HUD Section 108 Loan Guarantee Program: An Overview
Updated February 1, 2023
HUD Section 108 Loan Guarantee Program: An Overview
The Section 108 Loan Guarantee program (Section 108) is
party, including private companies, to carry out the eligible
one of several Department of Housing and Urban
activities.
Development (HUD) programs designed to support local
community and economic development activities. It is a
Eligible Activities
source of flexible financing with which grantees of the
All eligible activities must meet one of the three national
Community Development Block Grant (CDBG) can carry
objectives of the conventional CDBG program:
out large-scale projects, by pledging current and future
CDBG funds for a guaranteed loan. HUD considers Section
1. principally benefit low- and moderate-
108 loan guarantee applications on a noncompetitive,
income (LMI) persons;
rolling basis. Private lenders finance Section 108 loans with
2. aid in the prevention or elimination of
a “full faith and credit” guarantee by the federal
slums or blight; or
government.
3. meet an urgent need by addressing
conditions that pose a serious and
The Section 108 program shares similar programmatic
immediate threat to the health and safety
structure and flexibility with the CDBG program. These
of residents.
factors may position Section 108 as a useful tool for
community and economic development as local
As is the case with CDBG program funds, 70% of a
governments face an uncertain financial future and shifting
borrower’s Section 108 loan funds must meet the objective
community development priorities. For instance, Section
of principally benefitting low- and moderate-income
108 funds can be used for activities related to long-term
persons. Section 108 activities must also comply with
disaster recovery or for resilience against future disasters.
program requirements outlined in 24 C.F.R. Part 570,
Subpart M, as well as CDBG rules and crosscutting federal
This In Focus describes availability of and access to
regulations (e.g., Davis-Bacon).
program financing, summarizes the Section 108 program
structure, discusses annual principal loan amount
The majority of eligible Section 108 program activities fall
maximums, and outlines some policy considerations.
into one of four broad categories:
Availability of Financing
1. economic development;
Section 108 funds are made available to CDBG recipients
2. public facilities and infrastructure;
on an ongoing basis, allowing participating communities to
3. housing rehabilitation; and
apply for funds anytime during the year. Typically, the
qualified loan amount is five times greater than a CDBG
4. debt servicing and related fees.
grantee’s annual allocation (minus any outstanding loan
Though broadly similar, eligible Section 108 activities are
balances), which allows borrowers to maximize program
somewhat more constrained than CDBG. Unlike CDBG,
funds for projects that would not necessarily be feasible
Section 108 funds cannot be used for public service
within a given CDBG program year.
activities, nonfederal cost share, or long-term planning
activities.
Program Structure and Administration
Like CDBG, the Section 108 program derives its authority
Application Process
from Title I of the Housing and Community Development
Prior to submission of a Section 108 application, eligible
Act of 1974 (42 U.S.C. §5301 et seq.). CDBG eligibility
communities are required to make a draft available for
and program requirements are also generally applicable to
public comment, hold a minimum of one pre-submission
Section 108. For more information on CDBG, please see
public hearing, and address any comments provided (24
CRS Report R46733, Community Development Block
C.F.R. §570.704). This process must comply with a local
Grants: Funding and Allocation Processes, by Joseph V.
citizen participation plan, developed by the public entity
Jaroscak.
applying for Section 108 funds. This plan may be consistent
with the participation plan required in the HUD
Eligible Entities
consolidated planning process. Communities then finalize
CDBG entitlement communities, insular areas, and states
and submit their application for review and approval by
(on behalf of nonentitlement communities) are eligible to
HUD (24 C.F.R. §570.704).
leverage their annual CDBG allocations for Section 108
financing. Recipients of Section 108 loans may execute
The relevant HUD Field Office and HUD Financial
planned activities directly, or relend the funds to a third
Management Division review Section 108 applications
simultaneously. If the application clears review, the Deputy
Assistant Secretary for Grant Programs considers it for
https://crsreports.congress.gov
HUD Section 108 Loan Guarantee Program: An Overview
approval. In general, HUD attempts to review and approve
credit subsidy for loan guarantees, in lieu of annual
an application within 45 days, barring any delays associated
appropriations. Since FY2016, Congress has included
with programmatic or financial aspects of the application.
language in annual appropriations legislation directing the
Secretary to set the amounts for credit subsidy fees.
Applicants are required to pledge current and future CDBG
allocations as a primary form of security for a Section 108
Policy Considerations
loan. Additional pledges of collateral are required for loans
As currently administered, the Section 108 program
with repayment periods of 10 or more years, or at the
provides communities with access to financing to support
discretion of HUD, as outlined in program regulations (24
large-scale community or economic development projects.
