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D E P A R T M E N T

O F

T H E

T R E A S U R Y

Agency Financial Report
O F F I C E O F F I N A N C I A L S T A B I L I T Y –
T R O U B L E D A S S E T R E L I E F P R O G R A M

Fiscal Year 2016

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Table of Contents

FOREWORD ....................................................................................................................................................................... iv
MESSAGE FROM THE DEPUTY ASSISTANT SECRETARY FOR FINANCIAL STABILITY ...................... v
EXECUTIVE SUMMARY................................................................................................................................................ vii

Part 1: Management’s Discussion and Analysis
Program Background and OFS Organization Structure....................................................................... 3
OFS Operational Goals ................................................................................................................................................... 8
Analysis of Fiscal Years 2016 and 2015 Financial Summary and Cumulative Net Income ............ 15
Analysis of Systems, Controls, and Legal Compliance .................................................................................... 21
Other Management Information, Initiatives, and Issues ............................................................................... 25
Limitations of the Financial Statements............................................................................................................... 26

Part 2: Financial Section
MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CFO) ............................................................................ 29
GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT ............................................................. 30
Appendix I: Management’s Report on Internal Control over Financial Reporting............................ 36
Appendix II: OFS Response to Auditor’s Report .............................................................................................. 37
FINANCIAL STATEMENTS ......................................................................................................................................... 38
NOTES TO THE FINANCIAL STATEMENTS......................................................................................................... 43
REQUIRED SUPPLEMENTARY INFORMATION ................................................................................................. 67

Part 3: Other Information (Unaudited)
Section A – Combined Schedule of Spending ..................................................................................................... 71
Section B – IPIA (as amended by IPERA and IPERIA) .................................................................................... 72
TARP Glossary................................................................................................................................................................. 74
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 2016 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 Section: 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 2018 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 2016

MESSAGE FROM THE DEPUTY ASSISTANT SECRETARY FOR
FINANCIAL STABILITY
November 4, 2016

I am pleased to present the Office of Financial Stability’s (OFS) Agency Financial Report for Fiscal
Year 2016. This report describes our financial and performance results for the eighth year of the
Troubled Asset Relief Program (TARP). Within this report you will find the comparative fiscal years
2016 and 2015 financial statements for TARP, 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 the Office of
Domestic Finance at the Department of the Treasury (Treasury) to implement 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,
2016, 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 American International Group, Inc. Of the original ten investment programs, eight are
effectively closed. Investment programs with remaining outstanding balances include the Capital
Purchase Program ($210 million) and the Community Development Capital Initiative ($420 million).
OFS continues to wind down those positions as quickly as is practicable.
In addition to winding down the investment programs under TARP, we are preparing to retire the
largest TARP housing program, Making Home Affordable (MHA), as required by the Consolidated
Appropriations Act, 2016 (the Act). Homeowners will be able to apply for MHA assistance through
December 30, 2016, and servicers will evaluate applications with the goal of completing the work by
December 2017, at which point the program will enter a steady state to pay the incentives on
modifications that remain current. More than 2.7 million homeowner assistance actions have taken
place through the MHA, including nearly 1.7 million permanent modifications through the Home
Affordable Modification Program (HAMP). In addition, MHA has indirectly assisted millions more
by setting new standards and changing industry practices that led to more affordable and
sustainable private modifications. In total, through government programs as well as additional
private sector efforts, approximately 10.9 million families have received help. MHA has also

MESSAGE FROM THE DEPUTY ASSISTANT SECRETARY

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

demonstrated that a mortgage modification can be a sustainable option for homeowners seeking to
avoid foreclosure. As we continue to execute the MHA wind-down, we are actively engaged with
stakeholders on what the future of loss mitigation should include to ensure a smooth and successful
transition for the mortgage servicing industry to life after MHA.
To date, our efforts through the Hardest Hit Fund (HHF) have assisted approximately a quarter of a
million American homeowners in preventing avoidable foreclosures, and helped stabilize
neighborhoods in 18 states and the District of Columbia. In the last year alone, HHF programs
assisted more than 25,000 households. Notwithstanding these accomplishments and recent
improvements in the economy, the recovery of the housing market remains uneven. While state
unemployment rates and home prices have generally improved, many homeowners and
neighborhoods continue to face obstacles. Many of the states participating in the HHF continue to
exceed the national average for underemployment and negative equity and many experience higher
than average rates of serious mortgage delinquency. In addition, blighted and vacant properties
depress property values in many communities that would otherwise benefit from the rise in home
prices, while other communities are unable to attract new homebuyers to stimulate market activity.
Recognizing the current and persistent need among HHF states, the Act included a provision that
allowed OFS to commit an additional $2.0 billion in TARP funds to the program. On February 19,
2016, OFS announced that the $2.0 billion would be allocated to existing HHF program participants.
By June 2016, OFS had completed the allocation process and made available the additional funds to
Housing Finance Agencies (HFAs).
The financial and performance data contained in this report are reliable and complete. For the
eighth consecutive year, OFS has earned unmodified opinions from the 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

EXECUTIVE SUMMARY

Eight years ago, the U.S. financial system faced
challenges on a scale not seen since the Great
Depression. The banks and financial markets on
which American families and businesses rely 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.
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.
Since late 2010, 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 amount disbursed for TARP programs
was $434.4 billion, OFS has collected $424.9
billion (or $442.5 billion if including the $17.5
billion in proceeds from the additional Treasury
American International Group, Inc. shares)
through repayments, sales, dividends, interest,
and other income. As of September 30, 2016,

EXECUTIVE SUMMARY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

only $630 million in bank investments remain
outstanding.
The Management’s Discussion & Analysis
(MD&A) describes the establishment of OFS, its
background, mission, and organizational
structure. 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.
Each year, OFS reports on our Operational
Goals, which were developed by management to
achieve our strategic goal of promoting domestic
economic growth and stability while continuing
reforms of the financial system. These goals
include:
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, the Capital Purchase Program (CPP)
and Community Development Capital Initiative
(CDCI). OFS continues to exit the CPP by
either: (i) allowing banks that are able to
repurchase in full in the near future to do so; or
(ii) restructuring OFS’s investments in limited
cases. In addition, in August 2016, OFS
announced an early repurchase option for CDCI
institutions. This plan offers a limited window
during which CDCI participants may submit
proposals to repurchase their outstanding
securities at fair value ahead of scheduled
dividend rate step-ups that will take effect in
2018.
OFS’s second operational goal is to continue
helping struggling homeowners avoid
foreclosure. Although the Making Home
Affordable Program (MHA) is set to terminate

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

on December 31, 2016, as required by the
Consolidated Appropriations Act, 2016 (the Act)
(except with respect to certain loan modification
applications made before such date), OFS is still
focused on helping homeowners and working to
stabilize the housing market.

funds. Although nine HFAs had previously
closed their HHF application portals due to
approaching full commitment of program funds,
these HFAs have initiated plans to re-open or
expand select, closed programs as additional
funds have become available.

In late 2015, OFS launched a streamlined
modification process to assist borrowers who
meet basic Home Affordable Modification
Program (HAMP) eligibility criteria but have
been unable to complete an application by the
time their loan is 90 days delinquent. In 2016,
OFS published guidance related to the MHA
program termination and borrower application
sunset to provide additional clarification to
borrowers who request assistance or to whom an
offer of assistance has been extended on or
before December 30, 2016.

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.

The largest program within MHA is the HAMP.
Under this program approximately 1.7 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.
Another OFS housing program, 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 many types of 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 additional initiatives
such as blight elimination and down payment
assistance programs, which help prevent
foreclosures by stabilizing neighborhoods and
property values. On February 19, 2016, OFS
announced that an additional $2.0 billion would
be allocated among the participating HFAs, and
the program end date would be extended to
December 31, 2020 1. On June 30, 2016, OFS
completed its allocation of those additional

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 Analysis of
Fiscal Years 2016 and 2015 Financial Summary
and Cumulative Net Income section. OFS
provides an overview of its financial data and
explains its fiscal year 2016 net cost from
operations and related loans, equity
investments, and other credit programs.
Finally, the Analysis of Systems, Controls, and
Legal Compliance section of the MD&A provides
a discussion of the actions OFS has taken to
address its management control responsibilities.
This section includes OFS’s assurance related to
the Federal Managers’ Financial Integrity Act
(FMFIA) and the determination of its
compliance with the Federal Financial
Management Improvement Act (FFMIA).

1

In accordance with the Consolidated Appropriations
Act, 2016.

viii

EXECUTIVE SUMMARY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

PART 1: Management’s Discussion and Analysis

MANAGEMENT’S DISCUSSION AND ANALYSIS

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

2

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Program Background and OFS Organization Structure
Program Background
Legal Authority

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:
http://www.gpo.gov/fdsys/pkg/BILLS110hr1424enr/pdf/BILLS-110hr1424enr.pdf
In addition, Section 109 of EESA provides the
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 originally
expired on October 3, 2010.
The Consolidated Appropriations Act, 2016 (the
Act), signed into law on December 18, 2015,
provided that the Making Home Affordable
Program (MHA) will terminate on December 31,
2016 and gave the Secretary of the Treasury the
ability to commit an additional $2.0 billion in
TARP funds to current Hardest Hit Fund (HHF)
participants.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Bank Support Programs (CPP, TIP, AGP,
CDCI, SCAP)
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. 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 issued preferred stock
with an initial dividend rate of five percent for
the first five years, stepping up to 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 continues to wind down
the remaining CPP investments through
repayments by those institutions that are able to
do so and restructuring investments in limited
cases.

Targeted Investment Program

OFS established the Targeted Investment
Program (TIP) in December 2008. 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

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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. 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 $301.0 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 by $1.8 billion upon early termination of
the agreement. OFS completed the wind-down of
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. 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. In August 2016, OFS
announced an early repurchase option for CDCI
institutions to allow remaining participants to
repurchase their outstanding securities at a fair
value ahead of the dividend rate step-ups
currently set to take place in 2018.

4

Supervisory Capital Assessment Program

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
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))

OFS has 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.

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). 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. OFS

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

completed the wind-down of the PPIP during
fiscal year 2015, with no debt or equity
investments outstanding after the final equity
repayment was made in June 2013. OFS
received $22.5 billion of repayments, sales, and
investment income that exceeded the original
investment by $3.9 billion.

Term Asset-Backed Securities Loan Facility

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
CMBS, which had ground to a virtual standstill
during the early months of the financial crisis.
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
Federal Reserve Bank of New York (FRBNY).
In 2013, the commitment was reduced to $100
million – the loan amount that was ultimately
disbursed by OFS to fund the TALF, LLC. 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.

