DC's Homeownership Funding Is Structurally Broken: A Case for Capital Markets Reform

Last year I was alongside a DC public school teacher earning $78,000 a year when her homeownership journey practically became impossible. We were 19 months into her home search (thanks, DC HPAP) when she decided using any DC first-time homebuyer program wasn't worth it.

A week later, I closed a Virginia Housing loan for a buyer in a nearly identical financial situation. Thirty days, start to finish. No funding uncertainty. No lottery. No government agency re-underwriting a loan that was already fully approved.

All too often, people that want to address housing affordability lean towards how to build more supply. Yes, it's absolutely needed to address DC's archaic zoning laws, parking requirements, setback minimums, and so much more. But there is rarely, if ever, a conversation about how terrible the District of Columbia's homeownership programs are compared to other areas in the country.

This is not a budget problem. It's an architecture problem. It's an accountability problem. And in a mayoral election year, every candidate for office in DC should have to answer for it.

That's the gap this article is about.

Why I'm writing this.

I'm not a policy analyst or a politician. I'm an independent mortgage advisor licensed in DC, Maryland, and Virginia who has helped over 737 people with their mortgages in the past 10 years (no, I don't work for a big bank and never will). I've experienced DC HFA and HPAP, Maryland Mortgage Programs, and Virginia Housing firsthand. I sit at the intersection of these systems every single day, and I see exactly how each one treats the buyers it's supposed to serve.

DC's Home Purchase Assistance Program can provide up to $202,000 in down payment and $4,000 in closing cost help. Interest-free. Deferred. It is one of the most generous homebuyer programs in the country in theory. I say "in theory" because it is probably also one of the worst-run, worst-allocated, and most broken programs in the country.

But HPAP has run out of money three years in a row. DHCD can't process applications in under 90 days. The program switched to a lottery with weeks of notice. And the agencies responsible for DC homeownership, DHCD and DCHFA, are operating on a fundamentally broken funding model while Virginia Housing funds $1.1 billion in affordable mortgages annually using zero taxpayer dollars.

Here's what the data shows, how Virginia built a self-sustaining model DC should have copied decades ago, and what the next administration needs to do about it.

By the numbers: DC vs. Virginia.

Virginia serves 15x more families at 36x the dollar volume while spending zero taxpayer dollars. DC spends $30M+ of public money and still runs out every year. Read each row:

Sources: Virginia Housing FY2024 Financial Statements; DCHFA BondLink Investor Page; DC DHCD HPAP Dashboard; NCSHA Factbook; DC CFO Budget Documents FY2023-FY2025.

The difference isn't funding levels. It's funding architecture.

Why DC's model can't scale.

DC's homeownership funding has two structural problems that no amount of incremental budget increases will solve.

Problem 1: HPAP is a one-way valve.

HPAP loans are interest-free and deferred until the borrower sells, refinances, or moves out. That's generous policy. It's also a capital trap. Every dollar deployed is locked up for years or decades. Unlike Virginia Housing's revolving bond model, HPAP dollars do not recirculate. The $30 million appropriated each fiscal year is gone the moment it's committed. There's no mechanism to replenish it until the next budget cycle.

The demand for HPAP far exceeds available money. Even doubling the pot would not solve the problem. You cannot fix a structural deficit with a bigger budget. You fix it with a different structure.

Problem 2: DCHFA's single-family side is neglected.

DCHFA actually has the bones of a Virginia-style operation. It holds an AA- credit rating. It issues mortgage-backed securities. It runs DC Open Doors through participating lenders. But DCHFA focuses its bond issuance almost entirely on multifamily rental development. Its single-family program has served approximately 1,800 homebuyers over the past decade total. Virginia Housing did more than twice that in a single year.

DCHFA is not broken. It's underutilized. The infrastructure exists to issue dedicated single-family mortgage revenue bonds modeled on Virginia Housing's Commonwealth Mortgage Bond program. DC has chosen not to use it.

How Virginia's model actually works.

Virginia Housing is a self-supporting political subdivision created in 1972. It raises 100% of its lending capital through private markets:

1. Origination through private lenders. An extensive network of approved banks, credit unions, and mortgage companies originate Virginia Housing products directly to borrowers. The borrower walks into their local lender and accesses Virginia Housing rates and DPA. No government agency in the middle of the transaction.
2. Post-closing bond issuance. Virginia Housing aggregates mortgage pools and issues Commonwealth Mortgage Bonds secured by these loans. Investors buy the bonds, providing fresh capital for more mortgages.
3. MBS participation. Loans are also packaged for sale through GNMA, Fannie Mae, and Freddie Mac, providing another liquidity channel.
4. Revenue reinvestment. Net revenues from the spread between bond costs and mortgage rates fund operations, build reserves, and support REACH Virginia, which reinvests up to 40% of net revenues into housing grants and programs.

