On May 5, Craig Trainor, Assistant Secretary for the Office of Fair Housing and Equal Opportunity (FHEO) at the U.S. Department of Housing and Urban Development (HUD), used the American Bankers Association’s Risk and Compliance Conference to send a clear message about how the Trump administration plans to enforce the Fair Housing Act (FHA) going forward, including with respect to how it will treat special purpose credit programs (SPCPs).
Trainor stated that the FHEO is “returning to the beating heart” of FHA enforcement by prioritizing cases with “strong evidence of disparate treatment,” and that it “will no longer chase phantom discrimination based upon statistical disparities without evidence of intentional unlawful treatment.” In other words, HUD is signaling a focus on intentional discrimination claims, and a corresponding retreat from large‑scale disparate impact cases built primarily on statistical disparities.
At the same time, Trainor underscored that the FHEO is closely scrutinizing SPCPs. He specifically referenced a program offered by the Washington State Housing Finance Commission that was “created to address disparities resulting from past discrimination against racial groups.” As summarized below, earlier this year the FHEO launched an investigation into that program. Trainor warned that SPCPs “that do not comply with the statutory text of the [FHA] continue to be subject to enforcement,” and he cautioned that lenders “found engaging in illegal discrimination will be held accountable.”
Trainor also encouraged institutions that may have offered programs with race‑based eligibility criteria to take “immediate remedial actions” and indicated that “meaningful” remedial efforts will be viewed favorably in deciding whether and how to pursue enforcement.
HUD’s Covenant Homeownership Program Investigation
As referenced above, in March of this year the FHEO notified the Washington State Housing Finance Commission that it had opened an FHA investigation into the Commission’s Covenant Homeownership Program, which HUD characterized as the Commission’s “first‑ever openly race‑based housing finance program.”
According to HUD’s description, the program offers downpayment and closing cost assistance via a zero‑interest secondary loan, with full loan forgiveness for low‑income borrowers after five years. Eligibility is limited to first‑time homebuyers who have a parent or grandparent of specified racial or ethnic descent (including Black, Hispanic, Native American, Pacific Islander, or Indian ancestry), and HUD asserts that individuals of other ancestries, including “persons of European, Japanese, Arab, or Jewish ancestry, do not appear to qualify.” HUD’s notice letter to the Commission states that its Office of Special Investigations was directed to investigate the Commission for fair housing violations, and that the investigation would determine the extent of any past or intended future violations resulting from granting or denying assistance based on race or national origin. HUD’s press release describing its investigation further emphasizes that HUD leadership “will not stand for illegal racial and ethnic preferences” in housing programs.
Our Take
HUD is clearly signaling a narrower FHA enforcement posture that is focused on intentional discrimination and situations that involve “real people harmed by real discriminatory conduct,” as opposed to cases that are built solely on statistical disparities. At the same time, race‑conscious SPCPs have moved to the center of HUD’s enforcement agenda: the Covenant Homeownership Program investigation and Trainor’s remarks make plain that programs tying eligibility to race or ethnicity, even when framed as remedial “equity” initiatives, are at heightened regulatory and litigation risk due to potentially being in violation of fair lending laws. This is particularly the case for housing‑related SPCPs, as the FHA provides no express authorization for such programs, unlike the Equal Credit Opportunity Act (ECOA). Viewed alongside the CFPB’s recent Regulation B amendments under ECOA (discussed here) — which prohibit the use of race-based eligibility criteria in for‑profit SPCPs — the federal trend is clearly toward a position that race-based SPCPs violate the law. These views align with prior HUD statements, including two memoranda issued by HUD in late 2025 that address HUD’s role in enforcing the FHA and rescind certain guidance documents, as discussed in detail here.
Lenders currently offering, or planning to offer, SPCPs should move quickly to reassess those programs, re‑anchor eligibility on permissible eligibility criteria, and consider proactive adjustments as necessary. In doing so, institutions will need to calibrate programs to both HUD’s evolving FHA enforcement posture and the CFPB’s new Regulation B framework, particularly where SPCPs touch mortgage or home‑equity products.