More than 400 homebuyers across Washington state have tapped into a down payment assistance program launched last year to redress past housing discrimination.
Now, that number could climb as the state broadens income eligibility to help more people struggling to afford sky-high home prices.
The Covenant Homeownership Program offers no-interest down payment loans to certain homebuyers of color whose families were affected by racist property covenants commonly used in the first half of the 20th century.
Shortly after its launch, it became the target of a lawsuit claiming reverse discrimination.
But for the hundreds of people it has helped so far, the program offered a path to homeownership, said Dee Scott, a Keller Williams real estate agent in Kent who has helped buyers — including four members of her family — access the program.
Before the Fair Housing Act outlawed housing discrimination in 1968, Scott’s grandparents lived in Seattle’s Central District, one of the few Seattle neighborhoods where Black people could buy homes and an area that went on to experience rapid gentrification.
Down payment assistance for people affected by exclusionary policies is a way of “beginning the process of closing this wealth gap for our people and to be able to build generational wealth,” Scott said.
Racially restrictive covenants often banned anyone who wasn’t white from buying property, sometimes specifically excluding Black people and other racial groups. Although federal law rendered the covenants illegal, the effects linger in the ongoing segregation of American cities including Seattle and in persistent homeownership and income gaps.
More than two thirds of white residents in Washington own their homes, while only about one third of Black Washingtonians are homeowners. Nearly half of Hispanic residents own their homes. A similar gap emerges in income: A state-commissioned study last year found white households in Washington had a net worth of about $286,000 per household compared with $68,000 for households of color. Lower incomes affect potential homebuyers’ ability to secure a mortgage, the study noted.
When Scott entered the real estate market two decades ago, “I saw that my community was in apartments. I saw that many didn’t even consider the idea of owning a home.”
“The playing field wasn’t level and what we’re seeing today is an impact of that uneven playing field,” Scott said.
First-in-family homeowners
As home prices climb across Washington and mortgage rates remain high, the new form of down payment assistance has, for some people, “moved them from never being able to own a home to being able to own a home for the first time in their family’s life,” said Bryan LaFlamme, a loan officer in Tacoma.
Starting July 28, a recent law will open the program to people making 120% of area median income in their county, up from 100%. Supporters say the change will be a lifeline for people who may have higher incomes but still struggle to save for the high down payments necessary to afford homes in Washington.
Republicans in the state Legislature pushed back against the change, arguing state dollars should be focused on people earning less.
In another new change, borrowers earning less than 80% of area median income will become eligible to have their down payment loans forgiven when they refinance, sell or pay off their homes after at least five years.
Without loan forgiveness, some homebuyers worry about repaying the loan when they sell or pay off the home; others wonder how the extra debt might affect their ability to refinance, LaFlamme said.
It’s too early to assess just how much of an effect the Covenant Homeownership Program could have on wealth and homeownership gaps. The state offered no target for how many people it expected would qualify for help from the new program. But state data shows the program is likely on track to help 500 people by its one-year mark in July.
To qualify, applicants must be first-time homebuyers who meet the income requirement in their county and lived in the state before the Fair Housing Act outlawed housing discrimination in April 1968 or whose parent, grandparent or great-grandparent lived in Washington during that time. The person who lived in the state before April 1968 must be Black, Hispanic, Native American, Alaska Native, Native Hawaiian or other Pacific Islander, Korean or Asian Indian.
The state defines first-time homeowners broadly, including those who haven’t owned a home in at least three years and those who have only owned a mobile home.
While covenants often excluded some other groups, including Jewish people, those who qualify for the loans still show notable gaps in homeownership or “are still being impacted most deeply,” the authors of the study wrote.
Finding paperwork to prove an ancestor’s race and their residency in the state 60 years ago can prove challenging. Realtors and loan officers often help clients comb through birth and death certificates or school, medical and census records.
Legal threats continue
The racial qualifications are the key difference between the program and many other forms of assistance the state already offered — and the key factor that has drawn criticism from conservatives.
The national nonprofit Foundation Against Intolerance and Racism sued in October the head of the Washington State Housing Finance Commission in federal court, claiming the program illegally excludes white homebuyers who don’t qualify.
The group says it represents homebuyers who would qualify for the program if not for their race, creating an “inability to compete on equal footing for a loan.”
Attorneys for the housing finance commission director are seeking to have the case thrown out, arguing the group lacks standing to sue.
“In adopting the Act, the State of Washington became one of the first states to face and address the role of government institutions in housing-related discrimination,” they wrote in court filings. The case is ongoing.
To access the loans, buyers must complete all the steps of qualifying for a mortgage “just like anybody else does,” LaFlamme said.
“They have to have credit score requirements, job requirements, they have to have stability. We have to prove that they’re going to be able to repay the loan, just like every other mortgage.”
Scott, the real estate agent, said homebuyers tapping into the program often tell her they didn’t expect to ever own a home. Some watched their parents rent instead of own or saw grandparents own homes only to be priced out of the Central District by other costs.
America’s economic system “wasn’t really built for us,” she said, “but it was built on our backs.”
By the numbers:
The program offers buyers loans for up to 20% of the cost of the home, up to $150,000, plus closing costs.
To fund the program, state lawmakers passed a $100 fee on recorded real estate documents, estimating the fee would raise $75 million to $100 million a year. So far, about $85 million from the new fee has flown to the down-payment assistance program and the state has spent a bit more than half of that.
As of late May, homebuyers across Washington had received about $46 million in loans, with another $9 million reserved but not yet closed.
Most loan recipients live in the state’s most populous counties, particularly Pierce and King. Loan amounts were highest in Snohomish County, where the median single-family home costs $833,000 and down payment help averaged $126,500. Loans were lower in more rural counties where homes are more affordable.
About 70% of recipients were Black, 15% were Native American, 9% were Hispanic or Latino and 1% were Asian.
The average incomes of buyers receiving loans varied widely across the state, from $47,000 in Stevens County to $107,000 in Snohomish County. The average borrower in Pierce County, where the largest number of loans have been issued, earned $87,000 — well below the county’s median income of nearly $121,000.
From July through March, Covenant loans represented about 7% of the down-payment assistance loans the state provided.
Source: Washington State Housing Finance Commission, Washington State Department of Commerce
