[Federal Register Volume 89, Number 186 (Wednesday, September 25, 2024)]
[Rules and Regulations]
[Pages 78239-78241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21706]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[FR-6483-N-01]


Section 108 Loan Guarantee Program: Announcement of Fee To Cover 
Credit Subsidy Costs for FY 2025 and Solicitation of Comment

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

ACTION: Announcement of fee; request for comments.

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SUMMARY: This document announces and solicits comment on the fee that 
HUD will collect from borrowers of loans guaranteed under HUD's Section 
108 Loan Guarantee Program (Section 108 Program) to offset the credit 
subsidy costs of the guaranteed loans pursuant to commitments awarded 
in Fiscal Year 2025 in the event HUD is required or authorized by 
statute to do so, notwithstanding subsection (m) of section 108 of the 
Housing and Community Development Act of 1974. The fee to offset credit 
subsidy costs is changing from 1.64 percent in Fiscal Year 2024 to 0.82 
percent in Fiscal Year 2025.

DATES: September 25, 2024.
    Comment Due Date: October 25, 2024.
    Applicability Date: October 28, 2024, unless after consideration of 
comments received, HUD determines a second Federal Register 
notification is necessary. If HUD determines a second Federal Register 
notification is necessary, it will indicate that on October 25, 2024 at 
https://www.hud.gov/program_offices/comm_planning/section108.

ADDRESSES: Interested persons are invited to submit comments responsive 
to this document. Copies of all comments submitted are available for 
inspection and downloading at www.regulations.gov. To receive 
consideration as public comments, comments must be submitted through 
one of the two methods specified below. All submissions must refer to 
the above docket number and title.
    1. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov website can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.
    2. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500.
    No Facsimile Comments. Facsimile (FAX) comments will not be 
accepted.
    Public Inspection of Comments. All comments and communications 
properly submitted to HUD will be available for public inspection and 
copying between 8 a.m. and 5 p.m. weekdays at the above address. Due to 
security measures at the HUD Headquarters building, an advance 
appointment to review the public comments must be scheduled by calling 
the Regulations Division at (202) 708-3055 (this is not a toll-free 
number). HUD welcomes and is prepared to receive calls from individuals 
who are deaf or hard of hearing, as well as individuals with speech or 
communication disabilities. To learn more about how to make an 
accessible telephone call, please visit: https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. Copies of all comments 
submitted are available for inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Paul Webster, Director, Financial 
Management Division, Office of Block Grant Assistance, Office of 
Community Planning and Development, U.S. Department of Housing and 
Urban Development, 451 7th Street, SW, Room 7282, Washington, DC 20410; 
telephone number 202-402-4563 (this is not a toll-free number). HUD 
welcomes and is prepared to receive calls from individuals who are deaf 
or hard of hearing, as well as individuals with speech or communication 
disabilities. To learn more about how to make an accessible telephone 
call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. FAX inquiries (but not comments) 
may be sent to Mr. Webster at 202-708-1798 (this is not a toll-free 
number).

SUPPLEMENTARY INFORMATION: 

I. Background

    The Transportation, Housing and Urban Development, and Related 
Agencies Appropriations Act, 2015 (division K of Public Law 113-235, 
approved December 16, 2014) (2015 Appropriations Act) provided that 
``the Secretary shall collect fees from borrowers, notwithstanding 
subsection (m) of such section 108, to result in a credit subsidy cost 
of zero for guaranteeing . . .'' Section 108 loans. Section 108(m) of 
the Housing and Community Development Act of 1974 states that ``No fee 
or charge may be imposed by the Secretary or any other Federal agency 
on or with respect to a guarantee made by the Secretary under this 
section after February 5, 1988.'' Identical language was continued or 
included in the Department's continuing resolutions and appropriations 
acts authorizing HUD to issue Section 108 loan guarantees during Fiscal 
Years (FYs) 2016 to 2024. HUD anticipates that the Fiscal Year (FY) 
2025 HUD appropriations bill under consideration \1\ also has identical 
language suspending the prohibition against charging fees for loans 
issued with Section 108 guarantees after February 5, 1988, and 
requiring that the Secretary collect fees from borrowers to result in a 
credit subsidy cost of zero for the Section 108 Program.
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    \1\ Title II of H.R. 9028, 118th Cong., under the heading 
``Community Development Loan Guarantees Program Account.''
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    On November 3, 2015, HUD published a final rule (80 FR 67626) that 
amended the Section 108 Program regulations at 24 CFR part 570 to 
establish additional procedures, including procedures for announcing 
the amount of the fee each fiscal year when HUD is required to offset 
the credit subsidy costs to the Federal Government to guarantee Section 
108

