WASHINGTON — Shaun Donovan, the secretary-designate of the Department of Housing and Urban Development, pledged Tuesday to return the agency to the forefront of the government's response to the housing crisis if he is confirmed by the Senate.
"Housing is at the root of the market crisis we are now experiencing, and HUD must be part of the solution," Mr. Donovan told Senate Banking Committee members at his confirmation hearing.
During the past two years, HUD has oftentimes appeared sidelined as the government responded to the crisis, with the Treasury Department taking center stage.
But Mr. Donovan, the commissioner of the New York City Department of Housing Preservation and Development, said HUD would be a key player in comprehensive plans by the incoming Obama administration to help homeowners and prevent foreclosures.
He acknowledged problems with the Hope for Homeowners program, which was implemented in October as a way for borrowers to refinance distressed mortgages through the Federal Housing Administration. There have been few applications to participate in the program, whose goal was to help as many as 400,000 homeowners.
Mr. Donovan said reforming the program's fee structure and carrying out a proposal by Steve Preston, HUD's current secretary, to write down troubled loans to 96.5% of the original principal — instead of 90% — are on the table as ways to encourage participation.
A smaller writedown "certainly seems like it could be an effective piece of an overall solution," Mr. Donovan said. He said he would try to get "resolution fairly quickly on a comprehensive set of changes to the program."
The nominee also supported using funds from the Troubled Asset Relief Program to carry out loan modifications, similar to a plan offered by the Federal Deposit Insurance Corp. The agency has proposed that the government spend $24 billion to offer loan guarantees to lenders that agree to undertake systematic modifications. "The FDIC program … has been a promising model, and is one we are looking at very closely as a part of a more comprehensive solution," Mr. Donovan said.
But he said the administration would also be careful to craft a program in such a way that it does not lead to defaults of modified loans, which critics have charged is a risk of the FDIC plan.
"Making sure that the incentives are structured correctly so that we minimize the redefault rate … is something that I'm looking at with the economic team to make sure that any program that encourages modifications is structured in the best possible way," Mr. Donovan said.
