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AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

TABLE OF CONTENTS

Contents
FOREWORD ........................................................................................................................................................................ ii
MESSAGE FROM THE AGENCY HEAD FOR THE OFFICE OF FINANCIAL STABILITY ......................... iii
EXECUTIVE SUMMARY................................................................................................................................................. iv
Part 1: Management's Discussion and Analysis
Program Background, Organization Structure, and Operational Goals .................................................... 1
Active TARP Programs .................................................................................................................................................. 2
Analysis of Fiscal Years 2019 and 2018 Financial Summary and Cumulative Net Income .............. 6
Analysis of Systems, Controls, and Legal Compliance .................................................................................... 12
Limitations of the Financial Statements ............................................................................................................... 16
Part 2: Financial Section
GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT ............................................................. 19
Appendix I: Management’s Report on Internal Control over Financial Reporting ............................. 24
Appendix II: OFS Response to Auditor’s Report ............................................................................................... 25
FINANCIAL STATEMENTS ......................................................................................................................................... 26
NOTES TO THE FINANCIAL STATEMENTS ......................................................................................................... 31
REQUIRED SUPPLEMENTARY INFORMATION ................................................................................................. 55
Part 3: Other Information (Unaudited)
Section A – Payment Integrity .................................................................................................................................. 59
Section B – Fraud Reduction and Data Analytics Act ...................................................................................... 61
Section C – Reduce the Footprint ............................................................................................................................ 62
Additional TARP Historical Information .............................................................................................................. 63
TARP Glossary ................................................................................................................................................................. 67

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 2019 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 Agency Head: A statement from the Deputy Assistant Secretary for
Community and Economic Development 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 TARP mission and organizational structure of OFS; background and analysis of OFS
programs, initiatives and operational goals; and analysis of financial statements, systems,
controls, and legal compliance, including the Management’s Statement of Assurance.
Financial Section: This section provides the Independent Auditor’s Report, the financial
statements, the notes to the financial statements, and other statutory reporting.
Other Information: This section includes the information regarding Payment Integrity,
Fraud Reduction and Data Analytics Act, and Reduce the Footprint.

In addition to this AFR, the performance section of the OFS fiscal year 2019 Congressional Budget
Justification satisfies 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;
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: OFS Financial Reports Archive.

ii

FOREWARD

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

MESSAGE FROM THE AGENCY HEAD FOR THE OFFICE OF
FINANCIAL STABILITY
November 4, 2019
I am pleased to present the Office of Financial Stability’s (OFS) Agency Financial Report for Fiscal
Year 2019. This report describes our financial and performance results for the 11th year of the
Troubled Asset Relief Program (TARP). Within this report you will find the comparative fiscal years
2019 and 2018 financial statements for TARP, the U.S. Government Accountability Office (GAO)
independent 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 GAO’s tests of
OFS’s compliance with selected provisions of laws, regulations, contracts, and 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. The authority
to make new commitments through TARP ended October 3, 2010. Since then, Treasury has focused
on the orderly wind-down of TARP.
As of September 30, 2019, 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 (CPP, $17 million) and the Community Development Capital
Initiative (CDCI, $23 million). OFS continues to wind-down those positions as quickly as
practicable.
Hardest Hit Fund (HHF) has assisted approximately 397 thousand homeowners in preventing
foreclosures, and helped stabilize neighborhoods in 18 states and the District of Columbia. In 2019,
HHF programs assisted approximately 25 thousand households even as the majority of the states
closed programs signifying the start of the orderly wind-down. Making Home Affordable (MHA)
closed to new applications in December 2016, as required by the Consolidated Appropriations Act,
2016. Although MHA is closed to new applicants, OFS continues to monitor servicer compliance
with guidelines that pertain to post-modification activities.
The financial and performance data contained in this report are reliable and complete. For the 11th
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,

Gavin Beske
Deputy Assistant Secretary for Community and Economic Development

MESSAGE FROM THE AGENCY HEAD

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

EXECUTIVE SUMMARY
It was out of extraordinary circumstances over a
decade ago that TARP and OFS were created.
Both were a central part of the emergency
measures taken by the federal government
pursuant to EESA. Collectively, TARP and the
federal government’s other emergency programs
helped to prevent the collapse of the U.S.
financial system. Through EESA, the federal
government was able to limit the broader
financial and economic damage caused by the
crisis. Although we are 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 $442.2 billion, OFS has collected $425.5
billion (or $443.0 billion if including the $17.6
billion in proceeds from the additional Treasury
American International Group, Inc. [AIG]
shares) through repayments, sales, dividends,
interest, and other income. As of September 30,
2019, only $40 million in bank investments
remain outstanding.
The Management’s Discussion & Analysis
(MD&A) within this AFR 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. All 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 to transform
government-wide financial stewardship.

iv

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 CPP and CDCI. OFS continues to
exit CPP and CDCI by either: (i) allowing banks
that are able to repurchase in full in the near
future to do so; or (ii) restructuring and selling
OFS’s investments in limited cases. The
dividend rate step-ups for CDCI banks took
effect in 2018, which increased the rate of bank
repayments.
OFS’s second Operational Goal is to continue
helping struggling homeowners avoid
foreclosure. The Consolidated Appropriations
Act, 2016, signed into law on December 18, 2015,
provided that the MHA program would
terminate on December 31, 2016, except with
respect to certain loan modification applications
made before such date. As set forth in program
guidelines, MHA servicers were required to
evaluate applications submitted before the
deadline and offer trial modifications to eligible
applicants. All MHA transactions, including
first and second lien permanent modifications,
short sales or deeds-in-lieu of foreclosure, and
unemployment forbearance plans, were required
to be completed per program guidelines by
December 1, 2017.

EXECUTIVE SUMMARY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

The largest program within MHA is 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, 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.
As of September 30, 2019, 11 of 19 HFAs have
drawn 100 percent in HHF funding and all but
one have drawn at least 80 percent in HHF
funding, including 4 HFAs that have closed all
their HHF programs to new applicants.

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 2019 and 2018 Financial Summary
and Cumulative Net Income section. OFS
provides an overview of its financial data and
explains its fiscal year 2019 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
FMFIA and FFMIA.

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.

EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

EXECUTIVE
SUMMARY
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EXECUTIVE SUMMARY

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

Program Background, Organization Structure, and Operational Goals
Program Background
TARP was created on October 3, 2008, pursuant
to EESA. Treasury established OFS within the
Office of Domestic Finance to carry out the
authorities given to the Secretary of the
Treasury to implement TARP. 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: House Resolution
110-1424. In addition, Section 109 of EESA
provides the authority to assist homeowners.
The Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act),
signed into law in July 2010, reduced total
TARP purchase authority from $700.0 billion to
a cumulative $475.0 billion. OFS’s authority to
make new program commitments under TARP
originally expired on October 3, 2010. The
Consolidated Appropriations Act, 2016 (the Act),
gave the Secretary of the Treasury the ability to
commit an additional $2.0 billion in TARP funds
to current HHF participants. The additional
funding committed under the Act was obligated
by Treasury as of June 2016. OFS currently
does not have the authority to commit new
program funds.

OFS Organization Structure
OFS is part of, and reports to, the Office of the
Deputy Assistant Secretary for Community and
Economic Development in the Office of the
Assistant Secretary for Financial Institutions.
OFS staff is responsible for TARP program
management, compliance, finance and
operations Certain staff within the Treasury
Office of General Counsel and the Treasury

MANAGEMENT’S DISCUSSION AND ANALYSIS

Office of Financial Agents also support OFS, as
well as other Treasury Departmental Offices.
OFS is not envisioned as a permanent
organization, so to the 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, program compliance, and information
technology.

TARP Wind-Down Initiatives
As of September 30, 2019, ten of the 13 TARP
programs are closed or closed to new applicants.
For those active TARP programs, each is in a
wind-down phase or steady state of operations.
Launched in fiscal year 2018 and more formally
implemented in fiscal year 2019, OFS embarked
on a number of administrative and
organizational operations wind-down initiatives
to mirror the state of the remaining TARP
programs. These initiatives included, among
others, the following:










Realigning the OFS organization
structure;
Implementing a structured planning
approach for OFS personnel departures
and transition of duties;
Streamlining policies and procedures;
Applying a risk-based approach to
simplifying financial, operational and
compliance processes and reporting;
Planning for the decommissioning of
legacy operations and ancillary finance
management support systems; and
Expanding use of collaborative
technology solutions for OFS staff

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY



knowledge sharing, cross-training,
continuity, and succession planning; and
Planning for the transfer for permanent
records to appropriate Federal Records
Centers at the National Archives.

Throughout these initiatives, OFS staff
headcount continues to decrease commensurate

with the orderly wind-down of the TARP
programs. Despite this, OFS managers are
responsible for identifying and proactively
managing relevant program and administrative
risks, and ensuring that effective internal
controls are continuously designed and
maintained throughout the life of TARP.

Active TARP Programs
Bank Support Programs
OFS disbursed a total of $245.5 billion under the
various TARP bank programs. As of September
30, 2019, OFS has collected more than $275.9
billion through repayments, dividends, interest,
warrant sales, and other income, representing
$30.5 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.

CPP
In fiscal year 2019, 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, 2019, OFS has
received $199.7 billion in CPP repayments/sales,
along with $12.1 billion in dividends and
interest, and $15.0 billion of other proceeds in
excess of cost, which totals $226.8 billion. As of
September 30, 2019, $17 million in CPP gross
investments remained outstanding in two
institutions.
During fiscal years 2019 and 2018, OFS
collected a total of $5 million and $19 million,
respectively, in repayments, warrants,
dividends, and interest from institutions in the
CPP program. Under the CPP, OFS has also
received warrants to purchase common shares or
other securities from the banks. OFS has

2

followed a policy of disposing of warrants as soon
as practicable if no agreement is reached on a
repurchase. As of September 30, 2019, all
warrant positions have expired.
OFS continues to work with CPP institutions to
restructure certain investments that will allow
them to exit TARP.
Additional information on the CPP, including
details on the program’s purpose, overview, and
status can be found at the following link:
TARP: Capital Purchase Program

CDCI
In fiscal year 2019, OFS continued to make
progress winding down the CDCI. From
inception through September 30, 2019, OFS has
received $520 million in CDCI repayment/sales,
along with $66 million in dividends and interest.
As of September 30, 2019, $23 million in CDCI
investments remained outstanding in five
institutions.
During fiscal years 2019 and 2018, OFS
collected a total of $21 million and $34 million,
respectively, in repayments, early repayments,
dividends, and interest from institutions in the
CDCI program.

