Rule2025-20345
Section 108 Loan Guarantee Program: Announcement of Fee To Cover Credit Subsidy Costs for FY 2026
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 19, 2025
Issuing agencies
Housing and Urban Development Department
Abstract
This document announces 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 2026 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 0.82 percent in Fiscal Year 2025 to 0.58 percent in Fiscal Year 2026.
Full Text
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<title>Federal Register, Volume 90 Issue 221 (Wednesday, November 19, 2025)</title>
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[Federal Register Volume 90, Number 221 (Wednesday, November 19, 2025)]
[Rules and Regulations]
[Pages 51992-51994]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-20345]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 570
[Docket No. FR-6561-N-01]
Section 108 Loan Guarantee Program: Announcement of Fee To Cover
Credit Subsidy Costs for FY 2026
AGENCY: Office of the Assistant Secretary for Community Planning and
Development, HUD.
ACTION: Announcement of fee.
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SUMMARY: This document announces 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 2026 in
the event HUD is required or authorized by statute to do so,
notwithstanding subsection (m) of
[[Page 51993]]
section 108 of the Housing and Community Development Act of 1974. The
fee to offset credit subsidy costs is changing from 0.82 percent in
Fiscal Year 2025 to 0.58 percent in Fiscal Year 2026.
DATES: Applicability date: October 1, 2025.
FOR FURTHER INFORMATION CONTACT: Scott Laliberte, Acting Deputy
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 202-402-3956 (this is not
a toll-free number). Individuals with speech or hearing impairments may
access this number through TTY by calling the toll-free Federal Relay
Service at 800-877-8339. FAX inquiries (but not comments) may be sent
to Mr. Laliberte at 202-402-3956 (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 Pub. L. 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. This language overrode
section 108(m) of the Housing and Community Development Act of 1974,
which 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 2025.\1\
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\1\ There are two Fiscal Year (FY) 2026 HUD appropriations bills
currently under consideration (Transportation, Housing and Urban
Development, and Related Agencies Appropriations Act, 2026 (H.R.
4552 and S. 2465)). Both bills have 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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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 add
24 CFR 570.712. Section 24 CFR 570.712 established additional
procedures for charging borrowers a fee, 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 loans. For FYs 2016 to 2025, HUD published
notifications to set the fees in accordance with 24 CFR 570.712.\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), 88
FR 73532 (October 26, 2023), and 89 FR 78239 (September 25, 2024)
respectively.
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II. FY 2026 Fee: 0.58 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
2026 at 0.58 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 2026 if language authorizing the
collection of fees in the FY 2026 HUD appropriations bills under
consideration are 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 2026 fee
uses a similar calculation model as the FY 2016 to FY 2024 fee \3\
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.
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\3\ The methodology for FY 2025 was changed to increase
portfolio composition components and repayment timing due to a
special initiative undertaken in the fiscal year.
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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).
Taking these factors into consideration, HUD determined that the
fee for disbursements made under loan guarantee commitments awarded in
FY 2026 will be 0.58 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
with 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 pay a note
holder in accordance with its full faith and credit guarantee or use
the credit subsidy reserved each year for future losses.\4\ 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(c) of the
Housing and Community Development Act of 1974, as amended (42 U.S.C.
5308(c)), 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
[[Page 51994]]
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 0.58 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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\4\ 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 0.58 percent fee was derived by combining
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 2020 through FY 2024, HUD expects that 61.2 percent of
the Section 108 portfolio will be similar to general purpose municipal
debt and 38.8 percent of the portfolio will be similar to industrial
development bonds. In setting the fee at 0.58 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 2026. Note that the fee
decreased from 0.82 percent in FY 2025 to 0.58 percent in FY 2026, a
decrease of 0.24 percent 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 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).
Bryan W. Horn,
Acting Principal Deputy Assistant Secretary for Community Planning and
Development.
[FR Doc. 2025-20345 Filed 11-18-25; 8:45 am]
BILLING CODE 4210-67-P
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</html>Indexed from Federal Register on November 19, 2025.
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