Small Business Administration 7(a)
Securities Purchase Program

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

For additional information on the credit market
programs, please visit the OFS website at:
http://www.treasury.gov/initiatives/financialstability/TARP-Programs/credit-marketprograms/Pages/default.aspx

Automotive Industry Financing Program

The Automotive Industry Financing Program
(AIFP) was launched in December 2008 to help
prevent the disorderly liquidations of General
Motors (GM) and Chrysler, which would have
resulted in a significant disruption of the U.S.
auto industry. Recognizing that both GM and
Chrysler were on the verge of collapse, OFS
disbursed $79.7 billion in loans and equity
investments to GM, Chrysler, and General
Motors Acceptance Corporation (now known as
Ally Financial). As of September 30, 2016, OFS
has collected $70.5 billion through sales,
repayments, dividends, interest, recoveries, and
other income, compared to the original
disbursement. 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.
Investment Program

In 2008, with American International Group,
Inc. (AIG) facing potentially fatal liquidity
problems and with the crisis threatening to
intensify and spread more broadly throughout
the economy, Treasury and the Federal Reserve
provided assistance to AIG. In December 2012,
Treasury exited all remaining holdings in AIG
through the sale of common stock and AIG’s
repurchase of warrants. During the financial
crisis, the Treasury’s and the FRBNY’s peak
support for AIG totaled $182.3 billion. That

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

included $69.8 billion in TARP funds 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, Treasury, 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 in excess of disbursements of $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

Making Home Affordable

In early 2009, OFS launched MHA to help
struggling homeowners avoid foreclosure and
stabilize the housing market. OFS has
committed $27.8 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 to avoid
foreclosure. In addition to HAMP, OFS

6

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.
In accordance with provisions of the Act, MHA
will terminate on December 31, 2016, except
with respect to certain loan modification
applications made before such date. 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).

Housing Finance Agency Innovation Fund
for the Hardest Hit Housing Markets
(Hardest Hit Fund)

The Administration established the HHF 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 HHF
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. Six years after
program inception, homeowners continue to face
ongoing economic challenges including negative
equity and underemployment in hardest hit

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

states in the wake of the financial crisis. In
December 2015, Congress authorized OFS to
commit an additional $2.0 billion to HHF. In
February 2016, OFS announced that its plan to
allocate the additional funds among
participating states, and extend the program
through December 2020. These actions
increased the total HHF allocation to $9.6
billion.
HHF programs vary state to state, but may
include such programs as mortgage payment
assistance for unemployed or underemployed
homeowners, reinstatement to bring
homeowners current on their mortgage or
property taxes, principal reduction to help
homeowners modify or refinance 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 FHARefinance program, is intended to provide more
opportunities for qualifying mortgage loans to be

MANAGEMENT’S DISCUSSION AND ANALYSIS

restructured and refinanced into FHA-insured
loans. TARP funds have been made available up
to $100 million to provide additional coverage to
lenders for a share of potential losses on these
loans.

OFS Organization Structure

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
Homeownership Preservation Officer, the Office
of the Chief Investment Officer, and the Office of
the Chief Compliance Officer. An Office of Chief
Counsel and an Office of Financial Agents also
report to the Deputy Assistant Secretary as well
as to other Departmental Offices.
The OFS organization chart follows:

Office of
Financial
Agents

Office of
Finance and
Operations

Deputy Assistant Secretary for
Financial Stability

Office of the
Chief Homeownership
Preservation
Officer

Office of the
Chief
Investment
Officer

Office of
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.

7

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 year 2016.

Operational Goal One: Complete the
Wind-down of the Investment
Programs
Bank Support Programs

OFS disbursed a total of $245.5 billion under the
various TARP bank programs. As of September
30, 2016, OFS has collected more than $275.4
billion through repayments, dividends, interest,
warrant sales, and other income, representing
$30.0 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 2016, OFS continued to make
progress winding down the CPP. 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, 2016, 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, 2016, $210 million in CPP gross
investments remained outstanding in 12
institutions.

8

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.
However, since the majority of the institutions
currently in the CPP portfolio remain a going
concern, OFS continues to work with CPP
institutions to restructure certain investments
that will allow them to exit TARP. 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.
During fiscal years 2016 and 2015, two and
seven investments were repaid in full for a total
of $4 million and $52 million, respectively. In
addition, five and seven investments were
restructured resulting in proceeds of $20 million
and $48 million in fiscal years 2016 and 2015,
respectively.
In prior fiscal years, OFS would periodically sell
preferred stock and subordinated debt in CPP
institutions through private auctions. As of
September 30, 2016, OFS has held several
preferred placement auctions disposing of 190
institutions with combined net proceeds of $3.1
billion.
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 has
received net proceeds of $8.1 billion through
warrant auctions to date.
Additional information on the CPP, including
details on the program’s purpose, overview, and
status can be found at the following link:

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/bank-investmentprograms/cap/Pages/default.aspx

emergency financial crisis response programs,
and allows OFS to dispose of investments at fair
value in a manner that eliminates longer term
credit and market risk exposure to taxpayers
from the portfolio.

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 ($356 million from
principal and $8 million from warrants)
represented exchanges by 28 CPP institutions
converting into the CDCI. During fiscal years
2016 and 2015, OFS collected a total of $35
million and $28 million, respectively, in
repayments, dividends, and interest from
institutions in the CDCI program. As of
September 30, 2016, $420 million in CDCI
investments remained outstanding.

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

Community Development Capital Initiative

Until 2016, OFS had taken no steps to actively
wind-down the CDCI program. Unlike the CPP,
the CDCI program was designed with a longer
term until the dividend step-up, based on the
likely needs and unique nature of the CDCI
institutions. In keeping with OFS’s goal of
exiting its crisis-era programs in a timely and
responsible manner, in August 2016, OFS
announced that it was offering an early
repurchase option to eligible CDCI participants.
Under the early repurchase option, CDCI
institutions are permitted to submit proposals
requesting early repurchase of between half and
all of their outstanding CDCI securities held by
OFS. These proposals are being evaluated by a
committee using fair market valuation
estimates. CDCI institutions have until
November 18, 2016 to submit their final
proposals. As of November 4, 2016, four
institutions have completed early redemptions
for a total of $163 million in proceeds. It is
expected that all remaining early repurchase
transactions will be completed by the end of
December 2016.
The early repurchase option advances OFS’s
strategic goal of winding down TARP’s

MANAGEMENT’S DISCUSSION AND ANALYSIS

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/bank-investmentprograms/cdci/Pages/default.aspx

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, 2016,
OFS has collected $70.5 billion through sales,
repayments, dividends, interest, recoveries, and
other income. This includes $5 million collected
during fiscal year 2016, of which $2 million was
related to the Old Carco Liquidation Trust and
$3 million was related to the Motors Liquidation
Company Debtor-in-Possession (DIP) Lenders
Trust.
To further maximize the recovery of TARP funds
for taxpayers, OFS, along with Export
Development Canada (EDC), which jointly
financed administration of the General Motors
bankruptcy, entered into a settlement with the
Unsecured Creditors Committee of General
Motors Corporation to split any proceeds of the
Avoidance Action Trust (AAT) litigation, with
OFS and EDC receiving 30% and the unsecured
creditors receiving 70%. As a condition of the
settlement, OFS and EDC provided an advance
of $15 million ($13 million provided by OFS) in
September 2016 to the AAT to fund the ongoing
litigation against certain lenders to Old GM.
This settlement yields the most favorable
attainable economic outcome to ensure OFS is
repaid some portion of any assets recovered
through the pending lawsuit.

9

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Additional information on the AIFP, including
details on the program’s purpose, overview, and
status can be found at the following link:
http://www.treasury.gov/initiatives/financialstability/TARP-Programs/automotiveprograms/Pages/default.aspx

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

Consistent with OFS’s goal of continuing to help
struggling homeowners find solutions to avoid
foreclosure whenever possible while planning for
the program’s statutory sunset date of December
2016, OFS has developed a process to
seamlessly transition the program from an
active to steady state, while assisting as many
homeowners as possible until that sunset date.
As of September 30, 2016, 73 servicers are
participating in OFS’s MHA program for nonGovernment Sponsored Enterprise (GSE) loans.
As of September 30, 2016, OFS has
commitments to fund up to $27.8 billion in MHA
payments and has disbursed $15.5 billion since
inception.
OFS publishes quarterly assessments of servicer
performance containing data on compliance with
program guidelines, as well as metrics on
program results. OFS believes that these
assessments have set a new standard for
transparency about mortgage servicer efforts to
assist homeowners at risk of foreclosure, and
have helped encourage servicers to improve
processes and performance of their foreclosure
prevention activities.
MHA performance highlights for fiscal year 2016
can be found at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Making-HomeAffordable-Program-Performance-Report.aspx

10

The largest program within MHA is HAMP.
HAMP offers eligible homeowners at risk of
foreclosure the opportunity to modify their
monthly mortgage payments to a more
affordable and sustainable level.
As of September 30, 2016, approximately 1.7
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 $472 per month. MHA
has also encouraged the mortgage industry to
offer their own similar programs, which have
helped millions more at no cost to taxpayers.
In July 2015, OFS announced a streamlined
modification process under HAMP to assist
homeowners who are seriously delinquent but
have not completed a HAMP application. In
January 2016, servicers began making
streamline offers to borrowers, which as of
September 30, 2016 have resulted in 18,121
borrowers receiving streamline modifications.
In March 2016, OFS published Supplemental
Directive 16-02, “MHA Program Termination
and Borrower Application Sunset” to provide
additional guidance regarding the termination of
MHA for non-GSE mortgages, particularly with
respect to borrowers who request assistance or
to whom an offer of assistance has been
extended, on or before December 30, 2016.
Additional information on MHA, including
details on the program’s purpose, overview, and
status can be found at the following link:
http://www.treasury.gov/initiatives/financialstability/TARPPrograms/housing/mha/Pages/default.aspx
Includes modifications on both non-GSE loans and
GSE loans. 1,079,422 of these modifications are OFS
funded consisting of 999,073 non-GSE modifications
and 80,349 GSE modifications.
2

MANAGEMENT’S DISCUSSION AND ANALYSIS

Hardest Hit Fund

In addition to MHA, OFS operates the HHF,
which allows participating state HFAs in the
nation’s hardest hit housing and unemployment
markets to design innovative, locally-targeted
foreclosure prevention programs.
In fiscal year 2016, state HFAs continued to
adapt their programs to best meet borrower
needs in evolving economic and housing
markets. Notwithstanding the HFAs’ efforts
and recent improvements in the economy, the
recovery of the housing market remains uneven.
Recognizing the current and persistent need
among HHF states, the Act included a provision
that allowed OFS to commit an additional $2.0
billion in TARP funds to current HHF program
participants.
A total of 15 HFAs offer principal reduction to
facilitate a loan modification, refinance, recast,
or eliminate subordinate liens. Four HFAs offer
property tax reinstatement for elderly
homeowners with reverse mortgages.
Additionally, seven HFAs allocate a portion of
their HHF funds to blight elimination in an
effort to stabilize neighborhoods and prevent
foreclosures. Finally, six HFAs 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, 2016, the 19 HFAs have
collectively drawn approximately $6.8 billion (70
percent) of the $9.6 billion allocated under the
program. For fiscal years 2016 and 2015, this
program has disbursed $1.0 billion and $1.3
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, 2021 to
utilize all HHF funding.