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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

TARP: Community Development Capital
Initiative

Automotive Industry Financing Program
OFS fully wound down the Automotive Industry
Financing Program (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, 2019,
OFS has collected $70.6 billion through sales,
repayments, dividends, interest, recoveries, and
other income. This includes $73 million
collected during fiscal year 2019, related to the
Motors Liquidation Company Debtor-in-

Possession Lenders Trust which made its final
distribution in late 2018 and the Avoidance
Action Trust (AAT) which finalized a settlement
in 2019.
Additional information on the AIFP, including
details on the program’s purpose, overview, and
status can be found at the following link:
TARP: Automotive Industry Financing Program

Housing Programs
MHA

HHF

Consistent with OFS’s goal of continuing to help
struggling homeowners avoid foreclosure, OFS
developed and implemented a process to
seamlessly transition the program from an
active program to steady state. As of September
30, 2019, 57 servicers are participating in OFS’s
MHA program for non-Government Sponsored
Enterprise (GSE) loans. As of September 30,
2019, OFS has commitments to fund up to $23.5
billion in MHA payments and has disbursed
$20.7 billion since inception.

In addition to MHA, OFS operates the HHF,
which allows participating state HFAs in the
nation’s hardest hit states to design innovative,
locally-tailored foreclosure prevention programs.

Treasury continues to monitor servicer
compliance with MHA guidelines that pertain to
post-modification activities and which require
remedial action.
Additional information on MHA, including
details on the program’s purpose, overview, and
status can be found at the following link:
TARP: Making Home Affordable Program

MANAGEMENT’S DISCUSSION AND ANALYSIS

As of September 30, 2019, the 19 HFAs have
collectively drawn approximately $9.4 billion (98
percent) of the $9.6 billion allocated under the
program. For fiscal years 2019 and 2018, this
program has disbursed $0.3 billion and $0.6
billion, respectively. Each state draws down
funds as they are needed, but must have no
more than five percent of their allocation on
hand before they can draw down additional
funds. States have until December 31, 2020 to
commit funds and December 31, 2021, to expend
all HHF funding.
Each HFA submits a quarterly report on the
progress of its programs. These reports measure
states’ performance against metrics set by OFS
for various aspects of their programs.

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Direct links to each state’s most recent
performance report can be found at:

Federal Housing Administration Refinance
Program

TARP: Hardest Hit Fund Program Documents

On March 26, 2010, the Federal Housing
Administration (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). As of
September 30, 2019, FHA had guaranteed 7,234
refinance loans with a total face value of
approximately $1.0 billion, of which 4,200 loans
were subject to OFS coverage at the time of
purchase with a face value of $620 million.

OFS also publishes a Quarterly Performance
Summary, a companion reference to the HFAs’
Quarterly Performance Reports. The Summary
contains performance data and trends, and brief
program descriptions for each HFA. The
Quarterly Performance Summary can be found
at:
TARP: Hardest Hit Fund - Quarterly
Performance Summary
Additional information on the HHF, including
details on the program’s purpose, overview, and
status can be found at the following link:
TARP: Hardest Hit Fund Program

On-Going Operational Goals
Minimize Cost to Taxpayers
OFS manages TARP investments to minimize
costs to taxpayers by ensuring 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 2019 and 2018 to dispose of OFS’s
outstanding investments in a manner that
balances speed of exit with maximizing returns
for taxpayers.
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.

Compliance
OFS monitors certain TARP-related statutory
and contractual obligations of remaining TARP

4

recipients. Historically, statutory obligations
have included certification and disclosures
related to executive compensation restrictions.
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.
OFS also performs regular 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,
compliance reviews by OFS’s compliance agent,
Making Home Affordable-Compliance (MHA-C),
a separate, independent division of Freddie Mac
serving as financial agent to Treasury, to

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

monitor whether servicers’ obligations under
MHA requirements are being met.
In fiscal year 2011, OFS began publishing
quarterly assessments for the largest
participating servicers. These assessments were
used to ensure focus on emerging areas of
interest, draw servicer attention to higher risk
areas, and prompt the industry to improve its
practices. As the program has evolved and
servicers have significantly improved their
performance, OFS has updated the assessment
to ensure it includes metrics that address
current areas of interest and concern.
In fiscal year 2019, OFS continued to perform
quarterly assessments of participating servicer
performance through the managed servicer
testing (MST) model, which was first
implemented in fiscal year 2018 and focuses on
servicer compliance with MHA guidelines
pertaining to post-modification activities.

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:

MANAGEMENT’S DISCUSSION AND ANALYSIS













A Monthly TARP Update that features
detailed financial data related to each
TARP investment program, including
the status of disbursements and all
collections by category;
A monthly report to Congress that
details how TARP funds have been used,
the status of recovery of such funds by
program, and information on the
estimated cost of TARP;
A monthly report on dividend and
interest payments;
A quarterly performance report on MHA
(the last comprehensive issue which was
published as of September 10, 2018,
when all MHA programs were officially
closed; streamlined one-page
performance summaries continue to be
published quarterly);
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 obligations.

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 11th OFS
AFR, which includes the audited financial
statements for the fiscal years ended September

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

30, 2019 and September 30, 2018. Additional
reports for prior periods are available at:
http://www.treasury.gov/initiatives/financialstability/reports/Pages/Annual-AgencyFinancial-Reports.aspx
In its 11 years of operation, TARP’s financial
statements have received 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:




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 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

Analysis of Fiscal Years 2019 and 2018 Financial Summary and
Cumulative Net Income
Comparative Summary of Net Costs
OFS’s fiscal year 2019 net cost of operations of
$1.4 billion includes the reported net income
related to TARP investment and FHA Refinance
programs, as well as expenses for TARP
Investment Programs, the Treasury housing
programs under TARP, and administrative
expenses.
For the fiscal year ended September 30, 2019,
OFS reported net subsidy income for three

6

programs – Public-Private Investment Program
(PPIP), AIFP, and FHA Refinance. These
programs collectively reported net subsidy
income of $74 million. For the fiscal year ended
September 30, 2019, OFS reported costs for two
programs – CPP and CDCI totaling $6 million.
Fiscal year 2019 costs for the Treasury housing
programs under TARP were $1.4 billion and
administrative costs were $51 million. For the
fiscal year ended September 30, 2018, the net
cost of operations was $2.2 billion. These net
cost amounts reported in the financial

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

statements reflect only transactions through
September 30, 2019 and September 30, 2018,
and therefore are different than lifetime cost
estimates made for budgetary purposes.
Over 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.

Comparative Summary of TARP
Equity Investments
As of the end of fiscal years 2019 and 2018,
TARP had a combined CPP and CDCI
investment Outstanding Balance of $40 million
and $65 million, respectively. Comparatively,
the combined Estimated Value of Investment for
CPP and CDCI during these fiscal years was $23
million and $54 million, respectively. Estimated
Value of Investment represents the present
value of net cash inflows that OFS estimates it
will receive from the programs. These estimates
include market risk assumptions. The total
difference of $17 million and $11 million as of
the end of fiscal years 2019 and 2018
respectively is considered the “subsidy cost
allowance” under the Federal Credit Reform Act
methodology OFS follows for budget and
accounting purposes.

Inception to Date TARP Program
Summary
Table 1 provides a financial summary for TARP
programs since its inception on October 3, 2008,
through September 30, 2019. For each program,
the table provides utilized TARP authority
(which includes purchases made, legal

MANAGEMENT’S DISCUSSION AND ANALYSIS

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, 2019,
and cash inflows on the investments in the form
of dividends, interest or other fees.
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, 2019, OFS received a total of
$24.5 billion in dividends and interest.
OFS has conducted numerous sales or auctions
of its investments in banking institutions as part
of its exit strategy for winding down TARP. As
of September 30, 2019, OFS has sold its
investments in 190 banks for combined principal
receipts of $3.1 billion through individual
private auctions.
OFS also received warrants in connection with
most of its investments, which provide an
opportunity for OFS on behalf of taxpayers to
realize additional proceeds on investments.
Since the program’s inception through
September 30, 2019, OFS has received $9.7
billion in gross proceeds from the disposition of
warrants associated with CPP, TIP, AGP, and
AIG. As of September 30, 2019, all such
warrants have expired.
See Note 6 in the financial statements for
further discussion.

7

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Table 1: TARP Summary1
From TARP Inception through September 30, 2019
(Dollars in millions)
Purchase
Price or
Guarantee
Amounts

Total $
Disbursed

Investment
Repayments

Write-offs
and
Losses6

Outstanding
Balance7

Received
from
Investments

Programs Active in 2019
Bank Support
Programs
Capital Purchase
Program2
Community
Development
Capital Initiative
Subtotal for
Investment
Programs
Treasury Housing
Programs under
TARP
Subtotal for Active
Programs

$204,895

$204,895

$(199,671)5

$(5,206)

$17

$27,106

570

570

(520)

(27)

23

66

205,465

205,465

(200,191)

(5,233)

40

27,172

33,1174

30,087

N/A

N/A

N/A

-

$238,582

$235,552

$(200,191)

$(5,233)

$40

$27,172

(Table continued on the following page.)

8

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

Purchase
Price or
Guarantee
Amounts

Total $
Disbursed

Investment
Repayments

Write-offs
and
Losses6

Outstanding
Balance7

Received
from
Investments

Programs Closed in Fiscal Years 2019 or Prior
Bank Support
Programs
Targeted Investment
Program
Asset Guarantee
Program
Credit Market
Programs

$40,000

$40,000

$(40,000)

-

-

$4,432

5,000

-

-

-

-

4,126

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

(4)

-

13

Automotive Industry
Financing Program

79,692

79,692

(63,037)

(16,656)

-

7,586

American
International Group
Investment
Program3
Subtotal for Closed
Programs
Total for TARP
Programs

67,835

67,835

(54,350)

(13,485)

-

959

$211,620

$206,620

$(176,475)

$(30,145)

$-

$21,651

$450,201

$442,172

$(376,667)

$(35,378)

$40

$48,823

Public Private
Investment Program

(363)

Other Programs

Note: Figures may not foot due to rounding.
table shows TARP activity for the period from inception through September 30, 2019, 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.

