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TH E D E PA R TM E NT O F TH E TR E ASU RY

Agency Financial
Report
Office of Financial Stability – Troubled Asset Relief Program

F i s c a l Ye a r 2 0 1 2

2 0 11 C E R T I F I C A T E S O F E X C E L L E N C E

CERTIFICATE OF
EXCELLENCE IN
ACCOUNTABILITY
REPORTING
®

BEST-IN-CLASS AWARD
Presented to the

U.S. Department
of the Treasury,
Office of
Financial Stability

CERTIFICATE OF
EXCELLENCE IN
ACCOUNTABILITY
REPORTING
®

In recognition for Providing the

Presented to the

Most Innovative Approach to
Communicating Technical Information

U.S. Department
of the Treasury,
Office of
Financial Stability

in your FY2011 Agency Financial Report

Robert F Dacey, CGFM, CPA
.
Chair, Certificate of Excellence
in Accountability Reporting Board

In recognition of your outstanding
efforts in preparing the Agency Financial
Report and Summary of Performance
and Financial Information for the
fiscal year ended September 30, 2011.

M

A Certificate of Excellence in Accountability Reporting is presented
by AGA to federal government agencies whose annual
Performance and Accountability Reports achieve the
highest standards demonstrating accountability
and communicating results.

O
ENT F THE
E
TR
ASURY

E DEPA
TH
RT

Relmond P Van Daniker, DBA, CPA
.
Executive Director, AGA

1 7 89

THE DEPARTMENT OF THE TREASURY

Office of Financial Stability – Troubled Asset Relief Program

Agency Financial Report

Robert F Dacey, CGFM, CPA
.
Chair, Certificate of Excellence
in Accountability Reporting Board

Fiscal Year 2011
Relmond P Van Daniker, DBA, CPA
.
Executive Director, AGA

11-15-11_teal OFS-TARP_AFR covers_UPDATE.indd 1

11/28/11 10:54 AM

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Table of Contents
MESSAGE FROM THE ASSISTANT SECRETARY FOR FINANCIAL STABILITY ......................................... v
EXECUTIVE SUMMARY................................................................................................................................................ vii

Part 1: Management’s Discussion and Analysis
Background, Mission, and OFS Organization Structure ................................................................................... 2
Overview of TARP for Fiscal Year 2012 ................................................................................................................. 4
Key Trends/Factors Affecting TARP Future Activities and Ultimate Cost ............................................. 12
Systems, Controls, and Legal Compliance ........................................................................................................... 14
Limitations of the Financial Statements............................................................................................................... 17
Operational Goals .......................................................................................................................................................... 18
Operational Goal One: Ensure the Overall Stability and Liquidity of the Financial System .......... 18
Capital Purchase Program.................................................................................................................................. 18
Targeted Investment Program ......................................................................................................................... 20
Asset Guarantee Program .................................................................................................................................. 20
Community Development Capital Initiative ............................................................................................... 21
Public-Private Investment Program .............................................................................................................. 21
Term Asset-Backed Securities Loan Facility .............................................................................................. 23
Small Business Administration 7(a) Securities Purchase Program .................................................. 23
Automotive Industry Financing Program .................................................................................................... 24
American International Group, Inc. (AIG) Investment Program ........................................................ 27
Operational Goal Two: Prevent Avoidable Foreclosures and Preserve Homeownership.............. 28
Operational Goal Three: Protect Taxpayers’ Interests.................................................................................. 33
Operational Goal Four: Promote Transparency............................................................................................... 34

Part 2: Financial Section
MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CF0) ............................................................................ 40
GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT ............................................................. 41
Appendix I: Management’s Report on Internal Control Over Financial Reporting .................... 47
Appendix II: OFS Response to Auditor’s Report ....................................................................................... 48
FINANCIAL STATEMENTS ......................................................................................................................................... 49
NOTES TO THE FINANCIAL STATEMENTS......................................................................................................... 54
REQUIRED SUPPLEMENTARY INFORMATION ................................................................................................. 86
OTHER ACCOMPANYING INFORMATION – SCHEDULE OF SPENDING .................................................. 88

Part 3: Appendices
APPENDIX A: TARP GLOSSARY ........................................................................................................................ 91
APPENDIX B: ABBREVIATIONS AND ACRONYMS.................................................................................... 93
WEBSITES .......................................................................................................................................... inside back cover

TABLE OF CONTENTS

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MESSAGE FROM THE ASSISTANT SECRETARY
FOR FINANCIAL STABILITY
November 9, 2012
I am pleased to present the Office of Financial Stability’s (OFS) Agency
Financial Report for Fiscal Year (FY) 2012, which describes our
financial and performance results for the fourth year of the Troubled
Asset Relief Program (TARP). The report contains the financial
statements for TARP and the Government Accountability Office (GAO)
audit opinion on those financial statements, a separate opinion on
OFS’ internal control over financial reporting, and results of GAO’s
tests of OFS’ compliance with selected laws and regulations.
The Emergency Economic Stabilization Act of 2008 (EESA) established
OFS within the Office of Domestic Finance of the Department of the
Treasury to implement TARP, the purpose of which was to ―restore the
liquidity and stability of the financial system‖.
By any reasonable objective standards, TARP worked: it helped stop
widespread financial panic, it helped prevent what could have been a devastating collapse of our
financial system, and it did so at a cost that is far less than what most people expected at the time
the law was passed.
Four years after TARP’s establishment, OFS has made substantial progress in withdrawing the
extraordinary assistance that had to be provided during the financial crisis. OFS has moved quickly
to reduce the dependence of the financial system on emergency assistance, replacing public support
with private capital.
As of September 30, 2012, OFS has collected 88.5 percent of the $417.6 billion in program funds
disbursed under TARP. During fiscal year 2012, OFS has focused on winding down TARP overall
and can report the following significant highlights:


Working with the Federal Reserve Bank of New York (FRBNY), we made substantial
progress winding down the investments in American International Group. Inc. (AIG). The
peak amount of assistance offered to AIG by the FRBNY and Treasury was $182.3 billion, a
part of which was later cancelled, and an amount in excess of the total disbursed has now
been recovered through repayments, sales and other income. OFS disbursed a total of $67.8
billion to AIG and has collected $50.3 billion to date. Treasury still holds 15.9 percent of
AIG’s outstanding common stock of which OFS holds 10.5 percent. Further detail is
provided in the Executive Summary.



We continued winding down the bank support programs. On May 3, 2012, we announced
our exit strategy for the remaining investments in the Capital Purchase Program (CPP).
That exit strategy uses a combination of repayments, restructurings, and auction sales.
During fiscal year 2012, we collected $8.9 billion in repayments, sales, and dividends on
CPP investments. As of September 30, 2012, we had collected a total of $267.0 billion for all
TARP bank support programs through repayments, sales, dividends, interest, and other
income – compared to the $245.5 billion that was initially invested.

MESSAGE FROM THE ASSISTANT SECRETARY

v



We also reduced the overall amount that remains outstanding in OFS’ credit market
programs. On January 24, 2012, we completed the wind down of the SBA 7(a) Securities
Purchase Program, collecting $9 million more than we disbursed. Progress was also made
winding down the Term Asset Backed Securities Loan Facility (TALF), when Treasury and
the Federal Reserve agreed in June 2012 to further reduce the credit protection Treasury
provides the TALF LLC from $4.3 billion to $1.4 billion because the outstanding TALF loan
balances declined. In addition, OFS collected a total of $8.9 billion in fiscal year 2012
through loan repayments, interest and equity distributions under the Public Private
Investment Program (PPIP).

The financial and performance data included in this report are reliable and complete. For the fourth
consecutive year, OFS has earned unqualified opinions on its financial statements and its internal
control over financial reporting from the U.S. Government Accountability Office. In addition, OFS
successfully resolved its one fiscal year 2011 significant deficiency relating to internal control
surrounding financial reporting.
OFS’ authority to make new commitments expired on October 3, 2010. Since that time, our focus
has been managing the remaining TARP investments to protect taxpayers’ interests while
maintaining financial stability. We continue to achieve these measures while maintaining
comprehensive financial and performance accountability and transparency standards. OFS also
continues to implement the housing programs funded under TARP, which are designed to prevent
avoidable foreclosures, primarily by helping homeowners achieve mortgage modifications. There will
be a cost related to our assistance to helping people avoid foreclosure, which is money that was never
expected to be returned, but these efforts have directly helped more than one million people avoid
foreclosure and indirectly helped millions more by setting new standards throughout the mortgage
servicing industry.
Sincerely,

Timothy G. Massad
Assistant Secretary
Office of Financial Stability

vi

MESSAGE FROM THE ASSISTANT SECRETARY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

EXECUTIVE SUMMARY
Treasury’s Office of Financial Stability (OFS)
presents to the reader the Fiscal Year 2012
Agency Financial Report for the Troubled Asset
Relief Program (TARP), established by the
Department of the Treasury (Treasury)
pursuant to the Emergency Economic
Stabilization Act of 2008 (EESA). Four years
after TARP’s establishment, substantial
progress has been made in stabilizing the
financial system and OFS has recovered most of
the assistance that was provided during the
crisis.
Four years ago, the U.S. financial system was at
risk of collapse and many major financial
institutions were at risk of failure. Markets had
ceased to function. Without immediate and
forceful government action, our country faced
the possibility of a second Great Depression,
which would have had profound consequences
for all Americans.
In this environment of fear and panic, TARP
was created as a central part of a series of
emergency measures. The goal of TARP, along
with other federal government actions, was to
stop the panic and prevent a collapse of the U.S.
financial system, and restore stability and
liquidity to the system. TARP, in conjunction
with other federal government actions, helped to
prevent that collapse by helping stabilize the
banking sector and unfreeze the markets for
credit and capital, bringing down the cost of
borrowing for businesses, individuals, and state
and local governments, restoring confidence in
the financial system and restarting economic
growth. TARP’s initiatives were done faster, and
at a much lower cost, than many anticipated.
For a more comprehensive overview on the
impact of the combined actions of the Treasury,
the Federal Reserve, and the Federal Deposit
Insurance Corporation (FDIC), please see ―The
Financial Crisis Response in Charts,
http://www.treasury.gov/resource-center/datachartcenter/Documents/20120413_FinancialCrisisRes
ponse.pdf.
As of October 3, 2010, OFS’ authority to make
new commitments under TARP expired.

EXECUTIVE SUMMARY

Throughout fiscal year 2012, OFS focused
principally on (i) exiting remaining investments
in a timely and orderly manner consistent with
the duty to promote financial stability and
protect taxpayers’ interests that maximizes the
return for taxpayers, and (ii) continuing to help
homeowners avoid preventable foreclosures.
OFS has taken several steps toward executing
its strategy for winding down the TARP and
exiting the remaining TARP programs.


Treasury, including OFS, and the
FRBNY made substantial progress in
winding down the investments related
to the AIG, such that the total amounts
collected now exceed the combined
disbursements since inception. The
peak amount of assistance offered to
AIG by the FRBNY and Treasury was
$182.3 billion, a part of which was later
cancelled, and an amount in excess of
the total disbursed has now been
recovered through repayments, sales
and other income. Of these amounts,
OFS disbursed a total of $67.8 billion to
AIG and collected $50.3 billion to date.
During fiscal year 2012, Treasury,
including OFS, substantially reduced
its common stock investment in AIG
through several sales with $38.2
billion1 in collections. As of September
30, 2012, Treasury held approximately
234 million shares of AIG common
stock, with a fair value of

1Because

the Treasury AIG common stock has
consisted of both ―TARP shares‖ and ―non-TARP
shares‖ as discussed herein, a portion of the proceeds
received as well as the remaining common shares held
are not included in the TARP financial statements.
OFS manages the sale of both the TARP and nonTARP AIG common shares on a pro-rata basis.
During fiscal year 2012, the collections from common
stock sales consisted of $25.2 billion in respect of
TARP shares (representing proceeds less than cost of
$9.9 billion) and $13.0 billion in respect of Treasury’s
non-TARP shares (which were provided to Treasury
at no cost).

vii

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

approximately $7.7 billion,
representing approximately 15.9
percent2 of the company. OFS’
preferred interests in an AIG SPV were
also repaid in full, resulting in
additional collections of $9.6 billion
during fiscal year 2012.




2

OFS has continued to wind down the
bank support programs, and, through
September 30, 2012, had collections of
$267.0 billion in repayments, sales,
dividends, interest, and fees –
compared to the $245.5 billion that was
initially invested. Of the 707 original
Capital Purchase Program (CPP)
institutions, OFS held outstanding
investments in 290 banks as of
September 30, 2012. All participants in
the Targeted Investment Program (TIP)
have fully repaid OFS and no claim
payments were made under the Asset
Guarantee Program.
OFS also reduced the overall amount
that remains outstanding in TARP’s
credit market programs. The SBA 7(a)
Securities Purchase Program, one of the
credit market programs created under
TARP to help restart the flow of credit
to small businesses, was closed on
January 24, 2012. OFS invested $367
million (excluding purchased accrued
interest) in the program and collected
$376 million through sales, principal
and interest payments, representing
approximately $9 million more in
collections than funds disbursed. OFS
also made progress winding down the
Term Asset Backed Securities Loan
Facility (TALF), when Treasury and the
Federal Reserve agreed to further
reduce the credit protection OFS
provides the TALF, LLC from $4.3
billion to $1.4 billion because of the

Treasury’s shares consist of approximately 154
million TARP shares (10.5 percent of the total AIG
common shares outstanding) and 80 million nonTARP shares (5.4 percent). The fair value of TARP
and non-TARP shares as of September 30, 2012, was
$5.1 billion and $2.6 billion, respectively.

viii

continued decline in outstanding TALF
loans. In addition, collections under the
Public Private Investment Program
(PPIP) totaled $8.9 billion during fiscal
year 2012 through loan repayments,
interest and equity distributions. The
outstanding balance on the program
was reduced to $9.8 billion at the end of
the fiscal year.
The estimated cost of TARP is significantly
below original projections. In the August 2009
Midsession Review of the President’s 2010
Budget, the lifetime cost of TARP, based on
budget scoring conventions, was projected to be
$340.5 billion (assuming the full $700.0 billion of
TARP authority was utilized). Estimated
lifetime TARP cost have significantly decreased
since August 2009 with the most recent
September 30, 2012 lifetime cost estimated at
$59.7 billion (see table 5 for lifetime cost
estimates as of September 30, 2012, 2011, 2010,
and 2009). During this four year period, TARP’s
purchase authority decreased from $700 billion
to $467.0 billion.3
The accrual-based cost of TARP activities from
inception, on October 3, 2008, through
September 30, 2012, based on the OFS financial
statements, was $20.3 billion. Note that the
lifetime cost of TARP, based on budget scoring
conventions, differs from the cost based on the
OFS financial statements. Estimates of lifetime
costs, based on budget scoring conventions,
assume that all planned expenditures are made
and, for certain programs, include additional
assumptions about the impact of potential sale
strategies. By contrast, the TARP financial
statement costs are based on transactions
through September 30, 2012. Thus, it does not
include the committed but undisbursed funds for
housing programs as well as other programs, all
of which are included in the expected lifetime
cost for budget purposes. The $20.3 billion cost
consists of $7.7 billion of reported TARP net
income in the OFS financial statements for fiscal
year 2012; $9.5 billion of reported TARP net cost
3The

Dodd-Frank Wall Street Reform and Consumer
Protection Act (P.L. 111-203) amended EESA Section
115 authority to cap total purchase and guarantee
authority at a cumulative $475.0 billion.

EXECUTIVE SUMMARY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

for fiscal year 2011; $23.1 billion of reported
TARP net income for fiscal year 2010 and the
$41.6 billion of reported TARP net cost for the
period from inception through September 30,
2009. The change of $17.2 billion since fiscal
year 2011 (i.e., $7.7 billion net income for fiscal
year 2012 as compared to $9.5 billion net cost for
fiscal year 2011) is primarily due to sales of AIG
common stock at values higher than the market
value at September 30, 2011 and improvements
in the market values of AIG, AIFP and CPP
preferred and common stock investments still
held, net of an increase in the Housing program
cost between fiscal years.
The estimated lifetime cost of TARP reflects
several factors, including the cost of the
initiatives to help homeowners stay in their
homes, for which $45.6 billion has been
committed and is assumed to be disbursed. Of
this amount, $5.5 billion has been disbursed
through September 30, 2012; because payments
for modifications are made over time,
significantly more will be disbursed assuming
the modifications stay in effect. OFS’ housing
program disbursements were never intended to
be recovered and OFS does not expect them to
result in any repayments. The estimated
lifetime cost also reflects primarily the costs
related to investments in the auto companies.
In addition, there are costs related to the TARP
AIG investment (which excludes activity related
to Treasury’s non-TARP AIG shares). These
costs, which fluctuate in large part due to
changes in market prices of General Motors and
AIG common stock, are offset in part by income
on TARP investments in banks and other
programs.

EXECUTIVE SUMMARY

Since its inception, TARP has disbursed $417.6
billion in direct loans, equity investments, and
support for the Treasury Housing Programs
under TARP; collected $326.8 billion from
repayments and sales; received $23.0 billion in
dividends, interest and fees; collected $9.7
billion through warrant and additional note
sales; and received $10.2 billion in net proceeds
from the sale and repurchase of assets in excess
of costs. As of September 30, 2012, TARP had
$63.1 billion in gross outstanding direct loans
and equity investments, which are valued at
$40.2 billion (excluding the receivables for the
Asset Guarantee Program that was valued at
$1.0 billion as of September 30, 2012). In
addition, from inception through September 30,
2012, TARP incurred costs related to Treasury
housing programs of $5.7 billion and
administrative costs of $1.1 billion.
OFS continues to provide detailed information
about TARP to ensure the highest level of
transparency. OFS published a Two-Year
Retrospective Report on the Troubled Asset
Relief Program on October 5, 2010, and a
corresponding Three-Year Anniversary Report
on October 3, 2011. OFS anticipates publishing a
four year retrospective report on TARP in
December 2012. These reports include detailed
information on TARP as well as the federal
government’s additional emergency measures to
address the 2008 financial crisis. OFS also
publishes a monthly report to Congress on the
program, a monthly report on its housing
initiatives and a variety of other reports. Please
refer to these documents at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx.

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EXECUTIVE SUMMARY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

MANAGEMENT‘S DISCUSSION AND ANALYSIS

0

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

1

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Part 1: Management’s Discussion and Analysis
Background, Mission, and OFS Organization Structure
In order to appreciate the concentrated efforts of
the Administration to combat the financial crisis
and TARP’s contribution to these efforts, it is
useful to examine the origins and causes of the
crisis.
In September 2008, the nation was in the midst
of one of the worst financial crises in our history.
The financial institutions and markets that
Americans rely upon to protect their savings,
help finance their children’s education, and help
pay their bills, and that businesses rely upon to
make payroll, build inventories, fund new
investment, and create new jobs, were
threatened, unlike at any time since the Great
Depression. Across the country, people were
rapidly losing confidence in our financial system
and in the federal government’s ability to
safeguard their economic future.
The causes of the crisis will be studied for years,
and this report is not meant to provide a
comprehensive analysis of why the crisis
occurred. But some reasons are clear. Over the
two decades preceding the crisis, the financial
system had grown rapidly in an environment of
economic growth and stability. Risks grew in
the system without adequate transparency. Lax
regulations and loopholes in supervision let
firms become highly leveraged and take on too
much risk. Ample credit around the world
fueled an unsustainable housing boom in the
first half of the last decade. When the housing
market inevitably turned down, starting in 2006,
the pace of mortgage defaults accelerated at an
unprecedented rate. By mid-2007, rising
mortgage defaults were undermining the
performance of many investments held by major
financial institutions.
The crisis began in the summer of 2007 and
gradually increased in intensity and momentum
over the course of the following year. A series of
major financial institutions, including
Countrywide Financial, Bear Stearns, and
IndyMac, were purchased under duress or failed;
and Fannie Mae and Freddie Mac, the largest

MANAGEMENT‘S DISCUSSION AND ANALYSIS

purchasers and guarantors of home loans in the
mortgage market, came under severe stress.
By September 2008, for the first time in 80
years, the U.S. financial system was at risk of
collapse. Using authority granted in July 2008,
the Federal Housing Finance Agency placed
Fannie Mae and Freddie Mac into
conservatorship on September 7, 2008. A
growing sense of panic was producing the classic
signs of a generalized run on the banks. People’s
trust and confidence in the stability of major
institutions, and the capacity of the federal
government to contain the damage, were
vanishing.
The U.S. system of regulation and supervision
had failed to constrain the excessive use of
leverage and the level of risk in the financial
system and the United States entered this crisis
without adequate tools to manage it. The
Executive Branch did not have existing options
for managing failures of systemically important
non-bank financial institutions.
The Department of the Treasury (Treasury), the
Federal Reserve Board, the Federal Deposit
Insurance Corporation (FDIC), and other federal
government bodies undertook an array of
emergency actions to help prevent a collapse and
the dangers posed to consumers, businesses, and
the broader economy. However, the severe
conditions our nation faced required additional
resources and authorities. Therefore, the Bush
Administration proposed the Emergency
Economic Stabilization Act (EESA) in late
September 2008, and with the support of
Democrats and Republicans in Congress, EESA
was enacted into law on October 3, 2008 and
TARP was established.
EESA also established the Office of Financial
Stability (OFS) within the Office of Domestic
Finance of the Treasury to implement TARP.
OFS’ mission is to carry out the authorities
given to the Secretary of the Treasury to
implement TARP. Section 101 of EESA
authorized the Secretary of the Treasury to

2

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

establish TARP to ―purchase, and to make and
fund commitments to purchase, troubled assets
from any financial institution, on terms and
conditions as are determined by the Secretary‖.
EESA defines the terms ―troubled assets‖ and
―financial institution‖ and provides other
requirements that must be met for any such
purchase. Section 102 of EESA also provides
authority for a guarantee program for troubled
assets. Section 109 of EESA provides authority
to assist homeowners. The Dodd-Frank Wall
Street Reform and Consumer Protection Act (the
Dodd-Frank Act) signed into law in July 2010
reduced total TARP purchase authority from
$700.0 billion to a cumulative $475.0 billion.
Final purchase authority to make new
commitments under TARP expired on October 3,
2010. This means no new commitments can be
made. OFS is continuing to implement
commitments made prior to the October 3
deadline for the TARP programs which are
disbursed over time. For those assets already
purchased, OFS will continue to wind down
TARP and manage the remaining TARP
investments in order to recover as much of
taxpayers’ funds as possible.
OFS is headed by the Assistant Secretary for
Financial Stability, appointed by the President
with the advice and consent of the Senate.
Reporting to the Assistant Secretary for
Financial Stability are seven major
organizations: the Chief Investment Officer, the
Chief Financial Officer, the Chief of
Management and Operations, the Chief of
Homeownership Preservation, the Chief of OFS
Internal Review, the Chief Reporting Officer,
and the Chief Compliance Officer. A Chief
Counsel’s Office reports to the Assistant
Secretary and to the Office of the General
Counsel in the Department of Treasury.
The OFS organization chart follows:

Assistant Secretary for Financial
Stability

Chief
Investment
Officer

Chief
Financial
Officer

Chief of
Management
and
Operations

Chief of
Home
Ownership
Preservation

Chief of
Internal
Review

Chief
Counsel

Chief
Reporting
Officer

Chief
Compliance
Officer

The Office of the Chief Investment Officer (CIO)
is responsible for program development and the
execution and management of all investments
made by either purchasing or insuring ―troubled
assets‖ pursuant to EESA, other than TARP
housing programs.
The Office of the Chief Financial Officer (CFO)
has lead responsibility within OFS for budget
formulation and execution, cash management,
accounting, financial systems, financial
reporting, program and internal metrics
analytics, modeling cash flows, and internal
controls.
The Office of the Chief of Management and
Operations (CMO) is responsible for developing
the operating infrastructure and managing
internal operations in OFS.
The Office of the Chief of Homeownership
Preservation (HPO) is responsible for identifying
opportunities to help homeowners and
overseeing homeownership programs while also
protecting taxpayers.
The Office of Internal Review (OIR) is
responsible for identifying the most significant
risks that TARP faces, both internally and
externally.
The Office of the Chief Reporting Officer (CRO)
is responsible for periodic reports to the
Congress as required by EESA.
The Office of the Chief Compliance Officer
(CCO), created in December 2011, is responsible
for establishing processes to help ensure that
TARP recipients, participants, contractors, and
agents conduct their TARP-related activities in
accordance with applicable laws, regulations,
program guidance, and contract requirements.

3

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

This office was previously part of the Office of
Internal Review.
The Office of the Chief Counsel reports
functionally to the Office of General Counsel at
the Department of the Treasury and provides
legal advice to the Assistant Secretary. The
Office is involved in the structuring of OFS
programs and activities to ensure compliance
with EESA and with other laws and regulations.
The Office of the Chief Counsel is also
responsible for coordinating OFS’ work with the
external oversight entities including the
Government Accountability Office (GAO), the
Special Inspector General for TARP (SIGTARP),
the Financial Stability Oversight Board and the
Congressional Oversight Panel (COP) through
the end of its existence on April 3, 2011.

OFS is not envisioned as a permanent
organization, so to the maximum extent possible
when economically efficient and appropriate,
OFS utilizes private sector expertise in support
of the execution of TARP programs. Fannie Mae
and Freddie Mac accounted for 56.3 percent of
the fiscal year 2012 administrative cost ($151
million of $268 million) to assist OFS in the
administration and compliance oversight of the
Making Home Affordable Program.
Additionally, asset managers were hired to serve
as financial agents in assisting with managing
the assets associated with several TARP
programs. Private sector firms were also
engaged to assist with the significant volume of
TARP work in the areas of custodial services,
accounting and internal controls, modeling,
administrative support, facilities, legal advisory,
financial advisory, and information technology.

Overview of TARP for Fiscal Year 2012
OFS Strategic Goal and Operational Goals



Promote transparency.

EESA provided the Secretary of the Treasury
with the authorities and facilities to help restore
liquidity and stability to the U.S. financial
system. EESA also provided specific authority
to take certain actions to help prevent avoidable
foreclosures. As such, OFS’ strategic goal is to
ensure the overall stability and liquidity of the
financial system, prevent avoidable foreclosures
and preserve homeownership.

Details on programs developed in support of
these Operational Goals can be found later in
this Management’s Discussion and Analysis
under Operational Goals. As noted earlier, the
focus of OFS is now to wind down the programs
that were statutorily implemented with a
mandate to stabilize the financial system and to
continue to implement the programs for the
housing market.

In light of this strategic goal, OFS established
the following operational goals for TARP and
developed a number of programs to help
stabilize the U.S. financial system and the
housing market:

Fiscal Year 2012 Financial Summary and
Cumulative Net Income






Ensure the overall stability and liquidity
of the financial system.
 Make capital available to viable
institutions.
 Provide targeted assistance as
needed.
 Increase liquidity and volume in
securitization markets.
Prevent avoidable foreclosures and help
preserve homeownership.
Protect taxpayer interests.

MANAGEMENT‘S DISCUSSION AND ANALYSIS

EESA provided TARP authority to purchase or
guarantee up to $700.0 billion in troubled
assets.4 EESA spending authority would have
terminated December 30, 2009; however, as
authorized under Section 120(b) of EESA, the
Secretary of the Treasury certified the extension
of TARP authority until October 3, 2010, with

The Helping Families Save Their Homes Act of 2009,
Pub. L. No. 111-22, Div. A, amended the act and
reduced the maximum allowable amount of
outstanding troubled assets under the act by $1.3
billion, from $700.0 billion to $698.7 billion.
4

4

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

the submission of a written certification to
Congress.

Results of TARP Operations (Fiscal Year
2012 and Fiscal Year 2011)

The Dodd-Frank Act5 amended EESA by
capping total purchase and guarantee authority
at a cumulative $475.0 billion and limiting any
new obligations to programs or initiatives that
were initiated prior to June 25, 2010. OFS
reduced TARP program allocations to conform to
these limitations.

OFS’ fiscal year 2012 net income from
operations of $7.7 billion includes the reported
net income related to loans, equity investments,
and other credit programs. For the fiscal year
ended September 30, 2012, OFS reported net
subsidy income for six programs – the Capital
Purchase Program (CPP), the Community
Development Capital Initiative (CDCI), the
Term Asset-Backed Securities Loan Facility
(TALF), the SBA 7(a) Securities Purchase
Program, Asset Guarantee Program (AGP) and
the American International Group, Inc (AIG)
Investment Program. These programs
collectively reported net subsidy income of $11.4
billion. Also, for the fiscal year ended
September 30, 2012, OFS experienced net
subsidy cost for three programs – the PublicPrivate Investment Program (PPIP), the
Automotive Industry Financing Program (AIFP),
and the Federal Housing Agency Refinance
Program totaling $445 million. Fiscal year 2012
expenses for the Treasury housing programs
under TARP of $3.0 billion and administrative
expenses of $268 million bring the total reported
fiscal year net income from operations to $7.7
billion, as shown in Table 1. For the fiscal year
ended September 30, 2011, the net cost of
operations was $9.5 billion as reflected in
Table 1. These net income and net cost amounts
reported in the financial statements reflect only
transactions through September 30, 2012 and
September 30, 2011, respectively, and therefore
are different than lifetime cost estimates made
for budgetary purposes.

Based on operations for the year ended
September 30, 2012, OFS reports the following
key results:


Since its inception, TARP has disbursed
$417.6 billion in direct loans, equity
investments and support for the
Treasury housing programs under
TARP.



In fiscal year 2012, OFS disbursed $1.0
billion for loans and equity investments
as well as $3.1 billion in payments for
Treasury housing programs under
TARP, and reported net income from
operations of $7.7 billion.



During fiscal year 2012, OFS received
$49.9 billion from repayments of loans
and repurchases and sales of
investments.



As of September 30, 2012, OFS reported
$40.2 billion (excluding a $1.0 billion
receivable related to the Asset
Guarantee Program) for the value of
loans and equity investments
outstanding.

5Pub.

5

L. 111-203.

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Table 1: Net Income (Cost) of TARP Operations
(Dollars in billions)1

TARP Program
Bank Support Programs
Capital Purchase Program
Targeted Investment Program
Asset Guarantee Program
Community Development Capital Initiative
Credit Market Programs
Public-Private Investment Program
Term Asset-Backed Securities Loan Facility

For the Year
Ended
September 30,
2012

For the Year
Ended
September 30,
2011

From TARP’s
Inception
through
September 30,
20123

$ 1.9
--0.2
---

1.8
0.1

2.4
0.5

---

---

---

(0.2)

(9.7)

(23.8)

9.2

(1.6)

(15.2)

--11.0

--(7.3)

--(13.5)

(3.0)

(1.9)

(5.7)

(0.3)
$ 7.7

Administrative Costs
Total Net Income (Cost) of TARP Operations

$ 14.9
4.0
3.9
(0.2)

(0.2)
0.1

SBA 7(a) Securities Purchase Program
Other Programs
Automotive Industry Financing Program
American International Group Investment
Program2
FHA-Refinance Program
Total Net Subsidy Income (Cost)
Additional TARP (Costs)
Treasury Housing Programs Under TARP
(excluding FHA-Refinance Program)

$ 1.8
0.2
--0.1

(0.3)
$ (9.5)

(1.1)
$ (20.3)

Information in Table 1 is presented in billions of dollars to ensure consistency with other tables in this
Management’s Discussion and Analysis; similar information is presented in the financial statements in millions
of dollars.
2 The amounts for AIG reflect only the operations/activities of TARP and do not reflect proceeds received from
the sale of shares of AIG common stock held by Treasury outside of TARP (non-TARP shares). For further
details, see the discussion of the American International Group Investment Program, beginning on p. 28.
3Inception through September 30, 2012 column includes dollar amounts related to the ($18.5) billion net cost of
operations for the period from inception through September 30, 2010.
1

Over time the cost of TARP programs will
change. As described later in the MD&A, and in
the OFS audited financial statements, these
estimates are based in part on currently
projected economic factors. These economic
factors will likely change, either increasing or
decreasing the lifetime cost of TARP.

TARP Program Summary
Table 2 provides a financial summary for TARP
programs since TARP inception on October 3,
2008, through September 30, 2012. For each
program, the table provides utilized TARP
authority (which includes purchases made, legal
commitments to make future purchases, and
offsets for guarantees made), the amount

MANAGEMENT‘S DISCUSSION AND ANALYSIS

actually disbursed, repayments to OFS from
program participants or from sales of the
investments, write-offs and losses, net
outstanding balance as of September 30, 2012,
and cash inflows on the investments in the form
of dividends, interest or other fees. As of
September 30, 2012, $49.4 billion of the $467.0
billion in purchase and guarantee authority
remained unused.6
6OFS

tracks costs in accordance with Federal budget
procedures. First, OFS enters into legally binding
―obligations‖ to invest or spend the funds for TARP
programs. Then, funds are disbursed over time
pursuant to the obligations. In any given case, it is
possible that the full amount obligated will not be
disbursed.

