[Federal Register Volume 80, Number 212 (Tuesday, November 3, 2015)]
[Rules and Regulations]
[Pages 67626-67634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28004]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[Docket No. FR-5767-F-03]
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: Final rule.

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SUMMARY: This final rule amends HUD's Section 108 Loan Guarantee 
Program (Section 108 Program) regulations to permit HUD to collect fees 
from Section 108 borrowers to offset the credit subsidy costs of 
Section 108 loan guarantees. The Department of Housing and Urban 
Development Appropriations Acts of 2014 and 2015 authorize HUD, for 
each of those fiscal years, to collect fees from borrowers to offset 
the credit subsidy costs for the guaranteed loans. This final rule 
amends HUD's Section 108 Program regulations to ensure that HUD can 
begin to make Section 108 loan guarantee commitments without 
appropriated credit subsidy budget authority, in accordance with 
applicable law. This final rule follows publication of the February 5, 
2015, proposed rule and adopts the proposed rule with minor, clarifying 
changes to how HUD will determine and announce the amount of the fee. 
Elsewhere in today's Federal Register, HUD is publishing a document 
that sets the fee that it will charge borrowers under the Section 108 
Program for loan guarantee commitments awarded in Fiscal Year (FY) 
2016.

DATES: Effective Date: December 3, 2015.

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 toll-free number). 
Individuals with speech or hearing impairments may access this number 
through TTY by calling the Federal Relay Service, toll-free, at 800-
877-8339. Faxed 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

A. The February 5, 2015, Proposed Rule

    On February 5, 2015, HUD published a rule in the Federal Register, 
at 80 FR 6470, proposing to amend the Section 108 regulations at 24 CFR 
part 570, subpart M, to permit HUD, in accordance with statutory 
authority, to collect fees from Section 108 borrowers to offset the 
cost of Section 108 loan guarantees. HUD published its proposal in 
anticipation of annual appropriations that do not include budget 
authority for a credit subsidy and require HUD to collect fees from 
borrowers to cover the credit subsidy costs for guaranteeing the loans.
    HUD's February 5, 2015, rule proposed establishing a new section, 
Sec.  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. Specifically, Sec.  570.712 
would provide that when 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 stated that it 
would announce through notice published in the Federal Register its 
intent to impose a fee and explain the basis and amount of the fee 
imposed. The fee that would be imposed would be expressed as a 
percentage of the principal amount of the guaranteed loan. Recognizing 
that the amount of the fee would be dependent upon the authority 
provided by HUD's annual appropriations to issue loan guarantee 
commitments and could vary from year to year, HUD proposed announcing 
the fee through notice published in the Federal Register rather than 
codifying it in Sec.  570.712. HUD stated that the amount of the fee 
would reduce the credit subsidy cost to the Federal Government to a 
level that eliminates the need for appropriated credit subsidy budget 
authority.
    In addition to establishing the new Sec.  570.712, the February 5, 
2015, rule proposed related amendments to other sections of part 570, 
subpart M, to implement the authority to charge Section 108 borrowers a 
fee. Specifically, HUD proposed amending Sec.  570.701 (Definitions) to 
add a definition of ``credit subsidy cost'' to mean the estimated long-
term 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. HUD based this definition on the 
definition of ``cost'' in the Federal Credit Reform Act of 1990 \1\ (2 
U.S.C. 661-661f at Sec.  661a), modified to exclude direct loans, which 
are not authorized under the Section 108 Program. HUD also proposed 
amending Sec.  570.705(g) to add, as a loan requirement, that each 
public entity, or its designated public agency, and each State issuing 
debt obligations pay any and all fees charged by HUD for the purpose of 
paying the credit subsidy costs of the loan guarantee.
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    \1\ The Department of Housing and Urban Development 
Appropriations Act, 2014, 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, section 13201(a), 
104 Stat. 1388-610.
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    To facilitate the payment of these charges, HUD's February 5, 2015, 
rule proposed permitting the payment of these fees from guaranteed loan 
proceeds. HUD proposed amending Sec.  570.703 (Eligible activities) to 
provide that guaranteed loan funds may be used for the payment of fees 
charged by HUD, when the fees are paid from the disbursement of 
guaranteed loan funds. In addition, to notify the public of plans to 
use grant funds or loan proceeds to pay the fee, HUD proposed changes 
to Sec.  570.704 (Application requirements) to require that applicants 
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 would also need to be included in each 
applicant's consolidated plan.
    Finally, HUD proposed amending Sec.  570.200(a)(3)(iii) to clarify 
that when the fee is paid from the proceeds of a guaranteed loan, grant 
funds used to repay that loan would not be subject to the requirement 
that not less than 70

[[Page 67627]]

percent of a grantee's aggregate Community Development Block Grant 
(CDBG) expenditures over a specified 1-, 2-, or 3-year period be used 
for activities benefitting low- and moderate-income persons.\2\ This 
exclusion was proposed to make clear that payment of fees would be 
treated as part of the cost of carrying out the activity financed with 
the guaranteed loan. HUD stated that Section 108 activities that 
benefit low- and moderate-income persons are already included in the 
calculation and that the activities should only be considered once when 
calculating overall benefit.
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    \2\ Section 101(c) of the Housing and Community Development Act 
of 1974, as amended (42 U.S.C. 5301(c)).
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B. Proposed FY 2015 Fee

    In addition to the February 5, 2015, proposed rule, HUD published a 
notice on February 5, 2015, at 80 FR 6469, proposing the amount of the 
fee that HUD would collect in FY 2015 to offset the credit subsidy 
costs to the Federal Government for making a loan guarantee. 
Specifically, HUD proposed a fee of 2.42 percent of the principal 
amount of the loan, proposed to make that fee effective in FY 2015 
after available credit subsidy appropriations were depleted, and 
solicited public comment on the amount of the fee. HUD's February 5, 
2015, notice was consistent with Sec.  570.712(b)(2) of the proposed 
rule, which provided that HUD would publish a notice to establish the 
fee to pay the credit subsidy costs. HUD stated that it anticipated 
issuing fee notices before the beginning of the applicable fiscal year, 
with an effective date of the beginning of the fiscal year, and may 
provide updated notices as necessary. Furthermore, HUD stated that it 
would periodically publish the estimated subsidy cost and fee as part 
of the President's Budget.

