Section 108 Loan Guarantee Program ADMINISTERED AS PART OF THE COMMUNITY DEVELOPMENT BLOCK GRANT...
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Transcript of Section 108 Loan Guarantee Program ADMINISTERED AS PART OF THE COMMUNITY DEVELOPMENT BLOCK GRANT...
SECTION 108 - WHAT IS IT?
Financing tool that allows States and local governments to expand size of their CDBG programs (as much as 5 times their CDBG allocations)
If activities meet CDBG requirements and loan meets Sec. 108 underwriting criteria, State or locality issues notes for HUD’s guarantee
Notes are repaid with CDBG funds, program income, and/or other revenues
ADVANTAGES OF SEC 108
Leverages grants Not a general obligation Receive funds now Spread costs over multi-year period Long-term, fixed-rate financing at favorable rates
STATE BORROWERS
States can apply directly for Section 108 loans Eligible uses:
Loans and grants to UGLGs for eligible activities Payment of interest, issuance costs, debt service
reserves
State application must specify each activity to be carried out or categories of activities to be carried out
Loan fund concept
ELIGIBLE ACTIVITIES
Real property acquisitionRehab of publicly owned real property
RelocationClearance/demolitionSite preparation
ELIGIBLE ACTIVITIES (continued)
Housing rehabilitationEconomic developmentPublic facilities/improvementsIssuance costsCapitalized interestReserves
TYPICAL USES
Economic Development Industrial expansion Retail Office
Public facilities/improvements Housing rehab
NATIONAL OBJECTIVES
LOW/MOD BENEFIT
SLUM/BLIGHT
URGENT NEED
Area Benefit Limited Clientele Housing Jobs
Area
Urban Renewal
Spot
PUBLIC BENEFIT STANDARDS
Each ED activity must either create jobs or provide needed services for low and moderate income persons.
Amount expended on activity cannot exceed: $50,000/job, or $1,000/low-mod person
Aggregate standards: $35,000/job, or $350/low-mod person
THE SECTION 108 GUARANTEE PROGRAM
HUD
Guarantee
Pledge of CDBG Funds (and additional security)
Guarantee
[Entitlement/State]Permanent
Lender
Interim Lender
Locality/State
Section 108 Flow of Funds: Level INo Third Party Borrower
Borrower*Project $
Project $
HUDHUD Section
108 Guarantee
* “Borrower” in this case denotes all eligible
recipients
Repayment $
Wall Street (Private 108
Note Purchasers/“Investors”)
Main Street Project
The Eligible 108 Activity
(Borrower or Third Party Borrower)
Assignment of
Additional Loan
Security
Pledge of CDBG
Section 108 Flow of Funds: Level II Borrower Relends Funds to 3rd Party
Borrower
Borrower *
Assignment of
Additional Loan
Security
Pledge of CDBG
HUDSection 108 Guarantee
* “Borrower” in this case denotes all eligible recipients** Repayment goes to Trustee/Fiscal Agent designated by HUD.
Bank of New York Mellon is current Trustee/Fiscal Agent
Wall Street (Private 108
Note Purchasers/“Investors”)
Main Street Project
The Eligible 108 Activity (Borrower
or Third Party Borrower)
Security
Repayment $
Project $
Project $
Repayment $ **
SOURCES OF REPAYMENT OF SECTION 108 LOANS
CDBG funds Program income Tax Increment Financing revenues “Additional security” (negotiated on a case
by case basis)
INTERIM LOANS
Interim loan available until public offering Fiscal Agent arranges interim loan
Interest rate: 90 day LIBOR + 20 basis points HUD guarantees obligation
Interim Lender currently a Money Market Fund (Federated Investors)
PUBLIC OFFERING PROCESS
Public offering usually once a year, conducted by Sec. 108 underwriting team
Provides long-term, fixed-rate financing “Public offering” Interest rates Fees Loans serviced by trustee (currently Bank of
New York Mellon)
NEW FEE RULE
HUD published proposed rule on Feb 5, 2015 HUD will publish final rule and notice after
consideration of comments received Fee requirement will be effective ONLY for
applications approved after the final rule Any recipient with an approved application prior to
publication of the final rule will NOT be subject to the fee requirement
Technical assistance will be provided to help borrowers adjust to the fee requirement
Section 108 Loan Authority
FY 2015 CDBG Allocation – $20,000,000
times 5
$100,000,000
Less: Outstanding 108 – ($30,000,000)
Amount available $ 70,000,000
Use of Section 108 Funds Subject to CDBG “Cross cutting” Requirements - Examples are: Davis-Bacon Environmental review
COMPARISON OF RATES (Mar 2015)
Prime Rate (variable) –3.25% Section 108: fixed (due 8/1/2034)** – 2.70% Section 108: variable – 0.50%
**If public offering were held in March
Section 108 Summary
Important Section 108 Borrower Development Tool Wide range of eligible uses Addresses CDBG national objectives Non-competitive and rolling process Leverages scarce resources
$5 for every $1 of CDBG if underwritten properly, will not be a drain to CDBG
program. Important source of funding for larger projects Flexible repayment schedule Long-term reasonably priced financing