This isn't a Virginia-specific miracle. North Carolina, Colorado, and dozens of other state HFAs operate similar models. NCSHA's 2026 priorities document describes it plainly: state HFAs "operate on a self-sufficient foundation of strong balance sheets, public accountability, and access to the capital markets." DC's neighbor built this. DC chose not to.

Three years of HPAP crises.

The pattern is no longer deniable:

To understand how we got here, you need to understand one decision that broke the math.

The $202K decision that nobody modeled.

In October 2022, the administration increased HPAP's maximum assistance from $80,000 to $202,000. The stated goals were expanding homeownership access and closing the affordability gap for DC residents. Those are the right goals. But the increase came with zero published financial modeling, no sustainability analysis, no demand projections, and no comparison to what neighboring jurisdictions were doing with similar dollars.

The earlier increase from $50K to $80K had at least included a worked example: a four-person household earning $54,000 could support a $340,000 purchase with a total housing payment of $1,650/month. For the jump from $80K to $202K? Nothing. It was a political deliverable, not a financial one.

Here's the math anyone with a spreadsheet could have run before the announcement:

The DC Fiscal Policy Institute flagged this immediately: the changes more than doubled the maximum allowable assistance but did not include a corresponding funding increase. What happened next was entirely predictable.

The timeline.

• October 2022: HPAP max raised from $80K to $202K. No budget increase.
• June 2023: HPAP runs out of funds before the fiscal year ends. Buyers in the pipeline are told to wait.
• January 2024: HPAP's $26 million budget is fully claimed within four months of the fiscal year start. Hundreds of eligible buyers are frozen out.
• October 2024: DHCD's "solution" to the funding crisis it created: a lottery. $32 million in HPAP funds distributed by random drawing. The District had the entire summer to develop a plan but left buyers, agents, and lenders without clarity until weeks into the new fiscal year. Buyers who spent months completing counseling, gathering documents, and getting pre-approved learn their access now depends on luck.
• FY2025 budget: HPAP is cut from $35 million to $28 million. Triple the per-buyer cost, cut the total budget by 20%, then act surprised when the program collapses.
• November 2025: Reporting reveals DHCD failed to spend $1 million in allocated HPAP funds while simultaneously forfeiting $3.5 million in federal LIHTC credits.

What needs to happen with the $202K cap.

The $202K maximum needs to be revisited. Not eliminated, but restructured with actual financial modeling behind it. The current cap makes the program unsustainable at any realistic budget level. Options that should be on the table:

• Tiered caps tied to funding capacity. If the budget supports 250 buyers at a $130K average, set the cap there. If a revolving fund (Phase 2) generates enough recycled capital to support higher amounts, raise the cap as the fund grows. Let the math drive the policy, not the other way around.
• Income-adjusted maximums with tighter bands. The current table already scales by income, but the top tier still allows $70K-80K for households earning up to $191K. That's a lot of deferred capital deployed to moderate-income buyers who may need less gap financing than the program allows.
• Shared appreciation or equity recapture. Instead of a pure deferred loan, structure HPAP above a certain threshold as a shared equity instrument. The buyer gets the gap financing; DC retains a proportional equity stake that recycles when the home is sold. Virginia Housing and other state HFAs use similar structures to keep capital in motion.

HPAP is a critical pathway for homeownership in DC. The program's importance makes the dysfunction worse, not more excusable. Tripling the maximum assistance without modeling the impact on capacity, recycling, or sustainability was a decision that prioritized announcements over outcomes. The next administration needs to fix it with a spreadsheet, not a press release.

What the next mayor needs to do.

Every 2026 mayoral candidate should be asked one question about housing: Will you commit to transitioning DC's homeownership funding from a budget-dependent model to a self-sustaining capital markets model?

The path exists. It's not theoretical.

Phase 1: Unlock DCHFA's single-family capacity (Year 1)

• Capitalize a dedicated DCHFA Single-Family Lending Fund. The most realistic path is a DC Council one-time appropriation of $50-100M into a dedicated single-family lending fund at DCHFA. This isn't unrealistic in DC budget terms: the Housing Production Trust Fund receives ~$400M/year and nearly all of it flows to rental development. A carve-out or parallel appropriation specifically for homeownership lending would be the fastest route to standing up a Virginia-style program. Pair this with amending DCHFA's enabling legislation to authorize large-scale single-family mortgage revenue bond issuance, so the initial appropriation seeds a self-sustaining model rather than creating another budget line item that runs dry.
• Retain servicing and build recurring revenue. DCHFA would originate or purchase single-family mortgages through its existing lender network (DC Open Doors participating lenders already know the system). The key difference from today: instead of just earning an MBS issuer fee and passing the loan through to Fannie/Freddie, DCHFA would retain a servicing strip on every loan it finances. Virginia Housing services its own loans, and that's where the real money is. Loan servicing generates 25-40 basis points annually on the outstanding balance. On a $500K loan, that's $1,250-2,000/year in recurring revenue per loan, every year, for the life of the loan. If DCHFA financed just 500 loans/year at an average of $450K, that's a $225M book in year one. The servicing revenue alone would be ~$560K-900K annually. Not transformative on its own, but it compounds. By year five, a $1B+ servicing portfolio generates $2.5-4M/year in recurring revenue that funds operations and builds reserves without a single taxpayer dollar.
• Pursue a credit rating upgrade. DCHFA's AA- is solid. AA or AA+ reduces borrowing costs and expands the investor base. Each notch matters.
• Obtain a social bond designation. Colorado HFA received a social bond designation in 2021, opening access to ESG-focused investors willing to accept lower returns for verified social impact. DC's demographics and mission alignment make it a natural fit.