C. The Department of Housing and Urban Development Appropriations Act, 
2015

    HUD stated in its February 5, 2015, proposed rule that the 
Department of Housing and Urban Development Appropriations Act, 
2014,\3\ authorizes HUD to collect fees from borrowers to offset the 
credit subsidy cost for the program. On December 16, 2014, the 
Department of Housing and Urban Development Appropriations Act, 2015 
\4\ (2015 HUD Appropriations Act) was enacted. The 2015 HUD 
Appropriations Act does not include budget authority for a credit 
subsidy and requires HUD to collect fees from borrowers to result in a 
credit subsidy cost of zero for guaranteeing loans.
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    \3\ Title II of Division L of the Consolidated Appropriations 
Act, 2014 (Public Law 113-76, 128 Stat. 5, approved January 17, 
2014; 128 Stat. 604) (2014 HUD Appropriations Act).
    \4\ Title II of Division K of the Consolidated and Further 
Continuing Appropriations Act, 2015 (Public Law 113-235, 128 Stat. 
2130, approved December 16, 2014; 128 Stat. 2739) (2015 HUD 
Appropriations Act).
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    Both the Senate Report (S. Rep. No. 113-182) accompanying the 
Senate's FY 2015 Transportation, Housing and Urban Development and 
Related Agencies Appropriation bill and the House Report (H.R. Rep. No. 
113-464) accompanying the House's FY 2015 Transportation, Housing and 
Urban Development and Related Agencies Appropriation bill support the 
conversion of the Section 108 Program to a fee-based program. The 
Senate Report states that the Senate Committee on Appropriations 
expects HUD to move quickly to complete the rulemaking process and 
clearly communicate program costs and requirements to communities. The 
Committee concludes that it expects HUD to ensure that a financing 
structure is in place by the beginning of the fiscal year to ensure 
that this important program remains available to communities.
    This final rule is consistent with the expectations expressed in 
the Senate Report. As discussed in this preamble, to assist with the 
conversion to a fee-based financing mechanism, the Section 108 Program 
allows Section 108 borrowers to include the fee in the guaranteed loan 
amount. Borrowers would also have the option to use existing statutory 
authority that permits the fee to be paid with CDBG funds.

II. This Final Rule

    The public comment period for the February 5, 2015, proposed rule 
and notice closed on March 9, 2015. HUD received 10 comments on the 
rule and 8 comments on the notice by the close of the public comment 
period. Commenters included State governments, cities, trade 
associations, and housing development organizations, and addressed 
issues including the need for the fee, the amount of the fee, and the 
basis for the fee. The following section of this preamble summarizes 
the significant issues raised by the commenters on the February 5, 
2015, proposed rule and notice and HUD's responses to these comments. 
Because similar comments were received on the rule and the notice, HUD 
is addressing all public comments in this final rule.
    After considering the public comments received, HUD has decided to 
adopt the February 5, 2015, proposed rule with minor, clarifying 
changes. HUD is clarifying Sec.  570.712(a) to provide that program 
income may be used to pay the fee. HUD is also clarifying Sec.  
570.712(b)(1) to provide that the amount of the fee shall be based on 
the date of the loan guarantee commitment. Finally, HUD is clarifying 
Sec.  570.712(b)(2) to more accurately describe how it will announce 
its intent to impose the fee. Specifically, HUD is clarifying Sec.  
570.712(b)(2) to provide, as discussed in the preamble of the February 
5, 2015, proposed rule, that it would announce the fee through notice 
published in the Federal Register and would solicit comment on future 
fee notices if the assumptions underlying the fee calculation change or 
the fee structure itself raises new considerations for borrowers.
    Given the timing of the publication of the final rule and the 
availability of appropriated budget authority to defray the credit 
subsidy cost, HUD has decided not to impose a fee with respect to FY 
2015 loan guarantee commitments. After considering the public comments 
received, HUD is establishing the fee at 2.58 percent of the principal 
amount of the loan disbursements for loan guarantee commitments awarded 
in FY 2016. The change in the amount of the fee is based on reasons 
given in the notice being published elsewhere in today's Federal 
Register. HUD published the anticipated 2.58 percent fee for FY 2016 on 
February 2, 2015, as part of the FY 2016 President's Budget.\5\
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    \5\ The FY 2016 President's Budget for HUD is available at: 
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/hud.pdf. The fee is specified in table 6 of the Federal 
Credit Supplement to the 2016 budget and is available at: https://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/cr_supp.pdf.
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III. Discussion of Public Comments on February 5, 2015, Proposed Rule 
and Notice

    Comment: A commenter responding to the issue, ``whether to require 
borrowers to pay fee amounts from other sources or allow borrowers to 
add up-front fees to the face value of the guaranteed loan by paying 
fees from guaranteed loan funds at the time of loan disbursement,'' 
stated that likely the best option is to build the fee into the loan 
proceeds amount. The commenter questioned, however, what might happen 
if a borrower needs to borrow a significantly large amount of money and 
needs to use the entire loan to subsidize the housing development or 
purchase. According to the commenter, the fee may deter borrowers from

