80 FR 67634 - Section 108 Loan Guarantee Program: Announcement of Fee To Cover Credit Subsidy Costs

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Federal Register Volume 80, Issue 212 (November 3, 2015)

Page Range		67634-67635
FR Document		2015-28002

This document announces the fee that HUD will collect from borrowers of loans guaranteed under the 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 FY 2016, as authorized by the Continuing Appropriations Act, 2016. Elsewhere in today's Federal Register, HUD is publishing a final rule that amends its regulations to permit HUD to collect fees for Section 108 guaranteed loans.

Federal Register, Volume 80 Issue 212 (Tuesday, November 3, 2015)

[Federal Register Volume 80, Number 212 (Tuesday, November 3, 2015)]
[Rules and Regulations]
[Pages 67634-67635]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2015-28002]

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 570

[Docket No. FR-5767-N-04]
RIN 2506-AC35

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

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 the 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 FY
2016, as authorized by the Continuing Appropriations Act, 2016.
Elsewhere in today's Federal Register, HUD is publishing a final rule
that amends its regulations to permit HUD to collect fees for Section
108 guaranteed loans.

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 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

Elsewhere in today's Federal Register, HUD is publishing a final
rule that amends the Section 108 Program regulations to establish
additional procedures when HUD is required or authorized to collect
fees from Section 108 borrowers to offset the costs of the Section 108
loan guarantee commitments. Following consideration of the public
comments submitted in response to HUD's February 5, 2015 (80 FR 6469)
notice that proposed the fee required to offset the credit subsidy
costs to the Federal government to guarantee Section 108 loans, HUD has
determined to set the fee for Section 108 loan disbursements under loan
guarantee commitments awarded in FY 2016 at 2.58 percent of the
principal amount of the loan. As discussed below, and as HUD discusses
in its final rule published elsewhere in today's Federal Register, HUD
determined to not to impose a fee with respect to FY 2015 loan
guarantee commitments. The public is directed to HUD's final rule for a
detailed discussion by HUD of the significant issues raised by the
public comments submitted in response to HUD's February 5, 2015, notice
and HUD's response to those comments.

II. FY 2016 Fee: 2.58 Percent of the Principal Amount of the Loan

This document sets the fee for Section 108 loan disbursements under
loan guarantee commitments awarded in FY 2016 at 2.58 percent of the
principal amount of the loan. HUD will collect this fee from borrowers
of loans guaranteed under the Section 108 Program to offset the credit
subsidy costs of the guaranteed loans pursuant to commitments awarded
in FY 2016, as authorized by the Continuing Appropriations Act, 2016
(Pub. L. 114-53, approved September 30, 2015). The calculation of the
FY 2016 fee, which was specified in the FY 2016 President's Budget,\1\
uses the same fee calculation model as the FY 2015 proposed fee
included in HUD's February 5, 2015, notice, but incorporates updated
information regarding the composition of the Section 108 portfolio and
the timing of the estimated future cash flows for defaults and
recoveries. The calculation of the fee is also affected by the discount
rates required to be used by HUD when calculating the present value of
the future cash flows as part of the Federal budget process.
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\1\ 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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As described in HUD's February 5, 2015, notice, HUD's credit
subsidy calculation is based on the amount required to fully offset the
credit subsidy cost to the Federal government associated with making a
Section 108 loan guarantee. As a result, HUD's credit subsidy cost
calculations incorporated 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 borrowers and public entities); and (iv)

