What is HPAP?
The Home Purchase Assistance Program (HPAP) is a DC program started over 30 years ago. Its purpose is to assist low-to-moderate income buyers by giving them an interest-free second mortgage that serves as a downpayment on a house and that also pays for most of the closing costs; all HPAP loans are repaid. In addition to the financial assistance, HPAP recipients also receive intensive financial and home buyers education, preparing them for the responsibilities and challenges of homeownership.
Purchase assistance is critical for low and moderate income DC residents to be able to get into DC’s expensive housing market, often times paying much less than they would in rent. Since its inception, this program has allowed almost 14,000 families to make the transition into homeownership. The foreclosure rate is much lower than the national average, last reported at 2%.
Homeownership offers a way for prepared families to build wealth through the equity in their home, helps reduce crime in neighborhoods, and improves children’s educational performance. HPAP is absolutely key to helping DC households access the benefits of homeownership for themselves and generations to come.
Funding and Loan Amounts
The HPAP budget had been steadily decreasing since 2008, but thanks to ongoing advocacy efforts, Mayor Bowser and the DC Council committed an additional $6 million in the FY17 budget, bringing the HPAP total budget to $16 million.
Before the Great Recession, the maximum HPAP loan amount was $70,000. That amount was lowered to $40,000, at a time of extreme budget cuts. Now that the market has rebounded, first-time homebuyers need more buying power to purchase homes. As a result of advocacy and education at the City Council, the maximum HPAP amount increased to $50,000 on December 31, 2014 and increased again to $80,000 at the end of 2016!
HPAP Loan Increase
Councilmember Bonds and 11 other Councilmembers introduced legislation to raise the maximum HPAP loan amount to $80,000, which Mayor Bowser also committed to and signed on May 9, 2016. A hearing on the legislation took place on January 7, 2016 (see video of the hearing here).
- This increase helps HPAP meet the increasing demand and need for the program.
- The increased HPAP loan amount ensures more residents can afford to purchase in DC. Today’s market is far above FY08, when median home prices were $440,000 and the HPAP loan maximum was up $70,000.
- The legislation also stipulates the need to restructure payments for some of the higher loan amounts.
HPAP Budget, Demand, Closings and DC Median Home Prices
The HPAP budget had been decreasing since FY08, when maximum loans were $70,0000; max loan amounts dropped to $40,000 soon after. The FY17 budget ($16 million) represents the first increase in almost 10 years!
A mixture of loan increases and administrative changes (see below) strengthens HPAP and serves the many residents that need the program to be able to purchase in DC. Both mortgage-ready HPAP applicants (purple line) and median home prices (green columns) are increasing, while HPAP closings (blue line) have been decreasing. The increase to the FY17 HPAP budget and loan amounts will start to reverse that trend!
DC Home Price Data
As purchase prices have increased, the number of homes at price points affordable to HPAP buyers has dropped.
The increase in loan amount increases HPAP buyers’ purchase power and give them access to more homes on the market! Below figures are based on a 38% income to debt ratio and a 5.5% interest rate, so max purchase prices could be higher:
The below recommendations to improve HPAP were submitted by CNHED’s Ownership Working Group to DHCD in June 2015. One of these recommendations was implemented on 10/1/15 (elimination of second home inspection) and has already made an impact in sellers being willing to accept offers from HPAP buyers! The loan increase to $80,000 happened at the end of 2016, and others are in process!
- Increase maximum loan amounts to $80,000; restructure the payment timeline for buyers with higher loan amounts, deferring payment until resale or cash-out refinance.
- Renew HPAP contract on time by approving it early enough to also secure Council approval before the start of a new fiscal year.
- Advance loan funding to the program administrator based on pipeline projections instead of requiring the provider to rely on a line of credit.
- Eliminate the redundancy of requiring two similar inspections by having one inspection that is paid for by the buyer; the buyer would work with HPAP recommended inspectors to sure any HUD requirements are met.
- Increase staffing and capacity as part of the program administrator’s contract, using savings from the HQI inspections.
- Create an HPAP process timeline that is public, understood by all involved parties, and adhered to by the program administrator.
- Require the program administrator to use a digital loan portal so lenders can easily pass along documents.
- Set up a protocol of communication between the program administrator and lenders, particularly when it comes to discrepancies surrounding income and ratio calculations.
- Include the words “Home Purchase Assistance Program (HPAP)” in every communication to HPAP borrowers by the loan payment servicer or DHCD.
- Hold regular meetings with stakeholders in order to monitor market and lending dynamics, as well as to troubleshoot potential borrower issues.
- Create a review process for future HPAP guidelines and revisit changes that were made to the program in 2013.
- Allow borrowers to pay HPAP loans using direct debit or online payment services.
- Ensure that CBOs get timely information on any delinquent borrowers.