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CT
INSPE OR GE

A
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AL
CI

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ASS

E T R ELIEF

SIGTARP

Office of the Special Inspector General
for the Troubled Asset Relief Program

Advancing Economic Stability Through Transparency, Coordinated Oversight and Robust Enforcement

Quarterly Report to Congress
October 21, 2009

MISSION
SIGTARP’s mission is to advance economic stability by promoting the
efficiency and effectiveness of TARP management, through transparency,
through coordinated oversight, and through robust enforcement against
those, whether inside or outside of government, who waste, steal or abuse
TARP funds.

STATUTORY AUTHORITY
SIGTARP was established by Section 121 of the Emergency Economic
Stabilization Act of 2008 (EESA). Under EESA, the Special Inspector General
has the duty, among other things, to conduct, supervise and coordinate audits
and investigations of the purchase, management and sale of assets under the
Troubled Asset Relief Program (TARP). In carrying out those duties, SIGTARP
has the authority set forth in Section 6 of the Inspector General Act of 1978,
including the power to issue subpoenas.

Office of the Special Inspector General
for the Troubled Asset Relief Program
General Telephone: 202.622.1419
Hotline: 877.SIG.2009
SIGTARP@do.treas.gov
www.SIGTARP.gov

Contents
Executive Summary
Program Updates and Financial Overview of TARP
The Role of Ratings Agencies in TARP and Beyond
Oversight Activities of SIGTARP
SIGTARP Recommendations on the Operation of TARP
Report Organization

1
5
5
6
9
9

Section 1
The Office of the Special Inspector General for the
Troubled asset relief program
SIGTARP Creation and Statutory Authority
SIGTARP Oversight Activities Since the July Quarterly Report

11
13
13

Section 2
TARP overview
Financial Overview of TARP
TARP Tutorial: Where Does TARP Money Come From
Financial Institution Support Programs
Asset Support Programs
Automotive Industry Support Programs
Homeowner Support Program
Executive Compensation

29
31
34
55
72
89
94
106

Section 3
the impact of credit rating agencies on tarp and beyond
Introduction
Background on Credit Rating Agencies
Credit Rating Market
How the Federal Government Uses Ratings in Regulating the
Financial Sector
Role of Rating Agencies in the Financial Crisis
Evolving Regulatory Environment

113
115
116
124
128
135
142

Section 4
tarp operations and administration
TARP Administrative and Program Expenditures
Current Contractors and Financial Agents
Conflicts of Interest

149
151
152
152

Section 5
SIGTARP Recommendations
Progress on Lessening the Term Asset-Backed Securities Loan
Facility’s Reliance on Rating Agencies
Developments Relating to HAMP Streamlining
Developments in the Implementation of the
Public-Private Investment Program
Update on Recommendations and Lessons Learned from
SIGTARP Audit Reports
Tracking the Implementation of Recommendations in
Previous Reports
Endnotes
appendices
A.
Glossary
B.
Acronyms and Abbreviations
C.
Reporting Requirements
D.
Transaction Detail
E.
Cross-Reference of Report to the Inspector General Act of 1978
F.
Public Announcement of Audits*
G.
Key Oversight Reports and Testimonies*
H.
Correspondence
I.
Organizational Chart

155
157
158
159
161
165
173

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185
187
191
216
–
–
217
251

*Visit www.sigtarp.gov to view Appendix F: Public Announcement of Audits, and Appendix G: Key
Oversight Reports and Testimonies for further reference material.

EXECUTIVE
SUMMARY
investigations

special inspector general I troubled asset relief program

quarterly report to congress I october 21, 2009

More than a year has now passed since the Emergency Economic Stabilization
Act of 2008 (“EESA”) authorized creation of the Troubled Asset Relief Program
(“TARP”), and preliminary assessments of TARP — both its effectiveness and its
costs — can begin to be made. As to effectiveness, there are significant signs of
improvement in the stability of the financial system. Although the causes for such
improvement are many and complex, it appears that the dramatic steps taken by
the U.S. Department of the Treasury (“Treasury”) and other agencies through
TARP and related programs played a significant role in bringing the system back
from the brink of collapse. On the other hand, the risk of foreclosure continues to
affect too many Americans, unemployment continues its rise, and the stresses on
the commercial real estate market threaten to increase the pressure on banks and
small businesses alike yet again.
On the cost side of the ledger, although it will take many years to assess all
of the costs associated with TARP, financial and otherwise, this report begins
to categorize them. It is useful to analyze any Governmental intervention in the
market like TARP against three distinct types of cost: the financial cost to the
taxpayers; the “moral hazard” damage to market incentives created by Government
intervention; and a cost that has received scant attention thus far — the impact on
Government credibility due to the failure to explain what is being done with billions
of taxpayer dollars transparently and forthrightly. The past year has demonstrated
that TARP’s costs, in each category, could prove to be substantial.
• Financial Cost: Although several TARP recipients have repaid funds for what
has widely been reported as a 17% profit, it is extremely unlikely that the taxpayers will see a full return on their TARP investments. Certain TARP programs,
such as the mortgage modification component of the Making Home Affordable
(“MHA”) program, which is scheduled to use $50 billion of TARP funds, will
yield no direct return; for others, including the extraordinary assistance to
American International Group, Inc. (“AIG”) and the auto companies, full recovery is far from certain. Some of these potential costs are discussed in Section 2
of this report, including a discussion of financial cost that is rarely considered —
the cost associated with borrowing the money used to fund TARP.
• Moral Hazard: Market behavior is bound to be impacted by the massive infusions of Government capital into the very institutions that caused the crisis;
by the modifications of mortgages for homeowners who may have borrowed irresponsibly; and by the provision of cheap, non-recourse loans to incentivize the
purchase of the same volatile and over-valued asset-backed securities (“ABS”)
that were a major cause of the current crisis. The firms that were “too big to
fail” last October are in many cases bigger still, many as a result of Governmentsupported and -sponsored mergers and acquisitions; the inherently conflicted
rating agencies that failed to warn of the risks leading up to the financial crisis
are still just as conflicted; and the recent rebound in big bank stock prices

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risks removing the urgency of dealing with the system’s fundamental problems.
Absent meaningful regulatory reform, TARP runs the risk of merely re-animating markets that had collapsed under the weight of reckless behavior. Section 3
of this report addresses the role of rating agencies in particular, their crucial role
in the financial system, and their impact on the current financial crisis.
• Government Credibility: The Government’s capacity to address financial crises
depends in no small measure on its credibility, both with market participants
whose confidence is essential to stabilize the financial system and with the
American public whose confidence is essential to underpin the political support required to take the difficult (and often expensive) steps that are needed.
Unfortunately, several decisions by Treasury — including Treasury’s refusal to
require TARP recipients to report on their use of TARP funds, its less-thanaccurate statements concerning TARP’s first investments in nine large financial
institutions, and its initial defense of those inaccurate statements — have served
only to damage the Government’s credibility and thus the long-term effectiveness of TARP. Notwithstanding TARP’s role in bringing the financial system
back from the brink of collapse, it has been widely reported that the American
people view TARP with anger, cynicism, and distrust. These views are fueled
by the lack of transparency in the program. The beliefs of some, for example,
that TARP funds went into a “black hole”; that TARP was created in secrecy
to transfer wealth from taxpayers to Wall Street insiders (exacerbated by the
announcement of billions of dollars of profits and record-setting bonus pools
at TARP recipients while unemployment and foreclosures continue to rise); or
that Treasury is just too closely aligned with the interests of Wall Street are only
reinforced by Treasury’s failures of transparency. Despite the aspects of TARP
that could reasonably be viewed as a substantial success, Treasury’s actions
in this regard have contributed to damage the credibility of the program and
of the Government itself, and the anger, cynicism, and distrust created must
be chalked up as one of the substantial, albeit unnecessary, costs of TARP.
Section 5 of this report reviews some of the unadopted recommendations of the
Office of the Special Inspector General for the Troubled Asset Relief Program
(“SIGTARP”), the adoption of which could help bring greater transparency to
TARP and answer some of the criticisms of the program.
In this report, SIGTARP endeavors to (i) explain the various TARP programs
and how Treasury has used those programs through September 30, 2009; (ii)
provide a description of what ratings agencies do and their role in the market, in
Governmental decisions, and in TARP; (iii) describe what SIGTARP has done to
oversee the various TARP programs since its Quarterly Report to Congress dated
July 21, 2009 (the “July Quarterly Report”); and (iv) set forth new recommendations, and provide updates on past recommendations, relating to the operation of
TARP.

quarterly report to congress I october 21, 2009

PROGRAM UPDATES AND FINANCIAL OVERVIEW
OF TARP
TARP consists of 12 announced programs, of which 10 have been implemented. As
of September 30, 2009, Treasury had announced commitments to spend $636.9
billion of the $699 billion maximum available for the purchase of troubled assets
under TARP as authorized by Congress in EESA. Of this amount, approximately
$454.3 billion had been expended through the 10 implemented programs to provide support for U.S. financial institutions, the automobile industry, the markets in
certain types of ABS, and homeowners. As of September 30, 2009, 47 TARP recipients have paid back all or a portion of their principal or repurchased shares for an
aggregate total of $72.9 billion of repayments, leaving $317.3 billion, or 45.4%, of
TARP’s allocated $699 billion available for distribution.
In addition to the principal repayments, Treasury has received interest and
dividend payments on its investments, as well as revenue from the sale of its warrants. As of September 30, 2009, $9.5 billion in interest, dividends, and other
income had been received by the Government, and $2.9 billion in sales proceeds
had been received from the sale of warrants and preferred stock received as a result
of exercised warrants. At the same time, some TARP participants have missed dividend payments: among Capital Purchase Program (“CPP”) participants, 46 have
missed dividend payments to the Government, some of which made the payments
on a later date. As of September 30, 2009, there was $75.7 million in outstanding
unpaid CPP dividends.

THE ROLE OF RATING AGENCIES IN TARP AND
BEYOND
Credit rating agencies play critically important roles in the financial markets, in
Government decision making, and in several areas of TARP operations. Section 3
of this report describes these various roles so that the reader can understand the
effects that the agencies have on TARP — and on the system in general — and
so that the various proposals for reform of the ratings system can be evaluated in
proper context.
Among other things, Section 3 describes the background of the credit rating
agencies, the basics of how they provide ratings for securities at issuance, and
how they monitor the securities after issuance. The report goes on to discuss how
ratings are used in the marketplace, the effect that ratings of securities have on
the financial institutions that hold such securities, and the various ways that the
Government uses ratings in the regulation of the financial markets and, in several
ways, in the operation of TARP. Section 3 also addresses the role of rating agencies in the financial crisis, examining in particular the inherent conflicts of interest
that the “issuer-pay” model poses; the agencies’ failure to assess properly the risk of

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subprime mortgages and exotic financial products; and the extreme volatility posed
by the effects of rating downgrades on the liquidity of financial institutions, with
AIG as a prime example. Finally, Section 3 describes the outlines of various proposals that have been introduced to reform the credit rating system.

OVERSIGHT ACTIVITIES OF SIGTARP

Ponzi Scheme: An illegal pyramid
scheme in which money from new
investors is used to pay off earlier
investors.

Since the July Quarterly Report, SIGTARP has been actively engaged in fulfilling its vital investigative and audit functions as well as in building its staff and
organization.
SIGTARP’s Investigations Division has developed into a sophisticated whitecollar investigative agency. Through September 30, 2009, SIGTARP has opened 61
and has 54 ongoing criminal and civil investigations. These investigations include
complex issues concerning suspected TARP fraud, accounting fraud, securities
fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct,
fraudulent advance-fee schemes, public corruption, false statements, obstruction
of justice, money laundering, and tax-related investigations. While the vast majority
of SIGTARP’s investigative activity remains confidential, developments in several of
SIGTARP’s investigations have become public over the past quarter, as discussed
more fully in Section 1 of this report.
• Federal Trade Commission v. Federal Housing Modification
Administration, Inc.: On September 16, 2009, the Federal Trade Commission
(“FTC”) filed a complaint against Federal Housing Modification Administration,
Inc. (“FHMA”) and its principals in the U.S. District Court for the District of
Columbia. With investigative support from SIGTARP, FTC alleged violations of
the FTC Act and telemarketing sales rules by FHMA by misrepresenting itself as
a Federal Government agency and falsely claiming that it would obtain mortgage modifications for consumers for a $3,000 fee. SIGTARP’s investigation of
FHMA, in coordination with the U.S. Postal Inspection Service, is ongoing.
• Gordon Grigg Sentenced to 10 Years’ Imprisonment: On August 6, 2009,
Gordon B. Grigg, a financial advisor and owner of ProTrust Management,
Inc., formerly based in Franklin, Tennessee, was sentenced to serve a 10-year
prison term after pleading guilty to four counts of mail fraud and four counts
of wire fraud in the U.S. District Court for the Middle District of Tennessee.
The charges stemmed from a SIGTARP-assisted investigation into Grigg’s role
in a Ponzi scheme which he promoted, in part, by marketing fictional TARPguaranteed debt.
• Search Warrants Executed at Taylor, Bean & Whitaker Mortgage
Corporation and Colonial Bancgroup: On August 3, 2009, SIGTARP,
along with its Federal law enforcement partners, executed search warrants at

quarterly report to congress I october 21, 2009

the offices of Colonial Bancgroup (“Colonial”) and Taylor, Bean & Whitaker
Mortgage Corporation, formerly the nation’s 12th-largest loan originator and
servicer. Prior to the execution of these warrants, SIGTARP had served subpoenas on Colonial after it had announced that it had received preliminary contingent approval from Treasury to receive $553 million in TARP funding. The
funding was never made. On August 7, 2009, Colonial reported that it is the
target of a criminal probe. This investigation is ongoing.
• Bank of America Investigations: SIGTARP continues to play a significant
role in the investigations by the New York State Attorney General’s Office, the
Securities and Exchange Commission (“SEC”), and the Department of Justice
(“DOJ”) into the circumstances of Bank of America’s merger with Merrill
Lynch and its receipt of additional TARP funds under the Targeted Investment
Program (“TIP”).
Nearly 50% of SIGTARP’s ongoing investigations were developed in whole or
in part through tips or leads provided on SIGTARP’s Hotline (877-SIG-2009 or accessible at www.SIGTARP.gov). Since its inception, the SIGTARP Hotline received
and analyzed more than 7,000 contacts, running the gamut from expressions of
concern over the economy to serious allegations of fraud.
On the audit side, as of the initial drafting of this report, SIGTARP had issued
its first four audit reports, which are addressed in greater detail in Sections 1 and 5.
A fifth audit on AIG bonuses was subsequently issued and will be described in
greater detail in SIGTARP’s next quarterly report.
• Use of Funds: In July 2009, SIGTARP issued its first formal audit report
concerning how recipients of CPP funds reported their use of such funds based
upon a February 2009 survey that SIGTARP sent to 364 financial and other
institutions that had completed TARP funding agreements through January
2009. For some respondents the infusion of TARP funds helped to increase
lending; others were able to avoid a “managed” reduction of their activities; others reported that their lending activities would have come to a standstill without
TARP funds; and others explained that they used TARP funds to acquire other
institutions, invest in securities, pay off debts, or that they retained the funds to
serve as a cushion against future losses.
• External Influences: In August, SIGTARP issued an audit that examined
undue external influences over the CPP decision-making process. SIGTARP
found no information indicating that external inquiries on CPP applications had
affected the decision-making process, but gaps in the internal controls by the
Government agencies conducting the CPP application process made it impossible to determine if all attempts to influence TARP decisions were captured

special inspector general I troubled asset relief program

by the audit. In connection with the audit, SIGTARP made recommendations
regarding the improvement of internal controls and record keeping, which
Treasury has adopted.
• Executive Compensation: SIGTARP also issued in August an audit examining
executive compensation restriction compliance. This audit examined the efforts
of TARP recipients to comply with executive compensation restrictions in place
at the time of SIGTARP’s survey of banks’ use of funds.
• Original CPP and Bank of America Investments: Finally, SIGTARP recently
released an audit examining the review and approval process associated with
TARP assistance to the first nine CPP recipients, with emphasis on additional
assistance to Bank of America subsequently authorized under TIP and the Asset
Guarantee Program (“AGP”). The audit concludes that Treasury, the Federal
Reserve, and the Federal Deposit Insurance Corporation (“FDIC”) implemented
programs designed to help prevent a further deterioration of the economy and
a significant risk of financial market collapse. The audit also finds that Treasury
and other regulators’ descriptions of the financial conditions of the first nine
institutions as “healthy” were inconsistent with the private beliefs of decision
makers at Treasury and the Federal Reserve, and later proved to be inaccurate.
In addition to the basic transparency concern that this inconsistency raises, by
stating expressly that the “healthy” institutions would be able to increase overall
lending, Treasury created unrealistic expectations about the institutions’ conditions and their ability to increase lending. Treasury lost credibility when lending
at those institutions did not in fact increase and when subsequent events — the
further assistance needed by Citigroup and Bank of America being the most
significant examples — demonstrated that at least some of those institutions
were not in fact healthy.
SIGTARP is continuing work on audits described in the July Quarterly Report
examining AIG counterparty payments, the CPP warrant valuation and disposition process, a use of funds follow-up assessment, governance issues where the
Government holds large ownership interests, the status of Citigroup asset guarantees, and compliance procedures relating to the MHA mortgage modification
program. SIGTARP anticipates that several of these audits will be released over the
next quarter.
In addition, SIGTARP has announced two new audits, as follows:
• Automobile Dealership Closures: This audit, undertaken at the requests of
Senator Jay Rockefeller and Congressman David Obey, examines the process
used by GM and Chrysler to identify the more than 2,000 automobile dealerships that will be terminated in connection with the recent GM and Chrysler
bankruptcies. The objectives of the audit will be to determine whether GM and

quarterly report to congress I october 21, 2009

Chrysler developed and followed a fair, consistent, and reasonable documented
approach; to understand the role of the Government in these decisions; and to
establish to what extent the terminations will lead to cost savings or other benefits to GM and Chrysler.
• Review of CPP Applications Receiving Conditional Approval: This audit
will examine those CPP applications that received preliminary approval from
the Treasury Investment Committee conditioned upon the institutions meeting
certain requirements before funds were disbursed. One example was Colonial,
which received CPP approval conditioned on Colonial raising $300 million in
private capital. The audit will assess the basis for the decision to grant such
conditional approvals and the bank regulators’ role in such decisions; whether
and how timeframes are established for meeting such conditions; and whether
internal controls are in place to ensure that the conditions are met before funds
are disbursed.

SIGTARP RECOMMENDATIONS ON THE
OPERATION OF TARP
One of SIGTARP’s oversight responsibilities is to provide recommendations to
Treasury so that TARP programs can be designed or modified to facilitate effective
oversight and transparency and to prevent fraud, waste, and abuse. In Section 5 of
this report, SIGTARP provides updates on recommendations and a summary of the
implementation of recommendations made in previous reports and in SIGTARP’s
audits. In particular, Section 5 recounts: progress made by the Federal Reserve with
respect to decreasing the influence of credit rating agencies in the operation of the
Term Asset-Backed Securities Loan Facility (“TALF”); developments, both positive
and negative, in Treasury’s operation of MHA’s mortgage modification program;
and two new recommendations concerning PPIP to address Treasury actions that,
if unaddressed, would limit SIGTARP’s ability to review changes to the PPIP compliance regime and to access certain documents that may be necessary to undertake oversight of this important program.

REPORT ORGANIZATION
The report is organized as follows:
• Section 1 describes the activities of SIGTARP.
• Section 2 describes how Treasury has spent TARP funds thus far and contains
an explanation or update of each program, both implemented and recently
announced.

special inspector general I troubled asset relief program

• Section 3 discusses the role of rating agencies in the market, in Government
decision making, and in the operation of TARP, and examines the agencies’ part
in the financial crisis and the proposals for reforming the rating system.
• Section 4 describes the operations and administration of the Office of Financial
Stability, the office within Treasury that manages TARP.
• Section 5 lays out SIGTARP’s recommendations to Treasury with respect to the
operation of TARP.
• The report also includes numerous appendices containing, among other things,
figures and tables detailing all TARP investments through September 30, 2009.
The goal is to make this report a ready reference on what TARP is and how it
has been used to date. In the interest of making this report as understandable as
possible, and thereby furthering general transparency of the program itself, certain
technical terms are highlighted in the text and defined in the adjacent margin. In
addition, portions of Sections 2 and 3 are devoted to tutorials explaining the financial terms and concepts necessary to obtain a basic understanding of the programs’
operations.

section 1

The Office of the Special
Inspector General for the
Troubled Asset Relief Program

investigations

special inspector general I troubled asset relief program

quarterly report to congress I october 21, 2009

SIGTARP Creation and Statutory Authority
The Office of the Special Inspector General for the Troubled Asset Relief Program
(“SIGTARP”) was created by section 121 of the Emergency Economic Stabilization
Act of 2008 (“EESA”). Under EESA, SIGTARP has the responsibility, among
other things, to conduct, supervise, and coordinate audits and investigations of the
purchase, management, and sale of assets under the Troubled Asset Relief Program
(“TARP”) and, with certain limitations, any other action taken under EESA.
SIGTARP is required to report quarterly to Congress to describe SIGTARP’s activities and to provide certain information about TARP over that preceding quarter.
EESA gives SIGTARP the authorities listed in section 6 of the Inspector General
Act of 1978, including the power to obtain documents and other information from
Federal agencies and to subpoena reports, documents, and other information from
persons or entities outside of Government.
The Special Inspector General, Neil M. Barofsky, was confirmed by the Senate
on December 8, 2008, and sworn into office on December 15, 2008.

SIGTARP Oversight Activities Since the July
Quarterly Report
SIGTARP has continued to fulfill its oversight role in multiple parallel tracks: from
making recommendations relating to preventing fraud and abuse prospectively; to
auditing aspects of TARP both inside and outside of Government; to investigating
allegations of fraud, waste, and abuse in TARP programs; to coordinating closely
with other oversight bodies; all while trying to promote transparency in TARP
programs.

Providing Advice on Compliance and Fraud Prevention
To further its goal of improving prospectively the compliance and fraud prevention
aspects of TARP programs, SIGTARP has attempted to establish and maintain regular lines of communications with the personnel primarily responsible for running
TARP, including those working within the U.S. Department of the Treasury’s Office
of Financial Stability (“OFS”) and within other agencies who manage TARP-related
programs or activities, including the bank regulators, the Federal Reserve Board,
and the Federal Reserve Bank of New York (“FRBNY”), as follows:
• SIGTARP personnel generally receive briefings concerning each new TARP
initiative and developments in implemented programs when necessary.
• The Special Inspector General and Deputy Special Inspector General typically
meet weekly with the head of OFS, OFS’s Chief Compliance Officer, and OFS’s
General Counsel to discuss ongoing issues and new developments.

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• SIGTARP has established regular communication with officials from the
Federal Reserve System (staff from the Federal Reserve Board of Governors and
FRBNY) in connection with the Federal Reserve’s TARP-related programs.
Generally, the U.S. Department of the Treasury (“Treasury”) and the other
agencies have been cooperative in making their personnel available to SIGTARP
and have responded to SIGTARP’s requests for documents and information.
SIGTARP has endeavored, to the extent it has had an opportunity, to examine
the planned framework for TARP initiatives before their terms are finalized and to
make recommendations designed to advance oversight and internal controls and to
prevent fraud, waste, and abuse within the programs. Since SIGTARP’s Quarterly
Report to Congress dated July 21, 2009 (the “July Quarterly Report”), and in
addition to recommendations made in formal audit reports, SIGTARP has made
follow-up recommendations with regard to the Public-Private Investment Program
(“PPIP”) final fund manager agreements within the Legacy Securities Program as
well as modifications to the Home Affordable Modification Program (“HAMP”),
which is part of the Making Home Affordable (“MHA”) program. These recommendations are discussed in Section 5 of this report.

SIGTARP Audit Activity
SIGTARP has initiated a total of 13 audit projects since its inception: 4 that
were released as of the initial drafting of this report; 1 that has been subsequently released; 2 that are nearing completion; and 6 others on which work has
commenced.

Completed SIGTARP Audits
As of the initial drafting of this report, SIGTARP had released its first four audit
reports. Its fifth audit report, on American International Group (“AIG”) bonuses,
was subsequently issued and will be described in detail in the next quarterly report.
Use of Funds Audit

SIGTARP’s first audit report, issued on July 20, 2009, examined how recipients of
Capital Purchase Program (“CPP”) investments reported their use of such funds.
In February 2009, SIGTARP sent survey letters to 364 financial and other institutions that had completed TARP funding agreements through January 2009. In
response to those surveys, although most banks reported that they did not segregate
or track TARP fund usage on a dollar-for-dollar basis, they were able to provide
insights into their actual or planned future use of TARP funds. The details of this
audit and its findings are described in SIGTARP’s July Quarterly Report, page 17.

quarterly report to congress I october 21, 2009

Copies of the responses to SIGTARP’s February 2009 survey are posted on the
Internet at www.sigtarp.gov/audit_useoffunds.shtml.
External Influence Audit

This audit report, issued on August 6, 2009, examined whether or to what extent
external parties may have unduly influenced decision making by Treasury or bank
regulators in approving bank applications for funding under CPP. In October
2008, Treasury established CPP to inject capital into healthy, viable U.S. financial
institutions in order to stabilize financial markets and increase lending. OFS and
each of the four Federal banking regulators — the Office of the Comptroller of the
Currency (“OCC”), the Office of Thrift Supervision (“OTS”), the Federal Deposit
Insurance Corporation (“FDIC”), and the Federal Reserve — implemented a
standardized process to review applications from institutions. As of July 30, 2009,
more than 2,700 institutions had submitted applications to regulators for CPP
funding, regulators had submitted approximately 1,300 applications to Treasury for
review, and Treasury had funded 660 applications. Within Treasury, an Investment
Committee is responsible for making the final recommendation on whether an application should be approved.
This audit examined the extent to which Treasury and the banking regulators have controls in place to safeguard against external influence over the CPP
decision-making process and whether there were any indications of external parties
having unduly influenced CPP decision making. SIGTARP auditors reviewed
Treasury and regulatory policies, collected documents that recorded external
communications, and interviewed officials to identify the controls over external
communications. To determine possible indications of external influence, auditors
reviewed the CPP applications and supporting documents for all institutions in
which SIGTARP found an external inquiry.
SIGTARP found limitations and inconsistencies in the logging of telephone and
meeting conversations regarding individual CPP applicants, making it impossible to
examine the impact of all potential external inquiries on the CPP process. Available
information, however, gave little indication that external inquiries on CPP applications had affected the decision-making process. Of the 56 institutions SIGTARP
identified as subjects of external inquiries, the analysis showed that, as of June
17, 2009, only 16 applications (29%) had been funded, 12 (21%) were still pending within Treasury or a banking agency, and 26 (47%) did not receive CPP funds
because the institutions either withdrew or were recommended to withdraw their
applications, failed, or were acquired during the application review process. Two
institutions did not formally submit applications for funds.
SIGTARP’s analysis of the funded applications showed that 13 of the 16 clearly
met all of the criteria established by Treasury. The remaining three institutions did

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For a description of regulatory capitalization
standards, see SIGTARP’s July Quarterly
Report, page 55.

not meet all of the CPP quantitative criteria but were approved based on mitigating factors considered by Treasury and banking agency officials. For example, one
application’s approval was contingent on the institution raising additional capital to
bring it to a well-capitalized position, and another application’s approval focused on
the bank’s management plan to address a weak performance ratio. These mitigating
factors were not unique to institutions that were the subject of an external inquiry.
SIGTARP did find unique mitigating factors affecting one institution, however.
With respect to that institution, SIGTARP’s analysis indicated that discretion afforded this applicant in its approval was greater than that accorded other applications but was still consistent with applicable statutory requirements.
In light of these findings, and to improve transparency and further guard
against outside influence, SIGTARP made two recommendations:
• Treasury should record the vote count for Investment Committee decisions.
• Treasury and each individual participating Federal banking agency should
improve existing control systems to document the occurrence and nature of
external oral communication about actual and potential recipients of funding
under CPP and other similar TARP-assistance programs to which they may be
part of the decision making.
Treasury concurred with these recommendations and stated that it has implemented them.
Executive Compensation Audit

SIGTARP’s third audit report, issued on August 19, 2009, is the first in a series of
audits on executive compensation. The audit examined TARP recipients’ efforts to
comply with evolving executive compensation restrictions. EESA placed restrictions
on executive compensation for all TARP recipients, and, in February 2009, the
American Recovery and Reinvestment Act of 2009 (“ARRA”) amended the EESA
executive compensation requirements. Neither EESA nor ARRA directly limits the
annual base pay of senior executive officers; rather, executive compensation restrictions placed thus far on CPP recipients have more specifically targeted incentive
compensation and severance payments.
In February 2009, SIGTARP sent survey letters to 364 financial and other institutions that had completed TARP funding agreements through January 2009. The
survey asked about the institutions’ efforts to comply with executive compensation
restrictions in place at the time of the survey and plans to comply with subsequently enacted changes in requirements. In light of the timing of the survey, many of
the responses reflected uncertainty and a wait-and-see attitude about the emerging
guidelines and restrictions on executive compensation. Nevertheless, many respondents provided insights regarding their efforts to comply with the requirements as

quarterly report to congress I october 21, 2009

they understood them. Survey responses regarding compliance with EESA bonus
and severance pay restrictions varied from simple statements of compliance to detailed answers about efforts to assess compensation practices relative to the restrictions. Although some recipients expressed frustration with changing compensation
guidance and legislation, many respondents noted actions they were taking at the
time of the survey based on known requirements and with the understanding that
final guidelines were pending. These actions included taking steps to assess risks
and procure expert compensation consultants.
The responses to this SIGTARP survey provide necessary context for examining
the evolution of executive compensation requirements, adding clarity to what was
required, and highlighting some relevant issues that could impact implementation of
requirements going forward. As the executive compensation picture becomes clearer
in the future, SIGTARP plans to conduct follow-up audits on this important topic to
build on these initial findings.
Original CPP and Bank of America Investments Audit

SIGTARP’s fourth audit report, issued on October 5, 2009, examined the review
and approval process associated with TARP assistance to the first nine CPP recipients, with emphasis on additional assistance to Bank of America subsequently authorized under the Targeted Investment Program (“TIP”) and the Asset Guarantee
Program (“AGP”). The audit also examined selected issues and interactions among
Treasury, Federal Reserve, and Bank of America officials in connection with Bank
of America’s acquisition of Merrill Lynch and the timing of Government assistance
under TIP and AGP following the acquisition.
On October 13, 2008, Treasury made the first use of its authority granted under
EESA by making capital injections into nine financial institutions, including Bank
of America, under CPP. Merrill Lynch, which was facing severe financial problems
and was in the process of being acquired by Bank of America, was also included in
the initial nine banks. Following the completion of the acquisition of Merrill Lynch
in January 2009, Bank of America received additional assistance under TIP and
announced loss protections under AGP.
This report addressed three issues:
• the significant economic events in September 2008 that led Treasury to inject
capital into the financial system
• the rationale and criteria used to select these institutions compared to those
used to select subsequent institutions for CPP participation
• the basis for the decision by Treasury and Federal regulators to provide Bank of
America with additional assistance following the acquisition of Merrill Lynch,
and Federal efforts to forestall Bank of America from terminating the planned
acquisition

special inspector general I troubled asset relief program

The audit concluded that Treasury, the Federal Reserve, and FDIC implemented programs designed to help prevent further deterioration of the economy
and significant risk of financial market collapse. Although it may be difficult in the
near term to assess fully the impact of Treasury’s initial injections of capital to the
first nine institutions on preventing an economic collapse, what is clear is that key
Federal officials and senior industry leaders believed that the risks to the financial
stability and economic growth of the United States and the rest of the world were
too great for inaction.
The audit also concluded that Treasury’s public description of the investments in the first nine institutions provided an important lesson for Treasury on
using greater care and accuracy in describing its actions and rationales in future
programs. In an October 14, 2008, statement announcing the investment in the
original nine institutions, then-Secretary of the Treasury Henry Paulson stated:
“These are healthy institutions, and they have taken this step for the good of the
U.S. economy. As these healthy institutions increase their capital base, they will be
able to increase their funding to U.S. consumers and businesses.” The nine institutions were similarly described as healthy in a joint statement released that same day
by Treasury, the Federal Reserve, and FDIC, and in a separate statement released
by Treasury.
It is apparent, however, that senior Government officials had concerns, at
the time the nine institutions were selected, about the health of at least some of
those institutions. The Federal Reserve had concerns over the financial condition
of several of these institutions individually and for all of them collectively absent
some Governmental action; and Secretary Paulson noted concerns about the
potential of an outright failure of one of the institutions. In addition to the basic
transparency concern that this inconsistency raises, by stating expressly that the
“healthy” institutions would be able to increase overall lending, Treasury may have
created unrealistic expectations about the institutions’ conditions and their ability
to increase lending. Treasury lost credibility when lending at those institutions did
not in fact increase and when subsequent events — the further assistance needed
by Citigroup and Bank of America being the most significant examples — demonstrated that at least some of those institutions were not healthy.

Audits Nearing Completion
Several additional audits are nearing completion, and SIGTARP plans to issue
reports on at least the two following audits over the next quarter:
• AIG Counterparty Payments: This audit, conducted at the request of
Representative Elijah Cummings and 26 other Members of Congress, examines
payments made to AIG counterparties on behalf of AIG, which has received the
largest amount of financial assistance from the Government during the current

quarterly report to congress I october 21, 2009

financial crisis. FRBNY reportedly made counterparty payments at 100% of face
value to other financial institutions, including some foreign institutions and
other financial institutions that had received financial assistance under TARP.
Among other things, this audit will explore whether any efforts were made to
negotiate a reduction in those payments. This report is expected to be issued in
November 2009.
• Follow-up Assessments of Use of Funds by TARP Recipients: This audit
follows up on SIGTARP’s earlier use of funds audit. It focuses on use of TARP
funds by recipients receiving extraordinary assistance under the Automotive
Industry Financing Program (“AIFP”) as well as insurance companies receiving
assistance under CPP. This review seeks to provide a more complete picture
of use of funds across a broader category of TARP recipients. This report is
expected to be issued by the end of 2009.

Audits Underway
SIGTARP has a number of other audits that have been announced and on which
work has begun, including:
• CPP Warrant Valuation and Disposition Process: This audit, which is being
conducted in response to requests by Senator Jack Reed and Representative
Maurice Hinchey, seeks to determine (i) the extent to which financial institutions have repaid Treasury’s investment under CPP and which warrants associated with that process were repurchased or sold; and (ii) what process and
procedures Treasury has established to ensure that the Government receives fair
market value for the warrants and the extent to which Treasury follows a clear,
consistent, and objective process in reaching decisions where differing valuations of warrants exist. This audit complements a Congressional Oversight Panel
(“COP”) report released on July 10, 2009, that examined the warrant valuation
process.
• Home Affordable Modification Program: According to Treasury, approximately three to four million homeowners could benefit from TARP’s HAMP, part of
the broader MHA program. SIGTARP has launched an audit examining (i) the
status of HAMP; (ii) the extent to which Treasury is measuring the program’s
effectiveness; (iii) the extent to which lenders and loan servicers have developed
capabilities to provide services under HAMP; and (iv) the challenges associated
with HAMP implementation, execution, and assessment.
• Governance Issues Where U.S. Holds Large Ownership Interest: SIGTARP
received a request from Senator Max Baucus to undertake a body of work examining U.S. Government oversight of, and interaction with, the management
of institutions such as AIG, General Motors (“GM”), Chrysler, and Citigroup,
where the Government has or is approaching majority owner status. The audit,

special inspector general I troubled asset relief program

which will be conducted jointly with the Government Accountability Office
(“GAO”), will also examine the two mortgage giants Freddie Mac and Fannie
Mae, which are under Government conservatorship.
• Status of the Government’s Asset Guarantee Program with Citigroup: This
review, requested by Representative Alan Grayson, addresses a series of questions about the Government’s guarantee of certain Citigroup assets through
AGP such as (i) the basis on which the decision was made to provide asset
guarantees to Citigroup and the process for selecting the loans and securities
to be guaranteed; (ii) the characteristics of the assets deemed acceptable for
inclusion in the program and how those assets differ from other Citigroup assets; (iii) whether adequate risk management controls are in place to mitigate
the risks to the taxpayer; and (iv) what safeguards exist to protect taxpayer
interests and what the losses on the portfolio have been thus far.
• Automobile Dealership Closures: This audit, undertaken at the requests of
Senator Jay Rockefeller and Representative David Obey, examines the process
used by GM and Chrysler to identify the more than 2,000 automobile dealerships that will be terminated in connection with the recent GM and Chrysler
bankruptcies. The objectives of the audit will be to determine whether GM
and Chrysler developed and followed a fair, consistent, and reasonable documented approach; to understand the role of Government in these decisions;
and to establish to what extent the terminations will lead to cost savings or
other benefits to GM and Chrysler.
• Review of CPP Applications Receiving Conditional Approval: This audit
will examine those CPP applications that received preliminary approval from
the Treasury Investment Committee conditioned upon the institutions meeting certain requirements before funds were disbursed. One example was
Colonial Bancgroup (“Colonial”), which received CPP approval conditioned
on Colonial raising $300 million in private capital. (As discussed later in this
section, SIGTARP’s Investigations Division undertook a search warrant of
Colonial offices in Florida, and Colonial has announced that it is the subject
of a criminal investigation.) The audit will assess the basis for the decision to
grant such conditional approvals and the bank regulators’ role in such decisions; whether and how timeframes are established for meeting such conditions; and whether internal controls are in place to ensure that the conditions
are met before funds are disbursed.
Materials related to SIGTARP’s audits, including the engagement letters
describing the audits at the outset and the final audit reports themselves, can be
found on SIGTARP’s website, www.SIGTARP.gov. Specific recommendations
from audits released over the last quarter are discussed more fully in Section 5 of
this report.

quarterly report to congress I october 21, 2009

SIGTARP’s Investigations Activity
SIGTARP’s Investigations Division has developed into a sophisticated white-collar
investigative agency. Through September 30, 2009, SIGTARP has opened 61
and has 54 ongoing criminal and civil investigations. These investigations include
complex issues concerning suspected TARP fraud, accounting fraud, securities
fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct,
fraudulent advance-fee schemes, public corruption, false statements, obstruction
of justice, money laundering, and tax-related investigations. While the vast majority
of SIGTARP’s investigative activity remains confidential, developments in several of
SIGTARP’s investigations have become public over the past quarter.
• Federal Trade Commission v. Federal Housing Modification
Administration, Inc.: On September 16, 2009, the Federal Trade Commission
(“FTC”) filed a complaint against Federal Housing Modification Administration,
Inc. (“FHMA”) and its principals in the U.S. District Court for the District
of Columbia. With investigative support from SIGTARP, in partnership with
the U.S. Postal Inspection Service (“USPIS”), FTC alleged violations of the
FTC Act and telemarketing sales rules by FHMA by misrepresenting itself as a
Federal Government agency or affiliate and falsely claiming that it would obtain
mortgage modifications for consumers for a $3,000 fee. SIGTARP’s investigation of FHMA, in coordination with USPIS, is ongoing.
• Gordon Grigg Sentenced to 10 Years’ Imprisonment: On August 6, 2009,
Gordon B. Grigg, a financial advisor and owner of ProTrust Management,
Inc., formerly based in Franklin, Tennessee, was sentenced to serve a 10-year
prison term after pleading guilty to four counts of mail fraud and four counts of
wire fraud in the U.S. District Court for the Middle District of Tennessee. The
charges stemmed from Grigg’s role in embezzling nearly $11 million from his
investor clients through false statements, including claims that Grigg was making investments in fictional “TARP-guaranteed debt.” SIGTARP participated
in the investigation of Grigg and supported the prosecution along with its law
enforcement partners, the Securities and Exchange Commission (“SEC”), the
Federal Bureau of Investigation (“FBI”), USPIS, the Tennessee Department of
Commerce and Insurance, and the Franklin, Tennessee, Police Department.
The prosecution was handled by the United States Attorney’s Office for the
Middle District of Tennessee.
• Search Warrants Executed at Taylor, Bean & Whitaker Mortgage
Corporation and Colonial Bancgroup: On August 3, 2009, SIGTARP, along
with agents of the FBI, the Office of Inspector General of the Department
of Housing and Urban Development (“HUD OIG”), and the FDIC Office of
Inspector General (“FDIC OIG”), executed search warrants at Colonial and
at the offices of Taylor, Bean & Whitaker Mortgage Corporation, formerly the

special inspector general I troubled asset relief program

nation’s 12th-largest loan originator and servicer. Prior to the execution of these
warrants, SIGTARP had served subpoenas on Colonial after Colonial had announced that it had received preliminary contingent approval from Treasury to
receive $553 million in TARP funding. The funding was never made. On August
7, 2009, Colonial reported that it is the target of a criminal probe. This investigation is ongoing.
• Bank of America Investigations: SIGTARP continues to play a significant
role in the investigations by the New York State Attorney General’s Office, the
SEC, and the Department of Justice (“DOJ”) into the circumstances of Bank of
America’s merger with Merrill Lynch and its receipt of additional TARP funds
under TIP.

SIGTARP Hotline
One of SIGTARP’s primary investigative priorities is to operate the SIGTARP
Hotline and thus provide an interface with the American public to facilitate the
reporting of concerns, allegations, information, and evidence of violations of criminal and civil laws in connection with TARP. Since its inception in February, the
SIGTARP Hotline has received and analyzed more than 7,000 Hotline contacts.
These contacts run the gamut from expressions of concern over the economy to
serious allegations of fraud involving TARP, and almost half of SIGTARP’s investigations were generated in connection with Hotline tips. The SIGTARP Hotline is
capable of receiving information anonymously, and confidentiality can and will be
provided to the fullest extent possible. The American public can provide information by telephone, mail, fax, or online. SIGTARP has established a Hotline connection on its website at www.SIGTARP.gov. SIGTARP honors all applicable whistleblower protections.
The SIGTARP Hotline has received and processed thousands of calls and faxes
intended for Treasury’s MHA hotline. As a result of issues identified in these calls
and faxes, the Investigations Division staff developed a series of recommendations intended to improve implementation of MHA. These recommendations were
delivered as a Management Alert to OFS. OFS responded favorably to the alert,
making several policy changes to the MHA program. For example, OFS added
SIGTARP’s Hotline number to its MHA materials so that homeowners can report
any MHA-related fraud allegations to SIGTARP for further review and investigation. Additionally, at the staff’s suggestion, OFS is considering the addition of
contact numbers for both the mortgage servicing operators and the Homeowner’s
HOPE Hotline. A copy of the Management Alert is included in Appendix H:
“Correspondence.”

quarterly report to congress I october 21, 2009

Coordination with Other Law Enforcement Agencies
As part of its coordination role, SIGTARP has been active in forging partnerships
with other criminal and civil law enforcement agencies. These relationships are designed to benefit both investigations originated by other agencies, when SIGTARP
expertise can be brought to bear, and SIGTARP’s own investigations, which can be
improved by tapping into additional resources. In this regard:
• SIGTARP has continued to develop close working relationships with the FBI,
the Internal Revenue Service Criminal Investigation Division (“IRS-CI”),
USPIS, the United States Secret Service, U.S. Immigration and Customs
Enforcement (“ICE”), the SEC, FTC, the investigations divisions of several
offices within the Inspector General (“IG”) community, DOJ, and numerous
United States Attorney’s Offices.
• SIGTARP continues to organize the activities of the TALF-PPIP Task Force,
a multi-agency working group consisting of SIGTARP, FBI, the SEC, IRS-CI,
ICE, Treasury’s Financial Crimes Enforcement Network (“FinCEN”), USPIS,
and the Office of the Inspector General of the Board of Governors of the
Federal Reserve System.
• The Special Inspector General is in regular contact with the SEC’s Director of
the Enforcement Division, and SIGTARP has several ongoing investigations
with the SEC.
• SIGTARP has brought on board a detailee from the SEC to assist in SIGTARP
investigations and to serve as a liaison with the SEC.
• SIGTARP continues to coordinate with more than a dozen States Attorneys
General.
• SIGTARP continues to work closely with the New York High Intensity Financial
Crime Area (“NY HIFCA”). NY HIFCA provides SIGTARP with two dedicated
financial analysts, supervised by a Senior Special Agent from ICE, to provide
database search and analytical support. This relationship has generated several
complex ongoing investigations.
• SIGTARP obtains access to Bank Secrecy Act (31 U.S.C. § 5311 et seq.) database services through FinCEN. SIGTARP is working with FinCEN to develop
an advisory regarding TARP programs that will be sent to thousands of financial
institutions.
• SIGTARP organized and hosted securitization and hedge fund training for numerous law enforcement partners; the training was provided by subject matter
experts from the SEC.

special inspector general I troubled asset relief program

Coordination with Other EESA Oversight Bodies
EESA, as amended, is explicit in mandating that SIGTARP coordinate audits and
investigations into TARP with the other primary oversight bodies: the Financial
Stability Oversight Board (“FSOB”), COP, and GAO. Numerous other agencies,
both in the IG community and among criminal and civil law enforcement agencies, potentially have responsibilities that touch on TARP as well. SIGTARP takes
seriously its mandate to coordinate these overlapping oversight responsibilities,
both to ensure maximum coverage and to minimize duplicative requests of TARP
managers.
SIGTARP and its partners have continued to have significant success on this
front since the July Quarterly Report. These coordination efforts include:
• bi-weekly conference calls with staff from FSOB
• regular meetings with staff from COP, with whom SIGTARP is conducting a
coordinated audit project concerning the warrant valuation and repurchase
process
• frequent interactions with GAO to coordinate ongoing and planned work, including an overarching joint audit examining the Government’s role in the management of companies in which the Government holds a large ownership stake

TARP-IG Council
Due to the scope of the various programs under TARP, numerous Federal agencies have some role in administering or overseeing TARP programs. To further
facilitate SIGTARP’s coordination role, the Special Inspector General founded and
chairs the TARP Inspector General Council (“TARP-IG Council”), made up of the
Comptroller General and those IGs whose oversight functions are most likely to
touch on TARP issues. The Council meets regularly to discuss developments in
TARP and to coordinate overlapping audit and investigative issues. The TARP-IG
Council currently consists of:
•
•
•
•
•
•
•
•
•
•

The Special Inspector General
Inspector General of the Department of the Treasury
Inspector General of the Board of Governors of the Federal Reserve System
Inspector General of the Federal Deposit Insurance Corporation
Inspector General of the Securities and Exchange Commission
Inspector General of the Federal Housing Finance Agency
Inspector General of the Department of Housing and Urban Development
Treasury Inspector General for Tax Administration
Inspector General for the Small Business Administration
Comptroller General of the United States (head of GAO) or designee

quarterly report to congress I october 21, 2009

Communications with Congress
One of the primary functions of SIGTARP is to ensure that Members of Congress
are kept adequately and promptly informed of developments in TARP initiatives
and of SIGTARP’s oversight activities. To fulfill that role, the Special Inspector
General and SIGTARP staff regularly brief Members and staff. More formally, during the quarter covered by this report, the Special Inspector General testified three
times before Congressional committees.
• On July 21, 2009, Special Inspector General Barofsky testified before the House
Committee on Oversight and Government Reform, during a hearing entitled
“Following the Money: Report of the Special Inspector General for the Troubled
Asset Relief Program.” The hearing focused on SIGTARP’s July Quarterly
Report, and Special Inspector General Barofsky discussed his recommendations
to enhance the success of TARP and highlighted the major themes of his report.
• The next day, July 22, 2009, Special Inspector General Barofsky testified
before the Oversight Subcommittee of the House Committee on Financial
Services, during a hearing entitled “TARP Oversight: Warrant Repurchases and
Protecting Taxpayers.” The hearing examined warrants issued in connection
with TARP. These warrants give Treasury the right to buy shares of TARP recipient stock at a set price at some point in the future and thus provide an opportunity for taxpayers to share in the upside for their TARP investments.
• On September 24, 2009, Special Inspector General Barofsky testified before the
Senate Committee on Banking, Housing and Urban Affairs, during a hearing
entitled “Emergency Economic Stabilization Act: One Year Later.” In light of the
first anniversary of EESA, the hearing examined how TARP is working.
Copies of all of the Special Inspector General’s written testimony, hearing
transcripts, and a variety of other materials associated with Congressional hearings
since SIGTARP’s inception are posted at www.SIGTARP.gov/reports.

Building the SIGTARP Organization
From the day that the Special Inspector General was confirmed by the Senate,
SIGTARP has worked to build its organization through various complementary
strategies, including hiring experienced senior executives who can play multiple
roles during the early stages of the organization, leveraging the resources of other
agencies, and, where appropriate and cost-effective, obtaining services through
SIGTARP’s authority to contract. Since the July Quarterly Report, SIGTARP has
continued to make substantial progress in building its operation.

special inspector general I troubled asset relief program

For information on the Ensign-Boxer
Amendment, see SIGTARP’s July Quarterly
Report, page 14.

Hiring
Each of SIGTARP’s divisions has continued the process of filling out its ranks. As
of September 30, 2009, SIGTARP had more than 90 personnel, including detailees
from other agencies, with several new hires to begin over the coming weeks.
SIGTARP’s employees hail from many Federal agencies, including DOJ,
FBI, IRS-CI, Air Force Office of Special Investigations, GAO, Department of
Transportation, Department of Energy, the SEC, DOJ, U.S. Secret Service, United
States Postal Service, U.S. Army Criminal Investigation Command, Naval Criminal
Investigative Service, Treasury-Office of the Inspector General, Department
of Energy-Office of the Inspector General, Department of TransportationOffice of the Inspector General, Department of Homeland Security-Office of
the Inspector General, FDIC OIG, Office of the Special Inspector General for
Iraq Reconstruction, and the HUD OIG. Hiring is actively ongoing, building to
SIGTARP’s current goal of approximately 160 full-time employees. The SIGTARP
organizational chart, as of September 30, 2009, is included in Appendix I:
“Organizational Chart.”

SIGTARP Budget

Figure 1.1

SIGTARP FY 2010 PROPOSED BUDGET
$ Millions, % of $48.4 Million

Other $1.4

Transportation
$3.1
Advisory
$7.3

6%
15%
48% Personnel
$23.2

28%
Rent, Services
$13.4

Section 121(j) of EESA provided $50 million in initial operating funds to
SIGTARP. When SIGTARP was established and its initial operating resources were
allocated, TARP was envisioned as a $700 billion asset purchase and guarantee
program. In the months that followed, however, TARP evolved into 12 separate
programs that could involve far more than $700 billion, significantly expanding the
necessary scope of SIGTARP’s oversight operations and resource needs. SIGTARP
anticipates that its total budget for FY 2010 will be $48.4 million, based on the assumption that it will reach its target of 160 staff by early 2010. Approximately 50%
of SIGTARP’s non-personnel costs will be payments to other Government agencies
for services provided. For a detailed breakdown of SIGTARP’s FY 2010 budget, see
Figure 1.1.
As noted in the July Quarterly Report, SIGTARP estimates that its initial operating funds will be expended by approximately the second quarter of FY 2010 and
that an additional $28.3 million will be needed to fully fund operations through
the fiscal year. Taking into account a portion of the $15 million in additional funds
made available by the Ensign-Boxer Amendment, which SIGTARP expects to
spend over three years (i.e., $5 million per year), SIGTARP has submitted a request
to Treasury for a $23.3 million amendment to the FY 2010 budget submission.
Although SIGTARP has been informed repeatedly by Treasury that it is taking steps
to meet this budgetary need, as of the drafting of this report, SIGTARP’s budgetary
needs for FY 2010 have not been met.

quarterly report to congress I october 21, 2009

SIGTARP Independence and Position within Treasury
On April 15, 2009, Treasury asked the Office of Legal Counsel of the Department
of Justice (“OLC”) for an opinion on the following issues pertaining to SIGTARP:
• whether SIGTARP is located within Treasury
• whether the Special Inspector General was subject to the Secretary of the
Treasury’s (“Treasury Secretary’s”) general supervision
• whether Treasury’s compliance with SIGTARP’s document requests waives
privileges applicable to the subject documents
In response, SIGTARP made clear its position that the language and legislative history of section 121 of EESA unambiguously provides that SIGTARP is
an independent entity within Treasury, that the Special Inspector General is not
subject to the Treasury Secretary’s supervision, and that privileges are not bars
to SIGTARP’s access to Treasury’s records and information. On August 7, 2009,
Treasury withdrew its request for an OLC opinion. SIGTARP views such withdrawal as Treasury’s acknowledgement that SIGTARP is an independent entity
within Treasury and that the Special Inspector General is not subject to the supervision of the Treasury Secretary. SIGTARP commends Treasury’s decision to bring
to a close this needless distraction.

Physical and Technical SIGTARP Infrastructure
SIGTARP occupies office space at 1801 L Street, NW, in Washington, D.C., the
same office building in which most Treasury officials managing TARP are located.
SIGTARP is already occupying temporary quarters in that building while its two
permanent floors are being renovated. SIGTARP anticipates occupying its permanent space by early 2010.
SIGTARP has a website, www.SIGTARP.gov, on which it posts all of its reports, testimony, audits, contracts, and more. The website prominently features
SIGTARP’s Hotline, which can also be accessed by phone at 877-SIG-2009
(877-744-2009).
From the website’s inception through September 30, 2009, more than 26.5
million visitors have accessed SIGTARP’s website, and SIGTARP’s first three
reports to Congress have been downloaded, collectively, almost 1.5 million times.

special inspector general I troubled asset relief program

s ection 2

tarp overview

special inspector general I troubled asset relief program

quarterly report to congress I october 21, 2009

This section summarizes the activities of the U.S. Department of the Treasury
(“Treasury”) in its management of the Troubled Asset Relief Program (“TARP”). It
includes a financial overview and provides updates on established TARP programs,
including the status of TARP executive compensation restrictions.

Financial Overview of TARP
As of September 30, 2009, Treasury had announced plans to spend up to $636.9
billion of the $699 billion maximum available under TARP as authorized by
Congress in the Emergency Economic Stabilization Act of 2008 (“EESA”).1 Of
this amount, approximately $454.3 billion had been expended through 10 implemented programs to provide support for U.S. financial institutions, companies, and
individual mortgage borrowers.2 Treasury has indicated that it is operating TARP
as essentially a “revolving fund” — as recipients of TARP funds repay the original
principal that they received from Treasury, the TARP funds available to Treasury
increase by that amount and are available for further investment in other TARP activities subject to the overall limit established by EESA. As of September 30, 2009,
47 TARP recipients have paid back all or a portion of their principal or repurchased
shares for an aggregate total of $72.9 billion of repayments, leaving $317.3 billion, or 45.4% of TARP’s allocated $699 billion, available for distribution.3 Figure
2.1 provides a snapshot of the cumulative expenditures and repayments as of
September 30, 2009.

Figure 2.1

CUMULATIVE EXPENDITURES AND
REPAYMENTS, AS OF 9/30/2009
$ Billions

$317.3
$72.9
$698.8
$454.3

Total TARP
Released

TARP
TARP
TARP
Expenditures Repayments Balance
Remaining

Notes: Numbers affected by rounding. From a budgetary
perspective, expenditures are what Treasury has committed to
spend (e.g., signed agreements with TARP fund recipients).
Source: Treasury, Transactions Report, 10/2/2009.

special inspector general I troubled asset relief program

Warrant: The right, but not the obligation,
to purchase a certain number of shares
of common stock at a fixed price.
Common Stock: Equity ownership that
entitles an individual to share in the corporate earnings and voting rights.
Preferred Stock: Equity ownership that
usually pays a fixed dividend, gives the
holder a claim on corporate earnings
superior to common stock owners, and
has no voting rights. Preferred stock also
has priority in the distribution of assets
in the case of liquidation of a bankrupt
company.
Senior Subordinated Debenture: A subordinated debenture is a loan or security
that is junior to other loans or securities
with regards to the debt holders’ claims
on assets or earnings. Senior debt holders get paid in full before subordinated
debt holders get paid. There are additional levels of priority among subordinated debt holders. CPP invests in senior
subordinated debt.

In addition to the principal repayments, Treasury has received interest and dividend payments on its investments, as well as revenue from the sale of its warrants.
These payments are deposited into Treasury’s general fund for the reduction of
public debt and are not available to be re-issued by Treasury.4 As of September 30,
2009, $9.5 billion in interest, dividends, and other income had been received by
the Government, and $2.9 billion in sales proceeds had been received from the sale
of warrants and preferred stock received as a result of exercised warrants.5
Of the $454.3 billion expended through TARP, $381.4 billion remains outstanding (i.e., has not been paid back or repurchased) as of September 30, 2009,
largely in the form of equity ownership. For those companies from which Treasury
received equity and which have not yet repaid their TARP funds, Treasury, and
therefore the American taxpayer, is a shareholder. Treasury received equity ownership interest in exchange for the overwhelming majority of its TARP investments.
Treasury’s equity ownership came primarily in two forms: common stock and
preferred stock, with the bulk of Treasury’s investments in preferred stock. In addition to its equity investment, Treasury also received senior subordinated debentures
under various TARP programs.
On September 24, 2009, the Assistant Secretary for Financial Stability testified before Congress that Treasury’s Office of Financial Stability (“OFS”) is audited
by the Government Accountability Office (“GAO”) and “will publish its first set of
annual financial statements on November 16th,” although Treasury has informed
SIGTARP that this may be pushed back 30 days.6 The financial statements will
include estimates of the value of Treasury’s TARP investments. As noted in the
Office of the Special Inspector General for the Troubled Asset Relief Program’s
(“SIGTARP’s”) Quarterly Report to Congress dated July 21, 2009 (the “July
Quarterly Report”), Treasury also receives monthly valuations of its portfolio from
its asset managers but has not shared them with the public.

quarterly report to congress I october 21, 2009

TARP consists of 12 announced programs, of which 10 have been implemented. The programs can be categorized in four general groups depending on the type
of support each was designed to provide:
• Financial Institution Support Programs — These programs share a common,
stated goal of stabilizing the financial market to avoid disruption and provide for
a healthy economy.
• Asset Support Programs — These programs attempt to support asset values
and liquidity in the market by providing funding to certain holders or purchasers
of assets.
• Automotive Industry Support Programs — These programs were intended by
Treasury to stabilize the American automotive industry.
• Homeowner Support Program — This program and its initiatives were designed to help homeowners facing difficulty paying their mortgages by subsidizing loan modifications, loan servicer costs, and potential equity declines in bank
holdings.
Figure 2.2 provides a breakdown of how TARP funding is distributed between
the four categories of programs.

Figure 2.2

TARP EXPENDITURES BY SUPPORT
CATEGORY, AS OF 9/30/2009
$ Billions, % of $454.3
Asset Support
Programs
$26.7

Homeowner
Support
Program
$27.1
Automotive Industry
Support Programs
$81.1b

Financial Institution
Support Programs
$319.5a

Notes: Numbers affected by rounding. From a budgetary
perspective, expenditures are what Treasury committed to spend
(e.g., signed agreements with TARP fund recipients).
a
CPP funding of $70.7 billion had been repaid.
b
AIFP loan principal payments of $2.1 billion had been repaid. (Of
the $2.1 billion, $0.6 billion was from AWCP.)
Source: Treasury, Transactions Report, 10/2/2009.

special inspector general I troubled asset relief program

TARP Tutorial: Where Does TARP Money Come From?
TARP expenditures to date have been funded largely by increases in the national debt.7
EESA, the Act of Congress that created TARP, did not contain significant new taxes or other
revenue-raising measures — making it necessary to fund TARP with debt. This is not unusual
for emergency spending bills like EESA; because emergency spending bills are created
outside of the annual budget cycle, they often do not have dedicated sources of funds.8
EESA, in section 118, authorized Treasury to fund TARP through public debt, and, in section
122, authorized an increase of the national debt to $11.315 trillion, up from $10.615 trillion.9 Subsequently, the American Recovery and Reinvestment Act (“ARRA”) authorized the
increase of the national debt limit to its current level of $12.104 trillion.
Taking on new debt is an action that has implications for the true cost of the U.S.
Government’s financial rescue initiatives. This tutorial explains the mechanics of how TARP is
funded and describes the factors that contribute to the true cost of TARP to the taxpayer.

TARP Congressional Appropriations Process
SIGTARP’s Initial Report to Congress dated February 6, 2009 (the “Initial Report”) provides
an overview of EESA’s legislative background and the process by which it became law.10
Emergency appropriations, like the one provided for in EESA, have often been used by the
Government to fund activities such as wartime operations, natural disaster recovery efforts,
and, now, the financial crisis bailout. In order to understand the appropriations process for
emergency spending bills, it is helpful to discuss briefly the Government’s annual budget
process.
The U.S. annual budget process is conceptually simple. In February of each year, the
President submits the Administration’s budget to Congress. By April or May, the budget comAppropriation: Authority provided by
law for Federal agencies to incur obligations and to make payments out of
the Treasury for specified purposes.

mittees in the Senate and House will have reviewed the budget and will pass a concurrent
budget resolution setting the overall spending limits. Within those limits, the appropriations
committees then develop individual appropriations bills (each covering a particular department or group of agencies) that generally must be passed by the end of the Federal fiscal
year (September 30). There are almost eight months between the President’s submission of
the initial budget request and the end of the fiscal year.11 Special appropriations rarely have
that much time for approval.
As outlined in SIGTARP’s Initial Report, the process of arriving at EESA was a complicated, but short, process. A request by the Executive Branch was submitted on
September 20, 2008, and a formal version of the request was introduced as a bill in

quarterly report to congress I october 21, 2009

Figure 2.3

Congress. The bill was rejected initially, re-written, approved by the Senate on October 1,
2008, and approved by the House and signed into law by President George W. Bush on
October 3, 2008. In total, just two weeks had elapsed for a $700 billion appropriations

PERCENTAGE OF U.S. GOVERNMENT
EXPENDITURES FUNDED THROUGH
DEBT, 1990 − 2009
Percent of Total Expenditures

bill. Furthermore, given the urgency of the situation, EESA granted Treasury a great deal of

50%

discretion, which allowed for a streamlined approach to spending.

40
30

Creating Funds for TARP

The portion of Government spending funded with debt has been rising. In fiscal year 2009,

the year that TARP was funded, the Federal Government paid for approximately 46% of its

expenditures by issuing new debt.12 This contrasts with a 10-year average of 9% as seen

-10

in Figure 2.3.13 This does not include the accumulation of other future liabilities such as

-20

Social Security and Medicare.14

1990

2000

2009*

Note: Numbers affected by rounding. 2009 figures are
estimated.

TARP Cash Flow Management
The ultimate mix of tax revenues and debt proceeds used to fund TARP will be determined
by the actual cash needs of the program. To meet cash outlay requirements, TARP will
draw from the same general public debt operations that Treasury uses to fund other programs. Thus, it may be difficult to disaggregate specifically TARP-related borrowing from
other Treasury borrowing.
Periodically, Treasury estimates how many debt securities it will need to sell to meet
all of its cash management goals and obligations, which may include the redemption of
maturing securities. If it does not have sufficient funds on hand, it schedules a sale of U.S.
Treasury securities to raise the funds. The Bureau of Public Debt (“BPD”) is the agency
within Treasury that issues the securities and manages interest payments and redemp-

Sources: White House, FY2010 President’s Budget, Historical
Tables, http://www.whitehouse.gov/omb/budget/fy2010/
assets/hist0121.xls, accessed 10/7/2009.

Figure 2.4

MONTHLY TARP OUTLAYS AGAINST
MONTHLY TREASURY BORROWING,
CUMULATIVE, 9/2008 – 8/2009
$ Billions
$2000

1500

1000

tions. For the monthly U.S. debt issuances and TARP outlays since September 2008, see
Figure 2.4.

500

0
SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG

20O8

20O9

Cumulative New U.S. Debt — All Purposes
Cumulative TARP Outlays
Note: Numbers affected by rounding.
Sources: Treasury Financial Management Service, Monthly
Treasury Statement, various, http://www.fms.treas.gov/mts/
backissues.html, accessed 9/30/2009; Treasury, Monthly
Statement of the Public Debt of the United States, various,
www.treasurydirect.gov/govt/reports/pd/ mspd/mspd.htm,
accessed 9/30/2009.

special inspector general I troubled asset relief program

Treasury Security Issuance Process
Treasury Bill: A short-term debt obligation of the U.S. Government with a
maturity of up to one year. Sold in
denominations of $100 with maturities
of 4 weeks, 13 weeks, 26 weeks, and
52 weeks. Sold at auction, with the
price below face value (discount to par)
determining the yield.
Treasury Note: A marketable U.S.
Government debt security with a fixed
interest rate and a maturity between
1 and 10 years. Notes pay interest
semi-annually.

To finance the public debt, Treasury sells a range of instruments, including bills, notes,
bonds, and Treasury Inflation-Protected Securities (“TIPS”) to institutional and individual
investors through public auctions. The auctions occur regularly and have a set schedule,
occurring more frequently for the shorter-duration instruments and less frequently for the
longer-duration instruments.
There are a number of steps to a Treasury auction. The schedule for Treasury auctions
is usually set and announced at least six months in advance. The details of each specific
auction are publicly disclosed within a week of the actual auction.
Typically, investors who wish to purchase the new Treasury securities in the auction
send their orders to their brokers or to one of 18 primary dealers of Treasury securities.15
The primary dealers are then required to bid in the auctions. When BPD holds an auction,
bids are submitted electronically and monitored by three sites simultaneously, including the

Treasury Bond: A marketable, fixedinterest U.S. Government debt security
with a maturity of between 10 and 30
years; paying interest semi-annually.

Federal Reserve Bank of New York (“FRBNY”). Bids are arranged from lowest to highest

Treasury Inflation-Protected Securities
(“TIPS”): A special type of Treasury
note or bond that offers protection
from inflation. TIPS pay interest semiannually, but the coupon payments and
underlying principal are automatically
increased to compensate for inflation
as measured by the consumer price
index (“CPI”).

auction”) format, all winning bidders pay the same price for the securities. On issue day,

Primary Dealers: Banks and securities
broker-dealers that trade in U.S. Government securities with FRBNY for the
purpose of carrying out open market
operations.

yield (highest to lowest price) until the desired amount of the offering has been reached.
The yield refers to the effective interest rate that a security pays — the lower the yield,
the cheaper it is for Treasury. Since auctions are conducted in a single price (or “Dutch
Treasury delivers the securities to all auction winners, and the corresponding proceeds
are deposited into the Treasury General Account at FRBNY. Individual investors may also
bid in the auctions through Treasury’s auction website, TreasuryDirect. Most individuals
who want to buy Treasuries at auction use TreasuryDirect rather than going through a
broker, and most institutional investors do so by contacting the institutional sales desk of a
broker-dealer.
Treasury bonds, notes, and TIPS are issued with a stated interest rate on the face
amount and they pay out interest to the holder at a regular interval (every six months). The
price is determined at auction; the price can be less than, greater than, or equal to the
face amount of the security. Alternatively, Treasury bills are issued at a discount from their
face value ($100) and are paid at their par (face amount) at maturity. Unlike investors in
bonds, notes, and TIPS, investors in Treasury bills will not receive regular interest payments; rather they will receive the full face value of the bill — in this case $100 — at its
maturity. A $100 one-year bill, which sold for $95, would effectively mean an interest rate
of 5.3% for investors (calculated as ($100 – $95)/$95). The purchase prices of the bills at
auction are listed on Treasury’s auction results press release and are expressed as a price
per hundred dollars.16 It is difficult to ascertain the identities of the investors who bought

quarterly report to congress I october 21, 2009

the Treasury debt used to pay for TARP. However, in the aggregate, the dominant investors in U.S. Government debt are Federal agencies. As seen in Figure 2.5, the Federal
Government, including the Federal Reserve, owned a total of approximately 41.3% of the
outstanding debt as of March 31, 2009.

Cost of Capital Implications
Because the source of funding for TARP was an increase in the national debt (EESA
raised the statutory limit of U.S. debt to $11.315 trillion from $10.615 trillion), there is
a long-term cost to taxpayers in terms of the interest that they must pay for the duration
that any TARP funds remain outstanding.17 Fortunately, Treasury bonds are considered a
relatively risk-free investment, and their interest rate is one of the lowest in the world. Yet,
Treasury still must pay an interest rate that is sufficiently high enough to provide a positive
real return to investors (the interest paid is greater than annual inflation). Although interest
rates are currently low, the added debt and associated stimulus could eventually lead to
the possibility of inflation, and the Federal Reserve might eventually have to raise interest
rates in response.
Also potentially affecting the Government’s cost of capital for TARP is the duration
of the securities it issued to fund the program. Treasury has the ability to borrow short-

Dutch Auction: Auction technique used
for selling Treasury securities where
investors bid different prices (yields)
for different quantities of the offered
security. Treasury selects the highest
group of bids that sells the full offering,
and all winning bidders pay the same
price — the lowest bid within that winning group. For instance, three investors place bids for $500 million each
worth of securities (on a $1 billion
offering by Treasury). Treasury selects
the two highest bidders (totaling $1
billion) and they both pay the price bid
by the lower of the two winners.
Figure 2.5

OWNERSHIP OF TREASURY SECURITIES,
AS OF 3/31/2009
% of $11.1 trillion
U.S. Government−
Intra-Governmental Holdings

38.6%

term, medium-term, and long-term funds, and the duration of Treasury’s debt instruments
directly affects the cost of Treasury’s borrowing. Typically, the cost of borrowing is higher
for longer-duration debt; the assumption is that shorter-term investments are less risky

29.4%

Foreign and
International

(the change in interest rates is more predictable over a short period of time) and require a
lower effective interest rate. For instance, a one-month Treasury bill issued on October 28,
2008 (the date of the first CPP investments), carried a 0.4% interest rate, while a Treasury
security with 20 years to maturity carried a 4.5% interest rate.18 Although shorter-term
debt is generally less expensive, it provides less certainty about future borrowing costs.
When the Government goes back to the market to issue new debt to replace its maturing
debt, the market may have changed and rates may have increased. Longer-term debt, on
the other hand, allows the Government to know what its interest cost will be for a longer
period of time.

Methods for Calculating Interest Costs
Determining the actual interest costs for Treasury’s TARP funds is difficult because, as
the GAO observed in its recent report (“Troubled Asset Relief Program: One Year Later,

Other Investors 7.9%
Mutual Funds 6.4%
State and
Local Governments 4.7%
Federal Reserve 4.4%
Private Pension Funds 2.7%
U.S. Savings Bonds 1.7%
State and Local Pension Funds 1.6%
Insurance Companies 1.3%
Depository Institutions 1.1%
Notes: Numbers affected by rounding. March 2009 is the most
recent month with complete data available.
Sources: Treasury Financial Management Service, Ownership of
Federal Securities, www.fms.treas.gov/bulletin/b2009-3ofs.doc,
accessed 9/30/2009; Treasury, Monthly Statement of the Public
Debt of the United States, 3/31/2009,
www.treasurydirect.gov/govt/reports/pd/mspd/2009/opds032009.
pdf, accessed 10/7/2009.

special inspector general I troubled asset relief program

Actions Are Needed to Address Remaining Transparency and Accountability Challenges”),
“Treasury manages its cash position and debt issuances from a government-wide perspective, therefore it is generally not possible to match TARP disbursements with specific debt
securities issued by Treasury and the related borrowing costs.”19 Thus, any interest cost
calculation would require an estimate based on certain assumptions. Potential approaches
to estimating interest rates include:
• Short-term cost of borrowing. This method assumes that the entire program is
funded by short-term borrowings (maturing between 91 and 270 days) that are rolled
over into new short-term borrowings as they come due. Using an average of shortterm interest rates produces a much lower cost of borrowing than other methods but
has the potential for higher volatility due to fluctuations in interest rates over time.
Potentially useful in such short-term estimates is the “Economic Assumptions” section of the President’s annual budget submission, which provides a projected average
91-day Treasury bill rate across several years to calculate projected short-term interest
costs for a range of Government programs. The document provides short-term borrowing cost estimates of 0.2% for fiscal year 2009 and 1.6% for fiscal year 2010.20
• Average blended cost of Treasury funds. A more medium-term approach is to
attempt to use an index of short- and medium-term Treasury securities, since the duration of Treasury’s TARP investments has ranged from a few months to nearly a year.
Freddie Mac maintains an index called the Federal Cost of Funds Index (“COFI”) — an
average of short- and medium-term Treasury interest rates. According to COFI, the
blended interest rates of U.S. Treasury securities issued at the time of TARP’s inception
was approximately 2.7% and has dropped below 2% in the second half of fiscal year
2009.21
• “All-In” cost of Treasury borrowing. This method is used by many Federal credit
agencies and reflects the blended cost of all Treasury borrowings, including long-term
maturities. This rate has the lowest risk of future interest rate increases but is also
generally more expensive. Potentially useful in such conservative estimates is the
“Economic Assumptions” section of the President’s annual budget submission, which
uses a projected average 10-year Treasury note rate to calculate projected interest
costs for a variety of programs. The document provides long-term borrowing cost
estimates of 2.8% for fiscal year 2009 and 4.0% for 2010.22

quarterly report to congress I october 21, 2009

Treasury’s TARP Interest Cost Estimates
As cited in GAO’s report, Treasury used a short-term borrowing method for its estimates
of TARP interest costs.23 To do so, Treasury’s Office of Fiscal Projections attempted to
identify the actual debt offerings used to fund TARP expenditures. Treasury was able to
identify three specific cash management bills (“CMBs”) used to fund the majority of the
initial $115 billion of TARP disbursements in late October 2008. These CMBs averaged
221 days’ maturity at an average interest rate of 1.4%.24 Based on these calculations,
Treasury “estimated TARP borrowing costs as a proportion of total monthly borrowing
costs on a rolling basis since program inception. These borrowing costs include refinancing TARP when initial financing matured as well as the reduction of financing costs due
to repayments.”25 Using this method, Treasury estimates that approximately 90% of the
securities used to fund TARP were short-term bills, with interest rates between 0 and 1%.
Treasury estimates that the dollar-weighted average cost of funding was below 0.9% for
its TARP borrowings for a total interest cost of $2.3 billion, as of September 30, 2009.26
Calculations using an average blended cost of Treasury funds would indicate a cost of at
least twice this amount, and an “all-in” estimate would yield an amount 3 to 4 times the
$2.3 billion estimate.27

Other Factors Affecting Return on TARP Investments
The $699 billion in potential TARP expenditures would account for approximately 6% of the
national debt limit as specified in EESA section 122 (and 5% of the 2008 Gross Domestic
Product (“GDP”)), or approximately $5,000 per U.S. taxpayer.28 Given the magnitude of
this potential investment, it is important to pay close attention to the costs that affect the
return on TARP investments.
There has been considerable discussion of the potential return on investment (“ROI”)
for TARP. Considering the size of the dividend payments from many TARP recipients and
the value from exercising or selling warrants for shares of participating institutions, some
observers have even posited that TARP may ultimately be deficit neutral, or even net
positive, to Treasury and taxpayers. However, these estimates of return can be misleading. Each TARP program has different characteristics and potential for returns. HAMP,
for example, is a pure incentive-payout program and results in no repayment of funds to
Treasury; it is designed to produce benefits to the market, but not a direct monetary return
to the taxpayers. On the other hand, there will be returns for CPP; but these returns will
depend on Treasury’s ability to collect dividends, convert warrants into cash, and recover

Cash Management Bill (“CMB”): A type
of short-term Treasury bill sold by Treasury to meet temporary funding shortfalls. CMB maturities can range from a
few days to more than six months, and
auctions can be announced with less
than one week’s notice.
Return on Investment (“ROI”): A measure of the efficiency of one investment option versus other options.
Calculated as a percentage: (the gain
from an investment minus the cost of
the investment) divided by the cost of
that investment.

special inspector general I troubled asset relief program

invested principal. In particular, failures to recover significant amounts of principal could
Crowding Out: A term historically used
to describe the impact on the private
sector of heavy Government debt
issuance. This drives up interest rates,
forcing the private sector to pay more,
and edging it out of the market. Just
as private-sector issuances have to
compete with the lending Treasury did
for TARP, so too will other Treasury
issuances be forced to pay the higher
interest rates resulting from the TARP
borrowing.
Moral Hazard: A term used in economics and insurance to describe the lack
of incentive individuals have to guard
against a risk when they are protected
against that risk (for example, through
an insurance policy). In the context
of TARP, it refers to the danger that
private-sector executives/investors/
lenders may behave more recklessly
believing that the Government has
insulated them from the risks of their
actions.

entirely wipe out some of the early TARP returns.
In addition to program-specific return characteristics, there are a wide range of costs
that must be applied against any calculation of TARP ROI, foremost of which is the cost
of capital that Treasury pays on the debt it uses to fund TARP investments, as previously
discussed. This cost may have significant refinancing risk if, as Treasury asserted, TARP
has been funded predominantly with short-term instruments. These short-term obligations
must be refinanced continually, through subsequent Treasury auctions, or repaid. This
cycle will continue until all TARP funds are repaid, and the interest rates of instruments
from subsequent debt auctions may be heavily influenced by inflationary pressure which
could drive up interest rates and result in a significant increase in the cost of financing
TARP-related debt.
The ultimate cost of TARP to U.S. taxpayers will not be known for some time, and
in fact a true net cost may never be known with precision. Many factors have yet to be
determined: the net recovery value of investments made by Treasury; the cost to the
Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”), and other agencies
acting in concert with TARP; the administrative costs of setting up OFS and the various
oversight agencies, including SIGTARP; and other administrative expenses. However, the
Congressional Budget Office (“CBO”) estimated the net cost of TARP as $356 billion (as
of March 2009), which it later reduced to $159 billion (as of June 2009).29 The methodology used by CBO, however, does not include indirect costs or other externalities that will
impact the costs of the program, both tangible and intangible, possibly including:
• higher borrowing costs in the future as a result of increased Treasury borrowing levels
• a potential ‘crowding out effect’ on prospective private-sector borrowers, potentially
driving private-sector borrowers out of the market
• moral hazard, or unnecessary risk-taking in the private sector due to the bailout
• costs incurred by the other financial-rescue-related Federal agencies that have not yet
been quantified

quarterly report to congress I october 21, 2009

Financial Institution Support Programs
The primary tool of TARP for assisting financial institutions thus far has been a
direct investment of capital. Financial institutions, for TARP purposes, include
banks, bank holding companies and, if deemed critical to the financial system,
certain systemically significant institutions.
• Capital Purchase Program (“CPP”). Under CPP, TARP funds are used to purchase directly preferred stock or subordinated debentures in qualified financial
institutions. Treasury created CPP to provide funds to “stabilize and strengthen
the U.S. financial system by increasing the capital base of an array of healthy,
viable institutions, enabling them [to] lend to consumers and business[es].”30
As of September 30, 2009, Treasury had invested $204.6 billion in institutions
through CPP.31 This represents 94% of the maximum projected funding total of
$218 billion under the program, of which $70.7 billion had been repaid as of
September 30, 2009.32 See the “Capital Purchase Program” discussion in this
section for more detailed information.
• Capital Assistance Program (“CAP”). Similar to CPP, the goal of CAP is to
“ensure the continued ability of U.S. financial institutions to lend to creditworthy borrowers in the face of a weaker than expected economic environment and
larger than expected potential losses.”33 As of September 30, 2009, no transactions had occurred under this program. See the “Capital Assistance Program”
part of this section for a more detailed discussion on this program.
• Systemically Significant Failing Institutions (“SSFI”) Program. Under the
stated terms of the SSFI program, Treasury invests in systemically significant institutions to prevent their failure and the market disruption that would follow.34
As of September 30, 2009, Treasury, through SSFI, had made and is committed to make further investments in one institution — American International
Group, Inc. (“AIG”). This support was provided through two transactions —
$40 billion for the purchase of preferred stock from AIG to repay debt owed to
the Federal Reserve and approximately $29.8 billion for an equity capital facility
that AIG can draw on as needed.35 As of September 30, 2009, AIG had drawn
down $3.2 billion in equity from the capital facility.36 See the “Systemically
Significant Failing Institutions” portion of this section for a more detailed discussion of the AIG transactions.
• Targeted Investment Program (“TIP”). The stated objective of TIP is to
make targeted investments in financial institutions “to avoid significant market
disruptions resulting from the deterioration of one financial institution that can
threaten other financial institutions and impair broader financial markets and
pose a threat to the overall economy.”37 As of September 30, 2009, Treasury
had made two expenditures under this program totaling $40 billion — purchasing $20 billion of senior preferred stock from each of Citigroup and Bank

Senior Preferred Stock: Shares that
give the stockholder priority dividend
and liquidation claims over junior preferred and common stockholders.

special inspector general I troubled asset relief program

Illiquid Assets: Assets that cannot be
quickly converted to cash. CPP invests
in senior subordinated debt.
Commercial Mortgage-Backed Securities (“CMBS”): A financial instrument
that is backed by a commercial real
estate mortgage or a group of commercial real estate mortgages that are
packaged together.

of America.38 In addition to the senior preferred stock, Treasury also received
warrants of common stock for its investment in these financial institutions. See
the “Targeted Investment Program” portion of this section for a more detailed
discussion on these two transactions.
• Asset Guarantee Program (“AGP”). Through AGP, Treasury’s stated goal is to
use insurance-like protections to help stabilize at-risk financial institutions. AGP
provides certain loss protections on a select pool of mortgage-related or similar
assets held by participants whose portfolios of distressed or illiquid assets pose a
risk to market confidence.39 Treasury, FDIC, and the Federal Reserve agreed to
provide certain loss protections with respect to $301 billion in troubled assets
held by Citigroup.40 Should Citigroup’s losses rise above $39.5 billion, Treasury
is obligated to pay up to $5 billion in protection toward additional losses; as
of September 30, 2009, Citigroup had not received any funds from AGP.41
A similar arrangement with Bank of America was announced on January 16,
2009; Bank of America, however, chose not to go through with the program. On
September 21, 2009, Bank of America agreed to compensate the Government
$425 million for the economic benefit it received while the market believed
that the Government would be backing its assets. See the “Asset Guarantee
Program” discussion in this section for more information on this program.