1 This

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 $23.5 billion for the Making Home Affordable Program, $9.6 billion for the
Hardest Hit Fund, and $45 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

9

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Comparison of Estimated Lifetime
TARP Costs over Time
The ultimate cost of TARP is not expected to
change significantly as only a few investment
programs remain open with most of the original
disbursed investments repaid. The cost
estimates are sensitive to slight changes in
model assumptions, such as general economic
conditions, specific stock price volatility of the
entities in which OFS has an equity interest,
estimates of expected defaults, and
prepayments. 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.

Key Factors Affecting TARP Future
Activities and Ultimate Cost
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, 2019, provide a
good illustration of this impact. Table 2 provides
information on how OFS’s estimated lifetime
cost of TARP has changed over time.

10

The cost estimates for the non-housing programs
have fluctuated in large part due to changes in
the market prices of common stock for AIG, GM
and Ally. This table assumes that all expected
investments and disbursements for Treasury
housing programs under TARP are completed,
and adhere to general government budgeting
guidance. The cost amounts in Table 2 are
based on assumptions regarding future events,
which are inherently uncertain. This table will
not match the financial statements since the
table includes repayments and disbursements
expected to be made in the future. Data within
this table is consistent with the estimated TARP
lifetime cost disclosures on the OFS website at:
http://www.treasury.gov/initiatives/financialstability/Pages/default.aspx
TARP investment programs are nearly wound
down with only $40 million of the total $412.1
billion disbursed still outstanding, representing
7 small banks in the CPP and CDCI portfolios.
The estimated lifetime income associated with
investment programs is currently $346 million
and may fluctuate slightly in the future.
Similarly, with the MHA program in wind-down,
estimated lifetime costs should not significantly
fluctuate, but will depend on macroeconomic
factors, including real estate values, financing
availability, re-default rates, and market
demand for housing.

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

Table 2: Estimated Lifetime TARP Costs (Income)1
(Dollars in billions)
Estimated Lifetime Cost (Income) as of September 30

Program

20095

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

($14.6)

($11.2)

($13.0)

($14.9)

($16.1)

($16.1)

($16.3)

($16.3)

($16.3)

($16.3)

($16.3)

(1.9)

(3.8)

(4.0)

(4.0)

(4.0)

(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)

(4.0)

(4.0)

(4.0)

0.4

0.3

0.2

0.2

0.1

0.1

0.1

0.1

0.1

0.1

0.1

1.4

(0.7)

(2.4)

(2.4)

(2.7)

(2.7)

(2.7)

(2.7)

(2.7)

(2.7)

(2.7)

(0.3)

(0.4)

(0.4)

(0.5)

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

N/A

0.0

0.0

(0.0)

(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

12.2

12.2

12.1

56.8

36.9

24.3

15.3

15.2

15.2

15.2

15.2

15.2

15.2

15.2

74.1

32.1

24.6

14.1

2.6

0.1

(0.2)

(0.2)

(0.3)

(0.3)

(0.3)

50.0

45.6

45.6

45.6

37.7

37.4

37.4

34.7

32.6

32.5

32.8

$124.1

$77.7

$70.2

$59.7

$40.3

$37.5

$37.2

$34.5

$32.3

$32.3

$32.4

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.
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 FHA Refinance 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.
1

MANAGEMENT’S DISCUSSION AND ANALYSIS

11

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Analysis of Systems, Controls, and Legal Compliance

MANAGEMENT ASSURANCES
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 and based on
criteria 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, 2019. 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)

Alignment of strategic goals with the agency’s mission;
Effective and efficient operations;
Reliable reporting;
Compliance with applicable laws and regulations; and
Financial management systems comply with Federal financial management systems
requirements.

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 and based on criteria with OMB Circular A-123, Management’s Responsibility
for Enterprise Risk Management and Internal Control. 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, 2019, with no related material weaknesses noted.
Sincerely,

Gavin Beske
Deputy Assistant Secretary for Community and Economic Development

12

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OFS 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, OFS managers are
responsible for identifying relevant risks, and
ensuring that effective internal controls are
implemented in their areas of responsibility.
OFS senior management 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 2019 self-assessment of
its ERM activities and system of internal
controls did not identify any significant
deficiencies or material weaknesses.

13

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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 2019, 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 2019, OFS continued to utilize
the Core Investment Transaction Flow (CITF),
TARP’s system of record and accounting
translation engine.

14

In addition, OFS continued to utilize financial
systems maintained by Treasury
Departmental Offices and various Treasury
bureaus. These systems are in compliance
with federal financial management systems
requirements and undergo regular
independent audits.
In fiscal year 2019, 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
identifying laws and regulations which impact
their areas, developing policies and
procedures which ensure compliance with
those laws and regulations, and disseminating

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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
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.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 wind-down 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.

15

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.

16

MANAGEMENT’S DISCUSSION AND ANALYSIS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

AUDITOR’S REPORT

17

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

18

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT

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

Independent Auditor’s Report
To the Deputy Assistant Secretary for Community and Economic Development
In our audits of the fiscal years 2019 and 2018 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,
2019, and 2018, 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, 2019; and
no reportable noncompliance for fiscal year 2019 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 the required supplementary information
(RSI)2 and other information included with the financial statements; 3 (2) our report on
compliance with laws, regulations, contracts, and grant agreements; and (3) agency comments.
GAO has the responsibility to audit OFS’s annual financial statements for TARP under the
Emergency Economic Stabilization Act of 2008 (EESA), as amended.4

1Section

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.
2The

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

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

report.
4EESA

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.

AUDITOR’S REPORT

19

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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, 2019, and
2018; 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, 2019,
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. 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) its assessment about the effectiveness of internal control over financial reporting as of
September 30, 2019, included in the accompanying Management’s Report on Internal Control
over Financial Reporting in appendix I.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements and an opinion on
OFS’s internal control over financial reporting for TARP based on our audits. U.S. generally
accepted government auditing standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from material
misstatement, and whether effective internal control over financial reporting was maintained in
all material respects. We are also responsible for applying certain limited procedures to the RSI
and other information included with the financial statements.
An audit of financial statements involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The procedures selected depend on
the auditor’s judgment, including the auditor’s assessment of the risks of material misstatement
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.

20

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

An audit of internal control over financial reporting involves performing procedures to obtain
evidence about whether a material weakness exists.5 The procedures selected depend on the
auditor’s judgment, including the assessment of the risk that a material weakness exists. An
audit of internal control over financial reporting also includes obtaining an understanding of
internal control over financial reporting and evaluating and testing the design and operating
effectiveness of internal control over financial reporting based on the assessed risk. Our audit of
internal control also considered OFS’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.
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.
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, 2019, and 2018, 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.

5A

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.

AUDITOR’S REPORT

21

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Opinion on Internal Control over Financial Reporting
In our opinion, OFS maintained, in all material respects, effective internal control over financial
reporting for TARP as of September 30, 2019, based on criteria established under FMFIA.
Other Matters
Required Supplementary Information
U.S. generally accepted accounting principles issued by the Federal Accounting Standards
Advisory Board (FASAB) require that the RSI be presented to supplement the financial
statements. Although the RSI is not a part of the financial statements, FASAB considers this
information to be an essential part of financial reporting for placing the financial statements in
appropriate operational, economic, or historical context. We have applied certain limited
procedures to the RSI in accordance with U.S. generally accepted government auditing
standards, which consisted of inquiries of management about the methods of preparing the RSI
and comparing the information for consistency with management’s responses to the auditor’s
inquiries, the financial statements, and other knowledge we obtained during the audit of the
financial statements, in order to report omissions or material departures from FASAB guidelines,
if any, identified by these limited procedures. We did not audit and we do not express an opinion
or provide any assurance on the RSI because the limited procedures we applied do not provide
sufficient evidence to express an opinion or provide any assurance.
Other Information
OFS’s other information contains a wide range of information, some of which is not directly
related to the financial statements. This information is presented for purposes of additional
analysis and is not a required part of the financial statements or the 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.

22

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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 2019 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 reproduced in appendix II.

Cheryl E. Clark
Director
Financial Management and Assurance
November 4, 2019

AUDITOR’S REPORT

23

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, 2019, 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, 2019, OFS’s internal control over
financial reporting was effective.

Gavin Beske
Deputy Assistant Secretary for Community and Economic Development
November 4, 2019

24

AUDITOR’S REPORT

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

Appendix II: OFS Response to Auditor’s Report

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220

November 4, 2019
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 2019 financial statements. OFS is proud to receive a 11th consecutive
unmodified opinion on its financial statements and 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,

Gavin Beske
Deputy Assistant Secretary for Community and Economic Development

AUDITOR’S REPORT

25

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

FINANCIAL STATEMENTS
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 OFS’s financial management
goal of providing accurate and reliable
information that may be used to assess
performance and allocate resources. 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. 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).

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

While these financial statements reflect
activities of 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 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, 2019 and 2018.

26

The Balance Sheet summarizes OFS assets,
liabilities and net position as of September 30,
2019 and 2018. 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, 2019 and 2018.
The Statement of Changes in Net Position
presents the change in OFS’s net position for
two components, Unexpended Appropriations
and Cumulative Results of Operations, for the
fiscal years ended September 30, 2019 and
2018. The ending balances of both components
of net position are also reported on the Balance
Sheet.

FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

BALANCE SHEET
Dollars in Millions
ASSETS
Int ragovernment al Asset s:
Fund Balanc e with Treasury (Note 3)

$

Tot al Int ragovernment al Asset s

15,737

$

17,174

15,737

17,174

Cash on Deposit for Housing Program (Not e 4)

10

10

Equit y Invest ment s, Net (Not e 6)

23

54

Tot al Asset s

$

15, 770

$

17, 238

LIABILITIES
Int ragovernment al Liabilit ies:
Ac c ounts Pay able and Other Liabilities
Due to the General Fund (Note 7)
Princ ipal Pay able to the Bureau of the Fisc al Serv ic e (Note 8)
Tot al Int ragovernment al Liabilit ies
Ac c ount s Payable and Ot her Liabilit ies

-

1

75

28

35

60

110

89

13

17

Liabilit ies for Treasury Housing Programs Under TARP:
FHA-Refinanc e Program (Notes 5 and 6)
Making Home Affordable Program (Note 5)
Tot al Liabilit ies

1

1

74

119

$

198

$

226

$

15,569

$

17,004

Commit ment s and Cont ingenc ies (Not e 9)
NET POSITION
Unexpended Appropriations
Cumulativ e Results of Operations

3

8

Tot al Net Posit ion

$

15, 572

$

17, 012

Tot al Liabilit ies and Net Posit ion

$

15, 770

$

17, 238

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

FINANCIAL STATEMENTS

27

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

STATEMENT OF NET COST
Dollars in Millions
STRATEGIC GOAL: TRANSFORM GOVERNMENT-WIDE FINANCIAL STEWARDSHIP
Gross Cost of Operat ions:
Program Subsidy Cost (Inc ome) (Not e 5 and Not e 6)
Equity Inv estment Programs
FHA-Refinanc e Program
Tot al Program Subsidy Cost (Inc ome)

$

Int erest Expense on Borrow ings from t he Bureau of t he Fisc al Servic e (Not e 10)
Treasury Housing Programs Under TARP (Not e 5)
Administ rat ive Cost
Tot al Gross Cost of Operat ions

2
1,407
51
1, 393

Earned Revenue:
Div idend and Interest Inc ome - Programs (Note 6)
Interest Inc ome on Financ ing Ac c ount (Note 10)
Subsidy Allowanc e Amortization (Note 10)
Tot al Earned Revenue
Tot al Net Cost of Operat ions

(67) $
(67)

3
2,165
67
2, 209

(1)
(1)
(2)
$

1, 391

(3)
(1)
1
(3)
$

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

28

(25)
(1)
(26)

FINANCIAL STATEMENTS

2, 206

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

STATEMENT OF CHANGES IN NET POSITION

Dollars in Millions
Beginning Balanc es

$

17, 004

$

8

$

19, 205

$

9

Budget ary Financ ing Sourc es
Appropriations Rec eiv ed
Appropriations Used
Other Adjustments - Canc eled Authority
Ot her Financ ing Sourc es
Tot al Financ ing Sourc es

63
(1,459)
(39)
(1,435)

1,459
(73)
1,386

79
(2,232)
(48)
(2,201)

2,232
(27)
2,205

Net Cost of Operat ions
Net Change

(1,435)

(1,391)
(5)

(2,201)

(2,206)
(1)

Ending Balanc es

$

15, 569

$

3

$

17, 004

$

8

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

FINANCIAL STATEMENTS

29

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

STATEMENT OF BUDGETARY RESOURCES

Dollars in Millions
BUDGETARY RESOURCES
Unobligated Balanc es Brought Forward, Oc tober 1
Rec ov eries of Prior-Year Unpaid Obligations
Ac tual Repay ments of Debt, Prior-Year Balanc es
Canc elled Authority
Other Changes in Unobligated Balanc es
Unobligated Balanc e from Prior-Year 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
OUTLAY S, NET
Outlay s, Net (Total)
Distributed Offsetting Rec eipts
AGENCY OUTLAY S, NET

$

113
320
(39)
(304)
90
63
153 $

$

59

$

4
4
90
94
153

$

1,507
(27)
1, 480

34
(15)
19
3
87
109

$

29

$

1
79
80
80
109

$

(71)
(71)

$

181
4,022
(48)
(4,046)
109
79
188 $

44
(32)
12
40
52

$

75

$

18

$

4
4
109
113
188

$

2
32
34
34
52

2,290
(15)
2, 275 $

(50)
(50)

$

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

30

FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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.
The EESA established certain criteria under which
the TARP would operate, including provisions that
impact the budgeting, accounting, and reporting of
troubled assets acquired. Section 115 of the EESA
limited the authority of the Secretary to purchase
troubled assets up to $700.0 billion outstanding at
any one time, calculated as the aggregate purchase
prices of all troubled assets held. In July 2010, the
Dodd-Frank Wall Street Reform and Consumer
Protection Act amended Section 115 of the EESA,
limiting the TARP’s authority to a total of $475.0
billion cumulative obligations (i.e., purchases and
guarantees) and prohibiting any new obligations for
programs or initiatives that had not been publicly
announced prior to June 25, 2010. The Consolidated
Appropriations Act, 2016 (the Act), 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. The
additional $2.0 billion was obligated by Treasury as
of June 2016. OFS currently does not have the
authority to commit new program funds. OFS had
utilized (including purchases made, legal
commitments to make purchases and offsets for
guarantees made) $450.2 billion as of September
30, 2019 and $450.5 billion as of September 30,
2018.
During fiscal years 2019 and 2018, OFS
administered the Capital Purchase Program (CPP);
the Community Development Capital Initiative
(CDCI); and the Treasury Housing Programs under
TARP. See Notes 5 and 6 for details regarding these
programs.

NOTES TO FINANCIAL STATEMENTS

Through the purchase of troubled assets, OFS
entered into several different types of direct loan,
equity investment, and other credit programs
(consisting of the Federal Housing Administration
(FHA) Refinance Program) (collectively, OFS
programs) with private entities. OFS programs
were entered into with the intent of helping to
stabilize the financial markets and mitigating, as
best as possible, any adverse impact on the
economy; they were not entered into to engage in
the business activities of the respective private
entities nor to be permanent in nature.
These private entities are not included in the
federal budget, and OFS does not hold a majority
ownership interest in them (except for two
investments) nor controls them with risk of loss or
expectation of benefit. OFS’s intent is to liquidate
its ownership in these entities as soon as
practicable. Following the criteria in Statement of
Federal Financial Accounting Standards (SFFAS)
47, OFS has not consolidated into its financial
statements the assets, liabilities, or results of
operations of these entities in which OFS has a
significant equity interest. Instead, these
financial statements reflect the activities of OFS
in executing its programs, including providing
resources to various entities to help stabilize the
financial markets. The value of such investments
was recorded in OFS financial statements.
Using SFFAS 47 criteria, the two investments in
which OFS holds a majority ownership interest,
are considered to be disclosure entities for fiscal
year 2019, and are further discussed in Note 6.
Implementation of SFFAS 47, as of October 1,
2017, did not result in any changes to the
reporting entity as compared to previous year
under the guidance of Statement of Federal
Financial Accounting Concepts No. 2, Entity and
Display, for fiscal year 2017.

31

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

The EESA established OFS within the Office of
Domestic Finance of the U. S. Department of the
Treasury (Treasury) to administer the TARP and
required its separate audited financial
statements. OFS prepares stand-alone financial

statements for TARP to satisfy EESA Section
116(b) (1) and as an office of the Treasury, its
financial statements are consolidated into
Treasury’s Agency Financial Report.

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 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.
Accounting standards require all reporting
entities to disclose that accounting standards
allow certain presentations and disclosures to be
modified, if needed, to prevent the disclosure of
classified information.
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,
OFS considered market risk in its calculation and
determination of the estimated net present value
of its equity investment and FHA Refinance

32

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, OFS accounts for
its equity investments at fair value. Since fair
value is not defined in federal accounting
standards, as established in Statement of Federal
Financial Accounting Standards (SFFAS) No. 34,

The Hierarchy of Generally Accepted Accounting
Principles, Including the Application of Standards
Issued by the Financial Accounting Standards
Board, 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.
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. OFS
concluded that some of the equity investments,

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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,
OFS concluded that SFFAS No. 2 (as more fully
discussed below) should be followed for reporting
and disclosure requirements of its equity
investments.
OFS applies the provisions of FCRA for budgetary
accounting and the associated FASAB accounting
standard SFFAS No. 2 for financial reporting for
loan guarantee programs. Liabilities under the
FHA Refinance Program are recognized at the net
present value of their estimated future cash flows
when the FHA guarantees loans.
For equity investments, the subsidy allowance
account represents the difference between the face
value of the outstanding equity investment
balance and the net present value of the expected
future cash flows or fair value, and is reported as
an adjustment to the face value of the equity
investment.
OFS recognizes dividend income associated with
equity investments when declared by the entity in
which OFS has invested and when received in
relation to any repurchases, exchanges, and
restructurings. 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.
In certain programs, OFS has received common
stock warrants, additional preferred stock
(referred to as warrant preferred stock) or
additional notes as additional consideration. 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.

NOTES TO THE FINANCIAL STATEMENTS

Use of Estimates
OFS has made certain estimates and assumptions
relating to the reporting of assets, liabilities,
revenues, and cost to prepare these financial
statements. Actual results could significantly
differ from these estimates. Major financial
statement lines that include estimates are Equity
Investments, Net, and the Liabilities for Treasury
Housing Programs under TARP on the Balance
Sheet, and related Program Subsidy Cost
(Income) on the Statement of Net Cost (see Note
6).
The most significant differences between actual
results and estimates may occur in the valuation
of OFS’s 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 OFS has an
equity interest, estimates of expected default, and
prepayment rates. Forecasts of future financial
results have inherent uncertainty, and Equity
Investments, Net, as of fiscal year-ends include
relatively illiquid assets with values that are
sensitive to future economic conditions and other
assumptions. Estimates are also prepared for the
FHA Refinance Program to determine the liability
for losses.

Credit Reform Accounting
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 respectively, 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. OFS maintains budgetary program
accounts which receive appropriations and

33

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

obligate funds to cover the subsidy cost of equity
investment and FHA Refinance programs, and
disburse the subsidy cost to OFS’s financing
accounts. The financing accounts are nonbudgetary accounts that are used to record all of
the cash flows resulting from the OFS equity
investment and FHA Refinance programs. Cash
flows include disbursements, borrower
repayments, repurchases, fees, recoveries,
interest, dividends, proceeds from the sale of stock
and warrants, borrowings from and repayments to
Treasury, negative subsidy and the subsidy cost
received from the program accounts, as well as
subsidy reestimates and modifications.
Financing arrangements specifically for the TARP
activities are provided for in EESA as follows: (1)
borrowing for program funds under Section 118,
reported as “appropriations” in these financial
statements and (2) borrowing by financing
accounts for amounts not covered by subsidy cost,
under the FCRA and Section 123. OFS uses
budgetary general fund receipt accounts to record
the receipt of amounts paid from the financing
accounts when there is a negative subsidy or
negative modification (a reduction in subsidy cost
due to changes in program policy or terms that
change estimated future cash flows) from the
original estimate or a downward reestimate. Any
assets in these accounts are non-entity assets, not
available to 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 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. 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

34

used to estimate and report the Program Subsidy
Cost (Income) in the Statement of Net Cost. A
detailed discussion of OFS’s subsidy calculation
and reestimate assumptions, process, and results
is provided in Note 6.

