New Statewide program to remedy discriminatory homeownership practices

On July 1, Washington state launched a new program and funding source called the Covenant Homeownership Program. Created by the state legislature in 2023 through the Covenant Homeownership Act (HB 1474), the landmark legislation helps low-income homebuyers statewide whose families have been harmed by racial discrimination in housing.

In enacting the measure, Washington became one of the first states to face and address the role of government institutions in housing-related discrimination and racism.

Research by the University of Washington and Eastern Washington University uncovered nearly 50,000 racially restrictive covenants across the state. (The Fair Housing Act of 1968 made racial discrimination in housing illegal, but discrimination persisted.)

In announcing the launch of the program, Nicole Bascomb-Green, chair of the Washington State Housing Finance Commission (WSHFC) and member of the Northwest Multiple Listing Service board of directors, called the new program “a proud moment for the Commission and for Washington state.”

“Redlining, racist covenants, and other kinds of state-supported discrimination denies thousands of families in Washington the opportunity to own a home and build wealth for their families. This program finally takes a step toward righting those wrongs by creating a new path to homeownership.”

WSHFC is responsible for designing, developing, implementing, and evaluating the Covenant Homeownership Program. It was also charged with overseeing the Covenant Homeownership Program Study to determine program details. An oversight committee formed by the Department of Financial Institutions will review the Commission’s activities and performance related to the covenant program.

In March, the National Fair Housing Alliance (the lead consultant) released its 197-page Study, a 7-page executive summary and hourlong webinar summarizing their findings and recommendations.

Four eligibility criteria were established based on the Act’s mandates and recommendations of the Covenant Homeownership Program Study:

1. Household income at or below 100% of the Area Median Income (AMI)
2. First-time homebuyer
3. The homebuyer or a parent/grandparent/great-grandparent lived in Washington state before April 1968
4. The person who lived in Washington before April 1968 is Black, Hispanic, Native American, Alaska Native, Native Hawaiian or other Pacific Islander, Korean or Asian Indian.

Homeownership rates differ sharply when comparing white and nonwhite households, according to recent census data. Nearly seven in ten white households (69%) own homes, while only 34% of Black, 47% of Latino, and 55% of Native American households own their home.

The study’s authors acknowledge other groups experienced “well-documented, egregious acts of discrimination,” but said the qualifying groups they identified “are still being impacted most deeply” or face notable homeownership gaps.

Along with the research study, the law established a Special Purpose Credit Program, a new source of funding for homebuyer assistance. It is based on a new $100 document recording assessment on every real estate transaction starting January 1, 2024.  For the first six months since the law’s enactment, the state collected about $20 million. That is well below initial projections of annual fees $75-to-$100 million, mostly due to a sluggish housing market.

The Special Purpose Credit Program, made available by the Equal Credit Opportunity Act of 1974, is considered an important tool in expanding fair access to credit. These programs were designed to eliminate structural barriers to homeownership by benefiting a specific class of persons with common characteristics such as race, national origin or sex.

Eligible applicants can receive mortgage assistance in the form of interest-free loans of up to $150,000 for down payments and closing costs. Such loans do not need to be repaid until the homeowner sells or refinances the property.

Potential homebuyers must meet lender underwriting requirements, take a free homebuyer education class (offered weekly either virtually or in person), and document their residency and race/ethnicity. Commission staff and program programs can help candidates gather their documentation.

Would-be homeowners who meet the four eligibility criteria are invited to call the Washington State Homeownership Hotline at 1-877-894-4663. The Hotline is a free service of the nonprofit Washington Homeownership Resource Center.

Callers will be connected with a Commission-trained lender who can verify eligibility and refer them to a lender that meets the candidate’s situation, goals and preferences. There is no separate application process for the program.

The Covenants Homeownership Account Act (HB 1474) passed with strong majorities in both houses. It was endorsed by the Washington Realtors® and others. Supporters say they anticipate some legal challenges, citing backlash to affirmative action and other “race-conscious programs.”

Financial assistance through a range of downpayment assistance programs is available to most homebuyers who earn under $180,000, according to WSHFC.

Starting in 2025 and in each subsequent year, the Housing Finance Commission is required to submit an annual report to the legislature on the progress of the Covenant Homeownership Program by December 31. The Commission is also required to complete an update to the Covenant Homeownership Program Study at least every five years so the program’s effectiveness can be evaluated.