Revealing deep fault lines in its financial affairs, the Island Affordable Housing Fund announced abruptly this week that it can no longer pay for the county rental assistance program, pulling the rug out from under hundreds of Islanders who depend on the program for stable year-round housing.

The nonprofit fund not only has run out of money for the rental assistance program but is also in serious financial straits with its high-profile Bradley Square project in Oak Bluffs that drew Gov. Deval Patrick to the Island for a ceremonial groundbreaking in August.

The fund’s sudden financial pullout on rental assistance places the Dukes County Regional Housing Authority at immediate risk for breach of contract with some 45 Island landlords who receive subsidies for renting their houses to year-round residents at affordable rates. And this in turn places the tenants in those homes at risk of losing their year-round housing.

A total of 85 landlords participate in the rental assistance program; the housing fund provides annual subsidies for about 45 of them, totaling more than $300,000. The remaining subsidies totaling some $200,000 come from community preservation act money from Island towns.

“The weight of this program was the Island Affordable Housing Fund,” said David Vigneault, executive director of the regional housing authority. “I am sorry for the tenants and the landlords and I do not want to downplay what has happened here. Confidence has been badly shaken, and there is plenty of responsibility to go around,” he added.

“We’ve been caught overextended in the economy, and the money’s not there,” said T. Ewell Hopkins, executive director of the housing fund, who has been on the job for 30 days following the sudden resignation of former director Patrick Manning.

Mr. Hopkins said a thorough examination of the books has just begun, but he said fund-raising fell far short of the goal this year, donors have defaulted on pledges and the housing fund has committed the bulk of its money to affordable home building projects. The fund has been paying about $25,000 a month to the rental assistance program out of operating funds and no longer has the money to do so.

“The fund is loath to say they have to walk away from rental assistance . . . but that is what is taking shape for the future,” Mr. Hopkins said, adding: “There has been a lot of angst behind the scenes and we’ve always been able to pull a rabbit out of our hat. But this economy has not allowed us to do that.”

The comments follow a flurry of emergency meetings between both organizations that began last Friday and continued through the weekend and into early this week. On Friday the housing fund put out a one-paragraph press release announcing that it could no longer meet its monthly obligation for rental assistance. Affected landlords and tenants have been notified; Mr. Vigneault said most landlords have been understanding and have said they will carry the burden — for now.

“We are on a month-to-month basis,” he said.

The rental assistance program began in 2001; it was originally called the rental conversion program because it was aimed at converting Island homes that were traditionally rented only in the summer to year-round rental housing. The program depends on the good will of landlords and also subsidies that help bridge the gap between what the landlords could make in a summer rental versus year-round. Most of the landlords are year-round residents who depend on the income. “These are folks with garage apartments and small guest cottages, what used to be called mother in law apartments,” Mr. Vigneault said. The housing fund has contributed more than $2.6 million to the program since it began.

“It can’t be lost that the fund has put $2.64 million into this . . . we had a very successful program and the fund was carrying it,” Mr. Vigneault said.

The nonprofit housing fund is 10 years old; its mission is to raise money for affordable housing. Most of its money goes to its sister organization, the Island Housing Trust, another nonprofit set up to develop affordable housing projects, and to the publicly chartered housing authority. “The relationship has always been clear: the fund raises the money, the trust develops the projects and the housing authority manages them,” Mr. Vigneault said.

But he and Mr. Hopkins both admitted that the recent abrupt withdrawal of the fund from the rental assistance program signals a distinct change.

“There is a new day on the relationship between the affiliates going forward . . . and that relationship will be including written memorandums of understanding where promises and handshakes in annual meetings used to be enough,” Mr. Vigneault said.

“There needs to be much more transparency between the two organizations going forward. That is my recommendation,” Mr. Hopkins said.

Both admitted that the news caught everyone by surprise, but Mr. Vigneault said looking back over the past few months, the handwriting was clearly on the wall. He said during late summer and early autumn board meetings between the housing authority and the fund, the authority was told there was a shortfall in rental assistance money, but that it was temporary. The meetings took place during the period when former executive director Patrick Manning had left and Mr. Hopkins had not yet taken over.

“You had an organization in transition with its leadership, and the landscape for giving has changed dramatically. I’ll take some responsibility for not seeing these things as an indication of something larger,” Mr. Vigneault said.

Responsibility for any default on rental assistance rests solely with the housing authority; the authority has contracts with landlords to pay the subsidies, but the affordable housing fund has no contractual obligation to pay the housing authority.

Meanwhile, Mr. Hopkins has other problems to contend with, as he begins to unravel financial affairs at the fund. He said fund-raising was projected to bring in $1 million this year but only brought in about half that. And donors have defaulted on pledges; he did not say how many but he said fund board members have been assigned to call every donor who has not made good on a pledge.

“I am doing forensics with my accounting department, looking at the status of each account, our obligations and our cash flow,” Mr. Hopkins said.

He said the fund is carrying too much debt, costing around $10,000 a month in interest. The debt is principally at Jenney Way, an affordable home project in Edgartown where the last house remains unsold, and at Bradley Square in Oak Bluffs, which is more than $600,000 in the hole and not yet built.

He said he believes the Jenney Way debt can be retired through the eventual sale of the last house, but he was far less sanguine about the outlook for Bradley Square, a plan to convert the old Bradley Church on Masonic avenue into a mix of commercial space and affordable apartments. Under the leadership of the former executive director, the fund paid more than $900,000 for the run-down property and is carrying a large mortgage on it.

This week Mr. Hopkins bluntly called Bradley Square “a hornet’s nest” and he said the future of the project now depends on significant contributions from the town community preservation committee and private donors, contributions that he said are unlikely to materialize. A business plan prepared by Mr. Hopkins for the $5.3 million project shows that it cannot break even without hefty additional support, including some $1 million from the town of Oak Bluffs, which is in a budget deficit and has had to shed jobs for town workers.

“Bradley is in a very tenuous position. Of all the optimism I have for Jenney, I have none for Bradley. But I will tell you, we are going to resolve it, because it is not sustainable,” Mr. Hopkins said.

Mr. Vingeault said the rental assistance program, which has begun to rely on community preservation act money in the last two years, will now turn to the towns for even more support. He said Edgartown has already pledged to increase its commitment, and requests for increases are also in front of West Tisbury and Oak Bluffs. The release of CPC money requires voter approval at a town meeting.

“This is the direction we were headed in long-term, but now it has been intensified and thrown into a whole new light,” Mr. Vigneault said, concluding: “I was on the agenda to speak to the youth task force this week about homelessness, and I had to say, ‘I am here to announce that we’ve just contributed to the problem.’ ”