On March 24, HUD announced that its Office for Fair Housing and Equal Opportunity has opened and notified the Washington State Housing Finance Commission of an investigation into the state’s “Covenant Homeownership Program,” which HUD said may violate the Fair Housing Act (FHA). The program, launched in 2024, offers downpayment and closing cost assistance for first-time homebuyers through a zero-interest secondary mortgage, with income limits set at 120 percent of the area median income and full loan forgiveness for low-income borrowers after owning a home for five years. Among other criteria, applicants must have a parent or grandparent of certain racial or ethnic backgrounds. In announcing the investigation, HUD cited the commission’s 2023 “Racial Equity Strategy Plan,” which the agency said was designed to advance what the commission described as “antiracist priorities.” HUD’s letter stated that the FHA prohibits entities engaged in residential real estate-related transactions from discriminating against any person in the availability or terms of such transactions because of race or national origin, and asserted that the program’s “race-based” eligibility criteria strongly suggests unlawful discrimination is occurring.

HUD directed the commission to preserve all records and materials related to the program (existing and future), including electronic messages sent using official and personal accounts, and stated that it will issue initial requests for information within 10 business days. Upon completing its investigation, HUD said it may file a complaint against the commission or refer the matter to DOJ for further enforcement. As previously covered by InfoBytes, in February, a federal district court declined to enjoin the program after finding it was likely to survive strict scrutiny, concluding that remediating past racial discrimination in housing is a compelling government interest and that the program is narrowly tailored.