Commissioners
of New York City's Department of Housing and Preservation
Development that we have ever had.
In his latest role, Commissioner Donovan spearheaded the
city's New Housing Marketplace Plan, a $7.5 billion effort that
aims to build and preserve 165,000 units of affordable housing
in New York City. The program, thanks in large part to Shaun's
leadership and commitment, developed innovative preservation
and new production tools, chief among which is the New York
City's Acquisition Fund, to create a level playing field for
those developers committed to building affordable housing in
one of the most expensive real estate and rental markets in the
world. And it is so difficult to get things done in New York
City and to build the number of units for people who need
help--affordable housing--that Shaun has done is nothing short
of a miracle.
I have worked closely with Shaun on a number of
preservation projects during his time at the helm of HPD.
Together, he and I worked to save the birthplace of hip-hop
music, a 100-unit affordable apartment in the Bronx. While we
were ultimately unsuccessful in that effort, Shaun demonstrated
his characteristic willingness to think outside the box to
improve affordable housing, taking the unprecedented step of
rejecting the sale of the project because the purchase price
was inconsistent with the State and city Affordable Housing
Program, whose benefits the developer hoped to continue to
enjoy, and this is going to have major effect on helping keep
tens of thousands of New Yorkers in their homes.
Shaun has also been a critical partner in our 2-year effort
to save Starrett City, the largest federally subsidized housing
complex in the country. Starrett City was a haven for the
working class, and again, because the Section 8 and other
certificates expired, developers were going to come in and just
change the total nature of it, eliminating 5,000 units of
affordable housing so desperately needed in New York. This
complex was almost sold for a dramatically inflated price, and
it would have left 14,000 tenants out in the cold. I worked
with Shaun day-in and day-out for 2 years. There were tense
negotiations on all sides, tenants, developers, community
people. And as a result, the owners recently announced they
have chosen a bidder for a preservation sale of the complex,
keeping those units going. Again, this was an amazing and
complicated job that couldn't have been done without Shaun's
leadership.
And finally, on the most pressing issue of the day, housing
and foreclosure crisis, Shaun has led New York City's efforts
to find a comprehensive counseling, legal services, and
education center to help struggling homeowners to avoid
foreclosure. And under Shaun's leadership, HPD has also
demonstrated that home ownership for low- and moderate-income
people is not an unachievable goal. Of the more than 17,000 new
or preserved affordable homes that HPD has created under its
plan, 17,000 affordable units, only five owners have lost their
homes to foreclosure, a number that barely registers when
compared to the 2.2 million homeowners who entered foreclosure.
To take that model that we used in New York City and expand it
nationally would be a blessing for the Wrights and many others
throughout the country.
So I look forward to working with Commissioner Donovan on
these and many other housing community development issues
during his tenure. I know that he is the best possible steward
for this crucial agent at this moment in history, and I thank
the Committee for the opportunity to introduce him.
Chairman Dodd. Senator, thank you very, very much. Chuck,
we appreciate immensely your leadership, as well. I have said
to others through this last 2 years, this Committee has--and I
sent around to all the members sort of a background of what we
have been through. It was an awful lot, and I want to thank
every member, and certainly you, Senator Schumer, have been
tremendously valuable in this process. I know you are busy with
Joint Economic and the leadership role and on Finance, so you
have an awful lot going on. We thank you immensely and thank
you for introducing the Secretary-Designate.
I will now turn to Senator Reed, then Senator Bennett, and
we will go down the line for any opening statements my
colleagues would like to make about this nomination. Then, Mr.
Donovan, we will hear from you.
Jack?
STATEMENT OF SENATOR REED
Senator Reed. Thank you, Mr. Chairman. I would ask that a
statement be included in the record and I would like to make
just some brief comments.
First, I think this is a superb selection and I commend the
President. I have had the privilege of working with Mr. Donovan
in many capacities. His experience, as illustrated by Senator
Schumer, and his temperament and his talent, as demonstrated by
his success in so many other areas of endeavor, in the housing
area particularly, commend him immensely to this Committee and
the Congress and I wish you well in your very important task.
You have responsibility for some of the most vulnerable
families in this country. In addition to that, you are, or will
be, one of the most significant figures in the financial
situation of our overall economy, with the huge role that the
mortgage agencies play, the huge role that HUD's policy plays
in our economy. And in those two areas, you will be challenged,
but I think you are more than capable of meeting and exceeding
these challenges.
In the last several years, your budget has not been, I
think, adequate to the task, particularly in terms of the
managerial expertise and skill that you need. Many of us have
reflected upon the issues facing the Federal Housing
Administration. Some of them are basic, about having the
computer systems, the personnel, the ability to operate as a
sophisticated financial institution in a very complicated
world. So you will have to face those challenges right off the
bat as you start your preparing the budget for the forthcoming
year.
As all of my colleagues have alluded to, this foreclosure
problem is absolutely crippling. It cripples the hopes and
dreams of families, their confidence to participate in the
economy. Unless we can get a footing, some traction with
respect to these foreclosures, I don't think we will begin to
see the economic expansion that we are all hoping for, and your
role is going to be absolutely critical in that, along with
your colleagues and the President's team.
There is one issue, too, that is consistent in the good
times and the bad times and it is an unfortunate reflection
upon this country, the homelessness issue. We have had soaring
homelessness problems in the boom of 2 or 3 years ago and now
they are even more exacerbated in this deplorable situation we
face financially. We have all worked together. We have
bipartisan legislation that has been supported by the Bush
administration that is ready to go and we hope that is
something that at least I hope that you can help us tee up and
help us get through in the next few months.
Again, I think the President has chosen wisely and I am
looking forward to working with you and I wish you well.
Thank you, Mr. Chairman.
Chairman Dodd. Thank you, Senator, very much.
Senator Bennett?
STATEMENT OF SENATOR BENNETT
Senator Bennett. Thank you very much, Mr. Chairman.
Mr. Donovan, you and I had what I consider to be a very
useful exchange in my office. You know how I feel about all of
these issues and I won't take the time of the Committee to go
through them again.
But I add my welcome to you and my tribute to you for your
willingness to undertake public service at a time when
sometimes that is not the most financially remunerative thing
you can do, particularly with somebody with your background and
your potential. And as you will discover from editorials,
editorial cartoons, comments made, maybe not the most
psychologically rewarding thing to do.
[Laughter.]
Senator Bennett. But if you can rally the personnel at HUD
behind you in your enthusiasm for the job that you have and
lead those folks in the direction that I know you want to go,
when it is all over, you can look back on it with a great deal
of satisfaction.
So I salute you for your willingness to undertake it, and
unless something amazingly unforeseen should pop up, pledge you
my vote in confirmation and support. Thank you.
Chairman Dodd. Thank you very much, Senator.
Senator Menendez?
STATEMENT OF SENATOR MENENDEZ
Senator Menendez. Thank you, Mr. Chairman. Mr. Chairman,
with your expertise of Irish history, I would have pronounced
the Commissioner's name ``Donovan,'' but I keep hearing you say
``Dunovan'' and I am going to defer to the Chairman and say
``Dunovan'' for the purposes of this hearing. I am sure if it
assures the passage, he won't quite mind, whichever one is the
correct one.
[Laughter.]
Chairman Dodd. I don't know, what do you say, Shaun? What
is it?
Mr. Donovan. I say ``Donovan,'' actually.
[Laughter.]
Senator Menendez. Well, I always think the Chairman is
right, so in any event----
[Laughter.]
Chairman Dodd. You had better start calling yourself
``Dunovan.''
[Laughter.]
Senator Menendez. It might lead you well, at least for the
hearing. But in any event----
Senator Bennett. Senator Menendez, the Chairman is always
right.
Senator Menendez. I thank my esteemed colleague for
reaffirming what I thought was the case.
[Laughter.]
Senator Menendez. Commissioner, I just came a little while
ago along with the Chairman from Senator Clinton's nomination,
my other committee assignment, and while HUD never seems to
gather the press attention as other agencies do, to American
families, your future role at this agency may be far more
important as it relates to their lives. And I agree with those
who say that HUD has been sitting at the kid's table and it is
time for that to change.
I grew up in a tenement building in Union City, New Jersey.
I understand first-hand the value and importance of our housing
programs. These programs are more than dollar signs in our
budget and more than paperwork they often entail. They are
about providing a place to call home.
I believe that every family, every man, woman, and child,
deserves a place to call home. Home is where you are brought to
when you are first born. Home is a place in which you are
nurtured and grow and a place where you live through the good
and the bad. It is the place that you start your day and end
your day. It is a place where you leave from to go get married
and come back to with your family. It is a quintessential part
of the American ideal.
Unfortunately, we have seen a real toll on the notion of
home taking place over the last several years. The regulators
fell asleep at the switch. Foreclosure rates have spiraled out
of control, and now we have a snowball effect as families find
a padlock on their homes and often find themselves without a
place to call home. So as homelessness increases and families
struggle to make ends meet, the need for housing and all of its
related elements that your Department is going to be able to
pursue are going to be even greater.
These programs can be better and Americans expect them to
be better. So now is a time for great leadership within HUD to
get our housing programs back on track.
I appreciated your visit with me. I appreciate the comments
that I have read in your testimony and agree with you when you
say that housing was at the root crisis that we are in and it
must be part of the solution. I hope in the question and answer
period, between jumping between committees, this new report by
Financial Week that talks about the FHA being ill-equipped to
stop the migration of predatory subprime lenders to the rapidly
growing sector of U.S.-backed home loans, raising the specter
of another cycle of lending abuse, is something that we can
talk about and something that you will look at.
And finally, I do think, living right across the river from
where you presently are the Commissioner, that your experience
in New York prepares you well for this role and I look forward
to hearing your thoughts today on such issues as foreclosure,
the elements of how we meet the challenges of public housing
that we face today, Section 8, Hope VI, fair housing, and some
of these other issues. These are tough times for American
families, but I believe HUD under your leadership can be a
place for hope again to have a place to call home.
Thank you, Mr. Chairman.
Chairman Dodd. Thank you very much. A good statement.
Senator Martinez?
STATEMENT OF SENATOR MARTINEZ
Senator Martinez. Mr. Chairman, thank you very much, and
Shaun, welcome. I am so pleased to welcome you to the Committee
and to congratulate you on your appointment and look forward to
your confirmation.
First of all, I can't help but reminisce about 8 years ago,
almost to the day, sitting at your table, and my youngest at
the time was the same age as your youngest is today, 6 years
old. By now, he was already out of the room. So I congratulate
you on that.
[Laughter.]
Senator Martinez. Anyway, the fact is, you are unusually
qualified for this job and I would dare say, Mr. Chairman, in
spite of your graciousness, I do think he is far more qualified
than I was or even perhaps even the Attorney General of New
York was at the time. I think Mr. Donovan brings some unusual
qualifications to this job, and so I think it is an excellent
choice by the President-Elect.
There are a number of troubling issues. You and I had a
very lengthy discussion on them. I should also say, by the way,
that at the time that I went to HUD, Shaun Donovan was there.
My recollection is that I tried mightily to keep him there, but
he chose to go back to New York, understandably, and to go
home. But I am glad that you are back to HUD, even if 8 years
down the road. But it is a better job than the one I was
offering you, actually, so you have moved up.
But the housing crisis, I will only echo what others have
said, is unquestionably at the very root and the very heart of
the economic crisis our country faces today, and until we solve
the foreclosure problem and the home ownership problem and the
mortgage crisis, we are not going to really come out of this
recession. Nowhere is it worse perhaps than the State of
Florida, where we are facing tremendous problems economically,
all related to the situation with housing. Unemployment is up.
Housing unemployment is dramatically up. More and more families
are threatened with losing their home, and we have just not
done enough in all that we have done to attack that problem
aggressively.
I am just hoping that you will have, as my colleague,
Senator Menendez said, not a seat at the kid's table, but a
seat at the main table. Insist on it. Be there. That is where
you belong and that is where you need to be to help solve these
very vexing problems.
I am concerned, as I mentioned to you, and I will hit on
just a couple of these issues--the role of FHA, whether FHA is
up to the task at hand, whether it is properly staffed, whether
we need to focus on more funding. I also concern myself about
the viability of FHA. I have always believed that risk-based
pricing may be part of what they must do. But they have been
getting an increasing share of the marketplace as every other
vehicle has vanished, and I think it is important that FHA be
up to the task so they can be part of the solution as we seek
to get out of this current crisis.
I am also very interested in what you might believe is the
future of the GSEs. Unquestionably, HUD has a role in their
regulation. One of the more frustrating aspects of my tenure at
HUD was my inability, along with that of others, to get true
and serious regulations of the GSEs in a way that only recently
occurred, but almost a little late. We now have to deal with
what is the future of the GSEs. How should they be structured
and what is the mechanism by which they perhaps should be
completely private or just how they should be handled.
Something that I also discussed with you privately and I
want to make sure that I mention to you is RESPA reform. There
is no question that if we had had better disclosure and better
information as it relates to home ownership today, we would not
have the problems we have. More and more American families are
finding today as the resets of their mortgages come about what
the rest of the story really is. So I believe RESPA reform is
something whose time has come. I commend the current HUD
Secretary for having made some efforts in this regard. Much
more needs to be done and I commend it to your agenda.
And last, I will mention something that I think has been
one of the real remarkably good stories at HUD and that is the
issue of homelessness. The effort to end chronic homelessness
led by Philip Mangano. The fact that we brought all of the
agencies and entities of the Federal Government to working
together to try to end chronic homelessness has, in fact,
yielded great results, and I am very proud of my embryonic role
in that, but I also believe great credit goes to those who have
continued the battle to bring this to a national focus. I know
you have some experience in what New York has done in this
regard and I would hope that you can continue the passion for
an issue that has a very, very small constituency. There are no
votes to be gotten among the homeless. It is just the right
thing to do for a compassionate country like ours.
So anyway, I thank you for your willingness to serve and
that of your family and look forward to working with you in
your new capacity.
Chairman Dodd. Thank you very much, Senator.
Senator Akaka?
STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman. Thank you
for holding this hearing today.
I want to add my welcome to Commissioner Donovan and
congratulations for your nomination to the Department of HUD. I
also want to welcome your handsome family, Liza and Milo and
Lucas, as well, to this hearing.
My State of Hawaii suffers from a severe lack of affordable
housing. The National Low-Income Housing Coalition's Out-of-
Reach Report ranked Hawaii as the most expensive State for
housing. Having a job is not enough to ensure access to
adequate housing. It will take long-term coordinated Federal,
State, and county efforts to expand access to affordable
housing.
Commissioner Donovan, I look forward to working closely
with you to help improve access to affordable housing and I
smilingly would greatly appreciate it if you would take the
time to visit Hawaii when you are Secretary of HUD. It would be
helpful to see the work being done there by our Department of
Hawaiian Homelands. The Native American Housing Assistance and
Determination Act programs administered by DHHL in Hawaii
provide essential housing assistance and home ownership
opportunities to Native Hawaiians. DHHL raises the standard of
living of all residents by increasing the number of affordable
housing units available State-wide.