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Each HFA submits a quarterly report on the
progress of its programs. 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:
https://www.treasury.gov/initiatives/financialstability/reports/Pages/HHF.aspx
Additional information on the HHF, including
details on the program’s purpose, overview, and
status can be found at the following link:
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 FHA-Refinance Program,
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 (subsequently
reduced to $100 million), in order to fund a share
of the losses associated with this program. This
program is set to close to new borrowers on
December 31, 2016, however, OFS will continue
to cover potential loss claim payments through
December 31, 2022. As of September 30, 2016,

11

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

FHA has guaranteed 7,190 refinance loans with
a total face value of almost $1.0 billion, 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 2016 and 2015 to dispose of OFS’s
outstanding investments in a manner that
balances speed of exit with maximizing returns
for 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
capital may be insufficient to offset future losses
and maintain required capital. For certain

12

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 need to comply with restrictions on
payment of dividends and on repurchases of
junior securities. Recipients of exceptional
assistance (none of which remain in the
program) were required to comply with
additional restrictions on executive
compensation, lobbying, and corporate expenses.
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 their 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 by OFS’s compliance
agent, Making Home Affordable-Compliance
(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
that currently comprise approximately 85% of
the HAMP mortgage servicing. These
assessments have been used to ensure focus on

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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.
Currently, OFS is utilizing its 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 towards 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
These reports include:
•

A Monthly TARP Update (formerly the
Daily TARP Update) that features
detailed financial data related to each

MANAGEMENT’S DISCUSSION AND ANALYSIS

•

•
•
•

•
•

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 eighth
OFS Agency Financial Report (AFR), which
includes the audited financial statements for the
fiscal years ended September 30, 2016 and
September 30, 2015. Additional reports for prior
periods are available at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Annual-AgencyFinancial-Reports.aspx

13

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

In its eight years of operation, TARP’s financial
statements have received eight unmodified audit
opinions from its auditor, the Government
Accountability Office (GAO).

TARP Tracker

Since 2013, OFS has offered an interactive tool
called the TARP Tracker, which allows users to
track the flow of TARP funds over the lifetime of
each individual TARP investment area. The
TARP Tracker allows users to view each
investment area separately to get a clearer sense
of what has occurred in a particular program,
and includes 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:

14

•
•
•

The Financial Stability Oversight Board,
established by EESA Section 104;
Specific responsibilities for the GAO as
set out in EESA Section 116; and
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
contributions to the development, strengthening,
and transparency of TARP programs.

Congressional Hearings and Testimony

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Analysis of Fiscal Years 2016 and 2015 Financial Summary and
Cumulative Net Income

OFS’s fiscal year 2016 net cost of operations of
$4.1 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, 2016, OFS reported net
subsidy income for three programs – CPP, CDCI,
and FHA-Refinance. These programs
collectively reported net subsidy income of $58
million. Also, for the fiscal year ended
September 30, 2016, OFS experienced net
subsidy cost for one program – AIFP totaling $7
million. Fiscal year 2016 costs for the Treasury
housing programs under TARP are $4.1 billion
and administrative costs are $129 million. For
the fiscal year ended September 30, 2015, the
net cost of operations was $4.4 billion. These net
cost amounts reported in the financial
statements reflect only transactions through
September 30, 2016 and September 30, 2015,
and therefore are different than lifetime cost
estimates made for budgetary purposes. Over

MANAGEMENT’S DISCUSSION AND ANALYSIS

time the cost of 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, 2016. 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, 2016,
and cash inflows on the investments in the form
of dividends, interest or other fees.

15

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Table 1: TARP Summary1

From TARP Inception through September 30, 2016
(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

$ (199,584)5

40,000

40,000

(40,000)

-

-

4,432

Asset Guarantee Program

5,000

-

-

-

-

4,126

Community Development
Capital Initiative

570

570

(144)

(7)

420

61

18,625

18,625

(18,625)

-

-

3,852

Term Asset-Backed
Securities Loan Facility

100

100

(100)

-

-

685

SBA 7(a) Securities
Purchase Program

367

367

(363)

(4)

-

13

Automotive Industry
Financing Program

79,692

79,692

(63,037)

(16,656)

-

7,495

American International
Group Investment
Program3

67,835

67,835

(54,350)

(13,485)

-

959

Subtotal for Investment
Programs

417,085

412,085

(376,202)

(35,253)

630

48,706

Treasury Housing
Programs under TARP

37,5064

22,279

N/A

N/A

N/A

-

454,591

$ 434,363

$ (376,202)

$ (35,253)

Targeted Investment
Program

$

(5,101)

$

210

$

27,085

Credit Market Programs
Public Private Investment
Program

Other Programs

Total for TARP Program

$

$

630

$

48,706

Note: Figures may not foot due to rounding.
1 This

table shows TARP activity for the period from inception through September 30, 2016, 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 $27.8 billion for the Making Home Affordable Program, $9.6 billion for the Hardest
Hit Fund, and $125 million committed for the FHA-Refinance Program.
5 Includes $2.2 billion of Small Business Lending Fund (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 under “net proceeds from sales and
repurchases of assets in excess of (less than) cost” in Note 6 of the financial statements.
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.

16

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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, 2016 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. As of
September 30, 2016, OFS has sold its
investments in 190 banks for combined principal
receipts of $3.1 billion through individual
private auctions. These auctions resulted in net
proceeds less than cost of to date of $774 million.
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, 2016, OFS has received $9.6
billion in gross proceeds from the disposition of
warrants associated with CPP, TIP, AGP, and
AIG, consisting of (i) $4.0 billion from issuer

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 2016 and 2015. 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, 2016 and 2015. The
Estimated Value of 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 $140 million (2016) and $232
million (2015) 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.

17

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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

Program

Outstanding
Balance as of
September
30, 20161

Estimated Value
of Investment as
of September 30,
2016

Estimated
Value of
Investment as
of September
30, 2015

Outstanding
Balance as of
September 30,
20151

Bank Support Programs
Capital Purchase Program

$

210

Community Development
Capital Initiative

$

111

$

268

$

99

420

379

446

383

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

0

0

American International Group
Investment Program

0

0

0

0

Credit Market Programs

Other Programs

Total
1

$

630

490

$

714

$

482

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,

18

$

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Comparison of Estimated Lifetime
TARP Costs over Time

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:

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,
2016, 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

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

2016

($14.6)

($11.2)

($13.0)

($14.9)

($16.1)

($16.1)

($16.3)

($16.3)

(1.9)

(3.8)

(4.0)

(4.0)

(4.0)

(4.0)

(4.0)

(4.0)

(2.2)

(3.7)

(3.7)

(3.9)

(4.0)

(4.0)

(4.0)

(4.0)

0.4

0.3

0.2

0.2

0.1

0.1

0.1

0.1

1.4

(0.7)

(2.4)

(2.4)

(2.7)

(2.7)

(2.7)

(2.7)

(0.3)

(0.4)

(0.4)

(0.5)

(0.6)

(0.6)

(0.6)

(0.6)

N/A

0.0

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

12.2

56.8

36.9

24.3

15.3

15.2

15.2

15.2

15.2

74.1

32.1

24.6

14.1

2.6

0.1

(0.2)

(0.2)

50.0

45.6

45.6

45.6

37.7

37.4

37.4

34.7

$124.1

$77.7

$70.2

$59.7

$40.3

$37.5

$37.2

$34.5

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

Note: Figures may not foot due to rounding.

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 consist of the MHA, HHF, and FHA-Refinance programs. The estimated lifetime cost of the FHARefinance Program (which is accounted for under credit reform) 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

19

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Key Factors Affecting TARP Future Activities and Ultimate Cost

TARP investment programs are nearly wound
down with only $630 million of the total
$412.1 billion disbursed still outstanding,
representing 67 small banks in the CPP and
CDCI portfolios. The estimated lifetime
income associated with investment programs
is currently $241 million and may fluctuate in
the future. Going forward, the expenditures

20

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Analysis of 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, 2016. 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’s internal controls are designed to meet the management objectives established by Treasury
and listed below:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)

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;
Financial management systems are in compliance with federal financial systems standards,
i.e., FMFIA Section 4 and FFMIA;
Complete and accurate data is reported on USAspending;
Controls and policies are in place to prevent fraud and inappropriate use of government
charge cards;
Risks are reviewed with appropriate frequency; and
New or emerging risks are addressed.

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 Enterprise Risk
Management and Internal Control, Appendix A, Internal Control over Financial Reporting. Based on
the results of this evaluation, OFS provides unmodified assurance that internal control over financial
reporting is appropriately designed and operating effectively as of September 30, 2016, with no related
material weaknesses noted.
Sincerely,

Mark McArdle
Deputy Assistant Secretary for Financial Stability

MANAGEMENT’S DISCUSSION AND ANALYSIS

21

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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, compliance
with applicable laws and regulations (FMFIA
Section 2), and conformance with financial
management systems requirements (FMFIA
Section 4) and Federal Financial Management
Improvement Act (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 Enterprise
Risk Management and Internal Control,

require agencies to evaluate and report on
enterprise risk management (ERM) and
internal controls in place to help ensure
effectiveness and efficiency of operations,
compliance with applicable laws and
regulations, and reliability of reporting. OFS

22

has completed these rigorous internal control
assessments since fiscal year 2009.
OFS has a Senior Assessment Team (SAT) to
guide the organization’s efforts to meet the
statutory and regulatory requirements
surrounding ERM and a sound system of
internal control. OFS’s ERM and 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 risks and control objectives
across OFS and its third-party service
providers. Furthermore, managers
throughout OFS are responsible for
identifying relevant risks, and ensuring that
effective internal controls are implemented in
their areas of responsibility. Senior
management throughout OFS provides subcertification statements annually concerning
whether there is reasonable assurance that
the objectives of ERM and 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 ERM and internal
controls assessment process to ensure that
management can identify risks and
deficiencies and take timely corrective actions.
The OFS fiscal year 2016 self-assessment of
its ERM activities and system of internal
controls did not identify any significant
deficiencies or material weaknesses.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Federal Financial Management
Improvement Act and Financial
Management Systems
Federal Financial Management
Improvement Act (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 2016, 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 2016, OFS continued to utilize
the Core Investment Transaction Flow (CITF),

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

TARP’s system of record and accounting
translation engine.
In addition, OFS continued to utilize financial
systems maintained by Treasury
Departmental Offices and various Treasury
bureaus. These systems are in substantial
compliance with federal financial
management systems requirements and
undergo regular independent audits.
In fiscal year 2016, OFS continued to devote
substantial attention to simplifying its
technology footprint 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 on an on-going
basis.