[[Page 67628]]

choosing to finance through the Section 108 Program. The commenter 
recommended that borrowers be allowed to pay fees from other sources or 
add up-front fees to the face value of the guaranteed loan, stating 
that allowing borrowers the most flexibility regarding how to pay the 
fee would provide comfort to borrowers since the fee could result in 
higher net costs because the fee would take into account the risk of 
default and the borrower would have to pay interest on the financed 
fee. Another commenter stated that the fee should be imposed with as 
much flexibility as possible. According to the commenter, allowing the 
payment of the fee as part of the borrowing or with block grant funding 
would allow the borrower to borrow the loan fee and amortize it over 
the life of the loan. The commenter also stated that as entitlement 
communities adjust to the fee they will appreciate having the 
flexibility to best structure their loan deals to the project needs.
    HUD Response: This final rule does not restrict borrowers to paying 
the fee with guaranteed loan proceeds or limit the source of the fee 
payment, but permits the payment with guaranteed loan funds. 
Specifically, as clarified by this final rule, Sec.  570.712(a) states 
that ``[s]uch fees are payable from grants allocated to the issuer 
pursuant to the Act (including program income derived therefrom or from 
other sources). . . .'' (emphasis added). As a result, borrowers may 
use grant funds, pursuant to Sec.  570.705(c)(1)(i), guaranteed loan 
funds, or program income to pay the fee.
    Comment: The commenter also stated that the notice period is not 
explicitly stated in the proposed rule, except that it will be before 
the beginning of a fiscal year. According to the commenter, many 
borrowers plan their financial investments and obligations far in 
advance, and it would be good business for borrowers to be notified of 
the fee at least one quarter in advance of when the fee would be 
announced. The commenter asked whether HUD could, if unable to publish 
the final fee with sufficient advanced notice, publish a range of what 
the upcoming year's fee might be. The commenter also stated that the 
annual fee might cause borrowers whose time is more flexible without 
the immediate need to borrow to wait and see if the fee will be lower 
in the upcoming year.
    HUD Response: The President's Budget is typically published each 
February preceding the beginning of a new fiscal year. As part of the 
Budget, HUD is required to publish its estimated Section 108 credit 
subsidy costs and the fee required to offset such costs approximately 7 
months before the start of the fiscal year when any new fee rate would 
take effect. This period provides sufficient time to notify borrowers 
of the fee in advance of the beginning of the fiscal year. HUD believes 
that this time period should also provide potential borrowers 
sufficient opportunity to plan their financial investments and 
obligations.
    Comment: Several commenters stated that what the fee might be in 
the future is a point of concern. According to the commenters, the 
proposed rule states only that ``future notices may provide for a 
combination of up front and periodic fees.'' As a result, how much 
those fees might be in the future or when they may take effect is a 
complete unknown. The commenters concluded that uncertainty makes any 
planning exercises relating to the Section 108 Program tenuous. One 
commenter asked HUD to reconsider the fee.
    HUD Response: As stated in the response to the previous comment, 
HUD is required to specify the anticipated Section 108 credit subsidy 
cost and fee required to offset that cost approximately 7 months before 
the beginning of the fiscal year when the new fee rate would take 
effect. For fees applicable to commitments awarded in FY 2017 and 
thereafter, this will provide HUD sufficient time before the beginning 
of the fiscal year to notify potential borrowers as provided by Sec.  
570.712(b)(2). HUD would also note that only one fee schedule will 
apply to a loan guarantee commitment, i.e., once HUD approves the 
application and awards a loan guarantee commitment, the fee applicable 
to the period covering the date of the commitment will apply to all 
loan disbursements under that commitment. HUD is clarifying this by 
revising Sec.  570.712(b)(1) to state that the fee shall be based on 
the date of the loan guarantee commitment. HUD anticipates that 
applicants for Section 108 loan guarantees will have access to the fee 
schedule that will be applicable to commitments awarded pursuant to 
their applications. Thus, a Section 108 borrower that receives a loan 
guarantee commitment will not be subject to the kind of risk envisioned 
by the commenters. In response to the comment requesting that HUD 
reconsider the fee, without an appropriation for payment of the credit 
subsidy cost, HUD must impose a fee to offset credit subsidy costs of 
guaranteeing these loans.
    Comment: A commenter stated that it would be in HUD's best interest 
to provide the maximum amount at which the fee may be set. According to 
the commenter, allowing the borrower the most flexibility with the fee 
will mitigate any deterrence against the newly imposed fee. Another 
commenter also stated that flexibility is important because no two 
Section 108 loans are exactly alike.
    HUD Response: HUD will seek to publish a new fee rate at the 
earliest opportunity in order to provide borrowers maximum notice and 
flexibility. As noted above, HUD has seven months to notify the public 
of the anticipated new fee rate and will do so with sufficient time in 
advance of the fee taking effect. However, due to the assumptions that 
are taken into consideration in formulating the rate, HUD is not able 
to set a maximum amount at which the fee may be set.
    Comment: A commenter stated that the fee is unnecessary and 
excessive, but recognized that that the elimination of a credit subsidy 
appropriation requires HUD to charge some fee. Several other commenters 
advocated for the continuation of using appropriated credit subsidy 
budget authority to address the Section 108 credit subsidy cost, but 
acknowledged that the President's Budget and the FY 2015 HUD 
Appropriation Act authorize HUD to collect fees. Several other 
commenters opposed any fee or other mechanism that requires grantees to 
pay for the subsidy cost of the program. Other commenters stated that 
the fee is unnecessary and counterproductive considering the fact that, 
as HUD pointed out in the proposed rule, ``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.'' According to 
these commenters, HUD's requirements for grantees to pledge their CDBG 
allocations and furnish other security interests or collateral in case 
of default reduce HUD's credit risk to zero. Another commenter added 
that as part of the Section 108 loan guarantee application process, 
borrowers must identify appropriate collateral to cover 100 percent of 
the loan amount. This commenter stated that a key role for HUD is to 
evaluate and approve this collateral, and that HUD has never had to 
invoke its 100 percent guarantee even though a number of projects have 
failed or gone bankrupt. Another commenter stated that because of 
collateralization, instituting a loan fee calculated on assumptions of 
default is a ``functional fiction.''
    Another commenter stated that because HUD limits an entitlement 
community to borrowing up to five