Asset Support Programs
The purpose of these programs is to support the liquidity and market value of assets owned by financial institutions. These assets may include various classes of
asset-backed securities (“ABS”) and several types of loans. These programs seek
to bolster the balance sheets of the financial firms and help free up capital so that
financial institutions can extend more credit to support the U.S. economy.
• Term Asset-Backed Securities Loan Facility (“TALF”). TALF was originally
designed to increase the credit available for consumer and small-business loans
through a Federal Reserve loan program backed by TARP funds. TALF provides non-recourse loans to investors secured by certain types of ABS including
credit card loans, student loans, floorplan loans, insurance premium finance
loans, loans guaranteed by the Small Business Administration (“SBA”), residential mortgage servicing advances, and commercial mortgage-backed securities
(“CMBS”). According to Treasury, it will provide up to $80 billion42 of TARP
funds to support this program (Treasury’s current TALF commitment is $20
billion, but should TALF exceed a total of $200 billion in loans extended by
FRBNY, then Treasury will commit additional TARP funds). As of September
30, 2009, FRBNY had facilitated seven TALF subscriptions of non-mortgagerelated ABS, totaling approximately $47.3 billion of TALF borrowings.43 In addition, as of September 30, 2009, FRBNY had conducted four subscriptions for

quarterly report to congress I october 21, 2009

CMBS for which $4.2 billion in loans were issued.44 An overview of TALF, later
in this section, provides more information on these activities.
• Public-Private Investment Program (“PPIP”). As originally announced,
Treasury, in coordination with FDIC and the Federal Reserve, intended PPIP
to improve the health of financial institutions and restart frozen credit markets
through the purchase of legacy assets (e.g., legacy loans, CMBS, residential
mortgage-backed securities (“RMBS”)).45 PPIP was intended to involve investments made through multiple Public-Private Investment Funds (“PPIFs”) in
two subprograms — one to purchase real estate-related loans (“legacy loans”)
and the other to purchase real estate-related securities (“legacy securities”) from
financial institutions. FDIC launched a pilot Legacy Loans Program on July
31, 2009, with assets it had seized from bankrupt institutions. FDIC did not
use TARP funds for this pilot program and is considering an expansion of this
program without TARP funding.46 The Legacy Securities Program continues to
develop, and on July 8, 2009, Treasury announced the selection of nine PPIF
managers that will receive debt and equity financing of up to $30 billion in
TARP funds during the initial capital-raising efforts for the PPIFs.47 Treasury
has stated that PPIP, originally intended to involve up to $1 trillion in total
funds, may involve up to $75 billion of TARP funds.48 See the “Public-Private
Investment Program” discussion later in this section for details about the program structure and fund manager terms.
• Unlocking Credit for Small Businesses (“UCSB”). Under UCSB, Treasury
announced that it will begin purchasing up to $15 billion in securities backed
by SBA loans.49 As of September 30, 2009, no transactions had occurred under
this program. See the discussion of “Small Business Administration Loan
Support” in this section for more information on the program.

Automotive Industry Support Programs
The stated objective of TARP’s automotive industry support programs is to “prevent
a significant disruption of the American automotive industry, which would pose a
systemic risk to financial market stability and have a negative effect on the economy of the United States.”50
• Automotive Industry Financing Program (“AIFP”). Under this program,
Treasury made emergency loans to Chrysler Holding LLC (“Chrysler”), Chrysler
Financial Services Americas LLC (“Chrysler Financial”), and General Motors
Corporation (“GM”). In addition to these investments, Treasury purchased
senior preferred stock from GMAC LLC (“GMAC”). Treasury also provided
financing to Chrysler and GM to assist in their restructuring process. As of
September 30, 2009, Treasury had expended or committed $76.9 billion in
AIFP investments, of which $1.5 billion had been repaid.51 Treasury received an

Legacy Assets: Also commonly
referred to as troubled or toxic assets,
legacy assets are real estate-related
loans and securities (legacy loans and
legacy securities) that remain on banks’
balance sheets that have lost value but
are difficult to price due to the recent
market disruption.
Legacy Loans: Underperforming real
estate-related loans held by a bank
that it wishes to sell, but recent market
disruptions have made difficult to price.
Legacy Securities: Troubled real estaterelated securities (RMBS, CMBS), and
other asset-backed securities (“ABS”)
lingering on institutions’ balance sheets
because their value could not be
determined.

special inspector general I troubled asset relief program

Pro Forma: In finance, refers to the
presentation of hypothetical financial
information assuming that certain assumptions will happen.

8% pro forma equity stake in Chrysler and a 61% equity stake in General Motors
as partial repayment of TARP funds.52 See the discussion of “Automotive
Industry Financing Program” later in this section for a detailed discussion on
these companies.
• Auto Supplier Support Program (“ASSP”). The stated purpose of ASSP is to
provide Government-backed financing to break the adverse credit cycle affecting the auto suppliers and the manufacturers by “providing suppliers with the
confidence they need to continue shipping their parts and the support they need
to help access loans to pay their employees and continue their operations.”53
Treasury’s original commitment under this program was $5 billion, but as of
September 30, 2009, it had been reduced to $3.5 billion — $1.0 billion for
Chrysler and $2.5 billion for GM.54 After emerging from bankruptcy, the new,
non-bankrupt GM and Chrysler assumed the debts associated with ASSP.55
See the discussion of “Auto Supplier Support Program” in this section for more
information.
• Auto Warranty Commitment Program (“AWCP”). The Auto Warranty
Commitment Program was designed by the Administration with the intention of
bolstering consumer confidence in automobile warranties on Chrysler- and GMbuilt vehicles. Under this program, Government-backed financing was to be
provided for the warranties of cars sold during the Chrysler and GM restructuring periods. As reported in SIGTARP’s July Quarterly Report, Treasury funded
$640.7 million toward this program — $280.1 million was made available to
Chrysler and $360.6 million was made available to GM.56 As of September
30, 2009, the entire $640.7 million had been repaid with interest, and the
program was terminated in July 2009.57 See the discussion of “Auto Warranty
Commitment Program” in this section for more information.

Homeowner Support Program
The homeowner support program and its initiatives are aimed at assisting troubled
homeowners and financial institutions holding the affected assets.
• Making Home Affordable (“MHA”) Program. According to Treasury, MHA
is a foreclosure mitigation plan intended to “help bring relief to responsible
homeowners struggling to make their mortgage payments while preventing
neighborhoods and communities from suffering the negative spillover effects of
foreclosure, such as lower housing prices, increased crime, and higher taxes.”58
Within MHA, there are three major initiatives, only one of which involves TARP

quarterly report to congress I october 21, 2009

funds — the Home Affordable Modification Program (“HAMP”). Under HAMP,
Treasury announced that up to $50 billion of TARP funds could be expended
for this $75 billion program.59 As of September 30, 2009, $27.1 billion in TARP
funds had been allocated to the program. See the “Making Home Affordable”
discussion in this section for more detailed information.
The following figures and tables provide a status summary of the implemented
and announced TARP and TARP-related initiatives:
• projected TARP funding by program (Figure 2.6)
• expenditure levels by program as of September 30, 2009 (Table 2.1)
• total potential funds subject to SIGTARP oversight as of September 30, 2009
(Table 2.2)
• cumulative expenditures over time for implemented programs (Figure 2.7)
• summary of dividend and interest payments received by program (Table 2.3)
• expenditures by program snapshot as of September 30, 2009 (Figure 2.8)
• summary of terms of TARP agreements (Table 2.4 and Table 2.5)
• summary of largest warrant positions held by Treasury by program as of
September 30, 2009 (Table 2.6)

Figure 2.6

PROJECTED TARP FUNDING,
BY PROGRAM
$ Billions, % of $699 Billion
UCSB 2%
$15.0

ASSPd $3.5 1%
AGP $5.0 1%

TIP $40.0
MHA $50.0

21%

CPP $218.0
($70.7)a

SSFI $69.8 10%

PPIP $75.0

11%

20%
11%

AIFP $77.6b,c
($2.1)

11%
TALF $80.0e

New
Programs, or
Remaining
Funds for
Existing
Programs
$138.0

Implemented Programs
Announced Programs
Remaining Funds

For a reporting of all purchase, obligations, expenditures, and revenues of
TARP, see Appendix C: “Reporting Requirements.”

Notes: Numbers affected by rounding. Data as of 9/30/2009.
Funding for Capital Assistance Program (“CAP”) to be determined.
CPP funding of $70.7 billion had been repaid.
AIFP loan principal payments of $2.1 billion had been repaid.
(Repayment of $0.6 billion was from AWCP.)
c
For the purpose of this chart, AIFP includes the $641 million for
AWCP, which was fully repaid as of 7/10/2009.
d
Treasury’s original commitment under this program was $5 billion,
but was subsequently reduced to $3.5 billion effective 7/1/2009.
e
Treasury’s current TALF commitment is $20 billion but should TALF
exceed a total of $200 billion in loans extended by FRBNY, then
Treasury’s commitment could reach $80 billion.
a

Sources: See final endnote.

special inspector general I troubled asset relief program

Table 2.1

Expenditure Levels by Program, AS OF 9/30/2009
Authorized Under EESA
Released Immediately
Released Under Presidential Certificate of Need
Released Under Presidential Certificate of Need &
Resolution to Disapprove Failed
Helping Families Save Their Homes Act of 2009
Total Released
Less: Expenditures by Treasury Under TARPa
Capital Purchase Program (“CPP”):
Bank of Americab
Citigroup
JPMorganc
Wells Fargo
The Goldman Sachsc
Morgan Stanley c
Other Qualifying Financial Institutionsd
CPP Total
Systemically Significant Failing Institutions (“SSFI”)
Program:
American International Group, Inc. (“AIG”)
SSFI Total
Targeted Investment Program (“TIP”):
Bank of America Corporation
Citigroup, Inc.
TIP Total
Asset Guarantee Program (“AGP”):
Citigroupe
AGP Total
Term Asset-Backed Securities Loan Facility (“TALF”):
TALF LLCf
TALF Total
Automotive Industry Financing Program (“AIFP”):
GM
GMAC
Chryslerg
Chrysler Financialh
AIFP Total
Automotive Supplier Support Program (“ASSP”):
GM Suppliers Receivables LLCi
Chrysler Holding LLCi
ASSP Total
Automotive Warranty Commitment Program (“AWCP”):
GM
Chrysler
AWCP Total

($ Billions)

Amount

Percent (%)

Section Reference

$700.0
$250.0
100.0

35.8%
14.3%

350.0

50.1%

(1.2)
$698.8
$25.0
25.0
25.0
25.0
10.0
10.0
84.6

(0.2%)
100.0%
3.6%
3.6%
3.6%
3.6%
1.4%
1.4%
12.1%

$204.6

29.3%

$69.8

10.0%
10.0%

$40.0

2.9%
2.9%
5.7%

$5.0

0.7%
0.7%

$20.0

2.9%
2.9%

$69.8

$20.0
20.0

$5.0

$20.0

$49.5
13.4
12.5
1.5

7.0%
1.9%
1.8%
0.2%

“Financial Institution Support
Programs”

“Financial Institution Support
Programs”
“Financial Institution Support
Programs”
“Asset Support Programs”

“Automotive Industry Support
Programs”

$76.9

11.0%
“Automotive Industry Support
Programs”

$3.5

0.4%
0.1%
0.5%

“Automotive Industry Support
Programs”

$0.6

0.1%
0.0%
0.1%

$2.5
1.0

$0.4
0.3

quarterly report to congress I october 21, 2009

Expenditure Levels by Program, AS OF 9/30/2009
Legacy Securities Public-Private Investment Program
(“PPIP”)
TCW Senior Mortgage Securities Fund, L.P.
Invesco Legacy Securities Master Fund, L.P.
PPIP Total
Making Home Affordable (“MHA”):
Countrywide Home Loans Servicing LP
Wells Fargo Bank, NA
CitiMortgage
GMAC Mortgage
Wachovia Mortgage
American Home Mortgage Servicing
J.P. Morgan Chase Bank
Litton Loan Servicing
Other Financial Institutionsj
MHA Total
Subtotal - TARP Expenditures
TARP Repaymentsk
Balance Remaining of Total Funds Made
Available as of 9/30/2009

($ Billions)

Amount

Percent (%)

$3.3
3.3

0.5%
0.5%
1.0%

$6.7
$4.5
2.5
2.1
3.6
1.4
1.2
2.7
1.1
8.1
$454.3
$(72.9)

0.6%
0.4%
0.3%
0.5%
0.2%
0.2%
0.4%
0.2%
1.2%
3.9%
65.0%
(10.4%)

$317.3

45.4%

$27.1

Section Reference
“Asset Support Programs”

“Homeowner Support Program”

Notes: Numbers affected by rounding. Expenditures do not reflect any repayments received.
a
From a budgetary perspective, expenditures are what Treasury has committed to spend (e.g., signed agreements with TARP fund recipients).
b
Bank of America’s share is equal to two CPP investments totaling $25 billion, which is the sum of $15 billion received on 10/28/2008 and $10 billion received on 1/9/2009.
c
These institutions repaid their CPP funds pursuant to Title VII, section 7001(g) of the American Recovery and Reinvestment Act of 2009.
d
Other Qualifying Financial Institutions (“QFIs”) include all QFIs that have received less than $10 billion through CPP.
e
Treasury committed $5 billion to Citigroup under AGP; however, this funding is conditional based on losses realized and may potentially never be expended. This amount is not an actual outlay of cash.
f
Treasury committed $20 billion to TALF; however only $100 million had been funded as of 9/30/2009.
g
According to Treasury, the 4/29/2009 $500 million expansion of the 1/2/2009 $4 million loan was de-obligated before being funded. Treasury de-obligated a further $1.9 billion in debtor-in-possession
financing to Chrysler on 6/30/2009.
h
Treasury’s $1.5 billion loan to Chrysler Financial represents the maximum loan amount. The loan was incrementally funded until it reached the maximum amount of $1.5 billion on 4/9/2009.
i
Represents a special purpose vehicle (“SPV”) created by the manufacturer. Balance represents the maximum loan amount, which will be funded incrementally. Treasury’s original commitment under this
program was $5 billion, but was subsequently reduced to $3.5 billion effective 7/1/2009.
j
Other Financial Institutions that have received less than $1 billion through MHA.
k
As of 9/30/2009, CPP repayments total $70.7 billion and AIFP loan repayments total $2.1 billion.
Sources:
Emergency Economic Stabilization Act, P.L. 110-343, 10/3/2008; Library of Congress, “A Joint Resolution Relating to the Disapproval of Obligations under the Emergency Economic Stabilization Act of
2008,” 1/15/2009, www.thomas.loc.gov, accessed 1/25/2009; Helping Families Save Their Homes Act of 2009, P.L. 111-22, 5/20/2009; Treasury, Transactions Report, 10/2/2009.

special inspector general I troubled asset relief program

Table 2.2

Total Potential funds subject to sigtarp oversight, As of 9/30/2009

($ Billions)

Program

Brief Description or Participant

Total Projected
Funding at Risk ($)

Projected TARP
Funding ($)

Capital Purchase Program (“CPP”)

Investments in 685 banks to date; 8 institutions
total $134 billion; received $70.7 billion in capital
repayments

$218.0

($70.7)

Automotive Industry Financing Program
(“AIFP”)

GM, Chrysler, GMAC, Chrysler Financial; received
$1.5 billion in loan repayments

Auto Supplier Support Program (“ASSP”)

Government-backed protection for auto parts
suppliers

Auto Warranty Commitment Program
(“AWCP”)

Government-backed protection for warranties of
cars sold during the GM and Chrysler bankruptcy
restructuring periods; fully repaid on 7/10/2009

0.6

($0.6)

Unlocking Credit for Small Businesses
(“UCSB”)

Purchase of securities backed by SBA loans

15.0b

15.0

Systemically Significant Failing Institutions
(“SSFI”)

AIG investment

69.8c

Targeted Investment Program (“TIP”)

Citigroup, Bank of America investments

40.0

Asset Guarantee Program (“AGP”)

Citigroup, ring-fence asset guarantee

Term Asset-Backed Securities Loan Facility
(“TALF”)

FRBNY non-recourse loans for purchase of assetbacked securities

Making Home Affordable (“MHA”) Program

Modification of mortgage loans

Public-Private Investment Program (“PPIP”)

Disposition of legacy assets; Legacy Loans
Program, Legacy Securities Program
(expansion of TALF)

Capital Assistance Program (“CAP”)

Capital to qualified financial institutions; includes
stress test

New Programs, or Funds Remaining for
Existing Programs

Potential additional funding related to CAP; other
programs

Total

76.9

($1.5)

3.5a

301.0

5.0

1,000.0

80.0d

75.0e

50.0

500.0 – 1,000.0

75.0

TBD

138.0

$2,365.0 – $2,865.0

$698.8

Notes: Numbers affected by rounding.
a
Treasury’s original commitment under this program was $5 billion, but subsequently reduced to $3.5 billion effective 7/1/2009.
b
Treasury announced that it would purchase up to $15 billion in securities under the Unlocking Credit for Small Businesses program.
c
Actual TARP expenditures as of 9/30/2009.
d
Treasury’s current TALF commitment is $20 billion but should TALF exceed a total of $200 billion in loans extended by FRBNY, then Treasury’s commitment could reach $80 billion.
e
$75 billion is for mortgage modification.
Sources: Treasury, Office of Financial Stability, Chief of Compliance and CFO, SIGTARP interview, 3/30/2009; Treasury, Transactions Report, 10/2/2009; Treasury, “Auto Supplier Support
Program: Stabilizing the Auto Industry in a Time of Crisis,” 3/19/2009, http://www.treas.gov/press/releases/docs/supplier_support_program_3_18.pdf, accessed 3/19/2009; Treasury,
“Unlocking Credit for Small Businesses Fact Sheet,” 3/17/2009, http://www.financialstability.gov/roadtostability/unlockingCreditforSmallBusinesses.html, accessed 6/10/2009; Treasury,
“Treasury, Federal Reserve, and FDIC Provide Assistance to Bank of America,” 1/16/2009, http://www.treas.gov/press/releases/hp1356.htm, accessed 1/16/2009; Treasury Press Release,
“U.S. Government Finalizes Terms of Citi Guarantee Announced in November,” 1/16/2009, http://www.financialstability.gov/latest/hp1358.html, accessed 6/8/2009; Treasury, “Financial
Stability Plan Fact Sheet,” 2/10/2009, http://www.financialstability.gov/docs/fact-sheet.pdf, accessed 6/8/2009; Treasury, “Making Home Affordable: Updated Detailed Program Description,”
3/4/2009, http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf, accessed 6/10/2009; Treasury, “Public-Private Investment Program,” 4/6/2009, http://www.financialstability.gov/roadtostability/publicprivatefund.html, accessed 6/9/2009.

quarterly report to congress I october 21, 2009

Figure 2.8

EXPENDITURES BY PROGRAM, SNAPSHOT

Table 2.3

$ Billions, % of $454.3 Billion

DIVIDEND and interest payments,
by program ($ MIllions)
Program

PPIP $6.7 1%

CPPa

MHA $27.1 6%

$6,789.7

SSFI

—–

TIP

TIP $40.0

1,862.2
b

AIFP

670.9

AGP

174.8

ASSP

5.9

Total

$9,503.5

AGP $5.0 1%
ASSP $3.5c 0.1%

TALF $20.0 4%

Amount

AWCP $0.6d

>0.1%

9%
45% CPP $204.6a

SSFI $69.8 15%

17%
AIFP $76.9b

Notes: Numbers affected by rounding. Data as of 9/30/2009.
a Includes $13 million fee received as part of the Banco
Popular exchange.
b Includes AWCP.

Notes: Numbers affected by rounding. Data as of 9/30/2009.
From a budgetary perspective, expenditures are what Treasury
committed to spend (e.g., signed agreements with TARP fund
recipients). Expenditures do not reflect any repayments received.
a
$70.72 billion of CPP funding had been repaid.
b
$1.5 billion of principal payments related to AIFP loans had
been repaid.
c
Treasury’s original commitment under this program was
$5 billion, but subsequently reduced to $3.5 billion effective
7/1/2009.
d
The $0.6 billion expended for AWCP was repaid on
7/10/2009.

Source: Treasury, response to SIGTARP data call, 10/7/2009.

Source: Treasury, Transactions Report, 10/2/2009.

Figure 2.7

EXPENDITURES, BY PROGRAM, CUMULATIVE, 10/2008 – 9/2009
$ Billions
$500

$6.7
$5.0
$27.0
$20.0
$40.0
a
$81.1

400

300

PPIP
AGP
MHA
TALF
TIP
Auto
Programs

$69.8 SSFI
200
b

100

$204.6 CPP
0
10/31

11/30

12/31

1/31

2/28

2008

3/31

4/30

5/31

6/30

7/31

8/31

9/30

2009

PPIP
AGP
MHA
TALF
TIP
Auto Programs
SSFI
CPP
Notes: Numbers affected by rounding.
a Auto Programs include AIFP, ASSP, and AWCP. AIFP loan principal of $2.1 billion has been repaid. (Repayment of $0.6 billion was from
AWCP.) AIFP commitment amount reduced through $2.4 billion de-obligation. (Not reflected on the Transactions Report.)
b CPP funding of $70.7 billion has been repaid.
Source: Treasury, Transactions Report, 10/2/2009.

special inspector general I troubled asset relief program

Table 2.4

Equity Agreements
TARP Program

Company

Date of Agreement

CPP – Public

284 QFIs

10/14/2008a and later

Cost Assigned

$200.1

($ Billions)

Description of Investment

Senior Preferred Equity
Common Stock Purchase Warrants

CPP – Private

352 QFIs

11/17/2008b and later

$ 4.0

Preferred Equity
Preferred Stock Purchase Warrants that
are exercised immediately

SSFI

AIG

4/17/2009

$41.6c

Non-Cumulative Preferred Equity
Common Stock Purchase Warrants

SSFI

AIG

4/17/2009

$29.8d

Non-Cumulative Preferred Equity
Common Stock Purchase Warrants

TIP

Citigroup

12/31/2008

$20.0e

Trust Preferred Securities
Warrants

TIP

Bank of America

1/16/2009f

$20.0

Senior Preferred Equity
Warrants

AIFP

GMAC LLC

12/29/2008

$5.0

Senior Preferred
Membership Interests
Preferred Stock
Purchase Warrants that are exercised immediately

AIFP

GMAC LLC

5/21/2009

$7.5

Mandatorily Convertible Preferred Stock
Preferred Stock
Purchase Warrants that are exercised immediately

AIFP

GMAC LLC

5/29/2009

$0.9

Common Equity Interest

Notes: Numbers affected by rounding.
a
Announcement date of CPP Public Term Sheet.
b
Announcement date of CPP Private Term Sheet.
c
AIG exchanged Treasury’s $40 billion investment in cumulative preferred stock (obtained on 11/25/2008) for non-cumulative preferred stock, effectively cancelling the original $40 billion investment.
d
The Equity Capital Facility was announced as a $30 billion commitment, but Treasury reduced this amount by the value of the AIGFP Retention Payment amount of $165 million.
e
Citigroup exchanged its $20 billion senior preferred equity (obtained on 12/31/2008) for trust preferred securities.
f
Date as of the Treasury’s 1/27/2009 Transactions Report. The Security Purchase Agreement has a date of 1/15/2009.
Sources: Treasury, Transactions Report, 10/2/2009; Treasury, “TARP Capital Purchase Program Agreement, Senior Preferred Stock and Warrants, Summary of Senior Preferred Terms,” 10/14/2008; Treasury,
“TARP Capital Purchase Program Agreement, (Non-Public QFIs, excluding S Corps and Mutual Organizations) Preferred Securities, Summary of Warrant Terms,” 11/17/2008; Treasury, “Securities Purchase
Agreement dated as of November 25, 2008 between American International Group, Inc. and United States Department of Treasury,” 11/25/2008; Treasury, “TARP AIG SSFI Investment, Senior Preferred Stock
and Warrant, Summary of Senior Preferred Terms,” 11/25/2008; Treasury, “Securities Purchase Agreement dated as of January 15, 2009 between Citigroup, Inc. and United States Department of Treasury,”
1/15/2009; Treasury, “Citigroup, Inc. Summary of Terms, Eligible Asset Guarantee,” 11/23/2008; “Securities Purchase Agreement dated as of January 15, 2009 between Bank of America Corporation and United
States Department of Treasury,” 1/15/2009; Treasury, “Bank of America Summary of Terms, Preferred Securities,” 1/16/2009; Treasury, “GMAC LLC Automotive Industry Financing Program, Preferred Membership Interests, Summary of Preferred Terms,” 12/29/2008; Treasury, response to SIGTARP data call, 10/7/2009.

quarterly report to congress I october 21, 2009

Investment Information

Dividends

Term of Agreement

1 – 3% of risk weighted assets, not to exceed $25 billion for each QFI

5% for first 5 years,
9% thereafter

Perpetual

15% of senior preferred amount

—

Up to 10 years

1 – 3% of risk weighted assets, not to exceed $25 billion for each QFI

5% for first 5 years,
9% thereafter

Perpetual

5% of preferred amount

Perpetual

$41.6 billion aggregate liquidation preference

10%

Perpetual

2% of issued and outstanding common stock on investment date of 11/25/2008;
warrant originally for 53,798,766 shares with a $2.50 exercise price; after 6/30/2009
split, it is for 2,689,938.30 shares with a $50 exercise price.

-—

Up to 10 years

Up to $29.8 billion aggregate liquidation preference. As of 9/30/2009, aggregate
liquidation preference of $3.2 billion.

10%

Perpetual (life of the facility is 5 years)

150 common stock warrants outstanding; $0.00002 exercise price

—

Up to 10 years

$20 billion

Perpetual

10% of total preferred stock issued; $10.61 exercise price

—

Up to 10 years

$20 billion

Perpetual

10% of total preferred stock issued; $13.30 exercise price

—

Up to 10 years

$5 billion

Perpetual

5% of preferred amount

Perpetual

$7.5 billion

Converts to common equity interest
after 7 years

5% of preferred amount

Converts to common equity interest
after 7 years

This equity interest was obtained by exchanging a prior debt obligation with
General Motors. See “Debt Agreements” table for more information.

—

Perpetual

special inspector general I troubled asset relief program

Table 2.5

Debt Agreements
TARP Program

Company

Date of Agreement

CPP - S-Corps

49 QFIs

1/14/2009a

Cost Assigned

$0.5

($ Billions)

Description of Investment

Senior Subordinated Securities
Senior Subordinated Security Warrants that are
exercised immediately

AIFP

General Motors

12/31/2008

$19.8b

AIFP

General Motors

1/16/2009

$0.9

Debt Obligation

AIFP

Chrysler

1/2/2009

$4.8

Debt Obligation with Additional Note

AIFP

Chrysler Financial

1/16/2009

$1.5

Debt Obligation with Additional Note

AIFP

Chrysler

5/1/2009

$3.8

Debt Obligation with Additional Note

AIFP

Chrysler

5/27/2009

$6.6

Debt Obligation with Additional Note, Equity
Interest

AIFP

General Motors

6/3/2009, amended
7/10/2009

ASSP

GM Supplier
Receivables LLC

ASSP

Chrsyler Receivables
SPV LLC

Notes: Numbers affected by rounding.
a
Announcement date of CPP S-Corporation Term Sheet.
b
Amount includes AWCP commitments.

Debt Obligation with Warrants and
Additional Note

$30.1

Debt Obligation with Additional Note

4/9/2009

$2.5

Debt Obligation with Additional Note

4/9/2009

$1.0

Debt Obligation with Additional Note

quarterly report to congress I october 21, 2009

Investment Information

Interest / Dividends

Term of Agreement

Each QFI may issue senior securities with an aggregate principal amount of 1% - 3%
of its risk-weighted assets, but not to exceed $25 billion.

7.7% for first 5 years; 13.8%
thereafter

30 years

Treasury will receive warrants to purchase an amount equal to 5% of the senior
securities purchased on the date of investment.

13.8%

30 years

This loan was funded incrementally; $4 billion funded on 12/31/2008, $5.4 billion
funded on 1/21/2009, $4 billion funded on 2/17/2009. Subsequently, this loan
was then amended; $2 billion on 4/22/2009 and $4 billion on 5/20/2009 (General
Advances). In addition, on 5/27/2009, $361 million was set aside in an
SPV for the AWCP (Warranty Advances).

For General Advances - (i) the greater of
(a) 3 Month LIBOR or (b) 2% plus (ii) 3%;
For Warrant Advances (i) the greater of
(a) 3 Month LIBOR for the related Interest
Period or (b) 2% plus (ii) 3.5%

12/29/2011

This loan was exchanged for a portion of GM’s common equity interest in GMAC LLC
on 5/29/2009. See “Equity Agreement” table for more information.

3 Month LIBOR
+ 3%

1/16/2012

Loan of $4 billion; Additional note of $267 million (6.67% of the maximum loan
amount). Subsequently, this loan was then amended; $500 million on 4/29/2009,
this amount was never drawn and subsequently de-obligated (General Advances). In
addition, on 4/29/2009, $280 million was set aside in an SPV for the AWCP; this
advance was repaid (Warrant Advances).

For General Advances - (i) the greater of
(a) 3 Month LIBOR or (b) 2% plus (ii) 3%;
For Warrant Advances (i) the greater of
(a) 3 Month LIBOR for the related Interest
Period or (b) 2% plus (ii) 3.5%

1/2/2012

Loan was funded incrementally at $100 million per week until it reached the
maximum amount of $1.5 billion on 4/9/2009. Additional note is $75 million (5% of
total loan size), which vests 20% on closing and 20% on each anniversary of closing.

LIBOR + 1% for first year
LIBOR + 1.5% for remaining years

1/16/2014

Loan of $3.0 billion committed to Chrysler for its bankruptcy period. Subsequently,
this loan was amended; $757 million was added on 5/20/2009. Treasury funded
$1.9 billion during bankruptcy period. The remaining amount will be de-obligated.

(i) the greater of (a) 3 Month Eurodollar
or (b) 2% plus (ii) 3.0%

9/30/2009, subject to
certain conditions

Commitment to New CarCo Acquisition LLC (renamed Chrysler Group LLC on or about
6/10/2009) of up to $6.642 billion. The total loan amount is up to $7.142 billion
including $500 million of debt assumed from Treasury’s 1/2/2009 credit agreement
with Chrysler Holding LLC. The debt obligations are secured by a first priority lien on
the assets of New CarCo Acquisition LLC (the company that purchased Chrysler LLC’s
assets in a sale pursuant to section 363 of the Bankruptcy Code).

For $2 billion: (i) The 3 Month Eurodollar Rate, plus (ii) (a) 5% or, on loans
extended past the original maturity date,
(b) 6.5%. For $5.142 billion note: (i)
The 3 Month Eurodollar Rate plus 7.91%
and (ii) an additional $17 million in PIK
interest per quarter. For other notes: 3
Month Eurodollar Rate plus 7.91%

For $2 billion note:
12/10/2011; provided that
issuer may extend maturity for up to $400 million of
principal to 6/10/2017. For
other notes: 6/10/2017

Original $30.1 billion funded. Amended loan documents provided that $986 million
of the original DIP loan was left for the old GM. In addition $7.1 billion was assumed
by New GM of which $0.4 billion was repaid resulting in $6.7 billion remaining
outstanding.

Originally, (i) the greater of (a) 3 Month
Eurodollar or (b) 2% plus (ii) 3.0%. For
amounts assumed by New GM, the interest rates became (i) the greater of (a) 3
Month Eurodollar or (b) 2% plus (ii) 5%

Originally 10/31/2009. For
amounts assumed by New
GM, June 10, 2015, subject
to acceleration

The original amount was $3.5 billion, but it was decreased permanently to $2.5 billion (i) the greater of (a) LIBOR for the related 4/9/2010
effective 7/1/2009.
interest period or (b) two percent (2%)
plus (ii) three and five-tenths percent
(3.5%)
The original amount was $1.5 billion, but it was decreased permanently to $1.0 billion (i) the greater of (a) LIBOR for the related 4/9/2010
effective 7/1/2009.
interest period or (b) two percent (2%)
plus (ii) three and five-tenths percent
(3.5%)
Sources: Treasury, “Loan and Security Agreement By and Between General Motors Corporation as Borrower and The United States Department of Treasury as Lender
Dated as of December 31, 2008,” 12/31/2008. Treasury, “General Motors Corporation, Indicative Summary of Terms for Secured Term Loan Facility,” 12/19/2008;
Treasury, “General Motors Promissory Note,” 1/16/2009; Treasury, “Loan and Security Agreement By and Between Chrysler Holding LLC as Borrower and The United States
Department of Treasury as Lender Dated as of December 31, 2008,” 12/31/2008; Treasury, “Chrysler, Indicative Summary of Terms for Secured Term Loan Facility,”
12/19/2008; Treasury, “Chrysler LB Receivables Trust Automotive Industry Financing Program, Secured Term Loan, Summary of Terms,” 1/16/2009; OFS, response to
SIGTARP draft report, 1/30/2009; Treasury, Transactions Report, 10/2/2009; Treasury, response to SIGTARP data call, 10/7/2009.

special inspector general I troubled asset relief program

Table 2.6

LARGEST POSITIONS IN WARRANTS HELD BY TREASURY, BY PROGRAM, AS OF 9/30/2009

Transaction
Date

Participant

Current
Number of
Outstanding
Warrants

Current
Strike
Price

Stock Price
as of
9/30/2009

In or Out of
the Money?

Amount
“In the Money”
or “Out of the
Money” as of
9/30/2009

Capital Purchase Program (“CPP”):
Bank of America Corporationa

10/28/2008

Bank of America Corporationa

1/9/2009

Citigroup Inc.b

10/28/2008

$30.79

$16.92

OUT

($13.87)

$30.79

$16.92

OUT

($13.87)

210,084,034

$17.85

$4.84

N/A

—

121,792,790

Co.c

10/28/2008

88,401,697

$42.42

$43.82

$1.40

Wells Fargo & Company

10/28/2008

110,261,688

$34.01

$28.18

OUT

($5.83)

JPMorgan Chase &

Systemically Significant Failing Institutions (“SSFI”) Program:
AIGd

11/25/2008

2,689,938

$50.00

$44.11

OUT

($5.89)

AIGd

4/17/2009

150

$0.00002

$44.11

12/31/2008

188,501,414

$10.61

$4.84

OUT

($5.77)

1/16/2009

150,375,940

$13.30

$16.92

$3.62

1/16/2009

66,531,728

$10.61

$4.84

OUT

($5.77)

Targeted Investment Program (“TIP”):
Citigroup Inc.
Bank of America Corporation
Asset Guarantee Program (“AGP”):
Citigroup Inc.

Notes:
Numbers affected by rounding.
a According to Treasury, the Bank of America warrants were replaced with one warrant certificate for 121,792,790 total warrant shares.
b According to Treasury, on 9/11/2009, an “extinguishment” transaction “made [warrants] worthless upon execution of Citi [Series M Common Stock Equivalent] to Common Exchange.”
c This institution repaid its CPP funds pursuant to Title VII, section 7001(g) of the American Recovery and Reinvestment Act of 2009. Treasury still holds these warrants in its portfolio.
d All warrant and stock data for AIG are based on the 6/30/2009 reverse stock split of 1 for 20.
Sources: Treasury, Transactions Report, 10/2/2009; Treasury, response to SIGTARP data call, 10/7/2009; Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com; Treasury,
response to SIGTARP draft, 10/16/2009.

quarterly report to congress I october 21, 2009

Financial Institution Support Programs
Treasury created five TARP programs that involve investment of capital or guarantee of assets in return for equity in financial institutions. Two investment programs, the Capital Purchase Program (“CPP”) and the Capital Assistance Program
(“CAP”), are open to all qualifying financial institutions (“QFIs”). The other three
programs, the Systemically Significant Failing Institutions (“SSFI”) program,
Targeted Investment Program (“TIP”), and Asset Guarantee Program (“AGP”) are
made available on a case-by-case basis to specific institutions needing exceptional
assistance above that of CPP and CAP.

Capital Purchase Program
Treasury currently anticipates that $218 billion of TARP funds will eventually be
invested in QFIs under CPP.60 According to Treasury, the intention of CPP is to
invest in healthy, viable banks to promote financial stability, maintain confidence in
the financial system, and permit institutions to continue meeting the credit needs
of American consumers and businesses.61 For a summary of the distribution of CPP
funding by participant — not including any repayment — see Figure 2.9.

Status of Funds
As of September 30, 2009, Treasury had purchased $204.6 billion in preferred
stock and subordinated debentures from 685 different QFIs in 48 states, the
District of Columbia, and Puerto Rico. See Figure 2.10 on the following page for
the geographical distribution of all the QFIs that have received funding. For a full
listing of CPP recipients, see Appendix D: “Transaction Detail.”

For more information on the Capital
Purchase Program, see SIGTARP’s July
Quarterly Report, page 45.

Figure 2.9

CPP EXPENDITURES, BY PARTICIPANT,
CUMULATIVEa
$ Billions, % of $204.6 Billion

Bank of America
$25.0
Other
Institutions
$84.6

12.2%
41.4%

12.2%
12.2%
12.2%

4.9%

Morgan Stanley
$10.0

JPMorgan
Chase
$25.0

Wells Fargo
$25.0

Citigroup
$25.0

4.9%

Goldman Sachs
$10.0
Notes: Numbers affected by rounding. Data as of 9/30/2009.
Bank of America = Bank of America Corporation; JPMorgan Chase =
JPMorgan Chase & Co.; Wells Fargo = Wells Fargo and Company;
Citigroup = Citigroup Inc.; Goldman Sachs = The Goldman Sachs
Group, Inc.
a
$204.6 billion represents total CPP funds expended before any
CPP repayments. JPMorgan, Goldman Sachs, Morgan Stanley,
and some other institutions have repaid their TARP funds under
CPP.
Source: Treasury, Transactions Report, 10/2/2009.

special inspector general I troubled asset relief program

Figure 2.10

TRACKING CAPITAL PURCHASE PROGRAM INVESTMENTS ACROSS THE COUNTRY

$10 Billion or More
$1 Billion to $10 Billion
$100 Million to $1 Billion
$10 Million to $100 Million
Less than $10 Million
$0

Note: Banks in Montana and Vermont had not received any funds as of
9/30/2009.
Source: Treasury, “Local Impact of the Capital Purchase Program,”
10/1/2009, www.financialstability.gov, accessed 10/5/2009.

Table 2.7

Although the 8 largest investments accounted for $134.2 billion of the program, CPP has also had many more modest investments: 322 of the 685 recipients
received $10 million or less. Table 2.7 and Table 2.8 show the distribution of the
investments by size.

cpp ORIGINAL investment
summary
Largest Capital Investment

$25 Billion

Smallest Capital Investment

$301,000

Average Capital Investment

$298.7 Million

Median Capital Investment

$11.3 Million

Notes: Numbers affected by rounding. Data as of 9/30/2009.
These numbers are based on total Treasury CPP investment
since 10/28/2008. Bank of America Corporation, SunTrust
Banks, Inc., and Yadkin Valley Financial Corporation each
received investments in two separate transactions.
Source: Treasury, Transactions Report, 10/2/2009.

Table 2.8

CPP ORIGINAL Investment
size
$10 Billion or More
$1 Billion to $10 Billion
$100 Million to $1 Billion

6
19
57

Less than $100 Million

603

Total

685

Notes: Data as of 9/30/2009. These numbers are based
on total Treasury CPP investment since 10/28/2008. Bank
of America Corporation, SunTrust Banks, Inc., and Yadkin
Valley Financial Corporation each received investments in two
separate transactions.
Source: Treasury, Transactions Report, 10/2/2009.

Repayment of Funds
As of September 30, 2009, 42 banks had repurchased some or all of their shares
from Treasury, with Treasury receiving $70.7 billion in principal repayments.
Figure 2.11 shows the amount of CPP funds outstanding, adjusted for repayments.
Table 2.9 shows the share repurchases conducted as of September 30, 2009. In
addition, Treasury had received $6.8 billion in dividends and interest from its CPP
investments. Among CPP recipients, 46 QFIs have missed CPP dividend payments
to the Government; some of these institutions made the payments on a later date.
As of September 30, 2009, there were $75.7 million in outstanding CPP dividends.
If a QFI misses six quarterly dividend payments, Treasury retains the right to elect
two directors to sit on the QFI’s board. As of September 30, 2009, there were no
participants subject to this penalty.62

quarterly report to congress I october 21, 2009

Table 2.9

CPP share repurchases, AS OF 9/30/2009
Amount of Repurchase
($ Millions)

Repurchase Date

Institution

3/31/2009

Centra Financial Holdings, Inc.

$15.0

3/31/2009

Old National Bancorp

100.0

3/31/2009

Iberiabank Corporation

90.0

3/31/2009

Bank of Marin Bancorp

28.0

3/31/2009

Signature Bank

4/8/2009

Sun Bancorp, Inc.

89.3

4/15/2009

Shore Bancshares, Inc.

25.0

4/22/2009

First ULB Corp.

4/22/2009

FirstMerit Corporation

120.0

4.9

Independent Bank Corp.

4/22/2009

TCF Financial Corporation

361.2

5/5/2009

Sterling Bancshares, Inc.

125.2

5/13/2009

Alliance Financial Corporation

26.9

5/13/2009

Texas Capital Bancshares, Inc.

75.0

5/20/2009

Somerset Hills Bancorp

5/20/2009

SCBT Financial Corporation

5/27/2009

First Manitowoc Bancorp, Inc.

12.0

5/27/2009

First Niagara Financial Group

184.0

5/27/2009

Berkshire Hills Bancorp, Inc.

5/27/2009

Washington Federal Inc.

6/3/2009

HF Financial Corp.

6/3/2009

Valley National Bancorpa

200.0

6/17/2009

State Street Corporation

2,000.0

6/17/2009

U.S. Bancorp

6/17/2009

The Goldman Sachs Group, Inc.

6/17/2009

BB&T Corp.

3,133.6

6/17/2009

American Express Company

3,388.9

6/17/2009

The Bank of New York Mellon Corporation

6/17/2009

Morgan Stanley

6/17/2009

Northern Trust Corporation

6/17/2009

JPMorgan Chase & Co.

6/17/2009

Capital One Financial Corporation

3,555.2

7/8/2009

First Community Bankshares Inc.

41.5

7/15/2009

Old Line Bancshares, Inc.

7.0

8/5/2009

Bancorp Rhode Island, Inc.

30.0

8/12/2009

State Bankshares, Inc.b

8/26/2009

CVB Financial Corp.c

9/2/2009

Westamerica Bancorporationd

9/9/2009

Wesbanco Bank Inc.

9/9/2009

F.N.B. Corporation

9/16/2009

Manhattan Bancorp

9/30/2009

Centerstate Banks of Florida Inc.

Notes: Numbers affected by rounding.
a
Valley National Bancorp repaid $75.0 million on 6/3/2009 and $125.0 million on 9/23/2009.
b
State Bankshares, Inc. repaid $12.5 million on 8/12/2009. It has a balance of $37.5 million still outstanding.
c
CVB Financial Corp. repaid $97.5 million on 8/26/2009 and $32.5 million on 9/2/2009.
d
Westamerica Bancorporation repaid $41.9 million on 9/2/2009. It has a balance of $41.9 million still outstanding.
Source: Treasury, Transactions Report, 10/2/2009.

SNAPSHOT OF CPP FUNDS
OUTSTANDING AND REPAID,
BY QUARTER
$ Billions

$200

125.0

4/22/2009

Total

Figure 2.11

78.2

7.4
64.8

40.0
200.0
25.0

6,599.0
10,000.0

3,000.0
10,000.0
1,576.0
25,000.0

12.5
130.0
41.9
75.0
100.0
1.7
27.9
$70,717.0

150

$177.5
$177.5

$198.8
$0.4

$203.2

$204.6

$198.4

$70.1

$70.7

$133.1

$133.9

Q22009

Q32009

100
50
0
Q42008

Q12009

CPP Funds Outstanding at Quarter’s End
CPP Funds Repaid at Quarter’s End
Notes: Numbers affected by rounding. Data as of 9/30/2009.
Source: Treasury, Transactions Report, 10/2/2009.

special inspector general I troubled asset relief program

Table 2.10 lists the banks that have one or more outstanding dividend payments
as of September 30, 2009. For a complete listing of CPP recipients and the institutions that have paid dividends or interest, see Appendix D: “Transaction Detail.”
Table 2.10

UNPAID dividend payments under cpp, AS of 9/30/2009
Institution
CIT Group Inc.

Value of Unpaid Dividends
$29,125,000

Popular, Inc.

11,687,500

First BanCorp

5,000,000

Pacific Capital Bancorp

4,515,850

First Banks, Inc.

4,024,825

Sterling Financial Corporation/Sterling Savings Bank

3,787,500

UCBH Holdings, Inc.

3,734,213

Anchor BanCorp Wisconsin, Inc.

2,979,167

Midwest Banc Holdings, Inc.

2,119,600

Dickinson Financial Corporation II

1,989,980

Central Pacific Financial Corp.

1,687,500

Seacoast Banking Corporation of Florida/Seacoast National Bank

1,250,000

Blue Valley Ban Corp

543,750

Centrue Financial Corporation

408,350

Royal Bancshares of Pennsylvania, Inc.

380,088

One United Bank

301,575

United American Bank

230,490

Pacific City Financial Corporation/Pacific City Bank

220,725

Commonwealth Business Bank

209,850

The Connecticut Bank and Trust Company

178,573

Peninsula Bank Holding Co.

162,500

Commerce National Bank

150,000

Citizens Bancorp

141,700

Pacific Coast National Bancorp

112,270

Premier Service Bank

105,972

Idaho Bancorp

94,013

Lone Star Bank

87,917

Pacific International Bancorp Inc

81,250

One Georgia Bank

80,766

Georgia Primary Bank

70,850

Saigon National Bank

54,378

Patterson Bancshares, Inc.

50,288

Grand Mountain Bancshares, Inc.

35,395

Fresno First Bank

33,357

Citizens Bank & Trust Company

32,700

Pacific Commerce Bank

31,961

Community Bank of the Bay

28,874

Community First Bank
Total
Source: Treasury, response to SIGTARP data call, 10/7/2009.

11,199
$75,739,924

quarterly report to congress I october 21, 2009

Repurchase of Warrants by Financial Institutions
To maximize the benefit to the taxpayer, EESA mandated that Treasury receive warrants or senior debt instruments when it invests in troubled assets.63 The warrants
provide Treasury the right to purchase shares of common stock in the case of publicly traded institutions, or, in the case of non-publicly traded institutions, preferred
stock or debt at a fixed price.64 As of September 30, 2009, 21 public institutions
had repurchased their warrants for a total of $2.9 billion, and 3 private institutions
whose warrants were immediately exercised into preferred shares repurchased
those shares for a total of $1.6 million. Some CPP recipients have announced that
they will not be negotiating to repurchase their warrants; Treasury intends to auction these warrants on the public market before the end of 2009.65
For a list of private institutions that have repaid their TARP funds and repurchased their preferred shares as of September 30, 2009, see Table 2.11.

Table 2.11

CPP repurchases of preferred shares resulting from immediate
exercise of warrants (private), as of 9/30/2009
Number of
Preferred
Shares

Amount of
Repurchase
($ Millions)

Centra Financial Holdings, Inc.

750

$0.8

First ULB Corp.

245

0.2

First Manitowoc Bancorp, Inc.

600

0.6

1,595

$1.6

Repurchase
Date

Institution

4/15/2009
4/22/2009
5/27/2009
Total

Note: Numbers affected by rounding.
Sources: Treasury, Transactions Report, 10/2/2009; OFS, response to SIGTARP data call, 9/30/2009.

For more information on Treasury’s
valuation methodologies for warrants, see SIGTARP’s July Quarterly
Report, page 48.

special inspector general I troubled asset relief program

For a list of public institutions that have repaid their TARP funds and repurchased their warrants as of September 30, 2009, see Table 2.12. SIGTARP has announced a pending audit that examines the procedures used by Treasury to ensure
that the Government receives a fair market value for the warrants.
Table 2.12

CPP warrant repurchases (public), as of 9/30/2009
Repurchase
Date

Institution

Number of
Warrants
Repurchased

Amount of
Repurchase
($ Millions)

5/8/2009

Old National Bancorp

813,008

$1.2

5/20/2009

Iberiabank Corporationa

138,490

1.2

5/27/2009

FirstMerit Corporation

5/27/2009

Sun Bancorp, Inc.

952,260

5.0

1,543,376

2.1

5/27/2009

Independent Bank Corp.

481,664

2.2
0.9

6/17/2009

Alliance Financial Corporation

173,069

6/24/2009

First Niagara Financial Groupa

953,096

2.7

6/24/2009

Berkshire Hills Bancorp, Inc.

226,330

1.0

6/24/2009

Somerset Hills Bancorp

163,065

0.3

6/24/2009

SCBT Financial Corporation

303,083

1.4

6/30/2009

HF Financial Corp.

7/8/2009

State Street Corporationa

302,419

0.7

2,788,104

60.0

7/15/2009

U.S. Bancorp

32,679,102

139.0

7/22/2009

The Goldman Sachs Group, Inc.

12,205,045

1,100.0

7/22/2009

BB&T Corp.

13,902,573

67.0

7/29/2009

American Express Company

24,264,129

340.0

8/5/2009

The Bank of New York Mellon
Corporation

14,516,129

136.0

8/12/2009

Morgan Stanley

65,245,759

950.0

3,824,624

87.0

8/26/2009

Northern Trust Corporation

9/2/2009

Old Line Bancshares, Inc.

141,892

0.2

9/30/2009

Bancorp Rhode Island, Inc.

192,967

1.4

175,810,184

$2,899.3

Total

Notes: Numbers affected by rounding.
a
These institutions reduced the original amount of warrants issued through a qualified equity offering.
Sources: Treasury, Transactions Report, 10/2/2009; OFS, response to SIGTARP data call, 9/30/2009.

quarterly report to congress I october 21, 2009

Banco Popular Exchange Offering
To improve the composition of its regulatory capital, on June 12, 2009, Popular,
Inc. (“Banco Popular”) proposed that Treasury participate in a securities exchange,
in which Treasury would exchange its Series C preferred shares in Banco Popular,
which it acquired through CPP, for a new series of Banco Popular trust preferred
securities (the “TARP Exchange”). In conjunction with this transaction, Banco
Popular initiated an exchange with its other, non-TARP preferred shareholders
through which those shareholders would receive common stock (the “non-TARP
Exchange”). The non-TARP Exchange was completed on August 21, 2009, and the
TARP Exchange was completed on August 24, 2009.66 Both exchanges bolstered
Banco Popular’s regulatory capital position by increasing the amount of its tier one
common equity (“T1 Common”). In the TARP exchange, Treasury exchanged $935
million in face value of preferred shares and received $935 million in face value of
trust preferred securities.67
Prior to the TARP Exchange, Banco Popular announced that it was planning
to suspend all dividend payments to its preferred shareholders. As a trust preferred
shareholder, however, Treasury’s dividend payment will be protected. TARP’s new
trust preferred securities will pay the same dividend rate as the previously held
preferred shares. The TARP Exchange allowed Treasury’s cash flow from Banco
Popular to remain unchanged. The TARP Exchange also placed Treasury in what
is effectively a more senior capital position, meaning that, in the event of liquidation, Treasury’s trust preferred securities now have a higher-priority claim on Banco
Popular’s assets. In connection with this transaction, Banco Popular paid a $13
million exchange fee to Treasury.68 The non-TARP and TARP Exchange benefitted Banco Popular by improving its regulatory capital levels. According to Banco
Popular, the non-TARP Exchange generated approximately $900 million of T1
Common, and the TARP Exchange generated approximately $500 million in T1
Common. The $500 million represents “the difference between the book value of
Series C Preferred Stock and the estimated fair value of the New Trust Preferred
Securities.”69 Both exchange offerings raised Banco Popular’s tier one common
risk-based ratio (“T1 Common Ratio”).
The non-TARP Exchange initially raised Banco Popular’s T1 Common Ratio
from 2.45% to 5.7%. Subsequently the TARP Exchange raised the ratio from
5.7% to 7.5%.70 In assessing the level of capital necessary for an institution to
absorb losses, the Federal Reserve, in the Supervisory Capital Assessment Program
(“SCAP”) stress test, used the T1 Common Ratio as one measure of capital adequacy.71 According to the Federal Reserve, to be considered “well-capitalized,” an
institution generally must maintain a T1 Common Ratio of 4%.72
Tier One Common Risk-Based Ratio (“T1 Common Ratio”): Determines what percentage of a bank’s total assets is categorized as T1 Common. Under traditional Federal
regulations, a bank with a T1 Common Ratio of 4% or greater is considered adequately capitalized. = T1 Common / Risk-weighted assets

For more information on a bank’s
capital structure, see SIGTARP’s
April Quarterly Report, page 58, and
SIGTARP’s July Quarterly Report,
page 55.

Securities Exchange: An agreement
between a firm and investors, permitting the investors to exchange one
class of securities for another.
Trust Preferred Securities: A security
that has both equity and debt characteristics created by establishing a
trust and issuing debt to it. A company
would create a trust preferred security
to realize tax benefits, since the trust
is tax deductible.
Tier One Common Equity
(“T1 Common”): Also known as
tangible common equity (“TCE”), is calculated by removing all non-common
elements from T1, e.g., preferred
equity, minority interests, and trust
preferred securities. It can be thought
of as the amount that would be left
over if the bank were dissolved and all
creditors and higher levels of stock,
such as preferred stock, were paid
off. T1 Common is the highest “quality” of capital in the sense of providing
a buffer against loss by claimants
on the bank. T1 Common is used
in calculating the tier one common
risk-based ratio (“T1 Common Ratio”)
which determines what percentage of
a bank’s total assets is categorized as
T1 Common. The higher the percentage, the better capitalized the bank.
Preferred stock is an example of
capital that is counted in T1, but not in
T1 Common.

special inspector general I troubled asset relief program

Treasury Lending Reports
Treasury snapshots were instituted in January 2009 as a means to track progress
toward the stated goal of CPP: “building a capital base of viable U.S. financial
institutions, enabling them to continue lending to businesses and consumers during the unprecedented financial crisis and economic downturn.”73 The monthly
intermediation snapshots focus on tracking the 22 largest CPP recipients. Acting
on a recommendation from GAO, Treasury later announced that it would require
all CPP participants to submit data for a new monthly lending report that would
complement the original monthly intermediation snapshot. The initial report was
released on June 1, 2009, and subsequent reports have been released on a monthly
basis.
July 2009 Monthly Intermediation Snapshot

The most recent monthly intermediation snapshot for the 22 largest CPP recipients was released on September 15, 2009, reporting data for the period of July 1,
2009, to July 31, 2009. Treasury reviewed and analyzed the data and came to the
following conclusions:74
• The 22 institutions originated a total of $282 billion in new loans — a 10%
decrease from June to July.
• Overall outstanding loan balances fell 1% due mainly to a decrease in demand
from borrowers, payment of outstanding debt, and charge-offs by banks.
• Banks continued to report that demand was well below normal market levels in
the Commercial Real Estate (“CRE”) market and the Commercial & Industrial
(“C&I”) market.
• Total small business originations decreased by 14% from June to July. Because
most small business originations are CRE or C&I originations, this decrease is
in-line with overall declining trends.

Table 2.13

july monthly lending report
($ trillions)

Average Consumer Loans
Outstanding
Average Commercial Loans Outstanding
Total Average Loans Outstanding

$2.8
2.3
$5.0

Notes: Numbers affected by rounding. Data as of 7/31/2009.
Source: Treasury, “Summary of CPP Monthly Lending Report
Data,” no date, http://www.financialstability.gov/docs/surveys/
SummaryTable_Feb-July_2009.pdf, accessed 10/8/2009.

CPP Monthly Lending Report

The CPP Monthly Lending Report requires banks to report to Treasury on three
data points each month: average consumer loans outstanding, average commercial loans outstanding, and total loans outstanding. The aggregate totals from the
July report are listed in Table 2.13. There were 56 banks that did not report by the
August 31, 2009, deadline.75

quarterly report to congress I october 21, 2009

Quarterly Analysis of Institutions in CPP

Treasury recently released its first Quarterly Capital Purchase Program Report.
This report provides data from the quarterly call reports that financial institutions
are required to file with FDIC. For this analysis, institutions were divided into four
groups, and Treasury analyzed the aggregate changes in each group from the fourth
quarter of 2008 to the first quarter of 2009. The four different groups are summarized in Table 2.14.76 For all banks with more than $500 million in assets, Treasury
reported that additional analysis was performed using reports filed with the Federal
Reserve.
According to the report, banks in all groups experienced positive overall asset
growth in the fourth quarter of 2008. This growth either slowed or turned negative for all banks other than those in Group III (the banks that received CPP funds
in the first quarter of 2009). Treasury acknowledges that “it is difficult to draw
specific conclusions about the effectiveness of the CPP program from solely these
ratios.” Treasury expects the effects will be better understood once there is data
from a more significant number of quarters to compare.77
On September 16, 2009, Treasury sent a letter to SIGTARP explaining how
subsequent quarterly reports will be expanded to address SIGTARP recommendations concerning use of funds reporting. Future reports will include data such as
the institutions’ repayments of outstanding debt obligations and total investments.
The next report is expected to be released in October 2009.78 Further discussion of Treasury’s actions in this regard is contained in Section 5: “SIGTARP
Recommendations” in this report.
Table 2.14

quarterly analysis groups
Number
of CPP
Participants

Average Asset
Size of
Number of
Insured
Insured
Institutions
Institutions
($ Billions)

Group

Description

Group I

Subsidiaries of the 21 largest CPP
participants (as of March 31, 2009)

$125.6

Group II

Subsidiaries of CPP participants that
were funded in Q4 2008

193

295

3.0

Group III

Subsidiaries of CPP participants that
were funded in Q1 2009

318

368

1.0

Group IV

Non-CPP participants
(as of March 31, 2009)

7,516

0.5

Source: Treasury, “Quarterly Analysis of Institutions in the Capital Purchase Program 2009 Q1,” no date, http://www.financialstability.
gov/docs/CPP/Report/Quarterly%20Analysis%20-%20Data%20Section%2007%2030%2009.pdf, accessed 9/30/2009.

Call Report: Quarterly report of
financial condition commercial banks
file with their Federal and state
regulatory agencies.

For further discussion on Treasury’s quarterly CPP analysis and lending reports, see
Section 5: “SIGTARP Recommendations”
in this report.

special inspector general I troubled asset relief program

For more information on CPP for
Small Banks, see SIGTARP’s July
Quarterly Report, page 45.

CPP for Small Banks
On May 13, 2009, Treasury announced an expansion of CPP for Small Banks.79 As
of September 30, 2009, 35 banks have applied to this program and 24 banks have
been funded a total of $187.7 million.80

Capital Assistance Program
Bank Holding Company (“BHC”):
A company that controls a bank.
Typically, a company controls a bank
through the ownership of 25% or more
of its voting securities.
Mandatorily Convertible Preferred
(“MCP”) Share: A type of preferred
share (ownership in a company that
generally entitles the owner of the
share to collect dividend payments)
that can be converted to common
stock under certain parameters at
the discretion of the company — and
must be converted to common stock
by a certain time.
Tier One Risk-Based Capital Ratio (“T1
Ratio”): A ratio which determines what
percentage of a bank’s total assets is
categorized as tier one capital (“T1”).
T1 Ratio = T1 divided by risk-weighted
assets.
Tier One Capital (“T1”): Consists
primarily of common equity (including
retained earnings), limited types and
amounts of preferred equity, certain
minority interests, and limited types
and amounts of trust preferred securities. T1 does not include goodwill and
certain other intangibles. Certain other
assets are also excluded from T1. It
can be described as a measure of the
bank’s ability to sustain future losses
and still meet depositor’s demands.

The Capital Assistance Program (“CAP”) was created to “ensure the continued
ability of U.S. financial institutions to lend to creditworthy borrowers in the face of
a weaker-than-expected economic environment and larger-than-expected potential
losses.”81 CAP consists of two parts:
• a “stress test” (also known as the Supervisory Capital Assessment Program
(“SCAP”)) to evaluate the 19 largest bank holding companies’ (“BHCs’”) capital
levels for their ability to withstand an adverse economic scenario
• an application to Treasury for funding in the form of additional capital infusions or as a means to convert CPP investments to CAP mandatorily convertible
preferred (“MCP”) shares (available to all QFIs)

Supervisory Capital Assessment Program
On May 7, 2009, the Federal Reserve released the results of the SCAP process,
revealing that 9 out of 19 BHCs had sufficient capital to withstand the adverse scenario while maintaining a tier one risk-based capital ratio (“T1 Ratio”) in excess of
6% and a T1 Common Ratio in excess of 4%.82 As of September 30, 2009, six of the
eight participating institutions had repaid their CPP funds in full and purchased
their outstanding warrants from the Government, thus fully completing their CPP
and CAP participation. The other two participating institutions repaid their principal capital investment but did not repurchase the outstanding warrants. The ninth
BHC, MetLife, is not a TARP recipient.83
The Federal Reserve determined that 10 of the SCAP participants needed an
approximate total of $75 billion in additional capital in order to meet the capital
level deemed necessary to withstand the more adverse economic scenario. Should
a BHC not meet its required SCAP buffer by November 9, 2009, it will have to
take additional capital assistance through CAP. This may include either Treasuryapproved conversion of the BHCs’ CPP investment to CAP MCP shares or the
issuance of new CAP MCP shares.84
Status of CAP
According to Treasury, the funding deadline for CAP applicants is November 9,
2009. Applications initially go to the bank’s primary regulator, which will then forward the application to Treasury. In order to ensure compliance with this deadline,
those institutions that were not subject to SCAP are encouraged to apply for CAP
funding by October 15, 2009.85 QFIs can either apply directly for additional TARP

quarterly report to congress I october 21, 2009

funding in the form of CAP MCP shares or apply to convert their CPP preferred
shares in exchange for CAP MCP shares.86 As of September 30, 2009, Treasury
had informed SIGTARP that there had not been any CAP applications forwarded
to Treasury from the primary Federal banking regulators.87

For more information on CAP, see
SIGTARP’s July Quarterly Report,
page 52.

Systemically Significant Failing Institutions Program
According to Treasury, the Systemically Significant Failing Institutions (“SSFI”)
program was established to “provide stability and prevent disruptions to financial
markets from the failure of institutions that are critical to the functioning of the
nation’s financial system.”88 As of September 30, 2009, $69.8 billion had been allocated through the SSFI program to American International Group, Inc. (“AIG”),
the sole participant.89

Status of SSFI Funds
Treasury purchased $40 billion of preferred stock from AIG on November 25,
2008. On April 17, 2009, Treasury and AIG signed a securities exchange agreement
in which Treasury exchanged its cumulative preferred stock (“Series D stock”) for
non-cumulative preferred stock (“Series E stock”). As a result of this exchange, AIG
has an additional obligation to Treasury of $1.6 billion in unpaid dividends from
the Series D shares.90
As part of the April 17, 2009, agreement, Treasury also committed to fund a
$29.8 billion equity capital facility. As of September 30, 2009, AIG had drawn
down a total of $3.2 billion in equity from this facility.91
AIG Update
Subsequent to SIGTARP’s July Quarterly Report, AIG, FRBNY, and Treasury have
continued to work together to improve AIG’s overall health and viability through
the use of the Government’s assistance package and AIG’s continued efforts at restructuring through asset dispositions and sales. AIG reported improved operational
performance for the second quarter of 2009, in which the company turned its first
quarterly profit since the third quarter of 2007.92 In addition, AIG stated that it
expects to meet all of its maturing debt obligations primarily though the Treasury
facility, the FRBNY facility, and the disposition of assets.93 Other recent AIG updates include the following items:
• Borrowing Capacity: As of July 29, 2009, under its FRBNY credit facility, AIG
had $40 billion in outstanding borrowings, $20 billion in remaining borrowing
capacity, and accrued compounding interest and fees totaling $4.8 billion.94
• Dividend Payments: As of September 30, 2009, AIG had missed three dividend
payments to Treasury. If AIG misses its fourth dividend payment on November
1, 2009, Treasury will have the right to elect directors to the AIG board.95 As of
September 30, 2009, neither Treasury nor FRBNY had selected members of
AIG’s board of directors.

Cumulative Preferred Stock: A type of
stock that requires a defined dividend
payment. If the company does not pay
the dividend, it still owes the missed
dividend to the owner of the stock.
Non-Cumulative Preferred Stock: A
type of stock in which unpaid dividends
do not accrue when a company fails to
make a dividend payment.
Equity Capital Facility: A commitment
to invest equity capital in a firm under
certain future conditions.

For more information on AIG’s
preferred stock purchase, the AIG
exchange, or its equity capital facility,
see SIGTARP’s July Quarterly Report,
page 60.

special inspector general I troubled asset relief program

• Management Change: On August 10, 2009, Robert H. Benmosche assumed the role of President and Chief Executive Officer (“CEO”), and Harvey
Golub became the new Non-Executive Chairman of the Board.96 The former
Chairman and CEO, Edward M. Liddy, retired.97
• Management Compensation Approval in Principle: Mr. Benmosche’s annual salary will consist of $3 million cash and $4 million in common stock
that is generally not transferable until 2014. He will be eligible to receive an
annual bonus of up to $3.5 million based on the achievement of objective
performance goals. This common stock will generally not vest for two years
and will not be transferable until a certain amount of AIG’s TARP assistance is
repaid to Treasury. Kenneth Feinberg, the Special Master for TARP Executive
Compensation, approved this contract in principle in August and gave his formal
approval in a determination letter released by Treasury on October 2, 2009.98
AIG is the subject of three SIGTARP audits. The first examines the large bonus
payments to employees in its Financial Products unit in March 2009. The second
examines payments made to AIG’s counterparties by FRBNY. The third is part of
a broader audit on Treasury’s governance of financial institutions in which it has
acquired ownership interests. For more information on SIGTARP’s AIG audits, see
Section 1: “SIGTARP’s Creation and Statutory Authority” in this report.
Use of Funds Report

As part of its equity capital facility agreement, AIG is required to submit a use of
funds report describing its expected use of proceeds received under the transaction.99 According to AIG, the funds will be used to meet capital solvency requirements resulting from declines in the value of investments. Additional funds will
be used to purchase shares of United Guaranty Corporation (“UGC”), an AIG
subsidiary, provide capital support for UGC, and settle a payment with a UGC
subsidiary.100

Targeted Investment Program and Asset Guarantee Program
As of September 30, 2009, Treasury had invested a total of $40 billion of TARP
funds in Citigroup and Bank of America through the Targeted Investment Program
(“TIP”).101 The stated goal of TIP is to “strengthen the economy and protect
American jobs, savings, and retirement security,” where “the loss of confidence in a
financial institution could result in significant market disruptions that threaten the
financial strength of similarly situated financial institutions.”102
Additionally, should Citigroup’s losses rise above $39.5 billion, Treasury is obligated to pay up to $5 billion in protection as part of its Asset Guarantee Program
(“AGP”) toward additional losses in a $301 billion group of Citigroup’s assets. In
consideration for this commitment, Treasury received $4.03 billion of preferred

quarterly report to congress I october 21, 2009

stock.103 The stated goal of AGP is to use insurance protections to help stabilize
at-risk financial institutions. Treasury insures a select pool of troubled assets and
collects premiums in return.104 This program differs from other financial institution
support programs in that Treasury does not invest TARP funds in the institution
directly; rather, TARP funds are reserved to cover a portion of the possible losses
in the selected assets. As of September 30, 2009, no payment had been made to
Citigroup for AGP.105

Citigroup, Inc.
As of September 30, 2009, Citigroup had received a total of $45 billion in investments and $5 billion in loss protection through three separate TARP programs.
Table 2.15 shows the timing of these investments as well as the related dividend
payments that Treasury received.
Table 2.15

treasury’s investments in citigroup, As of 9/30/2009
($ Billions)

Date

Program

Amount Invested/
Committed

Dividends
Paid
$0.93

10/28/2008

CPP

$25.00

12/31/2008

TIP

20.00

0.93

1/16/2009

AGP

5.00

0.17

$50.00

$2.04

Total
Note: Numbers affected by rounding.

Sources: Treasury, Transactions Report, 10/2/2009; Treasury, response to SIGTARP data call,
10/7/2009.

special inspector general I troubled asset relief program

For more information on the
Citigroup exchange offering, see
SIGTARP’s July Quarterly Report,
page 66.

Citigroup Exchange

Treasury has not made any additional TARP investments in Citigroup since January
2009; however the initial investments have been modified through a series of securities exchange offerings. Figure 2.12 presents a timeline of key events.
Through private, public, and Treasury CPP exchanges, Citigroup exchanged a
total of approximately $58 billion of preferred and trust preferred securities into
common stock. As a result, Treasury now holds 33.6% of Citigroup’s outstanding
common stock.106 Additionally, on July 30, 2009, Treasury exchanged its TIP and
AGP preferred shares for trust preferred shares. Details of the exchanges for private
shareholders, public shareholders, and Treasury can be found in Table 2.16. The
impact of the exchange on Citigroup’s capital structure can be seen in Table 2.17.

Figure 2.12

CITIGROUP EXCHANGE OFFERING TIMELINE

FEBRUARY 2009

FEBRUARY 27
Exchange offering
is announced.

MAY 2009

MAY 7
Exchange offering
is amended.

JUNE 2009

JULY 2009

JUNE 10
Exchange offering
is finalized.

JULY 23
Exchange offering
is closed with private
shareholders and
Treasury (CPP).

JULY 26
Preliminary results of
exchange are announced.
JULY 30
Exchange offering
is closed with public
shareholders and
Treasury (CPP/TIP/AGP).

Sources: Announced: Citigroup Inc, 8-K, 2/27/2009, http://www.sec.gov/Archives/edgar/data/831001/000095010309000421/
dp12698_8k.htm, accessed 10/7/2009; Amended: Citigroup Inc, 8-K, 5/11/2009, http://www.sec.gov/Archives/edgar/data/831001/
000119312509106618/d8k.htm, accessed 10/7/2009; Finalized: Citigroup Inc, 8-K, 6/10/2009, http://www.sec.gov/Archives/edgar/data/
831001/000095010309001394/dp13784_8k.htm, accessed 10/7/2009; Closed with private shareholders: Citigroup Inc, 8-K, 7/23/2009,
http://www.sec.gov/Archives/edgar/data/831001/000095012309024819/y78424e8vk.htm, accessed 10/7/2009; Preliminary results
announced: Citigroup Inc, 8-K, 7/27/2009, http://www.sec.gov/Archives/edgar/data/831001/000119312509155289/d8k.htm, accessed
10/7/2009; Closed with public shareholders: Citigroup Inc, 8-K, 7/30/2009, http://www.sec.gov/Archives/edgar/data/831001/
000095012309027722/y78559e8vk.htm, accessed 10/7/2009.

quarterly report to congress I october 21, 2009

Table 2.16

citigroup exchange offerings

($ billions)

Private Exchange

Public Exchange

Treasury Exchange

PreExchange

PostExchange

PreExchange

PostExchange

PreExchange

PostExchange

Private Shareholders

$12.5
Convertible
Preferred
Securities

$12.5
Common Stock

—

Public Shareholders

—

$20.3 Convertible
and Non-convertible $20.3
Preferred and Trust Common Stock
Preferred Securities

—

Treasury

$12.5 CPP
Non-convertible $12.5
Preferred
Common Stock
Securities

$12.5 CPP
Preferred Stock

$20 Billion TIP Preferred
Stock and $5 Billion AGP
Preferred Stock

$25 Billion Trust
Preferred Securities

$12.5
Common Stock

Sources: Citigroup, Inc, 10-Q, 8/7/2009, http://www.sec.gov/Archives/edgar/data/831001/000104746909007400/a2193853z10-q.htm, accessed 9/14/2009; Treasury, Transactions Report,
10/2/2009.

Table 2.17

Citigroup’s capital structure
Equity Type

($ Billions)

Pre-Exchange

Post-Exchange

Tier 1 Common Equity (“T1 Common”)

$27

$91

Tangible Common Equity (“TCE”)

$40

$100

Source: Citigroup, Inc, 10-Q, 8/7/2009, http://www.sec.gov/Archives/edgar/data/831001/000104746909007400/
a2193853z10-q.htm, accessed 9/14/2009.

Ring-Fence Update

As of September 30, 2009, the list of Citigroup assets to be included in the AGP
ring-fence had not yet been finalized. According to Treasury, the list is expected to
be finalized by October 31, 2009.107
SIGTARP has announced an audit of AGP as it pertains to Citigroup. The audit
will examine the basis for the decision to provide the guarantees, the process of
selecting the assets in the ring-fence, the risk management controls in place, and
the safeguards available to protect taxpayers’ interest.
Use of Funds Report

Under its TIP agreement, based on SIGTARP’s recommendations, Citigroup is
required to submit a quarterly use of funds report. The report must include the
following information:
• how TARP funds were used
• the implementation of internal controls for TARP funds
• compliance or non-compliance with restrictions on use of TARP funds

special inspector general I troubled asset relief program

On August 11, 2009, Citigroup released its “TARP Progress Report for Second
Quarter 2009.” According to the report, Citigroup’s Special TARP Committee
approved $6 billion in new initiatives during the second quarter. Of this $6 billion,
$4 billion was allocated to support municipal letters of credit, and the remaining $2
billion was allocated to support lending facilities for mortgage originators. As of June
30, 2009, Citigroup had authorized $50.8 billion in initiatives supported by TARP
capital.108
The report also describes Citigroup’s participation in the MHA program, detailing
its efforts to modify mortgages and increase mortgage lending. In the second quarter
of 2009, Citigroup reported that it worked to avoid foreclosures through various loss
mitigation activities on more than $16 billion of mortgages it owns or services and
funded approximately $31 billion in new mortgage loans.109
For more information on Bank of
America’s participation in AGP, see
SIGTARP’s April Quarterly Report,
page 76.

Bank of America
As of September 30, 2009, Bank of America had received a total of $45 billion in
three separate infusions of TARP funds. Table 2.18 shows the timing of these investments as well as the related dividend payments that Treasury had received.
Bank of America originally sought protection under AGP but, on May 7, 2009,
announced that it was no longer seeking such assistance.110 On September 21, 2009,
in exchange for Treasury’s previous public commitment to provide additional funds,
Bank of America agreed to pay $425 million to the Government.111 Of this $425
million, $276 million was paid to Treasury, $92 million was paid to FDIC, and $57
million was paid to the Federal Reserve. According to Treasury, the $276 million will
be deposited into Treasury’s general fund for the reduction of public debt and will
not be re-issued by Treasury for TARP.112

Table 2.18

treasury’s investments in bank of america, as of 9/30/2009
($ Billions)

Amount
Invested

Date

Program

10/28/2008

CPP

$15.00

1/9/2009

CPPa

10.00

1/16/2009

TIP

Total

$0.90

20.00

0.93

$45.00

$1.83

Notes: Numbers affected by rounding.
a
Bank of America received $10 billion on 1/9/2009 related to the Merrill Lynch acquisition.
Source: Treasury, Transactions Report, 10/2/2009.

Dividends
Paid

quarterly report to congress I october 21, 2009

Use of Funds Report

Under its TIP agreement, based on SIGTARP’s recommendations, Bank of America
is required to submit a quarterly use of funds report. The report must include the
following information:
• how TARP funds were used
• the implementation of internal controls for TARP funds
• compliance or non-compliance with restrictions on use of TARP funds
According to the second edition of Bank of America’s “Quarterly Impact
Report,” Bank of America lent more than $211 billion during the second quarter, some of which is presumably supported by TARP capital; however Bank of
America’s report does not provide any details about the amount of lending that has
occurred as a result of the increased capital provided by TARP.113

special inspector general I troubled asset relief program

Asset Support Programs

Commercial Mortgage-Backed
Securities (“CMBS”): A financial instrument that is backed by a commercial real
estate mortgage or a group of commercial real estate mortgages that are
packaged together.
Legacy CMBS: CMBS issued before
January 1, 2009.

Treasury, either on its own or in conjunction with the Federal Reserve, has announced three programs intended to support demand in financial markets for hardto-value assets and to restart the credit markets by supporting new loans: the Term
Asset-Backed Securities Loan Facility (“TALF”), the Public-Private Investment
Program (“PPIP”), and the Unlocking Credit for Small Businesses (“UCSB”)
program.
The Federal Reserve’s TALF program has been announced to provide up to
$1 trillion in funding to institutions pledging asset-backed securities (“ABS”) as
collateral. According to Treasury, it will provide up to $80 billion114 of TARP funds
to support this program (Treasury’s current TALF commitment is $20 billion, but
should TALF lending exceed $200 billion, then Treasury will commit additional
TARP funds up to a total of $80 billion). On August 17, 2009, the Federal Reserve
and Treasury announced the extension of TALF, beyond the originally contemplated termination date of December 31, 2009, to March 2010 for non-mortgagebacked ABS and legacy commercial mortgage-backed securities (“CMBS”), and
June 2010 for newly issued CMBS.115 Through September 30, 2009, the Federal
Reserve had facilitated 11 TALF subscriptions for a total of $51.5 billion in TALF
loans: 7 subscriptions related to non-mortgage-backed ABS totaling approximately
$47.3 billion in TALF loans, and 4 CMBS subscriptions resulting in $4.2 billion in
TALF loans. As of September 30, 2009, $42.7 billion of the $51.5 billion in TALF
loans settled remains outstanding.116 According to the Federal Reserve “the aggregated amount outstanding can vary from the aggregate amount requested or funded
at subscription for reasons including prepayments and principal pay downs.”117
In addition to the expansion of TALF, PPIP, as announced, included two
subprograms, the Legacy Loans Program and the Legacy Securities Program. The
Legacy Loans Program was intended to utilize equity provided by Treasury and debt
guarantees provided by FDIC to facilitate purchases of legacy mortgage loans held
by banks. On July 31, 2009, FDIC launched a pilot sale of assets as a proposed
funding mechanism for the Legacy Loans Program. No TARP funds were used in
the sale.118 The Legacy Securities Program, on the other hand, utilizes equity provided by Treasury and debt potentially provided by Treasury, through TARP,
and/or the Federal Reserve, through TALF, to facilitate purchases of legacy mortgage-backed securities (“MBS”) held by various financial institutions.
Through the UCSB program, Treasury announced plans to purchase up to
$15 billion in securities backed by Small Business Administration (“SBA”)guaranteed loans.

quarterly report to congress I october 21, 2009

Term Asset-Backed Securities Loan Facility
In November 2008, the Federal Reserve and Treasury announced TALF, under
which FRBNY would issue up to $200 billion in loans to make credit available to
consumers and small businesses; up to $20 billion in TARP funds would be used to
purchase surrendered collateral of TALF loans.119 Subsequently, in February 2009,
Treasury and the Federal Reserve announced that they were prepared to expand
TALF to up to $1 trillion, which, according to Treasury, would include up to $80
billion of TARP funds.120 TALF has been divided into two parts:
• lending program: originates loans to eligible borrowers
• asset disposition facility (“TALF LLC”): a special purpose vehicle (“SPV”)
used by FRBNY to purchase and manage any collateral surrendered by borrowers from the TALF lending program
FRBNY manages both the lending program and TALF LLC. The funding for
the lending program comes in the form of non-recourse loans issued by FRBNY.
According to Treasury, the funding for TALF LLC will first come from a portion
of interest payments made by borrowers from the lending program, then from
Treasury’s use of up to $20 billion in TARP funds (should TALF lending exceed
$200 billion then Treasury will commit additional TARP funds up to a total of
$80 billion) to purchase subordinated debt from TALF LLC, and finally, from
FRBNY. Because TALF loans are non-recourse, TALF borrowers may, at any time,
walk away from their loans, surrendering their collateral to FRBNY, which would
sell it to TALF LLC. That is, upon surrender, the TALF borrower would owe no
more on their TALF loan, and TALF LLC would recover only whatever the collateral is worth. As of September 30, 2009, the Federal Reserve had not announced
the surrender of any collateral to TALF LLC.

Program Developments
Subsequent to SIGTARP’s July Quarterly Report, a number of TALF program
updates have been announced that, according to the Federal Reserve, promote the
flow of credit to businesses and households, and facilitate the financing of some
commercial properties.121 The following program-related developments occurred
and are discussed in greater detail in this section:
• The TALF deadline was extended, based on the type of collateral provided,
to March 2010 (for newly issued ABS and legacy CMBS) and June 2010 (for
newly issued CMBS).

For more information on the mechanics
of TALF, see SIGTARP’s April Quarterly
Report, page 96 and SIGTARP’s July
Quarterly Report, page 73.

Non-Recourse Loan: A secured loan
whereby the borrower is relieved of the
obligation to repay the loan upon the
surrender of the collateral.

special inspector general I troubled asset relief program

CUSIP: Unique identifying number
assigned to all registered securities
(similar to a social security number).

• Updates to legacy CMBS eligibility guidance were introduced.
• Additional guidance was issued on eligible non-mortgage-backed ABS collateral.
• Two changes were made to the procedures for evaluating non-mortgage-backed
ABS collateral: a proposed rule related to eligible nationally recognized statistical rating organizations (“NRSROs”) and the implementation of a formal risk
assessment for proposed collateral.
• An additional collateral monitor that will be responsible for assessing the entire
TALF portfolio was announced (Pacific Investment Management Company
LLC (“PIMCO”)).
• Three listings of accepted and rejected CUSIPs for legacy CMBS have been
released.
• TALF dealers were re-designated as TALF Agents, and four non-primary dealers
were added to the list of eligible agents.
• Six additional TALF subscriptions (for a total of 11 since the inception of the
program) were conducted by FRBNY.
• Program mechanics concerning TALF interaction with PPIP were updated,
effectively limiting the amount of TALF debt that PPIP funds are eligible to
receive.
TALF Deadline Extension

On August 17, 2009, the Federal Reserve and Treasury announced the extension of
TALF beyond the originally contemplated termination date of December 31, 2009.
For TALF loans collateralized by newly issued ABS and legacy CMBS, availability
has been extended by FRBNY through March 2010 due to the continuing impairment of the markets. Additionally, TALF loans collateralized by newly issued CMBS
will be made by FRBNY through June 2010 in order to provide the market enough
time to arrange newly issued CMBS transactions.122
New Eligibility Rules for Commercial Mortgage-Backed Securities

As discussed in SIGTARP’s July Quarterly Report, TALF collateral includes newly
issued and legacy CMBS. For purposes of TALF, eligible CMBS collateral has been
divided into two classes: newly issued (after January 1, 2009), and legacy CMBS
(issued before January 1, 2009). According to the Federal Reserve, “the inclusion
of CMBS as eligible collateral for TALF loans will help prevent defaults on economically viable commercial properties, increase the capacity of current holders of
maturing mortgages to make additional loans, and facilitate the sale of distressed
properties.”123
CMBS Criteria as of SIGTARP’s July Quarterly Report
In May 2009, the Federal Reserve announced the inclusion of newly issued and
legacy CMBS as eligible collateral for TALF loans. The Federal Reserve issued the

quarterly report to congress I october 21, 2009

initial eligibility requirements for both newly issued and legacy CMBS; they include
the following:124
• Eligible CMBS must evidence an interest in a trust fund consisting of fully
funded mortgage loans and not other CMBS, other securities, interest rate swap
or cap instruments, or other hedging instruments.
• Eligible CMBS must have a credit rating in the highest long-term investmentgrade rating category from at least two TALF CMBS-eligible rating agencies and
must not have a credit rating below the highest investment-grade rating category
from any TALF CMBS-eligible rating agency.
• Eligible CMBS must entitle its holders to payments of principal and interest.
• Eligible CMBS must not be issued by an agency or instrumentality of the
United States or a Government-sponsored enterprise.
• Eligible CMBS must include a mortgage or similar instrument on a fee or leasehold interest in one or more income-generating commercial properties.
For more information on the differences in eligibility criteria for newly issued
and legacy CMBS, see SIGTARP’s July Quarterly Report, page 76.
Updated CMBS Criteria as of September 30, 2009
In August 2009, FRBNY updated the eligibility requirements regarding CMBS.
FRBNY stated that it will not fund a TALF loan if, during the risk assessment period, it finds that the potential borrower has a direct or indirect economic interest
in the loans supporting the ABS collateral, or products or services relating to such
collateral.125 Such a conflict of interest would make the application ineligible for a
TALF loan.
Additional Guidance on Eligibility of Existing ABS Collateral

Subsequent to SIGTARP’s July Quarterly Report, FRBNY issued additional guidance related to specific loan classes for non-mortgage-backed securities. In particular, it will allow borrowers to pledge more than one security as collateral for a single
loan in the case of Small Business Administration (“SBA”) 7(a) Pool Certificates
(“pool certificates”).126 SBA 7(a) loans, which collateralize the pool certificates, are
those made by participating lenders in the 7(a) program in which the Government
guarantees a percentage of loans for small businesses that cannot otherwise obtain
conventional loans at reasonable terms.
In the revised guidance, each certificate must have a similar weighted average
life so that together they fall under the same haircut percentage. For example, if
two SBA 7(a) pool certificates have weighted average lives of two and four years,
respectively, they are eligible to be pledged together with a haircut percentage of
5%. Should the weighted average life of two SBA 7(a) pool certificates be two and

Small Business Administration (“SBA”)
7(a) Pool Certificates (“pool certificates”): 7(a) loans grouped together to
form one security eligible as collateral
against a TALF loan.
Weighted Average Life: The average
number of years for which each dollar
of unpaid principal on a mortgage or
loan remains outstanding.

special inspector general I troubled asset relief program

Table 2.19

SBA Haircut percentages
Average Life (years)
0-<1

1-<2

2-<3

3-<4

4-<5

5-<6

6-<7
6%

Source: FRBNY, “Term Asset-Backed Securities Loan Facility: FAQs,” 9/1/2009, http://www.newyorkfed.org/markets/
talf_faq.html, accessed 9/14/2009.

