[Federal Register Volume 88, Number 206 (Thursday, October 26, 2023)]
[Rules and Regulations]
[Pages 73532-73534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23665]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 570
[FR-6411-N-01]
Section 108 Loan Guarantee Program: Announcement of Fee To Cover
Credit Subsidy Costs for FY 2024
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
[[Page 73533]]
the credit subsidy costs of the guaranteed loans pursuant to
commitments awarded in Fiscal Year 2024 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, 2023.
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 https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. 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
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, 2022, and 2023. The
Fiscal Year (FY) 2024 HUD appropriations bills under consideration \1\
also 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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\1\ Division A, Title II of House Markup (https://docs.house.gov/meetings/AP/AP00/20230718/116260/BILLS-118--AP--AP00-FY24THUDFullCommitteeMark.pdf), AND Title II of Senate Bill S.2437
of 118th Congress (https://www.appropriations.senate.gov/imo/media/doc/fy24_thud_bill_text.pdf) 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 loans. For FYs 2016, 2017, 2018, 2019, 2020, 2021, 2022, and 2023
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), and 87 FR 53662 (September 1, 2022)
respectively.
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II. FY 2024 Fee: 1.64 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
2024 at 1.64 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 2024 if either of the FY 2024 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
2024 fee uses a similar calculation model as the FY 2016, FY 2017, FY
2018, FY 2019, FY 2020, FY 2021, FY 2022, and FY 2023 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 2024 will be 1.64 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
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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 1.64 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 1.64 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 2018 through FY 2022, HUD expects that 58.4 percent of
the Section 108 portfolio will be similar to general purpose municipal
debt and 41.6 percent of the portfolio will be similar to industrial
development bonds. In setting the fee at 1.64 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 2024. Note that the fee
increased from 0.94 percent in FY 2023 to 1.64 percent in FY 2024, an
increase of 0.70 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 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. 2023-23665 Filed 10-25-23; 8:45 am]
BILLING CODE 4210-67-P