Troubled Asset Relief Program
Status of Programs and Implementation of GAO Recommendations
Gao ID: GAO-11-476T March 17, 2011
This testimony discusses our work on the Troubled Asset Relief Program (TARP), which Congress established on October 3, 2008, in response to the financial crisis that threatened the stability of the U.S. financial system and the solvency of many financial institutions. Under the original TARP legislation, the Department of the Treasury (Treasury) had the authority to purchase or insure $700 billion in troubled assets held by financial institutions. The Secretary of the Treasury extended the authority originally provided under EESA through October 3, 2010. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)--signed into law on July 21, 2010--set a new spending ceiling for TARP, in effect prohibiting Treasury from incurring any additional obligations for programs that had not been initiated prior to June 25, 2010. A broad range of activities have been initiated under TARP. Specific initiatives have injected capital into key financial institutions; implemented programs to address problems in the securitization markets; provided assistance to the automobile industry and American International Group, Inc. (AIG); and offered incentives for modifying residential mortgages, among other things. As TARP passes the 30-month mark, U.S. financial markets appear to be less volatile than they were in 2008. But questions about a sustained economic recovery continue, and certain areas of the economy still face significant challenges. For example, foreclosures and mortgage delinquencies continue to linger and small businesses still face tight credit conditions. As a result, TARP has been transformed into a program that focuses primarily on preserving homeownership and improving financial conditions for small financial institutions and businesses. While many other programs have ended and begun winding down operations and some participating institutions have repaid part or all of their TARP funds, the prospect of repayment from some other institutions, both large and small, remains uncertain. This statement is primarily based on our January 12, 2011, report and focuses on (1) the status of TARP programs; (2) Treasury's progress in implementing an effective management structure for TARP, including staffing the Office of Financial Stability (OFS), overseeing contractors, and establishing a comprehensive system of internal controls; and (3) trends in key relevant economic indicators.
Some TARP programs--Capital Assistance Program, Asset Guarantee Program, and Targeted Investment Program--have been terminated. Others, like the Capital Purchase Program (CPP) and the Term Asset-Backed Securities Loan Facility (TALF), have closed and are winding down operations, and several programs that focus on preserving homeownership and that have provided assistance to auto companies and AIG remain active. (1) CPP, which closed in December 2009, had $30.8 billion outstanding as of March 9, 2011, and had received about $171 billion in full and partial repayments from CPP participants. However, Treasury faces various oversight and management challenges in addressing missed dividend and interest payments and monitoring repayment requests. (2) Funding of TALF loans by the Federal Reserve Bank of New York (FRBNY) closed in June 2010, and no TARP funds had been expended as of March 9, 2011, to purchase collateral from FRBNY because no collateral had been surrendered to TALF LLC. TALF will continue to pose potential risks to Treasury until all loans are repaid to FRBNY and the program is terminated. (3) While the Home Affordable Modification Program (HAMP) remains Treasury's primary program to assist homeowners facing foreclosure, the program had a slow start and has not performed as anticipated. Treasury announced several new programs in 2010. As of March 9, 2011, $1.2 billion, none of it recoverable, had been disbursed for TARP housing programs. Our most recent work shows there is more Treasury can do to better ensure the effective implementation of this program. (4) The Automotive Industry Financing Program (AIFP) had an outstanding balance of just more than $44.2 billion as of March 9, 2011. At that time, approximately $29.5 billion had been repaid, but Treasury still owned 33.3 percent equity in General Motors (GM), 9.2 percent in Chrysler, and 73.8 percent in Ally. While the auto companies' financial conditions have shown signs of improvement, their ability to fully repay the AIFP debt and equity investments depends on a variety of factors, which will require Treasury's ongoing oversight. (5) AIG has continued to receive assistance over the last year provided largely rests with the return that Treasury earns when it sells its common stock in AIG. (6) The Public-Private Investment Program (PPIP) continues to be an active program with $15.9 billion disbursed as of March 9, 2011, and $15.2 billion outstanding. Of this investment, Treasury had seen unrealized capital gains of approximately $750 million. Treasury still holds oversight responsibility for the fund managers until the fund no longer holds assets. (7) The Community Development Capital Initiative (CDCI) and the SBA 7(a) Securities Purchase Program are small business programs that account for a small portion of TARP funding. CDCI closed in September 2010, and as of March 9, 2011, Treasury had provided about $570 million to 84 CDFIs, 28 of which had already participated in CPP. SBA 7(a) Securities Purchase Program closed in September 2010, and as of March 9, 2011, Treasury had made 31 purchases of SBA 7(a) securities totaling about $370 million.
GAO-11-476T, Troubled Asset Relief Program: Status of Programs and Implementation of GAO Recommendations
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United States Government Accountability Office:
GAO:
Testimony:
Before the Committee on Banking, Housing, and Urban Affairs, U.S.
Senate:
For Release on Delivery:
Expected at 10:00 a.m. EDT:
March 17, 2011:
Troubled Asset Relief Program:
Status of Programs and Implementation of GAO Recommendations:
Statement of Thomas J. McCool, Director:
Applied Research and Methods:
GAO-11-476T:
Chairman Johnson, Ranking Member Shelby, and Members of the Committee:
I am pleased to be here today to discuss our work on the Troubled
Asset Relief Program (TARP), which Congress established on October 3,
2008, in response to the financial crisis that threatened the
stability of the U.S. financial system and the solvency of many
financial institutions. Under the original TARP legislation, the
Department of the Treasury (Treasury) had the authority to purchase or
insure $700 billion in troubled assets held by financial institutions.
[Footnote 1] The Secretary of the Treasury extended the authority
originally provided under EESA through October 3, 2010. However, the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank
Act)--signed into law on July 21, 2010--set a new spending ceiling for
TARP, in effect prohibiting Treasury from incurring any additional
obligations for programs that had not been initiated prior to June 25,
2010.[Footnote 2]
A broad range of activities have been initiated under TARP. Specific
initiatives have injected capital into key financial institutions;
implemented programs to address problems in the securitization
markets; provided assistance to the automobile industry and American
International Group, Inc. (AIG); and offered incentives for modifying
residential mortgages, among other things. As TARP passes the 30-month
mark, U.S. financial markets appear to be less volatile than they were
in 2008. But questions about a sustained economic recovery continue,
and certain areas of the economy still face significant challenges.
For example, foreclosures and mortgage delinquencies continue to
linger and small businesses still face tight credit conditions. As a
result, TARP has been transformed into a program that focuses
primarily on preserving homeownership and improving financial
conditions for small financial institutions and businesses. While many
other programs have ended and begun winding down operations and some
participating institutions have repaid part or all of their TARP
funds, the prospect of repayment from some other institutions, both
large and small, remains uncertain.
EESA required GAO to report at least every 60 days on findings from
our oversight of actions taken under the programs.[Footnote 3] We have
been monitoring TARP programs since their inception and our reports
have highlighted challenges facing many of these programs. To date, we
have issued more than 40 reports and testimonies related to TARP and
made more than 60 recommendations to Treasury and the Board of
Governors of the Federal Reserve System (Federal Reserve) to improve
the transparency and accountability of TARP operations.
This statement is primarily based on our January 12, 2011, report and
focuses on (1) the status of TARP programs; (2) Treasury's progress in
implementing an effective management structure for TARP, including
staffing the Office of Financial Stability (OFS), overseeing
contractors, and establishing a comprehensive system of internal
controls; and (3) trends in key relevant economic indicators.[Footnote
4] To do our work, we leveraged our prior reports, reviewed documents
provided by Treasury's OFS, and conducted interviews with Treasury and
OFS officials. We conducted this performance audit from March 2010 and
January 2011 and updated selected information in March 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Summary:
Some TARP programs--Capital Assistance Program, Asset Guarantee
Program, and Targeted Investment Program--have been terminated.
