[Federal Register Volume 87, Number 169 (Thursday, September 1, 2022)]
[Rules and Regulations]
[Pages 53662-53664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19009]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[FR-6341-N-01]


Section 108 Loan Guarantee Program: Announcement of Fee To Cover 
Credit Subsidy Costs for FY 2023

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

ACTION: Announcement of fee.

-----------------------------------------------------------------------

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 2023 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.

DATES: Applicability Date: October 1, 2022.

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). 
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. 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 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. 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

[[Page 53663]]

included in the Department's continuing resolutions and appropriations 
acts authorizing HUD to issue Section 108 loan guarantees during Fiscal 
Years (FYs) 2016, 2017, 2018, 2019, 2020, 2021, and 2022. The Fiscal 
Year (FY) 2023 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.
---------------------------------------------------------------------------

    \1\ Division A, Title II of H.R. 8294, 117th Cong., under the 
heading ``Community Development Loan Guarantees Program Account.''
---------------------------------------------------------------------------

    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 loans. For FYs 2016, 2017, 2018, 2019, 2020, 2021, and 2022 HUD 
published notifications to set the fees.\2\
---------------------------------------------------------------------------

    \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), 
and 86 FR 59302 (October 27, 2021) respectively.
---------------------------------------------------------------------------

II. FY 2023 Fee: 0.94 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 
2023 at 0.94 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 2023 if the FY 2023 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)). For this fee 
announcement, HUD is not changing the underlying assumptions or 
creating new considerations for borrowers. The calculation of the FY 
2023 fee uses a similar calculation model as the FY 2016, FY 2017, FY 
2018, FY 2019, FY 2020, FY 2021, and FY 2022 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.
    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 2023 will be 0.94 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 0.94 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 0.94 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 2017 through FY 2021, HUD expects that 70 percent of 
the Section 108 portfolio will be similar to general purpose municipal 
debt and 30 percent of the portfolio will be similar to industrial 
development bonds. In setting the fee at 0.94 percent

[[Page 53664]]

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 2023. Note 
that the FY 2023 fee represents a 1.06 percent decrease from the FY 
2022 fee of 2.00 percent.
    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).

Marion M. McFadden,
Principal Deputy Assistant Secretary for Community Planning and 
Development.
[FR Doc. 2022-19009 Filed 8-31-22; 8:45 am]
BILLING CODE 4210-67-P