In addition, I am greatly concerned about our nation's
homeless, in particular, our homeless veterans. Veterans
comprise approximately one-third of the overall homeless
population. As Chairman of the Committee on Veterans Affairs, I
have worked to enhance and improve VA services for homeless
veterans. Permanent, supportive housing is one of the most
effective ways to end homelessness. I hope that, if confirmed,
you would work in conjunction with VA to expand this program
and make it available to more veterans.
In addition to continuing to work with my colleagues on
both this Committee and the Veterans Affairs Committee, I will
work with you, Commissioner Donovan, to help homeless veterans
find and maintain adequate housing and support services.
Mr. Chairman, I would ask that my full statement be placed
in the record. Thank you.
Chairman Dodd. We will do that for all members. I was
hoping that you might suggest the entire Committee go to Hawaii
for a hearing on that, sometime next January, maybe.
[Laughter.]
Senator Akaka. I would extend that to the Committee, too.
Chairman Dodd. I imagine there would be no interest in that
hearing.
Let me, if I can, what I will do, Mr. Donovan, is to swear
you in, and so I would ask you to stand and raise your right
hand.
Do you swear or affirm that the testimony that you are
about to give is the truth, the whole truth, and nothing but
the truth, so help you, God?
Mr. Donovan. I do.
Chairman Dodd. And do you agree to appear and testify
before any duly constituted Committee of the U.S. Senate?
Mr. Donovan. I do.
Chairman Dodd. I thank you for that.
Welcome to the Committee, and we are prepared to hear your
opening comments.
STATEMENT OF SHAUN DONOVAN, OF NEW YORK,
SECRETARY-DESIGNATE, DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT
Mr. Donovan. Thank you. Mr. Chairman, Senator Shelby, and
distinguished members of the Committee, thank you for the
opportunity to appear before you today. I would also like to
thank Senator Schumer for that very kind introduction.
Before I go any further, I would like to introduce my
family again, my wife, Liza, and my two children, Milo and
Lucas. Without them and their constant and steadfast support, I
would not be here.
Chairman Dodd. Welcome.
Mr. Donovan. I am honored and humbled by President-Elect
Obama's decision to nominate me as Secretary of Housing and
Urban Development, an agency with a critical role to play as
government partners with the American people to overcome the
greatest economic crisis we have faced in many decades.
I want to thank the Committee for the speed with which you
have scheduled today's hearing and the time you have made in
your busy schedules to visit with me and share your thoughts
and views regarding housing in the United States.
Throughout my career, I have been committed to affordable
housing policy and development. In my line of work, we often
talk in terms of numbers of units and dollars spent. That is
our common language. But it does little to convey the reason I
am in this field.
America's homes are the foundation for family, safe
neighborhoods, good schools, and solid businesses. A home
represents and confers stability, a base from which to raise
our children. These things have not changed, but the world has.
I am here before you today because I hope, should you confirm
my nomination as HUD Secretary, that I can contribute to
restoring this vital sector to health and making quality
housing a possibility for every American.
My first job after graduate school was at the Community
Preservation Corporation, a nonprofit lender and developer of
multi-family housing. While there, I saw firsthand the
difference that effective public-private partnerships can make
in developing decent, safe, and high-quality housing. In this,
the Federal Government was often a valued and an essential
partner. But I also experienced the headache of trying to
navigate regulatory barriers or having deals fail because of
inflexible programs.
Later in my work at the Department of Housing and Urban
Development, I saw how government can work to catalyze
effective community development. While I gained an appreciation
for the benefits of well-crafted and responsive government
programs, I also saw a need to untangle and streamline policy
and programs that too often led to missed opportunities.
Because of these experiences, I believe that the best way
to ensure access to safe, decent, and affordable housing is
through strong partnerships among the government, private, and
nonprofit sectors. Government can play a unique role in
incentivizing the other sectors and removing barriers to the
development of quality housing.
That is why when I became Commissioner of New York City's
Department of Housing Preservation and Development in early
2004, I engaged the agency in a top-to-bottom strategic
planning process. This resulted in new and innovative policy
and programmatic solutions, a more appropriate alignment of
staff with the mission of the agency, and better measurement of
results.
Let me give you two examples. With contributions from our
nonprofit and for-profit partners, New York created an
acquisition fund that leveraged significant philanthropic
support. In one of the most competitive real estate markets in
the world, this pool of funds enables housing developers to
acquire land and create affordable housing for hard-working
families.
We also changed land use policy to respond to the
challenges posed by the New York City market. In order to
incentivize the creation of more housing for low-income
families, the city undertook a series of rezonings that will
allow the development of up to 500,000 total units of housing
and crafted an inclusionary zoning program that will generate
6,000 affordable units.
I believe that together, we can create programs that will
spur the development of affordable housing in our cities and
towns across America.
In the past, owning a home was emblematic of financial
success. Sadly, we know that the landscape has changed.
Clearly, the most important public policy decision facing
Congress and the new administration is how to best ease the
economic pain that millions of Americans and families are
feeling right now because of our unsteady housing markets.
As President-Elect Obama has said, the housing crisis has
shaken not only the foundation of our economy, but the
foundation of the American dream. It is estimated that
approximately 2.2 million homes went into foreclosure in 2008.
One in ten American families who owns a home is in financial
trouble. Housing is at the root of the market crisis we are now
experiencing and HUD must be part of the solution.
President-Elect Obama is committed to working with you and
your colleagues on an economic recovery plan that helps
strengthen our housing and mortgage markets.
We must ease our foreclosure crisis by helping Americans
stay in their homes. How we structure this assistance is
important. We certainly do not want to pursue policies that
encourage irresponsible behavior from lenders or homeowners.
But as President-Elect Obama stated, if my neighbor's house is
on fire, even if they were smoking in the bedroom or leaving
the stove on, right now, my main incentive is to put out the
fire so that it doesn't spread to my house.
That is why helping a family avoid foreclosure not only
keeps a roof over their heads, but also protects the value of
surrounding homes and prevents the deterioration of our
neighborhoods. Keeping families in their homes means keeping
our communities safe, healthy, and strong.
These are very complex undertakings that will require a
cross-agency, broad-based approach. Keeping families in their
homes. HUD needs to work with the Treasury, the Federal Housing
Finance Agency, and the Federal Deposit Insurance Corporation
to help stabilize our housing markets.
At the same time, we need to make sure our mortgage markets
and other financial markets are transparent, open, and fair. We
need to work together to reach a bipartisan consensus on how to
reform the outdated and often overlapping regulatory system
that failed our citizens in the run-up to the current crisis.
If I am confirmed, I look forward to working with the
Committee as it examines how to proceed, not only in my
capacity as HUD Secretary, but in my oversight roles with
regard to the TARP and the Government-Sponsored Enterprises. If
HUD is to help fix the cracks in our economic foundation, we
also will need to implement reforms within the Department
itself. As you well know, these are challenges--there are
challenges and persistent management issues facing HUD,
including modernizing IT systems, overhauling sluggish human
resource systems, and strengthening contract oversight. If
confirmed, I will be open and honest about such challenges and
will work with you in effectively addressing them.
There are three particular issues I would like to highlight
today. The Federal Housing Administration has capacity issues
that require immediate attention. FHA's share of the single-
family mortgage market has grown from 4 percent in 2005 to 21
percent today. And, in fact, for new home purchases, FHA now
has a 35 percent share, according to the most recent, albeit
preliminary, data.
Second, there have been significant budgetary issues
regarding the renewal of expiring Section 8 rental subsidies
for both the tenant and project-based programs. Approximately 3
million American families are served by these programs. It is
HUD's responsibility to make sure that it is delivering rental
subsidies in the most cost-effective and efficient manner
possible. I look forward to working with Congress, this
Committee, and the Committee on Appropriations toward that goal
if I am confirmed.
Third, there are a series of steps that could strengthen
the Department overall. We must foster a culture of excellence
and innovation. I have had the opportunity to work with some
very talented professionals at HUD and they deserve the tools
to succeed. It is critical that we restore HUD as a respected
research institution, as well. Both you and I need to know what
works based on objective analysis and reliable data so that
taxpayer dollars can be spent wisely and effectively. I pledge
to make management reform a high priority. Only in this way can
we meet the enormous housing challenges facing our country.
Through HUD, we can catalyze the creation of a market for
energy-efficient homes, lower the utility bills of families,
and decrease the subsidy cost to the government. Here, the
Department can lead by example, by making efforts to green its
own portfolio of public and assisted housing. HUD can help
develop communities that are livable, walkable, and
sustainable. By joining up transportation and housing, HUD can
give families the choice to live closer to where they work and
in the process cut transportation costs.
HUD can help low-income families gain greater access to
security and opportunity by expanding fair housing efforts,
extending resident choice, and using housing programs to help
families become self-sufficient.
I also pledge to you to make HUD a model of evidence-driven
government. As I have in New York City, I would set goals and
metrics for each of our priorities so that we can clearly and
openly show what we have done well and where we can do better.
We can leverage the agency's vast national network of State and
local governments, along with nonprofit and for-profit real
estate partners, to stimulate the production of workforce and
mixed-income housing and to help preserve our existing
affordable housing stock. HUD does not build homes, our
partners do. They share our compassion and have the talent and
capacity to do this work.
I would like to conclude by saying again how honored and
humbled I am to be before this Committee. I have worked with
HUD's programs from both the inside and the outside and am
intimately aware of the challenges facing the Department. I
have also witnessed the positive impact that HUD's programs
have on neighborhoods and people's lives, and if confirmed by
the Senate, I look forward to working with you to build a HUD
that exists to do the people's business, that is responsive to
current market challenges, and that ensures decent, affordable
housing for millions of American families across the nation.
Thank you, and I look forward to your questions.
Chairman Dodd. Excellent. Excellent opening statement. We
thank you.
Thank you for your willingness to do this, too. This is not
an easy time to be in public life and public service. I think
Senator Martinez made the point that deserves to be
underscored, your willingness to take on these challenges.
And let me take advantage of the Chair's position here to
underscore something else that Senator Martinez said, and I am
confident the incoming administration will hear this. I want
you at that table. So I am going to be insistent that you be at
that table as these debates and discussions go forward. So when
the so-called principals are meeting about our economic
conditions, and if I hear you are not there, I am going to be
terribly disappointed, because we really do have to have this
integrated approach on these issues. Too often, not to include
a HUD, for whatever the reasons may have been in the past, and
some may have been absolutely legitimate, there is no longer
any legitimacy to that point at all, in my view. So I hope you
will insist upon it, but I want you to know you have an ally
here that will insist upon it, as well.
We have been joined by Senator Casey and Senator Tester.
Let me ask either one of you if you would like to make a brief
opening comment at all here. I know you have all got busy
schedules, as well, but Senator Casey, any comments?
STATEMENT OF SENATOR CASEY
Senator Casey. Mr. Chairman, I will be very brief and I
will submit a longer statement for the record, but Mr. Donovan,
we are honored you are here. We are grateful that you have put
yourself forward again for public service.
I know we will have a lot of questions. Mine will focus not
just today, but throughout what I hope is your long tenure, on
foreclosures and the challenge we have there, as well as an
equally urgent challenge of making sure the Troubled Asset
Relief Program is operated in a way that gives the American
people confidence that it is going to improve our economy.
There are some doubts about that now and we have to take steps
to improve it, I know. You are not the sole arbiter of how that
works, but I know you play a role and I am glad that you
recognized that in your opening.
And finally, just as we go forward, priorities that pertain
to Pennsylvania, of course, that we will be paying attention
to. I am not sure we will get to all of that today, but we are
grateful for your work already leading up to this nomination
and we certainly hope that your confirmation goes well. I am
sure it will. We are honored you are here.
Thank you very much.
Chairman Dodd. Senator Tester?
STATEMENT OF SENATOR TESTER
Senator Tester. Thank you, Mr. Chairman. I want to thank
you, Mr. Donovan, for being here, and your family, and I
appreciate you all being willing to do this job, put yourself
up.
I, too, am going to be very, very short. I will just say
this. I appreciate you coming to my office last week so we
could visit about some issues with housing in rural America and
in Indian Country and I appreciate your openness to those
challenges that we face. My questions will revolve around that
mainly, but most of all, thank you all for being here. I really
appreciate you putting yourself up for public service in this
venue. It is a very, very important job and I know you will do
a great job once confirmed.
Chairman Dodd. Thank you very much, Senator.
I am going to have the clock on for 10-minute rounds. We
don't have a full complement here, so I am not going to be too
rigid about that, but we will try and give everyone a chance to
move along on this. My intention would be, I would say to my
colleagues, assuming we are complete here today, my hope would
be that by the end of the week, I would be asking us to convene
for a business session, maybe even off the floor of the Senate,
to vote on the nomination of Secretary-Designate Donovan. So
keep that in mind, maybe Thursday or Friday, depending upon the
schedule of the floor.
Let me begin, if I can, Mr. Donovan, in my opening
statement, I mentioned that if you are confirmed as Secretary,
you will be confronted with some enormous challenges, and all
have said that here this morning. Some will be pushing you from
the outside, issues. We have talked about those, obviously. And
some will come internally, as well, getting the institution,
the Department, back on its feet.
So let me open with sort of a broad opening question here
for you. Give us a sense, as someone who has administered a
significant department in New York City, how you will determine
your priorities as Secretary with so many pressing issues, and
second, give us a sense of your management agenda at HUD, as
well. It is sort of an open-ended question, but I would like to
get a feel for how you will approach those two issues.
Mr. Donovan. Senator, first of all, let me say I think
there is no question--you have heard it in my opening statement
today, you have heard it, I think, from every member of the
Committee--that the foreclosure crisis that is facing the
American people, American families, American neighborhoods is
job one for HUD and that we must immediately, should I be
confirmed, move toward addressing that crisis. And I think you
have heard President-Elect Obama say very clearly that his
administration will put forward a bold and comprehensive plan
that will address this crisis.
Clearly, HUD has a very important role to play in that
crisis. The Federal Housing Administration, through the Hope
for Homeowners program and a range of other initiatives, the
Neighborhood Stabilization Program, will have a key role to
play in doing that. And so that will clearly be the first
priority in terms of addressing the issues facing the country.
But I also want to make clear that rental housing must
continue to be a critical part of an overall national housing
policy, and I think perhaps too often, we have tended to
overlook that at the Federal level, and that we need to have a
balanced housing policy that addresses both sides of the
housing market. So I will pledge also, should I be confirmed,
that I would focus on the improvement of and the importance of
HUD's rental programs, as well.
Finally, on the management side, I think there is no
question that there is much that needs to be done. Whether you
look at the systems, the information technology systems that
exist today at HUD, whether you look at the personnel systems
training, the resources that are available to staff at HUD or a
range of other issues, they clearly are critical pressing
issues.
At the center of my management style, though, I think if
you talk to my staff, I drive them crazy. I am a numbers guy. I
am somebody who always wants to know--I meet monthly with every
single team within my agency. I have a series of critical
indicators that demonstrate progress to me, or where we are not
making progress in the agency. And I feel both internally at
the Department, but also, frankly, should I be confirmed, in my
relationship with the Senate and with Congress more broadly,
you have not had the information that you need to be able to
make judgments about how the agency is running, whether we are
making progress, whether the budget is the right budget for the
agency. And I pledge to you, should I be confirmed, that I will
do everything that I can to make sure that you have all the
information that you need to be able to work with HUD to set
direction for a national housing policy.
