Bush nominates SBA's Preston as housing chief

WASHINGTON (Reuters) - U.S. President George W. Bush on Friday nominated the head of the Small Business Administration, Steve Preston, to lead the Department of Housing and Urban Development as the administration tries to bolster the sagging housing market.

Accused by Democrats in Congress of being slow to act as credit for homes dried up and prices dropped, the White House has scrambled to shore up the agencies responsible for housing sector issues and head off millions of home foreclosures.

"He will play a central role in helping to address our nation's housing challenges," Bush said of Preston. "The department requires strong leadership at a time when our housing market is experiencing a period of challenge and uncertainty."

Preston's nomination will require confirmation by the U.S. Senate and he would replace departing HUD Secretary Alphonso Jackson, who resigned amid controversy involving his role in awarding government contracts.

Some Democrats immediately questioned Bush's pick, pointing to his apparent lack of experience with the housing industry.

"I look forward to learning more about Mr. Preston and his qualifications for this important job at this trying time in our nation's economy," said Sen. Christopher Dodd, a Connecticut Democrat who chairs the Senate Banking Committee that will consider his nomination.

The number of homeowners defaulting on mortgages has ballooned during the past year, costing banks some $200 billion in write-downs and threatening to send the U.S. economy spiraling into a recession.

The number of foreclosures this year will likely top the 1.5 million seen in 2007 while construction and sales of new homes have dropped. The value of homes is also dropping while mortgage rates have gone up, intensifying the credit squeeze.

A Reuters/University of Michigan survey found that 41 percent of homeowners in April reported their homes had lost value during the past year, the highest since the late 1980s when the question was first asked.

The White House and Democrats have clashed in recent weeks over how to reform the Federal Housing Administration, which is part of HUD and the government's largest program for supporting homebuyers. Democrats want a broad cash infusion and new oversight, but the administration prefers a more modest approach.

Lawmakers had pressed outgoing HUD Secretary Jackson to leave because the cloud over his role in federal contracts could make it harder for the agency to respond to the worst housing crisis in generations.

Jackson, who once headed the Dallas housing agency, has enjoyed close ties with fellow Texan Bush, but has been damaged by several scandals in his time as HUD secretary. He cited the need to attend to personal and family matters as the reason for his departure.

In the spring of 2006, Jackson told an audience that he had spiked a contract when he heard the winner disparage Bush. An internal probe found no evidence that Jackson had behaved illegally, but the agency's independent investigations arm is now examining alleged wrongdoing.

(Editing by Neil Stempleman, Gary Crosse)