Department of Housing and Urban Development, Assistant Secretary for Housing, Federal Housing Commissioner

Department/Agency: Department of Housing and Urban Development

Position:

Assistant Secretary for Housing, Federal Housing Commissioner

Executive Schedule: Executive Level IV - Presidential Appointment with Senate Confirmation

Major Responsibilities:

Help home buyers obtain affordable loans
Insure lenders against defaults
Require borrowers to carry mortgage insurance, but allow smaller down payments
Enforce federal regulations that protect consumers in real estate settlements
Oversee more than $400 billion in loans and staff of 3,400

Key Competencies and Preferred Qualifications:

Ability and experience in managing a large organization
Knowledge of housing industry as a developer, contractor, manager or banker
Understanding of low-income and affordable housing issues
Several housing commissioners have been academics

Insight:

The financial crisis that President-elect Barack Obama inherits will have many aspects demanding the immediate attention of the new chief executive and his economic team. Perhaps none will be more exigent than the need to stem the wave of mortgage foreclosures, which already has cost several million Americans their homes. Seven percent of all mortgage loans were delinquent at the end of September 2008, the highest rate ever recorded in the survey of the Mortgage Bankers Association (MBA). Even before the credit markets froze up, the number of homes entering foreclosure had doubled from 734,000 in 2003 to 1.6 million in 2007. The MBA's chief economist estimated that 2008 would end with 2.2 million more homes in foreclosure and the outlook for 2009 only worse. Speaker of the House Nancy Pelosi (D-CA) predicted a month before Inauguration Day, "As many as 2 million Americans will see their mortgage rates increase in the next two years, with many of them losing their homes as a result of bad lending practices."

While President Bush and Treasury Secretary Henry Paulsen scrambled in their final months to keep more major banks and Wall Street institutions from foundering, Pelosi, House Financial Services Chairman Barney Frank (D-MA) and other critics complained that the lame duck administration wasn't doing enough to help individual homeowners saddled with mortgage payments they cannot afford. The job of fashioning a new strategy to prevent millions more foreclosures will rest on the shoulders of Housing and Urban Development Secretary-designate Shaun Donovan and whomever the president-elect nominates to be the new federal housing commissioner and assistant secretary of HUD for housing. Donovan, who was a deputy assistant HUD secretary in the Clinton administration, is an architect by training and former executive for Prudential Mortgage Capital Co. (where he led its FHA lending and affordable housing efforts). He returns to Washington after serving as New York City commissioner of housing preservation and development under Mayor Michael R. Bloomberg.

Obama, in a Dec. 13, 2008, radio address announcing the selection of Donovan, had this to say about the housing crisis:

To end this economic crisis, we must end the mortgage crisis where it began. This all started when Americans took out mortgages they couldn't afford. Some were reckless, aware of the risks they were accepting, but many were innocent, tricked by lenders out to make a quick buck. With banks creating securities they could not value, and regulators looking the other way, the problem began infecting the whole economy, leading to the crisis we're now facing.

One in ten families who owns a home is now in some form of distress, the most ever recorded. This is deeply troubling. It not only shakes the foundation of our economy, but the foundation of the American Dream. There is nothing more fundamental than having a home to call your own. It's not just a place to live or raise your kids or return after a hard day's work - it's the cornerstone of a family's financial security.

To stem the rising tide of foreclosures and strengthen our economy, I've asked my economic team to develop a bold plan that will dramatically increase the number of families who can stay in their homes. But this plan will only work with a comprehensive, coordinated federal effort to make it a reality. 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. And few will be more essential to this effort than the Department of Housing and Urban Development.

From providing shelter to those displaced by Katrina to giving help to those facing the loss of a home to revitalizing our cities and communities, HUD's role has never been more important. Since its founding, HUD has been dedicated to tearing down barriers in access to affordable housing - in an effort to make America more equal and more just. Too often, these efforts have had mixed results.

That is why we can't keep doing things the old Washington way. We can't keep throwing money at the problem, hoping for a different result. We need to approach the old challenge of affordable housing with new energy, new ideas, and a new, efficient style of leadership. We need to understand that the old ways of looking at our cities just won't do. That means promoting cities as the backbone of regional growth by not only solving the problems in our cities, but seizing the opportunities in our growing suburbs, exurbs, and metropolitan areas.

