U.S. housing agency must rise to crisis: lawmakers

By Patrick Rucker

WASHINGTON (Reuters) - President-elect Barack Obama's pick to become the top U.S. housing policymaker is fit to restore a scandal-plagued agency and meet the widening foreclosure crisis, the chairman of the Senate Banking Committee said on Tuesday.

In a friendly nomination hearing, Shaun Donovan, formerly New York City's housing chief, was encouraged to be an aggressive U.S. secretary of housing and urban development as he faces a crisis marked by record home foreclosures.

"Mr. Donovan is the most experienced nominee for HUD secretary that this committee has considered in my long experience," said Connecticut Democratic Sen. Christopher Dodd.

"I know he is the best possible steward for this agency," said Sen. Charles Schumer, New York Democrat, who sat with the nominee at the witness table and recounted their joint efforts to resolve housing issues in New York City.

Donovan, who has degrees in architecture and public administration, left his post as commissioner of New York City's housing program to accept the nomination.

Dodd said that he expected Donovan to help erase some recent scandals at HUD, competently oversee the largest U.S. housing programs and help solve a growing foreclosure crisis that is dragging down the economy.

"This housing crisis has been a primary cause of the deepening recession to which none of us is immune," Dodd said.

One of Donovan's duties will be to manage the Federal Housing Agency - a Depression-era housing program that policymakers hope will become an important tool to refinance struggling borrowers.

"FHA's share of the single family mortgage market has grown from 4 percent in 2005 to 21 percent today," Donovan said, highlighting the demands that growth has placed on the program.

"(FHA) has capacity issues that require immediate attention," he said.

HUD has been roundly criticized for its implementation of a mortgage refinance program called Hope for Homeowners that was conceived this summer to rescue 400,000 troubled borrowers but has retooled fewer than a thousand loans.

"I think it's clear to everyone that there needs to be some changes to make sure that program is effective," Donovan said.

"It is a tiny trickle," outgoing HUD Secretary Steve Preston said this week of the volume of loans pushed through Hope for Homeowners.

In mid-April, Preston's predecessor, Alphonso Jackson, resigned amid an investigation about swapping federal contracts for favors.

"Unfortunately, HUD has been mismanaged and ridden with scandal in the last several years," Dodd said in his opening statement.

(Reporting by Patrick Rucker)