16 Jurisdictions Sue HUD for Fair Lending Changes
A federal lawsuit against the Department of Housing and Urban Development (HUD) has been filed in the U.S. District Court, Northern District of California, challenging agency guidance that allegedly would force the plaintiffs to gut their own fair housing laws or lose critical federal funding.
What Is the Fair Housing Assistance Program?
Since 1980, HUD has partnered with state and local agencies through the Fair Housing Assistance Program (FHAP). Under FHAP, HUD certifies state and local agencies as “substantially equivalent,” meaning their fair housing laws provide at least the same protections as the federal Fair Housing Act, and refers housing discrimination complaints to them for investigation and enforcement. In return, HUD reimburses those agencies for complaint processing and provides funding for training and outreach.
In fiscal year 2024 alone, plaintiff agencies purportedly received approximately $10.7 million in FHAP funding.
What Is HUD's New Guidance?
In September 2025, HUD made changes including the following allegedly problematic provisions:
HUD would review state agencies and potentially revoke their “substantially equivalent” certifications if those agencies enforce fair housing protections beyond the seven traits listed in the federal Fair Housing Act (FHA), including protections for sexual orientation, gender identity or expression, source of income, criminal records, and limited English proficiency
HUD would no longer reimburse agencies for processing complaints where the primary basis is a characteristic not expressly covered by federal law, even if the complaint also includes a federally protected basis
Attachment F Conditions
The plaintiffs allege HUD also added a set of mandatory grant conditions that had never before appeared in FHAP cooperative agreements, including conditions barring use of funds to:
Promote “gender ideology” as defined by executive order
Fund or promote elective abortions
Issue findings based on disparate impact liability
Administer grants in ways that facilitate unauthorized immigration
Why the States Are Suing
The plaintiff states, which include California, Colorado, Connecticut, the District of Columbia Illinois, Massachusetts, Michigan, New Jersey, Washington, and others, argue these changes are unlawful on multiple grounds.
On enforcement policy changes, the complaint argues inter alia that:
The FHA expressly preserves state and local laws that provide broader protections than federal law (42 U.S.C. §3615), and HUD cannot use the FHAP certification process to coerce states into abandoning those protections
HUD's own regulations at 24 C.F.R. §115.204(h) explicitly allow substantially equivalent agencies to enforce laws that protect additional classes beyond the FHA, and HUD is attempting to reverse that rule without notice-and-comment rulemaking
The changes are arbitrary and capricious because HUD reversed decades of practice without explanation, ignored reliance interests, and failed to account for the administrative burden its new policy creates
On the Attachment F conditions, the states argue:
The conditions are unconstitutionally vague under the Spending Clause, and states cannot knowingly agree to conditions they cannot understand
The conditions are unrelated to the purpose of the FHA or the FHAP, violating Spending Clause requirements
The disparate impact condition would bar state agencies from using enforcement tools authorized by their own state laws
Why This Matters to the Mortgage Industry
Discrimination complaints frequently route through FHAP agencies. These agencies can investigate fair housing complaints, conduct outreach, and enforce state and local fair housing laws that may go beyond federal protections.
Plaintiffs allege that – if FHAP agencies are decertified, lose funding, or are forced to scale back enforcement activities – the complaint-processing and conciliation infrastructure that the industry has operated within for decades could look very different.
This case is further evidence that the fights and aggressive theories of enforcement in the Fair Lending area have just begun.
Lenders will want to keep up.
For questions about fair lending, regulatory compliance or monitoring this litigation, contact troy@garrishorn.com.