When the sub-prime mortgage fiasco sent the two government-backed giants of the mortgage guarantee business, Fannie Mae and Freddie Mac, into a tailspin in Fall 2008, the Federal Housing Authority soldiered on in its mission of helping homebuyers with low down payment purchases and refinancings. Brian D. Montgomery, its head, was a former White House advance man handling planning, logistics and travel for both the first and second Bush administrations. He was communications director for the Texas Department of Housing when Bush was governor. But Montgomery was also a consummate trouble-shooter who headed a White House working group that investigated the shuttle Columbia disaster, and chaired HUD's recovery and response center to help those who lost their homes when Hurricane Katrina devastated New Orleans and the Gulf Coast in late August 2005. He proved a fast study at FHA. Even among tough critics on Capitol Hill of Bush administration's economic policies, Montgomery was respected and viewed as someone pushing his agency and the administration to do more for troubled homeowners. A recent New York Times profile bearing the headline, Career Bureaucrat Rises to Prominence in Housing Crisis said, "Mr. Montgomery, a longtime Bush loyalist who came to the job with little housing experience, has gained prominence as an unexpectedly influential official whose quiet efforts to modernize a stagnant agency has won the respect of Democrats and Republicans alike." It quoted him saying, "I didn't take the job to be in the spotlight; I've been very passionate about this." Even before the mortgage crisis hit, the Times reported, Montgomery had pushed to revitalize a "moribund" agency which had seen the number of single-family home loans it insured drop from 1.3 million to 300,000 between 2002 and 2006 as homeowners opted instead for adjustable rate mortgages. "You were kind of starting to see F.H.A. fade into the night," Montgomery told The Times. The article went on: "He reached out to Democrats in Congress and pushed to streamline cumbersome rules that had driven some lenders away. In 2006, he allowed banks to endorse mortgages electronically as opposed to sending in stacks of folders for review. In 2007, he created an F.H.A. Web site to allow lenders to more easily navigate the agency's rules. He has worked closely with lawmakers on proposed legislation to make the F.H.A. more competitive by increasing loan limits and making the process of buying condominiums less onerous." It quoted Montgomery as saying, "I made the decision early on ... (that) I'm not going to go in there with partisan stripes on my sleeve." Alphonso Jackson, HUD secretary since 2004, resigned in April 2008 in the midst of a criminal investigation into favoritism in awarding HUD contracts; President Bush tapped Small Business Administration head Steve Preston to be HUD secretary for the final eight months of his administration. The turnover at the top made the job of FHA commissioner even more important during the financial crisis.

Not all of Montgomery's efforts worked. Montgomery revealed in June 2008 that the FHA had to withdraw nearly $5 billion from its $21 billion capital reserve fund to cover losses, mainly on loans in which sellers financed the buyers' down payments. Montgomery said the FHA needed to shut that program down or go broke. "Let me repeat: FHA is solvent," Montgomery told the National Press Club on June 9, 2008. But "no insurance company can sustain that amount of additional costs year after year and still survive."

The FHA was created by Congress and the Roosevelt administration in 1934 at the height of the Great Depression to help struggling Americans buy and stay in their homes. Over the decades, it has insured 35 million home mortgages and currently has 4.8 million loans in its portfolio. But Congress was slow to raise its loan limits during the run-up in home prices. The Bush administration sought to raise those limits and make the FHA more agile and market-oriented. A reform bill passed the House in 2006 but languished in the Senate. Montgomery contended in his Press Club speech that the administration's proposals "to modernize FHA could have prevented much of the mess we confront today. Hobbled by low loan limits and higher down payment requirements, FHA was literally priced out of some housing markets....I feel like one of the characters from the timeless Samuel Beckett play Waiting for Godot. Despite our best efforts, we continue to wait and wait, and wait for Congress to do their work on FHA Reform."