Legal Compliance

OFS is subject to numerous legislative and
regulatory requirements that promote and
support an effective ERM and 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
consultation with OFS program management
and the Treasury Office of General Counsel.
OFS program managers are responsible for

23

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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

24

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.
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

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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:
•

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.

•

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.

•

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

25

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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.

26

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Part 2: Financial Report

MANAGEMENT’S DISCUSSION AND ANALYSIS

27

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

28

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CFO)

The Office of Financial Stability’s (OFS) Agency Financial Report for fiscal year 2016 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 2016, 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 2016, net cost of operations was $4.1 billion, resulting in a cumulative net cost of
operations of $24.1 billion since inception. Cumulative net cost of operations consists of (1) total net
subsidy income of $239 million, and (2) housing costs and administrative costs of $22.6 billion and $1.7
billion, respectively. Total cumulative net subsidy cost consists of net subsidy income from the CPP, TIP,
AGP, PPIP, SBA, and TALF investments totaling $27.7 billion, offset by net subsidy costs of $27.4 billion
from the AIG, AIFP, CDCI, and FHA-Refinance programs.
During fiscal year 2016, OFS collected a net total of $56 million through repayments, sales, dividends, and
other receipts. OFS’s gross outstanding equity investment balance as of September 30, 2016 was $630
million, comprised of $210 million in CPP and $420 million in CDCI. OFS is committed to exiting
investments in a timely manner while maximizing collections on behalf of the taxpayer. During fiscal
year 2016, seven CPP institutions repaid or were restructured and sold and seven CDCI institutions
repaid.
In fiscal year 2016, 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

29

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 2016 and 2015 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, 2016, and 2015, 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, 2016; and
no reportable noncompliance for fiscal year 2016 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 an emphasis of matter related to certain
factors affecting the valuation of TARP equity investments, and required supplementary
information (RSI) 2 and other information 3 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,
the Emergency Economic Stabilization Act of 2008 (EESA) 4 also includes a provision for GAO

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, at sections 5201 through 5261 of Title 12 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).

30

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

to report at least every 60 days on TARP activities. 5 This report responds to both of these
provisions. 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.
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, 2016, and
2015; the related statements of net cost, 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, 2016,
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, 2016, 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.
5

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

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

31

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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
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.

32

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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, 2016, and 2015, 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 Matter
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,
2016, and 2015 (which totaled $490 million and $482 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
Our opinion on OFS’s financial statements for TARP is not modified with respect to this matter.
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, 2016, based on criteria established under FMFIA.

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

33

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

During our fiscal year 2016 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 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.
Management’s Responsibility
OFS management is responsible for complying with laws, regulations, contracts, and grant
agreements applicable to OFS.
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.

34

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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 TARP’s 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 2016 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 4, 2016

AUDITOR’S REPORT

35

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, 2016, 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, 2016, 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 4, 2016

36

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Appendix II: OFS Response to Auditor’s Report

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220

DEPUTY ASSISTANT SECRETARY

November 4, 2016
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 2016 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

37

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).

assets, liabilities, or results of operations of
commercial entities in which the OFS has a
significant equity interest.

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

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, 2016 and 2015.

38

The Balance Sheet summarizes the OFS assets,
liabilities and net position as of September 30,
2016 and 2015. 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 operations for the fiscal years ended
September 30, 2016 and 2015.
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, 2016 and
2015. The ending balances of both components
of net position are also reported on the Balance
Sheet.

FINANCIAL STATMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

BALANCE SHEET

Office of Financial Stability - Troubled Asset Relief Program
As of September S0L 2016 and 2015
Dollars in Millions

2016

2015

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

Total Intragovernmental Assets

$

23,652

$

10
490

Cash on Deposit for Housing Program HNote T)
Equity InvestmentsL Net HNote 6)
Total Assets

23,652

$

2TL152

28,099

28,099
10
482

$

28L591

1 $
86
469
556

4
229
418
651

LIABILITIES
Intragovernmental Liabilities:
Accounts Payable and Other Liabilities
Due to the General Fund (Note 7)
Principal Payable to the Bureau of the Fiscal Service (Note 8)
Total Intragovernmental Liabilities

$

33

Total Liabilities

$

41

3
262

Accounts Payable and Other Liabilities
Liabilities for Treasury Housing Programs Under TARP:
FHA-Refinance Program (Notes 5 and 6)
Making Home Affordable Program (Note 5)

5
497

85T

$

1L19T

-

Commitments and Contingencies HNote 9)

-

NET POSITION
Unexpended Appropriations
Cumulative Results of Operations

$

23,298
-

$

27,408
(11)

Total Net Position

$

2SL298

$

27LS97

Total Liabilities and Net Position

$

2TL152

$

28L591

The accompanying notes are an integral part of these financial statementsN

FINANCIAL STATEMENTS

39

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

34A4E-E.4 OF .E4 CO34

Office of Financial Stability - Troubled Asset Relief Program
For the Years Ended September 30, 2016 and 2015
2016

Dollars in Millions

2015

STRATEGIC GOAL: TO PROMOTE DOMESTIC ECONOMIC GROWTH AND STABILITY WHILE CONTINUING REFORMS OF THE
FINANCIAL SYSTEM
Gross Cost of Operations:
Program Subsidy Cost (Income) (Note 5 and Note 6)
Equity Investment Programs
FHA-Refinance Program
Total Program Subsidy Cost (Income)

$

17
4,053
129
4,149

Interest Expense on Borrowings from the Bureau of the Fiscal Service (Note 10)
Treasury Housing Programs Under TARP (Note 5)
Administrative Cost
Total Gross Cost of Operations
Earned Revenue:
Dividend and Interest Income - Programs (Note 6)
Interest Income on Financing Account (Note 10)
Subsidy Allowance Amortization (Note 10)
Total Earned Revenue
Total Net Cost of Operations

(48) $
(2)
(50)

30
4,503
146
4,436

(9)
(1)
(7)
(17)
$

4,132

(28)
(5)
3
(30)
$

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

40

(242)
(1)
(243)

FINANCIAL STATEMENTS

4,406

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

34A4E-E.4 OF C(A.GE3 ). .E4 0O3)4)O.
Office of Financial Stability - Troubled Asset Relief Program
For the Years Ended September 30, 2016 and 2015
2016

Unexpended Cumulative Results
Appropriations
of Operations

Dollars in Millions
Beginning Balances

$

Budgetary Financing Sources
Appropriations Received
Appropriations Used
Other Adjustments - Canceled Authority
Other Financing Sources
Total Financing Sources

$

Unexpended Cumulative Results
Appropriations
of Operations

(11) $

32,295

$

47

825
(4,855)
(80)
(4,110)

$

4,855
(712)
4,143

185
(4,614)
(458)
(4,887)

4,614
(266)
4,348

(4,110)

Net Cost of Operations
Net Change
Ending Balances

27,408

2015

(4,132)
11

(4,887)

(4,406)
(58)

23,298

$

-

$

27,408

$

(11)

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

FINANCIAL STATEMENTS

41

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

34A4E-E.4 OF B5$GE4A29 2E3O52CE3
Offic e of Financ ial Stability - T roubled Asset Relief Program
For the Years Ended September 30, 2016 and 2015
2016

Budgetary
Ac c ounts

Dollars in Millions
BUDGETARY RESOURCES
Unobligated Balanc e Brought Forward, Oc tober 1
Rec ov eries of PriorYear Unpaid Obligations
Rec ov eries of PriorYear Paid Obligations
Borrowing Authority Withdrawn
Ac tual Repay ments of Debt, PriorYear Balanc es
Canc eled Authority
Other Changes in Unobligated Balanc es
Unobligated Balanc e from PriorYear Budget Authority , Net
Appropriations
Borrowing Authority
Spending Authority from Offsetting Collec tions
TOTAL BUDGETARY RESOURCES (Not e 11)
STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (Total)
Unobligat ed Balanc e, End of Y ear:
Apportioned, Unexpired Ac c ounts
Unapportioned, Unexpired Ac c ounts
Unexpired Unobligated Balanc e, End of Year
Expired Unobligated Balanc e, End of Year
Unobligat ed Balanc e, End of Y ear (Tot al)
TOTAL STATUS OF BUDGETARY RESOURCES
CHANGE IN OBLIGATED BALANCES
Unpaid Obligat ions:
Unpaid Obligations Brought Forward, Oc tober 1
New Obligations and Upward Adjustments
Gross Outlay s

OBLIGATED BALANCES
(Net of Unpaid Obligat ions and Unc ollec t ed Payment s Above)
Obligat ed Balanc e, Net , Brought Forw ard, Oc t ober 1
Obligat ed Balanc e, Net , End of Y ear
BUDGET AUTHORITY AND OUTLAY S, NET
Budget authority , Gross
Ac tual Offsetting Collec tions
Change in Unc ollec ted Customer Pay ments, Federal Sourc es
Rec ov eries of PriorYear Paid Obligations
BUDGET AUTHORITY , NET
Gross Outlay s
Ac tual Offsetting Collec tions
Net Outlay s
Distributed Offsetting Rec eipts
AGENCY OUTLAY S, NET

Non-Budgetary
Credit Reform
Financ ing
Ac c ounts

Budgetary
Ac c ounts

Non-Budgetary
Credit Reform
Financ ing
Ac c ounts

$

8,366 $
2,031
(80)
(8,159)
2,158
825
2, 983 $

150
1
(1)
150
72
722
944

$

7,760 $
1,013
40
(458)
8,355
185
8, 540 $

$

2,809 $

885

$

174 $

$

19
1
20
154
174
2, 983

$

9
50
59
59
944

19,582 $
2,809
(5,100)

1
885
(885)

$

-

$

$

- $
15, 260 $

$

19, 582

$

$

15, 260

$

$

$

Rec ov eries of PriorYear Unpaid Obligations
Unpaid Obligat ions, End of Y ear

Unc ollec t ed Payment s from Federal Sourc es:
Unc ollec ted Pay ments Brought Forward, Oc tober 1
Change in Unc ollec ted Pay ments
Unc ollec t ed Payment s from Federal Sourc es, End of Y ear
Obligat ed Balanc e, Net , End of Y ear

2015

(2,031)
15,260
$

$

$
$

$

$

$

24,828 $
174
(4,407)

127
1,558
(1,558)

$

- $
19, 582 $

(29)
29
1

1

$

24, 828

$

98

-

$

19, 582

$

1

(1)
-

(1,013)
19,582

825 $
825 $

794
(742)
52

$

5,100 $
5,100
(855)
4, 245 $

885
(742)
143
143

$

$

$

(126)
1

185 $
(40)
40
185 $

1,367
(1,973)
29
(577)

