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entitled 'Troubled Asset Relief Program: As Treasury Continues to Exit 
Programs, Opportunities to Enhance Communication on Costs Exist' which 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Addressees: 

January 2012: 

Troubled Asset Relief Program: 

As Treasury Continues to Exit Programs, Opportunities to Enhance 
Communication on Costs Exist: 

GAO-12-229: 

GAO Highlights: 

Highlights of GAO-12-229, a report to congressional addressees. 

Why GAO Did This Study: 

The Emergency Economic Stabilization Act of 2008 authorized the 
Department of the Treasury (Treasury) to create the Troubled Asset 
Relief Program (TARP), a $700 billion program designed to restore the 
liquidity and stability of the financial system. The act also requires 
that GAO report every 60 days on TARP activities. This report examines 
(1) the condition and status of TARP programs; (2) Treasury’s 
management of TARP operations, including staffing for the Office of 
Financial Stability (OFS) and oversight of contractors and financial 
agents; and (3) what is known about the direct and indirect costs of 
TARP. To do this work, GAO analyzed audited financial data for various 
TARP programs; reviewed documentation such as program terms and 
internal decision memos; analyzed TARP cost estimates from the 
Congressional Budget Office (CBO), the Office of Management and 
Budget, and Treasury; and interviewed CBO and OFS officials. 

What GAO Found: 

Many TARP programs continue to be in various stages of unwinding and 
some programs, notably those that focus on the foreclosure crisis, 
remain active. The figure provides an overview of selected programs 
and the amount disbursed and outstanding, as applicable. Treasury has 
articulated broad principles for exiting TARP, including exiting TARP 
programs as soon as practicable and seeking to maximize taxpayer 
returns, goals that at times conflict. Some of the programs that 
Treasury continues to unwind, such as investments in American 
International Group, Inc. (AIG), require Treasury to actively manage 
the timing of its exit as it balances its competing goals. For other 
programs, such as the Capital Purchase Program (CPP)-—which was 
created to provide capital to financial institutions—-Treasury’s exit 
will be driven primarily by the financial condition of the 
participating institutions. Consequently, the timing of Treasury’s 
exit from TARP remains uncertain. 

Treasury continues to manage the various TARP programs using OFS 
staff, financial agents, and contractors. Overall OFS staffing has 
declined slightly for the first time as staff responsible for managing 
TARP investment programs and those in term-appointed leadership 
positions have departed. However, staff in some offices within OFS 
have increased—for example, in the Office of Internal Review, which 
helps to ensure that financial agents and contractors comply with laws 
and regulations. Through September 30, 2011, about half of Treasury’s 
116 contracts remained active, along with 14 of the 17 financial 
agency agreements. Treasury has continued to strengthen its management 
and oversight of contractors and financial agents and conflict-of-
interest requirements. In response to a GAO recommendation, OFS has 
finalized a plan to address staffing levels and expertise that 
includes identifying critical positions and conducting succession 
planning, in light of the temporary nature of its work. 

Treasury and CBO project that TARP costs will be much lower than the 
amount authorized when the program was initially announced. Treasury’s 
fiscal year 2011 financial statement, audited by GAO, estimated that 
the lifetime cost of TARP would be about $70 billion-—with CPP 
expected to generate the most lifetime income, or net income in excess 
of costs. OFS also reported that from inception through September 30, 
2011, the incurred cost of TARP transactions was $28 billion. Although 
Treasury regularly reports on the cost of TARP programs and has 
enhanced such reporting over time, GAO’s analysis of Treasury press 
releases about specific programs indicate that information about 
estimated lifetime costs and income are included only when programs 
are expected to result in lifetime income. For example, Treasury 
issued a press release for its bank investment programs, including 
CPP, and noted that the programs would result in lifetime income, or 
profit. However, press releases for investments in AIG, a program that 
is anticipated to result in a lifetime cost to Treasury, did not 
include program-specific cost information. Although press releases for 
programs expected to result in a cost to Treasury provide useful 
transaction information, they exclude lifetime, program-specific cost 
estimates. 

Consistently providing greater transparency about cost information for 
specific TARP programs could help reduce potential misunderstanding of 
TARP’s results. While Treasury can measure and report direct costs, 
indirect costs associated with the moral hazard created by the 
government’s intervention in the private sector are more difficult to 
measure and assess. 

Figure: Status of Selected Programs, as of September 30, 2011: 

[Refer to PDF for image: illustrated table] 

Closed programs with outstanding assets:  

Program: Capital Purchase Program: To provide capital to viable banks 
through the purchase of preferred shares and subordinated debentures. 
Amount: 
Disbursed: $204.9 billion; 
Outstanding assets: $17.3 billion. 

Program: Automotive Industry Financing Program: To prevent a 
significant disruption of the American 
automotive industry. 
Amount: 
Disbursed: $79.7 billion; 
Outstanding assets: $37.3 billion. 

Program: AIG Investment Program: To provide stability in financial 
markets and avoid disruptions to the markets from the deterioration of 
AIG's financial condition. 
Amount: 
Disbursed: $67.8 billion; 
Outstanding assets: $51.1 billion. 

Active Programs: 

Program: TARP-funded housing programs: To offer assistance to 
homeowners at risk of foreclosure.[A] 
Amount: 
Authorized: $45.6 billion; 
$2.4 billion in payments. 

Program: Public-Private Investment Program: To address the challenge 
of "legacy assets" by partnering with investors to purchase certain 
residential and commercial mortgage-backed securities. 
Amount: 
Disbursed: $17.6 billion; 
Outstanding assets: $15.9 billion. 

Programs Treasury exited: 

Program: Asset Guarantee Program: To provide federal government 
assurances for assets held by financial institutions that were viewed 
as critical to the functioning of the nation's financial system.[B] 
Lifetime Income: $3.7 billion. 

Program: Targeted Investment Program: To foster market stability and 
strengthen the economy by making case-by-case investments in 
institutions that Treasury deemed critical to the functioning of the 
financial system. 
Lifetime Income: $4 billion. 

Program: Capital Assessment Program: Created to provide capital to 
institutions not able to raise it privately to meet Supervisory 
Capital Assessment Program-—or "stress test"-—requirements. This 
program was never used. 
Lifetime Income: n/a. 

Note: TARP programs with disbursements of less than $600 million are 
excluded. Outstanding assets are presented at book value. 

[A] TARP-funded housing programs include a variety of programs to 
assist homeowners. Unlike the investment programs, TARP-funded housing 
programs do not hold assets to manage and sell; therefore, there are 
no outstanding assets.  

[B] Treasury no longer holds assets for this program that it must 
manage, though the Federal Deposit Insurance Corporation still holds 
Citigroup trust preferred stock and Treasury could receive income when 
these assets are sold.  

Source: GAO analysis of Treasury data.  

[End of figure] 

What GAO Recommends: 

Treasury should enhance its program-specific press releases to the 
public by consistently including lifetime cost estimates when 
reporting on program activities and results. Treasury agreed with our 
recommendation and plans to implement it by including a link to its 
cost reporting in future TARP program-specific press releases. 

View [hyperlink, http://www.gao.gov/products/GAO-12-229] or key 
components. For more information, contact Thomas J. McCool at (202) 
512-2642 or mccoolt@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

While Many TARP Programs Continue to Wind Down, Others Remain Active: 

Treasury Continues to Address Staffing Needs While Also Relying on 
Financial Agents and Contractors to Support TARP Administration and 
Programs: 

Although Estimated Lifetime TARP Costs Have Decreased Significantly, 
Treasury Could Enhance Its Communication about the Costs of TARP: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Information on Programs Treasury Has Exited: 

Appendix III: Comments from the Department of the Treasury: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: List of Programs Supported by TARP Funding: 

Table 2: Contracts and Financial Agency Agreements in Support of TARP, 
Fiscal Years 2010 through 2011: 

Table 3: Top Five Financial Agency Agreements: 

Table 4: TARP Contracts, Financial Agency Agreements, and Subcontracts 
with Small and Minority-and Women-Owned Businesses through Fiscal 
Years 2010 and 2011: 

Figures: 

Figure 1: Timeline for TARP Implementation and Unwinding, October 3, 
2008, through December 30, 2011: 

Figure 2: Status of CPP, as of September 30, 2011: 

Figure 3: Status of Institutions that Received CPP Investments, as of 
September 30, 2011: 

Figure 4: Number of Institutions Missing Scheduled Dividend or 
Interest Payments by Quarter, as of November 30, 2011: 

Figure 5: Status of CDCI, as of September 30, 2011: 

Figure 6: Status of AIFP, as of September 30, 2011: 

Figure 7: GM's Share Price from November 18, 2010, through September 
30, 2011, Compared to the IPO Share Price and Post-IPO Share Price 
Needed to Recoup Treasury's Investment: 

Figure 8: Status of AIG Investment Program, as of September 30, 2011: 

Figure 9: Status of SBA 7(a) Securities Purchase Program, as of 
September 30, 2011: 

Figure 10: Status of TALF, as of September 30, 2011: 

Figure 11: Status of PPIP, as of September 30, 2011: 

Figure 12: TARP-funded Housing Programs, Amounts Obligated and 
Disbursed, and Reported Activity through September 2011: 

Figure 13: HAMP Modifications Started Monthly from January 2010 
through September 2011: 

Figure 14: OFS Employees and Detailees, November 21, 2008, through 
September 30, 2011: 

Figure 15: Comparison of Treasury's Lifetime Cost and Income Estimates 
for TARP Programs, September 30, 2010, and September 30, 2011: 

Figure 16: Status of the Asset Guarantee Program, as of September 30, 
2011: 

Figure 17: Status of the Targeted Investment Program, as of September 
30, 2011: 

Abbreviations: 

ABS: asset-backed securities: 

AIFP: Automotive Industry Financing Program: 

AIG: American International Group, Inc. 

CBO: Congressional Budget Office: 

CDCI: Community Development Capital Initiative: 

CDFI: Community Development Financial Institutions: 

CMBS: commercial mortgage-backed securities: 

CPP: Capital Purchase Program: 

Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection 
Act: 

EESA: Emergency Economic Stabilization Act: 

Federal Reserve: Board of Governors of the Federal Reserve System: 

FRBNY: Federal Reserve Bank of New York: 

FHA: Federal Housing Administration: 

GM: General Motors: 

HAMP: Home Affordable Modification Program: 

IPO: initial public offering: 

IRS: Internal Revenue Service: 

MHA: Making Home Affordable: 

Moody's: Moody's Investors Service, Inc. 

OFS: Office of Financial Stability: 

OIR: Office of Internal Review: 

OMB: Office of Management and Budget: 

PPIF: public-private investment fund: 

PPIP: Public-Private Investment Program: 

SBA: Small Business Administration: 

SPV: special purpose vehicle: 

TALF: Term Asset-backed Securities Loan Facility: 

TARP: Troubled Asset Relief Program: 

Treasury: Department of the Treasury: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

January 9, 2012: 

Congressional Addressees: 

The Emergency Economic Stabilization Act (EESA) initially authorized 
$700 billion to assist financial institutions and markets, businesses, 
homeowners, and consumers through the Troubled Asset Relief Program 
(TARP).[Footnote 1] This amount was intended to provide confidence 
that the U.S. government would help address the greatest threat the 
financial markets and economy had faced since the Great Depression. As 
the severity and immediacy of the 2008 financial crisis began to 
diminish, Congress reduced the authorized amount to $475 billion with 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act).[Footnote 2] TARP cost estimates were never projected to 
reach the authorized amounts and over time these projected costs have 
declined as some banks have repaid their assistance and other programs 
move closer to their termination dates.[Footnote 3] However, an 
increasing number of banks that received Capital Purchase Program 
investments are falling behind on paying dividends related to their 
government assistance, and TARP-funded housing programs continue to 
struggle to address the ongoing foreclosure crisis. 

The Department of the Treasury (Treasury) is the primary agency 
implementing TARP and its activities have been broad in scope. 
Treasury established the Office of Financial Stability (OFS) to carry 
out TARP activities, which include injecting capital into key 
financial institutions, implementing programs to address problems in 
the securitization markets, providing assistance to the automobile 
industry, and offering incentives for modifying residential mortgages, 
among other activities. 

As required by EESA, we have provided oversight of TARP activities 
since they began in 2008. This 60-day report assesses the condition of 
TARP as of September 30, 2011.[Footnote 4] Specifically, it examines 
(1) the condition and status of TARP programs; (2) Treasury's 
management of TARP operations, including staffing for OFS and 
oversight of contractors and financial agents; and (3) what is known 
about the direct and indirect costs of TARP. 

To assess the condition and status of TARP programs, we analyzed 
program-specific data on obligations, disbursements, income, and other 
financial information from our audits of OFS's financial statements; 
reviewed program documentation such as program terms and internal 
decision memos; and interviewed OFS officials responsible for TARP 
programs and financial reporting.[Footnote 5] We determined that the 
financial information used in this report is sufficiently reliable to 
assess the condition and status of TARP programs. We also leveraged 
our past reporting on TARP, as well as that of the Congressional 
Oversight Panel and the Special Inspector General for TARP, as 
appropriate.[Footnote 6] To understand OFS's progress in staffing and 
its oversight of contractors and financial agents we collected 
staffing data and trends from 2008 through September 30, 2011; 
analyzed select contracts and financial agreements; and interviewed 
OFS officials. We determined that the staffing data were sufficiently 
reliable for our purposes by corroborating the data with other 
sources. To determine what information was available about the costs 
of TARP, we analyzed cost data from reports issued by the 
Congressional Budget Office (CBO), the Office of Management and Budget 
(OMB), and Treasury, focusing on Treasury cost estimates for our 
analyses. We also interviewed officials from CBO and Treasury about 
cost estimate methodologies. 

We conducted this performance audit from June 2011 to January 2012 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. 

Background: 

When EESA was signed on October 3, 2008, the U.S. financial system 
faced a severe crisis that has rippled throughout the global economy, 
moving from the U.S. housing market to an array of financial assets 
and interbank lending. The crisis restricted access to credit and made 
the financing on which businesses and individuals depend increasingly 
difficult to obtain. Further tightening of credit exacerbated a global 
economic slowdown. During the crisis, Congress, the President, federal 
regulators, and others undertook a number of steps to facilitate 
financial intermediation by banks and the securities markets. In 
addition to Treasury's efforts, policy interventions were led by the 
Board of Governors of the Federal Reserve System (Federal Reserve) and 
the Federal Deposit Insurance Corporation. While the banking crisis in 
the United States no longer presents the same level of systemic 
concerns as it did in 2008, the economy remains vulnerable, with 
unemployment higher than in the recent past. Globally, concerns about 
the stability of European banks and countries, especially Greece, 
escalated in 2011--demonstrating that problems remain in the global 
economy and financial markets. 

TARP Programs and Implementation: 

The passage of EESA resulted in a variety of programs supported with 
TARP funding.[Footnote 7] (See table 1.) 

Table 1: List of Programs Supported by TARP Funding: 

Program: American International Group, Inc. (AIG) Investment Program 
(formerly Systemically Significant Failing Institutions Program); 
Program description: Provided support to AIG to avoid disruptions to 
financial markets as its financial condition deteriorated. 

Program: Asset Guarantee Program; 
Program description: Provided federal government assurances for assets 
held by financial institutions that were viewed as critical to the 
functioning of the nation's financial system. Bank of America and 
Citigroup were the only two institutions that participated in this 
program. 

Program: Automotive Industry Financing Program (AIFP); 
Program description: Aimed to prevent a significant disruption of the 
American automotive industry through government investments in certain 
domestic automakers--Chrysler and General Motors (GM)--and auto 
financing companies Ally Financial (formerly known as General Motors 
Acceptance Corporation, or GMAC) and Chrysler Financial. 

Program: Capital Assessment Program; 
Program description: Created to provide capital to institutions not 
able to raise it privately to meet Supervisory Capital Assessment 
Program--or "stress test"--requirements. This program was never used. 

Program: Capital Purchase Program (CPP); 
Program description: As the largest TARP program, CPP was designed to 
provide capital investments to financially viable financial 
institutions. Treasury received preferred shares and subordinated 
debentures, along with warrants.[A] 

Program: Consumer and Business Lending Initiative programs; 
Program description: 
* Community Development Capital Initiative (CDCI) provided capital to 
Community Development Financial Institutions (CDFI) by purchasing 
preferred stock and subordinated debentures; 
* Small Business Administration (SBA) 7(a) Securities Purchase Program 
provided liquidity to secondary markets for government-guaranteed 
small business loans in SBA's 7(a) loan program; 
* Term Asset-backed Securities Loan Facility (TALF) provided liquidity 
in securitization markets for various asset classes to improve access 
to credit for consumers and businesses. 

Program: TARP-funded housing programs; 
Program description: 
* Making Home Affordable includes several housing programs. The 
primary program has been the Home Affordable Modification Program 
(HAMP), under which Treasury shares the cost of reducing monthly 
payments on first lien mortgages with mortgage holders/investors and 
provides financial incentives to servicers, borrowers, and mortgage 
holders/investors for loans modified under the program[C]; 
* Hardest Hit Fund seeks to help homeowners in the states hit hardest 
by unemployment and house price declines; 
* Support for the Department of Housing and Urban Development's 
Federal Housing Administration (FHA) Short Refinance program enables 
homeowners whose mortgages exceed the value of their homes to 
refinance into more affordable mortgages. 

Program: Public-Private Investment Program (PPIP); 
Program description: Created to address the challenge of "legacy 
assets" as part of Treasury's efforts to repair balance sheets 
throughout the financial system. Treasury partnered with private funds 
to purchase residential and commercial mortgage-backed securities. 

Program: Targeted Investment Program (TIP); 
Program description: Sought to foster market stability and strengthen 
the economy by making case-by-case investments in institutions that 
Treasury deemed critical to the functioning of the financial system. 
Bank of America and Citigroup were the only two institutions that 
participated in this program. 

Source: GAO. 

[A] A warrant is an option to buy shares of common stock or preferred 
stock at a predetermined price on or before a specified date. 

[B] CDFIs are financial institutions that provide financing and 
related services to communities and populations that lack access to 
credit, capital, and financial services. 

[C] For more information on additional Making Home Affordable programs 
funded through TARP see GAO, Troubled Asset Relief Program: Treasury 
Continues to Face Implementation Challenges and Data Weaknesses in Its 
Making Home Affordable Program, GAO-11-288 (Washington, D.C.: Mar. 17, 
2011). 

[End of table] 

Some of these programs have begun to unwind.[Footnote 8] Figure 1 
provides an overview of key dates for TARP implementation and the 
unwinding of some programs. 

Figure 1: Timeline for TARP Implementation and Unwinding, October 3, 
2008, through December 31, 2011: 

[Refer to PDF for image: timeline] 

2008: 

10/3: Congress passes Pub. L. No. 110-343, EESA, which authorized TARP. 

10/14: Treasury announces that it will purchase up to $250 billion in 
financial firms' preferred stock via CPP. 

10/28: Under CPP, Treasury purchases $115 billion in preferred stock 
and warrants from eight financial institutions.  

11/10: Treasury announces AIG assistance through the Systemically 
Significant Failing Institutions Program. 

11/23: Treasury, FDIC, and the Federal Reserve provide Citigroup 
assistance through guarantees, liquidity access, and capital, 
including an equity investment through TIP. 

11/25: Treasury announces support for the Federal Reserve's TALF to 
assist asset-backed securities. 

12/19: Treasury announces a plan to stabilize the automotive industry 
under AIFP.  

12/29: Treasury announces assistance to the General Motors Acceptance 
Corporation LLC (GMAC).  

2009: 

1/16: Treasury, the Federal Reserve, and the Federal Deposit Insurance 
Corporation (FDIC) assist Bank of America through guarantees, 
liquidity access, and capital, including protection on certain losses 
and the purchase of preferred stock under TIP.  

2/10: Treasury announces the Financial Stability Plan. 

2/18: Treasury announces the framework for its Making Home Affordable 
program. 

2/25: Treasury announces the terms and conditions for the Capital 
Assessment Program (CAP). 

3/23: Treasury, FDIC, and the Federal Reserve announce details on 
PPIP.  

4/17: Treasury provides an Equity Capital Facility to AIG in exchange 
for Series F preferred stock. 

5/7: Stress test results are announced. 