[[Page 67629]]

times its CDBG authority, a community's annual Section 108 repayment 
requirement would not exceed its available CDBG capacity under most 
common deal structures. The commenter suggested that at current rates, 
a standard term 20-year loan with straight amortization of the entire 
available loan capacity would require an annual payment of just over 25 
percent of a community's CDBG allocation. According to the commenter, 
interest rates would have to increase to almost 20 percent to exceed a 
full allocation. The commenter also stated that this calculation 
assumes that the community would secure any debt only with its CDBG 
capacity. Prudent borrowing dictates that communities provide 
additional security for Section 108-funded loans. The commenter (a 
city) stated that it subjects Section 108 loans to the most stringent 
underwriting and requires substantial collateral, including a mortgage 
position on the property, personal and corporate guaranties from the 
Borrower, and the establishment of project debt reserves. These 
protections are rigorously reviewed by HUD's staff at the local and 
headquarters offices and subject to extensive review by the city's 
staff and its external loan review committee. The commenter concluded 
that HUD's debt is secured both by strong underwriting and collateral 
at the community level, reviewed and approved by HUD staff, and 
ultimately guaranteed by CDBG allocations that are more than sufficient 
to secure against a portfolio-wide default.
    Another commenter stated that the Section 108 Program is set up to 
ensure payment is made to the bondholders on time through a pledge of 
grantees' CDBG lines of credit and collateral for each loan to secure 
approximately 125 percent of the loan amount. Because these mechanisms 
are in place to safeguard the loans, the commenter questioned the 
reason a fee is being proposed. The commenter stated that it appears 
that HUD does not recognize the impact of the fee on borrowers despite 
permitting the credit subsidy fees to be paid with proceeds from the 
Section 108 Loan Guarantee Program or by using CDBG funds.
    HUD Response: In order to comply with the Federal Credit Reform Act 
of 1990, HUD must estimate the credit subsidy cost of a loan guarantee. 
Under Federal credit budgeting principles, the availability of CDBG 
funds to repay the guaranteed loans cannot be assumed in the 
development of the credit subsidy cost estimate. 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 annual rate that CDBG funds are used as 
repayment for loan guarantees, HUD's calculation of the credit subsidy 
cost must take into account the possibility of future defaults despite 
the history of no defaults in the program. When fees are collected by 
HUD, they are deposited into the Financing Account established in 
accordance with Federal Credit Reform Act procedures. The fees, 
together with interest earned thereon, will be used as the source for 
future years' default claims.
    Comment: Several commenters also stated that credit subsidy is 
typically used to cover costs associated with delinquencies, interest 
subsidies, and other costs related to loans. The commenters questioned 
if HUD has not experienced a loss in the Section 108 Loan Guarantee 
Program, why charge a fee to cover those costs? One commenter stated 
that since there is no history of default due to the nature of the 
program, the fee should be as minimal as possible. Another commenter 
stated that HUD has not had to pay out on any guarantee from the credit 
subsidy reserve and asked what HUD will do with the accumulated fees it 
receives from grantees. Several other commenters recommended that HUD 
be required to keep the funds in a separate interest bearing account 
and, upon closeout of a grantee's Section 108 loans, that HUD should 
remit to the contributing grantees the fee amounts contributed plus 
interest minus their pro rata share of any pay-outs made from the fund 
by HUD. One commenter added that a portion of the fee should be 
available for recapture in the event that there is no default on a loan 
since this would be an added incentive to see that loans are 
underwritten properly and invested in only sustainable projects. 
Another commenter stated that any excess fees above actual costs should 
be recapitalized as credit subsidy in future years and/or credited 
against loan fees already paid.
    HUD Response: These commenters generally question the need for the 
fee based on the fact that HUD has experienced no losses due to 
defaults on loans guaranteed under the Section 108 Program. As HUD 
stated in response to an earlier comment, the absence of losses to date 
does not mean that losses will never be incurred. The main reason that 
no losses have been incurred by HUD is that pledged CDBG funds have 
been available to repay guaranteed loans even when CDBG funds were not 
the planned source for repayment. If CDBG funds were not available, it 
is likely that some defaults would have occurred and that the 
collateral security for the defaulted loans would not have been 
sufficient to fully repay the outstanding obligations. HUD responds to 
the recommendation that fees be held during the loan repayment period 
and available for recapture by the Borrower in the event the loan is 
fully repaid with no default elsewhere in this discussion of public 
comments.
    Comment: Several commenters also recommended various options for 
recapture of fees paid if not needed to cover actual losses (e.g., 
refunds or credits against loan fees already paid).
    HUD Response: As stated in HUD's preceding response, collected fees 
are deposited into the Section 108 Financing Account. It is important 
for the public to understand that the purpose of the fee is to offset 
the credit subsidy cost to the Federal Government of making the loan 
guarantee, as of the time of the loan disbursement. The commenters 
understand correctly that the credit subsidy cost is an estimate and, 
therefore, subject to change. In fact, the Federal Credit Reform Act 
procedures provide for the reestimate of the credit subsidy cost 
annually. Although the credit subsidy cost is reestimated annually and 
may be reduced in subsequent years, it may also be increased. The fee 
is nonrefundable, even if the cost is less than initially estimated. On 
the other hand, the borrower is not assessed additional fees for any 
deficiency in amounts available to the Federal Government if the cost 
is greater than initially estimated. The Federal Government assumes the 
risk that the fee initially charged will be insufficient to cover 
future losses. Thus, while borrowers do not benefit if the actual 
losses are less than originally estimated, they also are not penalized 
if losses are greater than initially estimated.
    Comment: A commenter stated that HUD should consider reducing the 
fees based on the experience of the program because the HUD Section 108 
Loan Guarantee Program is fiscally sound and that the Federal 
Government would not be faced with payments due to default.
    HUD Response: HUD agrees that the program is fiscally sound. As 
stated above, however, if non-CDBG revenues are the expected source for 
repayment and those revenues fail to materialize as expected, it is 
likely that HUD would be required to make payments under its guarantee 
if CDBG funds are unavailable for that purpose. As also stated above, 
the Federal Credit Reform Act has been interpreted to preclude reliance 
on future, unappropriated funds in calculating the credit subsidy cost 
of a credit program.