4,407 $
(40)
4,367
(1,525)
2, 842 $

1,558
(1,973)
(415)
(415)

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

42

1,558
19
131
150
150
1, 708

$

7,185
987
8,172
194
8,366
8, 540

614
126
(90)
(309)
341
1,367
1, 708

FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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).
EESA 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.

were closed. 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
troubled assets, the OFS entered into several different
types of direct loan, equity investment, and other
The EESA established certain criteria under which
credit programs (which consists of the Federal
the TARP would operate, including provisions that
Housing Administration (FHA) Refinance Program)
impact the budgeting, accounting, and reporting of
(collectively, the OFS programs) with private entities.
troubled assets acquired. Section 115 of the EESA
The OFS programs were entered into with the intent
limited the authority of the Secretary to purchase
of helping to stabilize the financial markets and
troubled assets up to $700.0 billion outstanding at
mitigating, as best as possible, any adverse impact on
any one time, calculated as the aggregate purchase
the economy; they were not entered into to engage in
prices of all troubled assets held. In July 2010, the
the business activities of the respective private
Dodd-Frank Wall Street Reform and Consumer
entities. Based on this intent, the OFS concluded that
Protection Act amended Section 115 of the EESA,
such programs are considered “bailouts,” under the
limiting the TARP’s authority to a total of $475.0
provisions of paragraph 50 of Statement of Federal
billion cumulative obligations (i.e. purchases and
Financial Accounting Concepts (SFFAC) No. 2, Entity
guarantees) and prohibiting any new obligations for
programs or initiatives that had not been publicly
and Display. In addition, these entities are not
announced prior to June 25, 2010. In December 2015, included in the federal budget and, therefore, do not
the Consolidated Appropriations Act, 2016 amended
meet the conclusive criteria in SFFAC No. 2. As such,
Section 120(b) of the EESA and provided TARP the
the OFS determined that none of these entities should
ability to obligate an additional $2.0 billion in funds to be classified as a federal entity. Consequently, their
current Hardest Hit Fund (HHF) participants. OFS
assets, liabilities and results of operations were not
had utilized (including purchases made, legal
consolidated in these OFS financial statements, but
commitments to make purchases and offsets for
the value of such investments was recorded in the
guarantees made) $454.6 billion as of September 30,
OFS financial statements.
2016 and as of September 30, 2015.
The EESA established the OFS within the Office of
During fiscal year 2016, the TARP administered the
Domestic Finance of the U. S. Department of the
following programs: the Capital Purchase Program
Treasury (Treasury) to administer the TARP and
(CPP); the Community Development Capital
required its separate audited financial statements.
Initiative (CDCI); the Treasury Housing Programs
The OFS prepares stand-alone financial statements
Under TARP; and the Automotive Industry Financing for TARP to satisfy EESA Section 116(b) (1).
Program (AIFP), which was effectively wound down in Additionally, as an office of the Treasury, its
December 2014. During fiscal year 2016, the Publicfinancial statements are consolidated into
Private Investment Program (PPIP) and Term Asset- Treasury’s Agency Financial Report.
Backed Securities Loan Facility (TALF) programs

NOTES TO FINANCIAL STATEMENTS

43

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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
revised. 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, 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

44

Board, the OFS conforms to fair value definitions

contained in the private sector Financial
Accounting Standards Codification (ASC) 820,
Fair Value Measurement. OFS defines fair value
of its equity investments as the estimated amount
of proceeds that would be received if the equity
investments were sold to a market participant in
an orderly transaction. Note 6 presents 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

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

balance and the net present value of the expected
future cash flows or fair value, and is reported as
an adjustment to the face value of the equity
investment.
The OFS recognizes dividend income associated
with equity investments when declared by the
entity in which the OFS has invested and when
received in relation to any repurchases,
exchanges, and restructurings. The OFS 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.

future financial results have inherent uncertainty,
and Equity Investments, Net, as of fiscal yearends include relatively illiquid assets with values
that are sensitive to future economic conditions
and other assumptions. Estimates are also
prepared for the FHA-Refinance Program to
determine the liability for losses.

Credit Reform Accounting

The 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 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 FHA-Refinance programs,
and disburse 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.

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

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

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

NOTES TO THE FINANCIAL STATEMENTS

45

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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 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

46

undelivered orders and unpaid expended
authority. Other changes in unobligated balances
represent unavailable funds from appropriations
fulfilled. 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 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, 2016 and 2015.

NOTES TO THE FINANCIAL STATEMENTS

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
FHA-Refinance programs as of September 30,
2016 and 2015. See Notes 6 and 7.

Principal Payable to the Bureau of the
Fiscal Service

Principal Payable to the Bureau of the Fiscal
Service (Fiscal Service) is the 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 Treasury Housing
Programs Under TARP

There are three initiatives in the Treasury
Housing Programs: the Making Home Affordable
Program, the Housing Finance Agency HardestHit 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

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

liability is recognized for any unpaid amounts due
and payable as of the reporting date. The liability
estimate, as of September 30, 2016 and 2015, 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.

Unexpended Appropriations

Unexpended Appropriations represents the OFS
undelivered orders and unobligated balances
reduced by canceled authority in budgetary
appropriated funds as of September 30, 2016 and
2015.

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
2016 and 2015 included $10 million, reported as
Cash on Deposit for Housing Program on the
Balance Sheet, see Note 4.

Other Financing Sources

The Other Financing Sources line in the
Statement of Changes in Net Position for each
year consists primarily of downward reestimates.

47

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Each program’s reestimates, upward and
downward, are recorded separately, not netted
together.

Leave

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

Employee Health and Life Insurance
and Workers’ Compensation Benefits

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

48

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

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

NOTE 3. FUND BALANCES WITH TREASURY

Fund Balances with Treasury, by fund type and status, as of September 30, 2016 and 2015, are presented in
the following table.
As of September 30,
(Dollars in Millions)

Fund Balances:
General Funds
Financing Funds
Total Fund Balances
Status of Fund Balances:
Unobligated Balances
Available
Unavailable
Obligated Balances Not Yet Disbursed
Other Changes in Unobligated Balances
Total Status of Fund Balances

2016

$
$

$

$

23,593
59
23,652

28
205
15,260
8,159
23,652

NOTE 4. CASH ON DEPOSIT FOR HOUSING PROGRAM
As of September 30, 2016 and 2015, the OFS had
$10 million, on deposit with a commercial bank to
facilitate its payments of claims under the FHARefinance Program as OFS’s agent.

NOTES TO THE FINANCIAL STATEMENTS

2015

$
$

27,949
150
28,099

$

7,204
1,312
19,583

$

28,099

-

See Note 5 for further details regarding the FHARefinance Program. Under terms of the agreement
with the commercial bank, unused funds will be
returned to the OFS upon the termination of the
program.

49

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

NOTE 5. TREASURY HOUSING PROGRAMS UNDER TARP
Fiscal years 2016 and 2015 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

Housing Program

living situation. 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

MHA
Ho me Affo rdable M o dificat io n Pro gram (HAM P)
First Lien Modification Program (Tier 1, Tier 2, and Provides for upfront, monthly and annual incentives to servicers, borrowers
Streamline)
and investors who participate, whereby the investor and OFS share the costs
of modifying qualified first liens, conditional on borrower performance.
Principal Reduction Alternative Program (PRA)
Pays financial incentives to investors for principal reduction in conjunction

with a first lien HAMP modification.
Home Affordable Foreclosure Alternatives (HAFA ) 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.
Unemployment Forebearance Program (UP)
Offers assistance to unemployed homeowners through temporary

FHA-HAM P
S eco nd Lien Pro gram (2M P)
Rural Develo pment Pro gram (RD-HAM P)

HHF
FHA-Refinance Program

50

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

Making Home Affordable

In early 2009, Treasury launched 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 FHA and the U.S. Department
of Agriculture (USDA).
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.
In December 2015, Section 709(b) of the
Consolidated Appropriations Act, 2016 (the Act)

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

provided that the MHA program will terminate on
December 31, 2016, except with respect to certain
loan modification applications made before such
date.

Hardest Hit Fund

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. An
additional $2.0 billion in commitments was
authorized for HHF by the Act in December 2015.
These funds were obligated to 18 of the 19 HFAs
in 2016. States have until December 31, 2021 to
utilize all HHF funding.

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

51

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

against the letter of credit through December 31,
2022. Cumulatively, as of September 30, 2016
and September 30, 2015, 7,190 and 6,639 loans
had been refinanced through the program
respectively, of which 4,156 are subject to
potential Treasury reimbursement.

been made as of September 30, 2016, of which
$62,051 was disbursed during fiscal year 2016.
See Notes 4 and 6 for further details about the
deposit and the program. OFS paid $0.2 million
in fiscal year 2016 and $0.7 million in fiscal year
2015 to maintain the letter of credit.

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, $207,381 in claim payments have

The table below recaps housing program
commitments as of September 30, 2016, and
payments and accruals as of September 30, 2016
and 2015.

Treasury Housing Programs Under TARP
Total Commitments as of

aHA

September 30, 2016

$

HFA Hardest Hit Fund

27,781

2016

$

3,253

$

2016

2,991

1,035
-

$

1

37,506

$

4,288

$

4,249

2015

262

$

497
-

-

1,257

125
$

Accruals as of September 30,

2015

9,600

FHA - Refinance 2
Totals

Fiscal Year Payments through September 30,

1

(Dollars in Millions)

$

-

262

$

1

497

Total commitments represent amounts obligated to support all of OFS's Housing programs. As of September 30, 2016, $14,966 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.

52

NOTES TO THE FINANCIAL STATEMENTS

-

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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
Direct Loans and Equity Investments

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

Capital Purchase Program
Community Development Capital Initiative

Equity Investment/Subordinated Debentures
Equity Investment/Subordinated Debentures

FHA-Refinance Program

Loss-sharing Program with FHA

Automotive Industry Financing Program
Term Asset-Backed Securities Loan Facility*
Public-Private Investment Program*
Other Credit Program

Equity Investment and Direct Loan
Subordinated Debentures
Equity Investment and Direct Loan

*These programs, closed in fiscal year 2016, 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

In October 2008, the OFS began implementation of
the TARP with the 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 had a stated dividend rate of 5.0
percent through year five, which increased to 9.0
percent in subsequent years. 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
S corporations issued subordinated debentures

NOTES TO THE FINANCIAL STATEMENTS

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.
Generally, these transactions are entered into with
financial institutions in poor financial condition with
a high likelihood of failure. As such, in accordance

53

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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 2016 there were no preferred
stock auction sales or warrant auctions of CPP
investments. 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. Also, in fiscal year 2015, OFS elected
to sell CPP warrants in public auctions, with net
proceeds of $49 million.
In fiscal year 2016, other sales and redemptions for
seven institutions and other receipts from two
institutions, resulted in net proceeds of $29 million.
In fiscal year 2015, other sales and redemptions for
fourteen institutions resulted in net proceeds of
$192 million.
During fiscal year 2016, there were no institutions
closed by their regulators or declaring bankruptcy.