6/17: Five of the eight largest financial institutions to first 
participate in CPP repurchase their preferred stock from Treasury.  

9/14: Treasury issues report on status and next phase of financial 
stabilization efforts. 

9/30: Treasury announces that two PPIP funds have raised at least the 
minimum $500 million to invest in legacy securities.  

10/21: Treasury announces new efforts under TARP to assist small 
businesses and CDFIs.  

11/9: CAP closes.  

12/31: CPP closes to new investments.  

2010: 

2/3: Treasury announces terms for CDCI to provide capital to CDFIs. 

3/26: Treasury announces additional mortgage assistance for unemployed 
homeowners and those who owe more on their mortgage than their home's 
value.  

7/21: Dodd-Frank Act is enacted, which prohibits TARP funds from being 
obligated for new programs and Treasury reduces available funds for 
existing programs.  

10/3: On the second anniversary of EESA, Treasury's authorization to 
make new financial commitments for programs under TARP ends.  

11/17: Treasury participates in GM's initial public offering, reducing 
its ownership stake in GM.  

12/8: Treasury, Federal Reserve Bank of New York, Trustees, AIG, 
AIAAurora LLC (AIA special purpose vehicle), and American Life 
Insurance Company Holdings LLC (ALICO special purpose vehicle) sign 
master agreement to recapitalize AIG. 

12/10: Treasury announces exiting Citigroup assistance with the sale 
of all Citigroup common stock. 

2011: 

1/14: AIG closes on the restructuring of its government assistance so 
it now takes the form of common stock and preferred interests.  

5/27: Treasury sold 200 million shares of AIG, its first sale yet of 
AIG stock.  

6/2: Treasury announces the intention to begin the disposition of its 
SBA 7(a) securities portfolio and thereafter commences sales. 

7/19: Treasury announces that it exercised its right, for the first 
time, to elect members to the boards of two CPP recipients that missed 
six dividend or interest payments on their preferred stock.      

7/21: Treasury sells all of its shares of Chrysler.  

Source: GAO analysis of Treasury data. 

[End of figure] 

TARP Cost Estimates: 

EESA requires that Treasury, OMB, and CBO report the costs of TARP. 
Section 105 of EESA directed Treasury to provide Congress with regular 
cost and transaction updates for TARP and section 202 addresses OMB's 
and CBO's reporting duties. Specifically, OMB must prepare semiannual 
reports for the President and Congress that include lifetime cost 
estimates for Treasury's TARP-related purchases and guarantees. 
[Footnote 9] Treasury provides OMB with the program-specific 
transaction data and cost calculations, which OMB reviews and approves 
before incorporating into its semiannual reports. Section 202 also 
directed CBO to conduct assessments of each OMB report, including the 
cost of purchases and guarantees. These analyses must be included in a 
separate CBO report issued within 45 days of each OMB semiannual 
report.[Footnote 10] 

Treasury, OMB, and CBO report lifetime subsidy cost estimates (cost 
estimates) for TARP and its direct loan, equity investment, and other 
credit programs using the credit reform budgetary accounting 
methodology established in the Federal Credit Reform Act of 1990. 
[Footnote 11] Credit reform accounting requires that agencies develop 
a "subsidy" cost of loans and loan guarantees at disbursement that 
considers projections of future cash flows and the costs of financing. 
Administrative costs such as personnel and travel expenses are not 
included. The subsidy cost is the net present value of all cash flows 
associated with the transaction calculated by discounting all future 
payments back to the current period at one of two specific rates. The 
Federal Credit Reform Act of 1990 calls for the use of an interest 
rate on comparable Treasury debt while EESA requires Treasury to use 
an interest rate adjusted for market risk. These subsidy costs are re-
estimated annually to include actual cash flows and changes in 
estimated future performance. According to Treasury, its lifetime cost 
estimates represent the department's best estimate of what TARP and 
its programs will ultimately cost the taxpayer.[Footnote 12] 

While Many TARP Programs Continue to Wind Down, Others Remain Active: 

TARP programs continue to wind down, and some programs have ended. 
Treasury has stated its goals for the exit process for many programs, 
but as we and others have reported, these goals at times 
conflict.[Footnote 13] Treasury has stated that when deciding to sell 
assets and exit TARP programs, it will strive to: 

* protect taxpayer investment and maximize overall investment returns 
within competing constraints, 

* promote the stability of financial markets and the economy by 
preventing disruptions, 

* bolster markets' confidence to increase private capital investment, 
and: 

* dispose of the investments as soon as it is practicable. 

For example, we previously reported that deciding to unwind some of 
its assistance to GM by participating in an initial public offering 
(IPO) presented Treasury with a conflict between maximizing taxpayer 
returns and exiting as soon as practicable. Holding its shares longer 
could have meant realizing greater gains for the taxpayer, but only if 
the stock appreciated in value. By participating in GM's November 2010 
IPO, Treasury tried to fulfill both goals, selling almost half of its 
shares at an early opportunity. Treasury officials stated that they 
strove to balance these competing goals, but have no strict formula 
for doing so. Rather, they ultimately relied on the best available 
information in deciding when to start exiting this program. 

Moreover, Treasury's ability to exercise control over the timing of 
its exit from TARP programs is limited in some cases. For example, 
Treasury will likely decide when to exit AIG based on market 
conditions but Treasury has less control over its exit from PPIP 
because the program's exit depends on the timing of each public-
private investment fund (PPIF) selling its investments. Treasury 
continues to face this tension in its goals with a number of TARP 
programs as they continue to unwind. Throughout this section we 
provide the status of each TARP program that remains open or still 
holds assets that need to be managed, including when the program will 
end (or stop acquiring new assets and no longer receive funding) and 
when Treasury will exit the program (or sell assets it acquired while 
the program was open). We also provide information on outstanding 
assets, as applicable--both the book value and the market value--as of 
September 30, 2011.[Footnote 14] Also included are the lifetime 
estimated costs for each program calculated by Treasury. Later in this 
report we discuss the reasons for recent changes in several of 
Treasury's cost estimates between September 2010 and September 2011. 

Many Programs Continue to Wind Down, and Treasury Faces Trade-offs in 
Determining When to Exit: 

Financial Strength Will Determine When Remaining CPP Institutions Exit 
Program: 

While repayments and income from CPP investments have exceeded the 
original outlays, financial strength will determine when remaining 
institutions exit the program. As we have reported, Treasury disbursed 
$204.9 billion to 707 financial institutions nationwide from October 
2008 through December 2009.[Footnote 15] As of September 30, 2011, 
Treasury had received $208.1 billion in repayment and income from its 
CPP investments, exceeding the amount originally disbursed by $3.2 
billion (see figure 2). The repayment and income amount included 
$182.4 billion in repayments of original CPP investments, as well as 
$11.2 billion in dividends, interest, and fees; $7.6 billion in 
warrant income; and $6.9 billion in net proceeds in excess of costs. 
After accounting for writeoffs and realized losses on sales totaling 
$2.6 billion, CPP had $17.3 billion in outstanding investments as of 
September 30, 2011. Treasury estimates lifetime income of $13 billion 
for CPP as of September 30, 2011.[Footnote 16] 

Figure 2: Status of CPP, as of September 30, 2011: 

[Refer to PDF for image: illustration] 

Capital Purchase Program: 

Assets held: Preferred stock with warrants; Subordinated debt with 
warrants; Common stock.  

Start date: October 2008; 
End date: December 2009; 
Approximate exit: Unknown. 

Estimated lifetime: [Empty]; 
Cost: [Empty]; 
Income: $13 billion. 

Status of funding: 

Highest ever obligated: $204.9 billion; 
Disbursed: $204.9 billion; 
Repayments[A]: $182.4 billion; 
Write-offs and losses: $2.6 billion; 
Outstanding investments (book value): $17.3 billion. 

Income: 

Dividend/interest income: $11.2 billion; 
Warrant income: $7.6 billion; 
Proceeds in excess of cost: $6.9 billion; 
Total income: $25.7 billion. 

Market value of outstanding investments: 12.4 billion. 

Exit considerations: 

* The financial strength of CPP participants will determine whether 
and how quickly institutions can repay and when Treasury can exit. 

* Participants' ability to maintain dividend payments to Treasury will 
affect the estimated lifetime income or cost of the program. 

* The dividend rate for some CPP institutions resets beginning in the 
fall of 2013 and could prompt institutions to repay their investments.  

* Treasury currently plans to hold its CPP investments but could 
change that practice in the future, which could affect the timing of 
its exit from CPP. 

Source' GAO analysis of Treasury data. 

[A] The total amount of repayments includes about $400 million from 
institutions that transferred to CDCI and $2.2 billion from 
institutions that transferred to the Small Business Lending Fund. 

[End of figure] 

According to data in a Treasury report, nearly half (317) of the 707 
institutions that originally participated in CPP had exited the 
program as of September 30, 2011.[Footnote 17] Of the 317 institutions 
that have exited CPP, about 40 percent, or 126 institutions, fully 
exited by repaying their investments.[Footnote 18] Another 52 percent, 
or 165 institutions, exited CPP by exchanging their securities under 
other federal programs: 28 through CDCI and 137 through the Small 
Business Lending Fund (see figure 3).[Footnote 19] Of the remaining 8 
percent of CPP recipients that exited the program, 13 went into 
bankruptcy or receivership, 11 had their securities sold by Treasury, 
and 2 merged with another institution. 

Figure 3: Status of Institutions that Received CPP Investments, as of 
September 30, 2011: 

[Refer to PDF for image: pie-chart] 

Institutions remaining in program: 390; 
Investments refinanced through SBLF: 137; 
Investments fully repaid: 126; 
Investments refinanced through CDCI: 28; 
Institutions in bankruptcy/receivership: 13; 
Investments sold by Treasury: 11; 
Merged institutions: 2. 

Source: GAO analysis of Treasury data 

[End of figure] 

Also, according to data in a Treasury report, as of September 30, 
2011, 390 of the original 707 institutions remained in CPP but 
accounted for only 8.4 percent of the original investments. Much of 
the $17.3 billion in outstanding investments was concentrated in a 
relatively small number of institutions. The largest single 
outstanding investment was $3.5 billion, and the top four outstanding 
investments totaled $6.8 billion. The top 25 remaining CPP investments 
accounted for $11.3 billion. 

The cumulative number of financial institutions that had missed at 
least one scheduled dividend or interest payment by the end of the 
month in which the payments were due rose from 164 as of November 30, 
2010, to 226 as of November 30, 2011.[Footnote 20] Institutions can 
elect whether to pay dividends and may choose not to pay for a variety 
of reasons, including decisions that they or their federal and state 
regulators make to conserve cash and maintain (or increase) capital 
levels. 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. 

These 226 institutions had missed a cumulative total of 1,170 
payments.[Footnote 21] As of November 30, 2011, 184 institutions had 
missed three or more payments, and 97 had missed six or more. The 
total amount of missed dividend and interest payments was $429 
million, although some of these payments were later made prior to the 
end of the reporting month. On a quarterly basis, the number of 
institutions missing dividend or interest payments due on their CPP 
investments increased steadily from 8 in February 2009 to 158 in 
November 2011, or about 42 percent of institutions still in the 
program (see figure 4).[Footnote 22] This increase occurred despite 
reduced program participation, and the proportion of those missing 
scheduled payments has risen accordingly. The number of institutions 
missing payments stabilized in recent quarters; however, most of these 
institutions had repeatedly missed payments. In particular, 119 of the 
158 institutions that missed payments in November 2011 had also missed 
payments in each of the previous three quarters. Moreover, these 158 
institutions had missed an average of 4.8 additional previous 
payments, and only 7 had never missed a previous payment. 

Figure 4: Number of Institutions Missing Scheduled Dividend or 
Interest Payments by Quarter, as of November 30, 2011: 

[Refer to PDF for image: multiple line graph] 

2009: 

February; 
Institutions: 467; 
Missed payments: 8. 

May: 
Institutions: 593; 
Missed payments: 28. 

August: 
Institutions: 637; 
Missed payments: 34. 

November: 
Institutions: 645; 
Missed payments: 54. 

2010: 

February: 
Institutions: 645; 
Missed payments: 79. 

May: 
Institutions: 636; 
Missed payments: 97. 

August: 
Institutions: 616; 
Missed payments: 123. 

November: 
Institutions: 586; 
Missed payments: 132. 

2011: 

February: 
Institutions: 562; 
Missed payments: 152. 

May: 
Institutions: 543; 
Missed payments: 156. 

August: 
Institutions: 464; 
Missed payments: 159. 

November: 
Institutions: 379; 
Missed payments: 158. 
 
Source: GAO analysis of Treasury data. 

Note: Dividend and interest payments are due on a quarterly basis. The 
number of participating institutions on any given quarter did not 
reach 707 (i.e., the total number of institutions that participated in 
CPP) because these institutions entered and exited the programs at 
different points in time. 

[End of figure] 

On July 19, 2011, Treasury announced that it had, for the first time, 
exercised its right to elect members to the boards of directors of two 
of the remaining CPP institutions.[Footnote 23] In considering whether 
to nominate directors, Treasury said that it would proceed in two 
steps. First, after an institution misses five dividend or interest 
payments, Treasury sends OFS staff members to observe board meetings. 
Second, once an institution has missed six dividend payments, Treasury 
decides whether to nominate a board member based on a variety of 
considerations, including what it learns from the board meetings, the 
institution's financial condition, the function of its board of 
directors, and the size of its investment.[Footnote 24] 

The financial strength of the participating institutions will largely 
determine the speed at which institutions repay their investments and 
exit and the amount of total lifetime income. Institutions will have 
to demonstrate that they are financially strong enough to repay the 
CPP investments in order to receive regulatory approval to exit the 
program. The institutions' financial strength will also be a primary 
factor in their decisions to make dividend payments, and institutions 
that continue to miss payments may also have difficulty exiting CPP. 
Moreover, dividend rates will increase for remaining institutions 
beginning in late 2013, up to 9 percent, which may prompt institutions 
to repay their investments as that dividend increase approaches. If 
broader interest rates are low, especially approaching the dividend 
reset, banks could have further incentive to redeem their preferred 
shares. Treasury will need to balance the goals of protecting taxpayer-
supported investments while expeditiously unwinding the program. 
Treasury officials told us that Treasury's practice was generally to 
hold, rather than sell, its CPP investments.[Footnote 25] As a result, 
Treasury's ability to exit the program largely depends on the ability 
of institutions to repay their investments. However, Treasury 
officials noted that if warranted, Treasury could change its practice 
in the future and sell its investments. In an upcoming report, we plan 
to describe the financial condition of the remaining CPP institutions 
and compare them with institutions that already exited and those that 
never participated. 

Financial Strength of CDCI Participants Will Affect When Treasury 
Exits the Program: 

Treasury has disbursed $570 million to its 84 CDCI participants, 28 of 
which had previously participated in CPP (see figure 5).[Footnote 26] 
As we previously reported, CDCI is structured similarly to CPP in that 
it provides capital to financial institutions by purchasing equity and 
subordinated debt from them.[Footnote 27] No additional funds are 
available through the program, as CDCI's funding authority expired in 
September 2010. While no CDFIs have repaid Treasury's investment as of 
September 30, 2011, Treasury has thus far received $10 million in 
dividend payments from CDCI participants. Lastly, Treasury expects 
CDCI will cost approximately $182 million over its lifetime, almost a 
third of the $570 million obligated to the program. Officials stated 
that CDCI has a cost, while CPP is estimated to result in lifetime 
income, in part because CDCI provides a lower dividend rate that 
increases the financing costs. CDCI also does not require warrants of 
participating institutions, which would otherwise offset Treasury's 
costs. 

Figure 5: Status of CDCI, as of September 30, 2011: 

[Refer to PDF for image: illustration] 

Community Development Capital Initiative: 

Assets held: Preferred stock, Subordinated stock, and subordinated 
debt. 

Start date: 2010[A]; 
End date: September 2010; 
Approximate exit: Unknown. 

Estimated lifetime: [Empty]; 
Cost: $182 billion; 
Income: [Empty]. 

Status of funding: 

Highest ever obligated: 
Not from exchanges: $0.57 billion; 

Disbursed: 
Exchanges from CPP to CDCI: $0.36 billion; 
Not from exchanges: $0.21 billion; 
Total: $0.57 billion. 

Outstanding investments (book value): 
Exchanges from CPP to CDCI: $0.36 billion; 
Not from exchanges: $0.21 billion; 
Total: $0.57 billion. 

Income: 

Dividend income: $0.01 billion; 
Total income: $0.01 billion. 

Market value of outstanding investments: $0.40 billion. 

Exit considerations: 

* Similar to CPP, CDCI participants could fail to repay Treasury. 

* The low dividend rate extends until 2018 but the program could take 
longer to wind down if participants do not repay by that time. 

* Treasury currently plans to hold its CDCI investments but could 
change that practice in the future, which could affect the timing of 
its exit from CDCI. 

Source: GAO analysis of Treasury data. 

[A] Treasury first announced CDCI in October 2009; however, the 
program first provided capital to CDFIs in 2010. 

Note: Treasury began holding common stock for CDCI after September 30, 
2011. 

[End of figure] 

As with CPP, Treasury must continue to monitor the performance of CDCI 
participants because their financial strength will affect their 
ability to repay Treasury and Treasury's ability to exit the program. 
As of September 30, 2011, 5 of the 84 CDCI participants had missed at 
least one dividend or interest payment, according to Treasury. While 
the continuing weak economy could negatively affect distressed 
communities and the CDFIs that serve them, the program's low dividend 
rates may help participants remain current on payments. When Treasury 
will exit CDCI is unknown but the dividend rate that program 
participants pay increases in 2018, which provides an incentive for 
some borrowers to repay before that rate change occurs. As with CPP, 
Treasury officials indicated that while Treasury's current practice is 
to hold its CDCI investments, that strategy could change and Treasury 
could opt to sell its CDCI shares. 

Treasury's Balancing of Competing Goals and Market Conditions for AIFP 
Will Affect the Timing and Outcome of Its Future Exit: 

Treasury has received more than $40 billion for its roughly $80 
billion AIFP investment, in large part from its participation in GM's 
IPO and its exit from Chrysler. In November and December 2010, 
Treasury received $13.5 billion from its participation in GM's IPO and 
$2.1 billion for selling preferred stock in GM. Treasury's investment 
in Chrysler ended with the repayment of $5.1 billion in loans in May 
2011 and the $560 million in proceeds that Treasury received from the 
sale of its remaining equity stake to Fiat in July 2011. Treasury 
received $2.7 billion from its sale of Ally Financial trust preferred 
securities in March 2011.[Footnote 28] 

Treasury's timing of its exit from GM and Ally Financial--and ultimate 
return on its investment--will depend on how it balances its competing 
goals of maximizing taxpayer returns and selling its shares as soon as 
practicable. As figure 6 shows, all of the $37.3 billion in 
outstanding AIFP funds is from Treasury's investments in GM and Ally 
Financial, including 32 percent of GM's common stock and 74 percent of 
Ally Financial's common stock.[Footnote 29] 

Figure 6: Status of AIFP, as of September 30, 2011: 

[Refer to PDF for image: illustration] 

Automotive Industry Financing Program: 

Assets held: 
GM: common stock; 
Ally Financial: Common and preferred stock. 

Assets sold: 
GM: Preferred and common stock and debt obligations; 
Ally Financial: preferred securities; 
Chrysler: Common stock and debt obligations; 
Chrysler Financial: Debt obligations. 

GM: 
Start date: December 2008; 
End date: July 2009; 
Approximate exit: Unknown.  

Ally Financial: 
Start date: December 2008; 
End date: December 2009; 
Approximate exit: Unknown.  

Chrysler:  
Start date: January 2009; 
End date: June 2009; 
Approximate exit: July 2011. 

Chrysler Financial: 
Start date: January 2009
End date: January 2009
Approximate exit: July 2009. 

Estimated lifetime: [Empty]; 
Cost: $23.6 billion; 
Income: [Empty]. 

Status of funding: 

Highest ever obligated: $85.0 billion. 

Disbursed: 
GM: $51.0 billion; 
Ally Financial: $16.3 billion; 
Chrysler: $10.9 billion; 
Chrysler Financial: $1.5 billion; 
Total: $78.7 billion. 

