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The Department of the Treasury

Agency Financial
Report

Office of Financial Stability – Troubled Asset Relief Program

Fiscal year 2015

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Table of Contents
FOREWORD ............................................................................................................................................................. iv
MESSAGE FROM THE DEPUTY ASSISTANT SECRETARY FOR FINANCIAL STABILITY ............ v
EXECUTIVE SUMMARY ..................................................................................................................................... viii
Part 1: Management’s Discussion and Analysis
Background, OFS Organization Structure, and Program ....................................................................... 3
OFS Operational Goals ....................................................................................................................................... 10
Operational Goal One: Complete the Wind-down of the Investment Programs........................ 10
Operational Goal Two: Continue Helping Families in Need to Avoid Foreclosure ................... 12
Operational Goal Three: Minimize Cost to Taxpayer ............................................................................ 14
Operational Goal Four: Continue to Operate with the Highest Standards of Transparency,
Accountability, and Integrity .......................................................................................................................... 15
Fiscal Year 2015 and 2014 Financial Summary and Cumulative Net Income ............................ 18
Systems, Controls, and Legal Compliance.................................................................................................. 24
Other Management Information, Initiatives, and Issues ..................................................................... 28
Limitations of the Financial Statements ..................................................................................................... 29
Part 2: Financial Section
MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CFO) .................................................................. 33
GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT.................................................... 34
Appendix I: Management’s Report on Internal Control over Financial Reporting .................. 40
Appendix II: OFS Response to Auditor’s Report .................................................................................... 41
FINANCIAL STATEMENTS ............................................................................................................................... 42
NOTES TO THE FINANCIAL STATEMENTS ............................................................................................... 47
Part 3: Other Information (Unaudited)
Section A – Combined Schedule of Spending ........................................................................................... 79
Section B – IPIA (as amended by IPERA and IPERIA)........................................................................... 80
Part 4: Appendices
Appendix A: TARP Glossary............................................................................................................................. 84
Appendix B: Abbreviations and Acronyms ............................................................................................... 86

For the online version of this Report see www.FinancialStability.gov
and search on Reports by Frequency, Yearly

TABLE OF CONTENTS

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

FOREWORD
The Office of Management and Budget (OMB) Circular A-136 provides agencies with the guidance
for reporting financial and performance information to Congress, the President, and the American
people on an annual basis. In lieu of the consolidated Performance and Accountability Report (PAR),
the U.S. Department of the Treasury’s (Treasury) Office of Financial Stability (OFS) has chosen to
prepare a series of separate reports to provide the fiscal year 2015 financial and performance
information for the Troubled Asset Relief Program (TARP). The following Agency Financial Report
(AFR) is the first in this series of reports, and includes the following components:








Message from the Deputy Assistant Secretary: A statement from the Deputy Assistant
Secretary providing his assessment of the reliability and completeness of the financial and
performance data contained in the report, as well as a summary status of TARP programs.
Management’s Discussion and Analysis: This section contains summary information about
the history of TARP and the mission and organizational structure of OFS; background and
analysis of OFS programs and Operational Goals; and analysis of financial statements,
systems, controls, and legal compliance, including the Deputy Assistant Secretary’s
Statement of Assurance.
Financial Report: This section provides a message from the Chief Financial Officer, the
Report of the Independent Auditors, the financial statements, the notes to the financial
statements, and other statutory reporting.
Other Information: This section includes the Combined Schedule of Spending and
information regarding the Improper Payments Information Act (IPIA).

In addition to this AFR, the performance section of the OFS fiscal year 2017 Congressional Budget
Justification and the Citizens’ Report satisfy the reporting requirements of the following major
legislation:







Reports Consolidation Act of 2000;
Government Performance and Results Act of 1993 (GPRA) and GPRA Modernization Act of
2010;
Government Management Reform Act of 1994 (GMRA);
Federal Managers’ Financial Integrity Act of 1982 (FMFIA);
Federal Financial Management Improvement Act of 1996 (FFMIA); and
Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments
Elimination and Recovery Act of 2010 (IPERA).

These reports will be available on the OFS website at: http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx

iv

FOREWORD

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

MESSAGE FROM THE DEPUTY ASSISTANT SECRETARY FOR
FINANCIAL STABILITY
November 5, 2015
I am pleased to present the Office of Financial Stability’s (OFS) Agency Financial Report for the
Fiscal Year 2015. This report describes our financial and performance results for the seventh year of
the Troubled Asset Relief Program (TARP). Within this report you will find the comparative fiscal
years 2015 and 2014 financial statements for TARP, and the Government Accountability Office’s
(GAO) auditor’s report with the audit opinion on these financial statements, an opinion from GAO on
OFS’s internal control over financial reporting for TARP, and the results of the GAO’s tests of OFS’s
compliance with selected provisions of laws, regulations, contracts, and grant agreements applicable
to OFS.
The Emergency Economic Stabilization Act of 2008 (EESA) established OFS within Office of
Domestic Finance at the Department of the Treasury (Treasury) to implement the TARP. With the
nation in the midst of the worst financial crisis since the Great Depression, TARP was created to
“restore the liquidity and stability of the financial system.” It was an extraordinary response to an
extraordinary crisis.
Today, it is generally agreed that as a result of the forceful and coordinated response by the federal
government through TARP and many other emergency programs, we helped avert what could have
been a devastating collapse of our financial system. Although we are still repairing the damage from
the crisis and many families still face challenges on a daily basis, the financial system is much more
stable and our economy is growing, albeit not as fast as we would like. Credit is more available than
would otherwise be the case for families, businesses, and local governments, banks are better
capitalized, and we are implementing reforms to address the underlying causes of the crisis.
OFS has made significant progress towards winding down TARP investments. As of September 30,
2015, OFS had collected 103 percent of the $412.1 billion in program funds that were disbursed
under TARP investment programs, as well as an additional $17.5 billion from Treasury’s equity
stake in AIG. Here is where we stand concerning the four categories of TARP investment programs:

•

Banking Programs. OFS has collected more than $275.4 billion (including $339 million
collected in fiscal year 2015) for all TARP bank support programs through repayments, sales,
dividends, interest, and other income, compared to $245.5 billion invested. As of September
30, 2015, $714 million in banking program investments remained outstanding, primarily in
community banks, and OFS is continuing to wind down these investments through
repurchases by banks and asset sales.

•

Credit Market Programs. OFS has completed the wind-down of all of the TARP credit
market programs, including investments made under the Public-Private Investment
Program (PPIP), Term Asset-Backed Securities Loan Facility (TALF) program, and the SBA
7(a) Securities Purchase Program. As of the end of fiscal year 2015, OFS has collected $23.6
billion compared to $19.1 billion disbursed under these programs.



Auto Industry Financing Program. In December 2014, OFS completed the wind-down of the
Auto Industry Finance Programs (AIFP) with the sale of its remaining 55 million shares of

MESSAGE FROM THE DEPUTY ASSISTANT SECRETARY

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Ally Financial. In total, OFS collected $70.5 billion through sales, repayments, dividends,
interest, recoveries, and other income, compared to $79.7 billion disbursed under the
program.

•

American International Group. In fiscal year 2013, OFS exited all remaining holdings in the
American International Group, Inc. (AIG). During the financial crisis, the peak amount of
assistance committed by OFS and the Federal Reserve to prevent the collapse of AIG totaled
$182.3 billion, a portion of which was later canceled. As a result of the combined efforts of
AIG, Treasury, and the Federal Reserve, $22.7 billion in excess of the total of funds
disbursed to AIG was recovered through sales and other income. Of the $67.8 billion total
disbursed to AIG by OFS, TARP’s cumulative net collections from repayments, sales,
dividends, interest, and other income related to AIG assets totaled $55.3 billion. Treasury’s
non-TARP AIG shares generated proceeds in excess of cost of $17.5 billion, resulting in net
proceeds in excess of cost of $5.0 billion for Treasury as a whole.

While OFS carefully winds down the investment programs under TARP, we are continuing to
implement and enhance the TARP Housing Programs to continue helping struggling homeowners
avoid foreclosure, primarily through mortgage modifications and other forms of direct assistance.
These programs (which include the government sponsored enterprises (GSE) programs) have also
created new mortgage modification and consumer protection standards that have helped transform
the mortgage servicing industry, thereby indirectly helping millions more families. On June 26,
2014, the Obama Administration announced the extension of the application deadline for the Making
Home Affordable Program (MHA) through at least December 2016 in order to provide struggling
homeowners additional time to access these foreclosure prevention programs.
The financial and performance data contained in this report are reliable and complete. For the
seventh consecutive year, OFS has earned unmodified opinions from the Government Accountability
Office (GAO) on its financial statements for TARP, and its internal control over financial reporting
for TARP.
Sincerely,

Mark McArdle
Deputy Assistant Secretary for Financial Stability

vi

MESSAGE FROM THE DEPUTY ASSISTANT SECRETARY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

FOREWORD

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

EXECUTIVE SUMMARY
Seven years ago, the U.S. financial system faced
challenges on a scale not seen since the Great
Depression. The banks and financial markets,
that American families and businesses rely on to
meet their everyday financing needs, were on
the brink of failure. By October 2008, major
financial institutions of all sizes were threatened
and many of them tried to shore up their balance
sheets by shedding risky assets and hoarding
cash. People were rapidly losing trust and
confidence in the stability of America’s financial
system and the capacity of the government to
contain the damage. Without immediate and
forceful action by Congress and the federal
government, the U.S. economy faced the risk of
falling into a second Great Depression.

programs was $430.1 billion, OFS has collected
$424.9 billion (or $442.4 billion if including the
$17.5 billion in proceeds from the additional
Treasury AIG shares) through repayments,
sales, dividends, interest, and other income. As
of September 30, 2015, only $714 million in bank
investments remain outstanding.

It was out of these extraordinary circumstances
that the Troubled Asset Relief Program (TARP)
and the Office of Financial Stability (OFS) were
created. They were a central part of the
emergency measures taken by the federal
government pursuant to the Emergency
Economic Stabilization Act of 2008 (EESA).
Collectively, TARP and the federal government’s
other emergency programs helped to prevent the
collapse of our financial system. As a result of
the careful design, implementation, and
coordination of these programs, the federal
government was able to limit the broader
financial and economic damage caused by the
crisis. Although we are still recovering, these
measures were critical to restarting economic
growth, and in restoring access to capital and
credit.

Each year, OFS reports on our Operational
Goals, which were developed by management to
achieve our strategic goal to promote domestic
economic growth and stability while continuing
reforms of the financial system. These goals
include:

Since late 2010, when OFS’s authority to make
new commitments under TARP expired, OFS
has focused on carefully winding down TARP’s
investment programs, recovering the OFS’s
outstanding investments, and continuing to
implement the various housing programs under
TARP to help struggling homeowners avoid
foreclosure. While the total disbursed for TARP

viii

The MD&A describes the establishment of OFS,
its background, mission, organizational
structure, and programs. OFS administers
programs that fall into two major categories:
Investments and Housing. In total, OFS had
responsibility for 13 individual programs. Most
of these programs have either been closed or are
in the process of winding down.

1. Completing the wind-down of remaining
TARP investment programs;
2. Continuing to help struggling
homeowners avoid foreclosure;
3. Minimizing the cost of the TARP
programs to the taxpayer; and
4. Operating with the highest standards of
transparency, accountability, and
integrity.
The first operational goal is to complete the
wind-down of the remaining TARP investment
programs. OFS continues to implement the
three-pronged exit strategy announced in May
2012 for the Capital Purchase Program (CPP).
That strategy includes: (i) waiting for those
banks that are able to repay in full in the near
future to do so; (ii) restructuring OFS’s
investments in limited cases; and (iii) selling
investments through auctions when the bank is
not expected to repay in the near future.

EXECUTIVE SUMMARY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

As of September 30, 2015, OFS has completed
the wind-down of all three TARP credit market
programs: the Public-Private Investment
Program, the Term-Asset-Backed Securities
Loan Facility, and the Small Business
Administration 7(a) Securities Purchase
Program. These programs resulted in collections
in excess of disbursements of $4.5 billion on
behalf of taxpayers.
OFS completed the wind-down of the
Automotive Industry Financing Program (AIFP)
during fiscal year 2015. In December 2014, OFS
sold the remaining 55 million shares of Ally
Financial common stock for $1.3 billion in an
underwritten offer.
OFS’s second operational goal is to continue
helping struggling homeowners avoid
foreclosure. The Making Home Affordable
Program (MHA) is helping homeowners and
assisting in stabilizing the housing market. On
June 26, 2014, the Administration extended the
application deadline for MHA programs for at
least one additional year through 2016, to
provide struggling homeowners additional time
to access sustainable mortgage relief.
In December 2014 and July 2015, OFS
announced enhancements to MHA programs to
better assist struggling homeowners and
communities still recovering from the effects of
the financial crisis.
The largest program within MHA is the Home
Affordable Modification Program (HAMP).
Under this program more than 1.5 million
homeowners have had their mortgages modified
permanently. HAMP has also set new standards
and changed practices throughout the mortgage
servicing industry in fundamental ways.
In addition, the Hardest Hit Fund (HHF)
provides funding to 18 states and the District of
Columbia through each state’s Housing Finance
Agency (HFA) to provide assistance to struggling
homeowners through locally-tailored programs.
HFAs have implemented a number of different

EXECUTIVE SUMMARY

programs to help homeowners, including
mortgage payment assistance, reinstatement,
short sale/transition assistance, principal
reduction, and modification assistance. As the
housing recovery has evolved, HFAs have
undertaken initiatives such as blight elimination
and down payment assistance programs to stem
foreclosures by stabilizing neighborhoods and
property values. Seven HFAs have closed their
HHF application portals in anticipation of full
commitment of program funds.
The third operational goal of OFS is to minimize
the cost of the TARP programs to the taxpayer.
OFS pursues this goal by carefully managing the
timely exit of these investments to reduce
taxpayers’ exposure, returning TARP funds to
reduce the federal debt, and continuing to
replace government assistance with private
capital in the financial system. OFS also takes
steps to confirm that TARP recipients comply
with any TARP-related statutory or contractual
obligations such as executive compensation
requirements and restrictions on dividend
payments.
OFS’s final operational goal is to continue
operating with the highest possible standards of
transparency, accountability, and integrity.
OFS posts a variety of reports online that
provide taxpayers with 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. In addition to discussing
program performance, the MD&A addresses
OFS’s financial performance in the Fiscal Year
2015 and 2014 Financial Summary and
Cumulative Net Income section. OFS provides
an overview of its financial data and explains its
fiscal year 2015 net income from operations and
related loans, equity investments, and other
credit programs.
Finally, the Systems, Controls, and Legal
Compliance section of the MD&A provides a
discussion of the actions OFS has taken to

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

address its management control responsibilities.
This section includes OFS’s assurance related to
the Federal Managers’ Financial Integrity Act

x

and the determination of its compliance with the
Federal Financial Management Improvement
Act.

EXECUTIVE SUMMARY

PART 1:

Management’s
Discussion
and Analysis

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Background, OFS Organization Structure, and Program
Background

OFS Organization Structure

In response to the worst financial crisis since the
Great Depression, the Troubled Asset Relief
Program (TARP) was created on October 3, 2008
pursuant to the Emergency Economic
Stabilization Act (EESA). To carry out the
authorities given to the Secretary of the
Treasury to implement TARP, the U.S.
Department of the Treasury (Treasury)
established the Office of Financial Stability
(OFS) within the Office of Domestic Finance.
EESA authorized the Secretary of the Treasury
to 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” to restore the liquidity and stability
of the financial system. The terms “troubled
assets” and “financial institution” are defined
within EESA, which can be found at:

OFS is currently headed by the Deputy
Assistant Secretary for Financial Stability.
Reporting to the Deputy Assistant Secretary are
four major organizations: the Office of Finance
and Operations, the Office of the Chief Home
Ownership Preservation Officer, the Office of the
Chief Investment Officer, and the Office of the
Chief Compliance Officer. A Chief Counsel’s
Office and an Office of Financial Agents also
reports to the Deputy Assistant Secretary as
well as to other Departmental Officers.

http://www.gpo.gov/fdsys/pkg/BILLS110hr1424enr/pdf/BILLS-110hr1424enr.pdf
In addition, 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 billion to a
cumulative $475 billion. OFS’s authority to
make new commitments under TARP expired on
October 3, 2010. OFS is carefully managing the
disposition of TARP financial assets to recover
OFS’s outstanding investments while continuing
to implement initiatives to help struggling
homeowners avoid foreclosure.