Fund Balance with Treasury
The Fund Balance with Treasury (FBWT)
includes funds available to pay current liabilities
and finance authorized purchases. Cash receipts
and disbursements are processed by the Treasury,
and 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. Obligated balances not
yet disbursed include undelivered orders and
unpaid expended authority. Non-Budgetary
FBWT represents 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

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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,
OFS reports no capitalized property, equipment or
software on its Balance Sheet as of September 30,
2019 and 2018.

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, 2019 and
2018. See Notes 6 and 7.

NOTES TO THE FINANCIAL STATEMENTS

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 Hardest Hit Fund and the FHA
Refinance Program. 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 Hardest Hit Fund are accounted for
in accordance with SFFAS No. 5, Accounting for
Liabilities of the Federal Government. In
accordance with this standard, a liability is
recognized for any unpaid amounts due and
payable as of the reporting date. The liability
estimate, as of September 30, 2019 and 2018, 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, 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.

35

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Unexpended Appropriations
Unexpended Appropriations represents OFS’s
undelivered orders and unobligated balances
reduced by cancelled authority in budgetary
appropriated funds as of September 30, 2019 and
2018.

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 OFS’s operations not funded by
appropriations or some other source, such as
borrowing authority, from inception through fiscal
year-end. Cumulative Results of Operations in
2019 and 2018 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.
Each program’s reestimates, upward and
downward, are recorded separately, not netted
together.

Leave
A liability for 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.

36

Employee Health and Life Insurance
and Workers’ Compensation Benefits
OFS employees may choose to participate in the
contributory Federal Employees Health Benefit
and the Federal Employees Group Life Insurance
Programs. 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
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
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. 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

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

account is automatically established and 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.

NOTE 3. FUND BALANCE WITH TREASURY
Fund Balance with Treasury (FBWT), by status, as of September 30, 2019 and 2018, is presented in the
following table.

As of September 30,
(Dollars in Millions)

2019

St at us o f Fund Balance wit h Treasury
Unobligated Balance
Available
Unavailable
Obligated Balance Not Yet Disbursed
Nonentity Funds and Anticipated Spending

$

2018

5 $
169
3,054

6
141
4,822

-

1

Non-Budgetary FBWT
To t al

$

12,509
15,737 $

-

12,205
17,174

1

Non-Budgetary FBWT represents Housing Program amounts no longer available for obligation, since the
purpose for which the appropriation was enacted has been fulfilled.

NOTE 4. CASH ON DEPOSIT FOR HOUSING PROGRAM
As of September 30, 2019 and 2018, OFS had $10
million, on deposit with a commercial bank to
facilitate its payments of claims under the FHA
Refinance Program as OFS’s agent.

NOTES TO THE FINANCIAL STATEMENTS

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

37

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

NOTE 5. TREASURY HOUSING PROGRAMS UNDER TARP
Fiscal years 2019 and 2018 marked a transition
point for housing programs under TARP as the
largest program, Making Home Affordable (MHA),
closed to new applicants on December 30, 2016 and
final assistance actions were required to be offered
on or before December 1, 2017. These programs
were designed to prevent avoidable foreclosure and
provide stability for the housing market, and
primarily provide assistance to homeowners who are
Housing Program

experiencing financial hardships. 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
Home Affordable Modification Program (HAMP)

First Lien Modification Program (Tier 1, Tier 2, and
Streamline)

Provides for upfront, monthly and annual incentives to servicers, borrowers and
investors who participate, whereby the investor and the 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.
Designed to assist eligible borrowers unable to retain their homes through a
HAMP modification, by simplifying and streamlining the short sale and deed-inlieu 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.

Home Affordable Foreclosure Alternatives (HAFA)

Unemployment Forebearance Program (UP)

Offers assistance to unemployed homeowners through temporary forebearance of
a portion of their mortgage payments. This program does not require any
payments from the OFS.

Treasury FHA-HAMP

Provides mortgage modifications similar to HAMP, but for FHA-insured or
guaranteed loans offered by the FHA.

Second Lien Modification Program (2MP)

Offers financial incentives to participating servicers who modify second liens in
conjunction with a HAMP modification.

Rural Development HAMP (RD-HAMP)

Provides for lower monthly payments on USDA guaranteed loans.

HHF

Provides locally tailored assistance to states hardest hit by the housing market
downturn, to assist struggling homeowners and help stabilize housing markets.

FHA Refinance Program

Joint initiative with HUD to encourage refinancing of existing underwater
mortgage loans not currently insured by FHA into FHA insured mortgages.

38

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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. MHA also includes programs to help
homeowners with loans insured or guaranteed by
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
financial agent on behalf of OFS. Freddie Mac
provides compliance oversight of servicers as
financial agent on behalf of 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.
The MHA program terminated on December 31,
2016, except with respect to certain loan
modification applications made before such date,
per December 2015, Section 709(b) of the
Consolidated Appropriations Act, 2016 (the Act).

NOTES TO THE FINANCIAL STATEMENTS

In FY 2019, Treasury de-obligated an additional
$304 million from MHA, lowering Treasury’s
obligation to $23.5 billion.

Hardest Hit Fund
The HHF was implemented in fiscal year 2010,
and provides locally tailored assistance to states
hit hardest by the housing market downturn, to
assist struggling homeowners and help stabilize
housing markets 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 OFS. 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 OFS’s portion of any
claims associated with the FHA-guaranteed
mortgages. 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 were
able to refinance into FHA guaranteed mortgages
through December 31, 2016 and OFS will honor
its share of claims against the letter of credit
through December 31, 2022. Cumulatively, as of
September 30, 2019 and September 30, 2018,
4,200 loans that required potential Treasury
contribution, with a total value of $620 million,
had been refinanced through the program for both

39

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

years, of which 1,474 and 1,609, respectively,
could still require a Treasury contribution.

$71,658 was disbursed during fiscal year 2019.
See Notes 4 and 6 for further details about the
deposit and the program. OFS paid $0.2 million
in fiscal year 2019 and $0.3 million in fiscal year
2018 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.

The table below recaps housing program
commitments as of September 30, 2019, and
payments and accruals as of September 30, 2019
and 2018.

Cumulatively, $361,159 in claim payments have
been made as of September 30, 2019, of which

Treasury Housing Programs Under TARP
Total Commitments as of Fiscal Year Payments through September 30,
(Dollars in Millions)

September 30, 2019

MHA

2019

Accruals as of September 30,

2018

$

1,118

9,600

$

334

625

-

-

2

45

-

-

-

-

$

33,117

$

1,452

$

1,600

2,225

$

2018

23,472

Totals

$

2019

HFA Hardest Hit Fund
FHA Short Refinance

$

1

$

74

74

$

$

119

119

1

Total commitments represent amounts obligated to support all of OFS's Housing programs. As of September 30, 2019, $2,956 million
remains available to be spent. FHA- Refinance commitments include a maximum of $18 million of administrative fees that can be charged
over the life of the program for 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.

40

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

NOTE 6. EQUITY INVESTMENTS, NET AND FHA REFINANCE PROGRAM
OFS administers programs designed to help
stabilize the financial system and restore the flow of
credit to consumers and businesses. OFS made
direct loans and equity investments under TARP.
OFS also entered into other credit programs, which

Program
Direct Loans and Equity Investments
Capital Purchase Program
Community Development Capital Initiative
Automotive Industry Financing Program
Other Credit Program
FHA Refinance Program

Equity Investment Programs
Capital Purchase Program
In October 2008, 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.
OFS invested a total of $204.9 billion in 707
institutions under the CPP program between
October 2008 and December 2009.
Under this program, 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, 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
instead of preferred stock (to comply with tax code

NOTES TO THE FINANCIAL STATEMENTS

currently consist of a loss-sharing program under TARP.
The table below recaps OFS’s remaining programs by
title and type:

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

regulations) with interest rates of 7.7 percent for the
first five years and 13.8 percent thereafter.
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 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, OFS entered
into other transactions with various financial
institutions including exchanging existing preferred
shares for a like amount of non-tax-deductible 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
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.

41

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

During fiscal years 2019 and 2018 there were no
institutions closed by their regulators or declaring
bankruptcy.

There were no CPP institutions written off during
fiscal year 2019 and one during fiscal year 2018.
The following tables provide key data points related
to the CPP for the fiscal years ending September 30,
2019 and 2018.

CPP Part icipat ing Inst it ut io ns

Number of Institutions Funded

707

707

Institutions Paid in Full, Merged or Investments Sold

(506)

(505)

Institutions Transferred to CDCI

(28)

(28)

Institutions Refinanced to SBLF

(137)

(137)

(34)

(34)

Number of Institutions w ith Outstanding OFS Investments

2

3

Institutions in Bankruptcy or Receivership (not w ritten off)

-

-

Number of CPP Institutions Valued at Year-End

2

3

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

1

1

Institutions Written Off After Bankruptcy or Receivership

CPP Invest ment s
(Dollars in Millions)

Outstanding Beginning Balance, Investment in CPP Institutions, Gross

$

Repayments and Sales of Investments

(5)

Write-Offs

(17)

(1)

Outstanding Balance, Investment in CPP Institutions, Gross

$

Interest and Dividend Collections
Net Proceeds from Sales and Repurchases of Assets in Excess of (Less than) Cost

17

48
(4)

-

Losses from Sales and Repurchases of Assets

42

23 $

(4)
$

23

$

- $

2

$

(1) $

9

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

Community Development Capital Initiative
In February 2010, OFS announced the CDCI to
invest lower cost capital in Community Development
Financial Institutions (CDFIs). Under the terms of
the program, 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 risk-weighted
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. As of September 30, 2019 there were 5
institutions with outstanding OFS investments. As
of September 30, 2018 there were 12 institutions
with outstanding OFS investments.
During fiscal years 2019 and 2018, there were no
CDCI institutions written off.
In fiscal year 2019, OFS received $20 million in
repayments and $1 million in dividends and interest
from its CDCI investments with, as of September 30,
2019, an outstanding balance of $23 million and
value of $11 million.
In fiscal year 2018, OFS received $32 million in
repayments and $1 million in dividends and interest
from its CDCI investments with, as of September 30,
2018, an outstanding balance of $43 million and
value of $33 million.

