U.S. Department of Housing and Urban Development

**Community Planning and Development**

Special Attention of:

Notice: CPD 95-05

All Secretary\'s Representatives

All State/Area Coordinators Issued: December 15, 1995

All CPD Division Directors Expires: December 15, 1996

All CDBG Entitlement Grantees

Cross Reference: [24 CFR Part
50](http://www.hud.gov/offices/cpd/energyenviron/environment/lawsandregs/regs/part50/index.cfm)

Subject: Selling or Securitizing Community Development Block Grant
(CDBG) funded loans using the Section 108 program and other secondary
markets

I. Purpose

This Notice discusses securitizing CDBG-funded rehabilitation and

economic development loans using the Section 108 program or selling the
loans to secondary markets. It also describes solutions for common
problems and issues communities encounter when implementing
securitization and sales programs.

II\. Background

Many communities have substantial sums invested in CDBG rehabilitation
and economic development loan portfolios. A recent HUD-funded study,
[Secondary Markets for City-owned CDBG
Loans](http://www.HUDUSER.org/publications/hsgfin/secmkts.html)
(available from the American Communities Center at (800) 998-9999),
estimates that the \"combined portfolio \[of CDBG rehabilitation loans\]
surely exceeds \$2 billion\" nationally. The volume of economic
development loans is also substantial because most economic development
assistance to businesses is provided in the form of loans. While many
communities retain and service the loans they originate, using the
program income generated by loan payments to fund additional
CDBG-eligible activities, other communities choose to speed up the
return of the loan funds - they sell portions of their loan portfolios
to a secondary market or securitize their portfolios using Section 108
loan guarantees.

The above-cited study of secondary market sales of CDBG rehabilitation
loans describes and analyzes the mechanics of several types of loan sale
efforts by several CDBG entitlement grantees during 1985 - 1992. The
study inventoried current use of CDBG revolving funds, summarizes
experience with the sale of CDBG rehabilitation loans, and illustrates
the experiences of selected cities in their efforts to sell loan
portfolios.

DGBE: Distribution: W-3-1, Special (All CDBG Entitlement Grantees)

This Notice focuses on why a community may choose to securitize or sell
loans as part of its community development program and addresses
specific regulatory requirements that must be met when a community uses
this financing technique. Guidance on portfolio management and secondary
markets, based on the HUD-funded study and other HUD experience, is also
provided.

III\. Definitions

This section contains simple definitions of some of the technical terms
used in this Notice.

1\. Discount rate

Usually, \"discount rate\" means the market interest rate the investor
would expect to receive over the same period of time in a different
investment. The discount rate is applied in determining the present
value to the investor of the future income stream of a loan or security.
The discount rate usually varies from investor to investor based on
varying investor perceptions of risk inherent in the loan, and investor
motivation.

Since most CDBG loans are made at below-market (i.e., below discount)
rates, this usually results in purchase offers that are substantially
below the face value of the loans.

2\. Income stream

\"Income stream\" means the stream of loan payments (principal and
interest) that the purchaser of the loan will receive over time as the
loan is paid.

3\. Loan

\"Loan\" means to provide funds to a borrower in return for a promise to
repay the principal, usually with interest. Investors are not often
interested in forgivable and deferred loans because such instruments do
not generate a predictable income stream.

4\. Portfolio

\"Portfolio\" means all the existing loans held by the grantee or
subrecipient in a particular program or group of programs.

5\. Present value

\"Present value\" means the current value of the future income stream of
an investment. The present value of an investment is calculated using a
process called \"discounting.\" In discounting, the investor takes the
income stream from the loan and divides it into two portions:

2

investment and return. The discount rate selected by the investor

represents the return percentage s/he wants to achieve, so this rate is
applied to calculate the maximum value s/he would be willing to invest
now to purchase the income stream, and to assure acceptable return
later. Communities selling loans have generally found that the amount an
investor is willing to invest in a community development loan is lower
than the face value of the loan.

The amount the investor is willing to pay now to secure the future
income stream is called the present value of the loan.

If the interest rate that borrowers are paying on the loan or group of
loans being sold is below the market rate the present value of the loan
to an investor will often be below the face value of the loan. Thus, if
purchased by a private investor, the loan will likely sell \"at a
discount\" to allow the investor to receive an acceptable return from
the payments.