6

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Table 2: TARP Summary1
From TARP Inception through September 30, 2012
(Dollars in billions)
Purchase
Price or
Guarantee
Amounts

Investment
Sales and
Repayments

Total $
Disbursed

Writeoffs and
Losses3

Received
from
Investments

Outstanding
Balance4

Bank Support Programs
$ 204.9

$ 204.9

$ (193.2)6

$ (3.0)

$ 8.7

$ 26.4

40.0

40.0

(40.0)

-

-

4.4

5.0

-

-

-

-

3.0

0.6

0.6

-

-

0.6

-

21.6

18.6

(8.8)

-

9.8

2.4

Term Asset-Backed
Securities Loan Facility

1.4

0.1

-

-

0.1

-

SBA 7(a) Securities
Purchase Program
Other Programs
Automotive Industry
Financing Program
American International
Group Investment
Program2
Sub-total for Investment
Programs
Treasury Housing
Programs under TARP

0.4

0.4

(0.4)

-

-

-

79.7

79.7

(35.1)

(7.4)

37.2

5.7

67.8

67.8

(49.3)

(11.8)

6.7

1.0

421.4

412.1

(326.8)

(22.2)

63.1

42.9

45.67

5.5

N/A

N/A

N/A

N/A

$ 467.0

$ 417.6

$ (326.8)

$ (22.2)

$ 63.1

$ 42.9

Capital Purchase Program5
Targeted Investment
Program
Asset Guarantee Program
Community Development
Capital Initiative
Credit Market Programs
Public Private Investment
Program

Total for TARP Program
1This

table shows TARP activity for the period from inception through September 30, 2012, on a cash basis. Received from
investments includes dividends and interest income reported in the Statement of Net Cost, and proceeds from sale and
repurchases of assets in excess of costs.
2The amounts for AIG reflect only the operations of TARP and do not reflect proceeds received from the sale of shares of AIG
common stock held by Treasury outside of TARP (non-TARP shares). For further details, see the discussion of the American
International Group Investment Program, beginning on page 27.
3 Losses represent proceeds less than cost on sales of assets which are reflected in the financial statements within ―net
proceeds from sales and repurchases of assets in excess of (less than) cost‖.
4 Total disbursements less repayments, write-offs and losses do not equal the total outstanding balance because the
disbursements for the Treasury housing programs under TARP generally do not require (and OFS does not expect)
repayments.
5OFS received $31.9 billion in proceeds from sales of Citigroup common stock, of which $25.0 billion is included at cost in
investment sales, and $6.9 billion of net proceeds in excess of cost is included in Received from Investments.
6Includes $2.2 billion of SBLF refinancing outside of TARP and CDCI exchanges from CPP of $363 million.
7 Individual obligation amounts are $29.9 billion for the Making Home Affordable Program, $7.6 billion for the Hardest Hit
Fund, and $8.1 billion committed for the FHA-Refinance Program.

Most TARP funds have been used to make
investments in preferred stock or to make loans.

7

OFS has generally received dividends on the
preferred stock and interest payments on the

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

loans from the institutions participating in
TARP programs. These payments represent
additional proceeds received on OFS’ TARP
investments. From inception through
September 30, 2012, OFS received a total of
$23.0 billion in dividends and interest.
OFS has conducted several sales of its positions
in banking institutions as part of its exit
strategy for winding down TARP. OFS plans to
sell its investments in banks that are not
expected to be able to repay Treasury in the
foreseeable future. These sales are being
conducted over time and in stages and include
both common and preferred stock. During fiscal
year 2012, OFS sold its positions in 40 banks for
$1.3 billion in aggregate proceeds through
individual public and private auctions resulting
in proceeds less than cost of $180 million for
those investments.

OFS also received warrants in connection with
most of its investments, which provides an
opportunity for taxpayers to realize additional
proceeds on investments. Since the program’s
inception, OFS has received $9.3 billion in gross
proceeds from the disposition of warrants
associated with 169 CPP investments, both TIP
investments, and AGP, consisting of (i) $3.9
billion from issuer repurchases at agreed upon
values and (ii) $5.4 billion from auctions.
TARP’s Warrant Disposition Report is posted on
the OFS website at the following link:
http://www.financialstability.gov/latest/reportsa
nddocs.html.
Table 3 shows the breakdown of receipts for the
periods ended September 30, 2012 and 2011 for
all TARP programs combined as well as totals
for the period from inception through September
30, 2012.

Table 3: TARP Receipts and Repayments on Investments/Loans 1
(Dollars in billions)
For the Year
Ended
September 30,
2012

For the Year
Ended
September 30,
2011

From TARP’s
inception through
September 30,
20122

Dividends, Interest, Warrant
Repurchases and Additional Notes
Dividends and Interest
Sales/Repurchases of Warrants and
Warrant Preferred Stock and
Additional Notes
Proceeds in Excess of Cost
Subtotal
Investment/Loan Repayments
Sales/Repurchases/Repayments on
Investments3
Loan Principal Repaid
Subtotal
Grand Total

$ 2.9

$ 3.7

$ 23.0

0.1

1.5

9.7

0.4
3.4

6.2
11.4

10.2
42.9

43.9

66.5

303.1

6.0
49.9
$ 53.3

6.3
72.8
$ 84.2

23.7
326.8
$ 369.7

This table shows TARP activity on a cash basis.
total reported for Inception through September 30, 2012 column includes the $232.2 billion in receipts and
repayments related to the period from inception through September 30, 2010.
3 Includes $2.2 billion of SBLF refinancing outside of TARP and CDCI exchanges from CPP of $363 million.
1

2 The

MANAGEMENT‘S DISCUSSION AND ANALYSIS

8

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Summary of TARP Direct Loans and Equity Investments
Table 4 provides information on the estimated
values of TARP direct loan and equity
investments by program, as of the end of fiscal
years 2012 and 2011. (Treasury housing
programs under TARP are excluded from the
chart because no repayments are expected). The
Outstanding Balance column represents the
amounts disbursed by OFS relating to the loans
and equity investments that were outstanding
as of September 30, 2012 and 2011. The

Estimated Value of the Investment column
represents the present value of net cash inflows
that OFS estimates it will receive from the loans
and equity investments. These estimates include
market risk assumptions. For equity securities,
this amount represents fair value. The total
difference of $22.9 billion (2012) and $42.3
billion (2011) between the two columns is
considered the ―subsidy cost allowance‖ under
the Federal Credit Reform Act methods OFS
follows for budget and accounting purposes
(see Note 6 in the financial statements for
further discussion).7

Table 4: Summary of TARP Direct Loans and Equity Investments
(Dollars in billions)

Program
Bank Support Programs
Capital Purchase Program
Community Development
Capital Initiative
Credit Market Programs
Public Private Investment
Program
Term Asset-Backed
Securities Loan Facility
SBA 7(a) Securities Purchase
Program
Other Programs
Automotive Industry
Financing Program
American International
Group Investment Program
Total
1

Outstanding
Balance as of
September 30,
20121

Estimated Value
of Investment as
of September 30,
2012

Outstanding
Balance as of
September 30,
20111

Estimated
Value of
Investment as
of September
30, 2011

$ 8.7

$ 5.7

$ 17.3

$12.4

0.6

0.4

0.6

0.4

9.8

10.8

15.9

18.4

0.1

0.7

0.1

0.6

---

---

0.1

0.1

37.2

17.5

37.3

17.8

6.7

5.1

51.1

30.4

$ 63.1

$ 40.2

$ 122.4

$ 80.1

Before subsidy cost allowance.

The subsidy cost in Table 1 and on the Statement of Net Cost, is composed of (1) the change in the subsidy
cost allowance, net of write-offs, (2) net intra-governmental interest cost, (3) certain inflows from the direct
loans and equity investments (e.g., dividends, interest, net proceeds from sales and repurchases of assets in
excess of cost, and other realized fees), and (4) the change in the estimated discounted net cash flows related to
the asset guarantee program and FHA-Refinance Program.
7

9

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

The ultimate cost of TARP will not be known for
some time. The financial performance of the
programs will depend on many factors such as
future economic and financial conditions, and
the business prospects of specific institutions.
The cost estimates are sensitive to slight
changes in model assumptions, such as general
economic conditions, specific stock price
volatility of the entities in which OFS has an
equity interest, estimates of expected defaults,
and prepayments. If OFS receives repayments
faster than expected and incurs lower than
expected defaults, TARP’s ultimate cost on these
investments may be lower than estimated.
Wherever possible, OFS uses market prices of
tradable securities to estimate the fair value of
TARP investments. Use of market prices was
possible for TARP investments that trade in
public markets or are closely related to tradable
securities. For those TARP investments that do
not have direct analogs in private markets, OFS
uses internal market-based models to estimate
the market value of these investments. All
future cash flows are adjusted for market risk.
Further details on asset valuation can be found
in Note 6 of the Financial Statements.

Comparison of Estimated Lifetime TARP
Costs Over Time
Market conditions and the performance of
specific financial institutions are critical
determinants of TARP’s estimated lifetime cost.
The changes in the OFS estimates since TARP’s
inception through September 30, 2012, provide a
good illustration of this impact. Table 5 provides
information on how OFS’ estimated lifetime cost
of TARP has changed over time. These costs
fluctuate in large part due to changes in the
market prices of common stock for AIG and
General Motors (GM) and the estimated value of
the Ally Financial (Ally) stock. This table
assumes that all expected investments (e.g.
PPIP) and disbursements for Treasury housing
programs under TARP are completed, and
adhere to general government budgeting
guidance. This table will not tie to the financial
statements since it includes investments and
other disbursements expected to be made in the
future. Table 5 is consistent with the estimated
TARP lifetime cost disclosures on the OFS web
site at:
http://www.treasury.gov/initiatives/financialstability/Pages/default.aspx.
The cost amounts in Table 5 are based on
assumptions regarding future events, which are
inherently uncertain.

MANAGEMENT‘S DISCUSSION AND ANALYSIS

10

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Table 5: Estimated Lifetime TARP Costs (Income)1
(Dollars in billions)
Estimated Lifetime Cost (Income) as of September 30
Program
20095
2010
2011
2012
Bank Support Programs
Capital Purchase Program
$ ( 14.6)
$ ( 11.2)
$ ( 13.0)
$ ( 14.9)
Targeted Investment Program
( 1.9)
( 3.8)
( 4.0)
( 4.0)
Asset Guarantee Program2
( 2.2)
( 3.7)
( 3.7)
( 3.9)
Community Development
0.4
0.3
0.2
0.2
Capital Initiative
Credit Market Programs
Public Private Investment
1.4
( 0.7)
( 2.4)
( 2.4)
Program
Term Asset-Backed Securities
( 0.3)
( 0.4)
( 0.4)
( 0.5)
Loan Facility
SBA 7(a) Securities Purchase
N/A
------Program
Other Programs
Automotive Industry Financing
34.5
14.7
23.6
24.3
Program
American International Group
56.8
36.9
24.3
15.3
Investment Program3
Subtotal
74.1
32.1
24.6
14.1
Treasury Housing Programs
50.0
45.6
45.6
45.6
under TARP4
Total
$ 124.1
$ 77.7
$ 70.2
$ 59.7
Estimated program costs (+) or savings (in parentheses) over the life of the program, including interest on reestimates and excluding administrative costs.
2 Prior to the termination of the guarantee agreement, Treasury guaranteed up to $5.0 billion of potential losses
on a $301.0 billion portfolio of loans.
3 The amounts for AIG reflect only the operations of TARP and do not reflect proceeds received from the sale of
shares of AIG common stock held by Treasury outside of TARP (non-TARP shares). For further details, see the
discussion of the American International Group Investment Program, beginning on page 27.
4 Includes FHA-Refinance Program, which is accounted for under credit reform.
5 Estimated lifetime cost for 2009 includes funds for projected disbursements and anticipated obligations.
1

11

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Key Trends/Factors Affecting TARP Future Activities and
Ultimate Cost
This section provides additional TARP analytic
information and enhanced sensitivity analysis
focusing on the remaining TARP
dollars/continued taxpayer exposure and what is
likely to affect the expected future return. As of
September 30, 2012, one TARP program – the
AIFP – has more than $10 billion still
outstanding and remains at the most risk of
additional taxpayer loss. Going forward, the
collections or costs from the AIFP and the
expenditures for Treasury housing programs
under TARP are expected to most significantly
affect the lifetime cost of TARP.

Automotive Industry Financing Program
As of September 30, 2012, OFS’ gross AIFP
investments outstanding in GM and Ally
Financial totaled $37.2 billion, with an
estimated value of $17.5 billion. The future
value of OFS’ investment in GM will depend on
the market price of GM common stock, which is
affected by a variety of factors specific to the
financial condition and results of operations of
GM as well as factors pertaining to the industry
and the overall economy, such as the
competitiveness of U.S. manufacturers, both
domestically and internationally, and
macroeconomic conditions (unemployment,
Gross Domestic Product growth, etc.) which
affect the overall trends in auto sales. The
future value of OFS’ investment in Ally will
depend on industry and macroeconomic factors
as well as company-specific factors, including in
particular the ability of the company to resolve
the bankruptcy of its subsidiary, Residential
Capital, LLC (ResCap), in a timely and costeffective manner, and the proceeds realized from
the sale of its international operations.

Treasury Housing Programs Under TARP
OFS committed $45.6 billion to fund Treasury
housing programs under TARP. From inception
through September 30, 2012, $5.5 billion has
been disbursed under these programs. Based
only on the permanent modifications in place as
of September 30, 2012, OFS estimates that $10.5
billion in incentive fees will ultimately be

MANAGEMENT‘S DISCUSSION AND ANALYSIS

disbursed in association with all Making Home
Affordable (MHA) modifications made as of
September 30, 2012, if all active modifications
were to remain current and receive incentives
for five years. The program is continuing to
enter into new modifications, as the termination
date was extended to December 31, 2013.
Separately, $7.6 billion has been allocated for
the Hardest Hit Fund and $8.1 billion for the
FHA Refinance Program.

Sensitivity Analysis
The ultimate value of TARP investments will
only be known in time. Realized values will vary
from current estimates in part because economic
and financial conditions will change. Many
TARP investments do not have readily
observable values and their values can only be
estimated by OFS.
Sensitivity analysis is one way to get some feel
for the degree of uncertainty around the OFS
estimates. In the analysis reported here, OFS
focuses on the AIFP as it is the only remaining
program with investments in excess of $10.0
billion.

AIFP Analysis
The most important inputs to the valuation of
OFS’ outstanding investments under the AIFP
are the market price of New GM common stock
and the change in the estimated value of Ally
Financial common stock, which is driven by
certain pricing metrics of comparable public
financial institutions. Table 6 shows the change
in estimated value of OFS outstanding AIFP
investments based on a 10 percent increase and
10 percent decrease in the trading price of the
New GM common stock and separately a 10
percent increase and 10 percent decrease in the
estimated value of the Ally Financial common
stock. Figure A shows that the securities have
recently been trading within the range used in
the analysis as well as outside of this range,
illustrating the uncertainty around the cost
estimates.

12

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Table 6: Impact on AIFP Valuation
(Dollars in billions)
September 30, 2012
Reported Value for
AIFP
Impact of GM on AIFP
$17.55
% change from current
Impact of Ally (formerly
GMAC) on AIFP
% change from current

Effect of 10%
Increase

Effect of 10%
Decrease

$18.68

$16.41

N/A

6.40%

(6.40)%

$17.55

$18.16

$16.93

N/A

3.50%

(3.50)%

Figure A shows the daily closing price of the
New GM common stock since the initial public
offering in November 2010. The closing price for

13

September 30, 2012 was $22.75. The dashed
lines represent the high and low price used in
the sensitivity analysis.

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Systems, Controls, and Legal Compliance
MANAGEMENT ASSURANCE STATEMENT
The Office of Financial Stability's (OFS) management is responsible for establishing and maintaining
effective internal control and financial management systems that meet the objectives of the Federal
Managers’ Financial Integrity Act (FMFIA), 31 U.S.C. 3512(c),(d). OFS has evaluated its
management controls, internal controls over financial reporting, and compliance with the federal
financial systems standards. As part of the evaluation process, we considered the results of extensive
documentation, assessment and testing of controls across OFS, as well as the results of independent
audits. We conducted our reviews of internal controls in accordance with FMFIA and Office of
Management and Budget (OMB) Circular A-123.
As a result of our reviews, management concludes that the management control objectives described
below, taken as a whole, were achieved as of September 30, 2012. Specifically, this assurance is
provided relative to Section 2 (internal controls) and 4 (systems controls) of FMFIA. OFS further
assures that the financial management systems relied upon by OFS are in substantial compliance
with the requirements imposed by the Federal Financial Management Improvement Act (FFMIA).
OFS' internal controls are designed to meet the management objectives established by Treasury and
listed below:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)

Programs achieve their intended results;
Resources are used consistent with overall mission;
Programs and resources are free from waste, fraud, and mismanagement;
Laws and regulations are followed;
Controls are sufficient to minimize any improper or erroneous payments;
Performance information is reliable;
System security is in substantial compliance with all relevant requirements;
Continuity of operations planning in critical areas is sufficient to reduce risk to
reasonable levels; and
(i) Financial management systems are in compliance with federal financial systems
standards, i.e., FMFIA Section 4 and FFMIA.
In addition, OFS management conducted its assessment of the effectiveness of internal control over
financial reporting, which includes safeguarding of assets and compliance with applicable laws and
regulations, in accordance with OMB Circular A-123, Management’s Responsibility for Internal
Control, Appendix A, Internal Control over Financial Reporting. Based on the results of this
evaluation, OFS provides unqualified assurance that internal control over financial reporting is
appropriately designed and operating effectively as of September 30, 2012, with no related material
weaknesses noted.

Sincerely,

Timothy G. Massad
Assistant Secretary for Financial Stability

MANAGEMENT‘S DISCUSSION AND ANALYSIS

14

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Internal Control Program
OFS management remains committed to
maintaining effective internal controls in
safeguarding taxpayer dollars while providing
financial stability through the TARP. OFS
continues to have a high performing internal
control program in compliance with the Federal
Managers’ Financial Integrity Act (FMFIA).
The OFS Risk and Control Group (RCG) works
closely with program managers and support
personnel to maintain robust internal controls
across business functions. RCG also coordinates
with the OFS Office of Financial Agents (OFA)
to ensure that third party service providers
whose work has a potential financial reporting
impact on OFS have well designed and effective
internal control environments supporting the
TARP. During fiscal year 2012, OFS continued
to implement effectively its internal control
environment as demonstrated below:

The SAT is chaired by the Deputy Chief
Financial Officer and includes representatives
from all OFS functional areas. Furthermore,
OFS has an internal control framework in place
that is based on the principles of the Committee
of Sponsoring Organizations of the Treadway
Commission (COSO). The SAT leverages this
framework in communicating control objectives
across the organization and to its third party
service providers.
RCG operates under the direction of the Chief
Financial Officer (CFO) and is guided by the
SAT. RCG monitors the implementation of the
internal control framework and is responsible
for assessing the achievement of management
control objectives by:


Integrating management controls into
OFS business processes by:
o







OFS made significant progress in
addressing findings and areas for
improvement in the internal control
environment identified through OFS'
self-assessment processes (e.g., OMB
Circular A-123 internal controls over
financial reporting assessment, annual
assurance statement process) and
through work performed by the oversight
bodies (i.e., GAO and SIGTARP).
OFS continued to make improvements in
information technology (IT) in fiscal year
2012 to drive efficiencies through the
increased automation of the operational
and accounting environments.

OFS has a Senior Assessment Team (SAT) to
guide the organization’s efforts to meet the
statutory and regulatory requirements
surrounding a sound system of internal control.

15

Maintaining internal control
documentation,

o

Developing and designing
internal control responsibilities
with business owners before
major program transactions, and

o

Business processes supporting existing
programs, including internal control
activities, utilized increasingly welldefined policies and procedures and
internal control documentation. OFS
management regularly monitors
activities to confirm that control
procedures are performed consistently
and as designed.

Enhancing the monitoring of
control effectiveness during or
after significant new program
events;



Conducting ―lessons learned‖ sessions to
identify and remediate areas requiring
improvement;



Performing periodic sample-based
testing of key controls across mature
business processes; and,



Monitoring feedback from oversight
bodies.

In addition, the internal control environment
supporting TARP undergoes continuous
improvement to remain effective and is subject
to significant third party oversight by the GAO
and the SIGTARP.
The Assistant Secretary for Financial Stability
reports annually to the Under Secretary for

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Domestic Finance on the adequacy of the various
internal controls throughout OFS to include
financial management systems compliance. This
assurance statement covers OFS’ compliance
with the FMFIA, the Federal Financial
Management Improvement Act (FFMIA) and
OMB Circular A-123 (Management’s
Responsibility for Internal Control). In order to
support the Assistant Secretary’s letter of
assurance, the respective OFS functional areas
prepare individual statements of assurance.
These individual statements of assurance
provide evidence supporting the achievement of
OFS’ internal control objectives and disclose any
noted internal control weaknesses.

Information Technology Systems
In fiscal year 2012, OFS continued to utilize and
improve the Core Investment Transaction Flow
(CITF), TARP’s system of record and accounting
translation engine. OFS added standardized
management reports to CITF to improve its
usefulness to management decision-making and
added functionality to capture key data elements
for use in preparing the financial statements
and associated notes.
Other systems are supported by financial
agents, which provide services to OFS. The
financial agency agreements maintained by the
Treasury Office of the Fiscal Assistant Secretary
in support of OFS require financial agents to
design and implement suitably robust security
plans and internal control programs, to be
reviewed and approved by OFS at least
annually.
In addition, OFS utilizes financial systems
maintained by Treasury Departmental Offices
and various Treasury bureaus. These systems
are in compliance with federal financial systems
standards and undergo regular independent
audits.

Compliance with the Improper Payments
Elimination and Recovery Act (IPERA)
The Improper Payments Elimination and
Recovery Act of 2010 (IPERA) requires agencies
to review their programs and activities annually
to identify those susceptible to significant
improper payments. IPERA significantly

MANAGEMENT‘S DISCUSSION AND ANALYSIS

increases agency payment recapture efforts by
requiring reviews of all programs with annual
payments of $1 million or more, if cost effective.
IPERA requires agencies to report information
on their significant improper payments and
recapture audit programs to the President and
Congress annually.
The elimination of improper payments is a major
focus of OFS senior management. Managers are
held accountable for developing and
strengthening financial management controls to
detect and prevent improper payments, and
thereby better safeguard taxpayer dollars. OFS
carried out its fiscal year 2012 IPERA review
per Treasury-wide guidance and did not assess
any programs or activities as susceptible to
significant erroneous payments. However,
management did identify the following matter:


A number of Making Home Affordable
(MHA) investor cost share payments
were erroneously calculated due to data
discrepancies between servicer files and
the MHA system of record. Data that
servicers upload to the MHA system of
record is used to calculate these
incentive payments. The overall impact
of the data errors on incentive payments
was immaterial, and OFS management
required servicers to take action to
correct these data discrepancies.

In fiscal year 2012, OFS concluded that a
payment recapture audit was not cost effective
as all programs were deemed to have a low risk
of significant improper payments. For many
programs, OFS already has procedures in place
to review payments for completeness and
accuracy prior to and after disbursement.
Management leveraged OFS’ extensive internal
control testing results or other compliance
activities to corroborate risk assessment results,
as well as the Bureau of the Public Debt’s
testing results over administrative
disbursements.
On April 12, 2012, OMB issued Memorandum
12-11 "Reducing Improper Payments through
the 'Do Not Pay List,'" based on a Directive
provided by the President in June 2010. The
President directed agencies to "review current
pre-payment and pre-award procedures and

16

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

ensure that a thorough review of available
databases with relevant information on
eligibility occurs before the release of any
Federal funds." In order to achieve this mission,
the President directed the creation of a single
point of entry through which agencies would
access relevant data before determining
eligibility for Federal funding commonly referred
to as the "Do Not Pay List." Prior to the release
of this directive, OFS already had strong
controls in place to help ensure payment
eligibility. In fiscal year 2013 and beyond, OFS
will, as appropriate, integrate the "Do Not Pay
List‖ solution into its processes.



Third party service providers will
continue to support critical services as
programs continue to wind down. OFS
will monitor these third parties closely to
safeguard the operational efficiency of
programs and processes.



As OFS programs conclude and staff
continues to decrease, OFS plans to
streamline the number and depth of
policies and procedures to make them
more efficient and reduce the
maintenance burden. OFS will manage
this process through the Senior
Assessment Team to ensure that any
resulting risk is minimal and controlled.



OFS has developed information
technology capabilities to increase
efficiency and automate manual
processes. Continuing to leverage
existing information technology assets
will help reduce risks associated with
human error. In addition, OFS
management will continue to strengthen
IT-related controls towards a more
mature IT environment supporting core
business processes.

Areas for Improvement
Over the next year, OFS management will focus
on maintaining its internal control environment
in several key areas as follows:


As programs continue to wind down,
OFS will remain vigilant to maintain
effective processes and controls. OFS
management will take steps to sustain
adequate segregation of duties and the
right level of institutional knowledge
among remaining staff as the size of the
organization decreases.

Limitations of the Financial Statements
The principal financial statements have been
prepared to report the financial position and
results of operations of OFS’ TARP programs,
consistent with the requirements of 31 U.S.C.
3515(b). While the statements have been
prepared from the books and records of the OFS
and the Department of the Treasury in
accordance with section 116 of EESA and
Generally Accepted Accounting Principles

17

(GAAP) for Federal entities and the formats
prescribed by the OMB, the statements are in
addition to the financial reports used to monitor
and control budgetary resources which are
prepared from the same books and records.
The statements should be read with the
realization that they are for a component of the
U.S. Government, a sovereign entity.

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Operational Goals
The following discussion of OFS goals and
TARP programs focuses largely on the
significant events that occurred from
inception through fiscal year 2012. A more
comprehensive discussion of each program,
including its development and prior years’
performance, can be found in the TARP TwoYear Retrospective, the TARP Three Year
Anniversary Report, and the TARP Four Year
Retrospective (expected to be published in
December 2012) which are available at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx

Operational Goal One: Ensure
the Overall Stability and
Liquidity of the Financial
System
The first and most significant goal of TARP
was to help restore stability to the financial
system. Despite recent volatility in the stock
market and shocks in the global economy, the
U.S. financial system today is more stable
than it was during the midst of the 2008
crisis.
Financial markets and the economy continue
to recover. Credit remains available for
consumers and businesses. Financial
institutions hold more capital relative to risk
than they did before the crisis hit. Most of the
government’s emergency responses to the
crisis are being wound down in a way that
protects the public’s interest and 88.5 percent
of TARP program investments have been
collected through repayments, sales,
dividends, interest and other income.

Bank Support Programs (CPP, TIP,
AGP, CDCI)
Capital Purchase Program
OFS launched the Capital Purchase Program
(CPP), the largest and most significant
program under EESA, on October 14, 2008.
Through the CPP, OFS provided capital
infusions directly to banks and thrifts deemed
viable by their regulators to bolster the capital
position of institutions of all sizes and, in
doing so, to build confidence in these
institutions and the financial system as a
whole. With the additional capital, CPP
participants were better equipped to
undertake new lending and continue to
provide other services to consumers and
businesses, even while absorbing write-downs
and charge-offs on loans that were not
performing.
In the period following the CPP
announcement, OFS provided $204.9 billion in
capital to 707 institutions of all sizes and
types across the country, including more than
450 small and community banks and 22
community development financial institutions
(CDFIs) (see Table 7 below). The largest
investment was $25.0 billion and the smallest
was $301,000. As Table 7 illustrates, smaller
financial institutions make up the vast
majority of participants in the CPP. Of the
707 applications approved and funded by OFS
through the CPP by the time it closed to new
institutions on December 31, 2009, 473 or 66.9
percent were institutions with less than $1.0
billion in assets.

Table 7: CPP Investment Profile

Asset Range
<$1 billion
$1 billion - $10 billion
>$10 billion
Total

CPP Participants
Number
Percent
473
66.9%
177
25.0%
57
8.1%
707
100%

MANAGEMENT‘S DISCUSSION AND ANALYSIS

Total TARP Investment
Amount
Percent
$3.8
1.8%
10.0
4.9%
191.1
93.3%
$204.9
100%

18

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

OFS received preferred stock or debt
securities in exchange for these investments.
Most financial institutions participating in the
CPP pay OFS a dividend rate of five percent
per year, which will increase to nine percent
per year after the first five years starting in
fiscal year 2014. From inception of the
program through September 30, 2012, OFS
has received approximately $193.2 billion in
CPP repayments/sales, along with
approximately $11.8 billion in CPP dividends
and interest, and $14.6 billion of proceeds in
excess of cost that includes $6.9 billion in net
proceeds received from the sale of Citigroup
common stock in excess of cost.
During fiscal year 2012, OFS has focused on
winding down the CPP according to the exit
strategy it announced on May 3, 2012. That
strategy includes a combination of repayments
in the case of banks which are expected to
repay in the near future, selling OFS’
positions in banks through auctions, and
restructuring some investments, typically in
connection with a merger or other plan of the
bank to infuse capital, in a way that
maximizes timely OFS collections and helps
avoid bank failures. The extent to which OFS
employs each of the individual options will
depend on market conditions and other
factors.

Repayments
Under the terms of the CPP, participating
financial institutions may repay the funds
they received at any time, so long as they have
the approval of their regulators. OFS cannot
demand repayment of CPP preferred stock,
nor is OFS’ approval required for financial
institutions to repay.
During fiscal year 2012, 95 financial
institutions fully repaid a total of $8.1 billion,
including proceeds from auctions and sales.
Repayments were received from several of the
largest remaining banks in the program such
as Regions Financial Corp ($3.5 billion), Zion’s
Bancorp ($1.4 billion), and M & T ($0.4
billion).

19

Auction (and Other) Sales
To expedite the wind down of the CPP, OFS
will periodically sell preferred stock and
subordinated debt in CPP participants
through both public and private auctions.
OFS generally employs a modified Dutch
auction8 process, which establishes a market
price by allowing investors to submit bids at
specified increments. Additional guidance for
public auctions is available in prospectuses
that are filed by the issuers of the preferred
stock prior to the opening of each public
auction. For private auctions, the procedures
are described in full in the applicable bidder
letter agreement.
OFS held its first Dutch auction of CPP
preferred securities and debentures in March
2012, and has held five additional auctions
since that date. OFS has sold its investments
in 40 banks with an aggregate outstanding
balance of $1.5 billion. These auctions
resulted in combined proceeds of $1.3 billion
or $180 million in proceeds less than cost.

Restructurings
Another component of OFS’ exit strategy for
the CPP is to restructure certain investments
where a bank makes a proposal to do so. This
is typically done in connection with a merger
or the bank’s plan to raise new capital.
Treasury agrees to receive cash (sometimes at
a discount to the original ―par‖ value of the
investment) or other securities, which can be
more easily sold. Treasury will participate in
these transactions in limited cases and only if
the terms help maximize collections on behalf
of taxpayers.

8During

this modified Dutch auction process,
Treasury, with advice from its external asset
managers and the auction agents, publicly discloses
a minimum bid for each auction. Bidders are able
to submit one or more independent bids at different
price-quantity combinations at or above the set
minimum price. The auction agent does not
provide bidders with any information about the
bids of other bidders or auction trends, or with
advice regarding bidding strategies, in connection
with the auction.
MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

OFS also received warrants to purchase
common shares or other securities from the
financial institutions at the time of the CPP
investment. The purpose of the additional
securities is to provide opportunities for OFS
to reap additional returns on the investments
made by it as CPP participants recover. From
inception of the program through September
30, 2012, OFS has received nearly $7.7 billion
in proceeds from the sale/repurchase of CPP
warrants.
For additional information, please see OFS’
Monthly Report to Congress (also known as
the 105a Report), which can be found at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Monthly-Report-toCongress.aspx

Refinancing Through the Small Business
Lending Fund
In fiscal year 2011, 137 CPP institutions
refinanced their CPP investments totaling
more than $2.2 billion using the Small
Business Lending Fund (SBLF). These
refinancing transactions moved the risk
associated with these institutions’ repayments
from OFS to SBLF. SBLF is not a TARP
program and does not use TARP funds. The
SBLF ceased making new commitments at the
close of fiscal year 2011. As a result, there
were no SBLF refinances in fiscal year 2012.

