June 16, 2024

D.C.’s first-time homebuyer program runs out of funds after three months

D.C.’s signature program for first-time home buyers has run out of money this budget cycle after just three months, disrupting home searches for eligible residents for the second time since June.

The District’s Home Purchase Assistance Program (HPAP), intended to lift people with very low to moderate incomes into homeownership with significant loan assistance, has proved difficult for D.C. residents to navigate over the past year. New financial restrictions on the program in October, designed to spread the funds across more people, upended pending home deals for some of the lowest-income buyers. And unrelenting demand has led to a run on the program’s limited funds: While the $26 million in HPAP funds, which became available last October, was supposed to last through September, the program ran out of money on Thursday.

Just as funds ran out, Mayor Muriel E. Bowser (D) this week sought to give reprieves to those who were most severely impacted by the new restrictions, after legislation passed by the D.C. Council in December aimed to restore their lost opportunities. Those impacted — about two dozen people identified so far — had signed home contracts on the expectation they could be eligible for up to $202,000 in assistance, only for a new cap on HPAP aid in October to reduce their assistance by tens of thousands of dollars and derail pending mortgage deals.

Bowser has directed the Department of Housing and Community Development to honor their original HPAP aid amounts, which could allow their loans to go through, according to City Administrator Kevin Donahue.

That reprieve came as major relief to those who thought they were going to lose their opportunity to purchase a home. But while it offers a short-term fix for a smaller group, major questions still remain about how the administration will stabilize the program long-term. Months of significant funding hurdles created deep uncertainty for renters who set out to make a major life decision without any assurance that the funds they need to buy a home — and are found eligible for — will actually be available when it comes time to close.

“The tragedy is there’s far more people who have received a notice of eligibility who are shopping for a home, who want funding, than who are actually going to get funding. It’s not even close,” said Alex Jaffe, a branch sales manager with First Home Mortgage who has pushed through 13 loans for HPAP participants since October, trying to get them across the finish line before funds ran out.

Donahue said that the Bowser administration will not be able to add more funds to the HPAP program for the foreseeable future, due to intense spending pressures on a number of other critical entitlement programs and human services programs. It’s possible HPAP will remain frozen until the next fiscal year, which begins Oct. 1, unless other funds unexpectedly become available sooner, he said.

But the city will move forward on making exceptions for the roughly two dozen people whose HPAP applications were rejected last fall due to the new rules. Donahue estimates this could cost up to $5 million, though only people who still have active contracts will be able to receive funds.

“I’m feeling hopeful,” said Alfred Swailes, who told The Washington Post in November that he thought his contract on a one-bedroom condo was kaput after the new cap on HPAP assistance caused his loan from a private lender to fall apart. “I’m glad they’re doing something to try to correct the previous policy. It left a lot of people out, a lot of people hoping — people who the program was really supposed to help.”

The exceptions won’t apply retroactively to those who already have secured homes or been approved, or those who were disadvantaged by the rules but did not yet have a contract. The money will come from a combination of underspent funds within the housing department and contingency funds, Donahue said.

Council member Robert C. White Jr. (D-At Large), who introduced the emergency legislation that led to the mayor’s action, applauded Bowser’s decision. Bowser signed the bill Wednesday, a day before funds ran out, though her action goes beyond the requirement of the legislation, setting aside new funds for impacted people.

“The number of people impacted is not substantial, but the way they are impacted is substantial,” said White, who chairs the housing committee. Still, he said, describing the great need to stabilize the program, “the best resolution is a permanent one.”

HPAP, which has been around since the 1980s, is seen as a critical tool to help lower-income Washingtonians start building generational wealth and avoid displacement, especially in a city with a high-cost housing market and gaping wealth disparities along racial lines. Boosting Black homeownership is a key goal for Bowser, who has sought to cut into the enduring legacies of redlining and housing discrimination, and HPAP plays a major role in that vision. The program has helped nearly 700 families or individuals attain first-time homeownership since October 2022, the majority of whom are Black, according to data from the housing department.

Each year, HPAP funds have typically been fully exhausted. But for the past two years they have emptied out earlier and earlier, throwing eligible HPAP participants off guard. The funding debacle traces back to a decision Bowser made in 2022 to more than double the amount of loan assistance that people could be eligible for: up to $202,000, plus $4,000 in closing costs and deferred loan repayment. That decision garnered applause as a way to turbocharge the purchasing power of lower-income D.C. residents amid soaring interest rates.

