HUD sets Section 108 credit subsidy fee at 1.05 percent for FY 2027 commitments

HUD announced that the fee for Section 108 loan disbursements under loan guarantee commitments awarded in fiscal year 2027 is 1.05 percent of the principal amount of the loan. The fee was 0.58 percent in FY 2026. The applicability date is Oct. 28, 2026. HUD will apply the fee only at the time of loan disbursements.

HUD will collect the fee if language authorizing fee collection in the FY 2027 HUD appropriations bill under consideration is enacted, or if HUD is otherwise required or authorized by statute to collect fees from borrowers. The fee offsets the credit subsidy costs of the guaranteed loans, notwithstanding section 108(m) of the Housing and Community Development Act of 1974.

HUD says the calculation uses a similar model as the FY 2016 to FY 2026 notifications, with updated information on the composition of the Section 108 portfolio and the timing of estimated future cash flows for defaults and recoveries. The discount rates HUD must use in the Federal budget process also affect the result.

HUD based the fee on default and recovery data for general purpose municipal debt and industrial development bonds. Using commitments awarded from FY 2021 through FY 2025, HUD expects 73 percent of the portfolio to resemble general purpose municipal debt and 27 percent to resemble industrial development bonds.

The notice says no Section 108 default has required HUD to pay a note holder under its guarantee. It adds that Federal credit budgeting principles bar HUD from assuming CDBG funds will be available for repayment when estimating credit subsidy cost. HUD expects the 1.05 percent fee to fully offset the Federal cost of FY 2027 commitments.

The notice states that future notifications may provide for a combination of upfront and periodic fees for commitments awarded in future fiscal years. If so, HUD will provide an opportunity to comment if appropriate under 24 CFR 570.712(b)(2). The document is categorically excluded from environmental review under 24 CFR 50.19(c)(6).