Targeted Investment Program
OFS established the Targeted Investment
Program (TIP) in December 2008. Through
TIP, OFS sought to prevent a loss of
confidence in critical financial institutions,
which could result in significant financial
market disruptions, threaten the financial
strength of similarly situated financial
institutions, impair broader financial markets,
and undermine the overall economy. TIP was
considered ―exceptional assistance‖ for
purposes of executive compensation
requirements.
OFS invested $20.0 billion in preferred stock
in each of two institutions – Bank of America
(BofA) and Citigroup – under TIP, in addition

MANAGEMENT‘S DISCUSSION AND ANALYSIS

to those funds that these financial institutions
received under the CPP. In December 2009,
both participating institutions repaid their
TIP investments in full, with dividends. Total
TIP dividends were about $3.0 billion during
the life of the program. OFS also received
warrants from each bank which provided the
taxpayer with additional gain on the
investments when OFS sold the BofA
warrants in fiscal year 2010 for $1.2 billion
and the Citigroup warrant in fiscal year 2011
for $190 million. TIP closed during fiscal year
2011 and resulted in a positive return for
taxpayers.

Asset Guarantee Program
Under AGP, OFS acted to support the value of
certain assets held by qualifying financial
institutions, by agreeing to absorb a portion of
the losses on those assets. The program was
conducted jointly by Treasury, the FRBNY
and the Federal Deposit Insurance
Corporation (FDIC). Like TIP, it was
designed for financial institutions whose
failure could harm the financial system and
reduce the potential for ―spillover‖ to the
broader financial system and economy. The
AGP was used to assist BofA and Citigroup in
conjunction with TIP investments in those
institutions. The arrangement with BofA was
terminated before it was formally finalized,
with BofA paying OFS a termination fee.
Under the terms of the guarantee agreement
with Citigroup, OFS, the FDIC, and the
FRBNY received a premium for the guarantee
of $7.0 billion in Citigroup preferred stock and
warrants. Additional information on the two
institutions under AGP can be found in the
OFS’ fiscal year 2010 Agency Financial Report
available at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Annual-AgencyFinancial-Reports.aspx.
Although the guarantee was originally
expected to be in place for five to ten years,
Citigroup requested that it be terminated in
December 2009 in conjunction with its
repayment of $20 billion it received from the
TIP. The banking regulators approved its
request in conjunction with Citibank's raising
of more than $20 billion of private capital.

20

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

In connection with the termination, Treasury
and the FDIC kept most of the premium paid
by Citigroup. Specifically, the government
retained a total of $5.2 billion of the $7.0
billion of preferred stock (which had since
been converted to trust preferred securities).
OFS’ portion was $2.2 billion.
The FDIC and OFS agreed that, subject to
certain conditions, the FDIC would transfer to
OFS $800 million of their Citigroup trust
preferred stock holding plus dividends thereon
contingent on Citigroup repaying its
previously-issued FDIC guaranteed debt
under the FDIC’s Temporary Liquidity
Guarantee Program which expires on
December 31, 2012. OFS sold its trust
preferred securities in October 2010 and the
AGP warrants in January 2011, leaving only
the $800 million of trust preferred stock
receivable from the FDIC valued at $967
million (including dividends thereon held by
FDIC) at September 30, 2012. During fiscal
year 2013, OFS expects to receive and
liquidate the $800 million Citigroup trust
preferred securities.
The AGP is now closed and resulted in a
positive return for taxpayers. No OFS
payments were made under the program.

Community Development Capital
Initiative
The CDFIs focus on providing financial
services to communities underserved by
traditional banks, such as low- and moderateincome, minority, and other underserved
communities. OFS launched the Community
Development Capital Initiative to help viable
certified CDFIs and the communities they
serve cope with effects of the financial crisis.
Under this program, CDFI banks and thrifts
received investments of capital with an initial
dividend or interest rate of two percent,
compared to the five percent rate generally
offered under CPP. CDFI banks and thrifts
applied to receive capital up to five percent of
risk-weighted assets. To encourage
repayment while recognizing the unique
circumstances facing CDFIs, the dividend rate
will increase to nine percent after eight years,
compared to five years under CPP.

21

OFS completed funding under this program in
September 2010. The total investment
amount for the CDCI program under TARP is
$570 million for 84 institutions. Of this
amount, $363 million resulted from 28 banks
exchanging their investments under the CPP
into the CDCI. As of September 30, 2012, one
institution representing $7 million went into
receivership and OFS does not expect any
collection on the associated preferred shares,
and two institutions representing $3 million
have fully repaid OFS. Due to the unique
nature of these institutions and the difficulties
faced by the communities they serve, OFS
designed this program to encourage
repayment over a longer period of time. So for
the time being, OFS will continue to hold
these investments and will evaluate its
options for exiting them at a later date.

Credit Market Programs (PPIP,
TALF, SBA 7(a))
Public-Private Investment Program
During the financial crisis, many institutions
and investors were under extreme pressure to
reduce indebtedness. This de-leveraging
process pushed down the market prices for
many financial assets, including troubled
legacy securities (i.e., non-agency residential
mortgage-backed securities (RMBS) and
commercial mortgage-backed securities
(CMBS)) below their fundamental value.
Institutions and investors were trapped with
these hard-to-value assets, marked at
distressed prices on their balance sheets,
which constrained liquidity and the
availability of credit in these markets.
The OFS designed the PPIP to facilitate the
purchase of troubled legacy securities (i.e.,
non-agency RMBS and CMBS) by providing
financing on attractive terms as well as a
matching equity investment made by private
investors. By drawing new private capital
into the market for legacy RMBS and CMBS,
PPIP was designed to help restart the market
for these securities, thereby facilitating the
removal of these assets from financial
institutions’ balance sheets and allowing for

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

distributed to the investors, including OFS, in
proportion to their equity capital investments.
OFS also receives warrants from the PPIFs,
which gives OFS the right to receive a
percentage of the profits that would otherwise
be distributed to the private partners that are
in excess of their contributed capital. The
program structure allows for risk to be spread
between the private investors and OFS and
provides taxpayers with the opportunity for
positive returns.

more credit to become available for consumers
and small businesses.
Under the program, Public-Private
Investment Funds (PPIFs) were established
by private sector fund managers for the
purpose of purchasing eligible legacy
securities from banks, insurance companies,
mutual funds, pension funds, and other
eligible sellers as defined under EESA. OFS
matches equity dollar-for-dollar and lends up
to the amount of equity raised by the PPIFs
for the purpose of purchasing eligible RMBS
and CMBS from eligible financial institutions
under EESA.

PPIP Results
Treasury originally committed approximately
$22.1 billion of equity and loans to the nine
PPIFs. After completing their fundraising,
PPIFs closed on approximately $7.4 billion of
private sector equity capital commitments,
which were matched 100 percent by OFS,
representing $14.7 billion of equity capital
commitments. In the aggregate, all nine
PPIFs had $29.4 billion of total purchasing
power. The following is a summary of the
commitments and investments in individual
PPIFs as of September 30, 2012.

PPIFs have the ability to invest in eligible
assets over a three-year investment period
ending in December 2012 for the remaining
PPIFs. They then have up to five additional
years, which may be extended for up to two
more years, to manage these investments and
return the proceeds to OFS and the other
PPIF investors. PPIP fund managers retain
control of asset selection, purchasing, trading,
and disposition of investments. The profits
generated by a PPIF, net of expenses, will be

Table 8: OFS Commitments and Investments in PPIFs
(Dollars in billions)
PPIF

Purchase
Price

Angelo, Gordon & Co., LP
and GE Capital Real Estate
BlackRock, Inc
Invesco Ltd.1
Marathon Asset
Management, LP
Oaktree Capital
Management, LP
RLJ Western Asset
Management, LP
The TCW Group, Inc2
Wellington Management
Company, LLP
Alliance Bernstein1
Total

Amount
Outstanding

Other
Receipts3

Total
Cash
Back

Disbursements

Repayments

$ 3.6

$ 3.4

$ 1.1

$ 2.3

$ 0.6

$ 1.7

2.1
2.0

1.5
1.7

0.2
1.7

1.3
-

0.2
0.2

0.4
1.9

1.4

1.4

0.1

1.3

0.2

0.3

3.5

1.7

0.3

1.4

-

0.3

1.9

1.9

1.4

0.5

0.4

1.8

0.4

0.4

0.4

-

-

0.4

3.4

3.4

0.4

3.0

0.3

0.7

3.3
$ 21.6

3.2
$ 18.6

3.2
$ 8.8

0.00
$ 9.8

0.5
$ 2.4

3.7
$ 11.2

1 Investment

period has expired or been terminated.
fund has been closed.
3 Other receipts includes interest, investment income and proceeds in excess of cost.
2 The

Wind Down Status for PPIFs

MANAGEMENT‘S DISCUSSION AND ANALYSIS

22

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

In March 2012, Invesco Legacy Securities
Master Fund (Invesco Ltd) became the second
PPIF to sell its remaining investments,
repaying all of the $1.2 billion in debt and
$581 million in equity capital invested by OFS
in the fund. Cumulatively, OFS received $18
million in interest and $139 million of
proceeds in excess of original equity capital,
including $3 million in warrant proceeds from
Invesco Ltd.
In July 2012, RLJ Western formally
terminated its investment period. As of
September 30, 2012, RLJ Western has repaid
all of the $1.2 billion in debt and $144 million
of the original $621 million in equity capital
invested by OFS. Cumulatively, OFS received
$37 million in interest and $340 million of
proceeds in excess of original equity capital.
As of September 2012, Alliance Bernstein also
substantially wound down the fund. As of
September 30, 2012, Alliance Bernstein has
repaid all of the $2.1 billion in debt and all of
the $1.1 billion in equity capital invested by
OFS in the fund. Cumulatively, OFS received
$58 million in interest and $448 million in
proceeds in excess of original equity capital.
OFS provides quarterly status reports on the
program’s performance. For more information
on these holdings and the performance of the
PPIFs, readers can refer to the most recent
PPIP Quarterly Report available at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Public-PrivateInvestment-Program-Quarterly-Report.aspx

Term Asset-Backed Securities Loan
Facility
TALF was a joint Federal Reserve-OFS
program that was designed to restart the
asset-backed securities (ABS) market that
provide credit to consumers and small
businesses, which had ground to a virtual
standstill during the early months of the
financial crisis.
Pursuant to its Federal Reserve Act Section
13(3) authority, the Federal Reserve Board
23

authorized the FRBNY to extend up to $200.0
billion in non-recourse loans to borrowers to
enable the purchase of newly issued assetbacked (including newly issued CMBS and
legacy CMBS) AAA-rated securities including
those backed by consumer loans, student
loans, small business loans, and commercial
real estate loans. In return, the borrowers
pledged the eligible collateral with a risk
premium (―haircut‖) as security for the loans.
Should a borrower default upon its TALF loan
or voluntarily surrender the collateral, it
would be seized and sold to TALF LLC, a
special purpose vehicle created by FRBNY to
purchase and hold seized or surrendered
collateral. Through September 30, 2012,
TALF LLC has not purchased any collateral
from the FRBNY.
OFS originally committed to provide $20.0
billion in the form of a subordinated loan
commitment to TALF LLC. This commitment
was reduced to $4.3 billion after the program
closed to new lending in June 2010, which
represented 10 percent of the outstanding
TALF loans at the time. In June 2012, the
commitment was further reduced to $1.4
billion at a time when the outstanding loans
were $3.5 billion. As of September 30, 2012,
$1.5 billion of TALF loans due to the FRBNY
remained outstanding and the TALF program
has experienced no losses. OFS does not
expect any program cost to the taxpayers from
this program.

Small Business Administration 7(a)
Securities Purchase Program
Small businesses play an important role in
generating new jobs and growth in our
economy. The SBA’s 7(a) Loan Guarantee
Program assists start-up and existing small
businesses that face difficulty in obtaining
loans through traditional lending channels.
To help ensure that credit flows to
entrepreneurs and small business owners,
OFS developed the SBA 7(a) Securities
Purchase Program to purchase SBAguaranteed securities from pool assemblers.
Purchasing securities from participating pool
assemblers enabled them to purchase
additional small business loans from loan

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

originators. OFS invested in a total of 31 SBA
7(a) securities with a value of approximately
$367 million (excluding purchased accrued
interest) between March and September 2010.
Those securities were comprised of 1,001 loans
from 17 different industries, including retail,
food services, manufacturing, scientific and
technical services, health care, educational
services, and others. Through its purchases,
OFS injected much needed liquidity into this
market to help restart the flow of credit,
enabling pool assemblers to purchase
additional small business loans from loan
originators. Since OFS began its purchases,
the SBA 7(a) market has now recovered with
new SBA 7(a) loan volumes returning to precrisis levels.
In January 2012, OFS sold its eight remaining
SBA 7(a) securities in the portfolio, marking
the successful wind down of the SBA 7(a)
Securities Purchase Program. In total, OFS
collected $376 million through sales ($334
million) and principal payments ($29 million)
and interest payments ($13 million) over the
life of the program, representing cash
collections of approximately $9 million more
than its original investment of $367 million.

Other Programs
Automotive Industry Financing Program
The Automotive Industry Financing Program
(AIFP) was launched in December 2008 to
help prevent the disorderly liquidation of
Chrysler and General Motors (GM) and thus a
significant disruption of the U.S. auto
industry. The potential for such a disruption
at that time posed a significant risk to
financial market stability and threatened the
overall economy.
Recognizing both General Motors Corporation
(Old GM) and Chrysler Holdings LLC (Old
Chrysler) were on the verge of potentially
disorderly liquidations, OFS extended
temporary loans to GM and Chrysler in
December 2008. OFS agreed to provide
additional funds conditioned on each company
and its stakeholders participating in a
fundamental restructuring. Sacrifices were

MANAGEMENT‘S DISCUSSION AND ANALYSIS

made by unions, dealers, creditors and other
stakeholders, and the restructurings were
achieved through bankruptcy court
proceedings in a record time. As a result,
General Motors Company (New GM) and
Chrysler Group LLC (New Chrysler) are more
competitive and viable companies, supporting
American jobs and the economy. Operating
results have improved, the industry has added
jobs, and TARP investments have begun to be
repaid.
In total, OFS disbursed $79.7 billion in loans
and equity investments to GM, GMAC (now
known as Ally Financial), Chrysler, and
Chrysler Financial. Please see Note 6 of
financial statements for further information
on the AIFP subsidy cost.

General Motors
OFS provided $49.5 billion under TARP to Old
GM. The initial assistance was a $13.4 billion
loan in December 2008 to Old GM to fund
working capital. Under the loan agreement,
Old GM was required to submit a viable
restructuring plan. The first plan Old GM
submitted failed to establish a credible path to
viability, and the deadline was extended to
June 2009 for Old GM to develop an amended
plan. OFS loaned an additional $6.0 billion to
fund Old GM as it worked to submit a viable
restructuring plan. To achieve an orderly
restructuring, Old GM filed for bankruptcy on
June 1, 2009. OFS provided $30.1 billion
under a debtor-in-possession financing
agreement to assist Old GM during the
restructuring. A newly formed entity, New
GM purchased most of the assets of Old GM
under a sale pursuant to Section 363 of the
bankruptcy code (363 Sale). When the sale to
New GM was completed on July 10, 2009,
OFS converted most of its loans into 60.8
percent of the common equity in New GM and
$2.1 billion in preferred stock. At that time,
OFS held $6.7 billion in outstanding loans
which were repaid in full during fiscal year
2010. Approximately $986 million in loans to
Old GM (now known as Motors Liquidation
Company) for wind-down costs associated with
its liquidation remained outstanding.
Following confirmation of the plan for
liquidation by the bankruptcy court, New GM

24

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

emerged from the managed bankruptcy
process as a stronger, more viable, and more
competitive company. In 2010, New GM
posted its first annual profit in six years.
Since then, it has continued to add jobs and
post strong growth.
In November 2010, New GM completed its
initial public offering (IPO), with gross
proceeds to OFS of $13.6 billion, resulting in
OFS reporting net proceeds less than cost of
$4.3 billion. The IPO reduced OFS’ ownership
of New GM’s outstanding common stock by
nearly half. New GM then purchased all of
OFS' preferred shares, further reducing the
OFS’s stake in the company.
In March 2011, the Plan of Liquidation for Old
GM became effective and OFS’ $986 million
loan to Old GM was converted to an
administrative claim. During fiscal year 2011,
OFS received payments totaling $111 million
from Motors Liquidation Company. During
fiscal year 2012, OFS received payments of
$26 million from Motors Liquidation
Company. OFS retains the right to recover
additional proceeds; however, any additional
recovery is dependent on actual liquidation
proceeds and pending litigation. OFS does not
expect significant additional recoveries on this
administrative claim.
As of September 30, 2012, OFS holds
approximately 500 million common stock
shares with a value of $11.4 billion,
representing 31.9 percent of the outstanding
shares of common stock in New GM as
discussed in Note 6 to the OFS Financial
Statements. As of that date, OFS has collected
$24.0 billion of its total $51.0 billion
investment9.
Since New GM is a publically-traded company
and its stock is highly liquid, OFS can exit its
investment over time through sales of its
remaining common shares on the open
market, through underwritten offerings, block
9

GM $51.0 billion of assistance consists of a $49.5
billion loan to Old GM, $884 million loan to old GM
to purchase GMAC rights, and $651 million in loans
for Supplier and Warranty Programs.

25

trades or dribble out programs, or a
combination of the above. OFS will continue
to evaluate its options based on market
conditions.

Chrysler
OFS disbursed a total of $12.4 billion to
Chrysler related entities including Old
Chrysler and New Chrysler. During fiscal
year 2011, OFS fully exited its loans and
investment relating to Chrysler entities, six
years ahead of the scheduled maturity of its
loans. Of the $12.4 billion that was disbursed
to Chrysler related entities under TARP, OFS
collected more than $11.1 billion through
principal repayments, sale of investments,
and interest. While OFS retains a right to
receive proceeds from a liquidation trust, no
significant future cashflows are expected.
The $12.4 billion disbursed to Chrysler related
entities are made up primarily of the following
transactions:
In January 2009, OFS loaned $4.0 billion to
Old Chrysler and the company was required
to implement a viable restructuring plan. In
fiscal year 2010, Old Chrysler repaid $1.9
billion while a $500 million existing liability
was assumed by New Chrysler. OFS wrote off
the remaining $1.6 billion of this loan.
During fiscal year 2009 the Administration
laid out a framework for Old Chrysler to
achieve viability by partnering with the
international car company Fiat and OFS
provided $1.9 billion to Old Chrysler under a
debtor-in-possession (DIP) financing
agreement for assistance during Old
Chrysler’s bankruptcy proceeding. The DIP
loan was extinguished by the bankruptcy
court in April 2010, including collateral
security attached to the loan, and transferred
to a liquidation trust. OFS retained the right
to recover the proceeds from the liquidation of
the specified collateral and received $40
million from the liquidation trust in fiscal
year 2010, $8 million in fiscal year 2011, and
$9 million in fiscal year 2012.
In June 2009, a newly formed entity, Chrysler
Group LLC, (New Chrysler) purchased most of

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

the assets of Old Chrysler under a 363 sale.
OFS provided a $6.6 billion loan commitment
to New Chrysler (of which $4.6 billion was
disbursed), and received $384 million in
additional notes and a 9.9 percent equity
ownership in New Chrysler.
In May 2011, New Chrysler repaid $5.1 billion
in TARP loans, $384 million relating to
additional notes received, and interest
thereon, and terminated its ability to draw a
remaining $2.1 billion TARP loan
commitment. New Chrysler’s repayment came
six years before the scheduled maturity of
those loans in 2017. In July 2011, OFS
received $560 million in proceeds from the
sale of its remaining stake in New Chrysler to
Fiat. With the closing of this transaction,
OFS completed its exit from New Chrysler.

Ally Financial (formerly GMAC)
In December 2008, OFS made an initial
investment of $5.0 billion in GMAC. OFS also
lent $884 million of TARP funds to Old GM for
the purchase of additional ownership interests
in a rights offering by GMAC. In May 2009,
federal banking regulators required GMAC to
raise additional capital by November 2009 in
connection with the Supervisory Capital
Assistance Program (SCAP)/stress test.
Concurrently, OFS exercised its option to
exchange the loan with Old GM for 35.4
percent of common membership interests in
GMAC. OFS also purchased $7.5 billion of
convertible preferred shares from GMAC in
May 2009, which enabled GMAC to partially
meet the Supervisory Capital Assessment
Program (SCAP) requirements. In December
2009, OFS made additional investments of
$3.8 billion in GMAC to enable GMAC to
satisfy the SCAP requirements and exchanged
certain preferred shares for common stock.
OFS provided the $3.8 billion in new capital in
the form of $2.5 billion of trust preferred
securities, which are senior to all other capital
securities of the company, and $1.3 billion of
mandatory convertible preferred stock.
In May 2010, GMAC changed its corporate
name to Ally Financial, Inc. In December
2010, OFS converted preferred stock in Ally

MANAGEMENT‘S DISCUSSION AND ANALYSIS

Financial with a liquidation preference of $5.5
billion into common stock. The conversion
increased OFS’ common equity stake in Ally
Financial from 56 percent to 74 percent of
total common shares outstanding.
In fiscal year 2011, Ally commenced work on
an initial public offering which would have
enabled OFS to begin exiting its common
stock investment. However, Ally was forced to
delay the IPO due to intensifying issues
related to legacy liabilities of its subsidiary,
ResCap, a residential mortgage company, as
well as a general weakening in the IPO
market.
In March 2011, OFS sold all of its Ally
Financial trust preferred securities at par.
Aggregate proceeds from the sale totaled $2.7
billion. With the proceeds from this sale, OFS
has received $5.7 billion from Ally Financial
from inception of the program through
September 30, 2012, including $3.0 billion in
dividends.
In May 2012, ResCap filed to enter into a
Chapter 11 reorganization process. ResCap,
about one-tenth the size of Ally based on
assets, is a separate and distinct company
from Ally that has its own board of directors
and creditors. OFS does not hold any equity,
debt, or other direct investment in ResCap.
While it is unfortunate that a Chapter 11
filing became necessary for ResCap, OFS
believes this action puts OFS in a stronger
position to continue recovering OFS’
investment in Ally Financial. Ally’s
automotive financing business has remained
profitable and its retail banking operation has
grown. Concurrently with the filing by
ResCap, Ally began exploring strategic
alternatives for its international business in a
manner that Ally believes will maximize value
for its shareholders.
As of September 30, 2012, OFS held 119
million convertible preferred stock shares with
a liquidation preference of $5.9 billion and 74
percent of Ally Financial’s outstanding
common stock as discussed in Note 6 to the
OFS Financial Statements.

26

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

OFS provided a total of $16.3 billion to GMAC
from December 2008 through December 2009
to help support its ability to issue new loans to
GM and Chrysler dealers and consumers and
to address the company’s capital needs. As of
September 30, 2012, OFS has collected $5.7
billion, consisting of $3.0 billion in dividend
receipts on the mandatory convertible
preferred, warranty preferred, and trust
preferred securities (TruPS), and $2.7 billion
from the sale of TruPS, (including $127
million of proceeds in excess of cost).

American International Group, Inc. (AIG)
Investment Program
The peak amount of assistance offered to AIG
by the FRBNY and Treasury was $182.3
billion, a part of which ($22.1 billion) was
later cancelled, and an amount in excess of the
total disbursed has now been recovered
through repayments, sales and other income.
Through September 30, 2012, Treasury
disbursed a total of $67.8 billion to AIG and
has collected $65.3 billion (of this, OFS
disbursed $67.8 billion and collected $50.3
billion). Treasury’s collections include
proceeds from sales of a total of 1.4 billion AIG
common stock shares resulting in proceeds in
excess of costs for non-TARP shares of $15.0
billion and proceeds less than cost of $11.8
billion for TARP shares.
In September 2008, AIG was the largest
provider of conventional insurance in the
world, with approximately 75 million
individual and corporate customers in more
than 130 countries. AIG’s assets exceeded $1
trillion and insured 180,000 businesses and
other entities employing more than 100
million people in the U.S. It was a large
issuer of commercial paper and the second
largest holder of U.S. municipal bonds.
Then, the financial crisis peaked in 2008.
AIG’s parent holding company engaged in
financial activities that were well beyond the
business of life insurance and property and
casualty insurance. Its financial products
unit was a significant participant in some of
the newest, riskiest, and most complex
transactions of the U.S. financial system. In

27

the chaotic environment of September 2008,
the Federal Reserve and Treasury concluded
that AIG’s failure could be catastrophic.
Among other things, if AIG had failed, the
crisis would have almost certainly spread to
the entire insurance industry, and its failure
could have directly affected the savings of
millions of Americans. Therefore, Treasury
and the FRBNY took action to protect the U.S.
financial system.
During the fall of 2008, the Federal Reserve
and OFS took a series of steps to prevent
AIG’s disorderly failure and mitigate systemic
risks. The initial assistance to AIG was
provided by the FRBNY before the passage of
EESA and the creation of TARP. After EESA
became law, OFS and the Federal Reserve
continued to work together to address the
challenges posed by AIG.
In November 2008, OFS invested $40.0 billion
in senior preferred stock of AIG and it also
received warrants to purchase common shares
in the firm. The funds were used immediately
to reduce the loans provided to AIG by the
FRBNY. The preferred stock was
subsequently exchanged in April 2009, for face
value plus accrued dividends, into $41.6
billion of a different series of preferred stock.
Complete details on the AIG investment are
available in the TARP Three Year
Anniversary Report and the TARP Two-Year
Retrospective Report which are both available
at:
http://www.treasury.gov/initiatives/financialstability/briefingroom/reports/agency_reports/Pages/default.as
px.
In fiscal year 2011, Treasury, including OFS,
FRBNY, the trustees of the AIG Credit
Facility Trust (the Trust)10 and AIG completed
a restructuring of AIG and Treasury,
including OFS, and the FRBNY began exiting
their respective investments. The
restructuring, which was announced on
September 30, 2010 and completed in January
The independent trust established to manage the
Department of Treasury’s beneficial interest in
Series C preferred AIG shares.
10

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

2011, was a series of integrated transactions
and corporate actions designed to accelerate
the repayment of U.S. taxpayer funds and to
promote AIG’s transition from a majority
government owned and supported entity to a
financially sound and independent entity. As
part of the restructuring, AIG drew $20.3
billion from the capital facility made available
by OFS, for a total of $27.8 billion drawn and
AIG repaid FRBNY a total of $47.0 billion, as
a result of which AIG no longer had any
outstanding obligations to the FRBNY
(although the FRBNY still had loans to two
special purpose vehicles which acquired assets
from AIG). Following the restructuring, OFS’
total investment in AIG was $67.8 billion, and
as of January 31, 2011, Treasury’s investment
consisted of approximately 1.7 billion shares
of AIG common stock (1.1 billion shares owned
by OFS and 563 million shares owned by the
Treasury, which were received on the
termination of the Trust), representing
ownership of 92 percent of the company (77
percent held by OFS and 15 percent held by
the Treasury outside of OFS) as well as $20.3
billion of OFS’ preferred interests in two AIG
SPVs. The AIG SPVs are wholly owned by
AIG and consolidated on the AIG financial
statements. The OFS owned 100 percent of
the preferred interests in the two AIG SPVs.
Exiting the Government’s AIG Investment
During fiscal year 2012, AIG completed the
repayment of OFS’ preferred interests in the
AIG SPVs. In March 2012, OFS received $8.6
billion in repayments of its preferred interest
in the AIG AIA SPV. This allowed for OFS’
preferred interests in AIG SPVs to be repaid
in full.
During fiscal year 2012, the Treasury’s,
including OFS’, common stock investment in
AIG was also substantially reduced. Over the
course of the year, OFS conducted four
offerings that sold a total of 1.2 billion shares
of AIG common stock (consisting of 806
million TARP shares and 415 million
Treasury non-TARP shares) at prices that
ranged from $29.00 per share to $32.50 per
share. Total proceeds from these fiscal year
2012 sales of AIG common stock amounted to
$38.2 billion, consisting of $25.2 billion in
proceeds to OFS and additional proceeds to

MANAGEMENT‘S DISCUSSION AND ANALYSIS

the Treasury for the non-TARP shares of
$13.0 billion. The proceeds to OFS from such
common stock sales were $9.9 billion less than
the cost of the shares.
As of September 30, 2012, Treasury’s
remaining outstanding AIG investments
consisted of 234 million shares of AIG common
stock, consisting of 154 million TARP shares
and 80 million non-TARP shares. Treasury’s
percentage ownership of AIG’s outstanding
shares of common stock was 15.9 percent at
such date (of which the TARP shares are 10.5
percent and non-TARP shares are 5.4
percent). OFS’ remaining TARP shares have
a cost basis of $43.53 per share and have a
fair market value of $5.1 billion, or $32.79 per
share, as of September 30, 2012. The Treasury
non-TARP shares, which were received from
the trust, are not owned by OFS and,
consequently, are not included in the OFS
financial statements and were provided to
Treasury at no cost. The figure of $28.73 per
share is often referred to as Treasury’s ―breakeven‖ price for AIG common stock sales in
order for Treasury to recover the TARP AIG
investment because that number averages the
cost over the TARP and non-TARP shares.
Additional discussion of the AIG investment
including subsidy cost can be found in Note 6
to the OFS Financial Statements.

Operational Goal Two: Prevent
Avoidable Foreclosures and
Preserve Homeownership
OFS established several programs under
TARP to address the historic housing crisis
and important new reforms are being
introduced in part because of TARP’s housing
programs. While the housing market remains
fragile, there have been more than 1.2 million
homeowner assistance actions taken through
the Making Home Affordable (MHA) program
(a joint TARP and government sponsored
11
enterprise (GSE) initiative) to assist

GSEs involved in MHA include Fannie Mae and
Freddie Mac.
11

28

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

struggling homeowners12. In addition, TARP’s
housing programs have also transformed the
mortgage servicing industry. These programs
have changed industry standards and
practices and have helped to make mortgage
modifications become more sustainable and
affordable. Since March 2009, there have been
more than 3 million private-sector mortgage
modifications, in part because of the new
standards that TARP’s housing programs
have established.
Using authority granted under EESA, OFS
established two central housing programs
under TARP. There is the MHA program,
which includes the Home Affordable
Modification Program (HAMP) and several
additional programs to help homeowners
refinance or address specific types of
mortgages. There is also the Hardest Hit
Fund (HHF) Program which commits $7.6
billion to the 18 hardest hit states, plus the
District of Columbia, to develop locallytailored programs to assist struggling
homeowners in their communities. In
addition, OFS provided support for the
Federal Housing Administration’s Short
Refinance Program that assists borrowers who
are current on their mortgage (or complete a
trial payment plan) but owe more than their
home is worth, to refinance into an FHAinsured loan.
To protect taxpayers, the MHA and HHF
housing initiatives generally have pay-forsuccess incentives: funds are disbursed only
when transactions are completed and
thereafter only as long as those contracts
remain in place. Therefore, funds will be
disbursed over many years. The total cost of
the Treasury housing programs under TARP,
excluding administrative costs, cannot
exceed—and may be less than—$45.6 billion13,
which is the amount committed to that
purpose.
726,253 of these actions were TARP funded
modifications.

12

13

This amount includes $29.9 billion for MHA, $7.6
billion for HHF, and $8.1 billion for FHA-Refinance
programs.

29

Making Home Affordable (MHA)
Launched in February 2009, MHA consists of
several programs designed to help struggling
homeowners prevent avoidable foreclosures.
The cornerstone of MHA is the Home
Affordable Modification Program (HAMP).
HAMP is a first-lien mortgage modification
program that provides incentives to mortgage
servicers, investors, and homeowners to
reduce eligible homeowners’ monthly
payments to affordable levels. Under this
program, OFS pays the incentives for the
modification of loans not held by GSEs while
the GSEs bear the cost of modifications of
loans held by the GSEs. HAMP is the largest
program within MHA and includes several
additional components to complement first
lien modifications:


The Principal Reduction Alternative
(PRA), which was implemented in
October 2010. PRA requires servicers
of non-GSE loans to evaluate the
benefit of principal reduction for
mortgages with a loan-to-value (LTV)
ratio greater than 115.0 percent when
evaluating a homeowner for a HAMP
first lien modification. While servicers
are required to evaluate homeowners
for PRA, they are not required to offer
principal reduction and generally may
only do so when permitted by the
mortgage investor. PRA pays investors
incentives for every dollar of principal
forgiven, according to a sliding scale
depending on the degree to which the
homeowner's unmodified balance is
greater than the market value of the
home and the delinquency status of
the homeowner at time of
modification.



The Home Affordable Unemployment
Program (UP) requires participating
servicers to grant qualified
unemployed borrowers a forbearance
period during which their mortgage
payments are temporarily reduced or
suspended while they look for
employment. At the end of this
forbearance period, if the homeowner
receives a HAMP modification, the
MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

forborne amount is capitalized onto
the unpaid principal balance. This
program does not require any
payments from OFS.


The Home Affordable Foreclosure
Alternatives Program (HAFA), which
helps homeowners exit their homes
and transition to a more affordable
living situation through a short sale or
deed-in-lieu of foreclosure. HAFA
provides a defined process along with
incentives for these transactions.



The Home Price Decline Program
provides incentives to investors to
partially offset losses from home price
declines.