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

NOTES TO THE FINANCIAL STATEMENTS

working capital purposes, auto supplier and
warranty programs, and the final loan for debtor in
possession (DIP) financing while Old GM was in
bankruptcy. Since 2014, OFS retained no ownership
of 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 year 2018, OFS recovered
$13 million 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 percent and the
unsecured creditors receiving 70 percent. As a
condition of the settlement, OFS provided an
advance of $13 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. During fiscal
year 2019 OFS received $73 million in AAT
distributions from the settlement.

Valuation Methodology
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 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

43

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

other losses, and other factors as appropriate. The
models also incorporate an adjustment for market
risk to reflect the additional return required by the
market to compensate for variability around the
expected losses reflected in the cash flows (the
“unexpected loss”).
The adjustment for market risk requires the OFS to
determine the return that would be required by
market participants to enter into similar
transactions or to purchase the assets held by OFS.
Accordingly, the measurement of the assets
attempts to represent the proceeds expected to be
received if the assets were sold to a market
participant in an orderly transaction. The
methodology employed for determining market risk
for equity investments generally involves using
market prices of similar securities to estimate an
appropriate market-adjusted discount rate that
results in measuring equity investments at fair
value. The adjustment for market risk for loans is
intended to capture the risk of unexpected losses,
but not intended to represent fair value, i.e., the
proceeds that would be expected to be received if the
loans were sold to a market participant. OFS uses
market observable inputs, when available, in
developing cash flows and incorporating the
adjustment required for market risk. For purposes

44

of this disclosure, 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.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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

As of September 30, 2019

(Dollars in Millions)

Quoted
Prices for
Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Pro gram
CPP

$

2

CDCI
To t al TARP Pro grams

$

7
$

9

- $

12

4

$

10 $

- $

11

14 $

23

1

For CPP, Level 1 includes Harbor Bankshares Corporation, valued at $6.6M (Original disbursement of $6.8M, restructured into
4,287,024 common shares (or 65.8% of Shares Outstanding)). For CDCI, Level 1 includes Carver Bancorp, Inc, valued at $10M (Original
disbursement of $19M, restructured into 2,321,286 common shares (or 62.8% of Shares Outstanding)). While Treasury holds majority
ownership in both entities, the holdings do not meet the criteria for consolidation into these financial statements.
As of September 30, 2018

(Dollars in Millions)

Quoted
Prices for
Identical
Assets
(Level 1)1

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Pro gram
CPP

$

CDCI
To t al TARP Pro grams

11

$

10
$

21

$

- $

10 $

21

-

23

33

- $

33 $

54

1

For CPP, Level 1 includes Harbor Bankshares Corporation, valued at $6.6M (Original disbursement of $6.8M, restructured into
5,491,843 common shares (or 84.3% of Shares Outstanding)). For CDCI, Level 1 includes Carver Bancorp, Inc, valued at $10M (Original
disbursement of $19M, restructured into 2,321,286 common shares (or 62.8% of Shares Outstanding)). While Treasury holds majority
ownership in both entities, the holdings do not meet the criteria for consolidation into these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

45

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
OFS assets.

Financial Institution Equity
Investments6
The estimated values of preferred equity
investments are the net present values of the
expected dividend payments and proceeds from
repurchases and sales.
In fiscal year 2018, OFS implemented a new
estimation methodology in its model for its
remaining equity investments to better capture the
expected performance of remaining securities. The
model estimates the probability of default, preferred
share calls and preferred dividends based on the
institution’s historical dividend payment
performance and on the historical behavior of the
equity investments for similar TARP and non-TARP
Treasury programs. Inputs to the model include
institution-specific dividend payments, preferred
share calls, failures for TARP and non-TARP
Treasury programs, as well as a financial market
stress index published by the Federal Reserve Bank
of St. Louis. The market risk adjustment is
estimated by applying credit spreads from similar
securities.
For both of its fiscal year 2019 and 2018 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.

6

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. OFS’s actions, as well as changes in
legislation may change estimated future cash flows
resulting in changes to subsidy cost. These changes
in subsidy cost are recorded as modifications. The
cost or reduction in cost of a modification is
recognized when it occurs.
During fiscal year 2019 and 2018, there were no
modifications to any of the remaining programs.
The purpose of reestimates is to update original
program subsidy cost estimates to reflect actual cash
flow experience as well as changes in equity
investment valuations or forecasts of future cash
flows. Forecasts of future cash flows are updated
based on actual program performance to date,
additional information about the portfolio,
additional publicly available relevant historical
market data on securities performance, revised
expectations for future economic conditions, and
enhancements to cash flow projection methods.
For fiscal years 2019 and 2018, financial statement
reestimates for all programs, except the FHA
Refinance program, were performed using actual
financial transaction data through September 30.
For fiscal years 2019 and 2018 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, 2019 and 2018, totaled $67 million
and $26 million, respectively. Descriptions of the
reestimates, by OFS’s Program, are as follows:

This consists of equity investments made under CPP and CDCI.

46

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

Capital Purchase Program

Public-Private Investment Program (PPIP)

The $4 million upward reestimate for CPP for fiscal
year ended September 30, 2019 was the result of
sales and reduced market values.

For fiscal year ended September 30, 2018 there was
a $0.5 million downward reestimate due to a
recovery collection. The PPIP program was closed in
2016.

The $4 million downward reestimate for CPP for the
fiscal year ended September 30, 2018 was the result
of repayments and improved market values.

Summary Table

Community Development Capital Initiative
The $2 million upward reestimate for CDCI for fiscal
year ended September 30, 2019 was the result of
sales and reduced market values.
The $7 million downward reestimate for CDCI for
fiscal year ended September 30, 2018 was the result
of repayments and improved market values.

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, 2019 and 2018. OFS’s
authority expired October 3, 2010 and no
commitments were made thereafter, so there were
no investment program budget execution subsidy
rates for fiscal years 2019 and 2018.

Automotive Industry Financing Program
For fiscal year ended September 30, 2019 a $73
million downward reestimate was due to collections
related to the AAT distributions.
For fiscal year ended September 30, 2018 a $13
million downward reestimate was due to collections
related to the Old GM.

NOTES TO THE FINANCIAL STATEMENTS

47

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Troubled Asset Relief Program Equit y Invest ment s
(Dollars in Millions)

TOTAL

CPP

PPIP

AIFP

CDCI

As o f S ept ember 30, 2019
Equit y Invest ment Pro grams:
Equity Investments Outstanding, Gross
Subsidy Cost Allow ance
Equity Investments Outstanding, Net
Obligations for Investments not yet Disbursed
Reco nciliat io n o f S ubsidy Co st Allo wance:
Balance, Beginning of Period
Interest and Dividend Revenue
Net Proceeds from Sales and Repurchases of Assets
in Excess of (Less than) Cost
Net Interest Expense on Borrow ings from Fiscal Service
and Financing Account Balance
Balance, End of Period, Before Reestimates
Subsidy Reestimates Upw ard (Dow nw ard), Net
Balance, End of Period
Reco nciliat io n o f S ubsidy Co st (Inco me):
Subsidy Cost (Income) for Disbursements
Subsidy Reestimates Upw ard (Dow nw ard), Net
Total Equity Investment Programs
Subsidy Cost (Income)

$
$

40 $
(17)
23 $

17 $
(5)
12 $

-

$

$

$

-

$

-

$

-

$

-

$

$

12
1

$

2
-

$

-

$

-

$

-

$
-

10
1
-

-

$

72

(1)

-

73

(1)
84
(67)
17 $

1
4
5

-

73
(73)
- $

$

(67)

4

$

(67) $

4

$

(Dollars in Millions)

TOTAL

$

$

$

CPP

-

$

PPIP

23
(12)
11

(1)
10
2
12

(73)

2

(73) $

2

AIFP

CDCI

As o f S ept ember 30, 2018
Equit y Invest ment Pro grams:
Equity Investments Outstanding, Gross
Subsidy Cost Allow ance
Equity Investments Outstanding, Net
Obligations for Investments not yet Disbursed
Reco nciliat io n o f S ubsidy Co st Allo wance:
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 Borrow ings from Fiscal Service
and Financing Account Balance
Balance, End of Period, Before Reestimates
Subsidy Reestimates Upw ard (Dow nw ard), Net
Balance, End of Period
Reco nciliat io n o f S ubsidy Co st (Inco me):
Subsidy Cost (Income) for Disbursements
Subsidy Reestimates Upw ard (Dow nw ard), Net
Total Equity Investment Programs
Subsidy Cost (Income)

48

$
$

66 $
(12)
54 $

$

-

$

-

$

-

$

-

$

-

$

30
3

$

13
2

$

-

$

-

$

17
1

23
(17)

23 $
(2)
21 $

9
(17)

-

$

$

$

-

1
-

13
-

$

43
(10)
33

-

(2)
37
(25)
12 $

(1)
6
(4)
2 $

1
(1)
- $

13
(13)
- $

$

(25)

(4)

(1)

(13)

(7)

$

(25) $

(4) $

(1) $

(13) $

(7)

$

NOTES TO THE FINANCIAL STATEMENTS

(1)
17
(7)
10

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

FHA Refinance Program
As discussed in Note 5, 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. Homeowners were able to refinance into FHA
guaranteed mortgages through December 31, 2016,
therefore, no new loans were guaranteed during
fiscal years 2019 and 2018.
Cumulatively, as of September 30, 2019 and 2018,
4,200 loans that required potential Treasury
contribution, with a total value of $620 million, had
been refinanced through the program for both years,
of which 1,474 and 1,609 loans, respectively, could
still require a Treasury contribution.
OFS’s maximum exposure for all active loans for
FHA’s guarantee totaled $17.9 million and $20
million at September 30, 2019 and 2018,
respectively. OFS’s guarantee resulted in a liability

of $1 million at September 30, 2019 and September
30, 2018. The liability was calculated, using credit
reform accounting, as the present value of the
estimated future cash outflows for OFS’s share of
losses incurred on any defaults of the FHA
guaranteed loans. Cumulatively, as of September
30, 2019 and 2018, $361,159 and $289,501 of claims
had been paid by OFS under the program,
respectively.
At September 30, 2019 and 2018, OFS’s remaining
obligation under the FHA program was $24 million.
Budget subsidy rates for the program, entirely for
defaults, were set at 0.8 percent for loans
guaranteed in fiscal year 2017 (loans endorsed by
FHA from October 1, 2016 to December 31, 2016).
The program recorded $1million downward
reestimate for fiscal year 2018.
The following table details the changes in the FHA
Refinance Program liability and the subsidy cost for
the program during fiscal years 2019 and 2018.

