Loan guarantee assistance for community and economic development.
Nature of Program
: Section 108 is the loan guarantee provision of the Community
Development Block Grant (CDBG) program. Under this section, HUD offers communities a
source of financing for certain community development activities, such as housing rehabilitation,
economic development, and large-scale physical development projects. Loans may be for terms
up to 20 years.
Eligible activities are (1) real property acquisition, (2) rehabilitation of property owned by the
applicant public entity or its designated public agency, (3) housing rehabilitation eligible under
the CDBG program, (4) special economic development activities under the CDBG program, (5)
interest payments on the guaranteed loan and issuance costs of public offering, (6) acquisition,
construction, reconstruction, rehabilitation or historic preservation, or installation of public
facilities, (7) acquisition, construction, reconstruction, rehabilitation or installation of public
works and sites in colonias, (8) debt service reserves for repayment of the Section 108 loan, (9)
payment of fees charged by HUD for the purpose of paying the credit subsidy cost of the loan
guarantee, and (10) other related activities, including relocation assistance, demolition and
clearance. When determining eligibility, the CDBG rules and requirements apply. As with the
CDBG program, all projects and activities must meet CDBG’s primary objective (use of 70
percent of CDBG funds, including Section 108 guaranteed loan funds, must benefit low- and
moderate-income persons) and at least one of the following three national objectives: (a)
principally benefit low- and moderate-income persons, (b) aid in eliminating or preventing slums
or blight, or (c) meet urgent community development needs.
The applicant pledges its current and future CDBG grant funds as security for the repayment of
the guaranteed note. HUD requires additional security for each Section 108 note, which is
determined on a case-by-case basis. In recent years, Congress has not made credit subsidy
appropriations for the program and has instead directed HUD to collect fees from borrowers to
result in a credit subsidy cost of zero for guaranteeing loans. The program regulations establish
procedures for the collection of fees when HUD is required or authorized to collect fees from
borrowers to cover the credit subsidy cost of guaranteed loans.
: Metropolitan cities and urban counties that receive entitlement grants may
apply directly to HUD for loan guarantee assistance. Non-entitlement communities under the
state CDBG program may also apply, but must have a pledge of their state's CDBG funds from
the appropriate agency. Insular areas and non-entitlement communities in Hawaii may also apply
directly to HUD for loan guarantee assistance. The public entity applicant may issue the Section
108-guaranteed debt obligation itself, or it may designate a local public agency with the
necessary legal authority to do so. States may borrow on behalf of the local governments in nonentitlement communities and apply directly to HUD for loan guarantee assistance if authorized
by the appropriations acts or other laws.
: Section 108 of the Housing and Community Development Act of 1974 (42
Regulations are at 24 CFR part 570.
: Assistant Secretary for Community Planning and Development; HUD
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