Floorplan: Revolving lines of credit
used to finance inventories of items.

six years, however, they do not share the same haircut percentage and therefore are
not eligible to be pledged together as collateral for a single TALF loan.127 See Table
2.19 for details on the relationship between average life of SBA pool certificates
and their respective TALF haircuts.
Additionally, the Federal Reserve clarified what sorts of receivables were eligible
in auto and non-auto floorplan ABS. Floorplan loans will include revolving lines of
credit to finance dealer inventories of certain items. Table 2.20 shows a breakdown
of what type of inventories are eligible under auto and non-auto floorplans.
Changes to Procedures for Evaluating Non-Mortgage-Backed ABS Collateral

Subsequent to SIGTARP’s July Quarterly Report, FRBNY announced two potential
changes to its evaluation procedures for securities pledged as TALF collateral.128
The first is a new proposed rule that would provide a process by which FRBNY
may determine the eligibility of credit rating agencies and their ratings for use in
TALF.129 This new rule would apply to non-mortgage-backed ABS and would likely
increase the number of TALF-eligible NRSROs. According to the Federal Reserve,
the new rule “is intended to promote competition among NRSROs and ensure appropriate protection against credit risk for the U.S. taxpayer.”130

Table 2.20

fLOORPLAN ELIGIBILiTY
Inventory Category

Auto

Cars

Light Trucks

Motorcycles

Non-Auto

Boats/Sports Vehicles

Appliances/Electronics

Construction/Manufacturing Equipment

Notes: Up to 5% of the receivables of an auto or non-auto ABS may be any type of floorplan receivable. Up to 5% of the
receivables of a non-auto ABS may be receivables arising under asset-based lending facilities or loans secured by accounts
receivable.
Sources: FRBNY, “Term Asset-Backed Securities Loan Facility: FAQs,” 9/1/2009, http://www.newyorkfed.org/markets/
talf_faq.html, accessed 9/1/2009; Federal Reserve, response to SIGTARP draft report, 10/8/2009.

quarterly report to congress I october 21, 2009

The second change to FRBNY’s collateral-evaluation procedures is the implementation of a formal risk assessment process for all non-mortgage-backed securities pledged as collateral for a TALF loan beginning with the November subscription date. This practice is similar to the existing risk assessment process for CMBS
collateral. The formal process gives FRBNY the right to reject any ABS as collateral
based on this risk assessment. According to the Federal Reserve, the change will
enhance its “ability to ensure that TALF collateral complies with its existing high
standards for credit quality, transparency, and simplicity of structure.”131
Proposed Rule for Evaluating NRSROs
The Federal Reserve proposed a new rule governing FRBNY’s acceptance of credit
ratings for non-mortgage-backed ABS proposed as TALF collateral. The rule is
currently open for public comment until early November 2009. The new rule
would require FRBNY to accept only credit ratings issued by a credit rating agency
that is registered with the Securities and Exchange Commission (“SEC”) as an
NRSRO for issuers of ABS that meet certain experience-based criteria and other
requirements. Currently there are only three NRSROs that can rate all proposed
TALF collateral, and five that can rate CMBS collateral. According to the Federal
Reserve, limiting acceptable ratings to certain NRSROs would provide risk mitigation due to the higher standards such rating agencies must meet — such as “disclosure provisions and conflict of interest prohibitions that are prudent and relevant to
the evaluation of credit ratings agencies with respect to TALF.”132 For more information on the NRSRO designation and SEC regulations on NRSROs established
by the Credit Rating Agency Reform Act of 2006 (“CRARA”), see Section 3: “The
Impact of Credit Rating Agencies on TARP and Beyond” of this report.
Under the rule, FRBNY would review and accept a particular NRSRO and its
credit ratings on proposed ABS collateral by using certain experience-based criteria.
The proposed rule would require that, in order for an NRSRO to be accepted by
TALF as a rating agency for securities based on a particular asset category, the
NRSRO must have issued ratings on at least 10 transactions in that specific asset
category within a three-year period. FRBNY divides the assets underlying the nonmortgage-backed ABS into four categories:133
•
•
•
•

Category 1: auto loans, floorplan loans, and equipment loans
Category 2: credit card receivables and insurance premium finance loans
Category 3: mortgage servicing advance receivables
Category 4: student loans

TALF’s current evaluation process for CMBS collateral, including its credit
rating requirement, will remain unchanged and is outlined in SIGTARP’s July
Quarterly Report, page 76.

special inspector general I troubled asset relief program

Risk Assessment
FRBNY announced the addition of a formal risk assessment process for nonmortgage-backed ABS pledged as collateral for a TALF loan. The TALF evaluation
process for CMBS collateral already includes a risk assessment process that determines whether potential collateral meets certain criteria. For example, the securities must meet FRBNY’s TALF terms and conditions. In addition, the securities
must satisfy the following general standards for TALF collateral:134
• Credit Quality: The ABS has the highest credit rating quality with minimal risk
of default and low probability of deterioration in credit quality.
• Transparency: Sufficient information is available for investors to make informed decisions about the collateral’s credit risk and the due diligence on the
collateral completed by the issuer of the ABS.
• Simplicity of Structure: Relationships between performance of the collateral
of the ABS and the payments of the ABS are clear and uncomplicated.
In order for FRBNY and the appropriate collateral monitor to have sufficient
time to conduct the risk assessment, issuers of the proposed TALF-eligible ABS
must provide to FRBNY all data on the ABS and its underlying collateral that it
provided to any NRSRO when the ABS was rated. The information must be provided at least three weeks in advance of the applicable TALF subscription date. The
issuer must also provide a written waiver to all NRSROs with which it has shared
data regarding the proposed ABS. The written waiver permits the NRSRO to share
its view of the securities’ credit quality with FRBNY. FRBNY will communicate the
status of the risk assessment process, at a minimum, within two weeks of receipt of
the required information.135
Additionally, FRBNY will be performing this risk assessment process on nonmortgage-backed ABS that have previously been accepted as TALF-eligible collateral. Issuers will not be required to provide information on the ABS as is required for
newly proposed ABS. According to FRBNY, the results of this risk assessment process will not impact the eligibility of the previously accepted non-mortgage-backed
ABS as long as the ABS continue to meet the collateral eligibility requirements.136
Collateral eligibility requirements for TALF collateral are outlined in SIGTARP’s
April Quarterly Report, page 96.
Role of the Collateral Monitors

As discussed in SIGTARP’s July Quarterly Report, the Federal Reserve had retained
the services of a collateral monitor, Trepp LLC, to evaluate TALF-eligible CMBS
to ensure that specific risks to the Federal Reserve and Treasury are mitigated. On

quarterly report to congress I october 21, 2009

August 4, 2009, FRBNY announced the hiring of PIMCO as an additional collateral monitor. According to FRBNY, both collateral monitors “will assist the New York
Fed by providing valuation, modeling, analytics and reporting, as well as advising on
these matters.”137
According to FRBNY, Trepp LLC will only be responsible for monitoring the
CMBS collateral, while PIMCO will focus on the entire TALF portfolio (both
mortgage-backed and non-mortgage-backed securities). With input from the collateral monitors on the valuations and analytics, FRBNY will make decisions regarding the eligibility of collateral — subsequently accepting or rejecting it for a TALF
loan. After each subscription date, a listing of all CUSIPs for accepted and rejected
collateral is then posted by FRBNY on its website.138 According to FRBNY, “the collateral monitors will not establish policies or make decisions for FRBNY, including
decisions whether to reject a CMBS as collateral for a TALF loan or exclude loans
from mortgage pools.”139
Other Roles of PIMCO in TARP and the CMBS Market
As discussed in SIGTARP’s July Quarterly Report, PIMCO has held different roles
in several programs. These roles include:
• Asset Manager for FRBNY’s Agency MBS Purchase Program (left program as of
8/17/2009)
• Asset Manager for FRBNY’s Commercial Paper Funding Facility
• TALF Collateral Monitor
In addition to being selected as a collateral monitor for the entire TALF portfolio, PIMCO plays a significant role in the MBS marketplace, which includes
CMBS. MBS make up 61% of PIMCO’s $161 billion Total Return Fund, or approximately $98 billion of that portfolio.140 PIMCO also manages approximately
$983 million of assets in its Mortgage-Backed Securities Fund.141
Under PIMCO’s TALF Collateral Monitor Agreement with FRBNY, certain
PIMCO employees and independent contractors engaged by PIMCO are required
to follow outlined procedures in order to establish an ethical wall to “protect
the confidentiality” of the TALF collateral-related information and “mitigate any
conflicts of interest by implementing measures designed to restrict access to such
information.”142 The community of PIMCO employees and PIMCO-employed
independent contractors engaged by PIMCO and working on the TALF contract are considered “Restricted Persons.” Any employee or contractor who has a

For more information on collateral
monitoring, see SIGTARP’s July Quarterly
Report, page 80.

special inspector general I troubled asset relief program

“substantive role” in developing and providing guidance to FRBNY is considered a
“Special Restricted Person.”143 PIMCO’s conflict wall provisions include, but are
not limited to, the following:144
• Identification of Restricted Persons: Restricted Persons shall be identified
and listed — with all pertinent information — with the compliance department,
subject to approval by FRBNY.
• Physical Separation of Restricted Persons: Restricted Persons will all work in
an environment physically segregated from the general trading, brokerage, and
sales activities of PIMCO that may conflict with FRBNY and TALF. This separate location must be secure and limited to Restricted Persons and FRBNY.
• Special Restricted Persons: Special Restricted Persons shall be prohibited
from trading or valuing restricted ABS on behalf of anyone other than FRBNY.
• Personal Trading of Restricted Persons: PIMCO’s code of ethics applies to all
employees. Each Restricted Person may not purchase or sell any stock or debt
securities of ABS, a bank or BHC, and any financial institution that is a recipient of TARP or any U.S. Government economic stabilization program.
• Compliance Training and Monitoring: All Restricted Persons must complete
compliance training specifically designed for the TALF program. Additionally,
PIMCO will hire staff on a full-time basis to provide ongoing monitoring of its
compliance policies and procedures and to assess its compliance program on an
annual basis.
• Incident Reporting: Employees and Restricted Persons of PIMCO will be required to immediately report any violation or suspected violation of the conflict
wall provisions to the compliance department for review. Additionally, PIMCO
will report the occurrence of any risk event to FRBNY.
Additionally, FRBNY has the right to monitor PIMCO at any time during the
term of their agreement. This includes, but is not limited to, inspections of records
in PIMCO’s possession, an audit of PIMCO’s performance, and access to PIMCO
property. PIMCO shall provide internal reporting to FRBNY of internal audit reviews, Sarbanes-Oxley certifications, and other types of reviews and audits.145
CMBS Acceptances and Rejections

Each security potentially pledged as collateral for a TALF loan can be identified by
its unique CUSIP number. As of September 30, 2009, FRBNY posts those CMBS
CUSIPs accepted as collateral, but only lists those CMBS CUSIPs that have been
rejected for reasons relating to the security itself. According to FRBNY, “rejections due to the failure to properly complete a TALF loan request form, the failure
to provide a sales confirmation that meets the requirements of the [Master Loan
and Security Agreement], borrower ineligibility, or the FRBNY’s assessment of the

quarterly report to congress I october 21, 2009

reasonableness of the secondary market transaction price are not published.”146
FRBNY is currently considering whether it will publish accepted and rejected
CUSIPs for the non-mortgage-backed ABS.147 As of September 30, 2009, FRBNY
had accepted 177 legacy CMBS CUSIPs and rejected 4 legacy CMBS CUSIPs.
According to FRBNY, it reserves the right to reject any CMBS as collateral based
on the terms and conditions of the TALF program.148
According to FRBNY, the rejection of four CMBS was based on either a failure
to meet the terms and conditions of the TALF program or the inability of the
CMBS to pass a risk assessment requiring that the valuation of the proposed collateral perform to certain standards using adverse economic assumptions. This risk
assessment assists FRBNY in the determination of whether the total amount of
money lent to the borrower would exceed the total value of the CMBS should the
market deteriorate.149
TALF Agents

TALF borrowers must work through an agent dealer in interactions with FRBNY
in order to participate in TALF. Originally, only primary dealers were eligible to
serve in this agent role. On September 1, 2009, however, FRBNY announced that
four non-primary dealers would also be allowed to function as TALF Agents. This
is a designation that FRBNY now uses to describe both primary and non-primary
dealers that play the role of representing borrowers participating in TALF. FRBNY
President William C. Dudley stated that “establishing a wider network of TALF
Agents as a distribution mechanism for TALF financing is an important step that
should enable a broader range of investors to access the facility, leading up to a
further improvement in the securitization market.”150
Under the FRBNY Terms and Conditions, the TALF Agents’ primary role is to
act as an agent on behalf of a TALF borrower, which is no different from the role of
a primary dealer. The TALF Agents’ duties include collecting information related to
the borrower’s loan requests such as the amount, CUSIPs, and related prospectus
documentation. The TALF Agent will also submit the requested loan amount with
a package containing all information relative to the ABS collateral.151 According
to FRBNY, a TALF Agent is required to apply its internal customer identification
program and due diligence procedures (“Know Your Customer” program) to each
borrower and represent that each borrower is eligible. A TALF Agent is required to
provide FRBNY with information sufficient to describe the Agent’s customer risk
assessment methodology prior to participation in the program.152
TALF Loan Activity

As of September 30, 2009, FRBNY had conducted 11 subscriptions for TALF: 7 related to non-mortgage backed ABS and 4 related to CMBS. The 11 TALF subscriptions have resulted in $51.5 billion in TALF loans made to 160 TALF borrowers,

Primary Dealer: Banks and securities
broker-dealers that trade in U.S. Government securities with FRBNY for the
purpose of carrying out open market
operations.
Non-Primary Dealer: Banks and
securities broker-dealers that are not
approved by FRBNY to trade in U.S.
Government securities.
TALF Agent: Financial institution that
is a party to the Master Loan and
Security Agreement and from time to
time acts as an agent to the borrower.
TALF Agents include primary and nonprimary broker-dealers.
Primary Dealer List:
BNP Paribas Securities Corp
Banc of America Securities LLC
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International, Inc.
RBC Capital Markets Corporation
RBS Securities Inc.
UBS Securities LLC
TALF-Eligible Non-Primary Dealer List:
CastleOak Securities, LP
Loop Capital Markets, LLC
Wells Fargo Securities, LLC
The Williams Capital Group, LP

special inspector general I troubled asset relief program

of which 132 pledged non-mortgage-backed ABS collateral and 57 pledged CMBS
collateral.153 Of the $51.5 billion in TALF loans settled, there are currently $42.7
billion of TALF loans outstanding.154 According to the Federal Reserve “the aggregated amount outstanding can vary from the aggregate amount requested or funded
at subscription for reasons including prepayments and principal pay downs.”155 As
of September 30, 2009, the subscriptions for newly issued CMBS had not resulted
in any loan activity.
Subscriptions Using Non-Mortgage-Backed Collateral
As of September 30, 2009, FRBNY had facilitated seven TALF non-mortgagebacked ABS subscriptions, totaling approximately $47.3 billion in TALF loans.
Table 2.21 includes all non-mortgage-backed ABS subscriptions since the inception
of TALF.
Subscriptions Using Commercial Mortgage-Backed Collateral
As of September 30, 2009, FRBNY had facilitated four TALF CMBS subscriptions
totaling approximately $4.2 billion in TALF loans. One subscription allowed the
posting of newly issued CMBS as collateral, while the other three subscriptions

Table 2.21

TALF Loans Originated by ABS Sector (Non-mortgage-backed Collateral)
ABS Sector
Auto Loans
Student Loans
Credit Card Receivables

($ billions)

March
2009

April
2009

May
2009

June
2009

July
2009

August
2009

September
2009

Total

$1.9

$0.8

$2.2

$3.3

$2.8

$0.6

$1.2

$12.7

—

2.4

0.2

1.0

2.5

0.2

6.2

2.8

0.9

5.5

6.2

1.5

2.6

4.4

23.9

Equipment Loans

—

0.5

0.6

—

0.1

1.2

Floorplan Loans

—

1.0

—

1.0

Small-Business Loans

—

0.1

0.2

0.6

Servicing Advance Receivables

—

0.5

0.0

0.1

—

0.6

Premium Finance

—

0.5

—

0.5

1.1

$4.7

$1.7

$10.6

$11.5

$5.4

$6.9

$6.5

$47.3

Total

Notes: Numbers affected by rounding. Data as of 9/30/2009. As of 9/30/2009, $38.6 billion in TALF loans collateralized by non-mortgage-backed ABS were
outstanding. The 10/2/2009 subscription was for approximately $2.5 billion in TALF loans.
a
The July 2009 servicing receivables TALF subscription was for approximately $34 million. For purposes of this table it rounds to $0.0 billion.
Sources: FRBNY, “TALF non-CMBS Operations,” no date, http://www.newyorkfed.org/markets/talf_operations.html, accessed 9/24/2009; Federal Reserve, response
to SIGTARP draft, 10/8/2009.

quarterly report to congress I october 21, 2009

allowed both newly issued and legacy CMBS. The four newly issued CMBS subscriptions have not yet resulted in any TALF loan activity. For a summary of TALF
CMBS loans by date and collateral asset category, see Table 2.22.

Table 2.22

TALF Loans Originated (CMBS Collateral)
Type of Collateral Assets
Newly Issued CMBS
Legacy CMBS
Total

($ billions)

May
2009

July
2009

August
2009

September
2009

Total

$—

—

0.7

2.2

1.4

4.2

$—

$0.7

$2.2

$1.4

$4.2

Notes: Numbers affected by rounding. Data as of 9/30/2009. Of the $4.2 billion in TALF loans collateralized by CMBS, $4.1 billion were
outstanding.
Sources: FRBNY, “TALF non-CMBS Operations,” no date, http://www.newyorkfed.org/markets/talf_operations.html, accessed
9/24/2009; Federal Reserve, response to SIGTARP draft, 10/8/2009.

Updated Program Mechanics Related to the Public-Private Investment Program

As reported in SIGTARP’s July Quarterly Report, following a SIGTARP recommendation, OFS had stated that, “haircuts will be increased so that the combination
of Treasury- and TALF-supplied debt will not exceed the total amount of TALF
debt that would be available leveraging the PPIF equity alone.”156 On August 18,
2009, FRBNY announced that a Public-Private Investment Fund (“PPIF”) will be
eligible to borrow from TALF if it has received Treasury debt financing equal to or
less than 50% of the PPIF’s total equity (including private and Treasury-supplied
equity). In addition, the PPIF will be required to satisfy all TALF borrower eligibility requirements.157 In order to make sure that the combination of Treasury- and
TALF-supplied debt does not exceed the total amount of debt leveraging that could
be achieved with only the PPIF equity, TALF haircuts for PPIFs will be adjusted
50% higher than they are for other borrowers.158

special inspector general I troubled asset relief program

Public-Private Investment Program
PPIF Managers:
• AllianceBernstein, L.P. and its subadvisors Greenfield Partners, LLC,
and Rialto Capital Management, LLC*
• Angelo, Gordon & Co. and GE
Capital Real Estate
• BlackRock, Inc.*
• Invesco Ltd.*
• Marathon Asset Management, L.P.
• Oaktree Capital Management, L.P.
• RLJ Western Asset Management, L.P.
• The TCW Group, Inc.*
• Wellington Management Company,
LLP*
*Have signed final PPIP agreements
as of the drafting of this report

On March 23, 2009, Treasury, along with FDIC and the Federal Reserve, announced the Public-Private Investment Program (“PPIP”), intended to “repair
the balance sheet of financial institutions and ensure that credit is available for
households and businesses.”159 PPIP is designed to purchase legacy assets from
institutions through various Public-Private Investment Funds (“PPIFs”), which
are capitalized with private investment, public investment, and advantageous
non-recourse debt financing. As of September 30, 2009, Treasury had committed $30 billion of equity and debt financing to PPIP.160 As of October 6, 2009,
five PPIF managers, Invesco Ltd. (“Invesco”); The TCW Group, Inc. (“TCW”);
AllianceBernstein, L.P. and its sub-advisors Greenfield Partners, LLC and Rialto
Capital Management, LLC (“AllianceBernstein”); BlackRock, Inc. (“BlackRock”);
and Wellington Management Company, LLP (“Wellington”), signed final PPIP
agreements, each having raised at least $500 million in committed equity capital
from private investors. The remaining four PPIFs are still in the capital-raising portion of the process.161According to Treasury, PPIP, as originally envisioned, could
generate $500 billion to $1 trillion in legacy-asset purchasing power through three
programs:162

• Legacy Loans Program: PPIFs purchase legacy loans with TARP funds, private
equity capital, and FDIC-guaranteed debt.
• Legacy Securities Program: PPIFs purchase legacy securities using TARP
funds and private investment capital combined with TARP-issued debt.
• Expanded TALF: The Federal Reserve expanded the eligible asset classes for
TALF to include legacy CMBS.

Receivership Assets: When an FDICinsured institution fails, FDIC is
ordinarily appointed as receiver. In that
capacity, it assumes responsibility for
efficiently recovering the maximum
amount possible from the disposition
of the receivership’s assets and the
pursuit of the receivership’s claims.
Funds collected from the sale of assets
and the disposition of valid claims are
distributed to the receivership’s creditors in accordance with the priorities
set by law. For more information on
bankruptcy procedures, see SIGTARP’s
July Quarterly Report, “TARP Tutorial:
Bankruptcy,” page 97.

Legacy Loans Program
As announced, the Legacy Loans Program was designed to purchase legacy loans
— hard-to-value real estate-related loans — from financial institutions. In the
Legacy Loans Program as originally announced, Treasury would form PPIFs with
private investors and would match the private investment dollar-for-dollar (i.e., for
every $1 invested by the private investor, Treasury would invest $1). FDIC would
provide a debt guarantee of either a 4-to-1 or 6-to-1 leverage ratio (i.e., debt-toequity ratio) on the pool of loans.163 The permissible amount of leverage would be
predetermined by FDIC after an independent, third-party analysis of the loans.
On July 31, 2009, FDIC launched the pilot sale of receivership assets, which
did not use any TARP funds.164 Under the proposed funding mechanism, FDIC
transferred a portfolio of residential mortgage loans it had seized through bank
failures to a newly created limited liability company (the “LLC”) in exchange for
a partial ownership interest in the LLC. FDIC then conducted a sale of an equity
stake in the LLC.165

quarterly report to congress I october 21, 2009

On September 16, 2009, FDIC announced that Residential Credit Solutions,
Inc. (“RCS”) was the winning bidder in the pilot sale. RCS paid $64 million for
a 50% equity stake in the LLC (FDIC will maintain 50% ownership in the LLC).
The LLC then borrowed $728 million from FDIC which received a note.166 FDIC
guaranteed the note and plans to sell it at a later date. FDIC plans to analyze
the results of this test sale to determine whether this mechanism can be used to
remove troubled assets from the balance sheets of operational banks.167 As more information on the Legacy Loans Program becomes available, SIGTARP will provide
updates through its future quarterly reports to Congress.

Legacy Securities Program
According to Treasury, “the goal of the Legacy Securities Program is to restart
the market for legacy securities, allowing banks and other financial institutions
to free up capital and stimulate the extension of new credit.”168 For the purposes
of PPIP, legacy securities are ABS supported by real estate-related loans issued
before January 1, 2009, and originally rated AAA (or an equivalent rating) by two
or more NRSROs.169 Private investors and Treasury will co-invest in PPIFs to
purchase these assets from financial institutions. Furthermore, Treasury will offer
debt financing to the PPIF equal to or double the total private equity investment.
Treasury, the PPIF manager (which is required to invest at least $20 million of its
own money in the PPIF), and the private investors will share in PPIF profits on a
pro rata basis. PPIF losses will be shared on a pro rata basis up to each participant’s
investment amount. As of September 30, 2009, there were no asset purchases.
Legacy Securities Program Updates

On July 8, 2009, Treasury announced the selection of nine pre-qualified PPIF
managers. Though Treasury did not approve any specific arrangements, it encouraged these PPIF managers to establish partnerships with small- , veteran- ,
minority- , and women-owned businesses that would provide a variety of services
to PPIFs.170 The maximum matching by Treasury is $1.1 billion in equity and $2.2
billion in debt for each PPIF. As illustrated in Table 2.23, if all PPIF managers raise
the maximum matched private capital, the program would create approximately
$40 billion in purchasing power for legacy securities.
As of September 30, 2009, two PPIF managers had signed final PPIP agreements. Subsequently, on October 5, 2009, three other PPIF managers executed
their final PPIP agreements. These legal agreements define the terms and scope
of the limited partnership, the PPIF’s financing options, investment restrictions,
reporting requirements, solvency testing, and compliance rules. All five PPIF managers have each raised a minimum of $500 million in private-sector equity capital.
Treasury anticipates that the remaining fund managers will each raise a minimum
of $500 million in private-sector capital and sign final agreements in October 2009.

Note: A short-term debt security,
usually with a maturity of less than five
years.

For information on the Legacy Securities
Program process, refer to SIGTARP’s July
Quarterly Report, page 86.

Pro Rata: Refers to dividing something
among a group according to the proportionate share that each participant
holds as a part of the whole.

For information on the manager selection
process for PPIP, refer to SIGTARP’s July
Quarterly Report, page 87.

Table 2.23

PPIP Purchasing Power ($ billions)
Capital
Source
Private Investor
Equity and PPIF
Manager Equity
Treasury Matching
Equity
Treasury Debt
Total

Individual
PPIF

Total
Program

$1.11

$10

1.11

2.22

$4.44

$40

Notes: Numbers affected by rounding. Funds illustrate the
maximum equity matching and debt issuance by Treasury
under PPIP.
Source: Treasury Press Release, “Treasury Department
Announces Additional Initial Closings of Legacy Securities
Public-Private Investment Funds,” 10/6/2009, http://www.
financialstability.gov/latest/tg_10052009.html, accessed
10/6/2009.

special inspector general I troubled asset relief program

Derivative: A financial instrument whose
value is based on (“derived from”) a
different underlying asset, indicator, or
financial instrument.
Credit Default Swap (“CDS”): A contract
where the seller receives a series of
payments from the buyer in return
for agreeing to make a payment to
the buyer when a particular credit
event outlined in the contract occurs
(for example, if the credit rating on a
particular bond or loan is downgraded
or goes into default). It is commonly
referred to as an insurance-like product
where the seller is providing the buyer
insurance-like protection against the
failure of a bond. The buyer, however,
does not need to own the asset covered by the contract, which means it
can serve essentially as a “bet” against
the underlying bond.
Capital Call Notice: A capital call, or
draw down, is an investment firm’s
legal right to demand a portion of the
money promised to it by an investor.

Table 2.24

PPIP FUNDS RAISED ($ BILLIONS)
Funding Source
Private Investor Equity and PPIF
Manager Equity

Total
$3.07

Treasury Matching Equity

3.07

Treasury Debt

6.13

Total

$12.27

Notes: Numbers affected by rounding. Data as of 10/6/2009.
Source: Treasury Press Release, “Treasury Department
Announces Additional Initial Closing of Legacy Securities
Public-Private Investment Funds,” 10/6/2009, http://www.
financialstability.gov/latest/tg_10052009.html, accessed
10/8/2009.

In the final agreements, Treasury added three important provisions to the
original term sheets including reporting of trades in derivatives, adopting a luxuryexpense policy, and providing quarterly compliance certifications. First, Treasury,
pursuant to SIGTARP’s recommendations, is requiring PPIF managers to disclose
(to both Treasury and SIGTARP) any trades in derivative instruments in the manager’s or the manager’s affiliates’ non-PPIF funds where the value is connected to a
PPIP-eligible asset held in the PPIF.171 This is in addition to the requirement in the
original term sheet that all PPIF managers report any trades in eligible assets in the
manager’s PPIF and non-PPIF funds. This is potentially a significant provision because there are many asset types or liability exposures, such as credit default swaps
(“CDS”), that could be held in a manager’s non-PPIF fund and the value of which
is predictably tied to eligible assets. Second, Treasury is requiring all PPIF managers to adopt a luxury expense policy within 90 days of signing the final agreement
and to post the policy on the PPIF managers’ websites.172 Finally, Treasury is requiring fund managers to certify on a quarterly basis that they have materially complied
with PPIF Compliance Rules that are part of the final agreement.
Despite the addition of these important provisions to the final agreements
and despite SIGTARP’s ongoing recommendation, Treasury did not impose strict
information barriers, or “walls,” between the PPIF managers making investment
decisions on behalf of the PPIF and those employees of the fund manager who
manage non-PPIF funds.
Although Treasury commits to match capital raised by the PPIF managers
ranging from $500 million to $1.1 billion in equity, Treasury does not fund the
PPIF immediately upon signing the final agreements with each fund manager.173
Treasury will instead fund the equity capital a minimum of 10 calendar days after
receipt of a capital call notice from the PPIF to its private investors and Treasury,
requesting the physical transference of capital to the PPIF account. On the tenth
day, if Treasury verifies that the private investor money has come into the PPIF,
Treasury will disburse its matching equity funds to the PPIF.174
As of October 6, 2009, PPIF managers Invesco, TCW, AllianceBernstein,
BlackRock, and Wellington had collectively raised $3.07 billion of private-sector
capital commitments, which Treasury matched dollar-for-dollar, for a total program
equity capital commitment of $6.14 billion.175 In addition, Treasury announced it
will provide debt financing of 100% of the total capital commitments for the PPIFs,
bringing the total capitalization of the program to approximately $12.27 billion —
of which Treasury is providing 75% ($9.20 billion).176 Table 2.24 provides a breakdown of the available PPIP debt and equity.

quarterly report to congress I october 21, 2009

Legacy Securities Contractors

PricewaterhouseCoopers (“PWC”) and Bank of New York Mellon are assisting in
the compliance and operating activities of PPIP, respectively.
Treasury has hired PWC to assist in compliance activities. According to
Treasury, some of the expected responsibilities of the compliance consultant
include:177
• testing the PPIFs’ compliance with certain material aspects of PPIP rules as
well as identifying fraud and potentially fraudulent behavior
• reviewing allocation decisions and determining if the decisions are in compliance with PPIP policy
• reporting on allocation decisions that were not in accordance with the compliance rules
• determining the reasonableness of the valuation of the eligible assets in the fund
managers’ individual PPIFs and non-PPIF funds
• screening for illegal transactions such as system gaming which includes: asset
flipping, proprietary front-running of trades for proprietary accounts, asset
crossing between PPIFs, and asset round tripping
The compliance consultant may also provide Treasury technical advice on matters needing attention after Treasury conducts regular reviews of the PPIFs and
their activities.178
In addition, according to Treasury, all of the PPIF managers will utilize Bank
of New York Mellon as the administrative agent, custodian, and valuation agent.
In its capacity as administrative agent, Bank of New York Mellon collects PPIF
documents such as: the loan documents, evidence of custodial and interest reserve
accounts, financial statements, reports, and notices of material events (default,
litigation, waste, fraud, and abuse). As custodian, it is responsible for providing
“agreed-upon periodic reports” to Treasury on the PPIFs, determining and monitoring the deposit amount of the interest reserve account, and verification of applicable tests. As valuation agent, Bank of New York Mellon is also responsible for
calculating the market value of eligible assets and temporary investments held by
the PPIFs on a daily and monthly basis.

System Gaming: Using the rules,
policies, and procedures of a system
against itself for purposes other
than those originally intended by the
system designers.
Asset Flipping: Buying assets with the
intention of reselling those assets in
the short term.
Front-Running: Entering into a trade
while taking advantage of advance
knowledge of pending orders from
other investors.
Asset Crossing: Buying or selling
assets from other PPIFs or affiliates,
either directly or through third parties.
Round Tripping: Buying an asset from
an entity and reselling the asset back
to the entity or its affiliates.
Temporary Investments: For the
purposes of PPIP, they are cash,
Treasuries, money market mutual
funds, and interest rate hedges.

special inspector general I troubled asset relief program

7(a) Program: SBA loan program
guaranteeing a percentage of loans for
small businesses that cannot otherwise
obtain conventional loans at reasonable
terms.
504 Community Development Loan
Program: SBA program combining
Government-guaranteed loans with
private-sector mortgage loans to
provide loans of up to $10 million for
community development.

Small Business Administration Loan Support (formerly
Unlocking Credit for Small Businesses)
On March 16, 2009, Treasury announced the Unlocking Credit for Small
Businesses (“UCSB”) program to encourage banks to extend more credit to small
businesses.179 Under the UCSB program, Treasury stated that it would purchase
up to $15 billion in securities backed by pools of Small Business Administration
(“SBA”) loans from two SBA participating programs: the 7(a) Program and the
504 Community Development Loan Program. According to Treasury, the UCSB
program is designed to provide banks the liquidity necessary to start writing new
small-business loans again.180
On September 24, 2009, during Congressional testimony, Assistant Treasury
Secretary for Financial Stability, Herbert Allison, noted that Treasury would soon
announce further program details.181 As of September 30, 2009, no TARP funds
had been expended under this program.

quarterly report to congress I october 21, 2009

Automotive Industry Support Programs
During the current financial crisis, Treasury, through TARP, has launched three automotive programs: the Automotive Industry Financing Program (“AIFP”), the Auto
Supplier Support Program (“ASSP”), and the Auto Warranty Commitment Program
(“AWCP”). According to Treasury, these programs were established “to prevent a
significant disruption of the American automotive industry that poses systemic risk
to financial market stability and will have a negative effect on the real economy of
the United States.”182
No new TARP funds have been committed to the automotive sector this quarter. As of September 30, 2009, Treasury’s commitments through these programs
totaled $81.1 billion and were distributed to GM, Chrysler, GMAC, and Chrysler
Financial. Treasury’s investments also provided some of the financing for GM and
Chrysler during their recent restructuring periods. Both firms recently emerged
from bankruptcy — Chrysler on June 10, 2009, and GM on July 10, 2009.
According to a Congressional Oversight Panel (“COP”) report, then Senior Advisor
on Auto Issues at Treasury, Ron Bloom, stated that “it was possible, but unlikely
that taxpayers would recover all of the money they had invested in Chrysler and
General Motors.” Mr. Bloom further stated that there is a “reasonable probability”
that the money given to the post-bankruptcy entities (“New Chrysler” and “New
GM”) would be recovered, but that there would be “much lower recoveries” for the
“initial loans” provided to GM and Chrysler.183 According to the Auto Task Force,
“initial loans” refer to pre-bankruptcy loans of $4 billion to Chrysler and $19.4 billion to GM. Treasury investments in the three TARP automotive industry support
programs and any repayments of principal are summarized in Table 2.26 on the
following page, categorized by the timing of the investment in relation to the firm’s
progress through the bankruptcy process.

Automotive Industry Financing Program
As of September 30, 2009, Treasury had invested $76.9 billion through the
Automotive Industry Financing Program (“AIFP”) to support the automotive manufacturing companies and their financing arms to “avoid a disorderly bankruptcy of
one or more auto companies.”184 As of September 30, 2009, Treasury had received
approximately $465 million in dividends and approximately $206 million in interest
payments on these investments, and Chrysler Financial had paid back $1.5 billion
in AIFP funds. Treasury’s AIFP investments, as well as the interest and dividends
earned on the investments, are listed in Table 2.25.

Auto Supplier Support Program
On March 19, 2009, Treasury announced the $5 billion Auto Supplier Support
Program (“ASSP”) in an effort to “help stabilize the auto supply base and restore credit flows in a critical sector of the American economy.”185 Because of the

For a timeline of the Chrysler and GM
bankruptcy proceedings, see SIGTARP’s
July Quarterly Report, pages 106 and 108,
respectively.

Table 2.25

AIFP Status of FUnds,
as of 9/30/2009 ($ Millions)
Financial
Institution
GMa

TARP
Commitment

Total
Interest and
Dividends
Received

$49,500

$178

Chryslera

12,542

GMAC

13,384

431

Chrysler
Financial

1,500b

$76,926

$671

Total

Notes: Numbers affected by rounding.
a
Post-bankruptcy, interest accrues in the note for GM and
Chrysler.
b
Has been repaid.
Sources: Treasury, Transactions Report, 10/2/2009; Treasury,
response to SIGTARP draft report, 10/8/2009.

special inspector general I troubled asset relief program

Table 2.26

TARP AUTOMOTIVE PROGRAMS COMMITMENTS AND REPAYMENTS,
AS OF 9/30/2009 ($ BILLIONS)
Chrysler

Chrysler
Financial GMAC

Total

Pre-Bankruptcy
AIFP

$4.0a

$19.4

ASSP

1.0c

2.5d

$1.5b

3.5

AWCPe

0.3

0.4

0.6

Subtotal

$5.3

$22.3

AIFP

$1.9f

$30.1

$32.0

Subtotal

$1.9

$30.1

$32.0

$1.5

$13.4

$38.3

$42.4

In-Bankruptcy (DIP Financing)

Post-Bankruptcy (Working Capital)
AIFP

$6.6g

$6.6

Subtotal

$6.6

Subtotals by Program:
AIFP

$76.9

ASSP

3.5

AWCPe

0.6

Total Commitments
Principal Repaid to Treasury
Net Commitments

$13.8

$52.4

$1.5

$13.4

($0.3)

($0.4)

($1.5)

—

$81.1
($2.1)

$13.5

$52.0

$ —

$13.4

$79.0

Notes: Numbers affected by rounding.
a
According to Treasury, the 4/29/2009 $500 million expansion of the 1/2/2009 $4 billion loan was de-obligated before being funded.
b
Has been repaid.
c
Announced as $1.5 billion, but was reduced to $1 billion on 7/8/2009.
d
Announced as $3.5 billion, but was reduced to $2.5 billion on 7/8/2009.
e
AWCP has been repaid in full and was terminated in July 2009.
f
According to Treasury, $1.9 billion of the original $3.8 billion of announced funding was de-obligated before being funded.
g
Approximately $4.7 billion of this commitment was provided in working capital; approximately $2 billion was used to pay senior
secured lenders.
Sources: Treasury, Transactions Report, 10/2/2009; Treasury, responses to SIGTARP draft reports, 7/13/2009 and 10/8/2009; Treasury Press Release, “Ron Bloom, Senior Advisor at the U.S. Treasury Department Written Testimony House Judiciary Commercial and
Administrative Law Subcommittee ‘Ramifications of Auto Industry Bankruptcies, Part II,’” 7/21/2009, http://treas.gov/press/releases/
tg222.htm, accessed 9/9/2009.

current credit crisis, suppliers had not been able to borrow from banks using their
receivables as collateral. ASSP allowed auto parts suppliers to access Governmentbacked protection for money owed to them for the products they had shipped to
manufacturers. The suppliers sold their receivables into the program at a discount,
providing heavily relied upon operating capital for the suppliers. Treasury intended
for this program to provide confidence to suppliers so they would continue to ship
parts, pay employees, and continue operations.186 The program was available to all
American auto companies; Chrysler and GM were the only two that decided to
take advantage of the program.187 Each company created an SPV to hold the funding: Chrysler Receivable LLC and GM Supplier Receivable LLC.188

quarterly report to congress I october 21, 2009

Table 2.27

ASSP Status of FUnds, as of 9/30/2009
Financial Institution
GM Supplier Receivable LLC
Chrysler Receivable LLC
Total

($ millions)

TARP
Commitments

Principal
Reductionsa

Principal
Outstanding

Total Interest
Received

$3,500

($1,000)

$2,500

$3.6

1,500

(500)

1,000

2.3

$5,000

($1,500)

$3,500

$5.9

Notes: Numbers affected by rounding.
a
At the request of Chrysler and GM, on July 8, 2009, the original commitments were reduced to $1.0 billion and $2.5 billion, respectively.
Sources: Treasury, Transactions Report, 10/2/2009; Treasury, response to SIGTARP data call, 10/8/2009.

Under the original loan agreements for each SPV, the Treasury commitments
could be decreased if the outstanding amounts did not exceed the commitments
made on June 30, 2009. On July 8, 2009, the original commitments were reduced
to $1.0 billion for Chrysler Receivable LLC and $2.5 billion for GM Supplier
Receivable LLC.189 After emerging from bankruptcy, the new, non-bankrupt
Chrysler and GM assumed the debts of the pre-bankruptcy SPVs.190 ASSP is continuing to operate and is scheduled to terminate in April 2010; New GM and New
Chrysler can add receivables at their discretion. Table 2.27 summarizes the status
of the ASSP investments.

Auto Warranty Commitment Program
On March 30, 2009, Treasury announced the creation of the Auto Warranty
Commitment Program (“AWCP”), under AIFP, as a means to provide assurance
to vehicle buyers that the warranties on any purchases made during the restructuring of Chrysler and GM would be guaranteed by the Government.191 Treasury
made $641 million available to Chrysler and GM through two SPVs — Chrysler
Warranty SPV LLC and GM Warranty LLC — to backstop warranties on new
car sales. Both Chrysler and GM were able to honor their warranties during their
restructuring periods and, according to Treasury, all $641 million in principal
has been repaid with $5.5 million in interest.192 In July 2009, the AWCP was
terminated.

Automotive Companies Today
As discussed in SIGTARP’s July Quarterly Report, Chrysler and GM went through
bankruptcies in which each sold substantially all of their assets into newly created
companies — New Chrysler and New GM. The corporate structure and ownership
of these new companies changed dramatically, with Treasury now owning an 8%
pro forma equity stake in New Chrysler and a 61% equity stake in New GM.193
Treasury’s investments in Chrysler and GM were initially debt obligations for
the companies; as part of the bankruptcy proceedings, these investments were

Pro Forma: In finance, refers to the
presentation of hypothetical financial
information assuming that certain
assumptions will happen. For example,
Table 2.28 sets forth the ownership
interests in New Chrysler based on
the assumption that Fiat will meet
its performance goals and obtain an
additional 15% of equity from the other
equity holders. If the new equity stakes
were not reported pro forma, the
equity interest of the other equity participants would be higher to account
for Fiat’s additional 15%.

special inspector general I troubled asset relief program

restructured as common equity, preferred equity, and new debt. See the following
discussion for details on the post-bankruptcy composition of Treasury’s investments
in New Chrysler and New GM.

Debtor-in-Possession (“DIP”): A company which is operating under Chapter
11 bankruptcy protection, which still
technically owns its assets but is
operating them to maximize the benefit
to its creditors.
Reorganization: Agreements between a
company, its creditors, and the courts
that allow the company to emerge
from bankruptcy with an altered debt
structure.

Chrysler
Treasury has committed a total of $13.8 billion in financing to Chrysler, including
$1.3 billion in funding for ASSP and AWCP. The $12.5 billion committed directly
to Chrysler was contributed in three stages: $4 billion was provided before bankruptcy, $1.9 billion was provided as debtor-in-possession (“DIP”) financing during
bankruptcy, and $6.6 billion was provided as working capital after bankruptcy.
Under the terms of the bankruptcy reorganization, Treasury’s investment was
restructured into debt assumed and common equity. Of Treasury’s $12.5 billion
commitment to Chrysler, $2.0 billion has not been drawn down and the remainder
has been restructured in the following manner:194
• an 8% pro forma common equity interest in New Chrysler
• $5.1 billion in debt owed by New Chrysler
The owners of New Chrysler include Fiat, the United Auto Workers (“UAW”),
Treasury, and the Canadian Government, as described in Table 2.28.195

Table 2.28

New Chrysler
Stakeholder

Equity Stake

Fiat

20%
15% additional equity
based on performancea

UAW (VEBAb)

55%

Treasury

Canadian Government 2%
Notes: Numbers affected by rounding. Data as of 9/30/2009.
The listed ownership percentages are based on the assumption
that Fiat will achieve all three performance metrics.
a
Fiat can earn this 15% equity by achieving certain performance metrics. It would receive 5% for meeting each of three
performance goals: produce a vehicle in a U.S. based Chrysler
factory that performs 40 mpg or better; provide Chrysler with
a distribution network in numerous foreign jurisdictions; and
manufacture state-of-the-art, next generation engines at a U.S.
Chrysler facility.
b
Voluntary Employee Beneficiary Association (“VEBA”).
Sources: Treasury, “Obama Administration Auto Restructuring
Initiative: Chrysler-Fiat Alliance,” 4/30/2009, www.financialstability.gov/docs/AIFP/Chrysler-restructuring-factsheet_043009.
pdf, accessed 6/9/2009; Treasury, responses to SIGTARP draft
reports, 7/9/2009 and 7/13/2009.

Chrysler Financial
In January 2009, Treasury loaned $1.5 billion to a bankruptcy-remote SPV to support Chrysler Financial retail loan originations. In July 2009, Chrysler Financial
repaid the entire loan and $7.4 million in interest to Treasury.196 Chrysler Financial
is no longer originating loans.197
GM
Treasury has committed $52.4 billion of assistance to GM since December 2008,
including $2.9 billion in commitments for ASSP and AWCP. Of the $49.5 billion
committed directly to GM, $19.4 billion was provided pre-bankruptcy, and $30.1
billion was provided during bankruptcy. Unlike Chrysler, where some of Treasury’s
investment has not been converted into New Chrysler equity and debt, all of
Treasury’s investment in GM was either converted into New GM common stock,
preferred stock, or debt assumed by New GM. Treasury’s $49.5 billion investment
in GM is now a 61% common equity stake in New GM, $2.1 billion in preferred
stock in New GM, and $7.1 billion of debt assumed by New GM (of which $360
million has been repaid as part of the wind-down of the warranty program).198
Under the terms of the bankruptcy reorganization, UAW, bondholders, Treasury,
and the Governments of Canada and Ontario are the owners of New GM as listed
in Table 2.29.199

quarterly report to congress I october 21, 2009

Table 2.29

New GM

($ Billions)

Equity
Stake

Debt Assumed
by New GM

Preferred Stock in
New GM

UAW (VEBA)a

17.5%
Warrants to purchase
2.5%

$2.5

$6.5

Bondholders

10%
Warrants to purchase
15%

—

Treasury

61%

$7.1

$2.1

Governments of Canada
and Ontario

12%

$1.3

$1.7

Stakeholder

Notes: Numbers affected by rounding. Data as of 9/30/2009. Treasury did not publish pro forma data on equity ownership that would
capture the dilutive effect of the exercise of warrants.
a
Voluntary Employee Beneficiary Association (“VEBA”).
Sources: Treasury, “Obama Administration Auto Restructuring Initiative: General Motors Restructuring,” 6/1/2009, www.financialstability.
gov/latest/05312009_gm-factsheet.html, accessed 6/10/2009; Treasury, responses to SIGTARP draft reports, 7/9/2009 and
7/13/2009.

GMAC
As reported in SIGTARP’s July Quarterly Report, Treasury invested $13.4 billion in
GMAC and owns a 35.4% common equity stake. As of September 30, 2009, there
have not been any updates to Treasury’s investment in GMAC. Treasury’s outstanding investment amount was $13.4 billion and it had received $431 million in
dividend payments from GMAC.

For more information on Treasury’s
GMAC investment, see SIGTARP’s July
Quarterly Report, page 112.

special inspector general I troubled asset relief program

Homeowner Support Program
Making Home Affordable Program

Private-Label Mortgages: Loans that
are not owned or guaranteed by Fannie
Mae, Freddie Mac, or another Federal
agency.
Government-Sponsored Enterprises
(“GSEs”): Private corporations created
by the Government to reduce borrowing costs. They are chartered by the
U.S. Government but are not considered to be direct obligations.

For more information regarding HAMP
eligibility, modifications, and incentive
payments, see SIGTARP’s July Quarterly
Report, page 114.

The Making Home Affordable (“MHA”) Program was introduced by the
Administration on February 18, 2009, and was intended to assist homeowners who
are struggling to make their monthly mortgage payments. MHA comprises three
major initiatives: a loan modification program, a loan refinancing program, and
additional support to lower mortgage interest rates. Only the loan modification program, known as the Home Affordable Modification Program (“HAMP”), currently
involves TARP funds.200 According to Treasury, HAMP is a $75 billion program that
will lower monthly mortgage payments for homeowners by providing loan modification incentive payments to the servicers and loan holders (lenders or investors
— referred to as investors in this section), and by protecting against further loss of
collateral value.201 Of the $75 billion reserved for HAMP, $50 billion will be from
TARP and will be used to modify private-label mortgages. Of the $50 billion for
private-label mortgage modifications, $10 billion will be used to provide recently
announced incentives through the Home Price Decline Protection (“HPDP”) program, which is intended to protect investors from potential price declines on modified mortgage properties.202 Treasury estimates that $4.6 billion of the $50 billion
will be used for the Short Sale / Deeds-In-Lieu of Foreclosure (“SS/DIL”) program.
This program, previously announced but not yet launched, will be discussed later in
this section.203 The additional $25 billion in HAMP funding is provided under the
Housing and Economic Recovery Act of 2008 (“HERA”) and will be used to modify
mortgages that are owned or guaranteed by Government-sponsored enterprises
(“GSEs”), particularly Fannie Mae and Freddie Mac.204

Status of Funds
As of September 30, 2009, Treasury had signed agreements with 63 loan servicers
allocating up to $27.1 billion under HAMP.205 Funds are not actually spent at the
time they are allocated but only upon successful completion of certain loan modification milestones. Of the $27.1 billion that had been allocated, $950,000 had
been spent on actual modifications as of September 30, 2009.206 To date, the largest allocation of incentive payments has been made to Countrywide Home Loans
Servicing, LP, which will receive up to $4.5 billion in TARP funds. The average
allocation to each servicer through HAMP is $429.6 million.207 Table 2.30 provides
a detailed list of allocations made under HAMP as of September 30, 2009.

quarterly report to congress I october 21, 2009

Table 2.30

home affordable modification program funding ALLOCATIONS,
AS of 9/30/2009
Institution

Ultimate Parent Company

Adjusted
Funding Capa

Countrywide Home Loans Servicing LP

Bank of America Corporation

$ 4,465,420,000

GMAC Mortgage, Inc.

GMAC

3,554,890,000

J.P. Morgan Chase Bank, NA

JPMorgan Chase & Co.

2,684,870,000

Wells Fargo Bank, NA

Wells Fargo & Company

2,475,080,000

CitiMortgage, Inc.

Citigroup, Inc.

2,089,600,000

Wachovia Mortgage, FSB

Wells Fargo & Company

1,357,890,000

American Home Mortgage Servicing, Inc N/A

1,218,820,000

Litton Loan Servicing LP

1,087,950,000

Goldman Sachs Group, Inc.

Bank of America, N.A.

Bank of America Corporation

967,120,000

Saxon Mortgage Services, Inc.

Morgan Stanley

886,420,000

Select Portfolio Servicing

Credit Suisse Group AG

782,500,000

EMC Mortgage Corporation

JPMorgan Chase & Co.

707,370,000

OneWest Bank

OneWest Bank Group, LLC

668,440,000

Ocwen Financial Corporation, Inc.

N/A

655,960,000

National City Bank

PNC Financial Services Group, Inc.

610,150,000

HomEq Servicing

Barclays Bank PLC

552,810,000

Home Loan Services, Inc.

Bank of America Corporation

494,030,000

Aurora Loan Services, LLC

Aurora Bank, FSB

447,690,000

Nationstar Mortgage LLC

N/A

251,700,000

Carrington Mortgage Services, LLC

N/A

222,010,000

Green Tree Servicing LLC

N/A

221,790,000

Wilshire Credit Corporation

Bank of America Corporation

203,460,000

U.S. Bank National Association

U.S. Bancorp

114,220,000

Bayview Loan Servicing, LLC

Bayview Financial Holdings, L.P.

68,110,000

Wachovia Bank, N.A.

Wells Fargo & Company

47,320,000

RG Mortgage Corporation

R&G Financial Corporation

45,700,000

MorEquity, Inc.

American International Group, Inc.

42,010,000

CCO Mortgage

The Royal Bank of Scotland, PLC

29,590,000

Franklin Credit Management Corporation Franklin Credit Holding Corp.

27,510,000

PNC Bank, National Association

PNC Financial Services Group, Inc.

18,230,000
17,540,000

Residential Credit Solutions

Residential Credit Holdings, LLC

Vantium Capital, Inc.

N/A

6,000,000

Mortgage Center, LLC

N/A

5,990,000

PennyMac Loan Services, LLC

N/A

5,010,000

First Bank

First Banks Inc.

4,930,000

AMS Servicing, LLC

N/A

4,390,000

CUC Mortgage Corporation

Credit Union Association of New
York, Inc.

4,350,000

Servis One, Inc.

N/A

4,220,000
Continued on next page.

special inspector general I troubled asset relief program

home affordable modification program funding ALLOCATIONS,
AS of 9/30/2009 (Continued)
Adjusted
Funding Capa

Institution

Ultimate Parent Company

ShoreBank

N/A

2,300,000

ORNL Federal Credit Union

N/A

2,070,000

Central Florida Educators Federal Credit N/A
Union

1,250,000

Purdue Employees Federal Credit Union

N/A

1,030,000

Wescom Central Credit Union

N/A

870,000

IBM Southeast Employees’ Federal Credit N/A
Union

860,000

First Federal Savings and Loan

N/A

770,000

Lake City Bank

Lakeland Financial Corp.

600,000

RoundPoint Mortgage Servicing
Corporation

N/A

570,000

Horicon Bank

Sword Financial Corporation

560,000

SEFCU

N/A

440,000

Oakland Municipal Credit Union

N/A

430,000

Bay Federal Credit Union

N/A

410,000

Schools Financial Credit Union

N/A

390,000

Mission Federal Credit Union

N/A

370,000

Stanford Federal Credit Union

Cardtronics, Inc.

300,000

Metropolitan National Bank

Rogers Bancshares, Inc.

280,000

Lake National Bank

N/A

250,000

Allstate Mortgage Loans & Investments, N/A
Inc.

250,000

Yadkin Valley Bank

Yadkin Valley Financial Corp.

240,000

Glass City Federal Credit Union

N/A

230,000

Farmers State Bank

Community Independent Bancorp,
Inc.

80,000

Technology Credit Union

N/A

70,000

Central Jersey Federal Credit Union

N/A

30,000

Citizens First Wholesale Mortgage
Company

N/A

20,000

Chase Home Finance, LLCb

JPMorgan Chase & Co.

Total

—
$27,065,760,000

Notes: Numbers affected by rounding.
a Funding cap amounts represent the funding allocated to each institution. Funds are not spent until successful completion of certain
loan modifications milestones.
b Chase Home Finance, LLC was allocated $3.5 billion on 4/13/2009. On 7/31/2009, the agreement was terminated and superseded
by new agreements with J.P. Morgan Chase Bank, NA and EMC Mortgage Corporation.
Sources: Treasury, Transactions Report, 10/2/2009; Factiva website, http://fce.factiva.com/pcs/default.aspx, accessed 6/24/2009;
Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com, accessed 7/6/2009; “Saxon, Who We Are,”
https://www.saxononline.com/common/about/, accessed 10/6/2009; “Litton Loan Servicing LP–Overview,” http://www.fins.com/
Finance/Recruiter/companies/1789/Litton-Loan-Servicing-LP, accessed 10/19/2009.

quarterly report to congress I october 21, 2009

Home Price Decline Protection (“HPDP”) Program
On July 31, 2009, Treasury released a Supplemental Directive for HAMP outlining its Home Price Decline Protection (“HPDP”) program. The stated goal of
the program is to “encourage additional investor participation and HAMP modifications in areas with recent price declines by helping to offset any incremental
collateral loss on modifications that do not succeed.”208 The program is designed to
provide incentives to mortgage-backed securities (“MBS”) investors to participate
in HAMP. Through their ownership of MBS, these investors have an interest in the
performance of the mortgages underlying the MBS. According to Treasury, HPDP
is designed to address the fears of investors that may withhold their consent to a
loan modification due to the potential future decrease in the value of the homes
that secure the mortgages. In such a circumstance, the investor would suffer
greater losses than it would under an immediate foreclosure. By providing incentive
payments to mitigate that potential loss for a 24-month period, Treasury hopes to
encourage more lenders and investors to modify loans.
Under HPDP, Treasury has published a standard formula, based on the unpaid
principal balance (“UPB”) of the mortgage, the projected decline in area home prices, and the loan-to-value (“LTV”) ratio, that will determine the size of the incentive
payment. The projected home price decline is expressed in percentage terms and
is based on recent trends in local home prices. The projection is determined by the
percentage change in surrounding area home prices during the six months prior to
the start of the HAMP modification.209 The Home Price Index Table is available on
the Federal Housing Finance Agency website.210
The HPDP incentive payments will accrue monthly over a 24-month period
and are paid out annually on the first and second anniversary of the initial HAMP
trial period mortgage payment. Accruals are discontinued if the borrower loses good
standing under HAMP by missing three mortgage payments (three mortgage payments are considered due and unpaid on the last day of the third month) or if the
mortgage loan is paid in full. If mortgage payments are discontinued, investors will
be entitled to receive all previously accrued incentive payments.211

Mortgage-Backed Securities (“MBS”):
A pool of mortgages bundled together
by a financial institution and sold as
securities — a type of asset-backed
security.

Unpaid Principal Balance (“UPB”):
Amount of a loan that is unpaid. This
does not include additional charges.
Loan-to-Value (“LTV”) Ratio: In real estate lending, the outstanding principal
amount of the loan divided by the appraised value of the property.
HAMP Trial Period: A 90-day trial period
of reduced mortgage payments for the
borrower. If all payments are successful, then the mortgage modification will
be accepted into the MHA program and
HAMP incentive payments will begin.

For more information on HAMP trial
modification incentives, see SIGTARP’s
April Quarterly Report, page 113.

special inspector general I troubled asset relief program

hpdp Program Example
Players:
Mr. Smith — homeowner, mortgage loan borrower
Servicer — the firm that “services” Mr. Smith’s mortgage —
collecting payments and generating reports. The servicer receives a
fee for its services but does not have an ownership interest in Mr.
Smith’s mortgage.
Mr. Jones — the investor who holds the MBS, a part of which is
based on Mr. Smith’s mortgage
Step 1: Servicer Signs Up for HAMP and HPDP. Mr. Smith owns a singlefamily home in Santa Rosa, California, that he purchased for $250,000 and he
has fallen behind on his payments. The UPB on the loan is currently $230,000.
Mr. Smith approaches his loan servicer and asks if he can get a loan modification
through HAMP. The servicer is at first reluctant, noting that the home’s current
market value has declined to $215,000 and is thus now less than the UPB. After
reviewing the terms of the program, the servicer decides to enter the loan into a
HAMP modification, which will automatically apply HPDP incentives based on
market conditions. There is no servicer incentive payment under HPDP; however,
the servicer stands to receive an incentive payment through HAMP.
Step 2: Servicer Rewrites the Mortgage. By enrolling in HPDP, the servicer is
protecting the value of the MBS that funded the loan. The beneficiary of this protection is Mr. Jones, who invested in the MBS. As part of the loan modification, the
servicer rewrites the mortgage downward by 6.5% from $230,000 to $215,000, the
current market value of the home. HPDP incentives for the investor are partially
“insuring” the mortgage collateral (the home) against future loss in value.
Step 3: Servicer Calculates Incentive Payment. Suppose that, in the six months
prior to the loan modification date, the Home Price Index for the Santa Rosa area
decreased by 14%. This rate, calculated at the start of the loan modification, will be
effective for the entire 24-month period of the HPDP incentive payments.212

quarterly report to congress I october 21, 2009

Under Treasury’s standard HPDP formula, Mr. Jones can collect $500 for each
1% drop in the value of the average home price in Santa Rosa. The HPDP payment
is determined on a sliding scale based on certain characteristics of the loan adjustment. In this case, Mr. Jones would be entitled to collect the maximum amount for
a 14% price decline — up to $7,000.
Notice that the HPDP payment is not related to the lost value of Mr. Smith’s
specific house, but rather is based on the average area home price decline for the
six months prior to HAMP modification. These payments will not be affected if the
home price subsequently increased during the modification period.
Step 4: Servicer Collects HPDP Incentive Payment. Suppose Mr. Smith’s first
HAMP trial period payment on his reduced mortgage is due October 2009 and that
the total potential HPDP incentive award will accrue at $292 per month for 24
months totaling $7,000. If Mr. Smith loses good standing in December 2010, 14
months after the first trial payment, then Mr. Jones is eligible to receive 14 months
worth of accrued incentive payments. In this case, he receives payment for 14 out
of a possible 24 months, which is $4,083 of a possible $7,000 ((14/24)*$7,000).
Payment for the first 12 months of good standing will be paid to Mr. Jones on
October 1, 2010 (the first anniversary of the due date of the first mortgage trial
period payment), and the additional $583 for months 13 and 14 of good standing
will be paid to Mr. Jones on October 1, 2011 (the second anniversary of the due
date of the first mortgage trial period payment). Table 2.31 shows how his incentive
payment would be calculated.

Table 2.31

HPDP payment example
Potential Incentive Payment to Mr. Jones

$7,000

Mr. Smith remains in Good Standing during first 12 months

$3,500 Paid 10/1/2010

Mr. Smith loses Good Standing after 2 more months
Total Payment Received by Mr. Jones

$583 Paid 10/1/2011
$4,083

Source: Treasury, “Supplemental Directive 09-04: Home Affordable Modification Program – Home Price Decline
Protection Incentives,” 7/31/2009, http://www.financialstability.gov/docs/press/SupplementalDirective7-31-09.pdf,
accessed 9/1/2009.

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special inspector general I troubled asset relief program

Eligibility

Each of the following criteria must be met in order for a loan to be eligible for
HPDP incentive payments:213
• Trial modification under HAMP must begin on or after September 1, 2009.214
• Servicer must execute a Servicer Participation Agreement.
• Borrower must successfully complete the trial period and execute a HAMP
modification agreement.
• HAMP modification must reduce the borrower’s monthly mortgage payment by
at least 6%.

Short-Sale / Deeds-In-Lieu of Foreclosure Program
In May 2009, Treasury announced the outline of a program designed to provide
alternatives to foreclosure entitled the Short-Sale / Deeds-In-Lieu of Foreclosure
(“SS/DIL”) program. These alternatives to foreclosure are intended to provide a
more orderly resolution for troubled properties — helping the borrowers, the investors, and the communities.
A short sale is a sale that is conducted jointly by a borrower facing foreclosure
and the holder of the mortgage. The goal is to sell the home before a foreclosure is
finalized using the proceeds to satisfy a portion of the loan, with the agreement that
the owner of the mortgage will forgive the balance. The borrower will still lose his
home, and the mortgage holder will lose the difference between the outstanding
mortgage amount and the short sale price, but a short sale can provide the following benefits over a traditional foreclosure:
• A potentially better sales price on the house may be achieved because it is occupied and sold in an orderly fashion and is not an abandoned home sold at a
distressed price in deteriorating condition.
• The borrower has control over the timing of a move.
• The borrower has the opportunity to negotiate better terms including lessened
impact on his credit rating.
• Investors can avoid the risks and costs of a lengthy foreclosure.
A deed-in-lieu of foreclosure (“DIL”) is the method by which borrowers voluntarily give their deed to the bank rather than subject the bank to the formal legal
process of foreclosure. The bank still has to dispose of the property, but many of
the advantages of a short sale still accrue, such as the ability to control the timing
and nature of the transaction.
Both foreclosure alternatives also benefit the communities, as they lessen the
potential for vacant and vandalized homes and reduce the number of discounted
sales that can drive down all home equity values in the neighborhood.

quarterly report to congress I october 21, 2009

According to Treasury’s program guidance, the SS/DIL program is expected to
include a series of incentive payments for program participants. For each SS or
DIL that is successfully completed, servicers and borrowers may each receive up
to $1,000 and $1,500, respectively. In addition, for every three dollars an investor
pays to a junior lender to get its assent to the transaction, Treasury will reimburse
the investor for one dollar up to a maximum payment reimbursement of $1,000.215

Improving MHA Effectiveness and Efficiency
Frustrated with the pace of program implementation, representatives of the
Administration met with executives from MHA servicers on July 28, 2009, to
discuss ways to improve the effectiveness and efficiency of the MHA program.
They agreed on three steps to improve performance and reach the Administration’s
established goal of initiating 500,000 trial modifications by November 1, 2009.216
According to Treasury, this milestone was reached on October 8, 2009.217 The first
step agreed upon is to publicly report servicer-specific performance metrics on a
monthly basis. These metrics include:218
•
•
•
•

the number of trial modification offers each servicer has extended
the number of trial plans that are underway
the number of final modifications
the long-term success of those modifications

The Administration and the servicers agreed to work together to develop better
metrics that measure processing performance. These metrics may include:219
•
•
•
•

average borrower wait time for inbound borrower inquiries
completeness and accuracy of information provided to applicants
document handling
response time for completed applications

The final part of the plan requires Freddie Mac, the HAMP compliance agent,
to develop a “second look” process. As part of this process, Freddie Mac will audit
a sample of declined applications. For individual errors found during the audit,
Freddie Mac will coordinate with the respective servicers. When errors prove more
systemic, Freddie Mac will address general operational weaknesses. The stated
goal of this process is to minimize the likelihood that applications are overlooked or
inadvertently denied.220

For more information regarding the
Servicer Performance Report, see the
“Servicer Performance Report” discussion
later in this section.

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HAMP Compliance
The compliance department within OFS has the primary responsibility to oversee
and monitor Freddie Mac, the compliance agent for HAMP. OFS observed that
Freddie Mac, since the inception of the program, was having difficulty meeting the
deadlines of its planned audits and delivering key compliance reports as expected.
More specifically, in late August, OFS assessed the first Servicer Performance
Reviews that were completed by Freddie Mac. Based on this review, OFS had
several specific areas of concern, including: unqualified staff to perform audits;
trouble using extensions from statistical sampling to reach general results; inability
to take a “risk-based” approach; inconsistent and incomplete audit workpapers; difficulty adapting to an “ever-evolving” HAMP; and too much reliance on contractors
to perform the audits.
Due to these concerns, OFS met with Freddie Mac senior officials to review
these problem areas, to suggest several remediation steps, and to inform Freddie
Mac that a new OFS compliance officer would be placed at Freddie Mac on a fulltime basis. Freddie Mac developed a detailed remediation plan with which OFS
concurs. Steps include:
• hiring a new program executive to lead Freddie Mac’s compliance efforts
• restructuring Freddie Mac’s organization to better align with the goals of HAMP,
including repositioning leaders and hiring new staff with the right skill sets
• creating a quality assurance function at Freddie Mac that will report directly to
Treasury
• instituting a risk-based testing approach, as well as random audits
• performing independent verification of controls and corrective actions
• improving the timeliness of reporting to Treasury
• developing one audit team to focus on the top-10 servicers, with quarterly audits
being performed on such servicers
• developing a second audit team to deal with all other servicers
SIGTARP commends OFS compliance for recognizing the deficiencies at
Freddie Mac and taking steps to remedy the situation. SIGTARP will monitor progress made on these issues.

Servicer Performance Report
The Administration released its first Servicer Performance Report on August 4,
2009.221 Subsequent reports have been released on a monthly basis. The stated
purpose of this report is to “document the number of struggling homeowners
already helped under the [MHA] program, provide information on servicer performance and expand transparency around the initiative.”222

quarterly report to congress I october 21, 2009

Overall Performance Metrics

As of September 30, 2009, 63 servicers have signed Servicer Participation
Agreements to modify loans under HAMP. A snapshot of HAMP modifications is
shown in Table 2.32.
Figure 2.13 shows the monthly increases in HAMP trial modifications started
and HAMP trial plans extended to borrowers.

Table 2.32

hamp snapshot
Number of Trial Modificationsa

487,081

Number of Trial Period Plan Offers Extended to Borrowers (Cumulative)b

797,955
2,484,783

Number of Requests for Financial Information Sent to Borrowers (Cumulative)

Notes: Survey data provided by servicers.
a
Trial and permanent modifications as of 9/30/2009; based on numbers reported by servicers to the HAMP system of record.
b
Survey data provided by servicers as of 10/1/2009.
Source: Treasury, “Making Home Affordable Program Servicer Report through September 2009,” 10/8/2009,
http://www.treas.gov/press/releases/docs/MHA%20Public%20100809%20Final.pdf, accessed 10/8/2009.

Figure 2.13

HAMP TRIAL MODIFICATIONS STARTED
AND TRIAL PLANS EXTENDED
5/2009 – 9/2009
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
May

(and prior)

June

July

Aug

Sept

HAMP Trial Modifications (Cumulative)
HAMP Trial Plans Extended to Borrowers
(Cumulative)
Source: Treasury, “Making Home Affordable Program Servicer
Performance Report Through September 2009,” 10/8/2009,
www.treas.gov/press/releases/docs/MHA%20Public%
20100809%20final.pdf, accessed 10/8/2009.

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special inspector general I troubled asset relief program

Table 2.33

HAMP Modification Activity by Servicer
Estimated
Eligible
Mortgagesa

Total Plan
Offers
Extendedb

Trial Plan Offers
as Share of
Estimated Eligible
Mortgages

Trial
Modifications
Startedb

Trial
Modifications
as Share of
Estimated Eligible
Mortgages

Servicer

Participation
Date

J.P. Morgan Chase Bank, NAc

4/13/2009

437,652

163,617

37%

117,196

27%

Wells Fargo Bank, NA

4/13/2009

310,716

106,427

34%

62,989

20%

CitiMortgage, Inc

4/13/2009

208,427

88,472

42%

68,248

33%

Saxon Mortgages Services, Inc

4/13/2009

79,921

38,332

48%

32,931

41%

Select Portfolio Servicing

4/13/2009

60,848

32,024

53%

15,706

26%

GMAC Mortgage, Inc

4/13/2009

73,498

31,720

43%

19,331

26%

Ocwen Financial Corporation, Inc

4/16/2009

68,088

10,650

16%

5,193

Bank of America, NAd

4/17/2009

875,917

156,120

18%

94,918

11%

Wilshire Credit Corporation

4/20/2009

29,153

6,412

22%

2,929

10%

Home Loan Services, Inc.

4/20/2009

45,822

279

Green Tree Servicing LLC

4/24/2009

4,114

810

20%

474

12%

Carrington Mortgage Services, LLC

4/27/2009

17,149

1,584

584

Aurora Loan Services, LLC

5/1/2009

72,912

37,831

52%

23,889

33%

Nationstar Mortgage LLC

5/28/2009

29,846

16,974

57%

8,413

28%

Residential Credit Solutions

6/12/2009

1,831

364

20%

313

17%

CCO Mortgage

6/17/2009

4,648

879

19%

158

RG Mortgage Corporation

6/17/2009

3,473

173

National City Bank

6/26/2009

40,582

9,267

23%

3,845

7/1/2009

75,074

2,896

2,019

7/1/2009

8,987

2,158

24%

196

Wachovia Mortgage, FSB

Bayview Loan Servicing, LLC
MorEquity, Inc

7/17/2009

2,244

—

American Home Mortgage Servicing Inc

7/22/2009

114,272

6,817

440

HomeEq Servicing

8/5/2009

39,934

444

—

Litton Loan Servicing LP

8/12/2009

107,341

13,567

13%

2,229

OneWest Bank

8/28/2009

109,222

23,017

21%

5,217

U.S. Bank NA

9/9/2009

28,356

6,925

24%

863

Franklin Credit Management

9/11/2009

2,635

—

N/Af

N/A

Other SPA servicers

—

4,684

185

102

—

242,959

N/A

18,808

3,100,305

757,955

24%

487,081

16%

Other GSE servicers
Total

Notes:
a Estimated eligible mortgages with 60+ day delinquencies are as of 8/31/2009.
b Trial plans offered and trial modifications started are as of 9/30/2009.
c J.P. Morgan Chase Bank, NA includes EMC Mortgage Corporation.
d Bank of America, NA includes Countrywide Home Loans Servicing LP.
e Wachovia Mortgage FSB includes Wachovia Bank NA.
f N/A denotes a newly signed servicer not yet fully reporting into the program.
g Other SPA servicers are entities with less than 1,000 estimated eligible 60+ day delinquencies that have signed participation agreements with Treasury and Fannie Mae.
h Other GSE servicers includes approximately 2,300 participants that service loans owned or guaranteed by Fannie Mae and Freddie Mac.
Source: Treasury, “Making Home Affordable Program Servicer Report through September 2009,” 10/8/2009, http://www.treas.gov/press/releases/docs/MHA%20Public%20100809%20Final.pdf, accessed
10/8/2009.

quarterly report to congress I october 21, 2009

Servicer Metrics

Table 2.33 shows the HAMP modification activity by each servicer.
Figure 2.14 shows the trial modifications started by each servicer as a percent
of that respective servicer’s estimated number of eligible mortgages.

Figure 2.14

TRIAL MODIFICATION TRACKER: TRIAL MODIFICATION
STARTS AS A SHARE OF ESTIMATED ELIGIBLE MORTGAGES
40
35
30
25
20
15
10
5
0
HomeEq
MorEquity
Home Loan
American Home
Bayview

Other SPA Servicers
Litton
RG Mortgage
Wachovia
US Bank
CCO
Carrington
OneWest
Ocwen
Other GSE Servicers
National City
Wilshire
Bank of America
Green Tree
Residential Credit
Wells Fargo
Select Portfolio
GMAC
J.P. Morgan Chase
Nationstar
CitiMortgage
Aurora
Saxon

Notes: Numbers may be affected by rounding. Data as of 9/30/2009. September trials as a share
of mortgages with 60+ day delinquencies on August 31, 2009.
Source: Treasury, “Making Home Affordable Program Servicer Performance Report Through
September 2009,” 10/8/2009, www.treas.gov/press/releases/docs/MHA%20Public%
20100809%20final.pdf, accessed 10/8/2009.

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Executive Compensation
For more information on the Rule and
a summary of the timeline on TARP
executive compensation restrictions, see
SIGTARP’s July Quarterly Report, page
118.

Restrictions on executive compensation have applied to TARP recipients since the
program’s inception; section 111 of EESA detailed the original restrictions, which
have been changed over time by statutory amendment, Treasury regulations, and
notices. On February 17, 2009, section 111 of EESA was amended by section
7001 of the American Recovery and Reinvestment Act of 2009 (“ARRA”), which
further required that Treasury publish regulations to implement ARRA amendments.223 On June 10, 2009, Treasury released its Interim Final Rule on TARP
Standards for Compensation and Corporate Governance (the “Rule”).224 Following
the release of the Rule, Treasury provided a 60-day period for public comment;
the 60-day comment period concluded on August 14, 2009. Treasury is currently
considering the public comments it received before issuing a Final Rule. The Rule
“implement[s] ARRA provisions, consolidates all of the executive-compensationrelated provisions that are specifically directed at TARP recipients into a single rule
(superseding all prior rules and guidance), and utilizes the discretion granted to the
[Treasury] Secretary under the ARRA to adopt additional standards, some of which
are adapted from principles set forth” in guidance previously provided by Treasury
in February 2009.225 The Rule applies to entities that meet the Rule’s definition
of a “TARP recipient,” i.e., “any entity that has received or holds a commitment to
receive financial assistance” under TARP, or to an entity that owns 50% or more,
or is 50% or more owned by the TARP recipient.226 As long as the TARP recipient
has an outstanding “obligation” to the Federal Government (as defined in the Rule;
this does not include warrants to purchase common stock), it must adhere to the
guidelines set forth under the Rule.227 Several TARP programs, however, are exempt from the executive compensation restrictions outlined in the Rule as a result
of certain program characteristics:228
• TALF participants are exempt from the Rule because they are not directly
receiving TARP assistance. The TARP funds are used to purchase surrendered
collateral in the program.
• PPIP participants are exempt because no participant will own more than 9.9%
of any PPIF (therefore, no participant will own 50% or more of TARP recipient,
as required by the Rule).
• MHA participants are exempt from the Rule by virtue of statutory language
included in the ARRA amendments.

quarterly report to congress I october 21, 2009

For a summary of the Rule’s executive compensation guidelines, see Table 2.34.
Table 2.34

EXECUTIVE COMPENSATION: INTERIM FINAL RULE
Standard

Details

Limits executive compensation
for certain executives and highly
compensated employees at
companies receiving TARP funds

Limits bonus payments to protect taxpayer investment
Curtails the payment of golden parachutes
Imposes clawback for any bonus based on materially inaccurate
performance criteria
Responsible for reviewing any compensation for senior executive
officers and most highly paid employees at firms receiving
exceptional assistance — with authority to disapprove plans
where salary or other compensation is inappropriate, unsound or
excessive

Appoints a Special Master to
review compensation plans at firms Reviews and approves compensation structure for any executive
officers and the 100 most highly paid employees at those firms
receiving exceptional assistance
Possesses authority to negotiate for reimbursements on
payments to senior executive officers and certain highly
compensated employees prior to February 17, 2009

Golden Parachute: Any payment to an
employee for departure for any reason,
or any payment due to a change in
control.
Clawback: Recovery by the company
of amounts paid to an employee based
on materially inaccurate performance
criteria.
Exceptional Assistance: Companies
receiving assistance under SSFI, TIP,
AGP, and AIFP, and any future Treasury
program designated by the Treasury
Secretary as providing exceptional
assistance. Currently includes AIG,
Citigroup, Bank of America, GM,
GMAC, and Chrysler.

Makes determinations based on a clear set of principles
Implements and expands upon key
ARRA provisions consistent with
February 4th proposals
Sets additional compensation and
governance standards to improve
accountability and disclosure

Extends required risk analysis of compensation to all employees
of TARP firms
Requires luxury expenditure policies for all TARP firms
Institutes “Say on Pay” requirements for all TARP firms
Prohibits tax gross-ups
Requires additional perk disclosure
Mandates disclosure of compensation consultants

Tax Gross-up: A reimbursement of
taxes owed with respect to any
compensation.
Perk: Personal benefit, including a
privilege, or profit incidental to regular
salary or wages.

Note: Table taken verbatim from source document with Treasury edits as per SIGTARP draft, 10/7/2009.
Source: Treasury Press Release, “Interim Final Rule on TARP Standards for Compensation and Corporate Governance,” 6/10/2009,
http://www.treas.gov/press/releases/tg165.htm, accessed 9/8/2009.

For more information on executive
compensation issues and findings, refer
to SIGTARP’s August 19, 2009, audit,
“Despite Evolving Rules on Executive
Compensation, SIGTARP Survey Provides
Insights on Compliance.”

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Luxury Expenditures
The Rule requires that the board of directors of each TARP recipient adopt an
excessive or luxury expenditure policy (the “Policy”). The Policy must be posted to
each TARP recipient’s website within 90 days of the publication of the Rule, which
was published on June 15, 2009. Under the Rule, excessive or luxury expenditures
may include excessive expenditures in the following categories:229
•
•
•
•

entertainment or events
office and facility renovations
aviation or other transportation services
other activities or events that are not reasonable expenditures for staff development or performance incentives
The Rule requires that the Policy include the following elements:230

• categories of expenses prohibited or requiring prior approval
• reasonable approval procedures for those expenses
• certification process whereby the principal executive officer and principal
financial officer certify that proper approval was obtained for any expenditures
needing approval by a senior executive officer, any executive officer of a similar
level of responsibility, or the board of directors
• a requirement that violations be promptly reported internally
• mandated accountability for adherence to the Policy

Comparison of Luxury Expenditure Policies
The luxury expenditure policies for five of the institutions designated by Treasury as
receiving “exceptional assistance” under TARP (AIG, Bank of America, Citigroup,
Chrysler, and GM) are illustrated in Table 2.35. All five of these institutions directly
address luxury expenditures, reporting, and compliance with the Policy; however,
certain institutions provide more detailed guidance than others. For example, Bank
of America provides vague guidelines for luxury expenses, stating that “reasonable
expenditures occur when the costs of entertainment or events do not exceed the
expected benefit to the corporation.”231 Chrysler, by comparison, includes a detailed
“Personal and Unallowable Expenses” chart in its policy outlining specific expenses
such as spa services, country club dues, and tuxedos that are prohibited.232 The five
institutions also have notable differences in their aircraft and transportation policy
ranging from GM’s policy of “generally prohibiting” private aircraft travel, to Bank
of America’s policy “encouraging” senior management to use corporate aircraft for
“safety and efficiency purposes.”233

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quarterly report to congress I october 21, 2009

Table 2.35

EXCEPTIONAL ASSISTANCE RECIPIENTS’ LUXURY EXPENDITURE POLICIES
Entertainment or Events

Office and Facility Renovations

Aviation or Other Transportation

AIG

Required to have a clear business purpose, and
not be excessive, and are otherwise consistent
with the policy and guidelines and applicable
laws. Celebratory events are prohibited, unless
acknowledging key AIG career milestones or for
holiday parties, and must be approved.