During fiscal year 2015, two institutions, in which
OFS had invested $13 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.
There were no CPP institutions written off during
fiscal year 2016. During fiscal year 2015, two CPP
institutions were written off for $13 million, the
amount of OFS’s original investment. The write-offs
reduced gross investment outstanding and the
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,
2016 and 2015:

CPP Participating Institutions

Cumulative as of September 30,
2016
2015

Number of Institutions Funded

707

707

Institutions Paid in Full, Merged or Investments Sold

(498)

(491)

Institutions Refinanced to SBLF

(137)

(137)

12

19

Institutions Transferred to CDCI

(28)

Institutions Written Off After Bankruptcy or Receivership

(28)

(32)

Number of Institutions with Outstanding OFS Investments

Institutions in Bankruptcy or Receivership (not written off)

(32)

-

-

Number of CPP Institutions Valued at Year-End

12

19

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

10

17

CPP Investments
(Dollars in Millions)

Outstanding Beginning Balance, Investment in CPP Institutions, Gross
Repayments and Sales of Investments

Fiscal Year 2016
$

Write-Offs

Interest and Dividend Collections

Net Proceeds from Sales and Repurchases of Assets Less Than Cost

54

268

(24)

$

(34)
$
$

$

625

(197)
(13)

-

Losses from Sales and Repurchases of Assets

Outstanding Balance, Investment in CPP Institutions, Gross

Fiscal Year 2015

(147)

210

$

-

$

(30) $

NOTES TO THE FINANCIAL STATEMENTS

268
19

(52)

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Community Development Capital Initiative

In February 2010, the OFS announced the 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. CDFI banks and thrifts could
apply to receive capital up to 5 percent of riskweighted assets while CDFI credit unions could
apply for up to 3.5 percent of total assets. To
encourage repayment while recognizing the unique
circumstances facing CDFIs, the dividend rate
increases to 9 percent after eight years.
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 2016 and 2015, there were no
CDCI institutions written off.
In fiscal year 2016, OFS received $26 million in
repayments and $9 million in dividends and interest
from its CDCI investments with, as of September 30,
2016, an outstanding balance of $420 million and
value of $379 million.
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.

Public-Private Investment Program

In March 2009 under PPIP, 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.
Since fiscal year 2013, OFS had no PPIF equity
investments or loans outstanding.

NOTES TO THE FINANCIAL STATEMENTS

The legal commitments to disburse up to $126
million to remaining PPIFs as of September 30,
2014, were canceled in 2015, since all PPIFs had
ceased operations and termination notices had been
received from all of them.
During fiscal year 2016, OFS received no collections
from PPIP and the program was closed. During
fiscal year 2015, OFS received a collection of $63,311
recognized as net proceeds in excess of cost.

Term Asset-Backed Securities Loan Facility

The 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.
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 2016, OFS received no collections from
the TALF and the program was closed.
In fiscal year 2015, OFS received $39 million of
contingent interest, recorded as proceeds in excess of
cost.

Automotive Industry Financing Program
General Motors Company and General Motors
Corporation

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

55

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

bankruptcy. As of September 30, 2014, after various
sales and restructurings of its investment, and sale
of all shares of common stock of General Motors
Company (New GM), the post-bankruptcy GM
entity, the OFS retained no ownership of New GM.
OFS received a cumulative total of $39.7 billion in
stock sale proceeds, loan repayments, dividends and
interest on the GM program.
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. 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 years 2016 and 2015, OFS
recovered $3 million and $8 million, respectively, on
this administrative claim.
In August 2016, Treasury along with Export
Development Canada (EDC), which jointly financed
the administration of the General Motors
bankruptcy, entered into a settlement with the
Unsecured Creditors Committee of General Motors
Corporation (UCC) to split any proceeds of the
Avoidance Action Trust (AAT) litigation, with
Treasury and EDC receiving 30% and the unsecured
creditors receiving 70%. As a condition of the
settlement, OFS provided an advance of $12.6
million to the AAT to fund the ongoing operating
and legal costs associated with the litigation. This
settlement yields the most favorable attainable
economic outcome for OFS to recover funds related
to this claim.

Chrysler Group LLC and Chrysler Holding LLC

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.
In fiscal year 2016, the bankruptcy liquidation trust
related to Old Chrysler was closed, and OFS
received final proceeds of $2 million. OFS received
$100 million from the trust in fiscal year 2015. The

56

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
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 2015, OFS had
received $18.1 billion in sales proceeds, dividends,
and additional payments on its initial investment
and held 64,110,418 shares of common stock.
The OFS received no dividends in fiscal years 2016
or 2015 from the Ally investment.
During fiscal year 2015, OFS sold its remaining
64,110,418 shares of Ally common stock for $1.5
billion, resulting in net proceeds less than cost of
$290 million.
In fiscal year 2016, the GMAC/Ally investment
program was closed. OFS received a cumulative
total of $19.6 billion in stock sale proceeds,
dividends and gains on the GMAC/Ally Investment.

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

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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
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.

(Dollars in Millions)

Quoted
Prices for
Identical
Assets
(Level 1)

As of September 30, 2016
Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Program
CPP

CDCI

Total TARP Programs

$
$

71

$

83

$

12

-

$

-

$

-

40

$

407

$

367

111

379

490

As of September 30, 2015

(Dollars in Millions)

Quoted
Prices for
Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Program
CPP

CDCI

Total TARP Programs

NOTES TO THE FINANCIAL STATEMENTS

$
$

49

$

64

$

15

-

$

-

$

-

50

$

418

$

368

99

383

482

57

THE DEPARTMENT OF THE TREASURY | 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.

Financial Institution Equity
Investments3

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
3

This consists of equity investments made under CPP and CDCI.

58

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.
For both its fiscal year 2016 and 2015 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.

Public-Private Investment Program

The PPIP program was closed in fiscal year 2016.

Term Asset-Backed Securities Loan Facility

The TALF program was closed in fiscal year 2016.

Automotive Industry Financing Program

OFS had no investments remaining as of September
30, 2015, and the Ally equity program was closed in
fiscal year 2016.

Subsidy Cost and Reestimates

The recorded subsidy cost of equity investments or
the FHA-Refinance 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 year 2016, a modification occurred in
the CDCI program as a result of the early
repurchase option announced in August 2016 that
will allow remaining participants to repurchase
their outstanding securities at a fair market value.
This resulted in subsidy cost of $25 million.
During 2015, there were no modifications to any of
the remaining programs.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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 2016 and 2015, financial statement
reestimates for all programs, except the FHARefinance program, were performed using actual
financial transaction data through September 30.
For fiscal years 2016 and 2015 market and security
specific data publicly available as of September 30
were used. FHA-Refinance reestimates used actual
financial transaction data through August 31.
Net downward reestimates for the fiscal years ended
September 30, 2016 and 2015, totaled $75 million
and $ 245 million, respectively. Descriptions of the
reestimates, by OFS Program, are as follows:

Capital Purchase Program

The $38 million downward reestimate for CPP for
the fiscal year ended September 30, 2016 was the
result of repayments and improved market values.
The $124 million downward reestimate for CPP for
the fiscal year ended September 30, 2015 was the
result of repayments and revenues from asset sales
in 2015 being higher than projected.

Community Development Capital Initiative

The CDCI program experienced improved market
values and repayments in full, resulting in a $42
million downward reestimate for the fiscal year
ended September 30, 2016.
The CDCI program experienced improved
investment performance with some institutions
repaying in full, resulting in a $26 million

NOTES TO THE FINANCIAL STATEMENTS

downward reestimate for the fiscal year ended
September 30, 2015.

Public-Private Investment Program

The PPIP program was closed in fiscal year 2016
with a closing reestimate of zero.
There was a nominal reestimate for the PPIP for the
year ended September 30, 2015, due to a collection
from a PPIF.

Term Asset-Backed Securities Loan Facility

The TALF program was closed in fiscal year 2016
with a closing reestimate of zero.
The $0.5 million downward reestimate for TALF for
the fiscal year ended September 30, 2015, was due to
small collections and accrual on final closing of the
program.

Automotive Industry Financing Program

For the fiscal year ended September 30, 2016 a $7
million upward reestimate was due mostly to an
advance to the Avoidance Action Trust to support
ongoing litigation.
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.

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, 2016 and 2015. 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 2016 and 2015.

59

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Troubled Asset Relief Program Equity Investments
(Dollars in Millions)

TOTAL

As of September 30, 2016
Equity Investment Programs:
Equity Investments Outstanding, Gross
Subsidy Cost Allowance
Equity Investments Outstanding, Net

$

Obligations for Investments not yet Disbursed
Reconciliation of Subsidy Cost Allowance:
Balance, Beginning of Period
Subsidy Cost for Modifications
Interest and Dividend Revenue
Net Proceeds from Sales and Repurchases of Assets
Less than Cost
Net Interest Expense on Borrowings from Fiscal Service
and Financing Account Balance
Balance, End of Period, Before Reestimates
Subsidy Reestimates Upward (Downward), Net
Balance, End of Period
Reconciliation of Subsidy Cost (Income):
Subsidy Cost for Modifications
Subsidy Reestimates Upward (Downward), Net
Total Equity Investment Programs
Subsidy Cost (Income)

-

$

$

210 $
(99)
111 $

$

-

$

-

$

-

$

-

$

232
25
9

$

169
-

$

-

$

63
25
9

(37)

(7)

-

(2)
137
(38)
99 $

$

25 $
(73)

- $
(38)

7

$

25
(42)

$

(48) $

(38) $

7

$

(17)

$

TOTAL

$

Obligations for Investments not yet Disbursed

60

(30)

$

420
(41)
379

(16)
213
(73)
140 $

As of September 30, 2015
Equity Investment Programs:
Equity Investments Outstanding, Gross
Subsidy Cost Allowance
Equity Investments Outstanding, Net

Reconciliation of Subsidy Cost (Income):
Subsidy Reestimates Upward (Downward), Net
Total Equity Investment Programs
Subsidy Cost (Income)

CDCI

AIFP

630 $
(140)
490 $

(Dollars in Millions)

Reconciliation of Subsidy Cost Allowance:
Balance, Beginning of Period
Interest and Dividend Revenue
Net Proceeds from Sales and Repurchases of Assets
in Excess of (Less than) Cost
Write-Offs
Net Interest Expense on Borrowings from Fiscal Service
and Financing Account Balance
Balance, End of Period, Before Reestimates
Subsidy Reestimates Upward (Downward), Net
Balance, End of Period

