The Obama administration will soon inherit a $35 billion federal housing agency that was a weak backbencher during the housing crisis and moved too late to do much to keep millions of families from going into foreclosure.

Beyond the pressing crisis, the Department of Housing and Urban Development also has dramatically retreated in the past eight years from its mission of fostering affordable housing. Pushing homeownership has been the agency's top priority under the Bush administration, and HUD's budget for public housing for low-income families has been cut year after year.

In a pre-election letter sent to HUD employees through their union, Barack Obamawrote: "As we tackle the effects of the current fiscal crisis on Americans, HUD must be part of the solution. 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."

Experts on housing finance and poverty cheer the sentiments but warn the president-elect's advisers that the long-neglected agency will require hefty amounts of taxpayer money, aggressive leadership and a culture shift of sorts.

HUD's work on the foreclosure crisis illustrates the challenges. The industry trend toward subprime loans -- writing mortgages for borrowers with bad credit ratings, thereby increasing the risk of default -- is expected to cause an estimated 5.2 million homeowners to lose their properties over the next two years if lenders and the government do not act.

To address the problem, HUD began the Hope for Homeowners program in October to help some homeowners renegotiate their mortgages. The program is projected by year's end to help 13,000 homeowners lower their monthly payments and avoid foreclosure.

But at that pace, HUD will not come close to providing assistance to 400,000 families, a number theCongressional Budget Office calculated that the agency could help keep in their homes over three years.

"It's all been a lot of wishful thinking," John Taylor, president of the National Community Reinvestment Coalition, said of HUD's effort to stop foreclosures. "We're in the 34th consecutive month in which there has been a rise in foreclosures, compared to the previous year. We're breaking records every month in this country for foreclosures. But this agency and its program isn't doing what we want to accomplish, which is to turn the corner on the demise of the housing industry."

Howard Glaser, an HUD appointee during the Clinton administration, warns that the department's foreclosure problems may soon grow. TheFederal Housing Administration, once the primary provider of safe, government-insured mortgages, ceded its territory in the past few years to private subprime lenders, who lured many borrowers in over their heads.

Now, the FHA is being leaned on to save the day. It has been given responsibility for modifying and guaranteeing a larger portion of loans on the open market than in any of the previous eight years. But the agency is also expected to soon report record losses on its book of government-guaranteed loans.

"The early warning signals are there," Glaser said. "We may be in a situation where, 'Who is going to rescue the rescuer?' An FHA bailout is a clear and present danger."

When Obama's team arrives at HUD, it also will find about 1,900 housing authorities nationwide clamoring for money. In many of the years since 2001, they have been living on 81 to 89 percent of the amount of funding that HUD says they need to operate.

"You are seeing the result of failed policies over the years that focused federal resources time after time on homeownership," said Sharon Wilson Geno, a housing expert and lawyer at the law firm Ballard Spahr Andrews & Ingersoll. "They were starving the public housing program into near-nonexistence. It's like paying someone 81 or 82 cents for every $1 of their paycheck and telling them to live as they once lived."

The incoming administration also will find a $20 billion backlog of maintenance projects at public housing developments. If the repair list of old roofs, broken boilers and more is not addressed soon, some buildings risk permanent damage.

President Bush's HUD has been dogged by accusations of political cronyism. Alphonso R. Jackson resigned as secretary this year amid reports that he was under federal investigation for steering contracts to friends and business associates. The contracts were with housing authorities in New Orleans and the Virgin Islands.

At the same time, The Washington Postreported that Jackson's top aides allegedly had sought to cut funding from a Philadelphia housing authority whose director had refused Jackson's demand that it give property to one of his business friends.

In his letter to HUD employees, Obama agreed to appoint "a Secretary, Deputy and Assistant Secretaries who are committed to HUD's mission and capable of executing it."

After the agency's recent problems, Taylor said, he would argue that, while the FHA works with the Federal Deposit Insurance Corp. on the foreclosure problem, the rest of HUD should return to its basic mission.

"My number one piece of advice for the next administration?" Taylor said. "The agency charged with housing should develop a federal housing policy. Believe it or not, there isn't one right now."

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