Additional components of the MHA program
include:


The Second Lien Modification
Program (2MP), which provides
incentives for second-lien holders to
modify or extinguish a second-lien
mortgage when a modification has
been initiated on the first lien
mortgage for the same property under
HAMP.



The FHA-HAMP Program, which
provides similar servicer incentives as
HAMP for Federal Housing
Administration (FHA) guaranteed
loans.



The Treasury/FHA Second Lien
Program (2LP), which provides
incentives to servicers for
extinguishment of second liens for
borrowers who refinance their first
lien mortgages under the FHARefinance Program.



The Rural Development (RD)-HAMP
Program provides incentives for
modified United States Department of
Agriculture (USDA) guaranteed
mortgages.

MANAGEMENT‘S DISCUSSION AND ANALYSIS

MHA Results
The incentives offered under MHA are helping
homeowners and assisting in stabilizing the
housing market. As of September 30, 2012, 96
servicers are actively participating in MHA.
Between loans covered by these servicers and
other loans owned or guaranteed by the GSEs,
more than 85 percent of first-lien residential
mortgage loans in the country are now held by
servicers participating in the program. As of
September 30, 2012, OFS has commitments to
fund up to $29.9 billion in MHA payments and
has disbursed $4.0 billion since inception.
More than 1.2 million14 homeowners
participating in the HAMP programs have
had their mortgage terms modified
permanently. This includes modifications on
both non-GSE loans (for which the cost is paid
by TARP) and GSE loans (for which the cost is
paid by the GSEs). Homeowners participating
in HAMP programs collectively have
experienced a 38.0 percent median reduction
in their mortgage payments—more than $539
per month. MHA has also encouraged the
mortgage industry to adopt similar programs
that have helped millions more at no cost to
the taxpayer.
OFS publishes quarterly assessments of
servicer performance, which contain data on
compliance with program guidelines as well as
program results metrics. Going forward, OFS
hopes these assessments will set the standard
for transparency about mortgage servicer
efforts to assist homeowners and encourage
servicers to correct identified instances of
noncompliance.
MHA performance highlights for fiscal year
2012 can be found at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Making-HomeAffordable-Program-Performance-Report.aspx.

14

726,253 of these actions were TARP funded
modifications.

30

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Enhancements to MHA
HAMP was originally intended to support
financial stability and help struggling
homeowners grappling with a verifiable
financial hardship that put them at risk of
foreclosure. It focuses on families who could
sustain their mortgage over the long term if
modified.
In an effort to continue to provide meaningful
solutions to the housing crisis, OFS made
several enhancements to MHA during fiscal
year 2012. This included extending the
application deadline from December 31, 2012
to December 31, 2013 and expanding
eligibility to reach a broader pool of distressed
borrowers. Effective June 1, 2012, MHA
eligibility expanded to include:


Homeowners who are applying for a
modification on a home that is not
their primary residence, but the
property is currently rented or the
homeowner intends to rent it.



Homeowners who previously did not
qualify for HAMP because their debtto-income ratio was 31.0 percent or
lower.



Setting New Standards and Protecting
Consumers
The impact that MHA has had goes far beyond
the individual homeowners that are receiving
direct assistance under the program. It has
had a positive indirect effect on the mortgage
market. In general, federal government
efforts to date have contributed to the gradual
decline in the number of seriously delinquent
mortgage loans (loans 90 or more days past
due or in the process of foreclosure). The
latest available data shows continued declines
in the rate of serious delinquency, continuing
the trend that began at the end of 2009. 15
MHA is also helping to make mortgage
modifications more affordable overall. It has
set standards that have been widely followed
in the industry for making sure that mortgage
modifications are affordable and sustainable,
such as the debt-to-income test, and for
determining whether modifications make
sense for the holder of the mortgage, such as
the HAMP net present value model.
Additionally, MHA helped to establish several
new reforms throughout the mortgage
servicing industry aimed at protecting
consumers. These include:

Homeowners who previously received
a HAMP permanent modification, but
defaulted on their payments, therefore
losing good standing.





Additional information about the
enhancements is available on the MHA
website:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Making-HomeAffordable-Program-Performance-Report.aspx.

31

Requiring participating mortgage
servicers to limit the practice of ―dual
tracking‖ – where mortgage servicers
begin the foreclosure process while
simultaneously evaluating
homeowners for assistance; and



To encourage investors to consider or expand
the use of principal reduction, Treasury issued
program guidance on February 16, 2012
tripling financial incentives under PRA for
investors who agree to reduce principal for
eligible underwater homeowners. The new
program guidance applies to all permanent
modifications of non-GSE loans under HAMP
that include PRA and have a trial period plan
effective date on or after March 1, 2012.

Requiring the 20 largest participating
mortgage servicers to establish a
single point of contact for homeowners
seeking assistance, to ensure that a
single, knowledgeable case manager
can guide them through the
modification process;

Requiring participating mortgage
servicers to provide qualified
unemployed homeowners with a

Source: The Mortgage Bankers Association 2012
National Delinquency Survey.
15

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

forbearance period of 12 months,
subject to investor and regulator
guidelines, during which their
monthly payments are temporarily
reduced while they look for a new job.
MHA’s mortgage servicing standards served
as the basis for a joint state-Federal
settlement with the country’s five largest
mortgage loan servicers (Ally/GMAC, Bank of
America, Citigroup, JPMorgan Chase, and
Wells Fargo). The settlement is intended to
provide as much as $25.0 billion in relief to
distressed borrowers and direct payments to
States and the Federal government. The
agreement settled certain alleged violations of
state and federal law based on the mortgage
loan servicing activities of the country’s five
largest mortgage loan servicers, including
claims of document-related foreclosure abuses.
Treasury, including OFS, participated in the
negotiation of the settlement and shared
knowledge gained through implementation of
the Administration’s foreclosure prevention
programs, including MHA.

Housing Finance Agency Innovation Fund for
the Hardest Hit Housing Markets (HFA
Hardest Hit Fund, or HHF)
In February 2010, the Obama Administration
announced the Housing Finance Agency
(HFA) Innovation Fund for the Hardest Hit
Housing Markets (HFA Hardest Hit Fund, or
HHF), which allows state HFAs in the
nation’s hardest hit housing markets and high
unemployment markets to design innovative,
locally targeted foreclosure prevention
programs. State HFAs design the state
programs, tailoring the housing assistance to
their local needs. A total of $7.6 billion has
been allocated for the HHF, out of the $45.6
billion committed for the housing programs
under TARP. Further information on the
funded programs is available at:
http://www.treasury.gov/initiatives/financialstability/programs/housingprograms/hhf/Pages/default.aspx.

MANAGEMENT‘S DISCUSSION AND ANALYSIS

HHF Results
The Hardest Hit Fund provides funding to 18
states and the District of Columbia (DC) to
provide assistance to struggling homeowners
through locally-tailored programs. As of
September 30, 2012, all 18 states and the
District of Columbia were operating HHF
programs statewide and collectively have
drawn approximately $1.5 billion (19.7
percent) of the $7.6 billion allocated under the
program. Each state draws down funds as
they are needed. States have until December
31, 2017 to expend funds and must have no
more than 5.0 percent of their allocation on
hand before they can draw down additional
funds.
All 19 HFAs are fully operational and have
created extensive infrastructures to operate
these programs, including selecting and
training networks of housing counselors to
assist with applications, creating homeowner
portals to aid homeowners in applying for
assistance, and hiring underwriters and other
staff to review and approve applications. The
five largest servicers (Bank of America,
JPMorgan Chase, Wells Fargo, Citibank, and
GMAC) are currently participating in
programs in all 18 states and the District of
Columbia, primarily through mortgage
payment assistance and mortgage loan
reinstatement assistance.
Although states needed time to build their
operations and refine processes, a number of
states that have been up and running for
longer periods of time are starting to show
substantial growth in the number of
borrowers assisted (e.g. California, Florida,
Illinois, Michigan, North Carolina, Ohio and
South Carolina). Each state submits a
quarterly report on the progress of its
program. These reports include the states’
performance on metrics set by OFS on various
aspects of their programs. Direct links to each
state’s most recent performance report can be
found at:
http://www.treasury.gov/initiatives/financialstability/TARPPrograms/housing/Pages/ProgramDocuments.aspx.

32

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

During fiscal year 2012, OFS approved 40
program changes submitted by individual
HFAs. These approved program changes
include:


A Nevada principal reduction
program that leverages refinances
under the Home Affordable
Refinance Program (HARP); and



A California program that uses
principal reduction in conjunction
with a modification or recast.

OFS continues to hold conversations with
HFAs, servicers, the GSEs, and other relevant
stakeholders on ways to improve the delivery
of foreclosure prevention assistance. Recent
discussion topics included enhancing states’
transition assistance programs, new ways to
utilize funds for principal reduction, and
identifying ways to direct borrowers
exhausting unemployment mortgage
assistance to other resources available
through servicers. OFS is working to identify
best practices, share lessons learned between
states, and develop other ways to provide
technical assistance to states with lower
participation volumes.

Support for the FHA-Refinance Program
In March 2010, the Administration announced
enhancements to an existing FHA program
that will permit lenders to provide additional
refinancing options to homeowners who owe
more than their homes are worth because of
large declines in home prices in their local
markets. This program, known as the FHARefinance program, is intended to provide
more opportunities for qualifying mortgage
loans to be restructured and refinanced into
FHA-insured loans.
TARP funds have been made available up to
$8.1 billion in the aggregate to provide
additional coverage to lenders for a share of
potential losses on these loans and to provide
incentives to support the write-downs of
second liens and encourage participation by
servicers.
OFS has entered into a letter of credit (L/C) to
fund the FHA-Refinance Program. Pursuant
33

to this L/C, a reserve account has been prefunded with $50 million in funds for OFS’
share of any future loss claim payments. OFS
will be reimbursed for all unused amounts
from this account. As of September 30, 2012,
there has not been substantial activity under
the program and no disbursements for loss
claim payments under the FHA-Refinance
Program have been made.
Housing Scorecard
The U.S. Department of Housing and Urban
Development (HUD) and OFS also release a
Monthly Housing Scorecard on the nation’s
housing market. Each month the scorecard
presents key housing market indicators and
highlights the impact of the Administration’s
housing recovery efforts, including assistance
to homeowners through the FHA and HAMP.
The Housing Scorecard is available at:
www.hud.gov/scorecard.

Operational Goal Three: Protect
Taxpayers’ Interests
OFS manages TARP investments to minimize
costs to taxpayers and receives income on its
holdings of preferred interests and other
TARP investments in the form of interest,
dividends and fees. OFS has taken a number
of steps during fiscal year 2012 to dispose of
OFS’ outstanding investments in a manner
that balances the need to exit these
investments as quickly as practicable and
maximize returns for taxpayers. OFS also
takes steps to ensure that TARP recipients
comply with any TARP-related statutory or
contractual obligations such as executive
compensation requirements and restrictions
on dividend payments.
OFS is exiting investments as soon as
practicable to reduce taxpayers’ exposure,
return TARP funds to reduce the federal debt,
and continue to replace government
assistance with private capital in the financial
system. OFS’s strategies for exit depend on
the program and investment involved. In
addition to repayments by participants, OFS
has disposed of investments to third parties

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

through public and private offerings and
auctions.
In disposing TARP investments, OFS takes a
disciplined portfolio approach – reviewing
each investment level and closely monitoring
risk and performance. In conducting the
portfolio management activities, OFS employs
a mix of dedicated professionals and external
asset managers. These external asset
managers provide market specific information
such as market prices and valuations as well
as detailed credit analysis using public
information on a periodic basis. OFS has also
worked with external parties as underwriters
and placement agents for asset sales.
Risk Assessment
OFS has developed procedures to identify and
mitigate investment risk. These procedures
are designed to identify TARP recipients that
face a heightened financial risk and determine
appropriate responses to preserve OFS’
investment, on behalf of taxpayers, while
maintaining financial stability. Specifically,
OFS’ external asset managers review publicly
available information to identify recipients for
which pre-tax, pre-provision earnings and
capital may be insufficient to offset future
losses and maintain required capital. For
certain institutions, OFS and its external
asset managers engage in heightened
monitoring and due diligence that reflects the
severity and timing of the challenges.
Compliance
OFS also takes steps to ensure that TARP
recipients comply with their TARP-related
statutory and contractual obligations.
Statutory obligations include executive
compensation restrictions. Contractual
obligations vary by investment type. For most
of OFS’ preferred stock investments, TARP
recipients must comply with restrictions on
payment of dividends and on repurchases of
junior securities, so that funds are not
distributed to junior security holders prior to
repayment of the federal government.
Recipients of exceptional assistance (currently
AIG, GM, and Ally) must comply with
additional restrictions on executive

MANAGEMENT‘S DISCUSSION AND ANALYSIS

compensation, lobbying, corporate expenses
and internal controls and must provide
quarterly compliance reports.
Additionally, all mortgage servicers
voluntarily participating in MHA have
contractually agreed to follow the MHA
program guidelines, which require the
servicer to offer an MHA modification to all
eligible borrowers and to have systems that
can process all MHA-eligible loans. Servicers
are subject to periodic, on-site compliance
reviews performed by OFS’ compliance agent,
Making Home Affordable-Compliance (MHAC), a separate, independent division of
Freddie Mac, to ensure that servicers’
obligations under MHA requirements are
being met. In fiscal year 2011, OFS began
publishing quarterly assessments of the ten
largest servicers and continued publishing
assessments throughout fiscal year 2012.
These assessments have provided a vehicle to
identify core servicing issues.

Operational Goal Four: Promote
Transparency
To protect taxpayers and help ensure that
every dollar is directed toward promoting
financial stability, OFS established
comprehensive accountability and
transparency measures. OFS is committed to
operating its investment and housing
programs in full view of the public. This
includes providing regular and comprehensive
information about how TARP funds are being
spent, who has received them and on what
terms, and how much has been collected to
date.
All of this information, along with numerous
reports of different frequencies are posted on
the Financial Stability section of the
Treasury.gov website, which can be found at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx

34

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

These reports include:


A Daily TARP Update, which features
detailed financial data related to each
TARP investment program including
the status of disbursements and all
collections by category;



A monthly report to Congress that
details how TARP funds have been
used, the status of recovery of such
funds by program, and information on
the estimated cost of TARP;



A quarterly report on PPIP that
provides detailed information on the
funds, their investments, and returns.
It is typically released within one
month after the end of each quarter;



A monthly report on dividend and
interest payments;



A report of each transaction (such as
an investment or repayment) within
two business days of each transaction;
and



A semi-annual report on warrant
dispositions.

In addition, OFS posts to its website all
investment contracts defining the terms of
those investments within five to ten business
days of a transaction’s closing and all
contracts with OFS service providers involved
with TARP programs.
OFS is equally committed to operating its
housing programs transparently and making
information available and accessible to the
public.
In conjunction with the Monthly Housing
Scorecard, each month Treasury releases a
Making Home Affordable Program
Performance Report, which provides detailed
metrics on the Making Home Affordable
(MHA) Program. Once per quarter, the MHA
report is expanded to include detailed
assessments of the performance of servicers
participating in the Making Home Affordable
program.

35

Treasury provides information about servicer
performance through two types of data:


Compliance data, which reflects
servicer compliance with specific MHA
guidelines; and



Program results data, which reflects
how timely and effectively servicers
assist eligible homeowners and report
program activity.

OFS also publishes information about HAMP
Activity by Metropolitan Statistical Area.
These reports, released in conjunction with
the monthly MHA Program Performance
Report, include mortgage modification activity
under HAMP by metropolitan area.
Additionally, OFS regularly publishes data
files related to MHA and transaction reports
that show activity related to MHA and HHF.
In order to improve transparency of the
HAMP Net Present Value (NPV) model, which
is a key component of the eligibility test for
HAMP, OFS released the NPV white paper to
the public. To ensure accuracy and reliability,
Freddie Mac, acting as OFS’ compliance
agent, conducts periodic audits of servicers’
implementation of the model and requires
servicers to use models which meet OFS’ NPV
specifications or to revert back to OFS’ NPV
application. As required by the Dodd-Frank
Act, OFS established a web portal that
borrowers can access to run a NPV analysis on
their own mortgages, and that borrowers who
are turned down for a HAMP modification can
use.
In a continued commitment to enhanced
reporting and transparency, in January 2011,
the Administration released the MHA Data
File which includes characteristics of program
participants to date, including financial
information, mortgage loan information before
and after entering HAMP, performance in a
HAMP modification, and race/ethnicity data.
The MHA Data File offers mortgage loan-level
data and is intended to allow for better
understanding of the impact of the program.

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

OFS applied the recommendations of an
independent non-profit, non-partisan policy
institute in preparing the MHA Data File to
ensure the privacy of participating
homeowners. The release of the data file
fulfills a requirement within the Dodd-Frank
Act to make available loan-level data about
the program. OFS will update the file monthly
and will expand reporting to include newer
initiatives that are part of Making Home
Affordable. Researchers interested in using
the MHA Data File can access the file and
user guide at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/mha_publicfile.aspx.
A. Audited Financial Statements
OFS prepares separate financial statements
for TARP on an annual basis. This is the
fourth OFS Agency Financial Report (AFR),
and includes the audited financial statements
for the fiscal years ended September 30, 2012
and September 30, 2011. Additional reports
for prior periods are available at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Annual-AgencyFinancial-Reports.aspx
In its first four years of operation, TARP’s
financial statements received unqualified
audit opinions from its auditors, the GAO.
OFS also received a Certificate of Excellence
in Accountability Reporting (CEAR16) from the
Association of Government Accountants for
fiscal years 2011, 2010 and the period ending
September 30, 2009.
B. TARP Retrospective Reports
In October 2011, OFS published the TARP
Three-Year Anniversary Report. This serves
as an update to OFS’ comprehensive TARP
Two-Year Retrospective report issued in

October 2010. OFS anticipates publishing a
fourth retrospective report in December 2012.
These reports include information on TARP
programs and the effects of TARP and
additional emergency measures taken by the
federal government to stabilize the financial
system following the 2008 crisis. Readers are
invited to refer to these documents at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx
C. Oversight by Four Separate Agencies
Congress also established four avenues of
oversight for TARP:


The Financial Stability Oversight
Board, established by EESA
Section104;



Specific responsibilities for the GAO
as set out in EESA Section 116;



The Special Inspector General for
TARP, established by EESA Section
121; and



The Congressional Oversight Panel
(COP), established by EESA
Section125. COP concluded its
operations in accordance with EESA
on April 3, 2011.

OFS has productive working relationships
with all of these bodies, and cooperates with
each oversight agency’s effort to produce
periodic audits and reports that focus on the
many aspects of TARP. Individually and
collectively, the oversight bodies’ audits and
reports have made and continue to make
important contributions to the development,
strengthening, and transparency of TARP
programs.
D. Congressional Hearings and Testimony

16

The Certificate of Excellence recognizes
outstanding accountability reporting and is the
highest form of recognition in Federal government
management reporting. AGA established the CEAR
program in 1997 in conjunction with the Chief
Financial Officers Council and the U.S. Office of
Management and Budget to improve financial and
program accountability by streamlining reporting
and improving the effectiveness of such reports.

MANAGEMENT‘S DISCUSSION AND ANALYSIS

OFS officials have testified in numerous
Congressional hearings since TARP was
created. Copies of the written testimony are
available at:
http://www.treasury.gov/initiatives/financialstability/news-room/Pages/default.aspx.

36

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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37

MANAGEMENT‘S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

MESSAGE FROM THE CHIEF FINANCIAL OFFICER

38

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Part 2: Financial Report

39

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CF0)
The Office of Financial Stability’s (OFS) Agency Financial Report for fiscal year 2012 provides readers
information on financial results relating to the Troubled Asset Relief Program (TARP) as required by the
Emergency Economic Stabilization Act (EESA) of 2008 and other laws. It is a critical part of our efforts to
ensure the highest level of transparency and accountability to the American people.
For fiscal year 2012, the Government Accountability Office (GAO) provided OFS unqualified audit opinions on
the fair presentation of our financial statements and the effectiveness of our internal control over financial
reporting. In addition, the auditors determined that we had no material weaknesses and successfully resolved
our one fiscal year 2011 significant deficiency relating to internal control over our accounting and financial
reporting processes.
I would like to acknowledge senior management’s commitment to good governance as well as the discipline,
transparency, and care exhibited by OFS employees in creating and executing our organization’s policies and
procedures. We were honored to have received the Certificate of Excellence in Accountability Reporting (CEAR)
award from the Association of Government Accountants for each of the three periods from inception through the
fiscal year 2011.
For fiscal year 2012, net income from operations was $7.7 billion, resulting in a cumulative net cost of
operations of $20.3 billion since inception. Cumulative net cost of operations consists of (1) total net subsidy
cost of $13.5 billion, and (2) housing costs and administrative costs of $5.7 billion and $1.1 billion, respectively.
Total cumulative net subsidy cost consists of net subsidy income from the CPP, TIP, AGP, PPIP, SBA and TALF
investments totaling $25.7 billion, primarily offset by net subsidy cost from investments in AIG of $15.2 billion ,
and automobile company investments of $23.8 billion. The fiscal year 2012 net income from operations
primarily results from improvements related to American International Group, Inc. (AIG) since September 30,
2011, including an increase in the price per share of AIG common stock held as of September 30, 2012, and AIG
common stock sold during fiscal year 2012, as compared to the price per share of AIG common stock held as of
September 30, 2011.
During fiscal year 2012, OFS collected a total of $53.3 billion through repayments, sales, dividends, and other
receipts. OFS’ gross outstanding loan and investment balance as of September 30, 2012, was $63.1 billion
comprising $37.2 billion in AIFP, $9.8 billion in PPIP, $8.7 billion in CPP, $6.7 billion in TARP AIG, and the
remainder in CDCI and TALF. OFS is committed to exiting investments in a timely manner while maximizing
collections on behalf of the taxpayer.
In fiscal year 2012, OFS continued to maintain rigorous internal control processes around transaction
processing, disbursements, collections, and financial reporting. OFS further standardized and automated its
subsidiary ledger reporting supporting the validation and reconciliation of financial data and continued
enhancements to the Daily TARP Update report promoting transparency. In the upcoming fiscal year, OFS will
seek to streamline and simplify internal control processes in order to accommodate attrition in light of
decreasing investment balances. OFS will need to continue to rely on our operational partners to manage
investments and assure that we reconcile all transactions and investments balances to protect taxpayer
interests.
I feel fortunate to play a role in the continuing tradition of sound fiscal stewardship at OFS. This organization
recognizes the importance of a robust control environment and will continue to uphold the highest standards of
integrity as we carry out our fiduciary responsibilities to the American people.
Sincerely,

Lorenzo Rasetti
Chief Financial Officer

MESSAGE FROM THE CHIEF FINANCIAL OFFICER

40

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT

United States Government Accountability Office
Washington, DC 20548

Independent Auditor’s Report
To the Assistant Secretary for Financial Stability
In accordance with the Emergency Economic Stabilization Act of 2008 (EESA),1 we are
required to audit the financial statements of the Troubled Asset Relief Program (TARP),
which is implemented by the Office of Financial Stability (OFS).2 In our audit of OFS’s
fiscal years 2012 and 2011 financial statements for TARP, we found




the financial statements are presented fairly, in all material respects, in
conformity with U.S. generally accepted accounting principles;
OFS maintained, in all material respects, effective internal control over financial
reporting as of September 30, 2012; and
no reportable noncompliance in fiscal year 2012 with provisions of laws and
regulations we tested.

The following sections discuss in more detail (1) these conclusions; (2) required
supplementary information and other information included with the financial statements;
(3) our audit objectives, scope, and methodology; and (4) OFS’s comments on a draft of
this report. In addition to our responsibility to audit OFS’s annual financial statements for
TARP, we also are required under EESA to report at least every 60 days on the findings
resulting from our oversight of the actions taken under TARP.3 This report responds to
both of these requirements. We have issued numerous other reports on TARP in
connection with this 60-day reporting responsibility, which can be found on GAO’s
website at http://www.gao.gov.
1

Pub. L. No. 110-343, div. A, 122 Stat 3765 (Oct. 3, 2008), codified in part, as amended, at 12 U.S.C. §§ 5201-5261. Section
116(b) of EESA, 12 U.S.C. § 5226(b), requires that the Department of the Treasury (Treasury) annually prepare and submit to
Congress and the public audited fiscal year financial statements for the Troubled Asset Relief Program (TARP) that are prepared in
accordance with generally accepted accounting principles. Section 116(b) further requires that GAO audit TARP’s financial statements
annually in accordance with generally accepted auditing standards.

2

Section 101 of EESA, 12 U.S.C. § 5211, established OFS within Treasury to implement TARP.

3

Section 116 of EESA, 12 U.S.C. § 5226, requires the Comptroller General to report at least every 60 days on findings under section
116.

41

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Opinion on Financial Statements
OFS’s financial statements for TARP, including the accompanying notes, present fairly,
in all material respects, in conformity with U.S. generally accepted accounting
principles, OFS’s assets, liabilities, and net position as of September 30, 2012 and
2011, and its net cost of operations, changes in net position, and budgetary resources
for the fiscal years then ended.
As discussed in notes 2 and 6 to OFS’s financial statements for TARP, the valuation of
TARP direct loans, equity investments, and the asset guarantee program is based on
estimates using economic and financial credit subsidy models. The estimates use
entity-specific as well as relevant market data as the basis for assumptions about future
performance, and incorporate an adjustment for market risk to reflect the variability
around any unexpected losses. In valuing the direct loans, equity investments, and the
asset guarantee program, OFS management considered and selected assumptions and
data that it believed provided a reasonable basis for the estimated subsidy allowance
and related subsidy cost or income reported in the financial statements.4 However,
there are numerous factors that affect these assumptions and estimates, which are
inherently subject to substantial uncertainty arising from the likelihood of future changes
in general economic, regulatory, and market conditions. The estimates have an added
uncertainty resulting from the unique nature of certain TARP assets. As such, there will
be differences between the net estimated values of the direct loans, equity investments,
and asset guarantee program as of September 30, 2012 and 2011, which totaled $41.2
billion and $80.8 billion, respectively, and the amounts that OFS will ultimately realize
from these assets, and such differences may be material. These differences will also
affect TARP’s ultimate cost. Further, TARP’s ultimate cost will change as OFS
continues to incur costs relating to its Treasury Housing Programs.5
As discussed in note 1 to the financial statements, while OFS’s financial statements for
TARP reflect activity of OFS in implementing TARP, including providing resources to
various entities to help stabilize the financial markets, the statements do not include the
assets, liabilities, or results of operations of these entities in which OFS has a significant
equity interest. According to OFS officials, OFS’s investments were not made to engage

4 The

subsidy cost or income is composed of (1) the change in the subsidy cost allowance, net of write-offs;
(2) net intragovernmental interest cost; (3) certain inflows from the direct loans and equity investments (e.g., dividends, interest,
net proceeds from sales and repurchases of assets in excess of cost, and other realized fees); and (4) the change in the estimated
discounted net cash flows related to other credit programs (asset guarantee program and Federal Housing Administration
refinance program).
5

The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, title XIII, § 1302, 124 Stat. 1376,
2133 (July 21, 2010), (1) limited Treasury’s authority to purchase or guarantee troubled assets to a maximum of $475 billion; (2)
changed this limit to a cap on all purchases and guarantees made without regard to subsequent sale, repayment, or cancellation of
assets or guarantees; and (3) prohibited Treasury, under EESA, from incurring any obligations for a program or initiative unless
the program or initiative had already been initiated prior to June 25, 2010.

AUDITOR’S REPORT

42

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

in the business activities of the respective entities, and OFS has determined that none
of these entities meet the criteria for a federal entity.

Opinion on Internal Control
OFS maintained, in all material respects, effective internal control over financial
reporting as of September 30, 2012, that provided reasonable assurance that
misstatements, losses, or noncompliance material in relation to the financial statements
would be prevented or detected and corrected on a timely basis. Our opinion on internal
control is based on criteria established under 31 U.S.C. § 3512 (c), (d), commonly
known as the Federal Managers’ Financial Integrity Act (FMFIA).
During fiscal year 2012, OFS sufficiently addressed the internal control issues related
to the significant deficiency6 we reported for fiscal year 2011 concerning its accounting
and financial reporting processes such that we no longer consider this to be a
significant deficiency as of September 30, 2012.

Compliance with Laws and Regulations
Our tests of OFS’s compliance with selected provisions of laws and regulations for fiscal
year 2012 disclosed no instances of noncompliance that would be reportable under U.S.
generally accepted government auditing standards. The objective of our audit was not
to provide an opinion on overall compliance with laws and regulations. Accordingly, we
do not express such an opinion.

Required Supplementary Information
U.S. generally accepted accounting principles require that required supplementary
information (RSI) be presented to supplement the financial statements.7 This
information, although not a part of the financial statements, is required by the Federal
Accounting Standards Advisory Board (FASAB), who considers it to be an essential part
of financial reporting for placing the financial statements in appropriate operational,
economic, or historical context. We did not audit and we do not express an opinion or
provide any assurance on the RSI because the limited procedures we applied do not
provide sufficient evidence to express an opinion or provide any assurance.
6

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material
weakness, yet important enough to merit attention by those charged with governance. A material weakness is a deficiency, or a
combination of deficiencies, in internal controls such that there is a reasonable possibility that a material misstatement of the
entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A deficiency in internal control
exists when the design or operation of a control does not allow management or employees, in the normal course of performing
their assigned functions, to prevent or detect and correct misstatements on a timely basis.
RSI is comprised of “Management’s Discussion and Analysis” and the “Combined Statement of Budgetary Resources” that are
included with the financial statements.
7

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AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Other Information
OFS’s other information8 contains a wide range of information, some of which is not
directly related to the financial statements. This information is presented for purposes of
additional analysis and is not a required part of the financial statements or RSI. Our
audit was conducted for the purpose of forming an opinion on OFS’s financial
statements. We did not audit and do not express an opinion or provide any assurance
on the other information.
Objectives, Scope, and Methodology
OFS management is responsible for (1) preparing the financial statements in conformity
with U.S. generally accepted accounting principles; (2) preparing, measuring, and
presenting the RSI in accordance with the prescribed guidelines in U.S. generally
accepted accounting principles; (3) preparing and presenting other information included
in documents containing the audited financial statements and auditor’s report, and
ensuring the consistency of that information with the audited financial statements and
the RSI; (4) establishing and maintaining effective internal control over financial
reporting and evaluating its effectiveness; and (5) complying with applicable laws and
regulations. OFS management evaluated the effectiveness of OFS’s internal control
over financial reporting as of September 30, 2012, based on the criteria established
under FMFIA. OFS management’s assertion based on its evaluation is included in
appendix I.
We are responsible for planning and performing the audit to obtain reasonable
assurance and to provide our opinion about whether (1) OFS’s financial statements are
presented fairly, in all material respects, in conformity with U.S. generally accepted
accounting principles and (2) OFS management maintained, in all material respects,
effective internal control over financial reporting as of September 30, 2012. We are also
responsible for (1) testing compliance with selected provisions of laws and regulations
that have a direct and material effect on the financial statements and (2) applying
certain limited procedures to the RSI and other information included with the financial
statements.
In order to fulfill these responsibilities, we



examined, on a test basis, evidence supporting the amounts and disclosures in
OFS’s financial statements;
assessed the accounting principles used and significant estimates made by OFS
management;

8

Other information is comprised of information included with the financial statements, other than RSI and the
auditor’s report.

AUDITOR’S REPORT

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY














evaluated the overall presentation of OFS’s financial statements;
obtained an understanding of OFS and its operations, including its internal
control over financial reporting;
considered OFS’s process for evaluating and reporting on internal control over
financial reporting that OFS is required to perform by FMFIA and Section 116(c)
of EESA;
assessed the risk of (1) material misstatement in OFS’s financial statements and
(2) material weakness in its internal control over financial reporting;
evaluated the design and operating effectiveness of OFS’s internal control over
financial reporting based on the assessed risk;
tested relevant internal control over OFS’s financial reporting;
tested compliance with selected provisions of the following laws and regulations:
EESA, as amended; the Antideficiency Act; the Federal Credit Reform Act of
1990; the Dodd-Frank Wall Street Reform and Consumer Protection Act; and the
Purpose Statute;
conducted inquiries of management about the methods of preparing the RSI and
compared this information for consistency with management’s responses to the
auditor’s inquiries, the financial statements, and other knowledge we obtained
during the audit of the financial statements, in order to report omissions or
material departures from FASAB guidelines, if any, identified by these limited
procedures;
read the other information included with the financial statements in order to
identify material inconsistencies, if any, with the audited financial statements; and
performed such other procedures as we considered necessary in the
circumstances.