6\. Recourse

\"Recourse\" means the provisions of a sale or securitization

agreement that govern the seller\'s and buyer\'s responsibilities if a
loan defaults. A sale made purely \"without recourse\" does not obligate
the seller to take any action to protect the buyer\'s financial
investment in the event of default. Neither is the buyer obligated to
take any action to protect the seller\'s community development purposes.
(However, under the CDBG program, grantees may not make sales without
assuring that national objectives will be met.) Typical recourse options
obligate the seller to repurchase a bad loan, to replace a bad loan with
a good one or to make payments on behalf of the borrower. The recourse
agreement would obligate the buyer to pursue the selected alternate
form(s) of recourse before, or instead of, pursuing foreclosure.

7\. Seasoned loan

A \"seasoned loan\" has a record of one or more on-time payments.
Investors requirements on the length of seasoning necessary prior to
consideration for purchase may vary substantially.

8\. Secondary market

\"Secondary market\" means any investor (institutional or individual)
that purchases loans.

9\. Securitization

\"Securitization\" is the opposite of whole loan sales and happens when
several investors each buy a share, or portion, of a pool of loans. The
shares are called securities. The principal and interest payments made
by borrowers on the loans are passed through to the owners of the
securities. Pooling loans allows the risk that any one loan will default
to be shared among several security holders and usually results in a
higher resale value for the overall pool of loans. Pooling loans of
various interest rates and terms can be complicated to manage. (See the
section below discussing Section 108 securitization).

10\. Whole loan sales

\"Whole loan sales\" are the opposite of securitization. Instead of
selling securities on a pool of loans, each loan is sold as a separate
investment (although buyers often purchase more than one loan at a
sale). Whole loan sales are often used when the volume of loans to be
sold is relatively small, sales of loans infrequent or money to be
generated by the sales insufficient to justify the costs of managing a
loan pool.

IV\. Why Sell?

In virtually all communities, the funds available at any given time for
community development are not sufficient to meet all current community
development needs. Also, sufficient funds may not be available at a
particular time to permit a community to address a particular need.
Selling or securitizing CDBG loans can: 1) bring an income stream that
would otherwise be scattered over future years into the present,
creating a pool of funds for current investment, and 2) increase the
volume of community development dollars available for investment by
increasing the number of times the funds are re-spent each program year
or planning cycle.

One caveat to consider is that when community development loans sell at
substantial discounts, the initial investment of CDBG dollars may not be
fully recaptured. The price paid for the loan, because it is discounted,
may be less than the present value of what the grantee would have
received in principal and interest, if the loan were not sold. In either
case, the grantee gets its initial investment back: sooner, if the loan
is sold to an investor, or later, if the loan is paid back directly to
the grantee over the term of the loan. When the loan is substantially
discounted for sale to an investor, a part of that repayment may be
\"leaked\" out of the long-term community development economy. Sales can
increase the volume of money available for community development over
time only if the reuse of funds is quick enough to offset the discount
or if the funds are leveraged in some manner.

Thus, in deciding whether to develop an ongoing loan sale effort, a
community should consider whether a continuing volume of marketable
loans will be generated quickly enough by the relevant loan program to
support a program of repeated loan sales. Further, a loan sale vehicle
involving the minimum possible discount might be considered as the best
vehicle for reducing possible leakage (see discussion of Section 108
securitization in Section VI.)

V. Valuing Loans

In determining whether to purchase CDBG loans, individual and portfolio
loan value to the investor is not simply based on the dollar amounts and
financial ratios involved. The value assigned in the discounting process
is affected by the quality of the loan documentation, the payment record
on the loan, how any defaults will be handled, the terms of the loan
(for example, is it forgivable?), and on government policies that may
affect the risk to the investor or cost of administering the loan
portfolio. Usually, the private investor is trying to find a loan or
security to purchase that offers maximum return for minimum risk. Some
public and private purchasers have a second motive driving loan
selection: they wish to invest in community

development. These investors may therefore be able to accept a lower
return if the loan program contributes to community development.

4

To most potential loan purchasers, quality loan documentation equals
standardized loan documentation. This means the same underwriting tests,
applications, and other documents are completed and present in EVERY
loan file. A simple rule in dealing with secondary markets is to
remember that the familiar, standard loan (whose return is more
predictable) will nearly always sell better than a unique one that must
be explained (sometimes called a \"story loan\"). Good files document
each loan\'s payment record for purchasers to use in determining the
risk to their investments. Many purchasers prefer to purchase seasoned
community development loans with quality loan documentation.