[[Page 67635]]

other factors that HUD determines may be relevant to this calculation.
Taking these factors into consideration, HUD determined that the
fee for disbursements made under loan guarantee commitments awarded in
FY 2016 is 2.58 percent, which will be applied only at the time of loan
disbursements. Note that future notices may provide for a combination
of up-front and periodic fees for loan guarantee commitments awarded in
future fiscal years but will be subject to the public comment
provisions of Sec. 570.712(b)(2) of the final rule.
As HUD discusses in response to public comment on the amount of the
fee, 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.\2\ This is due to a variety of factors,
including the availability of Community Development Block Grant (CDBG)
funds as security. 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.
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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 fee of 2.58 percent of the principal amount of the loan will
offset 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
(14.62 percent) were higher than the default rates on general purpose
municipal debt (0.25 percent) during the period from which the data
were taken. (The recovery rates for industrial development bonds and
general purpose debt were 74.76 and 90.27 percent, respectively.) These
two subsectors of municipal debt were chosen because their purposes and
loan terms most closely resemble those of Section 108 guaranteed loans.
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 2.58 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 loan guarantee commitments
awarded during the period from FY 2010 through FY 2014, HUD expects
that 25 percent of the Section 108 portfolio will be similar to general
purpose municipal debt and 75 percent of the portfolio will be similar
to industrial development bonds. In setting the fee at 2.58 percent of
the principal amount of the guaranteed loan, HUD believes that the
amount generated will fully offset the cost to the Federal government
associated with making guarantee commitments awarded in FY 2016.

Dated: October 26, 2015.
Harriet Tregoning,
Principal Deputy Assistant, Secretary for Community Planning and
Development.
[FR Doc. 2015-28002 Filed 11-2-15; 8:45 am]
BILLING CODE 4210-67-P

