Shaun Donovan, President-elect Barack Obama's nominee to be housing secretary, said helping people harmed by the housing bust would be the highest priority of the new administration.

At his Senate confirmation hearing Tuesday, Donovan said the Department of Housing and Urban Development, or HUD, needs to work with Treasury, the Federal Deposit Insurance Corp. and the Federal Housing Finance Agency, which oversees Fannie Mae (FNM) and Freddie Mac (FRE), to stabilize the housing markets.

"Clearly the most important public-policy decision facing Congress and the new administration is how to best ease the economic pain that millions of American families are feeling right now because of our unsteady housing markets," Donovan told the Senate Banking Committee.

If he is confirmed by the Senate, Donovan, a top HUD official during the Clinton Administration, will take the reins of an agency that oversees vast federal programs yet is seen by critics as a wasteful and bloated bureaucracy. In recent years, it has also been plagued by scandal.

Even so, the agency has stepped up its activities to keep mortgage markets afloat as private-sector investors have fled the mortgage-backed securities. The Federal Housing Administration, which is part of HUD, has seen its share of all new and existing mortgages that it insures surge from 4% in 2005 to more than 20% today.

In his opening remarks, Senate Banking Committee Chairman Christopher Dodd, D-Conn., lamented that the agency hadn't been a larger player in the federal response to the foreclosure crisis.

"We need an active, aggressive, and well-run HUD with leadership that is confident in its mission and unafraid to act," he said.

Donovan is being considered by the Senate on an accelerated basis due to the problems in the housing market and an apparent consensus that he is exceptionally qualified for the job.

As New York City's housing commissioner since 2004, Donovan gained a reputation as an innovative technocrat adept at leveraging the private sector to solve tough policy problems.

He won praise from housing-policy experts for his efforts to combat New York's foreclosure problem and for establishing a new $200 million partnership aimed at preserving the city's stock of affordable housing.

He has overseen New York City Mayor Michael Bloomberg's $7.5 billion New Housing Marketplace Plan, which aims to build or preserve 165,000 affordable housing units by 2013.

Before joining New York City government, Donovan oversaw investments in affordable housing loans for Prudential Mortgage Capital Co. Under President Clinton, Donovan was HUD's deputy assistant secretary for multi-family housing.

Donovan holds architecture and public-policy degrees from Harvard University.

"Mr. Donovan is the most experienced nominee for HUD Secretary that this committee has considered in my long experience," Dodd said.

Housing-policy experts expect HUD's role to expand with a Democrat back in the White House. In his testimony, Donovan singled out three areas of housing policy that he expects to address off the bat as HUD secretary.

The spike in the FHA's market share has given rise to fears that the agency is becoming overstretched and could become the next victim of the housing bust. Donovan said the agency "has capacity issues that require immediate attention."

He also said he would push to increase funds for the Section 8 rental housing subsidy program. And he said he would work to boost the stature of HUD and make it more accountable to taxpayers.

"I pledge to you to make HUD a model of evidence-driven government," he said.

Donovan signaled in his testimony that he sought a role in the overhaul of financial regulation that Democrats have vowed to undertake this year.

"We will work together to reach a bipartisan consensus on how to reform the outdated and often overlapping regulatory system that failed our citizens in the run-up to the current crisis," he said.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com

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