MANAGEMENT’S DISCUSSION AND ANALYSIS

The OFS organization chart follows:

Office of
Financial
Agents

Office of
Finance and
Operations

Deputy Assistant Secretary for
Financial Stability

Office of the
Chief Home
Ownership
Preservation
Officer

Office of the
Chief
Investment
Officer

Chief
Counsel

Office of the
Chief
Compliance
Officer

OFS is not envisioned as a permanent
organization, so to the maximum extent possible
when economically efficient and appropriate,
OFS utilizes private sector expertise to support
the execution and liquidation of TARP
programs. These firms assist in the areas of
custodial services, accounting and internal
controls, administrative support, legal advisory,
financial advisory, and information technology.

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

OFS Programs
Bank Support Programs (CPP, TIP, AGP,
CDCI, SCAP)
By late September 2008, several major financial
institutions had already failed. Many others
were at risk of failure, and people were rapidly
losing confidence in the nation’s financial system
as a whole. Therefore beginning in early
October 2008, OFS launched five bank support
programs to help stabilize the nation’s banking
institutions.

Capital Purchase Program
The Capital Purchase Program (CPP) was
launched in October 2008 to help stabilize the
financial system by providing capital to viable
financial institutions of all sizes throughout the
nation. Without a viable banking system,
lending to businesses and consumers could have
frozen and the financial crisis might have
spiraled further out of control. Based on market
indicators at the time, it was clear that financial
institutions needed additional capital to absorb
losses and restart the flow of credit.
With the additional capital that OFS offered,
CPP participants were better equipped to
undertake new lending and continue to provide
other services to consumers and businesses. OFS
received preferred stock or subordinated debt
securities in exchange for the CPP investments.
Most financial institutions participating in the
CPP paid OFS a five percent dividend on
preferred shares for the first five years and a
nine percent rate thereafter. In addition, OFS
received warrants to purchase common shares or
other securities from the banks to enable OFS to
receive additional returns on its investments as
banks recovered.
OFS has focused on winding down the CPP
according to the exit strategy announced on May
3, 2012. That strategy includes repayments by
those institutions that are able to do so, selling

4

OFS’s positions in banks that are unlikely to
repay in the near-term, and restructuring some
investments.

Targeted Investment Program
OFS established the Targeted Investment
Program (TIP) in December 2008. The program
gave OFS the necessary flexibility to provide
funding to financial institutions that were
critical to the functioning of the U.S. financial
system.
OFS invested a total of $40.0 billion in two
institutions – Bank of America (BofA) and
Citigroup – under the TIP. Similar to the CPP,
OFS invested in preferred stock and received
warrants to purchase common stock in each
institution. The TIP investments provided for
annual dividends of eight percent. The program
also imposed greater reporting requirements
and other restrictions on BofA and Citigroup.
OFS completed the wind-down of the TIP in
December 2009 when both BofA and Citigroup
repaid their TIP investments in full. OFS
received net proceeds of $4.4 billion in excess of
disbursements.

Asset Guarantee Program
Under the Asset Guarantee Program (AGP),
TARP commitments were used to support two
institutions – BofA and Citigroup. OFS selected
them because of the large number of illiquid
assets they held at the time of the financial
crisis and the severe impact that their failure
would have had on the broader economy. BofA,
however, ultimately decided not to participate in
this program, and paid OFS a termination fee of
$276 million. In January 2009, OFS, the
Federal Reserve, and the Federal Deposit
Insurance Corporation (FDIC) agreed to share
potential losses on a $301 billion pool of
Citigroup's covered assets. As a premium for the
guarantee to Citigroup, OFS received $4.0
billion of Citigroup preferred stock, which was
reduced to $1.8 billion upon early termination of
the agreement. OFS completed the wind-down of

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

the AGP in February 2013, and received more
than $4.1 billion in proceeds from the AGP
without disbursing any claim payments.

Community Development Capital Initiative
On February 3, 2010, OFS created the
Community Development Capital Initiative
(CDCI) to help viable certified Community
Development Financial Institutions (CDFIs) and
the communities they serve cope with effects of
the financial crisis. It was put in place to help
keep day-to-day financing available to families
and businesses in hard-hit communities that are
underserved by traditional banks.
Since many CDFIs don’t have the same access to
capital markets as larger banks, the program
was designed with more generous terms than
the CPP. Under this program, CDFI banks,
thrifts, and credit unions received investments
aggregating $570 million in capital with an
initial dividend or interest rate of two percent.
To encourage repayment while recognizing the
unique circumstances facing CDFIs, the
dividend rate increases to nine percent after
eight years. CDFIs that participated in the CPP
and were in good standing were allowed to
exchange their CPP securities for securities
under the more favorable terms of this program.

Supervisory Capital Assessment Program
(SCAP)
In 2009, Treasury worked with federal banking
regulators to develop a comprehensive "stress
test" known as the Supervisory Capital
Assessment Program (SCAP). The purpose of
the SCAP was to determine the health of the
nation’s 19 largest bank holding companies with
unprecedented transparency and thereby help
restore confidence in the banking system. In
conjunction with the SCAP, Treasury announced
that it would provide capital under TARP
through the Capital Assistance Program (CAP)
to those institutions that needed additional
capital but were unable to raise it through

MANAGEMENT’S DISCUSSION AND ANALYSIS

private sources. The CAP closed on November 9,
2009, without making any investments.
For additional information on the bank support
programs please visit the OFS website at:
http://www.treasury.gov/initiatives/financialstability/TARP-Programs/bank-investmentprograms/Pages/default.aspx

Credit Market Programs (PPIP, TALF, SBA
7(a))
As the financial crisis reached its peak, banks
were not making new loans to businesses or each
other. As a result, many businesses could not
get loans for new investments, municipalities
and state governments could not issue bonds at
reasonable rates, and families could not get
credit. The securitization markets—which
provide financing for credit cards, student loans,
auto loans, and other consumer loans as well as
small business loans—had basically stopped
functioning. OFS launched three programs in
2009 to help unfreeze these markets and bring
down the cost of borrowing for families and
businesses: the Public-Private Investment
Program (PPIP), the Term Asset‐Backed
Securities Loan Facility (TALF), and the Small
Business Administration (SBA) 7(a) Securities
Purchase Program. Although the specific goals
and implementation methods of each program
differed, the overall goal of these three programs
was the same—to restart the flow of credit to
meet the critical needs of small businesses and
consumers.

Public-Private Investment Program
On March 23, 2009, OFS launched the Legacy
Securities Public-Private Investment Program
(PPIP) to help restart the market for non-agency
residential mortgage-backed securities (RMBS)
and commercial mortgage-backed securities
(CMBS).
The purpose of PPIP was to draw new private
capital into the market for legacy RMBS and

5

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

CMBS by providing financing on attractive
terms as well as a matching equity investment
from OFS. Using up to $22.1 billion of TARP
funds alongside equity capital raised from
private investors, PPIP was designed to
generate significant purchasing power and
demand for troubled RMBS and CMBS.

industries, including retail, food services,
manufacturing, scientific and technical services,
healthcare, and educational services.

Term Asset-Backed Securities Loan Facility
(TALF)

For additional information on the credit market
programs, please visit the OFS website at:

The Term Asset-Backed Securities Loan Facility
(TALF) was a joint OFS-Federal Reserve
program that was designed to restart the
markets for asset-backed securities (ABS) and
commercial mortgage-backed securities (CMBS),
which had ground to a virtual standstill during
the early months of the financial crisis.
Under the TALF, the Federal Reserve Bank of
New York (FRBNY) provided non-recourse
funding to any qualified borrower that owned
eligible collateral. On fixed days each month,
borrowers were allowed to request three-year, or
in certain cases, five-year TALF loans. If the
borrower did not repay the loan, the FRBNY
would enforce its rights to the collateral and sell
it to TALF, LLC-a special purpose vehicle (SPV)
established specifically to purchase and manage
these assets. OFS initially committed $20.0
billion in subordinated loans to the SPV but did
not directly lend to TALF borrowers.

Small Business Administration 7(a)
Securities Purchase Program
OFS launched the SBA 7(a) Securities Purchase
Program to help facilitate the recovery of the
secondary market for small business loans, and
thus help free up credit for small businesses.
Under this program, OFS purchased securities
comprised of the guaranteed portion of SBA 7(a)
loans, which finance a wide range of small
business needs. OFS invested approximately
$367 million in 31 SBA 7(a) securities between
March and September 2010. These securities
were comprised of 1,001 loans from 17 different

6

Investments under the SBA 7(a) program were
fully liquidated by January 2012, resulting in
proceeds in excess of cost of $9 million.

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/credit-marketprograms/Pages/default.aspx

Automotive Industry Financing Program
(AIFP)
The Automotive Industry Financing Program
(AIFP) was launched in December 2008 to help
prevent the disorderly liquidations of General
Motors (GM) and Chrysler, and thus significant
disruption of the U.S. auto industry. The
potential for such a disruption at that time
threatened the overall economy as it could have
led to a loss of as many as one million American
jobs. Recognizing that both GM and Chrysler
were on the verge of collapse, OFS extended
loans to both companies and their financing
entities.
In 2009, OFS agreed to provide additional funds
conditioned on each company and its
stakeholders participating in a fundamental
restructuring that was achieved in record time.
In total OFS disbursed $79.7 billion in loans and
equity investments to GM, Chrysler, and
General Motors Acceptance Corporation (now
known as Ally Financial). As a result, General
Motors Company (New GM), Chrysler Group
LLC (New Chrysler), and Ally are more
competitive and viable companies, supporting
American jobs and the economy. Operating
results have improved, the industry added jobs,
and TARP investments have been liquidated.
OFS collected $70.5 billion through sales,
repayments, dividends, interest, recoveries, and
other income, compared to $79.7 billion

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

disbursed under the program. Recoveries from
the bankruptcy liquidation of Old Chrysler and
Old GM remain possible.
For additional information on the AIFP, please
visit the OFS website at:
http://www.treasury.gov/initiatives/financialstability/TARP-Programs/automotiveprograms/Pages/default.aspx

American International Group, Inc. (AIG)
Investment Program
On September 15, 2008, Lehman Brothers filed
for bankruptcy. This triggered the start of a run
on money market funds generally. The day
after, AIG – one of the largest and most complex
financial firms in the world – was on the verge of
failure. When the financial crisis hit, AIG had
hundreds of billions of dollars in commitments
without the capital and liquidity to back them.
Millions of people depended on AIG for their life
savings and it had a huge presence in many
critical financial markets, including municipal
bonds. Therefore, with AIG facing potentially
fatal liquidity problems and with the crisis
threatening to intensify and spread more
broadly throughout the economy, OFS and the
Federal Reserve provided assistance to AIG.
The initial assistance to AIG was provided by
the FRBNY before the passage of EESA. After
EESA became law, OFS and the FRBNY
continued to work together to address the
challenges posed by AIG. In 2008 and 2009,
OFS funds were used to provide further support
to AIG. In fiscal year 2011, OFS, the FRBNY,
the trustees of the AIG Credit Facility Trust (the
Trust)1 and AIG completed a restructuring of the
assistance provided by OFS and the FRBNY. A
series of integrated transactions and corporate
1

The independent trust established to manage the
Department of the Treasury’s beneficial interest in
Series C preferred AIG shares.

MANAGEMENT’S DISCUSSION AND ANALYSIS

actions were executed to accelerate the
repayment of taxpayer funds and to promote
AIG’s transition from a majority governmentowned and supported entity to a financially
sound and independent entity.
In fiscal year 2013, OFS exited all remaining
holdings in AIG through the sale of common
stock and AIG’s repurchase of warrants. During
the financial crisis, the OFS’s and the FRBNY’s
peak support for AIG totaled $182.3 billion.
That included $69.8 billion that OFS committed
and $112.5 billion committed by the FRBNY,
including $22.1 billion in commitments which
were later canceled. As a result of the combined
efforts of AIG, OFS, and the FRBNY, $22.7
billion in excess of the total of funds disbursed
were recovered through sales and other income.
OFS’s cumulative net proceeds from
repayments, sales, dividends, interest, and other
income related to AIG assets totaled $55.3
billion. While TARP recovered less than its
$67.8 billion total investment, this was offset by
the proceeds from the additional Treasury
shares of AIG, resulting in overall proceeds
exceeding disbursements by $5.0 billion for
Treasury as a whole.
For additional information on the AIG
Investment Program, please visit the Office of
Financial Stability website at:
http://www.treasury.gov/initiatives/financialstability/TARP-Programs/aig/Pages/default.aspx

Housing Programs
OFS established several housing programs
under TARP to address the historic housing
crisis and help struggling homeowners avoid
foreclosure wherever possible. These programs
have helped homeowners avoid foreclosure and
introduced important new reforms for the
mortgage servicing industry to help make
mortgage modifications become more
sustainable and affordable.

7

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Making Home Affordable (MHA)
In early 2009, OFS launched the Making Home
Affordable® Program (MHA) to help struggling
homeowners avoid foreclosure and stabilize the
housing market. OFS has committed $29.8
billion to the MHA program.
MHA is aimed at helping homeowners
experiencing financial hardships to remain in
their homes until their financial position
improves or they relocate to a more sustainable
living situation. At the same time, MHA
protects the interests of taxpayers by disbursing
funds only when transactions are completed and
only as long as contracts remain in place.
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 and sustainable levels and avoid
foreclosure. In addition to HAMP, OFS
introduced programs under MHA to help
homeowners who are unemployed, “underwater”
on their loan (i.e. those who owe more on their
home than it is currently worth), or are
struggling with a second lien. MHA also includes
options for homeowners who would like to
transition to a more affordable living situation
through a short sale or deed-in-lieu of
foreclosure.
On June 26, 2014, the Administration
announced that the application deadline for
MHA would be extended at least a year to
December 31, 2016. MHA has set new
standards for mortgage assistance and consumer
protection, which have contributed to millions of
homeowners receiving assistance to avoid
foreclosure through other government programs
and proprietary mortgage modifications.
In addition to HAMP, MHA includes programs
to help homeowners address specific types of
mortgages, in conjunction with the Federal
Housing Administration (FHA) and the United
States Department of Agriculture (USDA).

8

Housing Finance Agency (HFA) Innovation
Fund for the Hardest Hit Housing Markets
(Hardest Hit Fund)
The Administration established the Hardest Hit
Fund in February 2010 to provide targeted aid
to homeowners in states hit hardest by the
economic and housing market downturn. As
part of the Administration’s overall strategy for
restoring stability to housing markets, the
Hardest Hit Fund provides funding for state
Housing Finance Agencies (HFAs) to develop
locally-tailored foreclosure prevention solutions
in areas that have been hardest hit by home
price declines and high unemployment. The
$7.6 billion in HHF funds were allocated among
18 states and the District of Columbia (DC).
Hardest Hit Fund programs vary state to state,
but may include such programs as mortgage
payment assistance for unemployed or
underemployed homeowners, principal reduction
to help homeowners get into more affordable
mortgages, funding to eliminate homeowners’
second lien loans, funding for blight elimination
activities, funding for down payment assistance
to homebuyers, and help for homeowners who
are transitioning out of their homes into more
affordable living situations.
For additional information on the housing
programs, please visit the OFS website at:
http://www.treasury.gov/initiatives/financialstability/TARPPrograms/housing/Pages/default.aspx

Support for 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 FHA
Refinance program, is intended to provide more

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

opportunities for qualifying mortgage loans to be
restructured and refinanced into FHA-insured
loans. TARP funds have been made available up

MANAGEMENT’S DISCUSSION AND ANALYSIS

to $100 million to provide additional coverage to
lenders for a share of potential losses on these
loans.