How will defaults be handled? What recourse is available for the

purchaser, the grantee, and the family or business paying the loan in
the event the loan defaults? These are critical questions in determining
the marketability of the loan. They are also important policy issues
whose solutions should support community development purposes. This
topic is discussed below in paragraph VIII.2., In case of default\....,
and examined in detail in the HUD-funded study. CDBG rules affecting the
handling of defaults are generally related to the rules about handling
program income. More information on program income is available in
Subpart J of the CDBG regulations; other guidance on program income as
well as defaults is available in the Program Income Training Bulletin
(HUD/CPD-90-1, April 1990), available from HUD.

Government policies that may affect risk to the investor range from how
the underwriting standards of the loan program are set to whether other
community development support (in the form of assistance for affordable
housing, infrastructure, businesses and public service) is provided in
the geographic areas served by the loan program. In general, the more
risk perceived by the investor, the higher the return that investor will
demand. So loans that are perceived to be more risky will generally sell
for a greater discount off their face value. It appears from the
HUD-funded study that large national or regional financial investors
that have less of a stake in the local economy tend to look more at the
financial risk factors associated with the loan, while local financial
institutions are better positioned to evaluate the non-financial factors
affecting investment risk. These local institutions may therefore accept
a smaller discount on the loans

and be more open to providing some additional benefits to the loan
program.

VI\. Securitizing with Section 108 loan guarantees

Section 108 provides all the tools needed to securitize new or existing
loans. More information on the basics of the Section 108 program is
included in Appendix A: Section 108 Fact Sheet, and HUD Field Office
staff are available to work with any community that would like to pursue
using the Section 108 program.

To securitize new loans, Section 108 provides an interim financing
facility for originating the loans. The Section 108 permanent financing
program provides both the actual financing for the securities and a
credit enhancement (the Federal guarantee backed by the pledge of CDBG
grants). Payments on the loans are passed through to the Section 108
note holders.

5

Section 108 provides a securitization opportunity for existing CDBG
loans as well. The securitization would be structured in a fashion
similar to the securitization of new loans, except that the community
would sell (and HUD would guarantee) securities backed by a pool
composed of existing CDBG loans. By pledging future payments on existing
CDBG loans to the repayment of Section 108 obligations, a community can
\"unlock\" those loans from its balance sheet. The proceeds from the
issuance of the Section 108 obligations can then be used by the
community to make additional loans. And the process can be repeated as
the new loans begin to generate income.

Using Section 108 would almost always generate higher net proceeds from
the securitization than could be realized from an unsubsidized sale of
whole loans or from conventional securitization. This is true because
the use of Section 108 involves a lower discount rate (the interest rate
of Section 108 obligations is only slightly higher than rates on
comparable Treasury obligations). A lower discount rate generates a
higher present value (or sales proceeds amount). Further, the issuance
costs for Section 108 obligations would be significantly lower than the
costs (e.g.. accounting, legal, credit enhancement) associated with
conventional securitization.

VII\. Other secondary markets

After the above discussion of Section 108 securitization, it may be
asked: \"Why pursue any other form of secondary market?\" The answers to
this question vary depending on the community development objectives of
the grantee. One answer is that when the secondary market is a local
bank, or group of banks, significant other benefits may accrue by
developing local partnership arrangements. Several of the examples in
the HUD-funded study involve local governments leveraging additional
funds by implementing programs with local banks. Also, some other
investors, such as the Neighborhood Reinvestment Corporation (NRC)
acquire loans at quite attractive terms, essentially providing a subsidy
to tie community development programs they support.

Another benefit to pursuing loan sales or securitization through a
private secondary market is that the purchaser will generally conduct a
thorough review of the portfolio focused on the seller\'s underwriting
and portfolio management practices. This review can provide valuable

information, such as providing a realistic assessment based on
private-market practices that supports allocating a dependable level of
resources for managing these activities. Philosophically, some local
governments may be most comfortable not involving another public
resource or Federal approval for selling what is, in most cases, a local
asset.

