6470 Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Proposed Rules 

2U.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. 

borrowers and public entities); and (iv) 

other factors that HUD determines may 

be relevant to this calculation. 

Taking these factors into 

consideration, HUD determined that the 

initial fee to be imposed on the program 

is 2.42 percent, which percentage will 

be applied to guaranteed loan 

disbursements as they occur in fiscal 

year 2015. The fee will be effective after 

available credit subsidy appropriations 

are depleted, which HUD anticipates 

will occur around May 2015. Note that 

future notices may provide for a 

combination of up-front and periodic 

fees. 

The expected cost of a Section 108 

loan guarantee is difficult to estimate 

accurately using historical program 

data, because there have been no 

defaults in the history of the program. 

HUD has never had to invoke its full 

faith and credit guarantee, nor has it 

paid out on any guarantee from the 

credit subsidy reserved each year for 

future losses.2 This is due to a variety 

of factors, including the availability of 

CDBG funds as security. Borrowers may 

plan to make payments on Section 108 

loans from CDBG grant funds. However, 

when a borrower plans to make Section 

108 loan payments from other 

anticipated sources, it has been able to 

repay the Section 108 loan using CDBG 

funds when there are shortfalls in 

anticipated repayment sources, as 

authorized by Section 108 of the 

Housing and Community Development 

Act of 1974, as amended (42 U.S.C. 

5308). 

The proposed fee of 2.42 percent 

offsets the expected cost to the 

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 16- to 23-year 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 

loans. In this regard, Section 108 loans 

can be broken down into two categories: 

(i) Loans that finance public 

infrastructure and activities to support 

subsidized housing (other than 

financing new construction) and (ii) 

development projects (e.g., retail, 

commercial, industrial). The 2.42 

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 dollar amount of 

Section 108 commitments awarded 

during the period 2005—2013, HUD 

expects that 27 percent of the Section 

108 portfolio will be similar to general 

purpose municipal debt and 73 percent 

of the portfolio will be similar to 

industrial development bonds. In 

determining the appropriate level of fee, 

HUD will consider the amount required 

to fully offset the cost to the Federal 

Government associated with making a 

loan guarantee. Credit subsidy cost 

calculations incorporate assumptions 

based on: (i) data on default frequency 

for municipal debt where such debt is 

comparable to loans in the Section 108 

portfolio; (ii) data on recovery rates on 

collateral security for comparable 

municipal debt; (iii) the expected 

composition of the Section 108 cohort 

by end users of the guaranteed loan 

funds (e.g., third party borrowers and 

public entities); and (iv) other relevant 

information (e.g., statutory changes) that 

would affect the applicability of the 

default and recovery data on 

comparable municipal debt. 

III. Solicitation of Comment 

HUD solicits comment on the initial 

fee to be imposed on the Section 108 

Program. 

Dated: December 17, 2014. 

Clifford Taffet, 

General Deputy Assistant Secretary for 

Community Planning and Development. 

[FR Doc. 2015–02261 Filed 2–4–15; 8:45 am] 

BILLING CODE 4210–67–P 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Part 570 

[Docket No. FR–5767–P–01] 

RIN 2506–AC35 

Section 108 Loan Guarantee Program: 

Payment of Fees To Cover Credit 

Subsidy Costs 

AGENCY: Office of the Assistant 

Secretary for Community Planning and 

Development, HUD. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

amend HUD’s Section 108 Loan 

Guarantee Program (Section 108 

Program) regulations to permit HUD, in 

accordance with statutory authority, to 

collect fees from Section 108 borrowers 

to offset the costs of Section 108 loan 

guarantees. HUD is proposing this rule 

to ensure that it can begin to make 

Section 108 loan guarantee 

commitments without appropriated 

subsidy. The Department of Housing 

and Urban Development Appropriations 

Act, 2014, authorizes HUD to collect 

fees from borrowers for this program. In 

anticipation of further appropriations 

acts authorizing the collection of fees for 

Section 108 loan guarantees, HUD 

proposes to add a new section to its 

current regulations to reflect that when 

appropriations for credit subsidy costs 

as authorized by Congress are either not 

available or insufficient and HUD has 

statutory authority to collect fees, HUD 

will impose a fee on Section 108 

Program borrowers and explain the 

basis for the fee imposed. The proposed 

new regulatory section would provide 

for HUD to set the fee by notice. 

Elsewhere in today’s Federal Register, 

HUD is publishing the notice that would 

propose the fee to be established for the 

fiscal year 2015, subject to statutory 

authorization. 

DATES: Comment Due Date: March 9, 

2015. 

ADDRESSES: Interested persons are 

invited to submit comments regarding 

this proposed rule to the Regulations 

Division, Office of General Counsel, 

Department of Housing and Urban 

Development, 451 7th Street SW., Room 

10276, Washington, DC 20410–0500. 