Chairman Dodd. Well, I thank you for that. In fact, you
anticipate a point I was going to make, and that is on a
monthly basis, I would like to arrange for the members of this
Committee or their staffs to meet with HUD, whoever you would
designate, to go over and share with us as current numbers and
statistics we can have on this foreclosure issue and the number
of rental housing units and so forth, so we are not just
relying on the occasional hearing when you show up here, but
have an ongoing basis of information so we can, particularly
during this crisis, be kept very well informed as to what sort
of progress is being made or where there are areas where we
need to pay more attention.
Let me, if I can, mention two issues. One, I would like to
hear you comment a bit more specifically about the foreclosure
issue. I point out, and my colleagues all on this Committee are
more than aware of all of this, we began this Committee in the
110th Congress in the first week of February, literally 2 years
ago, the very first hearings we had were on the foreclosure
issue. I think we had over 30 of them over the last 2 years,
plus some efforts we made in this area. It was not always easy.
Obviously, there was a lot of resistance to some of these
ideas. But nonetheless, this Committee paid a lot of attention
to the subject matter.
But Sheila Bair and others have made some suggestions on
how more aggressively to deal with these numbers, the eight
million homes we are now talking about that could be facing
foreclosure in the country, and I wonder if you might share
just some thoughts on those ideas.
And second, on rental housing. Again, I want to thank
Senator Shelby and the members of the Committee, because when
we passed the housing bill last summer, one of the things we
included was a permanent Affordable Housing Program, as you may
have watched. We are relying on funds coming out of Fannie Mae
and Freddie Mac to support that effort on a permanent basis.
Obviously, that has changed.
But I raised the other day the possibility that as part of
the stimulus package, these two funds, the trust funds that
Senator Jack Reed has been so involved and others have, that we
might get some of this assistance to help out in that
affordable housing area.
I point out in my State of Connecticut, the average two-
bedroom apartment, you have got to make $21 an hour to afford
it. I don't need to tell you, that pretty much excludes most
people who need rental housing, and I am sure the numbers
around the country are close to that or certainly reflect that
kind of a pressure. With the lack of stock and with more people
going to foreclosure, obviously the number of people seeking
rental housing is increasing simultaneously.
So I wonder if you might just put a little more flesh on
the foreclosure issue and then on whether or not you believe,
and again, I realize that the stimulus package has a lot of
hands on it. The administration, to their credit, is listening
to a lot of us up here on this. But whether or not you think
there is an argument to be made for including some of these
things, given the fact that so-called--I don't really like this
expression because I think it excludes too many of the things,
shovel-ready--but candidly, there are shovel-ready projects in
affordable housing that could put people to work, but also deal
with a legitimate housing need.
Mr. Donovan. Absolutely. First, to address your question
about some more specifics about the foreclosure issues, as you
know, there have been already early discussions with the
transition and yourself, leadership in the Senate and the
House, on the disposition of the next round of the TARP
funding. The administration, current administration as well as
the transition, have had discussions about the potential for
moving that funding forward.
What I would tell you is that we are looking very carefully
at the proposals that yourself, that Chairman Frank and others
are discussing around that. We are looking very closely at the
FDIC program. I think we generally say that we believe a
significant effort to try to keep homeowners in their homes,
using some kind of modification program, is an important part
of an overall, comprehensive plan.
We are also looking carefully at the data coming out of
that plan in terms of whether--what numbers of folks are re-
defaulting, trying to understand that data to make sure that
any plan could be structured to make sure that we have
incentives for long-term success for homeowners and that we
don't end up with the government just protecting loans that
otherwise might go bad. So we are trying to balance those
incentives very carefully in thinking about that.
I would also say that, more specifically, I think two
extremely important efforts, specifically under HUD's
responsibilities, one would be the Hope for Homeowners Program
that I mentioned earlier. I know that you and others have
ideas, which I think are very important to look at in terms of
ways to improve that program, to look at the fees, the loan-to-
value ratios and other aspects of that program. Should I be
confirmed, I look forward to working in more detail to make
sure that program is a very effective alternative for
foreclosure mitigation. Initially, 400,000 was the number that
had been expected. There were just over 100 applications in the
first month for that program, so I think it is clear to
everyone that there need to be some changes to make sure that
program is effective.
And then finally, I would mention the Neighborhood
Stabilization Program. There was $3.9 billion that was part of
the Housing and Economic Recovery Act passed this summer, as
you know. We worked very closely on that, and I think arrived
at a very good compromise in terms of how to address the
program. The situation specifically of the effect that
foreclosures are having on neighboring homes is a very serious
one.
From my own experience in New York, where my agency at one
point owned more than 100,000 apartments taken through tax
foreclosure, we saw very directly the importance of stabilizing
that housing and making sure that renovation of that housing
can have a positive impact, not just for that home, but for the
surrounding community.
And so making sure that that $3.9 billion is effective,
that it gets out quickly, and that it is used effectively is
absolutely critical, and I think there, one very important
aspect is going to be making sure that HUD provides the
technical assistance necessary to localities that are dealing
with this problem, because for many localities, it is a new
problem and a very, very severe problem.
Chairman Dodd. Well, thank you for that, and as I
mentioned, Jack Reed just walked back into the room and was our
leader on the affordable housing issues and I am sure he will
raise the issue, as well, about the two funds and whether or
not something in the stimulus package could be included in
those.
Let me turn to Senator Shelby.
Senator Shelby. Thank you, Chairman Dodd.
Mr. Donovan, the roots of our current mortgage crisis, I
think we have to go back and learn something from what went
wrong. The Federal Government, as you already know and you will
be a big part of, has already tried a variety of interventions
in our mortgage and our financial markets. Most of these have
demonstrated up to now little success. In some ways, we may
have actually made the situation worse, some people argue, by
injecting further uncertainty into our markets.
I have argued myself that any efforts to fix our financial
system should begin with an evaluation of what exactly went
wrong. If we don't know what went wrong, how are we going to
fix it? What do you see as the causes of our current financial
crisis, from your perspective?
Mr. Donovan. Senator, that is a tough question and it is,
as you said----
Senator Shelby. But it is an important question.
Mr. Donovan.----a very, very--absolutely, I agree. It is a
very important question, and I think it is one that deserves a
significant amount of study, as well, in terms of understanding
it.
Let me say, frankly, to you, I think there is blame to go
around.
Senator Shelby. Sure.
Mr. Donovan. And I think as you have seen, President-Elect
Obama is someone who is not one to say, it is this or that. He
is somebody who can say, let us look at a problem and
understand all the different issues, and to say we can all take
some responsibility, and we ought to look at all the various
causes of----
Senator Shelby. But shouldn't we find out what went wrong?
Mr. Donovan. Absolutely.
Senator Shelby. I mean, we are not up here today to say, I
have got you and I have got you and this and that. I mean,
gosh, we have got a housing crisis on our hands which is
probably the root cause of a lot of our financial problems, or
tied into it. So if we don't deconstruct what went wrong and
how to fix it, we will never fix it, will we?
Mr. Donovan. I agree with you that we need to understand
the causes of the problem, and again, I think that there are
issues that occurred in the market, really in every part of the
market and that we need to look comprehensively at, and that
means we need to understand the incentives for lenders, for
brokers, for a whole range of different players, rating
agencies. It is a very complex system, as you know. We also
know, frankly, that there were homeowners who got loans and
ended up in homes that shouldn't have, and I don't think that
we should take an approach that it was one side or the other.
We should look comprehensively at the issue, and you have my
pledge that, should I be confirmed, I would absolutely work
closely with you to make sure that we understand those issues.
I also would say that, looking forward, we do have a major
challenge, and this is also to go back to Senator Dodd's
question, Chairman Dodd's question, we have a major question of
what the future of our mortgage finance system will look like,
and that again is a complex question that will require much
study and much discussion, which should I be confirmed, I look
forward to having with you and all the members of the
Committee. But this is something that we must make sure that we
have a system that is transparent, that is open, that is fair,
and that is flexible, that continues to harness the power of
the private sector in this country in order to be able to drive
innovation and change and entrepreneurism.
But at the same time, we have to make sure that consumers,
as we have seen over the last few years, have all the
information that they need, are protected, and have the ability
to make choices of programs and lending products that work for
them, and I think we have seen that in New York City in the
work that we have done, that you can ultimately help low-income
and moderate-income homeowners successfully become homeowners.
Senator Shelby. FHA, we have touched on this earlier. We
all know that they are playing a larger and larger housing role
than they were. The crisis in our mortgage markets has not been
confined just to the subprime market. Over the last 2 years, we
have witnessed increasing delinquencies in FHA's single-family
business. In 2008 alone, the economic value of FHA's insurance
fund fell by over $14 billion, a decline of almost 70 percent
of the fund's value since 2007. At the same time, FHA's
presence in the market has increased dramatically.
Is it possible, in your judgment, that we could see a
continued decline in FHA's financial health, potentially wiping
out the fund's remaining value, if we are going down this road
that we have been going?
Mr. Donovan. Senator, this is a critical issue and one of
the very first things, should I be confirmed----
Senator Shelby. But you will have to deal with it.
Mr. Donovan.----that I will have to understand in detail.
What we know at this point is, as you said correctly, that the
market share has gone up dramatically, from roughly 4 percent
in 2005 to 21 percent today. Close to roughly a third of all
new home purchases are financed by FHA today. There are recent
studies. One of them showed recently that the reserves in the
FHA have declined to roughly 3 percent, and as you know, 2
percent is the required reserve level for FHA. So clearly an
issue of concern, a decline from roughly 6.5 percent to 3
percent just over the last year.
What I would also say, given the work that I have done thus
far with the agency review team, I do not have the full
information that I need to be able to tell you today----
Senator Shelby. I understand that.
Mr. Donovan.----whether we are looking at something in the
short-term or long-term that is a serious concern. We also know
that the scores, the credit scores under the FHA program have
actually increased somewhat. So there are different signs in
terms of what we have seen within the portfolio.
And what I would pledge to you today is that one of my
first priorities would be to look into what exactly is
happening in FHA, ask for a full accounting of the health of
the MMI fund, and to come back to you as quickly as I possibly
can so that you can understand the full important, and so that,
should I be confirmed, we could together begin to shape the
future of the FHA to make sure that it continues to be a
contributor to the recovery of the mortgage market in the
United States.
Senator Shelby. Fraud in lending, big problems always. On
several occasions, HUD's Inspector General has raised concerns
regarding FHA's lax approach to reducing fraud in its mortgage
insurance programs. For instance, the Inspector General
reported last year that FHA does not consistently refer
potentially fraudulent loans to the Inspector General's Office.
I suspect that you have had to deal with the issue of fraud
before, both at HUD and in your present job. Could you share
with this Committee briefly some of your efforts to eliminate
fraud in the programs you administered on behalf of New York
City, and how will that help you here?
Mr. Donovan. Absolutely. I think this is a critical issue.
As you think about the increase in volume that we just talked
about at FHA without a corresponding increase in staff or
changes in the systems, that is clearly an issue that needs to
be addressed very quickly to make sure that there is increased
scrutiny of the lending going on in the FHA programs.
In terms of my experience in New York, this is something
that has to be a top priority not just within FHA, but for HUD
overall, is to make sure that every dollar of assistance gets
to the people that it is intended by Congress to serve.
So a few things that I would say about our efforts in New
York City. First of all, we run the fourth-largest voucher
program, Section 8 voucher program, in the country at HPD and
we have gone to enormous lengths, working in partnership, I
will say, with HUD, to try to get access to the very latest
systems and data about exactly program incomes for
participants, to make sure that there are regular checks on
those income levels within the programs, and frankly, I will
tell you that the level of terminations that we have seen under
my tenure in the Section 8 program in New York City has gone up
significantly as a result of increased scrutiny to make sure
that those dollars are serving the recipients that they are
intended to serve.
At the same time, we do a lot of work around new housing
development or renovation of housing. I work very, very closely
with the Department of Investigation in New York City and the
commissioner there to make sure that we screen and check very
closely all of our partners within the programs. And I have a
record, I hope you would agree, that I can stand on and that I
can be proud of in terms of the way that we have operated those
programs in New York City.
Senator Shelby. One last question. HUD's role in disaster
relief, that is a huge role that HUD has played. We witnessed
in New York City after the 9/11, we witnessed in the South,
including my State of Alabama, Hurricane Katrina. In both
instances, HUD has been tasked with helping to rebuild. I know
that rebuilding efforts in my State of Alabama have been mixed,
and probably in Mississippi and Louisiana, too, at best. Often,
funds have not reached those most in need, nor have they been
distributed in a fair, timely, and equitable manner by HUD.
You have had experience in this relief. How would you
rectify that as Secretary of HUD?
Mr. Donovan. Senator, again, you have raised a very, very
important issue for HUD. The numbers that I have seen show that
in terms of just the two terms, recent terms, last 8 years at
HUD, HUD has been tasked with distributing close to $30 billion
of disaster assistance during that period. That compares to
less than $2 billion in the prior 8 years before that. So there
has been an enormous increase in the level of disaster funding
that is run through HUD.
Frankly, in terms of the systems, in terms of the
personnel, in terms of a range of management reforms, there
needs to be a very significant effort to transform the way that
HUD responds to disasters. So this is clearly a top priority in
terms of what I would be facing, should I be confirmed.
Senator Shelby. Mr. Chairman, you have been generous with
my time. I just want to say I look forward to supporting this
nomination, working with the Secretary. I have a number of
questions that I would like to submit to the Secretary for the
record that I am sure he will get back with me. Thank you.
Chairman Dodd. We will try and do that, and let me just
urge, if that is the case, being mindful. We would like to, if
we could, get the nomination moved by the end of the week----
Senator Shelby. Sure. I wouldn't hold the nomination up.
Chairman Dodd. OK, fine. That would be----
Senator Shelby. But I would just submit them to----
Chairman Dodd. OK. That clarity is important, as well.
Senator Jack Reed?
Senator Reed. Well, thank you, Mr. Chairman.
Following up, obviously, on the Chairman's point about the
Housing Trust Fund, again, we have communicated that this, I
think, is a very useful and effective way to stimulate the
housing markets, to build affordable housing. Despite the gains
that may or may not have been made over the last several years,
there is still a dearth of adequate affordable housing, so I
would reinforce the Chairman's point about working harder with
your colleagues to incorporate something like this in the
stimulus package.
The other point, in listening to Senator Shelby, whose
excellent questions raised the issue of FHA, their increased
market share from 4 percent to 21 percent is just, I think for
the record, a function of, frankly, the collapse of a lot of
alternative mortgage issuers, is that fair to say from your----
Mr. Donovan. Absolutely. In fact, if you look at FHA's
market share combined with the GSEs, you are looking at over 90
percent of the current mortgage originations in the United
States.