Others, like the Capital Purchase Program (CPP) and the Term Asset-
Backed Securities Loan Facility (TALF), have closed and are winding
down operations, and several programs that focus on preserving
homeownership and that have provided assistance to auto companies and
AIG remain active.
* CPP, which closed in December 2009, had $30.8 billion outstanding as
of March 9, 2011, and had received about $171 billion in full and
partial repayments from CPP participants. However, Treasury faces
various oversight and management challenges in addressing missed
dividend and interest payments and monitoring repayment requests.
* Funding of TALF loans by the Federal Reserve Bank of New York
(FRBNY) closed in June 2010, and no TARP funds had been expended as of
March 9, 2011, to purchase collateral from FRBNY because no collateral
had been surrendered to TALF LLC. TALF will continue to pose potential
risks to Treasury until all loans are repaid to FRBNY and the program
is terminated.
* While the Home Affordable Modification Program (HAMP) remains
Treasury's primary program to assist homeowners facing foreclosure,
the program had a slow start and has not performed as anticipated.
Treasury announced several new programs in 2010. As of March 9, 2011,
$1.2 billion, none of it recoverable, had been disbursed for TARP
housing programs. Our most recent work shows there is more Treasury
can do to better ensure the effective implementation of this program.
* The Automotive Industry Financing Program (AIFP) had an outstanding
balance of just more than $44.2 billion as of March 9, 2011. At that
time, approximately $29.5 billion had been repaid, but Treasury still
owned 33.3 percent equity in General Motors (GM), 9.2 percent in
Chrysler, and 73.8 percent in Ally. While the auto companies'
financial conditions have shown signs of improvement, their ability to
fully repay the AIFP debt and equity investments depends on a variety
of factors, which will require Treasury's ongoing oversight.
* AIG has continued to receive assistance over the last year via an
equity capital line established in 2009. As of March 9, 2011, AIG has
repaid $9.1 billion to Treasury. This reduced the balance of
Treasury's assistance to AIG to $58.7 billion, which included owning
about 92.2 percent of the company. The government's prospects for
recouping the assistance it has provided largely rests with the return
that Treasury earns when it sells its common stock in AIG.
* The Public-Private Investment Program (PPIP) continues to be an
active program with $15.9 billion disbursed as of March 9, 2011, and
$15.2 billion outstanding. Of this investment, Treasury had seen
unrealized capital gains of approximately $750 million. Treasury still
holds oversight responsibility for the fund managers until the fund no
longer holds assets.
* The Community Development Capital Initiative (CDCI) and the SBA 7(a)
Securities Purchase Program are small business programs that account
for a small portion of TARP funding. CDCI closed in September 2010,
and as of March 9, 2011, Treasury had provided about $570 million to
84 CDFIs, 28 of which had already participated in CPP. SBA 7(a)
Securities Purchase Program closed in September 2010, and as of March
9, 2011, Treasury had made 31 purchases of SBA 7(a) securities
totaling about $370 million.
Staffing remains important in OFS as some programs are still being
implemented and others require continued monitoring, but staff
retention could be a challenge for OFS going forward. OFS has begun to
take steps that will help retain staff by addressing succession
planning for critical senior positions, but its workforce plan has not
been updated since March 2009. In addition, partly in response to our
recommendations, OFS has strengthened its management and oversight of
contractors and financial agents and its system of internal control
for financial reporting and compliance with program requirements.
Indicators that we monitor to assess the effectiveness of TARP showed
that credit markets have largely held the gains they achieved since
October 2008. While the degree of effectiveness has varied across
programs, some programs have reportedly had the desired effects,
especially if stabilizing and restoring confidence in the financial
system are considered the principal goals of the government's
interventions. These effects included declines in perceptions of risks
in various financial markets, such as asset spreads in asset-backed
securities; declines in interest rates in interbank, mortgage, and
bond markets; a renewed ability by banks to access capital markets;
increasing securitizations; and price recovery for some legacy or
"troubled" assets.
Some TARP Programs, Including Those That Have Ended and Those That
Remain Active, Continue to Present Challenges:
According to OFS, from the inception of TARP through March 9, 2011, it
has disbursed $410 billion, and received more than $286 billion
primarily from interest, dividends, and principal repayments on direct
loans, repurchases of investments, and sales of investments. OFS
reported $150 billion in gross direct loans and investments
outstanding as of March 9, 2011 (see table 1).
Table 1: Status of TARP Programs, as of March 9, 2011 [unaudited]
Program: CPP;
Asset purchase price[A]: $204.9 billion;
Total cash disbursed[B]: $204.9 billion;
Repayments: $171.1 billion;
Write-offs and realized losses on sales[C]: $2.6 billion;
Outstanding balanced: $30.8 billion;
Additional proceeds[B]: $24.6 billion.
Program: Targeted Investment Program;
Asset purchase price[A]: $40.0 billion;
Total cash disbursed[B]: $40.0 billion;
Repayments: $40.0 billion;
Write-offs and realized losses on sales[C]: $0.0;
Outstanding balanced: $0.0;
Additional proceeds[B]: $4.4 billion.
Program: AIFP;
Asset purchase price[A]: $81.8 billion;
Total cash disbursed[B]: $79.7 billion;
Repayments: $29.5 billion;
Write-offs and realized losses on sales[C]: $6.0 billion;
Outstanding balanced: $44.2 billion;
Additional proceeds[B]: $3.8 billion.
Program: AIG;
Asset purchase price[A]: $69.8 billion;
Total cash disbursed[B]: $67.8 billion;
Repayments: $9.1 billion;
Write-offs and realized losses on sales[C]: $0.0;
Outstanding balanced: $58.7 billion;
Additional proceeds[B]: $0.1 billion.
Program: Housing programs;
Asset purchase price[A]: $45.6 billion;
Total cash disbursed[B]: $1.2 billion;
Repayments: n/a;
Write-offs and realized losses on sales[C]: n/a;
Outstanding balanced: n/a;
Additional proceeds[B]: n/a.
Program: PPIP;
Asset purchase price[A]: $22.4 billion;
Total cash disbursed[B]: $15.9 billion;
Repayments: $0.7 billion;
Write-offs and realized losses on sales[C]: $0.0;
Outstanding balanced: $15.2 billion;
Additional proceeds[B]: $0.6 billion.
Program: SBA 7a;
Asset purchase price[A]: $0.4 billion;
Total cash disbursed[B]: $0.4 billion;
Repayments: less than $0.1 billion;
Write-offs and realized losses on sales[C]: $0.0;
Outstanding balanced: $0.4 billion;
Additional proceeds[B]: less than $0.1 billion.
Program: CDCI;
Asset purchase price[A]: $0.6 billion;
Total cash disbursed[B]: $0.2 billion;
Repayments: $0.0;
Write-offs and realized losses on sales[C]: $0.0;
Outstanding balanced: $0.6 billion;
Additional proceeds[B]: $0.0.
Program: TALF;
Asset purchase price[A]: $4.3 billion;
Total cash disbursed[B]: $0.1 billion;
Repayments: $0.0;
Write-offs and realized losses on sales[C]: $0.0;
Outstanding balanced: $0.1 billion;
Additional proceeds[B]: 0.0.
Program: Asset Guaranty Program;
Asset purchase price[A]: $5.0 billion;
Total cash disbursed[B]: $0.0;
Repayments: $0.0;
Write-offs and realized losses on sales[C]: $0.0;
Outstanding balanced: $0.0;
Additional proceeds[B]: $3.0 billion.