Communications must refer to the above 

docket number and title. There are two 

methods for submitting public 

comments. All submissions must refer 

to the above docket number and title. 

1. 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. 

2. 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 Web site can be 


rljohnson on DSK3VPTVN1PROD with PROPOSALS
Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Proposed Rules 6471 

1The President’s Budget for FY 2014 can be 

found at: http://www.gpo.gov/fdsys/browse/

collectionGPO.action?collectionCode=BUDGET. 

2http://portal.hud.gov/hudportal/documents/

huddoc?id=COMDEVLOANGUAR.pdf at page R–2. 

viewed by other commenters and 

interested members of the public. 

Commenters should follow the 

instructions provided on that site to 

submit comments electronically. 

Note: To receive consideration as public 

comments, comments must be submitted 

through one of the two methods specified 

above. Again, all submissions must refer to 

the docket number and title of the rule. 

No Facsimile Comments. Facsimile 

(FAX) comments are not acceptable. 

Public Inspection of Public 

Comments. All properly submitted 

comments and communications 

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 

appointment to review the public 

comments must be scheduled in 

advance by calling the Regulations 

Division at 202–708–3055 (this is not a 

toll-free number). Individuals with 

speech or hearing impairments may 

access this number via TTY by calling 

the Federal Relay Service at 800–877– 

8339. Copies of all comments submitted 

are available for inspection and 

downloading at www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: Paul 

Webster, Director, Financial 

Management Division, Office of Block 

Grant Assistance, Office of Community 

Planning and Development, Department 

of Housing and Urban Development, 

451 7th Street SW., Room 7180, 

Washington, DC 20410; telephone 

number 202–708–1871 (this is not a tollfree number). Individuals with speech 

or hearing impairments may access this 

number through TTY by calling the tollfree Federal Relay Service at 800–877– 

8339. 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 Section 108 Program is the loan 

guarantee component of the Community 

Development Block Grant (CDBG) 

program and is authorized by section 

108 (42 U.S.C. 5308) of the Housing and 

Community Development Act of 1974, 

as amended (HCD Act). HUD’s 

regulations implementing the Section 

108 Program are codified at 24 CFR part 

570, subpart M (entitled ‘‘Loan 

Guarantees’’). The Section 108 Program 

provides States and local governments 

with access to long-term (up to 20 year) 

fixed-rate loans at relatively low interest 

rates to finance certain categories of 

eligible CDBG activities. Under section 

108(a) of the HCD Act and authorizing 

language in HUD’s annual 

appropriations, HUD enters into 

commitments to guarantee, and 

subsequently guarantees, promissory 

notes issued by units of general local 

government (or their designated public 

agencies) or States. Under section 108(r) 

of the HCD Act, HUD, acting on behalf 

of these borrowers, periodically arranges 

for the issuance of a series of trust 

certificates based on a large pool of such 

notes and engages underwriters 

(investment banking firms) to market 

and sell interests in the trust certificates 

to private investors in a public offering. 

HUD guarantees the timely payment 

of the principal of and interest on the 

trust certificates and, under the 

provisions of the section 108 statute, the 

full faith and credit of the United States 

is pledged to honor the guarantee. 

Because of the federal guarantee, 

interest payable on the trust certificates 

and the underlying notes can be set at 

relatively low, fixed-rates and investors 

are willing to purchase interests in the 

certificates because of the security 

provided by such guarantee. Proceeds of 

the sale, less certain underwriting and 

trust administration fees and costs, are 

advanced to the borrowers, who pay 

interest on a given year’s principal 

installment at the fixed interest rate 

borne by the trust certificate of 

corresponding maturity. 

To accommodate borrowers that 

require financing for projects in the 

months between the periodic public 

offering of fixed-rate trust certificates, 

interim financing is made available 

pursuant to an agreement between HUD 

and an interim lender. HUD guarantees 

promissory notes that initially are 

issued to the interim lender and bear 

interest at rates that adjust monthly. 

Such notes are typically pooled with 

other issuers’ notes in the next public 

offering of fixed-rate trust certificates, at 

which time, under the terms of the 

notes, the interest rates convert to the 

fixed rates borne by the trust 

certificates. 

Contemporaneously with HUD’s 

guarantee, borrowers enter into 

contracts with HUD in which they agree 

to use funds for eligible activities, to 

make the payments required under their 

notes and to reimburse HUD from 

sources pledged as security in the 

contract for any payments made on their 

behalf. Section 108 notes are secured by 

pledges of annual CDBG allocations, 

which are the local government’s own 

allocations in the case of CDBG 

entitlement communities and the State’s 

allocations in the case of local 

governments in non-entitlement areas or 

States that borrow on behalf of these 

areas. HUD is also authorized to require 

borrowers to furnish other security, 

such as interests in real property and 

pledges of local revenues, in addition to 

pledged CDBG funds. 