A HUD-funded technical assistance demonstration project has resulted in
one sale of a well-managed portfolio to a private investor.
Securitization was essential in that case because the State was
unwilling to allocate additional grants or guarantees to continue an
ongoing loan program for small businesses. Analysis in two other
jurisdictions found that similar transactions (through a private
foundation, bank, or other institution) might be feasible. However, in
all three cases the securitization approach involved significant costs
of assembling data and negotiating the basic assumptions of

each transaction.

6

VIII\. Issues

The issues discussed below arose during HUD staff discussions with
communities developing and implementing loan sale programs.

1\. Creaming

\"Creaming\" means taking care of the richest of the poor, taking the
fewest risks possible with community development dollars. Creaming may
violate CDBG rules: activities that meet low- and moderate-income
national objective criteria must be designed so that they \"do not
benefit moderate income persons to the exclusion of low-income
persons.\"

\[[24 CFR
570.208](http://www.hud.gov/offices/cpd/communitydevelopment/rulesandregs/regulations/subc/570208.cfm)(a)\]
Creaming is an issue when (re)designing a community development loan
program to facilitate later sale of the loans because loans to
moderate-income persons in stable neighborhoods are going to be more
attractive investments on their face than loans to low-income persons
living in or adjacent to slum and blighted areas. The design of a
community development loan program must be primarily focused on solving
a community development problem, and secondarily supportive of possible
loan sale efforts.

2\. In case of default.

Grantees should pay close attention to the recourse terms in any

loan sale. Although some may choose to sell their loans and be finished
with them, this may not be the best course for assuring that community
development objectives are met, and it may result in a deeper discount
on the loans (without recourse, the buyer will have to take on all costs
of any defaults). If loans are sold with recourse, the seller takes on
any default risk, but generally will receive a higher price, because
most buyers will pay more for a less risky investment.

Usually recourse terms require the seller to take responsibility

for a defaulted loan, either through purchase, exchange, or by making
good any payment shortfalls. This is eligible under CDBG rules if the
recourse terms are clearly specified in the original sale agreement. In
the first two options, once the seller (usually the grantee or a
subrecipient) has the loan, it can evaluate whether its community
development objectives will be better met by negotiating a work-out
agreement with the borrower, or by entering into foreclosure
proceedings. Most purchasers, if not allowed this recourse, would move
straight to foreclosure. By insisting on some alternate form of
recourse, grantees will incur the additional administrative costs of
handling any defaulted loans, but they can also ensure that their
clients and goals are best served.

3\. Meeting a national objective

Even after loans are sold, HUD holds the grantee responsible for

ensuring that each loan meets all program requirements, including
meeting a national objective. Note that most housing rehabilitation

loans qualify under the low- and moderate-income housing national

7

objective. This objective is met on occupancy of the rehabilitated unit
by an income-qualified household upon completion of the rehabilitation.
Thus, by the time of sale, most of these loans will have met a national
objective. The Department expects that loans with national objectives
unmet at the time of sale will primarily be for economic development. It
is important that a community selling its economic development loan
portfolio take precautions to ensure that the national objective has
already been met for each loan (usually by creation of jobs) or that the
responsibility for doing so is passed on to the purchaser of the loan.

4\. Program income

Program income is income received by the recipient or subrecipient
directly generated from the use of CDBG funds. Generally, program income
must be treated as additional CDBG funds; subject to all applicable
requirements governing the use of CDBG funds (24 CFR
[570.504](http://www.hud.gov/offices/cpd/communitydevelopment/rulesandregs/regulations/subj/570504.cfm)).
If a grantee sells a loan, the proceeds of the sale are program income.
In such a case, the income from the loan repayments, which are received
by the investor, is no longer program income. Also, if the aggregate
amount of income received by the grantee and its subrecipients during
the program year totals no more than \$25,000, such income would not be
program income. (This provision was added with the January 5, 1995,
publication in the Federal Register of the CDBG Economic Development
Guidelines regulation.)

5\. Portfolio management

The HUD-funded study identified deficiencies in portfolio management as
one of the most common road blocks to the sale of CDBG

loans. Such management deficiencies may also result in a grantee\'s

failure to effectively meet its community development objectives or in
unwitting regulatory violations. In the context of this Notice, sensible
portfolio management can decrease loan defaults and delinquencies and
thereby increase the sale value of CDBG loans. Although local government
community development policies that dictate higher-risk loan types or
clients may also entail a higher default rate; prudent management can
maximize the value of even the riskiest loans.