[[Page 67630]]

    Comment: A commenter stated that, in addition to publishing a 
notice in the Federal Register with the fee structure and levels, 
taking into consideration the total available commitment authority and 
what level of fees may be needed to operate the program, HUD should 
also provide statistics that explain how the fee is determined. This 
commenter asked whether HUD can provide an explanation for how the 
proposed fee of 2.42 \6\ percent of the principal amount of the loan is 
determined and why HUD believes it should be a flat rate for the year, 
rather than a variable percentage based on market conditions. The 
commenter asked what would result if the fee is not high enough to 
cover the amount that would have been provided by credit subsidies, 
coupled with poor market conditions, resulting in less loan obligations 
under the program?
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    \6\ Commenters cited and used in examples 2.42 percent as the 
amount of the fee to be applied to the principal amount of loans, 
based on the rate specified in the proposed rule and notice. 
However, as noted in Section II of this final rule and as published 
elsewhere in today's Federal Register, HUD is establishing the fee 
at 2.58 percent of the principal amount of the loan for commitments 
awarded in FY 2016.
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    HUD Response: The fee is calculated using the data on default 
frequency for municipal debt, the recovery rates on collateral security 
for comparable municipal debt, and the expected composition of the 
Section 108 portfolio by end users of the guaranteed loan funds. These 
data will be updated periodically. The fee rate is the weighted average 
of the data based on the expected composition of the Section 108 
portfolio. The data is adjusted to reflect the availability of 
appropriated CDBG funds in the early years of the loan guarantee 
cohort. The effect of the availability of appropriated CDBG funds is to 
reduce the credit subsidy cost and, thus, the fee payable by borrowers. 
It is important to understand that the fee applicable to a Section 108 
guaranteed loan will be based on the fee schedule published in the 
Federal Register and in effect when the loan guarantee commitment is 
awarded and will not be subject to change. If the rate were changed 
periodically, as one commenter recommended, it would introduce 
additional uncertainty for borrowers and would make the Section 108 
Program less useful as a financing tool for community and economic 
development projects. HUD will specify the default and recovery rates 
used in connection with the two categories of municipal debt used in 
calculating the fee in the notice, once published.
    Comment: Several commenters stated that the manner in which HUD 
arrived at the proposed 2.42 percent fee is confusing. The commenters 
stated that instead of using actual Section 108 loan data to arrive at 
the proposed fee, HUD looked at the default frequency for municipal 
debt and data on recovery rates on collateral security for comparable 
municipal debt, and at the expected composition of the Section 108 
portfolio by end users of the guaranteed loan funds (e.g., third-party 
borrowers and public entities). The commenter stated that the credit 
subsidy fees should be risk-based and include a number of factors 
surrounding a grantee's Section 108 loan performance, including the 
number of payments made on time and the risk level for each loan made. 
Another commenter stated that the fee is based on long-term data 
derived from general municipal debt and industrial revenue bonds (IRB) 
loan history. According to the commenter, IRBs have higher default 
rates than general purpose debt. The commenter stated that HUD based 73 
percent of its calculation on the default and recovery data for IRBs 
and only 27 percent on general purpose debt because HUD determined that 
most projects funded through its Section 108 Program fit better into 
IRB types of activities rather than into general purpose debt. The 
commenter stated that this is not the case with the commenter's program 
and suggested that each State have its own fee structure. The commenter 
also stated that an argument could be made that by the nature of the 
security and back-up security required by HUD for Section 108 loans 
(plus the ultimate CDBG allocation guarantee), Section 108 is actually 
more similar to a general obligation type of debt than a revenue bond.
    Other commenters stated that they did not understand the 
justification for the proposed 2.42 percent fee. According to these 
commenters, the notice states that the fee ``would cover the cost 
associated with making a loan guarantee,'' however, the notice also 
states that the fee is based on assumptions on default frequency, 
recovery rates on collateral, the composition of the Section 108 loan 
portfolio by the end users, and nebulous ``other factors'' that HUD 
deems relevant. The commenters stated that there has never been a 
default in the history of Section 108 in which HUD has had to invoke 
full faith and credit or pay out any guarantee. The commenters 
suggested that the fee be based on costs related to the sale of notes 
and actual loan issuance, rather than the loan default and other costs 
mentioned in the notice. One commenter asked, ``If there are other 
costs related to the sale of notes and actual loan issuance that are no 
longer subsidized, why is that not the major focus of discussion?''
    HUD Response: The commenters make a valid point regarding the fact 
that the fee represents the weighted average of data for two distinct 
categories of municipal debt. HUD will continue to work with the Office 
of Management and Budget (OMB) to study the feasibility of establishing 
separate fees for Section 108 loans according to which category of 
municipal debt is most comparable to the Section 108 loans to which a 
fee would apply. However, HUD has decided to retain the weighted 
average approach for the time being in order to avoid the disruption to 
the program that could be created by implementing separate fees. A 
Section 108 loan guarantee is not a general obligation in a large 
majority of cases. In some cases, however, borrowers have offered to 
pledge their full faith and credit.
    Regarding the recommendation to focus on costs of issuance in lieu 
of default costs, the fee specified in HUD's proposed rule and related 
notice would only be imposed to reduce the credit subsidy cost for the 
Section 108 Program to zero. This final rule defines Credit subsidy 
cost to mean ``. . . the estimated long-term 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.'' Costs 
related to the sale of notes and loan issuances are not included in 
this definition and, in any event, are costs paid by borrowers and not 
by HUD. As stated in previous responses, the main reason why HUD has 
never been required to pay a default claim is that pledged CDBG funds 
have been available to repay the guaranteed loans. As also stated 
previously, the Federal Credit Reform Act has been interpreted to 
preclude reliance on the availability of future appropriations for 
purposes of calculating the Section 108 credit subsidy cost.
    Comment: A commenter stated that if the fee is actually used to 
underwrite the staff and administrative costs of the Section 108 
Program, then this should be the true nexus of the calculation for the 
fee being proposed.
    HUD Response: As previously stated in HUD's responses to public 
comments, the only purpose of the fee is to reduce the credit subsidy 
cost to zero, and the definition of credit subsidy cost excludes 
administrative costs. As a result, the fee may not be used to pay