Historically, Congress has annually 

appropriated funds to cover the credit 

subsidy costs of the Section 108 

Program. These appropriations, 

consistent with the Federal Credit 

Reform Act of 1990 (2 U.S.C. 661 et 

seq.), reflect the net present value of 

future costs to the Federal Government 

of operating the Section 108 Program. 

These costs, referred to here as credit 

subsidy costs, are the estimated longterm cost to the federal government of 

the loan guarantee, excluding 

administrative costs and any incidental 

effects on governmental receipts or 

outlays. More specifically, the cost is 

the net present value of expected cash 

outflows by HUD (e.g., due to default) 

and the expected cash inflows to HUD 

(e.g., from recovery on collateral), 

discounted to the point of disbursement 

of the guaranteed loan. In recent years, 

the budgeted Section 108 credit subsidy 

rates (i.e., credit subsidy cost expressed 

as a percentage of loan disbursements) 

have ranged from 2.48% in FY 2012 to 

2.56% in FY 2014. 

The President’s FY 2014 Budget 

Request 1 did not request an 

appropriation for the credit subsidy 

costs of new Section 108 guaranteed 

loans but instead called for statutory 

authorization to allow HUD to collect 

fees to offset such costs, making the 

Section 108 Program a zero credit 

subsidy program. To assist with the 

conversion to a fee-based financing 

mechanism, HUD’s FY 2014 

Congressional Justification for the 

Section 108 Program proposed to allow 

Section 108 borrowers to include the fee 

in the guaranteed loan amount.2

Borrowers would also have the option to 

utilize existing statutory authority that 

permits the fee to be paid with CDBG 

funds. 

Both the Senate Report (S. Rep. No. 

113–45) accompanying the Senate’s FY 

2014 Transportation, Housing and 

Urban Development and Related 

Agencies Appropriation bill and the 

House Report (H.R. Rep. No. 113–136) 

accompanying the House’s FY 2014 

Transportation, Housing and Urban 

Development and Related Agencies 

Appropriation bill accepted HUD’s 

request to convert the Section 108 

Program into a fee-based program. The 

Senate bill adopted the President’s 

proposal to eliminate the credit subsidy 


rljohnson on DSK3VPTVN1PROD with PROPOSALS
6472 Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Proposed Rules 

3See Title II of Division L of the Consolidated 

Appropriations Act, 2014 (Pub. L. 113–76, 128 Stat. 

5, approved January 17, 2014; see 128 Stat. 604) 

(2014 HUD Appropriations Act). 

4 2014 HUD Appropriations Act at 128 Stat. 614. 

5The 2014 HUD Appropriations Act references 

section 502 of the Congressional Budget Act of 

1974. Section 502 was added to the Congressional 

Budget Act of 1974 by the Federal Credit Reform 

Act of 1990, Public Law 101–508, title XIII, subtitle 

B, § 13201(a), 104 Stat. 1388–610. 

entirely in FY 2014. Accordingly, the 

Senate Report states that the Senate 

Committee on Appropriations expects 

HUD to implement a fee based program 

upon enactment of the fee authority to 

ensure that there is no delay for grantees 

that wish to utilize the program under 

a new fee-based structure. 

The Department of Housing and 

Urban Development Appropriations 

Act, 2014 3 (2014 HUD Appropriations 

Act) authorized HUD to collect such 

fees. The 2014 HUD Appropriations Act 

included a credit subsidy appropriation 

designed to enable HUD to continue 

making loan guarantee commitments 

during the rulemaking process and 

prevent a gap in the availability of the 

program. 

This proposed rule is consistent with 

the expectations expressed in the joint 

explanatory statement (160 Cong. Rec. 

H1193–94 (daily ed., January 15, 2014) 

(joint explanatory statement submitted 

by Congressman Rogers)), which 

explains that ‘‘HUD is not expected to 

be ready to implement a new fee-based 

section 108 loan program upon 

enactment of this Act. Instead, prior to 

the collection of fees, HUD is directed 

to establish regulations articulating how 

a fee-based, zero-subsidy program shall 

be implemented.’’ 

Further, the 2014 HUD 

Appropriations Act authorizes HUD to 

impose a fee to eliminate the need for 

credit subsidy appropriations. Such 

authority is necessary because, in 1988, 

Congress amended the statute 

authorizing the Section 108 Program, 

section 108 of the HCD Act (42 U.S.C. 

5308), to add subsection (m), which 

limits HUD’s ability to impose a fee or 

charge with respect to a Section 108 

guaranteed loan. The 2014 HUD 

Appropriations Act provides HUD the 

discretion to collect a fee from Section 

108 borrowers ‘‘notwithstanding 

subsection (m) of such section 108.’’ 4

II. This Proposed Rule 

A. New § 570.712 (Collection of Fees; 

Procedure To Determine Amount of 

Fee). 

