The D.C. Housing Finance Agency (HFA), embroiled in a power struggle with the City Council that led to yesterday's mass resignation by board members, was created in 1979 with broad powers to raise and lend money to expand the District's tight supply of low and moderate-income housing.

The nine-member HFA, appointed by the mayor with council confirmation, and empowered to issue millions of dollars worth of tax-exempt revenue bonds, was slow in getting started and frequently has been the target of criticism by council members and other officials.

But as federal housing funds began to dry up in recent years, the HFA became the city's only tool for generating low-interest funds to deal with a growing crisis for families that couldn't afford market-rate housing.

"While it is true that the agency got off to a slow start, in the past two years the number of projects approved and in the pipeline has been impressive," said Mayor Marion Barry, a chief defender of the embattled agency.

The HFA has issued more than $198 million worth of bonds and notes to finance 1,600 units of low and moderate income rental housing and to provide low-interest mortgage financing for about 200 single family homes, according to D.C. government figures.

Last August, the HFA launched a $30 million program to provide low-interest mortgage loans to households earning up to $42,960 a year.

The agency, with a full-time staff of 16 employes and a budget of $1.7 million, sells tax-exempt bonds and notes, and then lends the proceeds at below-market rates to qualified home buyers and developers of low-income apartments. At least half of all units financed must be priced for low- and moderate-income family housing.

Carolyn Oakley, the HFA's first executive director, resigned in August 1983, accusing the agency of catering to developers at the expense of low- and moderate-income families.

More recently, City Council member Charlene Drew Jarvis (D-Ward 4), chairman of the council's housing committee, stepped up her criticism that the HFA was not adequately responding to the city's housing crisis.

The turning point came early last month, when the council approved Jarvis' emergency legislation stripping the HFA of its power to approve bond sales and giving it to the council. The vote came on the heels of an FBI investigation into allegations that HFA executive director Thomas M. Zuniga had charged personal expenses to the agency.

Zuniga subsequently repaid the money and resigned. Yesterday, the council, by an 11-2 vote, overrode Barry's veto of the bill, precipitating the resignation of six public HFA board members. The other three members are city officials in the mayor's cabinet.