9

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

OFS Operational Goals
OFS’s Operational Goals were developed by
management to achieve our strategic objective to
wind down emergency financial crisis response
programs under our strategic goal of promoting
domestic economic growth and stability while
continuing reforms of the financial system. The
following discussion of OFS operational goals
focuses on significant events that occurred
during fiscal years 2015 and 2014.

Operational Goal One: Complete the
Wind-down of the Investment
Programs
Banking Support Programs
OFS disbursed a total of $245.5 billion under the
various TARP bank programs. As of September
30, 2015, OFS has collected more than $275.4
billion through repayments, dividends, interest,
warrant sales, and other income, representing
$29.9 billion in excess of disbursements. OFS is
focused on recovering TARP funds in a manner
that continues to promote the nation’s financial
stability while maximizing returns on behalf of
the taxpayers.

Capital Purchase Program
In fiscal year 2015, OFS continued to make
substantial progress winding down the CPP
according to its three-pronged exit strategy.
Each dollar collected from CPP participants now
represents additional collections in excess of
disbursements on behalf of taxpayers. From
inception of the program through September 30,
2015, OFS has received $199.6 billion in CPP
repayments/sales, along with $12.1 billion in
dividends and interest, and $14.9 billion of
proceeds in excess of cost, which totals $226.6
billion. As of September 30, 2015, $268 million
in CPP gross investments remained outstanding
in 19 institutions.

10

OFS received preferred stock or debt in each
bank in which it made an investment, as well as
warrants. Under the terms of the CPP,
participating financial institutions may repay
the funds they received at any time, with the
approval of their regulators.
Throughout fiscal year 2015, OFS continued to
implement the CPP exit strategy by periodically
selling preferred stock and subordinated debt in
CPP participants through private auctions. OFS
held two preferred placement auctions with
combined net proceeds of $50 million during
fiscal year 2015 compared to six auctions with
$289 million in net proceeds in fiscal year 2014.
During fiscal year 2015 and 2014, 22 and 62
investments were repaid or sold for a total of
$148 million and $1.5 billion, respectively.
Another component of OFS’s exit strategy for the
CPP is to restructure certain investments in
limited cases. This is typically done in
connection with a merger or the bank’s plan to
raise new capital and is generally proposed by
the bank.
Under the CPP, OFS has also received warrants
to purchase common shares or other securities
from the banks. OFS has followed a policy of
disposing of warrants as soon as practicable if no
agreement is reached on a repurchase. OFS
held one warrant auction in fiscal year 2015,
with net proceeds of $49 million. As of
September 30, 2015, OFS has collected $8.1
billion in net proceeds from the sale of warrants
since inception.
Additional information on the CPP, including
details on the program’s purpose, overview, and
status can be found at the following website:
http://www.treasury.gov/initiatives/financialstability/TARP-Programs/bank-investmentprograms/cap/Pages/default.aspx

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Community Development Capital Initiative

Public Private Investment Program

Unlike the CPP, OFS did not take substantial
actions during fiscal year 2015 to wind down the
CDCI because of the unique circumstances
facing participating institutions. In particular,
many CDCI participants lack the same access to
capital markets that CPP institutions have,
making it more challenging for them to repay
the TARP investments in their institutions.

OFS completed the wind-down of the PPIP
during fiscal year 2015, with no debt or equity
investments outstanding after the final
outstanding equity repayment was made in June
2013. During fiscal year 2015, OFS received the
final termination notice from the one remaining
Public Private Investment Fund (PPIF) as well
as $63,311 in investment income. From
inception of the program through September 30,
2015, OFS has received $2.4 billion in interest
and investment income and $1.5 billion in net
proceeds in excess of cost. The total of $22.5
billion of repayments, sales, and investment
income exceeds the original investment by $3.9
billion.

OFS completed funding through this program in
September 2010 with a total investment amount
of $570 million for 84 institutions. Of this
amount, $363 million (nearly $356 million from
principal and nearly $8 million from warrants)
represented exchanges by 28 CPP institutions
converting into the CDCI. During fiscal years
2015 and 2014, OFS collected a total of $28
million and $20 million, respectively, in
repayments, dividends, and interest from
institutions in the CDCI program. As of
September 30, 2015, $446 million in CDCI
investments remained outstanding.
OFS will continue to closely monitor the
performance of the CDCI and make decisions
regarding the program’s wind-down at a later
date. Additional information on CDCI, including
details on the program’s purpose, overview, and
status can be found at the following website:
http://www.treasury.gov/initiatives/financialstability/TARP-Programs/bank-investmentprograms/cdci/Pages/default.aspx

Credit Market Programs
OFS has now completed the wind-down of all
three credit market programs that were
launched under TARP. A total of $19.1 billion
was disbursed through these programs and a
total of $23.6 billion has been collected through
September 30, 2015.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Additional information on PPIP, including
details on fund performance can be found at the
following website:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Public-PrivateInvestment-Program-Quarterly-Report.aspx

Term Asset-Backed Securities Loan Facility
OFS originally committed to provide credit
protection of up to $20.0 billion in the form of a
subordinated loan commitment to TALF, LLC to
support up to $200.0 billion of lending by the
FRBNY. After subsequent reductions in OFS’s
commitments in 2013, the commitment was
$100 million – the initial loan amount disbursed
by OFS to fund the TALF, LLC.
During fiscal year 2013, OFS’s original $100
million loan disbursed was fully repaid with
interest. As of September 30, 2015, all TALF
loans provided by FRBNY have been repaid in
full and the program is closed. Since inception,
accumulated income earned from investments in
TALF, LLC totaled $685 million, including $39
million in fiscal year 2015.

11

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Additional information on TALF, including
details on the program’s purpose, overview, and
status can be found at the following website:

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/automotiveprograms/Pages/default.aspx

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/credit-marketprograms/talf/Pages/default.aspx

Operational Goal Two: Continue
Helping Families in Need to Avoid
Foreclosure

Automotive Industry Financing Program
OFS fully wound down the AIFP during fiscal
year 2015 selling its remaining stake in Ally
Financial. OFS disbursed $79.7 billion in loans
and equity investments to the auto industry
through the AIFP. As of September 30, 2015,
OFS has collected $70.5 billion through sales,
repayments, dividends, interest, recoveries, and
other income under this program.
OFS invested $17.2 billion in Ally Financial –
formerly known as GMAC – $16.3 billion in
initial GMAC investments and an $884 million
loan to Old GM on behalf of GMAC.
OFS took significant action in fiscal years 2015
and 2014 to exit its remaining investment in
Ally Financial. During fiscal year 2014, OFS
sold Ally common stock through a private
offering, an initial public offering, and a series of
pre-arranged written trading plans. OFS held
55 million shares of Ally common stock after the
last trading plan, which ended in October 2014.
In December 2014, OFS sold all of its remaining
shares in Ally Financial generating cumulative
receipts of $19.6 billion or $2.4 billion in
proceeds in excess of cost.
During fiscal year 2015, OFS collected $100
million in recoveries from the Old Carco
Liquidation Trust, set up in accordance with the
plan of liquidation for the debtors of Old
Chrysler.
Additional information on the AIFP, including
details on the program’s purpose, overview, and
status can be found at the following website:

12

Making Home Affordable (MHA)
Consistent with OFS’s goal of continuing to help
struggling homeowners find solutions to avoid
foreclosure wherever possible, OFS is continuing
to implement the MHA program and to reach as
many homeowners as possible. As of September
30, 2015, 77 servicers are participating in
Treasury’s MHA program for non-GSE loans. As
of September 30, 2015, OFS has commitments to
fund up to $29.8 billion in MHA payments and
has disbursed $12.2 billion since inception.
OFS publishes quarterly assessments of servicer
performance containing data on compliance with
program guidelines as well as program results
metrics. OFS believes that these assessments
have set the standard for transparency about
mortgage servicer efforts to assist homeowners
at risk of foreclosure, and encourage servicers to
improve processes and performance for
foreclosure prevention activities.
MHA performance highlights for fiscal year 2015
can be found at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Making-HomeAffordable-Program-Performance-Report.aspx
The largest program within MHA is the Home
Affordable Modification Program (HAMP).
HAMP offers eligible homeowners at risk of
foreclosure the opportunity to obtain reduced
monthly mortgage payments that are affordable
and sustainable over the long-term.

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

As of September 30, 2015, approximately 1.5
million homeowners have received permanent
modifications through HAMP.2 Homeowners
participating in HAMP have collectively
experienced nearly a 35 percent median
reduction in their mortgage payments—
representing more than $481 per month. MHA
has also encouraged the mortgage industry to
adopt similar programs that have helped
millions more at no cost to taxpayers by
establishing standards and best practices for
loss mitigation evaluations.
In fiscal year 2015, OFS made changes to MHA
programs to better assist homeowners avoid
foreclosure and create a safety net for borrowers
facing rate step-ups in a HAMP modification. In
fiscal year 2014, the deadline for applications
under the MHA programs was extended from
December 31, 2015, to at least December 31,
2016. In fiscal year 2015, OFS made additional
changes by enhancing borrower pay-forperformance incentives; requiring servicers to
offer to recast a borrower’s loan which provides
payment relief; reducing the HAMP Tier 2
interest rate; and increasing borrower relocation
assistance for Home Affordable Foreclosure
Alternative (HAFA) short sale or deed-in-lieu
transactions. In July 2015, OFS announced a
streamlined modification process under HAMP
to assist homeowners who are seriously
delinquent and have not completed a HAMP
application.
Additional information on MHA, including
details on the program’s purpose, overview, and
status can be found at the following website:
http://www.treasury.gov/initiatives/financialstability/TARPPrograms/housing/mha/Pages/default.aspx
2

Includes modifications on both non-GSE loans and
GSE loans. 923,226 of these modifications were OFS
funded consisting of 893,568 non-GSE modifications
and 29,658 GSE modifications.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Housing Finance Agency (HFA) Innovation
Fund for the Hardest Hit Housing Markets
(Hardest Hit Fund)
In addition to MHA, OFS operates the Hardest
Hit Fund, which allows participating HFAs in
the nation’s hardest hit housing and
unemployment markets to design innovative,
locally-targeted foreclosure prevention
programs.
In fiscal year 2015, state HFAs continued to
adapt their programs to best meet borrower
needs in evolving economic and housing
markets. A total of fifteen HFAs now offer
principal reduction to induce a loan
modification, refinance, or recast. In addition,
Alabama, Tennessee, and South Carolina joined
Illinois, Indiana, Ohio, and Michigan in
allocating a portion of their HHF funds to blight
elimination in an effort to stabilize
neighborhoods and prevent foreclosures.
Finally, Florida, Illinois, and North Carolina
now offer Down Payment Assistance Programs,
making assistance available to moderate-income
homebuyers in targeted counties that continue
to demonstrate housing market distress.
As of September 30, 2015, the 19 HFAs have
collectively drawn approximately $5.7 billion (75
percent) of the $7.6 billion allocated under the
program. For fiscal years 2015 and 2014, this
program has disbursed $1.3 billion and $1.6
billion, respectively. Each state draws down
funds as they are needed, but must have no
more than five percent of their allocation on
hand before they can draw down additional
funds. States have until December 31, 2017 to
enter into agreements with borrowers. As of
September 30, 2015, seven HFAs had stopped
accepting new applications for assistance in
anticipation of full commitment of program
funds: the District of Columbia, Illinois, New
Jersey, Ohio, Oregon, Rhode Island and
Tennessee.

13

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Each HFA submits a quarterly report on the
progress of its program. These reports measure
the states’ performance against metrics set by
OFS for 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
OFS also publishes a Quarterly Performance
Summary, a companion reference to the HFAs’
Quarterly Performance Reports. The Summary
contains performance data and trends, key
economic and loan performance indicators, and
brief program descriptions for each HFA. The
Quarterly Performance Summary can be found
at:
http://www.treasury.gov/initiatives/financialstability/reports/Documents/FINAL%20Q1%202
014%20Hardest%20Hit%20Fund%20Program%2
0Performance%20Summary.pdf
Additional information on the Hardest Hit Fund,
including details on the program’s purpose,
overview, and status can be found at the
following website:
http://www.treasury.gov/initiatives/financialstability/TARPPrograms/housing/hhf/Pages/default.aspx

FHA Refinance Program
On March 26, 2010, FHA and OFS announced
enhancements to the Federal Housing
Administration Refinance Program (FHA
Refinance), designed to make homeownership
more affordable for borrowers whose homes are
worth less than the remaining amounts on their
mortgage loans (negative equity). TARP funds
were made available by OFS through an $8.0
billion letter of credit facility, in order to fund a
share of the losses associated with this program
(subsequently reduced to $100 million as of

14

fiscal year 2015 due to low utilization). As of
September 30, 2015, FHA has guaranteed 6,639
refinance loans with a total face value of almost
$955 million, of which, 4,156 loans are subject to
OFS coverage with a face value of $611 million.

Operational Goal Three: Minimize
Cost to Taxpayer
OFS manages TARP investments to minimize
costs to taxpayers by managing the timely exit of
these investments 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 has taken a number of steps during fiscal
years 2015 and 2014 to dispose of OFS’s
outstanding investments in a manner that
balances the desire to exit these investments as
quickly as practicable with maximizing returns
on behalf of taxpayers. OFS continues to take
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 takes a disciplined portfolio approach –
reviewing each investment and closely
monitoring risk and performance. In addition to
repayments by participants, OFS has disposed of
investments to third parties through public and
private offerings and auctions with approval
from regulators.

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’s
investment on behalf of taxpayers, while
maintaining financial stability. Specifically,
OFS’s external asset managers review publicly
available information to identify recipients for
which pre-tax, pre-provision earnings and

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

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 monitors certain TARP-related statutory
and contractual obligations of remaining TARP
recipients. Statutory obligations include
certification and disclosures related to executive
compensation restrictions. Contractual
obligations vary by investment type. For most of
OFS’s preferred stock investments, TARP
recipients must comply with restrictions on
payment of dividends and on repurchases of
junior securities. Recipients of exceptional
assistance were required to comply with
additional restrictions on executive
compensation, lobbying, and corporate expenses.
Ally Financial was the last such recipient, but is
no longer subject to these restrictions since
December 2014.
OFS also performs periodic reviews of the 19
HFAs participating in the HHF program, to
evaluate each HFA’s ongoing compliance with
their contractual agreement with OFS, as well
as compliance with HHF program terms and
underwriting requirements.
In addition, all mortgage servicers participating
in MHA are subject to program guidelines that
require the servicer to offer MHA assistance to
all eligible borrowers and to have effective
systems, processes, and controls to administer
the programs. Servicers are subject to periodic,
on-site compliance reviews performed by OFS’s
compliance agent, Making Home AffordableCompliance (MHA-C), a separate, independent
division of Freddie Mac, to monitor whether
servicers’ obligations under MHA requirements
are being met.
In fiscal year 2011, OFS began publishing
quarterly assessments for the largest servicers

MANAGEMENT’S DISCUSSION AND ANALYSIS

that currently comprise approximately 86% of
the HAMP mortgage servicing. These
assessments have been used to ensure focus on
emerging areas of interest, draw servicer
attention to higher risk areas, and prompt the
industry to improve its practices. As the
program has evolved and servicers have
significantly improved their performance, OFS
has updated the assessment to ensure it
includes metrics that address current areas of
interest and concern.
Beginning with the second quarter 2015, OFS
transitioned to the third iteration of quarterly
assessments which rely on enhanced loan file
review testing. The updated assessment
provides additional insight into the impact of
servicer performance on the borrower experience
and fosters further improvement in servicer
performance by tightening performance
benchmarks.

Operational Goal Four: Continue to
Operate with the Highest Standards
of Transparency, Accountability, and
Integrity
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, is posted in the
Financial Stability section of the Treasury.gov
website, which can be found at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx

15

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

These reports include:











A Monthly TARP Update (formerly the
Daily TARP Update) that 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 monthly report on dividend and
interest payments;
A quarterly report on Making Home
Affordable;
A report of each transaction (such as an
investment or repayment) within two
business days of each transaction;
A quarterly report on the Hardest Hit
Fund; and
A quarterly report to Congress on
administrative expense activities.