This rule proposes to amend the 

Section 108 regulations at 24 CFR part 

570, subpart M, to establish a new 

section, § 570.712, entitled ‘‘Collection 

of fees; procedure to determine amount 

of the fee,’’ that would provide for the 

collection of fees for the Section 108 

Loan Guarantee Program. New § 570.712 

would provide that where HUD has 

been authorized to collect a fee for the 

Section 108 Program and Congress has 

not appropriated a subsidy for the 

Section 108 Program or the appropriated 

subsidy is insufficient to offset the costs 

of the Section 108 loan guarantees, HUD 

will collect a fee for the program. When 

such conditions occur, HUD will 

announce its intent to impose a fee 

through notice published in the Federal 

Register and explain the basis for the fee 

imposed. 

HUD will provide for announcement 

of the fee through notice in the Federal 

Register rather than codifying the fee in 

§ 570.712, as the fee may change from 

year to year. The imposition of the fee 

is dependent upon the authority 

provided for in annual appropriations 

acts. HUD will solicit comment on the 

initial proposed fee through this initial 

proposed rule and Notice, and may 

solicit comment on future Notices that 

impose the fee if changes to the 

assumptions underlying the fee 

calculation or the fee structure itself 

raise new considerations for borrowers. 

The fee to be imposed will not be 

expressed as a dollar amount but rather 

as percentages of the principal amount 

of the guaranteed loan. The fee will be 

based on a determination that such fees, 

when collected, will reduce the credit 

subsidy cost to a level that eliminates 

the need for appropriated subsidy 

budget authority. The required fees may 

include both an up-front and a periodic 

component, depending on market 

conditions and the credit risk to the 

Section 108 program. New § 570.712 

would provide that each public entity or 

its designated public agency and each 

State issuing debt obligations would be 

responsible for the payment of all fees 

charged under this section. 

B. Related Amendments to Existing 

Regulations 

In addition to establishing new 

§ 570.712, this proposed rule would 

make related amendments to other 

sections of part 570, subpart M. 

1. Definition of ‘‘Credit Subsidy Cost’’ 

The proposed rule would amend 

§ 570.701 (Definitions) to add a 

definition of ‘‘credit subsidy cost.’’ 

Specifically, ‘‘credit subsidy cost’’ 

would be defined as the estimated longterm cost to the Federal Government of 

a Section 108 loan guarantee or a 

modification thereof, calculated on a net 

present value basis, excluding 

administrative costs and any incidental 

effects on governmental receipts or 

outlays. This definition is the definition 

of ‘‘cost’’ in the Federal Credit Reform 

Act of 1990 5 (2 U.S.C. 661–661f at 

§ 661a), modified to exclude direct 

loans, which are not authorized under 

the Section 108 program. 

2. Requirements for Payment of Fees 

and Payment Options 

Paragraph (g) of § 570.705 (Loan 

requirements) would be amended to 

add, as a loan requirement, that each 

public entity or its designated public 

agency and each State issuing debt 

obligations must pay any and all fees 

charged by HUD for the purpose of 

paying the credit subsidy costs of the 

loan guarantee. In addition to including 

this requirement, the rule proposes to 

remove redundant language in 

§ 570.705(g) addressing a borrower’s 

ability to pay issuance, underwriting, 

servicing, and other costs with 

guaranteed loan funds. This language 

duplicates authority granted in 

§ 570.703. 

As permitted by § 570.705(c)(1)(i), 

borrowers will be able to pay the fee 

using CDBG funds. To further facilitate 

the payment of these charges, HUD also 

proposes to permit the payment of these 

fees from guaranteed loan proceeds. As 

such, § 570.703 (Eligible activities) 

would be amended to provide that 

guaranteed loan funds may be used for 

the payment of fees charged by HUD, 

when such fees are paid from the 

disbursement of guaranteed loan funds. 

Additionally, to notify the public of 

plans to use grant funds or loan 

proceeds to pay the fee, HUD proposes 

changes to § 570.704 (Application 

requirements) to require applicants to 

include the estimated amount of the fee 

to be paid in the application for loan 

guarantee assistance. Use of grant funds 

for fees or payments of principal and 

interest must also be included in each 

applicant’s consolidated plan. 

Specific solicitation of comment: HUD 

acknowledges that financing the fees 

could also result in net higher costs to 

borrowers because the fee needed to 

achieve zero subsidy would have to 

account for risk of default and the 

borrower would have to pay interest on 

the financed fee. HUD specifically seeks 

comment on whether to require 

borrowers to pay fee amounts from other 

sources or allow borrowers to add 

upfront fees to the face value of the 

guaranteed loan by paying fees from 

guaranteed loan funds at the time of 

loan disbursement. 


rljohnson on DSK3VPTVN1PROD with PROPOSALS
Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Proposed Rules 6473 

6See Housing and Community Development Act 

of 1974, as amended (Pub. L. 93–383, § 101(c) 

(1974); 42 U.S.C. 5301). 