Program: Total;
Asset purchase price[A]: $474.8 billion;
Total cash disbursed[B]: $410.2 billion;
Repayments: $250.4 billion;
Write-offs and realized losses on sales[C]: $8.6 billion;
Outstanding balanced: $150.0;
Additional proceeds[B]: $36.5 billion.
Source: GAO analysis of Treasury (OFS) data.
[A] "Asset purchase price" reflects the aggregate amount Treasury
agreed to pay to purchase or guarantee outstanding troubled assets
subject to the $475 billion limit in section 115 of EESA, as amended
by Section 1302 of the Dodd-Frank Act. This amount includes signed
contract amounts not yet disbursed.
[B] "Additional proceeds" include dividends from equity securities,
interest income from loans and securities, proceeds from repurchases
of warrants and warrant preferred stock, and proceeds from warrant
auctions. Treasury also received $31.9 billion in proceeds from sales
of 7.7 billion shares of Citigroup common stock, of which $25.0
billion is included in "repayments," and $6.9 billion of proceeds in
excess of cost is included in "additional proceeds."
[C] Treasury's write-offs include $2.3 billion in CPP investments
relating to CIT Group and $1.6 billion in loans to Chrysler pursuant
to a settlement agreement. Proceeds from the sale of 412 million
shares of GM common stock amounting to $13.5 billion are included in
"repayments" and Treasury reported $4.4 billion of realized losses
(cost in excess of proceeds) on the sale of these securities.
[D] The "outstanding balance" amounts for CPP and CDCI include the
effect of $0.4 billion in exchanges of investments under CPP for
investments under CDCI.
[End of table]
The reported net cost of TARP transactions from inception through
September 30, 2010, was $18.5 billion; however, the ultimate cost of
TARP will change as a result of (1) differences between the estimated
values of the direct loans and investments as of September 30, 2010,
and the amounts OFS will ultimately realize (as the assumptions and
estimates underlying the valuation of these assets are inherently
subject to substantial uncertainty), and (2) further disbursements,
such as those relating to the housing programs which are not subject
to repayment.
CPP Investments Present Continued Oversight Challenges for Treasury:
Under CPP, Treasury invested $205 billion in over 700 financial
institutions nationwide. Treasury provided capital to qualifying
financial institutions from October 2008 to December 2009 by
purchasing preferred shares or subordinated debentures.[Footnote 5] In
return for its investment, Treasury received preferred stock or
debentures, which provided for dividend payments (if declared by the
issuer) or interest payments, as well as warrants. As table 1 shows,
through March 9, 2011, Treasury had received about $171 billion in
full and partial repayments. However, Treasury continues to face
challenges in managing its remaining investments. For example, a
growing number of CPP participants have missed scheduled dividend or
interest payments.[Footnote 6] As of February 28, 2011, 189
institutions had not made at least one scheduled dividend or interest
payment by the end of the reporting month in which the payments were
due, for a total of 697 missed payments.[Footnote 7] Over the past 2
years, the number of CPP institutions missing dividend or interest
payments by quarter has increased steadily from 8 in February 2009 to
152 in February 2011, or about 27 percent of existing CPP
participants. Although the number of CPP institutions missing dividend
payments is large and increasing, they represent a small share of the
total dollar amount of original CPP investments.[Footnote 8]
Generally, if an institution has not paid in full a total of six
dividend or interest payments, Treasury has the right to elect two
members to the institution's board of directors. As of February 28,
2011, 32 institutions had at least six missed payments that remained
unpaid, and Treasury had not yet exercised its right to nominate
directors for these institutions. However, 31 CPP institutions that
have missed at least five payments have agreed to have Treasury
observers attend meetings of their boards of directors. As more
institutions miss scheduled dividend payments, Treasury faces a
significant challenge of determining the extent to which it will
exercise its right to nominate board members. In August 2010, Treasury
began addressing this challenge by publicly releasing information on
its policies and procedures for nominating board members to these
institutions. These plans include using OFS staff to observe board
meetings of institutions missing at least five dividend or interest
payments and using a variety of considerations--such as an
institution's financial condition and function of its board of
directors--to decide whether to nominate a board member.
In addition, in order to protect its interests in CPP investments and
promote financial stability, Treasury has conducted a limited, but
growing, number of exchanges and dispositions. Over the last 2 years,
Treasury has restructured the assistance provided to 16 CPP
participants by swapping its preferred stock for other forms of equity
securities or selling the preferred stock to new investors involved in
a merger or capital restructuring with a CPP institution. OFS
finalized policies and procedures governing exchanges and dispositions
of TARP securities, including CPP investments, in October 2009. OFS
stated that it would consider various factors when assessing an
institution's proposal for an asset exchange, including the impact on
the institution's capital, the possible impact on Treasury's position
relative to holders of similar securities, the U.S. government's
overall economic position, and whether any premiums paid over market
prices are reasonable and consistent with similar transactions in the
marketplace.
Through February 2011, Treasury had received about $171 billion in
full and partial repayments from 146 institutions, including 28
institutions that exchanged $363 million of their CPP investments for
investments under Treasury's CDCI program. However, questions about
the health of smaller banks continue, and small institutions
participating in CPP may face challenges in fulfilling the terms
needed to exit the program. According to Treasury data, 75 percent of
the total dollar amount of CPP investments in institutions under $10
billion in assets remains outstanding compared to only 10 percent for
investments in institutions over $10 billion. Our recent report on CPP
identified weaknesses in Treasury's monitoring of regulators'
decisions to approve or deny requests to repay CPP
investments.[Footnote 9] The American Recovery and Reinvestment Act of
2009 included provisions modifying the terms of CPP repayments to
require that Treasury allow any institution to repay its CPP
investment subject only to consultation with the appropriate federal
bank regulator. Treasury officials indicated that, as a result of
these changes, they had not provided guidance or criteria to
regulators on deciding when to allow institutions to repay CPP
investments and had not collected information on the reasons for these
decisions. However, according to Treasury, it helped facilitate
meetings among the regulators in the spring of 2009 at which they
discussed standards for permitting TARP recipients to repay.
Bank regulatory officials said they used existing supervisory
procedures that were generally applicable to capital reductions as a
basis for reviewing CPP repurchase requests. In our recent report, we
found that while the decision ultimately lies with the regulators,
without collecting information on or monitoring regulators' decisions,
Treasury had no basis for determining whether decisions involving
similar institutions were being made consistently and, thus, whether
CPP participants were being treated equitably. Further, absent
information on why regulators made repayment decisions, Treasury
cannot provide feedback to regulators. Accordingly, we recommended
that Treasury periodically collect and review certain information from
bank regulators on the analysis and conclusions supporting their
decisions on CPP repayment requests and provide feedback for the
regulators' consideration on the extent to which regulators are
evaluating similar institutions consistently. In its response,
Treasury stated that it would consider ways to address the objectives
of our recommendations while also noting the constraints presented by
the law and principles of regulatory independence.
About Half of the TALF Loans Have Been Repaid, but Continued
Monitoring is Important:
TALF provided loans to private investors to purchase asset-backed
securities (ABS) and commercial mortgage-backed securities (CMBS) to
encourage the issuance of new securitizations and provide liquidity
for new consumer and business loans. To assist in this effort,
Treasury provides credit protection for TALF. TALF made about $71
billion in loans from March 2009 through June 2010, with most of them
secured by credit card ABS, auto loan ABS, legacy CMBS, and student
loan ABS. According to the Federal Reserve, more than half of these
loans have been repaid. Moreover, Treasury has not had to disburse any
TARP funds to cover losses from unpaid loans. However, until all loans
are repaid to FRBNY, it is important for Treasury to continue to
monitor TALF to anticipate future needs for credit support.