A version of that FHA reform legislation finally passed as part of the Housing and Economic Recovery Act that President Bush signed on July 30, 2008. The act allows the FHA to insure loans up to $625,500 in high cost areas; the previous limit was $362,790 (The emergency Stimulus Package enacted in February 2008 had temporarily lifted the FHA maximum to $729,750 in the highest price markets, but only through December 2008). The Housing and Economic Recovery Act also included a new, HOPE for Homeowners initiative allowing FHA-approved lenders to refinance some loans to distressed borrowers. That initiative was billed as helping up to 400,000 families keep their homes, but few lenders actually signed up to participate after its Oct. 1 start. The FHA relaxed its terms in November 2008 to coax more lenders into the program, which sunsets in 2011.

Then-HUD Secretary Jackson said in February 2008 that an earlier FHA initiative called FHASecure had helped 100,000 homeowners avoid foreclosure. By June that number was 230,000, with Montgomery predicting that FHASecure would help nearly a half-million families refinance at the prime rate by year's end. "Avoiding foreclosure is less costly for lenders than foreclosure," he said. "The Joint Economic Committee has estimated that foreclosure avoidance costs a lender about $3,000; while an actual foreclosure costs a lender almost $78,000."

In testimony to the House Financial Services Committee last spring, Montgomery said, "I believe most Americans want to protect homeowners who played by the rules. They don't want to reward risky financial behavior. And they don't want to make the Federal government the lender of last resort, with the private sector dumping bad paper on FHA and taxpayers. We must not federalize the housing market. And we must not harm our economy through solutions that, however well intentioned, further erode the foundation of the nation's housing market, hurt homeowners who are meeting their mortgage obligations, or prolong the correction."

In October 2008 HUD updated its online guide to avoiding foreclosure, and in November 2008 it issued new rules that it said would help consumers shop for lower cost loans and save typical borrowers nearly $700 in settlement costs. Montgomery said the FHA had heard from "every corner of the mortgage market" and "balanced the needs of consumers with those in the business of homeownership." He added, "None of us can lose sight of the fact that millions of Americans simply don't understand all the fine print of their mortgages and this, in many respects, is at the heart of today's mortgage crisis."

Key Relationships – Within the Government:

Secretary and Deputy Secretary, U.S. Department of Housing and Urban Development
Chairman, Federal Deposit Insurance Corp.
Chairman, Federal Reserve Board
Secretary and Deputy Secretary, U.S. Department of Treasury
Assistant Secretary, Domestic Finance, Treasury
Associate Director, Economics and Government, Office of Management and Budget

Key Relationships – Outside the Government:

Mortgage Bankers Association
American Bankers Association
National Association of Home Builders
National Association of Realtors
Council of State Housing Agencies
National Housing & Rehabilitation Association
National League of Cities
National Urban League

Nomination Referred to:

Senate Committee on Banking, Housing and Urban Affairs

Current Position Profile:
1. David H. "Dave" Stevens (Confirmed: July 10, 2009). Former President and Chief Operating Officer, Long & Foster Realtors; Former Executive Vice President, National Wholesale Manager, Wells Fargo & Company. Former Senior Vice President, Single Family Business, Federal Home Loan Mortgage Corporation.

Recent Position Profiles:

2. Brian D. Montgomery (2005-2009). Former Cabinet secretary to President George W. Bush and deputy assistant and director of advance. Also a White House advance man under former President George H.W. Bush. Director of communications, Texas Department of Housing, under Governor Bush.

3. John C. Weicher, Ph.D. (2001-2005). Former HUD assistant secretary for policy research and development in first Bush administration. Former chief economist for HUD (1975-1977) and OMB (1987-1989). Now directs Hudson Institute's Center for Housing and Financial Markets.

4. William C. Apgar, Ph.D. (1997-2001). Long-time lecturer in public policy at the Harvard Kennedy School and senior scholar at Harvard's Joint Center for Housing Studies. Co-author of biennial report, "America's Rental Housing."

5. Nicolas P. Retsinas, M.A. (1993-1998). Also directed Office of Thrift Supervision in 1996-97 and was acting chairman of Federal Housing Finance Board in 1994-1995. Since 1998, director of Harvard University's Joint Center for Housing Studies and lecturer on real estate at the Kennedy School.