3. Exemption From Statutory Primary 

Objective 

HUD proposes to amend paragraph 

(a)(3)(iii) of § 570.200 of HUD’s CDBG 

regulations to clarify that when the fee 

is paid from the proceeds of a 

guaranteed loan, grant funds used to 

repay that loan are not subject to the 

requirement that not less than 70 

percent of a grantee’s aggregate CDBG 

expenditures over a specified one-, 

two-, or three-year period shall be for 

activities benefitting low- and moderateincome persons.6 This exclusion from 

the overall benefit calculation would be 

added to make clear that payment of 

fees is covered by the existing exclusion 

of grant funds used for repayment of 

Section 108 guaranteed loans at 

§ 570.200(a)(3)(iii). Expenditures of 

guaranteed loan funds for payment of 

the fee are treated as part of the cost of 

carrying out the activity financed with 

the guaranteed loan. Section 108 

activities that benefit low- and 

moderate-income persons are already 

included in the calculation, and such 

activities should only be considered 

once when calculating overall benefit. 

III. Proposed 2015 Fee: 2.42% of the 

Principal Obligation of the Loan 

As noted in the Summary to this 

proposed rule, elsewhere in today’s 

Federal Register, HUD proposes the 

initial fee to be imposed for the Section 

108 Program. 

In determining the appropriate level 

of fee, HUD will consider the amount 

required to fully offset the cost to the 

Federal Government associated with 

making a loan guarantee. Credit subsidy 

cost calculations incorporate 

assumptions based on: (i) data on 

default frequency for municipal debt 

where such debt is comparable to loans 

in the Section 108 portfolio; (ii) data on 

recovery rates on collateral security for 

comparable municipal debt; (iii) the 

expected composition of the Section 108 

cohort by end users of the guaranteed 

loan funds (e.g., third party borrowers 

and public entities); and (iv) other 

relevant information (e.g., statutory 

changes) that would affect the 

applicability of the default and recovery 

data on comparable municipal debt. 

Paragraph (b) of § 570.712 would 

provide that HUD will publish a notice 

in the Federal Register with the fee 

structure and levels, taking into 

consideration total available 

commitment authority and what level of 

fees may be needed to operate the 

program for the covered period. Such 

notice will set forth the fee financing 

structure to be applied, the effective 

date, and any other necessary 

information regarding payment of the 

fee. HUD anticipates issuing such 

notices prior to the beginning of the 

fiscal year, with an effective date of the 

beginning of the fiscal year, and may 

provide updated notices as necessary. 

Additionally, HUD will periodically 

publish the estimated subsidy cost and 

fee as part of the President’s Budget. 

IV. Justification for Abbreviated Public 

Comment Period 

It is the general practice of HUD to 

provide a 60-day public comment 

period on all proposed rules. However, 

HUD is shortening its usual 60-day 

public comment period to 30 days for 

this proposed rule. As stated in this 

preamble, HUD anticipates that in the 

coming fiscal years appropriated funds 

will no longer be available for the credit 

subsidy costs of the Section 108 

program or available in amounts 

sufficient to maintain the program. 

Imposition of a fee, as statutorily 

authorized, will maintain the continued 

availability of Section 108 guaranteed 

loan financing. Through HUD’s 

Congressional Justifications for FY 2014 

and 2015, HUD has provided public 

notice of its proposal to make the 

Section 108 program a fee-based 

program. 

Section 108 is a valuable financing 

source for community and economic 

development projects. As stated in 

HUD’s Congressional Justifications for 

FY 2015 and FY 2014, States and local 

governments face daunting challenges 

in addressing their community and 

economic development needs, and the 

Section 108 Loan Guarantee Program 

enables CDBG grantees to borrow up to 

5 times their current CDBG allocation to 

finance economic development, public 

facilities and housing activities 

consistent with CDBG program 

requirements. 

For these reasons and those already 

presented in this preamble, it is 

important to implement a Section 108 

fee-based program as soon as possible to 

ensure the continued availability of the 

Section 108 program, and therefore 

HUD has determined that a 30-day 

public comment period is appropriate. 

V. Findings and Certifications 

Regulatory Review—Executive Order 

12866 

Under Executive Order 12866 

(Regulatory Planning and Review), a 

determination must be made whether a 

regulatory action is significant, and 

therefore, subject to review by the Office 

of Management and Budget (OMB) in 

accordance with the requirements of the 

order. This rule was determined to 

constitute a ‘‘significant regulatory 

action’’ as defined in section 3(f) of 

Executive Order 12866. The fee 

proposed to be imposed under this rule 

would only be at such level to cover the 

costs of administration of the program 

that would have otherwise been covered 

by appropriations. 

Consistent with Executive Order 

12866, HUD prepared a regulatory 

impact analysis (RIA) for the rule. Based 

on recent annual program activity, HUD 

determined that the amount to cover the 

costs of the program is generally not 

more than $5 million in a fiscal year. 