FHA-Refinance Pro gram Liabilit y

Fiscal Year
2019

(Dollars in Millions)

Balance, Beginning of Period

$

Balance, End of Period, Before Reestimates
Subsidy Reestimates - Upw ard (Dow nw ard), Net
Balance, End of Period

$

Reco nciliat io n o f Subsidy Co st (Inco me)
Subsidy Reestimates - Upw ard (Dow nw ard), Net
To t al Subsidy Co st (Inco me)

$
$

NOTES TO THE FINANCIAL STATEMENTS

2018
1 $

2

1

2

-

(1)

1

$

- $
- $

1

(1)
(1)

49

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

NOTE 7. DUE TO THE GENERAL FUND
As of September 30, 2019, OFS accrued $75 million
of downward reestimates payable to the General
Fund. As of September 30, 2018, OFS accrued $28

million of downward reestimates payable to the
General Fund. Due to the General Fund is a nonentity liability on the Balance Sheet.

NOTE 8. PRINCIPAL PAYABLE TO THE BUREAU OF THE FISCAL SERVICE (Fiscal
Service)
The equity investment and the FHA Refinance
Programs, accounted for under federal credit reform,
are funded by subsidy appropriations and
borrowings from the Fiscal Service. 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.
OFS makes periodic principal repayments to the

Fiscal Service based on the analysis of its cash
balances and future disbursement needs. All debt is
intragovernmental and covered by budgetary
resources. See additional details on borrowing
authority in Note 11, Statement of Budgetary
Resources.
Debt transactions for the fiscal years ended
September 30, 2019 and 2018 were as follows:

As of September 30,
(Dollars in Millions)

2019

Beginning Balance, Principal Payable t o t he Fiscal Service
New Borrow ings
Repayments
Ending Balance, Principal Payable t o t he Fiscal Service

$

2018
60 $
3
(28)
35 $

$

119
(59)
60

Borrowings from the Fiscal Service by the OFS, outstanding as of September 30, 2019 and 2018 were as
follows:
As of September 30,
(Dollars in Millions)

CPP
CDCI
To t al Bo rro wings Out st anding

As of September 30, 2019, borrowings carried
remaining terms ranging from 19 to 22 years, with
interest rates from 2.96 percent to 3.80 percent. As

50

2019
$
$
$

2018
19 $
16
35 $

18
42
60

of September 30, 2018, borrowings carried
remaining terms ranging from 20 to 23 years, with
interest rates from 2.96 percent to 3.80 percent.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

NOTE 9. COMMITMENTS AND CONTINGENCIES
OFS is party to various legal actions and claims
brought by or against it. In the opinion of
management and the Office of General Counsel, the
ultimate resolution of these legal actions and claims
will not have a materially adverse effect on OFS’s
financial statements. Contingent liabilities related
to litigation are recorded in the financial statements
if and when losses are determined to be probable
and measurable. Contingent liabilities are disclosed
where the conditions for liability recognition have
not been met and the likelihood of unfavorable

NOTES TO THE FINANCIAL STATEMENTS

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.
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.

51

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

NOTE 10. STATEMENT OF NET COST
The Statement of Net Cost (SNC) presents the net
cost of operations for OFS under the strategic goal to
transform government-wide financial stewardship.
OFS has determined that all initiatives and
programs under the TARP fall within this strategic
goal.

income on financing account balances. OFS’s SNC
for fiscal year 2018 includes $3 million of
intragovernmental costs relating to interest expense
on borrowings from the Fiscal Service and $1 million
in intragovernmental revenues relating to interest
income on financing account balances.

OFS’s 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.

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. OFS’s SNC includes $1
million of subsidy allowance amortization for fiscal
year 2018.

OFS’s SNC for fiscal year 2019 includes $2 million of
intragovernmental costs relating to interest expense
on borrowings from the Fiscal Service and $1 million
intragovernmental revenues relating to interest

NOTE 11. STATEMENT OF BUDGETARY RESOURCES
The Statement of Budgetary Resources (SBR)
presents information about total budgetary
resources available to OFS and the status of those
resources. For the fiscal year ended September 30,
2019, OFS’s total resources in budgetary accounts
were $153 million and resources in non-budgetary
financing accounts, including spending authority
from collections of equity investment liquidations,
dividends, interest and fees, were $109 million. For
the fiscal year ended September 30, 2018, OFS’s
total resources in budgetary accounts were $188
million and resources in non-budgetary financing
accounts were $52 million.

Permanent Indefinite Appropriations
OFS receives permanent indefinite appropriations
annually, if necessary, to fund increases in the
projected subsidy costs of equity investments and

52

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
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
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. As of September 30, 2019 OFS had
no borrowing authority available of the $3 million

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

authorized. As of September 30, 2018 OFS had no
borrowing authority available or authorized.
OFS uses dividends and interest received as well as
recoveries on direct loans and liquidation of equity
investments to repay debt in the non-budgetary
direct loan and equity investment program financing
accounts. These receipts are not available for any
other use per credit reform accounting guidance.

funds remained in non-budgetary financing
accounts.

Explanation of Differences Between the
Statement of Budgetary Resources and
the Budget of the United States
Government

Apportionment Categories of Obligations
Incurred: Direct versus Reimbursable
Obligations

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).

All of OFS’s 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. OFS
obligations incurred are direct obligations
(obligations not financed from intragovernmental
reimbursable agreements).

The President’s Budget for 2021, with the “Actual”
column completed for fiscal year 2019, 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 March 2020. It will be available at
https://www.whitehouse.gov/omb/budget/

Undelivered Orders
Undelivered orders as of September 30, 2019 were
$3 billion in budgetary accounts, all Non-Federal
and no funds remained in non-budgetary financing
accounts. Undelivered orders as of September 30,
2018 were $4.7 billion in budgetary accounts and no

NOTES TO THE FINANCIAL STATEMENTS

The 2020 President’s Budget, with the “Actual”
column completed for the fiscal year ended
September 30, 2018, was published in March 2019,
and reconciled to the SBR. The only differences
between the two documents were due to:
 Rounding; and
 Expired funds that are not shown in the
“Actual” column of the President’s Budget.

53

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

NOTE 12. RECONCILIATION OF NET COST OF OPERATIONS TO OUTLAYS, NET
The Reconciliation of Net Cost of Operations to
Outlays, Net explains the difference between
proprietary financial accounting information and
budgetary accounting information. Financial
accounting is intended to provide a picture of the
government’s financial operations and financial
position and is presented on an accrual basis. The
accrual basis includes information about costs
arising from the consumption of assets and the
incurrence of liabilities. Budgetary accounting is
used for planning and control purposes and relates
to both the receipt and use of cash, as well as

reporting the federal deficit. The reconciliation of
net cost, presented on an accrual basis, and the net
outlays, presented on a budgetary basis, provides an
explanation of the relationship between financial
accounting and budgetary information. The
reconciliation serves not only to identify costs paid
for in the past and those that will be paid in the
future, but also to assure integrity between financial
and budgetary financial accounting. For the fiscal
year ended September 30, 2019 the Reconciliation of
Net Cost of Operations to Outlays, Net consisted of
the following:

Dollars in Millions
Int ragovernment al
Net Cost of Operat ions

$

13

Wit h t he
Public
$

Tot al Fisc al
Y ear 2019

1,378

$

1,391

Component s of Net Cost That Are Not Part of Net Out lays:
Year-end c redit reform subsidy re-estimates
Other1

68

-

68

7

-

7

-

(31)

(31)

-

4

4

(47)

-

(47)

-

45

45

28

18

46

Inc rease / (Dec rease) in Asset s:
Equity Inv estments
(Inc rease) / Dec rease in Liabilit ies:
Ac c ounts Pay able and Other Liabilities
Due to the General Fund
Making Home Affordable Program
Tot al Component s of Net Cost That Are Not Part of Net Out lays:
Component s of Net Out lays That Are Not Part of Net Cost :
Effec t of prior y ear agenc ies c redit reform subsidy re-estimates
Distributed Offsetting Rec eipts
Tot al Component s of Net Out lays That Are Not Part of Net Cost
Out lays, Net
1

54

$

(1)

-

(1)

(27)

-

(27)

(28)

-

(28)

13

$

1,396

$

1,409

Other includes the cost of the CPP and CDCI programs.

NOTES TO THE FINANCIAL STATEMENTS

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

REQUIRED SUPPLEMENTARY INFORMATION

REQUIRED SUPPLEMENTARY INFORMATION
COMBINED STATEMENT OF BUDGETARY RESOURCES

Dollars in Millions
BUDGETARY RESOURCES
Unobligated Balanc e Brought Forward, Oc tober 1

$

Rec ov eries of Prior-Year Unpaid Obligations
Ac tual Repay ments of Debt, Prior-Year Balanc es
Canc elled Authority
Other Changes in Unobligated Balanc es

113

$

34

$

- $

34

$

113

320

-

304

-

-

(15)

-

(15)

-

(39)

-

-

-

(39)

(304)

Unobligated Balanc e from Prior-Year Budget Authority , Net

90

Appropriations

16

-

(304)

-

-

19

-

19

90

63

-

1

-

62

Borrowing Authority

-

3

-

3

-

Spending Authority from Offsetting Collec tions

-

87

-

87

TOTAL BUDGETARY RESOURCES (Not e 11)

-

$

153

$

109

$

1

$

109

$

152

$

59

$

29

$

1

$

29

$

58

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

$

4

1

-

1

-

79

-

79

-

4

80

-

80

4

90

-

-

-

90

94

80

-

80

153

$

109

$

1

$

109

4

94
$

152

OUTLAY S, NET
Outlay s, Net (Total)

1,507

Distributed Offsetting Rec eipts
AGENCY OUTLAY S, NET

REQUIRED SUPPLEMENTARY INFORMATION

(71)

(27)
$

1, 480

$

(71) $

1,453

(71)

(27)
1, 426

54

$

(71) $

54

55

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

REQUIRED SUPPLEMENTARY INFORMATION
COMBINED STATEMENT OF BUDGETARY RESOURCES

Dollars in Millions
BUDGETARY RESOURCES
Unobligated Balanc e Brought Forward, Oc tober 1

$

Rec ov eries of Prior-Year Unpaid Obligations
Ac tual Repay ments of Debt, Prior-Year Balanc es
Canc elled Authority
Other Changes in Unobligated Balanc es

181

$

Appropriations

$

42

$

44

$

139

-

4,004

-

-

(32)