[[Page 67631]]

for HUD staff or other program administration costs.
    Comment: A commenter stated that the fee is based on a blended 
default rate of general purpose municipal debt and industrial 
development bonds, based on HUD's current loan portfolio. According to 
the commenter, the Section 108 loan is secured by future CDBG 
obligations, making it essentially a general debt obligation of the 
borrowing community. In addition, the commenter stated that unlike 
bonds secured by public taxation, HUD's ability to sequester CDBG 
allocations before distributing them to the community gives HUD 
complete control over the security which overall makes HUD's risk 
extremely low. The commenter suggested that the proposed 2.42 percent 
fee implies that $1 in every $40 lent by HUD defaults, which 
overestimates the default risk faced by HUD. According to the 
commenter, if HUD uses a blended rate, then the rate should more 
accurately reflect the current Section 108 default rate (zero percent).
    HUD Response: Some of the factors noted by the commenter are, in 
effect, incorporated into the calculation of the credit subsidy cost. 
Using CDBG funds to make payment is not, in itself, a risk factor since 
borrowers are statutorily permitted to use CDBG funds to repay Section 
108 loans and the loans are often most comparable to general purpose 
municipal debt (which has a lower expected default rate). Compliance 
with program requirements is not a factor that affects payment 
defaults.
    Comment: Several commenters stated that the proposed fee seems to 
be an additional fee to the ``underwriting and issuance fee'' currently 
charged to Section 108 loans assessed at the time permanent financing 
is obtained. These commenters stated that Sec.  570.712, entitled 
``Collection of Fees; Procedure to Determine Amount of Fee,'' does not 
address the underwriting and issuance fee currently assessed, nor the 
interim financing fees currently assessed by HUD's fiscal agent. The 
commenters recommended that Sec.  570.712 be revised to address all 
fees assessed on each Section 108 loan issuance, not just credit 
subsidy costs, which, according to the commenters, could be 
approximately 3.42 percent of the loan amount, subject to market 
conditions.
    HUD Response: HUD does not agree with the commenters. The only 
purpose of Sec.  570.712 is to authorize collection of the fee to pay 
the credit subsidy cost of a guaranteed loan and to establish a 
procedure for determining the amount of the fee. Section 570.705(g) 
addresses all issuance and other costs, including the new fee to pay 
the credit subsidy cost.
    Comment: Two commenters stated that the Section 108 Program 
provides a relatively low cost to jurisdictions to borrow and urged HUD 
to keep it that way, stating that Section 108 funding is crucial to 
filling the gap between other committed funding and local project 
costs.
    HUD Response: HUD agrees with the commenters and is working to 
ensure that the Section 108 Program continues to provide jurisdictions 
a source of low-cost financing.
    Comment: Several commenters stated that the proposed fee of 2.42 
percent of the principal amount plus the Section 108 Program's cost of 
funds, currently around 4 percent, will push the net cost of borrowing 
Section 108 funds too high for many of the types of economic 
development projects that have been undertaken, and urged HUD to lower 
the proposed fee. Other commenters stated that the fee will 
significantly reduce the value of the Section 108 Program as an 
economic development resource since these costs will be charged to the 
project, thus limiting the benefit or the financing. According to these 
commenters, this places an additional financial burden on borrowers and 
creates a disincentive to private developers and local governments to 
utilize this program. One commenter stated that the additional cost of 
the fee essentially serves as an increase in the cost of funds by 25 
basis points over the term of a standard 20-year loan. According to the 
commenter, this is a significant cost to the financing since Section 
108 debt is frequently used as gap financing, subject to a ``but for'' 
test. The increased costs of borrowing could kill projects, decrease 
the ability to use Section 108 financing to improve communities, and 
negatively impact equitable development since many projects benefit 
low- and moderate-income communities.
    HUD Response: HUD believes that the Section 108 Program will 
continue to be an attractive financing source for community and 
economic development projects. In this regard, the rate on Section 108 
loans will continue to be lower than the rate on most other taxable 
financing, and it will continue to offer highly flexible terms that 
conform to the financing needs of borrowers. While the fee will 
increase somewhat the cost of project financing, HUD recognizes the 
potential impact of the fee and will offer training to recipients to 
assist them in minimizing any adverse effect on their ability to meet 
their community and economic development needs. Based on the experience 
of other Federal credit programs (e.g., programs administered by the 
Small Business Administration) that charge fees, HUD is confident that 
the Section 108 Program will continue to be an effective financing tool 
for CDBG recipients.
    Comment: Several commenters stated that there should be an 
exemption for borrowers with good loan portfolios (e.g., no record of 
late payments, defaults, adequate collateral to ensure repayment of 
their loans) and that have established a separate loan loss reserves to 
ensure repayment of their Section 108 loans. Another commenter stated 
that a borrower with a sound loan portfolio should be given a reprieve 
from these fees, unless a performance issue arises.
    HUD Response: To allow for as smooth a transition as possible to 
the fee-based system for payment of credit subsidy costs, HUD will 
implement the assumptions proposed in the February 5, 2015, notice. HUD 
will formally announce the fee in the Federal Register once HUD has 
authority to award commitments and collect fees. However, HUD takes the 
commenters' proposal very seriously. Accordingly, the final rule will 
preserve the option for future revision of the fee schedule to 
incorporate a risk-based approach. However, it is highly unlikely that 
fees can be eliminated entirely because some risk of default will 
always exist.
    Comment: One commenter sought clarification that the fee would be a 
one-time fee at the initiation of the loan and the final rule would not 
permit addition of any new fee during the term of the loan.
    HUD Response: HUD is clarifying Sec.  570.712(b)(1) to make clear 
that the fee will be based on the fee schedule published in the Federal 
Register and in effect when the loan guarantee commitment is awarded 
and will not be subject to change.
    Comment: Several commenters stated that the fee should not apply to 
current Section 108 loan participants, as one commenter's program terms 
and assumptions have been made public based on assumptions that did not 
include the proposed fee, and the commenter has been advertising a rate 
based on current assumptions for over a year.
    HUD Response: A fee will not apply to Section 108 commitments that 
have been approved, or to any future commitment for which appropriated 
credit subsidy budget authority has been obligated.
    Comment: A commenter representing a State housing and community

