Obama Taps San Antonio Mayor Julian Castro For HUD Secretary

President Obama has been playing musical chairs with his Cabinet.

At the White House on Friday, Obama announced that he's chosen Housing and Urban Development Secretary Shaun Donovan to be his new budget director. Donovan would replace Sylvia Mathews Burwell, who's taking over the Department of Health and Human Services.

That leaves a vacancy atop the housing department, which the president plans to fill with an outsider: Julian Castro, the mayor of San Antonio and a rising star in the Democratic Party.

Castro would take over as HUD secretary at a time when the nation's housing market has been treading water.

There was some positive news this week about new and existing home sales inching up in April, but the overall spring selling season has been a disappointment. Housing does not look to be the engine of economic growth many forecasters had been hoping for.

That's a challenge to the secretary because HUD plays an important role in the housing market. Through the Federal Housing Administration, HUD guarantees more than 1 in 10 home loans. Guy Cecala, publisher of Inside Mortgage Finance, says FHA-backed loans can be a door opener, since they require a down payment of just 3.5 percent.

"It's considered the best option for first-time homebuyers. Given the fact that we're waiting for the housing market to recover, and we're trying to encourage first-time homebuyers, there's a lot of attention focusing on FHA."

Many lenders remain skittish about making home loans, partly out of fear that if those loans go bad, FHA and other government guarantors, like Fannie Mae and Freddie Mac, will come after the lender. As a result, White House economists argued in an op-ed this week, credit remains harder to come by than it should be, keeping millions of potential buyers out of the housing market. FHA has been working with lenders to address that, and has launched a pilot program to discount some of its own fees.

Of course, guaranteeing home loans is just one of many functions carried out by the sprawling $45 billion department Castro's been tapped to lead. HUD also provides rent subsidies and runs a slew of economic development programs.

Bruce Katz, who was chief of staff at HUD during the Clinton administration, says in order to do that successfully in this time of tight budgets, Castro will have to work with city and state governments, as well as the private sector.

"I think a former mayor, coming from San Antonio, which is a major metropolis, understands how cities work and how a federal government can leverage up those local resources and powers in a smart, strategic way."

Donovan earned high marks for his work at HUD, especially on federal recovery efforts in the wake of Hurricane Sandy. Katz says Donovan pushed HUD to team up with agencies overseeing transportation, the environment and human services.

"When you think about the people who are most in need of housing, they're also in need of being close to work. They're also in need of child care. And I think Secretary Donovan was really at the vanguard of those kind of integrated approaches."

Now that Donovan has been tapped as White House budget director, he'll have a chance to extend his reach throughout the executive branch.