But there was one hitch: That increase in aid available to individuals did not come with an increase in HPAP’s overall budget, leading to a discrepancy between the big hopes her announcement created for residents and the reality of the fiscal restraints to deliver for many of them.

Program participants hit three consecutive bumps since last summer.

Last year, funds ran out in June, even after the Bowser administration reprogrammed tens of millions of dollars to add to the $26 million HPAP budget to try to meet the demand.

When HPAP reopened in October, the program had new criteria: capping assistance at 30 percent of a home’s price, among other new rules, which had the greatest impact on the lowest-income applicants.

Now, the program is frozen again.

“If the city has a homeownership program that runs out of money in [three months], there’s a problem. That’s going to make it really hard for people to use it,” said Jessica Evans, a real estate agent with Compass.

Several HPAP participants that Evans or Jaffe assisted described rocky experiences. They spoke on the condition of anonymity over concerns about personal privacy.

One, a single mother who does administrative work for a nonprofit, said she moved to D.C. nearly six years ago and, last year, started to consider leaving the District and moving elsewhere due to high housing costs. But then she found HPAP. She took an orientation class and completed her HPAP eligibility paperwork last June — weeks before the program ran out of money the first time. She waited patiently for it to reopen in October while looking for possible homes — only for the new restrictions to drastically narrow her options. She started the search over again.

Now she’s having to stop her search again.

“I was lucky I didn’t have anything on the line, which would be soul-crushing, because I can’t imagine for the people who would have been actively going to the next step to make an offer to be told, ‘Sorry, there’s nothing,’” she said.

Donahue defended the management of the program and its new restrictions. He said they were intended to maximize the amount of people the program could help, while acknowledging this meant that some people may be disadvantaged.

“Any time there’s a program of any government, including ours, in which the popularity of the program exceeds what funding is available to it, you have to make policy trade-offs about how to make the biggest impact,” he said.

Data from the housing department shows that, even with the new restrictions, lower-income applicants were still able to leverage funds. Of the 220 first-time home buyers the program aided over the last three months, 48, or 22 percent, had incomes below 50 percent of the median income, which is virtually unchanged from the proportion of people in that income bracket aided by the program before the October restrictions.

Still, those who feel fortunate to have secured HPAP funds before the money ran out also had to make financial sacrifices they had not planned for due to the new restrictions and high competition.

Among the HPAP recipients Jaffe aided last fall was a nanny who has lived in D.C. for 10 years and only felt able to purchase a home after the mayor significantly increased the available aid in 2022. She signed a contract on a $375,000 fixer-upper rowhouse on Oct. 2, with the expectation that HPAP would cover about $161,000 in loan assistance, according to her eligibility paperwork. She had no advance warning the program’s rules were about to change.

The new 30 percent cap reduced her HPAP aid by roughly $50,000. She used all of her savings, which she had set aside for needed home repairs, to cover the extra cost and make the mortgage work.

“It’s just been an emotional roller coaster,” she said. “It’s never been very clear what’s happening. There’s just so many variables in buying a home, but not having any clarity about what money is available is emotionally exhausting.”

Irene Kang, vice president of government affairs at the D.C. Association of Realtors, said last year the association held a focus group for the Bowser administration to hear from HPAP participants about the challenges. Much of the feedback was as Jaffe’s client described: a need for better transparency and clarity, especially after the abrupt freeze on funds.

Kang and Jaffe both applauded the steps the administration took to create a public HPAP dashboard last fall that shows how much money is left and periodically updates, so the expiration of funds doesn’t come as such a shock to lenders, buyers or sellers.

Kang said she understood the need for the restrictions, so more people could become homeowners, but still hoped more money could be put toward HPAP in the upcoming budget cycle to alleviate some of the uncertainty for prospective home buyers.

“Obviously we want the program to be running as long as possible throughout the fiscal year. It’s not great that the funds run out so quickly, so there needs to be a balance struck between the escalating home prices and the [amount of] down payment assistance, but also the number of people we’re helping,” Kang said.

Donahue said the fiscal picture remains uncertain and said no decisions have been made about whether or how to increase the HPAP budget next year. But he said one major goal will be providing a clearer set of expectations and guidance to new HPAP participants as early in the process as possible, considering the complaints from those who have felt misled or in the dark about the aid.

“What buyers need the most, what Realtors and mortgage brokers need the most, is consistency of expectation, certainty about what their buying power is,” he said.

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