Senator Reed. So, I mean, essentially, and I think this was
a conscious decision of the Bush administration, of Secretary
Preston, without the mission to FHA and then Fannie and Freddie
to go out there, the mortgage market in the United States would
be moribund and we would be in a more precarious position at
the moment?
Mr. Donovan. Absolutely, Senator. I want to make sure I am
clear. My point is that all of the efforts to make sure that
FHA is running its programs in the most effective possible
manner would be directed at ensuring that there continues to be
a stable, open, fair, reliable mortgage system in the United
States and that there is access to credit. In the long run,
obviously, making sure that the broader market returns and that
private lenders do return to the market in significant measure
is a top priority. In the short-run, we have to make sure that
FHA and the GSEs are contributors and are ensuring credit is
available to American home buyers while at the same time
protecting taxpayers in terms of the quality of those loans and
the nature of the programs.
Senator Reed. And one of the ways, I think, that we have to
protect taxpayers is to ensure that FHA has all of the tools
they need--the computer systems, the resources, the qualified
personnel--and my distinct impression over the last several
years is that that has not been a priority in terms of
resources at HUD. I would hope that you would be able to alert
this Committee very quickly as to what you consider to be the
needs, the technical needs, so that, in fact, we can avoid
fraud, we can ensure that the benefits of FHA are directed to
those who deserve it, and we can ensure the companies that
participate in the FHA programs are legitimate, bona fide, and
principled members of the mortgage market. I hope you will do
that.
Mr. Donovan. Senator, you have my commitment. Should I be
confirmed, I will absolutely do that.
Senator Reed. One of the other areas, and you are very
familiar with this from your work at HUD previously, is it is
not just affordable housing, it is safe and affordable housing,
and your work on lead paint exposure, again, just your thoughts
about how some of these programs--weatherization, lead
abatement--could be incorporated into the stimulus package, not
only to provide stimulus, obviously, but also to ensure that
the housing stock that taxpayers are supporting is safe and
healthy to children and families.
Mr. Donovan. One of the things that my agency is
responsible for is removal of lead paint, both on an inspection
front and a housing code enforcement front, as well as in terms
of the renovations that we do on privately owned housing, and
it is a critical issue. I am very proud of the record that in
New York City, lead poisoning has declined by about 80 percent
over the last 10 years, and I think HUD's programs have been an
effective help in terms of declining lead poisoning around the
country. And so I do think through a range of programs, there
is an opportunity, whatever that funding vehicle may be, to
make sure that lead poisoning is as close as we possibly can
eliminated as a threat to our children around the country.
Senator Reed. Thank you. There is another major
responsibility that you have, and that is public housing. They
have traditionally been running significant backlogs in capital
funding necessary to improve them, to make improvements like
energy efficiency. Last fall, I was in Providence, where we had
one of our housing units which was kicking off an energy
efficiency program that is going to save the Housing Authority
hundreds of thousands of dollars over the next several years,
environmentally. All of it is smart investment.
I am just wondering, specifically with respect to these
types of programs, but more generally, how are we going to
support our public housing programs with real resources?
Mr. Donovan. Well, Senator, this is something that if you
look at the estimates, and I know this directly from New York
City, but if you look at the estimates nationally, some of them
are as high as a $30 billion or even higher backlog in terms of
public housing capital needs. I will say to you, we are looking
closely at this as an issue, particularly in terms of the
ability to get renovation going quickly, to generate jobs as
part of the recovery package.
I will also say that I believe strongly that investments in
the short-term in this kind of renovation can lead to longer-
term operating savings and that that is a very important
balance that we need to look at in terms of how we make smart
investments today for longer-term savings. It is something that
has been a priority in New York City, recognizing that close to
80 percent of the carbon emissions in New York City come from
our buildings, and that number is about 40 percent nationally.
Renovating our building stock, with leadership from HUD on that
issue, is a critical priority and can really be smart
investments that lead to savings in the long-term.
Senator Reed. Well, thank you, Mr. Secretary. Again, I look
forward with great enthusiasm to supporting your nomination and
to working closely with you on behalf of the people of this
country. Thank you.
Mr. Donovan. Thank you.
Chairman Dodd. Thank you, Senator, very much.
Senator Martinez? Welcome, Senator Corker, as well, and
Senator Johnson have joined us, as well.
Senator Martinez. Thank you, Mr. Chairman.
Obviously, we discussed and have throughout the hearing the
current housing crisis and the problems that I described to you
during my opening comments about the situation in Florida,
which are indeed rather dire. I was wondering what you can tell
me about your thoughts on how HUD can engage in this problem,
and specifically if you would address your thoughts on the
proper implementation of the funding provided by Congress for
the Neighborhood Stabilization Program and your thoughts on how
HUD, beyond the Hope for Homeowners Program, or even with that
program, what we can do to prevent foreclosures and keep people
in their homes.
My experience and what I have heard on the Hope for
Homeowners Program is that banks just don't participate. They
don't want to take the pain. It just hasn't worked. So how can
we make that program work? What else do you think you can bring
to the table from a HUD perspective and the Neighborhood
Stabilization Program?
Mr. Donovan. First of all, Senator, I would say, clearly,
this program has to work nationwide, but very specifically it
needs to work in Florida, because the latest estimates that I
have seen are that roughly 50 percent of all the foreclosures
are in California or Florida that we are experiencing today.
Senator Martinez. That is right.
Mr. Donovan. And so absolutely critical. As we talked about
when we met last week, there are great organizations on the
ground in Florida that are beginning to address this.
Given the scale of the crisis, however, what I would say is
that the capacity right now nationally is uneven and that I
think it is very important that HUD begin to focus on technical
assistance, making sure that there is the infrastructure in
place to deal with the foreclosure problem and the effect that
vacant, deteriorating homes are having on neighborhoods and on
the values of all homes. In fact, I think we would all
recognize that stabilizing housing prices is key in terms of an
overall economic recovery.
And so I do think technical assistance would be a key piece
of making sure that the Neighborhood Stabilization funding is
effective as it is distributed as quickly as possible.
On Hope for Homeowners, again, I look forward very much to
hearing your ideas and the ideas of the Committee about that.
From what I have heard and seen in terms of the way the program
is operating, clearly, the fees, the loan-to-value levels, I
think Secretary Preston has proposed that the LTV be raised
from 90 percent to 96.5, I believe it is, and that certainly
seems like it could be an effective piece of an overall
solution.
This is something that I would want to look at and get to
resolution fairly quickly on a comprehensive set of changes to
the program and would look forward to your input on that.
Senator Martinez. Well, we can deal in this in more detail
down the road and I am happy to do so. I hope you have met with
Secretary Preston----
Mr. Donovan. I have.
Senator Martinez.----because I think he should have some
ideas on what has worked and hasn't worked. But we have two
models out there right now that I can see. One is the model
that the FDIC has been employing in the IndyMac workouts, which
seems to have not only worked, but continue to work, and the
projections are that it is going to help hundreds of thousands
of homeowners.
On the other hand, we have the Hope for Homeowners Program,
which essentially has maybe helped a couple of hundred
families. That seems to me a pretty dire contrast and something
is happening that is different in one as opposed to the other,
and I think it is a willingness of the financial institutions
to really step to the table and do the right thing, which is
really ultimately for the benefit of the communities and
everything else, to find a way to keep people in their homes.
Obviously, in your work at HUD, subsidized rental housing
was a big part of what you did, and particularly in this
economy, we find increasingly numbers of people who need rental
housing in order to fulfill their dreams of a safe place to
live. My question really is what do you think HUD's role is in
the continuing area of assisted rental housing, on Section 8
modernization or revamping of the Section 8 program? I was
always very frustrated about the unused vouchers that went
unused to housing authorities year after year, got an
allocation of Section 8 vouchers well beyond what they could
use. And we knew when they were being sent that they weren't
going to use them all, and at the end of the year, there they
were. So utilization of the vouchers in a more efficient way as
well as the role of the GSEs in this current environment where,
frankly, there are very few private sources for financing
rental housing.
Mr. Donovan. A couple of points I would just make on that.
First of all, clearly, HUD has not been a good partner with you
and particularly the Appropriations Committees around providing
clear, timely information about budget renewals, and this has
to be a top priority, because right now on the ground, and I
see it every day, owners are unsure about the length of the
contracts that they are going to be able to have. It is leading
some owners to decide to get out of HUD programs, even though
they would like to stay in. The effects on residents and
families are substantial.
So should I be confirmed, you have my commitment that one
of the first priorities would be to make sure you have full
information about the programs, the costs of those programs,
and the renewals.
A second thing I would say is that there is a world of
energy and innovation that has been happening over the last
generation at the State and local level. As a local housing
official, I see creative groups on the ground, but also in my
work nationally, I have seen it in Florida. I have seen it in
many other States around the country. And frankly, HUD's
programs are in many ways a generation behind. They have not
kept pace with the changes that we are seeing on the ground,
and I think the opportunity, whether it is through
incorporating the Low-Income Housing Tax Credit into what is
being done on a very simple level, or more broadly, creating
the flexibility to allow local innovation to take place,
looking at opportunities like the National Housing Trust Fund
that was mentioned before, which President-Elect Obama has been
a supporter of through the campaign and through the transition,
all of those things need to be brought to HUD and there needs
to be a new spirit and a new energy given to support local
efforts on rental housing.
Third and finally, I would say we can't forget the renters
in the foreclosure problem. If there is any innocent victim of
what has happened out there, it is renters in two- or three- or
four-family buildings that are being displaced, that are being
evicted, and we have to make sure, whether it is on
Neighborhood Stabilization or in other programs, that we are
ensuring that those renters are kept in their homes as much as
possible or that we have alternatives for rental of homes that
are being foreclosed to make sure that we do as much as we can
to stabilize housing markets.
Senator Martinez. I hope you won't be shy about looking
critically at programs that perhaps whose time has passed,
well-intended when they began, but frankly have not fulfilled
their mission and perhaps shouldn't be done at HUD and perhaps
they should be more aggressively done at the State and local
level with assistance from the Federal Government perhaps, but
not government-run out of HUD directing local people how better
to do things, which, in fact, I find often is not what really
takes place, because local sometimes knows best.
One last question with the limited time I have left. This
is on RESPA, and you and I discussed RESPA a little bit. I just
wanted to make sure that I had your answer on the record as to
whether you plan to carry through with the implementation of
the regulations that have been put in place recently by
Secretary Preston and whether you support those and intend to
carry through with them, and perhaps giving a broader look at
RESPA reforms that might come during your tenure.
Mr. Donovan. I, first of all, would just say your work on
this issue, I think, was really a model of leadership and I
think very, very important efforts to make sure that, as you
spoke about in your opening statement, transparency, clarity,
the ability of families when they are making what can often be
the most important financial decision of their lives, to know
what they are getting into. To have full information is
absolutely critical.
I do know that there is pending litigation around the
implementation of the new rule and obviously that is something
I would need to look into, should I be confirmed, in greater
detail. So I can't give you a detailed answer on that.
What I can say is that I think there obviously needs to be
a balance. HUD should be interested in lowering the cost to
homeowners of that transaction and that is critical, but I
think we have also seen over the last few years the results of
a focus exclusively on lowering costs or providing everyone a
loan that they can get into without really focusing on the
affordability, the transparency, the full information that is
available. And I think there can be simplification while at the
same time greater protection for consumers to make sure that
they are not just becoming homeowners, but that they can be
successful as homeowners in the long term.
Senator Martinez. Thank you, Mr. Donovan. I look forward to
voting for your confirmation, hopefully in the very near
future, and really wish you the best and hope you will stay in
touch if I can be of any help to you.
Mr. Donovan. Thank you. I appreciate all your advice.
Chairman Dodd. Senator, thank you very much.
Senator Akaka?
Senator Akaka. Thank you very much, Mr. Chairman.
Commissioner, in Native American communities, affordable
housing development on Trust Lands requires unique and
innovative approaches. Programs authorized by the NAHASDA have
been vital to increasing access to affordable housing. Hawaii's
Department of Hawaiian Homelands, DHHL, effectively utilized
and leveraged Federal resources. Hawaii's housing costs are the
highest in the country and homelessness is too prevalent. But
despite the effective use of resources and severe need for
additional affordable housing, the Bush administration proposed
reducing the budget for Native Hawaiian housing programs. How
soon do you anticipate reevaluating budgetary priorities, and
will you work with me to try and improve access to affordable
housing for Native Hawaiians?
Mr. Donovan. Senator, first of all, let me say you have my
commitment that, should I be confirmed, I will be as open and
communicate with you as regularly as I possibly can about these
types of issues, because one of the things that I have seen,
frankly, as a local housing official in, like Hawaii, one of
the highest-cost markets in the country, if not the world, is
that too often, HUD's programs, and frankly, government
programs in general, are designed for the average place.
And the types of problems, housing problems that are faced
and the challenges in Hawaii are not the same as they are in
the rest of the country, and certainly New York's challenges
are different, as well. And one of the things I have come to
appreciate as a local housing official in New York City is that
HUD's programs need to be more flexible. They need to be able
to respond to the differences that we see across this country
because the housing challenges are so different in different
places.
And so one of the things that I feel would be a critical
set of reforms to HUD's programs more broadly is to have the
flexibility to deal with, whether it is rural housing issues,
whether it is the issues in the homelands that you are talking
about in Hawaii, or, frankly, the issues that New York City is
facing that don't fit neatly into the box of typical HUD
programs. And so, absolutely, that is something that you have
my commitment on.
Senator Akaka. Mr. Commissioner, I am concerned that too
many working families were steered into mortgages that they
could not afford or effectively understand the potential risks
associated with products such as Adjustable Rate Mortgages. You
have spoken about informing the people about this. What must be
done to ensure that working families have the financial
literacy skills to be better prepared to purchase a home,
select an appropriate mortgage, and remain in their house when
challenged with the potential financial hardships?
Mr. Donovan. Senator, I am very glad you mentioned this,
because this is a critical part of the overall comprehensive
solution to the mortgage foreclosure crisis that we are facing.
One of the things that, we have seen it in New York, but I
think we have also seen it around the country, is that too
often when a family is facing foreclosure, the shame that they
feel, the confusion that they feel, or even the anger that they
feel, honestly, at the situation that they are in, they haven't
been able to make the connections to their servicers, to
organizations that can help them.
And so it is absolutely critical, first of all, that there
be outreach and education efforts. It is something that we have
done aggressively in New York City and set up a program, a new
501(c)(3) organization called the Center for New York City
Neighborhoods, which has done exactly that kind of outreach and
education.
We also have to make sure that, frankly, all of the
programs that we have talked about, whether it be the FDIC or
the Hope for Homeowners, there needs to be the kind of
education about those alternatives on the ground because they
are only as good as the amount that a homeowner knows and can
be educated on those options being available. And so making
sure that we have the funding, the resources available to do
that outreach and to connect homeowners to the options that are
available, whether it be a modification or a new mortgage or
any of those other efforts. So those are critical pieces of
making sure that low- and moderate-income homeowners can be
successful.