Treasury has addressed concerns that we raised about Treasury's role
in TALF, including monitoring risks related to commercial mortgage-
backed securities, formalizing the decision-making process with the
Federal Reserve, and conducting an assessment of how to track and
report on assets that might be surrendered.
AIFP Illustrates both Progress and Ongoing Uncertainty in Recouping
Assistance:
From December 2008 through December 2009, Treasury announced $86.3
billion in funding available to help stabilize the auto industry and
disbursed $79.7 billion of this funding, including (1) about $62
billion to fund Chrysler and GM while they restructured, (2) about
$16.3 billion to provide capital assistance to Ally Financial, and (3)
$1.5 billion to a special purpose vehicle (SPV) created by Chrysler
Financial.[Footnote 10] In return for its assistance to Chrysler and
GM, Treasury received 9.85 percent equity in the reorganized Chrysler,
60.8 percent equity and $2.1 billion in preferred stock in the
reorganized GM, and $13.8 billion in debt obligations between the two
companies. In return for its investment in Ally Financial, Treasury
received preferred shares equaling ownership of more than half of Ally
Financial by the end of 2009 and almost three-quarters by the end of
2010. As of March 9, 2011, approximately $29.5 billion had been repaid
[Footnote 11] and Treasury owned 33.3 percent equity in GM, 9.2
percent in Chrysler, and 73.8 percent in Ally.[Footnote 12] A
substantial portion of these repayments come from GM, via its initial
public offering (IPO). In total, Treasury sold over 412 million of its
shares in GM's IPO, for which it received $13.5 billion in net
proceeds to repay the government's initial investment.[Footnote 13] In
March 2011, Treasury sold $2.7 billion of trust preferred securities
in Ally Financial.
Since emerging from bankruptcy in the summer of 2009, Chrysler and GM
have shown signs of progress in returning to profitability; however,
their ability to fully repay the AIFP debt and equity investments
depends on a variety of factors, which will require Treasury's ongoing
oversight.[Footnote 14] One sign of progress is that vehicle sales
increased substantially for both companies in January and February of
2011 compared to the prior year (23 percent and 49 percent for GM; 23
percent and 13 percent for Chrysler). In addition, in 2010 both
companies released financial statements that, according to Treasury
officials, exceeded Treasury's projections for revenues, operating
earnings, and cash flows. Also, GM held an IPO in late 2010 and
Chrysler expects to hold an IPO in 2011. Nevertheless, while GM's and
Chrysler's financial conditions have improved, each faces challenges
that could affect their financial future. For example, although sales
are improving, volumes are highly dependent on economic and market
conditions--such as unemployment levels, consumer confidence, and
credit availability--that currently remain fragile. Similarly, high
fuel prices could negatively impact sales of the companies' most
profitable vehicles such as pickup trucks and sport utility vehicles.
Furthermore, the companies' U.S. pension plans are underfunded, and
they will face large future payments to their pension plans to make up
this underfunding.
Ally Financial, a bank holding company, has also shown signs of an
improved financial condition, posting $1.1 billion in profit in 2010,
but the government's ability to recoup its investment in Ally relies
on the health of the auto industry, as well as the company's ability
to compete with other credit providers. Ally Financial's chief
executive officer noted that the recent conversion of $5.5 billion of
Treasury's shares to common equity should help the company in its
efforts to conform its capital structure to that more typical of a
bank holding company.[Footnote 15] Treasury also reported the
conversion may improve Ally's ability to raise debt financing.
Regardless, Ally Financial could face increased competition for its
business in the future, including potentially from GM, which acquired
Americredit, an auto finance company. Treasury officials noted they
are confident Ally Financial will hold an IPO and expected that it
would likely take Treasury a year or 2 to sell all of its shares.
In our ongoing monitoring of AIFP, we have made several
recommendations to help Treasury monitor and assess its investment in
the auto companies, and we are working with Treasury to help ensure
their implementation.[Footnote 16] We are continuing to monitor the
financial condition of the industry, and are reviewing the current
financial condition and outlook of GM and Chrysler in ongoing work. As
part of that ongoing work, we also are reviewing the status of the
federal government's efforts to assist workers and communities that
have relied on the auto industry for their economic viability.
Treasury's Exposure to AIG Under TARP is Tied to the Current and
Future Health of the Company and the Insurance Industry:
In November 2008, Treasury began providing assistance to AIG, and with
the closing of AIG's recapitalization plan in January 2011, this
assistance has risen still further, but AIG has recently started
repaying its debt to Treasury. On January 14, 2011, AIG closed on a
plan to recapitalize the company, which included several transactions
that terminated FRBNY's direct assistance to the company while
increasing Treasury's equity interests to $67.8 billion, which
included owning about 92.2 percent of the company. On March 8, 2011,
AIG repaid $6.9 billion to Treasury, which included $1.4 billion for
Treasury's remaining preferred interests in the American Life
Insurance Company (ALICO) SPV and $5.5 billion for Treasury's
remaining preferred interests in the AIA Group Limited (AlA) SPV,
leaving Treasury with preferred interests of $11.3 billion in the AIA
SPV. This repayment reduced the outstanding balance of AIG's
assistance to $58.7 billion.
Since early 2009, we have been monitoring the status of federal
assistance to AIG and the company's financial condition using GAO-
developed indicators and have issued three reports that have included
information on them.[Footnote 17] In our January 2011 report, our
indicators showed that AIG's financial condition had generally
remained relatively stable or showed signs of improvement, largely due
to the federal assistance from the Federal Reserve and Treasury.
[Footnote 18] Federal assistance has continued to play a key role in
stabilizing AIG's liquidity, equity structure, and credit ratings. The
government's prospects for recouping the assistance it has provided
largely rests with the return that Treasury earns when it sells its
common stock in AIG. We will continue to monitor the government's
investment and the status of AIG's repayment efforts. In addition, our
ongoing work on AIG also includes a review of the Federal Reserve
facilities implemented to assist AIG.
Treasury Has Faced Challenges in Implementing its Making Home
Affordable Program and Relatively Few Borrowers Have Received
Permanent Loan Modifications:
As we have noted in our past reports, Treasury's efforts to help
borrowers facing potential foreclosures continue to face challenges.
[Footnote 19] Since Treasury first announced the framework for its
Making Home Affordable (MHA) program over 2 years ago, the number of
homeowners facing potential foreclosure has remained at historically
high levels. The Home Affordable Modification Program (HAMP), the key
component under MHA, seeks to help eligible homeowners avoid
foreclosure by reducing their monthly mortgage payments to more
affordable levels--specifically to 31 percent of the homeowner's
income. As of December 31, 2010, there were a total of 143 active MHA
servicers.[Footnote 20] Through January 2011, $29.9 billion in TARP
funds had been committed to these servicers for modification of non-
government-sponsored enterprise (GSE) loans.[Footnote 21] Based on the
MHA Servicer Performance Report through January 2011, nearly 1.8
million HAMP trial modifications had been offered to borrowers of GSE
and non-GSE loans as of the end of January 2011, and nearly 1.5
million of these had begun HAMP trial modifications.[Footnote 22] Of
the trial modifications that had begun, approximately 145,000 were in
active trial modifications, roughly 539,000 were in active permanent
modifications, roughly 740,000 trial modifications had been canceled,
and roughly 68,000 permanent modifications had been canceled.
Recently, the number of new trial and permanent modifications started
each month has declined (figure 1). As of December 31, 2010, $1
billion in TARP funds had been disbursed for TARP-funded housing
programs, of which $840 million has been disbursed for HAMP-related
activity.