[[Page 78240]]

loans. For FYs 2016 to 2024, HUD published notifications to set the 
fees.\2\
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    \2\ 80 FR 67634 (November 3, 2015), 81 FR 68297 (October 4, 
2016), 82 FR 44518 (September 25, 2017), 83 FR 50257 (October 5, 
2018), 84 FR 35299 (July 23, 2019), 85 FR 52479 (August 26, 2020), 
86 FR 59302 (October 27, 2021), 87 FR 53662 (September 1, 2022), and 
88 FR 73532 (October 26, 2023) respectively.
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II. FY 2025 Fee: 0.82 Percent of the Principal Amount of the Loan

    If authorized by statute, this document sets the fee for Section 
108 loan disbursements under loan guarantee commitments awarded for FY 
2025 at 0.82 percent of the principal amount of the loan. HUD will 
collect this fee from borrowers of loans guaranteed under the Section 
108 Program to offset the credit subsidy costs of the guaranteed loans 
pursuant to commitments awarded in FY 2025 if the FY 2025 HUD 
appropriations bill under consideration is enacted, or if HUD is 
otherwise required or authorized by statute to collect fees from 
borrowers to offset the credit subsidy costs of the guaranteed loans, 
notwithstanding subsection (m) of section 108 of the Housing and 
Community Development Act of 1974 (42 U.S.C. 5308(m)). The calculation 
of the FY 2025 fee uses a similar calculation model as the FY 2016 to 
FY 2024 fee notifications, but incorporates updated information 
regarding the composition of the Section 108 portfolio and the timing 
of the estimated future cash flows for defaults and recoveries. The 
calculation of the fee is also affected by the discount rates required 
to be used by HUD when calculating the present value of the future cash 
flows as part of the Federal budget process. HUD is also changing some 
of the underlying assumptions of the fee calculation for this fee 
announcement.
    As described in 24 CFR 570.712(b), HUD's credit subsidy calculation 
is based on the amount required to reduce the credit subsidy cost to 
the Federal Government associated with making a Section 108 loan 
guarantee to the amount established by applicable appropriation acts. 
As a result, HUD's credit subsidy cost calculations incorporated 
assumptions based on: (1) data on default frequency for municipal debt 
where such debt is comparable to loans in the Section 108 loan 
portfolio; (2) data on recovery rates on collateral security for 
comparable municipal debt; (3) the expected composition of the Section 
108 portfolio by end users of the guaranteed loan funds (e.g., third-
party borrowers and public entities); and (4) other factors that HUD 
determined were relevant to this calculation (e.g., assumptions as to 
loan disbursement and repayment patterns). HUD changed the assumptions 
underlying the fee calculations that had applied in previous fiscal 
years by (1) increasing the expected housing component of the Section 
108 portfolio in anticipation of a Departmental initiative and (2) 
adjusting the projected repayment period for loans to accommodate more 
flexible repayment options to be made available under a Departmental 
initiative, resulting in more principal payments occurring in later 
years of the loan term.
    Taking these factors into consideration, HUD determined that the 
fee for disbursements made under loan guarantee commitments awarded in 
FY 2025 will be 0.82 percent, which will be applied only at the time of 
loan disbursements. Note that future notifications may provide for a 
combination of upfront and periodic fees for loan guarantee commitments 
awarded in future fiscal years but, if so, HUD will provide the public 
an opportunity to comment if appropriate under 24 CFR 570.712(b)(2).
    The expected cost of a Section 108 loan guarantee is difficult to 
estimate using historical program data because there have been no 
defaults in the history of the program that required HUD to invoke its 
full faith and credit guarantee or use the credit subsidy reserved each 
year for future losses.\3\ This is due to a variety of factors, 
including the availability of Community Development Block Grant (CDBG) 
funds as security for HUD's guarantee as provided in 24 CFR 570.705(b). 
As authorized by Section 108 of the Housing and Community Development 
Act of 1974, as amended (42 U.S.C. 5308), borrowers may make payments 