And finally, I would say, in the long-run, that is
something that we need to make sure is incorporated into the
home-buying process to begin with, is full education, full
transparency in the process. We have seen in New York City,
with more than 17,000 homeowners through our New Housing
Marketplace Plan, only five foreclosures, and I think a big
part of the reason for that is the work up front that we do to
make sure that a homeowner can be successful. And the kinds of
programs that you talked about are absolutely central to making
sure that happens.
Senator Akaka. Mr. Commissioner, as I mentioned earlier, we
have been working to improve VA services for homeless veterans.
Since veterans are approximately one-third of the homeless
population, how do you intend to reach out to veterans, who
have unique needs, in order to help them access services?
Also, how do you intend to collaborate with VA in order to
provide supportive services and case management to veterans in
permanent housing provided by HUD?
Mr. Donovan. Senator, first of all, I would say, as you
know, President-elect Obama, during his time in the Senate, was
a champion of this issue, worked closely with you and others on
drafting legislation around this issue. And so, you can rest
assured this will be a very high priority for the Obama
Administration.
Second of all, I would say, from my own personal experience
in New York, this has been an issue where--as part of a team,
and I do not lead the efforts around--the Department of
Homeless Services in New York City is the leader on arranging
these issues. But I work very closely, in terms of the
construction of supportive housing and the provision of
services in supportive housing, including with veterans. And as
part of the team responding to this issue in New York, we have
built a partnership with the Veterans Administration that has
focused on the needs of veterans.
You are absolutely right to say, they are unique needs. And
with supportive housing, I think what we have seen is that
there can be a range of responses for individuals, for
families, for veterans, for populations that do have specific
needs, and that we can tailor supportive housing and the range
of responses around homelessness to meet those specific needs.
So I feel very confident that, with the progress that has
been made in areas all over the country on this issue, that we
can forge a deeper partnership with the Veterans Administration
to ensure that we significantly reduce the number of homeless
veterans that we are seeing in this country.
Senator Akaka. Thank you very much for your responses,
Commissioner Donovan. Thank you, Mr. Chairman.
Chairman Dodd. Senator Akaka, thank you very, very much.
Senator Casey.
Senator Casey. Mr. Chairman, thank you very much.
Mr. Donovan, I wanted to reiterate what I mentioned in my
opening comments about the challenge that foreclosures present
to the country. As you have said, it is--and I am
paraphrasing--but this problem has been at the root of our
economic challenges in the country, really the crisis we are
living through.
I wanted to get a sense from you at a couple of levels. One
is the kind of priority you will place upon this challenge.
Second also, how you evaluate certain initiatives that are
either on the table, so to speak, or in process, and how you
think we can improve on some of the initiatives that have been
set forth already.
One thing that I think has been missing from some of the
efforts or lack of effort by the prior administration is--I was
just looking at a news clip from January 8, a Wall Street
Journal clip, where President-elect Obama was quoted as saying
``I do think that the FDIC and Sheila Bair have had the sense
of urgency about the problem that I want to see.'' And that is
consistent with what I believe there has been lacking, is a
sense of urgency, especially with regard to the Treasury
Department, under the current administration.
So I would ask you, as a threshold question, what are
specific things, steps you can take, actions you can take in
your first couple of months that you think will improve how we
deal with foreclosures? And second, and related thereto, if you
could evaluate the FDIC proposal, the way they have dealt with
IndyMAC in terms of their own real-time and current experience.
So if you would just take those two questions, first.
Mr. Donovan. Clearly, this is something that has to be job
one for HUD. There are both questions with HUD and FHA and
then, more broadly across the administration. The FDIC program
is a very good example. But I think that making sure the HOPE
for Homeowners program is effective, the types of changes that
we talked about that are being considered by Congress at this
point, in discussions with the transition, that absolutely is
an important piece of it.
I do think that the FDIC program, as you rightly point out,
has been a promising model and it is one that we are looking at
very closely as part of a more comprehensive solution. The
latest information that we are seeing from it is that it has
reached a significant number of people, as was pointed out
earlier by one of your colleagues, a far larger number than the
HOPE for Homeowners program. And I think making sure that the
incentives are structured correctly so that we minimize the
redefault rate in particular is something that I am looking at
with the economic team to make sure that any program that
encourages modifications is structured in the best possible way
to maximize the success of the program but also to minimize the
cost to the taxpayer.
So that is the kind of balance that we are looking at right
now around the FDIC-type program which, as you rightly point
out, I think is a promising model.
Senator Casey. With regard to HOPE for Homeowners, where do
you think the problem is there? This is--of course, you have
seen this from the perspective of running a major operation in
New York and you have seen it in preparations for your
confirmation. But is it one of implementation, the problems
with HOPE for Homeowners? Or is it one of the mechanics of it
or the statutory underpinning of it? Or is it both? Or is it
something else?
Mr. Donovan. Senator, let me be frank with you. One of the
things that is very important to me is that I not give you more
information than I can, based on the limited amount of detail
that I have been able over the past few weeks, with the agency
team and with the existing administration. I will compliment
Secretary Preston on his openness and the work that he has done
with the agency team to try to make sure we have as much
information as possible.
And so cannot at this point, nor would I want to, give you
a detailed final answer on that when, in fact, we are really
looking into that information, getting more data from FHA, and
trying to understand all of the details.
Senator Casey. Let me just interrupt. It would help, after
the fact, once you are there and you have a sense to evaluate
it more fully, if you could supplement the record or provide
Committee members--because when you have a program that is
supposed to help 400,000 people and it is helping--what was the
number?
Mr. Donovan. It was, I think, 111 loans in the first month
of----
Senator Casey. That is 111, not 111,000?
Mr. Donovan. That is right.
Senator Casey. So I think it helps us to maintain the sense
of urgency to be able to evaluate that kind of an effort.
Mr. Donovan. Absolutely. And we are looking at it closely
now. Clearly the upfront fees, the loan-to-value ratios and a
number of other parts of the program are things that we are
looking at.
Senator Casey. I want to move to--and I have just a few
minutes left--to the Troubled Asset Relief Program. An awful
lot of frustration in the country that as hard as people here
worked to deal with an urgent situation that involved our
credit markets and to help to stabilize our credit markets and
therefore not only our economy but to help stabilize the world
economy, we did the right thing and we passed legislation in
October. The problem now is there is a real concern about--and
frankly, beyond concern, frustration and anger about how it has
been implemented.
I wanted to ask you a question about the Troubled Asset
Relief Program as it relates to foreclosures. One thing that I
have said and insisted on, as others have, is that any grant of
further authority with regard to funding for that have, as a
central feature of it, foreclosure prevention dollars, and tens
of billions frankly, be made available.
What is your sense of--if you have an opinion now, you may
not, but if you have an opinion now--about how the TARP program
has been implemented? And if you believe it has been
implemented poorly or in a way that has been lacking, what
would you recommend to Treasury? And you are obviously part of
this discussion. What would you recommend to the administration
as to how to fix it in terms of accountability and reform so
that people do not get a sense that tens of billions of dollars
go to banks, nothing happens, credit is not improved, lives are
not improved in terms of foreclosures or other challenges the
American people face?
Mr. Donovan. Senator, it is an absolutely critical
question. In fact, as you know, discussions have already begun,
have gotten underway, between the current administration, the
transition, and the Congress. And in fact, yesterday a letter
from Larry Summers went to the leadership of the Congress to
talk about the principles under which that next installment of
money under TARP could move forward.
And so clearly transparency and the accountability for the
use of the money, clear reporting, ensuring that there are
clear restrictions and conditions for the institutions that
benefit from that funding, are all part of the commitment that
was made yesterday in writing to Congress on the way that
President-elect Obama would utilize that funding.
One of the specific points in there was also, and I quote,
``to launch a sweeping effort to address the foreclosure
crisis.'' And so we believe strongly, as I think Congress does,
that there must be, as part of the next funding under TARP, the
bold comprehensive effort that President-elect Obama has talked
about on the foreclosure crisis.
And the elements of those, some of which we have already
talked about looking at the FDIC plan, making fixes to some of
the FHA programs, those are all elements that we are looking at
and that, should I be confirmed, I look forward to much more
detailed conversations with you and your colleagues about in
terms of what exactly the elements of that program would look
like.
Senator Casey. Finally, and I am out of time but I will put
this on the table not by way of a question but as a preview of
a question I will submit to you. On the Neighborhood
Stabilization Fund, we have heard a lot of feedback from
institutions in Pennsylvania, government agencies really like
the Department of Community and Economic Development, our major
State economic development agency, that with regard to the
almost $4 billion in funding, the statutory language has been
interpreted rather narrowly, thereby constraining the
discretion and ability of local decisionmakers to have the full
benefit of this program.
I hope we could--we will present that to you in a more
detailed form and hope we could work together to try to remove
some of the constraints on that discretion.
But I am out of time. Thank you very much.
Mr. Donovan. Thank you, Senator. And as a local user of the
Neighborhood Stabilization Program in New York, we have had
some of the same concerns and I look forward to having those
detailed discussions with you.
Senator Casey. Thank you very much.
Chairman Dodd. Thank you very much, Senator.
Before turning to Senator Menendez, let me thank Senator
Casey, raising the question on HOPE for Homeowners. I want to
thank my colleagues here, as well. This was a--we started
late--well, last spring--trying to fashion some relief program.
And I say this respectfully but to put it mildly we had a lot
of resistance from the administration about intervening in this
area, other than just sort of jawboning on the question which
obviously was not producing much at all.
What you saw in HOPE for Homeowners was sort of a creation
created by a Committee, which is not always the best way to
operate, but trying to fashion something that would gather 60
votes in the U.S. Senate to get us through. And it is
regrettable it has not performed. But I think all of us
understood in the beginning that looking at it there was so
many hoops to go through, the piggyback loans, a variety of
things that were going to make this difficult.
So I want to underscore Senator Casey's request because
this is important. I happen to agree with you. I think the FDIC
approach is an interesting approach. I do not know, in response
to some of these questions, whether you want to comment on the
bankruptcy idea, what Citigroup has just announced its support
of in terms of making primary residences available to a
bankruptcy judge to encourage workouts, as a way of maybe
getting more aggressively at the issue that can come before us.
But we clearly need to go back and revisit either the FDIC
idea or the HOPE for Homeowners as a way of getting something
right here. And we would urge you and your team to give us some
thoughts on that as quickly as possible so we could respond to
it if, in fact, Congressional action is necessary.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Mr. Donovan, I appreciate the answers you have already
given on public housing and Section 8, so I will not go over
those. But I do appreciate those answers.
Let me ask you, you know, the impact of the housing crisis
and the foreclosure crisis is being felt across the country,
but there is a universe that has no ability to protect
themselves from the results. Those are children. There are
about 2 million children who will be impacted by the
foreclosure crisis. Three-hundred-thirty school districts are
already reporting enrolling more homeless students in the first
3 months of the school year than they enrolled all of last
year.
And of course, this creates development delays for young
children. It creates more difficult challenges for older
children to stay in school. It makes it harder for enrolled
students to succeed.
So we have worked very hard. I know that we worked with the
Chair in getting provisions here to try to help school
districts. And I think there is something that we are trying to
work on in the stimulus and McKinney-Vento.
But as HUD Secretary, would you commit yourself to working
with those of us on the Committee who are interested in this,
particularly the needs of homeless children? And would you
address family homelessness through such mainstream HUD
programs as Section 8, along with ensuring that HUD's McKinney-
Vento Homeless Assistance Programs maintain the current
incentives that penalize local efforts to address homelessness
for children, youth and families?
Mr. Donovan. Senator, thank you for asking a very important
question because this is a troubling trend, frankly, that we
are seeing in New York City and across the country as a result
of the current crisis, is an increase in family homelessness.
And so there is a range of things, I think, as you correctly
point out, that we need to do to respond to this.
One of the early promising efforts that I think can be
addressed, and you allude to it in your question, is how do we
craft HUD's programs and responses to make sure that we have an
effective prevention effort as well as the longer term supports
like Section 8 vouchers and others for affordable housing. It
is cheaper and, frankly, a much better result for a family to
be able to stay in their existing home. And it is one that we
have begun to see some promising efforts in our HomeBase
program in New York City. So I think it can be an effective
part of an overall response to family homelessness.
The only other thing I would say is that I think the good
news here, if there is any, is that there has been a dramatic
really movement across the country over the last decade or so
that has focused energy around the problem of homelessness
among individuals and that we have made an enormous amount of
progress on that.
And so I think if we can focus the same kind of energy and
partnership that we have had at the local level organizations
in your State, and others have been leaders on this, and
partner it with HUD, we can make the same kind of progress on
family homelessness that we have on individual homelessness.
And a part of that, frankly, is we had data and research
that really showed the results. One of the reasons why we have
been able to make progress, I was part of a negotiation between
the city and the State where we committed $1 billion of new
funding for ending homelessness. The reason that we could get
such consensus is because we could demonstrate the fact that it
actually saved money, that investing in supportive housing
reduced the cost, whether it was of jail stays or shelters, a
range of other more expensive and, frankly, much less humane
approaches to homelessness.
So I think we can bring that same kind of effort and energy
to the issue of family homelessness. And it is one that needs
attention, as you rightly point out, right now.
Senator Menendez. We look forward to working with you on
that.
Second, I mentioned in my opening statement about this
report that just came out, that the Federal Government may very
well be ill-equipped to stop the migration of predatory
subprime lenders to the rapidly growing U.S.-backed home loans
and raising the specter of another cycle of lending abuses,
something we definitely do not want to see.
HUD officials told our colleagues on the other side of the
Capitol that the FHA lacks the sufficient staff, the adequate
technology, and the legal authority to screen questionable
lenders who seek to participate in the issuance of federally
backed loans and they went on to say that their oversight
shortcomings are not limited to lenders. Its reviews of
appraisers are not adequate to reliably and consistently
identify and remedy deficiencies. It talked about an audit
found that the Government's roster of appraisers included over
3,400 with expired licenses, and nearly 200 that had been
disciplined by the States, and on and on and on.
So the last thing we want to see is a continuation of what
happened in the private side of the marketplace move to the
Government side of the marketplace. Is that something that you
will be focusing your attention on when you----
Mr. Donovan. Absolutely, Senator. That has to be a top
priority at FHA.
Senator Menendez. And last, 40 years after the passage of
the Fair Housing Act, a good part of our country remains highly
segregated. Of more than 4 million estimated Fair Housing
violations annually, only 27,000 complaints are processed. Of
these, HUD's Office of Fair Housing and Equal Opportunity only
charged 31 cases and has failed, in my view, to address the
continuing systemic discrimination nationwide.
As HUD Secretary, would you reform HUD's Fair Lending
programs to assure that discrimination in lending is addressed?
And how do you view the role of HUD in addressing
discrimination and segregation as we move forward?
Mr. Donovan. Senator, thank you for asking that question
because I think this is a very important piece of HUD that,
frankly, too often does not get the kind of attention that it
deserves. Let me just say personally, one of the reasons I do
the work that I do is because when a family chooses a home, be
it a renter or an owner, they choose often a public school for
their child, they choose a set of services. How good is the
policing in that area? They choose access to jobs. They choose
so many things that affect the very fabric of their lives. And
so if we cannot ensure access, equal access to housing, I,
frankly, think we cannot fulfill the promise of opportunity
that this country holds out.
