Eli Meir Kaplan
Secretary Donovan has been tapped by President Obama lead the Hurricane Sandy rebuilding efforts.
Credit: Noah Kalina Secretary Donovan has been tapped by President Obama lead the Hurricane Sandy rebuilding efforts.

Shaun Donovan took over the Department of Housing and Urban Development (HUD) four years ago during a full-blown housing crisis.

Now, he is at work on cleaning up another catastrophe. President Obama, in the days following his re-election, tasked Donovan to lead the Hurricane Sandy rebuilding efforts.

Former commissioner of the New York City Department of Housing Preservation & Development, he is a strong choice to oversee the recovery of his home state and the surrounding region.

However, the move has prompted speculation that Donovan could move to a post inside the White House as Obama assembles his second-term team.

In an interview with Affordable Housing Finance shortly after the election, Donovan discusses his first term as HUD secretary, his future plans, and how the low-income housing tax credit (LIHTC) will fare in tax reform efforts.

Reflecting on the last four years, what has been the most significant decision that you have made as secretary?

Certainly one, if not the most significant, was right at the beginning of the administration, in some ways even before the administration had started, as we were staring at the worst economic crisis this country has faced in any of our lifetimes. I made the decision to try to accomplish with the Recovery Act a series of things that would not just create jobs but would also accomplish a set of longer-term priorities in housing and community development. That has been underappreciated about the Recovery Act. It did create or preserve the millions of jobs that the president promised, but it was also a platform for accomplishing some remarkable things that have changed the future of housing policy in this country.

As you know well the LIHTC market was on the verge of collapse. There were real questions about whether the tax credit market would survive, whether there would be a reconsideration of it being the right way to finance affordable housing because it was susceptible to collapse in times of financial crisis. There was a decision to stand up [with] the Tax Credit Exchange Program and the Tax Credit Assistance Program. I remember during the transition before I was even confirmed being on calls with key people in the administration and on Capitol Hill shaping that effort in a way that I didn’t perhaps realize at the time how consequential that would be.

There are two other examples that I would give that are critical. The Neighborhood Stabilization Program (NSP): Our decision to take that model and try for the first time a competitive round, a little bit like a race to the top, of funding under NSP that would do very large-scale investments was also a bold decision that ended up bearing great results. If you look at Habitat for Humanity through the more than $100 million grant they got in that competition, it changed their business model to focus on not just new construction but rehabilitation. That’s had a powerful impact on the Gulf Coast and in neighborhoods that have been ravaged by the foreclosure crisis in so many areas. What we’ve seen is that NSP has proved that those types of investments not just create jobs renovating homes but revitalize neighborhoods and raise housing prices for everyone in those communities and help to restore their equity.

The third one is the Homelessness Prevention and Rapid Re-Housing program, which had never been tried before and was based on innovative models that we had seen in parts of the country but nothing on this scale. [We funded] $1.5 billion that we expected to help about half a million people either avoid homelessness or quickly get back into homes. We’re at 1.3 million people and counting because the program was even more effective than we expected. It has begun to fundamentally change the way that communities, local governments, and state governments respond to homelessness in a way that I think will have powerful, lasting impacts. Those are three examples that flow from that initial decision to think about the Recovery Act not just as a way to create jobs in the short run but to powerfully impact housing policy. That’s what Rahm Emanuel meant when he said, “A crisis is a terrible thing to waste.”

How is HUD better today than four years ago?

I hope we have begun to restore the belief in the affordable housing community that HUD isn’t just a regulator, that we’re not just here to check the box or oversee our partners but to also be a real partner, to come with ideas and innovative solutions, to figure out a way to say yes when there are creative ideas that our partners bring to us, and to become an organization that our partners would choose to work with rather than having to work with us because what we do is provide funding. Of all things that I wanted to accomplish when I came here I think that’s a theme that runs through much of what we are trying to do, to bring a team that’s respected and that we are seen as leaders in affordable housing and not just regulators.

In terms of programs, I would point to two specifics. One is HUD-VASH (Veterans Affairs Supportive Housing). When we arrived there were fewer than 1,200 veterans who had been housed with VASH despite the enormous promise of the program. As you know it’s a national tragedy that veterans are 50 percent more likely to be homeless than the average American. The president stood up and made a commitment that we would end veterans homelessness by 2015. We’ve made real progress on that. We’ve reduced the number of homeless veterans in this country by 12 percent in our most recent year of data alone. There are more than 30,000 veterans that are housed by VASH. It was a big reason why we have been able to reduce the number of veterans who are homeless by 12 percent in one year. Even in a time of tough budget decisions, we’ve been able to get $75 million in new funding each year for VASH.

The other thing that I would point to is the Federal Housing Administration (FHA). FHA had a critical role to play in helping improve our housing market and making sure in a time of enormous crisis that capital was still available for homeownership and for rental housing. I would say that we’ve made real strides on that front. We still have a ways to go. The FHA fund is clearly still stressed, but the quality of the new loans that we’re making is dramatically better than it was four years ago. They are not just returning money to the taxpayer but helping to create hundreds of thousands of jobs in both single-family and multifamily housing. I’m particularly proud as a multifamily guy myself that we have been able to dramatically improve how quickly our partners can get FHA loans and the quality of service that we provide to our lender partners.

At the same time, we’ve been hearing that FHA might need a bailout, how do you see that playing out in 2013?

