First, just to clarify, the basic obligations contained in the covenants are to: (1) renovate and move in within three years of the latest closing with Road Home (i.e., if you accepted elevation or additional funds after the first closing, the three year period starts anew); (2) use the property as your primary residence (no rentals allowed); (3) keep hazard insurance once moved in and flood insurance if the home is in a flood zone; and (4) only transfer the property to a third party if you are in compliance with the covenants and have the third party agree to finish the remainder of the covenant period in compliance.
Second, regarding releases: although the covenants appear to expire on their face three years from the closing date with Road Home, that is NOT the position taken by OCD (the state department in charge of overseeing the Road Home program). OCD's interpretation is that the covenants must be released and there is a process to have this accomplished which involves an inspection of the property and submission of documents to prove compliance.
I disagree that buyers should avoid homes with covenants on them (unless the home is completely non-compliant or the buyer is investing in rental property). A competent title company will know how to address the covenants and their release so it shouldn't be a hurdle. The important thing is to be aware of the covenants, the obligations embodied in them and the process for releasing them BEFORE making an offer and to follow through wit the title company to make sure the covenants are in fact addressed.
Many sellers are now transferring them, but miost of them are ending soon because of the amount of time after Katrina. There are also rules for example time period to build/renovate.
Email me if you need more details or if you would like me to send you some without covenants attached.