C.F.R. §570.705(b)(3)).
Program participants leverage current and future CDBG
allocations as the primary asset against which to borrow for
Funding Process
such projects, which may generate revenue or enhance local
Upon approval of a Section 108 Loan Guarantee
amenities and opportunities.
application, HUD generates loan documents and
coordinates with the recipient on any necessary revisions.
Although the Section 108 program provides access to
Typically, Section 108 loans are financed initially through
flexible community development financing, there may be
an interim variable rate product. Periodically, HUD releases
factors limiting its feasibility as an option for some
public offerings for permanent financing of Section 108
potential borrowers. HUD reporting indicates that fewer
loans, once a sufficient aggregate amount in loan
than half of the current eligible state and local governments
guarantees has been awarded.
have borrowed under the Section 108 program since its
inception. Past HUD analysis has indicated that potential
Loan Terms and Repayment
borrowers may have concerns over the perceived risk of
Section 108 loans can be repaid over periods of up to 20
pledging CDBG funds as collateral and its effect on project
years. Repayment structures may vary depending on the
feasibility. Congress may consider identifying and
individual project and borrower. The interest rates for
examining potential barriers for some communities in
Section 108 interim loans are based on the three-month
utilizing Section 108 financing.
Treasury Auction Bill Rate. Interest rates for loans funded
by a public offering are fixed, and are based on U.S.
Additionally, Congress may identify potential options to
Treasury borrowing rates.
enhance access and increase participation in the Section 108
program. The Multifamily Housing Property Disposition
Although borrowers use CDBG grant funds as collateral for
Reform Act of 1994 (P.L. 103-233) amended the program’s
Section 108 guaranteed loans, they do not necessarily use
authorizing statute, allowing for the provision of grants to
the grant funds to pay off the loans. CDBG program
enhance the viability and security of Section 108 financed
activities related to Section 108 loan repayment represented
projects (42 U.S.C. §5308(q)).
2.2% of overall program expenditures in FY2022. In many
cases, borrowers use Section 108 project revenues or other
In the 1990s, Congress funded and HUD administered
local resources to pay these costs.
competitive Economic Development Initiative (EDI) grants
under this authority. Competitive EDI grants enabled
Planning and Program Monitoring
Section 108 borrowers to establish reserve funds and cover
Section 108 borrowers are required to include information
a range of project costs. Congress used the same authority
on planned activities in their HUD consolidated plans and
to fund targeted grants for Section 108-financed brownfield
annual action plans. Additionally, participants must submit
revitalization projects, through the Brownfields Economic
annual performance evaluation reports consistent with
Development Initiative. A version of the Transportation,
CDBG program reporting requirements. Like CDBG,
Housing, and Urban Development and Related Agencies
borrowers report funding status and accomplishments in
Appropriations Act of 2023 (H.R. 8294, 117th Congress),
HUD’s Integrated Disbursement and Information System,
which passed in the House of Representatives on July 20,
or IDIS.
2022, would have provided $60 million in grant assistance
for selected Section 108 project types, with $50 million
Total Principal Amounts and Credit
designated for revitalization of vacant or underutilized
Subsidies
malls and shopping centers.
Typically, Congress sets the maximum level of Section 108
loan commitments in annual appropriations legislation.
Congress may consider similar programmatic options that
Over the past five years, the Section 108 principal
could increase liquidity for borrowers and improve the
maximum set by Congress has been $300 million.
feasibility of potential Section 108 projects. On the other
hand, additional programs may not be necessary due to the
If the overall amount of loan commitments reaches or
Section 108 program’s inherent flexibility. HUD informs
exceeds 50% of the maximum loan commitment amount,
Section 108 borrowers of the ability to blend loan funds
HUD can set additional limits on any new individual
with other federal resources for community development
guarantee amounts (42 U.S.C. §5308(k)(2); 24 C.F.R.
such as Low-Income Housing Tax Credits, New Markets
§570.705).
Tax Credits, and Opportunity Zone tax incentives. Congress
may consider options to increase awareness and enhance
In 2015, HUD amended program regulations to allow for
coordination of such resources to optimize the use of
the collection of fees from Section 108 borrowers as a
https://crsreports.congress.gov
HUD Section 108 Loan Guarantee Program: An Overview
federal resources for large-scale community development
Joseph V. Jaroscak, Analyst in Economic Development
projects.
Policy
IF11889
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