First of all, FHA has played an absolutely essential role in stabilizing our housing market, and if it weren’t for FHA I have no doubt that we would not be seeing as strong and early recovery as we’ve seen [in 2012]. That was the role that Congress intended FHA to play, to be there in moments of crisis, to ensure that homeowners could still get a loan, that developers could still build or renovate rental housing, so we are playing exactly the role that was expected. The problem is that the loans that were made between 2007 and 2009 are now estimated to cost the fund $70 billion. The challenge is how do we ensure that we minimize the chances that we will need to draw on taxpayer assistance while ensuring that the steps we are taking don’t harm the recovery that we are seeing in the housing market. We’ve announced a number of those steps, including increases to our premiums and important steps on asset management, to try to improve the returns that we make from older loans that are causing the problems and how we ensure more families can stay in their homes, which is good for both the families and their neighborhoods as well as the FHA fund because foreclosures are expensive.

What didn’t get done in the first term that still needs to be addressed? What are your priorities for the next term?

As a lifelong houser, one of the things that I never expected in this job was that I would have to make some of the enormously difficult decisions that I’ve had to make about our budget. If the president achieves the balanced solutions that he has argued for around the fiscal cliff that make sure that we don’t balance our budget on the backs of the most vulnerable in this country, then I am hopeful that we will be able to increase investments that we make in a range of priorities. One particular example of that is Project Rebuild. I talked about how the NSP has been so successful. In three-quarters of the neighborhoods where it has been invested, it has reduced vacancy rates and increased home prices. There’s still a lot of damage left to undo from the foreclosure crisis. Project Rebuild is an enormously powerful tool that would help us do that. It would create 200,000 jobs but also help to restore the equity and the neighborhoods of so many homeowners as well.

It is understood that secretaries serve at the pleasure of the president, but do you expect to return to HUD in the second term?

I’m here, and the president has asked me to lead the long-term recovery effort from Superstorm Sandy in addition to my day job. I am committed to doing exactly that.

With your new role as the lead on the Sandy recovery, there has been some speculation that you could move to White House chief of staff or another post in the administration. Yes?

I would repeat what I said a moment ago. The president has asked me to do this. I am completely focused and committed to helping New York, New Jersey, and the surrounding region recover and continuing my day job at HUD.

Every year there seems to be another major disaster. Is this changing the role of HUD into an emergency responder?

If you look at the eight years of the Bush administration, HUD invested tens of billions of dollars in disaster-torn areas through Community Development Block Grants (CDBGs). CDBG has become along with Federal Emergency Management Agency (FEMA) funding the primary source of investment from the federal government to help areas affected by disaster recover. To be clear, FEMA has been focused on the short-term response. My role here is on the longer-term recovery. This is not a role that’s new to HUD. What I would say is the hope for this effort is we will have a better, more comprehensive approach to recovery than was pursued in prior administrations. Fundamentally, the idea here is that we not just build back what was there before the disaster but that we build back better, stronger, and smarter. If you remember, the president very early on in the term asked Secretary Napolitano and myself to put together a national disaster recovery framework that really learned the lessons from Katrina and other past disasters to figure how the federal government could do a better job of helping local communities with their longer-term recovery from catastrophic disasters. This is exactly the framework that we are now putting in place.

I think we’ve learned how to be a better partner on long-term recovery. I get it, and the administration gets it. It’s a first chance to put in place a 21st century long-term recovery plan for a region hard hit by a catastrophic disaster.

Do you think new strategies will be deployed to meet the Hurricane Sandy housing needs?

Absolutely. My job is not to impose the federal vision on the region. My job is to listen to and work with partners on the ground. Already I’m hearing a deep interest in how we fund sustainable infrastructure and energy, how we create mitigation measures whether along the barrier islands or around New York Harbor, Manhattan, New Jersey, Brooklyn, many of the areas that were affected that ensure that the next time a storm comes along we are not going to have this kind of damage. It seems like we get a 100-year storm every few years now. We need to think differently, smarter, about how we recover. Those are clearly areas that touch every part of the recovery but touch housing very specifically, from building codes to utilities to a range of other things.

One of the most important issues for developers right now is tax reform. How do you think the LIHTC program will fare in tax reform?

The first thing that I would say is that I believe the LIHTC has proved its worth again and again. I am not hearing any direct attacks on the tax credit program itself. I think the question for the industry though is how do we make sure that everyone understands in very real terms its value as we go into a set of negotiations around the tax code where potentially anything is on the table. This is a very important moment for the affordable housing community to pull together and make sure that everyone, particularly those on Capitol Hill, understands the importance of the tax credit to jobs, to having a decent place to raise your kids, and to strong healthy neighborhoods.

What was the best day that you’ve had as HUD secretary?

I’d probably say the best day was the day I got to walk into the Oval Office. I interrupted the president while he was eating his lunch and told him that we had reached a deal in the $25 billion national mortgage servicing settlement, the biggest joint state and federal settlement in the history of the country. He gave me a big hug. [On Nov. 19] we announced the results that we have seen so far from the settlement. About $26 billion of relief has already been provided to over 300,000 homeowners across the country. That’s an average of $84,000 in benefits. It’s making a real difference. We’ve also seen fundamental reforms to the servicing of mortgages thanks to that settlement as well. That was a very good day.

What was the worst?

The toughest day for me was watching Sandy hit my hometown of New York City unlike any storm that I’ve seen in my lifetime in New York. One of the most devastating moments for me was watching news coverage of water rushing into the Brooklyn-Battery Tunnel, something I don’t think any of us would ever imagine seeing. That was exactly the spot where my wife and I watched the second plane fly over our heads on 9/11 and hit the South Tower of the World Trade Center. For me, to have the two worst disasters of my lifetime, most traumatic moments of my lifetime for New York City, happen in some ways on the exact spot made it a very difficult day for me. Obviously, it was much more difficult for the families and communities that lost lives, lost neighbors, lost friends.

“I hope we have begun to restore the belief in the affordable housing community that HUD isn’t just a regulator, that we’re not just here to check the box or oversee our partners but to also be a real partner.”