President-elect Obama would like to see a strong HUD leading the country out of the housing crisis. But is that realistic?

It was journalist Sydney J. Harris who first said, "If you're not part of the solution, you're part of the problem." Harris' outlook would imply that president-elect Barack Obama has more than a few issues to sort out-including what to do with the misguided U.S. Department of Housing and Urban Development (HUD).

Delusions of grandeur

Prior to the election, Senator Obama penned a letter to John Gage, who presides over a government union that serves many HUD employees. In that letter, Obama briefly expressed what he expects of the agency going forward: "The Department's mission-to promote affordable quality housing and community development available to all without discrimination-is critical to the well-being of millions of working families. As we tackle the effects of the current fiscal crisis on Americans, HUD must be part of the solution."

Given HUD's lack of presence before and during the housing crisis, one has to wonder what kind of HUD overhaul Obama has in mind. HUD oversees the Federal Housing Administration (FHA), the entity that the Bush administration selected to lead the country out of the foreclosure crisis.

Under this charge, two initiatives were established to provide at-risk and subprime homeowners with realistic foreclosure alternatives. Both initiatives have been largely ineffective. FHASecure helped about 3,900 defaulted homeowners in its first year, and Hope for Homeowners received fewer than 120 qualified applications in its first month.

Clearly, HUD is having a hard time being part of the foreclosure solution. And you know what that means.

Out of touch

At a very basic level, HUD appears to be out of touch with the financial community and the current plight of homeowners. Congress, which essentially defines HUD's budget and scope of operations, has to bear some of this criticism, as well.

Looking beyond the current crisis, though, HUD also has serious obstacles to overcome before it can be the entity Obama envisions. In a speech made before the National Press Club, HUD Secretary Steve Preston admitted that the Department lacked a modern, efficient infrastructure. "Our government institutions, especially those that operate large financial operations, need to have the infrastructure, tools and technology, to run efficiently, to serve their customers effectively, and provide proper oversight to protect the taxpayer," he explained. Critics outside the agency have echoed Preston's concerns, arguing that a HUD transformation will require much in the way of attention, leadership and funding.

Obama's letter to Gage inferred that the new administration would work to provide HUD with the resources it needs. But this is a tall order, particularly at a time when HUD isn't the only federal agency that requires an overhaul. It will be interesting to see how quickly President-elect Obama and his administration can formulate a solution to the HUD problem.

Published on December 20, 2008