In addition, OFS regularly publishes data files
related to MHA and transaction reports that
show activity related to MHA and HHF. The
release of the data file fulfills a requirement
within the Dodd-Frank Act to make available
loan-level data about the program. OFS updates
the file monthly. 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

Audited Financial Statements
OFS prepares separate financial statements for
TARP on an annual basis. This is the seventh
OFS Agency Financial Report (AFR), which
includes the audited financial statements for the
fiscal years ended September 30, 2015 and
September 30, 2014. Additional reports for prior
periods are available at:

16

http://www.treasury.gov/initiatives/financialstability/reports/Pages/Annual-AgencyFinancial-Reports.aspx
In its seven years of operation, TARP’s financial
statements have received seven unmodified
audit opinions from its auditor, the GAO.

TARP Tracker
During fiscal year 2013, OFS launched an
expanded version of its existing TARP Tracker,
which is an online, interactive tool that allows
users to track the flow of TARP funds in greater
detail over the lifetime of each individual TARP
investment area. The expanded capability
allows users to view each investment area
separately to get a clearer sense of what has
occurred in a particular program, including a
scroll of events, major transactions, and
legislative actions that have impacted the
program.
Readers are invited to refer to these documents
at: http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx

Oversight by Three Separate Agencies
OFS activities are currently reviewed by three
oversight entities:




The Financial Stability Oversight Board,
established by EESA Section 104;
Specific responsibilities for the GAO as
set out in EESA Section 116;
The Special Inspector General for TARP,
established by EESA Section 121.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

contributions to the development, strengthening,
and transparency of TARP programs.

Copies of their written testimony are available
at:

Congressional Hearings and Testimony

http://www.treasury.gov/initiatives/financialstability/news-room/Pages/default.aspx

OFS officials have testified in numerous
Congressional hearings since TARP was created.

MANAGEMENT’S DISCUSSION AND ANALYSIS

17

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Fiscal Year 2015 and 2014 Financial Summary and Cumulative Net
Income
OFS’s fiscal year 2015 net cost of operations of
$4.4 billion includes the reported net income
related to TARP investment and FHA-Refinance
programs, as well as expenses for the Treasury
housing programs under TARP and
administrative expenses. For the fiscal year
ended September 30, 2015, OFS reported net
subsidy income for 6 programs – [CPP, CDCI,
PPIP, TALF, AIFP, and FHA-Refinance]. These
programs collectively reported net subsidy
income of $0.2 billion. Fiscal year 2015 expenses
for the Treasury housing programs under TARP
are $4.5 billion and administrative costs are
$146 million. For the fiscal year ended
September 30, 2014, the net cost of operations
was $3.0 billion. These net cost amounts
reported in the financial statements reflect only
transactions through September 30, 2015 and
September 30, 2014, respectively, and therefore
are different than lifetime cost estimates made
for budgetary purposes. Over time the cost of

18

TARP programs will change. As described later
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 1 provides a financial summary for TARP
programs since its inception on October 3, 2008,
through September 30, 2015. 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
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, 2015,
and cash inflows on the investments in the form
of dividends, interest or other fees.

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Table 1: TARP Summary1
From TARP Inception through September 30, 2015
(Dollars in millions)
Purchase
Price or
Guarantee
Amounts

Total $
Disbursed

Investment
Repayments

Write-offs
and Losses6

Outstanding
Balance7

Received
from
Investments

Bank Support Programs
Capital Purchase Program2

$

204,895

$ 204,895

$ (199,560)5

40,000

40,000

(40,000)

-

-

4,432

Asset Guarantee Program

5,000

-

-

-

-

4,126

Community Development
Capital Initiative

570

570

(117)

(7)

446

52

18,625

18,625

(18,625)

-

0

3,852

Term Asset-Backed
Securities Loan Facility

100

100

(100)

-

-

685

SBA 7(a) Securities
Purchase Program

367

367

(363)

(4)

0

13

Automotive Industry
Financing Program

79,692

79,692

(63,037)

(16,655)

-

7,502

American International
Group Investment
Program3

67,835

67,835

(54,350)

(13,485)

-

959

Sub-total for Investment
Programs

417,085

412,085

(376,153)

(35,218)

714

48,700

Treasury Housing
Programs under TARP

37,5074

17,991

N/A

N/A

N/A

-

454,591

$ 430,075

$ (376,153)

$ (35,218)

Targeted Investment
Program

$

(5,067)

$

268

$

27,080

Credit Market Programs
Public Private Investment
Program

Other Programs

Total for TARP Program

$

$

714

$

48,700

1 This

table shows TARP activity for the period from inception through September 30, 2015, 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.
2 OFS received $31.9 billion in proceeds from sales of Citigroup common stock, of which $25.0 billion is included at cost
in investment repayments, and $6.9 billion of net proceeds in excess of cost is included in Received from Investments.
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 (additional Treasury shares).
4 Individual obligation amounts are $29.8 billion for the Making Home Affordable Program, $7.6 billion for the Hardest
Hit Fund, and $125 million committed for the FHA-Refinance Program.
5 Includes $2.2 billion of SBLF refinancing outside of TARP and CDCI exchanges from CPP of $363 million.
6 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”.
7 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 do not require (and OFS does not expect) repayments.

MANAGEMENT’S DISCUSSION AND ANALYSIS

19

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Most TARP funds were used to make
investments in preferred stock or to make loans.
OFS has generally received dividends on the
preferred stock and interest payments on the
loans from the institutions participating in
TARP programs. These payments represent
additional proceeds received on OFS’s TARP
investments. From inception through
September 30, 2015 OFS received a total of
$24.5 billion in dividends and interest.
OFS has conducted several sales of its
investments in banking institutions as part of its
exit strategy for winding down TARP. OFS
plans to continue to sell its investments in banks
that are not expected to repay OFS in the
foreseeable future. These sales are being
conducted over time and in stages and include
both common and preferred stock and
debentures. During fiscal years 2015 and 2014,
OFS sold its investments in 8 and 31 banks for
combined principal receipts of $49 million and
$263 million, respectively, through individual
private auctions. These auctions resulted in net
proceeds less than cost of $32 million and $73
million for those investments during fiscal years
2015 and 2014, respectively.
OFS also received warrants in connection with
most of its investments, which provides an
opportunity for OFS on behalf of taxpayers to
realize additional proceeds on investments.
Since the program’s inception, through
September 30, 2015, OFS has received $9.6

20

billion in gross proceeds from the disposition of
warrants associated with 241 CPP, TIP, AGP,
and AIG, consisting of (i) $4.0 billion from issuer
repurchases at agreed upon values and (ii) $5.6
billion from auctions.

Summary of TARP Equity
Investments
Table 2 provides information on the estimated
values of TARP investment programs, as of the
end of fiscal years 2015 and 2014. OFS 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, 2015 and 2014. The
Estimated Value of the Investment column
represents the present value of net cash inflows
that OFS estimates it will receive from the
programs. These estimates include market risk
assumptions. For equity investments, this
amount represents fair value. The total
difference of $232 million (2015) and $679
million (2014) 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Table 2: Summary of TARP Equity Investments
(Dollars in millions)

Program

Outstanding
Balance as of
September
30, 20151

Estimated Value
of Investment as
of September 30,
2015

Estimated
Value of
Investment as
of September
30, 2014

Outstanding
Balance as of
September 30,
20141

Bank Support Programs
Capital Purchase Program

$

268

Community Development
Capital Initiative

$

99

$

625

$

281

446

383

465

410

Public Private Investment
Program

0

0

0

0

Term Asset-Backed Securities
Loan Facility

0

0

0

0

SBA 7(a) Securities Purchase
Program

0

0

0

0

Automotive Industry Financing
Program

0

0

1,763

1,483

American International Group
Investment Program

0

0

0

0

Credit Market Programs

Other Programs

Total
1

$

714

$

482

$

2,853

$

2,174

Before subsidy cost allowance.

The ultimate cost of TARP will not be known for
some time, but it is not expected to change
significantly as only a few investment programs
remain open with many of the original disbursed
investments repaid. The financial performance
of the remaining 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,

MANAGEMENT’S DISCUSSION AND ANALYSIS

and prepayments. Wherever possible, OFS uses
market prices of tradable securities to estimate
the fair value of TARP investments. Use of
market prices is 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 marketbased 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.

21

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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 OFS estimates since
TARP’s inception through September 30,
2015, provide a good illustration of this
impact. Table 3 provides information on how
OFS’s estimated lifetime cost of TARP has
changed over time. The cost estimates for the
non-housing programs have fluctuated in
large part due to changes in the market prices
of common stock for AIG, GM and Ally. This
table assumes that all expected investments

and disbursements for Treasury housing
programs under TARP are completed, and
adhere to general government budgeting
guidance. This table will not match the
financial statements since the table includes
repayments and disbursements expected to be
made in the future. Table 3 is consistent with
the estimated TARP lifetime cost disclosures
on the OFS website at:
http://www.treasury.gov/initiatives/financialstability/Pages/default.aspx
The cost amounts in Table 3 are based on
assumptions regarding future events, which
are inherently uncertain.

Table 3: Estimated Lifetime TARP Costs (Income)1
(Dollars in billions)
Estimated Lifetime Cost (Income) as of September 30
Program
2009 5
2010
2011
2012
2013

2014

2015

Bank Support Programs
Capital Purchase Program
Targeted Investment Program
Asset Guarantee Program2
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 Program3
Subtotal
Treasury Housing Programs
under TARP4
Total

($14.6)
(1.9)
(2.2)

($11.2)
(3.8)
(3.7)

($13.0)
(4.0)
(3.7)

($14.9)
(4.0)
(3.9)

($16.1)
(4.0)
(4.0)

($16.1)
(4.0)
(4.0)

($16.3)
(4.0)
(4.0)

0.4

0.3

0.2

0.2

0.1

0.1

0.1

1.4

(0.7)

(2.4)

(2.4)

(2.7)

(2.7)

(2.7)

(0.3)

(0.4)

(0.4)

(0.5)

(0.6)

(0.6)

(0.6)

N/A

0.0

0.0

0.0

0.0

0.0

0.0

34.5

14.7

23.6

24.3

14.7

12.2

12.1

56.8

36.9

24.3

15.3

15.2

15.2

15.2

74.1

32.1

24.6

14.1

2.6

0.1

(0.2)

50.0

45.6

45.6

45.6

37.7

37.4

37.4

$124.1

$77.7

$70.2

$59.7

$40.3

$37.5

$37.2

1 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, OFS 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 (additional Treasury shares).
4 The estimated lifetime cost for Treasury Housing Programs under TARP represent the total commitment except for the FHA Refinance Program, which is accounted
for under credit reform. The estimated lifetime cost of the FHA Refinance Program represents the total estimated subsidy cost associated with total obligated amount.
5 Estimated lifetime cost for 2009 includes funds for projected disbursements and anticipated obligations.

22

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Key Factors Affecting TARP Future Activities and Ultimate Cost
TARP investment programs are nearly wound
down with only $714 million of the total
$412.1 billion disbursed still outstanding,
representing 81 small banks in the CPP and
CDCI portfolios. The estimated lifetime
income associated with investment programs
is currently $194 million and may fluctuate in
the future. Going forward, the expenditures

MANAGEMENT’S DISCUSSION AND ANALYSIS

for Treasury housing programs under TARP
are expected to most significantly affect
changes to the lifetime cost of TARP. The
ultimate cost of Treasury housing programs
will depend on macroeconomic factors,
including real-estate values, financing
available in capital markets, and the market
demand for housing.

23

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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, 2015. 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;
Systems security is in substantial compliance with all relevant requirements;
Continuity of operations planning in critical areas is sufficient to reduce risk to reasonable
levels;
(i) Financial management systems are in compliance with federal financial systems standards,
i.e., FMFIA Section 4 and FFMIA;
(j) Complete and accurate data is reported on USAspending; and
(k) Controls and policies are in place to prevent fraud and inappropriate use of government
charge cards.
In addition, OFS management conducted its assessment of the effectiveness of internal control over
financial reporting which includes the 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, 2015, with no related material weaknesses noted.
Sincerely,

Mark McArdle
Deputy Assistant Secretary for Financial Stability

24

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Federal Managers’ Financial
Integrity Act (FMFIA)
The management control objectives under
FMFIA are to reasonably ensure that:
•
•

•

Obligations and costs are in
compliance with applicable law;
Funds, property, and other assets are
safeguarded against waste, loss,
unauthorized use, or
misappropriation; and
Revenues and expenditures applicable
to agency operations are properly
recorded and accounted for to permit
the preparation of accounts, reliable
financial and statistical reports, and
to maintain accountability over the
assets.

FMFIA requires agencies to evaluate and
report on the effectiveness of controls over
operations and financial reporting (FMFIA
Section 2), compliance with applicable laws
and regulations, and conformance with
financial management systems requirements
(FMFIA Section 4 and Federal Financial
Management Improvement Act or FFMIA)
that protect the integrity of federal programs.
Deficiencies that seriously affect an agency’s
ability to meet these objectives are deemed
“material weaknesses.”
OFS continues to have a high performing
internal control program in compliance with
FMFIA. FMFIA and OMB Circular A-123,

Management’s Responsibility for Internal
Control, require agencies to evaluate and
report on internal controls in place to help
ensure effectiveness and efficiency of
operations, compliance with applicable laws
and regulations, and reliability of financial
reporting. OFS has completed these rigorous
assessments since fiscal year 2009.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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. OFS’s internal control framework 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 OFS and its third-party
service providers. Furthermore, managers
throughout OFS are responsible for ensuring
that effective internal controls are
implemented in their areas of responsibility.
Senior management throughout OFS provides
sub-certification statements annually
concerning whether there is reasonable
assurance that the objectives of internal
control are met. Senior management also
reports on and takes steps to correct control
weaknesses and tracks those weaknesses
through resolution.
OFS management believes that maintaining
integrity and accountability in all programs
and operations is critical to its mission and
demonstrates responsible stewardship over
assets and resources. It also promotes
responsible leadership and maximizes desired
program outcomes. OFS has received
unmodified opinions from the GAO on its
financial statements and internal control over
financial reporting for TARP since fiscal year
2009, its first year of operation. OFS
continues to execute its internal controls
assessment process to ensure that
management can identify risks and
deficiencies and take timely corrective actions.
The OFS fiscal year 2015 self-assessment of
its system of internal controls did not identify
any significant deficiencies or material
weaknesses.

25

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Federal Financial Management
Improvement Act (FFMIA) and
Financial Management Systems
FFMIA
FFMIA mandates that agencies “…implement
and maintain financial management systems
that comply substantially with federal
financial management systems requirements,
applicable federal accounting standards, and
the United States Government Standard
General Ledger (USSGL) at the transaction
level.” FFMIA also requires the development
of remediation plans by any entity unable to
report substantial compliance with these
requirements.
During fiscal year 2015, OFS used a riskbased approach to assess its financial
management systems’ compliance with
FFMIA, as required by OMB and in
accordance with Treasury-wide guidance.
OFS conducted its self-assessment to
determine its risk levels and determined that
all OFS financial management systems are in
compliance with FFMIA.

Financial Management Systems
Framework
OFS’s financial management systems
framework consists of two fundamental
components: 1) core financial and mixed
systems maintained by OFS and Treasury
bureaus that cross-service OFS; and 2)
systems that are financially relevant operated
and supported by financial agents. Combined,
this framework satisfies OFS’s diverse
financial operational and reporting needs as
well as OFS’s internal and external reporting
requirements.
In fiscal year 2015, OFS continued to utilize
and improve the Core Investment Transaction
Flow (CITF), TARP’s system of record and

26

accounting translation engine. OFS continued
to fine-tune standardized management reports
from CITF to improve their usefulness to
management’s decision-making and reduce
reliance on manual processes.
In addition, OFS utilizes financial systems
maintained by Treasury Departmental Offices
and various Treasury bureaus. These systems
are also in substantial compliance with
federal financial management systems
requirements and undergo regular
independent audits.
In fiscal year 2015, OFS continued to devote
substantial attention to simplifying its
technology foot-print in concert with the
reduced activity and size of OFS operations.
The simplification effort helps ensure the
reliability, maintainability, and controllability
of OFS technology as TARP programs winddown.
Certain financially relevant systems are
operated and 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. These plans and programs are
reviewed and approved by OFS at least on an
annual basis.

