U.S. Department of Housing & Urban Development (HUD)

Section 108 Loans

Section 108 is the loan guarantee provision of the federal Community Development Block Grant (CDBG) program.  Section 108 provides a source of below market financing for economic development, housing rehabilitation, public facilities, and large-scale physical development projects.

Section 108 Loan commitments are often paired with Economic Development Initiative (EDI) or Brownfield Economic Development Initiative (BEDI) grants, which can be used to pay predevelopment costs of a Section 108- funded project.  They can also be used as a loan loss reserve (in lieu of CDBG funds), to write-down interest rates, or to establish a debt service reserve.

Eligible Activities

Activities eligible for Section 108 financing include:

• economic development activities eligible under CDBG:

• acquisition of real property;

• rehabilitation of publicly owned real property;

• housing rehabilitation eligible under CDBG;

• construction, reconstruction, or installation of public facilities (including street, sidewalk, and other site improvements);

• related relocation, clearance, and site improvements;

• payment of interest on the guaranteed loan and issuance costs of public offerings;

• debt service reserves;

• public works and site improvements in colonias; and

• in limited circumstances, housing construction as part of community economic development, Housing Development Grant, or Nehemiah Housing Opportunity Grant programs.

For the purposes of determining eligibility, the CDBG rules and requirements apply.  As with the CDBG program, all projects and activities must either benefit low and moderate income persons, aid in the elimination or prevention of slums and blight, or meet urgent needs of the community.

Repayment:  The maximum repayment period for a Section 108 loan is twenty years.  HUD has the ability to structure the principal amortization to match the needs of the project and borrower.  Each annual principal amount will have a separate interest rate associates with it.

Financing Source:  Section 108 obligations are financed through underwritten public offerings.  Financing between public offerings is provided through an interim lending facility established by HUD.

Interest Rates:  Interest rates on interim borrowing are priced at the 3 month London Interbank Offered (LIBO) rate plus 20 basis points (0.2%).  Permanent financing is pegged to yields on U.S. Treasury obligations of similar maturity to the principal amount.  A small additional basis point spread, depending on maturity will be added to the Treasury yield to determine the actual rate.

For additional information on HUD Section 108 Loans visit www.hud.gov.