Tuesday, April 23, 2013

Community Development and the Section 108 Loan Guarantee Program

In an earlier post, we reported that Cook County received a $30 million loan through the Department of Housing and Urban Development (HUD) for sustainable economic development in the Chicago area.  As we mentioned, the loan came through HUD’s Section 108 Loan Guarantee Program, which provides communities across the country with low-interest loans for large-scale physical development and community revitalization project.

It’s important to know details surrounding HUD’s Section 108 Loan Guarantee Program.  Now that we’re finally starting to see communities improving after years of foreclosures and vacant properties, this program could help with neighborhood rehabilitation in your area.

Role of the Community Development Block Grant (CDBG) Program

The Section 108 loan guarantee provision is part of the Community Development Block Grant (CDBG) Program, which provides communities with various resources to address their “unique community development needs.”  In brief, it works to provide services to the most vulnerable neighborhoods and areas in the nation.  The program began in 1974, and it’s one of the longest-running programs at HUD.  It operates with specific program areas in mind, and some examples include:

·          Entitlement Communities: this program provides grants to large cities and urban counties to “develop viable communities.”  It allocates funds for “decent housing, a suitable living environment, and opportunities to expand economic opportunities” for low-income and moderate-income persons.
·          State Administered CDBG: this program is also known as the “Small Cities CDBG program,” and provides grants to smaller units of local governments for community development projects.
·          Section 108 Loan Guarantee Program: you already know about this one, which enables communities to apply for loan assistance to carry out development projects.
·          Neighborhood Stabilization Program: for this program, HUD provides grant money to “communities hardest hit by foreclosures and delinquencies,” allowing them to purchase homes in the neighborhood for rehabilitation and redevelopment.  The idea is that these projects will help to stabilize neighborhoods.

As part of a larger program, the Section 108 provision has regulations of its own, including the types of projects that can be eligible for funding and specific loan details.

What Kinds of Activities Are Eligible for Section 108 Financing

According to HUD, activities that are eligible for Section 108 financing can include:

·          Economic development activities and housing rehabilitation initiatives as they’re defined by the CDBG Program
·          Acquiring real property (for rehabilitation or redevelopment)
·          Rehabilitating publicly owned real property
·          Constructing, reconstructing, and/or installing public facilities—these can include streets, sidewalks, and various other public sites
·          Relocating, clearing, and otherwise improving specific sites

There are other activities that remain eligible for funding through Section 108, but the ones listed above represent some of the key development projects that the program finances.

Specific Loan Details

In addition to being limited to certain types of activities, Section 108 also carries financing specifics.  The program has particular security requirements, which involve the public entity that is applying for funds, or the state, to pledge the principal security for the loan guarantee.  For all loans under Section 108, financing comes through underwritten public offerings with low interest rates, and a maximum repayment period of 20 years.

Of course, each loan is individually structured to meet the specific needs of the borrower, and to date, no borrower has defaulted under Section 108.

If you have questions about securing funding for community development or rehabilitation, an experienced attorney can answer your questions today.

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