67634 Federal Register / Vol. 80, No. 212 / Tuesday, November 3, 2015 / Rules and Regulations

purpose of paying the credit subsidy DEPARTMENT OF HOUSING AND 2016 at 2.58 percent of the principal
cost of the loan guarantee. Each public URBAN DEVELOPMENT amount of the loan. As discussed below,
entity or its designated public agency and as HUD discusses in its final rule
and each State issuing debt obligations 24 CFR Part 570 published elsewhere in today’s Federal
under this subpart is responsible for the [Docket No. FR–5767–N–04] Register, HUD determined to not to
payment of any and all fees charged impose a fee with respect to FY 2015
RIN 2506–AC35 loan guarantee commitments. The
pursuant to this section. The fees are
payable from the grant allocated to the public is directed to HUD’s final rule for
Section 108 Loan Guarantee Program: a detailed discussion by HUD of the
issuer pursuant to the Act (including Announcement of Fee To Cover Credit significant issues raised by the public
program income derived therefrom) or Subsidy Costs comments submitted in response to
from other sources, but are only payable
AGENCY: Office of the Assistant HUD’s February 5, 2015, notice and
from guaranteed loan funds if the fee is HUD’s response to those comments.
deducted from the disbursement of Secretary for Community Planning and
guaranteed loan funds. Development, HUD. II. FY 2016 Fee: 2.58 Percent of the
ACTION: Announcement of fee. Principal Amount of the Loan
(b) Amount and determination of fee.
(1) HUD shall calculate the amount of SUMMARY: This document announces the This document sets the fee for Section
the fee as a percentage of the principal fee that HUD will collect from 108 loan disbursements under loan
amount of the guaranteed loan as borrowers of loans guaranteed under the guarantee commitments awarded in FY
provided by this section, based on a HUD’s Section 108 Loan Guarantee 2016 at 2.58 percent of the principal
determination that the fees when Program (Section 108 Program) to offset amount of the loan. HUD will collect
the credit subsidy costs of the this fee from borrowers of loans
collected will reduce the credit subsidy
guaranteed loans pursuant to guaranteed under the Section 108
cost to the amount established by
commitments awarded in FY 2016, as Program to offset the credit subsidy
applicable appropriation acts. The costs of the guaranteed loans pursuant
amount of the fee payable by the public authorized by the Continuing
Appropriations Act, 2016. Elsewhere in to commitments awarded in FY 2016, as
entity or State shall be based on the date authorized by the Continuing
of the loan guarantee commitment and today’s Federal Register, HUD is
publishing a final rule that amends its Appropriations Act, 2016 (Pub. L. 114–
shall be determined by applying the 53, approved September 30, 2015). The
percentages announced by Federal regulations to permit HUD to collect
fees for Section 108 guaranteed loans. calculation of the FY 2016 fee, which
Register notice to guaranteed loan was specified in the FY 2016 President’s
DATES: Effective Date: December 3, 2015.
disbursements as they occur or Budget,1 uses the same fee calculation
periodically to outstanding principal FOR FURTHER INFORMATION CONTACT: Paul model as the FY 2015 proposed fee
balances, or both. Webster, Director, Financial included in HUD’s February 5, 2015,
Management Division, Office of Block notice, but incorporates updated
(2) HUD shall publish in the Federal Grant Assistance, Office of Community
Register the fees required under information regarding the composition
Planning and Development, Department of the Section 108 portfolio and the
paragraph (a) of this section, of Housing and Urban Development,
announcing the fee to be applied, the timing of the estimated future cash
451 7th Street SW., Room 7180, flows for defaults and recoveries. The
effective date of the fee, and any other Washington, DC 20410; telephone calculation of the fee is also affected by
necessary information regarding number 202–708–1871 (this is not a toll- the discount rates required to be used by
payment of the fee and, if necessary, free number). Individuals with speech HUD when calculating the present value
provide a 30-day public comment or hearing impairments may access this of the future cash flows as part of the
period for the purpose of inviting number through TTY by calling the toll- Federal budget process.
comment on the proposed fee before free Federal Relay Service at 800–877– As described in HUD’s February 5,
adopting changes to the assumptions 8339. FAX inquiries (but not comments) 2015, notice, HUD’s credit subsidy
underlying the fee calculation or if the may be sent to Mr. Webster at 202–708– calculation is based on the amount
fee structure itself raises new 1798 (this is not a toll-free number). required to fully offset the credit
considerations for Borrowers. HUD will SUPPLEMENTARY INFORMATION: subsidy cost to the Federal government
publish a second Federal Register I. Background associated with making a Section 108
notice, if necessary, after consideration loan guarantee. As a result, HUD’s credit
of public comments. Elsewhere in today’s Federal Register, subsidy cost calculations incorporated
HUD is publishing a final rule that assumptions based on: (i) Data on
Dated: October 26, 2015. amends the Section 108 Program default frequency for municipal debt
Harriet Tregoning, regulations to establish additional where such debt is comparable to loans
Principal Deputy Assistant, Secretary for procedures when HUD is required or in the Section 108 loan portfolio; (ii)
Community Planning and Development. authorized to collect fees from Section data on recovery rates on collateral
Approved: October 19, 2015. 108 borrowers to offset the costs of the security for comparable municipal debt;
Nani A. Coloretti, Section 108 loan guarantee (iii) the expected composition of the
commitments. Following consideration Section 108 portfolio by end users of the
Deputy Secretary.
of the public comments submitted in guaranteed loan funds (e.g., third party
[FR Doc. 2015–28004 Filed 11–2–15; 8:45 am]
response to HUD’s February 5, 2015 (80 borrowers and public entities); and (iv)
mstockstill on DSK4VPTVN1PROD with RULES

BILLING CODE 4210–67–P FR 6469) notice that proposed the fee
required to offset the credit subsidy 1 The FY 2016 President’s Budget for HUD is

costs to the Federal government to available at: https://www.whitehouse.gov/sites/
guarantee Section 108 loans, HUD has default/files/omb/budget/fy2016/assets/hud.pdf.
The fee is specified in table 6 of the Federal Credit
determined to set the fee for Section 108 Supplement to the 2016 budget and is available at:
loan disbursements under loan https://www.whitehouse.gov/sites/default/files/
guarantee commitments awarded in FY omb/budget/fy2016/assets/cr_supp.pdf.

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Document Created: 2018-03-01 11:32:47
Document Modified: 2018-03-01 11:32:47

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Rules and Regulations
Action		Announcement of fee.
Dates		Effective Date: December 3, 2015.
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).
FR Citation		80 FR 67634
RIN Number		2506-AC35