Phase 2: Restructure HPAP as a revolving fund (Years 1-2)

• Remove DHCD/DCHFA from loan underwriting. HPAP approval should not require a government agency to re-underwrite a loan that a private lender has already fully underwritten. The lender underwrites to program guidelines, closes the loan, and DHCD reviews post-closing for compliance. This is how virtually every state housing finance agency operates. It's how jumbo portfolio products work when serviced to banks. There is no reason DC should be inserting a second underwrite into the middle of a transaction, adding months to the timeline and killing deals in the process.
• Capitalize HPAP with bond proceeds, not budget appropriations. Instead of $30 million in annual budget dollars that disappear when spent, capitalize HPAP as a revolving loan fund backed by DCHFA-issued bonds. Borrower repayments flow back into the fund. The pool self-replenishes.
• Introduce modest interest on HPAP loans. Zero-interest deferred loans are generous but unsustainable at scale. Even 1-2% simple interest would generate revenue to service bonds and grow the fund while remaining far below market rates. Virginia Housing's Plus Second Mortgage charges a fixed rate and remains highly attractive to borrowers.
• Redirect budget appropriations to credit enhancement. Instead of funding HPAP directly, the annual $30M appropriation becomes a credit enhancement reserve for the revolving fund. That improves the fund's credit profile, lowers bond costs, and leverages each taxpayer dollar far more efficiently.

Phase 3: Build the flywheel (Years 2-5)

• Grow net position through disciplined operations. Virginia Housing's $3.9 billion balance sheet was built over 50 years of careful spread management between bond costs and lending rates. DCHFA starts building that balance sheet now.
• Create a DC REACH equivalent. Virginia Housing reinvests up to 40% of net revenues into housing programs through REACH Virginia: grants, counseling, special needs housing. All without additional budget appropriations. DC should build the same.
• Lobby for federal PAB cap increases. The bipartisan Affordable Housing Bond Enhancement Act (S. 1511, introduced April 2025) would expand HFA access to private activity bond volume cap. These federal tailwinds favor jurisdictions with established bond infrastructure. Virginia Housing benefits immediately. DC needs to build capacity first.

Immediate operational fixes (parallel track)

While the structural transition unfolds, DHCD needs basic operational competence:

• 30-day processing standard from complete file to funding decision. Published quarterly.
• Real-time applicant portal showing file status.
• Public funding dashboard showing allocation, committed, and remaining dollars.
• Expanded CBO capacity: more approved agencies, adequate funding, weekly orientations, virtual options as standard.
• Seller closing guarantees backed by the District. If DHCD misses the committed close date, DC covers the seller's carrying costs. This transforms seller perception and forces DHCD to hit timelines.

264 families a year is not a housing program. It's a waiting list.

DC has a real affordability crisis in both homeownership and multifamily rental. But nearly all of the District's housing infrastructure, budget, and political energy flows toward rental development. Homeownership gets the leftover budget line items and the understaffed agencies. Virginia Housing provides the blueprint for what a self-sustaining homeownership engine looks like. North Carolina, Colorado, and dozens of other states prove it works at scale. The question for every mayoral candidate and every housing advocate in DC is simple: are we going to keep patching a broken system with bigger budget requests, or are we going to build the infrastructure that makes affordable homeownership self-sustaining?

Have a response? I want to hear it: Book a conversation.

Christian Kosko is a mortgage advisor that founded the Mortgages in the District team of Fairway Home Mortgage, licensed in DC, MD, and VA. He has helped guide over 700 families with more than $420M in mortgage needs since 2016. Christian believes in challenging the big bank system that is designed to keep mortgages confusing by focusing on Mortgage Clarity and transparency. He works with first-time buyers, military members and veterans, high-net complex buyers, homeowners, and those that are curious about down payment assistance programs.

Christian Kosko | NMLS# 1415795 | Fairway Home Mortgage
NMLS# 2289 | Equal Housing Lender | Licensed in DC, MD, VA