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Washington, DC has long been known as a city that is good to low-income homebuyers, often subsidizing home purchases that these poor people would not otherwise have been able to afford. Unfortunately, that largesse seems to have turned around and bit them in the rear in these days of a troubled housing market. At present, twenty percent – or one in five – of all buyers participating in the city program, which is thirty-five years old, is behind on their mortgage payment, according to city officials. It’s a startling default rate that is no less than three times higher than the overall national foreclosure rate. The Washington Post has determined that nearly fifty buyers received notices of foreclosure in recent years, while over fifty more are behind on either their HOA or utility liens.

One of those people is Metro bus driver and father of six DeAngelo McDonald, who earns sixty-one thousand dollars a year. In 2008, he financed a three hundred thirty-eight thousand dollar home, thanks in part to loans from the city. The house cost twice the amount that city loan officials had estimated that he could afford. Not surprisingly, his three-bedroom home in the Southeast part of the city is now in foreclosure. McDonald, aged forty-eight was a first time homebuyer who says that he was sure “everything was on the up and up.” Since 2008, he has declared bankruptcy and says that he is now worried about his family ending up on the street. He calls his situation “heartbreaking” and “scary.”

For the past three decades, the District has helped buyers subsidize home purchases up to seventy-seven thousand dollars for first-time buyers. To qualify, buyers take part in a pre-purchase regime that includes credit counseling and classes in responsible home-ownership. Buyers are responsible for home shopping on their own and tracking down lenders who are willing to extend a first mortgage to them. In exchange, the D.C. Department of Housing and Community Development provides second mortgages with generous terms — think no interest and deferred payments for five years — designed to make home ownership affordable, even for families of limited means. The goal of the program has always been to expand homeownership in demographics that might otherwise struggle with getting the proverbial foot in the door.

Some of the funds used to power the program come from the U.S. Department of Housing and Urban Development, which provides grants to local governments for affordable housing. The money can be a lifeline for working families in the District, which has wrestled with steep rent increases and an acute shortage of affordable housing. Unfortunately, however, in spite of the program’s noble goals towards helping families out, the fact is that it has inadvertently led many families into greater financial distress. The Washington Post took it upon itself to track some thirteen hundred loans, or about eighty percent of the loans given out within the District between 2005 and 2009. One interesting factoid that emerged was the fact that one in three loans was made on a home priced at two hundred fifty thousand dollars or more, with some home prices coming in over three hundred seventy-five thousand dollars.

It’s a sobering statistic in light of the fact that a city guideline suggests that a buyer in a four-person household should, on average, have the ability to purchase a two hundred eighteen thousand dollar house. The price point has fluctuated somewhat in recent years: In 2006, it was two hundred thirty-six thousand dollars. Compare that to the experience of Erica Shorter, a receptionist and single mother, who bought a home in the Southeast for two hundred seventy-five thousand dollars in 2008, and now can barely cover the bills. She claims to have told her daughter that she might not have a “real Christmas” this year – that if the mortgage and utilities got paid and there was food to eat in the refrigerator, then that was Christmas.

Despite its shortcomings on paper, city officials nonetheless defend the Home Purchase Assistance Program, known as HPAP, saying it has helped more than twelve thousand five hundred buyers since its inception. It’s true that some buyers are given loans above and beyond the city guidelines, says Najuma Thorpe, a spokeswoman for the Department of Housing and Community Development, but loans are made on a case-by-case basis, and some buyers are able to afford more than the average. She says that the income/pricing guidelines were laid out by a previous administration based on housing sales in the District and is “by no means a cap or requirement,” she said. She also stated that the concept of affordable housing is “subjective,” with many factors going into that determination. Thorpe stated that all loans through the program are assessed by the Greater Washington Urban League, a nonprofit group that administers the program for the city, as well as underwriters at the banks that provide buyers with first mortgages.

Some buyers required additional assistance from another agency, the D.C. Housing Authority, which offset costs by providing equity in homes it had owned or developed. In the fiscal year 2008, for instance, around fifty percent of sixty-five buyers who bought homes priced at three hundred thousand dollars or more received equity from The DCHA ranging from thirty-five thousand dollars all the way up to three hundred sixty thousand dollars. One of these buyers was Kiesha Smith, a school bus driver who calls the DCHA program “beautiful” because it helped her afford her three hundred eighteen thousand dollar home in 2008. Smith received a one hundred fifty thousand dollar first mortgage from a bank, a seventy-seven thousand dollar second mortgage from the city, and eighty-one thousand dollars in equity assistance from the Housing Authority. As a bonus, she also received ten thousand dollars from a city home-loan fund earmarked for government employees. Smith’s monthly payment on her first mortgage is a modest eight hundred dollars.

Smith is one success story among thousands, but Thorpe says that the city is currently evaluating the loan program, and “looking to make enhancements” to beef it up. It’s believed that the city will submit official recommendations by March. Currently, eighteen percent of all city loan customers are behind on their mortgages. CoreLogic estimates that the average default rate in the DC region overall is just under six percent. Interestingly, the city makes no attempts to track who is behind or current on their first mortgages.

The District is quick to point to the fact that the current foreclosure rate in the loan program is just under two percent. Of course, those numbers are a bit skewed by the fact that the District only counts homes lost to foreclosure. In comparison, the region’s foreclosure rate is just over two percent, but captures a much broader group of homeowners anywhere in the process of foreclosure. For the city’s part, Thorpe says that the city tries to help troubled homeowners restructure payments.

