[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

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html



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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.
                                ------                                

                     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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