On March 24, 2026, the Department of Housing and Urban Development (“HUD”) announced that it is launching an investigation under the federal Fair Housing Act into a state-sponsored special purpose credit program (described below) that reportedly uses race as an eligibility factor.

The Washington Homeownership Resource Center runs the Covenant Homeownership Program (the “Program”), which the state legislature created in 2023 to “address the history of housing discrimination due to racially restrictive real estate covenants in Washington state.” The Washington legislation provides that generations of systemic “redlining, racially restrictive covenants, mortgage subsidies and incentives” created barriers to mortgage credit and homeownership for black, indigenous, and people of color and other historically marginalized communities in Washington. To remedy those circumstances, the legislature created a down payment and closing cost assistance program for eligible first-time homebuyers, repayable upon the sale or refinancing of the home, and forgivable after a period of time for certain eligible households.

According to the Program’s website, persons eligible for the Program are those who lived in the state before 1968 (or have a parent or grandparent who did), are first-time homebuyers who meet the income guidelines (up to 120% Area Median Income), and are a member of a racial group identified through the organization’s mandated study.

HUD asserts that the Program may violate the Fair Housing Act, which prohibits housing and mortgage financing discrimination based on race, among other factors. HUD Secretary Turner stated that the agency will vigorously enforce the Act and seek to eliminate illegal racial preferences.

The federal Equal Credit Opportunity Act (“ECOA”) addresses such special purpose credit programs, absolving a creditor from ECOA’s anti-discrimination prohibition if the creditor refuses to extend credit pursuant to “any credit assistance program expressly authorized by Federal or state law for the benefit of an economically disadvantaged class of persons.” The regulatory commentary explains that “[c]redit programs authorized by Federal or state law include programs offered pursuant to Federal, state, or local statute, regulation or ordinance, or pursuant to judicial or administrative order,” which would appear to apply to the Program.

While ECOA could arguably permit the Program, the federal Fair Housing Act does not expressly include any such “safe harbor” for special purpose credit programs. In addition, even under ECOA, the Consumer Financial Protection Bureau (“CFPB”) has proposed to significantly narrow the availability of those programs by for-profit institutions. (Mayer Brown analyzed that proposed rule in its Legal Update.) If the CFPB finalizes that rulemaking as proposed, those institutions would be prohibited from conducting special purpose credit programs that use the common characteristics of race, color, national origin, or sex as eligibility criteria. The CFPB did not propose to amend the ECOA regulation’s allowance for programs authorized by federal or state law, or those offered by nonprofit organizations.

In February 2026, prior to HUD’s announcement of its investigation, a federal district court in Washington considered a claim that the Program violates the Equal Protection Clause of the Fourteenth Amendment to the Constitution. The court denied the plaintiff’s motion for a preliminary injunction, holding that the plaintiff had not shown a likelihood of success on the merits.

Nonetheless, it appears HUD will investigate whether the Program violates the Fair Housing Act.