HUD Narrows Fair Housing Act Enforcement Priorities
The U.S. Department of Housing and Urban Development (HUD) has signaled a significant shift in its Fair Housing Act (FHA) enforcement strategy, placing a renewed emphasis on cases involving intentional discrimination and increasing scrutiny of special purpose credit programs (SPCPs). This evolving Fair Housing Act enforcement approach was outlined on May 5 by Craig Trainor, Assistant Secretary for the Office of Fair Housing and Equal Opportunity (FHEO), during the American Bankers Association’s Risk and Compliance Conference.
Trainor announced that HUD’s enforcement efforts are “returning to the beating heart” of the FHA by prioritizing cases with substantial evidence of disparate treatment. He made clear that the FHEO “will no longer chase phantom discrimination based upon statistical disparities without evidence of intentional unlawful treatment.” This marks a departure from previous administrations’ focus on large-scale disparate impact cases built mainly on statistical data rather than direct evidence of discrimination.
Heightened Scrutiny of Special Purpose Credit Programs (SPCPs)
Alongside the updated enforcement focus, Trainor highlighted that SPCPs are now under increased review. He specifically cited a program from the Washington State Housing Finance Commission, designed to address historical disparities faced by specific racial groups, as an example under evaluation. Earlier this year, the FHEO initiated an investigation into this program, emphasizing HUD’s intent to ensure all SPCPs strictly comply with the statutory requirements of the FHA.
Trainor warned that any SPCP failing to adhere to the text of the FHA remains subject to enforcement action. He urged lenders and financial institutions offering special purpose credit programs with race-based eligibility criteria to take “immediate remedial actions.” Meaningful efforts to rectify potentially non-compliant programs will be considered favorably when the FHEO assesses future enforcement action.
The Covenant Homeownership Program Investigation
In March, HUD’s FHEO informed the Washington State Housing Finance Commission of the opening of an investigation into its Covenant Homeownership Program. According to HUD, this initiative is the Commission’s “first-ever openly race-based housing finance program.” The program offers down payment and closing cost assistance through a zero-interest secondary loan, with forgiveness after five years for low-income borrowers. However, eligibility is restricted to first-time homebuyers whose parents or grandparents are of specified racial or ethnic backgrounds, such as Black, Hispanic, Native American, Pacific Islander, or Indian descent. Those of European, Japanese, Arab, or Jewish ancestry, according to HUD, do not appear to qualify.
HUD’s Office of Special Investigations is now examining whether the program’s criteria result in fair housing violations by granting or denying assistance based on race or national origin. The department’s press release reinforced that HUD “will not stand for illegal racial and ethnic preferences” in housing programs, signaling rigorous Fair Housing Act enforcement in these cases.
Implications for Lenders and SPCPs
This recalibration of HUD’s enforcement priorities underscores a move away from cases based solely on statistical disparities and toward those involving real individuals harmed by explicit discriminatory actions. At the same time, HUD’s focus on race-conscious SPCPs—like the Covenant Homeownership Program—puts such initiatives at the forefront of regulatory and legal risk, especially in the realm of housing finance. Unlike the Equal Credit Opportunity Act (ECOA), the FHA does not expressly authorize race-based SPCPs, further complicating matters for lenders seeking to promote equity through such programs.
The federal regulatory landscape is evolving, with the Consumer Financial Protection Bureau’s (CFPB) recent amendments to Regulation B under ECOA explicitly prohibiting race-based eligibility criteria in for-profit SPCPs. This aligns with HUD’s earlier guidance, including two memoranda from late 2025 that clarified the agency’s enforcement posture and rescinded certain previous directives.
Next Steps for Financial Institutions
Given these developments, lenders currently offering or planning to launch special purpose credit programs should immediately review and, if necessary, modify their programs to ensure compliance with both HUD’s updated FHA enforcement strategy and the CFPB’s Regulation B requirements. Institutions are encouraged to ground eligibility criteria in permissible factors, such as income or geography, rather than race or ethnicity, particularly for mortgage or home equity products. Proactive adjustments and good-faith remedial actions may mitigate the risk of enforcement and demonstrate regulatory compliance.
As HUD continues to recalibrate its Fair Housing Act enforcement approach, financial institutions must remain vigilant and adaptive. The focus now is on clear, intentional acts of discrimination and on ensuring that all credit programs comply with evolving federal standards.
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