CPP

CPP

(7)
7
- $

(14)
83
(42)
41

CDCI-TALF

AIFP

268 $
(169)
99 $

-

$

$

714 $
(232)
482 $

$

-

$

-

$

-

$

-

$

679
28

$

344
19

$

280
-

$

55
9

(195)
(13)

(52)
(13)

$

(182)
-

446
(63)
383

39
-

$

(5)
293
(124)
169 $

(6)
92
(92)
- $

(14)
89
(26)
63

(242)

$

(25)
474
(242)
232 $

(124)

(92)

(26)

(242) $

(124) $

(92) $

(26)

NOTES TO THE FINANCIAL STATEMENTS

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.
During fiscal year 2016, no Treasury contribution
was required for new loans guaranteed by FHA
under this program.
During fiscal year 2015, $122 million of new loans
were guaranteed by the FHA under this program
that could require a Treasury contribution.
Cumulatively, as of September 30, 2016 and
September 30, 2015, 4,156 loans that FHA
guaranteed, with a total value of $611 million, had
been refinanced under the program that could
require a Treasury contribution.
OFS’s maximum exposure related to FHA’s
guarantee totaled $27 million and $38 million at
September 30, 2016 and 2015, respectively. OFS’s

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

guarantee resulted in a liability of $3 million at
September 30, 2016 and a liability of $5 million at
September 30, 2015. 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, 2016 and 2015, $207,381 and $145,330 of claims
had been paid by OFS under the program,
respectively.
At September 30, 2016 and 2015, OFS’s obligation
for subsidy for potential new FHA guaranteed loans
under the program was $100 million.
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 $2 million and $3 million in
downward reestimates, for the fiscal years 2016 and
2015, respectively, 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 2016 and 2015.

FHA- Refinance Program
(Dollars in Millions)

Balance, Beginning of Period

Subsidy Cost for Guarantees (Defaults)

Fiscal Year
2016
$

Balance, End of Period, Before Reestimates

Subsidy Reestimates - Upward (Downward), Net

Balance, End of Period

Reconciliation of Subsidy Cost (Income)
Subsidy Cost for Guarantees (Defaults)
Subsidy Reestimates - Upward (Downward), Net
Total Subsidy Cost (Income)

NOTES TO THE FINANCIAL STATEMENTS

2015
5

-

$

6

2

5

$

$
$

(2)
3

8

(3)

$

5

- $
(2)
(2) $

2
(3)
(1)

61

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

NOTE 7. DUE TO THE GENERAL FUND
As of September 30, 2016, the OFS accrued $86
million of downward reestimates payable to the
General Fund. As of September 30, 2015, the OFS

accrued $229 million of downward reestimates
payable to the General Fund. Due to the General
Fund is a non-entity liability on the Balance Sheet.

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.

NOTE 8. PRINCIPAL PAYABLE TO THE BUREAU OF THE FISCAL SERVICE
(Fiscal Service)

Debt transactions for the fiscal years ended
September 30, 2016 and 2015 were as follows:

As of September 30,
(Dollars in Millions)

2016

Beginning Balance, Principal Payable to the Fiscal Service
New Borrowings
Repayments
Ending Balance, Principal Payable to the Fiscal Service

$

2015

418 $
72
(21)
469 $

$

1,304

-

(886)
418

Borrowings from the Fiscal Service by TARP program, outstanding as of September 30, 2016 and 2015, were
as follows:
As of September 30,
(Dollars in Millions)

CPP
CDCI
AIFP
To t al Bo rro wings Out st anding

As of September 30, 2016, borrowings carried
remaining terms ranging from 6 to 25 years, with
interest rates from 2.72 percent to 3.80 percent. As

62

2016
$
$

86 $
370
13
469 $

2015
28
370
20
418

of September 30, 2015, borrowings carried
remaining terms ranging from 1 to 26 years, with
interest rates from 2.96 percent to 3.80 percent.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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 American International Group (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

NOTE 10. STATEMENT OF NET COST
The Statement of Net Cost (SNC) presents the net
cost of operations for the OFS under the strategic
goal to promote domestic economic growth and
stability while continuing reforms of the financial

NOTES TO THE FINANCIAL STATEMENTS

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 $2 million to DOJ for expenses
invoiced to date.
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.

system. The OFS has determined that all initiatives
and programs under the TARP fall within this
strategic goal.

63

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

The OFS SNC reports the annual accumulated full
cost of the TARP’s output, including both direct and
indirect costs of the program services and output
identifiable to TARP, in accordance with SFFAS No.
4, Managerial Cost Accounting Concepts and
Standards.
The OFS SNC for fiscal year 2016 includes $17
million of intragovernmental costs relating to
interest expense on borrowings from the Fiscal
Service and $1 million intragovernmental revenues
relating to interest income on financing account
balances. 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.
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
$7 million and $3 million of subsidy allowance
amortization for fiscal years 2016 and 2015,
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, 2016, the OFS’s total resources in
budgetary accounts were $3 billion and resources in
non-budgetary financing accounts, including
spending authority from collections of equity
investment liquidations, dividends, interest and
fees, were $0.9 billion. 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 were $1.7
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
use the resulting funds to carry out EESA and that

64

any such funds expended or obligated by the
Secretary for actions authorized by EESA, 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, 2016, the OFS had no borrowing
authority available of the $72 million current year
authorized. For the fiscal year ended September 30,
2015, the OFS had no borrowing authority available
or 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 and equity investment
program financing accounts. These receipts are not
available for any other use per credit reform
accounting guidance.

NOTES TO THE FINANCIAL STATEMENTS

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, 2016 were
$15.0 billion in budgetary accounts and no funds
remain in non-budgetary financing accounts.
Undelivered orders as of September 30, 2015 were
$19.0 billion in budgetary accounts and $1 million in
non-budgetary financing accounts.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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 2018, with the “Actual”
column completed for fiscal year 2016, 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 2017. It will be available from the
Government Printing Office.
The 2017 President’s Budget, with the “Actual”
column completed for the fiscal year ended
September 30, 2015, was published in February
2016, and reconciled to the SBR. The only
differences between the two documents were due to:
• Rounding;
• Expired funds that are not shown in the
“Actual” column of the President’s Budget

65

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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 Operations for the fiscal years ended
September 30, 2016 and 2015 follows:

Fiscal Year
2016

(Dollars in Millions)
Resources Used to Finance Activities:
Budgetary Resources Obligated
Obligations Incurred / New Obligations and Upward Adjustments per SBR
Actual Offsetting Collections, Net of Change in Uncollected Customer Payments, and Recoveries
Offsetting Receipts

$

Net Obligations
Other Resources

Total Resources Used to Finance Activities
Resources Used to Finance Items Not Part of Net Cost of Operations:
Net Obligations in Direct Loan, Equity Investment and FHA-Refinance Program Financing Funds
Change in Resources Obligated for Goods, Services and Benefits Ordered but not yet Provided
Resources that Fund the Acquisition of Assets
Resources that Fund Prior Period Expenses and Reestimates

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

66

3,694 $
(2,774)
(855)
65
65
(142)
4,077
208
4,143
4,208

Total Resources Used to Finance Items Not Part of Net Cost of Operations
Total Resources Used to Finance the Net Cost of Operations

Net Cost of Operations

2015

1,732
(3,123)
(1,525)
(2,916)
(2,916)
512
5,493
40
1,485
7,530
4,614

(77)
1
(76)
$

(209)
1
(208)

4,132

$

NOTES TO THE FINANCIAL STATEMENTS

4,406

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

REQUIRED SUPPLEMENTARY INFORMATION

2E15)2E$ 3500,E-EN4A29 )NFO2-A4)ON
CO-B)NE$ 34A4E-EN4 OF B5$GE4A29 2E3O52CE3
Office of Financial Stability - Troubled Asset Relief Program

For the Year Ended September 30, 2016
(Unaudited)

2016
Combined

Dollars in Millions
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1
Recoveries of Prior-Year Unpaid Obligations
Borrowing Authority Withdrawn
Actual Repayments of Debt, Prior-Year Balances
Canceled Authority
Other Changes in Unobligated Balances
Unobligated Balance from Prior-Year Budget Authority, Net
Appropriations
Borrowing Authority
Spending Authority from Offsetting Collections
TOTAL BUDGETARY RESOURCES (Note 11)
STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (Total)
Unobligated Balance, End of Year:
Apportioned, Unexpired Accounts
Unapportioned, Unexpired Accounts
Unexpired Unobligated Balance, End of Year
Expired Unobligated Balance, End of Year
Unobligated Balance, End of Year (Total)
TOTAL STATUS OF BUDGETARY RESOURCES
CHANGE IN OBLIGATED BALANCES
Unpaid Obligations:
Unpaid Obligations Brought Forward, October 1
New Obligations and Upward Adjustments
Gross Outlays
Recoveries of Prior-Year Unpaid Obligations
Unpaid Obligations, End of Year
Uncollected Payments from Federal Sources:
Uncollected Payments Brought Forward, October 1
Change in Uncollected Payments
Uncollected Payments from Federal Sources, End of Year
Obligated Balance, Net, End of Year
OBLIGATED BALANCES
(Net of Unpaid Obligations and Uncollected Payments Above)
Obligated Balance, Net, Brought Forward, October 1
Obligated Balance, Net, End of Year
BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, Gross
Actual Offsetting Collections
Change in Uncollected Customer Payments, Federal Sources
Recoveries of Prior-Year Paid Obligations
BUDGET AUTHORITY, NET
Gross Outlays
Actual Offsetting Collections
Net Outlays
Distributed Offsetting Receipts
AGENCY OUTLAYS, NET

REQUIRED SUPPLEMENTARY INFORMATION

Budgetary
Accounts
$

$

Non-Budgetary
Credit Reform
Financing
Accounts

8,366 $
2,031
(80)
(8,159)
2,158
825
2,983 $

$

2,809

$

19
1
20
154
174
2,983

885

$

9
50
59
59
944

19,582 $
2,809
(5,100)
(2,031)
15,260

$

$

15,260

$

19,582

$

15,260

$

825
825

$

$

$
$

$

$

$

$

$

5,100 $
5,100
(855)
4,245 $

Budgetary
Accounts

150 $
1
(1)
150
72
722
944 $

$

$

TARP
Administrative

TARP Programs

8,159 $
2,001
(8,159)
2,001
673
2,674 $

$

2,673

$

1
1
1
2,674

1 $
885
(885)
(1)
-

$

Non-Budgetary
Credit Reform
Financing
Accounts
150 $
1
(1)
150
72
722
944 $

207
30
(80)
157
152
309

$

885

$

136

$

9
50
59
59
944

$

19
19
154
173
309

19,459 $
2,673
(4,961)
(2,001)
15,170

123
136
(139)
(30)
90

$

90

$

123

$

$

-

1

$

19,459

$

1

-

$

15,170

$

-

794 $
(742)
52 $

673
673

$

$

$

$

1 $
885
(885)
(1)
-

15,170

885
(742)
143
143

Budgetary
Accounts

$

$

90

$

794 $
(742)
52 $

152
152

4,961 $
4,961
(855)
4,106 $

885 $
(742)
143
143 $

139
139
139

67

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

2E15)2E$ 3500,E-EN4A29 )NFO2-A4)ON
CO-B)NE$ 34A4E-EN4 OF B5$GE4A29 2E3O52CE3
Office of Financial Stability - Troubled Asset Relief Program