[[Page 67632]]

development authority stated that the primary competitive advantages of 
the Section 108 Program over private lenders are its scale and its 
rate. The commenters stated that regard to scale, the proposed fee 
likely will have a chilling effect on the amount individual 
jurisdictions are willing to borrow, particularly to capitalize lending 
programs such as those administered by the commenter. With regard to 
rate, the commenter stated that the money will become significantly 
less attractive to its borrowers if it must also pass the fee to its 
borrowers. According to the commenter, if it decides not to pass the 
fee to its borrowers, it would have to determine another way to cover 
these costs even though these costs were not considered when the 
benefits and costs of deploying Section 108-backed capital were 
originally weighted. In this era of scarce discretionary dollars, 
according to the commenters, this represents a considerable challenge.
    HUD Response: As stated above, the payment of a fee is not required 
for commitments that have already been awarded. HUD anticipates that it 
will be authorized in FY 2016 to collect fees from borrowers to result 
in a credit subsidy cost of zero for guaranteeing Section 108 loans, 
and anticipates publishing a fee in the Federal Register pursuant to 
Sec.  570.712(b)(2) of this final rule. As previously stated, the 
purpose of the fee is to offset the credit subsidy cost to the Federal 
Government of making the loan guarantee, as of the time of the loan 
disbursement. Fees will not be added to the interest rate.
    Comment: A commenter stated that the fee would be $968,000 on a $40 
million Section 108 loan guarantee. According to the commenter, this 
amount would be very difficult for a State to pay and, if this fee were 
to be passed on to the end borrower, the State's interest rates would 
go from about 3.5 percent on permanent financing to 5.92 percent. The 
commenter concluded that, if HUD moves forward with the proposed fee, 
potential projects would look to other financial institutions, bonding 
entities, etc., particularly given all of the requisite Federal 
requirements, and the States' programs would be rendered nonviable.
    HUD Response: Again, it is important to understand that the fee in 
FY 2016 will be an up-front payment, and will not be added to the 
interest rate. For example, if the interest rate on the guaranteed loan 
is 3.5 percent per annum, the borrower does not pay a rate of 5.92 
percent per annum for both the interest and the fee. Rather, the 
borrower would pay the fee as a percent of the loan amount when that 
loan amount is disbursed by the lender to the borrower. Thereafter, the 
borrower would pay interest at a rate of 3.5 percent and would pay no 
further fees in connection with that loan disbursement. Depending on 
the term and principal payment schedule of the guaranteed loan, the fee 
will increase somewhat the borrowing costs--based on the most current 
Section 108 rates, the effective rate on a loan with a 20-year term 
would increase by approximately 25 to 30 basis points. Thus, under this 
example the effective borrowing cost would increase from 3.5 percent 
per annum to approximately 3.75 to 3.80 percent per annum. As stated in 
a previous response, HUD will also offer training for borrowers on how 
to minimize the impact of the fee.
    Comment: Other commenters stated that withholding 2.42 percent of 
each drawdown in reserve is possible, yet is an undesirable option for 
States. According to the commenters, this practice would avoid the 
States' passing the cost down to the end borrowers, but results in 
States essentially paying HUD interest on money that they could never 
loan out and thus never receive proceeds on. One commenter stated that 
given the low State CDBG administrative allowance, States would not 
choose their administrative allowance to pay the Section 108 fee. 
Another stated that the money would come from the general 
administrative allocation. This commenter stated that assuming that the 
money may take 5 years to draw down incrementally, perhaps the interest 
paid on an annual basis will be affordable and this is the best way to 
approach the added fee, but the commenter also stated that it does not 
know how much administrative allocation ``cushion'' it has. The 
commenter also stated that, according to a HUD field office, CDBG funds 
used to pay the fee will not be subject to the 70 percent low- and 
moderate-income benefit objective and that is helpful.
    HUD Response: The commenters noted some of the issues regarding the 
options available to States for paying the fee. As a reminder, HUD will 
provide training for borrowers regarding how to minimize the adverse 
impact of the fee. The treatment of a state's use of CDBG funds for 
payment of a fee requires clarification. The payment is authorized by 
Sec.  570.705(c)(1)(i) in connection with the financing of the 
guaranteed loan and is not subject to the limitations on administrative 
costs at Sec.  570.489.
    Comment: A commenter stated that, based on its experience, the 
program could be operated with more efficiency so that loan decisions 
are rendered in a timely manner. The commenter offered to assist in 
developing ways to improve the process, drawing on its experience at 
the local level and working with different regional offices, to provide 
timely assistance to communities.
    HUD Response: The reason for establishing the fee and the 
considerations in determining the rate are not affected by the 
timeliness of loan decisions. While HUD appreciates the offer of 
assistance and welcomes suggestions to improve the general process of 
administering the Section 108 Program, including providing assistance 
to local communities, such operations would not impact the necessity or 
amount of the fee.