Legal Compliance
OFS is subject to numerous legislative and
regulatory requirements that promote and
support an effective internal control
environment. At least on an annual basis,
OFS conducts a formal process to identify and
document applicable laws and regulations.
This process includes the review and
consideration of Treasury guidance, statutory
and OMB requirements as well as

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

consultation with OFS program management
and the Treasury Office of General Counsel.
OFS program managers are responsible for
identifying laws and regulations which impact
their areas, developing policies and
procedures which ensure compliance with
those laws and regulations, and disseminating
information to employees regarding
compliance responsibilities.

that support the requirements. The majority
of the laws and regulations applicable to OFS
are tested in this manner. In instances where
OFS cannot leverage specific controls, OFS
either performs alternative evaluation
procedures or, through adherence to the
guidance provided by Treasury, checks that
controls are in place to meet guidance
concerns and specifications where they apply.

In order to test compliance with laws and
regulations, OFS maps the requirements of
each applicable law or regulation to controls

The results of OFS’s evaluation of compliance
with applicable laws and regulations are
reflected in OFS’s assurance statement.

MANAGEMENT’S DISCUSSION AND ANALYSIS

27

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Other Management Information, Initiatives, and Issues
Areas for Improvement
Over the next year, OFS management will focus on maintaining its internal control environment in
several key areas as follows:
•

•

Third-party service providers will continue to support critical services as programs
continue to wind-down. OFS will oversee and monitor closely these third parties to
safeguard OFS resources and help ensure the operational efficiency of programs and
processes. Where necessary and appropriate to ensure fiscal responsibility, OFS will
look to reduce the number of third-party service providers commensurate with the winddown in OFS operations.

•

28

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.

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. OFS will
manage this process through the SAT to ensure that any resulting risk is minimal and
controlled.

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Limitations of the Financial Statements
The principal financial statements have been prepared to report the financial position and results of
operations of OFS’s 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 OFS and the Department of the
Treasury in accordance with section 116 of EESA and Generally Accepted Accounting Principles
(GAAP) for Federal entities and the formats prescribed by 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

29

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

30

MANAGEMENT’S DISCUSSION AND ANALYSIS

PART 2:

Financial
Section

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CFO)
The Office of Financial Stability’s (OFS) Agency Financial Report for fiscal year 2015 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 2015, the Government Accountability Office (GAO) provided OFS unmodified audit
opinions on the fair presentation of our financial statements and the effectiveness of our internal control
over financial reporting for TARP. In addition, the auditors determined that we had no material
weaknesses or significant deficiencies relating to internal control over our accounting and financial
reporting processes for TARP. Since the inception of TARP in 2009, the program has consistently received
unmodified audit opinions.
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 managing and executing our
organization’s policies and procedures.
For fiscal year 2015, net cost of operations was $4.4 billion, resulting in a cumulative net cost of
operations of $20.0 billion since inception. Cumulative net cost of operations consists of (1) total net
subsidy income of $189 million, and (2) housing costs and administrative costs of $18.5 billion and $1.6
billion, respectively. Total cumulative net subsidy cost consists of net subsidy income from the CPP, TIP,
AGP, PPIP, SBA, and TALF investments totaling $27.6 billion, offset by net subsidy costs of $27.4 billion
from the AIG, AIFP, CDCI, and FHA-Refinance programs.
During fiscal year 2015, OFS collected a total of $2.0 billion through repayments, sales, dividends, and
other receipts. OFS’s gross outstanding equity investment balance as of September 30, 2015 was $714
million, comprised of $268 million in CPP and $446 million in CDCI. OFS is committed to exiting
investments in a timely manner while maximizing collections on behalf of the taxpayer. During fiscal
year 2015, 22 CPP institutions repaid, were auctioned, or were restructured and sold.
In fiscal year 2015, as OFS continued to wind down, we have streamlined many of our processes to
eliminate redundancy and become more efficient, making sure to maintain coverage over key controls. As
an organization, OFS has and will continue to consolidate roles, as appropriate, without comprising the
internal control environment. Consolidation allows for the continued retention of institutional knowledge
and helps ensure that all control points are monitored and executed. Maintaining rigorous internal control
processes around transaction processing, disbursements, collections, and financial reporting will continue
to be one of OFS’s top priorities.
I feel fortunate to play a role in continuing the 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

33

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT

441 G St. N.W.
Washington, DC 20548

Independent Auditor’s Report
To the Deputy Assistant Secretary for Financial Stability
In our audits of the fiscal years 2015 and 2014 financial statements of the Troubled Asset Relief
Program (TARP), which is implemented by the Office of Financial Stability (OFS),1 we found




the OFS financial statements for TARP as of and for the fiscal years ended September 30,
2015, and 2014, are presented fairly, in all material respects, in accordance with U.S.
generally accepted accounting principles;
OFS maintained, in all material respects, effective internal control over financial reporting for
TARP as of September 30, 2015; and
no reportable noncompliance for fiscal year 2015 with provisions of applicable laws,
regulations, contracts, and grant agreements we tested.

The following sections discuss in more detail (1) our report on the financial statements and on
internal control over financial reporting, which includes two emphasis of matters related to
certain factors affecting the valuation of TARP equity investments and the TARP reporting
entity, and required supplementary information (RSI)2 and other information3 included with the
financial statements; (2) our report on compliance with laws, regulations, contracts, and grant
agreements; and (3) agency comments. In addition to our responsibility to audit OFS’s annual
financial statements for TARP, we are also required under the Emergency Economic
Stabilization Act of 2008 (EESA)4 to report at least every 60 days on the findings resulting from
our oversight of the actions taken under TARP.5 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

Section 101 of the Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343, div. A, 122 Stat. 3765, 3767 (Oct.
3, 2008), classified at 12 U.S.C. § 5211, established OFS within the Department of the Treasury (Treasury) to implement TARP.
2

RSI consists of “Management’s Discussion and Analysis” and the “Combined Statement of Budgetary Resources,” which
are included with the financial statements.
3

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

4

EESA is classified, in part, as amended, as sections 5201 through 5261 of Title 31 of the United States Code. Section 116(b)
of EESA, 12 U.S.C. § 5226(b), requires that Treasury annually prepare and submit to Congress and the public audited fiscal
year financial statements for 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
(GAAS).
5

EESA § 116(a)(3), 12 U.S.C. § 5226(a)(3).

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AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Report on the Financial Statements and on Internal Control over Financial Reporting
In accordance with EESA, we have audited the OFS financial statements for TARP. The OFS
financial statements for TARP comprise the balance sheets as of September 30, 2015, and
2014; the related statements of net cost of operations, changes in net position, and budgetary
resources for the fiscal years then ended; and the related notes to the financial statements. We
also have audited OFS’s internal control over financial reporting for TARP as of September 30,
2015, based on criteria established under 31 U.S.C. § 3512(c), (d), commonly known as the
Federal Managers’ Financial Integrity Act (FMFIA).
We conducted our audits in accordance with U.S. generally accepted government auditing
standards.6 We believe that the audit evidence we obtained is sufficient and appropriate to
provide a basis for our audit opinions.
Management’s Responsibility
OFS management is responsible for (1) the preparation and fair presentation of these financial
statements in accordance with U.S. generally accepted accounting principles; (2) preparing,
measuring, and presenting the RSI in accordance with 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) maintaining effective internal
control over financial reporting, including the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error; (5) evaluating the effectiveness
of internal control over financial reporting based on the criteria established under FMFIA; and
(6) providing its assertion about the effectiveness of internal control over financial reporting as of
September 30, 2015, based on its evaluation, included in the accompanying Management’s
Report on Internal Control over Financial Reporting in appendix I.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements and an opinion on
OFS’s internal control over financial reporting for TARP based on our audits. U.S. generally
accepted government auditing standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from material
misstatement, and whether effective internal control over financial reporting was maintained in
all material respects. We are also responsible for applying certain limited procedures to the RSI
and other information included with the financial statements.
An audit of financial statements involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The procedures selected depend on
the auditor’s judgment, including the auditor’s assessment of the risks of material misstatement
6

Section 116(b) of EESA requires that GAO audit TARP’s financial statements annually in accordance with GAAS. U.S. generally
accepted government auditing standards incorporate by reference the American Institute of Certified Public Accountants’
Statements on Auditing Standards, which constitute GAAS.

AUDITOR’S REPORT

35

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

of the financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit of financial statements also involves evaluating the appropriateness of
the accounting policies used and the reasonableness of significant accounting estimates made
by management, as well as evaluating the overall presentation of the financial statements. An
audit of internal control over financial reporting includes obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, evaluating
the design and operating effectiveness of internal control over financial reporting based on the
assessed risk, and testing relevant internal control over financial reporting. Our audit of internal
control also considered the entity’s process for evaluating and reporting on internal control over
financial reporting based on criteria established under FMFIA. Our audits also included
performing such other procedures as we considered necessary in the circumstances.
We did not evaluate all internal controls relevant to operating objectives as broadly established
under FMFIA, such as those controls relevant to preparing performance information 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
whether effective internal control over financial reporting was maintained, in all material
respects. Consequently, our audit may not identify all deficiencies in internal control over
financial reporting that are less severe than a material weakness.7
Definitions and Inherent Limitations of Internal Control over Financial Reporting
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 accordance 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 provisions of
applicable laws, including those governing the use of budget authority; regulations; contracts;
and grant agreements, noncompliance with which could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or
detect and correct, misstatements due to fraud or error. We also caution that projecting any
evaluation of effectiveness to future periods is subject to 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.

7

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, 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.

36

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Opinion on Financial Statements
In our opinion, OFS’s financial statements for TARP present fairly, in all material respects,
TARP’s financial position as of September 30, 2015, and 2014, and its net cost of operations,
changes in net position, and budgetary resources for the fiscal years then ended in accordance
with U.S. generally accepted accounting principles.
Emphasis of Matters
Valuation of TARP’s Equity Investments
As discussed in notes 2 and 6 to OFS’s financial statements for TARP, the valuation of TARP’s
equity investments 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 equity investments, 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.8 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 equity investments as of September 30,
2015, and 2014 (which totaled $482 million and $2,174 million, respectively), and the amounts
that OFS will ultimately realize from these assets, and the differences may be material. These
differences will also affect TARP’s ultimate cost.9
TARP Reporting Entity
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. As also
discussed in note 1 to the financial statements, OFS’s investments were not made to engage in
the business activities of the respective entities, and OFS has determined that none of these
entities meet the criteria for a federal entity.
Our opinion on OFS’s financial statements for TARP is not modified with respect to these
matters.
8

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 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 Federal Housing Administration refinance program.
9

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

37

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Opinion on Internal Control over Financial Reporting
In our opinion, OFS maintained, in all material respects, effective internal control over financial
reporting for TARP as of September 30, 2015, based on criteria established under FMFIA.
During our fiscal year 2015 audit, we identified deficiencies in OFS’s internal control over
financial reporting for TARP that we do not consider to be material weaknesses or significant
deficiencies.10 Nonetheless, these deficiencies warrant OFS management’s attention. We have
communicated these matters to OFS management and, where appropriate, will report on them
separately.
Other Matters
Required Supplementary Information
U.S. generally accepted accounting principles issued by the Federal Accounting Standards
Advisory Board (FASAB) require that RSI be presented to supplement the financial statements.
Although RSI is not a part of the financial statements, FASAB considers this information to be
an essential part of financial reporting for placing the financial statements in appropriate
operational, economic, or historical context. We have applied certain limited procedures to the
RSI in accordance with U.S. generally accepted government auditing standards, which
consisted of inquiries of management about the methods of preparing the RSI and comparing
the 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. 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.
Other Information
OFS’s other information 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. We read the other
information included with the financial statements in order to identify material inconsistencies, if
any, with the audited financial statements. Our audit was conducted for the purpose of forming
an opinion on OFS’s financial statements for TARP. We did not audit and do not express an
opinion or provide any assurance on the other information.
Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements
In connection with our audits of OFS’s financial statements for TARP, we tested compliance
with selected provisions of applicable laws, regulations, contracts, and grant agreements
consistent with our auditor’s responsibility discussed below. We caution that noncompliance
may occur and not be detected by these tests. We performed our tests of compliance in
accordance with U.S. generally accepted government auditing standards.

10

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.

38

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Management’s Responsibility
OFS management is responsible for complying with laws, regulations, contracts, and grant
agreements applicable to OFS.
Auditor’s Responsibility
Our responsibility is to test compliance with selected provisions of laws, regulations, contracts,
and grant agreements applicable to OFS that have a direct effect on the determination of
material amounts and disclosures in the TARP financial statements, and perform certain other
limited procedures. Accordingly, we did not test compliance with all laws, regulations, contracts,
and grant agreements applicable to OFS.
Results of Our Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements
Our tests for compliance with selected provisions of applicable laws, regulations, contracts, and
grant agreements disclosed no instances of noncompliance for fiscal year 2015 that would be
reportable under U.S. generally accepted government auditing standards. However, the
objective of our tests was not to provide an opinion on compliance with laws, regulations,
contracts, and grant agreements applicable to OFS. Accordingly, we do not express such an
opinion.
Intended Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant
Agreements
The purpose of this report is solely to describe the scope of our testing of compliance with
selected provisions of applicable laws, regulations, contracts, and grant agreements, and the
results of that testing, and not to provide an opinion on compliance. This report is an integral
part of an audit performed in accordance with U.S. generally accepted government auditing
standards in considering compliance. Accordingly, this report on compliance with laws,
regulations, contracts, and grant agreements is not suitable for any other purpose.
Agency Comments
In commenting on a draft of this report, OFS stated that it is proud to receive an unmodified
opinion on its financial statements and its internal control over financial reporting. OFS also
stated that it is committed to maintaining the high standards and transparency reflected in these
audit results. The complete text of OFS’s response is reprinted in appendix II.

Cheryl E. Clark
Director
Financial Management and Assurance
November 5, 2015

AUDITOR’S REPORT

39

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

Management's Report on Internal Control over Financial Reporting
The Office of Financial Stability’s (OFS) internal control over financial reporting (for TARP) 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 accordance 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 provisions of
applicable laws, including those governing the use of budget authority; regulations; contracts; and
grant agreements, noncompliance with which could have a material effect on the financial
statements.
OFS management is responsible for maintaining effective internal control over financial reporting,
including the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error. OFS management evaluated the effectiveness of OFS’s internal
control over financial reporting as of September 30, 2015, 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, 2015, OFS’s internal control over
financial reporting was effective.
Office of Financial Stability

__________________________
Mark McArdle
Deputy Assistant Secretary for Financial Stability

_______________________
Lorenzo Rasetti
Chief Financial Officer

November 5, 2015

40

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

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

DEPUTY ASSISTANT SECRETARY

November 5, 2015
Ms. Cheryl E. Clark
Director, Financial Management and Assurance
U.S. Government Accountability Office
441 G Street, N.W.
Washington, DC 20548
Dear Ms. Clark:
We have reviewed the Independent Auditor’s Report concerning your audit of the Office of Financial
Stability’s (OFS) fiscal year 2015 financial statements. OFS is proud to receive unmodified opinions
on our financial statements and our internal controls over financial reporting.
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,

Mark McArdle
Deputy Assistant Secretary for Financial Stability

AUDITOR’S REPORT

41

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’s 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

42

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,
2015 and 2014. Intragovernmental assets and
liabilities resulting from transactions between
federal agencies are presented separately from
assets and liabilities resulting from
transactions with the public.
The Statement of Net Cost presents the net cost
of (income from) operations for the fiscal years
ended September 30, 2015 and 2014.
The Statement of Changes in Net Position
presents the change in OFS’s net position for
two components, Cumulative Results of
Operations and Unexpended Appropriations, for
the fiscal years ended September 30, 2015 and
2014. 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 fiscal years ended September
30, 2015 and 2014.