HUD encourages grantees to take a \"systems approach\" to improving
portfolio management. This means that, although portfolio management
technically is concerned with activities taking place after loans are
made, an effective portfolio manager examines every step of the process
from marketing and application review to loan closing and disbursement.
through the years of loan management until the final payoff. A systems
approach to portfolio management will not only decrease delinquency and
default rates, it will assure the best service for the borrowers and
ensure CDBG regulatory compliance.

The systems approach to portfolio management allows each decision made
in designing the loan program to be examined for its ultimate effect on
default and delinquency rates and payoff. Clearly, designing a loan
program with the sole goal of the highest possible return and

8

lowest delinquency-default rates would not result in a program that
served low- and moderate-income borrowers or loan needs such as gap
financing for small start-up businesses. Using the systems approach to
design a program to serve higher-risk borrowers will result in the
lowest possible delinquency-default rates for that type of program.
Already some trade magazines for the home mortgage and banking
industries have noted; with some surprise, that the default rates for
many programs offering supposedly higher-risk lending to lower-income
borrowers are not nearly as high as expected, often falling within
acceptable mainstream rates. This record can be further improved by
following the principles of effective loan portfolio management, which
are:

o Institutional commitment to recovering funds,

o Active management of the portfolio,

o Comprehensive systems planning,

o Written policies and procedures;

o Complete documentation of loans,

> o Dedication to staff training in all aspects of the portfolio
>
> management process.

APPENDIX A

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Community Planning and Development

Section 108 Loan Guarantees

Section 108 is the loan guarantee provision of the Community Development
Block Grant (CDBG) program. Section 108 provides communities with a
source of financing for economic development, housing rehabilitation,
public facilities, and large scale physical development projects.
Regulations governing the Section 108 program may be found at [24 CFR
570](http://www.hud.gov/offices/cpd/communitydevelopment/rulesandregs/regulations/index.cfm),
Subpart M, \"Loan Guarantees\".

ELIGIBLE APPLICANTS AND ACTIVITIES

Eligible Applicants. Eligible applicants include the following public

entities:

\(a\) Metropolitan cities and urban counties (i.e., CDBG entitlement
recipients);

> \(b\) Nonentitlement communities that are assisted in the submission
> of applications by States that administer the CDBG program; and
>
> \(c\) Nonentitlement communities eligible to receive CDBG funds under
> the HUD-Administered Small Cities CDBG program.

The public entity may be the borrower or it may designate a public
agency to be the borrower.

Eligible Activities. Activities eligible for Section 108 financing
include:

> \- Economic development activities eligible under CDBG;
>
> \- Acquisition of real property;
>
> \- Rehabilitation of publicly owned real property;
>
> \- Housing rehabilitation eligible under CDBG;
>
> \- Construction, reconstruction or installation of public facilities
> (including street, sidewalk and other site improvements);
>
> \- Related relocation, clearance and site improvements;
>
> \- Payment of interest on the guaranteed loan and issuance costs of
> public offerings;
>
> \- Debt service reserves;
>
> \- Public works and site improvements in colonias; and
>
> \- In limited circumstances, housing construction as part of community
> economic development, Housing Development Grant, or Nehemiah Housing
> Opportunity Grant programs.

For purposes of determining eligibility, the CDBG rules and requirements
apply. As with the CDBG program, all projects and activities must either
principally benefit low- and moderate-income persons, or aid in the
elimination or prevention of slums and blight, or meet urgent needs of
the community.

HOW THE PROGRAM OPERATES

Maximum commitment amount. Commitments are limited as follows:

\(a\) Entitlement public entities. An entitlement public entity may
apply for up to five times the public entity\'s latest (approved) CDBG
entitlement amount, minus any outstanding Section 108 commitments and/or
principal balances on Section 108 loans.

For in-depth information on the systematic approach to portfolio

management. HUD has developed a guide called \"Loan Portfolio
Management\" through a contract with Price Waterhouse. The guide
includes a self-assessment for grantees to complete in determining how
to improve their portfolio management system and program design. A paper
or electronic copy of this guide, plus a list of any other available
publications on related topics, may be available via the American
Communities Center (telephone 800-998-9999, or electronic mail at
[Amcom@aspensys.com](http://www.hud.gov/utilities/intercept.cfm?mailto:Amcom@aspensys.com)).
This guide was developed with a focus on economic development loans, but
the principles are the same for almost any type of loan management by
local governments.

