August 2, 2021
HUD Section 108 Loan Guarantee Program: An Overview
The Section 108 Loan Guarantee program (Section 108) is
planned activities directly, or relend the funds to a third
one of several Department of Housing and Urban
party, including private companies, to carry out the eligible
Development (HUD) programs designed to support local
activities.
community and economic development activities. It is a
source of flexible financing for which grantees of the
Eligible Activities
Community Development Block Grant (CDBG) can carry
All eligible activities must meet one of the three national
out large-scale projects, by pledging current and future
objectives of the conventional CDBG program:
CDBG for a guaranteed loan. HUD considers Section 108
loan guarantee applications on a noncompetitive, rolling
1. principally benefit low- and moderate-
basis. Private lenders finance Section 108 loans with a “full
income (LMI) persons;
faith and credit” guarantee by the federal government.
2. aid in the prevention or elimination of
slums or blight; or
The Section 108 program shares similar programmatic
3. meet an urgent need by addressing
structure and flexibility with the CDBG program. These
conditions that pose a serious and
factors may position Section 108 as a useful tool for
immediate threat to the health and safety
community and economic development as local
of residents.
governments face an uncertain financial future and shifting
community development priorities. For instance, Section
As is the case with CDBG program funds, 70% of a
108 funds can be used for activities related to long-term
borrower’s Section 108 loan funds must meet the objective
disaster recovery or for resilience against future disasters.
of principally benefitting low- and moderate-income
Section 108 may also emerge as a useful tool for local
persons. Section 108 activities must also comply with
governments recovering from the economic effects of the
program requirements outlined in 24 C.F.R. § 570 Subpart
Coronavirus Disease 2019 (COVID-19) pandemic.
M, as well as CDBG rules and crosscutting federal
regulations (e.g., Davis-Bacon).
This In Focus describes availability of and access to
program financing, summarizes the Section 108 program
The majority of eligible Section 108 program activities fall
structure, discusses annual principal loan amount
into one of four broad categories:
maximums, and outlines some policy considerations.
1. economic development;
Availability of Financing
2. public facilities and infrastructure;
Section 108 funds are made available to CDBG recipients
3. housing rehabilitation; and
on an ongoing basis, allowing participating communities to
apply for funds anytime during the year. Typically, the
4. debt servicing and related fees.
qualified loan amount is five times greater than a CDBG
Though broadly similar, eligible Section 108 activities are
grantee’s annual allocation (minus any outstanding loan
somewhat more constrained than CDBG. Unlike CDBG,
balances), which allows borrowers to maximize program
Section 108 funds cannot be used for public service
funds for projects that would not necessarily be feasible
activities, nonfederal cost share, or long-term planning
within a given CDBG program year.
activities.
Program Structure and Administration
Application Process
Like CDBG, the Section 108 program derives its authority
Prior to submission of a Section 108 application, eligible
from Title I of the Housing and Community Development
communities are required to make a draft available for
Act of 1974 (42 U.S.C. §5301 et seq.). CDBG eligibility
public comment, hold a minimum of one pre-submission
and program requirements are also generally applicable to
public hearing, and address any comments provided (24
Section 108. For more information on CDBG, please see
C.F.R. §570.704). This process must comply with a local
CRS Report R43520, Community Development Block
citizen participation plan, developed by the public entity
Grants and Related Programs: A Primer, by Joseph V.
applying for Section 108 funds. This plan may be consistent
Jaroscak.
with the participation plan required in the HUD
consolidated planning process. Communities then finalize
Eligible Entities
and submit their application for review and approval by
CDBG entitlement communities, insular areas, and states
HUD (24 C.F.R. §570.704).
(on behalf of nonentitlement communities) are eligible to
leverage their annual CDBG allocations for Section 108
The relevant HUD Field Office and HUD Financial
financing. Recipients of Section 108 loans may execute
Management Division review Section 108 applications
simultaneously. If the application clears review, the Deputy
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HUD Section 108 Loan Guarantee Program: An Overview
Assistant Secretary for Grant Programs considers it for
In 2015, HUD amended program regulations to allow for
approval. In general, HUD attempts to review and approve
the collection of fees from Section 108 borrowers as a
an application within 45 days, barring any delays associated
credit subsidy for loan guarantees, in lieu of annual
with programmatic or financial aspects of the application.
appropriations. Since FY2016, Congress has included
language in annual appropriations legislation directing the
Applicants are required to pledge current and future CDBG
Secretary to set the amounts for credit subsidy fees.
allocations as a primary form of security for a Section 108
loan. Additional pledges of collateral are required for loans
Policy Considerations
with repayment periods of 10 or more years, or at the
As currently administered, the Section 108 program
discretion of HUD, as outlined in program regulations (24
provides communities with access to financing to support
C.F.R. §570.705(b)(3)).
large-scale community or economic development projects.
