HUD Plays Key Role in Financial System Revamp

WASHINGTON, DC-HUD will play a significant role in the Administration’s financial stabilization plan unveiled earlier this week, according to comments made by Secretary Shaun Donovan Thursday afternoon at a Washington, DC event. Specifically, the agency will be helping to develop fairer mortgage products and rules under the proposed Consumer Finance Protection Agency. It is a natural fit for HUD, Donovan said, which has had a front line view of the ravages caused by the subprime mortgage crisis. A significant portion of subprime mortgage holders could have qualified for standard mortgages, he said–only they were pushed into the second tier products by mortgage brokers. Donovan was the keynote speaker at the National Association of Real Estate Editors’ annual journalism conference.

Goals for the Consumer Finance Protection Agency will include a requirement that every consumer is first presented with a vanilla, standard mortgage that is affordable to him or her. Fancy or exotic products can be presented after this choice has been offered, he said. Another hoped-for requirement will be a change in compensation for mortgage brokers; brokers would be compensated for a transaction on an ongoing basis, depending on how the particular loan is performing–instead of a lump sum commission that encourages brokers to push as many signed contracts out of the door.

Earlier initiatives introduced by the Obama Administration–namely the stimulus–are already having a positive impact, Donovan also said. “We are starting to see some early signs of stabilization: for instance, total construction starts in May increased 17.2% over the previous month.” As for HUD, it allocated the $10 billion granted to it under the stimulus act within weeks of receiving it, including investing $2 billion in neighborhood stabilization, Donovan said.

Affordable housing will continue to be a key focus of HUD; indeed Donovan noted that 40% of the people displaced by foreclosures in the economic crisis of the last two years have been renters. Donovan earned his industry credentials when he served as Commissioner of the New York City Department of Housing Preservation and Development from 2004 until last year. While there, he said, he learned the federal government could often be as much of a hindrance to affordable housing as an advocate.

FHA multifamily finance programs, for example, do not work well with mixed use urban development, he pointed out–they are better suited to Greenfield suburban projects. Then there is the complex range of financial sources made available by the government which developers must navigate. Donovan remembers working on projects in New York where the number of financial sources were greater than the actual number of units. One immediate goal, he said, was to deepen the coordination between the Treasury Department’s low income housing tax credit program and HUD’s rental housing policies.