FINANCIAL STATMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Office of Financial Stability - Troubled Asset Relief Program

BALANCE SHEET
As of September 30, 2015 and 2014
Dollars in Millions

2015

2014

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

FINANCIAL STATEMENTS

43

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Office of Financial Stability - Troubled Asset Relief Program

STATEMENT OF NET COST
For the Years Ended September 30, 2015 and 2014

Dollars in Millions

2015

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

44

FINANCIAL STATEMENTS

2014

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Office of Financial Stability - Troubled Asset Relief Program

STATEMENT OF CHANGES IN NET POSITION
For the Years Ended September 30, 2015 and 2014
2015

Dollars in Millions

Unexpended Cumulative Results
Appropriations
of Operations

2014
Unexpended Cumulative Results
Appropriations
of Operations

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

FINANCIAL STATEMENTS

45

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Office of Financial Stability - Troubled Asset Relief Program

STATEMENT OF BUDGETARY RESOURCES
For the Years Ended September 30, 2015 and 2014
2015

Dollars in Millions

Budgetary
Accounts

2014

Nonbudgetary
Financing
Accounts

Budgetary
Accounts

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

46

FINANCIAL STATEMENTS

Nonbudgetary
Financing
Accounts

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

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, as amended (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.

final Public-Private Investment Fund (PPIF) and
Term Asset-Backed Securities Loan Facility LLC
(TALF) were terminated. See Notes 5 and 6 for
details regarding 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
The EESA established certain criteria under which
troubled assets, the OFS entered into several
the TARP would operate, including provisions that
different types of direct loan, equity investment, and
impact the budgeting, accounting, and reporting of
other credit programs (which consists of the Federal
troubled assets acquired under the Act. Section 115 of Housing Administration (FHA) Refinance Program)
the EESA limited the authority of the Secretary to
(collectively, the OFS programs) with private
purchase troubled assets up to $700.0 billion
entities. The OFS programs were entered into with
outstanding at any one time, calculated as the
the intent of helping to stabilize the financial
aggregate purchase prices of all troubled assets held. markets and mitigating, as best as possible, any
In July 2010, the Dodd-Frank Wall Street Reform and adverse impact on the economy; they were not
Consumer Protection Act amended Section 115 of the entered into to engage in the business activities of
EESA, limiting the TARP’s authority to a total of
the respective private entities. Based on this intent,
$475.0 billion cumulative obligations (i.e. purchases
the OFS concluded that such programs are
and guarantees) and prohibiting any new obligations considered “bailouts,” under the provisions of
for programs or initiatives that had not been publicly paragraph 50 of Statement of Federal Financial
announced prior to June 25, 2010. Of the maximum
Accounting Concepts (SFFAC) No. 2, Entity and
$475.0 billion authority under the EESA, OFS had
Display. In addition, these entities are not included
utilized (including purchases made, legal
in the Federal budget and, therefore, do not meet
commitments to make purchases and offsets for
the conclusive criteria in SFFAC No. 2. As such, the
guarantees made) $454.6 billion as of September 30,
OFS determined that none of these entities should
2015 and $455.7 billion as of September 30, 2014.
be classified as a federal entity. Consequently, their
The reduction between 2015 and 2014 reflects the
assets, liabilities and results of operations were not
deobligation of unused funds in certain programs.
consolidated in these OFS financial statements, but
the value of such investments was recorded in the
During fiscal year 2015, the TARP administered the
OFS financial statements. In addition, the OFS has
following programs: the Capital Purchase Program
made loans and investments in certain Special
(CPP); the Community Development Capital
Initiative (CDCI); the Treasury Housing Programs
Under TARP; and the Automotive Industry Financing
Program (AIFP), which was effectively wound down in
December 2014. Also during fiscal year 2015, the

NOTES TO THE FINANCIAL STATEMENTS

47

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

3

Purpose Vehicles (SPV) . 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 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.

The EESA established the OFS within the Office of
Domestic Finance of the U. S. Department of the
Treasury (Treasury) to administer the TARP and
required its separate audited financial statements.
The OFS prepares stand-alone financial statements
for TARP to satisfy EESA Section 116(b) (1).
Additionally, as an office of the Treasury, its
financial statements are consolidated into
Treasury’s Agency Financial Report.

3

During fiscal year 2015, OFS held no equity interest in SPVs.
During fiscal year 2014, the OFS held one remaining equity
interest in an SPV under the TALF program.

48

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Presentation
The accompanying financial statements include the
results of operations of the TARP 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.
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 equity
investment and FHA-Refinance programs for
budgetary purposes. Similarly, market risk is
considered in the valuations for financial reporting
purposes (see Note 6 for further discussion).
Consistent with its accounting policy for equity
investments in private entities, including SPVs, the
OFS accounts for its equity investments at fair
value. Since fair value is not defined in federal
accounting standards, as established in 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, the OFS conforms to fair value

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 Equity
Investments 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.
The OFS applies the provisions of FCRA for
budgetary accounting and the associated FASAB
accounting standard SFFAS No. 2 for financial
reporting for loan guarantee programs. 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 equity investments, the subsidy allowance
account represents the difference between the face
value of the outstanding equity investment balance
and the net present value of the expected future
cash flows or fair value, and is reported as an

definitions contained in the private sector Financial

NOTES TO THE FINANCIAL STATEMENTS

49

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

adjustment to the face value of the equity
investment.

FHA-Refinance Program to determine the liability
for losses.

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 reflects changes, referred
to as reestimates, in its determination of the value of
equity investment and FHA-Refinance programs in
the subsidy cost on the Statement of Net Cost
annually.

Credit Reform Accounting

In certain programs, the OFS has received common
stock warrants, additional preferred stock (referred
to as warrant preferred stock) or additional notes as
additional consideration. The OFS accounts for any
proceeds received from the sale of these investments
as fees under SFFAS No. 2; as such, they 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
Equity Investments, Net, 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
OFS programs. These valuation 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 Equity
Investments, Net, as of fiscal year ends, include
relatively illiquid assets with values that are
sensitive to future economic conditions and other
assumptions. Estimates are also prepared for the

50

The OFS accounts for the cost of equity investment
and FHA-Refinance 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. The FCRA calls for the
establishment of program, financing and general
fund receipt accounts to segregate and report
receipts and disbursements. These accounts are
classified as either budgetary or non-budgetary in
the Statement of Budgetary Resources. The OFS
maintains budgetary program accounts which
receive appropriations and obligate funds to cover
the subsidy cost of equity investment and FHARefinance 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
equity investment and FHA-Refinance 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.
Financing arrangements specifically for the TARP
activities are provided for in EESA as follows: (1)
borrowing for program funds under Section 118,
reported as “appropriations” in these financial
statements and (2) borrowing by financing accounts
for amounts not covered by subsidy cost, under the
FCRA and Section 123. The OFS uses budgetary
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. Any assets in these accounts
are non-entity assets, not available to the OFS, and
are offset by intragovernmental liabilities. At the

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

end of the fiscal year, the fund balance transferred
to the U.S. Treasury through the general fund
receipt accounts is not included in the OFS’s
reported Fund Balance with Treasury.
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 equity investment and FHA-Refinance 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
were 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
Treasury, and the OFS’s records are reconciled with
those of the Treasury on a regular basis.
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.

Equity Investments, Net
Equity Investments, Net represents the estimated
net outstanding amount of the OFS equity
investments. The equity investment balances have
been determined in accordance with the provisions
of SFFAS No. 2 and are recorded at fair value (see
Note 6). Write-offs of equity investment balances
(presented in Note 6 table) are recorded when a

NOTES TO THE FINANCIAL STATEMENTS

legal event occurs, such as a bankruptcy or
liquidation with suspension or termination of
collection action, or extinguishment of a debt
instrument by agreement and there is currently no
expectation of further collection. 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.

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, 2015 and 2014.

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 loan, equity investment, and FHARefinance programs as of September 30, 2015 and
2014. See Notes 6 and 7.

51

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

Principal Payable to the Bureau of the
Fiscal Service
Principal Payable to the Bureau of the Fiscal Service
(Fiscal Service) is the net amount due for equity
investments funded by borrowings from the Fiscal
Service as of the end of the fiscal year. Additionally,
OFS borrows from the Fiscal Service for payment of
intragovernmental interest and payment of
downward reestimates to the general fund, as
necessary. See Note 8.

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, 2015 and
2014, is based on information about loan
modifications reported by participating servicers for
the Making Home Affordable Program. 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’s
share of losses was determined under credit reform
accounting and 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.

52

Unexpended Appropriations
Unexpended Appropriations represents the OFS
undelivered orders and unobligated balances
reduced by canceled authority in budgetary
appropriated funds as of September 30, 2015 and
2014.

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. Cumulative
Results of Operations in 2015 and 2014 included $10
million and $50 million, respectively, 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.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

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
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 Cost. 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
There are no related parties for OFS.

NOTES TO THE FINANCIAL STATEMENTS

53

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

NOTE 3. FUND BALANCES WITH TREASURY
Fund Balances with Treasury, by fund type and status, as of September 30, 2015 and 2014, are presented in
the following table.
As of September 30,
(Dollars in Millions)

2015

2014

NOTE 4. CASH ON DEPOSIT FOR HOUSING PROGRAM
As of September 30, 2015 and 2014, the OFS had
$10 million and $50 million, respectively, on deposit
with a commercial bank to facilitate its payments of
claims under the FHA-Refinance Program as OFS’s
agent. See Note 5 for further details regarding the

54

FHA-Refinance Program. Under terms of the
agreement with the commercial bank, unused funds
will be returned to the OFS upon the termination of
the program.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

NOTE 5. TREASURY HOUSING PROGRAMS UNDER TARP
Fiscal years 2015 and 2014 saw 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.

Housing Program

The programs fall into three initiatives:
1) Making Home Affordable Program (MHA);
2) Hardest-Hit Fund (HHF); and
3) FHA-Refinance Program.
Features of these initiatives follow:

Features

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.
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.
Offers financial incentives to participating servicers who modify second liens
in conjunction with a HAMP modification.
Provides for lower monthly payments on USDA guaranteed loans.
Provides targeted aid to homeowners 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.

NOTES TO THE FINANCIAL STATEMENTS

55

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

MHA

HHF

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 their mortgages, get temporary
forbearance if they are unemployed, or transition
out of homeownership via a short sale or deed-inlieu 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 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) and the U.S. Department of
Agriculture (USDA).

The HHF was implemented in fiscal year 2010,
and provides targeted aid to homeowners in the
states hit hardest by the housing market
downturn and unemployment through each state’s
Housing Finance Agency (HFA). States that meet
the criteria for this program, consisting 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, receive
funding from the OFS. Approved states develop
and roll out their own programs with timing and
types of programs targeted to address the specific
needs and economic conditions of their state.
States have until December 31, 2017 to enter into
agreements with borrowers.

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.
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
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.

56

FHA-Refinance Program
The FHA-Refinance Program is intended to
encourage refinancing of existing underwater
mortgage loans not currently insured by FHA into
FHA-insured 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,
2016 and OFS will honor its share of claims
against the letter of credit through December 31,
2022. Cumulatively, as of September 30, 2015
and September 30, 2014, 6,639 and 4,963 loans
had been refinanced through the program, of
which 4,156 and 3,015 are subject to potential
Treasury reimbursement, respectively.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

OFS originally deposited $50 million with a
commercial bank as its agent to administer
payment of claims under the program; that
amount was reduced to $10 million in 2015;
cumulatively, $145,330 in claim payments have
been made as of September 30, 2015, of which
$97,490 was disbursed during fiscal year 2015.
See Notes 4 and 6 for further details about the

deposit and the program. OFS paid $0.7 million
in fiscal year 2015 and $0.8 million in fiscal year
2014 to maintain the letter of credit.
The table below recaps housing program
commitments as of September 30, 2015, and
payments and accruals as of September 30, 2015
and 2014.

Total Commitments as of
September 30, 2015

MHA

$

HFA Hardest Hit Fund

29,782

2015

$

7,600

FHA - Refinance 2
Totals

Fiscal Year Payments through September 30,

1

37,507

2,991

$

1,257

125
$

4,249

2015

2,739

2014

$

497

$

243

$

497

$

243

1,560

1
$

Accruals as of September 30,

2014

1
$

4,300

1

Total commitments represent amounts obligated to support all of OFS's Housing programs. As of September 30, 2015, $19,019 million remains
available to be spent. FHA- Refinance commitments include $25 million for administrative expenses to administer the Letter of Credit facility.
2

Payments do not include $10 million of reserve funds transferred, shown on Balance Sheet as Cash on Deposit for Housing Program, nor the
subsidy cost to fund OFS's estimated share of defaults, which establishes the liability for losses, see Note 6. Payments are the FHA-Refinance
Letter of Credit administrative expense only.

NOTES TO THE FINANCIAL STATEMENTS

57

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

NOTE 6. EQUITY INVESTMENTS, NET AND FHA-REFINANCE PROGRAM
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
Program

investments under TARP. The OFS also entered
into other credit programs, which currently consists
of a loss-sharing program under the TARP. The
table below recaps OFS programs by title and type:
Program Type

Direct Loans and Equity Investments
Capital Purchase Program
Community Development Capital Initiative
Automotive Industry Financing Program
Term Asset-Backed Securities Loan Facility*
Public-Private Investment Program*
Other Credit Program
FHA-Refinance Program

Equity Investment/Subordinated Debentures
Equity Investment/Subordinated Debentures
Equity Investment and Direct Loan
Subordinated Debentures
Equity Investment and Direct Loan
Loss-sharing Program with FHA

*These programs have had no assets remaining since fiscal year 2013, but collections were recorded in these programs
during fiscal year 2015. Refer to AFR for fiscal year 2014 or prior for detailed descriptions on these programs.

Equity Investment Programs
Capital Purchase Program (CPP)
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.
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 non-cumulative for
others; they are payable when and if declared by the
institution’s board of directors. In addition to the
senior preferred stock, the OFS received warrants,
with a 10-year term, as required by Section 113(d) of
EESA, from public QFIs to purchase a number of
shares of common stock. QFIs that are Subchapter

58

S corporations issued subordinated debentures
instead of preferred stock (to comply with tax code
regulations) with interest rates of 7.7 percent for the
first five years and 13.8 percent thereafter.
The OFS received warrants from non-public 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 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 have issued the preferred shares.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Generally, these 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 2015 and 2014, OFS continued
preferred stock auction sales of selected remaining
CPP investments. During fiscal year 2015, OFS
elected to also sell CPP warrants in public auctions,
with net proceeds of $49 million.
In fiscal year 2015, OFS sold eight CPP investments
in two separate preferred stock auctions for total net
proceeds of $50 million. These auction sales
resulted in net proceeds less than cost of $32 million.
In addition, other sales and redemptions for 14
institutions resulted in net proceeds less than cost of
$20 million. In fiscal year 2014, OFS sold 31 CPP
investments in six separate auctions for total net
proceeds of $289 million. These auction sales
resulted in net proceeds less than cost of $73 million.
In addition, other sales and redemptions for 31
institutions resulted in net proceeds less than cost of
$96 million.

During fiscal year 2015, two institutions, in which
OFS had invested $13 million, were either closed by
their regulators or declared bankruptcy. During
fiscal year 2014, three institutions, in which OFS
had invested $27 million, were either closed by their
regulators or declared bankruptcy. The ultimate
amount received, if any, from the investments in
institutions that filed for bankruptcy and
institutions closed by regulators primarily depends
upon the outcome of the bankruptcy proceedings and
of each institution’s receivership. At closing or
bankruptcy, they are valued by OFS at zero.
During fiscal year 2015, two CPP institutions were
written off for $13 million, the amount of OFS’s
original investment. During fiscal year 2014, 27
institutions that entered bankruptcy or were closed
by their regulators between 2009 to 2014 were
written off for $797 million, the amount of OFS’s
original investments. The write-offs reduced gross
investment outstanding and subsidy allowance by
equal offsetting amounts, since the investments
were valued at zero through the subsidy cost
reestimates.
The following tables provide key data points related
to the CPP for the fiscal years ending September 30,
2015 and 2014:
Cumulative as of September 30,
2015

Fiscal Year 2015

NOTES TO THE FINANCIAL STATEMENTS

2014

Fiscal Year 2014

59

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

Community Development Capital Initiative
(CDCI)
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.
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 years 2015 and 2014, there were no
CDCI institutions written off.
In fiscal year 2015, OFS received $19 million in
repayments and $9 million in dividends and interest
from its CDCI investments with, as of September 30,
2015, an outstanding balance of $446 million and
value of $383 million. In fiscal year 2014, OFS
received $10 million in repayments and $10 million
in dividends and interest from its CDCI investments
with, as of September 30, 2014, an outstanding
balance of $465 million and value of $372 million.