on Section 108 loans using CDBG grant funds. Borrowers may also make 
Section 108 loan payments from other anticipated sources but continue 
to have CDBG funds available should they encounter shortfalls in the 
anticipated repayment source. Despite the program's history of no 
defaults, Federal credit budgeting principles require that the 
availability of CDBG funds to repay the guaranteed loans cannot be 
assumed in the development of the credit subsidy cost estimate (see 80 
FR 67629, November 3, 2015). Thus, the estimate must incorporate the 
risk that alternative sources are used to repay the guaranteed loan in 
lieu of CDBG funds, and that those sources may be insufficient. Based 
on the rate that CDBG funds are used annually for repayment of loan 
guarantees, HUD's calculation of the credit subsidy cost must 
acknowledge the possibility of future defaults if those CDBG funds were 
not available. The fee of 0.82 percent of the principal amount of the 
loan will offset the expected cost to the Federal Government due to 
default, financing costs, and other relevant factors. To arrive at this 
measure, HUD analyzed data on comparable municipal debt over an 
extended period. The estimated rate is based on the default and 
recovery rates for general purpose municipal debt and industrial 
development bonds. The cumulative default rates on industrial 
development bonds were higher than the default rates on general purpose 
municipal debt during the period from which the data were taken. These 
two subsectors of municipal debt were chosen because their purposes and 
loan terms most closely resemble those of Section 108 guaranteed loans.
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    \3\ U.S. Department of Housing and Urban Development, Study of 
HUD's Section 108 Loan Guarantee Program, (prepared by Econometrica, 
Inc. and The Urban Institute), September 2012, at pp. 73-74. This 
fact has not changed since the issuance of this report.
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    In this regard, Section 108 guaranteed loans can be broken down 
into two categories: (1) loans that finance public infrastructure and 
activities to support subsidized housing (other than financing new 
construction) and (2) other development projects (e.g., retail, 
commercial, industrial). The 0.82 percent fee was derived by weighting 
the default and recovery data for general purpose municipal debt and 
the data for industrial development bonds according to the expected 
composition of the Section 108 portfolio by corresponding project type. 
Based on the dollar amount of Section 108 loan guarantee commitments 
awarded from FY 2019 through FY 2023 and expected Section 108 
guaranteed loans as part of a Departmental initiative, HUD expects that 
71.7 percent of the Section 108 portfolio will be similar to general 
purpose municipal debt and 28.3 percent of the portfolio will be 
similar to industrial development bonds. In setting the fee at 0.82 
percent of the principal amount of the guaranteed loan, HUD expects 
that the amount generated will fully offset the cost to the Federal 
Government associated with making guarantee commitments awarded in FY 
2025. Note that the fee decreased from 1.64 percent in FY 2024 to 0.82 
percent in FY 2025, a decrease of 0.82 percentage points in the level 
of fee charged.
    This document establishes a statutorily required fiscal requirement 
in the form of a fee based on rate and cost determinations that does 
not constitute a development decision that

[[Page 78241]]

affects the physical condition of specific project areas or building 
sites. Accordingly, under 24 CFR 50.19(c)(6), this document is 
categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321).

III. Solicitation of Comment

    HUD solicits comment on the fee rate to be imposed on the Section 
108 Program. HUD will publish a second Federal Register notice, if 
necessary, after consideration of public comments. This announced fee 
goes will become applicable on October 28, 2024 unless HUD indicates 
its intent to publish a second Federal Register notice through a notice 
on https://www.hud.gov/program_offices/comm_planning/section108 on 
October 25, 2024.

Marion M. McFadden,
Principal Deputy Assistant Secretary for Community Planning and 
Development.
[FR Doc. 2024-21706 Filed 9-24-24; 8:45 am]
BILLING CODE 4210-67-P