Dan Kildee at Durant Hotel

It’s one of the most understaffed, demoralized agencies in Washington. Some conservatives want to get rid off it entirely, while liberals complain it doesn’t do its job. Its constituency comprises the poorest and most vulnerable in society, who have little lobbying clout or resources. They pay, in the end, for the numerous scandals that swirl around its housing programs.

Given that background, two recent high-profile appointments by president-elect Barack Obama are intended to create a new chapter in the troubled history of the U.S. Department of Housing and Urban Development. Obama named Shaun Donovan, New York City’s housing commissioner, as HUD secretary. He also appointed Bronx Borough President Adolfo Carrion as director of his new Office of Urban Policy, a separate entity that will coordinate federal efforts to help cities.

Housing advocates applauded both appointments as a welcome change, since Obama tapped national urban experts to fill key posts. More may be forthcoming. Dan Kildee, treasurer and chairman of the Genesee County Land Bank in Flint, Mich., confirmed to TWI that he “has had some discussions” with Obama officials about taking a high-level post at HUD, possibly the No. 2 position, but that he’s “not sure where things stand at this point.” TWI profiled Kildee and his land bank, which has gained national recognition for taking control of foreclosed and vacant properties and selling or reusing them, while turning a profit. Cities such as Cleveland, which are plagued by vacant and abandoned foreclosed houses, also are trying to establish land banks.

Seeking top talent for HUD marks a contrast to the agency’s practices in recent years. President Bush named as his most recent HUD Secretary Alphonso Jackson, a friend and former Texas neighbor. Jackson’s tenure ended with his resignation last spring over charges of political favoritism in awarding HUD contracts and steering other business to Republican associates. He also is under criminal investigation for business dealings in post-Katrina New Orleans, and has been criticized for his handling of public housing there.

With some exceptions, HUD secretaries in previous administrations also often served as little more than figureheads, leaving the agency itself to languish. Former President Ronald Reagan once failed to recognize his own HUD secretary, Samuel Pierce, at a White House meeting. Reagan addressed Pierce as “Mr. Mayor.” Reagan also slashed in half the federal funding for the agency, which was created in the 1960s to counter urban poverty.

Obama’s choices are raising hopes that he’s reversing old patterns – and rebuilding HUD. “Shaun Donovan represents a move from the cronyism of the Bush years to competence,” said David Sailer, executive director of the non-profit National Housing Institute.

But the larger question is whether HUD itself can be made relevant again, given its long history of scandal and neglect. To many, the last eight years have been the worst, with the Bush Administration alternately ignoring HUD or continuing a pattern of dismantling its programs and staff. It leaves HUD in a mess just as the foreclosure crisis requires a greatly expanded role for both HUD and its Federal Housing Administration. And it raises concerns over whether new blood will be enough to halt the agency’s long decline.

“HUD was never exactly a jewel of the Bush Administration,” said David Berenbaum, executive vice president of the National Community Reinvestment Coalition, which represents housing groups. “Clearly, it was not a priority to see a strong HUD. There’s been a lack of vision and a lack of commitment to some of its core mandates. It’s a shame.”

Alan Mallach, senior fellow at the National Housing Institute who has written extensively on housing and planning, described HUD as “currently understaffed and demoralized, even more so than most federal agencies.”

Others took an even harsher view. “It’s not often you see the word “competent” and “HUD” in the same sentence,” said Kermit Lind, a Cleveland State University law professor who specializes in housing issues.

In just the past few months, major missteps have added to the agency’s image problems.

In mid-November, HUD issued new rules for disclosure of mortgage terms at real estate closings, a long-sought goal of consumer groups. The purpose is to help borrowers shop for the lowest-cost loans. But at a news conference, HUD officials acknowledged they have no legal authority to actually enforce the new rules. And as Berenbaum pointed out, the new rules don’t cover something people particularly look for when they shop for a mortgage – the APR, or annual percentage rate. “It made no sense whatsoever,” he said of the HUD action.