For the Year Ended September 30, 2015
(Unaudited)

2015
Combined

Dollars in Millions
BUDGETARY RESOURCES
Unobligated Balances Brought Forward, October 1
Recoveries of Prior-Year Unpaid Obligations
Recoveries of Prior-Year Paid Obligations

Borrowing Authority Withdrawn
Actual Repayment of Debt, Prior-Year Balances
Canceled Authority
Unobligated Balance from Prior-Year Budget Authority, Net
Appropriations
Borrowing Authority
Spending Authority from Offsetting Collections
TOTAL BUDGETARY RESOURCES (Note 11)

STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (Total)
Unobligated Balance, End of Year:
Apportioned, Unexpired Accounts
Unapportioned, Unexpired Accounts
Unexpired Unobligated Balance, End of Year
Expired Unobligated Balance, End of Year
Unobligated Balance, End of Year (Total)
TOTAL STATUS OF BUDGETARY RESOURCES
CHANGE IN OBLIGATED BALANCES
Unpaid Obligations:
Unpaid Obligations Brought Forward, October 1

Budgetary
Accounts

Non-Budgetary
Credit Reform
Financing
Accounts

Budgetary
Accounts

$

7,760
1,013
40

$

614
126
-

$

$

174

$

1,558

$

7,185
987
8,172
194
8,366
8,540

$

19
131
150
150
1,708

$

(458)
8,355
185
8,540 $

New Obligations and Upward Adjustments
Gross Outlays
Recoveries of Prior-Year Unpaid Obligations
Unpaid Obligations, End of Year

$ 24,828 $
174
(4,407)
(1,013)
19,582

Uncollected Payments from Federal Sources:
Uncollected Payments Brought Forward, October 1
Change in Uncollected Payments

$

$

Uncollected Payments from Federal Sources, End of Year
Obligated Balance, Net, End of Year

$ 19,582

OBLIGATED BALANCES
(Net of Unpaid Obligations and Uncollected Payments Above)
Obligated Balance, Net, Brought Forward, October 1
Obligated Balance, Net, End of Year
BUDGET AUTHORITY AND OUTLAYS, NET
Budget Authority, Gross
Actual Offsetting Collections
Change in Uncollected Customer Payments, Federal Sources
Recoveries of Prior-Year Paid Obligations
BUDGET AUTHORITY, NET
Gross Outlays
Actual Offsetting Collections
Net Outlays
Distributed Offsetting Receipts
AGENCY OUTLAYS, NET

68

$

$

3

$

7,172
987
8,159
8,159
8,162

(90)
(309)
341
1,367
1,708 $

$

$ 24,828

$

98

$ 19,582

$

1

$
$

$

4,407 $
(40)
4,367
(1,525)
2,842 $

$

$

1,558

$

171

$

19
131
150
150
1,708

$

13
13
194
207
378

127 $ 24,686 $
1,558
3
(1,558)
(4,254)
(126)
(976)
1
19,459
$ 19,459

Budgetary
Accounts

614
126
-

(357)
8,159
3
8,162 $

$

185 $
(40)
40
185 $

Non-Budgetary
Credit Reform
Financing
Accounts

7,500
976
40

(29)
29
1

$

TARP
Administrative

TARP Programs

127
1,558
(1,558)
(126)
1

$

(101)
196
182
378

142
171
(153)
(37)
123

$

(29) $
29
1 $

123

$ 24,686

$

98

$

142

$ 19,459

$

1

$

123

3 $
(40)
40
3 $

1,367 $
(1,973)
29
(577) $

182
182

1,558 $ 4,254 $
(1,973)
(40)
(415)
4,214
(1,525)
(415) $ 2,689 $

1,558 $
(1,973)
(415)
(415) $

153
153
153

1,367 $
(1,973)
29
(577) $

$

(90)
(309)
341
1,367
1,708 $

260
37
-

REQUIRED SUPPLEMENTARY INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Part 3: Other Information (Unaudited)

REQUIRED SUPPLEMENTARY INFORMATION

69

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

70

REQUIRED SUPPLEMENTARY INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

Section A – Combined Schedule of Spending

C/-B)NE$ 3C(E$5,E /F 30EN$)NG

Offic e o f Fina nc ia l S ta b ility - T ro ub le d A s s e t R e lie f P ro g ra m
Fo r Y e a rs E nd e d S e p te mb e r 30, 2016 a nd 2015
2016

Dollars in Millions

2015

Budgetary
Ac c ounts

N on-Budgetary
Credit R eform
Financ ing
Ac c ounts

$

$

Budgetary
Ac c ounts

N on-Budgetary
Credit R eform
Financ ing
Ac c ounts

WHAT MONEY IS AVAILABLE TO SPEND?
Total Resources (per Statement of Budgetary Resources)
Less Amount Available, but Not Agreed to be Spent
Less Amount Not Available to be Spent

TOTAL AMOUNTS AGREED TO BE SPENT

2,983

(19)

(155)

944

(9)

$

8,540

(7,185)

$

(19)

(131)

(1,181)

(50)

1,708

$

2,809

$

885

$

174

$

1,558

$

9

$

-

$

10

$

-

HOW WAS THE AMOUNT SPENT?
Personnel Compensation
Personnel Benefits

Interest
Subsidies, including Reestimates for Previously

-

$

2,673

-

13

124

Other Services

Disbursed Loans and Investments Outstanding1
TOTAL AMOUNTS AGREED TO BE SPENT

3

$

690

$

855

30

-

3

-

3

158

17

2,809

3

885

$

174

$

872

$

22

$

1,525

1,558

WHO DID THE MONEY GO TO?
Federal Agencies and Entities

Non-Federal Entities – States for Housing
Non-Federal Companies - Freddie Mac/Fannie Mae for Housing

$

Non-Federal Companies - All Other

Non-Federal Individuals
TOTAL AMOUNTS AGREED TO BE SPENT

2,000
95

15

$

9

2,809

-

28

13
$

-

885

114

$

10

174

1,555

-

3
$

1

-

1,558

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

The Combined Schedule of Spending presents
an overview of new obligations and upward
adjustments 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

OTHER INFORMATION

fiscal year for services received, supplies
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.

71

Section B – IPIA (as amended by IPERA and IPERIA)
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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 Enterprise Risk
Management and 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

72

improper payments, and thereby better
safeguard taxpayer dollars.
OFS carried out its fiscal year 2016 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 2016, 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
payments, including payments to OFS’s
OTHER INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

financial agents. OTPS solicits, negotiates,
and awards contracts on behalf of OFS. Both
organizations have extensive payment
recapture audit and improper payments
reporting capabilities.

detect, and correct improper payments
associated with its administrative and
program payments.

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.

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.

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
enterprise risk management and internal
control environment in place to prevent,

OTHER INFORMATION

IPERIA Do Not Pay Initiative

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.

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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

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OFS that promotes economic revitalization
and community development.
Consolidated Appropriations Act, 2016: The
law which included provisions that i.) the
MHA program will terminate on December 31,
2016, except with respect to certain loan
modification applications made before such
date and ii.) allowed Treasury to commit an
additional $2 billion in TARP funds to the
HHF program.
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.
Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act):
The law that limited Treasury’s authority to
purchase or guarantee troubled assets to a
maximum of $475 billion.
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.
Hardest Hit Fund (HHF): A TARP program
to help 18 hardest hit states, plus the District
of Columbia, to develop locally-tailored
programs to assist struggling homeowners in
their communities.
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.
Housing Finance Agencies (HFAs): Statecharted authorities established to help meet

OTHER INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

the affordable housing needs of the residents
of their states.
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.
Non-Agency Residential Mortgage-Backed
Securities: RMBS that are not guaranteed or
issued by Freddie Mac, Fannie Mae, any other
GSE, Ginnie Mae, or a U.S. federal
government agency.
Preferred Stock: Equity ownership that
usually pays a fixed dividend and gives the
holder a claim on corporate earnings superior
to common stock owners. Preferred stock also
has priority in the distribution of assets in the
case of liquidation of a bankrupt company.
Public-Private Investment Fund (PPIF): An
investment fund established to purchase
Legacy Securities from financial institutions
under PPIP.
Public-Private Investment Program (PPIP): A
TARP program designed to support the
secondary market in mortgage-backed
securities. The program is designed to
increase the flow of credit throughout the
economy by partnering with private investors
to purchase Legacy Securities from financial
institutions.
Qualifying Financial Institution (QFI):
Private and public U.S.-controlled banks,

OTHER INFORMATION

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.
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.
Servicer: An administrative third party that
collects mortgage payments, handles tax and
insurance escrows, and may even bring
foreclosure proceedings on past due mortgages
for institutional loan owners or originators.
The loan servicer also generates reports for
borrowers and mortgage owners on the
collections.
Targeted Investment Program (TIP): A TARP
program created to stabilize the financial
system by making investments in institutions
that are critical to the functioning of the
financial system.
Term Asset-Backed Securities Loan Facility
(TALF): A program under which the Federal
Reserve Bank of New York made term nonrecourse loans to buyers of AAA-rated AssetBacked Securities in order to stimulate
consumer and business lending.
Troubled Asset Relief Program (TARP): The
Troubled Asset Relief Program, which was
established under EESA to stabilize the
financial system and 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.

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

76

OTHER INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2016

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

WEBSITE INFORMATION
Treasury ......................................................................................................................................................... www.treasury.gov
Office of Financial Stability ............................................................................................................... www.financialstability.gov
Making Home Affordable Program........................................................................................www.makinghomeaffordable.gov

ADDITIONAL REFERENCES
TARP Programs ..................................... www.treasury.gov/initiatives/financial-stability/TARP-Programs/Pages/default.aspx
TARP Reports ..................................................... www.treasury.gov/initiatives/financial-stability/reports/Pages/default.aspx
TARP Tracker............................................ www.treasury.gov/initiatives/financial-stability/reports/Pages/TARP-Tracker.aspx
Financial Reports ..... www.treasury.gov/initiatives/financial-stability/reports/Pages/Annual-Agency-Financial-Reports.aspx

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

www.financialstability.gov

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APPENDIX B: ABBREVIATIONS AND ACRONYMS