Must be reasonable on a cost/benefit
basis and advance AIG’s business
objectives. Business unit managers
are responsible for implementing
appropriate monitoring and reviewing
and escalating exceptions to the Chief
Administrative Officer.

Commercial travel must be pre-approved.
Corporate aircraft is available solely for
business purposes and is only permitted
with written approval.

Bank of America

Based on:
1) revenue-generating potential of event
2) if it is an appropriate use of company
resources
3) whether alternatives are available that would
maximize cost savings and benefits

• Based on industry standard.
• Any variation requires senior
management approval.

Senior management is encouraged to
use corporate aircraft when traveling on
business for the corporation for safety
and efficiency purposes. Any use of
corporate aircraft outside “reasonable
business development” or emergencies is
considered excessive and is not allowed.
All usage of the aircraft is controlled and
scheduled centrally with periodic reporting
of usage to senior management, thereby
eliminating the likelihood of a violation of
the policy.

Citigroup

• Must support a legitimate
business purpose.
• Limited to daily maximum per employee.a

• Managed for efficiency and cost
control.
• Renovations of offices used by
members of the Citigroup Executive
Committee must be reviewed by the
board of directors.

• Corporate aircraft use requires written
approval by a member of Citigroup’s
Executive Committee and the Director of
Citi Aviation.
• Personal use by the Citigroup CEO must
be subject to a written reimbursement
agreement.b

Chrysler

• Expenses cannot be incurred exclusively or
primarily for the benefit of employees unless
such expenses are reasonable in amount
and customary in nature.
• Must be approved by a Senior Vice
President or higher.

Request must be submitted for proper Arrange for reasonably priced travel,
approval. All renovations exceeding
when available, through the internal travel
$5 million must go through the CFO
department.
or a committee designated by the CFO.

Must be part of prudent and appropriate
business activities; demonstrate cost efficiency
and avoiding impropriety in the use of funds.

Appropriation requests are required for Private aircraft travel is generally
prohibited. Prior approval is required in all
acquisition or leasing of real estate or
for the renovation or relocation of entire instances.
or significant portions of facilities.

Notes:
a Citigroup’s daily maximum for entertainment and events is not publicly available.
b Citigroup’s CEO has notified the board of directors that he will not use the corporate aircraft for personal use.
Sources: AIG, “AIG Luxury Expenditure Policy,” 9/14/2009, http://www.aigcorporate.com/corpgovernance/AIG%20Luxury%20Expenditure%20Policy.pdf, accessed 9/24/2009; Bank of America, “Excessive
or Luxury Expenditure Policy,” 9/2009, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTUxNjN8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1, accessed 9/24/2009; Citigroup, “Luxury Expenditure
Policy,” 9/14/2009, http://www.citigroup.com/citi/corporategovernance/data/lux_exp_policy.pdf, accessed 9/24/2009; Citigroup, Governance Documents, no date, http://www.citigroup.com/citi/
corporategovernance/docs.htm, accessed 9/24/2009, Chrysler, “Chrysler Group LLC Policy,” 9/14/2009, http://www.chryslergroupllc.com/pdf/expense_policy_07082009.pdf, accessed 9/24/2009;
GM, “General Motors Expense Policy,” 9/14/2009, http://www.gm.com/corporate/investor_information/docs/corp_gov/GM_ExpensePolicy.pdf, accessed 9/24/2009.

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Special Master
Under the Rule, Treasury has created a new Office of the Special Master for TARP
Executive Compensation (the “Special Master”) to review executive compensation
at TARP recipients and ensure that compensation plans for certain employees of
financial institutions receiving exceptional assistance are aligned with shareholder
and taxpayer interests. TARP participants receiving exceptional assistance delivered their proposed executive compensation structures, and payments pursuant
to those structures, for the senior executive officers and the 20 next most highly
compensated employees to the Special Master in mid-August 2009.234 The Special
Master concluded that the submissions with respect to these employees at all seven
recipients of exceptional assistance were “substantially complete” for purposes of
the Rule on August 31, 2009. The Rule requires that the Special Master issue an
initial determination with respect to these proposals within 60 days of the receipt
of a substantially complete submission.235 The responsibilities of the Special Master
include:236

Senior Executive Officers (“SEOs”): A
“named executive officer” of a TARP
recipient as defined under Federal
securities law, which generally includes
the principal executive officer (“PEO”),
principal financial officer (“PFO”), and
the next three most highly compensated employees.

• Review of Payments: review and approve any payments of compensation at
TARP recipients that have received exceptional assistance for their 5 senior
executive officers (“SEOs”) and 20 next most highly paid employees
• Review of Structures: review and approve the structure of compensation at
TARP recipients that have received exceptional assistance for their SEOs, executive officers, and 100 most highly compensated employees
• Review of Prior Payments: review bonuses, retention awards, and other
compensation paid to the SEOs and 20 next most highly compensated employees before February 17, 2009, by all TARP recipients and, where appropriate,
negotiate reimbursements
• Interpretation: provide advisory opinions with respect to the application of the
Rule and whether compensation payments and plans are consistent with EESA,
TARP, and the public interest
Since taking office, the Special Master has made an initial ruling, approving “in principle” the pay package of the new AIG President and CEO, Robert
Benmosche.237 The Special Master formally approved the proposed compensation
structure for Mr. Benmosche in a letter released on October 2, 2009.238

Executive Compensation Reform beyond TARP
On March 26, 2009, Treasury outlined its framework for regulatory reform to try to
close the “gaps and weaknesses in [the U.S.] financial regulatory system.”239 As part
of the overall regulatory reform agenda, Treasury proposed regulatory standards
that would apply to all public companies and not just TARP recipients. On July 16,
2009, Treasury delivered draft legislation addressing executive compensation at all

quarterly report to congress I october 21, 2009

public companies — “Say on Pay” and compensation committee independence.
The “Say on Pay” legislation is intended to “encourage greater accountability … in
setting compensation.”240 The compensation committee independence legislation
is intended to further ensure that public companies’ compensation committees can
accomplish their job of “negotiating executive compensation arrangements that
protect long-term shareholder value.”241

Say on Pay
The “Say on Pay” legislation would require all publicly traded companies to give
shareholders a non-binding vote on the pay packages described in executive
compensation disclosures.242 The vote would be based on disclosures detailing the
forms of compensation paid — salary, bonuses, stock, and option awards — as well
as the total compensation amounts. This bill would also mandate a separate vote
on golden parachutes in the case of a merger or acquisition.243 The bill is designed
to make the board of directors at every public company more accountable to the
owners of the company and help align compensation plans with long-term value
creation.244
Compensation Committees
According to Treasury, the independence of directors on public companies’ compensation committees can be compromised in the following circumstances: when
there are directors on the committee who may benefit from executives’ decisions;
when the compensation committee is unable to bargain effectively with executives
over complex compensation decisions; and when the committee relies on advice
from possibly conflicted consultants or legal counsel.245 The compensation committee independence legislation would require that these committees be “independent
in fact, and not just in name,” from outside influences.246
The Treasury-proposed legislation would ensure compensation committee independence through three standards:247
• by requiring “[m]embers of the compensation committee [to] meet exacting
new standards for independence” (including standards that would, among other
things, limit relationships with company management and prohibit independent
directors from receiving payments from the company other than directors’ fees)
• by requiring that any compensation consultants and legal consultants that compensation committees hire be independent from management
• by giving compensation committees “the authority and funding to hire independent compensation consultants, outside counsel, and other advisors who can
help ensure that the committee bargains for pay packages in the best interests
of shareholders,” while, at the same time, requiring that “if the committee
decides not to use its own compensation consultant, it explain that decision to
shareholders”

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S ec tion 3

the impact of credit
rating agencies on tarp
and beyond

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quarterly report to congress I october 21, 2009

Introduction
Credit rating agencies enjoy a position of significant influence in the U.S. and
world financial system. There are three dominant agencies within the market:
Moody’s Investor Services (“Moody’s”), Standard & Poor’s (“S&P”), and Fitch
Ratings (“Fitch”). Financial market players, including broker-dealers, investment
advisors, and investors, rely on credit rating agencies’ ratings of a security or issuer
as an independent evaluation of credit risk; thus rating agencies play an important
role in how financial institutions allocate their capital. Further, rating agencies
have a direct impact on companies’ and governments’ cost of capital — the lower
the credit rating, the more the debt issuer will have to pay in terms of interest. The
power and influence of the rating agencies can often be seen in the marketplace,
especially when they downgrade a security or issuer, as was the case with American
International Group, Inc. (“AIG”) in 2008. This can serve as the death knell of a
company, especially a financial institution whose livelihood revolves around raising
capital at a cheaper rate than it earns on its investments. The U.S. Government
reinforces the power of rating agencies by including in certain laws and regulations
a reliance on high ratings.
Since the onset of the financial crisis and the Government’s efforts to restore
financial stability through the Troubled Asset Relief Program (“TARP”) and other
measures, there has been considerable discussion of the extent to which rating
agencies contributed to the crisis, particularly with regard to ratings they provided
on securities based on subprime mortgages, and the prominent role they play in
Government programs designed to address the crisis, including TARP. Rating agencies are often mentioned in the debate around reforming financial sector regulation
— with many observers calling for substantial changes in the regulation of rating
agencies, particularly changes designed to address the inherent conflicts of interest
that rating agencies face in their business model. In fact, the European Union recently unveiled new rating agency regulations of its own stemming from the global
financial crisis.248
The U.S. Government, however, while proposing some increased regulation of
rating agencies, has not called for the type of significant overhaul of rating agencies that others have called for as part of its broad regulatory reform proposals.
On October 5, 2009, the Securities and Exchange Commission (“SEC”) adopted
several new final rules relating to rating agency regulation but re-opened others
to further discussion, deferring final decision until a future date.249 These reform
efforts have focused largely on disclosure and managing conflicts of interest, rather
than on Government regulation of ratings substance and methodologies. Indeed,
in Congressional testimony, Treasury’s Assistant Secretary for Financial Institutions
stated that such efforts would be counterproductive: “The government should not
be in the business of regulating or evaluating the methodologies themselves, or the

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performance of ratings. To do so would put the government in the position of validating private sector actors and would likely exacerbate over-reliance on ratings.”250
In this section, the Office of the Special Inspector General for the Troubled
Asset Relief Program (“SIGTARP”) intends to provide an overview of rating agencies, their operations, and their prevailing role in the financial crisis (specifically
their impact on TARP recipients and on TARP-related programs such as the Term
Asset-Backed Securities Loan Facility (“TALF”) and the Public-Private Investment
Program (“PPIP”)) in order to put into context the role of rating agencies.

Background on Credit Rating Agencies
What Credit Rating Agencies Do
Due Diligence: The appropriate level of
attention or care a reasonable person
should take before entering into an
agreement or a transaction with another party. In finance, often refers to
the process of conducting an audit or
review of documents and information
prior to initiating a transaction.
Transaction Cost: The tangible and
intangible costs associated with buying
or selling an asset. Tangible costs can
include fees paid (such as to a broker
when selling bonds or to lawyers for
drafting documents), while intangible
costs can include the time or effort
spent reviewing documents and traveling to visit a client, for instance.

When a company requires funds for investment or to pay expenses, it often seeks to
borrow money through debt financing. Debt financing can come in several forms
— with the most common being loans, bonds, and commercial paper (unsecured
short-term debt issued by a company). When a company approaches a bank for
a loan, the bank might conduct a thorough analysis of the prospective borrower’s
creditworthiness. This process of evaluation is called due diligence, and the bank
often takes a close look at a wide range of financial information from the prospective borrower — much as it might examine an individual’s financial health who has
applied for a mortgage. The bank will look at the borrowers’ income to determine
if they have the means to repay the debt over time and their debts to determine
whether the prospective borrowers have other obligations that may interfere with
their ability to repay, as well as a number of other factors. The process requires a
great deal of disclosure and effort from both parties, which makes for a high transaction cost for the particular loan.
A similar due diligence process must also be conducted when a company issues
securities (such as asset-backed securities (“ABS”)). An ABS issuance is a security
that packages together a number of underlying assets — such as mortgages, car
loans, or student loans with similar characteristics — and makes regular interest
payments to investors. The higher the risk level of the underlying assets, the higher
the interest rate the securities will typically pay to investors. An investor in a corporate debt issuance must conduct due diligence to understand the risk of the issuing
company, while the ABS investor must understand the risk of each underlying asset
and the ABS structure. For a typical investor to properly understand the composition of the security and the inherent risk of the underlying assets, the transaction
costs associated with conducting the due diligence could be significant. In the case
of both debt and securities issuance, there are dozens or hundreds of prospective
investors that would be subject to such transaction costs.

quarterly report to congress I october 21, 2009

This is where rating agencies become involved in the process. A rating agency
researches the risks of a prospective new security and of the security issuer and
issues its opinion, or rating, to the universe of prospective investors. The issuer can
be any number of organizations from a company (public or private), to a government (state, municipal, or national), to a special purpose vehicle (“SPV”) as is
often the case in an ABS issuance. The rating agency conducts its research and
assigns a rating, or score, to both the security and the issuer. A higher rating means
lower risk and consequently a lower interest rate that the issuer will have to pay to
investors.
The rating given by a rating agency has significant implications for a company’s
cost of capital. Prospective investors look at the score given by the rating agency
and use it to help determine the interest rate they expect from the issuer. For instance, two companies issue bonds with a par value of $1,000. One has a top credit
rating (AAA) and one has a significantly lower rating (BB). The relative riskiness
of the company with the lower rating means that investors will demand that the
company pay a higher interest rate to compensate for the higher risk that the bond
will default.
Rating agencies also monitor the ongoing creditworthiness of entities or securities. If, for instance, a company experiences a significant deterioration in its business that has the potential to impair the company’s ability to honor its debt obligations, a rating agency is likely to initiate a rating action — potentially changing the
rating. First, it may put the company on “ratings watch,” meaning the rating agency
is conducting a review of the current rating to determine if it should be maintained.
If the rating agency determines that conditions no longer merit the current rating,
the rating agency may downgrade the company and/or its securities to a lower rating. Conversely, a company or security can also be upgraded. Typically these rating
actions are done gradually in notches or steps.
The ratings issued by rating agencies are also often used by Government regulators to monitor the health of financial institutions. Financial companies such as
money market mutual funds and insurance companies may be required by law
to invest a certain portion of their assets in securities of a certain credit rating.
Because money market mutual funds have an obligation to be among the safest
(lowest risk) investments, regulators review the composition of their portfolios to
determine whether they are sufficiently safe and, in so doing, place a premium on
holding the highest-rated securities. Likewise, insurance companies have a range of
available investment options but also have a responsibility to maintain sufficiently
low-risk, liquid investments on hand to make good on any claims. Accordingly, by
regulation, these financial institutions are required to hold some percentage of
AAA-rated (the highest rating available) securities or cash. There can be regulatory
consequences — such as penalties, suspension of license, or closure — should an
institution not meet these requirements. Rating agencies are thus the arbiters of

Special Purpose Vehicle (“SPV”): An
off-balance-sheet legal entity that holds
the transferred assets presumptively
beyond the reach of the entities providing the assets (e.g., legally isolated).
Par Value: The face value of a bond or
security (for instance $1,000 or $100).
When a bond trades on the market,
the price can be above or below par. A
price above par means the purchaser
is paying a premium; a price below par
means the purchaser is buying at a
discount.
Ratings Watch: A formal announcement
by a rating agency informing investors
that the issue or issuer rating is being
reviewed to determine if the current
rating is appropriate.
Government Regulators: Government
agencies responsible for overseeing
the health and stability of a sector
of the economy — in this case, the
financial sector, through supervision
and enforcement of regulations.

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what securities qualify to be held for regulatory purposes, and any changes to ratings of securities can directly impact a financial institution’s regulatory compliance.
Further, because regulators rely so heavily on credit ratings in carrying out their
duties to ensure the solvency of regulated entities, errors by the rating agencies can
have profound effects on those institutions.
Historically, the credit rating agencies made their money by selling subscriptions
to their ratings publications to the community of investors. Today, however, rating
agencies make the vast majority of their income from the fees charged to issuers of
the securities that they rate — the issuers pay the rating agency to assign a rating
(commonly referred to as the “issuer-pay” model). This model is frequently cited
as the principal conflict of interest for the rating agencies because of the tension
between attracting new issuers and providing accurate ratings. Critics allege that, in
order to maintain or increase revenues, rating agencies must lower their rating standards in order to provide more favorable ratings for clients (issuers). Rating agencies
also receive fees from those same issuers for ongoing monitoring of the securities
they rate. In addition to credit ratings, many rating agencies make a portion of their
income from consulting services — advising companies, including prospective issuers, on how to structure securities issuances in a way to attract the highest possible
rating and reduce their cost of capital. Some rating agencies refuse to issue credit
ratings on companies for which they provide consulting services.
Investment Grade: A quality classification for bond or debt securities (rated
BBB/Baa or higher) that suggests the
debt is likely to be repaid.
Yield: The effective interest rate paid
by a security.

Background on Credit Ratings and Process
Each rating agency provides a scale of ratings ranging from the highest rating (lowest likelihood of default), to the lowest (the highest likelihood of default). The term
“investment grade” refers to debt securities that are judged by the rating agency as
highly likely to repay and suitable for institutional investors. Conversely, the euphemism “junk” (sometimes called “speculative grade”) has come to mean anything
that is not investment grade, and the risk of the issuer not meeting its payment
obligations is high enough that an investor that must meet regulatory thresholds of
conservatism and prudence (such as a pension fund) should avoid them.
Table 3.1 provides an illustrative comparison of the ratings scales of the three
largest rating agencies, Moody’s, S&P, and Fitch. As the table suggests, each has a
different scale for long-term and short-term issues, and although the scoring used
appears to be similar, there are subtle differences among the three. The ratings contained in the table are the most basic ratings for long- or short-term debt securities.
The three rating agencies also provide ratings for the issuers themselves, as well as
ratings for different types of structured finance products.
The lower the rating, the greater the perceived risk and the more yield an investor will demand. Obviously, the effect on the issuer is the opposite: the lower the
rating, the more it must pay or the lower the price it will get for its securities. For

quarterly report to congress I october 21, 2009

instance, according to data available from the Federal Reserve Bank of St. Louis,
the average rate paid by the highest-rated 30-year corporate bonds (AAA/Aaa) was
5.04% on September 30, 2009, compared to a rate of 6.17% for bonds rated BBB/
Baa — a full 1% difference for securities within the investment-grade category.251

Table 3.1

Credit Rating Scales of 3 Largest Agencies
Moody’s
Investor Services
Band

Rating

Investment Grade

Prime
High grade

Long
Term

Short
Term

Aaa

AAA
AA+

Aa2

Prime-1

Upper medium A1
grade
A2
A3
Baa1
Baa2
Baa3
Speculative
Grade or “junk”

Speculative,
but likely to
repay
Speculative,
deterioration
expected

Long
Term

Aa1
Aa3

Lower
medium grade

Standard &
Poor’s

AA
A+

Prime-3

ABBB+
BBB
BBB-

AA+
AA

A-1
A-2
A-3

A+
A
ABBB+
BBB
BBB-

Ba2

Ba3

BB-

B+

B
B-

B-

Caa1

CCC+

Substantial
risk of default

Caa2

CCC

Highly
vulnerable

Caa3

CCC-

Short
Term

F1+

AA-

BB+

In default

A-1+

Ba1

Substantial
risk
of business
interruption

Near default

Long
Term
AAA

AAA

Prime-2

Short
Term

Fitch Ratings

F1
F2
F3

BB+

B+

Not Prime

Ca
C

CCC
C

CCC-

Sources: Moody’s (http://v3.moodys.com/ratings-process/Ratings-Definitions/002), S&P (http://www2.standardandpoors.com/
spf/pdf/fixedincome/Ratings_Definitons_Update.pdf), Fitch Ratings (http://www.fitchratings.com/web_content/ratings/fitch_ratings_definitions_and_scales.pdf), accessed 10/5/2009.

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Collateralized Debt Obligations
(“CDOs”): A financial instrument that
entitles the purchaser to some portion
of the cash flows from a portfolio of assets, which may include bonds, loans,
mortgage-backed securities, or other
CDOs.
Rating Outlook: Guidance published by
a rating agency indicating the mediumor long-term outlook for a company’s
or security’s creditworthiness.

Issuance
Credit ratings are issued or edited at two key points: at security issuance and
when an event or change in business conditions could affect the issuer or security
creditworthiness and trigger an upgrade or downgrade. The issuance of a rating
for a security, especially a structured finance security, is often an iterative process.
Because the major rating agencies all publish their stated methodologies for determining a rating, it is routine for the investment bankers who structure the products
to review these documents and attempt to structure the security in such a way
as to receive the highest possible rating. If the issuer has questions about how to
improve its rating (or methods for minimizing the perception of default risk), it will
often ask rating agencies for comments or advice. In certain instances, an issuer
will pay for consulting services to receive assistance in structuring the product and
achieving a target credit rating. Securities Exchange Act Rule 17g-5(c), instituted
in early 2009, expressly prohibits a rating agency from providing consulting services
on issuances that it rates.252 Rating agencies can still provide consulting services,
however, on issuances rated by another rating agency.253
Each of the major rating agencies publicly discloses its stated methodology and
criteria for the instruments and institutions that it rates,254 however, an SEC study
of the three largest rating agencies has found that none of the rating agencies had
specific, comprehensive, written procedures for rating mortgage-backed securities
(“MBS”) and collateralized debt obligations (“CDOs”).255
Surveillance (Ongoing Monitoring)
The vast majority of ratings are monitored by analysts at the rating agency for the
duration of the security term. This process is called surveillance. Surveillance is
typically paid for by the issuer, with an annual surveillance fee negotiated at the
time of original rating.
As the business model for rating agencies shifted from subscriptions to issuerpay, the cost of maintaining and monitoring ratings has also shifted to the issuers. Issuers pay for surveillance because investors demand it as a requirement for
purchasing the security. Just as a downgrade of an entity’s securities can affect its
cost of raising capital on future issues, a lapse in ratings can also signify uncertainty
about the entity’s creditworthiness. Additionally, an unrated security requires very
high levels of regulatory capital making it undesirable for companies.
One element of a rating agency’s surveillance services is a rating outlook which
assesses the potential direction of an issuer’s long-term debt rating over the medium term (a two- to three-year credit horizon). Rating outlooks reflect the rating
agency’s evaluation of trends or risks, including developments in the economy or
the fundamental business conditions, that are weighed against their potential impact on the direction of the issuer’s credit rating. Rating agencies typically assign a
rating outlook to all issuers for whom they provide long-term credit ratings. A rating

quarterly report to congress I october 21, 2009

outlook can be “positive,” “negative,” “stable,” or “developing,” depending on the
rating agency, and is not necessarily a precursor of a rating change or future credit
watch action.256
Over the course of the security’s term, any number of events and developments
could change the creditworthiness outlook of the security, or more generally the
issuer itself. These events, such as an “operational or fiscal deterioration, an acquisition, a divestiture, or the announcement of a major share repurchase”257 would
likely trigger a rating review and could ultimately lead to a rating action. A rating
review by the rating agency analysts monitoring the security or issuer is the first
step in the process of initiating a rating action (an upgrade, downgrade, or affirmation). If the analysts decide that a change to a rating may be merited, the rating
agency may announce that the issue or issuer is being put on either “credit watch”
for short-term changes or rating outlook for long-term changes.
Credit watch is a list maintained by a rating agency highlighting rated entities
that are experiencing an emerging situation which could materially affect their
credit profile in the short term.258 Credit watch can be designated as “credit watch
positive,” “credit watch developing,” or “credit watch negative.” These designations are intended to signal to investors that further analysis is being performed,
although it does not necessarily mean that a rating change is inevitable.
Rating Actions

A rating action (downgrade or upgrade) can have a material impact on the cost
of capital for a company or issuer. A downgrade of the issuer’s rating means that
further issuances would be at a lower rating and the issuer would be required to
pay a higher interest rate compared to other less-risky opportunities in the market.
A change in rating can also have broader effects on the issuer’s business.
A security’s upgrade or downgrade can have a direct impact on the finances
of those companies holding the security on their books. For instance, if a bond is
downgraded from AAA to AA, it could require all of the institutions that hold those
bonds as reserves (low-risk, high-liquidity securities) to put aside additional capital
per regulators’ requirements. As an example, consider a money market mutual
fund that must invest 95% of its assets in securities with ratings in the top four
long-term investment grades.259 A downgrade in one of its holdings can drive down
the value of that fund (suddenly one of its holdings that was selected because of
its low risk and volatility is no longer worth what it was before) and force the fund
to sell the downgraded asset at a loss and replace it with other AAA-rated securities. Furthermore, some debt agreements have “ratings triggers” embedded in their
contracts that can force a company to accelerate repayment of debt if its rating falls
below a specified level (such as being downgraded to speculative grade or junk).260
There is considerable controversy surrounding the area of ratings surveillance
in that a ratings action, especially a downgrade, can have a dramatic effect on the

Credit Watch: Announcement by a
rating agency of developments that
may have a material impact on the
creditworthiness (either positive, negative, or developing) of a company or
security in the short term.
Rating Review: A formal action by a
rating agency to re-assess the creditworthiness of a company or security. Could lead to a change in rating
outlook, initiation of credit watch, or a
rating action.
Rating Action: A modification (upgrade
or downgrade) or confirmation of a
company’s or security’s credit rating.

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Margin Call: A broker’s demand on
an investor using borrowed money
(margin) to deposit additional cash or
securities in its account if the value of
its capital drops below a set percent of
the total investment.
SEC Net Capital Rule: A requirement
that broker-dealers maintain a sufficient cushion of highly liquid assets
(easily convertible to cash) in excess
of liabilities to cover potential market,
credit, and other risks if they should be
required to liquidate.
Capital Requirement: The amount of
cash and easily liquidated assets that
a financial institution needs to meet
Government regulations and provide a
cushion against losses.
Liquidity: The ability to easily convert
an asset to cash, without any significant loss in value or transaction cost.

For more information on bank capital
structure, see SIGTARP’s April Quarterly
Report, “TARP Tutorial: Capital
Structure,” page 58.

viability of a company or the value of a security. Downgrades can trigger a domino
effect of margin calls and collateral devaluations — the “death spiral” — that can
force corporate failure.

Nationally Recognized Statistical Rating Organizations
An important development in the history of credit ratings occurred in 1975
with the creation of the nationally recognized statistical rating organizations
(“NRSROs”) designator for certain rating agencies. The SEC made explicit reference to NRSROs for the first time in a 1975 amendment to Securities Exchange
Act Rule 15c3-1 (the net capital rule).261 The net capital rule, which has been in
use since the 1940s, sets minimum capital requirements for broker-dealers and
links the determination of what assets can be considered capital to an evaluation
of the riskiness of the assets.262 Capital requirements for a broker-dealer function similarly to the bank capital requirements discussed in SIGTARP’s Quarterly
Report dated April 21, 2009 (the “April Quarterly Report”) — they are set by regulators to establish a minimum “cushion” against potential losses in the firm’s assets.
Rather than allowing the securities firms to determine for themselves the riskiness
of their assets, or allow them to receive inflated ratings from dubious organizations,
the SEC decided to rely on the dominant three rating agencies, dubbing them
NRSROs.263
The SEC would rely on the ratings assigned by NRSROs “solely for determining capital charges on different grades of debt securities under the Commission’s
net capital rule for broker-dealers.”264 The rule requires broker-dealers to deduct
a percentage of the value of their securities investments from their net worth (a
capital charge, or haircut) because of the risk of loss in the investments. With the
advent of the NRSRO designation, however, a broker-dealer could take a smaller
haircut on securities that had received an investment-grade rating by one or more
of the NRSROs because such a rating was deemed to correlate with liquidity (a
greater liquidity implied lower potential losses if a firm needed to convert the assets
to cash). According to former SEC Commissioner Isaac Hunt, securities with an
investment-grade rating from an NRSRO “typically were more liquid and less volatile in price than those securities that were not so highly rated.”265
The three initial NRSROs were Moody’s, S&P, and Fitch.266 After the 2006 passage of the Credit Rating Agency Reform Act (“CRARA”), the number of NRSROs
grew. As of September 30, 2009, there were 10 NRSROs; for a complete list of
NRSROs, see Table 3.2.
Since 1975, the NRSRO concept was incorporated into a number of additional
SEC rules and regulations. Congress also began using the term in legislation as
did U.S. and international financial sector regulators.267 Certain Federal regulators
(as discussed in the “How the Federal Government Uses Ratings in Regulating
the Financial Sector” portion of this section) use NRSRO ratings in their rules for

quarterly report to congress I october 21, 2009

Table 3.2

Credit Rating agencies Designated as NRSRO
Rating Agency

Parent Company

Notes

Moody’s Investors Service, Inc.

Moody’s Corporation

Rating TALF issues

Standard & Poor’s Ratings Services

The McGraw-Hill Companies, Inc.

Rating TALF issues

Fitch, Inc.

Fimalac S.A.

Rating TALF issues

Egan-Jones Ratings Co.
A.M. Best Company, Inc.

Insurance companies only

DBRS Limited

Rating TALF CMBS issues

Rating and Investment Information,
Inc.
Realpoint LLC

Rating TALF CMBS issues

Japan Credit Rating Agency, Ltd.
LACE Financial Corporation
Sources: Capital IQ, www.capitaliq.com, accessed 9/15/2009; FRBNY Press Release “New York Fed Names Four Non-Primary
Dealer Broker-Dealers as TALF Agents,” 9/1/2009, www.newyorkfed.org/newsevents/news/markets/2009/an090901.html,
accessed 9/15/2009.

calculating the risk-based capital of institutions, ultimately affecting how much
capital the institutions have on hand to lend or invest. The increased regulatory
reliance on ratings drove an increased demand for rating services by investors
and securities issuers, that, combined with increased regulatory oversight of the
securities industry, led to growth in the credit ratings industry. In other words, the
expansion of, and reliance on, credit rating agencies was heavily influenced by the
U.S. Government.

Rating Agency Impact on Financial Institutions
The financial services industry uses rating agencies to reduce the cost and effort of
evaluating investments. Rather than each firm or investor exhaustively researching
each potential investment and securities issuer, investors instead often rely on the
judgments of rating agencies. The rating agencies centralize the work and perform
analysis that would otherwise be done by the numerous investors in the market.
Many of the most important effects of ratings on financial institutions come as the
result of Government regulation; ratings play a critical role, for example, in how
banks and other institutions value assets for regulatory capital.
Beyond the regulators, many market participants have come to depend on
rating agencies for a range of needs. First, ratings are used widely in permitted
investments lists found in many investment firms’ policies. The largest investors in
the capital markets are institutional investors — such as pension funds, insurance
companies, mutual funds, trusts, and corporate or government treasury departments. Some of these institutions are concerned primarily with the preservation
of capital — meaning that they generally value safety and predictability in their
investments so they can reliably meet their obligations rather than risk eroding

Permitted Investments List: A
statement in the charter or policies
of an organization (for instance, the
prospectus of a mutual fund) detailing
to stakeholders the nature or types
of assets in which the institution is
allowed to invest. To invest in assets
not on the list could mean a breach
in the fiduciary responsibility of the
organization.

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their capital through the pursuit of higher returns. In their charters, the trustees
of such institutions draw up investment policies that typically include a permitted
investments clause. In the case of a risk-averse institution, such as certain pension
funds or museum trust funds, it is common for the permitted investments clause
to restrict fund investments to securities rated AAA or AA, the highest and secondhighest ratings available. Because so many sectors of the investment world operate
under similar requirements, these provisions create strong demand for the higherrated securities. This means that higher-rated securities will be able to borrow at
much lower rates, and lower-rated securities may have trouble finding a market at all.
Second, ratings are often used to re-balance institutional investors’ portfolios.
Many investors, particularly institutional investors, set their strategies to optimize a
certain mix of safe and speculative assets. These investors buy and sell securities on
a daily, weekly, or monthly basis to maintain certain balances and ratios of ratings
in their overall holdings. Thus, these investors constantly monitor any movements
in securities’ or issuers’ ratings, and adjust their portfolio holdings accordingly.
Third, ratings have an effect on the structure of new securities. The rating
agencies effectively set the structures and the rules for credit programs, particularly structured financings (such as ABS, residential mortgage-backed securities
(“RMBS”), and commercial mortgage-backed securities (“CMBS”)), and the issuers
and their advisors structure their products accordingly in order to gain the highest
possible rating. Through this process, the rating agencies implicitly define what
transaction structures can receive inexpensive financing and what cannot.
These are just a few of the ways in which rating agencies can influence the financial markets; their decisions may create new markets and can mean the end of others.

Credit Rating Market
In 2007, the credit rating industry had total revenues of approximately $6 billion.268
As cited in Congressional testimony, the three main NRSROs — Moody’s, S&P,
and Fitch — currently account for 95% of the global market for credit ratings.269
Historically, rating agencies have focused on providing ratings on several primary
market segments:
• Sovereigns (countries’ or governments’ debts)
• Municipalities and their issues (state or local governments or public authorities
may issue debt to finance operations for specific projects such as infrastructure
investments)
• Corporate Issuers (the companies that issue securities to finance their
operations)
• Corporate Issues (the specific securities issued by companies to finance their
operations)

quarterly report to congress I october 21, 2009

• Financial Institutions (deposit-taking banks)
• Insurance Companies
Since the 1970s, however, structured finance, which includes asset-backed
securitization and a range of other financial innovations, has become an increasingly prominent portion of the rating market. The asset-backed securitization
ratings market experienced enormous growth since the late 1990s with the booms
in telecommunications, the Internet, and especially housing. For example, total
residential mortgage production in the United States grew from $639 billion in
1995 to $3.3 trillion in 2005, leading to approximately $6.5 trillion of securitized
mortgages by year-end 2006.270 During this time period, Wall Street developed a
range of new products that helped institutions package up debt or other obligations and resell streams of income from the new products to other investors. These
products included CDOs and ABS — which included RMBS and CMBS. In fact,
CDOs often comprised bundles of different ABS, and sometimes other CDOs. The
growth of CDOs corresponded to a simultaneous growth of another product — an
insurance-like contract against the default of a company or security called a credit
default swap (“CDS”). Rating agencies provided ratings on all types of ABS and
CDOs.
Coinciding with the growth of the structured finance market, the combined
revenues for Moody’s, S&P, and Fitch increased from $3 billion in 2002 to approximately $6 billion in 2007.271

Rating-Agency Fees
The major rating agencies earn their income primarily through fees related to the
process of issuing ratings under the issuer-pay model. Prior to the 1970s, rating
agencies made the majority of their income from selling their ratings to investors
who subscribed for regular reports — a method called “investor pay.”272 Now, although rating agencies continue to charge fees for other services, such as subscriptions, research reports, and consulting, such services provide a smaller portion of
their rating revenues.
The fees charged to issuers can be structured several ways:273
• a fixed-rate recurring fee for an issuer rating or for the surveillance of a rating
• a one-time transaction fee based on a percentage (typically several hundredths
of 1%) of the nominal value of a transaction-related offering
• a combination of the two (such as a recurring or one-time fee covering both issuer and transaction/offering ratings)
Furthermore, fees can differ across types of offerings — with structured

Credit Default Swap (“CDS”): A contract
where the seller receives a series of
payments from the buyer in return
for agreeing to make a payment to
the buyer when a particular credit
event outlined in the contract occurs
(for example, if the credit rating on a
particular bond or loan is downgraded
or goes into default). It is commonly
referred to as an insurance-like product
where the seller is providing the buyer
insurance-like protection against the
failure of a bond. The buyer, however, does not need to own the asset
covered by the contract, which means
it can serve essentially as a bet against
the underlying bond.

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Table 3.3

Indicative Rating Fees (Issuance)
Fee
(corporate issuance)

Fee
(structured finance)

Fitch Ratings

3 – 7 basis points
(0.03 – 0.07%)

3 – 3.5 basis points
(0.03 – 0.03%)

Standard & Poor’s
Ratings Services

3.25 – 4.25 basis
points (0.0325 –
0.0425%)

Up to 12 basis points
(up to 0.12%)

Rating Agency

Example issuance fee:
$1 billion RMBS
$160,000
(@ 3.5 basis points) w/
fee cap
$1,200,000
(@ 12 basis points)

Source: FRBNY, “Understanding the Securitization of Subprime Mortgage Credit,” 3/2008, www/newyorkfed.org/research/staff_
reports/sr318.pdf, accessed 9/22/2009. Fitch Ratings Ltd., Response to SIGTARP October 2009 Quarterly Report, 10/26/2009.

Ratings Shopping: Also known as
“forum shopping”; the process where
an issuer approaches a rating agency
to receive a “preliminary rating” before
it seeks an official rating. If it does
not get the desired rating, the issuer
proceeds to another rating agency until
it receives the desired rating.

product offerings typically having a higher fee than corporate issuances.274
Table 3.3, derived from a report by the Federal Reserve Bank of New York
(“FRBNY”), illustrates the fees charged by S&P and Fitch (the report noted that
Moody’s does not publish its fees).
Many rating agencies make a portion of their income from sources other than
issuing ratings and surveillance. These sources include their traditional source of
revenue — subscriptions to ratings information services — but have also grown
to incorporate specialized credit risk management software and the provision of
consulting services around debt or structured finance issuances. In 2003, the SEC
noted that “these businesses include ratings assessment services where, for an additional fee, issuers present hypothetical scenarios to the rating agencies to determine how their ratings would be affected by a proposed corporation action (e.g.,
a merger, asset sale, or stock repurchase).”275 Thus the rating agencies, for a fee,
advise the companies on how they can structure their transactions to get the best
ratings; since the enactment of Securities Exchange Act Rule 17g-5(c) in 2009,
however, they can no longer do so for an issue they are rating.276
Even when no official consulting services were provided, the process of receiving fees for ratings has been cited as having inherent conflicts of interest. Due to
the competition among the rating agencies, issuers often approach more than one
rating agency to pursue the most favorable rating for a security issuance (“ratings
shopping”). The issuer might approach several rating agencies to receive preliminary ratings on its prospective offering and then walk away from the ratings it does
not like.277 As a result, an agency that consistently provides more conservative ratings may find itself losing market share.
The potential conflicts of interest are even higher for situations where a rating agency receives consulting fees directly associated with helping an issuer to
structure a security in order to maximize its credit rating while at the same time
also being paid to assign a rating to a different security issued by that same issuer.
Although some rating agencies claim that they have sufficient controls in place
to prevent the provision of such services from affecting their ratings, others have
made it a policy not to issue ratings for firms or securities for which they have

quarterly report to congress I october 21, 2009

provided structuring advice. One of the smaller rating agencies, DBRS Limited
(“DBRS”), explicitly prohibits its staff “from making recommendations to an
obligator, issuer, underwriter or sponsor of a security about the corporate or legal
structure, assets, liabilities, or activities of the obligator or issuer of the security for
which DBRS intends to assign, or has assigned, a rating.”278

Credit Rating Agency Reform Act
Following the various accounting scandals of the early 2000s involving companies
that had been assigned top credit ratings despite their imminent downfall (such
as Enron and WorldCom),279 Congress began to reexamine the role of NRSROs.
Congress attempted to tighten oversight of the NRSROs with the 2006 passage of
the Credit Rating Agency Reform Act (“CRARA”).
One of the primary issues that CRARA tried to address was the concentrated
nature of the credit rating industry. One of the principal barriers to entry for new
competitors, prior to CRARA, was the requirement for a rating agency to be nationally recognized in order to achieve NRSRO status — a chicken-or-egg dilemma
for many smaller rating agencies. Under CRARA, designation as an NRSRO is
determined by an application process and an SEC vote.280 Although this change
resulted in an increase in the number of NRSROs, the market share of the large
three rating agencies remains largely unaffected.
CRARA also attempted to address challenges to the independence and reliability of credit ratings, principally around information disclosure and the conflicts of
interest inherent in the issuer-pay business model. Changes made under CRARA
included:281
• authorizing the SEC to designate certain conflicts as “disclose-and-manage,”
meaning the NRSRO must disclose conflicts of interest in its business and issue
policies and procedures to mitigate against these conflicts
• authorizing the SEC to prohibit certain conflicts outright, such as an NRSRO
issuing ratings for an entity from which it receives more than 10% of its net
revenue or an NRSRO downgrading or threatening to downgrade an existing
security if it does not receive the issuer’s business on another issue
Additionally, CRARA authorized the SEC to conduct “reasonable periodic,
special, or other examination by representatives of the Commission.”282 To facilitate
such oversight, CRARA required NRSROs to create and maintain a set of documents, which includes documenting their ratings methodologies as well as retaining any external and internal communications related to any ratings action.283
While CRARA sought to promote more competition in the credit rating market,
reduce potential conflicts of interest, and promote more disclosure, its reforms
were insufficient to prevent the damage of the 2007–2008 financial crisis.284 At

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the time CRARA was passed, the subprime market had not yet imploded and the
general reforms of CRARA were focused on problems identified in the post-Enron
years. These reforms, when codified into rules in 2007 and 2008, did little to affect the dominance of the three largest NRSROs in the field of structured finance
(where subprime risks were most highly concentrated).285 As a 2009 working paper
from the International Monetary Fund (“IMF”) observed, “in the U.S., implementation of the 2006 Rating Act lagged the current crisis.”286 CRARA also explicitly
prohibited the SEC from regulating the substance of ratings and did not address
the quality and timeliness of monitoring activities.287

How the Federal Government Uses Ratings
in Regulating the Financial Sector
The U.S. Government institutions that regulate the financial sector are responsible
for ensuring its soundness and safety. These regulators oversee certain institutions,
such as deposit-taking banks, pension funds, and insurance companies, that have a
fiduciary responsibility to their customers because, in many ways, peoples’ savings
and future livelihoods are dependent on the stability of these entities. For certain
types of institutions, these fiduciary restrictions clearly dictate that the institutions
must invest a certain portion of their assets in relatively “risk-free” or AAA-rated
securities.

Illustrative Regulations
Financial sector regulators that rely heavily on ratings include the SEC, the U.S.
Commodity Futures Trading Commission (“CFTC”), Federal Deposit Insurance
Corporation (“FDIC”), the Federal Reserve, the National Association of Insurance
Commissioners (“NAIC”), the National Credit Union Association (“NCUA”),
Office of the Comptroller of the Currency (“OCC”), Office of Thrift Supervision
(“OTS”), Department of Housing and Urban Development (“HUD”), and the
Federal Housing Financing Agency (“FHFA”). Since the introduction of NRSROs
in 1975, the Federal Government and its regulatory institutions have issued a
number of regulations that specify how credit ratings are to be used for regulatory
purposes. Some examples of Federal regulatory references to credit ratings include
those outlined in Table 3.4.

quarterly report to congress I october 21, 2009

Table 3.4

Key Regulations Involving NRSRO credit ratings

(continued)

Pertains To

Regulator

Rule

Description

Banks

Banking regulators:
Fed, OCC, FDIC, OTS

Standardized Approach to
Risk-Based Capital

The proposed “standardized approach” permits banks to use NRSRO ratings to
determine risk weights for a broad range of exposures, including sovereign risk,
corporate exposures, and securitization exposures, including exposures related
to MBS. Employed by all banking regulators.

Banks

FDIC

Code of Federal Regulations,
Title 12, Banks & Banking
§ 325

FDIC’s incorporation of risk-based capital regulations from standardized approach
states appropriate risk weightings for assets rated by NRSROs.

Banks

FDIC

Code of Federal Regulations,
Title 12, Banks & Banking
§ 346.19

Establishes risk-based premiums payable by insured banks to FDIC, depending
on their level of capitalization. Relies on NRSROs to calculate risk-based capital
determination of “adequately capitalized” versus “well capitalized” as determinant
for premium payment.

Banks

Federal Reserve
Board

“Regulation H” (Code of
Federal Regulations, Title 12,
Banks & Banking § 208)

Per the standardized approach — refers extensively to ratings, relying on the
NRSRO designation for risk-based capital calculations, and other securities-related regulations for member banks in the Federal Reserve System.

Banks

Federal Reserve
Board

“Regulation F” (Code of
Federal Regulations, Title 12,
Banks & Banking §§ 206.3,
206.5)

Regarding prudential standards for limiting liability in inter-bank relationships — a
“bank rating agency” can be relied upon to assess the financial condition of a
correspondent (whether or not the correspondent is adequately capitalized) or to
select a correspondent.

Banks

Federal Reserve
Board

“Regulation Y” (Code of
Federal Regulations, Title 12,
Banks & Banking § 225)

Per the standardized approach — establishes risk-based capital calculations for
bank holding companies; refers extensively to ratings of NRSROs.

Banks

OCC

Code of Federal Regulations,
Title 12, Banks & Banking
§§ 1.2, 1.5

Defines the term “investment grade” as being rated in one of the four highest rating categories by two or more NRSROs, or one NRSRO (if it has only been rated
by one); establishes that “Investment Securities” must be investment grade to not
be considered predominantly speculative. Requires banks to conduct proper due
diligence on investment securities, if not rated by an NRSRO.

Banks

OCC

Code of Federal Regulations,
Title 12, Banks & Banking
§3

Establishes risk-based capital ratings for banks regulated by OCC, per the standardized approach. Relies extensively on NRSRO ratings for capital requirements.

Banks (Credit
Unions)

NCUA

Code of Federal Regulations,
Title 12, Banks & Banking
§ 703

Federal credit unions. Relies on NRSROs in setting permissible investments.
Allows Federal Credit Unions to invest in certain securities (such as municipal
bonds, mortgage notes, European financial option contracts) provided the
securities or counterparties have a high enough credit rating as determined by an
NRSRO.

Banks (Credit
Unions)

NCUA

Code of Federal Regulations,
Title 12, Banks & Banking
§ 704.2, 704 App. A

Corporate credit unions. Relies on NRSROs in setting permissible investments for
purposes of measuring minimum capital. All investments, other than in corporate
credit unions or in products of Government-Sponsored Enterprises (GSEs), must
have long-term ratings no lower than AA- or short-term ratings no lower than A-1
(or equivalent). Additionally sets requirements for corporate credit unions to make
additional investments such as derivatives and lower-rated securities.

Banks
(Foreign)

FDIC

Code of Federal Regulations,
Title 12, Banks & Banking
§ 347

Whenever a foreign bank has an FDIC-insured U.S. branch, it must pledge assets
to FDIC or its designee to protect the Deposit Insurance Fund in the event that
FDIC is called on to pay for insured deposits of the branch. Ratings by NRSROs
are relied upon in determining what types of assets may be pledged by the bank.

Banks
(Thrifts)

OTS

Code of Federal Regulations,
Title 12, Banks & Banking
§ 567

Establishes risk-based capital ratings for banks regulated by OCC, per the standardized approach. Relies extensively on NRSRO ratings for capital requirements.

BrokerDealers

SEC

Rule 15c3-1 (Net Capital
Rule) under the Securities
Exchange Act of 1934
(“Exchange Act”)

Under the Net Capital Rule, which requires broker-dealers to deduct from their
net worth certain percentages of the market value of their proprietary securities
positions in calculating their net capital, broker-dealers may apply smaller deductions, or “haircuts,” against the market value of commercial paper rated in one
of the three highest rating categories by at least two NRSROs and to nonconvertible debt securities and preferred stock rated in one of the four highest rating
categories by at least two NRSROs. (Commission has proposed removing the
references to NRSRO ratings.)
Continued on next page.

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Key Regulations Involving NRSRO credit ratings

(continued)

Pertains To

Regulator

Rule

Description

BrokerDealers

SEC

Rule 10b-10 under the
Exchange Act

Requires broker-dealers providing transaction confirmations to inform customers
if a non-Government debt security is unrated by an NRSRO, if applicable. (Commission has proposed rescinding requirement.)

BrokerDealers

SEC

Form X-17A-5 Part IIB,
under section 17 of the
Exchange Act

A financial and operational report that must be completed by all broker-dealers
that are registered with the SEC. Allows OTC derivatives dealers to employ
NRSRO ratings to calculate credit risk weights of counterparties. (Commission
has proposed removing references to NRSROs as well as the related substantive
provisions of Net Capital Rule.)

Corporate
Debt

SEC

Rule 3a1-1 under the
Exchange Act

Distinguishes between investment-grade corporate debt and non-investmentgrade corporate debt based on NRSRO rating. (Commission has removed references to NRSROs in this rule as of 10/9/2009.)

Corporate
Debt

SEC

Regulation ATS under the
Exchange Act

Establishes different trading system access and compliance requirements for
investment-grade and non-investment-grade corporate debt securities. (Commission has removed references to NRSROs in this rule as of 10/9/2009.)

Corporate
Debt

SEC

Form ATS-R and Form Pilot
under the Exchange Act

Registration forms delineating reporting requirements for investment-grade and
non-investment-grade corporate debt securities. (Commission has removed references to NRSROs in this rule as of 10/9/2009.)

Debt Issuers

SEC

Form S-3, under Securities
Act of 1933 (the “Securities
Act”)

Issuers of certain debt securities that receive an investment-grade rating (typically, within an NRSRO’s top four rating categories) from an NRSRO are entitled
to a streamlined registration process (short-form registration) under Form S-3.
(Commission has proposed new guidelines for eligibility, not based on NRSRO
ratings.)

Debt Issuers

SEC

Form F-3, under the
Securities Act

A form used by foreign private issuers to register offerings of securities with the
SEC. To be considered “investment grade,” primary offerings of non-convertible
securities must be rated investment grade (typically, within an NRSRO’s top four
rating categories) by at least one NRSRO. (Commission has proposed new guidelines for eligibility, not based on NRSRO ratings.)

Debt Issuers

SEC

Rule 415, under the
Securities Act

Allows “mortgage-related securities” (rated in one of the two highest rating categories by at least one NRSRO), to be eligible for shelf registration. (Commission
has proposed new guidelines for eligibility, not based on NRSRO ratings.)

Debt Issuers

SEC

Rule 3a-7 under the Investment Company Act of 1940
(the “1940 Act”)

Requires that structured financings offered to the general public are rated by at
least one NRSRO in one of the four highest ratings categories. (Commission has
proposed removal of references to NRSRO ratings.)

Debt Issuers

SEC

Regulation FD - (Code of
Federal Regulations, Title
17, Commodity & Security
Exchanges § 243.100)

Exempts issuers from public disclosure requirements for material non-public
information provided to rating agencies (provided the rating agency’s ratings are
publicly available).

Debt Issuers

SEC

Rule 134 under the
Securities Act

Permits issuers to disclose certain ratings from NRSROs in “tombstone” advertisements and other non-prospectus information. (Commission has proposed
amending rule to include all credit ratings agencies rather than only NRSROs.)

Debt Issuers

SEC

Rule 436(g) under the
Securities Act

Issuers with credit rating from an NRSRO do not need to submit rating agency
consent form along with issue registration. Exempts NRSROs from expert liability
under section 11 of the Securities Act. (Commission has solicited comment on
whether rule should be rescinded.)

Housing
Finance

FHFA

Code of Federal Regulations,
Title 12, Banks & Banking
§ 1750

Establishes risk-based capital requirements for the GSEs, relying extensively
on credit ratings from NRSROs in “stress tests” used for calculating risk-based
capital requirements.

Housing
Finance

FHFA

Code of Federal Regulations,
Title 12, Banks & Banking
§§ 930, 932

Establishes risk-based capital requirements for Federal Homeloan Banks, relying
extensively on credit ratings from NRSROs for determination of investment-grade
rating and capital requirements related to securities and off-balance-sheet items.

Housing
Finance

FHFA

Code of Federal Regulations,
Title 12, Banks & Banking
§ 955

Sets asset-quality requirements for participation in the Acquired Member Asset
(“AMA”) program, which gives mortgage lenders an alternative to selling mortgages in the secondary market. Uses NRSRO designations in determining creditrisk-sharing structure and risk-based capital requirements for acquired assets.
Continued on next page.

quarterly report to congress I october 21, 2009

Key Regulations Involving NRSRO credit ratings

(continued)

Pertains To

Regulator

Rule

Description

Housing
Finance

FHFA

Code of Federal Regulations,
Title 12, Banks & Banking
§ 956

Sets permissible investment list for Federal Homeloan Banks, prohibiting them
from investing in debt instruments that are not investment-grade, as determined
by NRSROs (with certain exceptions). Establishes risk-based capital requirements
for investments (based on NRSRO ratings).

Housing
Finance

FHFA

Code of Federal Regulations,
Title 12, Banks & Banking
§ 966

Requires the Federal Homeloan Banks to acquire, and at all times maintain, the
highest rating from an NRSRO rating on their consolidated obligations. Further
requires each individual bank to maintain at least the second-highest rating from
an NRSRO.

Housing
Finance

HUD

Code of Federal Regulations,
Title 24, Housing and Urban
Development § 266.100

To participate in a Federal Housing Administration (“FHA”) risk-sharing program
for insured, affordable multifamily project loans, a potential housing finance
agency must be rated “top-tier” by an NRSRO, and must maintain an overall A
rating for its bonds.

Insurance

NAIC

The FE Rule

Securities rated and monitored by one or more NRSRO are automatically assigned an equivalent Securities Valuation Office (“SVO”) rating, rather than requiring the SVO to conduct its own valuation.

Insurance

NAIC

Purposes & Procedures
Manual

Establishes guidelines enabling an NRSRO to be considered an Acceptable Rating
Organization (“ARO”) for NAIC regulatory purposes.

Insurance

NAIC

Policy Statement on Financial
Regulation Standards
(“SFRS”)

Identifies laws and regulations that must be adopted by state insurance regulators, specifying the use of NAIC designations (which are interchangeable with
those of NRSROs).

Insurance

NAIC

Authorized Control Level Risk
Based Capital Rule

Establishes levels of regulatory intervention linked to defined risk-based capital
(“RBC”) ratios of the assets of insurers. NAIC ratings (interchangeable with
NRSROs) are used to set the reserve factor that an insurer must use to calculate
the appropriate RBC charges a purchased asset should make against an insurer’s
total RBC.

Insurance

NAIC

Asset Valuation and Interest
Maintenance Reserve (“AVR”)
and Interest Maintenance
Reserve (“IMR”)

Certain insurance companies must reserve against potential credit-related and
interest-related investment losses on all invested asset categories. AVR and IMR
rely on the extent to which a debt security or MBS asset is upgraded/downgraded during the holding period — with losses being attributable to credit (more
than one change in NAIC ratings classification — interchangeable with NRSROs),
or interest (one or no change in rating category).

Insurance

NAIC

Investment Law — The
Medium Grade and Lower
Grade Obligations Model
Regulation

Uses NAIC designations (interchangeable with NRSRO ratings) to set percentage
limitations by credit quality — sets a maximum investment of 20% in mediumgrade securities designated NAIC 3, 4, 5, 6.

Insurance

NAIC

Investment Law —- The
Investment of Insurer’s Model
Act Defined Limits Version

Classifies investments in categories with percentage limitations for each. Criteria
include a general diversification percentage and also a credit quality percentage,
many of which rely on NAIC designations (interchangeable with NRSRO ratings).

Insurance

NAIC

Investment Law — Investment of Insurer’s Model Act
Defined Standards Version

Requires an insurer to establish a minimum financial security benchmark, after
which it may invest in any lawful investments. Limits the percentage of admitted
assets that can be invested by reference to their NAIC designation (interchangeable with NRSRO ratings).

Insurance

NAIC

Valuation of Securities —
Statement of Statutory Accounting Principle (“SSAP”)

NAIC’s accounting rules establish valuation guidance, driven by NAIC designations
(interchangeable with NRSRO ratings) assigned to particular securities.

Investment
Advisors

SEC

Rule 206(3)-3T under the
Investment Advisers Act of
1940

Provides a temporary means for investment advisors that are also registered
broker-dealers to satisfy notice and consent requirements. Certain exclusions are
based on NRSRO ratings. (Commission has proposed removal of references to
NRSRO ratings.)

Money
Market
Mutual Funds
(MMF)

SEC

Rule 2a-7 under the 1940
Act

Uses NRSRO credit ratings to determine permissible investments for MMFs (e.g.,
portfolio investments limited to securities that have received credit ratings from
at least one NRSRO in one of the two highest short-term rating categories or, if
unrated, are of comparable quality). (Commission has proposed amending rule to
remove references to NRSRO ratings.)
Continued on next page.

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Key Regulations Involving NRSRO credit ratings

(continued)

Pertains To

Regulator

Rule

Description

NRSRO

SEC

Rule 17g-1 under the
Exchange Act

Prescribes how an NRSRO must apply to be registered with the Commission and
keep its registration up-to-date, including mandating disclosure regarding ratings
performance statistics, methodologies to determine and monitor credit ratings,
organizational structure, code of ethics, policies for preventing misuse of material
non-public information, and the firm’s conflicts of interest as well as its policies
for managing conflicts of interest.

NRSRO

SEC

Rule 17g-2 under the
Exchange Act

Requires an NRSRO to maintain certain financial and other records, document
methodologies, and track communications with regard to a firm’s rating.

NRSRO

SEC

Rule 17g-3 under the
Exchange Act

Requires an NRSRO to provide the SEC with audited financial statements and a
variety of unaudited reports.

NRSRO

SEC

Rule 17g-4 under the
Exchange Act

Requires an NRSRO to have procedures in place regarding material non-public
information that it has received during the ratings process.

NRSRO

SEC

Rule 17g-5 under the
Exchange Act

Prohibits an NRSRO from having any of a number of different types of conflicts.
Also, requires an NRSRO to disclose and manage other conflicts of interest.

NRSRO

SEC

Rule 17g-6 under the
Exchange Act

Prohibits an NRSRO from certain unfair, coercive, or abusive practices.

Repurchase
Agreements

SEC

Rule 5b-3 under the 1940
Act

Allows a fund to treat the acquisition of a repurchase agreement as the acquisition of the securities collateralizing the repurchase agreement, based in part
on the NRSRO rating of the securities. (Commission has removed references to
NRSROs in this rule as of 10/9/2009.)

Repurchase
Agreements

SEC

Rule 5b-3 under the 1940
Act

Requires the approval of an independent CPA for certain treatment on a refunded
bond, unless the bond has the highest rating by an NRSRO. (Commission has
removed references to NRSROs in this rule as of 10/9/2009.)

Securities
(Derivatives /
Futures)

CFTC

Code of Federal Regulations,
Title 17, Commodity &
Security Exchanges § 30.7

Requires foreign FCMs that accept money, securities or property from U.S.
customers to maintain, in a separate depository account, sufficient assets to
cover current obligations to those customers. If depository is outside the United
States and below a certain size, it may require a commercial paper rating of the
two highest tiers from an NRSRO.

Securities
(Derivatives /
Futures)

CFTC

Rule 4d(a) 2 under the Commodity Exchange Act (Code
of Federal Regulations, Title
17, Commodity & Security
Exchanges § 1.25)

Establishes permissible investments for derivatives clearing organizations and
future commission merchants (“FCMs”) holding customer segregated funds, in
order to minimize exposure to credit, liquidity, and market risks. Relies on NRSRO
ratings to determine allowable commercial paper, debt, and CD investments.

Securities
(Municipal)

SEC

Rule 10f-3 under the 1940
Act

Permits funds to purchase municipal securities that have received a certain
NRSRO rating. (Commission has removed references to NRSROs in this rule as of
10/9/2009.)

Securities
(Nonconvertible
securities
(debt &
preferred),
ABS)

SEC

Rule 101(c)(2), Rule 102(d)
(2) of Regulation M under the
Exchange Act

Exempts from rule certain securities that are rated by an NRSRO in one of its
categories signifying investment grade. (Commission has proposed removing the
references to NRSRO ratings.)

Sources: SEC, Rules and Regulations for the Securities and Exchange Commission and Major Securities Laws, http://www.sec.gov/about/laws/secrulesregs.htm, accessed 10/5/2009; SEC, response to
SIGTARP draft report, 10/14/2009; Electronic Code of Federal Regulations, http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&tpl=%2Findex.tpl, accessed 10/5/2009; NAIC, “Staff Report: NAIC Use
of NRSRO Ratings in Regulation,” 3/10/2009, http://www.naic.org/documents/committees_e_rating_agency_comdoc_naic_staff_report_use_of_ratings.doc, accessed 10/5/2009.

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Table 3.5

Comparison of Risk-Weighting
Factors, across different
Ratings ($100 bond)
Long-Term Risk Weightings

Regulatory Capital
SIGTARP’s April Quarterly Report discussed the concept of regulatory capital and
the effects that a bank’s financial situation can have on meeting its regulatory capital requirements. Banking regulators are concerned about safety and soundness,
and one of the prime metrics they use to determine safety and soundness is the
level of a bank’s net regulatory capital — a calculation that relies heavily on credit
ratings. To calculate a net capital number, regulators divide a bank’s core capital
(such as stock or retained earnings) by the value of its risk-weighted assets. Credit
ratings provided by the rating agencies are frequently relied on by market participants to determine the risk weightings and the values of the assets.
Regulators require banks to hold capital equal to 4 – 6% of their risk-weighted
assets.288 FDIC uses risk weightings in the denominator of the formula that calculates the amount of regulatory capital a bank must hold to be considered adequately (4%) or well (6%) capitalized. Risk-weighted assets are calculated as the value of
assets held by the bank, multiplied by the relevant risk weighting factor, as determined by the credit rating of the asset. In the numerator is the bank’s net capital.
So, the formula (Net Capital / Risk-Weighted Assets) must equal 6% if the bank is
to be considered well-capitalized. In short, the higher the risk category, the more
capital a bank must hold for the formula to produce the 6% requirement. Table
3.5 captures FDIC’s risk weightings of assets by credit rating category. In short, the
lower the credit rating of its assets, the more the bank must reserve (removing more
funds from active use). Thus, downgrades of securities by rating agencies have a
real effect on banks — forcing them into urgent action to either raise capital or
shed the downgraded assets from their balance sheets.
These requirements also have implications for a bank’s profitability — the higher the capital reserve required to meet regulatory standards, the lower the return
on equity (“ROE”) for a fixed income investment. The bank must set aside capital
that it would otherwise have free for making other investments or lending money to
its customers — underscoring the clear link between the actions of rating agencies
and the financial institutions’ profitability and ability to lend.
When conducting a review of the soundness of a bank, the regulators typically
check to make sure the regulatory capital calculations are done correctly. They do
not, however, review the accuracy of the credit ratings, relying instead on the rating
agencies.

Long-Term Rating
Category

Risk Weight

AAA, AA

20%

50%

BBB

100%

BB (and lower)

200%

Short-Term Risk Weightings
Short-Term
Rating Category
A-1, P-1

Risk Weight
20%

A-2, P-2

50%

A-3, P-3

100%

Source: Bank Holding Company Act of 1956, P.L. 511:
Appendix A — Capital Adequacy Guidelines for Bank Holding
Companies: Risk-Based Measure, http://www.fdic.gov/regulations/laws/rules/6000-1900.html, accessed 10/7/2009.

Net Regulatory Capital: A regulatory
metric that requires a bank to take
into consideration the relative riskiness
of its assets. Calculated as common
equity minus intangibles.
Core Capital: Also known as T1, refers
to the common stock, perpetual noncumulative preferred stock, paid-in
capital, and retained earnings of a
bank.
Risk-Weighted Assets: The amount of
a bank’s total assets after applying an
appropriate risk factor to each asset.
Return on Equity (“ROE”): A measurement of how much profit a company
generates with the money shareholders
have invested. Calculated showing net
income as a percentage of shareholders’ equity. If a bank must hold capital
(equity) aside for regulatory purposes,
it can make fewer investments, with
implications for ROE.

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Table 3.6

Example: Impact of Downgraded Asset on Capital RequirementS
($ millions)

Before
Downgrade

After
Downgrade

Aaa

$100.0

20%

200%

Risk-Weighted Assets

$20.0

$200.0

Net Capital Required

$1.2

$12.0

—

$10.8

Rating
Face Value of Holding
Risk Weighting

Capital Raise Needed to Stay at 6%
Risk-Weighted Capital

Sources: FDIC, Part 325 — Capital Maintenance, Appendix A: Statement of Policy on Risk-Based Capital, http://www.fdic.gov/
regulations/laws/rules/2000-4600/html#fdic2000appendixatopart325, accessed 10/5/2009.

Fallen Angel: In finance, can refer to a
bond which held an investment-grade
rating when issued, but has subsequently fallen to a much lower rating,
or a once-popular investment that has
fallen out of favor with investors and
declined in value.

Example: Rating Downgrade and the Effect on a Bank’s
Balance Sheet
In 2007, the rating agencies began to downgrade rapidly a large number of securities whose collateral was underperforming — especially ABS and CDOs.
Subsequently, the rating agencies downgraded approximately $1.9 trillion in
RMBS,289 with certain “fallen angels” being downgraded from AAA to junk over a
short period, or even, in some cases, a single action. These downgrades had material effects on the viability of certain banks because of Federal capital requirement
regulations. Table 3.6 illustrates how a downgraded RMBS might impact a bank’s
ability to meet its capital requirements.
The example in Table 3.6 shows a bank that had $100 million invested in a
top-rated RMBS, such as the Impac Secured Assets Corp. Mortgage Pass-through
Certificates, Series IMSA 2005-2 A1 (“Impac RMBS”), which had a Aaa rating
from Moody’s as of March 12, 2008.290 Because of the securities’ Aaa rating, the
bank’s investment in Impac RMBS was classified in FDIC’s 20% risk category,
meaning that the bank must multiply its $100 million holding by 0.2 and further
multiply that product by 0.06 (the desired capitalization level) to determine the
amount of capital the bank must hold to satisfy regulatory requirements and be
considered “well capitalized.” Thus, pursuant to the FDIC formula, to be considered well capitalized (net capital at 6% of risk-weighted assets), the bank must set
aside $1.2 million net capital against that $100 million investment.
By February 20, 2009, Moody’s had cut the rating of the Impac RMBS to B3
(15 notches) — moving it from prime to junk in less than a year. Consequently, the
asset would be moved to the 200% risk category on the FDIC scale, and the bank
would be required to reserve $12 million (or 10 times more than initially required

quarterly report to congress I october 21, 2009

when the security was rated Aaa approximately one year before). This meant that
the bank would have to raise an additional $10.8 million in capital if it wanted to
continue holding the security.
In order to increase regulatory capital from $1.2 million to $12 million, the
bank would have to make some hard choices about how to raise that additional
money. The bank’s options include:
• Sell the RMBS (most likely at a loss because of the downgrade and the changed
expectations for yield in the now-riskier securities) and acquire higher-quality,
investment-grade assets of the same nominal amount. This would result in a
reduction of cash or another asset due to the likely loss in value of the RMBS
portfolio.
• Retain the RMBS, but raise regulatory capital through issuing new equity, in the
process diluting the value of existing shareholders’ holdings (and likely driving
down the bank’s stock price).
• Retain the RMBS, but raise cash by calling in $10.8 million of loans, reducing
shareholders’ equity and profitability in the process, and harming its customers.
In the current crisis, institutions responded to the widespread downgrades using
various combinations of these options, which led to an overall reduction in lending,
the crashing of prices in the MBS markets, and the large equity-raising efforts that
occurred earlier this year.

Role of Rating Agencies in the
Financial Crisis
Any assessment of the role of rating agencies in the creation or exacerbation of the
financial crisis necessarily depends on an understanding of what factors caused the
crisis. A Government Accountability Office (“GAO”) study in July 2009, entitled
“Financial Crisis Highlights Need to Improve Oversight of Leverage at Financial
Institutions and Across System,” places a large part of the blame on rising levels
of leverage.291 Leverage enables a small amount of capital to control a much larger
investment. This leverage was facilitated by the dramatic increase in availability
of innovative financial products such as CDOs and MBS that allowed banks and
institutions to remove loans and other assets from their balance sheets and issue
new loans. The structured finance market grew dramatically over the years immediately preceding the crisis, corresponding with a similar growth in revenues among
the dominant rating agencies. Later, it was discovered that a great portion of the
products given high ratings by the rating agencies were not deserving of those high
ratings, calling into question the credibility of the rating agencies’ work. Through

Leverage: The ratio of a company’s
debt to its equity.

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a series of hearings in Congress, reports by the Federal Reserve, and studies by the
SEC, it is clear that Federal regulators and overseers are focusing on the following
ways in which the rating agencies contributed to the financial crisis:
• Conflicts of Interest. Credit ratings have been portrayed as effectively being
marketing devices for a company’s securities (AAA being the brand that sells the
best), and that the rating agencies are paid by the promoters of the securities
being sold. This contributed to issuers shopping among the credit rating agencies to determine which agency would offer the better ratings. In Congressional
testimony, a former executive at Moody’s stated “a large part of the blame can
be placed on the inherent conflicts of interest found in the issuer-pay business model and on rating shopping by issuers of structured securities. A drive
to maintain or expand market share made the rating agencies willing participants in this shopping spree.”292 There has been anecdotal evidence that in the
lead-up to the crisis, these conflicts of interest yielded highly suspect ratings as
ratings shopping fed into a phenomenon referred to in the same testimony as a
“race to the bottom.” The Moody’s executive stated that “originators of structured securities typically chose the agency with the lowest standards, engendering a race to the bottom in terms of rating quality.”293 An SEC study produced
internal communications between two analysts at an NRSRO in which one
analyst expressed concern that the firm’s “model did not capture ‘half’ of the
deal’s risk, but that ‘it could be structured by cows and we would rate it.’”294
• Failure to Assess Subprime Risk Accurately. The financial crisis first reached
critical proportion in the subprime mortgage markets, where ratings at times appeared to be lagging, not leading, the changes in valuation. Ratings of a corporate bond rely heavily on analysts’ experience and judgment, whereas ratings for
MBS rely almost exclusively on financial models.295 If those models are flawed,
it renders the ratings unreliable. A primary flaw was that these models relied
on historical data (typically, 1992–2000) of mortgage default and foreclosure
frequency rates, whereas loans made during 2001–2007 were very different
and often much riskier. In Congressional testimony, the head of a small rating
agency pointed to a second flaw in the models used by credit rating agencies
in predicting housing markets — “the assumption was that the housing prices
would increase. In fact, they embedded an acronym — the house appreciation rate,”296 sometimes also called the Home Price Appreciation (“HPA”). In
Congressional testimony, a subprime fund manager commented that “at least
one of the NRSROs was using HPA assumptions of +6% to +8% for 2006,
2007, and 2008 in their models for securitizations underwritten in 2006 and
the first quarter of 2007.”297 Obviously, this assumption that housing prices
would only go up has been proven to be inaccurate. Another shortcoming in the

quarterly report to congress I october 21, 2009

models was that the rating agencies did not factor in the risk associated with the
mortgage originators and their questionable practices on the overall risk of the
underlying mortgage pool.298
• Overlooked Concentration of Risk in CDO Market. Rating agencies have
been faulted for not correctly incorporating in their ratings the imbalances
in the CDO market, and the concentrations of risk that were developing. A
December 2006 email communication from an S&P analyst stated, as disclosed
in a Congressional hearing, that “rating agencies continue to create an even bigger monster, the CDO market. Let’s hope we are all wealthy and retired by the
time this house of cards falters.”299
• Poor Market Surveillance Contributed to Market Instability and Volatility.
A downgrade to the rating of a particular security or institution can have enormous ripple effects throughout the economy, acting as a transmission mechanism for financial stresses. It has been observed that ratings often lagged the
broader capital markets, which could be attributable to underinvestment and
poor protocols in the area of surveillance. In its study, the SEC observed that
“the surveillance processes used by the rating agencies appear to have been less
robust than the processes used for initial ratings.”300 In the case of the structured finance securities, when downgrades happened they often came in a flood.
As mentioned previously, approximately $1.9 trillion of securities lost their AAA
status between mid-2007 and mid-2008 — with some being downgraded to
junk in one action.301 For CDOs rated by Moody’s, the average downgrade was
roughly seven notches (for example, Aaa to Baa1) as compared to a previous
average of three to four notches prior to 2007.302
• Government-Endorsed Oligopoly. There is a perception that the NRSRO designation that helped established the prominence of the three large rating agencies in the 1970s continues to help them build an effective oligopoly, fueled by
the Government’s reliance on NRSRO ratings through regulation, as described
above. Similarly, the Connecticut Attorney General is investigating the requirements that the TALF program be limited to securities with AAA ratings from one
of a subset of NRSROs. The Attorney General noted that the rating agencies
stood to receive revenues of approximately $400 million from TALF transactions, despite being involved in the faulty ratings of the securities in the past. He
likens the decision to “steering them cash to rebuild what they destroyed.”303

TARP Reliance on Credit Ratings
The ratings issued by credit rating agencies, whether corporate or securities, impact
a number of TARP programs, the TARP recipients, and ultimately the U.S. taxpayers. In particular, the following TARP-related programs have explicit provisions that
rely on ratings issued by NRSROs:

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Non-Agency RMBS: RMBS that are
not guaranteed by a GovernmentSponsored Enterprise (“GSE”) such
as Fannie Mae, Freddie Mac, or the
Federal Home Loan Banks.

• Term Asset-Backed Securities Loan Facility (“TALF”): Rating agencies play
an integral role in TALF. TALF’s risk mitigation mechanism requires that the
collateral pledged for TALF loans must achieve ratings of the highest long-term
investment-grade rating category (i.e., AAA) from two or more of the TALFeligible NRSROs. Additionally, the collateral must have the highest rating from
any TALF-eligible NRSRO and cannot be on review or on watch for downgrade
by any of the approved NRSROs. The requirement that TALF can only involve
AAA-rated securities has had a significant effect on the CMBS market, potentially enhancing the AAA market at the expense of others. For more detail on the
structure of TALF, see Section 2: “TARP Overview” in this report.
• Capital Assistance Program (“CAP”): In the Supervisory Capital Assessment
Program (“SCAP”) stress test, credit ratings were among the factors considered in setting capital values. Lower credit ratings for the securities held in an
institution’s investment portfolio meant that the institution would be required to
raise more capital.
• Public-Private Investment Program (“PPIP”): Assets eligible for inclusion
in PPIP investments must have originally received a AAA rating (or equivalent)
from two or more NRSROs. Eligible assets are CMBS and non-agency RMBS
issued prior to January 1, 2009, that were originally rated AAA or an equivalent
rating by two or more NRSROs without external credit enhancement and that
are secured directly by the actual mortgage loans, leases, or other assets and not
other securities.304

Credit Ratings Influence on TARP Recipients
Beyond the TARP programs that explicitly rely on credit ratings from the NRSROs,
a number of TARP programs were designed to address the needs of financial
institutions that were directly and indirectly affected by ratings and ratings actions.
These include:
• Capital Purchase Program (“CPP”): Ratings downgrades affected many of
the financial institutions that ultimately sought Government assistance through
CPP. Ratings downgrades on banks’ portfolios of securities forced them to hold
more regulatory capital, which most banks had difficulty raising privately, especially at the height of the financial crisis.
• Systemically Significant Failing Institutions (“SSFI”): AIG’s credit rating
decline was instrumental in its need for a taxpayer-funded rescue, as discussed
below in the AIG case study.

Example: The Downfall of AIG
Prior to the crisis, AIG had a solid reputation, reliable earnings, and was generally
perceived to be one of the stronger companies in the United States. Prior to March

quarterly report to congress I october 21, 2009

2005, AIG had a AAA rating and was considered likely to honor its obligations and
contracts. Through its insurance policies, it was able to extend its good credit rating
to products that were unable to achieve an investment-grade rating on their own.
Since the 1990s, AIG had become a central figure in the fixed-income securities
market, underwriting the risk on a number of structured finance products, including volatile RMBS.
As discussed in previous SIGTARP quarterly reports, RMBS and CMBS are
financial instruments backed by mortgage loans (residential and commercial,
respectively). The underlying loans, in turn, had been issued by mortgage lenders
and banks. Most of these loans had been sold to Freddie Mac and Fannie Mae
or Wall Street investment banks that would package them into bundles of loans
sharing similar characteristics, turning them into a mortgage-backed security. This
process, called securitization, would allow the mortgage lenders and banks to sell
these loans, removing them from their balance sheet and use the cash from the
sales to issue new loans. The MBS would then be sold to investors (other banks,
pension funds, insurance funds) that were interested in the particular streams of
income the products offered. A considerable challenge to this process was that
many of these investors had a low risk tolerance and sought AAA-rated or comparable investment-grade securities. AIG, along with other Wall Street firms, developed a structuring approach that appeared to meet the desires of these prospective
investors for high yields with low risks. The product AIG sold for this purpose,
called a credit default swap (“CDS”), was essentially an insurance-like contract that
provided protection to third-party investors against losses from the securities.
AIG Financial Products Corp. (“AIGFP”), a subsidiary of AIG, sold the CDSs
to investors who were buying the MBS, firms issuing the MBS, and unrelated
investors. The MBS were often further bundled into CDOs. The underlying assets
upon which AIGFP’s CDS contracts were written were generally CDOs. The firm
purchasing the CDS (the “counterparty”) would pay AIG regular insurance premiums; if the security upon which the CDS contract was written, generally a CDO,
should default, AIG would be obligated to make a payout to the counterparty. Due
to its corporate AAA rating, AIG was able to enter into these insurance contracts
without posting any collateral, a benefit that was not available to lower-rated firms.
Included in these contracts was a provision that, should AIG’s credit rating be
downgraded, AIG would be required to post collateral to ensure payment on these
contracts. As of June 2008, AIG was counterparty to more than $400 billion of
CDS, the majority of which it sold to banking institutions that used the instruments to manage their regulatory capital requirements.305
As reported in Congressional testimony, by 2005, the majority of CDS contracts
issued by AIG were based on underlying securities, such as CDOs that were, in
turn, backed by ABS, some of which were collateralized by subprime loans.306 In
early 2005, some credit rating agencies began to question certain transactions and

For more information on the securitization
process, see SIGTARP’s April Quarterly
Report, page 92.

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Figure 3.1

AIG REPORTED COLLATERAL POSTINGS

AIG SHARE PRICE AND S&P RATINGS

(12/1/2007 − 11/1/2009) $ Billions

$ per share

2005

2006

2007

2008

$1500a

$40
35

1200

30
900

600

20
15

300
AAA

AA+

AA-

A-

10
5

0
JUNE 26 1990
OCTOBER 29 2004
MARCH 15 2005

NOVEMBER 10 2006

FEBRUARY 12 2008
MAY 8 2008
MAY 21 2008
SEPTEMBER 12 2008
SEPTEMBER 15 2008

MARCH 30 2005
JUNE 3 2005
Downgrade
Stable Outlook
Negative Outlook
Watch Negative

Share Price
Collateral Postings

Notes: Numbers affected by rounding. Collateral postings are presented above on the date provided in AIG’s SEC filings rather than on the filing date.
a
AIG conducted a reverse stock split of 1 for 20 on 6/30/2009.
Sources: Reported Collateral: AIG, 10K and 10 Q filings, http://www.aigcorporate.com/investors/sec_filings.html, accessed 10/5/2009. Share Price and Ratings Information: S&P,
“Testimony of Rodney Clark Managing Director, Ratings Services, Standard & Poor’s Financial Services LLC Before the Subcommittee on Capital Markets, Insurance, and GovernmentSponsored Enterprises United States House of Representatives,” 3/18/2009, http://www.house.gov/apps/list/hearing/financialsvcs_dem/rodney031809.pdf, accessed 9/28/2009;
share price data from Google Finance.

AIG’s creditworthiness in general. Although AIG still had a AAA rating, the firm
was now closer to losing its AAA status.
In addition, if the value of the securities that AIG was insuring fell, AIG was
contractually obligated to produce quickly the collateral to its counterparty to make
up for the difference in the drop in price of the security. That collateral could be
either cash or AAA-rated securities. The more the value of the “insured” securities
fell, the more collateral would be required. In the fourth quarter of 2007, the value
of subprime RMBS fell so quickly that the market could no longer effectively price
the securities, and counterparties began making significant collateral calls to AIG.
Figure 3.1 shows a summary of AIG’s ratings changes by one rating agency, S&P,
and the movement of AIG’s stock price and reported collateral calls.
Select AIG Timeline Highlights:

• March 30, 2005: S&P downgraded AIG from AAA to AA+, largely due, according to Congressional testimony of an S&P executive, to “the company’s involvement in a number of questionable financial transactions.”307

quarterly report to congress I october 21, 2009

• June 3, 2005: S&P lowered AIG’s rating to AA “based on significant accounting adjustments that had just been announced by the company.”308 For the next
three years, S&P held AIG’s rating essentially stable.
• February 12, 2008: S&P placed a negative outlook on AIG based on “concerns about the way AIG was determining the fair value of CDS it had entered
into.”309 Of particular concern were the CDS guaranteeing “an array of structured finance securities, including securities backed by subprime residential
mortgages.”310
• February 28, 2008: AIG announced that it had posted $5.3 billion in collateral “based on exposures, calculated in respect of super senior credit default
swaps.”311
• May 8, 2008: AIG announced that it had posted an aggregate of $9.7 billion in
collateral over the previous two years.312 A negative outlook on AIG was maintained throughout the summer of 2008. S&P lowered its rating on AIG further
to AA-, in reaction to “the company’s announcement of an after-tax loss of $7.8
billion, including $5.9 billion in losses related to its CDS portfolio.”313
• August 2008: S&P announced that AIG’s actual credit-related losses in its CDS
and investment portfolios would likely amount to approximately $8 billion. It
would be considerably more if AIG were forced to mark its investments to market, or list its assets on its balance sheet at their current market value.314
• August 6, 2008: AIG announced that it had posted an aggregate of $16.5 billion in collateral.315
• September 2008: Following the Government takeovers of Freddie Mac and
Fannie Mae, and the bankruptcy of Lehman Brothers, among other market disruptions, AIG’s financial condition deteriorated rapidly, exacerbated by “a sudden drop in the market value of AIG’s investments and, more importantly, the
investments of third parties that had purchased CDS guarantees from AIG.”316
• September 12, 2008: S&P warned the market that it had placed AIG and its
subsidiaries on credit watch negative.
• September 15, 2008: S&P lowered its rating further to A-, based “primarily
on a combination of AIG’s reduced flexibility in meeting collateral needs and its
increasing CDS-related losses.”317 Following the S&P downgrade, AIG estimated
that it would need “in excess of $20 billion in order to fund additional collateral
demands and transaction termination payments.”318
• September 16, 2008: FRBNY extended an $85 billion borrowing facility to
AIG.319
• As of September 30, 2009, $69.8 billion in TARP funds was committed to be
made available to AIG, of which $43.2 billion has been drawn down.320
Much of the Federal Reserve and TARP support for AIG stemmed from AIG’s
liquidity crisis related to the collateral AIG was contractually obligated to post

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to counterparties. Indeed, it was largely fear of further AIG downgrades and the
resulting systemic effect on the financial markets and the American retirement
system that led Treasury to commit to make $70 billion of TARP funding available
to AIG. In Congressional testimony, an S&P executive asserted that Government
intervention was critical in stopping the decline of AIG ratings: “were it not for
this government assistance, we believe that AIG’s creditworthiness would have
continued to deteriorate.”321 Should that creditworthiness have been allowed to
deteriorate further, financial institutions, companies, and individuals would have
potentially been exposed to hundreds of billions of dollars in losses from AIG’s wide
range of insurance and financial contracts.322 For instance, AIG’s corporate paper
was widely held by money market mutual funds who maintain a net asset value of
$1 per share; a default on that debt could have caused many funds to “break the
buck,” potentially triggering a run on those funds and other financial institutions.323

Net Asset Value: A fund’s per-share
value. Calculated by dividing the total
value of all the securities in its portfolio, less any liabilities, by the number of
fund shares outstanding.
Break the Buck: A decline below $1 in
the net asset value (“NAV”) of a money
market mutual fund.