Repayments: 
GM: $23.2 billion; 
Ally Financial: $2.5 billion; 
Chrysler: $7.9 billion; 
Chrysler Financial: $1.5 billion; 
Total: $35.2 billion. 

Write-offs and losses: 
GM: $4.4 billion; 
Ally Financial: $0.0 billion; 
Chrysler: $2.9 billion; 
Chrysler Financial: $0.0 billion; 
Total: $7.4 billion. 

Outstanding investments (book value): 
GM: $22.6 billion; 
Ally Financial: $14.6 billion; 
Chrysler: $0.0 billion; 
Chrysler Financial: $0.0 billion; 
Total: $37.3 billion. 

Income: 

Dividend/interest income: 
GM: $0.77 billion; 
Ally Financial: $2.5 billion; 
Chrysler: $1.2 billion; 
Chrysler Financial: $0.01 billion; 
Total: $4.4 billion. 

Proceeds in excess of cost: 
GM: $0.09 billion; 
Ally Financial: $0.13 billion; 
Chrysler: $0.48 billion; 
Chrysler Financial: $0.02 billion; 
Total: $0.72 billion. 

Total income: $5.2 billion. 

Market value of outstanding investments: 
GM: $10.1 billion; 
Ally Financial: $7.8 billion; 
Chrysler: $0.0 billion; 
Chrysler Financial: $0.0 billion; 
Total: $17.8 billion. 
         
Source: GAO analysis of Treasury data. 

Note: Ally Financial was formerly known as the General Motors 
Acceptance Corporation, or GMAC. 

[End of figure] 

The timing of Ally Financial's IPO will be critical to Treasury's exit 
strategy, but Ally Financial's mortgage liabilities could hamper the 
company's efforts to launch an IPO and makes the timing of Treasury's 
exit from Ally Financial unknown.[Footnote 30] On March 31, 2011, Ally 
Financial filed a registration statement with the Securities and 
Exchange Commission for a proposed IPO but a date has yet to be 
announced for the IPO. Additionally, after six straight quarterly 
profits, including growing asset balances for its auto loan business, 
the company posted a loss of $210 million in the third quarter of 
2011, dropping from a profit of about $270 million in the third 
quarter of 2010, primarily due to losses in its mortgage business. The 
company attributed these losses to the negative impact of the mortgage 
servicing rights valuation, resulting from a decline in interest rates 
and market volatility. Additionally, Ally Financial has $12 billion in 
debt coming due in 2012. 

Treasury officials told us that they continue to monitor market 
conditions and other factors in determining a divestment strategy for 
GM, but share prices would have to increase significantly from current 
levels to fully recoup Treasury's investment in GM. As we previously 
reported, GM's share price would have to increase by more than 60 
percent from the IPO share price of $33 to an average of more than $54 
for Treasury to fully recoup its investment.[Footnote 31] However, 
over roughly the past year, GM's shares have traded far below the IPO 
share price--with shares closing above $33 only twice since March 
2011, and as of September 30, 2011, the shares closed at $20.18 
(figure 7). 

Figure 7: GM's Share Price from November 18, 2010, through September 
30, 2011, Compared to the IPO Share Price and Post-IPO Share Price 
Needed to Recoup Treasury's Investment: 

[Refer to PDF for image: line graph] 

IPO Share price: $33; 
Post-IPO share price to fully recoup Treasury's investment: $54; 
GM Closing share price: 

2010: 
November: $34.19; 
December: $34.78. 

2011: 
January: $37.06; 
February: $36.45; 
March: $32.95; 
April: $32.41; 
May: $32.18; 
June: $30.23; 
July: $30.58; 
August: $28.07; 
September: $23.03. 

Source: Thomson Reuters Datastream and GAO analysis. 

[End of figure] 

The recent decline in the value of Ally Financial and reductions in 
the share prices of common stock holdings in GM highlight how market 
conditions contribute to the risk of AIFP. The projected lifetime cost 
of AIFP was $23.6 billion as of September 30, 2011, an increase from 
the $14.7 billion estimate as of September 30, 2010. This change is 
largely due to the decrease in the trading price of GM's common stock 
and the decrease in the estimated value of Ally Financial. As Treasury 
balances its goals of exiting as soon as practicable and maximizing 
taxpayer returns, it will need to time its divestiture of GM and Ally 
Financial shares to help recover as much as possible of its 
investment. Treasury faces the tension of holding shares long enough 
to potentially recoup its investment, or divesting sooner, likely at a 
loss. 

Treasury's Plans to Sell AIG Shares Are Driven by Market Conditions: 

In September 2008, prior to TARP, AIG received government assistance 
in the form of a loan from the Federal Reserve Bank of New York 
(FRBNY). In exchange, AIG provided shares of preferred stock to the 
AIG Credit Facility Trust created by FRBNY. These preferred shares 
were later converted to common stock and transferred to Treasury. In 
addition to this non-TARP support, Treasury provided TARP assistance 
to AIG in November 2008 by purchasing preferred shares that were also 
later converted to common stock. In late January 2011, following the 
recapitalization of AIG, Treasury owned 1.655 billion TARP and non-
TARP common shares in AIG.[Footnote 32] 

Treasury began taking steps in January 2011 to unwind its interest in 
AIG by conducting the first underwritten offering of its AIG common 
shares. As we previously reported, Treasury sold 200 million TARP and 
non-TARP shares in May 2011.[Footnote 33] Overall, Treasury officials 
said that Treasury realized a gain because the 200 million shares were 
sold at $29 per share, which was more than Treasury's overall cost 
basis of $28.7269 per share.[Footnote 34] Treasury's 1.455 billion 
remaining shares after the sale consist of 960 million TARP and 495 
million non-TARP shares. (AIG also sold 100 million shares of common 
stock during this offering.) The costs for underwriting, Treasury's 
financial advisors, and Treasury's legal counsel were paid by, and 
will continue to be paid by, AIG. Treasury, however, pays the costs 
for assistance it receives from FRBNY. Based on the September 30, 
2011, market price of AIG common stock, in selling all of its AIG 
common shares, Treasury expects to incur a lifetime cost of $24.3 
billion for its TARP shares and receive income of $12.8 billion for 
its non-TARP shares, giving it a lower than expected net estimated 
cost of $11.5 billion for assistance to AIG (see figure 8).[Footnote 
35] 

Figure 8: Status of AIG Investment Program, as of September 30, 2011: 

[Refer to PDF for image: illustration] 

AIG Investment Program: 

Assets held: 
AIG preferred interest (in AIA Aurora LLC special purpose vehicle); 
AIG common stock. 

Assets sold: 
AIG preferred interest (in American Life Insurance Company Holdings 
LLC special purpose vehicle). 

Start date: November 2008; 
End date: n/a; 
Approximate exit: Unknown.  

Status of funding: 

Estimated lifetime:  

Non-TARP shares: 
Cost: [Empty]; 
Income: $12.8 billion. 

TARP common shares: 
Cost: $24.3 billion; 
Income: [Empty]. 

Net cost: $11.5 billion. 
 
Highest ever obligated: TARP (preferred): $69.8 billion.      

Disbursed TARP (Series D/E)[A] (preferred): $40.0 billion; 
TARP (Series F)[A] (preferred) $27.8 billion; 
Non-TARP (Series C)[B]: $0; 
Total: $67.8 billion. 

Repayments TARP (Series F): 
Common: $3.8 billion; 
Preferred): $11.2 billion; 
Total: $15.0 billion. 

Write-offs and losses TARP (Series F) (Common): $1.9 billion. 

Outstanding investments TARP (book value): 
Common: $41.8 billion; 
Preferred: $9.3 billion; 
Total: $51.1 billion. 

Income: 
Dividend income: TARP: $0.25
Other income: $0.17 billion; 
Total income: $0.41 billion. 

Market value of outstanding investments     
Common: $21.1 billion; 
Preferred: $9.3 billion; 
Total: $30.4 billion. 

Exit considerations: 

* Ability of the market to absorb Treasury's shares when it sells. 

* Company and external events that could affect the value of AIG 
stock.  

* State of the domestic and global insurance markets. 
 
Source: GAO analysis of Treasury data. 

[A] When AIG was recapitalized in January 2011, Treasury exchanged all 
of its Series E preferred stock and some of its Series F preferred 
stock into common stock (the remainder of the Series F preferred stock 
was exchanged for preferred stock in AIA Aurora LLC and American Life 
Insurance Company Holdings LLC, two special purpose vehicles wholly 
owned by AIG). As a result of these exchanges, subsequent stock sale, 
and repayments on the special purpose vehicle preferred stock, 
Treasury now holds approximately 1.455 billion shares of AIG TARP 
common stock and about $8.858 billion in AIG TARP preferred interest 
(the AIA Aurora LLC special purpose vehicle). 

[B] During the AIG recapitalization, Treasury also exchanged its 
Series C shares of non-TARP preferred stock into common stock. 
Currently, Treasury holds 495 million shares of non-TARP common stock. 

[End of figure] 

AIG originally issued $16 billion of preferred shares in a special 
purpose vehicle (SPV) called AIA Aurora LLC (or AIA), an SPV created 
by FRBNY to hold shares of certain portions of AIG's foreign life 
insurance businesses. Likewise, AIG issued $9 billion of preferred 
shares in an SPV called American Life Insurance Company (ALICO) 
Holdings LLC, which was created to hold AIG's ALICO holdings. AIG 
issued the shares to FRBNY in December 2009 in exchange for a $25 
billion reduction in FRBNY's revolving loan to AIG. As part of the 
recapitalization plan executed on January 14, 2011, AIG redeemed 
FRBNY's preferred shares by drawing down the Series F equity facility 
and selling assets. In turn, FRBNY transferred to Treasury the 
proceeds, along with a cross collateralization agreement against 
certain other AIG businesses, held for sale. Since the 
recapitalization, AIG has used the additional sales proceeds to reduce 
the remaining liquidation preferences of Treasury's preferred 
interests in the AIA and ALICO SPVs. 

Treasury has not announced any time frames for selling its AIG 
investments, but as it exits this assistance it needs to balance 
selling its AIG stock as soon as practicable based on market 
conditions with protecting taxpayers' interests. Treasury officials 
said that the agency would work to avoid economic losses during this 
exit. To that end, Treasury officials said that the agency had waited 
to proceed with its first underwritten offering of AIG common stock 
until (1) it reacquainted the investment community with AIG and (2) 
AIG executed and closed other transactions, such as the March 2011 
sale of MetLife equity securities and a subsequent March transaction 
that reduced the preferred interests in the AIA SPV by approximately 
$5.6 billion.[Footnote 36] The first underwritten offering of 
Treasury's AIG common shares occurred in May 2011. Treasury expects to 
use underwritten offerings to sell most of its common stock in AIG, 
with assistance from AIG. While Treasury generally prefers to sell the 
common stock that it holds through underwritten offerings, it could 
also decide to sell stock through other mechanisms, including more 
frequent at-the-market offerings.[Footnote 37] 

To sell its AIG stock, officials said that the agency planned to 
regularly conduct analyses, consider market challenges, and rely on 
AIG to facilitate Treasury's offerings. Treasury officials have said 
that they would continue to conduct analyses using factors such as 
AIG's share price, investor interest in AIG stock, and possible future 
restructuring. Treasury officials also expect to face several 
challenges when disposing AIG stock. First, because Treasury owns a 
significant amount of AIG stock--both as a percentage of total company 
stock and in absolute terms--the amount of shares the market can 
absorb may be limited. Second, continued price volatility in the 
domestic and global insurance markets could impede growth in these 
insurance markets. Third, the continued low interest rate environment 
could likely lead to lower investment incomes and overall profits for 
AIG, which in turn could affect Treasury's opportunities to sell its 
AIG shares. According to Treasury officials, Treasury expects to rely 
on AIG to prepare and file certain paperwork with the Securities and 
Exchange Commission and provide other assistance when Treasury sells 
its remaining AIG shares.[Footnote 38] Given the decline in AIG's 
stock price since January 2011 and the recent volatility in the stock 
market, when Treasury's exit will be completed is unknown. Treasury 
will also need to balance the tension of its competing goals by 
deciding whether it should exit even if the stock value is below 
Treasury's break-even amount. 

Treasury Continues Selling SBA 7(a) Securities to Expeditiously Exit 
Markets: 

Treasury purchased 31 SBA 7(a) securities between March and September 
2010 in an attempt to alleviate liquidity strains in secondary markets 
for SBA 7(a) loans.[Footnote 39] Treasury announced in June 2011 that 
it intended to sell these securities and has sold nearly three-
quarters of the portfolio. As of October 2011, Treasury has sold 23 
securities. Treasury has eight securities remaining to be sold and 
projects lifetime income of $3.9 million (see figure 9). 

Figure 9: Status of SBA 7(a) Securities Purchase Program, as of 
September 30, 2011: 

[Refer to PDF for image: illustration] 

Community Development Capital Initiative: 

Assets held: Securities backed by SBA 7(a) guaranteed loans. 

Start date: March 2010[A]; 
End date: September 2010[B]; 
Approximate exit: Unknown. 

Estimated lifetime: [Empty]; 
Cost: [Empty]; 
Income: $3.9 million. 

Status of funding: 

Highest ever obligated: $0.38 billion; 
Disbursed: $0.3 billion; 
Repayments: $0.2 billion; 
Outstanding investments (book value): $0.1 billion. 

Income: 

Interest income: $0.01; 
Proceeds in excess of cost: $0.006 billion; 
Total income: $0.02 billion. 

Market value of outstanding investments: $0.01 billion. 

Exit considerations: 

* Impact on liquidity in SBA 7(a) markets. 

Source: GAO analysis of Treasury data. 

Note: This figure represents financial information as of September 30, 
2011. It does not include information about securities sold after that 
date. 

[A] The program's first activity was in March 2010, although it was 
first announced in March 2009. 

[B] The program's funding ended in September 2010, though some 
purchases that were previously committed to prior to September were 
fulfilled after that date. 

[End of figure] 

Treasury officials took into account market effects when they 
considered exiting Treasury's portfolio of SBA 7(a) securities. For 
example, Treasury analyzed SBA lending and securitization volumes, 
which had recovered to precrisis levels.[Footnote 40] According to 
Treasury officials, Treasury also consulted with its external advisor, 
EARNEST Partners, to understand the potential effect of its sales on 
the markets. According to Treasury officials, EARNEST Partners advised 
Treasury that its portfolio was small enough not to affect liquidity 
in the $15 billion market for SBA 7(a) securities. Moreover, the firm 
advised Treasury that it had received significant market interest in 
the securities after Treasury announced its intention to sell them. 
Treasury officials concluded that it was an opportune time to begin 
selling these securities without negatively affecting markets. 

Treasury officials stated that they considered several tradeoffs in 
deciding to sell the securities this year, rather than holding them 
for longer. Exiting quickly appears to be the main consideration, 
although Treasury officials stated that they balanced this with 
promoting financial stability and protecting the taxpayer. To 
determine what prices are reasonable to accept as it continues to sell 
these securities, Treasury requested market price estimates from two 
companies for each security it held and compared that to a break-even 
price and a reserve price, below which it would require additional 
approvals to proceed with the sale. While Treasury might have 
maximized taxpayer returns by holding the securities longer, according 
to Treasury officials, it faced prepayment risk that could have 
reduced the securities' long-term earning potential.[Footnote 41] 

Treasury Expects Lifetime Income from TALF and to Exit the Program by 
2015: 

The Federal Reserve established TALF to reopen the securitization 
markets in an effort to improve access to credit for consumers and 
businesses.[Footnote 42] Treasury agreed to contribute as much as $4.3 
billion to provide credit protection to FRBNY for TALF loans should 
borrowers neglect to repay and subsequently surrender the asset-backed 
securities (ABS) or commercial mortgage-backed securities (CMBS) 
pledged as collateral.[Footnote 43] To date, Treasury has disbursed 
$100 million for start up costs related to the TALF SPV, TALF LLC (see 
figure 10). This SPV receives a portion of the interest income earned 
on TALF loans that can be used to purchase any borrower-surrendered 
collateral from FRBNY, referred to as excess interest. 

Figure 10: Status of TALF, as of September 30, 2011: 

[Refer to PDF for image: illustration] 

Term Asset-Backed Securities Loan Facility: 

Assets held: Asset-backed securities (ABS) and commercial mortgage-
backed securities (CMBS). 

Start date: March 2009[A]; 
End date: June 2010; 
Approximate exit: 2015. 

Estimated lifetime: [Empty]; 
Cost: [Empty]; 
Income: $421 million. 

Status of funding: 

Highest ever obligated: $20.0 billion; 
Disbursed: $0.1 billion; 
Outstanding investments (book value)[B]: $0.1 billion. 

Income: 

Total income: $0.0. 

Market value of outstanding investments: $0.6 billion. 

Exit considerations: 
* Fluctuations in CMBS risks and valuations could affect Treasury's 
ultimate return on TALF. 

Current load balance: $71 billion; 
$11.3 billion outstanding; 
$59.7 billion repaid. 

Source: GAO analysis of Treasury data. 

[A] Although the program was first announced in November 2008, the 
first program activity was initiated in March 2009. 

[B] The book value of Treasury's outstanding investments is the same 
as the $100 million contributed by Treasury to the TALF SPV. The 
market value of Treasury's outstanding investments is the net book 
value for the $100 million TALF contribution calculated using Credit 
Reform Accounting. 

[End of figure] 

FRBNY stopped issuing new TALF loans in 2010.[Footnote 44] Treasury 
officials report that FRBNY TALF loan balances have fallen from $29.7 
billion in September 2010 to $11.3 billion as of September 30, 2011. 
Agency officials also indicated that all TALF loans are current and 
borrowers continue to pay down their loans. 

The excess interest in TALF LLC grew by more than 30 percent between 
October 2010 and September 2011, from $523 million to $685.6 million. 
As a result, if the TALF LLC balance exceeds the value of any 
surrendered collateral, Treasury may not need to disburse any 
additional funds for the program and could instead realize lifetime 
income, given that it will receive 90 percent of funds remaining in 
TALF LLC after loans are repaid and the program ends. In addition, the 
equity that borrowers hold in TALF collateral has grown since TALF 
loans were first issued.[Footnote 45] As of September 30, 2011, 
Treasury expects that TALF will result in lifetime income of $421 
million. Despite these positive trends, FRBNY and Treasury staff 
continue to monitor market conditions and credit rating agency actions 
that could affect TALF assets. Moreover, as we have previously 
reported, market value fluctuations could affect future results. In 
particular, continued volatility in global markets could be reflected 
in CMBS pricing because, according to Treasury officials, CMBS has 
exhibited greater correlation with investor sentiment and broad 
volatility in other risk assets versus other types of ABS. 

Treasury expects to exit TALF by 2015, although it does not have 
complete control over its exit because its role in TALF is secondary 
to that of the Federal Reserve. Treasury models loan repayments using 
TALF loan terms and data provided by the Federal Reserve and projects 
repayment schedules, collateral cash flows, prepayments, and 
performance loss rates. Based on these analyses, Treasury expects that 
the last TALF loan will be due in 2015. However, should any assets be 
surrendered to TALF LLC, Treasury could be involved in TALF beyond 
that date as it may be required to lend to TALF LLC to purchase and 
manage assets until they are sold or reach maturity. 

Remaining PPIP Funds Continue to Invest, Although One Fund Is 
Unwinding Prior to Expected End Date: 

Treasury created PPIP, partnering with private funds, to purchase 
troubled mortgage-related assets from financial institutions. PPIFs 
are in their 3-year investment period, which starts at a fund's 
inception date. There were nine PPIFs established through PPIP. 
[Footnote 46] The investment period ends for each of the remaining 
PPIFs between October and December 2012, at which time the PPIFs can 
no longer draw money from Treasury or make new investments.[Footnote 
47] Once the investment period ends, PPIFs must begin the process of 
unwinding their positions and must completely divest within 5 years--
although Treasury can decide to extend this period for up to two 
additional years for each PPIF. One fund notified Treasury in 
September 2011 that it terminated its investment period and therefore 
will no longer actively invest. Therefore, this fund has begun to 
unwind. 

According to Treasury, PPIFs have accessed about 80 percent of the 
equity and debt available through Treasury and private investors as of 
September 30, 2011, and have repaid a total of $1.2 billion in debt 
financing as of September 30, 2011. Treasury estimates that PPIP will 
ultimately result in lifetime income of about $2.4 billion (see figure 
11). However, the ultimate results will depend on a variety of 
factors, including when PPIFs choose to divest and the performance of 
the assets they hold. 