An entity’s internal control over financial reporting is a process effected by those
charged with governance, management, and other personnel, the objectives of which
are to provide reasonable assurance that (1) transactions are properly recorded,
processed, and summarized to permit the preparation of financial statements in
conformity with U.S. generally accepted accounting principles, and assets are
safeguarded against loss from unauthorized acquisition, use, or disposition and (2)
transactions are executed in accordance with the laws governing the use of budget
authority and other laws and regulations that could have a direct and material effect on
the financial statements.
We did not evaluate all internal controls relevant to operating objectives as broadly
established under FMFIA, such as those controls relevant to preparing statistical reports
and ensuring efficient operations. We limited our internal control testing to testing
controls over financial reporting. Our internal control testing was for the purpose of
expressing an opinion on the effectiveness of internal control over financial reporting
and may not be sufficient for other purposes. Consequently, our audit may not identify
all deficiencies in internal control over financial reporting that are less severe than a
material weakness. Because of inherent limitations, internal control may not prevent or
detect and correct misstatements due to error or fraud, losses, or noncompliance. We
also caution that projecting any evaluation of effectiveness to future periods is subject to
45

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AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
We did not test compliance with all laws and regulations applicable to OFS. We limited
our tests of compliance to selected provisions of laws and regulations that have a direct
and material effect on the financial statements for fiscal year 2012. We caution that
noncompliance may occur and not be detected by these tests and that such testing may
not be sufficient for other purposes.
We performed our audit in accordance with U.S. generally accepted government
auditing standards. We believe our audit provides a reasonable basis for our opinions
and other conclusions.

Agency Comments
In commenting on a draft of this report, the Assistant Secretary for Financial Stability
stated that OFS is proud to receive unqualified opinions on its financial statements and
its internal control over financial reporting. He also stated that OFS is committed to
maintaining the high standards and transparency reflected in these audit results. The
complete text of OFS’s comments is reprinted in its entirety in appendix II.

Gary T. Engel
Director
Financial Management and Assurance
November 5, 2012

AUDITOR’S REPORT

46

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Appendix I: Management’s Report on Internal Control Over
Financial Reporting
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
ASSISTANT SECRETARY

Management’s Report on Internal Control over Financial Reporting
The Office of Financial Stability’s (OFS) internal control over financial reporting is a process affected
by those charged with governance, management, and other personnel, the objectives of which are to
provide reasonable assurance that (1) transactions are properly recorded, processed, and
summarized to permit the preparation of financial statements in conformity with U.S. generally
accepted accounting principles, and assets are safeguarded against loss from unauthorized
acquisition, use, or disposition; and (2) transactions are executed in accordance with the laws
governing the use of budget authority and other laws and regulations that could have a direct and
material effect on the financial statements.
OFS management is responsible for establishing and maintaining effective internal control over
financial reporting. OFS management evaluated the effectiveness of OFS’ internal control over
financial reporting as of September 30, 2012, based on the criteria established under 31 U.S.C.
3512(c), (d) (commonly known as the Federal Managers’ Financial Integrity Act).
Based on that evaluation, we conclude that, as of September 30, 2012, OFS’ internal control over
financial reporting was effective.

Office of Financial Stability

Timothy G. Massad
Assistant Secretary for Financial Stability

Lorenzo Rasetti
Chief Financial Officer
November 5, 2012

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AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Appendix II: OFS Response to Auditor’s Report
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
ASSISTANT SECRETARY

November 7, 2012

Mr. Gary T. Engel
Director, Financial Management and Assurance
U.S. Government Accountability Office
441 G Street, N.W.
Washington, DC 20548
Dear Mr. Engel:
We have reviewed the Independent Auditor’s Report concerning your audit of the Office of
Financial Stability’s (OFS) fiscal year 2012 financial statements. OFS is proud to receive
unqualified opinions on our financial statements and our internal controls over financial
reporting. We are also pleased that you agree that OFS resolved our one fiscal year 2011
significant deficiency relating to internal control surrounding accounting and financial reporting
processes.
We appreciate the professionalism and commitment demonstrated by your staff throughout the
audit process. The process was valuable for us and resulted in concrete improvements in our
operations and financial management efforts.
OFS is committed to maintaining the high standards and transparency reflected in these audit
results as we carry out our responsibilities for managing the Troubled Asset Relief Program.
Sincerely,

Timothy G. Massad
Assistant Secretary for Financial Stability

AUDITOR’S REPORT

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

FINANCIAL STATEMENTS
The Office of Financial Stability (OFS) prepares
financial statements for the Troubled Asset Relief
Program (TARP) as a critical aspect of ensuring
the accountability and stewardship for the public
resources entrusted to it and as required by
Section 116 of the Emergency Economic
Stabilization Act of 2008 (EESA). Preparation of
these statements is also an important part of the
OFS’ financial management goal of providing
accurate and reliable information that may be
used to assess performance and allocate resources.
The OFS management is responsible for the
accuracy and propriety of the information
contained in the financial statements and the
quality of internal controls. The statements are, in
addition to other financial reports, used to
monitor and control budgetary resources. The
OFS prepares these financial statements from its
books and records in conformity with the
accounting principles generally accepted in the
United States for federal entities and the formats
prescribed by the Office of Management and
Budget (OMB).
While these financial statements reflect activity
of the OFS in executing its programs, including
providing resources to various entities to help
stabilize the financial markets, they do not
include, as more fully discussed in Note 1, the

49

assets, liabilities, or results of operations of
commercial entities in which the OFS has a
significant equity interest.
The Balance Sheet summarizes the OFS assets,
liabilities and net position as of September 30,
2012 and 2011. Intragovernmental assets and
liabilities resulting from transactions between
federal agencies are presented separately from
assets and liabilities from transactions with the
public.
The Statement of Net Cost presents the net cost of
(income from) operations for the years ended
September 30, 2012 and 2011.
The Statement of Changes in Net Position
presents the change in OFS’ net position for two
components, Cumulative Results of Operations
and Unexpended Appropriations, for the years
ended September 30, 2012 and 2011. The ending
balances of both components of net position are
also reported on the Balance Sheet.
The Statement of Budgetary Resources provides
information about funding and availability of
budgetary resources and the status of those
resources for the years ended September 30, 2012
and 2011.

FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Office of Financial Stability (T roubled Asset R elief Program)

BALANCE SHEET
As of September 30, 2012 and 2011
Dollars in Millions

2012

2011

ASSETS
Intragovernmental Assets:
Fund Balance with Treasury (Note 3)

$

Asset Guarantee Program (Note 6)

75,495

Other

83,342
739

1

50

40,231
$

84,081

50

Cash on Deposit for Housing Program (Note 4)
Troubled Asset Relief Program:
Direct Loans and Equity Investments, Net (Note 6)

-

76,463

Total Intragovernmental Assets

Total Assets

$

967

80,104

116,744

$

2

164,235

$

LIABILITIES
Intragovernmental Liabilities:
Accounts Payable and Other Liabilities

$

Due to the General Fund (Note 7)

2

9,714
52,828

134,090

87

Accounts Payable and Other Liabilities

129,497

62,544

Principal Payable to the Bureau of the Public Debt (Note 8)
Total Intragovernmental Liabilities

4,591

93

Liabilities for Treasury Housing Programs Under TARP:
FHA-Refinance Program (Notes 5 and 6)

7

Total Liabilities

$

Commitments and Contingencies (Note 9)

1

241

Making Home Affordable Program and Hardest Hit Fund (Note 5)

343

62,879

$

134,527

-

-

NET POSITION
Unexpended Appropriations

$

Cumulative Results of Operations

54,572

$

57,544

(707)

(27,836)

Total Net Position

$

53,865

$

29,708

Total Liabilities and Net Position

$

116,744

$

164,235

The accompanying notes are an integral part of these financial statements.

FINANCIAL STATEMENTS

50

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Office of Financial Stability (T roubled Asset R elief Program)

STATEMENT OF NET COST
For the Years Ended September 30, 2012 and 2011

Dollars in Millions

2012

2011

STRATEGIC GOAL: TO ENSURE THE OVERALL STABILITY AND LIQUIDITY OF THE FINANCIAL SYSTEM, PREVENT AVOIDABLE
FORECLOSURES AND PRESERVE HOMEOWNERSHIP
Gross Cost of (Income from) Operations:
Program Subsidy Cost (Income) (Note 6)
Direct Loan and Equity Investment Programs
Other Credit Programs
Total Program Subsidy Cost (Income)

$

(10,778) $
(201)
(10,979)

Interest Expense on Borrowings from the Bureau of the Public Debt (Note 10)
Treasury Housing Programs Under TARP (Note 5)
Administrative Cost
Total Gross Cost of (Income from) Operations

2,252
2,963
268
(5,496)

Earned Revenue:
Dividend and Interest Income - Programs (Note 6)
Interest Income on Financing Account (Note 10)
Subsidy Allowance Amortization (Note 10)
Total Earned Revenue

(2,733)
(605)
1,086
(2,252)

Total Net Cost of (Income from) Operations

$

(7,748) $

7,208
31
7,239
3,827
1,943
315
13,324

(3,476)
(781)
430
(3,827)
9,497

The accompanying notes are an integral part of these financial statements.

51

FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

Office of Financial Stability (T roubled Asset R elief Program)

STATEMENT OF CHANGES IN NET POSITION
For the Years Ended September 30, 2012 and 2011
2012
U nexpended
Approprations

Dollars in Millions
Beginning Balanc es

$

Budget ary Financ ing Sourc es
Appropriations Rec eiv ed
Appropriations Used
Ot her Financ ing Sourc es
Tot al Financ ing Sourc es

$

27,593
(30,565)
(2,972)

$

54, 572

(27, 836) $

Cumulative
R esults of
Operations

U nexpended
Approprations
79, 783

$

(1, 546)

30,565
(11,184)
19,381

$

2,278
(24,517)
(22,239)

24,517
(41,310)
(16,793)

7,748
27,129

(2,972)

Net (Cost of) Inc ome from Operat ions
Net Change
Ending Balanc es

57, 544

2011
Cumulative
R esults of
Operations

(22,239)

(9,497)
(26,290)

(707) $

57, 544

$

(27, 836)

The accompanying notes are an integral part of these financial statements.

FINANCIAL STATEMENTS

52

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Office of Financial Stability (T roubled Asset Relief Program)

STATEMENT OF BUDGETARY RESOURCES
For the Years Ended September 30, 2012 and 2011
2012

Budgetary
Accounts

Dollars in Millions

2011

Nonbudgetary
Financing
Accounts

Budgetary
Accounts

Nonbudgetary
Financing
Accounts

BUDGETARY RESOURCES
Unobligated Balances Brought Forward
Recoveries of Prior Year Unpaid Obligations
Borrowing Authority Withdrawn
Actual Repayments of Debt, Prior-Year Balances
Unobligated Balance from Prior Year Budget Authority, Net
Appropriations
Borrowing Authority
Spending Authority from Offsetting Collections
TOTAL BUDGETARY RESOURCES (Note 11)

$

14,166
146
14,312

$

27,593
41,905

$

27,555

$

41
14,309
14,350
41,905

$

21,143
6,114
(5,832)
(19,900)
1,525

$

2,659
21,695
25,879

$

8,248

$

3,946
13,685
17,631
25,879

$

11,075
3,057
14,132

$

10,548
4,664
(1,368)
(7,996)
5,848

$

2,278
16,410

$

35,596
45,101
86,545

$

2,244

$

65,402

$

36
14,130
14,166
16,410

$

511
20,632
21,143
86,545

STATUS OF BUDGETARY RESOURCES
Obligations Incurred
Unobligated Balance:
Apportioned
Unapportioned
Total Unobligated Balance
TOTAL STATUS OF BUDGETARY RESOURCES
CHANGE IN OBLIGATED BALANCES
Obligated Balance Brought Forward:
Unpaid Obligations
Uncollected Customer Payments from Federal Sources
Obligated Balance, Net, Brought Forward

$

Obligations Incurred
Gross Outlays
Change in Uncollected Customer Payments from Federal Sources
Recoveries of Prior Year Unpaid Obligations
Obligated Balance, Net, End of Period:
Unpaid Obligations, Gross, End of Period
Uncollected Customer Payments from Federal Sources
OBLIGATED BALANCE, NET, END OF PERIOD
BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, Gross
Actual Offsetting Collections
Change in Uncollected Customer Payments from Federal Sources

53

43,814
43,814

$

13,158
(496)
12,662

$

69,128
69,128

$

41,918
(23,816)
18,102

27,555
(30,675)
(146)

$

$

8,248
(9,366)
147
(6,114)

2,244
(24,501)

65,402
(89,498)

(3,057)

(4,664)

40,548
40,548

5,926
(349)
5,577

43,814
43,814

13,158
(496)
12,662

27,593
-

$

$

$

24,354 $
(81,269)
147

2,278
-

$

$

80,697
(107,307)

FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2012

NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. REPORTING ENTITY
The Troubled Asset Relief Program (TARP) was
authorized by the Emergency Economic
Stabilization Act of 2008 (EESA or ―the Act‖). The
Act gave the Secretary of the Treasury (the
Secretary) broad and flexible authority to establish
the TARP to purchase and insure mortgages and
other troubled assets, which permitted the Secretary
to inject capital into banks and other commercial
companies by taking equity positions in those
entities to help stabilize the financial markets.
The EESA established certain criteria under which
the TARP would operate, including provisions that
impact the budgeting, accounting, and reporting of
troubled assets acquired under the Act. Section
101(a) of the EESA provided the authority for the
Secretary to purchase troubled assets, and Section
101(a)(3) of the EESA established the Office of
Financial Stability (OFS) to implement the TARP.
Section 102 of the EESA required the Secretary to
establish a program to guarantee troubled assets
originated or issued prior to March 14, 2008,
including mortgage-backed securities. Section 115 of
the EESA limited the authority of the Secretary to
purchase troubled assets up to $700.0 billion
outstanding at any one time, calculated at the
aggregate purchase prices of all troubled assets held.
Amendments to Section 115 of the EESA during the
period ended September 30, 2009, reduced that
authority by $1.3 billion, from $700.0 billion to $698.7
billion. Section 120 of the EESA established that the
authorities under Sections 101(a), excluding Section
101(a)(3), and Section 102 of the EESA would
terminate December 31, 2009, unless extended upon
submission of a written certification to Congress by
the Secretary of the Treasury. On December 9, 2009,
the Secretary extended the program authorities
through October 3, 2010. In July 2010, the DoddFrank Wall Street Reform and Consumer Protection
Act amended Section 115 of the EESA, limiting the
TARP’s authority to a total of $475.0 billion
cumulative obligations (i.e. purchases and
guarantees) and prohibiting any new obligations for
programs or initiatives that had not been publicly
announced prior to June 25, 2010. Of the maximum
$475.0 billion authority under the EESA, as amended,
OFS had utilized (including purchases made, legal

NOTES TO THE FINANCIAL STATEMENTS

commitments to make purchases and offsets for
guarantees made) $467.0 billion as of September 30,
2012 and $470.1 billion as of September 30, 2011.
The TARP developed the following programs: the
Capital Purchase Program (CPP); the Targeted
Investment Program (TIP); the Community
Development Capital Initiative (CDCI); the PublicPrivate Investment Program (PPIP); the Term AssetBacked Securities Loan Facility (TALF); the SBA 7(a)
Securities Purchase Program (SBA 7(a)); the
Automotive Industry Financing Program (AIFP); the
American International Group, Inc. (AIG) Investment
Program (formerly known as the Systemically
Significant Failing Institutions Program); the Asset
Guarantee Program (AGP); and the Treasury Housing
Programs Under TARP (see Notes 5 and 6 for details
regarding all of these programs).
While these financial statements reflect the activity
of the OFS in executing its programs, including
providing resources to various entities to help
stabilize the financial markets, they do not include
the assets, liabilities, or results of operations of
commercial entities in which the OFS has a
significant equity interest. Through the purchase of
troubled assets, the OFS has entered into several
different types of direct loan, equity investment, and
other credit programs (which consist of the AGP and
the Federal Housing Administration (FHA)
Refinance Program) with private entities. These
direct loans, equity investments, and other credit
programs were entered into with the intent of
helping to stabilize the financial markets and
mitigating, as best as possible, any adverse impact
on the economy. These direct loans, equity
investments, and other credit programs were not
entered into to engage in the business activities of
the respective private entities. Based on this intent,
the OFS concluded that such direct loans, equity
investments, and other credit programs are
considered ―bail outs‖, under the provisions of
paragraph 50 of Statement of Federal Financial
Accounting Concepts (SFFAC) No. 2, Entity and
Display. In addition, these entities are not included
in the Federal budget and, therefore, do not meet
the conclusive criteria in SFFAC No. 2. As such, the

54

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

OFS determined that none of these entities meet the
criteria to be classified as a federal entity.
Consequently, their assets, liabilities, and results of
operations were not consolidated in these OFS
financial statements, but the value of OFS’
investments in such entities was recorded in OFS’
financial statements.

SPVs meet the conclusive or indicative criteria to be
classified as a federal entity. As a result, the assets,
liabilities and results of operations of the SPVs are
not included in these OFS financial statements.
Additional disclosures regarding certain SPV
investments are included in Notes 2 and 6; see
PPIP, TALF and AIG Investment Program.

In addition, the OFS has made loans and
investments in certain Special Purpose Vehicles
(SPV)17. SFFAC No. 2, paragraphs 43 and 44,
reference indicative criteria such as ownership and
control to carry out government powers and
missions, as criteria in the determination about
whether an entity should be classified as a federal
entity. The OFS has concluded that none of the

The EESA established the OFS within the Office of
Domestic Finance of the U. S. Department of the
Treasury (Treasury). The OFS prepares stand-alone
financial statements to satisfy EESA’s requirement
for the TARP to prepare annual financial
statements. Additionally, as an office of the
Treasury, its financial statements are consolidated
into Treasury’s Agency Financial Report.

17

During 2012 and 2011, the OFS held investments in SPVs
under the TALF, PPIP and AIG Investment Programs.

55

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and
Presentation
The accompanying financial statements include the
operations of the OFS and have been prepared from
the accounting records of the OFS in conformity
with accounting principles generally accepted in the
United States for federal entities (Federal GAAP),
and the OMB Circular A-136, Financial Reporting
Requirements, as amended. Federal GAAP includes
the standards issued by the Federal Accounting
Standards Advisory Board (FASAB). The FASAB is
recognized by the American Institute of Certified
Public Accountants (AICPA) as the official
accounting standards-setting body for the U.S.
Government. As such, the FASAB is responsible for
establishing Federal GAAP for Federal reporting
entities.
The FASAB issued the Statement of Federal
Financial Accounting Standards (SFFAS) No. 34,

The Hierarchy of Generally Accepted Accounting
Principles, Including the Application of Standards
Issued by the Financial Accounting Standards Board
in July 2009. SFFAS No. 34 identifies the sources of
accounting principles and the framework for
selecting the principles used in the preparation of
general purpose financial reports of federal
reporting entities that are presented in conformity
with Federal GAAP.
In addition to the above, Section 123(a) of the EESA
requires that the budgetary cost of purchases of
troubled assets and guarantees of troubled assets,
and any cash flows associated with authorized
activities, be determined in accordance with the
Federal Credit Reform Act of 1990 (FCRA). Section
123(b) (1) of the EESA requires that the budgetary
costs of troubled assets and guarantees of troubled
assets be calculated by adjusting the discount rate
for market risks. As a result of this requirement,
the OFS considered market risk in its calculation
and determination of the estimated net present
value of its direct loans, equity investments and
other credit programs for budgetary purposes.
Similarly, market risk is considered in the
valuations for financial reporting purposes (see Note
6 for further discussion).

NOTES TO THE FINANCIAL STATEMENTS

Consistent with its accounting policy for equity
investments in private entities, including SPV’s, the
OFS accounts for its equity investments at fair
value. Since fair value is not defined in federal
accounting standards, following the hierarchy of
accounting principles established in SFFAS No. 34,
the OFS conforms to fair value definitions contained
in the private sector Financial Accounting
Standards Codification (ASC) 820, Fair Value
Measurement. OFS defines fair value of its equity
investments as the estimated amount of proceeds
that would be received if the equity investments
were sold to a market participant in an orderly
transaction. Note 6 presents Direct Loan and Equity
Investments and the Asset Guarantee Program
receivable tabulated by the Level of Observation of
the inputs used in the valuation process. Level 1
assets are measured using quoted market prices for
identical assets. Level 2 assets are measured using
observable market inputs other than direct market
quotes. Level 3 assets are measured using
unobservable inputs.
The OFS uses the present value accounting concepts
embedded in SFFAS No. 2, Accounting for Direct
Loans and Loan Guarantees, as amended (SFFAS
No. 2), to derive fair value measurements for its
equity investments in Levels 2 and 3. The OFS
concluded that some of the equity investments, such
as preferred stock, were similar to direct loans since
there was a stated rate and a redemption feature
which, if elected, required repayment of the amount
invested. Furthermore, consideration of market risk
provided a basis to arrive at a fair value
measurement. Therefore, the OFS concluded that
SFFAS No. 2 (as more fully discussed below) should
be followed for reporting and disclosure
requirements of its equity investments.
Federal loans and loan guarantees are governed by
FCRA for budgetary accounting and the associated
FASAB accounting standard SFFAS No. 2 for
financial reporting. The OFS applies the provisions
of SFFAS No. 2 when accounting and reporting for
direct loans and other credit programs. Direct loans
disbursed and outstanding are recognized as assets
at the net present value of their estimated future
cash flows. Outstanding asset guarantees are
recognized as liabilities or assets at the net present
value of their estimated future cash flows.

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Liabilities under the FHA-Refinance Program are
recognized at the net present value of their
estimated future cash flows when the FHA
guarantees loans.
For direct loans and equity investments, the subsidy
allowance account represents the difference between
the face value of the outstanding direct loan and
equity investment balance and the net present value
of the expected future cash flows or fair value, and is
reported as an adjustment to the face value of the
direct loan or equity investment.
The OFS recognizes dividend income associated with
equity investments when declared by the entity in
which the OFS has invested and when received in
relation to any repurchases, exchanges and
restructurings. The OFS recognizes interest income
when earned on performing loans; interest income is
not accrued on non-performing loans. The OFS
reflects changes, referred to as reestimates, in its
determination of the value of direct loans, equity
investments, and other credit programs in the
subsidy cost on the Statement of Net Cost annually.
The OFS has received common stock warrants,
additional preferred stock (referred to as warrant
preferred stock) or additional notes as additional
consideration for providing direct loans and equity
investments and for supporting the Asset Guarantee
Program. The OFS accounts for the common stock
warrants and warrant preferred stock received
under Section 113 of the EESA as fees under SFFAS
No. 2, and, as such, the proceeds received in any
sales are credited to the subsidy allowance rather
than to income.

Use of Estimates
The OFS has made certain estimates and
assumptions relating to the reporting of assets,
liabilities, revenues, and cost to prepare these
financial statements. Actual results could
significantly differ from these estimates. Major
financial statement lines that include estimates are
TARP Direct Loans and Equity Investments, Net,
the Asset Guarantee Program and the Liabilities for
Treasury Housing Programs Under TARP on the
Balance Sheet, and related Program Subsidy Cost
(Income) on the Statement of Net Cost (see Note 6).
The most significant differences between actual
results and estimates may occur in the valuation of

57

direct loans, equity investments, and other credit
programs. These estimates are sensitive to slight
changes in model assumptions, such as general
economic conditions, specific stock price volatility of
the entities in which the OFS has an equity interest,
estimates of expected default, and prepayment
rates. Forecasts of future financial results have
inherent uncertainty, and the OFS’ TARP Direct
Loans and Equity Investments, Net and Asset
Guarantee Program line items, as of fiscal year
ends, primarily reflect relatively illiquid assets with
values that are sensitive to future economic
conditions and other assumptions. Estimates are
also prepared for the FHA-Refinance Program to
determine the liability for losses.

Credit Reform Accounting
The FCRA provides for the use of program,
financing, and general fund receipt accounts to
separately account for activity related to direct
loans, equity investments and other credit
programs. These accounts are classified as either
budgetary or non-budgetary in the Statement of
Budgetary Resources. The budgetary accounts
include the program and general fund receipt
accounts, and the non-budgetary accounts consist of
the credit reform financing accounts.
As discussed previously, the OFS accounts for the
cost of direct loans, equity investments and other
credit programs in accordance with Section 123(a) of
the EESA and the FCRA for budgetary accounting,
and fair value and SFFAS No. 2 for financial
reporting.
Consistent with SFFAS No. 2 and FCRA, the OFS
maintains program accounts which receive
appropriations and obligate funds to cover the
subsidy cost of direct loans, equity investments and
other credit programs, and disburses the subsidy
cost to the OFS financing accounts. The financing
accounts are non-budgetary accounts that are used
to record all of the cash flows resulting from the OFS
direct loans, equity investments and other credit
programs. Cash flows include disbursements,
borrower repayments, repurchases, fees, recoveries,
interest, dividends, proceeds from the sale of stock
and warrants, borrowings from and repayments to
Treasury, negative subsidy and the subsidy cost
received from the program accounts, as well as
subsidy reestimates and modifications.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

The financing arrangements specifically for the
TARP activities are provided for in the EESA as
follows: (1) borrowing for program funds under
Section 118 that constitute appropriations when
obligated or spent, which are reported as
―appropriations‖ in these financial statements; (2)
borrowing by financing accounts for non-subsidy cost
under the FCRA and Section 123; and (3)
establishment of the Troubled Assets Insurance
Financing Fund (TAIFF) for the Asset Guarantee
Program under Section 102(d).

Treasury, and the OFS’ records are reconciled with
those of the Treasury on a regular basis.

The OFS uses general fund receipt accounts to
record the receipt of amounts paid from the
financing accounts when there is a negative subsidy
or negative modification (a reduction in subsidy cost
due to changes in program policy or terms that
change estimated future cash flows) from the
original estimate or a downward reestimate.
Amounts in the general fund receipt accounts are
available for appropriations only in the sense that
all general fund receipts are available for
appropriations. Any assets in these accounts are
non-entity assets and are offset by
intragovernmental liabilities. At the end of the fiscal
year, the fund balance transferred to the U.S.
Treasury through the general fund receipt account is
not included in the OFS’ reported Fund Balance
with Treasury.

Troubled Asset Relief Program
Direct Loans and Equity
Investments, Net

SFFAS No. 2 requires that the actual and expected
costs of federal credit programs be fully recognized
in financial reporting. The OFS calculated and
recorded initial estimates of the future performance
of direct loans, equity investments, and other credit
programs. The data used for these estimates were
reestimated annually, at fiscal year-end, to reflect
adjustments for market risk, asset performance, and
other key variables and economic factors. The
reestimate data was then used to estimate and
report the ―Program Subsidy Cost (Income)‖ in the
Statement of Net Cost. A detailed discussion of the
OFS subsidy calculation and reestimate
assumptions, process and results is provided in
Note 6.

Fund Balance with Treasury
The Fund Balance with Treasury includes general,
financing and other funds available to pay current
liabilities and finance authorized purchases. Cash
receipts and disbursements are processed by the

NOTES TO THE FINANCIAL STATEMENTS

Available unobligated balances represent amounts
that are apportioned for obligation in the current
fiscal year. Unavailable unobligated balances
represent unanticipated collections in excess of the
amounts apportioned which are unavailable.
Obligated balances not yet disbursed include
undelivered orders and unpaid expended authority.
See Note 3.

Troubled Asset Relief Program Direct Loans and
Equity Investments, Net represents the estimated
net outstanding amount of the OFS direct loans and
equity investments. The direct loan and equity
investment balances have been determined in
accordance with the provisions of SFFAS No. 2 or at
fair value (see Note 6). Write-offs of gross direct
loan and equity investment balances (presented in
Note 6 table) are recorded when a legal event occurs,
such as a bankruptcy with no further chance of
recovery or extinguishment of a debt instrument by
agreement. Under SFFAS No. 2, write-offs do not
affect the Statement of Net Cost because the
written-off asset is fully reserved. Therefore, the
write-off removes the asset balance and the
associated subsidy allowance.

Asset Guarantee Program
During fiscal year 2010, the OFS and the Federal
Deposit Insurance Corporation (FDIC) entered into
a termination agreement with the Asset Guarantee
Program’s sole participant, Citigroup. As a result,
in fiscal year 2011, the OFS sold securities and
warrants held in the program. The Intragovernmental Asset line item, Asset Guarantee Program,
remaining on the Balance Sheet is the estimated
value of certain Citigroup trust preferred securities
including dividends collected, currently held by the
FDIC for the benefit of OFS. Under the termination
agreement, the FDIC has agreed to transfer these
securities to the OFS, less any losses on FDIC’s
guarantee of Citigroup debt, by December 31, 2012.
See Note 6.

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

General Property and Equipment
Equipment with a cost of $50,000 or more per unit
and a useful life of two years or more is capitalized
at full cost and depreciated using the straight-line
method over the equipment’s useful life. Other
equipment not meeting the capitalization criteria is
expensed when purchased. Software developed for
internal use is capitalized and amortized over the
estimated useful life of the software if the cost per
project is greater than $250,000. However, OFS
may expense such software if management
concludes that total period costs would not be
materially distorted and the cost of capitalization is
not economically prudent. Based upon these
criteria, the OFS reports no capitalized property,
equipment or software on its Balance Sheet as of
September 30, 2012 and 2011.

Accounts Payable and Other
Liabilities
Accounts Payable and Other Liabilities are amounts
due to intragovernmental or public entities that are
anticipated to be liquidated during the next
operating cycle (within one year from the balance
sheet date).

Due to the General Fund
Due to the General Fund represents the amount of
accrued downward reestimates not yet funded,
related to direct loans, equity investments and other
credit programs as of September 30, 2012 and 2011.
See Notes 6 and 7.

Principal Payable to the Bureau of
the Public Debt
Principal Payable to the Bureau of the Public Debt
(BPD) represents the net amount due for equity
investments, direct loans and other credit programs
funded by borrowings from the BPD as of the end of
the fiscal year. Additionally, OFS borrows from the
BPD for payment of intragovernmental interest and
payment of negative subsidy cost to the general
fund, as necessary. See Note 8.

59

Liabilities for the Treasury Housing
Programs Under TARP
There are three initiatives in the Treasury Housing
Programs: the Making Home Affordable Program,
the Housing Finance Agency Hardest-Hit Fund and
the FHA-Refinance Program. The OFS has
determined that credit reform accounting is not
applicable to the Treasury Housing Programs Under
TARP except for the FHA-Refinance Program.
Therefore, liabilities for the Making Home
Affordable Program and Housing Finance Agency
Hardest-Hit Fund are accounted for in accordance
with SFFAS No. 5, Accounting for Liabilities of the
Federal Government. In accordance with this
standard, a liability is recognized for any unpaid
amounts due and payable as of the reporting date.
The liability estimate, as of September 30, 2012 and
2011, is based on information about loan
modifications reported by participating servicers for
the Making Home Affordable Program and
participating states for the Housing Finance Agency
Hardest-Hit Fund. See Note 5.
At the end of fiscal year 2010, the OFS entered into
a loss-sharing agreement with the FHA to support a
program in which FHA would guarantee refinancing
for borrowers whose homes are worth less than the
remaining amounts owed under their mortgage
loans, i.e. ―underwater‖. The liability for OFS’ share
of losses was determined under credit reform
accounting and is shown as FHA-Refinance
Program, one of the Liabilities for Treasury Housing
Programs Under TARP, on the Balance Sheet. See
Notes 4, 5 and 6.

Unexpended Appropriations
Unexpended Appropriations represents the OFS
undelivered orders and unobligated balances in
budgetary appropriated funds as of September 30,
2012 and 2011.

Cumulative Results of Operations
Cumulative Results of Operations, presented on the
Balance Sheet and on the Statement of Changes in
Net Position, represents the net results of the OFS
operations not funded by appropriations or some
other source, such as borrowing authority, from
inception through fiscal year end. At September 30,
2012 and 2011, OFS had $755 million and $27.9

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

billion, respectively, of unfunded upward
reestimates that resulted in OFS reporting negative
Cumulative Results of Operations. The fiscal year
2012 unfunded upward reestimates will be funded in
fiscal year 2013. The fiscal year 2011 unfunded
upward reestimates were funded in fiscal year 2012.
Cumulative Results of Operations in 2012 and 2011
also included $50 million reported as Cash on
Deposit for Housing Program on the Balance Sheet,
see Note 4.

Other Financing Sources
The Other Financing Sources line in the Statement
of Changes in Net Position for each year consists
primarily of downward reestimates. Each program’s
reestimates, upward and downward, are recorded
separately, not netted together.

Leave
A liability for the OFS employees’ annual leave is
accrued as it is earned and reduced as leave is
taken. Each year the balance of accrued annual
leave is adjusted to reflect current pay rates as well
as forfeited ―use or lose‖ leave. Amounts are
unfunded to the extent current or prior year
appropriations are not available to fund annual
leave earned but not taken. Sick leave and other
types of non-vested leave are expensed as taken.
The liability is included in the Balance Sheet
amount for Accounts Payable and Other Liabilities.