Transfers resulting from the proposed 

fee to be imposed are likely to range 

from $4 million to $6 million. The clear 

economic benefit of the imposition of 

the proposed fee would be to continue 

to provide for the guarantee of loans that 

are underprovided by the private sector. 

HUD’s RIA, which describes in detail 

the costs and benefits and impact of the 

proposed rule is available at 

www.regulations.gov under the docket 

number for this rule. 

The docket file is available for public 

inspection between the hours of 8 a.m. 

and 5 p.m. weekdays in the Regulations 

Division, Office of General Counsel, 

Department of Housing and Urban 

Development, 451 7th Street SW., Room 

10276, Washington, DC 20410–0500. 

Due to security measures at the HUD 

Headquarters building, please schedule 

an appointment to review the docket file 

by calling the Regulations Division at 

202–708–3055 (this is not a toll-free 

number). Persons with hearing or 

speech impairments may access the 

above telephone number via TTY by 

calling the toll-free Federal Information 

Relay Service at 800–877–8339. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

(5 U.S.C. 601 et seq.), generally requires 

an agency to conduct a regulatory 

flexibility analysis of any rule subject to 

notice and comment rulemaking 

requirements unless the agency certifies 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities. 

This rule proposes to implement the 

statutorily authorized power for HUD to 

collect fees from borrowers to cover the 

credit subsidy costs of operating the 

program. As discussed in this preamble, 

HUD proposes to assist Section 108 

borrowers’ transition to a fee-based 

financing mechanism by allowing 

borrowers to include the fee in the 

guaranteed loan amount. This rule also 

proposes to permit borrowers to pay the 


rljohnson on DSK3VPTVN1PROD with PROPOSALS
6474 Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Proposed Rules 

fee with pledged CDBG funds. The 

amount of the fee would be determined 

by the amount required to fully offset 

the credit subsidy cost of the program. 

The 2014 HUD Appropriations Act 

authorized HUD to charge a fee for the 

Section 108 Program. Charging a fee will 

become a practical necessity at such 

time when current appropriations for 

the program’s credit subsidy costs are 

exhausted. 

This proposed rule reflects statutorily 

authorized actions which HUD 

determined that it must take to ensure 

uninterrupted operation of the Section 

108 Loan Guarantee Program. By 

allowing borrowers to include the fee in 

the guaranteed loan amount or pay the 

fee with pledged CDBG funds, HUD has 

strived to minimize the impact that 

imposing a fee may otherwise have on 

the program. Accordingly, it is HUD’s 

determination that this proposed rule 

would not have a significant economic 

impact on a substantial number of small 

entities. 

Notwithstanding HUD’s 

determination that this rule will not 

have a significant effect on a substantial 

number of small entities, HUD 

specifically invites comments regarding 

any less burdensome alternatives to this 

rule that will meet HUD’s objectives as 

described in this preamble. 

Environmental Review 

In accordance with 24 CFR 

50.19(c)(6), this proposed rule involves 

establishment of a rate or cost 

determinations and related external 

administrative requirements and 

procedures which do not constitute a 

development decision that affects the 

physical condition of specific project 

areas or building sites. Accordingly, 

under 24 CFR 50.19(c)(6), this proposed 

rule is categorically excluded from 

environmental review under the 

National Environmental Policy Act of 

1969 (42 U.S.C. 4321). 

Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either: Imposes 

substantial direct compliance costs on 

state and local governments and is not 

required by statute; or the rule preempts 

state law, unless the agency meets the 

consultation and funding requirements 

of section 6 of the Executive Order. This 

proposed rule does not have federalism 

implications and does not impose 

substantial direct compliance costs on 

state and local governments nor 

preempt state law within the meaning of 

the Executive Order. 

Unfunded Mandates Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 (2 U.S.C. 1531– 

1538) (UMRA) establishes requirements 

for federal agencies to assess the effects 

of their regulatory actions on state, 

local, and tribal governments, and on 

the private sector. This proposed rule 

does not impose any federal mandates 

on any state, local, or tribal 

governments, or on the private sector, 

within the meaning of UMRA. 

Catalog of Federal Domestic Assistance 

The Catalog of Federal Domestic 

Assistance (CFDA) program number for 

the Section 108 Loan Guarantee 

program is 14.248. 

List of Subjects in 24 CFR Part 570 

Administrative practice and 

procedure, American Samoa, 

Community Development Block Grants, 

Grant programs—education, Grant 

programs—housing and community 

development, Guam, Indians, Loan 

programs—housing and community 

development, Low and moderate 

income housing, Northern Mariana 

Islands, Pacific Islands Trust Territory, 

Puerto Rico, Reporting and 

recordkeeping requirements, Student 

aid, Virgin Islands. 

