[Federal Register Volume 80, Number 24 (Thursday, February 5, 2015)]
[Proposed Rules]
[Pages 6469-6470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02261]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[Docket No. FR-5767-N-02]
RIN 2506-AC35


Section 108 Loan Guarantee Program: Announcement of Proposed Fee 
To Cover Credit Subsidy Costs and Solicitation of Comment

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

ACTION: Notice.

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SUMMARY: This notice announces and solicits public comment on the fee 
that HUD proposes to collect from borrowers of loans guaranteed under 
the HUD's Section 108 Loan Guarantee Program (Section 108 Program) for 
the purpose of covering the credit subsidy costs of operating the 
program. Elsewhere in today's Federal Register, HUD is publishing a 
proposed rule that would amend its regulations for the Section 108 
Program to permit HUD to collect a fee for the Section 108 Program.

DATES: Comment Due Date: March 9, 2015.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Regulations Division, Office of General 
Counsel, Department of Housing and Urban Development, 451 7th Street 
SW., Room 10276, Washington, DC 20410-0500. Communications must refer 
to the above docket number and title. There are two methods for 
submitting public comments. All submissions must refer to the above 
docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
notice.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m., weekdays, at 
the above address. Due to security measures at the HUD Headquarters 
building, an appointment to review the public comments must be 
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Relay Service at 800-877-8339. Copies of all comments submitted 
are available for inspection and downloading at www.regulations.gov.

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 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

    HUD's proposed rule, published elsewhere in today's Federal 
Register, describes the current Congressional funding status of the 
Section 108 Program. HUD's Fiscal Year (FY) 2014 Appropriations Act \1\ 
authorized HUD in FY 2014 to impose a fee to eliminate the need for 
credit subsidy appropriations. As discussed in more detail in the 
preamble to the proposed rule, imposition of a fee, as statutorily 
authorized, will permit the Section 108 guaranteed loan financing to 
remain available.
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    \1\ The 2014 HUD Appropriations Act is Title II of Division L of 
Public Law 113-73, approved January 17, 2014.
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II. Proposed 2015 Fee: 2.42 Percent of the Principal Obligation of the 
Loan

    As described in the proposed rule, when determining the appropriate 
level of fee to charge, HUD took into consideration the amount required 
to fully offset the credit subsidy cost to the Federal Government 
associated with making a loan guarantee. Credit subsidy cost 
calculations incorporate assumptions based on: (i) Data on default 
frequency for municipal debt where such debt is comparable to loans in 
the Section 108 loan portfolio; (ii) data on recovery rates on 
collateral security for comparable municipal debt; (iii) the expected 
composition of the Section 108 portfolio by end users of the guaranteed 
loan funds (e.g., third party

[[Page 6470]]

borrowers and public entities); and (iv) other factors that HUD 
determines may be relevant to this calculation.
    Taking these factors into consideration, HUD determined that the 
initial fee to be imposed on the program is 2.42 percent, which 
percentage will be applied to guaranteed loan disbursements as they 
occur in fiscal year 2015. The fee will be effective after available 
credit subsidy appropriations are depleted, which HUD anticipates will 
occur around May 2015. Note that future notices may provide for a 
combination of up-front and periodic fees.
    The expected cost of a Section 108 loan guarantee is difficult to 
estimate accurately using historical program data, because 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.\2\ This is due to a variety of factors, including the 
availability of CDBG funds as security. Borrowers may plan to make 
payments on Section 108 loans from CDBG grant funds. However, when a 
borrower plans to make Section 108 loan payments from other anticipated 
sources, it has been able to repay the Section 108 loan using CDBG 
funds when there are shortfalls in anticipated repayment sources, as 
authorized by Section 108 of the Housing and Community Development Act 
of 1974, as amended (42 U.S.C. 5308).
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    \2\ 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.
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    The proposed fee of 2.42 percent offsets the expected cost to the 
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 16- to 23-year 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 loans. In this regard, Section 108 loans can be broken down into 
two categories: (i) Loans that finance public infrastructure and 
activities to support subsidized housing (other than financing new 
construction) and (ii) development projects (e.g., retail, commercial, 
industrial). The 2.42 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 
dollar amount of Section 108 commitments awarded during the period 
2005--2013, HUD expects that 27 percent of the Section 108 portfolio 
will be similar to general purpose municipal debt and 73 percent of the 
portfolio will be similar to industrial development bonds. In 
determining the appropriate level of fee, HUD will consider the amount 
required to fully offset the cost to the Federal Government associated 
with making a loan guarantee. Credit subsidy cost calculations 
incorporate assumptions based on: (i) data on default frequency for 
municipal debt where such debt is comparable to loans in the Section 
108 portfolio; (ii) data on recovery rates on collateral security for 
comparable municipal debt; (iii) the expected composition of the 
Section 108 cohort by end users of the guaranteed loan funds (e.g., 
third party borrowers and public entities); and (iv) other relevant 
information (e.g., statutory changes) that would affect the 
applicability of the default and recovery data on comparable municipal 
debt.

III. Solicitation of Comment

    HUD solicits comment on the initial fee to be imposed on the 
Section 108 Program.

    Dated: December 17, 2014.
Clifford Taffet,
General Deputy Assistant Secretary for Community Planning and 
Development.
[FR Doc. 2015-02261 Filed 2-4-15; 8:45 am]
BILLING CODE 4210-67-P