Figure 1: GSE and Non-GSE HAMP Trial and Permanent Modifications Made
and Canceled Each Month, through January 2011:
[Refer to PDF for image: multiple line graph]
Year: 2009:
Date: May and prior;
Trials started: 55,478.
Date: June;
Trials started: 109,399.
Date: July;
Trials started: 119,815.
Treasury announces goal of 500,000 trials by November 1,2009.
Date: August;
Trials started: 144,35.
Date: September;
Trials started: 134,456;
Permanents started: 4,742.
Date: October;
Trials started: 159,129;
Permanents started: 10,907.
Start of Treasury's Conversion Campaign.
Date: November;
Trials started: 115,061;
Permanents started: 15,775.
Date: December;
Trials started: 118,332;
Permanents started: 35,514.
Year: 2010:
Date: January;
Trials started: 94,400;
Permanents started: 50,364;
Trials canceled: 60,476;
Permanents canceled: 1,005.
Date: February;
Trials started: 87,668;
Permanents started: 52,905;
Trials canceled: 28,187;
Permanents canceled: 494.
Date: March;
Trials started: 70,489;
Permanents started: 60,594;
Trials canceled: 66,51;
Permanents canceled: 1,380.
Date: April;
Trials started: 48,112;
Permanents started: 68,291;
Trials canceled: 122,467;
Permanents canceled: 865.
Date: May;
Trials started: 26,086;
Permanents started: 47,724;
Trials canceled: 152,056;
Permanents canceled: 2,613.
Date: June;
Trials started: 21,759;
Permanents started: 51,205;
Trials canceled: 91,118;
Permanents canceled: 2,466.
Date: July;
Trials started: 24,318;
Permanents started: 36,695;
Trials canceled: 96,025;
Permanents canceled: 4,089.
Date: August;
Trials started: 22,835;
Permanents started: 33,342;
Trials canceled: 46,699;
Permanents canceled: 6,209.
Date: September;
Trials started: 30,586;
Permanents started: 27,84;
Trials canceled: 36,386;
Permanents canceled: 10,069.
Date: October;
Trials started: 29,569;
Permanents started: 23,75;
Trials canceled: 19,563;
Permanents canceled: 7,116.
Date: November;
Trials started: 29,346;
Permanents started: 29,972;
Trials canceled: 9,622;
Permanents canceled: 8,666.
Date: December;
Trials started: 31,160;
Permanents started: 30,030;
Trials canceled: 5,400;
Permanents canceled: 13,048.
Year: 2011:
Date: January;
Trials started: 20,759;
Permanents started: 27,957;
Trials canceled: 5,731;
Permanents canceled: 10,094.
Source: GAO analysis of Treasury data.
[End of figure]
In July 2009 and June 2010, we reported on the challenges Treasury
faced in implementing HAMP and made recommendations to improve the
transparency and equitable implementation of the program.[Footnote 23]
For example, in July 2009 we noted that while Treasury required
borrowers with high levels of total debt to agree to obtain counseling
before receiving a HAMP modification, it was not monitoring whether
these borrowers, in fact, received counseling. In addition, we noted
that Treasury had yet to establish a comprehensive system of internal
control for HAMP, including metrics and benchmarks for servicers'
performance. Three out of the six recommendations we made in July 2009
have yet to be fully implemented and, as such, remain open.
In June 2010, we reported on several inconsistencies in the way
servicers treated borrowers under HAMP that could lead to inequitable
treatment of similarly situated borrowers. These inconsistencies
involved how servicers solicited borrowers for the program, how they
evaluated borrowers who were not yet 60-days delinquent on their
mortgage payments, and how they handled borrower complaints. In
addition, we noted that while Treasury had taken some steps to ensure
servicer compliance with program requirements, it had not yet
finalized consequences for servicer noncompliance. We made eight
recommendations to improve the transparency and accountability of HAMP
in June 2010. Treasury stated that it intended to implement some of
the recommendations, but little action has been taken to date.
In addition to the HAMP first-lien modification program, Treasury has
begun implementing several other TARP-funded programs for struggling
homeowners under the MHA program, including the Second-Lien
Modification Program (2MP), the Principal Reduction Alternatives (PRA)
program for borrowers who owe more on their mortgages than the value
of their homes, and the Home Affordable Foreclosure Alternatives
(HAFA) program for those who are not successful in HAMP modifications.
[Footnote 24] As noted in the report we are issuing today, the
implementation of 2MP, HAFA, and PRA has been slow and limited
activity has been reported to date (see table 2).[Footnote 25] This
slow pace is attributed in part to several implementation challenges.
For example, servicers told us that the start of 2MP had been slow due
to problems with the database Treasury required them to use to
identify potentially eligible loans. Additionally, borrowers may not
be aware of their potential eligibility for the program. While
Treasury recently revised its guidelines to allow servicers to bypass
the database for certain loans, servicers could do more to alert HAMP
first-lien modification borrowers about the new second-lien program.
Implementation of the foreclosure alternatives program has also been
slow due to program restrictions, such as the requirement that
borrowers be evaluated for a first-lien modification even if they have
already identified a potential buyer for a short sale. Although
Treasury has recently taken action to address some of these concerns,
the potential effects of its changes remain unclear.
Table 2: Activity Under the 2MP, Foreclosure Alternative, and PRA as
of December 31, 2010:
Program: 2MP;
Date announced: March 2009;
Implementation date: March 2010;
Funding allocation: Nearly $133 million;
Reported activity as of December 31, 2010: $2.9 million in incentives
paid.
Program: Home Affordable Foreclosure Alternatives;
Date announced: March 2009;
Implementation date: April 5, 2010;
Funding allocation: $4.1 billion;
Reported activity as of December 31, 2010: $9.5 million in incentives
paid.
Program: PRA;
Date announced: March 2010;
Implementation date: October 1, 2010;
Funding allocation: $2.0 billion;
Reported activity as of December 31, 2010: Activity not yet
reported[A].
Source: Treasury.
[A] PRA incentives are paid on an annual basis contingent upon
successful performance of the modified mortgage during the preceding
12 months.
[End of table]
Our most recent work shows there is more Treasury can do to ensure the
effective implementation of these programs, including ensuring that
servicers have sufficient capacity to implement them and that
borrowers are notified about potential eligibility for second-lien
modifications. We also believe it will be important for Treasury to
have clear and accurate information on the dispositions of borrowers
who are denied or fall out from HAMP modifications. Without accurate
reporting of borrower outcomes, Treasury cannot know the actual extent
to which borrowers who are denied, canceled, or redefaulted from HAMP
are helped by other programs or evaluate the need for further action
to assist this group of homeowners. We continue to believe there are
opportunities to improve the transparency, accountability, and
effectiveness of MHA.
Assets under PPIP Have Shown Positive Returns, but Continued
Monitoring is Important:
Treasury still has important monitoring responsibilities for PPIP
investments. The legacy securities program of PPIP, announced in March
2009, was designed to facilitate price discovery in markets for these
assets, repair balance sheets throughout the financial system, and
increase the availability of credit to households and businesses
through the purchase of "legacy" residential mortgage-backed
securities (RMBS) and CMBS. Through the program, Treasury and private-
sector fund managers and investors partnered to purchase eligible
securities from banks, insurance companies, mutual funds, pension
funds, and other eligible sellers--though the fund managers have sole
discretion in making purchases and investment decisions according to
the terms of the agreements between Treasury and the Public Private
Investment Funds (PPIF). Treasury still holds oversight responsibility
for the fund managers until the funds no longer hold assets.