Figure 11: Status of PPIP, as of September 30, 2011: 

[Refer to PDF for image: illustration] 

Public-Private Investment Program: 

Assets held: 
Eligible residential mortgage-backed securities (RMBS) and commercial 
mortgage-backed securities (CMBS). 

Start date: September 2009[A]; 
End date: 2012; 
Approximate exit: 2017[B]. 

Estimated lifetime: [Empty]; 
Cost: [Empty]; 
Income: $2.4 billion. 

Status of funding: 

Highest ever obligated: 
Equity: $10.1 billion; 
Debt: $20.2 billion; 
Total: $30.3 billion. 

Disbursed: 
Equity: $6.0 billion; 
Debt: $11.6 billion; 
Total: $17.6 billion. 

Repayments: Equity and Debt: $1.7 

Outstanding investments (book value): 
Equity: $5.5 billion; 
Debt: $10.4 billion; 
Total: $15.9 billion. 

Income: 

Dividend incomes: $0.48 billion;        
Interest income: $0.18 billion; 
Proceeds in excess of cost: $0.09 billion; 
Total income: $0.75 billion.        

Market value of outstanding investments: 
Equity: $8.1 billion; 
Debt: $10.3 billion; 
Total: $18.4 billion. 

Exit considerations: 

* The affect on the market of PPIFs deleveraging at the end of their  
investment periods.  

* When PPIFs decide to unwind could affect the PPIP exit date. 

Status of capital repayments: 

Debt financing: 
$1.2 billion repaid out of $11.6 billion drawndown; 
Total provided approved: $14.4 billion. 

Equity capital: 
$0.5 repaid out of $6 billion provided; 
Total approved: $7.5 billion. 
Debt       
       
Source: GAO analysis of Treasury data. 

[A] PPIFs began their investment periods in 2009. Active PPIFs will 
continue to invest until the investment period ends in 2012. The 
program was first announced in March 2009. 

[B] The stipulated exit date is 2017, though the program could be 
extended through 2019. 

[End of figure] 

While PPIFs are in the investment period, Treasury officials said that 
their role is to follow the progress of each PPIF's investment 
strategy, the risks being taken in each portfolio, and the target 
returns for each portfolio. In this role, Treasury staff and 
contractors monitor compliance with PPIP terms. Also, Treasury has 
hired a contractor to provide investment fund consulting and analysis 
of PPIF portfolios. 

Current PPIP terms stipulate an exit by 2017.[Footnote 48] Unlike some 
other TARP programs, Treasury officials do not face the same 
consideration of competing goals in exiting the program, given that 
the terms of the program dictate when the PPIFs must wind down. 
However, Treasury officials noted that PPIFs can liquidate at any 
time. Given that one PPIF has chosen to end its investments as of 
September 30, 2011, it is possible that if others follow the program 
could end sooner than estimated. Such action by PPIFs would affect 
Treasury's estimates for future income from the program when it ends. 
Officials also noted that the program was designed to encourage firms 
to deleverage after the investment period, at which time PPIFs would 
no longer have access to debt financing from Treasury. Once the 
investment period concludes, the PPIFs can no longer access funds from 
Treasury and must pay down the Treasury loan and make distributions to 
the partners as RMBS and CMBS are sold. Officials noted that this 
program structure creates an incentive for PPIFs to sell their assets 
promptly once their access to Treasury credit ends. Treasury officials 
noted that they were not concerned about the effect of PPIP's eventual 
wind down on markets, as the 5-year period for unwinding would likely 
mitigate any potential impact. 

Unlike Most Other Programs, TARP-Funded Housing Programs Remain 
Ongoing and Represent Direct Outlays of TARP Funds: 

To help meet EESA's goals of preventing avoidable foreclosures and 
preserving homeownership, Treasury has allocated $45.6 billion in TARP 
funds to three programs: Making Home Affordable (MHA), which has 
several components; Hardest Hit Fund (HHF); and the Department of 
Housing and Urban Development's Federal Housing Administration (FHA) 
Short Refinance Program (see figure 12). Treasury could potentially 
disburse TARP funds under these three programs for several more years-
-until September 2020 in the case of the FHA Short Refinance program. 
Unlike other TARP-funded programs, the expenditures under these three 
housing programs are direct outlays of funds with no provision for 
repayment. Given these characteristics, Treasury does not face the 
same tension between exiting programs as soon as practicable and 
maximizing taxpayer returns as it does with some other TARP programs. 

Figure 12: TARP-funded Housing Programs, Amounts Obligated and 
Disbursed, and Reported Activity through September 2011: 

[Refer to PDF for image: illustration] 

TARP housing programs: 

Making Home Affordable (MHA): 
Start date: March 2009; 
End date: Mid-2018[A].    

Hardest-Hit Fund (HHF): 
Start date: February 2010; 
End date: December 2017;. 

FHA Short Refinance (FHASR): 
Start date: September 2010; 
End date: September 2020. 

Estimated lifetime[B: [Empty]; 
Cost: $45.6 billion; 
Income: [Empty]. 
  
Status of funding: 

Highest ever obligated: 
MHA: $29.9 billion; 
HHF: $7.6 billion; 
FHASR: $8.1 billion; 
Total: $45.6 billion. 
  
Payments: 
MHA: $1.7 billion; 
HHF: $0.7 billion; 
FHASR: $0.0; 
Total: $2.4 billion. 

Recognized cost: 
MHA: $2.1 billion; 
HHF: $0.7 billion; 
FHASR: $0.0; 
Total: $2.8 billion. 

Liability: 
MHA: $0.3 billion; 
HHF: $0.0; 
FHASR: $0.0; 
Total: $0.3 billion. 

Reported activity through September 2011 by subcomponent (if 
applicable): 

MHA: Home Affordable Modification Program (HAMP): 
856,974 HAMP permanent modifications. 

MHA: Home Price Decline Protection Incentives: 
83,028 modifications. 

MHA: Home Affordable Foreclosure Alternatives (HAFA) Program: 
18,557 HAFA agreements completed. 

MHA: Second Lien Modification Program (2MP): 
45,705 2MP modifications. 

MHA: Principal Reduction Alternative (PRA): 
29,342 PRA permanent modifications. 

MHA: Government Loans (FHA and Department of Agriculture Rural Housing 
Service HAMP (RD-HAMP) loan modifications): 
4,671 FHA-HAMP modifications; No RD-HAMP modification yet reported. 

MHA: Treasury/FHA Second Lien Program (FHA2LP): 
No activity reported. 

HHF: 19,025 HFA borrowers assisted. 

FHJASR: 334 FHA loans refinanced. 

Source: GAO analysis of Treasury data. 

[A] Borrowers have until December 31, 2012, to accept their trial 
period plan for HAMP by making a timely first trial payment. Trial 
modifications must be successful for at least 3 months before 
borrowers can convert into a permanent modification. Incentive 
payments can be made for up to 5 years after the date of conversion 
from a trial modification. Additionally, servicers can take several 
months before submitting loan data for incentive payments. As a 
result, Treasury officials estimated that the last HAMP incentive 
payment would likely occur sometime in mid-2018. 

[B] Treasury's estimated lifetime cost estimates reflect the actual 
outlay of funds to the housing programs and do not utilize the same 
credit reform accounting as the other program-specific lifetime cost 
estimates. 

[End of figure] 

The centerpiece of Treasury's MHA program is HAMP, which seeks to help 
eligible borrowers facing financial distress avoid foreclosure by 
reducing their monthly first lien mortgage payments to more affordable 
levels (31 percent of their monthly income).[Footnote 49] Treasury 
announced HAMP on February 18, 2009. Borrowers have until December 31, 
2012, to accept an offered trial period plan by making a timely first 
trial period payment. Under HAMP, Treasury shares the cost of lowering 
borrowers' monthly payments from 38 to 31 percent of monthly income 
for a 5-year period with the mortgage holder or investors. Treasury 
also provides a series of incentive payments to servicers, investors, 
and borrowers if specific program conditions are met. Treasury 
originally announced that up to 3 to 4 million borrowers would be 
helped under HAMP.[Footnote 50] Through September 2011, Treasury 
reported that 856,974 permanent modifications had been started and, as 
shown in figure 13, monthly activity to date peaked during the early 
part of 2010.[Footnote 51] These results likely reflect Treasury's 
decision to require all servicers starting on June 1, 2010, to perform 
full verification of borrower's eligibility for HAMP before initiating 
a trial modification (previously servicers were allowed to offer trial 
modifications using unverified information provided by the borrower). 
Monthly trial modification starts during September 2011 were the 
lowest reported since January 2010. Treasury recently announced that 
it had launched a nationwide advertisement campaign to increase 
awareness of the MHA program among eligible homeowners. 

Figure 13: HAMP Modifications Started Monthly from January 2010 
through September 2011: 

[Refer to PDF for image: multiple line graph] 

2010: 

January: 
Trial modifications started: 95; 
Permanent modifications started: 50. 

February: 
Trial modifications started: 88; 
Permanent modifications started: 53. 

March: 
Trial modifications started: 70; 
Permanent modifications started: 61. 

April: 
Trial modifications started: 49; 
Permanent modifications started: 68. 

May: 
Trial modifications started: 27; 
Permanent modifications started: 48. 

June: 
Trial modifications started: 21; 
Permanent modifications started: 51. 

July: 
Trial modifications started: 25; 
Permanent modifications started: 37. 

August: 
Trial modifications started: 24; 
Permanent modifications started: 33. 

September: 
Trial modifications started: 31; 
Permanent modifications started: 28. 

October: 
Trial modifications started: 30; 
Permanent modifications started: 24. 

November: 
Trial modifications started: 31; 
Permanent modifications started: 30. 

December: 
Trial modifications started: 35; 
Permanent modifications started: 30. 

2011: 

January: 
Trial modifications started: 31; 
Permanent modifications started: 28. 

February: 
Trial modifications started: 33; 
Permanent modifications started: 26. 

March: 
Trial modifications started: 33; 
Permanent modifications started: 36. 

April: 
Trial modifications started: 32; 
Permanent modifications started: 29. 

May: 
Trial modifications started: 26; 
Permanent modifications started: 32. 

June: 
Trial modifications started: 24; 
Permanent modifications started: 32. 

July: 
Trial modifications started: 20; 
Permanent modifications started: 28. 

August: 
Trial modifications started: 17; 
Permanent modifications started: 26. 

September: 
Trial modifications started: 15; 
Permanent modifications started: 40. 

Source: GAO analysis of Treasury data. 

[End of figure] 

In addition to HAMP, Treasury has implemented a number of additional 
MHA components that use TARP funds to augment or complement the HAMP 
first lien modification program:[Footnote 52] 

* Home Affordable Foreclosure Alternatives Program. The Home 
Affordable Foreclosure Alternatives Program offers assistance to 
homeowners looking to exit their homes through a short sale or deed-in-
lieu of foreclosure. Treasury offers incentives to eligible 
homeowners, servicers, and investors under the program. Through 
September 2011, servicers reported completing 18,043 short sales and 
514 deeds-in-lieu under the program. 

* Home Price Decline Protection Incentives. Home Price Decline 
Protection Incentives provides investors with additional incentives 
for HAMP modifications of loans on properties located in areas where 
home prices have recently declined and where investors are concerned 
that price declines may persist. Through September 2011, Treasury has 
paid about $135 million to investors in program incentives to support 
the HAMP modification of 83,028 loans. 

* Principal Reduction Alternative (PRA). PRA requires servicers of 
nongovernment sponsored enterprise loans to evaluate the benefit of 
principal reduction for mortgages with a loan-to-value ratio of 115 
percent or greater when evaluating a homeowner for a HAMP first lien 
modification. While servicers are required to evaluate homeowners for 
PRA, they are not required to reduce principal as part of the 
modification. PRA can be a component of a HAMP trial or permanent 
modification. Through September 2011, servicers reported having 
started 29,342 permanent modifications that had the principal reduced 
under PRA. 

* Second Lien Modification Program. The Second Lien Modification 
Program provides additional assistance to homeowners receiving a HAMP 
first lien permanent modification who have an eligible second lien 
with participating servicers. When a borrower's first lien is modified 
under HAMP, participating program servicers must offer to modify the 
borrower's eligible second lien according to a defined protocol. 
[Footnote 53] This assistance can result in a modification or even 
full or partial extinguishment of the second lien. Through September 
2011, servicers reported starting 45,705 second lien modifications, of 
which 6,332 had the second lien fully extinguished. 

* Government loans (FHA-and RD-HAMP). FHA and the Department of 
Agriculture's Rural Housing Services (RHS) have implemented programs 
to modify FHA-insured or RHS-guaranteed first lien mortgage loans in a 
manner complementary to HAMP. Each of these programs provides a 
borrower with an affordable monthly mortgage payment equal to 31 
percent of his or her monthly gross income and requires the borrower 
to complete a trial payment plan before the loan is permanently 
modified. If the modified FHA-insured or RHS-guaranteed mortgage loan 
meets Treasury's eligibility criteria, the borrower and servicer can 
receive TARP-funded incentive payments from Treasury. Treasury 
reported that there were 4,671 permanent FHA-HAMP modifications that 
had been started through September 2011. According to Treasury 
officials, servicers have not reported any activity for the Rural 
Development (RD)-HAMP program as of September 30, 2011. 

* Treasury/FHA Second Lien Program (FHA2LP). Under this program, 
Treasury will provide incentive payments to servicers and investors if 
they partially or fully extinguish second liens associated with an FHA 
Short Refinance. According to Treasury officials, no second liens have 
been extinguished, and no incentive payments have been made under the 
Treasury/FHA Second Lien Program as of September 30, 2011. 

To facilitate this refinance opportunity, Treasury will provide 
incentives under its TARP-funded FHA2LP to servicers and investors 
that partially or fully extinguish second liens associated with an FHA 
Short Refinance. Servicers can receive a one-time payment of $500 for 
each second lien extinguished under the program and investors are 
eligible for incentive payments based on the amount of principal 
extinguished. According to Treasury officials, servicers have reported 
no activity under FHA2LP as of September 30, 2011. 

In addition to the MHA program, Treasury has allocated $7.6 billion in 
TARP funds for the Hardest Hit Fund (HHF), which seeks to help 
homeowners in the states hit hardest by unemployment and house price 
declines: Alabama, Arizona, California, Florida, Georgia, Illinois, 
Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North 
Carolina, Ohio, Oregon, Rhode Island, South Carolina, and Tennessee 
plus the District of Columbia. States were chosen because they have 
experienced either steep home price declines or high levels of 
unemployment in the economic downturn. According to Treasury, each 
state housing agency gathered public input to implement programs 
designed to meet the distinct challenges homeowners in their state 
were facing. As a result, HHF programs vary across states, but 
services offered often include mortgage payment assistance for 
unemployed homeowners and reinstatement assistance to cover arrearages 
(e.g., one-time payment to bring a borrower's delinquent mortgage 
current). According to Treasury, it paid approximately $700 million to 
the states for the HHF program as of the end of September 2011 and the 
states reported having helped about 19,025 homeowners during this 
approximate time period. 

Treasury has also allocated $8.1 billion in TARP funds to the FHA 
Short Refinance program to enable homeowners whose mortgages exceed 
the value of their homes to refinance into more affordable mortgages. 
This opportunity allows borrowers who are current on their mortgage to 
qualify for an FHA Short Refinance loan provided that the lender or 
investor writes off the unpaid principal balance of the original first 
lien mortgage by at least 10 percent. Treasury entered into a letter 
of credit facility with Citibank in order to fund up to $8 billion of 
losses, if any, associated with providing FHA Short Refinance loans 
originated on or before December 31, 2012. Treasury's commitment 
extends until September 2020, and to the extent that FHA experiences 
losses on those refinanced mortgage loans, Treasury will pay claims up 
to the predetermined percentage after the FHA has paid its portion of 
the claim. Treasury will also pay a fee to the issuer of the letter of 
credit based on the amount of funds drawn against the letter of credit 
and any unused amount. Treasury has estimated that the letter of 
credit fee will be $55 million over the life of the program. As of 
August 31, 2011, FHA had guaranteed 334 loans with a total face value 
of $73 million under the refinance program. No defaults had occurred 
on these guarantees to date. As of August 31, 2011, Treasury has paid 
a total of $4.9 million to Citibank ($1.9 million during fiscal year 
2011) in fees as the letter of credit issuer. 

Treasury Continues to Address Staffing Needs While Also Relying on 
Financial Agents and Contractors to Support TARP Administration and 
Programs: 

OFS Staffing Declined Slightly for the First Time and Treasury Is 
Addressing Turnover-Related Staffing Issues: 

As we have identified in previous reports, Treasury still faces 
staffing challenges, including recent turnover stemming from the 
departure of term-appointed staff, but it has been addressing these 
challenges. Overall staffing numbers steadily increased from 2008 
through 2010 but began declining for the first time in 2011 (see 
figure 14). 

Figure 14: OFS Employees and Detailees, November 21, 2008, through 
September 30, 2011: 

[Refer to PDF for image: stacked vertical bar graph] 

Date: November 21, 2008; 
Staff detailed to OFS from other areas of Treasury and other federal 
agencies: 43; 
Employees (including term appointments): 5; 
Total: 48. 

Date: January 26, 2009; 
Staff detailed to OFS from other areas of Treasury and other federal 
agencies: 52; 
Employees (including term appointments): 38; 
Total: 90. 

Date: March 16, 2009; 
Staff detailed to OFS from other areas of Treasury and other federal 
agencies: 36; 
Employees (including term appointments): 77; 
Total: 113. 

Date: June 8, 2009; 
Staff detailed to OFS from other areas of Treasury and other federal 
agencies: 29; 
Employees (including term appointments): 137; 
Total: 166. 

Date: September 15, 2009; 
Staff detailed to OFS from other areas of Treasury and other federal 
agencies: 12; 
Employees (including term appointments): 184; 
Total: 196. 

Date: September 25, 2010; 
Staff detailed to OFS from other areas of Treasury and other federal 
agencies: 3; 
Employees (including term appointments): 216; 
Total: 219. 

Date: September 30, 2011; 
Staff detailed to other areas of Treasury and to other federal 
agencies: 8; 
Employees (including term appointments): 190; 
Total: 198. 

Source: GAO analysis of Treasury data.  

[End of figure] 

Also, as we previously reported in September 2011, OFS no longer has 
detailees from other federal agencies. When OFS was first organized, 
it relied on a significant number of staff from other agencies to 
start up new TARP programs. With most TARP programs winding down, OFS 
officials stated that OFS has begun to detail OFS staff to other 
Treasury programs, such as the Small Business Lending Fund (SBLF), and 
other federal agencies, such as the Bureau of Consumer Financial 
Protection. From September 2010 through September 2011, about 65 staff 
left OFS, according to Treasury officials. 

As overall staffing numbers have declined, staffing levels within 
individual OFS offices have fluctuated depending on staffing needs. In 
some offices, for instance, staff levels have decreased. For example, 
in the Chief Investment Office--which includes staff working on 
various TARP programs, such as CPP--more than half of the staff 
departed from June 2010 to September 2011 (a decrease of 20 staff from 
2010). Though some Chief Investment Office staff were replaced with 
staff in other OFS offices and staff that were new to Treasury, many 
were not replaced because their skill sets were no longer needed given 
the wind-down phase of investment programs. Conversely, staff have 
increased in certain OFS offices where OFS management had identified 
specific needs. For example, the number of staff in the Office of 
Internal Review (OIR), which identifies risks and develops procedures 
for complying with EESA, increased from June 2010 to September 2011. 
Treasury had been seeking new staff with the skill set needed for this 
work, as we previously reported, and officials stated that the 
increase reflected a need to continue monitoring compliance among 
Treasury financial agents and contractors. Treasury filled these 
positions in part by streamlining the hiring process and better 
targeting its job announcements. Treasury officials anticipate that 
staffing levels in most OFS offices will decrease over time, though it 
will continue to seek talent for OIR, the Chief Financial Office, and 
the TARP housing programs that remain active. 