Evolving Regulatory Environment
The SEC has implemented a number of regulatory initiatives aimed at increasing
transparency within the credit rating market. Following the initial implementation
of CRARA, the SEC promulgated two additional rounds of regulations, and continues to modify those regulations to require more robust disclosure with respect
to ratings methodologies and further refine policies addressing potential conflicts
of interest.324 Furthermore, Treasury has recently proposed legislation aimed at enhancing supervision of the rating agencies, including provisions to require all rating
agencies to register as NRSROs.

SEC Rule Changes — Round 1
Following the enactment of CRARA, in June 2007, the SEC initiated a registration
program for NRSROs, implemented an application and ongoing disclosure form
(“Form NRSRO”), and adopted six new rules. The newly adopted rules focused on
the following issues: disclosure of information related to internal processes; retention of financial and compliance records; submission of audited financial statements to the SEC; the handling of non-public information; conflicts of interest;
and prohibited practices.325
Following the intense scrutiny that began to fall on rating agencies in light
of their role in the financial crisis, the SEC developed additional regulations. In
February 2009, CRARA regulations were further expanded by the SEC when it
adopted requirements related to three discrete areas: disclosure, records maintenance, and conflicts of interest. Specifically, the SEC required that rating agencies
implement the following recommendations and adhere to the new restrictions:326

quarterly report to congress I october 21, 2009

Disclosure
• provide greater specificity regarding how performance metrics are generated
(Form NRSRO)
• report whether and to what extent verification of underlying assets and an assessment of the quality of the originator are considered when determining a
rating for a structured product
• report the frequency of credit rating reviews (Form NRSRO)
• report whether different models are used for surveillance (Form NRSRO)
• provide the SEC an unaudited annual report of the number of ratings actions
taken in the last fiscal year
• publicly disclose, when an NRSRO has more than 500 ratings in a particular
rating class, the credit rating histories for a random sample of 10% of their
issuer-paid ratings
Records Maintenance
• record those instances when a quantitative model produced a different rating
than was ultimately assigned to a structured product and provide rationale for
the discrepancy
• record all ratings actions by date from the initial credit rating to the current
credit rating for all outstanding ratings
Conflicts of Interest
• prohibits NRSROs from issuing ratings for securities in which the NRSRO has
consulted as to the structure of the transaction
• prohibits fee discussions between rating agency credit analysts and issuers
• prohibits credit analysts from accepting certain gifts from issuers
Additionally, on July 14, 2009, the SEC announced plans to establish a branch
of examiners specifically dedicated to conducting examination oversight of the
NRSROs, per the authorities given the SEC under CRARA.327

Treasury Proposal
On July 21, 2009, Treasury submitted recommendations to Congress with a
number of provisions to strengthen oversight of credit rating agencies. Many of
Treasury’s proposals were reflected in the actions later addressed by the SEC
during its open meeting on September 17, 2009. Treasury’s proposal focused on
mitigating potential conflicts of interest; increasing transparency and disclosure;
strengthening SEC supervision; and reducing reliance on credit rating agencies. As
announced by Treasury, the proposal would force rating agencies to take the following actions:

Originator: The lead bank or
underwriter for a structured finance
product.

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•
•
•
•
•
•
•
•
•

forgo consulting services for companies they rate
improve disclosure of conflicts of interest
disclose fees associated with each rating report
designate a compliance officer
perform a look-back for any rating issued to a company if the analyst assigned to
rate the security subsequently goes to work for the company
require disclosure of preliminary ratings to discourage ratings shopping
develop symbols to distinguish clearly risks of structured products
disclose qualitative and quantitative risk measured in a rating
provide full ratings history for issuer-paid credit ratings

Treasury’s proposed legislation is intended to strengthen supervision of rating
agencies through the establishment of an office within the SEC dedicated solely to
supervision of the rating agencies. The Treasury proposal would require registration
with the SEC and submission of documented rating methodologies. Additionally,
Treasury and the SEC would work with The President’s Working Group on
Financial Markets to eliminate references to ratings from existing regulations.

SEC Rule Changes — Round 2
On September 17, 2009, the SEC held an open meeting to discuss strengthening
oversight of credit rating agencies. During the meeting, the SEC voted unanimously to implement final rules, that, similar to the Treasury recommendations, were
intended to further strengthen the regulatory framework for credit rating agencies.328 These actions will become law 30 days after the SEC publishes the rules in
the Federal Register. The actions approved in the meeting:
• enabled unsolicited ratings for structured finance products by ensuring access
to information for all NRSROs
• required annual compliance reports related to potential conflicts of interest
• amended SEC rules and regulations to remove certain reference to NRSROs’
credit ratings
• required additional disclosure regarding whether “ratings shopping” occurred
• required NRSROs to disclose publicly, online, their history of ratings actions for
any rating that the NRSRO initially made as of June 26, 2007 (no later than two
years after the action is taken for subscriber-paid ratings, and within one year
for issuer-paid ratings)
As noted previously, September 17, 2009, final rules would eliminate references
to NRSRO credit ratings in a number of SEC rules and forms. Table 3.7 captures
those rules that were amended.

quarterly report to congress I october 21, 2009

Additionally, the SEC extended the period for public comment regarding the
elimination of certain Federal regulatory references to NRSRO credit ratings before
eliminating them from regulations. The SEC will revisit the issue after the 60-day
comment period. Table 3.8 captures those rules in which references to credit ratings might be eliminated.

Alternative Regulatory Reform
The rating agencies have been under an increasingly bright spotlight ever since the
financial scandals of the early 2000s called the quality and independence of their
ratings into question. The president of Moody’s commented in a House Oversight
and Government Reform Committee hearing that “it turns out that ratings quality
has surprisingly few friends: issuers want high ratings; investors don’t want ratings downgrades; short-sighted bankers labor short-sightedly to game the ratings
agencies.”329 The SEC and other regulators, such as NAIC, have been reviewing
their regulations to assess the impact of removing reference to NRSROs. In addition, regulators are looking for ways to improve rating agency transparency and
disclosure and better manage conflicts of interest. There are a number of options
for reforming the current system, however, that go further than the proposed SEC
reforms. Many of these can be found in the wide range of recommendations made
in Congressional testimony and other forums. SIGTARP does not endorse any
particular proposed reform. Examples of these proposed reforms include:

table 3.7

Proposed Eliminated
References to NRSRO Credit
Ratings
Regulation

Form/Rule

Securities Exchange Act of
1934

Rule 3a-1

Securities Exchange Act of
1934

Regulation ATS

Securities Exchange Act of
1934

ATS-R and
Form Pilot

Investment Company Act
of 1940

Rule 5b-3

Investment Company Act
of 1940

Rule 10f-3

Source: SEC, “Rules and Forms at Issue in Removal of References to NRSRO Credit Ratings,” 9/17/2009, www.sec.gov/
news/press/2009-200-rulesformsaffected.htm, accessed
9/21/2009.

• Eliminate all reference to NRSROs in both securities and banking regulations: The SEC, in its September 17, 2009, actions, has initiated steps to
reduce reliance on NRSRO ratings. SEC Commissioner Kathleen Casey, in a
September 17, 2009, speech, commented that the SEC needs to “eliminate
the government imprimatur given to certain debt analysts by removing NRSRO
references in all of our rules.”330 At the same time, however, the banking regulators (the Federal Reserve, FDIC, OCC, and OTS) continue to move forward
table 3.8

Open For Comment: Removal of References to NRSRO Credit Ratings
Regulation

Form/Rule

Reference to NRSRO Removed

Securities Exchange Act of 1934

Regulation M

Determination of exception based on investment-grade rating

Securities Exchange Act of 1934

Rule 10b-10

Requirement that broker-dealers inform customers if security is unrated

Securities Exchange Act of 1934

Net Capital Rule

All references related to the “haircut”

Investment Company Act of 1940

Rule 3a-7

Definition of “investment company” structured finance vehicles

Investment Company Act of 1940

Rule 5b-3

Repurchase Agreement for securities

Investment Company Act of 1940

Rule 206(3)-3T

Excludes securities from coverage

Source: SEC, “Rules and Forms at Issue in Removal of References to NRSRO Credit Ratings,” 9/17/2009, www.sec.gov/news/press/2009-200-rulesformsaffected.htm, accessed 9/21/2009.

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with risk-weighted capital regulations that explicitly rely on NRSRO ratings. The
Mortgage Bankers’ Association, in a letter commenting on the SEC’s proposed
changes of June and July 2008, observed that “these contradictory approaches,
create the potential for the SEC and the banking regulatory agencies to promulgate final rules that are inconsistent or even contradictory in their approaches
regarding reliance on ratings.”331 In Congressional testimony on September
30, 2009, Professor Lawrence White from New York University stated that the
Administration’s proposals to reduce regulatory reliance on ratings seem to be
largely lip service and do not go far enough.332 His advice is to eliminate references to NRSROs wherever they occur whether in securities regulations or in
bank capital requirements: “Eliminate all regulatory reliance on ratings, by the
SEC and by all other financial regulatory agencies — eliminate the force of law
that has been accorded to these third-party judgments.”333
• Establish an “FASB” to set standards for credit ratings: In Congressional
testimony on September 29, 2009, Eric Kolchinsky, former managing director
for the business line responsible for rating subprime CDOs at Moody’s, suggested that the Government must finally acknowledge the quasi-regulatory role
of NRSROs and regulate them in a similar way to the accounting profession,
which also plays such a role. He suggests establishing an independent body,
based on the model of the Financial Accounting Standards Board (“FASB”), to
set public standards for “regulatory ratings” — “the agencies would still be free
to publish their own ratings but would have to follow the public standards for
any rating used in a regulatory manner.”334 Examples include simple fixes, such
as standarizing, for regulatory purposes, the definition of the term “AAA,” which
is used extensively but can have different definitions at different rating agencies.
Mr. Kolchinsky suggested that “the public body could also determine what kinds
of products are ‘rate-able’ and what kind of information is required of issuers for
rating purposes.”335
• Promote a transition away from the issuer-pay model: Many observers focus
on the issuer-pay model as the crux of the regulatory problem for credit rating agencies. That the rating agencies are paid by the corporations for whose
securities they are supposed to provide an independent, unbiased evaluation is
a fundamental conflict of interest. In the words of one subprime fund manager,
“it would be like cattle ranchers paying the Department of Agriculture to rate
the quality and safety of their beef.”336 In its examination of the three largest
NRSROs, the SEC made several observations about this conflict. First, it noted
that rating agency “analysts appeared to be aware, when rating an issuer, of the
rating agency’s business interest in securing the rating of the deal.”337 Further,
the SEC observed that “rating agencies do not appear to take steps to prevent
considerations of market share and other business interests from the possibility

quarterly report to congress I october 21, 2009

that they could influence ratings or ratings criteria.”338 The SEC has noted
that “NRSROs that are compensated by subscribers appear less likely to be
susceptible to ‘ratings shopping’ or reducing quality for initial ratings to induce
revenues.”339
One resolution would be to prohibit expressly the issuer-pay model.
However, this would be controversial for many market participants; in
Congressional testimony, one industry expert describes the investor-pay model
as one “that issuers and underwriters may fear (because a more independent
rating agency may be more critical of issuers).”340 As a means of gradually imposing business model independence, Sean Egan (managing director at EganJones, a smaller NRSRO) suggested in Congressional testimony that “one way
to do this would be to phase in a requirement that any rating agency, in order
to maintain its NRSRO designation, derive a given percentage of its annual
revenues from investors rather than relying almost exclusively on issuers.”341
Another option was advanced in Congressional testimony by Eric Baggesen
of the California Public Employees Retirement System (“CALPERS”). Mr.
Baggesen suggested that, since “there is a fundamental conflict of interest when
the issuer pays the fees of the [rating agency],” the fees earned by the rating
agencies might be made to “vest over a period of time equal to the average
duration of the bonds rated. Fees should vest based on the performance of the
original ratings and changes to those ratings over time relative to the credit
performance of those bonds.”342
• Enforce better surveillance: Credit rating agencies have significant power in
terms of their surveillance, related to the effect of a downgrade, but there is
limited regulation on agencies’ surveillance. One observer, in Congressional testimony, asserts that “from a transparency perspective, the gravest problem today
may be the staleness of debt ratings. As noted earlier, issuer-paid rating agencies
earn no revenues from downgrades and may jeopardize their relationships with
both issuers, investment banks, and many institutional investors (who must
today typically write down the value of downgraded debt).”343 An SEC report
in July 2008 found that rating agencies’ surveillance processes appear to have
been less robust than their initial rating process.344 Many believe that enhanced
standards for surveillance should be an integral part of any effort to restore the
reliability of credit ratings.
• Equal access to information: A fundamental advantage enjoyed by NRSROs
over other rating agencies (and individual investors) is that NRSROs are exempt
from the SEC Fair Disclosure rules (Regulation FD). In Congressional testimony, Mr. Egan stated that this exemption “can allow them special access to
material non-public information from issuers of corporate debt.”345 Mr. Egan
suggests that “this special treatment should be ended in order to ensure the
uniform release of credit information to all market participants” — a move that

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could help end the perception that NRSROs’ judgments are better informed and
inherently more valuable than others.346
• Impose civil liability for negligence or fraud: Some observers have recommended the imposition of strict rules on rating agencies similar to those
imposed on accounting firms by Sarbanes-Oxley, wherein both the senior management of a company and of its accounting firm must personally attest to the
veracity of information contained in financial audits, opening themselves to personal civil liability. In Congressional testimony, Gregory Smith of the Colorado
Public Employees’ Retirement Association noted that rating agencies are, similar
to auditors, “financial gatekeepers.” He states that “financial gatekeepers are
less likely to engage in negligent, reckless or fraudulent behavior if they are
subject to a risk of liability for these behaviors. Ratings agencies, however, are
currently immune from such checks.”347 Representative Paul Kanjorski, in a
Congressional hearing, stated “by considering proposals aimed at better disclosure, real accountability, and perhaps even civil liability, we can advance that
debate today and ultimately figure out how to get the regulatory fit just right.”
On September 25, 2009, Representative Kanjorski introduced legislation to this
effect — including the possible imposition of industry-wide liability for the actions of all rating agencies as a means of stimulating self-regulation.348

S ection 4

tarp operations and
administration

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special inspector general I troubled asset relief program

quarterly report to congress I october 21, 2009

Under the Emergency Economic Stabilization Act of 2008 (“EESA”), Congress authorized the Secretary of the Treasury (“Treasury Secretary”) to build the operational and administrative infrastructure to support the Troubled Asset Relief Program
(“TARP”) activities. EESA established an Office of Financial Stability (“OFS”)
within the Department of Treasury (“Treasury”), which is responsible for the administration of TARP.349 Treasury has the authority to establish program vehicles,
issue regulations, directly hire or appoint employees, enter into contracts, and
designate financial institutions as financial agents of the Federal Government.350
In addition to permanent and interim staff, OFS relies on contractors and financial
agents in legal, investment consulting, accounting, and other key service areas.351

TARP Administrative and Program
Expenditures
Treasury stated that it had incurred $50.8 million in TARP-related administrative
expenditures and $115.6 million in programmatic costs to hire financial agents and
legal firms through September 30, 2009.352 Table 4.1 summarizes the administrative expenditures.353 The majority of these costs are allocated to “personnel services” and “non-personnel services.”
Table 4.1

TARP Administrative expenditures and obligations
Budget Object Class Title

Obligations for
Period Ending
9/30/2009

Expenditures for
Period Ending
9/30/2009

$14,173,433

$13,625,364

$14,173,433

$13,625,364

$268,128

$230,257

11,934

112,965

41,531

Personnel Services
Personnel Compensation & Services
Total Personnel Services
Non-Personnel Services
Travel & Transportation of Persons
Transportation of Things
Rents, Communications, Utilities & Misc. Charges
Printing & Reproduction

395

68,060,362

36,497,220

Supplies & Materials

257,418

147,418

Equipment

232,054

222,675

—

Other Services

Land & Structures
Interest & Dividends

Total Non-Personnel Services

$68,943,264

$37,151,439

Grand Total

$83,116,697

$50,776,803

Note: Numbers affected by rounding.
Source: Treasury, response to SIGTARP data call, 10/7/2009.

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TARP operations are projected to cost a total of approximately $175 million
for fiscal year 2009.354 Operational costs are not factored into any gains or losses
on the TARP-related transactions and are not included in the $699 billion limit
on asset purchases. Therefore, these expenditures will add to the Federal budget
deficit regardless of whether the TARP transactions result in a gain or a loss for the
Government.355

Current Contractors and Financial Agents
As of September 30, 2009, Treasury had retained 66 outside contractors and financial agents, including 4 asset managers, to help administer TARP. As permitted
under EESA, Treasury streamlined solicitation procedures and structured several
agreements and contracts to allow for flexibility in obtaining the required services
expeditiously. Table 4.2 lists outside vendors as of September 30, 2009.356
As required by EESA, the Special Inspector General for the Troubled Asset
Relief Program (“SIGTARP”) provides biographical information for each person or
entity hired to manage the Government’s troubled assets acquired through TARP.357
Subsequent to SIGTARP’s Quarterly Report to Congress, dated July 21, 2009
(“July Quarterly Report”), OFS has not hired any additional asset managers. OFS,
however, is in the process of selecting a group of smaller firms to function as asset
managers and will notify SIGTARP when a final decision has been made.358

Conflicts of Interest
Within the framework of TARP procurement and contracting, actual or potential
conflicts of interest can exist at the organizational level or pertain to an individual
employee. Under EESA, the Treasury Secretary can issue regulations or guidelines
to address and manage, or to prohibit, conflicts of interest that can arise in connection with the administration and execution of TARP.359 TARP-related conflicts of
interest can arise under various circumstances, such as when retained entities (financial agents or contractors) perform similar work for Treasury and other clients.
In these situations, retained entities may find that their duty to certain clients may
impair their objectivity when advising Treasury or may affect their judgment about
the proper use of non-public information. Conflicts may also arise from the personal interests of individuals employed by retained entities. Accordingly, Treasury
has issued interim conflict-of-interest guidelines.360 These interim rules require
interested contractors to provide sufficient information to evaluate the potential
for organizational conflicts of interest and mitigation plans.361 The mitigation plan
then becomes a binding term of the contract arrangement. On potential personal

quarterly report to congress I october 21, 2009

conflicts of interest, the provisions require that managers and employees of a hired
entity disclose any financial holdings or personal and familial relationships that
could impair their objectivity.362 Retained entities are also required to take steps to
protect non-public information and prevent its inappropriate use; this effort may
include the use of non-disclosure agreements.

Table 4.2

Outside Vendors
Date

Vendor

Purpose

Type of
Transaction*

10/10/2008

Simpson, Thacher & Bartlett

Legal Services

BPA

10/11/2008

EnnisKnupp

Investment and Advisory Services

BPA

10/14/2008

Bank of New York Mellon

Custodian and Cash Management

Financial Agent

10/16/2008

PricewaterhouseCoopers

Internal Control Services

BPA

10/18/2008

Ernst & Young

Accounting Services

BPA

10/23/2008

GSA – Turner Consulting**

Archiving Services

IAA

10/29/2008

Hughes Hubbard & Reed

Legal Services

BPA

10/29/2008

Squire Sanders & Dempsey

Legal Services

BPA

10/31/2008

Lindholm & Associates**

Human Resources Services

Contract

11/7/2008

Thacher Proffitt & Wood***

Legal Services

BPA

11/14/2008

Securities and Exchange Commission

Detailees

IAA

11/14/2008

CSC Systems and Solutions

IT Services

Procurement

12/3/2008

Trade and Tax Bureau – Treasury

IT Services

IAA

12/5/2008

Department of Housing and Urban Development

Detailees

IAA

12/5/2008

Washington Post

Vacancy Announcement

Procurement

12/10/2008

Thacher Proffitt & Wood***

Legal Services

BPA

12/12/2008

Pension Benefit Guaranty Corporation

Legal Services

IAA

12/15/2008

Office of Thrift Supervision

Detailees

IAA

12/24/2008

Cushman and Wakefield of VA, Inc.

Painting

Procurement

1/6/2009

Office of the Controller of the Currency

Detailees

IAA

1/6/2009

State Department

Detailees

IAA

1/7/2009

Colonial Parking

Parking

Procurement

1/9/2009

Internal Revenue Service

Detailees

IAA

1/27/2009

Cadwalader Wickersham & Taft, LLP

Legal Services

BPA

1/27/2009

Whitaker Brothers Bus. Machines

Office Machines

Procurement

2/2/2009

Government Accountability Office

Oversight

IAA

2/9/2009

Pat Taylor and Associates, Inc.**

Temporary Employee Services

Contract
Continued on next page.

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Outside Vendors

(continued)

2/12/2009

Locke Lord Bissell & Lidell LLP

Legal Services

Contract

2/18/2009

Freddie Mac

Homeownership Program

Financial Agent

2/18/2009

Fannie Mae

Homeownership Program

Financial Agent

2/20/2009

Congressional Oversight Panel

Oversight

IAA

2/20/2009

Simpson, Thacher & Bartlett

Legal Services

Contract

2/22/2009

Venable LLP

Legal Services

Contract

3/6/2009

Boston Consulting Group

Management Consulting Support

Contract

3/16/2009

EARNEST Partners

Asset Management Services

Financial Agent

3/23/2009

Heery International Inc.

Architects

Procurement

3/30/2009

McKee Nelson, LLP

Legal Services

Contract

3/30/2009

Sonnenschein Nath & Rosenthal

Legal Services

Contract

3/30/2009

Cadwalader Wickersham & Taft, LLP

Legal Services

Contract

3/30/2009

Haynes and Boone LLP

Legal Services

Contract

3/31/2009

FI Consulting**

Modeling and Analysis

BPA

4/3/2009

American Furniture Rentals**

Office Furniture

Procurement

4/17/2009

Herman Miller

Office Furniture

Procurement

4/17/2009

Bureau of Printing and Engraving

Detailee

IAA

4/21/2009

AllianceBernstein

Asset Management Services

Financial Agent

4/21/2009

FSI Group

Asset Management Services

Financial Agent

4/21/2009

Piedmont Investment Advisors

Asset Management Services

Financial Agent

5/4/2009

Federal Reserve

Detailee

IAA

5/14/2009

Phacil Inc.**

FOIA Services

Contract

5/14/2009

Department of Treasury – U.S. Mint

Administrative Support

IAA

5/22/2009

Department of Justice – ATF

Detailee

IAA

5/26/2009

Anderson, McCoy & Orta, LLP**

Legal Services

Contract

5/26/2009

Simpson, Thacher & Bartlett

Legal Services

Contract

6/5/2009

Internal Revenue Services

Administrative Services

Contract

6/8/2009

Department of Treasury –
Financial Management Services

IT Services

IAA

6/29/2009

Department of Interior

Website Testing

IAA

7/15/2009

Judicial Watch

Legal Advisory

Contract

7/17/2009

Korn Ferry International

Administrative Support

Contract

7/30/2009

Cadwalader Wickersham & Taft, LLP

Legal Advisory

Contract

7/30/2009

Debevoise & Plimpton, LLF

Legal Advisory

Contract

7/30/2009

Fox Hefter Swibel Levin & Carol, LLF

Legal Advisory

Contract

8/11/2009

NASA

Detailee

IAA

9/2/2009

Knowledge Mosaic Inc**

Administrative Services

Contract

9/10/2009

Equilar, Inc.**

Administrative Services

Contract

9/14/2009

PricewaterhouseCoopers

Asset Management Services

Contract

9/30/2009

SNL Financial LC

Administrative Services

Contract

Notes:
*IAA= Inter-Agency Agreement, BPA = Blanket Purchase Agreement.
**Small- or Women-, or Minority-Owned Small Business.
***Contract responsibilities assumed by Sonnenschein Nath & Rosenthal via novation
Source: Treasury, response to SIGTARP data call, 10/7/2009.

S e c tion 5

SIGtarp recommendations

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special inspector general I troubled asset relief program

quarterly report to congress I october 21, 2009

One of the responsibilities of the Office of the Special Inspector General for the
Troubled Asset Relief Program (“SIGTARP”) is to provide recommendations to the
U.S. Department of the Treasury (“Treasury”) and those other Federal agencies
managing Troubled Asset Relief Program (“TARP”) initiatives so that the various
TARP programs can be designed or modified to facilitate transparency and effective oversight and to prevent fraud, waste, and abuse. SIGTARP has made such
recommendations in each of its quarterly reports to Congress and in several of its
audit reports. This section discusses developments with respect to SIGTARP’s prior
recommendations, sets forth several new recommendations, and, in the table at the
end of this section, summarizes all past SIGTARP recommendations and notes the
extent of their implementation. Appendix H: “Correspondence” sets forth Treasury’s
written responses to these and prior SIGTARP recommendations.

Progress on Lessening the Term
Asset-Backed Securities loan
Facility’s Reliance on Rating Agencies
Beginning with SIGTARP’s Quarterly Report to Congress dated February 6, 2009
(the “Initial Report”), SIGTARP has been urging Treasury and the Federal Reserve
Board, in their design of the Term Asset-Backed Securities Loan Facility (“TALF”),
to rely less on the ratings of rating agencies and to use instead alternative underwriting analysis such as security-by-security screening of the asset-backed securities
(“ABS”) posted as collateral. The Federal Reserve Board and the Federal Reserve
Bank of New York (“FRBNY”), which operate TALF, had previously taken various
steps to improve the credit protection and fraud prevention aspects of the program
and had adopted this recommendation fully with respect to commercial mortgagebacked securities (“CMBS”) posted as collateral. With respect to other ABS, however, Treasury and the Federal Reserve had maintained that TALF’s anti-fraud and
credit protection structures were sufficient and that security-by-security screening
of ABS was unnecessary. While recognizing that the Federal Reserve, in adopting
other SIGTARP recommendations, had greatly improved TALF, SIGTARP repeatedly sounded the alarm in subsequent reports regarding TALF’s continued reliance
on credit rating agencies.
The Federal Reserve recently modified the program to extend the security-by-security review to all ABS pledged as collateral, consistent with SIGTARP’s previous
recommendations. Beginning with the November subscription, FRBNY, working
with its collateral monitor, will engage in a formal risk-assessment process for all
proposed collateral. Among other things, the formal process gives FRBNY the right
to reject any ABS based on this risk assessment. Moreover, as part of the review
process, the issuer of the ABS will be required to provide FRBNY with all data

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provided to any rating agency along with a written waiver to all rating agencies with
which it had shared data regarding the proposed ABS. The waiver will permit the
rating agency to provide FRBNY any view it has of the credit quality of the ABS,
irrespective of whether the rating agency ever issued a formal rating for the ABS.
These provisions will mitigate the possibility of “ratings shopping,” i.e., jumping to
another rating agency if the first one approached seems inclined to give an unfavorable rating.
Although any reliance on rating agency determinations is problematic in light of
the inherent conflicts presented by the rating agency system, as discussed more fully in Section 3 of this report, with these changes and the changes previously made,
the role of the rating agencies in TALF is, appropriately, becoming one more of a
backstop than a primary protection. These modifications represent further adoption of several SIGTARP recommendations and reflect the efforts of the Federal
Reserve Board and FRBNY to continue monitoring and improving the compliance,
risk management, and fraud prevention for TALF over time.

Developments Relating to HAMP
Streamlining
In its earlier quarterly reports to Congress, SIGTARP reported on a series of
recommendations with respect to the anti-fraud aspects of the Home Affordable
Modification Program (“HAMP”), including that Treasury obtain verifiable,
third-party information confirming a homeowner’s residence and income and
that it conduct a closing-like procedure to ensure, among other things, that the
homeowner is aware of the homeowner’s rights and obligations before the modification is completed. Treasury had adopted these recommendations in part as
described in SIGTARP’s prior reports. Treasury has recently notified SIGTARP of
certain changes to the administration of HAMP that affect these recommendations. Following consultation and an exchange of letters, included in Appendix H:
“Correspondence,” SIGTARP can provide updates on three issues.
First, on the positive side, Treasury has stated that its program administrator,
Fannie Mae, will be developing processes to verify residence prior to funding. This
is consistent with SIGTARP’s recommendation, and SIGTARP will monitor the
implementation of these processes.
The second and third changes relate to Treasury’s attempts to streamline the
HAMP application process. As initially rolled out, HAMP required a homeowner to:
1.
2.

submit an application for a modification
then, if eligible, send in a signed Trial Plan Notice agreeing to the terms of
the trial modification

quarterly report to congress I october 21, 2009

upon successful completion of the trial period, sign and return the formal
modification plan agreement documents

In an effort to streamline this process, Treasury has decided to eliminate
the requirement that the homeowner execute and return the Trial Plan Notice.
SIGTARP acknowledges the need to improve the customer service aspects of
HAMP (an issue about which SIGTARP has previously warned Treasury —
SIGTARP sent Treasury a Management Alert in light of numerous complaints
received on SIGTARP’s Hotline about HAMP customer service, included herein
in Appendix H: “Correspondence”), but SIGTARP’s concern here is that reasonable steps be taken to ensure that homeowners are fully aware of their rights and
obligations under HAMP. Although Treasury has rejected SIGTARP’s recommendation regarding the best practice to effect such warnings — a closing-like procedure — Treasury’s previous requirement for a signed acknowledgement from the
homeowner on the Trial Plan Notice that he or she had received such information
was a workable alternative. After SIGTARP expressed concerns about the removal
of this safeguard, Treasury suggested that it could instead require the servicer to
retain proof of mailing of the program details to the homeowner; this action, when
coupled with homeowner’s signature on the final documents upon closing of the
modification, may also prove to be a reasonable alternative, although SIGTARP
encourages Treasury to monitor closely its effectiveness.
Treasury also notified SIGTARP that it intended to do away with third-party
income verification for most HAMP applicants. In light of the incentive to misstate
income inherent in the program, SIGTARP objected to this modification. Treasury
subsequently informed SIGTARP that, while it will be making some modifications
to its processes, it will continue to require third-party income verification through
the Internal Revenue Service.

Developments in the Implementation of the
Public-Private Investment Program
In previous quarterly reports to Congress, SIGTARP made a series of recommendations related to the design of the Public-Private Investment Program (“PPIP”).
Treasury adopted some of those recommendations and has rejected others, as summarized in Table 5.1 at the end of this section. This report does not discuss those
recommendations further. Over the past quarter, however, Treasury has developed
and begun executing the final agreements with the managers of the Public-Private
Investment Funds (“PPIFs”), and the finalization of the documents has raised
several new issues.

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On the positive side, Treasury has changed its position on one issue, adopting,
in part, one of SIGTARP’s recommendations that Treasury had previously indicated
it would reject. SIGTARP previously recommended that Treasury should require
PPIF managers to disclose to Treasury, as part of the Eligible Assets Watch List
process, not only information about holdings in eligible assets (i.e., the mortgagebacked securities (“MBS”) being traded in the funds) across all of its and its affiliates’ funds and holdings, but also holdings and trades in related assets or exposures
to related liabilities (such as derivative products like credit default swaps (“CDS”)
or collateralized debt obligations (“CDOs”) tied to MBS). Treasury had previously
indicated that it would require reporting on the eligible assets, but not on related
assets. In the final agreements, however, Treasury has required the fund managers
to include, in their reporting, trades and positions of any derivative instruments
where the value is connected to an eligible asset held by the PPIF. This adoption of
SIGTARP’s recommendation is an improvement in the program design.
The final agreements also raise two issues that require follow-up recommendations. The first relates to potential future modification of the compliance rules. As
detailed in SIGTARP’s Quarterly Report to Congress dated July 21, 2009 (the “July
Quarterly Report”), pursuant to section 402 of the Helping Families Save Their
Homes Act of 2009 (the “Ensign-Boxer Amendment”), Treasury was required by
law to consult with SIGTARP in developing certain aspects of the PPIP compliance and conflict-of-interest regime, which it did. In the final PPIP agreements,
however, Treasury has left open its ability to change those rules without consulting with or even giving notice to SIGTARP before such change occurs. Although
Treasury’s stated rationale is that SIGTARP is not a party to the final agreements,
it is not clear why that fact should affect whether SIGTARP is consulted or why
the contract issue would trump Treasury’s statutory obligations. Although Treasury
told SIGTARP that it is likely to discuss significant proposed amendments with
SIGTARP, such consultation is, in SIGTARP’s view, best practice and may be legally required. Accordingly, SIGTARP makes the following recommendation:
• PPIP Recommendation #1 — SIGTARP recommends that Treasury unambiguously commit to give SIGTARP notice of and an opportunity to comment
upon any change to the PPIP compliance rules.
In response to this recommendation, Treasury informed SIGTARP that it “will
consult with [SIGTARP] before making any material changes in the compliance
rules.”
The second problematic issue relates to the final agreements’ provisions concerning access to the books and records of PPIF managers’ affiliates. In the final
agreement, Treasury provides SIGTARP with access to the books and records of
each PPIF, as is required by the Ensign-Boxer Amendment. Treasury, however, has

quarterly report to congress I october 21, 2009

made the decision to deny SIGTARP access to the books and records that the PPIF
managers’ affiliates are required to keep for activities that are conducted in connection with the PPIF as well as the acquisition or disposition of PPIP-eligible assets.
This decision is particularly surprising given that Treasury itself has the contractual
right to these same books and records. Treasury has stated that it will only provide
SIGTARP access “in cases where Treasury has a disclosure or review right with
respect to Reports and Financial Information.” SIGTARP does not fully understand why the fund manager’s affiliates’ books do not fall within this category in all
cases; more fundamentally, access to the books and records of the PPIF manager’s
affiliates’ transactions in connection with the PPIF and for PPIP-eligible assets may
prove to be critical for oversight and enforcement. These are books and records that
relate directly to the American taxpayer’s investment in the PPIF and could provide
compelling evidence of a fund manager violating the conflict-of-interest provisions
set forth in the PPIF agreements. SIGTARP will conduct oversight over all of the
activities in connection with the PPIF whether it is given contractual rights or not.
If Treasury refuses to give SIGTARP contractual access to books and records that
are critical to identifying conflicts of interest, SIGTARP will not hesitate to obtain
these same books and records using all of its tools, including SIGTARP’s subpoena
authority, which may be necessary if such documents are material to a PPIF audit
or investigation. To avoid this unnecessary complication, however:
• PPIP Recommendation #2 — SIGTARP recommends that Treasury give
SIGTARP explicit contractual access to all of the fund manager and affiliate
information to which Treasury has access, including books and records for the
fund managers’ affiliates.
In response to this recommendation, Treasury cited SIGTARP’s access to other
materials but did not directly address this recommendation.

Update on Recommendations and Lessons
Learned from SIGTARP Audit Reports
As noted in Section 1 of this report, as of the initial drafting of this report,
SIGTARP had released four audit reports. Its fifth audit report, on American
International Group (“AIG”) bonuses, was subsequently issued and will be described in detail in SIGTARP’s next quarterly report. Of the four audit reports
detailed in Section 1, three contained formal recommendations or lessons learned.
Those recommendations and lessons learned are summarized below, along with a
description of the responses of Treasury and the other agencies involved.

For more information on PPIP safeguards and conflict mitigation, see
SIGTARP’s July Quarterly Report,
page 89.

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special inspector general I troubled asset relief program

Use of Funds Audit
As discussed in detail in the July Quarterly Report, as a result of Treasury’s
refusal to require reporting more broadly on actual TARP funds use, SIGTARP
decided to undertake the task itself by conducting a survey of the more than
360 institutions that had received TARP funds through the end of January
2009. The results of the survey demonstrated that, despite the inherent
fungibility of money, financial institutions are capable of providing descriptions of how they used TARP funds. Accordingly, in the July Quarterly Report,
SIGTARP renewed its prior recommendation that Treasury require TARP recipients to submit periodic reports to Treasury on their use of funds, including
what they were able to do with their TARP funds, such as lending, investments,
acquisitions, and other activities, that they could not have conducted without
TARP funding.
In response to SIGTARP’s recommendation, on September 16, 2009,
Treasury informed SIGTARP that it was expanding its Quarterly Capital
Purchase Program (“CPP”) Report to include two additional use of funds
categories that TARP recipients had mentioned in SIGTARP survey responses.
Treasury said this expansion will begin with the next Quarterly CPP Report,
scheduled to be released during October 2009. Although this expansion should
provide some additional information on an aggregate basis, it falls short of
meeting the goal of basic transparency regarding the use of TARP funds. Most
importantly, it will only include aggregate data for all CPP institutions and will
not report on this information for each individual institution. It will also not
reflect the financial institution’s view of what steps it was able to take that it
otherwise would not have been able to take absent its receipt of TARP funds.
Although SIGTARP is encouraged that Treasury has apparently abandoned
its prior position that it is impossible to measure and report on TARP recipients’ use of funds, SIGTARP remains puzzled as to why Treasury refuses to
adopt the recommendation to report on each TARP recipient’s use of funds.
While Treasury has indicated that it considers this recommendation “closed,”
SIGTARP continues to urge Treasury’s full adoption of this recommendation.

External Influence Audit
As discussed in more detail in Section 1 of this report, this audit, the report
of which was issued on August 6, 2009, examined whether or to what extent
external parties may have influenced decision making by Treasury or bank
regulators in approving bank applications for funding under CPP. SIGTARP
found limitations and inconsistencies in the logging of telephone and meeting conversations regarding individual CPP applicants, making it impossible
to examine the impact of all potential external inquiries on the CPP process.
Available information, however, gave little indication that external inquiries on

quarterly report to congress I october 21, 2009

CPP applications had affected the decision-making process.
In light of these findings, and to improve transparency and further guard
against outside influence, SIGTARP made two recommendations:
• Treasury should record the vote count for the decisions of Treasury’s Investment
Committee, which makes the final recommendation of whether or not to approve a CPP application.
• Treasury and each individual participating Federal banking agency should
improve existing control systems to document the occurrence and nature of
external oral communication about actual and potential recipients of funding
under CPP and other similar TARP-assistance programs to which they may be
part of the decision making.
Treasury concurred with SIGTARP’s recommendations and adopted them, announcing that it has implemented policies on external contacts similar to those that
it has adopted with respect to applications for stimulus funds.

Original CPP and Bank of America Investments Audit
As discussed in more detail in Section 1 of this report, this audit, which was issued on October 5, 2009, examined the review and approval process associated
with TARP assistance to the first nine CPP recipients, with emphasis on additional assistance to Bank of America subsequently authorized under the Targeted
Investment Program (“TIP”) and the Asset Guarantee Program (“AGP”). The audit
also examined selected issues and interactions among Treasury, Federal Reserve,
and Bank of America officials in connection with Bank of America’s acquisition of
Merrill Lynch and the timing of Government assistance under TIP and AGP following the acquisition.
The audit concluded that Treasury, the Federal Reserve, and FDIC implemented programs designed to help prevent a further deterioration of the economy
and a significant risk of financial market collapse. The audit also concluded that
Treasury’s description of the investments in the first nine institutions in October
2008 highlights an important lesson for Treasury on using greater care and accuracy in describing its actions and rationales in future programs. In an October 14,
2008, statement announcing the investment in the original nine institutions, thenSecretary of the Treasury Henry Paulson stated: “These are healthy institutions,
and they have taken this step for the good of the U.S. economy. As these healthy
institutions increase their capital base, they will be able to increase their funding
to U.S. consumers and businesses.” The nine institutions were similarly described
as healthy in a joint statement released that same day by Treasury, the Federal
Reserve, and FDIC, and in a separate statement released by Treasury.
Notwithstanding these assertions, senior Government officials had concerns,

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special inspector general I troubled asset relief program

at the time the nine institutions were selected, about the health of at least some of
those institutions. The Federal Reserve had concerns over the financial condition
of several of these institutions individually and for all of them collectively absent
some Governmental action; and Secretary Paulson noted concerns about the
potential of an outright failure of one of the institutions. In addition to the basic
transparency concern that this inconsistency raises, by stating expressly that the
“healthy” institutions would be able to increase overall lending, Treasury may have
created unrealistic expectations about the institutions’ conditions and their ability to increase lending. Treasury lost credibility when lending at those institutions
did not increase and when subsequent events — the further assistance needed by
Citigroup and Bank of America being the most significant examples — demonstrated that at least some of those institutions were not healthy.
SIGTARP received official written responses to this audit report from both
Treasury and the Federal Reserve. In a letter from its General Counsel, the Federal
Reserve concurred with the report’s findings and expressly agreed “that an important lesson illustrated by the events that shocked the financial systems over the
past two years is that transparency and effective communication are important to
restoring and maintaining public confidence, especially during a financial crisis.”
(emphasis added)
Treasury, on the other hand, did not initially express as positive a position on
SIGTARP’s findings. Although Treasury characterized the report as “a useful contribution,” it did not expressly state whether it concurred with the lesson learned
that SIGTARP identified in the report. Indeed, Treasury’s response appears to take
issue with SIGTARP’s call for careful consideration of public statements in a time
of crisis, stating that “[w]hile people may differ today on how the contemporaneous
announcements about the reasons for selecting the initial nine recipients should
have been phrased, any review of such announcement must be considered in light
of the unprecedented circumstances in which they were made.” In a subsequent
statement, Treasury described such a review as a “second guess” of the statements
made last fall.
Although SIGTARP acknowledges the unprecedented circumstances that
Treasury was operating under last fall, the lesson to be learned here is that it is precisely during such extraordinary times, as the Federal Reserve correctly noted, that
the Government must exercise increased vigilance about accuracy and transparency in its statements to the public. It is axiomatic that the Government’s capacity to address financial crises depends in no small measure on its credibility, both
with market participants whose confidence is essential to stabilize the financial
system and with the American public whose confidence is essential to underpin the
political support necessary to take the difficult (and often expensive) steps that are
needed. Accuracy and transparency can enhance the public’s understanding of and

quarterly report to congress I october 21, 2009

support for Government programs, whereas statements that are less-than-careful or
forthright — like those made in this case — may ultimately undermine the public’s
understanding and support for these same programs. This loss of public support
could damage the Government’s credibility and have long-term, unintended consequences that actually hamper the Government’s ability to respond to crises.
In response to this report, Treasury indicated that, not withstanding its earlier
statements, it now concurs with the lesson learned from the audit, repeating verbatim the Federal Reserve’s response.

Tracking the Implementation of
Recommendations in Previous Reports
SIGTARP has now made dozens of individual recommendations, and updating
compliance of each one in narrative form would be impractical. The following
table, Table 5.1, summarizes SIGTARP’s prior recommendations, gives an indication of SIGTARP’s view of the level of implementation to date, and provides a brief
explanation for that view where necessary. For more details on the recommendations, readers are directed to SIGTARP’s earlier quarterly reports to Congress.
Treasury’s views on the level of implementation of the recommendations are set
forth in Appendix H: “Correspondence.”

165

Treasury should include language in new TARP agreements
to facilitate compliance and oversight. Specifically, SIGTARP
recommends that each program participant should (1) acknowledge explicitly the jurisdiction and authority of SIGTARP
and other oversight bodies, as relevant, to oversee compliance of the conditions contained in the agreement in question,
(2) establish internal controls with respect to that condition,
(3) report periodically to the Compliance department of the
Office of Financial Stability (“OFS-Compliance”) regarding the
implementation of those controls and its compliance with
the condition, and (4) provide a signed certification from an
appropriate senior official to OFS-Compliance that such report
is accurate.

All existing TARP agreements, as well as those governing new
transactions, should be posted on the Treasury website as
soon as possible.

Treasury requires all TARP recipients to report on the actual
use of TARP funds.

quickly determines its going-forward valuation meth* Treasury
odology.

begins to develop an overall investment strategy to
* Treasury
address its portfolio of stocks and decide whether it intends to

Partially
Implemented Implemented

Note: * Indicates that Treasury considers the recommendation closed and will take no further action.

In formulating the structure of TALF, Treasury should consider
requiring, before committing TARP funds to the program, that
certain minimum underwriting standards and/or other fraud
prevention mechanisms be put in place with respect to the
ABS and/or the assets underlying the ABS used for collateral.

exercise warrants of common stock.

and expressly giving SIGTARP access to relevant documents
and personnel.

should include language in the automobile industry
* Treasury
transaction term sheet acknowledging SIGTARP’s oversight role

Recommendation

SIGTARP RECOMMENDATIONS TABLE

Table 5.1

In Process

Not
Implemented
TBD

Continued on next page.

The Federal Reserve recently adopted mechanisms that address this recommendation. See
discussion in this section.

Treasury has begun implementing this
recommendation. Treasury has made a
determination that it does not intend at this
time to exercise warrants except under
certain circumstances related to mergers and
acquisitions.

Treasury has failed to adopt this recommendation for all but three TARP recipients. See
discussion in this section.

Treasury agreed to do so in late January, but
as of the July Quarterly Report, hundreds of
agreements had not yet been posted, and
Treasury assured SIGTARP that all agreements would be posted by August 15, 2009.
As of the drafting of this report, it still has not
posted 78 CPP agreements on its website,
but has promised that it will finally fulfill this
commitment by November 1, 2009. SIGTARP
will continue to monitor Treasury’s progress.

Although Treasury has made substantial
efforts to comply with this recommendation
in many of its agreements, there have been
exceptions, including in its agreements with
servicers in MHA. Treasury has further stated
that it will only implement this recommendation in circumstances that it deems
“appropriate.”

Comments

166
special inspector general I troubled asset relief program

In TALF, Treasury should dispense with rating agency determinations and require a security-by-security screening for
each legacy RMBS. Treasury should refuse to participate if
the program is not designed so that RMBS, whether new or
legacy, will be rejected as collateral if the loans backing particular RMBS do not meet certain baseline underwriting criteria
or are in categories that have been proven to be riddled with
fraud, including certain undocumented subprime residential
mortgages.

In TALF, Treasury should require significantly higher haircuts
for all MBS, with particularly high haircuts for legacy RMBS, or
other equally effective mitigation efforts.

14
X

Partially
Implemented Implemented

Note: * Indicates that Treasury considers the recommendation closed and will take no further action.

Treasury and the Federal Reserve should provide to SIGTARP,
for public disclosure, the identity of the borrowers who surrender collateral in TALF.

Treasury should formalize its valuation strategy and begin
providing values of the TARP investments to the public.

Treasury should oppose any expansion of TALF to legacy MBS
without significant modifications to the program to ensure a full
assessment of risks associated with such an expansion.

should give careful consideration before agreeing
* Treasury
to the expansion of TALF to include MBS without a full review

of risks that may be involved and without considering certain
minimum fraud protections.

Agreements with TALF participants should include an acknowledgement that: (1) they are subject to the oversight of OFSCompliance and SIGTARP, (2) with respect to any condition imposed as part of TALF, that the party on which the condition is
imposed is required to establish internal controls with respect
to each condition, report periodically on such compliance, and
provide a certification with respect to such compliance.

Recommendation

SIGTARP RECOMMENDATIONS TABLE (continued)
In Process

Not
Implemented
TBD

Continued on next page.

This recommendation has been implemented
with respect to CMBS, and the Federal
Reserve has announced that it will not be
expanding TALF to RMBS.

The Federal Reserve has announced that
RMBS will not be eligible for TALF loans,
rendering this recommendation moot.

The Federal Reserve and Treasury continue to
oppose this basic aspect of transparency in
the TALF program. SIGTARP intends to revisit
this issue with the Federal Reserve once a
collateral surrender takes place.

Although Treasury will provide a valuation
in its annual financial statement using
methodology governed by Federal accounting
policies, it has not committed to making
its estimate of the value of its investments
public on a sufficient, more frequent basis —
even though it is receiving monthly valuation
summaries from its asset managers.

This recommendation has been implemented
with respect to CMBS, and the Federal
Reserve has announced that it will not be
expanding TALF to RMBS.

Comments

quarterly report to congress I october 21, 2009

167

Treasury should not allow Legacy Securities PPIFs to invest
in TALF unless significant mitigating measures are included to
address these dangers.

All TALF modeling and decisions, whether on haircuts or any
other credit or fraud loss mechanisms, should account for potential losses to Government interests broadly, including TARP
funds, and not just potential losses to the Federal Reserve.

Treasury should address the confusion and uncertainty on
executive compensation by immediately issuing the required
regulations.

should impose strict conflict-of-interest rules upon
* Treasury
PPIF managers across all programs that specifically address

Partially
Implemented Implemented

Note: * Indicates that Treasury considers the recommendation closed and will take no further action.

whether and to what extent the managers can (1) invest PPIF
funds in legacy assets that they hold or manage on behalf of
themselves or their clients or (2) conduct PPIF transactions
with entities in which they have invested on behalf of themselves or others.

provide periodic reporting on their actual use of TARP funds,
(3) certify to OFS-Compliance, under the penalty of criminal
sanction, that the report is accurate, that the same criteria of
internal controls and regular certified reports should be applied
to all conditions imposed on CAP participants, and (4) acknowledge explicitly the jurisdiction and authority of SIGTARP and
other oversight bodies, as appropriate, to oversee conditions
contained in the agreement.

should require CAP participants to (1) establish an
* Treasury
internal control to monitor their actual use of TARP funds, (2)

Treasury should significantly increase the staffing levels of
OFS-Compliance and ensure the timely development and implementation of an integrated risk management and compliance
program.

Treasury should design a robust compliance protocol with
complete access rights to all TALF transaction participants for
itself, SIGTARP, and other relevant oversight bodies.

expanded TALF, including minimum underwriting standards and
other fraud prevention measures.

should require additional anti-fraud and credit protec* Treasury
tion provisions, specific to all MBS, before participating in an

Recommendation

SIGTARP RECOMMENDATIONS TABLE (continued)

In Process

Not
Implemented

TBD

Continued on next page.

Treasury has adopted some significant
conflict-of-interest rules related to this recommendation, but has failed to impose other
significant safeguards.

Treasury has reported that in its draft documents it is including “most of the suggestions
of SIGTARP,” but is refusing to adopt a use of
funds reporting requirement.

Although not immediate or final, Treasury did
issue regulations on June 15, 2009.

The Federal Reserve has adopted mechanisms that address this recommendation with
respect to CMBS, and has announced that it
will not be expanding TALF to RMBS.

Comments

168
special inspector general I troubled asset relief program

In MHA, Treasury should require the servicer to compare the
income reported on a mortgage modification application with
the income reported on the original loan application.

Additional anti-fraud protections should be adopted in MHA to
verify the identity of the participants in the transaction and to
address the potential for servicers to steal from individuals
receiving Government subsidies without applying them for the
benefit of the homeowner.

In MHA, Treasury should require a closing-like procedure be
conducted that would include (1) a closing warning sheet that
would warn the applicant of the consequences of fraud; (2)
the notarized signature and thumbprint of each participant;
(3) mandatory collection, copying, and retention of copies of
identification documents of all participants in the transaction;
(4) verbal and written warnings regarding hidden fees and
payments so that applicants are made fully aware of them; (5)
the benefits to which they are entitled under the program (to
prevent a corrupt servicer from collecting payments from the
Government and not passing the full amount of the subsidies
to the homeowners); and (6) the fact that no fee should be
charged for the modification.

Partially
Implemented Implemented

Note: * Indicates that Treasury considers the recommendation closed and will take no further action.

Treasury should require servicers in MHA to submit third-party
verified evidence that the applicant is residing in the subject
property before funding a mortgage modification.

Treasury should require most-favored-nation clauses, PPIF
managers to acknowledge that they owe Treasury a fiduciary
duty, and that each manager adopt a robust ethics policy and
compliance apparatus.

Treasury should require that all PPIF fund managers (1) have
stringent investor-screening procedures, including comprehensive “Know Your Customer” requirements at least as rigorous
as that of a commercial bank or retail brokerage operation to
prevent money laundering and the participation of actors prone
to abusing the system, and (2) be required to provide Treasury
with the identities of all of the beneficial owners of the private
interests in the fund so that Treasury can do appropriate diligence to ensure that investors in the funds are legitimate.

Recommendation

SIGTARP RECOMMENDATIONS TABLE (continued)

In Process

Not
Implemented
TBD

Comments

Continued on next page.

Treasury stated that its compliance agent
Freddie Mac is refining its procedures to
verify that incentive payments to servicers are
applied to borrowers.

See discussion in this section.

Treasury’s agreements with PPIF managers
include investor-screening procedures such
as “Know Your Customer” requirements. Treasury has agreed that it will have access to any
information in a fund manager’s possession
relating to beneficial owners. However, Treasury is not making an affirmative requirement
that managers obtain and maintain beneficial
owner information.

quarterly report to congress I october 21, 2009

169

Treasury should defer payment of the $1,000 incen* IntiveMHA,
to the servicer until after the homeowner has verifiably

MHA, Treasury should proactively educate homeowners
* Inabout
the nature of the program, warn them about modification

MHA, Treasury should require its agents to keep track of the
* Innames
and identifying information for each participant in each

Treasury should require the imposition of strict information barriers or “walls” between the PPIF managers making investment
decisions on behalf of the PPIF and those employees of the
fund management company who manage non-PPIF funds.

Treasury should periodically disclose PPIF trading activity and
require PPIF managers to disclose to SIGTARP, within seven
days of the close of the quarter, all trading activity, holdings,
and valuations so that SIGTARP may disclose such information,
subject to reasonable protections, in its quarterly reports.

Partially
Implemented Implemented

Note: * Indicates that Treasury considers the recommendation closed and will take no further action.

mortgage modification transaction and to maintain a database
of such information.

rescue fraudsters, and publicize that no fee is necessary to
participate in the program.

made a minimum number of payments under the mortgage
modification program.

any modification payments are made.

MHA, Treasury should require that verifiable, third-party in* Information
be obtained to confirm an applicant’s income before

(continued)

Recommendation

SIGTARP RECOMMENDATIONS TABLE
In Process

Not
Implemented

TBD

Continued on next page.

Although Treasury is developing a template
for periodic reporting, those reports will only
provide aggregated information on eligible
asset investments in the PPIF. Treasury has
not committed to providing full transparency
to show where public dollars are invested by
requiring periodic disclosure of every trade in
the PPIF.

Treasury has refused to adopt this significant
anti-fraud measure designed to prevent conflicts of interest. This represents a material
deficiency in the program.

Treasury has refused to adopt this significant
anti-fraud measure designed to detect insiders who are committing large-scale fraud.
This represents a material deficiency in the
MHA anti-fraud regime.

Treasury continues to rely on servicer
representations that the homeowner has
made three trial payments before entering the program, but does not require any
minimum payments after a mortgage enters
the program.

See discussion in this section.

Comments

170
special inspector general I troubled asset relief program

should more explicitly document the vote of each
* Treasury
Investment Committee member for all decisions related to the

should improve existing control systems to document
* Treasury
the occurrence and nature of external phone calls and in-

Partially
Implemented Implemented

Note: * Indicates that Treasury considers the recommendation closed and will take no further action.

person meetings about actual and potential recipients of funding under the CPP and other similar TARP-assistance programs
to which they may be part of the decision-making.

investment of TARP funds.

Treasury and FRBNY should (1) examine Moody’s assertions
that some credit rating agencies are using lower standards to
give a potential TALF security the necessary AAA rating and (2)
develop mechanisms to ensure that acceptance of collateral
in TALF is not unduly influenced by the improper incentives to
overrate that exist among the credit agencies.

Treasury should require PPIF managers to obtain and maintain
information about the beneficial ownership of all of the private
equity interests, and Treasury should have the unilateral ability
to prohibit participation of private equity investors.

Treasury should require PPIF managers to disclose to Treasury,
as part of the Watch List process, not only information about
holdings in eligible assets but also holding in related assets or
exposures to related liabilities.

The conditions that give Treasury “cause” to remove a PPIF
manager should be expanded to include a manager’s performance below a certain standard benchmark, or if Treasury
concludes that the manager has materially violated compliance
or ethical rules.

Appropriate metrics be defined and an evaluation system be
put in place to monitor the effectiveness of the PPIF managers,
both to ensure they are fulfilling the terms of their agreements
and to measure performance.

Recommendation

SIGTARP RECOMMENDATIONS TABLE (continued)

In Process

Not
Implemented
TBD

Comments

See discussion in this section.

Treasury has agreed that it can have access
to any information in a fund manager’s
possession relating to beneficial owners. However, Treasury is not making an affirmative
requirement that managers obtain and maintain beneficial owner information. Treasury will
not adopt the recommendation to give itself
unilateral ability to deny access to or remove
an investor, stating that such a right would
deter participation.

See discussion in this section.

Treasury has refused to adopt this recommendation relying solely on Treasury’s right to end
the investment period after 12 months, during
which time the PPIF manager’s performance
may continue to fall below a standard benchmark potentially putting significant Government funds at risk.

Treasury has indicated that it will substantively
adopt this recommendation and is developing
appropriate metrics.

quarterly report to congress I october 21, 2009

171

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special inspector general I troubled asset relief program

quarterly report to congress I OCTOBER 21, 2009

Endnotes
1.

Commitment source: Treasury, response to SIGTARP data call, 10/7/2009. The $699 billion represents the $700 billion authorized for TARP by EESA less the $1.2 billion reduction as a result of the
Helping Families Save Their Homes Act of 2009 (Public Law 111-22).

From a budgetary perspective, what Treasury has committed to spend (e.g., signed agreements with TARP fund recipients). Treasury, Transactions Report, 10/2/2009, http://financialstability.gov/docs/
transaction-reports/Transactions_Report_09-30-09.pdf, accessed 10/5/2009.

As of September 30, 2009, 47 TARP recipients in various programs had repaid their TARP funds. Under the Capital Purchase Program (“CPP”) 44 TARP recipients had repaid a total $70.7 billion.
Chrysler Financial, LLC had repaid its TARP funds under the Automotive Industry Financing Program (“AIFP”) totaling $1.5 billion, and the two participants under the Auto Warranty Commitment
Program (“AWCP”) had repaid a total $641 million.

Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.

Treasury, response to SIGTARP data call, 10/7/2009.

Treasury, “Press Release: Assistant Secretary for Financial Stability Herbert M. Allison, Jr. Written Testimony Senate Committee on Banking, Housing and Urban Affairs,” 9/24/2009, http://www.financialstability.gov/latest/09242009_testimony.html, accessed 10/12/2009.

Emergency Economic Stabilization Act of 2008, P.L. 110-343, section 122, 10/3/2008.

Emergency Economic Stabilization Act of 2008, P.L. 110-343, section 204, 10/3/2008.

EESA related information: Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008. Debt limit: Treasury, Monthly Statement of the Public Debt of the United States, 9/30/2008, http://
www.treasurydirect.gov/govt/reports/pd/mspd/2008/opds092008.pdf, accessed 9/10/2009; Treasury, Monthly Statement of the Public Debt of the United States, 10/31/2008, http://www.treasurydirect.gov/
govt/reports/pd/mspd/2008/opds102008.pdf, accessed 9/10/2009.

10.

SIGTARP Initial Report to Congress, 2/6/2009, pp. 29-31.

11.

Budget and Accounting Act of 1921 (31 U.S.C. 1105(1)), 1/8/2008, http://uscode.house.gov/download/pls/31C11.txt, accessed 9/27/2009.

12.

White House, OMB, http://www.gpoaccess.gov/usbudget/fy10/pdf/hist.pdf, accessed 9/25/2009.

13.

Office of Management and Budget, Historical Tables, Budget of the United States Government, FY 2009, “Summary of Receipts, Outlays, and Surpluses or Deficits,” p. 22, http://www.gpoaccess.gov/
USbudget/fy09/pdf/hist.pdf, accessed 10/2/2009.

14.

White House, OMB, http://www.gpoaccess.gov/usbudget/fy10/pdf/hist.pdf, accessed 9/25/2009.

15.

Federal Reserve Bank of New York, Primary Dealers, 09/18/2009, http://www.newyorkfed.org/aboutthefed/fedpoint/fed02.html, accessed 9/25/2009.

16.

Treasury, “How Treasury Auctions Work,” http://www.treasurydirect.gov/instit/auctfund/work/work.htm, accessed 8/31/2009.

17.

Treasury, Monthly Statement of the Public Debt of the United States, 9/30/2008, http://www.treasurydirect.gov/govt/reports/pd/mspd/2008/opds092008.pdf, accessed 9/10/2009; Treasury, Monthly Statement
of the Public Debt of the United States, 10/31/2008, http://www.treasurydirect.gov/govt/reports/pd/mspd/2008/opds102008.pdf, accessed 9/10/2009.

18.

Treasury, Historical Long Term Rates, http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/ltcompositeindex_historical.shtml, accessed 9/15/2009; Treasury, Daily Treasury Bill
Rates, http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/daily_treas_bill_rates_historical_2008.shtml, accessed 9/15/2009.

19.

GAO, “Troubled Asset Relief Program: One Year Later, Actions Are Needed to Address Remaining Transparency and Accountability Challenges,” 10/8/2009, http://www.gao.gov/new.items/d1016.pdf,
accessed 10/9/2009.

20.

White House, OMB, FY 2010 Presidential Budget, May 7, 2009, http://www.whitehouse.gov/omb/budget/fy2010/assets/assumptions.pdf, accessed 10/09/2009.

21.

Freddie Mac, COFI index, http://www.freddiemac.com/news/finance/cof_index.htm, accessed 10/8/2009.

22.

White House, OMB, FY 2010 Presidential Budget, May 7, 2009, http://www.whitehouse.gov/omb/budget/fy2010/assets/assumptions.pdf, accessed 10/9/2009.

23.

24.

Treasury, Office of Fiscal Projections, response to SIGTARP draft report, 10/8/2009.

25.

Treasury, Office of Fiscal Projections, response to SIGTARP draft report, 10/8/2009.

26.

Treasury, Office of Fiscal Projections, response to SIGTARP draft report, 10/8/2009; GAO, “Troubled Asset Relief Program: One Year Later, Actions Are Needed to Address Remaining Transparency and
Accountability Challenges,” 10/8/2009, http://www.gao.gov/new.items/d1016.pdf, accessed 10/9/2009.

27.

28.

In FY 2006 there were 138.4 million U.S. individual income tax returns filed to the Internal Revenue Service. Source: IRS, Individual Income Tax Rates and Shares 2006, Winter 2009, http://www.irs.
gov/pub/irs-soi/09winbulinincome.pdf, accessed 9/15/2009; National debt figure of $11.3 trillion, as authorized under EESA section 122; GDP for 2008 was $14.3 trillion. Source: U.S. Department of
Commerce, Bureau of Economic Analysis, News Release, 3/26/2009, http://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp408f.pdf, accessed 9/15/2009.

29.

CBO, Director’s Blog, 4/17/2009, http://cboblog.cbo.gov/?m=200904&paged=2 , accessed 9/15/2009; CBO, http://www.cbo.gov/ftpdocs/100xx/doc10056/MainText.4.1.shtml, accessed 8/30/2009.

30.

Treasury, “Factsheet on Capital Purchase Program,” 3/17/2009, http://www.financialstability.gov/roadtostability/CPPfactsheet.htm, accessed 9/1/2009.

31.

Treasury, Transactions Report, 10/2/2009, http://financialstability.gov/docs/transaction-reports/Transactions_Report_09-30-09.pdf, accessed 10/5/2009.

32.

Source for funds invested and funds repaid is: Treasury, Transactions Report, 10/2/2009, http://financialstability.gov/docs/transaction-reports/Transactions_Report_09-30-09.pdf, accessed 10/5/2009. Source
for projected funding total is: Treasury, Office of Financial Stability, Chief of Compliance and CFO, SIGTARP interview, 3/30/2009.

33.

Treasury, “Treasury White Paper: The Capital Assistance Program and Its Role in the Financial Stability Plan,” no date, http://www.treas.gov/press/releases/reports/tg40_capwhitepaper.pdf, accessed
9/1/2009.

34.

Treasury, “Programs,” 5/7/2009, http://www.financialstability.gov/roadtostability/programs.htm, accessed 9/1/2009.

35.

The $40 billion Series D cumulative preferred shares were effectively converted to $41.6 billion Series D non-cumulative preferred without any cash outlay by Treasury. Treasury, Transactions Report,
10/2/2009, http://financialstability.gov/docs/transaction-reports/Transactions_Report_09-30-09.pdf, accessed 10/5/2009.

36.

Treasury, response to SIGTARP data call, 10/7/2009.

37.

Treasury, “Targeted Investment Program,” 3/26/2009, http://www.financialstability.gov/roadtostability/targetedinvestmentprogram.html, accessed 9/1/2009.

38.

Treasury, Transactions Report, 10/2/2009, http://financialstability.gov/docs/transaction-reports/Transactions_Report_09-30-09.pdf, accessed 10/5/2009.

39.

Treasury, Section 102 Report, 12/31/2008, http://www.treas.gov/press/releases/reports/0010208%20sect%20102.pdf, accessed 9/1/2009.

40.

Treasury Press Release, “U.S. Government Finalizes Terms of Citi Guarantee Announced in November,” 1/16/2009, http://www.financialstability.gov/latest/hp1358.html, accessed 9/3/2009.

41.

Treasury, Transactions Report, 10/2/2009, http://financialstability.gov/docs/transaction-reports/Transactions_Report_09-30-09.pdf, accessed 10/5/2009.

42.

Treasury, response to SIGTARP data call, 7/8/2009.

43.

This number was calculated by summing the March, April, May, June, July, August, and September TALF loan subscriptions. Federal Reserve Bank of New York, “Term Asset-Backed Securities Loan
Facility,” no date, http://www.newyorkfed.org/markets/talf_operations.html, accessed 10/5/2009.

44.

This number was calculated by summing the June, July, August, and September TALF CMBS loan subscriptions. FRBNY, “Term Asset-Backed Securities Loan Facility,” no date, http://www.newyorkfed.
org/markets/talf_operations.html, accessed 10/5/2009.

45.

Treasury, “Public-Private Investment Program,” 4/6/2009, http://www.financialstability.gov/roadtostability/publicprivatefund.html, accessed 9/4/2009.

46.

FDIC, “Legacy Loans Program – Test of Funding Mechanism,” 7/31/2009, http://www.fdic.gov/news/news/press/2009/pr09131.html, accessed 9/22/2009.

47.

Treasury Press Release, “Joint Statement by Secretary of the Treasury Timothy F. Geithner, Chairman of the Board of Governors of the Federal Reserve System Ben S. Bernanke, and Chairman of the
Federal Deposit Insurance Corporation Sheila Bair, Legacy Asset Program,” 7/8/2009, http://www.financialstability.gov/latest/tg_07082009.html, accessed 9/11/2009.

173

174

special inspector general I troubled asset relief program

48.

Treasury, “Public-Private Investment Program,” 4/6/2009, http://www.financialstability.gov/roadtostability/publicprivatefund.html, accessed 9/4/2009.

49.

Treasury, “Unlocking Credit for Small Businesses Fact Sheet,” 3/17/2009, http://www.financialstability.gov/roadtostability/unlockingCreditforSmallBusinesses.html, accessed 10/6/2009.

50.

Treasury, “Guidelines for Automotive Industry Financing Program,” no date, http://www.financialstability.gov/docs/AIFP/AIFP_guidelines.pdf, accessed 9/1/2009.

51.

Treasury, Transactions Report, 10/2/2009, http://financialstability.gov/docs/transaction-reports/Transactions_Report_09-30-09.pdf, accessed 10/5/2009.

52.

Treasury, “Obama Administration Restructuring Initiative: Chrysler-Fiat Alliance,” 4/30/2009, http://www.financialstability.gov/docs/AIFP/Chrysler-restructuring-factsheet_043009.pdf, accessed 9/23/2009;
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53.

Treasury, “Auto Supplier Support Program: Stabilizing the Auto Industry at a Time of Crisis,” no date, http://www.treas.gov/press/releases/docs/supplier_support_program_3_18.pdf, accessed 9/1/2009.

54.

Treasury, Transactions Report, 10/2/2009, http://financialstability.gov/docs/transaction-reports/Transactions_Report_09-30-09.pdf, accessed 10/5/2009.

55.

Treasury, Transactions Report, 10/2/2009, http://financialstability.gov/docs/transaction-reports/Transactions_Report_09-30-09.pdf, accessed 10/5/2009.

56.

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57.

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58.

Treasury Press Release, “Relief for Responsible Homeowners One Step Closer Under New Treasury Guidelines,” 3/4/2009, http://www.financialstability.gov/latest/tg48.html, accessed 9/1/2009.

59.

Treasury, “Making Home Affordable Updated Detailed Program Description,” 4/28/2009, http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf, accessed 9/3/2009.

60.

Treasury, Office of Financial Stability, Chief of Compliance and CFO, SIGTARP interview, 3/30/2009.

61.

Treasury, “Fact Sheet on Capital Purchase Program,” 3/17/2009, http://www.financialstability.gov/roadtostability/CPPfactsheet.htm, accessed 9/14/2009.

62.

Treasury, response to SIGTARP data call, 10/7/2009.

63.

GAO, response to SIGTARP draft report, 10/7/2009.

64.

Treasury, “Treasury Announces Warrant Repurchase and Disposition Process for the Capital Purchase Program,” 6/26/2009, http://www.financialstability.gov/docs/CPP/Warrant-Statement.pdf, accessed
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65.

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66.

OFS Briefing, 9/24/2009.

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Banco Popular Press Release, “Popular Completes Exchange of Outstanding Series C Preferred Stock Owned by U.S. Treasury for Newly Issued Trust Preferred Securities,” 8/25/2009, http://www.mibancopopular.com/us/about/news/newsItem.jsp?articleId=cid:2-10-0-167, accessed 9/30/2009.

68.

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69.

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special inspector general I troubled asset relief program

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212. Assume that the HPDP rate is calculated at the start of the HAMP modification.
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214. According to Treasury, “HPDP incentive payments will be made only with respect to HAMP modifications with NPV dates on or after September 1, 2009. Fannie Mae will determine the potential HPDP
incentive payable for a HAMP modification as of the date the NPV model is initially run by the servicer to evaluate the borrower’s eligibility to receive a HAMP offer (NPV Date).” It is assumed that the
trial period starts on the NPV Date.
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quarterly report to congress I OCTOBER 21, 2009

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and Global Head of Securitized Products, Lehman Brothers before the Senate Banking Subcommittee on Securities, Insurance, and Investment, 4/17/2007, http://banking.senate.gov/public/index.
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303. State of Connecticut, Attorney General’s Office Press Release, “Attorney General Questions Fed Program That Steers Up To $400 Million To Big Three Raters, Asks Fed To Reconsider,” 4/6/2009, http://
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310. Testimony of Rodney Clark, Managing Director, Ratings Services, Standard & Poor’s Financial Services LLC before the U.S. House of Representatives Subcommittee on Capital Markets and Government
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314. Testimony of Rodney Clark, Managing Director, Ratings Services, Standard & Poor’s Financial Services LLC before the U.S. House of Representatives Subcommittee on Capital Markets and Government
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315. AIG, 10-Q, 8/6/2008, http://www.sec.gov/Archives/edgar/data/5272/000095012308008949/y59464e10vq.htm, accessed 10/5/2009.

quarterly report to congress I OCTOBER 21, 2009

316. Testimony of Rodney Clark, Managing Director, Ratings Services, Standard & Poor’s Financial Services LLC before the U.S. House of Representatives Subcommittee on Capital Markets and Government
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317. Testimony of Rodney Clark, Managing Director, Ratings Services, Standard & Poor’s Financial Services LLC before the U.S. House of Representatives Subcommittee on Capital Markets and Government
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318. AIG, 10-K, 3/2/2009, http://www.sec.gov/Archives/edgar/data/5272/000095012309003734/y74794e10vk.htm, accessed 10/5/2009.
319. Federal Reserve, Testimony of Chairman Ben Bernanke before the committee on Financial Services, U.S. House of Representatives, 3/24/2009, http://www.federalreserve.gov/newsevents/testimony/
bernanke20090324a.htm, accessed 10/5/2009.
320. Treasury, response to SIGTARP data call, 10/7/2009.
321. Testimony of Rodney Clark, Managing Director, Ratings Services, Standard & Poor’s Financial Services LLC before the U.S. House of Representatives Subcommittee on Capital Markets and Government
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322. Federal Reserve, Report Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008: Secured Credit Facility Authorized for American International Group, Inc. http://www.federalreserve.gov/monetarypolicy/files/129aigsecborrowfacility.pdf, accessed 10/1/2009.
323. Federal Reserve, Report Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008: Secured Credit Facility Authorized for American International Group, Inc. http://www.federalreserve.gov/monetarypolicy/files/129aigsecborrowfacility.pdf, accessed 10/1/2009.
324. SEC, response to SIGTARP draft report, 10/9/2009.
325. SEC Commissioner Kathleen Casey, Speech by SEC Commissioner: Statement at SEC Open Meeting, 9/17/2009, http://www.sec.gov/news/speech/2009/spch091709klc.htm, accessed 10/2/2009.
326. SEC Commissioner Kathleen Casey, Speech by SEC Commissioner: Statement at SEC Open Meeting, 9/17/2009, http://www.sec.gov/news/speech/2009/spch091709klc.htm, accessed 10/2/2009.
327. SEC, “SEC Oversight: Current state and Agenda” 7/14/2009, http://www.house.gov/apps/list/hearing/financialsvcs_dem/sec_testimony.pdf, accessed 9/25/2009.
328. SEC, “SEC Votes on Measure to Further Strengthen Oversight of Credit Rating Agencies,” 9/17/2009, www.sec.gov/new/press/2009/2009-200factsheet.htm, accessed 9/21/2009.
329. Ray McDaniel, President of Moody’s, Testimony at Congressional Oversight Hearing, 10/22/2008, http://oversight.house.gov/story.asp?ID=2255, accessed 9/30/2009.
330. SEC Commissioner Kathleen Casey, Speech by SEC Commissioner: Statement at SEC Open Meeting, 9/17/2009, http://www.sec.gov/news/speech/2009/spch091709klc.htm, accessed 10/2/2009.
331. Mortgage Bankers’ Association, Comments on Proposed Modifications to SEC Rules and Forms, 9/5/2008, http://www.sec.gov/comments/s7-19-08/s71908-32.pdf, accessed 9/25/2009.
332. Lawrence J. White, Testimony to U.S. House of Representatives Committee on Oversight and Government Reform, 9/30/2009, http://oversight.house.gov/documents/20090930084433.pdf, accessed
10/1/2009.
333. Lawrence J. White, Testimony to U.S. House of Representatives Committee on Oversight and Government Reform, 9/30/2009, http://oversight.house.gov/documents/20090930084433.pdf, accessed
10/1/2009.
334. Testimony of Eric Kolchinsky, prior Managing Director Moody’s Investor Service, to U.S. House of Representatives Committee on Oversight and Government Reform, 9/30/2009, http://oversight.house.
gov/documents/20090930083904.pdf, accessed 10/1/2009.
335. Testimony of Eric Kolchinsky, prior Managing Director Moody’s Investor Service, to U.S. House of Representatives Committee on Oversight and Government Reform, 9/30/2009, http://oversight.house.
gov/documents/20090930083904.pdf, accessed 10/1/2009.
336. Testimony of J. Kyle Bass, Managing Partner for Hayman Advisors L.P., U.S. House of Representatives Committee on Financial Services, Subcommittee on Capital Markets and Government Sponsored
Entities, “The Role of the Credit Rating Agencies in the Structured Finance Market,” 9/27/2007, http://financialservices.house.gov/hearing110/bass.pdf, accessed 9/30/2009.
337. SEC, Summary Report of Issues Identified in the Commission Staff’s Examinations of Select Credit Rating Agencies, 7/2008, http://www.sec.gov/news/studies/2008/craexamination070808.pdf, accessed
9/16/2009.
338. SEC, Summary Report of Issues Identified in the Commission Staff’s Examinations of Select Credit Rating Agencies, 7/2008, http://www.sec.gov/news/studies/2008/craexamination070808.pdf, accessed
9/16/2009.
339. SEC, Summary Report of Issues Identified in the Commission Staff’s Examinations of Select Credit Rating Agencies, 7/2008, http://www.sec.gov/news/studies/2008/craexamination070808.pdf, accessed
9/16/2009.
340. Testimony of Professor John Coffee, Columbia University Law School, before the United States Senate Committee on Banking, Housing and Urban Affairs, 4/22/2008, http://banking.senate.gov/public/_
files/OpgStmtCoffeeSenateTestimonyTurmoilintheUSCreditMarkets.pdf, accessed 9/30/2009.
341. Testimony of Sean Egan, Managing Director, Egan-Jones Rating Co. before the House Committee on Oversight and Government Reform, 10/22/2008, http://oversight.house.gov/documents/20081022102906.pdf, accessed 8/26/2009.
342. Testimony of Eric Baggesen, Senior Investment Officer, California Public Employees’ Retirement System before the House Committee on Oversight and Government Reform, 9/30/2009, http://oversight.
house.gov/documents/20090930084407.pdf, accessed 10/1/2009.
343. Testimony of Professor John Coffee, Columbia University Law School, before the United States Senate Committee on Banking, Housing and Urban Affairs, 4/22/2008, http://banking.senate.gov/public/_
files/OpgStmtCoffeeSenateTestimonyTurmoilintheUSCreditMarkets.pdf, accessed 9/30/2009.
344. SEC, Summary Report of Issues Identified in the Commission Staff’s Examinations of Select Credit Rating Agencies, 7/2008, http://www.sec.gov/news/studies/2008/craexamination070808.pdf, accessed
9/16/2009.
345. Testimony of Sean Egan, Managing Director, Egan-Jones Rating Co. before the House Committee on Oversight and Government Reform, 10/22/2008, http://oversight.house.gov/documents/20081022102906.pdf, accessed 8/26/2009.
346. Testimony of Sean Egan, Managing Director, Egan-Jones Rating Co. before the House Committee on Oversight and Government Reform, 10/22/2008, http://oversight.house.gov/documents/20081022102906.pdf, accessed 8/26/2009.
347. Testimony of Gregory Smith of the Colorado Public Employees’ Retirement Association before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Entities of the Committee on
Financial Services, 5/19/2009, http://www.house.gov/apps/list/hearing/financialsvcs_dem/gregory_w__smith_testimony.pdf, accessed 10/2/2009.
348. House Committee on Financial Services Press Release; “Kanjorski Circulates Discussion Draft of Accountability and Transparency in Credit Rating Agencies Act,” 9/25/2009, http://www.house.gov/apps/
list/press/financialsvcs_dem/presskanj_092509.shtml, accessed 10/2/2009.
349. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.
350. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.
351. Treasury, response to SIGTARP data call, 10/7/2009.
352. Treasury, response to SIGTARP data call, 10/7/2009.
353. Treasury, response to SIGTARP data call, 10/7/2009.
354. GAO-09-504, “Troubled Asset Relief Program: March 2009 Status of Efforts to Address Transparency and Accountability Issues,” 3/31/2009.
355. Congressional Budget Office Press Release, “Cost Estimate on Emergency Economic Stabilization Act of 2008,” 9/28/2008, www.cbo.gov/ftpdocs/98xx/doc9829/09-28-HonorableFrank.htm, accessed
1/15/2009.
356. Treasury, response to SIGTARP data call, 4/8/2009.
357. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.
358. Treasury response to SIGTARP Data Call, 10/7/2009.
359. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.
360. Treasury, “Interim Rule: TARP Conflicts of Interest,” 10/6/2008, www.financialstability.gov/docs/COI-Rule.pdf, accessed 1/15/2009.
361. TARP Conflicts of Interest, Interim Rule, Billing Code 4810-25-P, 1/21/2009.
362. GAO-09-161, “Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency,” 12/2/2008.

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Sources for Figure 2.6: Treasury, Office of Financial Stability, Chief of Compliance and CFO, SIGTARP interview, 3/30/2009; Treasury, Transactions Report, 10/2/2009; Treasury, “Auto Supplier Support
Program: Stabilizing the Auto Industry in a Time of Crisis,” 3/19/2009, http://www.treas.gov/press/releases/docs/supplier_support_program_3_18.pdf, accessed 3/19/2009; Treasury, “Unlocking Credit
for Small Businesses Fact Sheet,” 3/17/2009, http://www.financialstability.gov/roadtostability/unlockingCreditforSmallBusinesses.html, accessed 6/10/2009; Treasury, “Treasury, Federal Reserve, and FDIC
Provide Assistance to Bank of America,” 1/16/2009, http://www.treas.gov/press/releases/hp1356.htm, accessed 1/16/2009; Treasury Press Release, “U.S. Government Finalizes Terms of Citi Guarantee
Announced in November,” 1/16/2009, http://www.financialstability.gov/latest/hp1358.html, accessed 6/8/2009; Treasury, “Financial Stability Plan Fact Sheet,” 2/10/2009, http://www.financialstability.gov/
docs/fact-sheet.pdf, accessed 6/8/2009; Treasury, “Making Home Affordable: Updated Detailed Program Description,” 3/4/2009, http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf,
accessed 6/10/2009; Treasury, “Public-Private Investment Program,” 4/6/2009, http://www.financialstability.gov/roadtostability/publicprivatefund.html, accessed 6/9/2009.

appendices
A. Glossary
B. Acronyms and Abbreviations
C. Reporting Requirements
D. Transaction Detail
E. Cross-Reference of Report to the Inspector General Act of 1978
F. Public Announcement of Audits*
G. Key Oversight Reports and Testimonies*
H. Correspondence
I. Organizational Chart

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*Visit www.sigtarp.gov to view Appendix F: Public Announcement of Audits and Appendix G: Key Oversight Reports and Testimonies,
for further reference material.

glossary I Appendix A I OCTOBER 21, 2009

glossary
This appendix provides a glossary of terms that are used throughout the context of this report.
504 Community Development Loan Program: Small Business
Administration (“SBA”) program combining Government-guaranteed loans
with private-sector mortgage loans to provide loans of up to $10 million for
community development.
7(a) Program: SBA loan program guaranteeing a percentage of loans for
small businesses that cannot otherwise obtain conventional loans at reasonable terms.
Appropriation: Authority provided by law for Federal agencies to incur obligations and to make payments out of the Treasury for specified purposes.
Asset Crossing: Buying or selling assets from affiliates, either directly or
through third parties.
Asset Flipping: Buying assets with the intention of reselling those assets in
the short term.
Bank Holding Company: A company that controls a bank. Typically, a
company controls a bank through the ownership of 25% or more of its voting
securities.
Break the Buck: A decline below $1 in the net asset value (“NAV”) of a
money market mutual fund.
Call Report: Quarterly report of financial condition commercial banks file
with their Federal and state regulatory agencies.