The eight PPIFs have had positive returns and have invested in a
variety of legacy assets, including CMBS, subprime RMBS, prime RMBS,
Alt-A RMBS, and option adjustable-rate RMBS. The PPIFs paid $228
million in interest and dividends to Treasury over fiscal year 2010.
But returns could fluctuate over time, as they are subject to market
risk factors until the PPIFs close. As of March 9, 2011, Treasury's
investments accounted for about $15.9 billion of about $22.4 billion
available to fund PPIP. Of this investment, about $15.2 billion
remained outstanding. Treasury had seen unrealized capital gains of
approximately $750 million.
Treasury Initially Launched Programs under TARP to Assist Small
Businesses but Has Shifted These Efforts outside of TARP:
Given the importance of small businesses to the overall economy,
Treasury created several programs under TARP to help address small
business credit constraints. The existing TARP programs that are
intended to assist small businesses focused on capitalizing certain
depository institutions and stabilizing secondary markets for SBA-
guaranteed loans. They included:
* CDCI, which was announced in October 2009 and closed in September
2010. As of March 9, 2011, Treasury had provided about $570 million to
84 CDFIs, 28 of which had already participated in CPP.
* SBA 7(a) Securities Purchase Program, which was announced in March
2009 and closed in September 2010. As of March 9, 2011, Treasury had
made 31 purchases of SBA 7(a) securities totaling about $370 million.
* TALF, which was announced in November 2008 and closed in June 2010.
TALF loans secured by SBA 7(a) and 504 securitizations represented 3
percent of TALF loans. The Federal Reserve estimates that about
850,000 small business loans were financed in part by securities
supported by TALF.
Treasury has taken steps to address concerns we identified about the
implementation of some of these programs. For example, although the
purpose of CDCI was initially unclear to some participants, public
communications about the dual purposes of the program--to assist small
business lending and to support the mission of Community Development
Financial Institutions--was clarified toward the end of the program.
Treasury has addressed concerns that we raised about Treasury's role
in TALF, including monitoring risks related to commercial mortgage-
backed securities, formalizing the decision-making process with the
Board of Governors of the Federal Reserve System, and conducting an
assessment of how to track and report on assets that might be
surrendered.
Given concerns about the TARP stigma, Treasury shifted its efforts to
assist small businesses outside of TARP by proposing a separate Small
Business Lending Fund. The Small Business Jobs Act of 2010 created a
$30 billion bank capital support program encouraging small and midsize
banks to lend to small businesses and contains metrics for measuring
increases in small business lending. We are currently reviewing the
fund, as required by the Small Business Jobs Act of 2010.
OFS has Made Progress in Staffing Key Positions, but Needs to Finalize
Its Workforce Plan:
OFS has continued to make progress in staffing key positions, managing
its contracts, and maintaining internal controls. While OFS's
organizational structure has stabilized as it moves into maintenance
mode, more could be done to address retention of key staff as TARP
winds down. Treasury continues to rely on a network of financial
agents and contractors for certain activities and will likely do so as
the program comes to a close. Finally, Treasury has taken steps to
develop a system of internal control.
OFS Staffing Has Stabilized, but OFS Has Not Finalized a Plan for
Addressing Staff Retention Challenges as TARP Winds Down:
In the last year, OFS staffing and its organizational structure have
stabilized. Over the past 2 years, the number of OFS employees has
increased steadily with the number of employees increasing and the
number of detailees decreasing. In addition, Treasury has filled key
leadership positions in OFS, including the position of Chief of the
Homeownership Preservation Office. However, this stability is
uncertain as OFS faces new challenges. For example, the Assistant
Secretary of Financial Stability resigned in September 2010 and this
key leadership position is temporarily filled.
With more than 200 employees, staffing at OFS remains important. As we
have seen, some programs are still being implemented and others, while
having been closed or terminated, have assets that must be managed,
repaid, and divested. More than half of OFS's employees, including key
leaders, are term appointments (many with 4-year term limits). OFS has
begun to take steps that will help to retain staff. OFS is also
addressing succession planning for critical senior positions, and in
response to our recommendation in the January 2011 report is
finalizing its Human Capital Strategic Plan. According to OFS, this
plan is a roadmap to ensure that OFS manages its workforce effectively
and continues to attract, develop, and retain high caliber employees.
Treasury Continues to Strengthen Management and Oversight of Financial
Agents and Contractors and Is Addressing Conflicts-of-Interest
Requirements:
Since the inception of TARP, Treasury has continued to rely on private-
sector resources to assist OFS with a variety of activities. Treasury
has used two mechanisms for engaging private-sector firms. First,
Treasury has exercised its statutory authority to retain 15 financial
agents (depository and related financial institutions designated to
perform assigned functions on its behalf). Second, Treasury has
entered into contract and blanket purchase agreements under the
Federal Acquisition Regulation for a variety of legal, investment
consulting, accounting, and other services and supplies. According to
Treasury's data, as of September 30, 2010, Treasury had 81 contracts
and blanket purchase agreements, up from 39 from the previous year. In
total, Treasury had 96 financial agency agreements and contractual
arrangements with a total potential value of almost $841 million, as
of September 30, 2010.
When Treasury set up OFS in 2008 and quickly began to implement
numerous TARP initiatives, OFS lacked complete procurement procedures
and internal controls to oversee its growing number of contractors and
financial agents, as well as a comprehensive compliance system to
monitor and fully address vendor-related conflicts of interest. We
made a series of recommendations between December 2008 and June 2009
that were intended to strengthen Treasury's management and oversight
of its vendors and improve the transparency of contracted operations.
One year after implementation, OFS had put in place an appropriate
infrastructure to manage and monitor its network of financial agents
and contractors, as well as a system to oversee conflicts of interest
that may arise with financial agents or contractors seeking or
performing work under TARP. OFS has continued to make management and
oversight enhancements.
OFS Has Taken Steps to Develop a System of Internal Control for TARP
Programs:
Treasury has taken steps to develop an internal control system to
ensure compliance with program requirements, including limitations on
executive compensation, stock repurchase, and dividends. OFS's Office
of Internal Review has a key role in helping to ensure such
compliance. Treasury also relies on financial agents to perform
additional oversight responsibilities. Although Treasury has generally
developed an overall system of internal control for compliance with
program requirements, we have identified areas in which certain
controls for specific programs, such as HAMP, could be improved. In
particular, Treasury has not fully implemented our recommendation to
develop a comprehensive system of internal control for HAMP, including
developing benchmarks or goals for specific HAMP performance measures
such as conversion and redefault rates. We will continue to monitor
Treasury's actions to address identified deficiencies.
In addition, our 2010 financial audit report concluded that although
certain internal controls could be improved, OFS maintained, in all
material respects, effective internal control over financial reporting
as of September 30, 2010. These controls provided reasonable assurance
that misstatements, losses, or noncompliance material in relation to
the financial statements would be prevented or detected and corrected
on a timely basis.[Footnote 26] Our opinion on internal control over
financial reporting is based on criteria established under 31 U.S.C.
§3512 (c), (d), commonly known as the Federal Manager's Financial
Integrity Act.
Indicators Suggest That Credit Markets Have Largely Held the Gains
They Achieved since October 2008:
The concerted actions by Treasury, the Federal Reserve, and others
since the crisis began have been credited with helping to avert a more
severe financial crisis, but the ultimate impact of the interventions
on the economy as a whole remains to be seen. Since the passage of
EESA, indicators generally suggest that credit markets have improved
and while the effectiveness of the TARP programs have varied, some
have reportedly had the desired effects, especially if stabilizing the
financial system and restoring confidence was considered to be the
principal goal of the intervention. However, the strength of the
economic recovery remains uncertain, and the ultimate impact of the
interventions on the real economy remains to be seen.