One of the city’s loan officers who specializes in first-time homeowners’ mortgages is Dick Harbin. He reiterates the fact that the sustainability of monthly mortgage payments is a critical part of ensuring the success of initiatives meant to help people buying property for the first time. It’s true that buyers who hit the median income level for the District – sixty-one thousand dollars, as of last year – can usually afford a home priced at around two hundred forty thousand dollars, but that’s assuming that they have minimal debt, good credit and a small household. In fact, most participants in the city program have a low income (defined as between $51,751 and $82,800 for a household of four) or very low-income, who earn less, according to city data. Harbin, who works for Monarch Mortgage in Greenbelt, states that there “has to be a level of advocacy and responsibility from all parties to make sure that on this first home, you are not going from the frying pan to the fryer.”

Another part of the funding behind the city loan program comes in through the HUD HOME Investment Partnerships Program and Community Development Block Grant program. Both programs have drawn increased scrutiny in recent months, with HUD facing questions about its oversight of federal money once it leaves Washington. HUD officials argue that there is an expectation that federal money will be used to subsidize “modest housing” and that local housing agencies must consider how much house a low-income buyer can afford before extending a loan for anything that the borrower in question wants to buy. In a December 2010 audit requested by HUD, the agency’s inspector general criticized the District for subsidizing higher-priced homes without thought for the sustainability of those loans. In the report, spokesman Brian Sullivan slammed officials for not making sure that the families in question were “good candidates for home ownership.” It’s true that the use of federal funds to assist lower-income buyers in purchasing their first home is important, he reasoned, but simply getting these people into a home is not enough. In addition, “local jurisdictions should make certain those they help can sustain their mortgages.”

Other area housing agencies claim to pay more attention when there is a discrepancy between buyer income and the house they desire. This is visible in the lower average home purchase prices in nearby counties: in 2010, buyers in Montgomery County paid an average of about two hundred thousand dollars per home. In Arlington County, the average price was two hundred sixty thousand dollars. In Alexandria, it was just one hundred fifty thousand dollars. Shane Cochran, division chief of Alexandria’s Office of Housing, says that sustainability of the mortgage payment is a high concern of officials.

Although the average home price for a subsidized buyer in the District as of late 2009 was “only” about two hundred thirty thousand dollars, it must be taken into account that the program is far bigger than those in neighboring jurisdictions. Alexandria assisted only thirty-seven buyers and Montgomery one hundred forty-eight in 2010. Arlington has assisted just twenty-two buyers since 2009. On the other hand, the District extended loans to three hundred sixty-two buyers in 2010 alone. Records show the city ramped up its push to put low-income families into homes around 2006, as housing prices increased. That was not the only measure that the district made towards expanding the program, however. It also temporarily bumped the maximum assistance level from forty thousand dollars to seventy-seven thousand dollars. The number of loans increased accordingly: from two hundred seventy-eight in 2006 to five hundred thirteen in 2007.

Although worksheets in city loan files show that loan officers made note of such factors as buyers’ income, debts and employment history, and sent buyers eligibility notices that estimated an affordable purchase price, nothing stopped buyers from choosing more expensive houses, records show. Many did, in fact. Of course, Thorpe’s answer to this was the fact that the eligibility amount was “only an estimate” and that the banks that provided first mortgages determine affordability.

It’s a sentiment backed by Erika White, a loan underwriter at the Urban League. White opines that the group’s estimates as to individual home buyer affordability tended to the conservative side. “We won’t approve a contract if it’s out of their range,” she said. Furthermore, she offered, in some cases buyers’ incomes increase between when the estimate is prepared and when they decide to buy a house. She added that some buyers receive grants to reduce costs. Neither city nor Urban League officials could say how often or how much grant money has been provided, however.

Some buyers also receive additional assistance from the Housing Authority, which provides equity in houses, then secures the investment with a note. But some of those buyers, like Sharon Mitchell, are now having to fight hard to keep from losing everything. Mitchell bought an almost four hundred thousand dollar home in 2008, having been attracted to the new Southeast development. Although she was given a second mortgage from the city of seventy-seven thousand dollars and eighty-four thousand dollars in equity from the Housing Authority, Mitchell’s payment on her overwhelming two hundred fifty-one thousand dollar first mortgage is sixteen hundred dollars a month. When the city’s second mortgage becomes due in about a year, Mitchell will have to pay an additional hundred sixty dollars a month as well, records show. Mitchell, who says that she is “scraping by every month,” moved into her house from a nine hundred dollar a month apartment. Loan officials had estimated she could afford a house priced up to one hundred seventy-eight thousand dollars, records show, but approved the loan anyway. Now Mitchell, a federal employee, says that she was misled into believing that her home would be affordable.

Dena Michaelson, a spokeswoman for the Housing Authority, said she knows of only two foreclosures among hundreds of buyers assisted by the authority over the years. “We are careful that we don’t set up low-income buyers to fail,” she said in a written statement. Thorpe, with the Department of Housing and Community Development, did not comment on specific cases of struggling homeowners, citing privacy. “During the underwriting process, HPAP loans are thoroughly reviewed to ensure that the loans… meet accepted underwriting practices, including affordability guidelines,” Thorpe said. “However, if the buyer assumes additional debt responsibility or if the buyer’s income changes after the home is purchased, that can affect the affordability.”

And yet, the evident patterns are concerning enough that D.C. Council member Jim Graham (D-Ward 1), who said he has long questioned whether the city does enough to ensure that low-income families can sustain their homes, especially in condominiums with rising fees, is questioning whether the program is actually accomplishing anything. There is no doubt that it is “definitely well-intentioned,” he says, but the program, may ultimately be futile if it takes buyers and puts them in a “situation that they can’t afford.”