Borrowing through HUD’s Section 108 program is about to cost almost half a point more. In a notice published in the Federal Register on Sept. 28, HUD set the Section 108 loan guarantee fee for fiscal 2027 commitments at 1.05% of principal, up from 0.58% in fiscal 2026. That’s a 0.47-percentage-point increase, and it’s charged on every disbursement under a commitment awarded in the new fiscal year.
The applicability date is Oct. 28, 2026.
How the Section 108 fee is charged
Section 108 lets communities borrow against future Community Development Block Grant allocations to fund bigger projects than a single year’s grant can carry. HUD guarantees the notes. The money goes into public infrastructure, work that supports subsidized housing, and commercial, retail or industrial development, sometimes relent to third-party borrowers. Under 24 CFR 570.705(b), CDBG funds stand behind the guarantee as security.
The underlying statute actually prohibits fees. Section 108(m) of the Housing and Community Development Act of 1974 says no fee may be imposed on a guarantee after Feb. 5, 1988. Starting with the fiscal 2015 appropriations act, Congress has overridden that every year and told HUD to collect enough from borrowers to drive the program’s credit subsidy cost to zero. HUD wrote the procedure into 24 CFR 570.712 in 2015 and has published a fee notice for each fiscal year since.
There’s a condition on fiscal 2027. The 1.05% applies if the fee language in the pending FY 2027 HUD appropriations bill is enacted, or if HUD is otherwise required or authorized by statute to collect it. It’s a one-time charge taken at disbursement, not an annual one. HUD says later years could combine upfront and periodic fees, and that it would take public comment if appropriate under 570.712(b)(2).
Why the Section 108 loan guarantee fee went up
Not because of losses. HUD states that no Section 108 loan has ever required it to pay a noteholder on its guarantee, largely because borrowers can fall back on CDBG grants when a project’s own revenue comes up short.
Federal credit budgeting rules won’t let HUD count that CDBG backstop when it estimates the cost of a guarantee, though. So the agency models the portfolio as if borrowers had to rely on weaker repayment sources, using long-run default and recovery data for comparable municipal debt. Based on commitments awarded from fiscal 2021 through 2025, HUD expects 73% of the portfolio to look like general-purpose municipal debt and 27% to look like industrial development bonds, which have historically defaulted more often. It also cites updated cash-flow timing and the discount rates it’s required to use in the federal budget process. The notice doesn’t say how much of the 0.47-point jump comes from each input.
What the higher fee means for Section 108 projects
On a $10 million guaranteed loan, the fee goes from $58,000 to $105,000. For a city packaging a streetscape and utility job, or a developer counting on a relent Section 108 loan to close a gap on a mixed-use deal, that comes straight off the proceeds at each draw.
The rate is tied to the fiscal year the commitment is awarded, so borrowers with applications in the pipeline should confirm which year’s fee their commitment will carry before they finalize sources and uses. The appropriations calendar matters here too. Federal infrastructure funding is already running on short-term deadlines, as Exchange noted in its look at the Dec. 11 surface transportation extension, and the FY 2027 HUD bill’s fee language may not settle quickly. HUD’s Section 108 program page lists current guidance for borrowers.
The full HUD notice makes the tension plain. The one number that argues for a lower fee, a default record of zero, is the one the budget rules keep out of the math.