While movements in most of these indicators during the second year of
TARP are likely more reflective of other non-TARP market developments,
some metrics we have monitored for programs with later start dates
(PPIP, HAMP, and to a lesser extent TALF) show some improvements. For
example, PPIP indicators show substantial improvement and TALF
indicators continue to improve. However, indicators for MHA continue
to highlight the challenges in the area of residential housing.
Finally, our indicators suggest that credit markets have largely held
the gains achieved since October 2008, despite the unwinding of TARP
programs, the early termination of TARP's authority, the general exit
from other government interventions, and the turmoil in Europe. Over
time, analysis of the exits from remaining TARP programs will provide
a more complete assessment of the resilience of the financial system.
Mr. Chairman and Members of the Committee, I appreciate the
opportunity to discuss these critically important issues and would be
happy to answer any questions that you may have. Thank you.
For further information on this testimony, please contact Thomas J.
McCool on (202) 512-2642 or mccoolt@gao.gov, or Orice Williams Brown
on (202) 512-8678 or williamso@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this statement.
[End of section]
Related GAO Products:
Troubled Asset Relief Program: Treasury Continues to Face
Implementation Challenges and Data Weaknesses in Its Making Home
Affordable Program, [hyperlink,
http://www.gao.gov/products/GAO-11-288], March 17, 2011.
Troubled Asset Relief Program: Third Quarter 2010 Update of Government
Assistance Provided to AIG and Description of Recent Execution of
Recapitalization Plan. [hyperlink,
http://www.gao.gov/products/GAO-11-46]. January 20, 2011.
Troubled Asset Relief Program: Status of Programs and Implementation
of GAO Recommendations. [hyperlink,
http://www.gao.gov/products/GAO-11-74]. January 12, 2011.
Financial Audit: Office of Financial Stability (Troubled Asset Relief
Program) Fiscal Years 2010 and 2009 Financial Statements. [hyperlink,
http://www.gao.gov/products/GAO-11-174]. November 15, 2010.
Troubled Asset Relief Program: Opportunities Exist to Apply Lessons
Learned from the Capital Purchase Program to Similarly Designed
Programs and to Improve the Repayment Process. [hyperlink,
http://www.gao.gov/products/GAO-11-47]. October 4, 2010.
Troubled Asset Relief Program: Bank Stress Test Offers Lessons as
Regulators Take Further Actions to Strengthen Supervisory Oversight.
[hyperlink, http://www.gao.gov/products/GAO-10-861]. September 29,
2010.
Financial Assistance: Ongoing Challenges and Guiding Principles
Related to Government Assistance for Private Sector Companies.
[hyperlink, http://www.gao.gov/products/GAO-10-719]. August 3, 2010.
Management Report: Improvements are Needed in Internal Control Over
Financial Reporting for the Troubled Asset Relief Program. [hyperlink,
http://www.gao.gov/products/GAO-10-743R]. June 30, 2010.
Troubled Asset Relief Program: Treasury's Framework for Deciding to
Extend TARP Was Sufficient, but Could be Strengthened for Future
Decisions. [hyperlink, http://www.gao.gov/products/GAO-10-531]. June
30, 2010.
Troubled Asset Relief Program: Further Actions Needed to Fully and
Equitably Implement Foreclosure Mitigation Programs. [hyperlink,
http://www.gao.gov/products/GAO-10-634]. June 24, 2010.
Debt Management: Treasury Was Able to Fund Economic Stabilization and
Recovery Expenditures in a Short Period of Time, but Debt Management
Challenges Remain. [hyperlink,
http://www.gao.gov/products/GAO-10-498]. May 18, 2010.
Troubled Asset Relief Program: Update of Government Assistance
Provided to AIG. [hyperlink, http://www.gao.gov/products/GAO-10-475].
April 27, 2010.
Troubled Asset Relief Program: Automaker Pension Funding and Multiple
Federal Roles Pose Challenges for the Future. [hyperlink,
http://www.gao.gov/products/GAO-10-492]. April 6, 2010.
Troubled Asset Relief Program: Home Affordable Modification Program
Continues to Face Implementation Challenges. [hyperlink,
http://www.gao.gov/products/GAO-10-556T]. March 25, 2010.
Troubled Asset Relief Program: Treasury Needs to Strengthen Its
Decision-Making Process on the Term Asset-Backed Securities Loan
Facility. [hyperlink, http://www.gao.gov/products/GAO-10-25]. February
5, 2010.
Financial Audit: Office of Financial Stability (Troubled Asset Relief
Program) Fiscal Year 2009 Financial Statements. [hyperlink,
http://www.gao.gov/products/GAO-10-301]. December 9, 2009.
Troubled Asset Relief Program: Continued Stewardship Needed as
Treasury Develops Strategies for Monitoring and Divesting Financial
Interests in Chrysler and GM. [hyperlink,
http://www.gao.gov/products/GAO-10-151]. November 2, 2009.
Troubled Asset Relief Program: Capital Purchase Program Transactions
for October 28, 2008, through September 25, 2009, and Information on
Financial Agency Agreements, Contracts, Blanket Purchase Agreements,
and Interagency Agreements Awarded as of September 18, 2009.
[hyperlink, http://www.gao.gov/products/GAO-10-24SP]. October 8, 2009.
Troubled Asset Relief Program: One Year Later, Actions Are Needed to
Address Remaining Transparency and Accountability Challenges.
[hyperlink, http://www.gao.gov/products/GAO-10-16]. October 8, 2009.
Debt Management: Treasury Inflation Protected Securities Should Play a
Heightened Role in Addressing Debt Management Challenges. [hyperlink,
http://www.gao.gov/products/GAO-09-932]. September 29, 2009.
Troubled Asset Relief Program: Status of Government Assistance
Provided to AIG. [hyperlink, http://www.gao.gov/products/GAO-09-975].
September 21, 2009.
Troubled Asset Relief Program: Treasury Actions Needed to Make the
Home Affordable Modification Program More Transparent and Accountable.
[hyperlink, http://www.gao.gov/products/GAO-09-837]. July 23, 2009.
Troubled Asset Relief Program: Capital Purchase Program Transactions
for October 28, 2008, through March 20, 2009, and Information on
Financial Agency Agreements, Contracts, Blanket Purchase Agreements,
and Interagency Agreements Awarded as of June 1, 2009. [hyperlink,
http://www.gao.gov/products/GAO-09-707SP]. June 17, 2009.
Troubled Asset Relief Program: June 2009 Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-658]. June 17, 2009.
Auto Industry: Summary of Government Efforts and Automakers'
Restructuring to Date. [hyperlink,
http://www.gao.gov/products/GAO-09-553]. April 23, 2009.
Small Business Administration's Implementation of Administrative
Provisions in the American Recovery and Reinvestment Act. [hyperlink,
http://www.gao.gov/products/GAO-09-507R]. April 23, 2009.
Troubled Asset Relief Program: Capital Purchase Program Transactions
for the Period October 28, 2008 through March 20, 2009 and Information
on Financial Agency Agreements, Contracts, and Blanket Purchase
Agreements Awarded as of March 13, 2009. [hyperlink,
http://www.gao.gov/products/GAO-09-522SP]. March 31, 2009.
Troubled Asset Relief Program: March 2009 Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-504]. March 31, 2009.
Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-296]. January 30, 2009.
High-Risk Series: An Update. [hyperlink,
http://www.gao.gov/products/GAO-09-271]. January 22, 2009.
Troubled Asset Relief Program: Additional Actions Needed to Better
Ensure Integrity, Accountability, and Transparency. [hyperlink,
http://www.gao.gov/products/GAO-09-161]. December 2, 2008.