Cost of Capital: The “price” a company must pay to finance an investment
or project. For debt financing, this is the interest rate on any loans or bonds.
For equity financing, it is the “opportunity cost” of using its capital elsewhere
(i.e., what the company could have reasonably expected to earn from using
its cash in a low-risk investment such as Government bonds).
Credit Default Swap (“CDS”): A contract where the seller receives a series
of payments from the buyer in return for agreeing to make a payment to the
buyer when a particular credit event outlined in the contract occurs (for
example, if the credit rating on a particular bond or loan is downgraded or
goes into default). It is commonly referred to as an insurance-like product
where the seller is providing the buyer insurance-like protection against the
failure of a bond. The buyer, however, does not need to own the asset covered
by the contract, which means it can serve essentially as a “bet” against the
underlying bond.
Credit Watch: Announcement by a rating agency of developments that may
have a material impact on the creditworthiness (either positive, negative, or
developing) of a company or security in the short term.
Crowding Out: A term historically used to describe the impact on the private
sector of heavy Government debt issuance. This drives up interest rates,
forcing the private sector to pay more, and edging it out of the market. Just
as private-sector issuances have to compete with the lending Treasury did
for TARP, so too will other Treasury issuances be forced to pay the higher
interest rates resulting from the TARP borrowing.

Capital Call Notice: A capital call, or draw down, is an investment firm’s
legal right to demand a portion of the money promised to it by an investor.

Cumulative Preferred Stock: A type of stock that requires a defined dividend payment. If the company does not pay the dividend, it still owes the
missed dividend to the owner of the stock.

Capital Requirement: The amount of cash and easily liquidated assets that
a financial institution needs to meet Government regulations and provide a
cushion against losses.

CUSIP: Unique identifying number assigned to all registered securities
(similar to a social security number).

Cash Management Bill (“CMB”): A type of short-term Treasury bill sold
by the Treasury to meet temporary funding shortfalls. CMB maturities
can range from a few days to more than six months, and auctions can be
announced with less than one-week notice.
Clawback: Recovery by the company of amounts paid to an employee based
on materially inaccurate performance criteria.
Collateralized Debt Obligations (“CDOs”): A financial instrument that
entitles the purchaser to some portion of the cash flows from a portfolio of
assets, which may include bonds, loans, mortgage-backed securities, or other
CDOs.
Commercial Mortgage-Backed Securities (“CMBS”): A financial instrument that is backed by a commercial real estate mortgage or a group of
commercial real estate mortgages that are packaged together.
Common Stock: Equity ownership that entitles an individual to share in the
corporate earnings and voting rights.
Core Capital: Also known as T1, refers to the common stock, perpetual
noncumulative, preferred stock, paid-in capital, and retained earnings of a
bank.

Debtor-in-Possession (“DIP”): A company which is operating under
Chapter 11 bankruptcy protection, which still technically owns its assets but
is operating them to maximize the benefit to its creditors.
Derivative: A financial instrument whose value is based on (“derived from”)
a different underlying asset, indicator, or financial instrument.
Due Diligence: The appropriate level of attention or care a reasonable
person should take before entering into an agreement or a transaction with
another party. In finance, often refers to the process of conducting an audit
or review of documents/information prior to initiating a transaction.
Dutch Auction: Auction technique used for selling Treasury securities where
investors bid different prices (yields) for different quantities of the offered
security. Treasury selects the highest group of bids that sells the full offering
and all winning bidders pay the same price — the lowest bid within that
winning group. For instance, three investors place bids for $500 million each
worth of securities (on a $1 billion offering by Treasury). Treasury selects the
two highest bidders (totaling $1 billion) and they both pay the price bid by
the lower of the two winners.
Equity Capital Facility: A commitment to invest equity capital in a firm
under certain future conditions.

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Appendix a I glossary I OCTOBER 21, 2009

Exceptional Assistance: Companies receiving assistance under the programs
for SSFI, TIP, AGP, and AIFP, and any future Treasury program designed
by the Treasury Secretary as providing exceptional assistance. Currently
includes AIG, Citigroup, Bank of America, GM, GMAC, Chrysler, and
Chrysler Financial.
Fallen Angel: In finance, can refer to a bond which held an investment grade
rating when issued, but has subsequently fallen to a much lower rating, or
a once-popular investment that has fallen out of favor with investors and
declined in value.
Floorplan: Revolving lines of credit used to finance inventories of items.
Front Running: Entering into a trade while taking advantage of advance
knowledge of pending orders from other investors.

Moral Hazard: A term used in economics and insurance to describe the lack
of incentive individuals have to guard against a risk when they are protected
against that risk (for example, through an insurance policy). In the context of
TARP, it refers to the danger that private-sector executives/investors/lenders
may behave more recklessly knowing that the Government has insulated
them from the risks of their actions.
Mortgage-Backed Securities (“MBS”): A pool of mortgages bundled
together by a financial institution and sold as securities — a type of assetbacked security.
Net Asset Value: A fund’s per-share value. Calculated by dividing the total
value of all the securities in its portfolio, less any liabilities, by the number of
fund shares outstanding.

Golden Parachute: Any payment to an employee for departure for any
reason, or any payment due to a change in control.

Net Regulatory Capital: A regulatory metric that requires a bank to take
into consideration the relative riskiness of its assets. Calculated as common
equity minus intangibles.

Government Regulators: Government agencies responsible for overseeing
the health and stability of a sector of the economy, in this case, the financial
sector, through supervision and enforcement of regulations.

Non-Agency Residential Mortgage-Backed Securities (“RMBS”): RMBS
that are not guaranteed by a Government-Sponsored Enterprise (“GSE”)
such as Fannie Mae, Freddie Mac, or the Federal Home Loan Banks.

Government-Sponsored Enterprises (“GSEs”): Private corporations
created by the Government to reduce borrowing costs. They are chartered by
the U.S. Government but are not considered to be direct obligations.

Non-cumulative Preferred Stock: A type of stock in which unpaid dividends do not accrue when a company fails to make a dividend payment.

HAMP Trial Period: A 90-day trial period of reduced mortgage payments for
the borrower. If all payments are successful, then the mortgage modification
will be accepted into the MHA program and HAMP incentive payments will
begin.
Illiquid Assets: Assets that cannot be quickly converted to cash.
Investment Grade: A quality classification for bond or debt securities (rated
BBB/Baa or higher) that suggests the debt is likely to be repaid.

Non-Primary Dealer: Banks and securities broker-dealers that are not
approved by FRBNY to trade in U.S. Government securities.
Non-Recourse Loan: A secured loan whereby the borrower is relieved of the
obligation to repay the loan upon the surrender of the collateral.
Note: A short-term debt security, usually with a maturity of less than five
years.
Originator: The lead bank or underwriter for a structured finance product.

Par Value: The face value of a bond or security (for instance $1,000 or
$100). When a bond trades on the market, the price can be above or below
par. A price above par means the purchaser is paying a premium; a price
below par means the purchaser is buying at a discount.

Legacy Commercial Mortgage-Backed Securities (“CMBS”): CMBS
issued before January 1, 2009.

Perk: Personal benefit, including a privilege, or profit incidental to regular
salary or wages.

Legacy Loans: Underperforming real estate-related loans held by a bank that
it wishes to sell, but recent market disruptions have made difficult to price.

Permitted Investments List: A statement in the charter or policies of an
organization (for instance, the prospectus of a mutual fund) detailing to
stakeholders the nature or types of assets in which the institution is allowed
to invest. To invest in assets not on the list could mean a breach in the fiduciary responsibility of the organization.

Legacy Securities: Troubled real estate-related securities (residential
mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and other asset-backed securities (“ABS”)) lingering on
institutions’ balance sheets because their value could not be determined.
Leverage: The ratio of a company’s debt to its equity.
Liquidity: The ability to easily convert an asset to cash, without any significant loss in value or transaction cost.
Loan-to-Value (“LTV”) Ratio: In real estate lending, the outstanding principal amount of the loan divided by the appraised value of the property.
London Interbank Offered Rate (“LIBOR”): The interest rate that large
banks in London charge each other for dollar-denominated funds.
Mandatorily Convertible Preferred (“MCP”) Share: A type of preferred
share (ownership in a company that generally entitles the owner of the share
to collect dividend payments) that can be converted to common stock under
certain parameters at the discretion of the company—and must be converted
to common stock by a certain time.
Margin Call: A broker’s demand on an investor using borrowed money
(margin) to deposit additional cash or securities in its account if the value of
its capital drops below a set percent of the total investment.

Ponzi Scheme: An illegal pyramid scheme in which money from new investors is used to pay off earlier investors.
Preferred Stock: “Equity ownership that usually pays a fixed dividend, gives
the holder a claim on corporate earnings superior to common stock owners,
and has no voting rights. Preferred stock also has priority in the distribution
of assets in the case of liquidation of a bankrupt company.”
Primary Dealer: Banks and securities broker-dealers that trade in U.S.
Government securities with FRBNY for the purpose of carrying out open
market operations.
Private-Label Mortgages: Loans that are not owned or guaranteed by
Fannie Mae, Freddie Mac, Ginnie Mae, or another Federal agency.
Pro Forma: In finance, refers to the presentation of hypothetical financial
information assuming that certain assumptions will happen.
Pro Rata: Refers to dividing something among a group according to the
proportionate share that each participant holds as a part of the whole.

glossary I Appendix A I OCTOBER 21, 2009

Purchasing Power: The total amount of goods or services that can be
purchased by a unit of currency. For the purpose of PPIP, purchasing power
refers to the combined buying power of the PPIFs’ private capital, Treasury
equity, and Treasury debt.
Rating Action: A modification (upgrade or downgrade) or confirmation of a
company’s or security’s credit rating.

Senior Subordinated Debenture: A subordinated debenture is a loan or
security that is junior to other loans or securities with regards to the debt
holders’ claims on assets or earnings. Senior debt holders get paid in full
before subordinated debt holders get paid. There are additional levels of
priority among subordinated debt holders. CPP invests in senior subordinated debt.

Rating Outlook: Guidance published by a rating agency indicating the
medium- or long-term outlook for a company’s or security’s creditworthiness.

Small Business Administration (“SBA”) 7(a) Pool Certificates: 7(a) loans
grouped together to form one security eligible as collateral against a TALF
loan.

Rating Review: A formal action by a rating agency to re-assess the creditworthiness of a company or security. Could lead to a change in rating outlook,
initiation of Credit Watch, or a rating action.

Special Purpose Vehicle (“SPV”): An off-balance-sheet legal entity that
holds the transferred assets presumptively beyond the reach of the entities
providing the assets (e.g., legally isolated).

Ratings Shopping: Also known as “forum shopping;” the process where an
issuer approaches a rating agency to receive a “preliminary rating” before
it seeks an official rating. If it does not get the desired rating, the issuer
proceeds to another rating agency until it receives the desired rating.

System Gaming: Using the rules, policies, and procedures of a system
against itself for purposes other than those originally intended by the system
designers.

Ratings Watch: A formal announcement by a rating agency informing
investors that the issue or issuer rating is being reviewed to determine if the
current rating is appropriate.
Receivership Assets: When an FDIC-insured institution fails, FDIC is
ordinarily appointed as receiver. In that capacity, it assumes responsibility
for efficiently recovering the maximum amount possible from the disposition of the receivership’s assets and the pursuit of the receivership’s claims.
Funds collected from the sale of assets and the disposition of valid claims are
distributed to the receivership’s creditors in accordance with the priorities set
by law.
Reorganization: Agreements between a company, its creditors, and the
courts that allow the company to emerge from bankruptcy with an altered
debt structure.
Return on Equity (“ROE”): A measurement of how much profit a company
generates with the money shareholders have invested. Calculated showing
net income as a percentage of shareholders equity. If a bank must hold
capital (equity) aside for regulatory purposes, it can make fewer investments,
with implications for ROE.
Return on Investment (“ROI”): A measure of the efficiency of one investment option versus other options. Calculated as a percentage: profit divided
by the cost of the investment.
Risk-Weighted Assets: The amount of a bank’s total assets after applying an
appropriate risk factor to each asset.
Round Tripping: Buying an asset from an entity and reselling the asset back
to the entity or its affiliates.
Secondary Market: The secondary market, also known as the aftermarket, is
the financial market where previously issued securities and financial instruments such as stocks, bonds, options, and futures are bought and sold.
SEC Net Capital Rule: A requirement that broker-dealers maintain a sufficient cushion of highly liquid assets (easily convertible to cash) in excess of
liabilities to cover potential market, credit, and other risks if they should be
required to liquidate.
Securities Exchange: An agreement between a firm and investors, permitting the investors to exchange one class of securities for another.
Senior Executive Officers (“SEOs”): A “named executive officer” of a TARP
recipient as defined under Federal securities law, which generally includes
the principal executive officer (“PEO”), principal financial officer (“PFO”),
and the next three most highly compensated employees.
Senior Preferred Stock: Shares that give the stockholder priority dividend
and liquidation claims over junior preferred and common stockholders.

Systemically Significant: A financial institution whose failure would impose
significant losses on creditors and counterparties, call into question the
financial strength of other similarly situated financial institutions, disrupt
financial markets, raise borrowing costs for households and businesses, and
reduce household wealth.
T1: See the definition of Core Capital.
TALF Agent: Financial institution that is a party to the Master Loan and
Security Agreement and from time to time acts as an agent to the borrower.
TALF Agents include primary and non-primary broker-dealers.
Tax Gross-Up: A reimbursement of taxes owed with respect to any
compensation.
Temporary Investments: For the purposes of PPIP, they are cash,
Treasuries, money market mutual funds, and interest rate hedges.
Tier One Capital: Consists primarily of common equity (including retained
earnings), limited types and amounts of preferred equity, certain minority
interests, and limited types and amounts of trust preferred securities. T1 does
not include goodwill and certain other intangibles. Certain other assets are
also excluded from T1. It can be described as a measure of the bank’s ability
to sustain future losses and still meet depositor’s demands.
Tier One Common Equity (“T1 Common”): Also known as tangible
common equity (“TCE”), is calculated by removing all non-common
elements from T1, e.g., preferred equity, minority interests, and trust
preferred securities. It can be thought of as the amount that would be left
over if the bank were dissolved and all creditors and higher levels of stock,
such as preferred stock, were paid off. T1 Common is the highest “quality”
of capital in the sense of providing a buffer against loss by claimants on the
bank. T1 Common is used in calculating the tier-one common risk-based
ratio (“T1 Common Ratio”) which determines what percentage of a bank’s
total assets is categorized as T1 Common. The higher the percentage, the
better capitalized the bank. Preferred stock is an example of capital that is
counted in T1, but not in T1 Common.
Tier One Common Risk-Based Ratio (“T1 Common Ratio”): Determines
what percentage of a bank’s total assets is categorized as T1 Common. Under
traditional Federal regulations, a bank with a T1 Common Ratio of 4% or
greater is considered adequately capitalized.
= T1 Common / Risk-weighted assets
Tier One Risk-based Capital Ratio (“T1 Ratio”): A ratio which determines
what percentage of a bank’s total assets is categorized as tier one capital
(“T1”).
= T1 / Risk-weighted assets
Transaction Cost: The tangible and intangible costs associated with buying
or selling an asset. Tangible costs can include fees paid (such as to a broker
when selling bonds or to lawyers for drafting documents), while intangible

183

184

Appendix a I glossary I OCTOBER 21, 2009

costs can include the time or effort spent reviewing documents, traveling to
visit a client, for instance.

Sources:

Treasury Bill: A short-term debt obligation of the U.S. Government with a
maturity of up to one year. Sold in denominations of $100 with maturities of
4 weeks, 13 weeks, 26 weeks, and 52 weeks. Sold at auction, with the price
below face value (discount to par) determining the yield.

Commodities and Futures Trading Commission, “CFTC Glossary,” no date, www.cftc.gov/educationcenter/
glossary/glossary_co.html, accessed 7/10/2009.

Treasury Bond: A marketable, fixed-interest U.S. Government debt security
with a maturity of between 10 and 30 years; paying interest semi-annually.
Treasury Inflation-Protected Securities (“TIPS”): A special type of
Treasury note or bond that offers protection from inflation. TIPS pay interest
semi-annually, but the coupon payments and underlying principal are automatically increased to compensate for inflation as measured by the consumer
price index (“CPI”).
Treasury Note: A marketable U.S. Government debt security with a fixed
interest rate and a maturity between 1 and 10 years. Purchasable directly
from Treasury through an auction process or from a bank.
Trust Preferred Securities: A security that has both equity and debt characteristics created by establishing a trust and issuing debt to it. A company
would create a trust preferred security to realize tax benefits, since the trust
is tax deductible.

California State Senate, “Senate Bill 668,” 5/5/09, http://info.sen.ca.gov/pub/01-02/
bill/sen/sb_0651-0700/sb_668_bill_20010417_amended_sen.pdf, accessed 1/28/2009.

FDIC, “Credit Card Securitization Manual,” no date, www.fdic.gov/regulations/examinations/credit_card_securitization/glossary.html, accessed 4/8/2009.
FDIC, “Receivership Management Program,” 11/21/2008, www.fdic.gov/about/strategic/strategic/receivership.html, accessed 9/20/2009.
Federal Housing Finance Agency, “Mortgage Markets and the Enterprises 2007,” www.fhfa.gov, July 2008,
accessed 4/9/2009.
Federal Reserve Board, comments on SIGTARP draft report, 1/29/2009.
Federal Reserve response to SIGTARP draft, 7/10/2009.
Fitch Ratings, “Fitch Ratings Definition,” no date, www.fitchratings.com/creditdesk/public/ratings_defintions/index.cfm, accessed 10/02/2009.
FRBNY, “Primary Dealer List”, no date, http://www.newyorkfed.org/markets/pridealers_current.html,
accessed 10/10/2009.
FRBNY, “TALF FAQs,” 9/1/2009, www.newyorkfed.org/markets/talf_faq.html, accessed 9/1/2009.
FRBNY, “Term Asset-Backed Securities Loan Facility: Terms and Conditions,” 3/19/2009, www.newyorkfed.org, accessed 3/27/2009. Comptroller of the Currency, “Floor Plan Loans: Comptroller’s Handbook,”
May 1998, www.occ.treas.gov/handbook/floorplan1.pdf, accessed 4/13/2009.
GAO, “Small Business Administration: Additional Guidance on Documenting Credit Elsewhere Decisions
Could Improve 7(a) Program Oversight,” 2/12/2009, www.gao.gov/products/GAO-09-228, accessed
3/17/2009.
HUD, “Glossary,” no date, www.hud.gov/offices/hsg/sfh/buying/glossary.cfm, accessed 4/8/2009.
National Information Center, “Institution Types Defined,” www.ffiec.gov/nicpubweb/Content/HELP/
Institution%20Type%20Description.htm, accessed 1/28/2009.

Unpaid Principal Balance (“UPB”): Amount of a loan that is unpaid. This
does not include additional charges.

Office of Financial Stability, response to SIGTARP draft, 7/9/2009.

Warrant: “The right, but not the obligation, to purchase a certain number of
shares of common stock at a fixed price.”

SEC, “Mortgage-Backed Securities,” no date, www.sec.gov/answers/mortgagesecurities.htm, accessed
1/28/2009.

Weighted Average Life: The average number of years for which each dollar
of unpaid principal on a mortgage or loan remains outstanding.

Small Business Administration, “Basic 7(a) Loan Programs,” www.sba.gov/services/financialassistance/
sbaloantopics/7a/, accessed 9/18/2009.

Yield: The effective interest rate paid by a security.

Treasury, “Ethical Standards and Conflict of Interest Rules for Public-Private Investment Fund Managers,” no
date, Provided by SIGTARP 7/2/2009.

SEC,”Citigroup Exchange Agreement,” 6/9/2009, http://www.sec.gov/Archives/edgar/
data/831001/000095010309000098/dp12291_ex1001.htm, accessed 6/10/2009.

SEC,”Cusip,” www.sec.gov/answers/cusip.htm, accessed 4/6/2009.

Treasury, “Decoder,” no date, www.financialstability.gov/roadtostability/decoder.htm, accessed 4/9/2009.

Treasury, “Treasury Direct,” no date, www.treasurydirect.gov/instit/auctfund/work/auctime/auctime.htm,
accessed 10/02/2009
Treasury, “Legacy Securities Public-Private Investment Program Compliance and Risk Management,”
7/2/2009, accessed 10/7/2009.
Treasury, “Letter of Intent and Term Sheet,” 7/8/2009, www.financialstability.gov/docs/S-PPIP_LOI_TermSheets.pdf, accessed 7/8/2009.
Treasury, “Securities Purchase Agreement dated as of April 17, 2009 between American International
Group, Inc. and United States Department of the Treasury,” 4/17/2009, www.financialstability.gov/docs/
agreements/Series.F.Securities.Purchase.Agreement.pdf, accessed 6/8/2009.
Treasury, “TARP Standards for Compensation and Corporate Governance,” 6/10/2009, www.financialstability.gov/docs/EC_IFR_FR_web60909.pdf, accessed 6/10/2009.
Treasury, “Unlocking Credit for Small Businesses Fact Sheet,” 3/16/2009, www.treasury.gov/press/
releases/tg58.htm, accessed 3/17/2009.
Treasury, “Home Affordable Modification Program Guidelines,” 03/14/2009, www.treas.gov/press/
releases/reports/modification_program_guidelines.pdf, accessed 10/2/2009.
USDA, “Glossary,” no date, www.rurdev.usda.gov/regs/handbook/hb-1-3565/w6gloss.pdf, accessed
4/8/2009.

Acronyms and abbreviations I Appendix B I october 21, 2009

Acronyms and Abbreviations
ABS

Asset-Backed Securities

FDIC

Federal Deposit Insurance Corporation

AGP

Asset Guarantee Program

FHA

Federal Housing Administration

AIFP

Automotive Industry Financing Program

FHFA

Federal Housing Finance Agency

AIG

American International Group, Inc.

FHMA

Federal Housing Modification Administration, Inc.

AIGFP

AIG Financial Products Corp.

FinCEN

Financial Crimes Enforcement Network

AMA

Acquired Member Assets

Fitch

Fitch Ratings

ARO

Acceptable Rating Organization

FOIA

Freedom of Information Act

ARRA

American Recovery and Reinvestment Act of 2009

FRBNY

Federal Reserve Bank of New York

ASSP

Auto Supplier Support Program

FSOB

Financial Stability Oversight Board

AVR

Asset Valuation Reserve

FTC

Federal Trade Commission

AWCP

Auto Warranty Commitment Program

GAO

Government Accountability Office

BHC

Bank Holding Company

GDP

Gross Domestic Product

BPD

Bureau of Public Debt

General Motors Corporation

CAP

Capital Assistance Program

GMAC

GMAC LLC

CBO

Congressional Budget Office

GSE

Government–Sponsored Enterprise

Certificate of Deposit

HAMP

Home Affordable Modification Program

CDO

Collateralized Debt Obligation

HERA

Housing and Economic Recovery Act

CDS

Credit Default Swaps

HPA

Home Price Appreciation

CEO

Chief Executive Officer

HPDP

Home Price Decline Protection

CFTC

Commodity Futures Trading Commission

HUD

Department of Housing and Urban Development

CMB

Cash Management Bills

HUD OIG

CMBS

Commercial Mortgage-Backed Securities

Office of the Inspector General of the Department of
Housing and Urban Development

COFI

Cost of Funds Index

IAA

Inter-Agency Agreement

COP

Congressional Oversight Panel

ICE

U.S. Immigration and Customs Enforcement

Commercial Paper

Inspector General

CPA

Certified Public Accountant

IMF

International Monetary Fund

CPP

Capital Purchase Program

IMR

Interest Maintenance Reserve

CRARA

Credit Rating Agency Reform Act

CRE

Commercial Real Estate

CUSIP

Credit Union System Investment Program

C&I

Commercial and Industrial

DBRS

DBRS Limited

DIL

Deed-In-Lieu of Foreclosure

DIP

Debtor in Possession

DOJ

Department of Justice

EESA

Emergency Economic Stabilization Act of 2008

FASB

Financial Accounting Standards Board

FBI

Federal Bureau of Investigation

FCM

Futures Commission Merchant

Initial Report SIGTARP’s Initial Report to Congress
IRS-CI

Internal Revenue Service Criminal Investigation

LIBOR

London Interbank Offered Rate

LLC

Limited Liability Company

LTV

Loan-to-Value

MBS

Mortgage-Backed Securities

MCP

Mandatorily Convertible Preferred Shares

MHA

Making Home Affordable

MMF

Money Market Mutual Fund

Moody’s

Moody’s Investors Services

NAIC

National Association of Insurance Commissioners

NAV

Net Asset Value

185

186

Appendix B I Acronyms and abbreviations I october 21, 2009

NCUA

National Credit Union Administration

TCE

Tangible Common Equity

the
Committee

Board Compensation Committee

the Rule

Interim Final Rule on TARP Standards for Compensation
and Corporate Governance

TIP

Targeted Investment Program

TIPS

Treasury Inflation-Protected Securities

Treasury

U.S. Department of the Treasury

UCSB

Unlocking Credit for Small Businesses

UGC

United Guaranty Corporation

UPB

Unpaid Principal Balance

USPIS

U.S. Postal Inspection Service

VEBA

Voluntary Employees Association Beneficiary

WFO

FBI’s Washington Field Office

NPV

Net Present Value

NRSRO

Nationally Recognized Statistical Rating Organization

NY HIFCA

New York High Intensity Financial Crime Area

OLC

Office of Legal Counsel

OMB

Office of Management and Budget

OTC

Over the Counter

OTS

Office of Thrift Supervision

OCC

Office of the Comptroller of the Currency

OFS

Office of Financial Stability

PIMCO

Pacific Investment Management Company LLC

PPIF

Public-Private Investment Fund

PPIP

Public-Private Investment Program

QFI

Qualifying Financial Institution

RBC

Risk-Based Capital

RMBS

Residential Mortgage-Backed Securities

ROE

Return on Equity

ROI

Return on Investment

S&P

Standard & Poor’s

SBA

Small Business Administration

SCAP

Supervisory Capital Assessment Program

SEC

Securities and Exchange Commission

SEO

Senior Executive Officer

SFRS

Statement on Financial Regulations Standard

SIGTARP

Special Inspector General for the Troubled Asset Relief
Program

Special
Master

Office of the Special Master

SPV

Special Purpose Vehicle

Short Sale

SSAP

Statement of Statutory Accounting Principles

SSFI

Systemically Significant Failing Institutions

SVO

Securities Valuation Office

Tier One Capital

T1 Common Tier One Common Equity
T1 Common Tier One Common Risk-Based Ratio
Ratio
T1 Ratio

Tier One Risk-Based Capital Ratio

TALF

Term Asset-Backed Securities Loan Facility

TARP

Troubled Asset Relief Program

TARP-IG
Council

TARP Inspector General Council

Reporting Requirements I Appendix C I OCTOBER 21, 2009

Reporting Requirements
This appendix provides Treasury’s responses to data call questions regarding the reporting requirements of the
Special Inspector General for the Troubled Asset Relief Program outlined in EESA section 121, as well as a
cross-reference to related data presented in this report and prior reports. Italics style indicates relevant narrative
taken verbatim from source documents.
#
1

EESA
Section

EESA Reporting
Requirement

Section
121(c)(A)

A description of
the categories of
troubled assets
purchased or
otherwise procured
by the Secretary.

Treasury Response to SIGTARP Data Call
Treasury posts several documents on its public website that are responsive to this question, available at http://www.financialstability.gov/latest/reportsanddocs.html. Specifically,
tranche reports and reports required under section 105(a) of the Emergency Economic
Stabilization Act of 2008 (EESA) describe, at a high level, Treasury’s programs and troubled
asset purchases. The transaction reports describe these purchases in detail, including
the type of asset purchased, the identity of the institution selling the asset, and the price
Treasury paid for the asset. Other sources for this information are the determinations signed
by the Secretary of the Treasury, designating certain financial instruments as “troubled assets” under section 3(9)(B) of EESA. Troubled asset determinations signed by the Treasury
Secretary since June 30, 2009 [were provided to SIGTARP].
Below are program descriptions from Treasury’s FinancialStability.gov website, as of
9/30/2009:
CPP: Treasury created the Capital Purchase Program (CPP) in October 2008 to stabilize the
financial system by providing capital to viable financial institutions of all sizes throughout the
nation. With a strengthened capital base, financial institutions have an increased capacity to
lend to U.S. businesses and consumers and to support the U.S. economy.
CAP: The purpose of the CAP is to restore confidence throughout the financial system that
the nation’s largest banking institutions have a sufficient capital cushion against larger than
expected future losses, should they occur due to a more severe economic environment, and
to support lending to creditworthy borrowers.
SSFI: Systemically Significant Failing Institution Program (SSFI) was established to provide
stability and prevent disruptions to financial markets from the failure of institutions that are
critical to the functioning of the nation’s financial system.
AGP: The Asset Guarantee Program (AGP) provides government assurances for assets held
by financial institutions that are critical to the functioning of the nation’s financial system,
which face a risk of losing the critical confidence that is needed for them to continue to lend
to other banks.
TIP: Treasury created the Targeted Investment Program (TIP) to stabilize the financial system
by making investments in institutions that are critical to the functioning of the financial system. This program focuses on the complex relationships and reliance of institutions within
the financial system. Investments made through the TIP seek to avoid significant market
disruptions resulting from the deterioration of one financial institution that can threaten other
financial institutions and impair broader financial markets and pose a threat to the overall
economy.
TALF: The TALF is designed to increase credit availability and support economic activity by
facilitating renewed issuance of consumer and small business ABS at more normal interest
rate spreads… Under the TALF, the Federal Reserve Bank of New York (FRBNY) will provide
non-recourse funding to any eligible borrower owning eligible collateral... The U.S. Treasury’s
Troubled Assets Relief Program (TARP) will purchase $20 billion of subordinated debt in
an SPV created by the FRBNY. The SPV will purchase and manage any assets received by
the FRBNY in connection with any TALF loans. Residual returns from the SPV will be shared
between the FRBNY and the U.S. Treasury.

SIGTARP
Report Section
Section 2:
“TARP Overview”
Appendix D:
“Transaction
Detail”

187

188

Appendix C I Reporting Requirements I OCTOBER 21, 2009

EESA
Section

EESA Reporting
Requirement

Treasury Response to SIGTARP Data Call

SIGTARP
Report Section

PPIP: To address the challenge of legacy assets, Treasury – in conjunction with the Federal
Deposit Insurance Corporation and the Federal Reserve – has announced the Public-Private
Investment Program as part of its efforts to repair balance sheets throughout our financial
system and ensure that credit is available to the households and businesses, large and
small, that will help drive us toward recovery... Using $75 to $100 billion in TARP capital
and capital from private investors, the Public-Private Investment Program will generate $500
billion in purchasing power to buy legacy assets – with the potential to expand to $1 trillion
over time.
UCSB: The Treasury Department will begin making direct purchases of securities backed by
SBA loans to get the credit market moving again, and it will stand ready to purchase new
securities to ensure that community banks and credit unions feel confident in extending new
loans to local businesses.
AIFP: The objective of [AIFP] is to prevent a significant disruption of the American automotive industry, which would pose a systemic risk to financial market stability and have a
negative effect on the economy of the United States... [Through AIFP, Treasury has provided]
loans or equity investments to General Motors, GMAC, Chrysler, and Chrysler Financial in
order to avoid a disorderly bankruptcy of one or more auto companies; such an event would
pose a systemic risk to the country’s financial system. Treasury’s loans to the automobile
industry forged a path for these companies to go through orderly restructurings and achieve
viability.
ASSP: [ASSP] will provide up to $5 billion in financing, giving suppliers the confidence they
need to continue shipping parts, pay their employees and continue their operations.
AWCP: The Treasury Department announced an innovative new program to give consumers
who are considering new car purchases the confidence that even in this difficult economic
period, their warrantees will be honored. This program is part of the Administration’s
broader program to stabilize the auto industry and stand behind a restructuring effort that
will result in stronger, more competitive and viable American car companies.
HAMP (a program under MHA): The Home Affordable Modification Program has a simple
goal: reduce the amount homeowners owe per month to sustainable levels to stabilize
communities. This program will bring together lenders, investors, servicers, borrowers,
and the government, so that all stakeholders share in the cost of ensuring that responsible
homeowners can afford their monthly mortgage payments – helping to reach up to 3 to 4
million at-risk borrowers in all segments of the mortgage market, reducing foreclosures, and
helping to avoid further downward pressures on overall home prices.
2

Section
121(c)(B)

A listing of the
troubled assets
purchased in each
such category
described under
[section 121(c)(A)].

Treasury posts transaction reports for all the troubled asset purchases on its public website Appendix D:
within two business days after each transaction. Information on all transactions is available
“Transaction
at http://www.financialstability.gov/impact/transactions.htm. Since the publication of the
Detail”
SIGTARP Report in July, Treasury has continued to invest funds in financial institutions across
the United States through the Capital Purchase Program (CPP). Guidelines for all TARP programs, which explain each program’s scope and purpose are also posted on Treasury’s website at http://www.financialstability.gov/roadtostability/programs.htm. Additional information about these programs and related purchases is available in tranche reports and Section
105(a) reports, which are posted on Treasury’s website. Information is also available in the
troubled asset determinations [provided by Treasury to SIGTARP]. [Treasury also provided
SIGTARP with] the latest transaction report dated September 30, 2009.

Section
121(c)(C)

An explanation of
the reasons the
Secretary deemed
it necessary to purchase each such
troubled asset.

Pursuant to Section (3)(9)(B) of EESA, the Secretary of the Treasury periodically designates
financial instruments as “troubled assets” and submits written determinations to appropriate
committees of Congress. [Treasury provided SIGTARP with] all troubled asset determinations signed by the Secretary of the Treasury since Treasury responded to SIGTARP’s previous data call on June 30, 2009. Additional information on the TARP programs associated
with these “troubled assets,” including each program’s scope and purpose, can be found
online at http://www.financialstability.gov/roadtostability/programs.htm.

Section 2:
“TARP Overview”

Section
121(c)(D)

A listing of each
financial institution
that such troubled
assets were purchased from.

See #2 above

See #2

Reporting Requirements I Appendix C I OCTOBER 21, 2009

#
5

EESA
Section

EESA Reporting
Requirement

Treasury Response to SIGTARP Data Call

Section
121(c)(E)

A listing of and
detailed biographical information on
each person or
entity hired to manage such troubled
assets.

There have been no additional asset managers hired during the third quarter 2009 (from
July 1, 2009 through September 30, 2009). OFS is in the process of selecting additional
asset managers consistent with Treasury’s intentions and announcement to select a group
of smaller asset managers to serve as Financial Agents in managing the portfolio of assets
issued by banks and institutions participating in the Capital Purchase Program and other
similar programs under EESA, and will inform SIGTARP once OFS selects the additional
asset managers.

Section 4:
“TARP Operations
and Administration”

A current estimate
of the total amount
of troubled assets
purchased pursuant to any program
established under
section 101, the
amount of troubled
assets on the
books of the Treasury, the amount
of troubled assets
sold, and the profit
and loss incurred
on each sale or
disposition of each
such troubled
asset.

Treasury received payments in connection with the repayment by financial institutions of
Treasury’s investment through the Capital Purchase Program. As of September 30, 2009,
Treasury received a total of $70.7 billion in CPP repayments. Treasury incurred neither a
profit nor a loss on the repayment of preferred shares since Treasury both purchased and
sold the preferred shares at par. As of September 30, 2009, Treasury received a total of
$2.9 billion from institutions repurchasing their warrants. Treasury also received $13 million
in fees for the [Banco Popular] Exchange, and $276 million from Bank of America as AGP
termination payment. Additional information on the repayments of Treasury’s investments
under the CPP and proceeds from the sale of warrants are available in [the transaction
report and FSP Budget report provided to SIGTARP].

Obligations by
Program provided
in Table C.1 below

A listing of the
insurance contracts issued under
section 102.

No new insurance contracts this quarter.

Section 2:
“TARP Overview”

A detailed
statement of
all purchases,
obligations, expenditures, and revenues associated
with any program
established by the
Secretary of the
Treasury under
sections 101 and
102.

Treasury provides information about TARP purchases, obligations, expenditures, and
revenues on Treasury’s public website at www.financialstability.gov. Treasury posts a
transaction report for each purchase of troubled assets two business days after the transaction. Treasury also posts a detailed financial statement as part of its monthly Congressional
report under section 105(a) of EESA. The next section 105(a) report will be posted on the
Financial Stability web site on October 9, 2009.

Obligations by
Program provided
in Table C.1 below

[Treasury provided] the most recent TARP/Financial Stability Plan Budget report (as of October 6, 2009) and TARP transactions report (as of October 2, 2009), which capture detailed
information about TARP purchases, obligations, expenditures, and revenues.

Section 4:
“TARP Operations
and Administration”

Section
121(c)(F)

Section
121(c)(G)

Section
121(f)

SIGTARP
Report Section

Appendix C:
“Reporting
Requirements” of
SIGTARP’s April
21, 2009 and
July 21, 2009
Quarterly Reports
to Congress

Section 2:
“TARP Overview”
Appendix D:
“Transaction
Detail”

Appendix C:
“Reporting
Requirements” of
SIGTARP’s April
21, 2009 and
July 21, 2009
Quarterly Reports
to Congress

Section 2:
“TARP Overview”

Appendix D:
“Transaction
Detail”

Note: Treasury’s current TALF committment is $20 billion but should TALF exceed a total of $200 billion in loans extended by FRBNY, then Treasury’s committment could reach $80 billion.
Sources: Treasury, responses to SIGTARP data call, 9/30/2009 and 10/7/2009; Program Descriptions: Treasury, “Programs” webpage, http://www.financialstability.gov/roadtostability/programs.htm,
accessed 10/5/2009; ASSP: “Treasury Announces Auto Suppliers Support Program,” 3/19/2009, http://www.financialstability.gov/latest/auto3_18.html, accessed 6/30/2009; AWCP, “Obama Administration’s New Warrantee Commitment Program,” no date, http://www.financialstability.gov/docs/WarranteeCommitmentProgram.pdf, accessed 6/30/2009; TALF: Federal Reserve, “Term Asset-Backed
Securities Loan Facility (TALF) Frequently Asked Questions,” no date, http://www.federalreserve.gov/newsevents/press/monetary/monetary20090303a2.pdf, accessed 6/30/2009; MHA: “Making Home
Affordable Updated Detailed Description Update,” 3/4/2009, http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf, accessed 10/5/2009.

189

190

Appendix C I Reporting Requirements I OCTOBER 21, 2009

Table C.1

TOTAL AMOUNT OF TROUBLED ASSETS PURCHASED AND HELD ON TREASURY’S BOOKS, AS OF 10/6/2009 ($ billions)
Obligationsa
Capital Purchase Program (“CPP”)

Expendedb

On Treasury’s Booksc

$204.6

Systemically Significant Failing Institutions (“SSFI”)

69.8

43.2

Home Affordable Modification Program (“HAMP”)

27.3

—

Targeted Investment Program (“TIP”)

40.0

Automotive Industry Financing Program (“AIFP”)

81.1

75.9

5.0

—

20.0

0.1

0.2

16.7

—

16.7

$464.5

$363.8

$380.6

Asset Guarantee Program (“AGP”)

Term Asset-Backed Securities Loan Facility (“TALF”)

Legacy Securities Public-Private Investment Program (PPIP)
f

Total

Notes:
Numbers affected by rounding.
a
Based on “Face Value obligations” from Treasury souce document (TARP/Financial Stability Plan Budget Table dated 10/6/2009).
b
According to Treasury, “Represents TARP cash that has left the Treasury.” Based on “Face Value Disbursed/Outlays” from Treasury source document (TARP/Financial Stability Plan Tracking Report).
c
According to Treasury, “All assets are currently carried at par value.” On Treasury’s Books indicates “totals obligated,” and therefore “on the books.”
d
According to Treasury, “Reflects negative subsidy of $-750 million off of the total $301 billion Citigroup guarantee not just the $5 billion portion guaranteed by Treasury via the TARP (Breakdown of $301B:
$39.5B from Citi, $5B from the UST, $10B from the FDIC and $246.5B from the Federal Reserve).”
e
According to Treasury, “Up to $20B may be disbursed as credit protection for the $200B Federal Reserve Loan Facility. Treasury will only provide funding to cover assets put to the TALF SPV and will
receive 90% of funds accumulated in the SPV (from Interest spreads on the $200B Federal Reserve Loan Facility) over a 3-5 year period. Expected receipts exceed the expected disbursements, resulting in a
significant negative subsidy rate. Initial funding of $100M on 3/25/09.”
f
This table may not align with numbers contained in the Overview section because the Overview is as of 9/30/2009 and the data in this table provided by Treasury is as of 10/6/2009.
Source: Treasury, response to SIGTARP data call, 10/8/2009; Treasury, response to SIGTARP draft, 10/14/2009.

Pref. Stock w/ Ex. Warr.

Alpine Banks of Colorado–Glenwood
Springs, CO2

AMB Financial Corp.–Munster, IN2

AmeriBank Holding Company–
Collinsville, OK2

American Express Company–
New York, NY4

American Premier Bancorp–Arcadia, CA2 Pref. Stock w/ Ex. Warr.

American State Bancshares, Inc.–
Great Bend, KS2

1/30/09

3/6/09

1/9/09

5/29/09

1/9/09

Pref. Stock w/ Warr.

Annapolis Bancorp, Inc.–Annapolis, MD

1/30/09

11/21/08 Associated Banc–Corp–Green Bay, WI

Bancorp Financial, Inc.–
Oak Brook, IL2,10

Pref. Stock w/ Ex. Warr.

8/14/09

Bank of North Carolina–Thomasville, NC

Bank of the Carolinas Corporation–
Mocksville, NC

12/5/08

4/17/09

12/12/08 Bank of the Ozarks, Inc.–Little Rock, AR

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Bank of George– Las Vegas, NV2

Bank of Marin Bancorp–Novato, CA4

3/13/09

12/5/08

Pref. Stock w/ Warr.

8/5/2009

$75,000,000

$13,179,000

$31,260,000

$28,000,000 3/31/2009

$2,672,000

$17,000,000

$3,000,000

Pref. Stock w/ Ex. Warr.

Bank of Commerce– Charlotte, NC2

1/16/09

11/14/08 Bank of Commerce Holdings–
Redding, CA

$15,000,000,000
$10,000,000,000

Pref. Stock w/ Warr.

Bank of America Corporation–Charlotte,
NC1,g

1/9/09

$1,004,000

$50,000,000

$8,600,000

$48,000,000

10/28/08 Bank of America Corporation–Charlotte,
NCg

Bank Financial Services, Inc.–
Eden Prarie, MN2

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

12/19/08 BancTrust Financial Group, Inc.–
Mobile, AL

Pref. Stock w/ Ex. Warr.

BancPlus Corporation–Ridgeland, MS2

BancStar, Inc.–Festus, MO2

2/20/09

$30,000,000

$13,669,000

Pref. Stock w/ Warr.

$21,100,000

Pref. Stock w/ Ex. Warr.

$7,400,000

$525,000,000

$8,152,000

Pref. Stock w/ Ex. Warr.

4/3/09

12/19/08 Bancorp Rhode Island, Inc.–
Providence, RI4

BancIndependent, Inc.–Sheffield, AL

7/10/09

Avenue Financial Holdings, Inc.–Nashville, Pref. Stock w/ Ex. Warr.
TN2

3/13/09

2/27/09

Pref. Stock w/ Warr.

Anchor BanCorp Wisconsin Inc.–
Madison, WI

1/30/09

$110,000,000

$5,000,000

Sub. Debent. w/ Ex.
Warr.

AmFirst Financial Services, Inc.–
McCook, NE8

8/21/09

Pref. Stock w/ Warr.

$21,000,000

Pref. Stock w/ Warr.

$52,000,000

Pref. Stock w/ Warr.

12/19/08 AmeriServ Financial, Inc–Johnstown, PA

$6,000,000

$1,800,000

$3,388,890,000 6/17/2009

$2,492,000

$3,674,000

11/21/08 Ameris Bancorp–Moultrie, GA

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

$3,652,000
$70,000,000

Pref. Stock w/ Ex. Warr.

Allied First Bancorp, Inc.–Oswego, IL

$12,000,000

3/27/09

4/24/09

$2,986,000
$26,918,000 5/13/2009

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Ex. Warr.

$6,514,000
$4,781,000

Alliance Financial Services Inc.–
Saint Paul, MN8

Alliance Bancshares, Inc.–Dalton, GA

6/26/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

6/26/09

Alaska Pacific Bancshares, Inc.–
Juneau, AK

2/6/09

Pref. Stock w/ Warr.

Alarion Financial Services, Inc.–
Ocala, FL2

1/23/09

$12,720,000

$3,500,000

$10,000,000

$111,000,000

$16,369,000

$4,400,000

$12,000,000

Capital
Investment Repayment
Amount
Date

$28,000,000

$30,000,000

$3,388,890,000

$26,918,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

12/19/08 Alliance Financial Corporation–
Syracuse, NY4

Adbanc, Inc–Ogallala, NE

1/30/09

1st United Bancorp, Inc.–Boca Raton, FL Pref. Stock w/ Ex. Warr.

AB&T Financial Corporation–Gastonia, NC Pref. Stock w/ Warr.

3/13/09

1/23/09

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

1st Source Corporation–South Bend, IN

Pref. Stock w/ Ex. Warr.

1/23/09

1st Enterprise Bank–Los Angeles, CA2

11/14/08 1st FS Corporation–Hendersonville, NC

2/13/09

Investment
Description

Pref. Stock w/ Warr.

Purchase
Date
Institution

12/23/08 1st Constitution Bancorp–Cranbury, NJ

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009

Table D.1

Warrants

Warrants 9/30/2009

Warrants 7/29/2009

Warrants 6/17/2009

Warrants

$900,000

Final
Disposition
Proceeds

$1,400,000

$340,000,000

Final Disposition

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$26.53

$4.43

$7.70

$31.33

$5.50

$16.92

$3.57

$24.98

$11.42

$3.00

$1.30

$1.80

$7.15

$33.90

$27.05

$5.80

$4.90

$16.30

$3.76

$7.52

$448

$17

$57

$163

$48

$146,385

$63

$115

$1,460

$12

$28

$38

$98

$40,314

$125

$13

$394

$19

$32

Market
Current
Stock Capitalization
(in millions)
Pricee

173,069

175,772

80,153

837,947

276,815

200,222

Number of
Warrants
Originally
Issued

$29.62

$4.16

$8.63

$27.23

$6.29

$30.79

$10.26

–

$19.77

$4.08

$2.23

$2.40

$11.48

379,811

475,204

543,337

154,242

405,405

48,717,116

73,075,674

730,994

192,967

3,983,308

299,706

7,399,103

1,312,500

679,443

– 24,264,129

–

$4.08

$6.55

$19.87

$8.59

$8.56

Strike
Price
(reflects
updates)a

379,811

475,204

543,337

154,242

405,405

121,792,790

730,994

–

3,983,308

299,706

7,399,103

1,312,500

679,443

–

175,772

80,153

837,947

276,815

210,233

$(3.09)

$0.27

$(0.93)

$4.10

$(0.79)

$(13.87)

$(6.69)

–

$(8.35)

$(1.08)

$(0.93)

$(0.60)

$(4.33)

–

$1.72

$(1.65)

$(3.57)

$(4.83)

$(1.04)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
Money”e
updates)a

Warrant and Market Data for Publicly–Traded Companies

$60,001

$108,474

$1,462,416

$61,381

$538,360

$22,147

$125,502

$199,217

$375,505

$98,194

$230,111

$3,114,167

$616,111

$121,232

$386,667

Income
Payment
to Treasury
(Dividend or
Interest)f

$220,783

$688,333

$1,906,667

$70,034

$1,638,889

$171,857

$1,271,666

$941,667

$94,921

$2,531,250

$215,990

$1,085,417

$451,111

$61,501

$639,861

continued on next page

Out

Out $897,916,667

Out

–

$485,535

$188,207

Out $19,250,000

Out

$196,200

$20,710

– $74,367,308

–

Out

In/Out
of the
Moneye

transaction detail I Appendix d I October 21, 2009

191

Pref. Stock w/ Ex. Warr.

BankGreenville–Greenville, SC2

2/13/09

Bar Harbor Bankshares–Bar Harbor, ME

1/16/09

Blue Ridge Bancshares, Inc.–
Independence, MO2

Blue River Bancshares, Inc.–
Shelbyville, IN2

Blue Valley Ban Corp–Overland Park, KS

BNB Financial Services Corporation–New Pref. Stock w/ Ex. Warr.
York, NY2

BNC Financial Group, Inc.–New Canaan,
CT2

3/6/09

12/5/08

4/17/09

2/27/09

Pref. Stock w/ Warr.

Butler Point, Inc.–Catlin, IL2

C&F Financial Corporation–West Point, VA Pref. Stock w/ Warr.

3/13/09

1/9/09

California Bank of Commerce–
Lafayette, CA2

California Oaks State Bank–
Thousand Oaks, CA2

Calvert Financial Corporation–
Ashland, MO2

2/27/09

1/23/09

$4,767,000

$1,037,000

$3,300,000

Pref. Stock w/ Ex. Warr.

$4,000,000

Pref. Stock w/ Ex. Warr.

$44,000,000

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Cadence Financial Corporation–
Starkville, MS

1/23/09

Pref. Stock w/ Ex. Warr.

12/23/08 Cache Valley Banking Company–
Logan, UT2

1/9/09

$20,000,000

$607,000

$15,000,000

Business Bancshares, Inc.–Clayton, MO2 Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Ex. Warr.

$11,000,000

Pref. Stock w/ Ex. Warr.

Brotherhood Bancshares, Inc.–
Kansas City, KS2

$2,400,000

4/24/09

$9,000,000

Pref. Stock w/ Warr.

Brogan Bankshares, Inc.– Kaukauna, WI8 Sub. Debent. w/ Ex.
Warr.

$38,000,000

$23,864,000

$154,000,000

$5,586,000

$10,000,000

$20,093,000

$4,797,000

$7,500,000

$21,750,000

7/17/09

5/15/09

11/14/08 Broadway Financial Corporation–
Los Angeles, CA

12/19/08 Bridgeview Bancorp, Inc.–Bridgeview, IL2 Pref. Stock w/ Ex. Warr.

12/23/08 Bridge Capital Holdings–San Jose, CA

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Warr.

Boscobel Bancorp, Inc–Boscobel, WI

5/15/09

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

$5,000,000

$12,000,000

Pref. Stock w/ Ex. Warr.

$5,000,000

$10,000,000

Pref. Stock w/ Ex. Warr.

11/21/08 Boston Private Financial Holdings, Inc.–
Boston, MA

BNCCORP, Inc.–Bismarck, ND

BOH Holdings, Inc.–Houston, TX2

1/16/09

3/6/09

Blackridge Financial, Inc.–Fargo, ND2

Blackhawk Bancorp, Inc.–Beloit, WI

3/13/09

$6,400,000

5/22/09

Sub. Debent. w/ Ex.
Warr.

Biscayne Bancshares, Inc.–
Coconut Grove, FL8,10

6/19/09

$985,000
$1,635,000

Pref. Stock w/ Ex. Warr.

Bern Bancshares, Inc.–Bern, KS2

Birmingham Bloomfield Bancshares, Inc– Pref. Stock w/ Ex. Warr.
Birmingham, MI2

2/13/09

$40,000,000 5/27/2009

$2,892,000

$6,000,000

$10,800,000

$1,706,000

$3,133,640,000 6/17/2009

$18,751,000

$795,000

$124,000,000

4/24/09

Pref. Stock w/ Warr.

Berkshire Bancorp, Inc.–Wyomissing, PA Pref. Stock w/ Ex. Warr.

6/12/09

12/19/08 Berkshire Hills Bancorp, Inc.–
Pittsfield, MA4

Pref. Stock w/ Ex. Warr.

Beach Business Bank–
Manhattan Beach, CA2

1/30/09

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

BCB Holding Company, Inc.–
Theodore, AL2

12/23/08 BCSB Bancorp, Inc.–Baltimore, MD

4/3/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Banner County Ban Corporation–
Harrisburg, NE2

2/6/09

11/14/08 BB&T Corp.–Winston-Salem, NC4

Pref. Stock w/ Warr.

11/21/08 Banner Corporation–Walla Walla, WA

$15,500,000

Pref. Stock w/ Ex. Warr.

BankFirst Capital Corporation–
Macon, MS2

1/23/09
$1,000,000

$12,639,000

Investment
Description

Bankers’ Bank of the West Bancorp, Inc.– Pref. Stock w/ Ex. Warr.
Denver, CO2

Capital
Investment Repayment
Amount
Date

$40,000,000

$3,133,640,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

1/30/09

Purchase
Date
Institution

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009

Warrants 6/24/2009

Warrants 7/22/2009

Warrants

Final
Disposition
Proceeds

$1,040,000

$67,010,402

Final Disposition

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$1.80

$17.00

$5.45

$7.00

$6.47

$9.50

$21.94

$8.56

$27.24

$34.00

$2.73

$21

$52

$49

$444

$26

$305

$27

$18,566

$98

$52

Market
Current
Stock Capitalization
(in millions)
Pricee

104,910

1,707,989

Number of
Warrants
Originally
Issued

$5.76

$17.91

$7.37

$9.03

$8.00

$29.37

–

$8.83

1,145,833

167,504

183,175

396,412

2,887,500

111,083

226,330

183,465

– 13,902,573

$26.81

$10.89

Strike
Price
(reflects
updates)a

1,145,833

167,504

183,175

396,412

2,887,500

111,083

–

183,465

–

104,910

1,707,989

$(3.96)

$(0.91)

$(1.92)

$(2.03)

$(1.53)

$(19.87)

–

$(0.27)

–

$7.19

$(8.16)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
Money”e
updates)a

Warrant and Market Data for Publicly–Traded Companies

$544,300

$22,759

$4,546,667

$27,553

$473,999

$373,117

Income
Payment
to Treasury
(Dividend or
Interest)f

$34,083

$31,720

$100,916

$101,733

$1,320,000

$167,407

$600,000

$13,955

$252,063

$46,628

$50,340

$338,750

$1,357,656

$768,951

$5,646,667

$117,156

$240,708

$635,767

$122,010

$133,980

$211,458

$120,355

$288,850

$62,826

$230,111

$81,038

$27,483

$27,174

$877,778

$27,589

$177,125

$348,000

continued on next page

Out

–

Out

– $92,703,517

Out

In/Out
of the
Moneye

192
Appendix d I transaction detail I October 21, 2009

Pref. Stock w/ Ex. Warr.

1/23/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

12/12/08 Capital Bank Corporation–Raleigh, NC

4/10/09

Pref. Stock w/ Warr.

Pref. Stock

Carolina Bank Holdings, Inc.–
Greensboro, NC

Carolina Trust Bank–Lincolnton, NC

Carrollton Bancorp–Baltimore, MD

Carver Bancorp, Inc–New York, NY3

1/9/09

2/6/09

2/13/09

1/16/09

Pref. Stock w/ Ex. Warr.

CB Holding Corp.–Aledo, IL2

CBB Bancorp–Cartersville, GA2

CBS Banc-Corp.–Russellville, AL2

5/29/09

2/20/09

3/27/09

Center Bancorp, Inc.–Union, NJ

1/9/09

Pref. Stock w/ Ex. Warr.

Central Bancorp, Inc.–Garland, TX2

Central Community Corporation–
Temple, TX2

Central Federal Corporation–Fairlawn, OH Pref. Stock w/ Warr.

2/20/09

12/5/08

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Central Valley Community Bancorp–
Fresno, CA

Central Virginia Bankshares, Inc.–
Powhatan, VA

Centrix Bank & Trust– Bedford, NH2

Centrue Financial Corporation–
St. Louis, MO

Century Financial Services Corporation–
Santa Fe, NM8

1/30/09

2/6/09

1/9/09

6/19/09

5/29/09

Chicago Shore Corporation–Chicago, IL

Citizens & Northern Corporation–
Wellsboro, PA

$7,462,000

$24,990,000

Citizens Bancshares Corporation–
Atlanta, GA3

3/6/09

Pref. Stock

Citizens Bancshares Co.–Chillicothe, MO2 Pref. Stock w/ Ex. Warr.

5/29/09

$26,440,000

$25,000,000,000

$2,330,000,000

$10,400,000

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

12/23/08 Citizens Bancorp–Nevada City, CA2

1/16/09

10/28/08 Citigroup Inc.–New York, NY

11, h

$7,000,000

$19,817,000

Pref. Stock w/ Ex. Warr.

$10,000,000

Sub. Debent. w/ Ex.
Warr.

Chambers Bancshares, Inc.– Danville, AR8 Sub. Debent. w/ Ex.
Warr.

$32,668,000

$7,500,000

$11,385,000

$7,000,000

$135,000,000

$11,300,000

$7,225,000

$22,000,000

$5,800,000

$22,500,000

$10,000,000

$15,000,000 3/31/2009

$27,875,000 9/30/2009

$2,250,000

$55,000,000

$10,000,000

$3,564,000

$11,560,000

$24,300,000

$2,644,000

$4,114,000

$3,000,000

$258,000,000

$38,970,000

$18,980,000

$9,201,000

$4,000,000

$16,000,000

$4,000,000

$3,555,199,000 6/17/2009

$5,100,000

$41,279,000

$4,700,000

$4,656,000

Capital
Investment Repayment
Amount
Date

$15,000,000

$27,875,000

$3,555,199,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

Pref. Stock w/ Warr.

12/31/08 CIT Group Inc.–New York, NY

7/31/09

Pref. Stock w/ Warr.

Central Pacific Financial Corp.–
Honolulu, HI

1/9/09

Pref. Stock w/ Warr.

12/23/08 Central Jersey Bancorp–Oakhurst, NJ

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Central Bancorp, Inc.–Somerville, MA

Central Bancshares, Inc.– Houston, TX2

2/27/09

12/5/08

1/30/09

Pref. Stock w/ Ex. Warr.

Centra Financial Holdings, Inc.–
Morgantown, WV2,4,7

1/16/09

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

CenterBank–Milford, OH2

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

11/21/08 Centerstate Banks of Florida Inc.–
Davenport, FLb,5

5/1/09

12/12/08 Center Financial Corporation–
Los Angeles, CA

CedarStone Bank– Lebanon, TN2

2/6/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Catskill Hudson Bancorp, Inc–
Rock Hil, NY2

12/23/08 Cecil Bancorp, Inc.–Elkton, MD

Cathay General Bancorp–Los Angeles, CA Pref. Stock w/ Warr.

2/27/09

Pref. Stock w/ Warr.

12/5/08

11/21/08 Cascade Financial Corporation–
Everett, WA

Pref. Stock w/ Ex. Warr.

12/23/08 Capital Pacific Bancorp–Portland, OR2

Pref. Stock w/ Warr.

11/14/08 Capital One Financial Corporation–
McLean, VA4

Capital Commerce Bancorp, Inc.–
Milwaukee, WI2

Pref. Stock w/ Ex. Warr.

12/23/08 Capital Bancorp, Inc.–Rockville, MD2

CalWest Bancorp–
Rancho Santa Margarita, CA2

Investment
Description

Purchase
Date
Institution

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009
Final Disposition

Preferred 4/15/2009
Stock 2

Warrants

Preferred
Stock

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$750,000

Final
Disposition
Proceeds

$14.79

$4.84

$1.21

$3.79

$3.76

$5.27

$2.52

$6.00

$2.65

$8.70

$7.89

$3.82

$7.53

$4.50

$8.09

$1.70

$5.50

$5.90

$4.00

$35.73

$4.98

$133

$110,741

$474

$10

$41

$72

$55

$11

$14

$190

$64

$110

$17

$401

$21

$14

$16,256

$56

Market
Current
Stock Capitalization
(in millions)
Pricee

749,619

Number of
Warrants
Originally
Issued

508,320

263,542

158,133

1,585,748

268,621

336,568

234,742

250,825

864,780

173,410

261,538

1,846,374

863,442

205,379

86,957

357,675

$20.36

194,794

see note h 210,084,034

$3.94 88,705,584

$9.64

$6.48

$6.64

$12.77

$6.31

$3.22

$6.39

$16.67

$9.54

$8.65

$6.63

$20.96

$6.77

$6.72

$6.90

$6.71

$42.13 12,657,960

$8.26

Strike
Price
(reflects
updates)a

194,794

88,705,584

508,320

263,542

158,133

1,585,748

268,621

336,568

234,742

125,413

864,780

173,410

261,538

1,846,374

863,442

205,379

86,957

357,675

12,657,960

749,619

$(5.57)

see note h

$(2.73)

$(5.85)

$(2.72)

$(1.37)

$(10.25)

$(0.31)

$(0.57)

$2.31

$(8.78)

$(5.72)

$(1.12)

$(2.13)

$(12.87)

$(5.07)

$(1.22)

$(2.71)

$(6.40)

$(3.28)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
a
Money”e
updates)

Warrant and Market Data for Publicly–Traded Companies

$96,511

$1,393,167

$165,075

$142,394

Income
Payment
to Treasury
(Dividend or
Interest)f

$351,007

$130,511

$571,690

$214,594

$308,344

$189,583

$2,362,500

$364,111

$250,868

$582,847

$171,221

$572,250

$347,222

$172,938

$1,196,303

$35,438

$1,856,250

$300,000

$101,966

$372,489

$507,668

$70,039

$47,340

$76,300

$8,958,333

$1,428,900

$550,947

$232,581

$105,000

$480,000

$140,489

$164,786

$287,533

$223,571

$767,494

$932,291,667

continued on next page

Out

Out $43,687,500

Out

Out $105,174,638

Out

In/Out
of the
Moneye

transaction detail I Appendix d I October 21, 2009

193

$9,950,000

CoastalSouth Bancshares, Inc.–
Hilton Head Island, SC2,10

8/28/09

Pref. Stock w/ Ex. Warr.

Community Bank of the Bay–
Oakland, CA3

Community Bank Shares of Indiana, Inc.– Pref. Stock w/ Warr.
New Albany, IN

1/16/09

5/29/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

2/27/09

$20,000,000
$12,725,000
$17,806,000
$1,050,000

Pref. Stock w/ Ex. Warr.

Community First Bancshares Inc.–
Union City, TN2

Community First Bancshares, Inc.–
Harrison, AR2

Community First Inc.–Columbia, TN2

Community Holding Company of Florida,
Inc.–Miramar Beach, FL2

3/20/09

4/3/09

2/27/09

2/6/09

$6,970,000

$12,643,000

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Community Financial Shares, Inc.–
Glen Ellyn, IL2

5/15/09

$3,976,000

$17,680,000

$19,468,000

$1,747,000

$3,872,000

$52,000,000

12/19/08 Community Financial Corporation–
Staunton, VA

Community Business Bank–
West Sacramento, CA2

12/19/08 Community Bankers Trust Corporation–
Glen Allen, VA

Pref. Stock

Pref. Stock w/ Ex. Warr.

Community Bancshares of Mississippi,
Inc.–Brandon, MS2

Pref. Stock w/ Ex. Warr.

Community Bancshares of Kansas, Inc.–
Goff, KS2

3/6/09

Community Bancshares, Inc.–
Kingman, AZ2,10

$500,000

Pref. Stock w/ Ex. Warr.

Community 1st Bank– Roseville, CA2

1/16/09

9/11/09

$2,550,000

Pref. Stock w/ Ex. Warr.

Commonwealth Business Bank–
Los Angeles, CA2

1/23/09

7/24/09

$20,400,000

Sub. Debent. w/ Ex.
Warr.

Commonwealth Bancshares, Inc.–
Louisville, KY8

5/22/09
$7,701,000

$5,000,000

Pref. Stock w/ Warr.

$2,250,000,000

Pref. Stock w/ Warr.

Commerce National Bank–
Newport Beach, CA

1/9/09

$2,260,000

$76,898,000

$28,000,000

11/14/08 Comerica Inc.–Dallas, TX

Columbine Capital Corp.–
Buena Vista, CO2

2/27/09

Pref. Stock w/ Warr.

$574,000

Pref. Stock w/ Warr.

Colony Bankcorp, Inc.–Fitzgerald, GA

1/9/09

$10,000,000

11/21/08 Columbia Banking System, Inc.–
Tacoma, WA

ColoEast Bankshares, Inc.–Lamar, CO

Colonial American Bank–
West Conshohocken, PA2

2/13/09

3/27/09

$16,500,000

$64,450,000

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

1/9/09

Codorus Valley Bancorp, Inc.–York, PA

12/19/08 CoBiz Financial Inc.–Denver, CO

$16,015,000

Pref. Stock w/ Warr.

Coastal Banking Company, Inc.–
Fernandina Beach, FL

12/5/08

Pref. Stock w/ Ex. Warr.

$3,000,000

Pref. Stock w/ Ex. Warr.

Clover Community Bankshares, Inc.–
Clover, SC2

3/27/09

$400,000,000

Pref. Stock w/ Warr.

11/21/08 City National Corporation–
Beverly Hills, CA

$9,439,000

$4.16

$3.44

$7.50

$5.00

$29.67

$16.55

$6.69

$5.75

$4.98

$3.45

$38.93

$18

$74

$24

$13

$4,484

$444

$48

$23

$180

$2,004

$46

$96

796,046

500,000

263,859

895,968

205,579

1,128,668

428,870

$5.40

$3.40

$7.56

$8.60

351,194

780,000

386,270

87,209

$29.40 11,479,592

$14.49

$8.40

$9.38

$10.79

$7.26

$53.16

$7.17

$2.56 17,578,125

351,194

780,000

386,270

87,209

11,479,592

796,046

500,000

263,859

895,968

205,579

1,128,668

428,870

17,578,125

$(1.24)

$0.04

$(0.06)

$(3.60)

$0.27

$2.06

$(1.71)

$(3.63)

$(5.81)

$(3.81)

$(14.23)

$(1.07)

$(1.80)

$287,757

$105,367

$691,875
$163,872

$57,480

$2,819,593

$840,000

$12,003

$275,528

$495,000

$2,112,528

$345,486

$29,926

$452,853

$254,280

$439,028

$94,978

$414,410

$101,131

$579,511

$205,495

$21,838

$11,902

$12,036

$69,510

$25,648

$394,615

continued on next page

Out

Out $84,687,500

Out

$62,675

Out $14,666,667

Out

Out $10,125,000

Out

Pref. Stock

City National Bancshares Corporation–
Newark, NJ3

$6.10

$0.76

$(1.03)

4/10/09

$20,500,000

$300,000,000

254,218

Pref. Stock w/ Warr.

254,218

Pref. Stock w/ Warr.

$5.18

12/12/08 Citizens South Banking Corporation–
Gastonia, NC

12/12/08 Citizens Republic Bancorp, Inc.–Flint, MI

$4.15

$8,779,000

Pref. Stock w/ Warr.

Income
Payment
to Treasury
(Dividend or
Interest)f

12/19/08 Citizens First Corporation–
Bowling Green, KY

In/Out
of the
Moneye

$180,259

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
Money”e
updates)a

$3,000,000

Market
Current
Stock Capitalization
(in millions)
Pricee

Number of
Warrants
Originally
Issued

$6,300,000

Final
Disposition
Proceeds

Strike
Price
(reflects
updates)a

Warrant and Market Data for Publicly–Traded Companies

Pref. Stock w/ Ex. Warr.

Citizens Commerce Bancshares, Inc.–
Versailles, KY2

2/6/09

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Final Disposition

12/23/08 Citizens Community Bank–South Hill, VA2 Pref. Stock w/ Ex. Warr.

Capital
Repayment
Amount6

Treasury Investment
Remaining After
Capital Repayment

$19,983

Citizens Bank & Trust Company–
Covington, LA2

Capital
Investment Repayment
Amount
Date

Capital Repayment Details

(CONTINUED)

$2,400,000

Investment
Description

Pref. Stock w/ Ex. Warr.

Purchase
Date
Institution

3/20/09

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009

194
Appendix d I transaction detail I October 21, 2009

Pref. Stock w/ Warr.

Community Partners Bancorp–
Middletown, NJ

Community Trust Financial Corporation–
Ruston, LA2

1/30/09

1/9/09

$24,900,000
$10,650,000

Pref. Stock w/ Ex. Warr.

Covenant Financial Corporation–
Clarksdale, MS2

Crazy Woman Creek Bancorp, Inc.–
Buffalo, WY2

Crescent Financial Corporation–Cary, NC Pref. Stock w/ Warr.

6/5/09

2/20/09

1/9/09

Pref. Stock w/ Warr.

CVB Financial Corp–Ontario, CAb,4

12/5/08

F.N.B. Corporation–Hermitage, PA

Farmers & Merchants Bancshares, Inc.–
Houston, TX2

Farmers & Merchants Financial
Corporation–Argonia, KS2

1/9/09

3/6/09

3/20/09

1/23/09

F&M Financial Corporation–
Clarksville, TN2

2/13/09

Farmers Bank–Windsor, VA

F & M Financial Corporation–
Salisbury, NC2

b,4

F & M Bancshares, Inc.–Trezevant, TN

1/30/09

2/6/09

F & C Bancorp, Inc.– Holden, MO8

5/22/09

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Ex. Warr.

$8,752,000

$442,000

$11,000,000

$100,000,000

$17,243,000

$17,000,000

$4,609,000

$2,993,000

$43,000,000

$8,750,000

12/19/08 Exchange Bank–Santa Rosa, CA2

$4,000,000

Pref. Stock w/ Ex. Warr.

Enterprise Financial Services Group, Inc.– Pref. Stock w/ Ex. Warr.
Allison Park, PA2

Equity Bancshares, Inc.–Wichita, KS2

$35,000,000

6/12/09

Pref. Stock w/ Warr.

12/19/08 Enterprise Financial Services Corp.–
St. Louis, MO

$34,000,000

$7,500,000

$17,949,000

$24,000,000

$306,546,000

1/30/09

Pref. Stock w/ Warr.

Encore Bancshares Inc.–Houston, TX

Pref. Stock w/ Warr.

12/5/08

ECB Bancorp, Inc.–Engelhard, NC

1/16/09

Pref. Stock w/ Warr.

Eastern Virginia Bankshares, Inc.–
Tappahannock, VA

$38,235,000

$12,000,000

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Warr.

$11,750,000

$1,224,558,000

$146,053,000

$20,445,000

$1,173,000

$2,639,000

$19,891,000

9/9/2009

9/2/2009

$130,000,000 8/26/2009

$2,400,000

$3,100,000

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

12/23/08 Emclaire Financial Corp.–Emlenton, PA

East West Bancorp–Pasadena, CA

1/9/09

DNB Financial Corporation–
Downingtown, PA

1/30/09

12/5/08

Discover Financial Services–
Riverwoods, IL

3/13/09

Duke Financial Group, Inc.–
Minneapolis, MN8

Dickinson Financial Corporation II–
Kansas City, MO2

1/16/09

Eagle Bancorp, Inc.–Bethesda, MD

Diamond Bancorp, Inc.–Washington, MO8 Sub. Debent. w/ Ex.
Warr.

5/22/09

6/19/09

DeSoto County Bank–Horn Lake, MS

2/13/09

12/5/08

Deerfield Financial Corporation–
Deerfield, WI8

5/15/09

Sub. Debent. w/ Ex.
Warr.

CVB Financial Corp–Ontario, CAb,4

D.L. Evans Bancorp–Burley, ID2

12/5/08

2/27/09

Pref. Stock w/ Ex. Warr.

Crosstown Holding Company–Blaine, MN2 Pref. Stock w/ Ex. Warr.

CSRA Bank Corp.–Wrens, GA2

1/23/09

3/27/09

Pref. Stock w/ Ex. Warr.

$5,000,000

Pref. Stock w/ Ex. Warr.

Country Bank Shares, Inc.–Milford, NE2

$638,000
$7,525,000

Pref. Stock w/ Ex. Warr.

Corning Savings and Loan Association–
Corning, AR2

1/30/09

$3,285,000

2/13/09

Pref. Stock w/ Ex. Warr.

Congaree Bancshares, Inc.–Cayce, SC2

$15,600,000

$24,000,000

$9,000,000

$2,600,000

Capital
Investment Repayment
Amount
Date

$100,000,000

$32,500,000

$97,500,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

1/9/09

12/19/08 Community West Bancshares–Goleta, CA Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

12/23/08 Community Investors Bancorp, Inc.–
Bucyrus, OH2

Investment
Description

Purchase
Date
Institution

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009
Final Disposition

$32,500,000

Warrants

Preferred
Stock w/
Warrants

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

Final
Disposition
Proceeds

$7.11

$9.25

$8.91

$17.10

$16.50

$8.08

$8.30

$9.58

$6.50

$16.23

$7.59

$4.80

$2.27

$4.18

$810

$119

$92

$24

$47

$48

$761

$178

$17

$8,809

$804

$46

$13

$30

Market
Current
Stock Capitalization
(in millions)
Pricee

1,669,521

833,705

521,158

288,462

Number of
Warrants
Originally
Issued

$11.52

$16.20

$14.01

$22.45

$18.57

$9.63

$15.15

$7.44

$9.46

1,302,083

324,074

364,026

50,111

144,984

373,832

3,035,109

770,867

186,311

$8.96 20,500,413

$11.68

$4.48

$4.49

$4.68

Strike
Price
(reflects
updates)a

651,042

324,074

364,026

50,111

144,984

373,832

3,035,109

770,867

186,311

20,500,413

834,761

833,705

521,158

288,462

$(4.41)

$(6.95)

$(5.10)

$(5.35)

$(2.07)

$(1.55)

$(6.85)

$2.14

$(2.96)

$7.27

$(4.09)

$0.32

$(2.22)

$(0.50)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
a
Money”e
updates)

Warrant and Market Data for Publicly–Traded Companies

$2,631,197

$395,477

$32,335

$55,355

$505,914

$4,739,583

$50,140

$325,709

$747,000

$82,128

$52,986

$222,133

$17,583

$107,407

$511,333

$784,800

$243,750

$91,318

Income
Payment
to Treasury
(Dividend or
Interest)f

$1,327,605

$156,616

$318,229

$267,661

$9,699

$264,780

$3,333,333

$475,086

$486,413

$136,040

$57,907

$1,536,294

$258,332

$38,150

$1,147,222

$1,180,556

$241,667

$521,020

$720,000

continued on next page

Out

Out $10,643,958

Out

In $25,851,779

Out

In/Out
of the
Moneye

transaction detail I Appendix d I October 21, 2009

195

FC Holdings, Inc.–Houston, TX

Fidelity Bancorp, Inc–Baton Rouge, LA

$10,000,000

First American Bank Corporation–
Elk Grove Village, IL8

First American International Corp.–
Brooklyn, NY3

First Bancorp–Troy, NC

First BanCorp–San Juan, PR

First BancTrust Corporation–Paris, IL

First Bank of Charleston, Inc.–Charleston, Pref. Stock w/ Ex. Warr.
WV2

Pref. Stock w/ Ex. Warr.

First Alliance Bancshares, Inc.–
Cordova, TN2

6/26/09

7/24/09

3/13/09

1/9/09

1/16/09

2/20/09

2/6/09

First Business Bank, N.A.–
San Diego, CA2

4/10/09

First Citizens Banc Corp– Sandusky, OH

First Colebrook Bancorp, Inc.–
Colebrook, NH2

First Community Bancshares, Inc–OverlandPref. Stock w/ Ex. Warr.
Park, KS2

1/23/09

3/20/09

5/15/09

$7,500,000

Pref. Stock w/ Warr.

Sub. Debent. w/ Ex.
Warr.

First Defiance Financial Corp.–
Defiance, OH

First Eagle Bancshares, Inc.–
Hanover Park, IL8

First Express of Nebraska, Inc.–
Gering, NE2

12/5/08

9/11/09

2/6/09

Pref. Stock w/ Ex. Warr.

$37,000,000

Pref. Stock w/ Warr.

$5,000,000

$11,350,000

$41,500,000

Pref. Stock w/ Warr.

11/21/08 First Community Bankshares Inc.–
Bluefield, VA5, b

11/21/08 First Community Corporation–Lexington,
SC

$14,800,000

$4,500,000

$23,184,000

$10,685,000

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

$2,200,000

$10,958,000

$25,000,000

$2,211,000

$100,000,000

$295,400,000

$7,350,000

$400,000,000

$65,000,000

$17,000,000

$50,000,000

Pref. Stock w/ Warr.

12/23/08 First Community Bank Corporation of
America–Pinellas Park, FL

First Choice Bank– Cerritos, CA2

Pref. Stock w/ Ex. Warr.

First Capital Bancorp, Inc.–Glen Ellen, VA Pref. Stock w/ Warr.

2/13/09

Pref. Stock w/ Warr.

4/3/09

12/19/08 First California Financial Group, Inc–
Westlake Village, CA

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

First Busey Corporation– Urbana, IL

3/6/09

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock

Sub. Debent. w/ Ex.
Warr.

$3,422,000

$1,177,000

Pref. Stock w/ Ex. Warr.

$3,742,000

$5,000,000

Sub. Debent. w/ Ex.
Warr.

12/31/08 First Banks, Inc.–Clayton, MO2

First Bankers Trustshares, Inc.–
Quincy, IL2

First Advantage Bancshares Inc.–
Coon Rapids, MN2

5/22/09

1/16/09

$3,345,000

Financial Services of Winger, Inc.–
Winger, MN8,10

7/31/09

Pref. Stock w/ Ex. Warr.

Financial Security Corporation–
Basin, WY2

2/13/09

$37,515,000

Pref. Stock w/ Warr.

12/23/08 Financial Institutions, Inc.–Warsaw, NY

$3,408,000,000

Pref. Stock w/ Warr.

12/31/08 Fifth Third Bancorp–Cincinnati, OH

$48,200,000

$3,000,000

Fidelity Resources Company–Plano, TX2

12/19/08 Fidelity Southern Corporation–Atlanta, GA Pref. Stock w/ Warr.

6/26/09

Pref. Stock w/ Ex. Warr.

$7,000,000

$3,942,000

$7,289,000

$9,294,000

$21,042,000

$700,000

$12,000,000

$36,282,000

Pref. Stock w/ Warr.

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Ex. Warr.

$30,000,000

7/8/2009

Capital
Investment Repayment
Amount
Date

$41,500,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

12/19/08 Fidelity Financial Corporation–Wichita, KS2 Pref. Stock w/ Ex. Warr.

12/12/08 Fidelity Bancorp, Inc.–Pittsburgh, PA

5/29/09

12/19/08 FFW Corporation–Wabash, IN

12/19/08 FCB Bancorp, Inc.–Louisville, KY2

6/26/09

Farmers Enterprises, Inc.–Great Bend, KS Sub. Debent. w/ Ex.
Warr.

Farmers State Bankshares, Inc.–
Holton, KS2

6/19/09

3/20/09

Farmers Capital Bank Corporation–
Frankfort, KY

Investment
Description

Pref. Stock w/ Warr.

Purchase
Date
Institution

1/9/09

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009
Final Disposition

Warrants

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

Final
Disposition
Proceeds

$14.91

$6.20

$12.62

$4.00

$5.24

$7.55

$4.80

$4.70

$3.05

$18.05

$9.97

$10.13

$3.06

$6.37

$17.88

$121

$20

$223

$17

$40

$22

$56

$266

$282

$301

$108

$8,057

$30

$19

$132

Market
Current
Stock Capitalization
(in millions)
Pricee

2,266,458

121,387

223,992

Number of
Warrants
Originally
Issued

$10.08

$8.69

$35.26

$7.02

$7.41

$6.55

$6.26

$13.07

$10.27

$15.82

$14.88

550,595

195,915

176,546

228,312

469,312

250,947

599,042

1,147,666

5,842,259

616,308

378,175

$11.72 43,617,747

$3.14

$8.65

$20.09

Strike
Price
(reflects
updates)a

550,595

195,915

88,273

228,312

469,312

250,947

599,042

1,147,666

5,842,259

616,308

378,175

43,617,747

4,589,804

121,387

223,992

$4.83

$(2.49)

$(22.64)

$(3.02)

$(2.17)

$1.00

$(1.46)

$(8.37)

$(7.22)

$2.23

$(4.91)

$(1.59)

$(0.08)

$(2.28)

$(2.21)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
Money”e
updates)a

Warrant and Market Data for Publicly–Traded Companies

$1,579,889

$22,254

$1,296,269

$236,250

$260,394

$332,072

$156,090

$15,547

$156,616

$900,000

Income
Payment
to Treasury
(Dividend or
Interest)f

$143,063

$1,284,722

$416,167

$1,308,403

$344,295

$201,650

$98,782

$650,440

$60,616

$200,897

$819,444

$41,854

$2,208,333

$6,037,238

$316,403

$95,697

$194,746

$6,611,111

$1,950,000

$358,889

$244,725

$25,383

$14,792

$12,650

$137,764

$1,208,817

continued on next page

Out

Out $127,800,000

Out

In/Out
of the
Moneye

196
Appendix d I transaction detail I October 21, 2009

Pref. Stock w/ Warr.

Sub. Debent. w/ Ex.
Warr.

First Federal Bancshares of Arkansas,
Inc.–Harrison, AR

12/23/08 First Financial Bancorp–Cincinnati, OH

First Financial Bancshares, Inc.–
Lawrence, KS8,10

First Financial Holdings Inc.–
Charleston, SC

First Financial Service Corporation–
Elizabethtown, KY

First Gothenburg Bancshares, Inc.–
Gothenburg, NE2

First Guaranty Bancshares, Inc.–
Hammond, LA2

3/6/09

6/12/09

12/5/08

1/9/09

2/27/09

8/28/09

First National Corporation– Strasburg, VA Pref. Stock w/ Ex. Warr.

First NBC Bank Holding Company–
New Orleans, LA2

3/13/09

3/20/09

Pref. Stock w/ Warr.

3/13/09

First Trust Corporation–New Orleans, LA8 Sub. Debent. w/ Ex.
Warr.

2,4,7

First ULB Corp.–Oakland, CA

First United Corporation–Oakland, MD

First Vernon Bancshares, Inc.–
Vernon, AL2,10

First Western Financial, Inc.–Denver, CO

6/5/09

1/23/09

1/30/09

6/12/09

2/6/09

Pref. Stock w/ Ex. Warr.

First Texas BHC, Inc.–Fort Worth, TX2

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

First State Bank of Mobeetie–
Mobeetie, TX2

3/6/09

$8,559,000

$6,000,000

$30,000,000

$4,900,000 4/22/2009

$17,969,000

$13,533,000

$731,000

$5,500,000

2/27/09

$10,900,000

Pref. Stock w/ Ex. Warr.

First Southern Bancorp, Inc.–
Boca Raton, FL2

First Southwest Bancorporation, Inc.–
Alamosa, CO2

3/6/09

Pref. Stock w/ Ex. Warr.

