Beginning January 1, 2024, Washington State implemented a substantial revision to its recording fees, significantly affecting the real estate sector. This modification entailed a $100 increase in the recording fee for each document, aligning with the Covenant Homeownership Program assessment as outlined in RCW 36.22.185. This hike is applicable to a broad array of documents, including standard recorded documents, Deeds of Trust, and all surveys and map-related documents.
Objective of the Covenant Homeownership Program
The additional funds garnered from this increase are allocated to the Covenant Homeownership Program (CHAP), established under House Bill 1474 (Chapter 340, Laws of 2023) and supervised by the Washington State Department of Financial Institutions. The CHAP’s primary goal is to develop a housing loan program for residents impacted by historically restrictive covenants. These covenants have profoundly influenced certain groups’ ability to access homeownership due to their racially discriminatory nature.
The CHAP oversight committee, appointed by the Governor, is critical in assessing and reviewing the Washington State Housing Finance Committee’s activities related to this program. These include preparing impact reports of racist covenants and potentially formulating special purpose credit programs to assist those affected by such housing covenants.
Historical Context and Significance
The fee increment and subsequent funding of the Covenant Homeownership Program mark a significant stride by Washington State in recognizing and addressing the historical role of government institutions in housing-related discrimination. The National Fair Housing Alliance and other organizations play a pivotal role in this initiative, emphasizing the necessity to understand past racial housing discrimination and explore race-neutral approaches to broaden homeownership opportunities as remedies for identified injustices.
Program Implementation and Timeline
The Covenant Homeownership Program in Washington State, initiated by House Bill 1474, is designed to provide down payment and closing cost assistance to specific groups of people who have been historically marginalized due to racially restrictive real estate covenants. The program is set to begin offering down payment and closing cost assistance from July 1, 2024.
To qualify for the program, applicants must meet certain criteria:
- They should have a household income at or below 100 percent of the area median income.
- They must be first-time homebuyers.
- Applicants must either have been Washington State residents on or before April 11, 1968, and have been excluded from homeownership due to racially restrictive real estate covenants, or they must be descendants of such individuals.
These racially restrictive covenants, which were government-sanctioned prior to the 1968 Fair Housing Act, typically specified “whites only” and thus excluded various racial and ethnic groups, most notably Black, Asian, Indigenous, and Latinx communities.
The Covenant Homeownership Program (CHP) in Washington State, designed to address the historical impacts of discriminatory housing practices, is set to commence the distribution of assistance by July 1, 2024. This follows an evidence-based research study that is currently underway, investigating housing discrimination against marginalized communities in Washington State. The study, crucial for shaping the CHP, is expected to deliver its findings to the Washington State Legislature by March 1, 2024, which will then inform the development of the assistance programs.
Eligibility for the CHP will be determined based on the study’s findings. However, it’s anticipated that the program will focus on first-time homebuyers who have been excluded from homeownership by racially restrictive covenants. Some of the recommended eligibility criteria include having a household income at or below 100% of the Area Median Income (AMI), being a Washington state resident affected by racially restrictive covenants on or before April 1968, or being a descendant of such a resident.
Racially restrictive covenants, common in home deeds and neighborhood agreements from the 1920s to the 1960s, explicitly restricted housing based on race, religion, and ethnicity. These covenants significantly impacted various groups, particularly Black communities, as well as Asian American Pacific Islanders, Latino/a/x, Jewish people, and other marginalized groups. In Washington state alone, nearly 50,000 racially restrictive covenants have been documented.
Funding and Oversight
Funding for the CHP comes from a $100 document recording assessment for real estate transactions, which started in January 2024. This fee is projected to generate between $75 million and $100 million annually, to be deposited into the Covenant Homeownership Account for the program’s purposes.
The Washington State Housing Finance Commission is responsible for designing, developing, implementing, and evaluating the CHP. An oversight committee, formed by the Department of Financial Institutions, will oversee and review the Commission’s activities and performance related to the CHP and its study.
Effectiveness and Prospects
The effectiveness of Special Purpose Credit Programs (SPCPs) like the Covenant Homeownership Program in Washington State can be challenging to assess, as their implementation and outcomes can vary widely based on numerous factors. Historically, there have been various initiatives aimed at addressing racial and economic disparities in housing and credit access, but their success has been mixed.
Looking at the broader context of housing and credit programs in the U.S., it’s evident that many past initiatives, though well-intentioned, have fallen short of their goals, particularly in terms of advancing opportunities for underserved groups. For instance, programs like the Federal Housing Administration mortgage insurance, which were large-scale affordable housing initiatives, initially did very little to benefit people of color due to discriminatory policies. These policies, such as the use of racially restrictive covenants and redlining, created systemic barriers that continue to impact housing equity today.
However, it’s important to note that SPCPs, as a concept, are designed to address some of these historical inequities by targeting specific disadvantaged groups and offering more favorable credit terms. The success of such programs often hinges on thoughtful construction, compliance with regulatory frameworks, and ongoing evaluation to ensure they meet their intended goals. Several banks have recently announced SPCPs that include measures like eliminating down payment requirements and closing costs for first-time homebuyers in certain demographics, offering more flexible underwriting standards, and providing lender credits. These initiatives show a modern approach to using SPCPs to bridge gaps in homeownership and credit access.
While concerns about potential misuse of funds and ineffectiveness of government programs are valid, the structure and oversight of programs like the Covenant Homeownership Program are crucial. With the involvement of multiple organizations, detailed planning, and specific eligibility criteria, these programs are structured to target assistance where it’s most needed. Moreover, ongoing evaluations and transparency in their operations can help in holding them accountable and ensuring that they fulfill their intended purpose.
In summary, while the historical effectiveness of similar programs has been mixed, the structured approach and targeted assistance of modern SPCPs, along with strict regulatory compliance and oversight, may offer a more promising path to addressing historical inequities in housing and credit access.
For more in-depth information on the effectiveness of such programs and their historical context, the National Fair Housing Alliance and Consumer Compliance Outlook provide valuable resources.
See also: information from sources like RCW 36.22.185, the Governor of Washington State’s website, the National Fair Housing Alliance, and the Washington State Housing Finance Commission’s CHAP page.