Accordingly, for the reasons described 

in the preamble, HUD proposes to 

amend 24 CFR part 570 as follows: 

PART 570—COMMUNITY 

DEVELOPMENT BLOCK GRANTS 

■ 1. The authority citation for 24 part 

570 continues to read as follows: 

Authority: 42 U.S.C. 3535(d) and 5301– 

5320. 

■ 2. In § 570.200, revise paragraph 

(a)(3)(iii) to read as follows: 

§ 570.200 General Policies. 

* * * * * 

(a) * * * 

(3) * * * 

(iii) Funds expended for the 

repayment of loans guaranteed under 

the provisions of subpart M (including 

repayment of the portion of a loan used 

to pay any issuance, servicing, 

underwriting, or other costs as may be 

incurred under § 570.705(g)) shall also 

be excluded; 

* * * * * 

■ 3. In § 570.701, add in alphabetical 

order the definition of ‘‘Credit Subsidy 

Cost’’ to read as follows: 

§ 570.701 Definitions. 

* * * * * 

Credit subsidy cost means the 

estimated long-term cost to the 

Government of a Section 108 loan 

guarantee or a modification thereof, 

calculated on a net present value basis, 

excluding administrative costs and any 

incidental effects on governmental 

receipts or outlays. 

* * * * * 

■ 4. In § 570.703, add paragraph (n) to 

read as follows: 

§ 570.703 Eligible activities. 

* * * * * 

(n) Payment of fees charged by HUD 

pursuant to § 570.712. 

■ 5. Amend § 570.704, by revising 

paragraphs (a)(1)(i)(D) and (a)(1)(v) and 

removing and reserving paragraph (c)(2). 

§ 570.704 Application requirements. 

(a) * * * 

(1) * * * 

(i) * * * 

(D) A description of any CDBG funds, 

including guaranteed loan funds and 

grant funds, that will be used to pay fees 

required under § 570.705(g). The 

description must include an estimate of 

the amount of CBDG funds that will be 

used for this purpose. If the applicant 

will use grant funds to pay required 

fees, it must include this planned use of 

grant funds in its consolidated plan. 

* * * * * 

(v) If an application for loan guarantee 

assistance is to be submitted by an 

entitlement or nonentitlement public 

entity simultaneously with the public 

entity’s submission for its grant, the 

public entity shall include and identify 

in its proposed and final consolidated 

plan the activities to be undertaken with 

the guaranteed loan funds, the national 

objective to be met by each of these 

activities, the amount of any program 

income expected to be received during 

the program year, and the amount of 

guaranteed loan funds to be used. The 

public entity shall also include in the 

consolidated plan a description of the 

pledge of grants, as required under 

§ 570.705(b)(2), and the use of grant 

funds to pay for any fees required under 

§ 570.705(g). In such cases the proposed 

and final application requirements of 

paragraphs (a)(1)(i), (iii), and (iv) of this 

section will be deemed to have been 

met. 

(c) * * * 

(2) [Reserved] 

* * * * * 

■ 6. Amend § 570.705, by revising the 

heading of paragraph (c) and paragraph 

(g) to read as follows: 

§ 570.705 Loan requirements. 

* * * * * 


rljohnson on DSK3VPTVN1PROD with PROPOSALS
Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Proposed Rules 6475 

(c) Use of grants for loan repayment, 

issuance, underwriting, servicing, and 

other costs. 

* * * * * 

(g) Issuance, underwriting, servicing, 

and other costs. (1) Each public entity 

or its designated public agency and each 

State issuing debt obligations under this 

subpart must pay the issuance, 

underwriting, servicing, trust 

administration and other costs 

associated with the private sector 

financing of the debt obligations. 

(2) Each public entity or its 

designated public agency and each State 

issuing debt obligations under this 

subpart must pay any and all fees 

charged by HUD pursuant to § 570.712. 

* * * * * 

■ 7. Add § 570.712 to read as follows: 

§ 570.712 Collection of fees; procedure to 

determine amount of the fee. 

This section contains additional 

procedures for guarantees of debt 

obligations under section 108 when 

HUD is required or authorized to collect 

fees to pay the credit subsidy costs of 

the loan guarantee program. 

(a) Collection of fees. HUD may 

collect fees from borrowers for the 

purpose of paying the credit subsidy 

cost of the loan guarantee. Each public 

entity or its designated public agency 

and each State issuing debt obligations 

under this subpart is responsible for the 

payment of any and all fees charged 

pursuant to this section. Such fees are 

payable from grants allocated to the 

issuer pursuant to the Act or from other 

sources, but are only payable from 

guaranteed loan funds if the fee is 

deducted from a disbursement of 

guaranteed loan funds. 

