Shaun Donovan has the worst job in Washington and doesn't seem to know it.
As the new Housing and Urban Development (HUD) secretary, he's President Barack Obama's point man on the mortgage meltdown, charged with devising an exit strategy for the worst real estate crisis ever. More than 8 million Americans are expected to lose their home over the next four years as rising unemployment compounds already high foreclosure rates.
Yet Donovan, 43, is a happy guy. Sitting inside the agency's New York office, a towering gray cinder-block building in downtown Manhattan, he has big plans for not only tackling the meltdown, but fixing a host of other housing ailments. "It's enormously exciting," he says.
A bespectacled redhead with a wiry frame, Donovan's pale eyes shine as he explains his agenda. He wants HUD to act as a "catalyst" for shifts in American urban planning, moving away from poorly conceived communities that require costly commutes and making homes affordable for working families.
He wants to give consumers as much information about future utility bills as they could learn about a car's fuel efficiency. He's teaming up with Energy Secretary Steven Chu to figure out how residential carbon emissions--which account for a fifth of such output in the U.S.--can be curbed. Still, he says, carbon bigfoots need not fret. "This isn't about the federal government telling people how to live."
For now, his ambitious designs will have to wait.
As the new HUD chieftain, Donovan is at the center of the government's efforts to revive the ailing housing market. Working with fellow technocrat Treasury Secretary Timothy Geithner and other regulators, he helped shape the president's recently launched $275 billion mortgage plan to curb foreclosures. Unlike his predecessors, Donovan has a seat at frequent White House economic round tables alongside Geithner and economic guru Larry Summers.
His biggest concern right now is the Federal Housing Authority (FHA), whose commissioner, mortgage industry veteran David Stevens, has not yet been sworn in. With the private sector reluctant to lend in a turbulent market, the 75-year-old agency emerged as a key source of mortgage financing. It has gone from shouldering 3% of the market in 2006 to guaranteeing nearly a third of all U.S. home loans issued so far this year.
Unfortunately for taxpayers, the FHA's $600 billion book is getting bigger, not better. The number of seriously delinquent loans it backs hit 7.5% in February, a 20% jump from the year before. Dodgier loans cut the agency's reserve cushion in half to 3% of its total portfolio last year. The FHA is required to maintain a side kitty equal to 2% of its portfolio, the same 50 to 1 leverage that fallen investment bank Lehman Brothers once had.
The FHA has never posted a loss, but sliding into the red seems inevitable at this point. "Absolutely, it's something I'm concerned about," says Donovan.
How much might it ultimately cost taxpayers? Donovan wouldn't provide an estimate and says his team is mulling over how much to ask for. Considering the FHA's size and appetite, it's likely to be in the tens of billions. This new expense isn't likely to sit well with bailout-weary taxpayers who were sold the agency as a self-sustaining entity.
"It's careening off the road," says Sen. Kip Bond of Missouri, the ranking Republican on the HUD appropriations sub-committee. "We need to tighten up the steering wheel and the brakes and get some good people behind the wheel." He adds, "They didn't ask us if they could go down this road." Bond has long warned that the FHA is a "powder keg" waiting to blow.
Donovan says he wants the FHA to "complement, not replace," the private sector. But his first priority is to modernize the agency, replacing decades-old computer systems and upgrading personnel, so that it can do its job. Currently, the FHA is "operating a generation behind," he says.
Few will object to strengthening the FHA so fraudsters can't exploit it and borrowers can get the loans they need in a credit crunch. But Bond and others worry that the staid agency may end up taking ever larger and riskier bets on the housing market, effectively supplanting the role of government-controlled
Howard Husock, of the Manhattan Institute, a conservative think tank, says Donovan doesn't seem "skeptical" enough of existing HUD efforts, which critics say are wasteful and broken. "He ought to take the president's admonition to get rid of programs that aren't working," he said. "We ought to take a deep breath before we get back into this business in a big way."
It's hardly the first set of challenges Donovan's faced. A New York native, he received his bachelor's from Harvard and returned for a master's degree in architecture and public administration. After a stint in Italy as an architect, Donovan worked in HUD's multi-family unit during the Clinton administration. When the Bush administration took over, he was the stand-in FHA secretary. He spent a year as a visiting scholar at New York University and managed FHA-related business for Prudential Mortgage Capital for two years.
His last job, as New York City's housing commissioner, trained him for the current fight and brought him to Obama's attention. Donovan spent the last five years navigating the city's infamous intersection of developers, do-gooders and a building code unrivaled anywhere in America in its complexity.
With a combination of tax sweeteners and investment incentives, he pushed Mayor Michael Bloomberg's plan to preserve or create 165,000 units of affordable housing through this labyrinth, earning Donovan a national reputation as someone who can get things done. "He just knows the business." says Nicolas Retsinas, a former Federal Housing Administration commissioner who runs Harvard's Joint Center for Housing Studies and has worked with Donovan.
Just as important, Donovan seems undaunted by what's ahead. He jokes his sister, a psychiatrist, diagnosed him as a "malignant optimist." Sounds like the right man for the job.