Recent cutbacks in government housing subsidies may have dealt a serious blow to plans to substantially renovate and convert to cooperative ownership the Benning Heights apartment complex in Southeast, the largest co-op project sponsored by low- to-moderate-income residents in the city.

The sprawling, 474-unit complex--west of Benning Road in the far eastern portion of the city--was one of more than 500 projects nationwide that lost out last month in a loan lottery run by the Department of Housing and Urban Development. At stake were the last available low-interest funds to be distributed under the Ginnie Mae Tandem program administered by the Government National Mortgage Association.

Capping a year-long effort, an organization of tenants last year purchased the 40-year-old development for $2.5 million, using a loan from the National Consumer Cooperative Bank and a second trust from the sellers. The group planned to rehabilitate the units and convert the 52 buildings to cooperative ownership during a two-year period. Individual shares in the cooperative have not been issued yet.

Funding for construction and rehabilitation programs--under which the Benning tenants would have received $10.3 million to renovate the building and consolidate the projects' debts--was stripped from the Reagan administration's budget for fiscal 1983. Under the program, developers of low-income Section 8 housing or projects in depressed areas received permanent subsidized financing, at interest rates of 7 1/2 to 9 3/4 percent--well under half what they would pay for conventional construction loans.

"We're between a rock and a hard place," said Robert Simon, president of the Benning Heights tenants association.

"We're gearing up to cut down on rehabilitation costs," he said, noting that hopes of doing a complete restoration have been dashed. Some of the buildings "need rehab bad," he added.

"Without Tandem, the project doesn't work," said Gaye Beasley, a mortgage banker with ABG Associates, a GNMA-approved firm involved with the Benning Heights project.

Long-term bond issues that could provide financing at 13 to 14 percent interest rates are alternatives to Tandem funding, Beasley said, "but that's not even feasible for the Benning project" because rents required to support those rates would "go out of sight" and defeat the project.

Whether or not bonds are issued to raise funds, "our project could afford only 10 percent rates," Simon said, noting that higher rates "would force some tenants out." The financial situation "looks pretty dismal," he added.

"We are restructuring our plans" for the project, including the nature of the restoration, said housing consultant Thomas A. Zuniga. His firm, Zuniga and Associates, arranged the financial package for the tenants' purchase of the complex last year.

Until the Reagan budget cuts put a virtual end to housing subsidies, the firm worked on getting Benning Heights qualified for Tandem funding, spending time and money on architectural work and inspections required for FHA insurance, Zuniga said.

He said he is continuing to look into funding alternatives for the project. His firm has proposed that the District's Housing Finance Agency issue bonds to raise loan money for the Benning project, he said. In addition, "we are discussing with two insurance companies the private placement of those tax-exempt bonds," which would lower the cost of the issue, thus providing more funds, he said.

The firm is also "looking at a possible guaranty" on the hoped-for loans from the District's Department of Housing and Community Development, which would lower the cost of the loan money by providing protection for would-be lenders.

With the demise of the Tandem program, there are few funding options available for mixed-income projects like Benning Heights, said Caroline Oakley, executive director of the Housing Finance Agency, a corporate instrument of the D.C. City Council charged with making housing funds available.

The agency allocated Section 8 rent subsidies for 97 Benning units, and "we're trying to finance the whole project," Oakley said, noting that the agency first must find funding for some low-income projects. HFA is required to reserve 50 percent of its funds for low-income housing and is moving to add more of them to its porfolio before it can provide financing for other projects like Benning.

HFA is working on new funding for several smaller housing projects that are completely low-income, Oakley said. After those are funded, the agency would be able to finance more mixed projects, she added.

Among the fund-raising options HFA has considered for Benning was a proposed mortgage portfolio swap with the Federal National Mortgage Association, but the two organizations couldn't find suitable debts to match in the trade, and the plan fell through, Oakley said.

The agency also has considered a number of bond issues, including those with short-term options that provide funds at a lower cost than normal. The short-term type "are not attractive to banks," Oakley said, although that option has not been ruled out. The Benning Heights project could not support the 14 percent interest rates incured by the standard issues, she said.

The housing projects nationwide that failed to win Tandem funding now are scrambling to find finance funds. Bond issues are the obvious alternative, said James Welu, manager of Montgomery County's mortgage finance programs, but the interest costs are too high for most projects.