In addition to changes in staff numbers and office composition, OFS 
has had a number of its leadership team depart since 2010. As we 
previously reported, the Assistant Secretary of Financial Stability 
resigned on September 30, 2010. His replacement is OFS's former Chief 
Counsel, who was sworn in as Assistant Secretary in July 2011. An 
acting Chief Counsel has assumed the Assistant Secretary's former 
role. Other staff in leadership positions have resigned since we last 
reported in January 2011. The Chief Investment Officer and the Chief 
of Operations both left OFS and were replaced internally by OFS staff 
members. Both of these departing staff were in 3-year term senior 
executive service positions that were set to expire, according to 
Treasury officials. The Chief of Operations position is now held by a 
permanent staff member in an acting capacity, while the Chief 
Investment Officer position remains a term position. Program 
leadership has also changed for Treasury's first and largest program, 
CPP. Its director left Treasury in 2011 and was replaced with another 
staff member from the Chief Investment Office. 

Though OFS has experienced staff turnover and still faces staffing 
challenges, OFS has been addressing these and other staffing issues. 
For example: 

* As we previously reported, we recommended that OFS finalize its 
staffing plan. Treasury has implemented this recommendation, which 
should help OFS better ensure that it recognizes and addresses its 
staffing challenges, given that many staff still remain in term 
appointments.[Footnote 54] As a result of this plan, OFS produced 
information on critical positions that should remain or be filled and 
successors for all of the chiefs and those in critical management 
positions directly below the chief level. OFS also plans to conduct 
succession planning for other staff below the management level. 

* OFS now hires predominantly term-appointed staff for a maximum of 2 
years, according to Treasury officials. Previously, it hired staff for 
"permanent" positions as well as term-appointed positions with a 
maximum of 4 years. Treasury officials noted that they made this 
change in recognition of the fact that most of its programs are 
winding down. Additionally, limiting new hires to shorter-term 
appointments reduces the number of staff that Treasury will need to 
absorb when OFS closes. 

* OFS has also filled or removed a number of vacancies to recognize 
that it is in a period of winding down. Specifically, OFS vacancies 
decreased from 61 in 2010 to 29 as of September 30, 2011. 

In addition, OFS continues to address employee morale concerns. As we 
previously reported, an employee survey in 2010 identified 
communication and staff development as two areas for improvement. 
According to Treasury officials, OFS took steps to address 
communication concerns through a monthly newsletter; "lunch and learn" 
sessions on a variety of topics; and briefings attended by senior 
Treasury officials, such as the Secretary of the Treasury. To address 
concerns about staff development, OFS officials said that they 
increased training offerings and provided the opportunity to complete 
professional development plans. Treasury has also been assisting term-
appointed staff. For example, Treasury officials stated that they have 
continued to provide information sessions for those staff on term 
appointments that are seeking permanent positions in the federal 
government. Officials also noted that they have briefings on helping 
staff in term appointments understand the terms of the appointment and 
to find opportunities for detail positions to other agencies. 

Treasury Increased Its Use of Financial Agents and Contractors: 

Treasury continues to rely heavily on financial agents to support TARP 
programs. According to OFS procedures, financial agency agreements are 
used for services that cannot be provided with existing Treasury or 
contractor resources and generally involve inherently governmental 
functions. Since the start of TARP, Treasury has relied on financial 
agents for asset management, transaction structuring, disposition 
services, custodial services, and administration and compliance 
support for the TARP housing assistance programs. Through fiscal year 
2011, Treasury awarded 17 financial agency agreements, of which 14 
remain active. As shown in table 2, the total obligated value of 
financial agency agreements increased from about $327 million to about 
$547 million, or 67 percent, from the end of fiscal year 2010 to the 
end of fiscal year 2011. Treasury awarded two new financial agency 
agreements in fiscal year 2011 for transaction structuring and 
disposition services. 

Table 2: Contracts and Financial Agency Agreements in Support of TARP, 
Fiscal Years 2010 through 2011: 

Financial agency agreements: 
Obligated value through fiscal year 2010: $327,355,188; 
Obligated value[A] through fiscal year 2011: $547,487,042; 
Increase from fiscal years 2010 through 2011: $220,131,854; 67%. 

Contracts: 
Obligated value through fiscal year 2010: $108,907,207; 
Obligated value[A] through fiscal year 2011: $154,934,812; 
Increase from fiscal years 2010 through 2011: $46,027,605; 42. 

Total: 
Obligated value through fiscal year 2010: $436,262,395; 
Obligated value[A] through fiscal year 2011: $702,421,854; 
Increase from fiscal years 2010 through 2011: $266,159,459; 61%. 

Source: GAO analysis of Treasury data. 

[A] Obligated value generally includes obligations from the beginning 
of TARP through the end of the fiscal year, according to agency 
officials. 

[End of table] 

As shown in table 3, five financial agency agreements accounted for 87 
percent of the total obligated value through fiscal year 2011--about 
$476 million out of about $547 million. The vast majority of these 
obligations, approximately $383 million, went to Fannie Mae and 
Freddie Mac, which provide administrative and compliance services, 
respectively, for HAMP.[Footnote 55] 

Table 3: Top Five Financial Agency Agreements: 

Financial agent (award date-completion date including options to 
extend agreement): Fannie Mae (2/18/2009-2/17/2019); 
TARP investment program: HAMP; 
Obligated value through fiscal year 2010: $126,712,000; 
Obligated value through fiscal year 2011: $239,870,429; 
Percent increase from fiscal year 2010: 89%. 

Financial agent (award date-completion date including options to 
extend agreement): Freddie Mac (2/18/2009-2/17/2019); 
TARP investment program: HAMP; 
Obligated value through fiscal year 2010: $88,850,000; 
Obligated value through fiscal year 2011: $143,060,025; 
Percent increase from fiscal year 2010: 61%. 

Financial agent (award date-completion date including options to 
extend agreement): Bank of New York Mellon (10/14/2008-10/14/2015); 
TARP investment program: All programs; 
Obligated value through fiscal year 2010: $28,495,411; 
Obligated value through fiscal year 2011: $42,108,749; 
Percent increase from fiscal year 2010: 48%. 

Financial agent (award date-completion date including options to 
extend agreement): AllianceBernstein (4/21/2009-4/20/2018); 
TARP investment program: 
* CPP; 
* AIFP; 
* AIG Investments; 
Obligated value through fiscal year 2010: $22,399,943; 
Obligated value through fiscal year 2011: $33,213,445; 
Percent increase from fiscal year 2010: 48%. 

Financial agent (award date-completion date including options to 
extend agreement): FSI Group (4/21/2009-4/20/2018); 
TARP investment program: 
* CPP; 
* Asset Guarantee Program; 
Obligated value through fiscal year 2010: $11,102,500; 
Obligated value through fiscal year 2011: $18,041,838; 
Percent increase from fiscal year 2010: 63%. 

Financial agent (award date-completion date including options to 
extend agreement): Total; 
Obligated value through fiscal year 2010: $277,559,854; 
Obligated value through fiscal year 2011: $476,294,486; 
Percent increase from fiscal year 2010: 72%. 

Source: GAO analysis of Treasury data. 

[End of table] 

Treasury also heavily relies on contractors to help administer TARP 
programs. Treasury uses TARP contracts for a variety of legal, 
investment consulting, accounting, and other services and supplies. 
Through fiscal year 2011, Treasury had awarded or used 116 contracts 
and blanket purchase agreements, up from 81 last year, and about half 
of them remain active.[Footnote 56] As shown in table 2, the total 
obligated value of these contracts has increased 42 percent since 
2010, from $109 million to $155 million. About 75 percent of the 
contracts and blanket purchase agreements are relatively small (less 
than $1 million each). The two largest contracts are $33 million (with 
PricewaterhouseCoopers, LLP for internal control services) and $17 
million (with Cadwalader, Wickersham & Taft, LLP for legal services). 

From the outset, Treasury encouraged small and minority-and women-
owned businesses to pursue opportunities for TARP contracts and 
financial agency agreements. The number of contracts and financial 
agency agreements that went to small and minority-owned businesses 
increased since 2010 from 16 to 31 (as shown in table 4). Also, 6 of 
the 17 total financial agency agreements and 25 of the 116 total 
contracts were with these businesses through 2011. In addition, 73 
subcontracts under financial agency agreements and prime contracts 
went to small and/or minority-and women-owned businesses. As in 
previous years, the majority of these businesses participating in TARP 
are subcontractors. 

Table 4: TARP Contracts, Financial Agency Agreements, and Subcontracts 
with Small and Minority-and Women-Owned Businesses through Fiscal 
Years 2010 and 2011: 

Business category: Minority-owned[C]; 
Fiscal year 2010: Prime contracts[A]: 0; 
Fiscal year 2011: Prime contracts[A]: 0; 
Fiscal year 2010: Financial agency agreements[A]: 5; 
Fiscal year 2011: Financial agency agreements[A]: 5; 
Fiscal year 2010: Subcontracts under prime contracts and contracts 
under financial agency agreements[B]: 16; 
Fiscal year 2011: Subcontracts under prime contracts and contracts 
under financial agency agreements[B]: 16; 
Fiscal year 2010: Total participation by small businesses: 21; 
Fiscal year 2011: Total participation by small businesses: 21. 

Business category: Woman-owned; 
Fiscal year 2010: Prime contracts[A]: 2; 
Fiscal year 2011: Prime contracts[A]: 5; 
Fiscal year 2010: Financial agency agreements[A]: 1; 
Fiscal year 2011: Financial agency agreements[A]: 1; 
Fiscal year 2010: Subcontracts under prime contracts and contracts 
under financial agency agreements[B]: 14; 
Fiscal year 2011: Subcontracts under prime contracts and contracts 
under financial agency agreements[B]: 20; 
Fiscal year 2010: Total participation by small businesses: 17; 
Fiscal year 2011: Total participation by small businesses: 26. 

Business category: Other small[D]; 
Fiscal year 2010: Prime contracts[A]: 8; 
Fiscal year 2011: Prime contracts[A]: 20; 
Fiscal year 2010: Financial agency agreements[A]: 0; 
Fiscal year 2011: Financial agency agreements[A]: 0; 
Fiscal year 2010: Subcontracts under prime contracts and contracts 
under financial agency agreements[B]: 19; 
Fiscal year 2011: Subcontracts under prime contracts and contracts 
under financial agency agreements[B]: 37; 
Fiscal year 2010: Total participation by small businesses: 27; 
Fiscal year 2011: Total participation by small businesses: 57. 

Business category: Total; 
Fiscal year 2010: Prime contracts[A]: 10; 
Fiscal year 2011: Prime contracts[A]: 25; 
Fiscal year 2010: Financial agency agreements[A]: 6; 
Fiscal year 2011: Financial agency agreements[A]: 6; 
Fiscal year 2010: Subcontracts under prime contracts and contracts 
under financial agency agreements[B]: 49; 
Fiscal year 2011: Subcontracts under prime contracts and contracts 
under financial agency agreements[B]: 73; 
Fiscal year 2010: Total participation by small businesses: 65; 
Fiscal year 2011: Total participation by small businesses: 104. 

Source: GAO analysis of Treasury data. 

[A] Data as of September 30, 2011. GAO's analysis does not include 
task orders. 

[B] As of September 30, 2011, TARP financial agents and prime 
contractors had awarded 130 subcontracts. 

[C] Includes both small and nonsmall minority-owned businesses and 
minority woman-owned businesses. 

[D] Includes small businesses, service-disabled veteran-owned small 
businesses, and small disadvantaged businesses. 

[End of table] 

Treasury Has Continued to Strengthen Management and Oversight of 
Financial Agents and Contractors and Conflicts-of-Interest 
Requirements: 

As we have reported, when Treasury began to quickly implement TARP 
initiatives in 2008, OFS had not finalized its procurement oversight 
procedures and lacked comprehensive internal controls for contractors 
and financial agents. Further, it did not have a comprehensive 
compliance system to monitor and fully address vendor-related 
conflicts of interest. Last year we reported that OFS had put in place 
an appropriate infrastructure to manage and monitor its network of 
financial agents and contractors. Specifically, by the end of fiscal 
year 2010, OFS had: 

* defined organizational roles and responsibilities and established 
written policies and procedures for the management and oversight of 
TARP financial agents; 

* taken action to ensure that sufficient personnel were assigned and 
properly trained to oversee the performance of financial agents and 
contractors; 

* issued written procedures on measuring the performance of financial 
agents and installed qualitative and quantitative performance measures 
for several of its financial agents; and: 

* issued regulations on conflicts of interest, established an internal 
reporting system for tracking all vendor conflict-of-interest 
certifications, inquiries, and requests for waivers, and completed 
renegotiations of three contracts that predated the regulations. 

In fiscal year 2011, Treasury continued to strengthen its policies and 
procedures for managing financial agents and contractors and conflicts 
of interest. For example, contract administration personnel made 
improvements to OFS's contract record system, including controls and 
clear deadlines for validating and certifying the completeness and 
accuracy of the information.[Footnote 57] According to an OFS official 
responsible for contracting, contract administration personnel audited 
most of the items in the record system by tracing the items back to 
source documents, and found some areas that needed to be improved. 
Data fields that were used for informational purposes only, such as 
the contract specialist's telephone number, were not selected for 
audit. Fields selected included date of award, contractor, potential 
contract value, and socioeconomic status. Contract actions were 
matched against data in the Federal Procurement Data System-Next 
Generation before deciding whether the items needed to be traced back 
to source documents.[Footnote 58] According to the official, new 
controls were established for adding new contract information to the 
system and documentation procedures were developed to improve data 
consistency. 

The Office of Financial Agents (OFA) also expanded its implementation 
of performance assessments of financial agents by issuing performance 
measures and initiating assessments for five additional financial 
agents, including Fannie Mae. Quarterly performance assessments are 
now conducted for all of the active financial agents. OFA establishes 
qualitative and quantitative performance measures, with input from the 
financial agent, based on the core functions and responsibilities 
described in each financial agency agreement. OFA staff review 
financial agents' performance against the qualitative and quantitative 
measures and prepare an overall performance assessment. The OFA 
reviews have identified areas in which a financial agent is performing 
above expectations or needs improvement. According to an OFA official, 
the performance reviews have been an important management tool and 
helped improve compliance through active communication and dialog with 
the financial agents. For those financial agents eligible to receive 
incentive payments, the performance reviews can affect the amount of 
payment.[Footnote 59] OFA may revise the performance measures annually 
to ensure continued alignment with the financial agents' scope of work 
and OFS priorities. 

The OIR took several actions to strengthen oversight of conflicts-of-
interest requirements over the last year. Specifically, we found the 
following: 

* OIR began conducting on-site compliance reviews to determine whether 
financial agents' internal controls and procedures are working. 
According to Treasury officials, six reviews were conducted in fiscal 
year 2011. Treasury found that five of the financial agents reviewed 
had reasonable internal controls in place. There were no significant 
findings, although OIR made some recommendations. The review of the 
remaining financial agent identified significant weaknesses in its 
controls and in organizational management and oversight. As a result 
of the review, the relationship with the financial agent was 
terminated. Thus far, the on-site compliance reviews have been of 
financial agents, but OIR plans to begin reviewing contractors in the 
near future. 

* In 2011, OIR began preparing a quarterly conflicts-of-interest 
feedback report for contractors. The report is shared with the 
Contracting Officer's Technical Representatives and included in the 
contractor performance metrics that are incorporated into Contract and 
Agreement Review Board reports.[Footnote 60] OIR's reports describe 
and rate contractors' performance during the quarter in identifying, 
mitigating, and disclosing conflicts of interest to the Treasury; 
submitting adequate conflicts-of-interest certifications in a timely 
manner; and expeditiously responding to requests for additional 
information, among other things. 

* In 2011, according to OFS's Compliance Officer, OIR put in place a 
requirement that all new contractors and financial agents, as well as 
Contracting Officer's Technical Representatives and OFA personnel with 
similar responsibilities, receive conflict-of-interest training. The 
training materials used are similar to those used before 2011, but the 
information presented is more consistent across all the training 
materials than it was before the formalization of the requirement. 

* OIR continued to review a large number of inquiries from financial 
agents and contractors about potential conflicts of interest. The 
total reviewed as of September 30, 2011, was about 1,300, compared to 
about 655 through fiscal year 2010. Reasons given by OIR for the 
increase in inquiries in fiscal year 2011 compared with prior fiscal 
years include the addition of several new contractors and financial 
agents in fiscal year 2011 and the initiation of new processes, such 
as on-site reviews of entities' conflicts-of-interest controls. Forty-
five of the 1,300 inquiries have resulted in waivers, including 8 
waivers during fiscal year 2011. According to OFS's Compliance 
Officer, examples of waivers include permitting contractors and 
financial agents to utilize Office of Government Ethics Form 450 in 
place of the Form 278 and allowing contractors and financial agents to 
use their own entertainment and gift policies in place of those in 
Treasury's conflicts-of-interest regulation. OIR has never waived an 
actual or potential conflict of interest. 

Staffing related to management and oversight of financial agents, 
contractors, and conflicts of interest has remained stable. However, a 
temporary loss of contract administration positions occurred when the 
Procurement Services Division transitioned to the Internal Revenue 
Service (IRS) in fiscal year 2011 as part of a Treasury-wide 
consolidation to improve departmental offices' procurement.[Footnote 
61] Treasury hopes to realize cost savings from the consolidation, 
improve internal controls and risk management, and enhance employee 
career development. According to an OFS contract administration 
official, several procurement positions were lost in the transition to 
IRS because staff did not want to move to the IRS facility in Oxon 
Hill, Maryland. IRS has agreed to staff a dedicated team of ten 
individuals to support OFS, the same level as before the move, and the 
team is currently being staffed by three federal employees and two 
contractors, with plans to expand to six federal employees and four 
contractors. According to the official, the procurement work is a 
partnership between OFS and IRS, with OFS identifying vendors in 
conjunction with IRS, IRS awarding the contracts, and OFS and IRS 
sharing post-award duties, such as managing vendors, invoicing, and 
keeping records.[Footnote 62] 

Although Estimated Lifetime TARP Costs Have Decreased Significantly, 
Treasury Could Enhance Its Communication about the Costs of TARP: 

While lifetime cost estimates for TARP have decreased since the 
government first provided assistance in 2008, the lifetime cost and 
income estimates for specific TARP programs have fluctuated with 
changes in program activity and the market value of Treasury's TARP 
investments. Although Treasury issues several reports on the costs of 
TARP, its communications about TARP costs in press releases is 
inconsistent and could be enhanced. Moreover, indirect costs such as 
moral hazard are also associated with TARP and remain a concern. 

Estimated Direct TARP Costs Have Decreased Significantly: 

As of September 30, 2011, Treasury has incurred net costs of $28 
billion, while recent federal lifetime cost projections for TARP--
which include both realized and future cash flows--have decreased. In 
2009, the Congressional Budget Office (CBO) estimated that TARP could 
cost $356 billion.[Footnote 63] However, CBO's most recent estimate, 
using November 2011 data, is approximately $34 billion.[Footnote 64] 
Treasury's fiscal year 2011 financial statement, audited by GAO, 
reported that TARP would cost around $70 billion as of September 30, 
2011, a decrease from about $78 billion estimated as of September 
2010. In general, the variation in CBO and Treasury cost estimates is 
attributable to their timing--that is, market conditions and program 
activities differed when the estimates were developed. However, 
program participation assumptions for TARP-funded housing programs 
explain the large difference between the CBO and Treasury cost 
estimates. Treasury assumed that all of the $45.6 billion allocated to 
TARP housing programs would be utilized and, as a result, estimated 
that they would cost $45.6 billion. Conversely, CBO expected lower 
participation rates for the housing programs, resulting in a cost 
estimate of $13 billion as of November 2011. While these differences 
exist, CBO officials noted that as TARP continues to wind down, 
Treasury's and CBO's lifetime cost estimates should be more similar. 
This convergence of cost estimates is likely to occur as program costs 
become clearer and more recipients repay their assistance--reducing 
the number of outstanding TARP assets and the related uncertainty 
about how market risks will affect the future value of these 
investments. 

