Rule2024-21706
Section 108 Loan Guarantee Program: Announcement of Fee To Cover Credit Subsidy Costs for FY 2025 and Solicitation of Comment
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Published
September 25, 2024
Issuing agencies
Housing and Urban Development Department
Abstract
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.
Full Text
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<title>Federal Register, Volume 89 Issue 186 (Wednesday, September 25, 2024)</title>
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[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 [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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
<a href="https://www.hud.gov/program_offices/comm_planning/section108">https://www.hud.gov/program_offices/comm_planning/section108</a>.
ADDRESSES: Interested persons are invited to submit comments responsive
to this document. Copies of all comments submitted are available for
inspection and downloading at <a href="http://www.regulations.gov">www.regulations.gov</a>. 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
<a href="http://www.regulations.gov">www.regulations.gov</a>. 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
<a href="http://www.regulations.gov">www.regulations.gov</a> 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: <a href="https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs">https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs</a>. Copies of all comments
submitted are available for inspection and downloading at <a href="http://www.regulations.gov">http://www.regulations.gov</a>.
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 <a href="https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs">https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs</a>. 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 <a href="https://www.hud.gov/program_offices/comm_planning/section108">https://www.hud.gov/program_offices/comm_planning/section108</a> 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
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</html>Indexed from Federal Register on September 25, 2024.
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