IV. Findings and Certifications

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 implements HUD's statutory authority to collect fees from 
borrowers to cover the credit subsidy costs of loan guarantees. As 
discussed in this preamble, HUD assists 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 permits 
borrowers to pay the 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 loan guarantees.
    The 2015 HUD Appropriations Act does not appropriate credit subsidy 
budget authority for the Section 108 Program but requires that HUD 
charge borrowers a fee to result in a credit subsidy cost of zero. As a 
result, this 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 grant funds, 
guaranteed loan funds, or program income, 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 rule does not have a 
significant economic impact on a substantial number of small entities.

[[Page 67633]]

Environmental Review

    In accordance with 24 CFR 50.19(c)(6), this rule involves 
establishment of a rate or cost determination 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 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 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 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 amends 
24 CFR part 570 as follows:

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

0
1. The authority citation for 24 CFR part 570 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d) and 5301-5320.


0
2. In Sec.  570.200, revise paragraph (a)(3)(iii) to read as follows:


Sec.  570.200  General policies.

* * * * *
    (a) * * *
    (3) * * *
    (iii) Funds expended for the repayment of loans guaranteed under 
the provisions of subpart M of this part (including repayment of the 
portion of a loan used to pay any issuance, servicing, underwriting, or 
other costs as may be incurred under Sec.  570.705(g)) shall also be 
excluded;
* * * * *

0
3. In Sec.  570.701, add in alphabetical order the definition of 
``Credit subsidy cost'' to read as follows:


Sec.  570.701  Definitions.

* * * * *
    Credit subsidy cost means the estimated long-term 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.
* * * * *

0
4. In Sec.  570.703, add paragraph (n) to read as follows:


Sec.  570.703  Eligible activities.

* * * * *
    (n) Payment of fees charged by HUD pursuant to Sec.  570.712.
0
5. Amend Sec.  570.704 by adding paragraph (a)(1)(i)(D), revising 
paragraph (a)(1)(v), and removing and reserving paragraph (c)(2) to 
read as follows:


Sec.  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 
Sec.  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 Sec.  
570.705(b)(2), and the use of grant funds to pay for any fees required 
under Sec.  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]
* * * * *

0
6. Amend Sec.  570.705 by revising the heading of paragraph (c) and 
revising paragraph (g) to read as follows:


Sec.  570.705  Loan requirements.

* * * * *
    (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 Sec.  570.712.
* * * * *

0
7. Add Sec.  570.712 to subpart M to read as follows:


Sec.  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

[[Page 67634]]

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. The fees are payable 
from the grant allocated to the issuer pursuant to the Act (including 
program income derived therefrom) or from other sources, but are only 
payable from guaranteed loan funds if the fee is deducted from the 
disbursement of guaranteed loan funds.
    (b) Amount and determination of fee. (1) HUD shall calculate the 
amount of the fee as a percentage of the principal amount of the 
guaranteed loan as provided by this section, based on a determination 
that the fees when collected will reduce the credit subsidy cost to the 
amount established by applicable appropriation acts. The amount of the 
fee payable by the public entity or State shall be based on the date of 
the loan guarantee commitment and shall be determined by applying 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 in the Federal Register the fees required 
under paragraph (a) of this section, announcing the fee to be applied, 
the effective date of the fee, and any other necessary information 
regarding payment of the fee and, if necessary, provide a 30-day public 
comment period for the purpose of inviting comment on the proposed fee 
before adopting changes to the assumptions underlying the fee 
calculation or if the fee structure itself raises new considerations 
for Borrowers. HUD will publish a second Federal Register notice, if 
necessary, after consideration of public comments.

    Dated: October 26, 2015.
Harriet Tregoning,
Principal Deputy Assistant, Secretary for Community Planning and 
Development.
    Approved: October 19, 2015.
Nani A. Coloretti,
Deputy Secretary.
[FR Doc. 2015-28004 Filed 11-2-15; 8:45 am]
 BILLING CODE 4210-67-P