-

(32)

-

(48)

-

-

-

(48)

(4,046)

Unobligated Balanc e from Prior-Year Budget Authority , Net

44

4,022

18

-

(4,046)

-

-

109

12

-

12

109

79

-

-

-

79

Borrowing Authority

-

-

-

-

-

Spending Authority from Offsetting Collec tions

-

40

-

40

TOTAL BUDGETARY RESOURCES (Not e 11)

$

188

$

52

$

75

$

18

$

-

-

$

52

$

188

- $

18

$

75

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

$

4

2

-

2

-

32

-

32

-

4

34

-

34

4

109

-

-

-

109

113

34

-

34

188

$

52

$

-

$

52

4

113
$

188

OUTLAY S, NET
Outlay s, Net (Total)

2,290

Distributed Offsetting Rec eipts
AGENCY OUTLAY S, NET

56

(50)

(15)
$

2, 275

$

(50) $

2,226

(50)

(15)
2, 211

64

$

(50)

$

64

REQUIRED SUPPLEMENTARY INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

OTHER INFORMATION

57

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

58

REQUIRED SUPPLEMENTARY INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

Section A – Payment Integrity
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, the Improper Payments
Elimination and Recovery Act of 2010 (IPERA,
Pub. L. 111-204) was signed into law. IPERA
amends IPIA, generally repealed the Recovery
Auditing Act (31 USC §§3561-3567), and
significantly increased agency payment
recapture efforts by expanding the types of
payments to be reviewed and lowering the
dollar threshold of annual payments that
require 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
improper payments, and thereby better
safeguard taxpayer dollars.
OTHER INFORMATION

OFS carried out its fiscal year 2019 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 2019, OFS
reviewed administrative and program
payments totaling approximately $1.5 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 Treasury Fiscal Service –
Administrative Resource Center and Internal
Revenue Service – Office of Treasury
Procurement Services (OTPS) to support
payment recapture reporting. Fiscal Service
processes OFS’s contract and administrative
payments, including payments to OFS’s
financial agents. OTPS solicits, negotiates,
and awards contracts on behalf of OFS. Both
organizations have extensive payment
59

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

recapture audit and improper payments
reporting capabilities.
OFS 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
sample-based post-award loan level reviews of
MHA incentive payments to ensure validity in
accordance with the MHA Program Handbook
for Servicers of Non-GSE Mortgages and
Supplemental Directives issued by Treasury.
In conjunction with participating states’
HFAs, OFS also performs targeted payment
recapture audit activities to detect and
prevent erroneous payments under the HHF
program.
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 AFR. In

60

summary, OFS has a strong enterprise risk
management and internal control
environment in place to prevent, detect, and
correct improper payments associated with its
administrative and program payments.

IPERIA Do Not Pay Initiative
The Improper Payments Elimination and
Recovery Improvement Act of 2012 (IPERIA,
Pub. L. 112-248) was signed into law 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.
Fiscal Service 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. OFS implemented the “Do Not Pay”
solution in fiscal year 2013 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 Fiscal Service “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 AFR.

OTHER INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

Section B – Fraud Reduction and Data Analytics Act
Overview of the Act

Reporting

Under the Fraud Reduction and Data
Analytics Act of 2015 (FRDAA, P.L. 114-186,
31 USC 3321), each entity must disclose in its
AFR information pertaining to its fraud
reduction efforts undertaken during the fiscal
year.

OFS has no confirmed fraud within its
programs and activities.

These disclosures should include information
on the entity’s progress in implementing:


financial and administrative controls
pursuant to FRDAA;



the fraud risk principle in the
Standards for Internal Control in the
Federal Government; and



OMB Circular A-123 with respect to
leading practices for managing fraud
risk.

These disclosures should also include
information on the entity’s progress in:


identifying risks and vulnerabilities to
fraud (e.g., payroll, beneficiary
payments, grants, large contracts,
purchase and travel cards); and



establishing strategies, procedures,
and other steps to curb fraud.

OTHER INFORMATION

OFS is subject to rigorous oversight. OFS’s
Senior Assessment Team (SAT) routinely
discusses risks, including those related to
fraud, during its meetings. OFS’s operational
and accounting process are well-documented
and relatively mature, most having been
established over nine years ago. These
processes consider fraud risk principles
outlined within the Standards for Internal
Control in the Federal Government. The
remaining TARP investments are steadily
being liquidated through planned, wellcoordinated transactional events. There are
established practices for initiating, approving,
processing and recording payments to third
parties, including those related to the TARP
programs and for the TARP administration.
During wind-down, OFS remains vigilant in
ensuring its controls are adequate to prevent
or detect fraud.
OFS disclosures required under FRDAA are
included within the U.S. Department of the
Treasury Agency Financial Report.

61

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Section C – Reduce the Footprint
Overview of the Memorandum

Reporting

Consistent with Section 3 of the OMB
Memorandum M-12-12, Promoting Efficient
Spending to Support Agency Operations, and
OMB Management Procedures Memorandum
2015-01, the “Reduce the Footprint”
implementation policy, all CFO Act entities
must set annual targets to reduce the total
square footage of their domestic inventory of
office and warehouse space compared to the
Fiscal Year 2015 baseline.

OFS disclosures required under the
Memorandum are included within the U.S.
Department of the Treasury AFR.

62

OTHER INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

Additional TARP Historical Information
Bank Support Programs
CPP
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. OFS continues to winddown the remaining CPP investments through
repayments by those institutions that are able to
repay, restructurings and sales of common stock,
where OFS’s investment shares were converted
to common stock holdings.
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 were to repay
the funds they received, with the approval of
their regulators.

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. OFS completed the wind-down of the TIP
in December 2009 when both BofA and
Citigroup repaid their TIP investments in full.
OFS received net proceeds of $4.4 billion in
excess of disbursements.

Asset Guarantee Program
Under the Asset Guarantee Program (AGP),
TARP commitments were used to support two
institutions – BofA and Citigroup. 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

OTHER INFORMATION

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.

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 SCAP closed
on November 9, 2009, without making any
investments.

CDCI
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. 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 increased to nine
percent after eight years.
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

63

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Credit Market Programs
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). OFS 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.

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.
As of September 30, 2015, all TALF loans
provided by Federal Reserve Bank of New York
(FRBNY) had been repaid in full and the
program 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.
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
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).
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

64

bankruptcy (Old GM), entered into a settlement
with the Unsecured Creditors Committee of
General Motors Corporation to split any
proceeds of the AAT litigation, with OFS and
EDC receiving 30 percent and the unsecured
creditors receiving 70 percent. 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.

OTHER INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

Recoveries from the bankruptcy liquidation of
Old GM remains 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, AIG facing potentially fatal liquidity
problems and with the crisis threatening to
intensify and spread more broadly throughout
the economy, Treasury and FRBNY 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 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 cancelled. 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
MHA
In early 2009, OFS launched MHA to help
struggling homeowners avoid foreclosure and
stabilize the housing market.
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 HAMP which
provides eligible homeowners the opportunity to
reduce their monthly mortgage payments to

OTHER INFORMATION

more affordable and sustainable levels to avoid
foreclosure. In addition to HAMP, OFS
introduced programs under MHA to help
homeowners who are unemployed, “underwater”
on their loan (i.e., those who owe more on their
home than it is currently worth), or are
struggling with a second lien. MHA also
includes options for homeowners who would like
to transition to a more affordable living situation
through a short sale or deed-in-lieu of
foreclosure.
The Act provided that MHA would terminate on
December 31, 2016, except with respect to
certain loan modification applications made
before such date. As set forth in program
guidelines, MHA servicers were required to

65

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

evaluate applications submitted before the
deadline and offer trial modifications to eligible
applicants. All MHA transactions, including
first and second lien permanent modifications,
short sales or deeds-in-lieu of foreclosure, and
unemployment forbearance plans, were required
to be completed per program guidelines by
December 1, 2017. At this point, MHA is in a
steady state until final incentives on existing
modifications are paid per program
requirements. 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 FHA and the
United States Department of Agriculture
(USDA).

HHF
HHF was established in February 2010 to
provide targeted aid to homeowners in states hit
hardest by the economic and housing market
downturn. In an effort to restore stability to
housing markets, HHF provides funding for
state Housing Finance Agencies (together with
the eligible entities, collectively “HFAs”) to
develop locally-tailored foreclosure prevention
solutions in areas that have been hardest hit by
home price declines and high unemployment. In
total, $9.6 billion in HHF funds has been
allocated among 18 states and the District of
Columbia.

66

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.

Support for FHA Refinance Program
In March 2010, enhancements were made to an
existing FHA program that permitted lenders to
provide additional refinancing options to
homeowners who owe more than their homes are
worth because of large declines in home prices in
their local markets. This program, known as the
FHA Refinance Program, was intended to
provide more opportunities for qualifying
mortgage loans to be restructured and
refinanced into FHA-insured loans. On
December 31, 2016, the application period for
the FHA Refinance Program ended.
For additional information on the housing
programs, please visit the OFS website at:
http://www.treasury.gov/initiatives/financialstability/TARPPrograms/housing/Pages/default.aspx

OTHER INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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.
Agency Financial Report (AFR): This report
provides an overview of the programs,
accomplishments, challenges, and
management’s accountability for the resources
entrusted to the agency. The report is
prepared in accordance with the requirements
of the OMB Circular A-136, Financial
Reporting Requirements.
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

OTHER INFORMATION

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
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.) provided Treasury authority to
commit an additional $2.0 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 $475.0 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.

67

THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

Home Affordable Modification Program
(HAMP): A TARP program OFS established
to help struggling, homeowners reduce their
mortgage payments to affordable and
sustainable levels and avoid foreclosure.

Qualifying Financial Institution (QFI):
Private and public U.S.-controlled banks,
savings associations, bank holding companies,
certain savings and loan holding companies,
and mutual organizations.

Housing Finance Agencies (HFAs): Statecharted authorities established to help meet
the affordable housing needs of the residents
of their states.

Residential Mortgage-Backed Securities
(RMBS): A financial instrument representing
an interest in a group of residential real estate
mortgages.

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.

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.

Making Home Affordable (MHA): A
comprehensive plan to stabilize the U.S.
housing market and help 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 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.

68

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.

OTHER INFORMATION

AGENCY FINANCIAL REPORT | FISCAL YEAR 2019

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

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THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

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