IX\. Request for Feedback

Grantees and subrecipients with experience (successful or not) in
selling all or part of their CDBG housing or economic development loan
portfolios, or in selling loan participations to local banks, are
encouraged to send a written description of the loan program, portfolio
management policies, sale and recourse processes, including an analysis
of the advantages and disadvantages of such sales, to Deirdre
Maguire-Zinni Director, Entitlement Communities Division, Office of
Block Grant Assistance, U.S. Department oecipient Housing and Urban
Development, Room 7282, 451 Seventh Street. S.W., Washington. DC 20410.
Those who wish to provide the material electronically may send it via
Internet (electronic mail) to Deirdre
Maguire-[Zinni@hud.gov](http://www.hud.gov/utilities/intercept.cfm?mailto:Deirdre_Maguire-Zinni@hud.gov)
or via the HUD/CPD Electronic Bulletin Board System to Deirdre
Maguire-Zinni.

The information provided in response to this request will increase
HUD\'s knowledge of this subject area and be used to make the CDBG and
Section 108 program guidance and regulations more responsive to local
community development needs.

Questions regarding this Notice may be directed to your local HUD Field
Office. States, Small Cities, or Colonias with questions may wish to
contact the States and Small Cities Division (202-708-1322). HUD Field
Office staff may contact that Division, the Entitlement Communities
Division (202-708-1577), or the Financial Management Division
(202-708-1871), as applicable.

Section 108 Loan Guarantee Program Fact Sheet (continued)

\(b\) Nonentitlement public entities. A nonentitlement public entity may
apply for up to five times the latest (approved) CDBG amount received by
its State, minus any outstanding Section 108 commitments and/or
principal balances on Section 108 loans for which the State has pledged
its CDBG funds as security.

Security. The principal security for the loan guarantee is a pledge by
the applicant public entity or the State (in the case of a
nonentitlement public entity) of its current and future CDBG funds.
Additional security will also be required to assure repayment of the
guaranteed obligations. The additional security requirements will be
determined on a case-by-case basis, but could include assets financed by
the guaranteed loan.

Loan repayment. The maximum repayment period for a Section 108 loan is
twenty years. HUD has the ability to structure the principal
amortization to match the needs of the project and borrower. Each annual
principal amount will have a separate interest rate associated with it.

Financing source. Section 108 obligations are financed through
underwritten public offerings. Financing between public offerings is
provided through an interim lending facility established by HUD.

Interest rates. Interest rates charged on interim borrowing is priced at
the 3 month London Interbank Offered (LIBO) rate plus 20 basis points.
Permanent financing is pegged to yields on Treasury obligations of
similar maturity to the principal amount. A small additional basis point
spread, depending on maturity, will be added to the Treasury yield to
determine the actual rate.

Default. To date, there has been no default under Section 108 resulting
in a payment by HUD. In the event of default requiring a payment, HUD
would continue to make payments on the loan in accordance with its
terms. The source of payments by HUD pursuant to its guarantee would
almost always be pledged CDBG funds. However, HUD does have borrowing
authority with the Treasury if the pledged funds are insufficient.

Developing an application. Public entities wishing to apply for Section
108 loan guarantee assistance are advised to contact HUD in advance for
guidance in preparing an application. Public entities may contact either
the Community Planning and Development staff at the appropriate HUD
field office or the Section 108 office in Washington at (202) 708-1871.
Application guidance can also be found in the Section 108 regulations at
[24 CFR
570.704](http://www.hud.gov/offices/cpd/communitydevelopment/rulesandregs/regulations/subm/570704.cfm),
\"Application Requirements\".

PROGRAM TRENDS AND ACCOMPLISHMENTS

The Section 108 program has undergone several major changes since its

establishment in 1974. In 1987, HUD was directed by Congress to utilize
a private sector financing mechanism to fund the loan guarantees as
opposed to using Federal funds. In 1990, legislative changes increased
public entities\' borrowing authority to five times the CDBG allocation,
extended the maximum repayment period to twenty years, and made units of
general local government in nonentitlement areas eligible to apply for
loan guarantee assistance. Beginning in Fiscal Year 1993, Congress
increased the guarantee authority for the Section 108 program to more
than \$2 billion and has authorized similar amounts in Fiscal Years 1994
and 1995.

December 15, 1995