The Federal Reserve estimates that lenders are on track to initiate 2.25 million foreclosures this year, more than doubling the annual pace before the crisis set in. What's more, falling housing values and a plunging stock market have contributed to $2.8 trillion in lost household wealth in the third quarter.
Donovan joins a team led by Tim Geithner, Obama's nominee for Treasury secretary, and Larry Summers, who will chair Obama's National Economic Council. Obama has his team working on an ambitious economic recovery plan that includes saving or creating 2.5 million jobs over the next two years.
Stemming foreclosures and stabilizing the battered housing market will be daunting tasks that have already bedeviled Congress and the Bush administration.
"We need to approach the old challenge of affordable housing with new energy, new ideas, and a new, efficient style of leadership," Obama said upon naming Donovan during his Saturday radio address. "We need to understand that the old ways of looking at our cities just won't do."
Donovan will inherit various tools to confront the problem. Obama wants to use the second half of a $700 billion financial industry rescue plan to help stem foreclosures. Congress this year also put in place a $300 billion program designed to let troubled homeowners swap risky loans for more affordable ones, though few have applied. Moreover, homeowners have continued to default on mortgages despite government efforts to lower interest rates and modify repayment terms.
With one in 10 U.S. homeowners delinquent on mortgage payments or in foreclosure, Obama said Donovan will bring "fresh thinking, unencumbered by old ideology and outdated ideas" at the Housing and Urban Development Department to help resolve the housing and economic crisis.
Donovan, head of New York's Housing Preservation and Development Department, is a former Clinton administration HUD official with a national reputation for curtailing low-income foreclosures, developing affordable housing and managing the nation's largest housing plan.
"Mr. Donovan's background prepares him to address the extremely difficult challenges our country faces in helping Americans find affordable housing," said Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee.
If confirmed by the Senate, Donovan would become the nation's top housing official in the midst of the worst recession in decades. Falling home values and stricter lending standards have ensnared millions of U.S. households. More than 259,000 homes received a foreclosure-related notice in November, up 28 percent from a year earlier.
Conrad Egan, president of the nonpartisan National Housing Conference, said Obama's selection of Donovan signals that he recognizes HUD can play a big role in the economic recovery.
"It really needs to be a seat at the Cabinet table that is the principal point where housing and community development issues are brought together and resolved successfully," Egan said. "HUD has been perceived as a second-tier participant in meeting that challenge."
Obama's housing plans, as spelled out during his campaign and
the current transition, include:
-Enacting a 90-day foreclosure moratorium for homeowners "who
are acting in good faith."
-Getting Treasury and HUD to coordinate with state housing agencies to restructure mortgages.
-Reforming the bankruptcy code to help homeowners.
-Enacting a 10 percent refundable tax credit on mortgage interest.
"This plan will only work with a comprehensive, coordinated federal effort to make it a reality," Obama said. "We need every part of our government working together from the Treasury Department to the Federal Deposit Insurance Corporation, the agency that protects the money you've put in the bank."
Right now, the Bush administration's Treasury Department is resisting an effort by FDIC chairwoman Sheila Bair to use $24 billion in financial bailout funds to help 1.5 million borrowers avoid foreclosure by guaranteeing modified mortgages.
Donovan, a 42-year-old New York native, told the Senate Banking, Housing and Urban Affairs Committee in May that HUD's programs have led to "a feast-famine cycle, in which our program grows to the allowed size and then contracts so we don't go above our authorized level."
As New York Mayor Michael Bloomberg's top aide for housing, Donovan kept foreclosures to a minimum in the city's low- and moderate-income homeownership plan, with just five of 17,000 participating homes falling. He oversaw the creation of the $200 million New York Acquisition Fund, a collaboration involving the city, foundations and financial institutions. It is intended to help small developers and nonprofit groups compete for land in the private market.
"He has moved our focus beyond the old public sector driven solutions by giving the starring role to the private and nonprofit sectors," Bloomberg said Saturday. He said Donovan "has shown that we can do more with less - especially in these difficult times."
Sheila Crowley, president of the National Low Income Housing Coalition, said Donovan "enjoys high regard across the spectrum of housing interests, from low income housing and homeless advocates, public officials, developers, and financiers alike."