In our review of Treasury's lifetime cost estimates for TARP's equity 
investment programs, we found that the estimates for some programs 
changed only slightly, if at all, between September 2010 and September 
2011, while others changed by a notable margin. For example, Treasury 
estimated that CPP would result in lifetime income of $11.2 billion as 
of September 2010 and its recent estimate as of September 2011 was 
slightly higher at $13 billion (see figure 15). This increase in CPP's 
estimated lifetime income was the result of proceeds in excess of 
costs from the sale of Citigroup common stock offset by a decline in 
the estimated market value of Treasury's remaining CPP investments. 
Additionally, Treasury's lifetime cost estimate of $45.6 billion for 
TARP-funded housing programs remained unchanged between September 2010 
and September 2011 because Treasury continues to assume that all of 
the $45.6 billion allocated to the housing programs will be utilized. 

On the other hand, Treasury's recent cost estimates for AIFP and 
assistance to AIG changed markedly when compared to estimates as of 
September 2010. Specifically, Treasury estimated a lifetime cost of 
$14.7 billion for AIFP as of September 2010 but that estimate 
increased to $23.6 billion using September 2011 data due to a decline 
in the value of Treasury's equity investments in GM and Ally 
Financial. Additionally, Treasury's estimate for assistance to AIG 
decreased from $36.9 billion to $24.3 billion between September 2010 
and September 2011 as a result of improvements in the financial 
condition of AIG since Treasury first provided assistance and the 
restructuring of Treasury's AIG investment to common stock. However, 
as we have seen, the ultimate cost of the assistance to AIG could be 
about $11.5 billion after factoring in the estimated lifetime income 
of $12.8 billion from Treasury's non-TARP assistance to AIG.[Footnote 
65] As shown, lifetime cost estimates are likely to fluctuate, 
particularly for investment programs like AIFP and the AIG Investment 
Program, because future results rely heavily on the market price of 
common stock. 

Figure 15: Comparison of Treasury's Lifetime Cost and Income Estimates 
for TARP Programs, September 30, 2010, and September 30, 2011: 

[Refer to PDF for image: plotted point graph] 

Positive number: income; 
Negative number: cost. 

Program: CPP; 
September 30, 2010 estimate: $11.2 billion; 
September 30, 2011 estimate: $13 billion. 

Program: CDCI; 
September 30, 2010 estimate: -$0.3 billion; 
September 30, 2011 estimate: -$0.2 billion. 

Program: AIFP; 
September 30, 2010 estimate: -$14.7 billion; 
September 30, 2011 estimate: -$23.6 billion. 

Program: AIG[A]; 
September 30, 2010 estimate: -$36.9 billion; 
September 30, 2011 estimate: -$24.3 billion. 

Program: SBA 7(a); 
September 30, 2010 estimate: $0.0001 billion; 
September 30, 2011 estimate: $0.003 billion. 

Program: TALF; 
September 30, 2010 estimate: $0.3 billion; 
September 30, 2011 estimate: $0.4 billion. 

Program: PPIP; 
September 30, 2010 estimate: $0.7 billion; 
September 30, 2011 estimate: $2.4 billion. 

Program: Housing; 
September 30, 2010 estimate: -$45.6 billion; 
September 30, 2011 estimate: -$45.6 billion. 

Program: TIP; 
September 30, 2010 estimate: $3.8 billion; 
September 30, 2011 estimate: $4 billion. 

Program: AGP; 
September 30, 2010 estimate: $3.7 billion; 
September 30, 2011 estimate: $3.7 billion. 

Source: GAO analysis of Treasury data. 

[A] Although Treasury's cost estimate for its AIG TARP common stock is 
$24.3 billion, the overall cost of AIG, including the income expected 
from the AIG non-TARP common stock, could be approximately $11.5 
billion based on recent cost estimates (see AIG-related discussion 
earlier in this report). 

[End of figure] 

Treasury's Press Releases Inconsistently Include Cost Information: 

Although Treasury regularly reports on the cost of TARP and its 
programs, it could improve the clarity and consistency of its 
communications on TARP costs, specifically in its press releases about 
specific programs. Treasury issues several reports--including the 
Agency Financial Report, Monthly 105(a) Reports, and Transaction 
Reports--that provide updates on the funds obligated and disbursed, 
repayments and income, and gains and losses. Compared to Treasury's 
past reporting practices, recent versions of the Agency Financial 
Report and the Monthly 105(a) Reports clearly present Treasury's 
lifetime cost estimates for TARP and its programs.[Footnote 66] 
However, Treasury's press releases do not consistently include these 
cost estimates. Rather, Treasury's press releases on specific TARP 
programs typically only include transaction-oriented updates, such as 
disbursements and returns on Treasury's investments from repayments, 
dividends, and the sale of its assets. While the transaction-oriented 
updates in Treasury's press releases are important, they do not 
provide the general public with the greater context--the lifetime cost 
associated with individual programs.[Footnote 67] 

Furthermore, it appears that over the last 2 years Treasury has 
included lifetime cost estimates in some of its program-specific press 
releases for programs expected to result in a lifetime income, while 
excluding these estimates for programs expected to result in a cost 
for taxpayers. For instance, a press release from April 2011 indicated 
that Treasury's bank programs were expected to result in a lifetime 
positive return of approximately $20 billion. Other press releases for 
TARP banking programs also include this reference to expected lifetime 
income. However, during the same period Treasury did not include 
lifetime cost estimates in its press releases for TARP programs that 
projected a cost to the government, such as SBA 7(a), AIG, and AIFP. 
For example, Treasury issued a press release in June 2011 that 
described its sale of several SBA 7(a) securities. Treasury stated 
that the sale resulted in overall gains and income. The content of 
this press release implied that the program had earned a significant 
amount of money but did not provide the more comprehensive lifetime 
cost estimate for the program, which was $1 million at that time. In 
addition, over the last 2 years none of Treasury's press releases for 
AIG and AIFP (programs expected to cost approximately $24.3 billion 
and $23.6 billion respectively, as of September 30, 2011) have 
included the lifetime cost estimates associated with the programs. 
[Footnote 68] Rather, they have generally discussed Treasury's 
investment in the programs and revenues received. This inconsistent 
disclosure of lifetime cost estimates raises concerns about the 
consistency and transparency of Treasury's press releases and suggests 
a selective approach that focuses on reporting program lifetime income 
and not lifetime costs. 

As we have previously reported, transparency is important in the 
context of TARP and the unprecedented government assistance it 
provided to the financial sector. In discussing our questions about 
the press releases with Treasury officials, they noted that they 
provide cost information in other public reports. However, by 
improving the clarity of its communication on the costs of TARP 
through consistently incorporating lifetime cost estimates into its 
program press releases, Treasury could reduce potential confusion and 
misunderstanding of TARP's results. Treasury would also be setting a 
precedent for cost reporting associated with any future government 
interventions. 

Despite Estimated Decreases in TARP Costs, Government Interventions 
Such as TARP Can Exacerbate Moral Hazard: 

Though direct costs for TARP--including potential lifetime income--can 
be estimated and quantified, certain indirect costs connected to the 
government's assistance are less easily measured. For example, as we 
have previously reported, when the government provides assistance to 
the private sector, it may increase moral hazard that would then need 
to be mitigated.[Footnote 69] That is, in the face of government 
assistance, private firms are motivated to take risks they might not 
take in the absence of such assistance, or creditors may not price 
into their extensions of credit the full risk assumed by the firm, 
believing that the government would provide assistance should the firm 
become distressed. 

EESA and the amendments made by the American Recovery and Reinvestment 
Act of 2009 established a number of measures to mitigate the moral 
hazard of TARP by requiring that participating institutions follow 
certain requirements. These include providing Treasury with warrants 
in exchange for TARP funds to allow taxpayers to benefit from any 
appreciation of the company's stock, and limiting certain bonuses and 
golden parachute payments for certain highly compensated employees and 
senior executive officers, as such payments can encourage excessive 
risk-taking. Even with such requirements in place, however, government 
intervention in the private sector can encourage market participants 
to expect similar emergency actions. This belief diminishes market 
discipline as it can weaken private or market-based incentives to 
properly manage risks and can in particular contribute to the 
perception that some firms are "too big to fail."[Footnote 70] 

Government interventions can also have consequences for the banking 
industry as a whole, including institutions that do not receive 
bailout funds. For instance, investors may perceive the debt 
associated with institutions that received government assistance as 
being less risky because of the potential for future government 
bailouts. This perception could lead them to choose to invest in such 
assisted institutions instead of those that did not receive 
assistance. However, such effects may be temporary, as evidenced by 
the recent downgrade by Moody's Investors Service, Inc. (Moody's) of 
the long-term credit ratings of Bank of America Corp. and Wells Fargo 
& Co. after the Dodd-Frank Act's new regulatory provisions were 
enacted into law, which aim to avoid or at least limit future 
government bailouts to financial institutions. Moody's stated that it 
downgraded these credit ratings because it believes the government is 
less likely to rescue these financial institutions now than it was 
during the financial crisis. This rating change could affect their 
ability to access financing with as favorable terms. 

The Dodd-Frank Act included a number of provisions intended to address 
the problem of "too big to fail" by strengthening oversight of 
financial institutions. For example, the Dodd-Frank Act required the 
Federal Reserve to implement enhanced prudential standards for bank 
holding companies that are deemed systemically important and increased 
oversight of certain nonbank financial companies. Specifically, the 
Federal Reserve has been given supervisory authority over any nonbank 
financial company that the Financial Stability Oversight Council 
determines could pose a threat to the financial stability of the 
country.[Footnote 71] Also, the Dodd-Frank Act provided new reporting 
and resolution authorities to the Federal Deposit Insurance 
Corporation for certain large, systemic financial institutions, and 
requires those institutions to write plans for their unwinding. 
[Footnote 72] However, if these new provisions fail to address the too 
big to fail phenomenon, future financial crises could emerge that may 
be similar or worse than the financial meltdown that escalated with 
the failures of Bear Stearns and Lehman Brothers in 2008. That is, 
some firms may see the government assistance that was provided during 
the last crisis as a promise of similar aid in the future and 
therefore have an incentive to continue engaging in risky activities. 
Ultimately, any moral hazard effects of the Dodd-Frank Act changes 
will not be known until financial institutions face another period of 
financial stress. 

Conclusions: 

As Treasury continues to unwind most TARP programs, the estimated 
costs of TARP have decreased significantly from when Treasury first 
announced TARP. Treasury's latest estimate of approximately $70 
billion as of September 30, 2011, includes a large projection of 
lifetime income from CPP, and the cost estimates for assistance to AIG 
and the auto companies continue to fluctuate, demonstrating that such 
estimates are subject to price movements in the market, among other 
factors, and could change in the future. We found that Treasury 
enhanced some of its cost reporting in the past year, although its 
press releases require improvements. Such communications about 
specific programs include information about estimated lifetime costs 
and income only when programs are expected to result in lifetime 
income and not when they are expected to result in a lifetime cost. 
This practice does not represent a consistent approach to reporting to 
the public through press releases on the costs of individual programs. 
As we have indicated in many past reports on TARP, transparency 
remains a critical element to the government's unprecedented 
assistance to the financial sector. Such transparency helps clarify to 
the public the costs of TARP assistance and to understand how the 
government intervened in various markets. Enhancing the transparency 
and clarity of these press releases will also set a precedent for any 
future government interventions, should they ever be needed. 

Recommendation for Executive Action: 

To enhance transparency about the costs of TARP programs as Treasury 
unwinds its involvement, we recommend that the Secretary of the 
Treasury enhance Treasury's communications with the public, in 
particular Treasury's press releases, about TARP programs and costs by 
consistently including information on estimated lifetime costs, 
especially when reporting on program results. For example, Treasury 
should consider including lifetime cost estimates, or references to 
Treasury reports that include such information, in its press releases 
about specific programs. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to Treasury for its review and 
comment. Treasury provided written comments that we have reprinted in 
appendix III. Treasury also provided technical comments that we have 
incorporated as appropriate. 

In its written comments, Treasury agreed with our recommendation that 
it could further enhance its communications about the costs of TARP 
programs in its program-specific press releases, also noting that it 
has established comprehensive accountability and transparency 
regarding TARP. Treasury stated that it will implement our 
recommendation by including a link to its Monthly 105(a) Report, which 
contains cost estimates for each TARP program, in its future program-
specific press releases. Implementation of our recommendation through 
this practice would provide a good opportunity for Treasury to clearly 
and fully communicate TARP program costs to the public. 

We are sending copies of this report to the Financial Stability 
Oversight Board, Special Inspector General for TARP, interested 
congressional committees and members, and Treasury. The report also is 
available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact Orice Williams Brown at (202) 512-8678 or williamso@gao.gov, 
A. Nicole Clowers at (202) 512-8678 or clowersa@gao.gov, or Thomas J. 
McCool at (202) 512-2642 or mccoolt@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions 
to this report are listed in appendix IV. 

Signed by: 

Thomas J. McCool: 
Director Center for Economics, Applied Research and Methods: 

List of Addressees: 

The Honorable Daniel K. Inouye: 
Chairman: 
The Honorable Thad Cochran: 
Vice Chairman: 
Committee on Appropriations: 
United States Senate: 

The Honorable Tim Johnson: 
Chairman: 
The Honorable Richard C. Shelby: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Kent Conrad: 
Chairman: 
The Honorable Jeff Sessions: 
Ranking Member: 
Committee on the Budget: 
United States Senate: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Orrin G. Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Hal Rogers: 
Chairman: 
The Honorable Norm Dicks: 
Ranking Member: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Paul Ryan: 
Chairman: 
The Honorable Chris Van Hollen: 
Ranking Member: 
Committee on the Budget: 
House of Representatives: 

The Honorable Spencer Bachus: 
Chairman: 
The Honorable Barney Frank: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Dave Camp: 
Chairman: 
The Honorable Sandy Levin: 
Ranking Member: 
Committee on Ways and Means: 
House of Representative: 

[End of section] 

Appendix I: Scope and Methodology: 

To assess the condition and status of all programs initiated under the 
Troubled Asset Relief Program (TARP), we collected and analyzed data 
about program utilization and assets held, as applicable, focusing 
primarily on financial information that we had audited in the Office 
of Financial Stability's (OFS) financial statements, as of September 
30, 2011. As noted in the report, in some instances we provided more 
recent, unaudited financial information. The financial information 
includes the types of assets held in the program, obligations that 
represent the highest amount ever obligated for a program (to provide 
historical information on total obligations), disbursements, and 
income. We also provide information on program start dates, defining 
them based on the start of the first activity under a program, and we 
provide program end dates, based on official announcements or program 
terms from the Department of the Treasury (Treasury). Finally, we 
provide approximate program exit dates--either estimated by Treasury 
or actual if the exit already occurred--that reflect the time when a 
program will no longer hold assets that need to be managed. We also 
used OFS cost estimates for TARP that we audited as part of the 
financial statement audit and reviewed Congressional Budget Office 
(CBO) cost estimates from publicly available CBO reports. In addition, 
we tested OFS's internal controls over financial reporting as it 
relates to our annual audit of OFS's financial statements. The 
financial information used in this report is sufficiently reliable to 
assess the condition and status of TARP programs based on the results 
of our audits of fiscal years 2009, 2010, and 2011 financial 
statements for TARP.[Footnote 73] 

We also examined Treasury documentation such as program terms, 
decision memos, press releases, and reports on TARP programs and 
costs. Also, we interviewed OFS program officials to determine the 
current status of each TARP program, the role of TARP staff while most 
programs continue to unwind, and to update what is known about exit 
considerations for TARP programs. Other TARP officials we interviewed 
included those responsible for financial reporting. Additionally, in 
reporting on these programs and their exit considerations we leveraged 
our previous TARP reports and publications from the Special Inspector 
General for TARP and the Congressional Oversight Panel, as 
appropriate. In addition: 

* For the Capital Purchase Program, we used OFS' reports to describe 
the status of the program, including amount of investments 
outstanding, the number of institutions that had repaid their 
investments, and the amount of dividends paid, among other things. In 
addition, we reviewed Treasury's press releases on the program. We 
also relied on information that we have collected as part of our 
ongoing review of the financial condition of Capital Purchase Program 
institutions. 

* For the Community Development Capital Initiative, we interviewed 
program officials to determine how the program is managed and what 
repayment or exit concerns Treasury has for the program. 

* To update the status of the Automotive Industry Financing Program 
(AIFP) and Treasury's plans for managing its investment in the 
companies, we leveraged our past work; reviewed information on 
Treasury's exit from Chrysler, including Chrysler and Treasury press 
releases; reviewed information on Treasury's plans for overseeing its 
remaining financial interests in General Motors (GM) and Ally 
Financial, including Administration and Treasury reports. To obtain 
information on the current financial condition of the companies, we 
reviewed information on GM's and Ally Financial's finances and 
operations, including financial statements and industry analysts' 
reports. 

* To update the status of the American International Group, Inc. (AIG) 
Investment Program (formerly the Systemically Significant Failing 
Institutions Program) we reviewed relevant documents from Treasury and 
other parties. For the AIG Investment Program, these documents 
included 105(a) reports provided periodically to Congress by Treasury, 
as well as reports produced by the Board of Governors of the Federal 
Reserve System, and the Federal Reserve Bank of New York, and other 
relevant documentation such as AIG's financial disclosures and 
Treasury's press releases. We also interviewed officials from each of 
these agencies and AIG. 

* For the Small Business Administration (SBA) 7(a) Securities Purchase 
Program, we analyzed data on Treasury purchases and dispositions of 
SBA 7(a) securities collected during our financial audit. We also 
reviewed decision memos on the disposition of the SBA 7(a) portfolio. 
In addition, we reviewed press releases about the program's sales 
activity and income. We reviewed SBA 7(a) loan volume data provided by 
Treasury and compared that to trends in our past reports related to 
SBA 7(a) lending and we also interviewed program staff about the 
status of the programs and plans for future sales. 

* For the Term Asset-Backed Securities Loan Facility (TALF), we 
reviewed program terms and requested data from Treasury about loan 
prepayments and TALF LLC activity. We also researched trends in the 
values of commercial mortgage-backed securities. Additionally, we 
interviewed OFS officials about their role in the program as it 
continues to unwind. 

* To update the status of the Public-Private Investment Program, we 
analyzed program quarterly reports, term sheets, and other 
documentation related to the public-private investment funds. We also 
interviewed OFS staff responsible for the program to determine the 
status of the program while it remains in active investment status. 

* To determine the status of Treasury's TARP-funded housing programs, 
we obtained and reviewed Treasury's published reports on the programs 
and servicer performance, documentation on projected cost estimates 
and disbursements for each of the programs, and guidelines and related 
updates issued by Treasury for each of the programs. In addition, we 
obtained information from and interviewed Treasury officials about the 
status of the TARP-funded housing programs, including numbers of 
borrowers helped and the actions Treasury had taken to address our 
prior recommendations. 

* To obtain the final status for three programs that Treasury exited 
and for which Treasury no longer holds assets that it must manage--the 
Asset Guarantee Program, Capital Assistance Program, and Targeted 
Investment Program--we reviewed Treasury's recent reports and 
leveraged our past work. 

To determine the proportion of permanent, term, and detailee staff in 
OFS, we reviewed program data showing changes in the number of staff 
over time and in each OFS office. We assessed this staffing data for 
reliability by comparing it to organizational directories to ensure 
that the changes were generally equivalent. We determined that the 
staffing data was sufficiently reliable to show trends in OFS 
staffing. We also interviewed agency officials to gain insight into 
the trends. Additionally, we obtained program-specific staffing 
information from agency officials during interviews to inform our 
discussion of the staffing needs of each TARP program and any 
succession planning undertaken by OFS. Also, we reviewed OFS 
documentation, such as the organizational directories, to analyze any 
changes in leadership positions in OFS. To assess the staffing 
challenges of OFS as TARP continues to wind down, we reviewed past GAO 
reports and recommendations and the OFS staffing and development plan, 
and we interviewed agency officials. 