HUD’s role in distributing $4 billion in federal money authorized under a mortgage rescue bill passed by Congress last summer also has come under fire. Cities need the money to deal with increasing numbers of foreclosed properties. But HUD’s allocation decisions are causing controversy. Florida, for example, has fewer foreclosures than California, but will get more HUD funds.

Then there’s the Federal Housing Administration, which is overseen by HUD. With new federal mortgage guarantees and loan programs created due to the foreclosure crisis, the FHA’s share of the mortgage market
will grow from about two percent to nearly 50 percent, noted Howard Glaser, a mortgage industry consultant and a former HUD official in the Clinton administration.

But the FHA already is facing trouble. A Business Week investigation last month found that former subprime lenders, some with histories of past abuses, are now making mortgages backed by the FHA. Sen. Christopher Bond (R-Missouri) earlier this month wrote to HUD to demand that it step up its efforts to fight mortgage fraud.

The mortgage crisis also has highlighted a longstanding problem with HUD’s handling of its deteriorated properties. Cities stuck with abandoned and foreclosed houses are using housing courts to haul in banks and lenders, and force them to clean up their properties. But they can’t do anything about abandoned HUD houses, since the federal government owns them. Cities don’t have the legal authority to force the federal government to do anything.

The problem has been particularly acute in Cleveland. Lind once described HUD as “the biggest slumlord in the country.”

“You can’t do anything about the HUD house that’s been turned into a drug house, where all the copper plumbing has been stolen, where the grass isn’t cut and the yard is full of trash,” he said.

HUD’s rental voucher program also remains controversial, with housing advocates contending it is chronically underfunded and results in a lack of available housing. In an all-too common scenario, Lind said, would-be landlords take out mortgages for small apartment buildings or houses and and accept vouchers from poor, elderly renters. But the owners either can’t afford the mortgage or choose not to pay it, while continuing to collect income from the vouchers. Eventually, the bank forecloses and the owner skips out, leaving renters on the street.

There’s even more. The enforcement of fair housing laws also went by the wayside during the Bush years, Berenbaum said. The administration reacted to well-thought out plans to promote and enforce fair housing
as “it’s a piece of paper and let’s file it,” he said.

Despite all this, some still believe there’s hope for a new HUD.

Glaser, for example, said the major expansion of government-backed mortgage programs will give the FHA an opportunity to set higher standards for the entire mortgage industry, banning some predatory fees and practices. While Congress dithered in coming up with predatory lending laws, the FHA “could do it overnight,” he said.

And Thomas Kingsley, a senior researcher at the Urban Institute who specializes in housing, said he believes getting qualified people to run HUD can lead to its turnaround. For the past eight years, anyone with a passion and talent for urban issues usually chose not work at HUD, looking instead to mayors or other local officials with innovative ideas, he said. But Obama’s appointments and supportive statements will once again draw talent back to HUD, he said.

Kingsley cited former HUD Secretary Henry Cisneros as an example, saying he revived the agency during his tenure. Cisneros resigned in 1996 after an investigation by a special prosecutor into whether he lied to the FBI over payments to a former mistress. But he was widely credited with reforming HUD and pushing innovative housing programs.

“HUD was at a low point when Henry Cisneros came in,” said Kingsley, who worked with Cisneros as a consultant. “But he did things no one else thought he could do.”

Not everyone sees it that way. Ellen Seidman of the New America Foundation, who studies the financial services industry, said friends she knew worked for Cisneros sometimes thought “blow it up” might be the best strategy for HUD – meaning it was so complex and full of unworkable programs that just starting over would be a good idea.

Still, she and others said the urban policy office created by Obama could be a way to make sure HUD doesn’t get ignored anymore. Obama hasn’t explained exactly how the office will operate. But its director could team up with HUD, in the same way the national security advisor and the secretary of state work together, Kingsley said. Naming new people to those posts helped improved America’s image in the world, he said, and he believes HUD’s reputation also will improve with new leadership.

For an agency with a long, troubled history such as HUD, that will be its first challenge.

(Mary Kane reports on the economy for Michigan Messenger’s sister site, The Washington Independent.)

Photo: Dan Kildee surveys Flint’s Durant Hotel in advance of redevelopment (source: Mellowedee via Flickr.com)