Employee Health and Life Insurance
and Workers’ Compensation Benefits
The OFS employees may choose to participate in the
contributory Federal Employees Health Benefit and
the Federal Employees Group Life Insurance
Programs. The OFS matches a portion of the
employee contributions to each program. Matching
contributions are recognized as current operating
expenses.
The Federal Employees’ Compensation Act (FECA)
provides income and medical cost protection to
covered Federal civilian employees injured on the
job, and employees who have incurred a workrelated injury or occupational disease. Future
workers’ compensation estimates are generated from

NOTES TO THE FINANCIAL STATEMENTS

an application of actuarial procedures developed to
estimate the liability for FECA benefits. The
actuarial liability estimates for FECA benefits
include the expected liability for death, disability,
medical, and miscellaneous costs for approved
compensation cases. Any FECA amounts relating to
OFS employees are expensed as incurred.

Employee Pension Benefits
The OFS employees participate in either the Civil
Service Retirement System (CSRS) or the Federal
Employees’ Retirement System (FERS) and Social
Security. These systems provide benefits upon
retirement and in the event of death, disability or
other termination of employment and may also
provide pre-retirement benefits. They may also
include benefits to survivors and their dependents,
and may contain early retirement or other special
features. The OFS contributions to retirement plans
and Social Security, as well as imputed costs for
pension and other retirement benefit costs
administered by the Office of Personnel
Management, are recognized on the Statement of
Net Cost as Administrative Costs. Federal employee
benefits also include the Thrift Savings Plan (TSP).
For FERS employees, a TSP account is
automatically established and the OFS matches
employee contributions to the plan, subject to
limitations. The matching contributions are
recognized as Administrative Costs on the
Statement of Net Cost.

Related Parties
The nature of related parties and descriptions of
related party transactions are discussed within
Notes 1 and 6.

Reclassifications
Reclassification of certain items of the 2011 financial
statements has been made to conform to the 2012
presentation. For example, OMB Circular A-136
changed the format of the Statement of Budgetary
Resources to align with the SF-133 Report on
Budget Execution and Budgetary Resources for all
federal reporting entities. Fiscal year 2011 balances
on the SBR were reclassified to conform to the new
format.

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

NOTE 3. FUND BALANCES WITH TREASURY
Fund Balances with Treasury, by fund type and status, are presented in the following table.
As of September 30,
(Dollars in Millions)

2012

$ 40,517
14,382
20,596
$ 75,495

Status of Fund Balances:
Unobligated Balances
Available
Unavailable
Obligated Balances Not Yet Disbursed
Total Status of Fund Balances

Collections relating to the AGP are deposited in the
Troubled Assets Insurance Financing Fund (which is
within OFS Financing Funds balance) as required
by the EESA Section 102(d). In fiscal years 2012

$ 43,542
14,438
25,362
$ 83,342

$

Fund Balances:
General Funds
Program Funds
Financing Funds
Total Fund Balances

2011

$

3,987
27,994
43,514
$ 75,495

547
34,762
48,033
$ 83,342

and 2011, the TAIFF balance was reduced for AGPrelated downward reestimates, repayments of AGPrelated debt and payments of interest on AGPrelated debt due to the Bureau of the Public Debt.

NOTE 4. CASH ON DEPOSIT FOR HOUSING PROGRAM
As of September 30, 2012, and 2011, the OFS had
$50 million on deposit with a commercial bank to
facilitate its payments of claims under the FHARefinance Program as OFS’ agent. Under terms of

its agreement, the OFS is required to maintain a
minimum amount of funds on deposit, depending
upon the size of the program and potential claims.
Unused funds will be returned to the OFS upon the
termination of the program and agreement.

NOTE 5. TREASURY HOUSING PROGRAMS UNDER TARP
Fiscal year 2012 saw a continued advancement of
programs designed to provide stability for both the
housing market and homeowners. These programs
assist homeowners who are experiencing financial
hardships to remain in their homes until their
financial position improves or they relocate to a
more sustainable living situation. The programs fall
into three initiatives:
1) Making Home Affordable Program (MHA);
2) Housing Finance Agency (HFA) Hardest-Hit
Fund; and

61

3) FHA-Refinance Program.

MHA
In early 2009, Treasury launched the Making Home
Affordable Program (MHA) to help struggling
homeowners avoid foreclosure. Since its inception,
MHA has helped homeowners avoid foreclosure by
providing a variety of solutions to modify or
refinance their mortgages, get temporary
forbearance if they are unemployed, or transition
out of homeownership via a short sale or deed-in-

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

lieu of foreclosure. The cornerstone of MHA is the
Home Affordable Modification Program (HAMP),
which provides eligible homeowners the opportunity
to reduce their monthly mortgage payments to more
affordable levels. Treasury also launched programs
under MHA to help homeowners who are
unemployed, ―underwater‖ on their loans (those who
owe more on their home than it is currently worth),
or struggling with second liens. It also includes
options for homeowners who would like to transition
Housing Program

to a more affordable living situation through a short
sale or deed-in-lieu of foreclosure. MHA includes
several additional programs to help homeowners
refinance or address specific types of mortgages, in
conjunction with the Federal Housing
Administration (FHA), the United States
Department of Agriculture (USDA), and the
Department of Veterans Affairs (VA).
Features of these initiatives follow:
Features

MHA
Home Affordable Modification Program (HAMP)
First Lien Modification Program

Principal Reduction Alternative Program
Home Price Depreciation Program (HPDP)
Home Affordable Foreclosure Alternatives (HAFA)

Unemployment Forebearance Program (UP)

FHA-HAMP
Second Lien Program (2MP)
Treasury/FHA Second Lien Program (FHA 2LP)
Rural Development Program (RD-HAMP)

HHF
FHA-Refinance Program

Provides for upfront, monthly and annual incentives to servicers, borrowers
and investors who participate, whereby the investor and OFS share the costs
of modifying qualified first liens, conditional on borrower performance.
Pays financial incentives to investors for principal reduction in conjunction
with a first lien HAMP modification.
Provides financial incentives to investors to partially offset losses from home
price declines.
Designed to assist eligible borrowers unable to retain their homes through a
HAMP modification, by simplifying and streamlining the short sale and deedin-lieu of foreclosure processes and providing financial incentives to servicers
and investors as well as relocation assistance to borrowers who pursue short
sales and deeds-in-lieu.
Offers assistance to unemployed homeowners through temporary
forebearance of a portion of their mortgage payments. This program does not
require any payments from OFS.
Provides mortgage modifications similar to HAMP, but for FHA-insured or
guaranteed loans offered by the FHA, V A or USDA.
Offers financial incentives to participating servicers who modify second liens
in conjunction with a HAMP modification.
Provides for reduction or elimination of second mortgages on homes whose
servicers participate in the FHA Refinance Program.
Provides for lower monthly payments on USDA guaranteed loans.
Provides targeted aid to families in the states hardest hit by the housing
market downturn and unemployment.
Joint initiative with HUD to encourage refinancing of existing underwater
mortgage loans not currently insured by FHA into FHA insured mortgages.

In fiscal year 2012, the OFS made three changes
to MHA programs, designed to provide relief to
more homeowners and to accelerate the housing
market recovery. First, the deadline for
homeowners to apply for MHA programs was
extended from December 31, 2012 to December
31, 2013. Secondly, HAMP program guidelines
were expanded through the introduction of a
second-level evaluation that expands the
population of homeowners eligible for the
programs by allowing for homes that are rental
properties, a flexible debt-to-income ratio
requirement, and by including previous HAMP
participants who lost good standing. Finally,

NOTES TO THE FINANCIAL STATEMENTS

investor incentives for PRA were tripled on first
liens and doubled on second liens.
All MHA disbursements are made to servicers
either for themselves or for the benefit of
borrowers and investors, and all payments are
contingent on borrowers remaining in good
standing. To be considered for MHA programs,
borrowers must apply by December 31, 2013.
Fannie Mae, as the MHA Program Administrator,
provides direct programmatic support as a third
party agent on behalf of the OFS. Freddie Mac
provides compliance oversight of servicers as a
third party agent on behalf of the OFS, and the
servicers work directly with the borrowers to

62

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

modify and service the borrowers’ loans. Fees
paid to Fannie Mae and Freddie Mac are included
in administrative costs reported on the Statement
of Net Cost.

Development (HUD) which is intended to
encourage refinancing of existing underwater (i.e.
the borrower owes more than the home is worth)
mortgage loans not currently insured by FHA into
FHA-insured mortgages. HUD will pay a portion
of the amount refinanced to the investor and OFS
will pay incentives to encourage the
extinguishment of second liens associated with
the refinanced mortgages. OFS established a
letter of credit that obligated the OFS portion of
any claims associated with the FHA-guaranteed
mortgages. The OMB determined that for
budgetary purposes, the FHA-Refinance Program
cost is calculated under the FCRA, and
accordingly OFS determined that it was
appropriate to follow SFFAS No. 2 for financial
reporting. Therefore, the liability is calculated at
the net present value of estimated future cash
flows. Homeowners can refinance into FHAguaranteed mortgages through December 31,
2014, and OFS will honor its share of claims
against the letter of credit through 2020. As of
September 30, 2012, 1,774 loans had been
refinanced. As of September 30, 2011, 334 loans
had been refinanced.

HHF
The Housing Finance Agency (HFA) Hardest-Hit
Fund was implemented in fiscal year 2010, and
provides targeted aid to families in the states hit
hardest by the housing market downturn and
unemployment. States that meet the criteria for
this program consist of Alabama, Arizona,
California, Florida, Georgia, Illinois, Indiana,
Kentucky, Michigan, Mississippi, Nevada, New
Jersey, North Carolina, Ohio, Oregon, Rhode
Island, South Carolina, Tennessee, as well as the
District of Columbia. Approved states develop
and roll out their own programs with timing and
types of programs offered targeted to address the
specific needs and economic conditions of their
state. States have until December 31, 2017 to
enter into agreements with borrowers.
In fiscal year 2012, HFAs made substantial
eligibility changes to existing programs (e.g.
Florida, New Jersey) and significantly modified
principal reduction programs (e.g. Arizona,
California and Nevada) incorporating
curtailments (i.e. unmatched principal reduction)
that can be applied to all eligible loans including
GSE loans that historically have not participated
in principal reduction programs.

OFS deposited $50 million with a commercial
bank as its agent to administer payment of claims
under the program; no claim payments have been
made as of September 30, 2012. See Notes 4 and
6. OFS paid $2 million each year in fiscal years
2012 and 2011 to maintain the letter of credit.
The table below recaps housing program
commitments as of September 30, 2012, and
payments and accruals as of September 30, 2012
and 2011.

FHA-Refinance Program
The FHA-Refinance Program is a joint initiative
with the Department of Housing and Urban

Treasury Housing Programs Under TARP
Commitments as of
(Dollars in Millions)

MHA

Fiscal Year Payments through September 30,

September 30, 2012

$

29,871

2012

$

Accruals as of September 30,

2011

2,202

$

2012

1,282

$

2011

241

HFA Hardest Hit Fund

7,600

861

599

FHA - Refinance*

8,117

2

2

$

-

Totals

$

45,588

$

3,065

$

1,883

$

241

343
-

$

343

*Payments do not include $50 million to establish reserve, shown on Balance Sheet as Cash on Deposit for Housing Program, nor the subsidy cost to fund
OFS' share of defaults, which establishes the liability for losses, see Note 6. Payments are for the FHA-Refinance Program administrative expense only.

63

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

NOTE 6. TROUBLED ASSET RELIEF PROGRAM DIRECT LOANS AND
EQUITY INVESTMENTS, NET AND OTHER CREDIT PROGRAMS
The OFS administers a number of programs
designed to help stabilize the financial system and
restore the flow of credit to consumers and
businesses. The OFS made direct loans and equity
investments under TARP. The OFS also entered

into other credit programs, which consist of an asset
guarantee program and a loss-sharing program
under the TARP. The table below recaps OFS
programs by title and type:

Program

Program Type

Direct Loans and Equity Investments
Capital Purchase Program

Equity Investment/Subordinated Debentures

Targeted Investment Program

Equity Investment

Community Development Capital Initiative

Equity Investment/Subordinated Debentures

Public-Private Investment Program

Equity Investment and Direct Loan

Term Asset-Backed Securities Loan Facility

Subordinated Debentures

SBA 7(a) Security Purchase Program

Direct Loan

Automotive Industry Financing Program

Equity Investment and Direct Loan

American International Group, Inc. Investment Program
Other Credit Programs

Equity Investment

Asset Guarantee Program

Asset Guarantee

FHA-Refinance Program

Loss-sharing Program with FHA

Valuation Methodology
The OFS applies fair value and the provisions of
SFFAS No. 2 to account for direct loans, equity
investments and other credit programs. This
standard requires measurement of the asset or
liability at the net present value of the estimated
future cash flows. The cash flow estimates for each
transaction reflect the actual structure of the
instruments. For each of these instruments,
analytical cash flow models generate estimated cash
flows to and from the OFS over the estimated term
of the instrument. Further, each cash flow model
reflects the specific terms and conditions of the
program, technical assumptions regarding the
underlying assets, risk of default or other losses, and
other factors as appropriate. The models also
incorporate an adjustment for market risk to reflect
the additional return required by the market to
compensate for variability around the expected
losses reflected in the cash flows (the ―unexpected
loss‖).
The adjustment for market risk requires the OFS to
determine the return that would be required by
market participants to enter into similar

NOTES TO THE FINANCIAL STATEMENTS

transactions or to purchase the assets held by OFS.
Accordingly, the measurement of the assets
attempts to represent the proceeds expected to be
received if the assets were sold to a market
participant in an orderly transaction. The
methodology employed for determining market risk
for equity investments generally involves a
calibration to market prices of similar securities that
results in measuring equity investments at fair
value. The adjustment for market risk for loans is
intended to capture the risk of unexpected losses,
but not intended to represent fair value, i.e. the
proceeds that would be expected to be received if the
loans were sold to a market participant. The OFS
uses market observable inputs, when available, in
developing cash flows and incorporating the
adjustment required for market risk. For purposes
of this disclosure, the OFS has classified its
programs’ asset valuations as follows, based on the
observability of inputs that are significant to the
measurement of the asset:


Quoted prices for Identical Assets (Level 1): The
measurement of assets in this classification is
based on direct market quotes for the specific
asset, e.g. quoted prices of common stock.

64

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY



Significant Observable Inputs (Level 2): The
measurement of assets in this classification is
primarily derived from market observable data,
other than a direct market quote, for the asset.
This data could be market quotes for similar
assets for the same entity.



Significant Unobservable Inputs (Level 3): The
measurement of assets in this classification is
primarily derived from inputs which generally

represent management’s best estimate of how a
market participant would assess the risk
inherent in the asset. These unobservable
inputs are used because there is little to no
direct market activity.
The table below displays the assets held by the
observability of inputs significant to the
measurement of each value:

As of September 30, 2012

(Dollars in Millions)

Quoted
Prices for
Identical
Assets
(Level 1)
Program
Capital Purchase Program
CDCI and TALF
Public-Private Investment Program
Automotive Industry Financing Program
American International Group Inc. Investment Program
Asset Guarantee Program
Total TARP Programs

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

$

327
9
11,376
5,067
-

$

967

$

5,407
1,095
10,778
6,170
2
-

$

5,734
1,104
10,778
17,546
5,069
967

$

16,779

$

967

$

23,452

$

41,198

As of September 30, 2011
(Dollars in Millions)

Program
Capital Purchase Program
CDCI, TALF and SBA 7(a)
Public-Private Investment Program
Automotive Industry Financing Program
American International Group Inc. Investment Program
Asset Guarantee Program
Total TARP Programs

The following provides a description of the
methodology used to develop the cash flows and
incorporate the market risk into the measurement of
the OFS assets.
Financial Institution Equity Investments 18
The estimated values of preferred equity
investments are the net present values of the
18

This consists of equity investments made under CPP and CDCI.

65

Quoted
Prices for
Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

$

202
10,091
21,076
-

$

126
9,294
739

$

12,240
951
18,377
7,747
-

$

12,442
1,077
18,377
17,838
30,370
739

$

31,369

$

10,159

$

39,315

$

80,843

expected dividend payments and proceeds from
repurchases and sales. The model assumes that the
key decisions affecting whether or not institutions
pay their preferred dividends are made by each
institution based on the strength of their balance
sheet. The model assumes a probabilistic evolution
of each institution’s asset-to-liability ratio (the assetto-liability ratio is based on the estimated fair value
of the institution’s assets against its liabilities).
Each institution’s assets are subject to uncertain
returns and institutions are assumed to manage

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

their asset-to-liability ratio in such a way that it
reverts over time to a target level. Historical
volatility is used to scale the likely evolution of each
institution’s asset-to-liability ratio.
In the model, when equity decreases, i.e. the assetto-liability ratio falls, institutions are increasingly
likely to default, either because they enter
bankruptcy or are closed by regulators. The
probability of default is estimated based on the
performance of a large sample of US banks over the
period 1990-2011. At the other end of the spectrum,
institutions call their preferred shares when the
present value of expected future dividends exceeds
the call price; this occurs when equity is high and
interest rates are low. Inputs to the model include
institution specific accounting data obtained from
regulatory filings, an institution’s stock price
volatility, historical bank failure information, as
well as market prices of comparable securities
trading in the market. The market risk adjustment
is obtained through a calibration process to the
market value of certain trading securities of
financial institutions within TARP programs or
other comparable financial institutions. The OFS
estimates the values and projects the cash flows of
warrants using an option-pricing approach based on
the current stock price and its volatility.
Investments in common stock which are exchange
traded are valued at the quoted market price as of
year end.
Public-Private Investment Program (PPIP)
For the PPIP investments and loans made in the
Public Private Investment Fund (PPIF) SPVs, the
OFS estimates cash flows to the PPIF by simulating
the performance of the collateral supporting the
residential mortgage-backed securities (RMBS) and
commercial mortgage-backed securities (CMBS) held
by the PPIF (i.e. performance of the residential and
commercial mortgages). Inputs used to simulate the
cash flows, which consider market risks, include
unemployment forecasts, home price
appreciation/depreciation forecasts, the current term
structure of interest rates and historical pool
performance as well as estimates of the net income
and value of commercial real estate supporting the
CMBS. The simulated cash flows are then run
through a financial model that defines distributions
of the RMBS/CMBS to determine the estimated cash
flows to the PPIF. Once determined, these cash
flows are run through the waterfall of the PPIF to

NOTES TO THE FINANCIAL STATEMENTS

determine the expected cash flows to the OFS
through both the equity investments and loans.
Term Asset-Backed Securities Loan Facility
(TALF)
For the loan associated with the TALF, the OFS
model derives the cash flows to the Federal Reserve
Bank of New York (FRBNY) TALF LLC SPV, and
ultimately the OFS, by simulating the performance
of underlying collateral. Loss probabilities on the
underlying collateral are calculated based on
analysis of historical loan loss and charge-off
experience by credit sector and subsector. Historical
mean loss rates and volatilities are significantly
stressed to reflect recent and projected performance.
Simulated losses are run through cash flow models
to project impairment to the TALF-eligible
securities. Impaired securities are projected to be
purchased by the SPV, which could require
additional OFS funding. Simulation outcomes
consisting of a range of loss scenarios are
probability-weighted to generate the expected net
present value of future cash flows.
SBA 7(a) Securities Purchase Program (SBA
7(a))
OFS held no SBA 7(a) securities as of September 30,
2012. As of September 30, 2011, the valuation of
SBA 7(a) securities was based on the discounted
estimated cash flows of the securities.
Automotive Industry Financing Program
(AIFP)
As of September 30, 2012 and 2011 the OFS held
500 million shares of common stock in General
Motors Company (New GM) that were valued by
multiplying the publicly traded share price by the
number of shares held.
As of September 30, 2012 and 2011, for investments
in Ally Financial’s (Ally, formerly known as GMAC,
Inc.) common equity and mandatorily convertible
preferred stock, which is valued on an ―if-converted‖
basis, the OFS used certain valuation multiples such
as price-to-earnings, price-to-tangible book value,
and asset manager valuations to estimate the value
of the shares. The multiples were based on those of
comparable publicly-traded entities. The
adjustment for market risk is incorporated in the

66

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

data points used to determine the measurement for
Ally, since all points rely on market data.
American International Group, Inc. (AIG)
Investment Program
As of September 30, 2012, and 2011, the OFS held
154 million and 960 million shares, respectively, of
AIG common stock. Investments in AIG common
stock were valued at the quoted market price as of
September 30, 2012 and 2011.
The OFS also held interests in certain AIG SPVs at
September 30, 2011. To estimate the value of the
assets underlying the preferred interests in the
SPVs, OFS summed the value of the common equity
shares held by the SPVs, any cash held in escrow
from previous asset sales, and the weighted average
value of the remaining assets under different

67

scenarios. Because the resulting value greatly
exceeded the liquidation preference of the
investments in the SPVs, the SPVs were valued at
the liquidation preference. These interests were
liquidated during fiscal year 2012.
Asset Guarantee Program (AGP)
During fiscal year 2010, an agreement was entered
into to terminate the guarantee of OFS to pay for
any defaults on certain loans and securities held by
Citibank. As of September 30, 2012 and 2011, the
instruments within the AGP, consisting of Citigroup
Trust Preferred Securities receivable from the FDIC
with an $800 million liquidation preference value
plus accrued dividends and interest, were valued in
a manner broadly analogous to the previously
described methodology used for financial institution
equity investments.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

Direct Loan and Equity Investment Programs
The following table recaps gross direct loans or
equity investments, subsidy allowance, and net
direct loans or equity investments by TARP
program. Detailed tables providing the net
composition, subsidy cost for new disbursements,
modifications and reestimates, along with a

reconciliation of subsidy cost allowances as of and
for the years ended September 30, 2012 and 2011,
are provided at the end of this Note for Direct Loans
and Equity Investments, detailed by program, and
for the other credit programs separately.
Descriptions and chronology of significant events by
program are after the summary table.
As of September 30, 2012
Gross Direct
Net Direct
Loans and
Loans and
Equity
Subsidy
Equity
Invesments
Allowance
Invesments

(Dollars in Millions)

Program
Capital Purchase Program
TALF and CDCI
Public-Private Investment Program
Automotive Industry Financing Program
American International Group Inc. Investment Program
Total Direct Loan and Equity Investment Programs

Program
Capital Purchase Program
TALF, CDCI and SBA 7(a)
Public-Private Investment Program
Automotive Industry Financing Program
American International Group Inc. Investment Program
Total Direct Loan and Equity Investment Programs

In October 2008, the OFS began implementation of
the TARP with the Capital Purchase Program
(CPP), designed to help stabilize the financial
system by assisting in building the capital base of
certain viable U.S. financial institutions to increase
the capacity of those institutions to lend to
businesses and consumers and support the economy.
The OFS invested a total of $204.9 billion in 707
institutions under the CPP program between
October 2008 and December 2009.

NOTES TO THE FINANCIAL STATEMENTS

8,664
667
9,763
37,252
6,727
$63,073

$

(2,930) $
5,734
437
1,104
1,015
10,778
(19,706)
17,546
(1,658)
5,069
($22,842)
$40,231

As of September 30, 2011
Gross Direct
Net Direct
Loans and
Loans and
Subsidy
Equity
Equity
Allowance
Invesments
Invesments

(Dollars in Millions)

Capital Purchase Program

$

$

17,299
798
15,943
37,278
51,087
$122,405

$

(4,857) $ 12,442
279
1,077
2,434
18,377
(19,440)
17,838
(20,717)
30,370
($42,301)
$80,104

Under this program, the OFS purchased senior
perpetual preferred stock from qualifying U.S.
controlled banks, savings associations, and certain
bank and savings and loan holding companies
(Qualified Financial Institution or QFI). The senior
preferred stock has a stated dividend rate of 5.0
percent through year five, increasing to 9.0 percent
in subsequent years. The dividends are cumulative
for bank holding companies and subsidiaries of bank
holding companies and non-cumulative for others;
they are payable when and if declared by the
institution’s board of directors. QFIs that are Subchapter S corporations issued subordinated
debentures in order to maintain compliance with the

68

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Internal Revenue Code. The maturity of the
subordinated debentures is 30 years and interest
rates are 7.7 percent for the first 5 years and 13.8
percent for the remaining years. QFIs, subject to
regulator approval, may repay the OFS’ investment
at any time.
In addition to the senior preferred stock, the OFS
received warrants, with a ten-year term, as required
by section 113(d) of EESA, from public QFIs to
purchase a number of shares of common stock.
Subsequent to December 31, 2009, the OFS may
exercise any warrants held in whole or in part at
any time. The OFS received warrants from nonpublic QFIs for the purchase of additional senior
preferred stock (or subordinated debentures if
appropriate) with a stated dividend rate of 9.0
percent (13.8 percent interest rate for subordinate
debentures) and a liquidation preference equal to 5.0
percent of the total senior preferred stock (additional
subordinate debenture) investment. These warrants
were immediately exercised and resulted in the OFS
holding additional senior preferred stock
(subordinated debentures) (collectively referred to as
―warrant preferred stock‖) of non-public QFIs.
In fiscal year 2009, OFS entered into an exchange
agreement with the banking institution Citigroup,
under which OFS exchanged its original $25.0
billion CPP investment in senior preferred stock for
7.7 billion common shares of Citigroup stock, at
$3.25 per share. Between April 2010 and January
2011, OFS sold all of its stock and warrants. During
fiscal year 2011, OFS received $15.8 billion from the
sale of Citigroup common stock and warrants,
resulting in proceeds from sales in excess of cost of
$3.9 billion. Total gross proceeds from Citigroup
sales between April 2010 and January 2011 were
$31.9 billion.
In addition to the above transactions, the OFS
entered into other transactions with various
financial institutions including exchanging existing
preferred shares for a like amount of non taxdeductible Trust Preferred Securities, exchanging
preferred shares for shares of mandatorily
convertible preferred securities and selling preferred
shares to financial institutions that were acquiring
the QFIs that had issued the preferred shares.

69

Generally the transactions are entered into with
financial institutions in poor financial condition with
a high likelihood of failure. As such, in accordance
with SFFAS No. 2, these transactions are considered
workouts and not modifications. The changes in cost
associated with these transactions are captured in
the year-end reestimates.
During fiscal year 2012, OFS elected to sell selected
CPP investments to the public in auction sales.
Because auction sales were not considered in the
budget formulation estimate for the CPP program,
OFS recorded a modification increasing the cost of
the program by $973 million.
In fiscal year 2012, OFS sold 40 CPP investments in
six separate auctions for total net proceeds of $1.3
billion. These auction sales resulted in net proceeds
less than cost of $180 million. All other sales and
redemptions in the program for the fiscal year
resulted in net proceeds less than cost of $105
million.
During fiscal year 2011, certain financial
institutions participating in CPP became eligible to
exchange their OFS-held stock investments to
preferred stock in the Small Business Lending Fund
(SBLF), a separate Department of the Treasury
program not a part of the TARP. Because this
refinance was not considered in the formulation
estimate for the CPP program, a modification was
recorded in May 2011, resulting in a subsidy cost
reduction of $1.0 billion.
OFS made no write-offs of CPP investments in fiscal
years 2012 or 2011. During fiscal year 2012, five
institutions, in which OFS had invested $41 million,
were either closed by their regulators or declared
bankruptcy. During fiscal year 2011, eight
institutions, in which OFS had invested $190
million, were closed by their regulators. The OFS
does not anticipate recovery on these investments
and therefore the values of these investments are
reflected at zero as of September 30, 2012 and 2011.
The ultimate amount received, if any, from the
investments in institutions that filed for bankruptcy
and institutions closed by regulators will depend
primarily on the outcome of the bankruptcy
proceedings and of each institution’s receivership.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

The following tables provide key data points related to the CPP for the fiscal years ending September 30,
2012 and 2011:
CPP Participating Institutions
2012
Cumulative Number of Institutions Participating

As of September 30,
2011
707

Institutions Transferred to CDCI

707

(234)

Cumulative Institutions Paid in Full, Merged or Investments Sold

(139)

(28)

(28)

(137)

Institutions Refinanced to SBLF

(137)

Institutions Written Off After Bankruptcy or Receivership

(2)

Institutions in Bankruptcy or Receivership

(2)

306

Number of Institutions with Outstanding OFS Investments

401

(16)

(11)

Number of CPP Institutions Valued at Year-End

290

390

Of the Institutions Valued, Number that Have Missed One or More Dividend Payments

158

165

CPP Investments
(Dollars in Millions)

Fiscal Year 2012

Outstanding Beginning Balance, Investment in CPP Institutions, Gross

$

Repayments and Sales of Investments

$

Interest and Dividend Collections

$

Net Proceeds from Sales and Repurchases of Assets in Excess of (Less Than) Cost

$

NOTES TO THE FINANCIAL STATEMENTS

(85)

-

Outstanding Ending Balance, Investment in CPP Institutions, Gross

Under TIP, the OFS invested $20.0 billion in
Citigroup in December, 2008 and $20.0 billion in
Bank of America in January, 2009. In December
2009, both institutions repaid the amounts invested
along with dividends through the date of repayment.
In fiscal year 2011, OFS sold its warrant from
Citigroup under TIP for $190 million and closed the
program.

49,779
(30,188)

(412)

Refinanced to SBLF

The Targeted Investment Program (TIP) was
designed to prevent a loss of confidence in financial
institutions that could result in significant market
disruptions, threatening the financial strength of
similarly situated financial institutions, impairing
broader financial markets, and undermining the
overall economy.

$

(8,223)

Losses from Sales and Repurchases of Assets in Excess of Cost

Targeted Investment Program

17,299

Fiscal Year 2011

(2,207)

8,664

$

17,299

572

$

1,283

(285) $

4,540

Community Development Capital
Initiative
In February 2010, the OFS announced the
Community Development Capital Initiative (CDCI)
to invest lower cost capital in Community
Development Financial Institutions (CDFIs). Under
the terms of the program, the OFS purchased senior
preferred stock (or subordinated debt) from eligible
CDFIs. The senior preferred stock had an initial
dividend rate of 2 percent. CDFIs could apply to
receive capital up to 5 percent of risk-weighted
assets. To encourage repayment while recognizing
the unique circumstances facing CDFIs, the
dividend rate increases to 9 percent after eight
years.
For CDFI credit unions, the OFS purchased
subordinated debt at rates equivalent to those
offered to CDFIs and with similar terms. These
institutions could apply for up to 3.5 percent of total
assets - an amount approximately equivalent to the
5 percent of risk-weighted assets available to banks
and thrifts.

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

CDFIs participating in the CPP, subject to certain
criteria, were eligible to exchange, through
September 30, 2010, their CPP preferred shares
(subordinated debt) then held by OFS for CDCI
preferred shares (subordinated debt). These
exchanges were treated as disbursements from
CDCI and repayments to CPP. OFS invested a total
of $570 million ($363 million as a result of
exchanges from CPP) in 84 institutions under the
CDCI. During fiscal year 2012, one CDCI
institution, in which the OFS invested $7 million,
was closed by its regulator. The OFS does not
anticipate recovery on this investment and therefore
the value of the shares is reflected at zero as of
September 30, 2012.
In fiscal year 2012, OFS received $3 million in
repayments and $11 million in dividends and
interest from its CDCI investments. In fiscal year
2011, OFS received no repayments and $11 million
in dividends and interest; no CDCI institutions were
closed.