To assess OFS's use of financial agents and contractors since TARP was 
established in October 2008, we reviewed information on financial 
agents and contractors from OFS's contract record system and 
interviewed Treasury contract officials about financial agency 
agreements, contracts, and blanket purchase agreements as of September 
30, 2011, that support TARP administration and programs. We analyzed 
information from the contract record system to update key details on 
the status of TARP financial agents and contractors, such as total 
number of agreements and contracts, type of services being performed, 
obligated values, periods of performance, and share of work by small 
businesses. Through discussions with Treasury officials responsible 
for the contract record system and inquiries we made about selected 
data items, as well as matching OFS's contract list against data we 
obtained from the Federal Procurement Data System-Next Generation, we 
determined that data in the record system were sufficiently reliable 
for our purposes. To assess OFS's progress in strengthening its 
infrastructure for managing and overseeing the performance of TARP 
financial agents and contractors and addressing conflicts of interest 
that could arise with the use of private sector firms, we reviewed 
various documents and interviewed OFS officials about changes in 
fiscal year 2011 to its policies and procedures regarding (1) 
management and oversight of TARP financial agents and contractors and 
(2) monitoring and oversight activities by the OFS team responsible 
for financial agent and contractor compliance with TARP conflicts-of-
interest requirements. We did not review financial agents' performance 
assessments or incentive payments. 

To ascertain what is known about TARP costs, we reviewed the cost 
reporting of CBO, the Office of Management and Budget (OMB), and 
Treasury, including the credit reform accounting methods used to 
develop cost estimates for TARP programs. For our analysis we focused 
on Treasury's cost estimates for the following reasons: (1) Treasury's 
recent financial statements and cost projections have been audited by 
GAO and (2) estimates reported by OMB are based on numbers provided by 
Treasury.[Footnote 74] We interviewed officials from CBO and Treasury 
on the methods used to calculate TARP costs and the reasons for any 
significant differences among the cost estimates calculated by each 
agency. We utilized data from our financial audit and leveraged other 
internal resources related to credit reform accounting and the 
modeling of TARP costs. We also reviewed Treasury's press releases on 
the costs of TARP. For our review of the moral hazards of TARP, we 
reviewed pertinent legislation such as the Emergency Economic 
Stabilization Act and the Dodd-Frank Wall Street Reform and Consumer 
Protection Act and utilized previous GAO reports and Congressional 
Oversight Panel publications. 

We conducted this performance audit from June 2011 to January 2012 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. 

[End of section] 

Appendix II: Information on Programs Treasury Has Exited: 

This appendix includes information about TARP programs that Treasury 
has exited and for which Treasury no longer holds assets to manage. We 
provide an overview of the purpose of these programs, when they 
started and ended, the status of funding, and the final lifetime costs 
or income of the programs, as applicable. 

Asset Guarantee Program: 

The Asset Guarantee Program was established as the Treasury insurance 
program, which provided federal government assurances for assets held 
by financial institutions that were deemed critical to the functioning 
of the U.S. financial system. Citigroup and Bank of America were the 
only two institutions that participated in this program before it was 
terminated. As previously reported, Bank of America paid Treasury and 
others a fee for terminating the term sheet before any assets were 
segregated.[Footnote 75] Treasury sold the remaining assets that it 
held related to this program in January 2011 with the sale of 
Citigroup warrants, though it could receive future monies from trust 
preferred stock held by the Federal Deposit Insurance Corporation. 
Treasury reports that lifetime income from terminating the Bank of 
America agreement and exiting Citigroup-related assets is $3.7 billion 
(see figure 16). 

Figure 16: Status of the Asset Guarantee Program, as of September 30, 
2011: 

[Refer to PDF for image: illustration] 

Asset Guarantee Program: 

Assets held: 
Preferred shares receivable from Federal Deposit Insurance Corporation. 

Assets sold: 
Citigroup trust preferred securities and a warrant. 

Start date: January 2009[A]; 
End date: September 2010; 
Exit date: January 2011[B]. 

Lifetime: [Empty]; 
Cost: [Empty]; 
Income: $3.7 billion. 

Status of funding: 

Highest ever obligated (Citigroup): $5.0 billion; 
Disbursed: 0.0; 
Outstanding receivables (book value) (Citigroup): $0.74 billion. 
 
Income: 

Dividend income (Citigroup): $0.45 billion; 
Other income (Citigroup and Bank of America): $2.53 billion; 
Warrant income (Citigroup): $0.07 billion; 
Total income (Citigroup and Bank of America): $3.05 billion. 

Market value of outstanding receivables: $0.74 billion. 
 
Source: GAO analysis of Treasury data. 

[A] Treasury first announced assistance under this program in November 
2008. 

[B] Treasury no longer holds assets for this program that it needs to 
manage, though the Federal Deposit Insurance Corporation still holds 
Citigroup trust preferred stock and Treasury could receive income when 
these assets are sold. 

[End of figure] 

Targeted Investment Program: 

The Targeted Investment Program was designed to foster market 
stability and thereby strengthen the economy by investing in 
institutions on a case-by-case basis that Treasury deemed critical to 
the functioning of the financial system. Only two institutions--Bank 
of America and Citigroup--participated in this program, and each 
received $20 billion in capital investment, which both repaid in 
December 2009. Treasury auctioned the Bank of America warrant that it 
received under the Targeted Investment Program in March 2010. Treasury 
auctioned the Citigroup warrant in January 2011. Treasury reports that 
lifetime income for this program totals $4 billion (see figure 17). 

Figure 17: Status of the Targeted Investment Program, as of September 
30, 2011: 

[Refer to PDF for image: illustration] 

Assets held: 
Citigroup preferred stock with a warrant. 
Bank of America preferred stock with a warrant. 

Start date: December 2008[A]; 
End date: December 2009; 
Exit date: January 2011. 

Lifetime: [Empty]; 
Cost: [Empty]; 
Income: $4 billion. 

Status of funding: 

Highest ever obligated: $40.0; 
Citigroup: $20 billion; 
Bank of America: $20 billion. 

Disbursed: $40.0; 
Citigroup: $20 billion; 
Bank of America: $20 billion. 

Repayments: $40.0
Citigroup: $20 billion; 
Bank of America: $20 billion. 

Income: 

Dividend income (Citigroup and Bank of America): $3.0 billion; 
Warrant income (Citigroup and Bank of America): $1.4 billion; 
Total income (Citigroup and Bank of America): $4.4 billion. 

Source: GAO analysis of Treasury data. 

[A] Treasury first announced assistance under this program in November 
2008. 

[End of figure] 

Capital Assistance Program: 

The Capital Assistance Program was designed to further improve 
confidence in the banking system by helping ensure that the largest 19 
U.S. bank holding companies had sufficient capital to cushion 
themselves against larger than expected future losses, as determined 
by the Supervisory Capital Assessment Program--or "stress test"--
conducted by the federal banking regulators. The Capital Assistance 
Program was announced in February 2009 and ended in November 2009. It 
was never utilized. 

[End of section] 

Appendix III: Comments from the Department of the Treasury: 

Department Of The Treasury: 
Assistant Secretary: 
Washington, D.C. 20220: 

December 14, 2011: 

Thomas J. McCool: 
Director, Center for Economics: 
Applied Research and Methods: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. McCool: 

I am writing in response to your draft report entitled, "As Treasury 
Continues to Exit Programs, Opportunities to Enhance Communication on 
Costs Exist," provided to Treasury on November 23, 2011. The draft 
report provides a useful summary of the current condition and status 
of the Troubled Asset Relief Program (TARP); the Department of the 
Treasury's (Treasury) management of TARP operations; and the costs 
associated with TARP programs. This letter provides Treasury's 
official response to the GAO draft report. 

Treasury appreciates GAO's recognition that "the estimated costs of 
TARP have decreased significantly from when Treasury first announced" 
the program. We agree. Indeed, TARP helped stop the widespread 
financial panic the nation faced in the fall of 2008, and did so at a 
fraction of the cost that most people expected when the law was 
passed. Likewise, we appreciate GAO's recognition that Treasury has 
appropriately addressed staffing levels and expertise in light of the 
temporary nature of TARP, and that Treasury "strengthened its policies 
and procedures for managing financial agents and contractors and 
conflicts of interest." 

As you know, Treasury has established comprehensive accountability and 
transparency measures regarding TARP. Treasury publishes hundreds of 
reports and other information about TARP so that the public is made 
aware of how the money was spent, who received funds, and on what 
terms. We therefore appreciate GAO's acknowledgment that "the Agency 
Financial Report and the Monthly 105(a) reports clearly present 
Treasury's lifetime cost estimates for TARP and its programs." The 
draft report suggests that Treasury could further enhance transparency 
by consistently including lifetime cost estimates or references to 
reports containing such information in its program-specific press 
releases. We will implement this recommendation by including a link to 
our monthly 105(a) report -- which contains our most recent lifetime 
cost estimates -- in future TARP transaction press releases. 

We appreciate the opportunity to respond to your draft report. 
Treasury values GAO's detailed review of TARP and shares its 
underlying objective of continuously improving the program. We look 
forward to continuing to work with you and your team as we move 
forward. 

Sincerely, 

Signed by: 

Timothy G. Massed: 
Assistant Secretary for Financial Stability: 

[End of section] 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Orice Williams Brown, (202) 512-8678 or williamso@gao.gov: 

A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov: 

Thomas J. McCool, (202) 512-2642 or mccoolt@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Gary Engel, Mathew J. Scirè, 
and William T. Woods (lead Directors); Marcia Carlsen, Lawrance Evans, 
Jr., Dan Garcia-Diaz, Lynda Downing, Kay Kuhlman, Harry Medina, Joseph 
O'Neill, John Oppenheim, Raymond Sendejas, and Karen Tremba (lead 
Assistant Directors); Emily Chalmers; Rachel DeMarcus; John Forrester; 
Christopher Forys; Heather Krause; Robert Lee; Aaron Livernois; Dragan 
Matic; Emily Owens; Erin Schoening; and Mel Thomas have made 
significant contributions to this report. 

[End of section] 

Related GAO Products: 

Financial Audit: Office of Financial Stability (Troubled Asset Relief 
Program) Fiscal Years 2011 and 2010 Financial Statements. [hyperlink, 
http://www.gao.gov/products/GAO-12-169]. Washington, D.C.: November 
10, 2011. 

Troubled Asset Relief Program: Status of GAO Recommendations to 
Treasury. [hyperlink, http://www.gao.gov/products/GAO-11-906R]. 
Washington, D.C.: September 16, 2011. 

Troubled Asset Relief Program: The Government's Exposure to AIG 
Following the Company's Recapitalization. [hyperlink, 
http://www.gao.gov/products/GAO-11-716]. Washington, D.C.: July 28, 
2011. 

Troubled Asset Relief Program: Results of Housing Counselors Survey on 
Borrowers' Experiences with the Home Affordable Modification Program. 
[hyperlink, http://www.gao.gov/products/GAO-11-367R]. Washington, 
D.C.: May 26, 2011. 

Troubled Asset Relief Program: Survey of Housing Counselors about the 
Home Affordable Modification Program, an E-supplement to GAO-11-367R. 
[hyperlink, http://www.gao.gov/products/GAO-11-368SP]. Washington, 
D.C.: May 26, 2011. 

TARP: Treasury's Exit from GM and Chrysler Highlights Competing Goals, 
and Results of Support to Auto Communities Are Unclear. [hyperlink, 
http://www.gao.gov/products/GAO-11-471]. Washington, D.C.: May 10, 
2011. 

Management Report: Improvements Are Needed in Internal Control Over 
Financial Reporting for the Troubled Asset Relief Program. [hyperlink, 
http://www.gao.gov/products/GAO-11-434R]. Washington, D.C.: April 18, 
2011. 

Troubled Asset Relief Program: Status of Programs and Implementation 
of GAO Recommendations. [hyperlink, 
http://www.gao.gov/products/GAO-11-476T]. Washington, D.C.: March 17, 
2011. 

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]. Washington, D.C.: March 17, 
2011. 

Troubled Asset Relief Program: Actions Needed by Treasury to Address 
Challenges in Implementing Making Home Affordable Programs. 
[hyperlink, http://www.gao.gov/products/GAO-11-338T]. Washington, 
D.C.: March 2, 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]. Washington, D.C.: January 20, 
2011. 

Troubled Asset Relief Program: Status of Programs and Implementation 
of GAO Recommendations. [hyperlink, 
http://www.gao.gov/products/GAO-11-74]. Washington, D.C.: 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]. Washington, D.C.: 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]. Washington, D.C.: 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]. Washington, D.C.: 
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]. Washington, D.C.: 
August 3, 2010. 

Troubled Asset Relief Program: Continued Attention Needed to Ensure 
the Transparency and Accountability of Ongoing Programs. [hyperlink, 
http://www.gao.gov/products/GAO-10-933T]. Washington, D.C.: July 21, 
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]. Washington, D.C.: 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]. 
Washington, D.C.: 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]. Washington, D.C.: 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]. Washington, D.C.: May 18, 
2010. 

Troubled Asset Relief Program: Update of Government Assistance 
Provided to AIG. [hyperlink, http://www.gao.gov/products/GAO-10-475]. 
Washington, D.C.: 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]. Washington, D.C.: 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]. Washington, D.C.: 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]. 
Washington, D.C.: February 5, 2010. 

Troubled Asset Relief Program: The U.S. Government Role as Shareholder 
in AIG, Citigroup, Chrysler, and General Motors and Preliminary Views 
on its Investment Management Activities. [hyperlink, 
http://www.gao.gov/products/GAO-10-325T]. Washington, D.C.: December 
16, 2009. 

Financial Audit: Office of Financial Stability (Troubled Asset Relief 
Program) Fiscal Year 2009 Financial Statements. [hyperlink, 
http://www.gao.gov/products/GAO-10-301]. Washington, D.C.: 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]. Washington, D.C.: November 2, 
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]. Washington, D.C.: 
October 8, 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]. Washington, 
D.C.: 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]. Washington, D.C.: September 
29, 2009. 

Troubled Asset Relief Program: Status of Efforts to Address 
Transparency and Accountability Issues. [hyperlink, 
http://www.gao.gov/products/GAO-09-1048T]. Washington, D.C.: September 
24, 2009. 

Troubled Asset Relief Program: Status of Government Assistance 
Provided to AIG. [hyperlink, http://www.gao.gov/products/GAO-09-975]. 
Washington, D.C.: 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]. Washington, D.C.: 
July 23, 2009. 

Troubled Asset Relief Program: Status of Efforts to Address 
Transparency and Accountability Issues. [hyperlink, 
http://www.gao.gov/products/GAO-09-920T]. Washington, D.C.: July 22, 
2009. 

Troubled Asset Relief Program: Status of Participants' Dividend 
Payments and Repurchases of Preferred Stock and Warrants. [hyperlink, 
http://www.gao.gov/products/GAO-09-889T]. Washington, D.C.: July 9, 
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]. Washington, D.C.: June 17, 
2009. 

Troubled Asset Relief Program: Capital Purchase Program Transactions 
for October 28, 2008, through May 29, 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]. Washington, D.C.: June 17, 
2009. 

Auto Industry: Summary of Government Efforts and Automakers' 
Restructuring to Date. [hyperlink, 
http://www.gao.gov/products/GAO-09-553]. Washington, D.C.: April 23, 
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]. Washington, D.C.: March 31, 
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]. Washington, D.C.: 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-09-539T]. Washington, D.C.: March 31, 
2009. 

Troubled Asset Relief Program: Status of Efforts to Address 
Transparency and Accountability Issues. [hyperlink, 
http://www.gao.gov/products/GAO-09-484T]. Washington, D.C.: March 19, 
2009. 

Federal Financial Assistance: Preliminary Observations on Assistance 
Provided to AIG. [hyperlink, http://www.gao.gov/products/GAO-09-490T]. 
Washington, D.C.: March 18, 2009. 

Troubled Asset Relief Program: Status of Efforts to Address 
Transparency and Accountability Issues. [hyperlink, 
http://www.gao.gov/products/GAO-09-474T]. Washington, D.C.: March 11, 
2009. 

Troubled Asset Relief Program: Status of Efforts to Address 
Transparency and Accountability Issues. [hyperlink, 
http://www.gao.gov/products/GAO-09-417T]. Washington, D.C.: February 
24, 2009. 

Troubled Asset Relief Program: Status of Efforts to Address 
Transparency and Accountability Issues. [hyperlink, 
http://www.gao.gov/products/GAO-09-359T]. Washington, D.C.: February 
5, 2009. 

Troubled Asset Relief Program: Status of Efforts to Address 
Transparency and Accountability Issues. [hyperlink, 
http://www.gao.gov/products/GAO-09-296]. Washington, D.C.: January 30, 
2009. 

Troubled Asset Relief Program: Additional Actions Needed to Better 
Ensure Integrity, Accountability, and Transparency. [hyperlink, 
http://www.gao.gov/products/GAO-09-266T]. Washington, D.C.: December 
10, 2008. 

Auto Industry: A Framework for Considering Federal Financial 
Assistance. [hyperlink, http://www.gao.gov/products/GAO-09-247T]. 
Washington, D.C.: December 5, 2008. 

Auto Industry: A Framework for Considering Federal Financial 
Assistance. [hyperlink, http://www.gao.gov/products/GAO-09-242T]. 
Washington, D.C.: December 4, 2008. 

Troubled Asset Relief Program: Status of Efforts to Address Defaults 
and Foreclosures on Home Mortgages. [hyperlink, 
http://www.gao.gov/products/GAO-09-231T]. Washington, D.C.: December 
4, 2008. 

Troubled Asset Relief Program: Additional Actions Needed to Better 
Ensure Integrity, Accountability, and Transparency. [hyperlink, 
http://www.gao.gov/products/GAO-09-161]. Washington, D.C.: December 2, 
2008. 

[End of section] 

Footnotes: 

[1] 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. 

[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] The Department of the Treasury, the Congressional Budget Office, 
and the Office of Management and Budget provided cost estimates that 
were all below $700 billion; the highest estimate was about half of 
the $700 billion allocated for TARP. 

[4] We have issued a TARP report at least every 60 days as required by 
EESA in Section 116, 12 U.S.C. § 5226 (codified at 12 U.S.C. § 5226). 
Unless otherwise noted, we provide information throughout this report 
as of September 30, 2011. 

[5] See GAO, Financial Audit: Office of Financial Stability (Troubled 
Asset Relief Program) Fiscal Years 2011 and 2010 Financial Statements, 
[hyperlink, http://www.gao.gov/products/GAO-12-169] (Washington, D.C.: 
Nov.10, 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] 
(Washington, D.C.: Nov.15, 2010), and Financial Audit: Office of 
Financial Stability (Troubled Asset Relief Program) Fiscal Year 2009 
Financial Statements, [hyperlink, 
http://www.gao.gov/products/GAO-10-301] (Washington, D.C.: Dec. 9, 
2009). 

[6] Pursuant to EESA's requirements, the Congressional Oversight Panel 
terminated on April 3, 2011. 

[7] For more information on these programs, see our two previous 
reports on TARP after its first and second year of implementation: 
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), and 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] 
(Washington, D.C.: Oct. 8, 2009). 

[8] In addition to programs that are moving towards exit, the Asset 
Guarantee Program, the Capital Assessment Program, and the Targeted 
Investment Program are no longer active and Treasury no longer holds 
assets related to these programs that it must manage, as we have 
previously reported. For more information, see appendix II. 

[9] Section 123 of EESA requires the use of credit reform accounting 
established by the Federal Credit Reform Act of 1990 to calculate cost 
estimates for budgetary purposes for TARP transactions that include 
equity investments, loans, and loan guarantees. 

[10] See Sections 105 and 202 of EESA. 

[11] Other credit programs consist of the Asset Guarantee Program and 
the FHA Short Refinance Program. Federal Credit Reform Act of 1990, 
Pub. L. No. 101-508, Title XII, Subtitle B, § 13201, 104 Stat. 1388, 
1388-61 (1990). 

[12] In some cases, these cost estimates suggest certain TARP programs 
could result in net income for the taxpayer because the proceeds from 
Treasury's investments (e.g., repayments, dividends, and interest 
payments) are expected to exceed costs. We refer to these estimates as 
"lifetime income" estimates throughout the report. 

[13] See GAO, TARP: Treasury's Exit from GM and Chrysler Highlights 
Competing Goals, and Results of Support to Auto Communities Are 
Unclear, [hyperlink, http://www.gao.gov/products/GAO-11-471] 
(Washington, D.C.: May 10, 2011). The Congressional Oversight Panel 
also noted these competing goals. See Congressional Oversight Panel, 
January Oversight Report: Exiting TARP and Unwinding Its Impact on the 
Financial Markets (Washington, D.C.: Jan. 14, 2010). 

[14] Note that some numbers in our program figures will not total due 
to rounding. 

