Troubled Asset Relief Program:

Status of GAO Recommendations to Treasury

GAO-11-906R: Published: Sep 16, 2011. Publicly Released: Sep 16, 2011.

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Nearly 3 years ago, the Emergency Economic Stabilization Act of 2008 (EESA) authorized the creation of the Troubled Asset Relief Program (TARP) to address the most severe crisis that the financial system had faced in decades. EESA provided GAO with broad oversight authorities for actions taken under TARP and required that we report at least every 60 days on TARP activities and performance. Our oversight and reporting has resulted in 69 performance audit recommendations and matters for congressional consideration to improve TARP's accountability and transparency. Sixty of the performance audit recommendations have been directed to the U.S. Department of the Treasury (Treasury), the primary agency responsible for TARP programs. While Treasury has taken a number of steps to address many of our recommendations, some recommendations remain outstanding. This 60-day report describes the status of our TARP performance audit recommendations to Treasury as of September 2011. In particular, this report discusses Treasury's implementation of our recommendations, focusing particularly on two cross-cutting issues--communications and staffing--and two major TARP programs, the Capital Purchase Program (CPP), which supports certain U.S. financial institutions, and Making Home Affordable (MHA), which is a collection of housing programs designed to help certain homeowners avoid foreclosure.

Treasury has addressed most TARP recommendations that we have made since issuing our first report in 2008. Of 60 recommendations that were directed to Treasury, 45 had been implemented as of September 2011, including those related to communication and staffing. Treasury has partially implemented five of the recommendations, meaning that it has taken some steps to implement the recommendations but needs to take further actions to fully implement them. Seven of our recommendations remain open--that is, Treasury has not taken steps to implement the recommendations. Among these are recommendations directed at CPP and the housing programs under MHA. Another three recommendations are closed, but not implemented, reflecting Treasury's decision not to take action. For example, Treasury has indicated that it does not intend to assess whether borrowers with high debt-to-income ratios actually receive housing counseling required as a condition for MHA program participation or establish specific criteria for servicers to use in determining whether a borrower is in imminent danger of default during the MHA eligibility assessment process. When Treasury first created the Office of Financial Stability (OFS) to administer TARP, the new office did not always clearly communicate its goals and objectives for TARP to the public and to Congress. A number of our early recommendations were directed specifically at improving the way OFS communicates with external stakeholders, including Congress. For example, in 2008 and 2009 we recommended that OFS formalize its communication strategy and clearly articulate its vision for TARP. OFS took steps to address these recommendations starting in 2009 and has now fully implemented all of them. In particular, in March 2011 OFS hired its own senior liaison for legislative affairs to focus on sharing TARP-specific information with Congress and to answer questions about TARP programs. However, we will continue to monitor this issue while Treasury carries out its housing-related programs and unwinds remaining TARP programs. Treasury has implemented our recommendation to apply lessons learned from CPP to SBLF but has not taken action to monitor regulators' CPP repayment decisions. Our October 2010 report recommended that Treasury apply lessons learned to programs containing elements similar to those of CPP.9 Specifically, we recommended that when implementing SBLF, Treasury should better ensure that similar applicants are treated equitably by establishing a process for collecting and evaluating information from bank regulators on all applicants that withdraw from consideration in response to a regulator's recommendation. For SBLF, the roles of Treasury and the regulators have been modified: Treasury officials make the recommendations for approval and withdrawal with final approval made by the Treasury Deputy Assistant Secretary for Small Business, Community Development, and Affordable Housing Policy. The role of the regulators is to provide supervisory information and a viability assessment to Treasury, with Treasury also independently conducting a credit analysis of each applicant. To help ensure consistent treatment of applicants, Treasury created an application review committee that reviews all applicants when the federal regulator's input concluded that the applicant was not viable for the program. Treasury's lead role in recommending applicants for funding and this additional review step should help to ensure that applicants receive consistent treatment in investment decisions.

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