Public-Private Investment Program
The PPIP is part of the OFS’ efforts to help restart
the financial securities market and provide liquidity
for legacy securities. Under this program, the OFS
(as a limited partner) made equity investments in
and loans to nine investment vehicles (referred to as
Public Private Investment Funds or ―PPIFs‖)
established by private investment managers
between September and December 2009. The OFS
equity investments were used to match private
capital and equal 49.9 percent of the total equity
invested. Each PPIF elected to receive a loan
commitment equal to 100 percent of partnership
equity. The loans bear interest at one month
LIBOR, plus one percent, payable monthly. The
maturity date of each loan is the earlier of 10 years
or the termination of the PPIF. The loan can be
prepaid without penalty. Each PPIF terminates
eight years from its commencement, if not
previously terminated or extended with two 1-year
extensions, subject to approval of the OFS. The loan
agreements also require cash flows from purchased
securities received by the PPIFs to be distributed in
accordance with a priority of payments schedule
(waterfall) designed to help protect the interests of
secured parties. Security cash flows collected are
disbursed: 1) to pay administrative expenses; 2) to
pay margin interest on permitted hedges; 3) to pay

71

current period interest to OFS; 4) to maintain a
required interest reserve account; 5) to pay principal
on the OFS loan when the minimum Asset Coverage
Ratio Test is not satisfied; 6) to pay other amounts
on interest rate hedges if not paid under step 2 ; 7)
for additional temporary investments or to prepay
loans (both at the discretion of the PPIF); 8) for
distributions to equity partners up to the lesser of 12
months’ net interest collected or 8 percent of the
funded capital commitments; 9) for loan
prepayments to OFS; and 10) for distribution to
equity partners.
Each loan carries a financial covenant, the Asset
Coverage Ratio Test. The Asset Coverage Ratio Test
generally requires the PPIF to maintain an Asset
Coverage Ratio equal to or greater than 150 percent.
The Asset Coverage Ratio is a percentage obtained
by dividing total assets of the PPIF by the principal
amount of the loan and accrued and unpaid interest
on the loan. Failure to comply with the test could
require accelerated repayment of loan principal and
prohibit the PPIF from borrowing additional funds
under the loan agreement.
As a condition of its investment, the OFS also
received a warrant from each of the PPIFs entitling
the OFS to 2.5 percent of investment proceeds
(excluding those from temporary investments)
otherwise allocable to the non-OFS partners after
the PPIFs return of 100 percent of the non-OFS
partners’ capital contributions. Distributions
relating to the warrants generally occur upon the
final distribution of each partnership.
The PPIFs are allowed to purchase commercial and
non-agency residential mortgage-backed securities
(CMBS and RMBS, respectively) issued prior to
January 1, 2009, that were originally rated AAA or
an equivalent rating by two or more nationally
recognized statistical rating organizations without
external credit enhancement and that are secured
directly by the actual mortgage loans, leases or other
assets (eligible assets) and not other securities. The
PPIFs may invest in the aforementioned securities
for a period of 3 years using proceeds from capital
contribution, loans and amounts generated by
previously purchased investments (subject to the
requirements of the waterfall). The three-year
investment periods for the remaining PPIFs end by
December 2012. The PPIFs are also permitted to
invest in certain temporary securities, including
bank deposits, U.S. Treasury securities, and certain

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

money market mutual funds. At least 90 percent of
the assets underlying any eligible asset must be
situated in the United States. As of September 30,
2012, the PPIFs’ portfolios were comprised of
approximately 74 percent RMBS and 26 percent
CMBS. As of September 30, 2011, they held
approximately 79 percent RMBS and 21 percent
CMBS.
The PPIFs pay a management fee to the fund
manager from the OFS’ share of investment
proceeds. During the Investment Period, the
management fee is equal to 0.2 percent per annum
of the OFS’ capital commitment as of the last day of
the applicable quarter. Thereafter, the management
fee is 0.2 percent per annum of the lesser of (a) the
OFS’ capital commitment as of the last day of the
applicable quarter or (b) the OFS Interest Value as
of the last day of the quarter.
During fiscal year 2012, OFS disbursed $245 million
as equity investments and $803 million as loans to
PPIFs. During fiscal year 2011, OFS disbursed $1.1
billion as equity investments and $2.3 billion as
loans to PPIFs.
During fiscal year 2012, the OFS received $124
million in interest on loans and $5.6 billion in loan
principal repayments from the PPIFs and received
$3.2 billion in equity distributions, of which $1.3
billion was recognized as investment income, $223
million as proceeds in excess of cost and $1.7 billion
as a reduction of the gross investment outstanding.
One PPIF partnership fully repaid its investors,
including OFS, in 2012. Another terminated its
investment period and repaid all equity capital by
September 30, 2012; it is expected to distribute
additional funds and cease operations by December
2012.
During fiscal year 2011, the OFS received $123
million in interest on loans and $868 million in loan
principal repayments from the PPIFs and received
$735 million in equity distributions, of which $306
million was recognized as dividend income, $91
million of proceeds in excess of cost and $338 million
as a reduction of the gross investment outstanding.
As of September 30, 2012, OFS had equity
investments in six PPIFs outstanding of $4.1 billion
and loans outstanding of $5.7 billion for a total of
$9.8 billion. These investments and loans were
valued at $10.8 billion.

NOTES TO THE FINANCIAL STATEMENTS

As of September 30, 2011, OFS had equity
investments in eight PPIFs outstanding of $5.5
billion and loans outstanding of $10.4 billion for a
total of $15.9 billion, valued at $18.4 billion. As of
September 30, 2012, and 2011, OFS had legal
commitments to disburse up to $3.1 billion and $4.3
billion, respectively, for additional investments and
loans to remaining PPIFs.

Term Asset-Backed Securities Loan
Facility
The Term Asset-Backed Securities Loan Facility
(TALF) was created by the Federal Reserve Board
(FRB) to provide low cost funding to investors in
certain classes of Asset-Backed Securities (ABS).
The OFS agreed to participate in the program by
providing liquidity and credit protection to the FRB.
Under the TALF, the Federal Reserve Bank of New
York (FRBNY), as implementer of the TALF
program, originated loans on a non-recourse basis to
purchasers of certain AAA rated ABS secured by
consumer and commercial loans and commercial
mortgage backed securities (CMBS). The FRBNY
ceased issuing new loans on June 30, 2010.
As of September 30, 2012, approximately $1.5 billion
of loans due to the FRBNY remained outstanding.
At September 30, 2011, approximately $11.3 billion
of loans due to the FRBNY remained outstanding.
As part of the program, the FRBNY created the
TALF, LLC, a special purpose vehicle that agreed to
purchase from the FRBNY any collateral it has
seized due to borrower default. The TALF, LLC
would fund purchases from the accumulation of
monthly fees paid by the FRBNY as compensation
for the agreement. Only if the TALF, LLC had
insufficient funds to purchase the collateral did the
OFS commit to invest up to $20.0 billion in nonrecourse subordinated notes issued by the TALF,
LLC. In July 2010, the OFS’ commitment was
reduced to $4.3 billion. In June 2012, the OFS’
commitment was reduced further, from $4.3 billion
to $1.4 billion, in consultation with the FRBNY.
The OFS disbursed $100 million upon creation of the
TALF, LLC and the remainder can be drawn to
purchase collateral in the event the fees are not
sufficient to cover purchases. The subordinated
notes bear interest at 1 Month LIBOR plus 3.0

72

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

percent and mature 10 years from the closing date,
subject to extension. Any amounts needed in excess
of the OFS commitment and the fees would be
provided through a loan from the FRBNY. Upon
wind-down of the TALF, LLC (collateral defaults,
reaches final maturity or is sold), available cash will
be disbursed first to FRBNY and then to the OFS
principal balances, secondly to FRBNY and then to
the OFS interest balances and finally any remaining
cash 10 percent to the FRBNY and 90 percent to the
OFS.
As of September 30, 2012 and 2011, no TALF loans
were in default and consequently no collateral was
purchased by the TALF, LLC.

SBA 7(a) Securities Purchase Program
In March 2010, the OFS began the purchase of
securities backed by Small Business Administration
7(a) loans (7(a) Securities) as part of the Unlocking
Credit for Small Business Initiative. Under this
program OFS purchased 7(a) Securities
collateralized with 7(a) loans (these loans are
guaranteed by the full faith and credit of the United
States Government) packaged on or after July 1,
2008. In May 2011, OFS began selling its securities
to investors. Sales were completed in January of
2012 and the program closed.
The OFS invested a total of $367 million (excluding
purchased accrued interest) and received $363
million in principal payments and sales proceeds, as
well as $13 million in interest on its securities over
the course of the program. During fiscal year 2012,
the OFS sold its remaining SBA securities and
received proceeds of $127 million, including interest.
During fiscal year 2011, the OFS received $236
million in principal payments and $11 million in
interest on its securities. As of September 30, 2012,
OFS held no investment in SBA 7(a) securities. As
of September 30, 2011, OFS held $128 million of
SBA 7(a) securities.

Automotive Industry Financing Program
The Automotive Industry Financing Program (AIFP)
was designed to help prevent a significant
disruption of the American automotive industry,
which could have had a negative effect on the
economy of the United States.

73

General Motors Company (New GM) and
General Motors Corporation (Old GM)
In the period ended September 30, 2009, the OFS
provided $49.5 billion to General Motors
Corporation (Old GM) through various loan
agreements including the initial loan for general and
working capital purposes and the final loan for
debtor in possession (DIP) financing while Old GM
was in bankruptcy. The OFS assigned its rights in
these various loans (with the exception of $986
million which remained in Old GM for wind down
purposes and $7.1 billion that would be assumed)
and previously received common stock warrants to a
newly created entity, General Motors Company
(New GM). New GM used the assigned loans and
warrants to credit bid for substantially all of the
assets of Old GM in a sale pursuant to Section 363 of
the Bankruptcy Code. During fiscal year 2009, upon
closing of the Section 363 sale, the credit bid loans
and warrants were extinguished and the OFS
received $2.1 billion in 9.0 percent cumulative
perpetual preferred stock and 60.8 percent of the
common equity in New GM. In addition, New GM
assumed $7.1 billion of the DIP loan, simultaneously
paying $361 million (return of warranty program
funds), resulting in a net balance of $6.7 billion.
The assets received by the OFS as a result of the
assignment and Section 363 sale were considered
recoveries of the original loans for subsidy cost
estimation purposes. During fiscal year 2010, the
OFS received the remaining $6.7 billion as full
repayment of the DIP loan assumed.
During fiscal year 2011, New GM repurchased its
preferred stock for 102 percent of its liquidation
amount, $2.1 billion. As part of an initial public
offering by New GM in fiscal year 2011, the OFS
sold 412 million shares of its common stock for $13.5
billion, at a price of $32.75 per share (net of fees).
The sale resulted in net proceeds less than cost of
$4.4 billion. During fiscal year 2012, OFS did not
sell any of its New GM common stock shares.
At both September 30, 2012, and 2011, the OFS held
500 million shares of the common stock of New GM
that represented approximately 32 percent of the
common stock of New GM outstanding. Market
value of the shares as of September 30, 2012 and
2011 was $11.4 billion and $10.1 billion,
respectively.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

On March 31, 2011, the Plan of Liquidation for Old
GM became effective and OFS’ $986 million loan
was converted to an administrative claim. OFS
retains the right to recover additional proceeds but
recoveries are dependent on actual liquidation
proceeds and pending litigation. OFS recovered $26
million in fiscal year 2012 and $111 million in fiscal
year 2011 on the administrative claim. OFS does
not expect to recover any significant additional
proceeds from this claim.
GMAC LLC Rights Offering
In December 2008, the OFS agreed, in principal, to
lend up to $1.0 billion to Old GM for participation in
a rights offering by GMAC LLC (now known as Ally
Financial, Inc.) in support of GMAC LLC’s
reorganization as a bank holding company. The
loan was secured by the GMAC LLC common
interest acquired in the rights offering. The loan
was funded for $884 million. In May 2009, the OFS
exercised its exchange option under the loan and
received 190,921 membership interests,
representing 35.4 percent of the voting interest at
the time, in GMAC LLC in full satisfaction of the
loan. As of September 30, 2012 and 2011, the OFS
continued to hold the ownership interests obtained
in this transaction (see further discussion of OFS’
GMAC holdings under Ally Financial Inc. in this
note).
Chrysler Group LLC (New Chrysler) and
Chrysler Holding LLC (Old Chrysler)
In the period ended September 30, 2009, the OFS
invested $5.9 billion in Chrysler Holding LLC (Old
Chrysler), consisting of $4 billion for general and
working capital purposes (the general purpose loan)
and $1.9 billion for DIP financing while Old
Chrysler was in bankruptcy. Upon entering
bankruptcy, a portion of Old Chrysler was sold to a
newly created entity, Chrysler Group LLC (New
Chrysler). Under the terms of the bankruptcy
agreement, $500 million of the general purpose loan
was assumed by New Chrysler. In fiscal year 2010,
the OFS received $1.9 billion on the general purpose
loan and wrote off the remaining $1.6 billion.
Recovery of the $1.9 billion DIP loan was subject to
the liquidation of collateral remaining with Old
Chrysler. In fiscal year 2010, as part of a
liquidation plan, OFS’ DIP loan to Old Chrysler was
extinguished, and OFS retained a right to receive
proceeds from a liquidation trust.

NOTES TO THE FINANCIAL STATEMENTS

Under the terms of the bankruptcy agreement, the
OFS committed to make a $7.1 billion loan to New
Chrysler, consisting of $6.6 billion of new
commitments (of which $4.6 billion was funded) and
$500 million of assumed debt from the general
purpose loan with Old Chrysler. The loan was
secured by a first priority lien on the assets of New
Chrysler. The OFS also obtained other
consideration including a 9.9 percent equity interest
in New Chrysler and additional notes with principal
balances of $284 million and $100 million. Fiat SpA
(the Italian automaker), the Canadian government
and the United Auto Workers (UAW) retiree
healthcare trust were the other shareholders in New
Chrysler.
In May 2011, New Chrysler repaid the $5.1 billion in
loans outstanding ($4.6 billion in funded
commitments and $500 million assumed from Old
Chrysler), the additional notes totaling $384 million
and all interest due. New Chrysler’s ability to draw
the remaining $2.1 billion loan commitment was
terminated. In July 2011, Fiat SpA paid the OFS
$560 million for its remaining equity interest in New
Chrysler and for OFS’ rights under an agreement
with the UAW retiree healthcare trust pertaining to
the trust’s shares in New Chrysler.
As a result of the fiscal year 2011 transactions, OFS
had no remaining interest in New Chrysler as of
September 30, 2012 and 2011. Total net proceeds
received relating to the 2011 transactions were $896
million less than OFS’ cost. OFS continues to hold a
right to receive proceeds from a bankruptcy
liquidation trust but no significant cash flows are
expected. OFS received $9 million and $8 million
from the liquidation trust during fiscal years 2012
and 2011, respectively.
Ally Financial Inc. (formerly known as
GMAC)
The OFS invested a total of $16.3 billion in GMAC
between December 2008 and December 2009, to help
support its ability to originate new loans to GM and
Chrysler dealers and consumers and to help address
GMAC’s capital needs. In May, 2010, GMAC
changed its corporate name to Ally Financial, Inc.
(Ally). As a result of original investments,
exchanges, conversions and warrant exercises, at
September 30, 2010, the OFS held 450,121 shares of
Ally common stock (representing 56.3 percent of the

74

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

company’s outstanding common stock including
ownership interests from the GMAC LLC Rights
Offering previously discussed), 2.7 million shares of
8 percent cumulative Trust Preferred Securities
(TruPS) with a $1,000 per share liquidation
preference and 229 million shares of Ally’s Series F2 Mandatorily Convertible Preferred Securities. The
Series F-2, with a $50 per share liquidation
preference and a stated dividend rate of 9 percent, is
convertible into Ally common stock at Ally’s option,
subject to the approval of the Federal Reserve and
consent by the OFS or pursuant to an order by the
Federal Reserve compelling such conversion. The
Series F-2 security is also convertible at the option
of the OFS upon certain specified corporate events.
Absent an optional conversion, any Series F-2
remaining will automatically convert to common
stock after 7 years from the issuance date. The
applicable conversion rate is the greater of the (i)
initial conversion rate (0.00432) or (ii) adjusted
conversion rate (i.e., the liquidation amount per
share of the Series F-2 divided by the weighted
average price at which the shares of common equity
securities were sold or the price implied by the
conversion of securities into common equity
securities, subject to antidilution provisions).
In December 2010, 110 million shares of the Series
F-2 preferred were converted into 531,850 shares of
Ally common stock, resulting in the OFS holdings of
Series F-2 preferred decreasing to 119 million
shares, and OFS holdings in common stock of Ally
increasing to 981,971 shares, representing 73.8
percent of Ally’s outstanding common stock.
During fiscal year 2011, the agreement between Ally
and OFS regarding its TruPS was amended to
facilitate OFS’ sale of its TruPS in the open market.
Because this amendment to agreement terms was
not considered in the formulation subsidy cost
estimate for the AIFP program, the OFS recorded a
modification resulting in a subsidy cost reduction of
$174 million. In March 2011, the OFS sold its
TruPS for $2.7 billion, resulting in proceeds in
excess of cost of $127 million.
As of September 30, 2012 and 2011, the OFS held
981,971 shares of common stock (73.8 percent of
Ally’s outstanding common stock) and 119 million
shares of the Series F-2 preferred securities. The
Series F-2 are convertible into at least 513,000
shares of common stock, which, if combined with the
common stock currently owned, would represent 81

75

percent ownership of Ally common stock by the OFS.
In fiscal year 2012, the OFS received $534 million in
dividends from Ally. In fiscal year 2011, the OFS
received $839 million in dividends.

American International Group, Inc. (AIG)
Investment Program
The OFS provided assistance to systemically
significant financial institutions on a case by case
basis in order to help provide stability to institutions
that were deemed critical to a functioning financial
system and were at substantial risk of failure as
well as to help prevent broader disruption to
financial markets. OFS invested in one institution,
AIG, under the program.
In November 2008, the OFS invested $40.0 billion in
AIG in the form of Series D 10 percent cumulative
perpetual preferred stock (the ―Series D‖ preferred
stock) The OFS also received a warrant for the
purchase of 54 million shares (adjusted to 2.7
million shares after a 20:1 reverse stock split) of AIG
common stock. On April 17, 2009, AIG and the OFS
restructured their November 2008 agreement.
Under the restructuring, the OFS exchanged $40.0
billion of Series D preferred stock for $41.6 billion of
AIG Series E 10 percent non-cumulative perpetual
preferred stock (the ―Series E‖ preferred stock).
Additionally, the OFS agreed to make available to
AIG a $29.8 billion equity capital facility from which
AIG could draw funds, if needed, to assist in its
restructuring. Under the equity capital facility, the
OFS received AIG Series F 10 percent noncumulative perpetual preferred stock with no initial
liquidation preference (the ―Series F‖ preferred
stock) and a warrant for the purchase of 3,000
shares (adjusted to 150 shares after a 20:1 reverse
stock split of AIG common stock).
The Series F liquidation preference increased with
any draw down by AIG on the facility, and the
dividend rate applicable to these shares was payable
quarterly, if declared, on the outstanding liquidation
preference. In fiscal year 2011, AIG drew $20.3
billion from the capital facility, for a cumulative
total of $27.8 billion drawn.
On September 30, 2010, the Treasury, FRBNY and
AIG announced plans for a restructuring of the
Federal Government’s investments in AIG. The
restructuring, which occurred January 14, 2011,
converted OFS’ $27.8 billion investment in Series F

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

preferred stock into $20.3 billion of interests in two
AIG SPVs subsidiaries (the ―AIG SPVs‖) and 168
million shares of AIG common stock. The remaining
$2.0 billion of undrawn Series F capital facility
shares were exchanged for 20,000 shares of a new
Series G Cumulative Mandatory Convertible
Preferred Stock (the ―Series G‖ preferred stock)
equity capital facility under which AIG had the right
to draw up to $2 billion. OFS’ $41.6 billion of Series
E preferred stock was converted into 925 million
shares of AIG common stock.[19] On May 27, 2011,
pursuant to agreement between the OFS and AIG,
and as a result of AIG’s primary public offering of its
common stock, the Series G equity capital facility,
which was undrawn, was canceled.
According to the terms of the preferred stock, OFS
had the right to appoint members to the AIG board
of directors if AIG missed four scheduled dividend
payments. As a result of the nonpayment of
dividends, in April 2010, OFS named two directors
to the AIG board, increasing the total size from ten
directors to twelve directors. In 2012, one of the two
OFS-appointed directors resigned from the AIG
board, and as of September 30, 2012, the AIG board
consists of eleven total directors. Additionally, until
Treasury’s overall ownership falls below 5 percent,
OFS retains the right to have observers at board
meetings. All directors are subject to election
annually by a majority shareholder vote at the
Company’s annual meeting.

In fiscal year 2012, OFS received $9.6 billion in
distributions from the AIG SPVs, paying off the
investment balance of $9.1 billion, recording
proceeds in excess of cost of $127 million, and
collecting $395 million of investment income
(including $204 million capitalized and recognized
as income in fiscal year 2011). OFS also sold 806
million shares of common stock for $25.2 billion.
These proceeds were less than OFS’ cost by $9.9
billion.
In fiscal year 2011, OFS received $11.5 billion in
distributions from the AIG SPVs, reduced its
outstanding balance relating to the AIG SPVs by
$11.2 billion and received investment income of $246
million. OFS also capitalized investment income of
$204 million. Additionally, OFS received fees of
$165 million from AIG. In May 2011, OFS sold 132
million shares of its AIG common stock for $3.8
billion. These proceeds were less than OFS’ cost by
$1.9 billion.
At September 30, 2012, the OFS owned 154 million
shares of AIG common stock, approximately 10.5
percent of AIG’s common stock equity.20 Market
value of the common stock shares was $5.1 billion.
At September 30, 2011, the OFS owned 960 million
shares of AIG common stock, approximately 50.8
percent of AIG’s common stock equity.21 Market
value of the common stock shares was $21.1 billion.
OFS also owned preferred units in an AIG SPV with
an outstanding balance of $9.3 billion, including
capitalized investment income.

19

Additionally, the AIG Credit Facility Trust between the
Federal Reserve Bank of New York and AIG was terminated and
the Department of the Treasury separately, not the OFS, received
563 million shares of AIG common stock as part of the
restructuring transaction. At the completion of the restructuring
per the agreement, the Department of the Treasury, including
OFS, held 92.1 percent of AIG’s common stock. See the Agency
Financial Report for the Department of the Treasury for its
separate presentation and valuation of its shares of AIG common
stock.

NOTES TO THE FINANCIAL STATEMENTS

20

The Department of the Treasury, not OFS, owned 80 million
shares of AIG common stock, approximately 5.4 percent of AIG’s
common stock equity, at September 30, 2012.
21

The Department of the Treasury, not OFS, owned 495 million
shares of AIG common stock, approximately 26.1 percent of AIG’s
common stock equity, at September 30, 2011.

76

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Subsidy Cost and Reestimates

repayments, which reduced the remaining
investment by about one-half, in fiscal year 2012.

The recorded subsidy cost of a direct loan, equity
investment or other credit program is based upon
the calculated net present value of expected future
cash flows. The OFS’ actions, as well as changes in
legislation that change these estimated future cash
flows change subsidy cost, and are recorded as
modifications. The cost or reduction in cost of a
modification is recognized when it occurs.

The downward reestimate for CPP of $816 million
for the year ended September 30, 2011, was the net
result of receipts significantly greater than cost on
the sale of Citigroup common stock offset by a
decline in the estimated market values of the
remaining outstanding investments due to market
conditions at September 30, 2011.

During fiscal year 2012, a modification occurred in
the CPP, increasing subsidy cost by $973 million.
During fiscal year 2011, modifications occurred in
the AIFP (see Ally Financial Inc.) and CPP, reducing
subsidy cost by $1.2 billion.
The purpose of reestimates is to update original
program subsidy cost estimates to reflect actual cash
flow experience as well as changes in equity
investment valuations or forecasts of future cash
flows. Forecasts of future cash flows are updated
based on actual program performance to date,
additional information about the portfolio,
additional publicly available relevant historical
market data on securities performance, revised
expectations for future economic conditions, and
enhancements to cash flow projection methods.
For 2012 and 2011, financial statement reestimates
for all programs were performed using actual
financial transaction data through September 30.
For 2012, a mix of market and security specific data
publicly available as of August 31 and September
30, 2012, was used for all programs. For 2011, a mix
of market and security specific data publicly
available as of August 31 and September 30, 2011,
was used for all programs, with the exception of
security specific data as of June 30, 2011 that was
used for TALF and PPIP.
Net downward reestimates for the fiscal years ended
September 30, 2012 and 2011, totaled $11.9 billion
and $11.6 billion, respectively. Descriptions of the
reestimates, by OFS Program, are as follows:
CPP
The $2.9 billion downward reestimate for CPP for
the year ended September 30, 2012 was the result of
improved market values of the outstanding
investments and the effect of receiving $8.2 billion in

77

TIP
The TIP program was closed in fiscal year 2011,
with a final downward reestimate of $192 million,
primarily due to a better than projected return on
warrant sales. OFS received cumulative receipts of
$4.4 billion on total investments of $40.0 billion.
CDCI
The CDCI program continued to reflect improved
investment performance, resulting in a $30 million
downward reestimate for the year ended September
30, 2012.
The CDCI program reported improved investment
performance, resulting in a $99 million downward
reestimate, for the year ended September 30, 2011.
PPIP
The $240 million upward reestimate for the PPIP for
the year ended September 30, 2012, was due
primarily to accelerated repayments and changes in
projected performance of the PPIP portfolio.
The $1.8 billion downward reestimate for the PPIP
for the year ended September 30, 2011, was due
primarily to a decline in market risk projections,
program repayments, and changes in projected
performance of the PPIP portfolio.
TALF
The investments in the TALF continued to
experience improved market conditions and
accelerated repayments, resulting in a $96 million
downward reestimate for the year ended September
30, 2012.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

In fiscal year 2011, the TALF program showed
improved market conditions, resulting in a $105
million downward reestimate.
SBA 7(a)
The SBA 7(a) Securities Purchase Program was
closed in fiscal year 2012, with a $1 million
downward closing reestimate.
The program reported a $6 million downward
reestimate for fiscal year 2011, due to improved
investment performance.
AIFP
The $230 million upward reestimate for the year
ended September 30, 2012, was due to a decline of
$1.6 billion in the value of the Ally investment,
partially offset by an increase in the common stock
market price of New GM, from $20.18 per share at
September 30, 2011 to $22.75 per share at
September 30, 2012.
The $9.9 billion in upward reestimate for the AIFP
for the year ended September 30, 2011, was due to a
decline of over $7.0 billion due to changes in the
common stock price of New GM since its IPO and a
decline in the estimated value of Ally investments
due to market conditions.
AIG Investment Program
The $9.2 billion downward reestimate for the year
ended September 30, 2012 was due primarily to
sales of 806 million shares of common stock at prices
higher than the September 30, 2011 price of $21.95
per share and the effect of valuing the remaining

NOTES TO THE FINANCIAL STATEMENTS

155 million shares at the September 30, 2012 price
of $32.79 per share.
The $18.5 billion downward reestimate for the year
ended September 30, 2011 for the AIG Investment
Program was due primarily to subsidy cost
estimates recorded for $20.3 billion of new
disbursements during the fiscal year. Under budget
rules, the subsidy cost estimate for these new
disbursements was determined based upon subsidy
rates formulated in April 2009, the period in which
OFS originally agreed to make the funding available
to AIG. At that time, OFS calculated a subsidy rate
of 98.98 percent, which resulted in an estimated
subsidy cost of $20.1 billion associated with the
$20.3 billion disbursed in fiscal year 2011. OFS
calculated a $16.7 billion downward reestimate
relating to these fiscal year 2011 disbursements that
reflects improvements in AIG’s financial condition
since the original subsidy rate was formulated. The
remainder of the downward reestimate was due to
the restructuring of the AIG investment to common
stock offset by AIG’s financial condition at
September 30, 2011. At year end, the subsidy
allowance represented about 41 percent of the gross
outstanding AIG Investment Program balance.
Summary Tables
The following detailed tables provide the net
composition, subsidy cost, modifications and
reestimates and a reconciliation of the subsidy cost
allowance for each TARP Direct Loan or Equity
Investment Program for the years ended September
30, 2012 and 2011. Other Credit Program narrative
and detailed tables follow these summary tables.

78

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Troubled Asset Relief Program Loans and Equity Investments

(Dollars in Millions)

TOTAL

CPP

PPIP

AIFP

AIG

CDCI-TALFSBA

As of September 30, 2012
Direct Loans and Equity Investment Programs:
Direct Loans and Equity Investments Outstanding, Gross
Subsidy Cost Allowance
Direct Loans and Equity Investments Outstanding, Net

$

New Loans or Investments Disbursed

$

1,048

$

-

$

1,048

$

-

$

-

$

-

Obligations for Loans and Investments not yet Disbursed

$

4,358

$

-

$

3,058

$

-

$

-

$

1,300

4,857
973
572

$

63,073 $
(22,842)
$ 40,231 $

Reconciliation of Subsidy Cost Allowance:
Balance, Beginning of Period
$ 42,301 $
Subsidy Cost (Income) for Disbursements and Modifications
942
Dividend and Interest Income
2,733
Net Proceeds from Sales and Repurchases of Assets
in Excess of (Less than) Cost
(9,788)
Net Interest Income (Expense) on Borrowings from BPD
and Financing Account Balance
(1,626)
Balance, End of Period, Before Reestimates
34,562
Subsidy Reestimates - Upward (Downward)
(11,720)
Balance, End of Period
$ 22,842 $
Reconciliation of Subsidy Cost (Income):
Subsidy Cost (Income) for Disbursements
Subsidy Cost (Income) for Modifications
Subsidy Reestimates - Upward (Downward)
Total Direct Loan and Equity Investment Programs
Subsidy Cost (Income)

$

8,664 $ 9,763
(2,930)
1,015
5,734 $ 10,778

(285)

$ 37,252 $ 6,727 $
(19,706)
(1,658)
$ 17,546 $ 5,069 $

(2,434) $ 19,440
(31)
1,426
534
223

(290)
5,827
(2,897)
2,930 $

$ 20,717
191

9

$

(9,735)

667
437
1,104

(279)
10
-

(439)
(507)
(349)
(1,255)
19,476
10,824
240
230
(9,166)
(1,015) $ 19,706 $ 1,658 $

(41)
(310)
(127)
(437)

(31) $
973
(11,720)

- $
973
(2,897)

(31) $
240

230

$

- $
(9,166)

(127)

$ (10,778) $

(1,924) $

209

230

$ (9,166) $

(127)

$

Note: There are no budget execution subsidy rates for FY 2012; the OFS authority expired October 3, 2010 with no additional commitments made after September 30,
2010.

(Dollars in Millions)

TOTAL

CPP

PPIP

AIFP

AIG

CDCI-TALFSBA-TIP

As of September 30, 2011
Direct Loans and Equity Investment Programs:
Direct Loans and Equity Investments Outstanding, Gross
Subsidy Cost Allowance
Direct Loans and Equity Investments Outstanding, Net

$ 122,405 $ 17,299 $ 15,943
(42,301)
(4,857)
2,434
$ 80,104 $ 12,442 $ 18,377

$ 37,278 $ 51,087 $
(19,440)
(20,717)
$ 17,838 $ 30,370 $

New Loans or Investments Disbursed

$

23,839

$

-

$

3,421

$

-

$ 20,292

$

126

Obligations for Loans and Investments not yet Disbursed

$

8,479

$

-

$

4,279

$

-

$

$

4,200

Reconciliation of Subsidy Cost Allowance:
Balance, Beginning of Period
$ 36,745 $
Subsidy Cost (Income) for Disbursements and Modifications
18,887
Dividend and Interest Income
3,461
Fee Income
165
Net Proceeds from Sales and Repurchases of Assets
in Excess of (Less than) Cost
(2,262)
Net Interest Income (Expense) on Borrowings from BPD
and Financing Account Balance
(3,016)
Balance, End of Period, Before Reestimates
53,980
Subsidy Reestimates - Upward (Downward)
(11,679)
Balance, End of Period
$ 42,301 $
Reconciliation of Subsidy Cost (Income):
Subsidy Cost (Income) for Disbursements
Subsidy Cost (Income) for Modifications
Subsidy Reestimates - Upward (Downward)
Total Direct Loan and Equity Investment Programs
Subsidy Cost (Income)

$

$

20,071 $
(1,184)
(11,679)
7,208

$

1,546 $
(1,010)
1,283
4,540
(686)
5,673
(816)
4,857 $

-

(676) $ 14,529 $ 21,405
(15)
(174)
20,085
428
1,280
450
165
91

(5,165)

$

(1,918)

798
279
1,077

(59)
1
20
190

(418)
(945)
(938)
(590)
9,525
39,249
(1,844)
9,915
(18,532)
(2,434) $ 19,440 $ 20,717 $

(29)
123
(402)
(279)

$
(1,010)
(816)

(15) $
(1,844)

$ 20,085 $
(174)
9,915
(18,532)

1
(402)

(1,826) $

(1,859) $

9,741

(401)

$

1,553

$

Note: There are no budget execution subsidy rates for FY 2011; the OFS authority expired October 3, 2010 with no additional commitments made after September 30,
2010.