And so we must make sure that fair housing is a real
priority at HUD. And you quoted the numbers. Those 31 cases are
down from about three times that number in 2001 and about four
times that number from the height of HUD's efforts. So I am
significantly concerned about needing stronger enforcement of
fair housing.
You have my pledge that I will look at that. I also think
that there is a very important report, the Kemp-Cisneros
Report, that as you know I think has some very important
conclusion that I think HUD needs to look very closely at in
terms of understanding where its Fair Housing efforts need to
go.
Senator Menendez. I appreciate your answers and the answers
you gave me personally when we met and I look forward to
supporting your nomination.
Mr. Donovan. Thank you.
Chairman Dodd. Thank you very much. That was an eloquent
answer, by the way, let me say, to the question posed by
Senator Menendez.
Mr. Donovan. Thank you.
Chairman Dodd. Senator Tester.
Senator Tester. Thank you, Mr. Chairman. And I recall back
the last two Banking Committee hearings we had. One was 4 and
one was 5 hours, so we have got plenty of time here left.
[Laughter.]
Senator Tester. First of all, I want to thank Senator Akaka
for his comments on veterans. I can tell you that in the State
of Montana we have far too many homeless veterans. And anything
your agency can do to help solve that problem--and it is a
problem--would be much appreciated and we would look forward to
working with you on that.
You had said, Mr. Donovan, that you are a numbers guy. A
recent survey indicated that housing adequacy in rural America
is at about--its inadequacy is about 1.7 million or 6.3
percent, which is slightly above what it is in metropolitan
areas. What steps do you, through HUD, think that you can do
for rural America to help reverse that trend?
Mr. Donovan. Senator, first of all, I must say I really
enjoyed the time that you gave me this past week and really
appreciated hearing very personally the kinds of issues that
Native Americans are facing in your State and elsewhere around
the country. And it really made an impression on me. So I
appreciate your taking that time.
One of the things, while I do happen to be the Commissioner
in New York City today, the very first housing that I worked
on, HUD housing that I worked on in my career, was rural
housing in Oklahoma, in Kansas, in Louisiana, in Alabama, and
in Arkansas. I saw, literally at my very first experience, the
kinds of unique issues that rural America faces.
Then in my first experience at HUD, working with the
Department of Agriculture on the Farmers Home Program and a
range of others that are really deeply entwined with the
programs, the Section 8 and other programs, at HUD. HUD has a
very important role to play, in my mind, in rural areas of the
country. And so this has to be a significant issue.
One of the things, and we talked a little bit about this
when we met, that strikes me as a housing official in New York
is that there is not nearly the kind of flexibility in HUD's
programs that there need to be to be able to respond to issues
in rural parts of the country, and frankly, not an
understanding that whether it's voucher programs or certain
other programs that HUD has, that they do not work in the same
ways in rural areas as they do in other parts of the country.
To give you a very specific example, one of the things I
was faced with when I worked at HUD the first time was a series
of opt-outs in properties in rural parts of the country where
the standard response was well, we can issue vouchers and they
can go find another place to live. Well, if that place is 50
miles away or 100 miles away, you are asking that person or
that family to leave their community along with leaving their
home, which is hard enough.
And so it is just one example of the types of things where,
in very specific parts of the HUD programs, we need to be
mindful of the differences that folks face in rural markets and
to respond to them.
Senator Tester. Well, I look forward to working with you on
increasing that flexibility and in helping anybody that wants
to try to understand it better do that.
As long as you brought up Native American housing, I will
ask a few questions on that. As you know, we have a unique
trust responsibility. I think we have got seven major
reservations in Montana. There have been court decisions,
Executive Orders, treaties signed, all sorts of good stuff that
talk about obligations to provide adequate housing.
We talked about the disparities in my office. I guess the
question is how do you envision helping address the disparities
in Native American housing? How can HUD step up to the plate
and help solve the problem? Because in many areas of Montana in
Indian country, it is nothing short of Third World.
Mr. Donovan. Senator, one of the things that I think you
and others that I very much look forward, should I be
confirmed, to working with you on is to hear your ideas about
that. My sense, at this point, in terms of what I have looked
at--which to be honest, I need to, should I be confirmed,
understand more about this and understand more about the
specific issues that you're facing.
But one of the things that I've seen is that there has not
been adequate either flexibility or the ability to utilize the
block grant funding that has been available in a way that has
been effective in Native American communities. And that is
certainly something that I look forward to talking to you more
about, should I be confirmed, and to hearing your ideas about.
Senator Tester. A couple of things. As long as you brought
that up, and I know you are very busy and Montana is two plane
rides and a couple of thousand miles away from here.
But one of the things that I think would help is if you, in
particular, saw the conditions firsthand. If you would be
willing to do that, I would be willing to help make that
happen, too.
The other thing that I think you could do that would help
educate you, even more than I, would be to visit with tribal
leaders. It does not have to be in person, although it would be
better if it was. But it certainly can be over the phone. They
have a lot of good ideas and suggestions that I think you might
be able to incorporate into some of the programs you have. So I
would also encourage you to do that.
You talked about several programs. I do not need to go
through them. But you talked about education and outreach,
which is pretty easy to talk about. From my perspective, and I
hope you have a different one, sometimes it is hard to educate
and teach people about programs. So how do you plan on doing
that?
Mr. Donovan. Sorry, are you asking----
Senator Tester. I am talking about there were several
programs you listed off, HOPE for Homeowners was one. We are
going to work on that to make that program better. There were
FDIC programs. There were other programs. Any program within
your purview, where you could educate people about what is
going on, how do you plan on doing that?
Mr. Donovan. I guess to answer that, let me talk a little
bit about my experience over the last 5 years. One of the
things that I think has really been a hallmark of what Mayor
Bloomberg has done is to make information accessible to the
public and to make government systems more responsive to the
public through a range of means. In particular, we set up a
call center, a single number, 311, that responds to any
question any citizen in the city has about government services.
So you no longer have to know 800 different numbers. You do not
have to know which program you are calling about just to call
and say look, I have got this problem and how can you deal with
that?
So to me, there is a critical element of this, which is
making programs open and transparent, whether it is through
web-based services, whether it is through telephone contact,
and a range of things. So that is on the response side. That is
the reactive side.
And then there is a proactive side that needs to happen
which, again in New York, we have tried to make sure that we
have language accessibility. I have 400 inspectors that speak
roughly 30 languages. They carry a card that would allow them
to immediately identify a language that they do not speak and
connect to a translation service that offers 170 different
languages. And at the same time, to make sure that we can get
to people where they are.
And so through, for example, our Center for New York City
Neighborhoods, we have begun to use advertising on bus
shelters, going door-to-door, a whole range of different ways,
depending on the community, to reach out and to make sure that
folks are aware of the kinds of services that we are offering
to help them get--whether it is a modification, to get a new
loan, whatever might be the right thing for their situation.
And frankly, to provide the resources to fund that kind of
counseling and education as well, with local community partners
that know the issues the best.
Senator Tester. The other thing that I would like to ask is
around the jobs recovery stimulus package that we are going to
be taking up here shortly. Have you been part of those
discussions? And do you anticipate, when that package comes
out, that HUD will be a part of the solution to what is going
on in housing through that package?
Mr. Donovan. Senator, I do, and I have already been part of
significant discussions. And I do think HUD has an important,
and housing has an important, role to play in that.
Senator Tester. No doubt about it.
The last thing is, and this is pretty much common sense
from your position, there has been a lot of questions whether
it is HOPE for Homeowners or how we got into this mess. I value
your judgment. Even though you are not from rural Montana, you
have a good life experience. And I would--I value your judgment
on what went wrong and how we can prevent it from happening
again. I think that kind of information is going to be
critically important for me as a policymaker to make good
decisions down the line. So I appreciate any of those things
you can come forward with to the Committee.
I want to thank you. I want to also thank your family gain.
I mean, this is not a solo endeavor here. It takes a family to
make this thing work. I hope you pass that along to your wife.
Thank you very much.
Mr. Donovan. Thank you.
Chairman Dodd. Senator, thank you very, very much.
Good questions. The questions particularly, dealing with
the communications stuff, is so critically important. And while
there is nobody--obviously, the President is the primary
spokesperson on many of those issues, every person, including
yourself, can play a very important role.
One thing I think I have noticed, I think, in all of this
is the failure to communicate effectively to the American
people why this is happening, what the answer we think is, how
it should work, and how they will be benefited by it. And the
lack of any communication has created an awful lot of the
hostility, the frustration that people are feeling about this
stuff.
I was impressed with the number of languages that New York
City is providing. English would help in a lot of this.
[Laughter.]
Chairman Dodd. And so my hope is that you will take
advantage. You are a very good communicator. I have met with
you personally, but I have been very impressed this morning
with how articulate you are and how clear you are in describing
situations and what they mean. And I do not say that lightly to
you.
But I think it is very important that you utilize those
skills and find means by which you can be heard. Because just
the absence of people understanding what is going on
contributes to an awful lot of what we are facing today in this
issue.
You mentioned earlier President-elect Obama's talking about
the house on fire. I have used this analogy maybe 100 times in
the last few weeks, describing that when Franklin Roosevelt was
describing the Lend-Lease Program, a highly complicated program
in the late 1930s and providing assistance to Great Britain
during their big attack, obviously, by the Nazis that he used
that very analogy. Your neighbor's house is on fire, you have a
hose, you lend it to them. And millions of Americans understood
Lend-Lease in those few sentences.
And we have lacked that kind of analogy and communication
to describe why this is being done. What is TARP? Why is it
designed? What is it intended to do? And how does it affect not
just those who are getting the money out of Wall Street, but
how does it affect the proverbial Main Street people in this
country, whether it is rural Montana or a foreclosure tsunami
that is occurring in Bridgeport, Connecticut?
And that has really been missing. I have said this over and
over again, more than almost anything else we need to have
people who communicate about these programs so the American
people understand what is happening.
With that, I thank you very, very much. We will move as
quickly as we possibly can. Obviously, I will stay in close
contact with Senator Shelby, my ranking minority member of this
Committee, so we can move you forward, as well.
There are probably some additional questions but you have
done a good job here this morning and I think you have
impressed all of us with your background, your knowledge, and
your determination to roll up your sleeves and go work. I
cannot begin to tell you how much we welcome that.
So congratulations to you.
Mr. Donovan. Thanks for your eloquent words and I will be
officially changing my name to Dunovan.
[Laughter.]
Chairman Dodd. You are going to have a great career.
[Laughter.]
Chairman Dodd. The hearing will stand adjourned.
[Whereupon, at 12:28 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF SENATOR CHRISTOPHER J. DODD
Today, we are considering the nomination of Mr. Shaun Donovan,
Commissioner of the New York City Department of Housing Preservation
and Development to become the Secretary of the Department of Housing
and Urban Development (HUD).
Let me point out that we are extending to Mr. Donovan this morning
the same courtesy we showed to our colleague, Senator Martinez, for
whom the Committee, under Chairman Sarbanes, also held a nominations
hearing for the job of the Secretary of HUD prior to the President
actually taking office. It was our view then, and it is our view now--
particularly given the urgency of our economic situation--that we ought
to help get the President's cabinet in place as quickly as possible.
Mr. Donovan, let me welcome you to the Committee. You have been
nominated for a job fraught with significant challenges yet, for that
very reason, imbued with great opportunities.
For the past 3 or 4 years, the country has been facing a growing
housing problem that had its origins in the scourge of predatory
lending that has resulted in record high foreclosure rates.
This housing crisis has been a primary cause of the deepening
recession to which none of us are immune. Across the country, between
9,000 and 10,000 homeowners face foreclosure every day. Foreclosures in
my State were up over 71 percent since last year, and it's expected
that we will have more than 13,000 subprime foreclosures in the next
two years. Nationwide, cities such as Bridgeport, which had
inordinately high rates of subprime loans, are struggling to keep
themselves afloat as those loans reset one-by-one and families find
themselves with nowhere to turn.
I recently met with leaders in my State where I heard about the
toll this crisis is taking on our minority communities. Some say this
crisis will result in a net loss in homeownership rates for African-
Americans, wiping out a generation of wealth, gains and opportunities.
But let there be no doubt that this crisis today affects every
American in one way or another. In all, by some counts, we can expect
some 8 million homes to go into foreclosure absent some form of
additional action.
Unfortunately, the current Administration was slow to acknowledge
the housing problem, and when it finally did, it was timid in its
response. Even now as foreclosures tear apart neighborhoods and wreak
havoc upon our economy, the Administration has refused to use the
authority or funds we gave it in the Emergency Economic Stabilization
Act to tackle the foreclosure crisis head on--despite the Congress'
crystal clear intent in writing that law.
Surprisingly--and unfortunately, in my opinion--HUD has not played
a central role in addressing the housing crisis. Frankly, it has been,
to quote last Friday's National Journal, ``at best, a second string
player. . .'' following in the wake of other government departments
with far less expertise in housing than the professionals at HUD.
Indeed, as the cover page of CQ Weekly says, ``The housing crisis
remains at the core of the economy's woes . . . ''. Put simply, we
cannot address our economic crisis until we address the underlying
housing crisis. And to do that, we need an active, aggressive, and
well-run HUD with leadership that is confident in its mission and
unafraid to act. As President-elect Obama has himself said, ``HUD's
role has never been more important.''
Unfortunately, HUD has been mismanaged and ridden with scandal in
the last several years. Let me be clear that these problems did not
arise under the able leadership of then-Secretary Martinez. I would
also say that in recent weeks, Secretary Preston has made some
improvements.
But fundamentally, HUD has been left adrift at a time when bold
leadership and a clear direction were never more important.
Just this week, we learned about the Wrights--a middle-class family
in Windsor, Connecticut, in danger of losing their home. Like thousands
of families across the country, the Wrights were lured into a mortgage
they were assured they could afford but couldn't--not because they
acted irresponsibly but because they became pregnant with their second
child, and Mrs. Wright ran out of the paid sick time she was afforded
as a teacher.
Mr. Donovan, this is the kind of story being repeated in every
community across America today. With the right leadership, I believe
HUD can be an effective partner in helping families like the Wrights.
That is the opportunity you have--to restore HUD as a leading voice in
addressing the crisis facing our country today.
I would say to my colleagues that Mr. Donovan is the most
experienced nominee for HUD Secretary that this Committee has
considered in my long experience. In addition to his degrees in
architecture and public administration from Harvard, Mr. Donovan has
run the multifamily program at the Federal Housing Administration and
was, for a time, the Acting Housing Commissioner. He has worked in the
private non-profit sector as a housing developer and he has worked as a
managing director of a large, multi-family mortgage company.
Since 2004, Mr. Donovan has been the Commissioner of New York
City's Department of Housing Preservation and Development. In that
role, he managed 2,800 employees and helped develop and manage Mayor
Bloomberg's ``New Housing Marketplace Plan,'' one of the most ambitious
local housing plans in the nation. The $7.5 billion plan calls for the
creation or preservation of 165,000 units of affordable housing, about
half of which has been accomplished to date.