60

Public-Private Investment Program (PPIP)
The PPIP was part of the OFS’s 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.
As of September 30, 2014, OFS had no PPIF equity
investments or loans outstanding.
Of the legal commitments to disburse up to $984
million to remaining PPIFs as of September 30,
2013, $858 million were canceled in 2014 and the
remaining $126 million was canceled in 2015, since
all PPIFs had ceased operations and termination
notices had been received from all of them.
During fiscal year 2015, OFS received a collection of
$63,311 recognized as net proceeds in excess of cost.
During fiscal year 2014, the OFS received $10
million, of which $6 million was recognized as
investment income and $4 million as net proceeds in
excess of cost.

Term Asset-Backed Securities Loan Facility
(TALF)
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, 2015, no loans due to the FRBNY
remained outstanding. As of September 30, 2014,

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

one loan due to FRBNY of approximately $14.3
million remained outstanding.
The OFS disbursed $100 million upon the creation of
TALF, LLC in 2009. This $100 million was repaid in
2013. Upon its wind-down, after collateral was
sold, available cash was disbursed to FRBNY and
OFS according to the legal agreement between
them.
In fiscal year 2015, OFS received $39 million of
contingent interest, recorded as proceeds in excess of
cost. In fiscal year 2014, OFS received $62 million of
contingent interest, recorded as proceeds in excess of
cost.
As of September 30, 2015 or 2014, no TALF loans
were in default and consequently no collateral was
purchased by the TALF, LLC.

Automotive Industry Financing Program
(AIFP)
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.

General Motors Company (New GM) and
General Motors Corporation (Old GM)
In the period ended September 30, 2009, the OFS
provided $51.0 billion to General Motors
Corporation (Old GM) through various loan
agreements including the initial loan for general and
working capital purposes, auto supplier and
warranty programs, and the final loan for debtor in
possession (DIP) financing while Old GM was in
bankruptcy. As of September 30, 2013, after various
sales and restructurings of its investment, the OFS
held 101 million shares of common stock of New GM,
the post-bankruptcy GM entity, and had received a
cumulative total of $35.9 billion in stock sale
proceeds, loan repayments, dividends and interest.
During fiscal year 2014, OFS sold its remaining 101
million shares of GM common stock for $3.8 billion.

NOTES TO THE FINANCIAL STATEMENTS

The sales resulted in net proceeds less than cost of
$639 million. After this sale, OFS no longer
retained ownership in the common stock of New GM.
In fiscal year 2011, $986 million of OFS’s loan to Old
GM 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 $1
million in fiscal year 2014 on the administrative
claim. Because OFS did not expect to recover any
significant additional proceeds from this claim, OFS
recognized a write-off of the remaining $826 million
in fiscal year 2014 resulting in no outstanding
balance since September 30, 2014. During fiscal
year 2015, OFS recovered $8 million on this
administrative claim.

Chrysler Group LLC (New Chrysler) and
Chrysler Holding LLC (Old Chrysler)
During fiscal years 2009 and 2010, OFS invested
$7.8 billion in Chrysler Holding LLC (Old Chrysler),
including the auto supplier and warranty programs,
and an additional $4.6 billion in Chrysler Group
LLC (New Chrysler) under the terms of Chrysler’s
bankruptcy agreement. Prior to fiscal year 2012,
pursuant to several agreements with New Chrysler
that included write-offs, OFS had received loan
repayments, interest and additional payments
totaling $11.1 billion and had no remaining interest
in New Chrysler.
OFS continues to hold a right to receive proceeds
from a bankruptcy liquidation trust related to Old
Chrysler, but no significant cash flows are expected.
OFS received $100 million from the trust in fiscal
year 2015. No proceeds were received from the trust
in 2014. The underlying loan balance was
extinguished in the Chrysler bankruptcy, and was
written off by OFS in fiscal year 2010.

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

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THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

GMAC’s capital needs. In addition, in May 2009,
under the terms of a separate $884 million loan to
Old GM, OFS exercised its exchange option and
received 190,921 shares of GMAC common stock
from Old GM in full satisfaction of the loan. In May
2010, GMAC changed its corporate name to Ally
Financial, Inc. (Ally), a private bank holding
company. As a result of original investments,
exchanges, conversions, warrant exercises and sales,
at the beginning of fiscal year 2014, OFS had
received $6.2 billion in sales proceeds, dividends,
and additional payments on its initial investment
and held 981,971 shares of common stock (73.8
percent of Ally’s outstanding common stock) and 119
million shares of Series F-2 mandatorily convertible
preferred securities (Series F-2). The Series F-2
were convertible into at least 513,000 shares of
common stock.
Per an August 2013 agreement, all of the Series F-2
were repurchased by Ally from OFS for $5.2 billion
in November 2013 along with an additional $725
million for the elimination of certain rights under
the original agreement. This transaction resulted in
proceeds in excess of cost of $300 million. The
August 2013 agreement also included terms for Ally
to issue a November 2013 private offering of new
common stock at a price of $6,000 per share.
Following the private offering, OFS’s ownership was
reduced to 63.4 percent of Ally’s outstanding
common stock. A stock split of 310/1 was also
announced by Ally following the private offering.
The OFS received no dividends in fiscal year 2015
from the Ally investment. The OFS received $141
million from the Ally investment in fiscal year 2014.
During fiscal year 2015, OFS sold its remaining
64,110,418 shares of Ally common stock (post-split)
for $1.5 billion, resulting in net proceeds less than
cost of $290 million.
During fiscal year 2014, OFS sold 410,000 pre-split
shares and 113 million post-split shares of Ally
common stock (or an equivalent total of 240.1
million post-split shares) for $5.8 billion. The sales
resulted in net proceeds less than cost of $1.4 billion.

62

At September 30, 2015, the OFS retained no
ownership in the common stock of Ally.
At September 30, 2014, the OFS held 64,110,418
shares of Ally common stock (post-split), with a
market value of $1.5 billion, representing 13.4
percent ownership in Ally.

Valuation Methodology
The OFS applies fair value and the provisions of
SFFAS No. 2 to account for equity investments and
the FHA-Refinance Program. 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
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 using
market prices of similar securities to estimate an
appropriate market-adjusted discount rate 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

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

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.



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 following table displays the assets held by the
observability of inputs significant to the
measurement of each value:

Quoted
Prices for
Identical
Assets
(Level 1)

Significant
Unobservable
Inputs
(Level 3)

Total

Quoted
Prices for
Identical
Assets
(Level 1)

NOTES TO THE FINANCIAL STATEMENTS

Significant
Observable
Inputs
(Level 2)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

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THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

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.

comparable securities trading in the market. The
market risk adjustment is estimated by grouping
institutions with similar financial performance and
applying credit spreads from similar securities.

Financial Institution Equity
Investments4

For both its fiscal year 2015 and 2014 models, 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 that are exchange
traded are valued at the quoted market price as of
year-end.

The estimated values of preferred equity
investments are the net present values of the
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 its balance
sheet. The model assumes a probabilistic approach
to estimate the projected cash flows due to the
Treasury based on market pricing data and the
strength of a given institution’s balance sheet. Each
institution’s performance is subject to uncertainty.
In fiscal year 2014, OFS implemented a new
estimation methodology in its model for its
remaining equity investments. The new model was
implemented as the risk profile of the remaining
equity investments within the TARP portfolio
evolved over time and as the portfolio as a whole
continued to wind down. Within the new model,
some institutions are increasingly likely to default
or to miss the preferred dividends as the quality of
their assets deteriorates or the level of capital they
have available to absorb losses declines as a share of
their assets. The probability of default was
estimated based on the performance of a large
sample of U.S. banks over time and on the historical
behavior of the TARP’s own equity investments. At
the other end of the spectrum, institutions are
increasingly likely to call their preferred shares over
time as their balance sheets improve. Inputs to the
model included institution-specific accounting data
obtained from regulatory filings, an institution’s
stock price volatility and historical bank failure
information, as well as market pricing data of

Public-Private Investment Program
At September 30, 2014, since the PPIFs no longer
held security portfolios, their valuation represented
expected proceeds to OFS upon final liquidation
notice from the remaining PPIFs. No further
significant collections are expected from the PPIFs.

Term Asset-Backed Securities Loan Facility
For fiscal year 2014, the valuation represents
expected proceeds to the OFS upon final wind down
of the Federal Reserve Bank of New York (FRBNY)
TALF LLC SPV because the OFS loan was fully
repaid in fiscal year 2013 and only one FRBNY
TALF loan remained outstanding as of September
30, 2014.

Automotive Industry Financing Program
At September 30, 2014, shares of common stock in
Ally, held by OFS, were valued by multiplying the
publicly traded share price by the number of shares
held plus the value of any traded but not settled
shares as of September 30, 2014. Traded but not
settled shares as of September 30, 2014, were valued
based on the actual trade proceeds. OFS had no
investment in Ally common stock remaining as of
September 30, 2015.

4

This consists of equity investments made under CPP and CDCI.

64

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Subsidy Cost and Reestimates
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’s 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.
During fiscal years 2015 or 2014, there were no
modifications to any of the remaining programs.
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 fiscal years 2015 and 2014, financial statement
reestimates for all programs, except the FHARefinance program, were performed using actual
financial transaction data through September 30.
For fiscal years 2015 and 2014 market and security
specific data publicly available as of September 30
were used. For fiscal year 2015, for the 2015 cohort,
FHA guaranteed loan volume is actual data through
August 31, with an estimate for the month of
September.
Net downward reestimates for the fiscal years ended
September 30, 2015 and 2014, totaled $245 million
and $1.5 billion, respectively. Descriptions of the
reestimates, by OFS Program, are as follows:

CPP
The $124 million downward reestimate for CPP for
the fiscal year ended September 30, 2015 was the
result of revenues from asset sales in 2015 being
higher than projected and repayments.

NOTES TO THE FINANCIAL STATEMENTS

The $88 million downward reestimate for CPP for
the fiscal year ended September 30, 2014 was the
result of a reduction in the projected number of
institutions that would be sold via asset sales,
revenues from asset sales in 2014 being higher than
projected, and repayments.

CDCI
The CDCI program experienced improved
investment performance with some institutions
repaying in full, resulting in a $26 million
downward reestimate for the fiscal year ended
September 30, 2015.
The CDCI program experienced improved market
values and repayments in full, resulting in a $6
million downward reestimate for the fiscal year
ended September 30, 2014.

Public-Private Investment Program
There was a nominal reestimate for the PPIP for the
year ended September 30, 2015, due to a collection
from a PPIF.
There was a nominal reestimate for the PPIP for the
year ended September 30, 2014, due to the winddown of expenses being nearly as projected.

TALF
The $0.5 million downward reestimate for TALF for
the fiscal year ended September 30, 2015, was due to
small collections and final closing of the program.
The investments in the TALF experienced lower
than anticipated expenses resulting in a $1 million
downward reestimate for the fiscal year ended
September 30, 2014.

AIFP
For the fiscal year ended September 30, 2015 a $92
million downward reestimate was due mostly to
recoveries from GM and Chrysler bankruptcy
liquidation trusts.
Improvements in the value of Treasury’s investment
in Ally resulted in $1.0 billion in downward

65

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

reestimates and improvements in Treasury’s
investments for GM resulted in $349 million for a
total of $1.4 billion in downward reestimates for
AIFP for the fiscal year ended September 30, 2014.
In April, 2014 an initial public offering (IPO) of Ally
common stock occurred with Treasury selling 95
million shares at $25.00 per share. In May 2014, 7.2
million shares were sold at that price. As of
September 30, 2014 the remaining shares of Ally
common were valued at $23.14 per share.

66

Summary Table
The following table recaps gross equity investments,
subsidy allowance, net equity investments,
reconciliation of subsidy cost allowance and subsidy
cost, by TARP program, as of and for the fiscal years
ended September 30, 2015 and 2014. OFS authority
expired October 3, 2010 and no commitments were
made thereafter, so there were no investment
program budget execution subsidy rates for fiscal
years 2015 and 2014.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

(Dollars in Millions)

TOTAL

CPP

PPIP

AIFP

CDCI-TALF

(Dollars in Millions)

TOTAL

CPP

PPIP

AIFP

CDCI-TALF

NOTES TO THE FINANCIAL STATEMENTS

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THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

FHA-Refinance Program
As discussed in Note 5, the OFS entered into a losssharing 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. OFS originally 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. This amount
was reduced to $10 million in fiscal year 2015 with
$40 million being returned to OFS along with
$156,741 in investment income.
During fiscal year 2015, $122 million of new loans
were guaranteed by the FHA under this program
that could require a Treasury contribution.
During fiscal year 2014, no new loans were
guaranteed by FHA under this program that
required a Treasury contribution.
Cumulatively, as of September 30, 2015 and
September 30, 2014, 4,156 and 3,015 loans that FHA
guaranteed, with a total value of $611 and $489
million, respectively, had been refinanced under the
program that could require a Treasury contribution.

68

OFS’s maximum exposure related to FHA’s
guarantee totaled $38 million and $34 million at
September 30, 2015 and 2014, respectively. OFS’s
guarantee resulted in a liability of $5 million at
September 30, 2015 and a liability of $6 million at
September 30, 2014. The liability was calculated,
using credit reform accounting, as the present value
of the estimated future cash outflows for the OFS’s
share of losses incurred on any defaults of the FHA
guaranteed loans. Cumulatively, as of September
30, 2015 and 2014, $145,330 and $47,840 of claims
had been paid by OFS under the program.
At September 30, 2015 and 2014, OFS’s obligation
for subsidy for potential new FHA guaranteed loans
under the program was $100 million and $1.0
billion, respectively.
Budget subsidy rates for the program, entirely for
defaults, were set at 1.64 percent for loans
guaranteed in fiscal year 2015.
The program recorded $3 million in downward
reestimates, for each of the fiscal years 2015 and
2014, due to 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 2015 and 2014:

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

NOTE 7. DUE TO THE GENERAL FUND
As of September 30, 2015, the OFS accrued $229
million of downward reestimates payable to the
General Fund. As of September 30, 2014, the OFS

accrued $1.5 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 FISCAL SERVICE
(Fiscal Service)
The equity investment and the FHA-Refinance
Programs, accounted for under federal credit reform,
are funded by subsidy appropriations and
borrowings from the Fiscal Service. The OFS also
borrows funds to pay the Treasury General Fund for
downward reestimates (these reduce program
subsidy cost) in advance of receiving the expected
cash flows that cause the downward reestimate.
The OFS makes periodic principal repayments to the

Fiscal Service 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, 2015 and 2014 were as follows:

As of September 30,
(Dollars in Millions)

2015

2014

Borrowings from the Fiscal Service by TARP program, outstanding as of September 30, 2015 and 2014, were
as follows:
As of September 30,
(Dollars in Millions)

As of September 30, 2015, borrowings carried
remaining terms ranging from 1 to 26 years, with
interest rates from 2.96 percent to 3.8 percent. As of

NOTES TO THE FINANCIAL STATEMENTS

2015

2014

September 30, 2014, borrowings carried remaining
terms ranging from 2 to 27 years, with interest rates
from 2.5 percent to 3.8 percent.

69

THE DEPARTMENT OF THE TREASURY I 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 materially adverse effect on the OFS
financial statements, except for the pending legal
action described below which may have a materially
adverse impact on the financial statements
depending on the outcome of the case. Contingent
liabilities related to litigation are recorded in the
financial statements if and when losses are
determined to be probable and estimable.
Contingent liabilities are disclosed where the
conditions for liability recognition have not been met
and the likelihood of unfavorable outcome is more
than remote. If litigation losses are to be paid by the
Treasury Judgment Fund, the related cost is
allocated to the appropriate federal entity, which
records the cost and an offsetting financing source in
its financial statements.