79

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

Other Credit Programs
Asset Guarantee Program
The Asset Guarantee Program (AGP) provided
guarantees for assets held by systemically
significant financial institutions that faced a risk of
losing market confidence due in large part to a
portfolio of distressed or illiquid assets.
Section 102 of the EESA required the Secretary to
establish the AGP to guarantee troubled assets
originated or issued prior to March 14, 2008,
including mortgage-backed securities, and
established the Troubled Assets Insurance
Financing Fund (TAIFF). The OFS completed its
only transaction under the AGP in January 2009,
when it finalized the terms of a guarantee
agreement with Citigroup. Under the agreement,
the OFS, the Federal Deposit Insurance Corporation
(FDIC), and the FRBNY (collectively the USG
Parties) provided protection against the possibility
of large losses on an asset pool of approximately
$301.0 billion of loans and securities backed by
residential and commercial real estate and other
such assets, which remained on Citigroup’s balance
sheet. The OFS’ guarantee was limited to $5.0
billion.
As a premium for the guarantee, Citigroup issued
$7.0 billion of cumulative perpetual preferred stock
(subsequently converted to Trust Preferred
Securities with similar terms) with an 8 percent
stated dividend rate and a warrant for the purchase
of common stock; $4.0 billion and the warrant were
issued to the OFS, and $3.0 billion was issued to the
FDIC. The OFS received $15 million in dividends on
the preferred stock during fiscal year 2011. These
dividends were deposited into the TAIFF. The OFS

NOTES TO THE FINANCIAL STATEMENTS

had also invested in Citigroup through CPP and the
TIP.
In December 2009, the USG Parties and Citigroup
agreed to terminate the guarantee agreement.
Under the terms of the termination agreement
Citigroup cancelled $1.8 billion of the preferred
stock previously issued to OFS. In addition, the
FDIC agreed to transfer to the OFS $800 million of
their Trust Preferred Securities (TruPS) plus
dividends by December 31, 2012. The amount OFS
will receive would be reduced by any losses FDIC
incurs on its Citigroup guaranteed debt. The
additional preferred shares from the FDIC were
included in the subsidy calculation for AGP, based
on the net present value of expected future cash
inflows.
In fiscal year 2011, the OFS sold its TruPS for $2.2
billion and sold additional warrants for $67 million,
leaving only the $800.0 million of TruPS-related
receivable from the FDIC valued at $967 million on
the OFS Balance Sheet at September 30, 2012. This
receivable was valued at $739 million as of
September 30, 2011.
For fiscal year 2012, the AGP program recorded a
$207 million downward reestimate, due to revised
expectations about the timing of receipt of dividends,
interest on the dividends and the TruPS from the
FDIC. OFS expects to receive a cash transfer of
dividends and interest, along with the TruPS
certificates from the FDIC, as scheduled, on
December 31, 2012. For fiscal year 2011, the
program recorded an upward reestimate of $30
million due to a decline in market conditions.
The following table details the changes in the
receivable account and the AGP subsidy cost during
fiscal years 2012 and 2011:

80

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Reconciliation of Asset Guarantee Program Receivable:
Fiscal Year
2012
2011

(Dollars in Millions)

Balance, Beginning of Period
Dividend Revenue
Proceeds from Sales in Excess of Cost
Net Interest Expense on Borrowings from BPD and Financing Account Balance
Balance, End of Period, Before Reestimates
Subsidy Reestimates - (Upward) Downward
Balance, End of Period

$

Reconciliation of Subsidy Cost (Income):
Subsidy Reestimates - Upward (Downward)
Total Subsidy Cost (Income)

$
$

FHA-Refinance Program
The OFS has entered into a loss-sharing agreement
with the FHA to support a program in which FHA
guarantees refinancing of borrowers whose homes
were worth less than the remaining amounts owed
under their mortgage loans. In fiscal year 2011, the
OFS established a $50 million account, held by a
commercial bank, serving as its agent, from which
any required reimbursements for losses will be paid
to third party claimants, including banks or other
investors.
During fiscal year 2012, $234 million of loans were
disbursed by the FHA. As of September 30, 2012,
1,774 loans that FHA had guaranteed, with a total
value of $307 million, had been refinanced under the
program. During fiscal year 2011, $73 million of
loans were guaranteed by the FHA. As of
September 30, 2011, 334 loans that FHA had
guaranteed, with a total value of $73 million, had
been refinanced. OFS’ maximum exposure related
to FHA’s guarantee totaled $41 million and $6
million at September 30, 2012 and 2011,
respectively. OFS’

$

739
21
760
207
967

$ 3,055
(15)
(2,301)
30
769
(30)
$
739

(207) $
(207) $

30
30

guarantee resulted in a liability of $7 million at
September 30, 2012 and a liability of $1 million at
September 30, 2011. The liability was calculated,
using credit reform accounting, as the present value
of the estimated future cash outflows for the OFS’
share of losses incurred on any defaults of the
disbursed loans. As of September 30, 2012, no
claims have been paid under the program.
Budget subsidy rates for the program, entirely for
defaults, excluding modifications and reestimates,
were set at 4.0 percent and 1.26 percent for loans
guaranteed in fiscal years 2012 and 2011,
respectively.
The program recorded a $3 million downward
reestimate for the year ended September 30, 2012,
due to a reduction in market risks and lower than
projected defaults.
The following table details the changes in the FHARefinance Program Liability and the Subsidy Cost
for the program during fiscal years 2012 and 2011:

Reconciliation of FHA-Refinance Program Liability
Fiscal Year
2012
2011

(Dollars in Millions)

Balance, Beginning of Period
Subsidy Cost for Guarantees (Defaults)
Balance, End of Period, Before Reestimates
Subsidy Reestimates - Upward (Downward)
Balance, End of Period
Reconciliation of Subsidy Cost (Income)
Subsidy Cost for Guarantees (Defaults)
Subsidy Reestimates - Upward (Downward)
Total Subsidy Cost (Income)

81

$

$

$
$

1 $
9
10
(3)
7 $

9 $
(3)
6 $

1
1
1

1
1

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

NOTE 7. DUE TO THE GENERAL FUND
As of September 30, 2012, the OFS accrued $9.7
billion of downward reestimates payable to the
General Fund. As of September 30, 2011, the OFS

accrued $4.6 billion of downward reestimates
payable to the General Fund. Due to the General
Fund is a Non-Entity liability on the Balance Sheet.

NOTE 8. PRINCIPAL PAYABLE TO THE BUREAU OF THE PUBLIC DEBT
(BPD)
Equity investments, direct loans and other credit
programs accounted for under federal credit reform
are funded by subsidy appropriations and
borrowings from the BPD. The OFS also borrows
funds to pay the Treasury General Fund for
negative program subsidy costs and downward
reestimates (these reduce program subsidy cost) in
advance of receiving the expected cash flows that
cause the negative program subsidy or downward
reestimate. The OFS makes periodic principal

repayments to the BPD based on the analysis of its
cash balances and future disbursement needs. All
debt is intragovernmental and covered by budgetary
resources. See additional details on borrowing
authority in Note 11, Statement of Budgetary
Resources.
Debt transactions for the fiscal years ended
September 30, 2012 and 2011, were as follows:

As of September 30,
(Dollars in Millions)

2012

Beginning Balance, Principal Payable to the BPD
New Borrowings
Repayments
Ending Balance, Principal Payable to the BPD

$

$

2011

129,497 $
2,658
(79,327)
52,828 $

140,404
35,974
(46,881)
129,497

Borrowings from the BPD by TARP program, outstanding as of September 30, 2012 and 2011, were as
follows:
As of September 30,
(Dollars in Millions)

2012

Capital Purchase Program
CDCI, TALF and SBA 7(a)
Public-Private Investment Program
Automotive Industry Financing Program
American International Group, Inc. Investment Program
Asset Guarantee Program
Total Borrowings Outstanding

As of September 30, 2012, borrowings carried
remaining terms ranging from 2 to 29 years, with
interest rates from 1.0 percent to 4.4 percent. As of

NOTES TO THE FINANCIAL STATEMENTS

$

$

5,150
1,020
16,317
17,845
11,736
760
52,828

2011
$

$

19,003
1,165
23,792
32,419
52,285
833
129,497

September 30, 2011, borrowings carried remaining
terms ranging from 3 to 30 years, with interest rates
from 1.0 percent to 4.7 percent.

82

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

NOTE 9. COMMITMENTS AND CONTINGENCIES
The OFS is party to various legal actions and claims
brought by or against it. In the opinion of
management and the Chief Counsel, the ultimate
resolution of these legal actions and claims will not
have a material effect on the OFS financial
statements. The OFS has not incurred any loss

contingencies that would be considered probable or
reasonably possible for these cases; therefore, no
liability was established. Refer to Note 5 for
additional commitments relating to the TARP’s
Housing Programs and Note 6 relating to Direct
Loan and Equity Investment Programs.

NOTE 10. STATEMENT OF NET COST
The Statement of Net Cost (SNC) presents the net
cost of (income from) operations for the OFS under
the strategic goal of ensuring the overall stability
and liquidity of the financial system, preventing
avoidable foreclosures and preserving
homeownership. The OFS has determined that all
initiatives and programs under the TARP fall within
this strategic goal.
The OFS SNC reports the annual accumulated full
cost of the TARP’s output, including both direct and
indirect costs of the program services and output
identifiable to TARP, in accordance with SFFAS No.
4, Managerial Cost Accounting Concepts and
Standards.
The OFS SNC for fiscal year 2012 includes $2.3
billion of intragovernmental costs relating to
interest expense on borrowings from the BPD and
$605 million in intragovernmental revenues relating
to interest income on financing account balances.
The OFS SNC for fiscal year 2011 includes $3.8

billion of intragovernmental costs relating to
interest expense on borrowings from the BPD and
$781 million in intragovernmental revenues relating
to interest income on financing account balances.
Subsidy allowance amortization on the SNC is the
difference between interest income on financing
fund account balances, dividends and interest
income on direct loans, equity investments and other
credit programs from TARP participants, and
interest expense on borrowings from the BPD.
Credit reform accounting requires that only subsidy
cost, not the net of other costs (interest expense and
dividend and interest income), be reflected in the
SNC. The subsidy allowance account is used to
present the loan or equity investment at the
estimated net present value of future cash flows.
The OFS SNC includes $1.1 billion and $430 million
of subsidy allowance amortization for fiscal years
2012 and 2011, respectively.

NOTE 11. STATEMENT OF BUDGETARY RESOURCES
The Statement of Budgetary Resources (SBR)
presents information about total budgetary
resources available to the OFS and the status of
those resources. For the year ended September 30,
2012, the OFS’ total resources in budgetary accounts
were $41.9 billion and resources in non-budgetary
financing accounts, including borrowing authority
and spending authority from collections of loan
principal, liquidation of equity investments, interest,
dividends and fees were $25.9 billion. For the year
ended September 30, 2011, the OFS’ total resources
in budgetary accounts were $16.4 billion and

83

resources in non-budgetary financing accounts were
$86.5 billion.

Permanent Indefinite Appropriations
The OFS receives permanent indefinite
appropriations annually, if necessary, to fund
increases in the projected subsidy costs of direct
loans, equity investment and other credit programs
as determined by the reestimation process required
by the FCRA.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

Additionally, Section 118 of the EESA states that
the Secretary may issue public debt securities and
use the resulting funds to carry out the Act and that
any such funds expended or obligated by the
Secretary for actions authorized by this Act,
including the payment of administrative expenses,
shall be deemed appropriated at the time of such
expenditure or obligation.

Borrowing Authority
The OFS is authorized to borrow from the BPD
whenever funds needed to disburse direct loans and
equity investments, and to enter into asset
guarantee and loss-sharing arrangements, exceed
subsidy costs and collections in the non-budgetary
financing accounts. For the year ended September
30, 2012, the OFS had borrowing authority available
of $2.6 billion. For the year ended September 30,
2011, the OFS had borrowing authority available of
$8.4 billion.

Undelivered Orders
Undelivered orders as of September 30, 2012 were
$40.2 billion in budgetary accounts and $5.9 billion
in non-budgetary financing accounts. Undelivered
orders as of September 30, 2011 were $43.4 billion in
budgetary accounts and $13.2 billion in nonbudgetary financing accounts.

Explanation of Differences Between
the Statement of Budgetary
Resources and the Budget of the
United States Government
Federal agencies and entities are required to explain
material differences between amounts reported in
the SBR and the actual amounts reported in the
Budget of the U. S. Government (the President’s
Budget).

The OFS uses dividends and interest received as
well as principal repayments on direct loans and
liquidation of equity investments to repay debt in
the non-budgetary direct loan, equity investment
and other credit program financing accounts. These
receipts are not available for any other use per
credit reform accounting guidance.

The President’s Budget for 2014, with the ―Actual‖
column completed for fiscal year 2012, has not yet
been published as of the date of these financial
statements. The President’s Budget is currently
expected to be published and delivered to Congress
in early February 2013. It will be available from the
Government Printing Office.

Apportionment Categories of
Obligations Incurred: Direct versus
Reimbursable Obligations

The 2013 President’s Budget, with the ―Actual‖
column completed for the year ended September 30,
2011, was published in February 2012, and
reconciled to the SBR. The only differences between
the two documents were due to:
 Rounding;
 Expired funds that are not shown in the
Actual column of the President’s Budget;
and
 A $32 million downward modification shown
as an outlay and as a corresponding
distributed offsetting receipt in the SBR in
2011 that was included in the President’s
Budget in fiscal year 2010.

All of the OFS apportionments are Direct and are
Category B. Category B apportionments typically
distribute budgetary resources on a basis other than
calendar quarters, such as by activities, projects,
objects or a combination of these categories. The
OFS obligations incurred are direct obligations
(obligations not financed from intragovernmental
reimbursable agreements).

NOTES TO THE FINANCIAL STATEMENTS

84

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

NOTE 12. RECONCILIATION OF OBLIGATIONS INCURRED TO NET COST
OF (INCOME FROM) OPERATIONS
The OFS presents the SNC using the accrual basis
of accounting. This differs from the obligation-based
measurement of total resources supplied, both
budgetary and from other sources, on the SBR. The
reconciliation of obligations incurred to net cost of
operations shown below categorizes the differences

between the two, and illustrates that the OFS
maintains reconcilable consistency between the two
types of reporting.
The Reconciliation of Obligations Incurred to Net
Cost of (Income from) Operations for the fiscal years
ended September 30, 2012 and 2011 is as follows:

(Dollars in Millions)

2012

2011

Resources Used to Finance Activities:
Budgetary Resources Obligated
Obligations Incurred

$

Actual Offsetting Collections and Recoveries

35,803

$

67,646

(87,383)

Offsetting Receipts

(91,708)

(6,063)

(61,832)

Net Obligations
Other Resources

(57,643)

(85,894)

Total Resources Used to Finance Activities

(57,642)

(85,893)

78,988

23,249

3,157

25,330

1

Resources Used to Finance Items Not Part of Net Cost of (Income from) Operations:
Net Obligations in Direct Loan, Equity Investment and Asset Guarantee Financing Funds
Change in Resources Obligated for Goods, Services and Benefits Ordered but not yet Provided
Resources that Fund the Acquisition of Assets

-

Resources that Fund Prior Period Expenses and Reestimates

(23,294)

Total Resources Used to Finance Items Not Part of Net Cost of (Income from) Operations

58,851

Total Resources Used to Finance the Net Cost of (Income from) Operations

1

(50)
23,562
72,091

1,209

(13,802)

(8,958)

23,293

Components of Net Cost of (Income from) Operations that Will Not Require or Generate
Resources in the Current Period:
Accrued Net Upward (Downward) Reestimates at Year-End
Other
Total Components of Net Cost of (Income from) Operations that Will Not Require or Generate
Resources in the Current Period
Net Cost of (Income from) Operations

85

1
(8,957)
$

(7,748) $

NOTES TO THE FINANCIAL STATEMENTS

6
23,299
9,497

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

Required Supplementary Information
OFFICE OF FINANCIAL ST ABILIT Y (T ROUBLED ASSET RELIEF PROGRAM)

REQUIRED SUPPLEMENTARY INFORMATION
COMBINED STATEMENT OF BUDGETARY RESOURCES
For the Year Ended September 30, 2012
(Unaudited)
2012
Combined

Dollars in Millions

T ARP Programs

Budgetary
Accounts

Nonbudgetary
Financing
Accounts

Budgetary
Accounts

$

$

$

T ARP Administrative

Nonbudgetary
Financing
Accounts

Budgetary
Accounts

Nonbudgetary
Financing
Accounts

BUDGETARY RESOURCES
Unobligated Balances Brought Forward
Recoveries of Prior Year Unpaid Obligations

14,166
146

21,143
6,114

13,967

$

104

21,143

$

6,114

199

$

-

42

-

Borrowing Authority Withdrawn

-

(5,832)

-

(5,832)

-

-

Actual Repayment of Debt, Prior-Year Balances

-

(19,900)

-

(19,900)

-

-

1,525

241

-

Unobligated Balance from Prior Year Budget Authority, Net

14,312

Appropriations

1,525

14,071

27,593

-

27,270

-

323

-

Borrowing Authority

-

2,659

-

2,659

-

-

Spending Authority from Offsetting Collections

-

21,695

-

21,695

-

TOTAL BUDGETARY RESOURCES (Note 11)

-

$

41,905

$

25,879

$

41,341

$

25,879

$

564

$

-

$

27,555

$

8,248

$

27,270

$

8,248

$

285

$

-

STATUS OF BUDGETARY RESOURCES
Obligations Incurred
Unobligated Balance:
Apportioned

41

Total Unobligated Balance
TOTAL STATUS OF BUDGETARY RESOURCES

3,946

-

3,946

41

-

14,309

Unapportioned

13,685

14,071

13,685

238

-

14,350

17,631

14,071

17,631

279

-

$

41,905

$

25,879

$

41,341

$

25,879

$

564

$

$

43,814

$

13,158

$

43,618

$

13,158

$

196

-

$

CHANGE IN OBLIGATED BALANCES
Obligated Balance Brought Forward:
Unpaid Obligations
Uncollected Customer Payments from Federal Sources

-

Obligated Balance, Net, Brought Forward

43,814

Obligations Incurred

-

12,662

(496)

43,618

-

196

12,662

-

27,555

8,248

27,270

8,248

285

-

(30,675)

Gross Outlays
Change in Uncollected Customer Payments from Federal Sources

(9,366)

(30,400)

(9,366)

(275)

-

-

Recoveries of Prior Year Unpaid Obligations

147

(146)

Obligated Balance, Net, End of Period:
Unpaid Obligations, Gross, End of Period

-

(6,114)

40,548

Uncollected Customer Payments from Federal Sources
OBLIGATED BALANCE, NET, END OF PERIOD

(496)

$

40,548

$

$

27,593

$

-

-

(42)

-

5,926

40,384

(349)

-

(6,114)

(104)

5,926

-

147

164

-

(349)

5,577

$

40,384

$

24,354

$

27,270

$

-

-

5,577

$

164

$

24,354

$

323

-

$

BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, Gross
Actual Offsetting Collections

-

Change in Uncollected Customer Payments from Federal Sources
BUDGET AUTHORITY, NET
Gross Outlays

(81,269)

-

147

$

27,593

$

$

30,675

$

Actual Offsetting Collections

-

(56,768) $
9,366

(81,269)

$

147

27,270

$

30,400

$

-

-

(56,768) $
9,366

-

-

$

-

323

$

275

-

$

-

-

(81,269)

-

(81,269)

-

-

Net Outlays

30,675

(71,903)

30,400

(71,903)

275

-

Distributed Offsetting Receipts

(6,063)

-

-

AGENCY OUTLAYS, NET

REQUIRED SUPPLEMENTARY INFORMATION

$

24,612

$

(71,903) $

(6,063)
24,337

$

(71,903) $

275

$

-

86

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

OFFICE OF FINANCIAL ST ABILIT Y (T ROUBLED ASSET RELIEF PROGRAM)

REQUIRED SUPPLEMENTARY INFORMATION
COMBINED STATEMENT OF BUDGETARY RESOURCES
For the Year Ended September 30, 2011
(Unaudited)
2011
Combined

Dollars in Millions

T ARP Programs

Budgetary
Accounts

Nonbudgetary
Financing
Accounts

Budgetary
Accounts

$

$

$

T ARP Administrative

Nonbudgetary
Financing
Accounts

Budgetary
Accounts

Nonbudgetary
Financing
Accounts

BUDGETARY RESOURCES
Unobligated Balances Brought Forward
Recoveries of Prior Year Unpaid Obligations

11,075
3,057

10,548
4,664

10,949

$

3,018

10,548

$

4,664

126

$

-

39

Obligated Balance Brought Forward:
Unpaid Obligations

$

Uncollected Customer Payments from Federal Sources

$

-

Obligated Balance, Net, Brought Forward

41,918

$

(23,816)

69,128

68,898

$

-

18,102

-

Change in Uncollected Customer Payments from Federal Sources

23,320

41,918

$

(23,816)

68,898

$

-

18,102

-

230

23,320

-

230

Uncollected Customer Payments from Federal Sources

-

(4,664)

(3,018)

(4,664)

(39)

-

43,814

Obligated Balance, Net, End of Period:
Unpaid Obligations, Gross, End of Period

-

(3,057)

Recoveries of Prior Year Unpaid Obligations

OBLIGATED BALANCE, NET, END OF PERIOD

69,128

13,158

43,618

13,158

196

-

(496)

$

43,814

$

$

2,278

$

-

(496)

12,662

$

43,618

$

80,697

$

1,886

$

-

-

12,662

$

196

$

80,697

$

392

$

-

BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, Gross
Actual Offsetting Collections

-

Change in Uncollected Customer Payments from Federal Sources
BUDGET AUTHORITY, NET
Gross Outlays
Actual Offsetting Collections
Net Outlays

87

(107,307)

-

-

23,320

$

2,278

$

$

24,501

$

(107,307)

-

-

23,320

(3,290)

$

1,886

$

89,498

$

24,148

$

-

-

(3,290) $

392

$

89,498

353

$

$

-

(107,307)

-

(107,307)

-

24,501

(17,809)

24,148

(17,809)

-

353

REQUIRED SUPPLEMENTARY INFORMATION

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

Other Accompanying Information – Schedule of Spending
OFFICE OF FIN AN CIAL S T ABILIT Y (T R OU BLE D AS S E T R E LIE F P R OGR AM)

OTHER ACCOMPANYING INFORMATION
SCHEDULE OF SPENDING
For the Y e a rs E nde d S e pte mbe r 30, 2012 a nd 2011
(U na udite d)
2012

2011

Budgetary
Accounts

Budgetary
Accounts

$

Dollars in Millions

N onbudgetary
Financing
Accounts

$

$

N onbudgetary
Financing
Accounts

WHAT IS AVAILABLE TO SPEND?
Total Resources per Statement of Budgetary Resources (SBR)
Less Amount Apportioned (not yet agreed to be spent)

41,905

25,879

16,410

$

86,545

(41)

AMOUNT AVAILABLE TO SPEND - OBLIGATIONS INCURRED PER SBR

(36)

(511)

(14,309)

Less Amount Unapportioned (not yet available to be spent)

(3,946)
(13,685)

(14,130)

(20,632)

$

27,555

$

8,248

$

2,244

$

65,402

$

20

$

-

$

24

$

-

HOW WAS THE AMOUNT SPENT?
Personnel Compensation
Personnel Benefits

6

-

6

-

Travel and Transportation

1

-

1

-

Supplies and Materials

2

-

-

-

244

3

322

-

3,066

-

1,935

-

Investments and Loans

-

1,048

-

23,839

Interest
Subsidies, including Reestimates for Previously

-

2,252

-

3,828

27,336

6,063

22,213

61,831

30,675

9,366

24,501

89,498

Other Services
Housing Program Incentive Payments

Disbursed Loans and Investments Outstanding 22
TOTAL SPENDING - OUTLAYS PER SBR
AMOUNT REMAINING TO BE SPENT (SPENT FROM PREVIOUSLY OBLIGATED
AUTHORITY)
AMOUNT AVAILABLE TO SPEND - OBLIGATIONS INCURRED PER SBR

The Schedule of Spending presents an overview of how
and where the OFS is obligating and disbursing funds.
Obligations are legally binding agreements that result
in outlays, immediately or in the future. The Schedule
presents total budgetary resources, gross outlays, and
total obligations in further detail than that provided on
the Statement of Budgetary Resources, although the

(3,120)
$

27,555

(1,118)
$

8,248

(22,257)
$

2,244

(24,096)
$

65,402

data used to populate both is the same.
The section ―How Was the Amount Spent‖ presents
disbursements, or outlays, for services received, supplies
purchased, subsidies paid and program loans or
investments made during 2012 or 2011, even if
obligations for those outlays were made in prior years.22.

22

Subsidies disbursed from nonbudgetary financing accounts consist
of negative subsidies and downward reestimates, which are reductions
of subsidy cost, transferred from the financing accounts to the
Treasury General Fund.

OTHER ACCOMPANYING INFORMATION - SCHEDULE OF SPENDING

88

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Part 3: Appendices

89

APPENDIX A: TARP GLOSSARY

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

APPENDIX A: TARP GLOSSARY

90

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

APPENDIX A: TARP GLOSSARY
Asset-Backed Security (ABS): A financial
instrument representing an interest in a pool
of other assets, typically consumer loans.
Most ABS are backed by credit card
receivables, auto loans, student loans, or other
loan and lease obligations.

that focuses on providing financial services to
low- and moderate- income, minority and
other underserved communities, and is
certified by the CDFI Fund, an office within
OFS that promotes economic revitalization
and community development.

Asset Guarantee Program (AGP): A TARP
program under which OFS, together with the
Federal Reserve and the FDIC, agreed to
share losses on certain pools of assets held by
systemically significant financial institutions
that faced a high risk of losing market
confidence due in large part to a portfolio of
distressed or illiquid assets.

Debtor-In-Possession (DIP): A debtor-inpossession in U. S. bankruptcy law has filed a
bankruptcy petition but still remains in
possession of its property. DIP financing
usually has priority over existing debt, equity
and other claims.

Automotive Industry Financing Program
(AIFP): A TARP program under which OFS
provided loans or equity investments in order
to avoid a disorderly bankruptcy of one or
more auto companies that would have posed a
systemic risk to the country’s financial
system.
Capital Purchase Program (CPP): A TARP
program pursuant to which OFS invested in
preferred equity securities and other
securities issued by financial institutions.
Commercial Mortgage-Backed Securities
(CMBS): A financial instrument representing
an interest in a commercial real estate
mortgage or a group of commercial real estate
mortgages.
Commercial Paper (CP): An unsecured debt
instrument with a short maturity period, 270
days or less, typically issued by large financial
institutions or other large commercial firms.
Community Development Capital Initiative
(CDCI): A TARP program that provides lowcost capital to Community Development
Financial Institutions to encourage lending to
small businesses and help facilitate the flow of
credit to individuals in underserved
communities.
Community Development Financial
Institution (CDFI): A financial institution

91

Emergency Economic Stabilization Act
(EESA): The law that created the Troubled
Asset Relief Program (TARP).
Government-Sponsored Enterprises (GSEs):
Private corporations created by the U.S.
Government. Fannie Mae and Freddie Mac
are GSEs.
Home Affordable Modification Program
(HAMP): A TARP program OFS established
to help responsible but struggling
homeowners reduce their mortgage payments
to affordable levels and avoid foreclosure.
Legacy Securities: CMBS and non-agency
RMBS issued prior to 2009 that were
originally rated AAA or an equivalent rating
by two or more nationally recognized
statistical rating organizations without
ratings enhancement and that are secured
directly by actual mortgage loans, leases or
other assets and not other securities.
Making Home Affordable (MHA): A
comprehensive plan to stabilize the U.S.
housing market and help responsible, but
struggling, homeowners reduce their monthly
mortgage payments to more affordable levels
and avoid foreclosure. HAMP is part of MHA.
Mortgage-Backed Securities (MBS): A type of
ABS representing an interest in a pool of
similar mortgages bundled together by a
financial institution.

APPENDIX A: TARP GLOSSARY

AGENCY FINANCIAL REPORT l FISCAL YEAR 2012

Non-Agency Residential Mortgage-Backed
Securities: RMBS that are not guaranteed or
issued by Freddie Mac, Fannie Mae, any other
GSE, Ginnie Mae, or a U.S. federal
government agency.
Preferred Stock: Equity ownership that
usually pays a fixed dividend and gives the
holder a claim on corporate earnings superior
to common stock owners. Preferred stock also
has priority in the distribution of assets in the
case of liquidation of a bankrupt company.
Public-Private Investment Fund (PPIF): An
investment fund established to purchase
Legacy Securities from financial institutions
under PPIP.
Public-Private Investment Program (PPIP): A
TARP program designed to support the
secondary market in mortgage-backed
securities. The program is designed to
increase the flow of credit throughout the
economy by partnering with private investors
to purchase Legacy Securities from financial
institutions.
Qualifying Financial Institution (QFI):
Private and public U.S.-controlled banks,
savings associations, bank holding companies,
certain savings and loan holding companies,
and mutual organizations.
Residential Mortgage-Backed Securities
(RMBS): A financial instrument representing
an interest in a group of residential real estate
mortgages.
SBA: U.S. Small Business Administration.
SBA 7(a) Securities Purchase Program: A
TARP program under which OFS purchased

APPENDIX A: TARP GLOSSARY

securities backed by the guaranteed portions
of the SBA 7(a) loans.
Servicer: An administrative third party that
collects mortgage payments, handles tax and
insurance escrows, and may even bring
foreclosure proceedings on past due mortgages
for institutional loan owners or originators.
The loan servicer also generates reports for
borrowers and mortgage owners on the
collections.
Targeted Investment Program (TIP): A TARP
program created to stabilize the financial
system by making investments in institutions
that are critical to the functioning of the
financial system.
Term Asset-Backed Securities Loan Facility
(TALF): A program under which the Federal
Reserve Bank of New York made term nonrecourse loans to buyers of AAA-rated AssetBacked Securities in order to stimulate
consumer and business lending.
Troubled Asset Relief Program (TARP): The
Troubled Asset Relief Program, which was
established under EESA to stabilize the
financial system and prevent a systemic
collapse.
Trust Preferred Security (TruPS): A security
that has both equity and debt characteristics,
created by establishing a trust and issuing
debt to it. TruPS are treated as capital, not
debt, for regulatory purposes.
Warrant: A financial instrument that
represents the right, but not the obligation, to
purchase a certain number of shares of
common stock of a company at a fixed price

92

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

APPENDIX B: ABBREVIATIONS AND ACRONYMS
ABS

Asset-Backed Securities

LIBOR

AGP

Asset Guarantee Program

LTV

Loan-to-Value Ratio

AIFP

Automotive Industry Financing Program

MBS

Mortgage-Backed Security

AIG

American International Group, Inc.

MHA

Making Home Affordable Program

CBO

Congressional Budget Office

NPV

Net Present Value

CDFI

Community Development Financial Institution

OFS

Office of Financial Stability

CMBS

Commercial Mortgage-Backed Securities

OMB

Office of Management and Budget

CP

Commercial Paper

PPIF

Public-Private Investment Fund

COP

Congressional Oversight Panel

PPIP

Public-Private Investment Program

CPP

Capital Purchase Program

PRA

Principal Reduction Alternative

CDCI

Community Development Capital Initiative

QFI

Qualifying Financial Institution

DIP

Debtor-In-Possession

RMBS

Residential Mortgage-Backed

EESA

Emergency Economic Stabilization Act of
2008

FCRA

Federal Housing Administration

Securities
SIGTARP Special Inspector General for the
Troubled Asset Relief Program

Federal Credit Reform Act of 1990

FHA

FRBNY Federal Reserve Bank of New York

London Interbank Offered Rate

SPV

Special Purpose Vehicle

TAIFF

Troubled Assets Insurance
Financing Fund

GAO

Government Accountability Office

GSE

Government-Sponsored Enterprise

HAFA

Home Affordable Foreclosure Alternatives

TARP

Troubled Asset Relief Program

HHF

Hardest Hit Fund

TIP

Targeted Investment Program

HAMP

Home Affordable Modification Program

TruPS

Trust Preferred Securities

HPDP

Home Price Decline Protection

USDA

U. S. Department of Agriculture

IPO

Initial Public Offering

93

TALF

Term Asset-Backed Securities Loan
Facility

APPENDIX B: ABBREVIATIONS AND ACRONYMS

Office of Financial Stability Websites:
www.FinancialStability.gov
www.MAKINGHOMEAFFORDABLE.gov

Documents Referenced in the AFR:
Monthly Reports to Congress

http:/ /www.treasury.gov/initiatives/financial-stability/reports/ Pages/ Monthly-Report-to-Congress.aspx

The Financial Crisis Response in Charts – April 2012

http:/ /www.treasury.gov/resource-center/data-chart-center/ Documents/20120413_FinancialCrisisResponse.pdf.

Anniversary Reports

http:/ /www.treasury.gov/initiatives/financial-stability/reports/ Pages/TARP-Annual-Retrospectives.aspx

Agency Financial Reports, including 2012, 2011, 2010 and 2009:

http:/ /www.treasury.gov/initiatives/financial-stability/reports/ Pages/Annual-Agency-Financial-Reports.aspx

Housing Scorecard:

http:/ /portal.hud.gov/hudportal/ HUD?src=/initiatives/ Housing_Scorecard

Warrant Disposition Report:

http:/ /www.treasury.gov/initiatives/financial-stability/reports/ Pages/Warrant-Disposition-Reports.aspx

PPIP Quarterly Reports

http:/ /www.treasury.gov/initiatives/financial-stability/reports/ Documents/ External%20Report%20-%2009-12%20vFinal.pdf

Making Home Affordable Monthly Reports:

http:/ /www.treasury.gov/initiatives/financial-stability/reports/ Pages/ Making-Home-Affordable-Program-Performance-Report.aspx

www.financialst ability.gov


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102