$7,400,000
$50,000,000

Pref. Stock w/ Warr.

$33,000,000

$2,600,000

$15,349,000

$4,579,000

$72,927,000

$19,300,000

$17,390,000

$184,011,000 5/27/2009

$17,836,000

$13,900,000

$193,000,000

$116,000,000

$12,000,000 5/27/2009

First South Bancorp, Inc.–Lexington, TN8 Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Warr.

1/30/09

7/17/09

12/23/08 First Sound Bank–Seattle, WA

First Security Group, Inc.–
Chattanooga, TN

Pref. Stock w/ Ex. Warr.

First Resource Bank–Exton, PA

2/20/09

1/9/09

Pref. Stock w/ Warr.

First Priority Financial Corp.–Malvern, PA2 Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Ex. Warr.

First Place Financial Corp.–Warren, OH

First Reliance Bancshares, Inc.–
Florence, SC2

3/13/09

3/6/09

1/30/09

Pref. Stock w/ Warr.

11/21/08 First PacTrust Bancorp, Inc.–
Chula Vista, CA

First Northern Community Bancorp–
Dixon, CA

Pref. Stock w/ Warr.

11/21/08 First Niagara Financial Group–
Lockport, NYb,5,9

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

First Midwest Bancorp, Inc.–Itasca, IL

First Merchants Corporation–Muncie, IN

12/5/08

$4,797,000

Pref. Stock w/ Ex. Warr.

2/20/09

$33,900,000

Pref. Stock w/ Ex. Warr.

First Market Bank, FSB– Richmond, VA2

First Menasha Bancshares, Inc.–
Neenah, WI2

2/6/09

2/13/09

First Manitowoc Bancorp, Inc.–
Manitowoc, WI2,4,7

1/16/09

$30,000,000

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

First M&F Corporation–Kosciusko, MS

2/27/09

$10,000,000

$6,398,000

$3,223,000

Pref. Stock w/ Warr.

Pref. Stock

First Independence Corporation–
Detroit, MI2,3

First Intercontinental Bank–Doraville, GA2 Pref. Stock w/ Ex. Warr.

8/28/09

3/13/09

$866,540,000

$20,699,000

$7,570,000

$20,000,000

$65,000,000

$3,756,000

$80,000,000

$16,500,000

Capital
Investment Repayment
Amount
Date

$4,900,000

$184,011,000

$12,000,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

12/12/08 First Litchfield Financial Corporation–
Litchfield, CT

Pref. Stock w/ Warr.

11/14/08 First Horizon National Corporation–
Memphis, TN

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Investment
Description

Purchase
Date
Institution

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009
Final Disposition

Preferred 4/22/2009
Stock 2

Warrants 6/24/2009

Preferred 5/27/2009
Stock 2

Preferred
Stock

Warrants

Preferred
Stock

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$245,000

$2,700,000

$600,000

Final
Disposition
Proceeds

$10.57

$0.65

$3.85

$2.95

$6.40

$6.00

$12.33

$11.27

$6.97

$2.75

$6.50

$13.23

$13.47

$15.97

$12.05

$4.09

$65

$63

$50

$27

$54

$2,258

$554

$148

$25

$15

$2,892

$63

$254

$620

$20

Market
Current
Stock Capitalization
(in millions)
Pricee

215,983

483,391

930,233

321,847

Number of
Warrants
Originally
Issued

$13.79

$9.73

$6.01

$2.98

$10.31

$7.39

–

$22.18

$17.55

$8.77

$7.53

326,323

114,080

823,627

3,670,822

280,795

352,977

1,906,191

1,305,230

991,453

513,113

199,203

$9.60 12,743,235

$13.89

$20.17

$12.90

$7.69

Strike
Price
(reflects
updates)a

326,323

114,080

823,627

3,670,822

280,795

352,977

–

1,305,230

991,453

513,113

199,203

26,857,216

215,983

483,391

930,233

321,847

$(3.22)

$(9.08)

$(2.16)

$(0.03)

$(3.91)

$(1.39)

–

$(10.91)

$(10.58)

$(6.02)

$(1.03)

$3.63

$(0.42)

$(4.20)

$(0.85)

$(3.60)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
a
Money”e
updates)

Warrant and Market Data for Publicly–Traded Companies

$192,552

$600,000

$2,256,944

$53,341

$2,577,778

$364,375

Income
Payment
to Treasury
(Dividend or
Interest)f

$244,897

$56,359

$812,500

$66,021

$293,128

$325,764

$18,611

$132,390

$321,777

$326,277

$238,444

$990,000

$76,755

$369,446

$121,314

$1,539,570

$707,667

$367,122

$4,753,618

$391,532

$319,855

$6,701,389

$2,819,444

$132,178

$969,964

$237,983

$700,000

$337,500

$147,229

continued on next page

Out

–

Out

In $32,615,603

Out

In/Out
of the
Moneye

transaction detail I Appendix d I October 21, 2009

197

Pref. Stock w/ Ex. Warr.

Flagstar Bancorp, Inc.–Troy, MI

Florida Bank Group, Inc.–Tampa, FL2

Florida Business BancGroup, Inc.–
Tampa, FL2

1/30/09

7/24/09

2/20/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Sub. Debent. w/ Ex.
Warr.

Fortune Financial Corporation–
Arnold, MO2

FPB Bancorp, Inc.–Port St. Lucie, FL

FPB Financial Corp.–Hammond, LA2

Franklin Bancorp, Inc.–Washington, MO

Freeport Bancshares, Inc.–Freeport, IL8

Fort Lee Federal Savings Bank–
Fort Lee, NJ2

5/22/09

4/3/09

12/5/08

1/23/09

5/22/09

5/8/09

Frontier Bancshares, Inc.–Austin, TX8

4/24/09

Pref. Stock w/ Ex. Warr.

Goldwater Bank, N.A.–Scottsdale, AZ2

Grand Capital Corporation–Tulsa, OK2

Grand Financial Corporation–
Hattiesburg, MS8

Grand Mountain Bancshares, Inc.–
Granby, CO2

GrandSouth Bancorporation–
Greenville, SC2

Great River Holding Company–
Baxter, MN8

Great Southern Bancorp–Springfield, MO Pref. Stock w/ Warr.

1/30/09

4/24/09

9/25/09

5/29/09

1/9/09

7/17/09

12/5/08

$4,000,000

$2,568,000

$1,607,000

$4,967,000

Pref. Stock w/ Ex. Warr.

Gregg Bancshares, Inc.–Ozark, MO2

Guaranty Bancorp, Inc.– Woodsville, NH2 Pref. Stock w/ Ex. Warr.

Guaranty Capital Corporation–
Belzoni, MS3,8

Guaranty Federal Bancshares, Inc.–
Springfield, MO

2/13/09

2/20/09

9/25/09

1/30/09

GulfSouth Private Bank– Destin, FL

Gulfstream Bancshares, Inc.–Stuart, FL2

9/25/09

6/26/09

8,10

$825,000
$6,920,000

Pref. Stock w/ Ex. Warr.

Greer Bancshares Incorporated–
Greer, SC2

1/30/09

Pref. Stock w/ Ex. Warr.

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Warr.

Sub. Debent.

$7,500,000

$17,000,000

$14,000,000

$9,993,000

$651,000

Pref. Stock w/ Ex. Warr.

Green City Bancshares, Inc.–
Green City, MO2

$2,400,000

2/27/09

$72,278,000

Pref. Stock w/ Ex. Warr.

Green Circle Investments, Inc.–Clive, IA2

Pref. Stock w/ Warr.

$8,400,000

Sub. Debent. w/ Ex.
Warr.
$58,000,000

$9,000,000

Pref. Stock w/ Ex. Warr.

2/27/09

12/23/08 Green Bankshares, Inc.–Greeneville, TN

Pref. Stock w/ Ex. Warr.

Gold Canyon Bank–Gold Canyon, AZ2,10

6/26/09

$4,500,000

$3,076,000

Pref. Stock w/ Ex. Warr.

Germantown Capital Corporation, Inc.–
Germantown, TN2

3/6/09

Pref. Stock w/ Ex. Warr.

Georgia Primary Bank– Atlanta, GA2

5/1/09

$8,700,000

$2,443,320

Pref. Stock w/ Ex. Warr.

Georgia Commerce Bancshares, Inc.–
Atlanta, GA2

2/6/09

$6,000,000

$376,500,000

$3,000,000

$1,968,000

$35,000,000

$3,000,000

$5,097,000

Sub. Debent. w/ Ex.
Warr.

Gateway Bancshares, Inc.–Ringgold, GA2 Pref. Stock w/ Ex. Warr.

5/8/09

Pref. Stock w/ Warr.

Sub. Debent. w/ Ex.
Warr.

Fresno First Bank–Fresno, CA2

12/23/08 Fulton Financial Corporation–
Lancaster, PA

Pref. Stock w/ Ex. Warr.

Fremont Bancorporation–Fremont, CA

1/23/09

Pref. Stock w/ Ex. Warr.

$3,240,000

$5,800,000

$3,100,000

$1,300,000

Pref. Stock w/ Ex. Warr.

$15,000,000

$51,500,000

$12,000,000

$70,000,000

$266,657,000

$125,000,000 4/22/2009

Pref. Stock w/ Ex. Warr.

6/26/09

Foresight Financial Group, Inc.–
Rockford, IL2

5/15/09

Pref. Stock w/ Warr.

FNB United Corp.–Asheboro, NC

2/13/09

Pref. Stock w/ Ex. Warr.

FNB Bancorp–South San Francisco, CA2

2/27/09

Pref. Stock w/ Warr.

$9,495,000

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

FirstMerit Corporation–Akron, OH4

1/9/09

12/19/08 Flushing Financial Corporation–
Lake Success, NY

$20,471,000

Pref. Stock w/ Warr.

Firstbank Corporation–Alma, MI

$33,000,000

Investment
Description

Pref. Stock w/ Warr.

Purchase
Date
Institution

Capital
Investment Repayment
Amount
Date

$125,000,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

1/30/09

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009
Final Disposition

Warrants 5/27/2009

Warrants

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$5,025,000

Final
Disposition
Proceeds

$5.90

$5.00

$23.71

$7.40

$3.10

$2.62

$11.40

$1.03

$19.03

$5.50

$15

$66

$317

$1,303

$30

$343

$483

$1,634

$42

Market
Current
Stock Capitalization
(in millions)
Pricee

952,260

578,947

Number of
Warrants
Originally
Issued

$5.55

$17.06

$9.57

$10.25

$4.75

$3.50

$13.97

459,459

635,504

909,091

5,509,756

183,158

2,207,143

751,611

$0.62 64,513,790

–

$8.55

Strike
Price
(reflects
updates)a

459,459

635,504

909,091

5,509,756

183,158

2,207,143

751,611

64,513,790

–

578,947

$0.35

$(12.06)

$14.14

$(2.85)

$(1.65)

$(0.88)

$(2.57)

$0.41

–

$(3.05)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
Money”e
updates)a

Warrant and Market Data for Publicly–Traded Companies

$77,607

$26,805

$399,705

$67,818

$64,048

$99,081

$201,389

$61,949

$16,335

$204,375

$1,301,805

$305,200

$2,294,444

$251,563

$65,083

$7,221,960

$1,788,194

$893,750

Income
Payment
to Treasury
(Dividend or
Interest)f

$54,815

$55,635

$460,417

$183,332

$22,720

$295,019

$16,576

$61,040

$2,328,958

$2,013,889

continued on next page

Out

$294,300

$67,217

$75,790

$11,525

$119,546

$248,929

$88,108

Out $12,131,667

Out

–

Out

In/Out
of the
Moneye

198
Appendix d I transaction detail I October 21, 2009

Pref. Stock w/ Ex. Warr.

2/20/09

Pref. Stock w/ Warr.

HCSB Financial Corporation–Loris, SC

Heartland Bancshares, Inc.–Franklin, IN2,10 Pref. Stock w/ Ex. Warr.

3/6/09

9/11/09

Hilltop Community Bancorp, Inc.–
Summit, NJ2

1/30/09

Pref. Stock w/ Warr.

Hometown Bancorp of Alabama, Inc.–
Oneonta, AL2

Hometown Bancshares, Inc.–Corbin, KY

HomeTown Bankshares Corporation–
Roanoke, VA2,10

2/20/09

2/13/09

9/18/09

Pref. Stock w/ Ex. Warr.

5/1/09

HPK Financial Corporation–Chicago, IL

Iberiabank Corporation–Lafayette, LAb,5,9 Pref. Stock w/ Warr.

12/5/08

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Illinois State Bancorp, Inc.–Chicago, IL2

Independence Bank–East Greenwich, RI2

Independent Bank Corp.–Rockland, MA4

5/22/09

1/9/09

12/12/08 Independent Bank Corporation–Ionia, MI

Pref. Stock w/ Warr.

12/23/08 International Bancshares Corporation–
Laredo, TX

12/23/08 Intervest Bancshares Corporation–
New York, NY

$25,000,000

$216,000,000

$27,000,000

$83,586,000

Pref. Stock w/ Warr.

Integra Bank Corporation–Evansville, IN

2/27/09

$1,312,000

$72,000,000

$78,158,000 4/22/2009

$1,065,000

$6,272,000

$6,900,000

$6,000,000

$2,295,000

$21,500,000

12/19/08 Intermountain Community Bancorp–
Sandpoint, ID

6/3/2009

$90,000,000 3/31/2009

$4,205,000

$5,976,000

$1,552,000

$1,398,071,000

$4,000,000

$5,983,000

$25,000,000

$18,400,000

$10,000,000

$1,900,000

$3,250,000

$50,000,000

$26,000,000

12/12/08 Indiana Community Bancorp–Columbus, IN Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Idaho Bancorp–Boise, ID2

1/16/09

Indiana Bank Corp.–Dana, IN2

Pref. Stock w/ Ex. Warr.

ICB Financial–Ontario, CA2

3/6/09

4/24/09

Pref. Stock w/ Ex. Warr.

IBT Bancorp, Inc.–Irving, TX

IBW Financial Corporation–
Washington, DC2

3/27/09

Pref. Stock w/ Ex. Warr.

Sub. Debent.

3/13/09

IBC Bancorp, Inc.–Chicago, IL

5/15/09

Pref. Stock w/ Ex. Warr.

3,8

Pref. Stock w/ Ex. Warr.

Hyperion Bank– Philadelphia, PA

IA Bancorp, Inc.–Iselin, NJ2,10

2/6/09

9/18/09

11/14/08 Huntington Bancshares–Columbus, OH

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Howard Bancorp, Inc.–Ellicott City, MD

Pref. Stock w/ Warr.

2/27/09

Pref. Stock w/ Warr.

12/19/08 Horizon Bancorp–Michigan City, IN

12/12/08 HopFed Bancorp–Hopkinsville, KY

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Home Bancshares, Inc.–Conway, AR

1/16/09

Pref. Stock w/ Ex. Warr.

12/23/08 HMN Financial, Inc.–Rochester, MN

Highlands State Bank–Vernon, NJ

5/8/09
$4,000,000

$3,091,000

Pref. Stock w/ Ex. Warr.

$6,700,000

Highlands Independent Bancshares, Inc.– Pref. Stock w/ Ex. Warr.
Sebring, FL2

$25,000,000

$21,000,000

3/6/09

Pref. Stock w/ Warr.

Heritage Oaks Bancorp–Paso Robles, CA Pref. Stock w/ Warr.

11/21/08 HF Financial Corp.–Sioux Falls, SD4

3/20/09

$24,000,000

Pref. Stock w/ Warr.

$40,000,000

$10,103,000

$81,698,000

11/21/08 Heritage Financial Corporation–Olympia,
WA

Heritage Bankshares, Inc.–Norfolk, VA2,10 Pref. Stock w/ Ex. Warr.

$7,000,000

$12,895,000

$30,255,000

$425,000

$3,400,000,000

$6,800,000

$80,347,000

$7,000,000

Capital
Investment Repayment
Amount
Date

$78,158,000

$90,000,000

$25,000,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

11/21/08 Heritage Commerce Corp.–San Jose, CA Pref. Stock w/ Warr.

9/25/09

12/19/08 Heartland Financial USA, Inc.–Dubuque, IA Pref. Stock w/ Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Haviland Bancshares, Inc.–Haviland, KS2

3/13/09

12/19/08 Hawthorn Bancshares, Inc.–
Lee’s Summit, MO

Pref. Stock w/ Warr.

Pref. Stock

Harbor Bankshares Corporation–
Baltimore, MD2,3

Hartford Financial Services Group, Inc.–
Hartford, CT

7/17/09

6/26/09

Pref. Stock w/ Warr.

12/31/08 Hampton Roads Bankshares, Inc.–
Norfolk, VA

Hamilton State Bancshares–
Hoschton, GA2

Investment
Description

Purchase
Date
Institution

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009
Final Disposition

Warrants 5/27/2009

Warrants 5/20/2009

Warrants 6/30/2009

Warrants

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$2,200,000

$1,200,000

$650,000

Final
Disposition
Proceeds

$3.53

$16.31

$2.60

$1.11

$8.50

$1.90

$22.13

$45.56

$4.71

$17.10

$10.05

$21.92

$3.75

$10.96

$7.35

$13.15

$4.71

$14.75

$15.00

$9.75

$26.50

$2.88

$29

$1,112

$22

$23

$29

$46

$463

$937

$3,297

$56

$36

$546

$16

$44

$57

$138

$56

$241

$57

$42

$8,696

$63

Market
Current
Stock Capitalization
(in millions)
Pricee

1,325,858

Number of
Warrants
Originally
Issued

212,104

243,816

288,129

833,333

302,419

611,650

276,074

462,963

609,687

91,714

245,443

$5.42

$24.43

$6.20

$1.69

$17.09

$3.12

–

691,882

1,326,238

653,226

7,418,876

188,707

3,461,538

481,664

276,980

$8.90 23,562,994

$17.68

$11.32

$26.03

$4.68

–

$5.15

$13.04

$12.96

$20.10

$21.09

$17.78

$9.79 52,093,973

$9.09

Strike
Price
(reflects
updates)a

691,882

1,326,238

653,226

7,418,876

188,707

3,461,538

–

23,562,994

212,104

243,816

288,129

833,333

–

611,650

276,074

462,963

609,687

91,714

500,704

52,093,973

1,325,858

$(1.89)

$(8.12)

$(3.60)

$(0.58)

$(8.59)

$(1.22)

–

$(4.19)

$(0.58)

$(1.27)

$(4.11)

$(0.93)

–

$2.20

$0.11

$(8.25)

$(5.35)

$(6.09)

$(8.03)

$16.71

$(6.21)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
a
Money”e
updates)

Warrant and Market Data for Publicly–Traded Companies

$26,444

$2,510,844

$185,452

Income
Payment
to Treasury
(Dividend or
Interest)f

$9,771

$62,978

$152,161

$819,444

$621,000

$52,350

$86,125

$1,451,389

$837,778

$118,083

$45,401

$161,275

$666,667

$422,916

$880,000

$1,466,667

$2,677,879

$284,765

$991,692

$80,946

$805,556

$6,960,000

$885,000

$1,950,340

$725,625

$22,059

$2,430,000

$1,118,094

$34,812

$78,818

$124,306

$144,425

$138,067

$47,955

$1,450,000

continued on next page

Out

–

$44,426

Out $52,621,840

Out

–

Out

In $23,138,889

Out

In/Out
of the
Moneye

transaction detail I Appendix d I October 21, 2009

199

Lafayette Bancorp, Inc.–Oxford, MS2

Lakeland Bancorp, Inc.–Oak Ridge, NJ

Lakeland Financial Corporation–
Warsaw, IN

LCNB Corp.– Lebanon, OH

2/20/09

2/6/09

2/27/09

1/9/09

Lincoln National Corporation– Radnor, PA Pref. Stock w/ Warr.

7/10/09

Lone Star Bank–Houston, TX2

Marine Bank & Trust Company–
Vero Beach, FL2

Market Bancorporation, Inc.–
New Market, MN2

Market Street Bancshares, Inc.–
Mt. Vernon, IL8

3/6/09

2/20/09

5/15/09

Pref. Stock w/ Ex. Warr.

Medallion Bank–Salt Lake City, UT2

Mercantile Bank Corporation–
Grand Rapids, MI

2/27/09

5/15/09

Merchants and Planters Bancshares,
Inc.–Toone, TN2

3/6/09

$1,700,000

MetroCorp Bancshares, Inc.–Houston, TX Pref. Stock w/ Warr.

Metropolitan Bank Group, Inc.–
Chicago, IL2

1/16/09

6/26/09

Pref. Stock w/ Ex. Warr.

Meridian Bank– Devon, PA

Metro City Bank– Doraville, GA2

2/13/09

$71,526,000

$45,000,000

$7,700,000

$6,200,000

$1,881,000

Pref. Stock w/ Ex. Warr.

$3,510,000

$3,500,000

$21,000,000

$11,800,000

$196,000,000

Pref. Stock w/ Ex. Warr.

1/30/09

Mercantile Capital Corp.– Boston, MA

Merchants and Manufacturers Bank
Corporation–Joliet, IL2

2/6/09

6/19/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Maryland Financial Bank–Towson, MD2

MB Financial Inc.–Chicago, ILb

3/27/09

Pref. Stock w/ Warr.

12/5/08

$35,500,000

Pref. Stock w/ Ex. Warr.

12/19/08 Marquette National Corporation–
Chicago, IL2

11/14/08 Marshall & Ilsley Corporation–
Milwaukee, WI

$1,715,000,000

$20,300,000

$2,060,000

$3,000,000

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Ex. Warr.

$1,700,000 9/16/2009
$2,639,000

Manhattan Bancshares, Inc.–
Manhattan, IL8

6/19/09

Pref. Stock w/ Warr.

Manhattan Bancorp–El Segundo, CA

12/5/08

$57,000,000

$13,795,000

$3,370,000

$11,000,000

$600,000,000

$11,735,000

$15,000,000

$3,072,000

$25,223,000

$950,000,000

$17,280,000

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Warr.

MainSource Financial Group, Inc.–
Greensburg, IN

1/16/09

Pref. Stock w/ Ex. Warr.

Madison Financial Corporation–Richmond, Pref. Stock w/ Ex. Warr.
KY

3/13/09

12/23/08 Magna Bank–Memphis, TN2

Pref. Stock w/ Warr.

Mackinac Financial Corporation–
Manistique, MI

4/24/09

Pref. Stock

Pref. Stock w/ Warr.

M&F Bancorp, Inc.–Durham, NC2,3,10

Pref. Stock w/ Ex. Warr.

12/23/08 M&T Bank Corporation–Buffalo, NY

6/26/09

12/12/08 LSB Corporation–North Andover, MA

2/6/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Liberty Shares, Inc.–Hinesville, GA2

2/20/09

12/12/08 LNB Bancorp Inc.–Lorain, OH

Pref. Stock

Liberty Financial Services, Inc.–
New Orleans, LA3

2/6/09

$5,645,000

$21,900,000

Liberty Bancshares, Inc.–Springfield, MO2 Pref. Stock w/ Ex. Warr.

2/13/09

$5,498,000
$57,500,000

Liberty Bancshares, Inc.–Jonesboro, AR2 Pref. Stock w/ Ex. Warr.

Pref. Stock

Legacy Bancorp, Inc.–Milwaukee, WI3

$5,830,000

$13,400,000

$56,044,000

$59,000,000

$1,998,000

$4,000,000

$470,000

$2,500,000,000

$10,449,000

1/23/09

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Capital
Repayment
Amount6

$1,700,000

$25,000,000,000 6/17/2009 $25,000,000,000

$4,000,000

Capital
Investment Repayment
Amount
Date

Capital Repayment Details

(CONTINUED)

1/30/09

12/23/08 Leader Bancorp, Inc.–Arlington, MA2

Kirksville Bancorp, Inc.–Kirksville, MO

KS Bancorp, Inc.–Smithfield, NC2

3/20/09

8/21/09

Katahdin Bankshares Corp.–Houlton, ME2 Pref. Stock w/ Ex. Warr.

11/14/08 KeyCorp–Cleveland, OH

1/30/09

10/28/08 JPMorgan Chase & Co.–New York, NY

Pref. Stock w/ Warr.

Investment
Description

Sub. Debent. w/ Ex.
Warr.

Investors Financial Corporation of Pettis
County, Inc.–Sedalia, MO8

Purchase
Date
Institution

5/8/09

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009
Final Disposition

Warrants

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

Final
Disposition
Proceeds

$3.61

$4.20

$20.97

$8.07

$6.50

$6.80

$4.10

$62.32

$10.30

$6.69

$25.91

$10.99

$20.65

$7.50

$6.50

$43.82

$39

$36

$1,053

$2,971

$26

$137

$14

$7,351

$46

$49

$7,827

$73

$257

$179

$5,711

$172,325

Market
Current
Stock Capitalization
(in millions)
Pricee

Number of
Warrants
Originally
Issued

217,063

396,538

949,571

29,480

571,906

379,310

1,218,522

209,497

561,343

$8.75

$5.11

$29.05

771,429

616,438

1,012,048

$18.62 13,815,789

$8.65

$14.95

$4.35

$73.86

$10.74

$6.74

$10.92 13,049,451

$9.26

$21.20

$9.32

$10.64 35,244,361

$42.42 88,401,697

Strike
Price
(reflects
updates)a

771,429

616,438

506,024

13,815,789

29,480

571,906

379,310

1,218,522

209,497

561,343

217,063

396,538

949,571

35,244,361

88,401,697

$(5.14)

$(0.91)

$(8.08)

$(10.55)

$(2.15)

$(8.15)

$(0.25)

$(11.54)

$(0.44)

$(0.05)

$14.99

$1.73

$(0.55)

$(1.82)

$(4.14)

$1.40

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
Money”e
updates)a

Warrant and Market Data for Publicly–Traded Companies

$90,425

Income
Payment
to Treasury
(Dividend or
Interest)f

$52,937

$79,863

$506,250

$851,277

$4,618,055

$457,800

$148,182

$603,406

$1,758,382

$148,904

$204,792

$402,000

$1,307,693

$1,548,750

$1,268,337

$425,793

$54,576

$72,213

$34,443

$66,347

$1,654,583

$484,526

$77,567

$169,583

$35,516

$530,580

$1,306,250

$227,311

$170,827

$45,276

$29,764

$100,144

$262,500

$300,113

$6,805,556

continued on next page

Out

Out $64,550,694

Out

Out $19,333,333

Out

$10,335

Out $94,097,222

$308,442

In $795,138,889

In/Out
of the
Moneye

200
Appendix d I transaction detail I October 21, 2009

Pref. Stock w/ Ex. Warr.

4/10/09

Mission Community Bancorp–
San Luis Obispo, CA3

1/9/09

Naples Bancorp, Inc.– Naples, FL2

NC Bancorp, Inc.–Chicago, IL2

Northern States Financial Corporation–
Waukegan, IL

2/20/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Northway Financial, Inc.– Berlin, NH2

Northwest Bancorporation, Inc.–
Spokane, WA2

1/30/09

2/13/09

Pref. Stock w/ Ex. Warr.

11/14/08 Northern Trust Corporation–Chicago, IL4 Pref. Stock w/ Warr.

Northern State Bank–Closter, NJ2

5/15/09

12/12/08 Northeast Bancorp–Lewiston, ME

Pref. Stock w/ Warr.

1/9/09

North Central Bancshares, Inc.–
Fort Dodge, IA

Pref. Stock w/ Ex. Warr.

12/23/08 Nicolet Bankshares, Inc.–Green Bay, WI2

New York Private Bank & Trust
Corporation–New York, NY2

1/9/09

Pref. Stock w/ Warr.

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Warr.

New Hampshire Thrift Bancshares, Inc.–
Newport, NH

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

12/12/08 NewBridge Bancorp–Greensboro, NC

NEMO Bancshares Inc.–Madison, MO

1/16/09

6/19/09

12/19/08 NCAL Bancorp–Los Angeles, CA2

6/26/09

Pref. Stock w/ Warr.

$10,500,000

$10,000,000

$1,576,000,000 6/17/2009

$17,211,000

$1,341,000

$4,227,000

$10,200,000

$14,964,000

$52,372,000

$267,274,000

$10,000,000

$2,330,000

$10,000,000

$6,880,000

$150,000,000

$24,664,000

$67,000,000

$4,000,000

$32,382,000

$7,723,000

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

National Bancshares, Inc.–Bettendorf, IA2 Pref. Stock w/ Ex. Warr.

12/12/08 National Penn Bancshares, Inc.–
Boyertown, PA

2/27/09

11/21/08 Nara Bancorp, Inc.–Los Angeles, CA

3/27/09

Pref. Stock w/ Ex. Warr.

MS Financial, Inc.–Kingwood, TX2

3/27/09

12/23/08 MutualFirst Financial, Inc.–Muncie, IN

Mountain Valley Bancshares, Inc.–
Cleveland, GA2

9/25/09

$6,216,000

$13,000,000
$3,300,000

Pref. Stock w/ Ex. Warr.

Capital
Repayment
Amount6

$1,576,000,000

$10,000,000,000 6/17/2009 $10,000,000,000

$4,734,000

$9,516,000

$14,700,000

$6,785,000

$1,834,000

$5,500,000

$5,116,000

$7,260,000

$10,000,000

$16,000,000

$700,000

$84,784,000

$5,222,000

Pref. Stock w/ Ex. Warr.

Morrill Bancshares, Inc.–Merriam, KS2

Moscow Bancshares, Inc.–Moscow, TN2

1/16/09

1/23/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Monument Bank–Bethesda, MD2

1/30/09

10/28/08 Morgan Stanley–New York, NY4

Pref. Stock w/ Ex. Warr.

Moneytree Corporation–Lenoir City, TN2

3/13/09

12/19/08 Monarch Financial Holdings, Inc.–
Chesapeake, VA

Pref. Stock w/ Warr.

2/6/09

Monarch Community Bancorp, Inc.–
Coldwater, MI

Pref. Stock w/ Ex. Warr.

Pref. Stock

12/19/08 Monadnock Bancorp, Inc.–
Peterborough, NH2

12/23/08 Mission Valley Bancorp–Sun Valley, CA

Pref. Stock w/ Ex. Warr.

Pref. Stock

Pref. Stock w/ Ex. Warr.

Mid–Wisconsin Financial Services, Inc.–
Medford, WI2

Millennium Bancorp, Inc.– Edwards, CO2

2/20/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

4/3/09

Midwest Regional Bancorp, Inc.–
Festus, MO2

MidWestOne Financial Group, Inc.–
Iowa City, IA

2/13/09

Midwest Banc Holdings, Inc.–
Melrose Park , IL

12/5/08

2/6/09

Midtown Bank & Trust Company–
Atlanta, GA2

2/27/09

$20,000,000

$10,189,000

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Midland States Bancorp, Inc.–
Effingham, IL2

MidSouth Bancorp, Inc.–Lafayette , LA

1/23/09

1/9/09

$22,000,000

Pref. Stock w/ Warr.

Middleburg Financial Corporation–
Middleburg, VA

1/30/09

$10,000,000

Pref. Stock w/ Warr.

$2,040,000

Capital
Investment Repayment
Amount
Date

Capital Repayment Details

(CONTINUED)

12/19/08 Mid Penn Bancorp, Inc.–Millersburg , PA

Metropolitan Capital Bancorp, Inc.–
Chicago, IL2

Investment
Description

Purchase
Date
Institution

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009

Warrants 8/26/2009

Warrants 8/12/2009

Warrants

Final
Disposition
Proceeds

$87,000,000

$950,000,000

Final Disposition

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$58.16

$3.80

$8.75

$16.50

$2.74

$9.48

$6.11

$6.95

$7.04

$30.88

$7.45

$3.57

$8.94

$0.71

$13.20

$13.05

$15.50

$14,040

$15

$20

$22

$43

$55

$748

$182

$49

$41,971

$43

$77

$20

$90

$87

$54

Market
Current
Stock Capitalization
(in millions)
Pricee

264,706

260,962

198,675

4,282,020

208,768

208,202

73,099

Number of
Warrants
Originally
Issued

–

$4.42

$9.33

$15.43

$3.06

$8.14

$15.30

$9.64

$7.77

3,824,624

584,084

67,958

99,157

2,567,255

184,275

1,470,588

1,042,531

625,135

– 65,245,759

$8.33

$3.90

$12.08

$2.97

$14.32

$15.85

$20.52

Strike
Price
(reflects
updates)a

–

584,084

67,958

99,157

2,567,255

184,275

1,470,588

1,042,531

625,135

–

264,706

260,962

198,675

4,282,020

208,768

208,202

73,099

–

$(0.63)

$(0.58)

$1.07

$(0.32)

$1.34

$(9.19)

$(2.69)

$(0.73)

–

$(0.88)

$(0.33)

$(3.14)

$(2.26)

$(1.12)

$(2.80)

$(5.02)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
a
Money”e
updates)

Warrant and Market Data for Publicly–Traded Companies

$139,766

$218,981

$481,833

$178,107

$65,542

$177,222

$153,750

$145,080

$264,931

$420,000

$19,287

$824,289

$132,810

$600,000

$311,564

$595,833

$327,778

$38,605

Income
Payment
to Treasury
(Dividend or
Interest)f

$161,342

$418,323

$18,270

$142,662

$306,000

$525,557

$1,767,555

$8,739,876

$290,278

$30,420

$357,278

$51,036

$5,062,500

$627,280

$2,456,667

$83,567

$1,043,420

continued on next page

$289,305

$295,208

– $46,623,333

Out

$190,099

$411,324

– $318,055,555

Out

In/Out
of the
Moneye

transaction detail I Appendix d I October 21, 2009

201

Pref. Stock w/ Warr.

OceanFirst Financial Corp.–
Toms River, NJ

Ojai Community Bank–Ojai, CA2

12/5/08

1/16/09

1/30/09

12/5/08

Omega Capital Corp.–Lakewood, CO

4/17/09

OneFinancial Corporation–
Little Rock, AR8,10

6/5/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

1/16/09

Pref. Stock w/ Warr.

12/23/08 Parkvale Financial Corporation–
Monroeville, PA

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pathfinder Bancorp, Inc.–Oswego, NY

Pathway Bancorp–Cairo, NE2

9/11/09

3/27/09
$3,690,000

Patterson Bancshares, Inc–Patterson, LA2 Pref. Stock w/ Ex. Warr.

Peapack-Gladstone Financial Corporation– Pref. Stock w/ Warr.
Gladstone, NJ

4/17/09

1/9/09

1/30/09

Pref. Stock w/ Warr.

Peoples Bancorp Inc.–Marietta, OH

1/30/09

12/23/08 Peoples Bancorp of North Carolina,
Inc.–Newton, NC

PeoplesSouth Bancshares, Inc.–
Colquitt, GA2

PFSB Bancorporation, Inc.–
Pigeon Falls, WI2,10

3/6/09

9/11/09

Pref. Stock w/ Ex. Warr.

Peoples Bancorporation, Inc.–Easley, SC Pref. Stock w/ Ex. Warr.

Peoples Bancshares of TN, Inc–
Madisonville, TN2

4/24/09

3/20/09

$6,000,000
$9,960,000

$1,500,000

$12,325,000

$3,900,000

$12,660,000

$25,054,000

$39,000,000

$18,000,000

Penn Liberty Financial Corp.–Wayne, PA2 Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Ex. Warr.

Peninsula Bank Holding Co.–Palo Alto, CA Pref. Stock w/ Warr.

Peoples Bancorp–Lynden, WA2

4/17/09

2/13/09

$28,685,000

$26,038,000

$3,727,000

$6,771,000

$6,000,000

$3,756,000

$31,762,000

$16,288,000

$100,000,000

$23,200,000

$6,500,000

$4,060,000

$4,120,000

$11,600,000

Pref. Stock w/ Ex. Warr.

12/19/08 Patriot Bancshares, Inc.–Houston, TX2

Pref. Stock w/ Ex. Warr.

12/19/08 Patapsco Bancorp, Inc.–Dundalk, MD2

Pascack Community Bank–Westwood, NJ2 Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

2/6/09

Pref. Stock w/ Warr.

Parke Bancorp, Inc.–Sewell, NJ

Pref. Stock w/ Ex. Warr.

1/30/09

Park Bancorporation, Inc.–Madison, WI2

12/23/08 Park National Corporation–Newark, OH

3/6/09

12/12/08 Pacific International Bancorp–Seattle, WA Pref. Stock w/ Warr.

12/23/08 Pacific Commerce Bank–
Los Angeles, CA2

Pref. Stock w/ Ex. Warr.

Pacific Coast National Bancorp–
San Clemente, CA2

Pref. Stock w/ Ex. Warr.

12/19/08 Pacific City Financial Corporation–
Los Angeles, CA2

12/23/08 Pacific Coast Bankers’ Bancshares–
San Francisco, CA2

$16,200,000

$6,100,000
$180,634,000

OSB Financial Services, Inc.–Orange, TX8 Sub. Debent. w/ Ex.
Warr.

$3,216,000

$12,063,000

$17,300,000

$5,500,000

$2,816,000

$73,000,000

$100,000,000 3/31/2009

$7,000,000 7/15/2009

$2,080,000

$38,263,000

5/1/09

11/21/08 Pacific Capital Bancorp–
Santa Barbara, CA

Pref. Stock w/ Ex. Warr.

$7,700,000
$13,500,000

Oregon Bancorp, Inc.–Salem, OR2

Pref. Stock

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

$1,992,000

Capital
Investment Repayment
Amount
Date

$100,000,000

$7,000,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

4/24/09

12/19/08 OneUnited Bank–Boston, MA3

One Georgia Bank–Atlanta, GA

5/8/09

Old Second Bancorp, Inc.–Aurora, IL

1/16/09

Pref. Stock w/ Ex. Warr.

Oak Valley Bancorp–Oakdale, CA

Old Line Bancshares, Inc.–Bowie, MD

Oak Ridge Financial Services, Inc.–
Oak Ridge, NC

1/30/09

12/12/08 Old National Bancorp–Evansville, IN

Pref. Stock w/ Warr.

Northwest Commercial Bank–
Lakewood, WA2

Pref. Stock w/ Warr.

Investment
Description

Pref. Stock w/ Ex. Warr.

Purchase
Date
Institution

2/13/09

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009
Final Disposition

$0
Warrants

Warrants
5/8/2009

9/2/2009
Warrants

Warrants

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$1,200,000

$225,000

Final
Disposition
Proceeds

$6.75

$13.05

$16.06

$9.20

$8.52

$58.34

$1.44

$5.73

$11.20

$6.38

$11.60

$4.30

$6.25

$37

$137

$15

$140

$50

$34

$826

$68

$79

$946

$25

$144

$33

$11

Market
Current
Stock Capitalization
(in millions)
Pricee

$10.52

$18.86

$11.02

$28.63

$12.66

$8.15

$65.97

$7.63

$17.92

$13.43

–

$15.07

$5.78

$7.05

Strike
Price
(reflects
updates)a

357,234

313,505

81,670

143,139

376,327

299,779

227,376

127,785

1,512,003

815,339

813,008

141,892

380,853

350,346

163,830

Number of
Warrants
Originally
Issued

357,234

313,505

81,670

293,435

376,327

299,779

227,376

127,785

1,512,003

815,339

–

380,853

350,346

163,830

$(3.77)

$(5.81)

$(12.57)

$(3.46)

$0.37

$(7.63)

$(16.48)

$(7.70)

–

$(3.47)

$(1.48)

$(0.80)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
Money”e
updates)a

Warrant and Market Data for Publicly–Traded Companies

$296,663

$85,610

$212,741

$807,296

$1,056,250

$495,950

$177,924

$860,551

$15,645

$930,286

$77,852

$214,367

$107,478

$1,023,442

$441,133

$3,222,222

$558,443

$138,125

$110,635

$18,088

$407,418

$358,065

$2,107,397

$147,848

$54,048

$93,823

$272,996

$50,311

$2,119,028

$1,513,889

$213,889

$61,403

$1,110,690

$468,750

$208,542

$54,903

Income
Payment
to Treasury
(Dividend or
Interest)f

continued on next page

Out

–

Out

In/Out
of the
Moneye

202
Appendix d I transaction detail I October 21, 2009

Pref. Stock w/ Ex. Warr.

Pierce County Bancorp– Tacoma, WA2

Pinnacle Bank Holding Company, Inc.–
Orange City, FL2

3/6/09

Sub. Debent. w/ Ex.
Warr.

Premier Financial Corp–Dubuque, IA8

Premier Service Bank–Riverside, CA

PremierWest Bancorp–Medford, OR

Princeton National Bancorp, Inc.–
Princeton, IL

Private Bancorporation, Inc.–
Minneapolis, MN2

PrivateBancorp, Inc.–Chicago, IL

5/22/09

2/20/09

2/13/09

1/23/09

2/27/09

1/30/09

$3,800,000

QCR Holdings, Inc.–Moline, IL

RCB Financial Corporation–Rome, GA2, 10 Pref. Stock w/ Ex. Warr.

Redwood Capital Bancorp–Eureka, CA2

Redwood Financial Inc.–
Redwood Falls, MN2

2/13/09

6/19/09

1/16/09

1/9/09

Sandy Spring Bancorp, Inc.–Olney, MD

Santa Clara Valley Bank, N.A.–Santa
Paula, CA2

12/5/08

2/13/09

3/27/09

SBT Bancorp, Inc.–Simsbury, CT2

12/19/08 Santa Lucia Bancorp–Atascadero, CA

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Salisbury Bancorp, Inc.–Lakeville, CT

Pref. Stock w/ Warr.

12/23/08 Saigon National Bank–Westminster, CA2

S&T Bancorp–Indiana, PA

1/16/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Sub. Debent. w/ Ex.
Warr.

3/13/09

Rogers Bancshares, Inc.–Little Rock, AR

Royal Bancshares of Pennsylvania, Inc.–
Narberth, PA

1/30/09

Riverside Bancshares, Inc.–
Little Rock, AR8

5/15/09

2/20/09

River Valley Bancorporation, Inc.–
Wausau, WI8

Pref. Stock w/ Ex. Warr.

Rising Sun Bancorp–Rising Sun, MD

6/12/09

1/9/09

Pref. Stock w/ Ex. Warr.

Reliance Bancshares, Inc.–
Frontenac, MO2

Ridgestone Financial Services, Inc.–
Brookfield, WI2

2/13/09

2/27/09

Pref. Stock w/ Ex. Warr.

11/14/08 Regions Financial Corp.–Birmingham, AL Pref. Stock w/ Warr.

Regional Bankshares, Inc.–Hartsville, SC

Pref. Stock w/ Ex. Warr.

$4,000,000

$2,900,000

$83,094,000

$8,816,000

$1,549,000

$108,676,000

$30,407,000

$25,000,000

$1,100,000

$15,000,000

$5,983,000

$10,900,000

$40,000,000

$3,500,000,000

$1,500,000

$2,655,000

2/13/09

$9,982,000

Pref. Stock w/ Ex. Warr.

Regent Bancorp, Inc.–Davie, FL

Regent Capital Corporation–Nowata, OK2 Pref. Stock w/ Ex. Warr.

$2,995,000

$38,237,000

$32,538,000

3/6/09

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

2/27/09

$8,900,000

Pulaski Financial Corp–Creve Coeur, MO

$4,500,000

1/16/09

Pref. Stock w/ Ex. Warr.

PSB Financial Corporation–Many, LA

Puget Sound Bank–Bellevue, WA2

2/27/09

$9,270,000

$9,266,000

$151,500,000

$243,815,000

$4,960,000

$25,083,000

$41,400,000

$4,000,000

$6,349,000

$9,500,000

$6,784,000

$2,800,000

$35,000,000

$935,000,000

$11,949,000

$2,500,000

$87,631,000

$95,000,000

$4,389,000

$6,800,000

$3,000,000

Capital
Investment Repayment
Amount
Date
Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

1/16/09

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

3/13/09

Provident Community Bancshares, Inc.–
Rock Hill, SC

Pref. Stock w/ Warr.

11/14/08 Provident Bancshares Corp.–Baltimore,
MDd

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Premier Bank Holding Company–
Tallahassee, FL2

3/20/09

Sub. Debent.

Premier Bancorp, Inc.–Wilmette, IL

3, 8

Prairie Star Bancshares, Inc.–Olathe, KS2 Pref. Stock w/ Ex. Warr.

5/8/09

4/3/09

Pref. Stock w/ Warr.

Popular, Inc.–San Juan, PR12, f

12/5/08

11/21/08 Porter Bancorp Inc.–Louisville, KY

Pref. Stock w/ Warr.

Plumas Bancorp–Quincy, CA

1/30/09

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Ex. Warr.

Plato Holdings Inc.–Saint Paul, MN8,10

12/19/08 Plains Capital Corporation–Dallas, TX2

7/17/09

Pref. Stock w/ Warr.

12/12/08 Pinnacle Financial Partners, Inc.–
Nashville, TNb

Pref. Stock w/ Ex. Warr.

Pref. Stock

PGB Holdings, Inc.–Chicago, IL3

1/23/09

Investment
Description

2/6/09

Purchase
Date
Institution

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009
Final Disposition

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

Final
Disposition
Proceeds

$11.89

$16.28

$24.90

$12.96

$1.55

$6.21

$10.20

$7.57

$3.25

$24.46

$15.75

$2.71

$16.30

$2.83

$3.81

$12.71

$23

$268

$42

$358

$21

$7,379

$46

$78

$1,163

$52

$67

$136

$1,810

$18

$419

Market
Current
Stock Capitalization
(in millions)
Pricee

237,712

534,910

Number of
Warrants
Originally
Issued

521,888

778,421

178,880

2,374,608

1,290,026

155,025

1,038,462

299,829

$16.06

$19.13

$22.93

$31.53

$4.13

37,360

651,547

57,671

517,012

1,104,370

$10.88 48,253,677

$10.99

$6.27

$7.77

$9.57

$28.35

$24.27

$5.70

$17.51

$6.70 20,932,836

$7.54

$26.64

Strike
Price
(reflects
updates)a

37,360

651,547

57,671

517,012

1,104,370

48,253,677

521,888

778,421

178,880

2,374,608

1,290,026

155,025

1,090,385

299,829

20,932,836

237,712

267,455

$(4.17)

$(2.85)

$1.97

$(18.57)

$(2.58)

$(4.67)

$(0.79)

$1.30

$(4.52)

$(3.89)

$(8.52)

$(2.99)

$(1.21)

$(3.87)

$(3.73)

$(13.93)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
a
Money”e
updates)

Warrant and Market Data for Publicly–Traded Companies

$323,619

$16,121

$3,130,888

$3,206,250

$105,629

$207,948

$78,750

Income
Payment
to Treasury
(Dividend or
Interest)f

$41,330

$67,536

$240,272

$97,951

$120,233

$72,974

$966,547

$944,506

$142,382

$235,788

$195,616

$5,702,292

$6,603,323

$126,149

$703,718

$1,046,500

$122,798

$208,538

$140,749

$55,953

$1,283,333

$83,567

$131,111

$79,903

$2,885,208

$186,116

$3,154,623

$358,971

$738,021

continued on next page

Out

$23,073

$220,238

$195,637

$277,224

$1,102,111

Out $131,736,111

Out

Out $33,777,778

Out

In/Out
of the
Moneye

transaction detail I Appendix d I October 21, 2009

203

Investment
Description

Pref. Stock w/ Warr.

Security Business Bancorp–
San Diego, CA2

Security California Bancorp–
Riverside, CA2

Security Capital Corporation–
Batesville, MS2,10

1/9/09

6/26/09

$6,815,000

South Financial Group, Inc.–Greenville, SC Pref. Stock w/ Warr.

12/5/08

Southern Community Financial Corp.–
Winston–Salem, NC

Southern First Bancshares, Inc.–
Greenville, SC

Southern Heritage Bancshares, Inc.–
Cleveland, TN2

12/5/08

2/27/09

5/15/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Southwest Bancorp, Inc.–Stillwater, OK

Sovereign Bancshares, Inc.– Dallas, TX2

12/5/08

3/13/09

$50,000,000 8/12/2009
$15,000,000

Pref. Stock w/ Ex. Warr.

State Bankshares, Inc.–Fargo, ND2,4

State Capital Corporation–
Greenwood, MS2

1/16/09

2/13/09

10/28/08 State Street Corporation–Boston, MAb,5,9 Pref. Stock w/ Warr.

$2,000,000,000 6/17/2009

$36,842,000

$60,000,000

Pref. Stock w/ Warr.

State Bancorp, Inc.–Jericho, NY

12/5/08

Pref. Stock w/ Ex. Warr.

Standard Bancshares, Inc.–
Hickory Hills, IL2

4/24/09

$3,000,000

St. Johns Bancshares, Inc.–
St. Louis, MO2

Pref. Stock w/ Ex. Warr.

Spirit BankCorp, Inc.–Bristow, OK

$30,000,000

$18,215,000

$70,000,000

$2,760,000

3/13/09

Pref. Stock w/ Ex. Warr.

$9,550,000

$5,000,000

$4,862,000

$17,299,000

$42,750,000

$11,000,000

$12,900,000

3/27/09

SouthFirst Bancshares, Inc.– Sylacauga,
AL2

6/12/09

Pref. Stock w/ Warr.

Southern Illinois Bancorp, Inc.–Carmi, IL

Southern Missouri Bancorp, Inc.–Poplar
Bluff, MO

1/23/09

Pref. Stock w/ Ex. Warr.

12/5/08

Southern Bancorp, Inc.–Arkadelphia, AR3 Pref. Stock

1/16/09

Pref. Stock w/ Warr.

SouthCrest Financial Group, Inc.–
Fayetteville, GA2

7/17/09

$347,000,000

$3,070,000

Pref. Stock w/ Ex. Warr.

Sound Banking Company–
Morehead City, NC2

1/9/09

Pref. Stock w/ Ex. Warr.

$8,653,000

Pref. Stock w/ Ex. Warr.

Sonoma Valley Bancorp–Sonoma, CA2

2/20/09

$7,414,000 5/20/2009

Pref. Stock w/ Warr.

Somerset Hills Bancorp–
Bernardsville, NJ4

$120,000,000 3/31/2009

$1,700,000

$25,000,000 4/15/2009

$23,393,000

1/16/09

12/12/08 Signature Bank–New York, NY

Pref. Stock w/ Warr.

Sub. Debent. w/ Ex.
Warr.

Signature Bancshares, Inc.–Dallas, TX8

6/26/09

Pref. Stock w/ Warr.

Shore Bancshares, Inc.–Easton, MD4

1/9/09

$10,750,000

Sub. Debent. w/ Ex.
Warr.

Security State Bank Holding-Company–
Jamestown, ND8

5/1/09

11/21/08 Severn Bancorp, Inc.–Annapolis, MD

$12,500,000

$18,000,000

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Security State Bancshares, Inc.–
Charleston, MO2

2/20/09

$17,388,000

12/19/08 Security Federal Corporation–Aiken, SC

Pref. Stock w/ Ex. Warr.

$5,803,000

$2,152,000

Pref. Stock w/ Ex. Warr.

Security Bancshares of Pulaski County,
Inc.–Waynesville, MO2

2/13/09

Pref. Stock w/ Ex. Warr.

$5,677,000

Pref. Stock w/ Ex. Warr.

Seaside National Bank & Trust–
Orlando, FL2

$1,800,000

Pref. Stock w/ Ex. Warr.

12/23/08 Seacoast Commerce Bank–
Chula Vista, CA2

$50,000,000

$64,779,000 5/20/2009

Capital
Investment Repayment
Amount
Date

$2,000,000,000

$12,500,000

$7,414,000

$120,000,000

$25,000,000

$64,779,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

1/23/09

12/19/08 Seacoast Banking Corporation of Florida– Pref. Stock w/ Warr.
Stuart, FLb

SCBT Financial Corporation–Columbia,
SC4

Purchase
Date
Institution

1/16/09

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009

$37,500,000

Warrants

Preferred
Stock 2

7/8/2009

Warrants 6/24/2009

Warrants

Warrants 6/24/2009

Warrants

$275,000

$1,400,000

Final
Disposition
Proceeds

$60,000,000

Final Disposition

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$52.60

$8.45

$14.04

$10.80

$8.08

$2.98

$1.47

$8.10

$29.00

$16.73

$3.25

$13.10

$2.52

$28.10

$26,010

$124

$206

$23

$25

$50

$250

$42

$1,177

$141

$33

$32

$133

$357

Market
Current
Stock Capitalization
(in millions)
Pricee

163,065

595,829

172,970

556,976

137,966

1,179,245

303,083

Number of
Warrants
Originally
Issued

–

$11.87

$14.92

$12.53

$7.85

$3.95

5,576,208

465,569

703,753

114,326

330,554

1,623,418

$5.15 10,106,796

–

$30.21

$21.68

$6.30

$19.57

$6.36

–

Strike
Price
(reflects
updates)a

–

465,569

703,753

114,326

330,554

1,623,418

10,106,796

–

595,829

172,970

556,976

137,966

589,623

–

$(3.42)

$(0.88)

$(1.73)

$0.23

$(0.97)

$(3.68)

–

$(1.21)

$(4.95)

$(3.05)

$(6.47)

$(3.84)

–

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
a
Money”e
updates)

Warrant and Market Data for Publicly–Traded Companies

$100,416

$229,259

$127,686

$1,816,667

$19,414

$333,333

$857,744

$260,576

$331,163

$590,000

$124,729

$222,865

$189,751

$59,312

$173,614

$63,220

$388,889

$1,115,639

Income
Payment
to Treasury
(Dividend or
Interest)f

$413,292

$1,576,806

$1,279,236

$1,008,250

$69,033

$626,750

$419,157

$2,430,556

$26,324

$331,597

$152,903

$66,243

$403,644

$1,484,375

continued on next page

– $63,611,111

Out

$319,306

$54,682

Out $12,048,611

–

Out

–

In/Out
of the
Moneye

204
Appendix d I transaction detail I October 21, 2009

Stewardship Financial Corporation–
Midland Park, NJ

Stockmens Financial Corporation–
Rapid City, SD2

Stonebridge Financial Corp.–
West Chester, PA2

Suburban Illinois Bancorp, Inc.–
Elmhurst, IL8

1/30/09

2/6/09

1/23/09

6/19/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Superior Bancorp Inc.–Birmingham, AL

Surrey Bancorp– Mount Airy, NC2

12/5/08

1/9/09

SV Financial, Inc.–Sterling, IL

Syringa Bancorp–Boise, ID2

Pref. Stock w/ Warr.

12/19/08 Tennessee Commerce Bancorp, Inc.–
Franklin, TN

The ANB Corporation–Terrell, TX

8/7/09

The Bank of Kentucky Financial
Corporation–Crestview Hills, KY

2/13/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

The First Bancshares, Inc.–
Hattiesburg, MS

The Freeport State Bank–Harper, KS2

2/6/09

$301,000

$5,000,000

$25,000,000

$9,090,000

The First Bancorp, Inc.–Damariscotta, ME Pref. Stock w/ Warr.

1/9/09

12/19/08 The Elmira Savings Bank, FSB–Elmira, NY Pref. Stock w/ Warr.

$20,749,000

$3,000,000,000 6/17/2009

$34,000,000

$4,021,000

$45,220,000

$20,000,000

$3,981,000

$75,000,000 5/13/2009

$3,000,000

$30,000,000

$2,000,000

$5,448,000

Pref. Stock w/ Ex. Warr.

4/8/2009

5/5/2009

$361,172,000 4/22/2009

$11,730,000

$9,720,000

$104,823,000

$8,000,000

$967,870,000

$13,644,000

$235,000,000

$4,000,000

$300,000,000

$2,000,000

$69,000,000

$1,350,000,000

$3,500,000,000

$89,310,000

$8,500,000

$15,000,000

$10,973,000

Pref. Stock w/ Warr.

The Baraboo Bancorporation–
Baraboo, WI2

12/19/08 The Connecticut Bank and Trust
Company–Hartford, CT

1/16/09

10/28/08 The Bank of New York Mellon Corporation–Pref. Stock w/ Warr.
New York, NY4

The Bank of Currituck–Moyock, NC

2/6/09

12/12/08 The Bancorp, Inc.–Wilmington, DE

Texas National Bancorporation–
Jacksonville, TX2

1/9/09

Texas Capital Bancshares, Inc.–
Dallas, TX4

1/16/09

12/23/08 Tennessee Valley Financial Holdings, Inc.– Pref. Stock w/ Ex. Warr.
Oak Ridge, TN2

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

12/23/08 TCNB Financial Corp.–Dayton, OH2

11/14/08 TCF Financial Corporation–Wayzata, MN

Sub. Debent. w/ Ex.
Warr.

TCB Corporation– Greenwood, SC8,10

TCB Holding Company, Texas Community Pref. Stock w/ Ex. Warr.
Bank– The Woodlands, TX2

8/28/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

1/16/09

11/21/08 Taylor Capital Group–Rosemont, IL

1/16/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Sword Financial Corporation–Horicon, WI Sub. Debent. w/ Ex.
Warr.

12/19/08 Synovus Financial Corp.–Columbus, GA

5/8/09

12/12/08 SVB Financial Group–Santa Clara, CA

4/10/09

12/12/08 Susquehanna Bancshares, Inc–Lititz, PA

Pref. Stock w/ Warr.

11/14/08 SunTrust Banks, Inc.–Atlanta, GA

Pref. Stock w/ Warr.

12/31/08 SunTrust Banks, Inc.–Atlanta, GAc

Sun Bancorp, Inc.–Vineland, NJ4

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Ex. Warr.

$10,000,000
$15,568,000

Pref. Stock w/ Warr.

$303,000,000

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

1/9/09

12/19/08 Summit State Bank–Santa Rosa, CA

Sterling Financial Corporation–
Spokane, WA

12/12/08 Sterling Bancshares, Inc.–Houston, TX

12/5/08

$125,198,000

$42,000,000

Pref. Stock w/ Warr.

$30,000,000

12/23/08 Sterling Bancorp–New York, NY

$24,900,000

12/19/08 StellarOne Corporation–Charlottesville, VA Pref. Stock w/ Warr.

Steele Street Bank Corporation–
Denver, CO8,10

9/25/09

$11,019,000

Sub. Debent. w/ Ex.
Warr.

Stearns Financial Services, Inc.–
St. Cloud, MN8

6/26/09

Capital
Investment Repayment
Amount
Date

$3,000,000,000

$75,000,000

$361,172,000

$89,310,000

$125,198,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

Sub. Debent. w/ Ex.
Warr.

Investment
Description

Purchase
Date
Institution

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009

Warrants

8/5/2009

Warrants 5/27/2009

Warrants

$2,100,000

Final
Disposition
Proceeds

$136,000,000

Final Disposition

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$5.62

$18.60

$16.00

$4.12

$28.99

$21.16

$5.72

$16.84

$4.00

$13.04

$6.60

$3.75

$43.27

$5.89

$2.44

$22.55

$5.28

$5.50

$9.27

$2.00

$7.31

$7.22

$14.75

$17

$181

$31

$15

$34,870

$119

$141

$601

$19

$1,676

$73

$1,801

$1,435

$508

$25

$11,249

$122

$26

$52

$105

$597

$131

$335

Market
Current
Stock Capitalization
(in millions)
Pricee

1,543,376

239,212

127,119

6,437,677

2,615,557

516,817

302,623

Number of
Warrants
Originally
Issued

708,116

3,028,264

1,923,792

6,008,902

274,784

1,960,405

758,086

461,538

3,199,988

1,462,647

$13.71

$16.60

$11.70

$4.65

54,705

225,904

116,538

175,742

– 14,516,129

$18.56

$3.46

$14.84

$9.75

$16.93

$10.75

$9.36 15,510,737

$49.78

$14.86

$5.38

$33.70

$44.15 11,891,280

–

$5.33

$11.80

$7.06

$7.18

$12.19

$14.87

Strike
Price
(reflects
updates)a

54,705

225,904

116,538

175,742

–

274,784

1,960,405

758,086

461,538

3,199,988

1,462,647

15,510,737

708,116

3,028,264

1,923,792

6,008,902

11,891,280

–

239,212

127,119

6,437,677

2,615,557

516,817

302,623

$(8.09)

$2.00

$4.30

$(0.53)

–

$2.60

$2.26

$2.00

$(5.75)

$(3.89)

$(4.15)

$(5.61)

$(6.51)

$(8.97)

$(2.94)

$(11.15)

$(21.60)

–

$0.17

$(2.53)

$(5.06)

$0.13

$(4.97)

$(0.12)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
a
Money”e
updates)

Warrant and Market Data for Publicly–Traded Companies

$65,400

$2,395,833

$194,131,944

$1,103,971

$278,611

$195,770

$335,579

$445,421

$270,833

$6,733,333

$2,486,571

$1,353,333

$983,333

$284,351

Income
Payment
to Treasury
(Dividend or
Interest)f

$75,694
$308,434

$7,931,250

$253,122

$859,444

$115,049

$1,526,175

$130,177

$1,218,750

$105,367

$983,333

$70,244

$7,925,719

$371,167

$3,843,511

$8,610

$131,250

$750,000

$297,950

$656,482

continued on next page

Out

– $95,416,667

Out

Out $31,724,628

Out

Out $10,125,000

Out

–

Out

In/Out
of the
Moneye

transaction detail I Appendix d I October 21, 2009

205

TIB Financial Corp–Naples, FL

12/5/08

Tifton Banking Company–Tifton, GA

Titonka Bancshares, Inc–Titonka, IA

Todd Bancshares, Inc.–Hopkinsville, KY2

4/3/09

Pref. Stock w/ Ex. Warr.

Trinity Capital Corporation–
Los Alamos, NM2

Tri–State Bank of Memphis–
Memphis, TN2,3

TriState Capital Holdings, Inc.–
Pittsburgh, PA2

TriSummit Bank–Kingsport, TN2

3/27/09

4/3/09

2/27/09

4/3/09

UBT Bancshares, Inc.–Marysville, KS

1/30/09

Union Bank & Trust Company–
Oxford, NC2

$14,400,000

United Community Banks, Inc.–
Blairsville, GA

12/5/08

University Financial Corp, Inc.–
St. Paul, MN3,8

US Metro Bank–Garden Grove, CA

6/19/09

2/6/09

12/23/08 Uwharrie Capital Corp–Albemarle, NC2

Pref. Stock w/ Ex. Warr.

Sub. Debent.

Pref. Stock w/ Ex. Warr.

Universal Bancorp– Bloomfield, IN2

5/22/09

Pref. Stock w/ Warr.

United Financial Banking Companies,
Inc.–Vienna, VA2

Unity Bancorp, Inc.–Clinton, NJ

1/16/09

12/5/08

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Sub. Debent. w/ Ex.
Warr.

United Bank Corporation–
Barnesville, GA8

5/22/09

$8,700,000
$10,300,000

Pref. Stock w/ Warr.

$10,000,000

$2,861,000

$11,926,000

$9,900,000

$20,649,000

$5,658,000

$180,000,000

$20,600,000

Pref. Stock w/ Warr.

12/23/08 United Bancorporation of Alabama,
Inc.–Atmore, AL

Pref. Stock w/ Ex. Warr.

United American Bank–San Mateo, CA2

United Bancorp, Inc.–Tecumseh, MI

$59,000,000

$3,194,000

$214,181,000

$298,737,000

$8,950,000

$50,236,000

$6,599,000,000 6/17/2009

$12,000,000

$215,000,000

$2,765,000

$23,000,000

$2,795,000

$35,539,000

$15,540,000

$3,700,000

$3,268,000

$76,458,000

$4,000,000

$2,117,000

$16,641,000

$3,800,000

$14,448,000

$37,000,000

$541,000

$1,697,000

$12,000,000

$5,450,000

$7,579,200,000

$7,500,000

$15,000,000

2/20/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Capital
Repayment
Amount6

$6,599,000,000

$10,000,000,000 6/17/2009 $10,000,000,000

Capital
Investment Repayment
Amount
Date

Capital Repayment Details

(CONTINUED)

1/16/09

12/19/08 Union Bankshares Corporation–
Bowling Green, VA

5/1/09

11/14/08 Umpqua Holdings Corp.–Portland, OR

11/14/08 UCBH Holdings, Inc.–San Francisco, CA

U.S. Century Bank–Miami, FL2

8/7/09

11/14/08 U.S. Bancorp–Minneapolis, MN

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

5/29/09

Two Rivers Financial Group–
Burlington, IA2

Pref. Stock w/ Warr.

11/21/08 Trustmark Corporation–Jackson, MS

Pref. Stock

Pref. Stock w/ Ex. Warr.

12/19/08 Tri–County Financial Corporation–
Waldorf, MD2

Pref. Stock w/ Ex. Warr.

Treaty Oak Bancorp, Inc.–Austin, TX2

Triad Bancorp, Inc.– Frontenac, MO2

1/16/09

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Sub. Debent. w/ Ex.
Warr.

Pref. Stock w/ Ex. Warr.

3/27/09

12/12/08 TowneBank–Portsmouth, VA

2/6/09

12/23/08 Timberland Bancorp, Inc.–Hoquiam, WA

4/17/09

The Victory Bank–Limerick, PA2

2/27/09

12/19/08 Tidelands Bancshares, Inc–
Mt. Pleasant, SC

The State Bank of Bartley–Bartley, NE

9/4/09

8,10

The Private Bank of California–
Los Angeles, CA2

The Queensborough Company–
Louisville, GA2

2/20/09

1/9/09

Pref. Stock w/ Warr.

12/31/08 The PNC Financial Services Group Inc.–
Pittsburgh, PA

Pref. Stock w/ Ex. Warr.

The Landrum Company–Columbia, MO

12/23/08 The Little Bank, Incorporated–
Kinston, NC2

5/22/09

Investment
Description

Pref. Stock w/ Warr.

Purchase
Date
Institution

10/28/08 The Goldman Sachs Group, Inc.–
New York, NY4

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009
Final Disposition

Warrants 7/15/2009

Warrants 7/22/2009

Final
Disposition
Proceeds

Warrants

$139,000,000

$4.20

$5.00

$6.00

$12.45

$10.60

$0.80

$21.86

$19.05

$12.75

$4.64

$2.96

$1.49

$48.59

$30

$440

$11

$30

$228

$883

$96

$41,796

$1,094

$299

$33

$13

$22

$22,420

$94,246

Number of
Warrants
Originally
Issued

1,647,931

538,184

370,899

571,821

1,063,218

$4.05

$12.37

$14.85

$9.92

$20.94

$14.46

$5.71

764,778

2,132,701

104,040

311,492

422,636

2,221,795

7,847,732

– 32,679,102

$19.57

$21.31

$6.73

$3.79

$5.07

$67.33 16,885,192

– 12,205,045

Strike
Price
(reflects
updates)a

764,778

2,182,297

104,040

311,492

422,636

1,110,898

7,847,732

–

1,647,931

538,184

370,899

571,821

2,180,023

16,885,192

–

$0.15

$(7.37)

$(9.85)

$(3.92)

$(8.49)

$(3.86)

$(4.91)

–

$(0.52)

$(8.56)

$(2.09)

$(0.83)

$(3.58)

$(18.74)

–

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
Money”e
updates)a

Warrant and Market Data for Publicly–Traded Companies

Market
Current
Stock Capitalization
(in millions)
Pricee

Warrants $1,100,000,000 $184.35

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment
Income
Payment
to Treasury
(Dividend or
Interest)f

$13,758

$138,067

$7,883,333

$55,246

$584,967

$51,242

$742,471

$555,210

$77,300

$103,380

$2,580,458

$114,450

$42,310

$536,211

$67,883

$473,573

$1,284,722

$264,334

$351,222

$81,858

$142,847

$124,396

$716,980

$179,026

$6,250,000

$278,551

$331,889

$597,972

$1,933,889

$50,296

$8,061,535

$7,509,920

continued on next page

Out

– $195,220,417

Out

$392,400

$144,409

Out $236,850,000

$263,417

$188,479

– $318,055,555

In/Out
of the
Moneye

206
Appendix d I transaction detail I October 21, 2009

Pref. Stock w/ Warr.

$140,000,000

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

11/21/08 Western Alliance Bancorporation–
Las Vegas, NVb

12/23/08 Western Community Bancshares, Inc.–
Palm Desert , CA2

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Pref. Stock w/ Ex. Warr.

12/12/08 Wilshire Bancorp, Inc.–Los Angeles, CA

12/19/08 Wintrust Financial Corporation–
Lake Forest, IL

Worthington Financial Holdings, Inc.–
Huntsville, AL2

WSFS Financial Corporation–
Wilmington, DE

Yadkin Valley Financial Corporation–
Elkin, NC

York Traditions Bank–York, PA2

5/15/09

1/23/09

1/16/09

7/24/09

4/24/09

11/14/08 Zions Bancorporation–Salt Lake City, UT

Pref. Stock w/ Warr.

12/12/08 Wilmington Trust Corporation–
Wilmington, DE

$1,400,000,000

$4,871,000

$13,312,000

$36,000,000

$52,625,000

$2,720,000

$250,000,000

$62,158,000

$330,000,000

$300,000,000

$16,800,000

Pref. Stock w/ Ex. Warr.

White River Bancshares Company–
Fayetteville, AR2

2/20/09

12/19/08 Whitney Holding Corporation–
New Orleans, LA

$4,700,000

Pref. Stock w/ Ex. Warr.

Western Reserve Bancorp, Inc–
Medina, OH2

5/15/09

$6,855,000

Pref. Stock w/ Ex. Warr.

12/23/08 Western Illinois Bancshares Inc.–
Monmouth, IL2

$7,290,000

$83,726,000

Pref. Stock w/ Warr.

Westamerica Bancorporation–
San Rafael, CA

2/13/09

$36,000,000

$75,000,000

$25,000,000,000

$400,000,000

$5,625,000

$6,633,000

Pref. Stock w/ Warr.

9/23/2009

6/3/2009

9/2/2009

9/9/2009

$200,000,000 5/27/2009

$26,380,000

$22,000,000

$110,000,000

$25,000,000

$1,500,000

12/31/08 West Bancorporation, Inc.–
West Des Moines, IA

Wesbanco Bank Inc.–Wheeling, WV4

Pref. Stock w/ Warr.

12/5/08

10/28/08 Wells Fargo & Company–
San Francisco, CA

Pref. Stock w/ Ex. Warr.

Pref. Stock w/ Warr.

Waukesha Bankshares, Inc.–
Waukesha, WI2,10

6/26/09

Pref. Stock w/ Ex. Warr.

11/21/08 Webster Financial Corporation–
Waterbury, CT

WashingtonFirst Bank– Reston, VA2

11/14/08 Washington Federal Inc.–Seattle, WA

1/30/09

Pref. Stock w/ Warr.

1/16/09

Washington Banking Company–
Oak Harbor, WA

12/19/08 Wainwright Bank & Trust Company–
Boston, MA

Pref. Stock w/ Ex. Warr.

1/30/09

W.T.B. Financial Corporation–
Spokane, WA2

Pref. Stock w/ Warr.

12/19/08 VIST Financial Corp.–Wyomissing, PA

Pref. Stock w/ Ex. Warr.

Vision Bank–Texas– Richardson, TX2

4/24/09

$4,700,000

$71,000,000

Pref. Stock w/ Ex. Warr.

Virginia Company Bank–
Newport News, VA2,10

6/12/09

12/12/08 Virginia Commerce Bancorp–Arlington, VA Pref. Stock w/ Warr.

$300,000,000

$14,738,000

Village Bank and Trust Financial Corp–
Midlothian, VA

Pref. Stock w/ Warr.

5/1/09

11/14/08 Valley National Bancorp–Wayne, NJ4

11/14/08 Valley National Bancorp–Wayne, NJ

$16,019,000

$5,500,000

Valley Community Bank– Pleasanton, CA2 Pref. Stock w/ Ex. Warr.

12/12/08 Valley Financial Corporation–Roanoke, VA Pref. Stock w/ Warr.

$7,700,000

Pref. Stock w/ Ex. Warr.

Valley Commerce Bancorp–Visalia, CA2

Capital
Investment Repayment
Amount
Date

1/9/09

Investment
Description

$41,863,000

$75,000,000

$41,863,000

$125,000,000 $100,000,000

$200,000,000

Final Disposition

Preferred
Stock w/
Warrants

Warrants

Preferred
Stock w/
Warrants

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

$75,000,000 $225,000,000

Capital
Repayment
Amount6

Capital Repayment Details

(CONTINUED)

1/30/09

Purchase
Date
Institution

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009

Final
Disposition
Proceeds

$17.97

$4.67

$26.64

$27.96

$7.34

$14.20

$9.54

$6.31

$52.00

$4.96

$15.46

$28.18

$12.47

$16.86

$9.26

$6.55

$5.85

$3.99

$4.01

$12.29

$3.43

$2,272

$75

$165

$673

$216

$984

$646

$457

$1,519

$86

$411

$131,646

$850

$1,839

$88

$48

$34

$107

$17

$1,758

$16

Market
Current
Stock Capitalization
(in millions)
Pricee

3,282,276

1,707,456

492,164

390,071

364,078

2,696,203

499,029

2,297,090

344,742

Number of
Warrants
Originally
Issued

3,282,276

1,707,456

492,164

390,071

364,078

2,696,203

499,029

2,411,945

344,742

$36.27

$7.30

$13.99

$45.08

$22.82

$9.82

$26.66

$17.10

$13.34

$50.92

$11.39

$25.61

5,789,909

273,534

385,990

175,105

1,643,295

949,460

1,856,714

2,631,579

1,574,213

246,640

474,100

439,282

5,789,909

385,990

175,105

1,643,295

949,460

1,856,714

2,631,579

787,107

246,640

474,100

439,282

$(18.30)

$(0.76)

$(9.32)

$(18.44)

$5.14

$(2.48)

$(12.46)

$(7.56)

$(7.03)

$1.08

$(6.43)

$(10.15)

$(5.83)

$(5.81)

$(0.71)

$1.22

$(1.91)

$(4.45)

$0.04

$(0.42)

$(6.37)

$(3.54)

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
a
Money”e
updates)

$34.01 110,261,688 110,261,688

$18.28

$17.57

$8.04

$8.46

$10.30

$3.95

$4.43

$18.66

$6.97

Strike
Price
(reflects
updates)a

Warrant and Market Data for Publicly–Traded Companies

$540,642

$179,851

$227,311

Income
Payment
to Treasury
(Dividend or
Interest)f

$40,351

$195,829

$5,361,111

$765,753

$721,111

$3,247,291

$819,444

$25,207

$43,377

$2,396,250

$212,882

$9,833,333

$445,083

$64,038

$240,778

$256,071

$5,133,333

$2,215,250

$1,125,000

$2,854,167

$81,866

$1,083,827

$1,476,424

$37,060

$8,194,444

$2,097,833

continued on next page

Out $52,694,444

Out

Out $11,137,500

Out

Out $996,527,778

Out $14,666,667

Out

Out $11,201,389

Out

In/Out
of the
Moneye

transaction detail I Appendix d I October 21, 2009

207

Investment
Description

Capital
Repayment
Amount6

TOTAL
CAPITAL REPAYMENT
AMOUNT
$70,717,027,000

TOTAL
TREASURY CPP INVESTMENT AMOUNT
$133,900,546,320

TOTAL
PURCHASE AMOUNT
$204,617,573,320

Capital
Investment Repayment
Amount
Date

Capital Repayment Details

(CONTINUED)
Final Disposition

Remaining Remaining
Final Disposition
Capital Investment Disposition Investment
Amount Description
Date Description

Treasury Investment
Remaining After
Capital Repayment

Final
Disposition
Proceeds

Market
Current
Stock Capitalization
(in millions)
Pricee

Strike
Price
(reflects
updates)a

Number of
Warrants
Originally
Issued

Current
Amount
Number of
“In the
Outstanding
Warrants Money” or
(reflects “Out of the
Money”e
updates)a

Warrant and Market Data for Publicly–Traded Companies

In/Out
of the
Moneye

Income
Payment
to Treasury
(Dividend or
Interest)f

Sources: Treasury, responses to SIGTARP data call, 6/30/2009, 7/8/2009, 9/30/2009, 10/7/2009; Treasury, Transactions Report, 10/2/2009, www.treas.gov, accessed 10/6/2009; Market Data: Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com, accessed 10/6/2009; Yahoo Finance, http://
finance.yahoo.com, accessed 10/7/2009, Treasury, response to SIGTARP draft, 10/16/2009.

Notes: Numbers affected by rounding. Data as of 9/30/2009. Numbered notes taken verbatim from Treasury’s 10/2/2009 Transactions Report containing data as of 9/30/2009.
1
This transaction was included in previous Transaction Reports with Merrill Lynch & Co., Inc. listed as the qualifying institution and a 10/28/2008 transaction date, footnoted to indicate that settlement was deferred pending merger. The purchase of Merrill Lynch by Bank of America was completed on 1/1/2009,
and this transaction under the CPP was funded on 1/9/2009.
2
Privately–held qualified financial institution; Treasury received a warrant to purchase additional shares of preferred stock (unless the institution is a CDFI), which it exercised immediately.
3
To promote community development financial institutions (CDFIs), Treasury does not require warrants as part of its investment in certified CDFIs when the size of the investment is $50 million or less.
4
Repayment pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009.
5
Redemption pursuant to a qualified equity offering.
6
This amount does not include accrued and unpaid dividends, which must be paid at the time of capital repayment.
7
The proceeds associated with the disposition of this investment do not include accrued and unpaid dividends.
8
Subchapter S corporation; Treasury received a warrant to purchase additional subordinated debentures (unless the institution is a CDFI), which it exercised immediately.
9
In its qualified equity offering, this institution raised more capital than Treasury’s original investment, therefore, the number of Treasury’s shares underlying the warrant was reduced by half.
10
This institution participated in the expansion of CPP for small banks.
11
Treasury has three separate investments in Citigroup Inc. (“Citigroup”) under CPP, TIP, and AGP for a total of $49 billion. On 6/9/2009, Treasury entered into an agreement with Citigroup to exchange up to $25 billion of Treasury’s investment in Fixed Rate Cumulative Perpetual Preferred Stock, Series H (CPP
Shares) “dollar for dollar” in Citigroup’s Private and Public Exchange Offerings. On 7/23/2009 and 7/30/2009, Treasury exchanged a total of $25 billion of the CPP shares for Series M Common Stock Equivalent (“Series M”) and a warrant to purchase shares of common stock. On 9/11/2009, Series M
automatically converted to 7,692,307,692 shares of common stock and the associated warrant terminated on receipt of certain shareholder approvals.
12
On 8/24/2009, Treasury exchanged its Series C Preferred Stock issued by Popular, Inc. for a like amount of non tax–deductible Trust Preferred Securities issued by Popular Capital Trust III, administrative trustee for Popular, Inc. Popular, Inc. paid a $13 million exchange fee in connection with this transaction.
a
According to Treasury, “If a Share Dividend is declared on a common stock of a bank in which Treasury holds outstanding warrants, Treasury is entitled to additional warrants. The ‘Update’ netted is the amount of new warrant shares that have been received as a result of the corporate action.” Thus, the strike
prices presented reflects these adjustments provided by Treasury. It appears that Treasury also adjusts the number of shares based on corporate actions as well. Those adjustments are also presented in the current number of outstanding warrants.
b
According to Treasury, these institutions executed Qualified Equity Offerings which “reduce the number of outstanding warrants held by Treasury.”
c
Treasury made two investments in SunTrust. Since the dividends could not be allocated between the transactions, they are presented on a combined basis.
d
According to Treasury, “Provident was purchase by M&T Bank (a public institution). Treasury is currently in the process of swapping the warrants issued by Provident for warrants issued by M&T Bank.” According to Treasury, “the closing of the merger of the two banks preferred shares and warrants have not yet
taken place.”
e
When a warrant’s current market price rises above the strike price, it is considered “In the Money,” otherwise it is considered “Out of the Money.” Presented as of 9/30/2009.
f
Popular paid Treasury $13 million in fee income, reflected in the Payments to Treasury column. See note 12.
g
According to Treasury, “on 1/9/09 the original warrant was replaced by a new warrant certificate (not a second certificate to go along with the first one) for 121,792,790 total warrant shares. The new warrant also has a $30.79 Strike Price.”
h
According to Treasury, on 9/11/2009, an “extinguishment” transaction “made [warrants] worthless upon execution of Citi Series M Common Stock Equivalent to Common Exchange.”

Purchase
Date
Institution

Purchase Details

CPP TRANSACTION DETAIL, AS OF 9/30/2009

208
Appendix d I transaction detail I October 21, 2009

4/17/09

AIG

11/25/08 AIG

Date

New York

City

Seller

State

Purchase

Transaction
Type

TOTAL

Preferred Stock w/
Warrants
$69,835,000,000

$29,835,000,000 Par

$40,000,000,000 Par
2

Pricing
Investment Amount Mechanism

Purchase Details

Preferred Stock w/
Warrants

Investment
Description

4/17/09 Exchange

Date

Preferred Stock
w/ Warrants1

Investment Pricing
Amount Mechanism

$40,000,000,000 Par

Exchange Details
Transaction Investment
Type
Description

$44.11

Stock Price

Warrants and Market Data

$5,936

$5,936
$0.00002

$50.00
150

2,689,938

Market Strike Price Outstanding
Capitalization
(reflects
Number of
(in millions)
updates)
Warrants

$44.11

$(5.89)

Amount “In the
Money” or “Out
of the Money”a

Out

New York

Charlotte

State

Purchase

Transaction
Type

TOTAL

Preferred Stock w/
Warrants

Trust Preferred
Securities

Investment
Description

$40,000,000,000

$20,000,000,000 Par

Investment Pricing
Amount Mechanism

$16.92

$4.84
$146,385

$110,741

Market
Stock Capitalization
Price
(in millions)

$13.30

$10.61

Strike
Price

150,375,940

188,501,414

Outstanding
Number of
Warrants

$3.62

$(5.77)

Amount
“In the Money”
or “Out of the
Money”a

Warrants and Market Data

Out

In or Out
of the
Money?a

$928,888,889

$933,333,333

Payment to
Treasury
Dividend Payments

New York

City

State

Guarantee

Transaction Type

Second-Loss Guarantee
on Asset Pool

Investment Description

$5,000,000,000 Preferred Stock and Warrants

Guarantee Limit Premium Received

Transaction Detailsb

$4.84

$110,741

Market
Stock Capitalization
Price
(in millions)

$10.61

Strike
Price

66,531,728

$(5.77)

Amount
Outstanding “In the Money”
Number of or “Out of the
Warrants
Money” a

Warrants and Market Data

Out

In or Out
of the
Money? a

$174,806,667

Payment to
Treasury Dividend
Payments

Sources: Treasury, response to SIGTARP data call, 10/7/2009; Treasury, Transactions Report, 10/2/2009; Market Data: Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com, accessed 10/6/2009.