Starr International Co., Inc. v. United States:
Plaintiff is an AIG shareholder that brought suit on
behalf of two putative classes of shareholders
alleging that the government violated the Fifth
Amendment by illegally exacting or taking property
without just compensation. One class, the Credit
Agreement Class, claimed that the Fifth
Amendment was violated when a majority share of
AIG’s equity and voting rights was conveyed in
connection with an $85 billion loan that rescued AIG
during the 2008 financial crisis. Starr also asserted
a Fifth Amendment violation on behalf of the second
class, the Reverse Stock Split Shareholder Class,
that a June 2009 reverse stock split constituted a

taking of the common stockholders’ asserted right to
a shareholder vote on whether to approve a reverse
split of AIG’s common stock. The Court of Federal
Claims held that the Credit Agreement Shareholder
Class shall prevail on liability, but shall recover zero
damages, and that the Reverse Stock Split
Shareholder Class shall not prevail on liability or
damages. Both the Plaintiff and the United States
have appealed.
The Department of Justice (DOJ), which is
representing the United States Treasury and the
Board of Governors of the Federal Reserve System
in this lawsuit, is unable to determine the likelihood
of a favorable or unfavorable outcome or make an
estimate of potential loss, if any, at this time. In
addition, if an unfavorable outcome were to occur,
OFS believes that the settlement would be paid by
the Treasury Judgment Fund. Accordingly, if an
unfavorable outcome were deemed probable and
measureable and the related cost is allocated to
OFS, then OFS would record an imputed cost and
offsetting financing source in its financial
statements.
In addition, the OFS pays for a portion of the Starr
litigation expenses incurred by DOJ based on an
Inter-Agency Agreement (IAA) between the OFS and
DOJ. Under the terms of the IAA, OFS paid
approximately $1 million per year to DOJ for
expenses invoiced during fiscal years 2015 and 2014.
Refer to Note 5 for additional commitments relating
to the Treasury Housing Programs under TARP and
Note 6 relating to Equity Investments, Net and
FHA-Refinance 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 to promote domestic economic
growth and stability while continuing reforms of the
financial system. The OFS has determined that all

70

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

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

identifiable to TARP, in accordance with SFFAS No.
4, Managerial Cost Accounting Concepts and
Standards.
The OFS SNC for fiscal year 2015 includes $30
million of intragovernmental costs relating to
interest expense on borrowings from the Fiscal
Service and $5 million in intragovernmental
revenues relating to interest income on financing
account balances. The OFS SNC for fiscal year 2014
includes $218 million of intragovernmental costs
relating to interest expense on borrowings from the
Fiscal Service and $29 million 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 equity investments and FHA-Refinance
programs from TARP participants, and interest
expense on borrowings from the Fiscal Service. The
subsidy allowance account is used to present the
equity investments at the estimated net present
value of future cash flows. The OFS SNC includes
$3 million and $56 million of subsidy allowance
amortization for fiscal years 2015 and 2014,
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 fiscal year ended
September 30, 2015, the OFS’s total resources in
budgetary accounts were $8.5 billion and resources
in non-budgetary financing accounts, including
spending authority from collections of loan principal,
liquidation of equity investments, interest,
dividends and fees were $1.7 billion. For the fiscal
year ended September 30, 2014, the OFS’s total
resources in budgetary accounts were $8.1 billion
and resources in non-budgetary financing accounts
were $9.1 billion.

Permanent Indefinite Appropriations
The OFS receives permanent indefinite
appropriations annually, if necessary, to fund
increases in the projected subsidy costs of equity
investments and FHA-Refinance programs as
determined by the reestimation process required by
the FCRA.
Additionally, Section 118 of the EESA states that
the Secretary may issue public debt securities and

NOTES TO THE FINANCIAL STATEMENTS

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 Fiscal
Service to pay interest costs in excess of interest
income and to fund downward reestimates transfers
to the General Fund. For the fiscal year ended
September 30, 2015, the OFS had no borrowing
authority available or authorized. For the fiscal
year ended September 30, 2014, the OFS had
borrowing authority available of $90 million, of the
$839 million current year authority authorized.
The OFS uses dividends and interest received as
well as recoveries on direct loans and liquidation of
equity investments to repay debt in the nonbudgetary direct loan, equity investment and FHARefinance program financing accounts. These
receipts are not available for any other use per
credit reform accounting guidance.

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THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

Apportionment Categories of Obligations
Incurred: Direct versus Reimbursable
Obligations
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).

Undelivered Orders
Undelivered orders as of September 30, 2015 were
$19 billion in budgetary accounts and $1 million in
non-budgetary financing accounts. Undelivered
orders as of September 30, 2014 were $24.5 billion in
budgetary accounts and $0.1 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 President’s Budget for 2017, with the “Actual”
column completed for fiscal year 2015, 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 2016. It will be available from the
Government Printing Office.
The 2016 President’s Budget, with the “Actual”
column completed for the fiscal year ended
September 30, 2014, was published in February
2015, and reconciled to the SBR. The only
differences between the two documents were due to:



72

Rounding;
Expired funds that are not shown in the
“Actual” column of the President’s Budget.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

NOTE 12. RECONCILIATION OF OBLIGATIONS INCURRED TO NET COST
OF 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, 2015 and 2014 follows:

Fiscal Year
(Dollars in Millions)

NOTES TO THE FINANCIAL STATEMENTS

2015

2014

73

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

Office of Financial Stability - Troubled Asset Relief Program

REQUIRED SUPPLEMENTARY INFORMATION
COMBINED STATEMENT OF BUDGETARY RESOURCES
For the Year Ended September 30, 2015
(Unaudited)
2015
Combined

Dollars in Millions

74

Budgetary
Accounts

Nonbudgetary
Financing
Accounts

TARP Programs
Budgetary
Accounts

Nonbudgetary
Financing
Accounts

TARP Administrative
Budgetary
Accounts

Nonbudgetary
Financing
Accounts

REQUIRED SUPPLEMENTARY INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Office of Financial Stability - T roubled Asset Relief Program

REQUIRED SUPPLEMENTARY INFORMATION
COMBINED STATEMENT OF BUDGETARY RESOURCES
For the Year Ended September 30, 2014
(Unaudited)
2014
Combined

Dollars in Millions

REQUIRED SUPPLEMENTARY INFORMATION

Budgetary
Accounts

Nonbudgetary
Financing
Accounts

T ARP Programs
Budgetary
Accounts

Nonbudgetary
Financing
Accounts

T ARP Administrative
Budgetary
Accounts

75

Nonbudgetary
Financing
Accounts

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

76

REQUIRED SUPPLEMENTARY INFORMATION

PART 3:

Other Information
(Unaudited)

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

Section A – Combined Schedule of Spending
Office of Fina ncia l S ta bility - T rouble d Asse t R e lie f P rogra m

COMBINED SCHEDULE OF SPENDING
For the Y e a rs E nde d S e pte mbe r 30, 2015 a nd 2014
2015

Dollars in Millions

Budgetary
Accounts

N onbudgetary
Financing
Accounts

2014

Budgetary
Accounts

N onbudgetary
Financing
Accounts

1

Subsidies obligated in nonbudgetary accounts consist of downward reestimates, which are reductions of subsidy cost, transferred from the financing accounts
to the Treasury General Fund. These transactions occur in the same fiscal year as the obligations.

The Combined Schedule of Spending presents
an overview of obligations incurred subtotaled
by purpose and again by type of entity to be
paid. Obligations are legally binding
agreements that usually result in outlays,
immediately or in the future. The schedule
presents more detail than the Statement of
Budgetary Resources (SBR), although the
data used to populate both is the same.
The section “How Was the Amount Spent”
presents obligations committed to in each
fiscal year for services received, supplies

OTHER INFORMATION

purchased, subsidies and program loans or
investments made, even if actual receipt of
services or goods has not yet occurred or
payments have not yet been made for
particular obligations. While most obligations
become contractual agreements for which
services and goods are received in the same
fiscal year as established, certain obligations
or portions of obligations reported here may
never be used. These unused amounts, when
closed, are reported as “Recoveries of PriorYear Unpaid Obligations” on the SBR.

79

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

Section B – IPIA (as amended by IPERA and IPERIA)
Risk Assessment
The central purpose of the Improper
Payments Information Act of 2002 (IPIA, Pub.
L. 107-300) is to enhance the accuracy and
integrity of federal payments. To achieve this
objective, IPIA provided an initial framework
for federal agencies to identify the causes of
and solutions for reducing improper
payments.
On July 22, 2010, President Obama signed
into law the Improper Payments Elimination
and Recovery Act of 2010 (IPERA, Pub. L.
111-204). IPERA amends IPIA, generally
repeals the Recovery Auditing Act, and
significantly increases agency payment
recapture efforts by expanding the types of
payments to be reviewed and lowering the
dollar threshold of annual payments that
requires agencies to conduct payment
recapture audit programs. Agencies continue
to be required to review their programs and
activities periodically to identify those
susceptible to significant improper payments.
OMB Circular No. A-123, Management’s
Responsibility for Internal Control, Appendix
C, “Requirements for Effective Estimation and
Remediation of Improper Payments” (A-123,
Appendix C), amended October 20, 2014,
defines “significant improper payments” as
gross annual improper payments in a program
exceeding both the threshold of 1.5 percent
and $10 million, or exceeding $100 million
regardless of the improper payment
percentage. A-123, Appendix C, also requires
agencies to review all programs with annual
payments of $1 million or more, if costeffective.
OFS managers are held accountable for
developing and strengthening financial
management controls to detect and prevent

80

improper payments, and thereby better
safeguard taxpayer dollars.
OFS carried out its fiscal year 2015 IPERA
review per Treasury-wide guidance and did
not assess any programs or activities as
susceptible to significant improper payments.

Recapture of Improper Payment
Reporting
In accordance with IPIA, as amended, and
OMB Circular No. A-123, Appendix C, OFS
performs and reports annually on its payment
recapture program for all programs and
payment activities that expend $1 million or
more, including contracts, benefits, and other
payment types. During fiscal year 2015, OFS
reviewed administrative and program
payments totaling approximately $4.4 billion.
OFS does not have an improper payment
recapture audit contingency contract or formal
management improvement program in place.
Instead, OFS performs both targeted postaward audits and improper payment
recapture audits designed to identify
erroneous payments, principally applying
payment offsets for any identified erroneous
payments. OFS has in place extensive annual
audit and testing procedures to monitor
administrative and program payments for
errors. To date, these procedures have
identified no significant erroneous payments
or audit findings.
More specifically, with respect to
administrative payments, OFS works
externally with the Bureau of the Fiscal
Service – Administrative Resource Center
(BFS) and Internal Revenue Service – Office
of Treasury Procurement Services (OTPS) to
support payment recapture reporting. BFS
processes OFS’s contract and administrative

OTHER INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2015

payments, including payments to OFS’s
financial agents. OTPS solicits, negotiates,
and awards contracts on behalf of OFS. Both
organizations have extensive payment
recapture audit and improper payments
reporting capabilities.
OFS also performs extensive payment
recapture audit activities to identify erroneous
incentive payments under the MHA program.
OFS ensures that the Investor Reporting 2
(IR/2) system, the MHA system of record, is
configured to calculate incentive payments in
accordance with program guidelines based on
data provided by servicers. The MHA program
administrator performs a validation of all
incentive payments which is then reconciled
with OFS loan level payment and accounting
files on a monthly basis. In addition, the MHA
compliance agent performs post-award loan
level reviews of MHA incentive payments to
ensure validity in accordance with the MHA
Handbook and Supplemental Directives
issued by Treasury.
OFS reports annually improper payments
identified through its recapture audit
activities. Improper payments, recapture
audit results, and disposition of recaptured
funds are disclosed within the U.S.
Department of the Treasury Agency Financial
Report. In summary, OFS has a strong
internal control environment in place to
prevent, detect, and correct improper

OTHER INFORMATION

payments associated with its administrative
and program payments.

IPERIA Do Not Pay Initiative
The Improper Payments Elimination and
Recovery Improvement Act of 2012 (IPERIA,
Pub. L. 112-248) was signed into law by the
President on January 10, 2013, and also
amends IPIA. It is important to note that
Section 5 of IPERIA, regarding the “Do Not
Pay” Initiative, is treated separately from
Circular No. A-136 reporting requirements.
BFS partnered with the Saint Louis and
Kansas City Federal Reserve Banks to operate
the “Do Not Pay Business Center” as part of a
government wide “Do Not Pay” solution.
During fiscal year 2013, OFS implemented the
“Do Not Pay” solution to monitor
administrative disbursements to ensure, to
the extent permitted by law, a thorough
review of available databases with relevant
information on eligibility occurs before the
release of any Federal funds.
To date, the BFS “Do Not Pay” Business
Center has not identified any potential OFS
improper payments. Additional “Do Not Pay”
analysis is disclosed within the U.S.
Department of the Treasury Agency Financial
Report.

81

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

82

APPENDIX A: TARP GLOSSARY

PART 4:

Appendices

THE DEPARTMENT OF THE TREASURY I 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.
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.
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.
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
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

84

OFS that promotes economic revitalization
and community development.
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.
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 | FISCAL YEAR 2015

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.

SBA: U.S. Small Business Administration.
SBA 7(a) Securities Purchase Program: A
TARP program under which OFS purchased
securities backed by the guaranteed portions
of the SBA 7(a) loans.

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.

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.

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.

APPENDIX A: TARP GLOSSARY

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 help prevent a systemic
collapse.
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.

85

THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

Appendix B: Abbreviations and Acronyms
ABS

Asset-Backed Securities

HAMP

Home Affordable Modification Program

AGP

Asset Guarantee Program

MBS

Mortgage-Backed Security

AIFP

Automotive Industry Financing Program

MHA

Making Home Affordable Program

AIG

American International Group, Inc.

OFS

Office of Financial Stability

CAP

Capital Assistance Program

OMB

Office of Management and Budget

CDFI

Community Development Financial Institution

PPIF

Public-Private Investment Fund

CMBS

Commercial Mortgage-Backed Securities

PPIP

Public-Private Investment Program

CPP

Capital Purchase Program

QFI

Qualifying Financial Institution

CDCI

Community Development Capital Initiative

RMBS

Residential Mortgage-Backed

DIP

Debtor-In-Possession

EESA

Emergency Economic Stabilization Act of

Securities
SBR

Statement of Budgetary Resources

2008

SBLF

Small Business Lending Fund

FCRA

Federal Credit Reform Act of 1990

SCAP

Supervisory Capital Assessment

FHA

Federal Housing Administration

FRBNY Federal Reserve Bank of New York

Program
SIGTARP Special Inspector General for the
Troubled Asset Relief Program

GAO

Government Accountability Office

GM

General Motors

GMAC

General Motors Acceptance Corporation

GSE

Government-Sponsored Enterprise

TARP

Troubled Asset Relief Program

HAFA

Home Affordable Foreclosure Alternatives

TIP

Targeted Investment Program

HFA

Housing Finance Agency

USDA

U. S. Department of Agriculture

HHF

Hardest Hit Fund

86

SPV

Special Purpose Vehicle

TALF

Term Asset-Backed Securities Loan
Facility

APPENDIX B: ABBREVIATIONS AND ACRONYMS

Office of Financial Stability
Contact information:

Department of the Treasury – Office of Financial Stability
1500 Pennsylvania Avenue NW
Washington, DC 20220
Telephone 202-622-2000 - Treasury Press Office 202-622-2960

Websites:

www.FinancialStability.gov
www.MAKINGHOMEAFFORDABLE.gov

Additional References:
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 2015, 2014, 2013, 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
Making Home Affordable Monthly Reports:
http://www.treasury.gov/initiatives/financial-stability/reports/Pages/Making-Home-Affordable-ProgramPerformance-Report.aspx

www.financialstability.gov

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