[End of section]
Footnotes:
[1] The Emergency Economic Stabilization Act of 2008 (EESA), Pub. L.
No. 110-343, 122 Stat. 3765 (2008) (codified at 12 U.S.C. §§ 5201 et
seq.). EESA originally authorized Treasury to purchase or guarantee up
to $700 billion in troubled assets. The Helping Families Save Their
Homes Act of 2009, Pub. L. No. 111-22, Div. A, 123 Stat. 1632 (2009),
amended EESA to reduce the maximum allowable amount of outstanding
troubled assets under EESA by almost $1.3 billion, from $700 billion
to $698.741 billion. EESA requires that the appropriate committees of
Congress be notified in writing when the Secretary of the Treasury,
after consultation with the Chairman of the Board of Governors of the
Federal Reserve System, determines that it is necessary to purchase
other financial instruments to promote financial market stability.
Section 3(9) of EESA (codified at 12 U.S.C. § 5202(9)).
[2] The Dodd-Frank Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010),
(1) reduced Treasury's authority to purchase or insure troubled assets
to a maximum of $475 billion and (2) prohibited Treasury, under EESA,
from incurring any additional obligations for a program or initiative
unless the program or initiative had already been initiated prior to
June 25, 2010.
[3] Section 116 of EESA, 12 U.S.C. § 5226 (codified at 12 U.S.C. §
5226).
[4] GAO, Troubled Asset Relief Program: Status of Programs and
Implementation of GAO Recommendations, [hyperlink,
http://www.gao.gov/products/GAO-11-74] (Washington, D.C.: Jan. 12,
2011).
[5] For the purposes of CPP, financial institutions generally include
qualifying U.S.-controlled banks, savings associations, and both bank
and savings and loan holding companies.
[6] Institutions are required to pay dividends only if they declare
dividends, although unpaid cumulative dividends generally accrue and
the institution must pay them before making payments to other types of
shareholders, such as holders of common stock
[7] These figures differ from the number of dividend or interest
payments outstanding because some institutions made their payments
after the end of the reporting month. CPP dividend and interest
payments are due on February 15, May 15, August 15, and November 15 of
each year, or the first business day subsequent to those dates. The
reporting period ends on the last day of the calendar month in which
the dividend or interest payment is due.
[8] According to Treasury, the total investment amount of CPP
institutions with unpaid dividends or interest payments was $3.8
billion as of January 31, 2011, compared to a total outstanding
investment amount of $49.4 billion and an original investment amount
of $204.9 billion.
[9] GAO, Troubled Asset Relief Program: Opportunities Exist to Apply
Lessons Learned from the Capital Purchase Program to Similarly
Designed Programs and to Improve the Repayment Process, [hyperlink,
http://www.gao.gov/products/GAO-11-47] (Washington, D.C.: Oct. 4,
2010).
[10] The total announced amount of $86.3 billion includes $5 billion
for the Supplier Support Program announced in March 2009. However, in
July 2009, the commitment for the Supplier Support Program was reduced
by $1.5 billion, and in July 2010 an additional $3 billion was
deobligated. As such, there is a $4.5 billion difference between the
total AIFP announced amount of $86.3 billion and the asset purchase
price of $81.8 billion referenced in table 1.
[11] In April 2010, GM repaid the remaining $4.7 billion of the $6.7
billion in debt by using funds that remained from the $30.1 billion
Treasury had provided in June 2009 to assist with its restructuring.
As of March 9, 2011, Chrysler has made $567 million in interest
payments on its loan from Treasury.
[12] Treasury's current equity stake in Chrysler is 9.2 percent--down
from the original 9.85 percent because Fiat increased its ownership
stake, as a result of the company achieving the first of its three
performance-related targets as agreed to with Treasury, thereby
reducing Treasury's overall equity.
[13] GM held the IPO on November 17, 2010, with 478 million common
stock shares held by several stockholders, including Treasury. On
November 26, 2010, the underwriters for the IPO exercised the
overallotment option, bringing the total number of shares sold to
almost 550 million and raising $23.1 billion. As a result of selling
412 million shares, Treasury's ownership stake in GM has decreased
from 60.8 percent to 33.3 percent.
[14] Treasury's oversight of GM and Chrysler, including its strategies
for monitoring and divesting its financial interests in the companies,
is discussed in GAO, Troubled Asset Relief Program: Continued
Stewardship Needed as Treasury Develops Strategies for Monitoring and
Divesting Financial Interests in Chrysler and GM, [hyperlink,
http://www.gao.gov/products/GAO-10-151] (Washington, D.C.: Nov. 2,
2009).
[15] On December 30, 2010, Treasury converted $5.5 billion of its
preferred stock in Ally Financial into common stock, raising its total
common equity stake in the company to 73.8 percent.
[16] [hyperlink, http://www.gao.gov/products/GAO-10-151].
[17] GAO, Troubled Asset Relief Program: Status of Government
Assistance to AIG, [hyperlink, http://www.gao.gov/products/GAO-09-975]
(Washington, D.C.: Sept. 21, 2009), Troubled Asset Relief Program:
Update of Government Assistance to AIG, [hyperlink,
http://www.gao.gov/products/GAO-10-475] (Washington, D.C.: Apr. 27,
2010), Troubled Asset Relief Program: Third Quarter 2010 Update of
Government Assistance Provided to AIG and Description of Recent
Execution of Recapitalization Plan, [hyperlink,
http://www.gao.gov/products/GAO-11-46] (Washington, D.C.: Jan. 20,
2011).
[18] [hyperlink, http://www.gao.gov/products/GAO-11-46].
[19] GAO, Troubled Asset Relief Program: Treasury Actions Needed to
Make the Home Affordable Modification Program More Transparent and
Accountable, [hyperlink, http://www.gao.gov/products/GAO-09-837]
(Washington, D.C: July 23, 2009) and GAO, Troubled Asset Relief
Program: Further Actions Needed to Fully and Equitably Implement
Foreclosure Mitigation Programs, [hyperlink,
http://www.gao.gov/products/GAO-10-634] (Washington, D.C: June 24,
2010).
[20] The GSEs have directed all of their approximately 2,000 servicers
to implement parallel HAMP programs on first-lien mortgages owned or
guaranteed by the GSEs.
[21] The balance of the difference between this amount and the $45.6
billion allocated to housing programs was allocated to the Federal
Housing Administration Short Refinance Program and the Housing Finance
Agency Hardest Hit Fund.
[22] Roughly 46 percent of borrowers who were either in trial or
permanent modifications as of September 30, 2010, had non-GSE loans
and, therefore, fell under the TARP-funded portion of HAMP.
[23] [hyperlink, http://www.gao.gov/products/GAO-09-837] and
[hyperlink, http://www.gao.gov/products/GAO-10-634].
[24] Treasury has also put in place the Federal Housing Administration
(FHA)-HAMP, Rural Development-HAMP, the FHA Short Refinance Option,
the Housing Finance Agency Innovation Fund for the Hardest -Hit
Markets, and the Home Affordable Unemployment Program. Information on
the progress made by these TARP-funded programs in stemming avoidable
foreclosures will be discussed in a future report.
[25] GAO, Troubled Asset Relief Program: Treasury Continues to Face
Implementation Challenges and Data Weaknesses in Its Making Home
Affordable Program, [hyperlink,
http://www.gao.gov/products/GAO-11-288] (Mar. 17, 2011).
[26] GAO, Financial Audit: Office of Financial Stability (Troubled
Asset Relief Program) Fiscal Year 2010 and 2009 Financial Statements,
[hyperlink, http://www.gao.gov/products/GAO-11-174] (Washington, D.C.:
Nov. 15, 2010).
[End of section]
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