[15] [hyperlink, http://www.gao.gov/products/GAO-11-74]. We also 
reported on CPP in 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). 

[16] Throughout this report we use "lifetime income" to refer to 
instances when cost estimates suggest that certain TARP programs could 
result in net income for the taxpayer because the proceeds from 
Treasury's investments (e.g., repayments, dividends, and interest 
payments) are expected to exceed costs. 

[17] See Department of the Treasury, Troubled Asset Relief Program 
(TARP) Monthly 105(a) Report-September 2011 (Washington, D.C.: Oct. 
11, 2011). 

[18] Additionally, 12 institutions have made partial repayments but 
remain in the program. 

[19] CDCI is a TARP program that provides capital to CDFIs that have a 
federal depository institution supervisor. The program is structured 
like CPP but expands to include credit unions and provides more 
favorable capital terms. The Small Business Lending Fund was created 
by the Small Business Jobs Act of 2010, Pub. L. No. 111-240, 124 Stat. 
2504 (2010), enacted on September 27, 2010. The Fund is a $30 billion 
capital support program that encourages small and midsize banks and 
community development loan funds to lend to small businesses. 

[20] Under CPP terms, institutions pay cumulative dividends on their 
preferred shares, except for banks that are not subsidiaries of 
holding companies, which pay noncumulative dividends. Some other types 
of institutions, such as S corporations, received their CPP investment 
in the form of subordinated debt and pay Treasury interest rather than 
dividends. An S-corporation makes a valid election to be taxed under 
subchapter S of chapter 1 of the Internal Revenue Code and thus does 
not pay any income taxes. Instead, the corporation's income or losses 
are divided among and passed through to its shareholders. 

[21] 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. 

[22] In its dividend and interest reports, Treasury no longer 
considers a payment to be missed or unpaid once the institution (1) 
repays its investment amount and exits CPP, (2) repays dividends by 
way of capitalization at the time of exchange, or (3) enters 
bankruptcy or its bank subsidiary is placed into receivership. We 
included such institutions in our counts. 

[23] According to the standard terms of CPP, after participants have 
missed six dividend payments--consecutive or not--Treasury can 
exercise its right to appoint two members to the board of directors 
for that institution. 

[24] Treasury reported that it might not nominate directors 
immediately after an institution misses six payments but would develop 
a pool of candidates screened by executive search firms it engaged. 
Board members whom Treasury nominates cannot be government employees 
and must have the same fiduciary duties and obligations to the 
institution's shareholders as any other member of the board and 
receive the same compensation from the institution. 

[25] As noted in figure 3, Treasury has already sold some CPP 
investments. According to its Section 105(a) reports Treasury may sell 
its holdings or exchange CPP securities "in limited cases, in order to 
protect the taxpayers' interest in the value of an investment and to 
promote the objectives of EESA." 

[26] Institutions interested in transferring to CDCI from CPP were 
required to be (1) current on dividend payments, (2) in good standing 
with CPP, and (3) in compliance with all reporting requirements. 

[27] While similar to CPP, CDCI differs from CPP in several important 
aspects: (1) CDCI provides financial assistance to CDFIs, which in 
turn provide financial services to under-served communities; (2) CDCI 
also provides assistance to credit unions, unlike CPP; and (3) CDCI 
provides more favorable capital terms to its participants than CPP, 
including a longer repayment period at a lower dividend rate. For more 
details, see [hyperlink, http://www.gao.gov/products/GAO-11-74]. 

[28] This amount includes $127 million of proceeds in excess of cost. 
Ally Financial was formerly known as the General Motors Acceptance 
Corporation, or GMAC. 

[29] If Treasury converted its mandatory convertible preferred 
securities, its common equity in Ally Financial would increase to more 
than 80 percent. 

[30] Treasury has reported that given that it holds 74 percent of Ally 
Financial's common equity, it is likely to take 1 to 2 years following 
the IPO for the Treasury to dispose of its ownership stake. 
Additionally, Treasury officials have not ruled out the possible sale 
of its equity but noted that only a small number of institutions could 
digest an acquisition the size of Ally Financial. Therefore, this 
course of action appears to be less feasible than an IPO exit strategy. 

[31] [hyperlink, http://www.gao.gov/products/GAO-11-471]. Additional 
reporting on AIFP appears in GAO, 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] 
(Washington, D.C.: Apr. 6, 2010); 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); and Auto Industry: Summary of Government Efforts and 
Automakers' Restructuring to Date, [hyperlink, 
http://www.gao.gov/products/GAO-09-553] (Washington, D.C.: Apr. 23, 
2009). 

[32] Specifically, in September 2008, a trust created by FRBNY 
received 100,000 shares of Series C preferred stock and Treasury 
received a 77.9 percent voting interest in AIG, in exchange for FRBNY 
providing AIG a revolving loan. This transaction predated TARP. In 
November 2008, using TARP funds, Treasury purchased $40 billion in 
cumulative preferred shares of Series D stock, which was exchanged in 
April 2009 for $41.6 billion of Series E noncumulative preferred stock 
(the difference of $1.6 billion was in accumulated but unpaid 
dividends on the Series D stock). That same month, also using TARP 
funds, Treasury received 300,000 shares of Series F noncumulative 
preferred stock and a warrant to purchase up to 3,000 shares of AIG 
common stock in exchange for providing AIG a $29.835 billion equity 
facility. In January 2011, AIG was recapitalized and Treasury 
exchanged its Series E and F preferred stock for 1.0921 billion shares 
of common shares. We refer to these shares as "TARP shares." Also in 
January, the trust exchanged its Series C preferred stock for 562.9 
million shares of common stock and subsequently transferred these 
shares to Treasury (giving Treasury a total of 1.655 billion common 
shares in AIG (or approximately 92 percent of the company). We refer 
to these shares as "non-TARP shares." 

[33] The sale included about 132 million TARP AIG common shares on 
which Treasury had a realized loss and about 68 million non-TARP AIG 
common shares on which Treasury had a realized gain. 

[34] See GAO, Troubled Asset Relief Program: The Government's Exposure 
to AIG Following the Company's Recapitalization, [hyperlink, 
http://www.gao.gov/products/GAO-11-716] (Washington, D.C.: July 18, 
2011). As discussed in GAO-11-716, this calculation is based on a cash-
in/cash-out approach and reflects Treasury's primary goal of recouping 
taxpayers' costs. It includes only the cost of the liquidation 
preferences in the Series E and Series F preferred shares--$47.543 
billion--to calculate a breakeven share price to be $28.73. Under a 
different approach that captures $47.543 billion of liquidation 
preferences in Series E and Series F preferred shares plus $1.605 
billion of unpaid dividends and fees (for a total of $49.148 billion), 
the breakeven share price would increase to approximately $29.70, 
which represents the minimum average price at which Treasury would 
need to sell all of its shares to fully recover the $49.148 billion. 
Additional AIG reporting includes GAO, Troubled Asset Relief Program: 
Third Quarter 2010 Update of Government Assistance Provided to AIG and 
Description of Recent Execution of Recapitalization Plan, GAO-11-46 
(Washington, D.C.: Jan. 20, 2011); Troubled Asset Relief Program: 
Update of Government Assistance Provided to AIG, [hyperlink, 
http://www.gao.gov/products/GAO-10-475] (Washington, D.C.: Apr. 27, 
2010); and Troubled Asset Relief Program: Status of Government 
Assistance Provided to AIG, [hyperlink, 
http://www.gao.gov/products/GAO-09-975] (Washington, D.C.: Sept. 21, 
2009). 

[35] For example, in March 2010, CBO estimated that the cost of 
Treasury's approximately $70 billion in TARP assistance (the exchanged 
Series D/E and F stock mentioned in footnote 34) to AIG would be about 
$36 billion. Unlike the other lifetime estimates reported here, the 
lifetime income estimate of $12.8 billion for Treasury's non-TARP 
shares has not been audited by GAO, although it has been audited. The 
audited estimate was obtained from the Department of the Treasury, 
Agency Financial Report (Washington, D.C.: Nov. 15, 2011). 

[36] An "underwritten offering" is a method of issuing shares that 
targets one or more underwriters, who buy them for their own account 
and then attempt to sell them to other investors. 

[37] An "at-the-market offering" is the sale of securities by an 
issuer into the public markets at prevailing market prices. 

[38] This information is included in the registration rights portion 
of the December 2010 recapitalization plan. 

[39] The SBA 7(a) program is SBA's primary program for assisting small 
businesses to obtain access to credit when they cannot obtain it from 
private lending institutions. The program provides credit for working 
capital and other business needs. 

[40] Our previous reporting on SBA 7(a) lending and securitization 
volumes demonstrated declines during the onset of the financial crisis 
in 2008, though they recovered from their lows in fiscal year 2010 
based on SBA data. See [hyperlink, 
http://www.gao.gov/products/GAO-11-74]. 

[41] Prepayment risk is the risk associated with the early, 
unscheduled return of principal. Because Treasury paid a premium to 
purchase these securities, any prepayments would result in losses for 
the amount that Treasury paid in excess of par. 

[42] TALF provided loans to certain institutions and business entities 
in return for collateral in the form of securities that are forfeited 
if the loans are not repaid. Securitization is a process by which 
similar debt instruments--such as loans, leases, or receivables--are 
aggregated into pools, and interest-bearing securities backed by such 
pools are then sold to investors. These asset-backed securities (ABS) 
provide a source of liquidity for consumers and small businesses 
because financial institutions can take assets that they would 
otherwise hold on their balance sheets, sell them as securities, and 
use the proceeds to originate new loans, among other purposes. 
Commercial mortgage-backed securities (CMBS) are securitizations with 
cash flows backed by principal and interest payments on a pool of 
loans on commercial properties. For additional information about 
securitization and about TALF see GAO, Federal Reserve System: 
Opportunities Exist to Strengthen Policies and Processes for Managing 
Emergency Assistance, [hyperlink, 
http://www.gao.gov/products/GAO-11-696] (Washington, D.C.: July 21, 
2011), and 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] 
(Washington, D.C.: Feb. 5, 2010). 

[43] Initially, Treasury was responsible for providing as much as $20 
billion in credit protection to FRBNY, but in July 2010, Treasury and 
the Federal Reserve agreed to reduce the credit protection to $4.3 
billion. 

[44] TALF expired on March 31, 2010, for loans backed by ABS and 
legacy CMBS, and on June 30, 2010, for loans backed by newly issued 
CMBS. 

[45] The FRBNY establishes the "haircut" or amount of equity the 
borrower holds in TALF collateral based on its weighted average life 
and market risks for each sector and sub sector. The haircut is also 
the difference between the value of the TALF collateral and the value 
of the loan. In other words, if haircuts have grown, the borrower has 
more equity in the collateral and should be more likely to pay off the 
loan and keep the pledged collateral. See [hyperlink, 
http://www.gao.gov/products/GAO-10-25] for more details. 

[46] One PPIF liquidated in the first quarter of 2010. 

[47] PPIFs received an approximately equal share of equity from 
Treasury and private investors. PPIFs also received access to credit 
from Treasury. PPIFs draw on these funds to invest in eligible RMBS 
and CMBS. 

[48] While PPIP is scheduled to end in 2017, which is 8 years after 
the last PPIP was initiated, it could be extended for 2 years. Such 
decisions would occur on a case-by-case basis for each PPIF, depending 
on market conditions and other factors. 

[49] To be eligible for HAMP: (1) the property must be owner occupied 
and the borrower's primary residence; (2) the property must be a 
single-family property (one to four units) with a maximum unpaid 
principal balance on the unmodified first lien mortgage that is equal 
to or less than $729,750 for a one-unit property; (3) the loan must 
have been originated on or before January 1, 2009; and (4) the monthly 
first lien mortgage payment must be more than 31 percent of the 
homeowner's gross monthly income. 

[50] We have made a number of recommendations to Treasury regarding 
its efforts to implement the MHA program. See GAO-11-288; 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); and Troubled Asset Relief Program: Treasury Actions Needed to 
Make the Home Affordable Modification Program More Transparent and 
Accountable, GAO-09-837 (Washington, D.C: July 23, 2009). While 
Treasury has taken various actions consistent with our 
recommendations, several of our MHA-related recommendations remain 
open. See GAO, Troubled Asset Relief Program: Status of GAO 
Recommendations to Treasury, [hyperlink, 
http://www.gao.gov/products/GAO-11-906R] (Washington, D.C.: Sept. 16, 
2011). 

[51] Under HAMP, borrowers must successfully complete a trial 
modification of at least 3 months (90 days) before receiving a 
permanent modification. 

[52] Treasury's MHA program also has the Home Affordable Unemployment 
Program that does not entail the use of TARP or other federal program 
funds. The Unemployment Program provides temporary forbearance to 
homeowners who are unemployed and requires servicers participating in 
MHA to grant qualified unemployed borrowers a forbearance period 
during which their mortgage payments are temporarily reduced or 
suspended for a minimum of 12 months while they look for new jobs. 
Borrowers can apply for a HAMP modification upon finding employment or 
prior to the expiration of the forbearance period. Treasury reported 
that 14,996 Unemployment Program forbearance plans had been started 
through August 2011. 

[53] In order to be eligible for a Second Lien Modification Program 
modification, the loan must meet certain criteria. For example, it 
must have been originated on or before January 1, 2009; have an unpaid 
balance of greater than $5,000 and have a premodification monthly 
payment greater than $100; and can be modified only once under the 
program. 

[54] See [hyperlink, http://www.gao.gov/products/GAO-11-906R] for more 
information. 

[55] Congress established Fannie Mae and Freddie Mac as for-profit, 
shareholder-owned corporations to stabilize and assist the U.S. 
secondary mortgage market and facilitate the flow of mortgage credit. 

[56] The 116 contracts and blanket purchase agreements include 6 
contractual arrangements in which OFS is engaging vendors that have 
existing contracts with other Treasury offices or bureaus or with 
other federal agencies. 

[57] OFS's contract record system is an Excel spreadsheet that 
contains the award date; performance end date; obligations to date; 
socioeconomic category; description of services; and other information 
related to its contracts, financial agency agreements, and interagency 
agreements. 

[58] The Federal Procurement Data System-Next Generation is the 
federal government's primary data system for tracking information on 
contracting actions. 

[59] According to Treasury officials, incentive payments for exceeding 
performance measures are not available for Freddie Mac, Fannie Mae, 
Lazard Frères, EARNEST Partners, Morgan Stanley, Greenhill and Co., 
and Perella Weinberg Partners based on the terms of the agreements. 

[60] OFS's Contract and Agreement Review Board, which is composed of 
program and procurement executives, oversees OFS's acquisition 
decisions. The Board centralizes decisions regarding the office's 
contracting and financial agency requirements, serving as the 
deliberative body for determining whether to perform a function in 
house or to outsource it. This formalized process was established in 
March 2009, after the urgency of the initial stages of the financial 
crisis had subsided. Contracting Officer's Technical Representatives 
perform critical acquisition and technical functions, and contracting 
officers rely on them to ensure that contracts are managed properly to 
meet mission needs. 

[61] The former Procurement Services Division supported Treasury 
Departmental Offices (DO) procurement, including domestic finance, 
economic policy, and general counsel, and OFS was one of its 
customers. According to a Treasury acquisition procedures update in 
August 2011, the IRS Procurement Office now supports DO as a result of 
transition of the DO Procurement Services Division to the IRS 
Procurement Office. According to the update, effective and efficient 
use of Treasury's procurement resources is imperative to responsible 
execution of the department's procurement authority. 

[62] In addition to OFS's staffing, contracting, and financial agent 
agreement management, we have also reviewed other elements of 
Treasury's implementation of TARP. Since 2009, we have audited and 
issued an opinion on OFS's financial statements and its internal 
control over financial reporting. Our most recent financial statement 
audit 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, 2011, that 
provided reasonable assurance that misstatements, losses, or 
noncompliance material in relation to the financial statements would 
be prevented or detected and corrected in a timely manner. See GAO-12-
169. 

[63] For more information on the cost estimate calculation, see 
Congressional Budget Office, The Troubled Asset Relief Program: Report 
on Transactions through June 17, 2009 (Washington, D.C.: June 2009). 

[64] For CBO's recent cost estimate, see Congressional Budget Office, 
Report on the Troubled Asset Relief Program--December 2011 
(Washington, D.C.: Dec. 16, 2011). 

[65] Treasury estimates lifetime income of approximately $12.8 billion 
from the sale of its non-TARP AIG shares which could offset the 
estimated lifetime cost of $24.3 billion associated with its TARP 
shares in AIG. See figure 8 in the AIG section for more details. 

[66] For examples of Treasury's lifetime subsidy cost estimates for 
TARP programs see Department of the Treasury, Office of Financial 
Stability, Troubled Asset Relief Program Agency Financial Report 
Fiscal Year 2010 (Washington, D.C.: 2010), and Department of the 
Treasury, Troubled Asset Relief Program Monthly 105(a) Report--
December 2010 (Washington, D.C.: Jan. 10, 2011). 

[67] For additional information on the lifetime cost calculation 
required by the Federal Credit Reform Act of 1990 see Treasury, 
Troubled Asset Relief Program Agency Financial Report Fiscal Year 2010. 

[68] As noted earlier in this report, the $24.3 billion is associated 
with TARP-related assistance. Factoring in income of $12.8 billion for 
its non-TARP shares could result in a net estimated cost of $11.5 
billion. 

[69] See GAO, Financial Assistance: Ongoing Challenges and Guiding 
Principles Related to Government Assistance For Private Sector 
Companies, [hyperlink, http://www.gao.gov/products/GAO-10-719] 
(Washington, D.C.: Aug. 3, 2010). 

[70] The term "too big too fail" can also include "too interconnected 
to fail" and other terms that signify that a failure of a particular 
institution would have a significant negative effect on the broader 
financial system or economy. 

[71] The purpose of the Financial Stability Oversight Council is to 
(1) identify risks to the financial stability of the U.S. from the 
financial distress, failure, or activities of large interconnected 
bank holding companies or nonbank financial companies; (2) promote 
market discipline by eliminating expectations that the government will 
shield shareholders, creditors, and other counterparties from losses 
in the event of failure; and (3) respond to emerging threats to the 
stability of the U.S. financial system. The Council is made up of the 
following voting members: the Secretary of the Treasury, the Chairman 
of the Federal Reserve, the Comptroller of the Currency, the Director 
of the Bureau of Consumer Financial Protection, the Chairman of the 
Securities and Exchange Commission, the Chairperson of the Federal 
Deposit Insurance Corporation, the Chairperson of the Commodity 
Futures Trading Commission, the Director of the Federal Housing 
Finance Agency, the Chairman of the National Credit Union 
Administration Board, and an independent member appointed by the 
President who is approved by the Senate and has insurance expertise. 
The Council's nonvoting members include the Director of the Office of 
Financial Research, the Director of the Federal Insurance Office, a 
state insurance commissioner, state securities commissioner, and state 
banking supervisor. 

[72] On November 1, 2011, the Federal Deposit Insurance Corporation 
and the Federal Reserve published in the Federal Register a final rule 
implementing the resolution plan requirements for large bank holding 
companies and nonbank financial companies supervised by the Federal 
Reserve. The final rule is effective November 30, 2011. The Federal 
Deposit Insurance Corporation also issued a complementary interim 
final rule, published in September 2011 that is effective in January 
2012. 

[73] See [hyperlink, http://www.gao.gov/products/GAO-12-169], 
[hyperlink, http://www.gao.gov/products/GAO-11-174], and [hyperlink, 
http://www.gao.gov/products/GAO-10-301]. 

[74] Although Treasury provides OMB with TARP transaction and cost 
estimate data, OMB may include different estimates in its reports than 
those reported by Treasury. For instance, Treasury typically reports 
lifetime cost estimates for TARP programs that include the interest on 
re-estimates whereas OMB often reports program lifetime cost estimates 
that do not include the interest on re-estimates. For more details 
about the interest on re-estimates, see Office of Management and 
Budget, Circular No. A-11, Part 5, Section 185 Federal Credit 
(Washington, D.C.: June 2008). 

[75] For additional details on the Asset Guarantee Program, Capital 
Assistance Program, and Targeted Investment Program, see [hyperlink, 
http://www.gao.gov/products/GAO-11-74] and [hyperlink, 
http://www.gao.gov/products/GAO-10-16]. 

[End of section] 

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