Beyond the statistics and the numbers that so dramatically
underscore Mr. Donovan's accomplishments, I want to welcome him for the
kind of leadership and vision I am confident he will bring to the
Department at a time when such leadership is needed so desperately.
For example, as early as 2004, long before most of the rest of the
country was focused on the subprime crisis and the foreclosures they
would lead to, Mr. Donovan told a Newsday reporter that he was worried
about the coming ``flood of foreclosures'' and the impact it would have
on homeowners and neighborhoods.
Mr. Donovan sees the role of HUD as being more than a caretaker for
physical housing structures, or as a mortgage insurance company. He
understands the danger of stove-piping within this arena, and sees HUD
as the Federal Government's primary tool to help build communities--an
agency that helps to provide housing opportunities for homeowners and
for renters along a spectrum of incomes and ages. He understands the
need to coordinate housing with transportation, including public
transportation and transit, to improve access to jobs and other
economic opportunities--and we need someone with that vision at the
helm.
Finally, Mr. Donovan is a man of the utmost integrity who has shown
a proven ability to work constructively with all interested parties. We
have letters, that I ask unanimous consent to include in the record,
from a wide variety of housing groups, from the Realtors, to the
Homebuilders, to the Low-Income Housing Coalition, and many, many
others, all expressing enthusiastic support for Mr. Donovan.
Mr. Donovan, again, I welcome you to the Committee, the leadership
you offer to this critically important department and, more
importantly, the hope you offer to millions of families at this
uncertain moment. I look forward to your testimony after I give my
colleagues a chance to share some opening remarks.
______
PREPARED STATEMENT OF SENATOR JACK REED
I would like to thank Chairman Dodd and Ranking Member Shelby for
scheduling this nomination hearing so quickly, an important part of our
constitutional process. I also appreciate the willingness of our
nominee to serve in the important position of Secretary of Housing and
Urban Development.
Mr. Donovan, as you know, you have been nominated for a position
that requires you to manage an agency that has the interest of some of
the most vulnerable families in this country in mind. Many of these
individuals are elderly, disabled, or just plain out of luck. They
usually don't have powerful lobbyists representing their interests. As
a result, if confirmed, you will, at times, be their only voice in
housing policy discussions that occur within the Obama Administration.
One of your chief responsibilities in this area will be internally
advocating for appropriate resources for our nation's housing programs.
Given the current budget environment, and the funding shortfalls for
many of these programs, it is going to be extremely tough, but vitally
important for you to aggressively advocate on behalf families and
elderly households across the country.
There are four topics that I would like to briefly mention to you
that are of importance to Rhode Islanders, specifically, but of extreme
interest to individuals and families throughout the country.
First, and foremost, I hope that as a member of the President's
Economic Team, you will make stabilizing the housing market one of your
chief objectives. Rhode Island has the dubious distinction of having
the highest foreclosure rate in New England, and we can not afford to
allow the real estate market to remain in freefall.
I also would like to focus your attention on some recent
homelessness statistics. According to the latest US Conference of
Mayors Report on Homelessness, homelessness has gotten worse
nationwide. On average, homelessness in the cities surveyed rose 12
percent during the past year. According to a report released today by
The National Alliance to End Homelessness, and estimated 1.5 million
additional Americans could become homeless over the next 2 years
without effective intervention.
HUD has taken steps to effectively decrease the number of
chronically homeless individuals during the past several years.
However, homeless families with children, veterans, and youth deserve
the same attention and resources. I hope that as we move forward, we
can count on your support for my bipartisan proposal to reauthorize the
housing titles of the McKinney-Vento Homeless Assistance Act to make
them more flexible and useful to local communities.
I also would encourage you to increase the Administration's focus
not just on green housing, but on healthy housing as well.
Environmental exposures within our nation's housing stock contribute to
almost one-quarter of the disease burden nationwide, resulting in
millions of preventable deaths. I hope that we can count on you to
expand the scope of HUD's health-related housing initiatives, support
them with robust funding, and ensure better coordination of these
initiatives among other Federal agencies.
A good road map for this is detailed in a bill that I introduced
last Congress, and plan to introduce again, the Research, Hazard
Intervention, and National Outreach for Healthier Homes Act. HUD's
Office of Healthy Housing and Lead Hazard Control has been on the
forefront of some of the thinking on these issues, and I hope you will
utilize their expertise as you move forward on some of your sustainable
housing initiatives.
Finally, if you are confirmed, you would also be responsible for
enhancing HUD's management and operations. While HUD has made progress
during the past several years in this area, GAO reports continue to
site serious management deficiencies, especially in human capital. I
hope you will be diligent in ensuring that HUD has the capacity to run
all of its programs efficiently and well.
I look forward to hearing your testimony this morning, your swift
confirmation, and working with you in your new capacity as Secretary of
HUD.
______
PREPARED STATEMENT OF SHAUN DONOVAN
Secretary-Designate, Department of Housing and
Urban Development
January 13, 2009
Mr. Chairman, Senator Shelby, and distinguished Members of the
Committee, thank you for the opportunity to appear before you today. I
would also like to thank Senator Schumer for that kind introduction.
Before I go any further, I would like to introduce my family: my
wife, Liza, and my two children, Milo and Lucas. Without them, and
their constant and steadfast support, I would not be here.
I am honored and humbled by President-elect Obama's decision to
nominate me as Secretary of Housing and Urban Development--an agency
with a critical role to play as government partners with the American
people to overcome the greatest economic crisis we have faced in many
decades.
I want to thank the Committee for the speed with which you
scheduled today's hearing, and the time you have made in your busy
schedules to visit with me, and share your thoughts and views regarding
housing in the United States.
Throughout my career, I have been committed to affordable housing
policy and development. In my line of work we often talk in terms of
numbers of units and dollars spent. That is our common language. But it
does little to convey the reason I am in this field. America's homes
are the foundation for family, safe neighborhoods, good schools and
solid businesses. A home represents and confers stability: a base from
which to raise our children. These things have not changed--but the
world has. I am here before you today because I hope--should you
confirm my nomination as HUD Secretary--that I can contribute to
restoring this vital sector to health and making quality housing a
possibility for every American.
My first job after graduate school was at the Community
Preservation Corporation, a non-profit lender and developer of
multifamily housing. While there, I saw firsthand the difference that
effective public-private partnerships can make in developing decent,
safe and high-quality housing. In this, the federal government was
often a valued and an essential partner. But I also experienced the
headache of trying to navigate regulatory barriers or having deals fail
because of inflexible programs.
Later, in my work at the Department of Housing and Urban
Development I saw how government can work to catalyze effective
community development. While I gained an appreciation for the benefits
of well-crafted and responsive government programs, I also saw a need
to untangle and streamline policy and programs that too often led to
missed opportunities.
Because of these experiences, I believe that the best way to ensure
access to safe, decent, and affordable housing is through strong
partnerships among the government, private and non-profit sectors.
Government can play a unique role in incentivizing the other sectors
and removing barriers to the development of quality housing.
That is why when I became Commissioner of New York City's
Department of Housing Preservation and Development in early 2004, I
engaged the agency in a top-to-bottom strategic planning process. This
resulted in new and innovative policy and programmatic solutions, a
more appropriate alignment of staff with mission, and better
measurement of results.
Let me give you two examples: with contributions from our non-
profit and for-profit partners, New York City created an Acquisition
Fund that leveraged significant philanthropic support. In one of the
most competitive real estate markets in the world, this pool of funds
enables housing developers to acquire land and create affordable
housing for hard-working families.
We also changed land use policy to respond to the challenges posed
by the New York City market. In order to incentivize the creation of
more housing for low-income families, the City undertook a series of
rezonings that will allow the development of up to 500,000 units of
housing and crafted an inclusionary zoning program that will generate
6,000 affordable units.
I believe that together we can create programs that will spur the
development of affordable housing in our cities and towns across
America.
In the past, owning a home was emblematic of financial success.
Sadly, we know that the landscape has changed. Clearly the most
important public policy decision facing Congress and the new
Administration is how to best ease the economic pain that millions of
American families are feeling right now because of our unsteady housing
markets.
As President-elect Obama has said, ``the housing crisis has shaken
not only the foundation of our economy, but the foundation of the
American Dream.''
It is estimated that approximately 2.2 million homes went into
foreclosure in 2008. One in ten American families who owns a home is in
financial trouble.
Housing is at the root of the market crisis we are now
experiencing, and HUD must be part of the solution. President-elect
Obama is committed to working with you and your colleagues on an
economic recovery plan that helps strengthen our housing and mortgage
markets.
We must ease our foreclosure crisis by helping Americans stay in
their homes. How we structure this assistance is important. We
certainly do not want to pursue policies that encourage irresponsible
behavior from lenders or homeowners.
But as President-elect Obama stated: ``if my neighbor's house is on
fire, even if they were smoking in the bedroom or leaving the stove on,
right now my main incentive is to put out the fire so that it doesn't
spread to my house.''
That is why helping a family avoid foreclosure not only keeps a
roof over their heads, but also protects the value of surrounding homes
and prevents the deterioration of our neighborhoods. Keeping families
in their homes means keeping our communities safe, healthy and strong.
These are very complex undertakings that will require a cross-
agency, broad-based approach. HUD needs to work with the Treasury, the
Federal Housing Finance Agency, and the Federal Deposit Insurance
Corporation to help stabilize our housing markets.
At the same time, we need to make sure our mortgage markets, and
other financial markets are transparent, open and fair. We need to work
together to reach a bipartisan consensus on how to reform the outdated
and often overlapping regulatory system that failed our citizens in the
run-up to the current crisis.
If I am confirmed, I look forward to working with the Committee as
it examines how to proceed, not only in my capacity as HUD Secretary,
but in my oversight roles with regard to the TARP and the Government-
Sponsored Enterprises.
If HUD is to help fix the cracks in our economic foundation, we
also will need to implement reforms within the department itself. As
you well know, there are challenges and persistent management issues
facing HUD, including modernizing IT systems, overhauling sluggish
human resource systems and strengthening contract oversight. If
confirmed, I will be open and honest about such challenges and will
work with you in effectively addressing them.
There are three particular issues I would like to highlight today.
The Federal Housing Administration has capacity issues that require
immediate attention. FHA's share of the single family mortgage market
has grown from 4 percent in 2005 to 21 percent today. For new home
purchases, FHA now has a 35 percent share according to the most recent,
albeit, preliminary data.
Second, there have been significant budgetary issues regarding the
renewal of expiring Section 8 rental subsidies, for both the tenant-
and project-based programs. Approximately 3 million American families
are served by these programs. It is HUD's responsibility to make sure
that it is delivering rental subsidies in the most cost-effective and
efficient manner possible. I look forward to working with Congress--
this Committee and the Committee on Appropriations--toward that goal.
Third, there are a series of steps that could strengthen the
department overall. We must foster a culture of excellence and
innovation. I have had the opportunity to work with some very talented
professionals at HUD and they deserve the tools to succeed. It is
critical that we restore HUD as a respected research institution. Both
you and I need to know ``what works,'' based on objective analysis and
reliable data, so that taxpayer dollars can be spent wisely and
effectively.
I pledge to make management reform a high priority. Only in this
way can we meet the enormous housing challenges facing our country.
Through HUD we can catalyze the creation of a market for energy-
efficient homes, lower the utility bills of families, and decrease the
subsidy costs of the government. Here, the Department can lead by
example by making efforts to green its own portfolio of public and
assisted housing.
HUD can help develop communities that are livable, walkable and
sustainable. By joining up transportation and housing, HUD can give
families the choice to live closer to where they work and, in the
process, cut transportation costs.
HUD can help low-income families gain greater access to security
and opportunity by expanding fair housing efforts, extending resident
choice, and using housing programs to help families become self-
sufficient.
I also pledge to you to make HUD a model of evidence-driven
government. As I have in New York City, I would set goals and metrics
for each of our priorities, so that we can clearly and openly show what
we have done well and where we can do better.
We can leverage the agency's vast national network of State and
local governments, along with non-profit and for-profit real estate
partners, to stimulate the production of workforce and mixed-income
housing, and to help preserve our existing affordable housing stock.
HUD does not build homes; our partners do. They share our passion, and
have the talent and capacity to do this work.
I would like to conclude by saying again how honored and humbled I
am to be before this Committee.
I have worked with HUD's programs from both the inside and the
outside and am intimately aware of the challenges facing the
Department. I have also witnessed the positive impact that HUD's
programs have on neighborhoods and people's lives and, if confirmed by
the Senate, I look forward to working with you to build a HUD that
exists to do the people's business; that is responsive to current
market challenges; and that ensures decent affordable housing for
millions of American families across the nation.
Thank you and I look forward to your questions.
______
RESPONSE TO WRITTEN QUESTIONS OF SENATOR DODD FROM SHAUN
DONOVAN
Q.1. The Low-Income Housing Tax Credit has been an
effective public/private partnership with states and sponsors.
How do you view the role of HUD in working with the tax credit?
A.1. Since the mid-1980s, the low-income housing tax credit
has become the main engine behind virtually all affordable
multifamily housing production. The tax credit has a proven
track record over the past twenty years of delivering quality
multifamily developments at the low end of the market, where
supply is constrained and under constant pressure.
As you know, developers often use HUD resources in
conjunction with the tax credit. I believe HUD should redouble
its efforts to foster the flexible use of HUD-controlled
resources in support of tax credit production. In addition to
working with the Congress to revise the tax credit statute to
permit use of the program with Sections 202 and 821 without
reducing the value of the credit, HUD should also simplify the
current rules for HOME and CDBG to ease the process of
combining these program resources with the LIHTC. All of these
reforms should be coupled with Federal efforts to encourage
State and local governments to lower regulatory barriers to the
production and preservation of quality, affordable housing.
Q.2. You were very eloquent in your hearing regarding the
importance of fair housing. As you may know, the National
Commission on Fair Housing and Equal Opportunity has
recommended the creation of an independent fair housing
enforcement agency to replace the existing fair housing
enforcement structure at HUD.
A proposed short term interim step is the division of the
current Office of Fair Housing and Equal Opportunity into two
offices with increased staff and resources, with a new Office
of Fair Housing reporting directly to the Secretary and an
Office of Civil Rights and Program Compliance headed by an
Assistant Secretary. This division would separate fair housing
enforcement from civil rights and fair housing program
compliance.
What is your view of these recommendations? What actions
would you take to accomplish stronger and more effective fair
housing and civil rights enforcement in the shorter term?
A.2. The Kemp-Cisneros report is a powerful reminder of how
much farther we have to go to realize the American promise of
equal opportunity for all. It is noteworthy that the report was
issued to commemorate the 40th anniversary of the passage of
the Fair Housing Act (which was enacted in the immediate
aftermath of Dr. Martin Luther King Jr.'s assassination).
There can be no more important issue than ensuring real
housing opportunity and choice for all Americans. In terms of
the recommendation regarding organizational reforms, the report
noted that it would make sense for there to be further study
and analysis of the potential options to address the flaws in
Fair Housing Act enforcement at HUD, and I believe that such an
analysis is appropriate. To that end, I intend to examine the
significant reduction in the number of fair housing charges at
HUD, the increased delays in case processing over the past 8
years, and, given the importance of the issue, HUD's
insufficient presence in assessing and addressing the
disproportionate concentration of subprime lending in minority
communities.