(b) Amount of fee. (1) HUD shall 

calculate the level of the fee as a 

percentage of the principal amount of 

the guaranteed loan as provided by this 

section based on a determination that 

such fees when collected will reduce 

the credit subsidy cost to the level 

established by applicable appropriation 

acts. The amount of the fee payable by 

the public entity or State shall be 

determined by applying separately the 

percentages announced by Federal 

Register notice to guaranteed loan 

disbursements as they occur or 

periodically to outstanding principal 

balances, or both. 

(2) HUD shall publish the proposed 

fees required under paragraph (a) of this 

section in the Federal Register and 

provide a 30-day public comment 

period for the purpose of inviting 

comment on the proposed fee prior to 

adoption of the fee if changes to the 

assumptions underlying the fee 

calculation or the fee structure itself 

raise new considerations for Borrowers. 

After consideration of public comments, 

HUD will publish a second Federal 

Register notice announcing the fee to be 

applied, the effective date of the fee, and 

any other necessary information 

regarding payment of the fee. 

Dated: December 17, 2014. 

Clifford Taffet, 

General Deputy Assistant Secretary for 

Community Planning and Development. 

[FR Doc. 2015–02262 Filed 2–4–15; 8:45 am] 

BILLING CODE 4210–67–P 

DEPARTMENT OF COMMERCE 

United States Patent and Trademark 

Office 

37 CFR Part 1 

[Docket No.: PTO–P–2014–0043] 

Request for Comments on Enhancing 

Patent Quality 

AGENCY: United States Patent and 

Trademark Office, Commerce. 

ACTION: Request for comments; notice of 

meeting. 

SUMMARY: The United States Patent and 

Trademark Office (USPTO) is seeking 

public input and guidance to direct its 

continued efforts towards enhancing 

patent quality. These efforts focus on 

improving patent operations and 

procedures to provide the best possible 

work products, to enhance the customer 

experience, and to improve existing 

quality metrics. In pursuit of these 

goals, the USPTO is launching a 

comprehensive and enhanced quality 

initiative. This initiative begins with a 

request for public comments on the set 

of proposals outlined in this document 

and will continue with a two-day 

‘‘Quality Summit’’ with the public to 

discuss the outlined proposals. The 

conversation with the public held at this 

Quality Summit, complemented by 

written comments to these proposals, is 

the first of many steps toward 

developing a new paradigm of patent 

quality at the USPTO. Through an active 

and long-term partnership with the 

public, the USPTO seeks to ensure the 

issuance of the best quality patents and 

provide the best customer service 

possible. 

DATES: Comment Deadline Date: To be 

ensured of consideration, written 

comments must be received on or before 

May 6, 2015. 

The USPTO will hold a Quality 

Summit on March 25 and 26, 2015 at 

the Madison Building, USPTO 

Headquarters, in Alexandria, Virginia. 

This Summit will be broadcast via 

webinar and recorded for later viewing. 

For webinar participants, participation 

in all Summit sessions, including the 

group brainstorming sessions, will be 

possible. See the Supplementary 

Information section for the proposed 

agenda. In order to best prepare for the 

Quality Summit, the USPTO requests 

that those interested in attending the 

Quality Summit send an email to 

WorldClassPatentQuality@uspto.gov 

indicating their planned attendance by 

March 18, 2015. 

ADDRESSES: Written comments should 

be sent by electronic mail message over 

the Internet addressed to: 

WorldClassPatentQuality@uspto.gov. 

Comments may also be submitted by 

postal mail addressed to: Mail Stop 

Comments—Patents, Commissioner for 

Patents, P.O. Box 1450, Alexandria, 

Virginia 22313–1450, marked to the 

attention of Michael Cygan, Senior Legal 

Advisor, Office of Patent Legal 

Administration, Office of the Deputy 

Commissioner for Patent Examination 

Policy. 

Although comments may be 

submitted by postal mail, the USPTO 

prefers to receive comments by 

electronic mail message over the 

Internet because sharing comments with 

the public is more easily accomplished. 

Electronic comments are preferred to be 

submitted in plain text, but also may be 

submitted in ADOBE® portable 

document format or MICROSOFT 

WORD® format. Comments not 

submitted electronically should be 

submitted on paper in a format that 

facilitates convenient digital scanning 

into ADOBE® portable document 

format. 

The comments will be available for 

public inspection at the Office of the 

Commissioner for Patents, currently 

located in Madison East, Tenth Floor, 

600 Dulany Street, Alexandria, Virginia. 

Comments also will be available for 

viewing via the USPTO’s Internet Web 

site (http://www.uspto.gov/patents/init_

events/Patent-Quality-Initiative.jsp). 

Because comments will be made 

available for public inspection, 

information that the submitter does not 

desire to make public, such as an 

address or phone number, should not be 

included in the comments. It would be 

helpful to the USPTO if written 

comments included information about: 

(1) the name and affiliation of the 

individual responding; and (2) an 

indication of whether comments offered 

represent views of the respondent’s 

organization or are the respondent’s 

personal views. 


rljohnson on DSK3VPTVN1PROD with PROPOSALS