Program participants leverage current and future CDBG
Funding Process
allocations as the primary asset against which to borrow for
Upon approval of a Section 108 Loan Guarantee
such projects, which may generate revenue or enhance local
application, HUD generates loan documents and
amenities and opportunities.
coordinates with the recipient on any necessary revisions.
Typically, Section 108 loans are financed initially through
Although the Section 108 program provides access to
an interim variable rate product. Periodically, HUD releases
flexible community development financing, there may be
public offerings for permanent financing of Section 108
factors limiting its feasibility as an option for some
loans, once a sufficient aggregate amount in loan
potential borrowers. HUD reporting indicates that fewer
guarantees has been awarded.
than half of the current eligible state and local governments
have borrowed under the Section 108 program since its
Loan Terms and Repayment
inception. Past HUD analysis has indicated that potential
Section 108 loans can be repaid over periods of up to 20
borrowers may have concerns over the perceived risk of
years. Repayment structures may vary depending on the
pledging CDBG funds as collateral and its effect on project
individual project and borrower. The interest rates for
feasibility. Congress may consider identifying and
Section 108 interim loans are based on the adjusted three-
examining potential barriers for some communities in
month London Interbank Offered Rate, or LIBOR. Interest
utilizing Section 108 financing.
rates for loans funded by a public offering are fixed, and are
based on U.S. Treasury borrowing rates.
Additionally, Congress may wish to identify potential
options to enhance access and increase participation in the
Although borrowers use CDBG grant funds as collateral for
Section 108 program. In the 1990s, Congress funded and
Section 108 guaranteed loans, they do not necessarily use
HUD administered competitive Economic Development
the grant funds to pay off the loans. CDBG program
Initiative (EDI) grants to provide flexible funding for
activities related to Section 108 loan repayment represented
Section 108 to enhance the viability and security of their
1.9% of overall program expenditures in FY2020. In many
financed projects. Competitive EDI grants were used for a
cases, borrowers use Section 108 project revenues or other
variety of purposes including establishing reserve funds or
local resources to pay these costs.
covering a range of project costs. HUD has cited an
unpublished analysis of EDI from the University of
Planning and Program Monitoring
Louisville, suggesting that EDI grants improved Section
Section 108 borrowers are required to include information
108 project feasibility and revenue generation. Congress
on planned activities in their HUD consolidated plans and
may consider reauthorizing the competitive EDI program,
annual action plans. Additionally, participants must submit
or other programmatic options that could increase liquidity
annual performance evaluation reports consistent with
for borrowers and improve the feasibility of potential
CDBG program reporting requirements. Like CDBG,
Section 108 projects.
borrowers report funding status and accomplishments in
HUD’s Integrated Disbursement and Information System,
On the other hand, creation or reauthorization of additional
or IDIS.
programs may not be necessary due to the Section 108
program’s inherent flexibility. HUD informs Section 108
Total Principal Amounts and Credit
borrowers of the ability to blend loan funds with other
Subsidies
federal resources for community development such as Low-
Typically, Congress sets the maximum level of Section 108
Income Housing Tax Credits, New Markets Tax Credits,
loan commitments in annual appropriations legislation.
and Opportunity Zone tax incentives. Congress may
Over the past five years, the Section 108 principal
consider options to increase awareness and enhance
maximum set by Congress has been $300 million.
coordination of such resources to optimize the use of
federal resources for large-scale community development
If the overall amount of loan commitments reaches or
projects.
exceeds 50% of the maximum loan commitment amount,
HUD can set additional limits on any new individual
Joseph V. Jaroscak, Analyst in Economic Development
guarantee amounts (42 U.S.C. 5308(k)(2); 24 C.F.R.
Policy
§570.705).
IF11889
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HUD Section 108 Loan Guarantee Program: An Overview


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