As the process of assessing any structural reforms takes
place, I believe we can move forward to revitalize the fair
housing function at HUD in the following ways: by
reestablishing effective partnerships with other Federal
agencies, especially those related to lending oversight and
enforcement, and with our State, local, and private fair
housing partners; revamping HUD's fair housing enforcement
activities to prioritize cases and actions that will have
maximum impact; and ensuring that access to meaningful
opportunity is imbued throughout HUD programs.
Q.3. There has been a lot of interest in taking a more
regional approach to the development of affordable housing,
similar to what is done in transportation. Do you support such
an approach? What suggestions do you have that might promote a
more regional approach to affordable housing development?
A.3. I believe that housing is best developed ``in the
context'' of communities and regions, as proximity to transit,
jobs, and retail amenities influence the long term success of
both the housing and its occupants. Walkable, transit-oriented,
mixed-income and mixed-use communities substantially reduce
transportation, create energy savings, and enhance access to
employment and educational opportunities. Many HUD programs
could readily be modified to reward such ``location
efficiency.'' In addition, as Congress begins to consider
reauthorization of the surface transportation bill, there is an
opportunity to think about how metropolitan planning
organizations might be more involved in linking transportation
to housing.
Q.4. One of the really big problems we are having in the
housing markets today is the lack of housing demand. As a
result, housing inventories have built up to 21 months or
more--extremely high levels that continue to depress the
market.
There have been a number of proposals to help stimulate
housing demand, including having the Federal Government buy-
down interest rates to as low as 2.99 percent as well as making
upfront tax credits for home purchasers more generous.
Would you comment on these proposals, please? Are there
other ways the incoming Administration is considering
stimulating housing demand?
A.4. The Administration is exploring a variety of
strategies to address the housing crisis. Our first priority is
to provide assistance to help at-risk borrowers stay in their
homes. If we can reduce foreclosures, this will help to prevent
a further weakening of the housing market.
We are also reviewing a series of proposals to lower
mortgage interest rates and stimulate housing demand. The
Federal Reserve has already been working to lower interest
rates through buying up mortgage-backed securities guaranteed
by the GSEs. Mortgage interest rates are now quite low, due
partly to government policies. Rates on 30-year loans are now
lower than they have been in decades. It is not clear yet how
much these reductions are helping to spur market demand and
whether further reductions would be warranted. We're seeing a
significant increase in refinance applications; but it does not
appear that purchase applications are responding as rapidly.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM SHAUN
DONOVAN
Q.1. President-elect Obama recently pledged ``an
unprecedented effort to eliminate unwise and unnecessary
spending.'' He has pledged to do so by going through the
Federal budget ``line by line.''
Mr. Donovan, in HUD's ``line-by-line'' review, what
standards would you use in determining whether a program is
ineffective or unnecessary?
A.1. These standards are going to be developed in
conjunction with OMB and will be used across departments. The
Administration plans to release proposals to reduce spending
and eliminate programs as part of the President's economic and
budget overview, which is scheduled to be released in late
February. When this guidance is promulgated, I would be happy
to share it with the Committee.
Q.2. Mr. Donovan, I understand that New York City is the
only city in the country that spends more of its own funds on
housing and community development than it receives from the
Federal Government.
Do you believe that this level of commitment can be copied
by other cities, or is there something unique about New York
City that allows only it to make such an effort on its own?
A.2. New York City does commit a significant amount of
local resources to housing and community development, but the
size of this commitment may not be easily replicable given that
New York City's municipal budget is much larger than that of
any other American city. What is worth replicating, however, is
the unique partnership between local resources--be they public,
private, or non-profit--and the Federal Government. These are
the kinds of strategic investments that HUD can and must make
in order to be successful in every city and State in the
country.
Q.3. Most of the focus on our mortgage market has been
solely on the single-family side. However, over the last year
we have seen increasing delinquencies on multifamily mortgages.
Among securitized multifamily mortgages, delinquency rates have
tripled over the last year.
Mr. Donovan, given your past experience administering FHA's
multifamily programs, what is your view of the health of the
multifamily mortgage market, and in particular, the financial
health of FHA's multifamily programs?
A.3. The multifamily market remains stronger than the
single-family market, but we are beginning to see some signs of
trouble. While delinquency rates for multifamily mortgages have
remained below historical averages, they continued to rise in
the third quarter, and the economic downturn is likely to push
these rates still higher. Plus, in some markets, investors
bought multifamily properties at prices that used aggressive
forecasts of rent increases that are not coming to fruition. In
the last quarter of 2008, vacancies were up and effective rents
were down in most markets around the country.
FHA multifamily mortgages play a small but critical role in
the multifamily market. As private sources of financing have
dried up, the FHA has increased its multifamily activity. Its
share of market activity is rising. I plan to ask my FHA
Commissioner to closely monitor and track the performance of
these loans and ensure that FHA is adequately meeting its
expanded role.
Q.4. Mr. Donovan, you mentioned in your statement some of
your efforts to expand the housing supply in New York City.
While we all enjoy visiting New York, I suspect many of us
would have trouble affording to rent or buy a property there.
New York City remains one of the least affordable housing
markets in the Nation. I believe we would all prefer to see our
Nation's housing markets become less like New York's rather
than more.
What do you believe are the factors that have led to New
York City's housing market becoming so unaffordable?
A.4. There are many factors that contribute to New York's
housing market, but one of the most important is the city's
relatively recent resurgence.
During the economic downturns of the 1970s and 1980s, New
York City lost hundreds of thousands of its middle-class
families. Certain parts of the city were all but abandoned.
During this time, the City assumed ownership of vacant lots and
abandoned buildings through tax foreclosure, and began
redeveloping them. During the late 1980s and 1990s,
neighborhoods across the city were transformed block by block,
from Harlem to Central Brooklyn to the South Bronx. By the mid-
1990s, the city was a very different place, thanks to
innovative crime-fighting techniques, an economic recovery, and
effective community development. Immigrants from around the
world--and from across the United States--came to New York to
make their fortunes. By 2000, the city had regained much of the
population it had lost in the postwar period, and one of the
most significant effects of this population ``boom'' was an
increase in housing costs.
There are many ways to address the high cost of housing.
One essential way is to subsidize the creation and preservation
of affordable units, which we did with the creation and
execution of the Mayor's New Housing Marketplace Plan, a
historic plan to create and preserve 165,000 units across the
city. Another important way is to increase the supply of
housing. In order to facilitate this goal, the Bloomberg
Administration has rezoned a record number of neighborhoods in
order to increase density and preserve community context.
Nearly all of these rezonings have had an affordable housing
component, and have led to the creation of market-rate and
affordable units in neighborhoods across the city.
Q.5. Mr. Donovan, you mentioned in your testimony the
significant budgetary issues facing the Section 8 Voucher
program. We have seen, over the last decade, the Section 8
program grow from around a third of the HUD budget to over half
the HUD budget today. I believe this cost escalation is due to
the fact that the program provides inadequate incentives for
housing authorities to control costs.
Do you have any suggestions for bringing the costs of the
Section 8 program under control?
A.5. Since the mid-1970s, rental housing vouchers have
emerged as the most substantial form of subsidized housing in
the United States; they now serve some 1.9 million households.
Vouchers have become one of the most effective and direct ways
of meeting the principal housing challenge facing very low-
income families: affordability. They enable millions of
families to live closer to their jobs, near better schools, and
in safer neighborhoods. They have also allowed families to
change location when there is a change in their housing or job
situation.
As Commissioner of the New York City Department of Housing
Preservation and Development (HPD), I managed the fourth
largest Section 8 Voucher program in the country, and am
intimately aware of the challenges facing those in managing
this program. One of the main challenges has been the
unpredictability in the Section 8 renewal funding formula,
which I believe has contributed to inefficient management of
local programs. I would hope to first stabilize this program
and make it more transparent.
I also share your concern about the rising share of HUD's
budget represented by Section 8 expenditures, and am open to
any proposals that would make the Section 8 programs more cost-
effective and efficient. This could include experimenting with
alternative forms of administration as a means to avoid the
duplication of costs and enhance the effectiveness of the
program so that more families can be served. I look forward to
working with this Committee towards improving this vitally
important program.
Q.6. Mr. Donovan there exists a significant gap in the
homeownership rate between white and minority households. Much
of Federal housing policy is aimed at reducing that gap.
What do you believe are the primary causes for this
homeownership gap?
A.6. I think there are two primary causes for the gap in
homeownership rates between white and minority households.
First, racial disparities in education and income drive
disparities in homeownership. We all know that educational
attainment rates are alarmingly low among African-Americans and
Hispanics. In 2006, for example, only 13 percent of Hispanics
and 18 percent of African-Americans between the ages of 25 and
44 held a bachelors degree, compared with 34 percent of non-
Hispanic whites and 59 percent of Asians in the same age group.
With economic restructuring, low educational rates result
in lower wages and incomes. U.S. workers without a high school
diploma saw their real wages stay virtually the same over 30
years. By contrast, individuals with a college degree
experienced significant real wage growth over this period. With
lower incomes, African-Americans and Hispanics have more
difficulty purchasing homes and creating wealth through
homeownership.
Second, housing discrimination persists despite progress
since the enactment of the Fair Housing Act of 1968, with 17
percent of all adults in the United States reporting some form
of housing discrimination, according to one recent survey. The
prevalence of subprime loans among racial minorities and the
concentration of such loans in minority neighborhoods further
underscores the importance of vigorous enforcement of the
Federal Fair Housing Act and the obligations of HUD and other
Federal agencies to ``affirmatively further fair housing'' and
ensure greater scrutiny of unfairness in the marketplace.
Q.7. Last Congress, the Committee reported a bill reforming
HUD's homelessness assistance programs, but the bill was never
voted upon by the full Senate. Included in this legislation was
an expansion of HUD's rural homelessness program.
Mr. Donovan, working in New York City, I am certain you are
familiar with urban street homelessness. However, I would like
to hear your views on whether you believe separate tools are
necessary to address rural homelessness.
A.7. I believe that HUD's tools for helping communities
address homelessness need to be as flexible as possible, so
that a community can figure for itself how to best prevent and
end homelessness. I applaud the Committee's efforts in this
area to both consolidate HUD's existing homelessness programs,
so that they are more efficient and easier to use, while at the
same time incentivizing communities to focus on preventing
families and individuals from becoming homeless in the first
place. Whether it is in a rural community or a big city,
studies have shown that it is much more expensive to provide
emergency care to families than to pay for prevention. We also
know it is very hard for a family to look for employment or
succeed in school once they have become homeless.
I also believe the Committee's efforts to create incentives
and provide more flexible tools for more rural communities to
prevent and end homelessness is extremely important, and I look
forward to working with you to quickly pass a reauthorization
of the McKinney-Vento Homeless Assistance Act.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER FROM SHAUN
DONOVAN
Q.1. In your testimony, you comment on the fact that the
market share FHA has on home loans has grown approximately six
times its market share since 2005. How do you and your staff
plan to address this issue, and what do you believe is an
appropriate market share for the FHA to have?
A.1. I believe the increase in market share presents major
challenges for FHA. To ensure the safety and soundness of the
Fund, I believe FHA must have access to state-of-the-art
automated valuation methods, income verification tools, and
other fraud detection mechanisms, as well as the capacity to
sanction those appraisers, mortgage brokers, and lenders that
fail to adhere to FHA guidelines.
I also believe that we need to examine carefully FHA's
staffing, contracting and technology needs, a review I intend
to undertake in the coming months.
Q.2. Last July, Congress passed the Housing and Economic
Recovery Act (HERA) of 2008 which included a provision that
ended the practice of allowing Seller-funded down payments.
Certain data suggested these loans performed 2 to 3 times worse
than the rest of the FHA portfolio of loans. Do you believe
this program should be resurrected?
A.2. HERA mandated a temporary one-year ban on Seller
Financed Down Payment Assistance (DPA) programs effective
October 1, 2008. This ban followed a proposed rule by FHA to
limit DPA programs in the aftermath of GAO reports indicating
that loans receiving seller-financed DPA had unacceptably high
mortgage delinquency and foreclosure rates, and threatened to
undermine the safety and soundness of the FHA insurance fund.
Others countered by noting that nearly 40 percent of all FHA
insured loans involve some form of seller-financed DPA and that
any effort to limit the availability of DPA would severely
undermine the ability of FHA insurance programs to serve lower-
income and/or minority borrowers. I intend to examine this
issue with care during my first few months in office.
Q.3. Some have suggested that because FHA is not a separate
entity within HUD, unlike Ginnie Mae, it does not get the
resources and authority it often needs to accomplish its
mission. What are your preliminary thoughts on making FHA a
separate entity or even a new corporation of the Federal
Government?
A.3. HUD Secretary Henry Cisneros proposed making FHA a
separate corporation in the mid 1990s as part of his ambitious
plan for HUD restructuring. I think this proposal and others
like it deserve careful review, particularly given the need for
additional hiring and contracting flexibility at FHA.
In general, however, I believe that form should follow
function. I believe that the form FHA should take should be
determined in the context of a review of the entire housing
finance system, including an assessment of the future role of
the GSEs. Only then will we know what organizational structure
will best strengthen FHA's capacity to serve underserved
households while retaining its accountability to the taxpayer.
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STATEMENT OF MARTY SHURAVLOFF
Chairman, National American Indian Housing Council
January 13, 2009
On behalf of the National American Indian Housing Council
(``NAIHC'') I am pleased to submit this statement regarding the
nomination of Shaun Donovan to be Secretary of the Department of
Housing and Urban Development (``HUD'').
America is facing the most challenging economic difficulties since
the 1930s, and this Committee will play a vital role in developing
initiatives to lead the American people to a more promising future.
It is worth remembering that while the business pages of the
country's newspapers call attention to the current unemployment rate of
7.2 percent, American Indian, Alaska Native and Native Hawaiian
communities have endured jobless rates many times that rate for
decades. In fact, the average unemployment rate in these Native
communities is 30 percent and in some communities that figure exceeds
70 percent.
As an architect, Mr. Donovan knows the importance of ensuring that
buildings and other structures have strong foundations. Once confirmed,
the NAIHC is hopeful that he will forge a strong foundation with Native
America upon which will build a brighter future for our people.
As the Director of New York City's Department of Housing and
Preservation, Mr. Donovan has extensive experience with urban housing
matters and with low-income housing in particular. He also served as a
deputy assistant secretary for the multi-billion dollar multifamily
housing program in the Clinton Administration.
The NAIHC is very encouraged that President-elect Obama has chosen
a nominee as experienced and formidable as Mr. Donovan. We are hopeful
that as secretary, Mr. Donovan will develop a keen understanding of the
housing and economic problems that plague Native communities and will
surround himself with professionals who are committed to improving the
housing conditions of America's first people.
I can assure this Committee and the candidate that the NAIHC stands
ready to work with him and the department on these important matters.
Thank you, Chairman Dodd, for the opportunity to submit this
statement for the record and I would be happy to answer any questions
you might have.
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