Notes: Numbers affected by rounding. Data as of 9/30/2009. Numbered notes taken from Treasury’s 10/2/2009 Transactions Report containing data as of 9/30/2009.
1
In consideration for the guarantee, Treasury received $4.03 billion of preferred stock, which pays 8% interest.
2
Treasury has three separate investments in Citigroup Inc. (“Citigroup”) under CPP, TIP, and AGP for a total of $49 billion. On 6/9/2009, Treasury entered into an agreement with Citigroup to exchange all of Treasury’s investments. On 7/30/2009, Treasury exchanged all of its Fixed
Rate Cumulative Perpetual Preferred Stock Series G (AGP Shares), received as premium with the AGP agreement, “dollar for dollar” for Trust Preferred Securities.
a
When a warrant’s current market price rises above the strike price, it is considered “In the Money,” otherwise it is considered “Out of the Money.”
b
AGP transaction is a guarantee, not a purchase. Treasury received a premium including preferred stock and warrants as part of this transaction.

1/16/09 Citigroup Inc.

1,2

Name of Institution

Date

Note

Seller

AGP Transaction Detail, AS OF 9/30/2009

Table D.4

Source: Treasury, response to SIGTARP data call, 10/7/2009; Treasury, Transactions Report, 10/2/2009.

Note: Numbers affected by rounding. Data as of 9/30/2009. Numbered notes taken from Treasury’s 10/2/2009 Transactions Report containing data as of 9/30/2009.
1
Treasury has three separate investments in Citigroup Inc. (“Citigroup”) under CPP, TIP, and AGP for a total of $49 billion. On 6/9/2009, Treasury entered into an agreement with Citigroup to exchange all of Treasury’s investments. On 7/30/2009, Treasury
exchanged all of its Fixed Rate Cumulative Perpetual Preferred Stock, Series I (TIP Shares) “dollar for dollar” for Trust Preferred Securities.

Bank of America Corporation

12/31/08 Citigroup Inc.

1/16/09

City

Name of Institution

Date

Note

Seller

TIP Transaction Detail, AS OF 9/30/2009

Table D.3

Source: Treasury, response to SIGTARP data call, 10/7/2009; Treasury, Transactions Report, 10/2/2009.

In or Out Payments
of the
to
Money? a Treasury

Notes: Numbers affected by rounding. Data as of 9/30/2009. Numbered notes taken from Treasury’s 10/2/2009 Transactions Report containing data as of 9/30/2009.
1
On 4/17/2009, Treasury exchanged its Series D Fixed Rate Cumulative Preferred Shares for Series E Fixed Rate Non-Cumulative Preferred Shares with no change to Treasury’s initial investment amount. In addition, in order for AIG to fully redeem the Series E Preferred Shares, it has an additional obligation to
Treasury of $1,604,576,000 to reflect the cumulative unpaid dividends for the Series D Preferred Shares due to Treasury through and including the exchange date.
2
The investment price reflects Treasury’s commitment to invest up to $30 billion less a reduction of $165 million representing retention payments AIG Financial Products made to its employees in March 2009.
3
This transaction does not include AIG’s commitment fee of an additional $165 million scheduled to be paid from its operating income in three equal installments over the five-year life of the facility.

Note

Name of
Institution

SSFI Transaction Detail, as of 9/30/2009

Table D.2

transaction detail I Appendix d I October 21, 2009

209

3/3/09

TALF LLC

Name of Institution

Seller
State

Wilmington DE

City

Purchase
TOTAL

Debt Obligation w/ Additional
Note
$20,000,000,000

$20,000,000,000 N/A

Pricing
Investment Amount Mechanism

Purchase Details
Transaction Type Investment Description

9/30/09 UST/TCW Senior Mortgage
Securities Fund, L.P.

9/30/09 Invesco Legacy Securities
Master Fund, L.P.

State

Wilmington DE

City

Purchase

Transaction
Type

TOTAL

Debt Obligation w/ Contingent
Proceeds

Membership Interest

Debt Obligation w/ Contingent
Proceeds

Membership Interest

Investment Pricing
Amount Mechanism

$2,222,222,222 Par

$1,111,111,111 Par

$2,222,222,222 Par

$1,111,111,111 Par

$6,666,666,666

Purchase Details
Investment Description

Source: Treasury, response to SIGTARP data call, 10/7/2009; Treasury, Transactions Report, 10/2/2009.

Note: Numbers affected by rounding. Data as of 9/30/2009. Numbered notes taken from Treasury’s 10/2/2009 Transactions Report containing data as of
9/30/2009.
1
The equity amount may be incrementally funded. Investment amount represents Treasury’s maximum obligation if the limited partners other than Treasury fund
their maximum equity capital obligations.
2
The loan may be incrementally funded. Investment amount represents Treasury’s maximum obligation if Treasury and the limited partners other than Treasury
fund 100% of their maximum equity obligations.

9/30/09 UST/TCW Senior Mortgage
Securities Fund, L.P.

Seller

Date

Note

Name of Institution

PPIP Transaction Detail, as of 9/30/2009

Table D.6

Sources: Treasury, response to SIGTARP data call, 10/7/2009; Treasury, Transactions Report, 10/2/2009.

Date

Note

TALF Transaction Detail, As of 9/30/2009

Table D.5

210
Appendix d I transaction detail I October 21, 2009

Date

1/16/09

1/2/09

4/29/09

5/1/09

5/20/09

12/29/08

12/31/08

4/22/09

5/20/09

5/27/09

6/3/09

7/10/09

12/29/08

5/21/09

5/27/09

Note

14,
21, c

4, 5,
21, c

4, 6,
21,
b, c

7, c

8, c

1, 20

20, d

3, 20

9, 20

11,
20, b

13, 20

18, b

Purchase

TOTAL

Debt Obligation w/
Additional Note,
Equity Interest

Preferred Stock
w/ Exercised
Warrants

Debt Obligation w/
Additional Note,
Equity Interest

Debt Obligation w/
Additional Note

Debt Obligation
w/ Warrants and
Additional Note

Debt Obligation

Debt Obligation w/
Additional Note

Purchase

Debt Obligation w/
Additional Note

Investment
Description

Purchase

Transaction
Type

(CONTINUED)

N/A

$79,966,778,971

$6,642,000,000 N/A

$7,500,000,000 Par

$5,000,000,000 Par

$7,072,488,605 N/A

$23,027,511,395 N/A

$360,624,198 N/A

$4,000,000,000 N/A

$2,000,000,000 N/A

$13,400,000,000 N/A

$884,024,131 N/A

$756,857,000

$3,043,143,000

$280,130,642 N/A

$500,000,000 N/A

$4,000,000,000 N/A

$1,500,000,000 N/A

Pricing
Investment Amount Mechanism

Purchase Details

Total Treasury Investment Amount $77,826,024,131

New CarCo Acquisition
LLC—Wilmington, DE

GMAC LLC—Detroit, MI

General Motors Company—
Detroit, MI

General Motors
Corporation—Detroit, MI

Chrysler LLC—Wilmington,
DE

Chrysler Holding LLC—
Auburn Hills, MI

Chrysler Financial Services
Americas LLC—Farmington
Hills, MI

Name of Institution

Seller

AIFP TRANSACTION DETAIL, as of 9/30/2009

Table D.7

7/10/09

5/29/09

Date

Exchange

Transaction
Type

Preferred and
common stock in
General Motors
Company 17, 18

Preferred and
common stock in
General Motors
Company 16, 18

Preferred and
common stock in
General Motors
Company 18

Equity Interest in
GMAC 12, 15

Investment
Description

$44,357,709.98
$1,369,197,029.15

6/17/09
7/14/09

7/10/09

$360,624,198

Total Principal Repayment Amount $2,140,754,840

$22,041,706,310 Par

$360,624,198 Par

$4,000,000,000 Par

$2,000,000,000 Par

$13,400,000,000 Par

$884,024,131 Par

$51,136,083.81

5/18/09

$280,130,642

$31,810,122.11

4/17/09

7/10/09

$3,499,054.95

Principal
Repayment
Amount 19

3/17/09

Principal
Investment
Pricing Repayment
Amount Mechanism
Date

Exchange Details
Remaining
Investment
Description

6,711,864,407 Debt
Obligation
w/ Additional
Note, Equity
Interest

- N/A

1,369,197,029 Debt
Obligation w/
Additional Note

1,413,554,739 Debt
Obligation w/
Additional Note

1,464,690,823 Debt
Obligation w/
Additional Note

1,496,500,945 Debt
Obligation w/
Additional Note

Remaining
Principal
Amount

Principal Repayment Details

$55,237,713

$7,405,894

Interest
Payment a

Continued on next page.

$430,611,111

$34,083,686 $143,526,108

see note a

Dividend
Payment a

Payments to Treasury

transaction detail I Appendix d I October 21, 2009

211

(CONTINUED)

4/9/09

Chrysler Receivables SPV LLC

GM Supplier Receivables LLC

Name of Institution

Wilmington

City

State

Purchase

INITIAL TOTAL

Debt Obligation w/
Additional Note

Transaction Investment
Type
Description

$5,000,000,000

$1,500,000,000 N/A

$3,500,000,000 N/A
$(500,000,000)
ADJUSTED TOTAL

$(1,000,000,000)

7/8/09 3

Adjustment
Amount

$3,500,000,000

$1,000,000,000

$2,500,000,000

Adjusted Investment
Amount

Adjustment Details

7/8/09 3

Investment Pricing
Adjustment
Amount Mechanism Date

$2,300,564

$3,601,370

Payment to
Treasury
Dividend Payments

Sources: Treasury, response to SIGTARP data call, 10/7/2009; Treasury, Transactions Report, 10/2/2009.

Notes: Numbers affected by rounding. Data as of 9/30/2009. Numbered notes taken from Treasury’s 10/2/2009 Transactions Report containing data as of 9/30/2009.
1
The loan was funded through GM Supplier Receivables, LLC, a special purpose vehicle created by General Motors Corporation. The amount of $3,500,000,000 represents the maximum loan amount. The loan will be incrementally
funded. The credit agreement was fully executed on 4/9/2009, but was made effective as of 4/3/2009. General Motors Company assumed GM Supplier Receivables LLC on 7/10/2009.
2
The loan was funded through Chrysler Receivables SPV LLC, a special purpose vehicle created by Chrysler LLC. The amount of $1,500,000,000 represents the maximum loan amount. The loan will be incrementally funded. The credit
agreement was fully executed on 4/9/2009, but was made effective as of 4/7/2009. Chrysler Group LLC assumed Chrysler Receivables SPV LLC on 6/10/2009.
3
Treasury issued notice to the institution of the permanent reduced commitment on 7/8/2009; the reduction was effective on 7/1/2009.

Date

Note

Seller

ASSP Transaction Detail
AUTOMOTIVE SUPPLIER SUPPORT PROGRAM, as of 9/30/2009

Table D.8

Source: Treasury, response to SIGTARP data call, 10/7/2009; Treasury, Transactions Report, 10/2/2009; Market Data: Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com, accessed 10/6/2009.
Continued on next page.

Note: Numbers affected by rounding. Data as of 6/30/2009. Numbered notes taken from Treasury’s 7/2/2009 Transactions Report containing data as of 6/30/2009.
1
Treasury committed to lend General Motors Corporation up to $1,000,000,000. The ultimate level of funding was dependent upon the level of investor participation in GMAC LLC’s rights offering. The amount has been updated to reflect the final level of funding.
2
The loan was funded through Chrysler LB Receivables Trust, a special purpose vehicle created by Chrysler Financial. The amount of $1,500,000,000 represents the maximum loan amount. The loan was incrementally funded until it reached the maximum amount of $1.5 billion on 4/9/2009.
3
This transaction is an amendment to Treasury’s 12/31/2008 agreement with General Motors Corporation, which brought the total loan amount to $15,400,000,000.
4
This transaction is an amendment to Treasury’s 1/2/2009 agreement with Chrysler Holding LLC, increasing the total loan amount to $4,780,130,642.
5
The loan may be incrementally funded.
6
The loan will be used to capitalize Chrysler Warranty SPV LLC, a special purpose vehicle created by Chrysler LLC.
7
The terms of this transaction, first reported based on a binding term sheet fully executed on 5/1/2009 but made effective as of 4/30/2009, are now finalized and reflected in a credit agreement fully executed on 5/5/2009. Under the terms of the credit agreement, all commitment amounts were adjustedas follows:
Treasury’s commitment amount is $3.04 billion of the total $4.1 billion debtor-in-possession (DIP) credit facility. The amount of $1.4 billion, of which Treasury’s share is $1.04 billion, is available in weekly disbursements under the terms of the Bankruptcy Court’s interim order approving the DIP credit facility; the balance will be
available in weekly disbursements after certain Bankruptcy Court milestones are met.
8
This transaction is an amendment to Treasury’s DIP credit agreement with Chrysler LLC dated 5/5/2009 and increases Treasury’s commitment to $3,800,000,000. The amendment was fully executed on 5/20/2009, but was made effective as of 5/15/2009.
9
This transaction is an amendment to Treasury’s 12/31/2008 agreement with General Motors Corporation, which brought the total loan amount to $19,400,000,000, including the 4/22/2009 amendment.
10
The terms of this transaction, first reported based on a term sheet fully executed on 5/27/2009 for an amount up to $6.943 billion, are now finalized and reflected in a credit agreement fully executed on 6/10/2009. Under the terms of the credit agreement, Treasury made a new commitment to New CarCo Acquisition LLC
(renamed Chrysler Group LLC on or about 6/10/2009) of up to $6.642 billion. The total loan amount is up to $7.142 billion including $500 million of debt assumed from Treasury’s 1/2/2009 credit agreement with Chrysler Holding LLC. The debt obligations will be secured by a first priority lien on the assets of New CarCo
Acquisition LLC (the company that purchased Chrysler LLC’s assets in a sale pursuant to section 363 of the Bankruptcy Code).
11
This transaction is an amendment to Treasury’s 12/31/2008 agreement with General Motors Corporation, which brings the total loan amount to $19,760,624,198, including the 4/22/2009 and 5/20/2009 amendments. The $360 million loan will be used to capitalize GM Warranty LLC, a special purpose vehicle created
by General Motors Corporation. On 7/10/2009, the principal amount was included in the $7.07 billion of debt assumed by the new GM, as explained in footnote 17.
12
Pursuant to its rights under the loan agreement with General Motors Corporation (GM) reported on 12/29/2009, Treasury exchanged its $884 million loan to GM for a portion of GM’s common equity interest in GMAC LLC. As a result of the exchange, Treasury holds a 35.4% common equity interest in GMAC LLC.
13
Under the terms of the $33.3 billion debtor-in-possession (DIP) credit agreement, Treasury’s commitment amount is $30.1 billion. Up to $15 billion is available pursuant to the interim order the Bankruptcy Court entered approving the DIP credit facility, of which Treasury’s share is $12.8 billion; the balance will be available
shortly after the Bankruptcy Court’s final and non-appealable order approving the DIP credit facility.
14
Pursuant to the agreement originally reported on 5/27/2009 and fully executed on 6/10/2009 (explained in Footnote 10), $500 million of this deal’s debt will be assumed under that fully executed agreement.
15
GMAC LLC is now known as GMAC Inc. effective 6/30/2009.
16
This investment amount was funded as a prepayment of the new General Motors Company’s assumed note described in footnote 17.
17
On 7/10/2009, Treasury and Motors Liquidation Company (formerly known as General Motors Corporation) amended the 6/3/2009 DIP credit agreement for $30.1 billion between Treasury and General Motors Corporation. Under the terms of the amendment, the DIP loan and interest accruing thereunder were extinguished
and exchanged for privately placed preferred and common equity in General Motors Company (the new GM) except for $986 million, which remained for the benefit of Motors Liquidation Company, and $7.07 billion, which was assumed by General Motors Company as a new obligation under the terms of a separate agreement
(see footnote 18). In total, Treasury received $2.1 billion in preferred shares and 60.8% of the common shares of General Motors Company.
18
On 7/10/2009, Treasury and General Motors Company entered into an agreement under which General Motors Company assumed $7.07 billion of General Motors Corporation’s (now known as Motors Liquidation Company) obligation under its 6/3/2009 agreement with Treasury.
19
This amount does not include accrued and unpaid interest, which must be paid at the time of principal repayment.
20
General Motors Corporation is now known as Motors Liquidation Company.
21
Chrysler Holding LLC is now known as CGI Holding LLC.
a
The information provided by Treasury on principal, income, and dividends was not broken out by transaction. For purposes of this table, it is presented in aggregate for each AIFP participant.
b
This table include AWCP transactions. See notes 6 and 11.
c
This table does not reflect any de-obligations for Chrysler because they were not listed on the 10/2/2009 Transaction Report.
d
According to Treasury, “the GM Warrant was extinguished as part of the bankruptcy exit. It is no longer a holding of UST.”

AIFP TRANSACTION DETAIL, as of 9/30/2009

212
Appendix d I transaction detail I October 21, 2009

Residential Credit Solutions

CCO Mortgage

RG Mortgage Corporation

First Federal Savings and Loan

Wescom Central Credit Union

Citizens First Wholesale
Mortgage Company

Technology Credit
Union

National City Bank

6/12/09

6/17/09

6/19/09

6/26/09

Farmers State Bank

Nationstar Mortgage LLC

5/28/09

7/17/09

Aurora Loan Services, LLC

5/1/09

PNC Bank, National
Association

Carrington Mortgage Services, Santa Ana
LLC

4/27/09

MorEquity, Inc.

Green Tree Servicing LLC

4/24/09

7/17/09

Wilshire Credit Corporation

4/20/09

7/17/09

Home Loan Services, Inc.

4/20/09

IBM Southeast Employees’
Federal Credit Union

Countrywide Home Loans
Servicing LP

4/17/09

Lake National Bank

Bank of America, N.A.

4/17/09

7/10/09

Ocwen Financial Corporation,
Inc.

4/16/09

7/10/09

Chase Home Finance, LLC

4/13/09

Wachovia Mortgage, FSB

Saxon Mortgage Services, Inc.

4/13/09

Bayview Loan Servicing, LLC

GMAC Mortgage, Inc.

4/13/09

7/1/09

Wells Fargo Bank, NA

4/13/09

7/1/09

CitiMortgage, Inc.

4/13/09

State

West Salem

Pittsburgh

Evansville

Delray Beach

Mentor

Coral Gables

Des Moines

Miamisburg

San Jose

The Villages

Anaheim

Port Angeles

San Juan

Glen Allen

Fort Worth

Lewisville

Littleton

Saint Paul

Beaverton

Pittsburgh

Simi Valley

West Palm BeachFL

Iselin

Irving

Ft. Washington

Des Moines

O’Fallon

Salt Lake City

Select Portfolio Servicing

4/13/09

City

Name of Institution

Date

Servicer Modifying Borrowers’ Loans

Purchase

Transaction
Type

Financial Instrument for Home
Loan Modifications

Investment
Description

HAMP Transaction Detail, as of 9/30/2009

Table D.9

$170,000

$54,470,000

$23,480,000

$870,000

$100,000

$44,260,000

$634,010,000

$294,980,000

$70,000

$30,000

$540,000

$770,000

$57,000,000

$16,520,000

$19,400,000

$101,000,000

$798,000,000

$195,000,000

$156,000,000

$366,000,000

$319,000,000

$1,864,000,000

$798,900,000

$659,000,000

$3,552,000,000

$407,000,000

$633,000,000

$2,873,000,000

$2,071,000,000

$376,000,000

N/A

Cap of Incentive
Payments on Behalf
of Borrowers and to
Servicers & Lenders/ Pricing
Investors (Cap) 1 Mechanism

9/30/09

$(90,000)

$(36,240,000)

$18,530,000

$(10,000)

$150,000

$22,419.57

$146,385

$1,081

$131,646

Market
Capitalization
(in millions)

continued on next page

$80,000 Updated portfolio data from servicer & HPDP initial cap

$18,230,000 Updated portfolio data from servicer & HPDP initial cap

$42,010,000 Updated portfolio data from servicer & HPDP initial cap

$860,000 Updated portfolio data from servicer & HPDP initial cap

$250,000 Updated portfolio data from servicer & HPDP initial cap

$68,110,000 Updated portfolio data from servicer & HPDP initial cap

$1,357,890,000 Updated portfolio data from servicer & HPDP initial cap

$723,880,000
$23,850,000

$610,150,000 Updated portfolio data from servicer & HPDP initial cap

$20,000 Updated portfolio data from servicer & HPDP initial cap

$870,000 Updated portfolio data from servicer & HPDP initial cap

$45,700,000 Updated portfolio data from servicer & HPDP initial cap

$29,590,000 Updated portfolio data from servicer & HPDP initial cap

$17,540,000 Updated portfolio data from servicer & HPDP initial cap

$251,700,000 Updated portfolio data from servicer & HPDP initial cap

$117,140,000 Updated portfolio data from servicer

$447,690,000 Updated portfolio data from servicer & HPDP initial cap

$459,550,000 Updated portfolio data from servicer

$222,010,000 Updated portfolio data from servicer & HPDP initial cap

$131,020,000 Updated portfolio data from servicer

$221,790,000 Updated portfolio data from servicer & HPDP initial cap

$91,010,000 Updated portfolio data from servicer

$203,460,000 Updated portfolio data from servicer & HPDP initial cap

$453,130,000 Updated portfolio data from servicer

$494,030,000 Updated portfolio data from servicer & HPDP initial cap

$447,300,000 Updated portfolio data from servicer

$4,465,420,000 Updated portfolio data from servicer & HPDP initial cap

$5,182,840,000 Updated portfolio data from servicer

$967,120,000 Updated portfolio data from servicer & HPDP initial cap

$804,440,000 Updated portfolio data from servicer

$655,960,000 Updated portfolio data from servicer & HPDP initial cap

$553,380,000 Updated portfolio data from servicer

$— Termination of SPA

$886,420,000 Updated portfolio data from servicer & HPDP initial cap

$632,040,000 Updated portfolio data from servicer

$3,554,890,000 Updated portfolio data from servicer & HPDP initial cap

$1,017,650,000 Updated portfolio data from servicer

$2,475,080,000 Updated portfolio data from servicer & HPDP initial cap 2

$2,410,010,000 Updated portfolio data from servicer

$2,089,600,000 Updated portfolio data from servicer & HPDP initial cap

$1,079,420,000 Updated portfolio data from servicer

$782,500,000 Updated portfolio data from servicer & HPDP initial cap

$660,590,000 Updated portfolio data from servicer

Adjusted Cap Reason for Adjustment

$315,170,000

$(10,000)

$330,000

$(11,300,000)

$13,070,000

$(1,860,000)

$134,560,000

9/30/09
9/30/09

$16,140,000

$(11,860,000)

6/12/09

$(338,450,000)

9/30/09

$90,990,000

6/17/09

$(63,980,000)

9/30/09

$130,780,000

9/30/09
6/17/09

$(64,990,000)

6/17/09

$87,130,000
$(249,670,000)

9/30/09

$46,730,000

6/12/09

$128,300,000

9/30/09

$(717,420,000)

6/12/09

9/30/09

$162,680,000
$3,318,840,000

9/30/09
6/12/09

$5,540,000

$102,580,000

6/12/09

$(105,620,000)

6/12/09
9/30/09

$(3,552,000,000)

$254,380,000

9/30/09
7/31/09

$225,040,000

$2,537,240,000

9/30/09
6/17/09

$384,650,000

$65,070,000

9/30/09
6/12/09

$(462,990,000)

$1,010,180,000

9/30/09
6/17/09

$(991,580,000)

$121,910,000

6/12/09

$284,590,000

9/30/09

Cap Adjustment
Amount

6/12/09

Adjustment
Date

Adjustment Details

transaction detail I Appendix d I October 21, 2009

213

American Home Mortgage
Servicing, Inc

Mortgage Center, LLC

Mission Federal Credit Union

First Bank

Purdue Employees Federal
Credit Union

Wachovia Bank, N.A.

J.P.Morgan Chase Bank, NA

EMC Mortgage Corporation

Lake City Bank

Oakland Municipal Credit Union Oakland

HomEq Servicing

Litton Loan Servicing LP

PennyMac Loan Services, LLC

Servis One, Inc.

OneWest Bank

Stanford Federal Credit Union

RoundPoint Mortgage Servicing Charlotte
Corporation

Horicon Bank

Vantium Capital, Inc.

Central Florida Educators
Federal Credit Union

U.S. Bank National Association

CUC Mortgage Corporation

ORNL Federal Credit Union

Allstate Mortgage Loans &
Investments, Inc.

Metropolitan National Bank

Franklin Credit Management
Corporation

Bay Federal Credit Union

AMS Servicing, LLC

Schools Financial Credit Union

Glass City Federal Credit Union Maumee

Central Jersey Federal Credit
Union

Yadkin Valley Bank

7/22/09

7/29/09

7/31/09

8/5/09

8/12/09

8/28/09

9/2/09

9/9/09

9/11/09

9/16/09

9/23/09

State

Elkin

Woodbridge

Sacramento

Buffalo

Capitola

Jersey City

Little Rock

Ocala

Oak Ridge

Albany

Owensboro

Lake Mary

Plano

Horicon

Palo Alto

Pasadena

Titusville

Calasbasa

Houston

North Highlands CA

Warsaw

Lewisville

Charlotte

West Lafayette

St. Louis

San Diego

Southfield

Coppell

Chicago

ShoreBank

7/17/09

City

Name of Institution

Date

Servicer Modifying Borrowers’ Loans

Purchase

Transaction
Type

Financial Instrument for Home
Loan Modifications

Investment
Description

HAMP Transaction Detail, as of 9/30/2009

$240,000

$30,000

$230,000

$390,000

$4,390,000

$410,000

$27,510,000

$280,000

$250,000

$2,070,000

$4,350,000

$114,220,000

$1,250,000

$6,000,000

$560,000

$570,000

$300,000

$668,440,000

$29,730,000

$6,210,000

$774,900,000

$674,000,000

$140,000

$420,000

$707,380,000

$2,699,720,000

$85,020,000

$1,090,000

$6,460,000

$860,000

$4,210,000

$1,272,490,000

$1,410,000

N/A

Cap of Incentive
Payments on Behalf
of Borrowers and to
Servicers & Lenders/ Pricing
Investors (Cap) 1 Mechanism

9/30/09

Adjustment
Date

$(25,510,000)

$(1,200,000)

$313,050,000

$(121,190,000)

$290,000

$180,000

$(10,000)

$(14,850,000)

$(37,700,000)

$(60,000)

$(1,530,000)

$(490,000)

$1,780,000

$(53,670,000)

$890,000

Cap Adjustment
Amount

$75

$172,325.35

Market
Capitalization
(in millions)

continued on next page

$4,220,000 Updated portfolio data from servicer & HPDP initial cap

$5,010,000 Updated portfolio data from servicer & HPDP initial cap

$1,087,950,000 Updated portfolio data from servicer & HPDP initial cap

$552,810,000 Updated portfolio data from servicer & HPDP initial cap

$430,000 Updated portfolio data from servicer & HPDP initial cap

$600,000 Updated portfolio data from servicer & HPDP initial cap

$707,370,000 Updated portfolio data from servicer & HPDP initial cap

$2,684,870,000 Updated portfolio data from servicer & HPDP initial cap

$47,320,000 Updated portfolio data from servicer & HPDP initial cap

$1,030,000 Updated portfolio data from servicer & HPDP initial cap

$4,930,000 Updated portfolio data from servicer & HPDP initial cap

$370,000 Updated portfolio data from servicer & HPDP initial cap

$5,990,000 Updated portfolio data from servicer & HPDP initial cap

$1,218,820,000 Updated portfolio data from servicer & HPDP initial cap

$2,300,000 Updated portfolio data from servicer & HPDP initial cap

Adjusted Cap Reason for Adjustment

Adjustment Details

214
Appendix d I transaction detail I October 21, 2009

SEFCU

9/25/09

Albany

City

State

Purchase

Transaction
Type

Financial Instrument for Home
Loan Modifications

Investment
Description

N/A

TOTAL CAP: $27,065,760,000

Total Initial Cap: $23,411,540,000

$440,000

Cap of Incentive
Payments on Behalf
of Borrowers and to
Servicers & Lenders/ Pricing
Investors (Cap) 1 Mechanism
Adjustment
Date
Adjusted Cap Reason for Adjustment

Total Cap Adjustments: $3,654,220,000

Cap Adjustment
Amount

Adjustment Details
Market
Capitalization
(in millions)

Source: Treasury, Transactions Report, 10/2/2009.

Notes: Numbers affected by rounding. Data as of 9/30/2009. Numbered notes taken from Treasury’s 10/2/2009 Transactions Report containing data as of 9/30/2009.
The Cap of Incentive Payments represents the potential total amount allocated to each servicer and includes the maximum amount allotted for all payments on behalf of borrowers and payments to servicers and lenders/investors. The Cap is subject to adjustment based on the total amount
allocated to the program and individual servicer usage for borrower modifications. Each adjustment to the Cap is reflected under Adjustment Details.
2
On July 31, 2009, the SPA with Chase Home Finance, LLC was terminated and superseded by new SPAs with J.P. Morgan Chase Bank, NA and EMC Mortgage Corporation.

Name of Institution

Date

Servicer Modifying Borrowers’ Loans

HAMP Transaction Detail, as of 9/30/2009

transaction detail I Appendix d I October 21, 2009

215

216

Appendix E I Cross Reference of Report to the Inspector General Act of 1978 | October 21, 2009

Cross-Reference of Report to the Inspector General
Act of 1978
This appendix cross-references this report to the reporting requirements under the Inspector General Act of 1978
(P.L. 95-452), as amended, 5 U.S.C. APP.
Section

Statute (Inspector General Act of 1978)

SIGTARP Action

Report Reference

Section
5(a)(1)

“Description of significant problems, abuses, and
deficiencies... ”

List problems, abuses, and deficiencies
from SIGTARP audits and investigations.

Section 1: “The Office of the SIGTARP”
Section 5: “SIGTARP Recommendations”

Section
5(a)(2)

“Description of recommendations for corrective action…with respect to significant problems, abuses,
or deficiencies... ”

List recommendations from SIGTARP
audits and investigations.

Section 1: “The Office of the SIGTARP”
Section 5: “SIGTARP Recommendations”

Section
5(a)(3)

“Identification of each significant recommendation
described in previous semiannual reports on which
corrective action has not been completed...”

List all instances of incomplete corrective action from previous semiannual
reports.

Section 5: “SIGTARP Recommendations”

Section
5(a)(4)

“A summary of matters referred to prosecutive
authorities and the prosecutions and convictions
which have resulted... ”

List status of SIGTARP investigations
referred to prosecutive authorities.

Section 1: “The Office of the SIGTARP”

Section
5(a)(5)

“A summary of each report made to the [Treasury
Secretary] under section 6(b)(2)... ” (instances
where information requested was refused or not
provided)

List TARP oversight reports by Treasury,
FSOB, SEC, GAO, COP, OMB, CBO,
Federal Reserve, FDIC, and SIGTARP.

Appendix G: “Key Oversight Reports and
Testimonies”

Section
5(a)(6)

“A listing, subdivided according to subject matter,
of each audit report issued...” showing dollar value
of questioned costs and recommendations that
funds be put to better use.

List SIGTARP audits.

Section 1: “The Office of the SIGTARP”

Section
5(a)(7)

“A summary of each particularly significant
report... ”

Provide a synopsis of significant
SIGTARP audits.

Section 1: “The Office of the SIGTARP”

Section
5(a)(8)

“Statistical tables showing the total number of audit
reports and the total dollar value of questioned
costs... ”

Provide statistical tables showing dollar
value of questioned costs from SIGTARP
audits.

As detailed in Section 1, “The Office of the
SIGTARP,” SIGTARP has made significant findings
in its audit reports. However, to date SIGTARP’s
audits have not included questioned costs findings.

Section
5(a)(9)

“Statistical tables showing the total number of audit
reports and the dollar value of recommendations
that funds be put to better use by management...”

Provide statistical tables showing dollar
value of funds put to better use by
management from SIGTARP audits.

As detailed in Section 1, “The Office of the
SIGTARP,” SIGTARP has made important findings in
its audit reports. However, to date SIGTARP’s audits
have not included funds put to better use findings.

Section
5(a)(10)

“A summary of each audit report issued before
the commencement of the reporting period for
which no management decision has been made by
the end of reporting period, an explanation of the
reasons such management decision has not been
made, and a statement concerning the desired
timetable for achieving a management decision...”

Provide a synopsis of significant
SIGTARP audit reports in which recommendations by SIGTARP are still open.

Section 1: “The Office of the SIGTARP”

Section
5(a)(11)

“A description and explanation of the reasons for
any significant revised management decision...”

Explain audit reports in which significant
revisions have been made to management decisions.

As detailed in Section 1: “The Office of the
SIGTARP,” and Section 5: “SIGTARP Recommendations,” SIGTARP has made noteworthy recommendations in its audit reports, and the majority
of these recommendations have been agreed to.
To date, no management decisions have been
revised.

Section
5(a)(12)

“Information concerning any significant management decision with which the Inspector General is in
disagreement...”

Provide information where management
disagreed with a SIGTARP audit finding.

See discussion of Use of Funds Audit in Section 1:
“The Office of the SIGTARP,” and Section 5:
“SIGTARP Recommendations.”

correspondence I Appendix H I OCTOBER 21, 2009

correspondence
This appendix provides copies of the following correspondence:
Correspondence
Date

From

Regarding

7/10/2009

SIGTARP

Treasury

Management Alert Regarding Possible MHA Program Internal
Weaknesses

9/10/2009

Treasury Staff

Treasury
General Counsel

Issuance of Instructions Regarding Communication with Outside
Persons About EESA Funds and Recovery Act Funds

9/25/2009

SIGTARP

Treasury

Response to Recommendations Contained in SIGTARP’s July 21,
2009 Quarterly Report

10/2/2009

SIGTARP

Treasury

HAMP Streamlined Borrower Evaluation Process

10/15/09

Treasury

SIGTARP

Response to SIGTARP Recommendations on Treasury’s changes
to the HAMP streamlined Borrower Evaluation Process

10/19/2009

Treasury

SIGTARP

SIGTARP October Quarterly Report

217

218

Appendix H I correspondence I OCTOBER 21, 2009

correspondence I Appendix H I OCTOBER 21, 2009

219

October 8, 2009

The changes under the heading “Borrower Income/Asset Documentation and Verification” in
this Supplemental Directive are effective immediately for loans that are currently in a HAMP
trial period where income has not yet been verified or for loans that are evaluated for HAMP on
or after the date of this Supplemental Directive. The requirements under the heading “Servicer
Response” in this Supplemental Directive are effective for loans that begin a trial period after the
date of this Supplemental Directive. The new forms outlined in this document, with the
exception of the RMA (the use of which is addressed below), may be utilized immediately but
must be in use by March 1, 2010. Servicers should continue to use the Home Affordable
Modification Cover Letter and Home Affordable Modification Agreement when providing the
borrower with an agreement that outlines the terms of the final modification.

The creation of a standard MHA Request for Modification and Affidavit form (RMA)
that incorporates borrower income and expense information, a revised Hardship
Affidavit, the SIGTARP fraud notice and portions of the current Home Affordable
Modification Trial Period Plan;
Updated and simplified income documentation and verification requirements;
The conversion of the current Trial Period Plan to a notice that does not require a
borrower signature; and
Standardized borrower response timeframes.

The significant changes described in this Supplemental Directive include:

In Supplemental Directive 09-01, the Treasury Department (Treasury) announced the eligibility,
underwriting and servicing requirements for the Home Affordable Modification Program
(HAMP). Under HAMP, servicers apply a uniform loan modification process to provide eligible
borrowers with affordable monthly payments for their first lien mortgage loans. This
Supplemental Directive represents an ongoing effort to improve process efficiency by updating
the borrower underwriting requirements in Supplemental Directive 09-01 and introducing
revised model documentation for the program. The objectives of these changes are to streamline
the program documentation requirements and standardize the evaluation process that servicers
use to make a HAMP eligibility determination.

Background

Home Affordable Modification Program – Streamlined Borrower
Evaluation Process

Supplemental Directive 09-07

Page 2

A borrower’s income documentation may not be more than 90 days old as of the date that such
documentation is received by the servicer in connection with evaluating a mortgage loan for
HAMP. There is no requirement to refresh such documentation during the remainder of the trial
period.

As an alternative, a servicer may require a borrower to submit the RMA and all required
income or other documentation to verify the borrower’s financial information and
eligibility prior to issuing a TPP Notice (verified income), attached as Exhibit D.

Servicers may use recent verbal financial information obtained from the borrower (the
term “borrower” includes any co-borrower) to assess the borrower’s eligibility for a trial
period plan. A servicer may rely on this information to prepare and send to the borrower
a TPP Notice (stated income), attached as Exhibit C. Following receipt of a completed
and signed RMA and income or other required documentation, the servicer must verify
the borrower’s financial information and eligibility, including completing a final Net
Present Value (NPV) evaluation.

Verbal and Verified Income Analysis
There are two forms of Trial Period Plan Notices (TPP Notices) for use by servicers: stated
income and verified income. They should be prepared as follows:

The following information replaces in its entirety the guidance in Supplemental Directive 09-01,
on pages 5 through 8, under the heading “Underwriting —Verifying Borrower Income and
Occupancy Status.” The portions of that section that are in italics below are not changed from
Supplemental Directive 09-01 but are included here for ease of reference.

Borrower Income/Asset Documentation and Verification

Servicers may require use of the RMA by all borrowers requesting consideration under HAMP
or may continue to use other proprietary financial information forms that are substantially similar
in content to the RMA. When provided by or on behalf of the borrower, the RMA must be
accepted by servicers in lieu of any servicer specific form(s). When the RMA is not used,
servicers must obtain an executed MHA Hardship Affidavit, an updated version of which
(including the SIGTARP notice) is attached as Exhibit B. The use of “RMA” throughout the
remainder of this Supplemental Directive shall refer to the RMA or its equivalent.

Effective immediately, borrowers who want to be considered for HAMP may complete and
submit to their servicer a RMA, a copy of which is attached to this Supplemental Directive as
Exhibit A. All documents and forms described herein are posted on www.HMPadmin.com. The
RMA, which includes a new borrower financial information section, is intended to replace in
their entirety the current Hardship Affidavit and the SIGTARP notice, as well as elements from
the current Trial Period Plan.

Standard MHA Request Form

220
Appendix H I correspondence I OCTOBER 21, 2009

Supplemental Directive 09-07

Page 3

The servicer may not require a borrower to make an up-front cash contribution (other than the
first trial period payment) for the borrower to be considered for HAMP.

Servicers should include non-borrower household income in monthly gross income if it is
voluntarily provided by the borrower and if there is documentary evidence that the income has
been, and reasonably can continue to be, relied upon to support the mortgage payment. All nonborrower household income included in monthly gross income must be documented and verified
by the servicer using the same standards for verifying a borrower’s income.

Monthly Gross Income
The borrower’s “monthly gross income” is the borrower’s income amount before any payroll
deductions and includes wages and salaries, overtime pay, commissions, fees, tips, bonuses,
housing allowances, other compensation for personal services, Social Security payments,
including Social Security and adoption subsidies received by adults on behalf of minors or by
minors intended for their own support, and monthly income from annuities, insurance policies,
retirement funds, pensions, disability or death benefits, unemployment benefits, rental income
and other income. If only net income is available, the servicer must multiply the net income
amount by 1.25 to estimate the monthly gross income. All non-taxed income, including nontaxed social security income, is considered net income.

Analysis of ARM Resets
With respect to adjustable rate loans where there is a rate reset scheduled within 120 days after
the date of the evaluation (a “Reset ARM”), the monthly mortgage payment used to determine
eligibility will be the greater of (i) the borrower’s current scheduled monthly mortgage payment
or (ii) a fully amortizing monthly mortgage payment based on the note reset rate using the index
value as of the date of the evaluation (the “Reset Interest Rate”). With respect to adjustable rate
loans that reset more than 120 days after the date of the evaluation, the borrower’s current
scheduled monthly mortgage payment will be used to determine eligibility.

Debt to Income Calculation
The borrower will only qualify for HAMP if the verified income documentation confirms that the
monthly mortgage payment ratio prior to the modification is greater than 31 percent. The
“monthly mortgage payment ratio” is the ratio of the borrower’s current monthly mortgage
payment to the borrower’s monthly gross income (or the borrowers’ combined monthly gross
income in the case of co-borrowers). The “monthly mortgage payment” includes the monthly
payment of principal, interest, property taxes, hazard insurance, flood insurance, condominium
association fees and homeowner’s association fees, as applicable (including any escrow payment
shortage amounts subject to a repayment plan). When determining a borrower’s monthly
mortgage payment ratio, servicers must adjust the borrower’s current mortgage payment to
include, as applicable, property taxes, hazard insurance, flood insurance, condominium
association fees and homeowner’s association fees if these expenses are not already included in
the borrower’s payment. The monthly mortgage payment does not include mortgage insurance
premium payments or payments due to holders of subordinate liens.

Supplemental Directive 09-07

Page 4

Self-employment Income. The most recent quarterly or year-to-date profit and loss
statement for each self-employed borrower.

Employment Income. Copies of the two most recent paystubs indicating year-to-date
earnings.

Tax Return. A borrower in imminent default may, in accordance with investor
guidelines, be required to provide a signed copy of his or her most recent federal income
tax return. All other borrowers may elect to provide signed federal income tax returns
but are not required to do so. Whenever a borrower does not provide a tax return, the
servicer must obtain the borrower’s tax return transcript by submitting the borrower’s
Form 4506-T to the IRS for processing as provided above.

Income Documentation
Based on the type and source of a borrower’s income, the servicer will obtain and review the
following documents to verify borrower financial information:

Credit Report and Occupancy Verification
In all cases, the servicer must obtain a credit report for each borrower or a joint report for a
married couple who are co-borrowers to validate installment debt and other liens as described on
page 10 of Supplemental Directive 09-01. Servicers should use the credit report to confirm that
the property securing the mortgage loan is the borrower’s principal residence. The servicer is no
longer required to verify the borrower’s principal residence using other documentation. If the
credit report is inconsistent with other information provided by the borrower, the servicer must
reconcile the inconsistency.

The servicer should review the tax information for all borrowers to help verify income and
identify discrepancies. If the tax information identifies income relevant to the HAMP decision
that the borrower did not disclose on the RMA, the servicer must obtain other documentation to
reconcile the inconsistency. In resolving inconsistencies servicers must use reasonable business
judgment to determine whether such income is no longer being earned or has been reduced to the
amounts disclosed on an RMA.

IRS Form 4506-T
All borrowers must provide a signed and completed IRS Form 4506-T (Request for Transcript of
Tax Return). A servicer must submit the borrower’s Form 4506-T to the IRS for processing
unless the borrower provides a signed copy of his or her most recent federal income tax return,
including all schedules and forms (the federal income tax return and all schedules and forms
shall be referred to herein as the federal income tax return). A servicer also must submit the
borrower’s Form 4506-T to the IRS for processing when required by the Compliance Agent.

Information Documentation
Servicers are responsible for determining that any information provided by the borrower and
which is needed to evaluate the request is complete and accurate. Servicers should request that
the borrower provide the documentation listed below, but may, consistent with investor
guidelines, substitute other reliable forms of verification when appropriate.

correspondence I Appendix H I OCTOBER 21, 2009

221

Supplemental Directive 09-07

Page 5

Property Valuation Documentation
Page 5 of Supplemental Directive 09-01 describes requirements for assessing property value for
use in the NPV model. This supplemental directive amends the aging requirement for property

20% Threshold for Passive and Non-Wage Income. Notwithstanding the foregoing, all
passive and non-wage income (including rental, part-time employment, bonus/tip,
investment and benefit income) does not have to be documented if the borrower
declares such income and it constitutes less than 20% of the borrower’s total income.

Alimony, Separation Maintenance, and Child Support Income. Borrowers are not
required to use alimony, separation maintenance or child support income to qualify for
HAMP. However, if the borrower chooses to provide this income, it should be
documented with (i) copies of the divorce decree, separation agreement or other legal
written agreement filed with a court, or a court decree that provides for the payment of
alimony or child support and states the amount of the award and the period of time over
which it will be received, and (ii) evidence of receipt of payment, such as copies of the
two most recent bank statements showing deposit amounts.

Rental income. Rental income should be documented through the Schedule E –
Supplemental Income and Loss of the most recent tax year. If the borrower is using
income from the rental of a portion of the borrower’s principal residence, the income
should be calculated at 75 percent of the monthly gross rental income, with the remaining
25 percent considered vacancy loss and maintenance expense. If the borrower is using
rental income from properties other than the borrower’s principal residence, the income
to be calculated for HAMP purposes should be 75 percent of the monthly gross rental
income, reduced by the monthly debt service on the property (i.e., principal, interest,
taxes, insurance, including mortgage insurance, and association fees), if applicable. The
needed tax forms can be obtained either through a signed and executed 4506-T or the
signed copy of the most recent federal income tax return if provided by the borrower.

Unemployment Benefits. Evidence of the amount, frequency and duration of the
benefits (usually obtained through a monetary determination letter). The unemployment
income must continue for at least nine months from the date of the application. The
duration of benefit eligibility – including federal and state extensions – may be evidenced
by a screenshot or printout from the Department of Labor UI benefit tool, which is
available at http://www.ows.doleta.gov/unemploy/ben_entitle.asp.

Benefit Income (e.g., social security, disability, death benefits, pension, public
assistance, adoption assistance). Evidence of (i) the amount and frequency of the
benefits such as letters, exhibits, a disability policy or benefits statement from the
provider, and (ii) receipt of payment, such as copies of the two most recent bank
statements showing deposit amounts.

Other earned income (e.g., bonus, commission, fee, housing allowance, tips, overtime).
Reliable third party documentation describing the nature of the income (e.g. an
employment contract or printouts documenting tip income).

Supplemental Directive 09-07

Page 6

As described above, revised and updated TPP Notices are attached and replace the current cover
letters and current Trial Period Plan. The TPP Notices describe the terms and conditions of the
trial period plan and must be sent to borrowers as noted below in the section titled, “Servicer

Trial Period Plan Notices

Document Retention
The document retention requirements described on pages 13 and 14 of Supplemental Directive
09-01 remain in effect. Additionally, servicers must make all documentation related to HAMP
program available to Freddie Mac, as compliance agent for Treasury.

Fannie Mae, in its capacity as a financial agent for the Treasury, will establish a fraud detection
surveillance procedure using reported trial period data. When discrepancies or potential
misrepresentations are identified, servicers will be notified during the trial period and will be
required to take appropriate action to resolve the discrepancy prior to executing a final
modification.

Fraud Detection
Servicers should not modify a mortgage loan if there is reasonable evidence indicating the
borrower submitted income information that is false or misleading or if the borrower otherwise
engaged in fraud in connection with the modification.

Electronic Submission
For all documents required by Treasury (other than for IRS Form 4506-T), electronic submission
and signatures are acceptable.

Borrower Signatures
Unless a borrower or co-borrower is deceased or divorced, all parties who signed the original
loan documents or their duly authorized representative(s) should sign the HAMP documents.
Servicers may encounter circumstances where a co-borrower signature is not obtainable, for
reasons such as mental incapacity, military deployment or contested divorce. Servicer should
look to investor guidance when determining whether to accept a document without a coborrower’s signature.

Document Perfection
Servicers must use good business judgment when determining the level of perfection of the
verification documents. Servicers may elect to accept documents with imperfections (blank
fields, erasures, use of correction tape, inaccurate dates, etc.) if the servicer determines that the
imperfections are immaterial to the business decision, are not indicative of fraud and do not
impact the servicer’s ability to verify the completeness and accuracy of the borrower’s financial
representations.

valuation documentation. Property value information must be less than 90 days old on the date
the servicer first evaluates the borrower for a HAMP trial period plan using the NPV model. The
information will remain valid for the duration of the trial period and does not need to be updated
for any subsequent NPV evaluation.

222
Appendix H I correspondence I OCTOBER 21, 2009

Supplemental Directive 09-07

Page 7

If the servicer determines that a borrower cannot be approved for a trial period plan, the
servicer must communicate that determination to the borrower in writing and consider the
borrower for another foreclosure prevention alternative.

If the borrower is currently in a trial period plan pursuant to a stated income TPP
Notice, send a written notice that the borrower has been approved for a HAMP
modification pending timely receipt of all trial period payments.

Send a TPP Notice (verified income) to the borrower, or

If the servicer determines that the borrower is approved for a trial period plan, the
servicer must either:

Within 30 calendar days following the servicer’s receipt of a completed RMA, Form 4506-T
and all required income and other information (including all required documentation and either
the borrower's tax transcript or tax return when using the verified approach), the servicer must
complete its evaluation of borrower eligibility and notify the borrower of its determination as
follows:

A written notice with information describing HAMP and including appropriate forms and
a list of verification documents and a specific date by which documentation must be
received -- if the servicer is evaluating borrower eligibility based on verified income
information.

The stated income TPP Notice -- if the servicer is evaluating borrower eligibility based
on verbal income information and is prepared to offer the borrower a trial period plan.

Within 10 business days following receipt of borrower financial information verbally or in a
completed RMA, the servicer must acknowledge the borrower’s request for HAMP participation
by sending the borrower one of the following documents:

Servicer Response

A borrower in a trial period plan who makes all required trial period payments, but does not sign
and return current trial period plan prior to the end of the trial period, may receive a HAMP
modification as long as the servicer has received all required trial period plan payments and all
other HAMP-required documentation from the borrower, including a fully executed Home
Affordable Modification Agreement.

Response”. Borrowers are not required to sign or return the TPP Notice. Servicers should retain
a copy of the TPP Notice in the borrower file and note the date that it was sent to the borrower.
Timely receipt of the first payment under the TPP Notice is evidence of the borrower’s
acceptance of the trial period plan and its terms and conditions.

Exhibit A
MHA Request for Modification and Affidavit

correspondence I Appendix H I OCTOBER 21, 2009

223

CELL OR WORK NUMBER WITH AREA CODE

Chapter 7
Chapter 13
Filing Date:_______________
Bankruptcy case number _____________________

Name of Insurance Co. ____________________________________
Insurance Co. Tel #: ______________________________________

Counselor’s Name:
Counselor’s Phone Number:
Counselor’s Email:
Who pays the hazard insurance policy for your property?
I do
Lender Does Paid by Condo or HOA
Yes
No
Is the policy current?

If yes, please complete counselor contact information below.

Have you contacted a credit-counseling agency for help?
Yes
No

EMAIL ADDRESS

DATE OF BIRTH

Balance

Contact Number

Loan Number

______________________________________________________________________________________________________________________

Explanation (continue on back of page 3 if necessary): ________________________________________________________________________

Other ______________________________________________________________________________________________________________

My expenses have increased. For example: monthly mortgage
My cash reserves, including all liquid assets, are insufficient to maintain my
payment reset, high medical or health care costs, uninsured losses, current mortgage payment and cover basic living expenses at the same time.
increased utilities or property taxes.

I (We) am/are requesting review under the Making Home Affordable program. I am having difficulty making my monthly payment because of
financial difficulties created by (Please check all that apply):

HARDSHIP AFFIDAVIT (use back of request for explanation IF necessary)

Lien Holder’s Name/Servicer

If there are additional Liens/Mortgages or Judgments on this property, please name the person(s), company or firm and their telephone numbers.

Is the property listed for sale?
Yes No
Yes No
Have you received an offer on the property?
Date of offer _________ Amount of Offer $_________
Agent’s Name:
Agent’s Phone Number:
Yes
No
For Sale by Owner?
Who pays the Real Estate Tax bill on your property?
I do
Lender does
Yes
No
Are the taxes current?
Yes
No $ _______
Condominium or HOA Fee
Paid to: ____________________________________
Have you filed for bankruptcy?
Yes No
If yes:
Yes No
Has your bankruptcy been discharged?

PROPERTY ADDRESS (IF SAME AS MAILING ADDRESS, JUST WRITE SAME)

MAILING ADDRESS

HOME PHONE NUMBER WITH AREA CODE

SOCIAL SECURITY NUMBER

DATE OF BIRTH

SOCIAL SECURITY NUMBER

Investment
Vacant

CO-BORROWER

Sell the Property
Second Home
Renter occupied

CO-BORROWER’S NAME

Keep the Property
Primary Residence
Owner Occupied

Loan I.D. Number __________________________

BORROWER’S NAME

BORROWER

I want to:
The property is my:
The property is:

Making Home Affordable Program

Request For Modification and Affidavit (RMA)

$
$
$
$

Overtime
Child Support / Alimon y*
Social Security/SSDI
Other monthly income from

Total Assets

annuities, IRAs, Keogh plans, etc.)

plans when calculating assets (401k, pension funds,

Do not include the value of life insurance or retirement

_____________________

Other ________________

(estimated value)

Other Real Estate

Other Cash on Hand

Stocks / Bonds

CDs

Saving s/ Money Market

Checking Account(s)

* * * * * ALL INCOME MUST BE DOCUMENTED * * * * * *

Total Debt/Expenses

_____________________

3
Household Assets

BORROWER
Ethnicity:

I do not wish to furnish this information
CO-BORROWER
Hispanic or Latino
Ethnicity:
Not Hispanic or Latino
Race:
American Indian or Alaska Native
Race:
Asian
Black or African American
Native Hawaiian or Other Pacific Islander
White
Sex:
Female
Sex:
Male
To be Completed by Interviewer
Interviewer’s Name (print or type) & ID Number
This application was taken by:
Interviewer’s Signature
Date
Face-to-face interview
Mail
___________________________________________
Telephone
Interviewer’s Phone Number (include area code)
Internet

I do not wish to furnish this information
Hispanic or Latino
Not Hispanic or Latino
American Indian or Alaska Native
Asian
Black or African American
Native Hawaiian or Other Pacific Islander
White
Female
Male
Name/Address of Interviewer’s Employer

The following information is requested by the federal government in order to monitor compliance with federal statutes that prohibit discrimination in
housing. You are not required to furnish this information, but are encouraged to do so. The law provides that a lender or servicer may not
discriminate either on the basis of this information, or on whether you choose to furnish it. If you furnish the information, please provide both
ethnicity and race. For race, you may check more than one designation. If you do not furnish ethnicity, race, or sex, the lender or servicer is required
to note the information on the basis of visual observation or surname if you have made this request for a loan modification in person. If you do not
wish to furnish the information, please check the box below.

INFORMATION FOR GOVERNMENT MONITORING PURPOSES

Alimony or Separation Maintenance income, unless you choose to have it considered by your servicer.

member who is not a borrower please specify using the back of this form if necessary. You are not required to disclose Child Support,

* Include combined income and expenses from the borrower and co-borrower (if any). If you include income and expenses from a household

Total (Gross income)

_____________________

etc) ________________

royalties, interest, dividends

Car Payments
Other ________________

$
$

Maintenance

HOA/Condo Fees/Property

Other (investment income,

Food Stamps/Welfare

Unemployment Income

Net Rental Expenses

Rents Received

Alimony, child support

Tips, commissions, bonus and
payments

payment per month)

retirement plans
self-employed income

Loan(s) (total minimum

Credit Cards / Installment

Property Taxes

Insurance

Second Mortgage Payment

First Mortgage Payment

pensions, annuities or
$

Monthly Gross wages

2
Monthly Household Expenses/Debt

Number of People in Household ___________

INCOME/EXPENSES FOR HOUSEHOLD*
1
Monthly Household Income

224
Appendix H I correspondence I OCTOBER 21, 2009

ACKNOWLEDGEMENT AND AGREEMENT

_________________________ ___________
Borrower Signature
Date

_________________________ __________
Co-Borrower Signature
Date

That all of the information in this document is truthful and the event(s) identified on page 1 is/are the reason that I need to
request a modification of the terms of my mortgage loan, short sale or deed-in-lieu of foreclosure.
I understand that the Servicer, the U.S. Department of the Treasury, or its agents may investigate the accuracy of my
statements, may require me to provide supporting documentation. I also understand that knowingly submitting false
information may violate Federal law.
I understand the Servicer will pull a current credit report on all borrowers obligated on the Note.
I understand that if I have intentionally defaulted on my existing mortgage, engaged in fraud or misrepresented any fact(s) in
connection with this document, the Servicer may cancel any Agreement under Making Home Affordable and may pursue
foreclosure on my home.
That: my property is owner-occupied; I intend to reside in this property for the next twelve months; I have not received a
condemnation notice; and there has been no change in the ownership of the Property since I signed the documents for the
mortgage that I want to modify.
I am willing to provide all requested documents and to respond to all Servicer questions in a timely manner.
I understand that the Servicer will use the information in this document to evaluate my eligibility for a loan modification or
short sale or deed-in-lieu of foreclosure, but the Servicer is not obligated to offer me assistance based solely on the statements
in this document.
I understand that the Servicer will collect and record personal information, including, but not limited to, my name, address,
telephone number, social security number, credit score, income, payment history, government monitoring information, and
information about account balances and activity. I understand and consent to the disclosure of my personal information and
the terms of any Making Home Affordable Agreement by Servicer to (a) the U.S. Department of the Treasury, (b) Fannie
Mae and Freddie Mac in connection with their responsibilities under the Homeowner Affordability and Stability Plan; (c) any
investor, insurer, guarantor or servicer that owns, insures, guarantees or services my first lien or subordinate lien (if
applicable) mortgage loan(s); (d) companies that perform support services in conjunction with Making Home Affordable; and
(e) any HUD certified housing counselor.

If you are aware of fraud, waste, abuse, mismanagement or misrepresentations affiliated with the Troubled Asset
Relief Program, please contact the SIGTARP Hotline by calling 1-877-SIG-2009 (toll-free), 202-622-4559 (fax), or
www.sigtarp.gov. Mail can be sent to Hotline Office of the Special Inspector General for Troubled Asset Relief
Program, 1801 L St. NW, Washington, DC 20220.

Be advised that you are signing the following documents under penalty of perjury. Any misstatement of material fact
made in the completion of these documents including but not limited to misstatement regarding your occupancy in
your home, hardship circumstances, and/or income will subject you to potential criminal investigation and prosecution
for the following crimes: perjury, false statements, mail fraud, and wire fraud. The information contained in these
documents is subject to examination and verification. Any potential misrepresentation will be referred to the
appropriate law enforcement authority for investigation and prosecution.
By signing the enclosed documents you certify, represent and agree that:
“Under penalty of perjury, all documents and information I have provided to Lender in connection with this Agreement,
including the documents and information regarding my eligibility for the program, are true and correct.”

NOTICE TO BORROWERS

If you have questions about this document or the modification process, please call your servicer at
__________________. If you have questions about the program that your servicer cannot answer or need
further counseling, you can call the Homeowner’s HOPE™ Hotline at 1-888-995-HOPE (4673). The
Hotline can help with questions about the program and offers free HUD-certified counseling services in
English and Spanish.

6.
7.

3.
4.

In making this request for consideration under the Making Home Affordable Program I certify under
penalty of perjury:

Exhibit B
MHA Hardship Affidavit

correspondence I Appendix H I OCTOBER 21, 2009

225

Sell the Property
Second Home
Renter occupied

HARDSHIP AFFIDAVIT

Keep the Property
Primary Residence
Owner Occupied
Investment Property
Vacant

DATE OF BIRTH

Female
Male
To be Completed by Interviewer
This application was taken by:
Face-to-face interview
Mail
Telephone
Internet

American Indian or Alaska Native
Asian
Black or African American
Native Hawaiian or Other Pacific Islander
White
Female
Male
Name/Address of Interviewer’s Employer

Sex:

I do not wish to furnish this information
Hispanic or Latino
Not Hispanic or Latino

Race:

CO-BORROWER
Ethnicity:

Interviewer’s Signature
Date
___________________________________________
Interviewer’s Phone Number (include area code)

Interviewer’s Name (print or type) & ID Number

American Indian or Alaska Native
Asian
Black or African American
Native Hawaiian or Other Pacific Islander
White

Race:

Sex:

I do not wish to furnish this information
Hispanic or Latino
Not Hispanic or Latino

BORROWER
Ethnicity:

INFORMATION FOR GOVERNMENT MONITORING PURPOSES

______________________________________________________________________________________________________________________

Explanation (attach another page if necessary): ______ ________________________________________________________________________

Other ______________________________________________________________________________________________________________

My household income has been reduced. For example
My monthly debt payments are excessive and I am overextended with my
unemployment, underemployment, reduced pay or hours, decline creditors. Debt includes credit cards, home equity or other debt.
in business earnings, death, disability or divorce of a borrower or
co-borrower.
My expenses have increased. For example: monthly mortgage
My cash reserves, including all liquid assets, are insufficient to maintain the
payment reset, high medical or health care costs, uninsured losses, payment on my mortgage loan and cover basic living expenses at the same time.
increased utilities or property taxes.

I (We) am/are requesting review under the Making Home Affordable program. I am having difficulty making my monthly payment because of
financial difficulties created by (Please check all that apply):

I want to:
The property is my:
The property is:

PROPERTY ADDRESS (include city, state and zip):

LOAN NUMBER

SOCIAL SECURITY NUMBER

DATE OF BIRTH

SOCIAL SECURITY NUMBER

LOAN SERVICER

CO-BORROWER’S NAME

BORROWER’S NAME

Hardship Affidavit

Making Home Affordable Program

_________________________ ___________
Borrower Signature
Date

_________________________ __________
Co-Borrower Signature
Date

That all of the information in this document is truthful and the event(s) identified on page 1 is/are the reason that I need to
request a modification of the terms of my mortgage loan, short sale or deed-in-lieu of foreclosure.
I understand that the Servicer, the U.S. Department of the Treasury, or its agents may investigate the accuracy of my
statements, may require me to provide supporting documentation, and that knowingly submitting false information may
violate Federal law and may result in foreclosure.
I understand the Servicer will pull a current credit report on all borrowers obligated on the Note.
I understand that if I have intentionally defaulted on my existing mortgage, engaged in fraud or misrepresented any fact(s) in
connection with this document, the Servicer may cancel any Agreement under the Home Affordable Modification Program
and may pursue foreclosure on my home.
I certify that: my property is owner-occupied; I intend to reside in this property for the next twelve months; I have not
received a condemnation notice; and there has been no change in the ownership of the Property since I signed the documents
for the mortgage that I want to modify.
I am willing to provide all requested documents and to respond to all Servicer questions in a timely manner.
I understand that the Servicer will use the information in this document to evaluate my eligibility for a loan modification or
short sale or deed-in-lieu of foreclosure, but the Servicer is not obligated to offer me assistance based solely on the statements
in this document.
I understand that Servicer will collect and record personal information, including, but not limited to, my name, address,
telephone number, social security number, credit score, income, payment history, government monitoring information, and
information about account balances and activity. I understand and consent to the disclosure of my personal information and
the terms of any Making Home Affordable Agreement by Servicer to (a) the U.S. Department of the Treasury, (b) Fannie
Mae and Freddie Mac in connection with their responsibilities under the Homeowner Affordability and Stability Plan; (c) any
investor, insurer, guarantor or servicer that owns, insures, guarantees or services my first lien or subordinate lien (if
applicable) mortgage loan(s); (d) companies that perform support services in conjunction with Making Home Affordable; and
(e) any HUD certified housing counselor.

NOTICE TO BORROWERS

Be advised that you are signing the following documents under penalty of perjury. Any misstatement of material
fact made in the completion of these documents including but not limited to misstatement regarding your
occupancy in your home, hardship circumstances, and/or income will subject you to potential criminal investigation
and prosecution for the following crimes: perjury, false statements, mail fraud, and wire fraud. The information
contained in these documents is subject to examination and verification. Any potential misrepresentation will be
referred to the appropriate law enforcement authority for investigation and prosecution.
By signing the enclosed documents you certify, represent and agree that:
“Under penalty of perjury, all documents and information I have provided to Lender in connection with this
Agreement, including the documents and information regarding my eligibility for the program, are true and correct.”

6.
7.

3.
4.

In making this request for consideration under the Making Home Affordable Program I certify under
penalty of perjury:

ACKNOWLEDGEMENT AND AGREEMENT

226
Appendix H I correspondence I OCTOBER 21, 2009

Exhibit C
Trial Period Plan Notice (Stated Income)

[Loan number]

3. Signed and dated copy of the enclosed IRS Form 4506 T (Request for Transcript of Tax Return) for
each borrower (borrowers who filed their tax returns jointly may send in one IRS Form 4506 T signed
and dated by both of the joint filers), and

2. The enclosed [Select one] MHA Request for Modification & Affidavit (RMA) OR MHA Hardship
Affidavit form completed and signed by all borrowers, and

1. Your first trial period payment of $ ________,

In addition to making your trial period payments on time, you must send copies of all the documents that are
checked below to _________________________________, no later than _______________ so that we can
verify the financial information you already provided to us. Use the return envelope provided for your
convenience. If the documents are not received by [insert the due date again], this offer will end and your
loan will not be modified.

How do I get a permanent modification?
If you do not make each trial period payment in the month in which it is due, your loan may not be modified
under the Home Affordable Modification Program.

Why is there a trial period?
The trial period offers you immediate payment relief while we process the paperwork to determine if we can
offer you a permanent loan modification. It also gives you time to make sure that you can manage the lower
monthly mortgage payment. Please note that your existing loan and its requirements remain in effect and
unchanged during the trial period.

What do I need to do first?
To accept this offer, you must make a new monthly payment of $_______ for the next three months of the trial
period. This payment is due on the first day of each month. So your first payment is due ________, your
second payment is due _______ and your third payment is due ________. Send these payments instead of your
normal monthly mortgage payment.

Congratulations! You are approved to enter into a trial period plan under the Home Affordable Modification
Program! This is the first step towards lowering your mortgage payments. Please read this letter so that you
understand all the steps you need to take now to lower your mortgage payments permanently.

Dear ______________

[Name]
[Address 1]
[Address 2]

[Date]

[Servicer Logo]

correspondence I Appendix H I OCTOBER 21, 2009

227

If you are aware of fraud, waste, mismanagement, or misrepresentations affiliated
with the Troubled Asset Relief Program, please contact SIGTARP at 1-877-SIG2009 (toll-free), 202-622-4559 (fax), or www.sigtarp.gov. Mail can be sent to Hotline
Office of the Special Inspector General for Troubled Asset Relief Program, 1801 L
St. NW, Washington, DC 20220.

Homeowner’s HOPE™ Hotline
If you have questions about the program that your servicer cannot answer or need
further counseling, call the Homeowner’s HOPE™ Hotline at 1-888-995-HOPE
(4673). The Hotline can help with questions about the program and offers access to
free HUD-certified counseling services in English and Spanish.

XXX XXX XXXX

If you have further questions about this trial period plan or the program, please call your servicer at

THE HOME AFFORDABLE MODIFICATION PROGRAM.

DOCUMENTATION FOR EACH BORROWER ON TIME, WE WILL NOT BE ABLE TO DETERMINE WHETHER YOU QUALIFY FOR

IF YOU DO NOT MAKE YOUR TRIAL PERIOD PAYMENTS OR DO NOT PROVIDE ALL REQUIRED, SIGNED AND COMPLETED

Keep a copy of all documents for your records. Don’t send original income documentation.

If you have other types of income, cannot locate the required documents, or have questions about the
paperwork required, please contact us at [1.000.000.0000].

For borrowers who are current on their mortgage payments: [Optional – delete if not required
by investor]
Copies of the most recently filed signed federal tax return with all schedules, including
Schedule E—Supplemental Income and Loss.

* You are not required to disclose Child Support, Alimony or Separation Maintenance income, unless you choose to have it
considered by your servicer.

For each borrower who is relying on alimony or child support as qualifying income*:
Copy of divorce or other court decree; or separation agreement or other written agreement
filed with the court that states the amount and period of time over which it will be received,
and
Two most recent bank statement showing receipt of such payment.

Two most recent bank statements showing receipt of such payment.

For each borrower who has income such as social security, disability or death benefits,
pension, adoption assistance, public assistance, or unemployment:
Copy of benefits statement or letter from the provider that states the amount, frequency
and duration of the benefit, and

For each borrower who is self employed:
Most recent quarterly or year to date profit/loss statement.

For each borrower who receives a salary or hourly wages:
Copy of your two most recent pay stubs that show year to date earnings.

4. Documentation that will be used by us to verify the income of each borrower. This documentation
includes:

Additional Information

Are there incentives that I may qualify for if am current with my new payments?
Once your loan is modified, you can earn a pay for success incentive for every month that you make on time
payments beginning with the trial period Payments. Depending on your modified monthly payment, you may
accrue up to $1,000 each year for five years for a total of $5,000. This important benefit, which will be applied
to your principal balance each year after the anniversary date of your first trial period payment due date, will
help you earn equity in your home by reducing the amount that you owe. However, you must remain current
on your loan. You will lose this benefit if your modified loan becomes 90 days delinquent.

When will I know if my loan can be modified permanently and how will the modified loan balance be
determined?
Once we confirm you are eligible for a Home Affordable Modification and you make all of your trial period
payments on time, we will send you a modification agreement detailing the terms of the modified loan. Any
difference between the amount of the trial period payments and your regular mortgage payments will be added
to the balance of your loan along with any other past due amounts as permitted by your loan documents. While
this will increase the total amount that you owe, it should not significantly change the amount of your modified
mortgage payment as that is determined based on your total monthly gross income, not your loan balance.

What happens if my verified income is different from the amount I told you verbally?
During the trial period, we will verify your income based on the documentation you must provide. Your verified
income will determine your eligibility for a permanent modification and its final terms. If your verified income is
significantly higher than the income you told us, you may have to restart your trial period with a larger payment
based on that higher income. Also, if your verified income is different from the amount you gave us verbally,
you may no longer be eligible for a Home Affordable Modification.

How was my new payment in the trial period determined?
Your trial period payment is approximately 31% of your total gross monthly income, which you told us was
$_________. The new payment includes principal and interest and an escrow amount of $________ to pay
property taxes, insurance and other permissible escrow fees. If we were able to modify your loan today, based
on the information you gave us, we estimate your modified interest rate would be ____%. If we modify your
loan permanently after the trial period, the interest rate may be different due to a variety of factors that affect
the terms of your final modification. If you did not have an escrow account before, the timing of your tax and
insurance bills may require that you make a payment to cover any such bills when they come due. This is known
as an escrow shortage. Your loan has an escrow shortage of $_______; this can either be paid in a lump sum
when the loan is modified or over the next ____ years (or ______ months). If you wish to pay the total shortage
as a lump sum, please contact us.

What else should I know about this offer?
If you make your new payments timely and submit the paperwork by the deadline, we will not conduct a
foreclosure sale.
You will not be charged any fees for this trial period plan or final modification.
If your loan is modified, we will waive all unpaid late charges.
Your credit score may be affected by accepting a trial period offer or modification. For more information
about your credit score please go to http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre24.shtm.
You may be required to attend credit counseling.

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During trial period, any pending foreclosure action or proceeding will not be dismissed and may
be immediately resumed if you fail to comply with the terms of the Trial Period Plan or do not
qualify for a modification. A new notice of default, notice of intent to accelerate, notice of
acceleration, or similar notice will not be necessary to continue the foreclosure action
(foreclosure notices). You waive any and all rights to receive such foreclosure notices to the
extent permitted by applicable law. However, if your property is located in Georgia, Hawaii,
Missouri, or Virginia and a foreclosure sale is currently scheduled, the foreclosure sale will not
be suspended and foreclosure may proceed if you do not make each and every trial period
payment that is due through the end of the month preceding the month in which the
foreclosure sale is scheduled to occur. For example, if a foreclosure sale is scheduled in
February and you do not make your January and any earlier required trial period payment by
the end of January, the foreclosure sale may proceed in these four states. If a foreclosure sale
occurs pursuant to this provision, the Trial Period Plan will be deemed to have terminated.

The servicer’s acceptance and posting of your new payment during the trial period will not be
deemed a waiver of the acceleration of your loan or foreclosure action and related activities,
and shall not constitute a cure of your default under your loan unless such payments are
sufficient to completely cure your entire default under your loan.

You agree that any prior waiver that allowed you to pay directly for taxes and insurance is
revoked. You agree to establish an escrow account and to pay required escrows into that
account.

You agree that all terms and provisions of your current mortgage note and mortgage security
instrument remain in full force and effect and you will comply with those terms; and that
nothing in the Trial Period Plan shall be understood or construed to be a satisfaction or release
in whole or in part of the obligations contained in the loan documents.

Your current loan documents remain in effect; however, you may make the trial period payment instead
of the payment required under your loan documents:

If your monthly payment did not include escrows for taxes and insurance, you are now required to do
so:

During the trial period, we may accept and post your trial period payments to your account and it will
not affect foreclosure proceedings that have already been started.

We will not proceed to foreclosure sale during the trial period, provided you are complying with the
terms of the trial period plan, except as detailed below:

The terms of your trial period plan below are effective on the day you make your first trial period payment,
provided you have paid it on or before ________________________. You and we agree that:

Additional Trial Period Plan Information and Legal Notices

If you have any questions or if you cannot afford the trial period payments shown above, but want to remain
in your home, or if you have decided to leave your home but still want to avoid foreclosure,
please call us at ### ### ####. We may be able to help you.

by mortgage lenders on the day your modification agreement is prepared (the Freddie Mac Primary Mortgage
Market Survey Rate for 30 year, fixed rate conforming mortgages). Once your interest rate reaches the cap, it
will be fixed for the remaining life of your loan. Like your trial period payment, your new monthly payment will
also include an escrow for property taxes, hazard insurance and other escrowed expenses. If the cost of your
homeowner’s insurance, property tax assessment or other escrowed expenses increases, your monthly payment
will increase as well.

Exhibit D
Trial Period Plan Notice (Verified Income)

correspondence I Appendix H I OCTOBER 21, 2009

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[Loan number]

If you have further questions about this trial period plan or the program, please call your servicer at
XXX XXX XXXX

How do I get a permanent modification?
You must make all of your trial period payments by their due dates; if you do not make each of your trial period
payments in the month in which it is due, your loan will not be modified under Making Home Affordable.

Why is there a trial period?
The trial period offers you immediate payment relief and it gives you time to make sure that you can manage
the lower monthly mortgage payment. Please note that your existing loan and its requirements remain in effect
and unchanged during the trial period.

Congratulations! You are approved to enter into a trial period plan under the Making Home Affordable
program! This is the first step towards lowering your mortgage payments. Please read this letter so that you
understand all the steps you need to take now to lower your mortgage payments permanently.

Dear ______________

[Name]
[Address 1]
[Address 2]

[Date]

[Servicer Logo]

Will my interest rate and principal and interest payment be fixed after my loan is permanently modified?
Once your loan is modified, your interest rate and monthly principal and interest payment will be fixed for the
life of your mortgage unless your initial modified interest rate is below current market interest rates. In that
case, the below market interest rate will be fixed for five years. At the end of the fifth year, your interest rate
may increase by 1% per year until it reaches a cap. The cap will equal the market rate of interest being charged
by mortgage lenders on the day your modification agreement is prepared (the Freddie Mac Primary Mortgage
Market Survey Rate for 30 year, fixed rate conforming mortgages). Once your interest rate reaches the cap, it
will be fixed for the remaining life of your loan. Like your trial period payment, your new monthly payment will
also include an escrow for property taxes, hazard insurance and other escrowed expenses. If the cost of your
homeowner’s insurance, property tax assessment or other escrowed expenses increases, your monthly payment
will increase as well.

Are there incentives that I may qualify for if am current with my new payments?
Once your loan is modified, you can earn a pay for success incentive for every month that you make on time
payments beginning with the trial period payments. Depending on your modified monthly payment, you may
accrue up to $1,000 each year for five years for a total of $5,000. This important benefit, which will be applied
to your principal balance each year after the anniversary date of your first trial period payment due date, will
help you earn equity in your home by reducing the amount that you owe. However, you must remain current
on your loan. You will lose this important benefit if your modified mortgage becomes 90 days delinquent.

When will I know if my loan can be modified permanently and how will the modified loan balance be
determined?
Once you make all of your trial period payments on time, we will send you a modification agreement detailing
the terms of the modified loan. Any difference between the amount of the trial period payments and your
regular mortgage payments will be added to the balance of your loan along with any other past due amounts as
permitted by your loan documents. While this will increase the total amount that you owe, it should not
significantly change the amount of your modified mortgage payment as that is determined based on your total
monthly gross income, not your loan balance.

How was my new payment in the trial period determined?
Your trial period payment is approximately 31% of your total gross monthly income, which is $_________. The
new payment includes principal and interest and an escrow amount of $________ to pay property taxes,
insurance and other permissible escrow fees. If we were able to modify your loan today, based on the
information you gave us, we estimate your modified interest rate would be ____%. If we modify your loan
permanently after the trial period, the interest rate may be different due to a variety of factors that affect the
terms of your final modification. If you did not have an escrow account before, the timing of your tax and
insurance bills may require that you make a payment to cover any such bills when they come due. This is known
as an escrow shortage. Your loan has an escrow shortage of $_______; this can either be paid in a lump sum
when the loan is modified or over the next ____ years (or ______ months). If you wish to pay the total shortage
as a lump sum, please contact us.

What else should I know about this offer?
If you make your new payments timely, we will not conduct a foreclosure sale.
You will not be charged any fees for this Trial Period Plan or final modification.
If your loan is modified, we will waive all unpaid late charges.
Your credit score may be affected by accepting a trial period offer or modification. For more information
about your credit score please go to http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre24.shtm.
You may be required to attend credit counseling.

Additional Information

230
Appendix H I correspondence I OCTOBER 21, 2009

During trial period, any pending foreclosure action or proceeding will not be dismissed and may
be immediately resumed if you fail to comply with the terms of the trial period plan or do not
qualify for a modification. A new notice of default, notice of intent to accelerate, notice of
acceleration, or similar notice will not be necessary to continue the foreclosure action
(foreclosure notices). You waive any and all rights to receive such foreclosure notices to the
extent permitted by applicable law. However, if your property is located in Georgia, Hawaii,
Missouri, or Virginia and a foreclosure sale is currently scheduled, the foreclosure sale will not
be suspended and foreclosure may proceed if you do not make each and every trial period
payment that is due through the end of the month preceding the month in which the
foreclosure sale is scheduled to occur. For example, if a foreclosure sale is scheduled in
February and you do not make your January and any earlier required trial period payment by
the end of January, the foreclosure sale may proceed in these four states. If a foreclosure sale
occurs pursuant to this provision, the trial period plan will be deemed to have terminated.

You agree that any prior waiver that allowed you to pay directly for taxes and insurance is
revoked. You agree to establish an escrow account and to pay required escrows into that
account.

You agree that all terms and provisions of your current mortgage note and mortgage security
instrument remain in full force and effect and you will comply with those terms; and that
nothing in the trial period plan shall be understood or construed to be a satisfaction or release
in whole or in part of the obligations contained in the loan documents.

Your current loan documents remain in effect; however, you may make the trial period payment instead
of the payment required under your loan documents:

If your monthly payment did not include escrows for taxes and insurance, you are now required to do
so:

During the trial period, we may accept and post your trial period payments to your account and it will
not affect foreclosure proceedings that have already been started.

We will not proceed to foreclosure sale during the trial period, provided you are complying with the
terms of the trial period plan, except as detailed below:

The terms of your trial period plan below are effective on the day you make your first trial period payment,
provided you have paid it on or before ________________________. You and we agree that:

Additional Trial Period Plan Information and Legal Notices

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SIGTARP Recommendation 1:
Treasury should require the imposition of strict information barriers or “walls” between the
Public-Private Investment Program (PPIP) fund managers making investment decisions on
behalf of the Public-Private Investment Fund (PPIF) and those employees of the fund
management company who manage non-PPIF funds.

Recommendations from the July 2009 Quarterly Report

This report first presents Treasury's response to the new recommendations issued by SIGTARP
in the July 2009 Quarterly Report, and then provides a status report on our actions to address the
outstanding recommendations identified in the SIGTARP chart contained in the same quarterly
report. We used the corresponding recommendation number from the SIGTARP chart to
identify the actions Treasury has taken to address the relevant outstanding recommendations.
We have not included in this summary response those recommendations that SIGTARP has
confirmed that Treasury has “implemented,” specifically, 1, 17, 18, 19, 24, 25, 29, and 31. We
also have not included those recommendations that Treasury has previously described in our
summary responses the measures we have taken to address concerns raised by SIGTARP, and,
based on previous conversation with SIGTARP officials, consider these recommendations as
“closed,” specifically, 7, 8, 9, 10, 12, 13, 14, 15, 16, 21, 22, 23, 26, 28, 30, and 32. The
summary response covers the eight recommendations identified in the July 2009 Quarterly
Report and the remaining eight outstanding recommendations identified in the SIGTARP chart.

The Treasury has given careful consideration to the 40 recommendations in SIGTARP's prior
quarterly reports when taking actions to stabilize the financial system and restore the flow of
credit. Treasury’s policies and programs currently address many of the issues raised in your
recommendations, and in other cases, Treasury has taken specific actions to implement your
recommendations. Treasury also has executed or will execute alternative approaches that we
believe address some of the issues raised in your recommendations. When we believe a
particular recommendation would not help carry out Treasury’s statutory duties under the
Emergency Economic Stabilization Act (EESA), we have developed alternative ways to address
the underlying concerns SIGTARP has raised and have explained the measures we are
employing to do so to in our summary responses to SIGTARP and to Congress.

The Department of the Treasury (Treasury) welcomes the recommendations on the Troubled
Assets Relief Program (TARP) from the Office of the Special Inspector General for the Troubled
Asset Relief Program (SIGTARP). This summary response serves as a status report on
Treasury's response to recommendations contained in SIGTARP's February 2009, April 2009,
and July 2009 Quarterly Reports.

September 25, 2009

The U.S. Department of the Treasury
Summary Response to SIGTARP Recommendations

•

Effectiveness of achieving policy goals for programs for Legacy Assets –
Metrics to measure the program’s effects on price discovery and restarting the

Performance metrics will be evaluated across three principal areas:

Treasury has substantively adopted this recommendation, and is developing appropriate
metrics to monitor the effectiveness of the PPIP fund managers as well as the PPIP in
general. Treasury is presently working with PPIP fund managers to establish expected
reporting requirements. In addition, Treasury is hiring a fund advisor consultant that will
assist in the ongoing evaluation, monitoring and reporting of each PPIF. Treasury
currently expects to have selected this fund advisor consultant by mid-November and will
solicit additional input from this firm in order to refine Treasury’s ongoing reporting
requirements after that point.

Treasury’s Response

SIGTARP Recommendation 3:
Treasury should have appropriate metrics defined and an evaluation should be put in place to
monitor the effectiveness of the PPIF managers, both to ensure that they are fulfilling the terms
of their agreements and to measure their performance against pre-established benchmarks and
against each other.

Treasury is currently developing a template for periodic reports to be publicly disclosed,
which would provide aggregated information on Eligible Assets investments across the
PPIFs. These reports will provide meaningful information regarding the performance of
PPIF investments while protecting confidential, sensitive information related to the
investment strategies and individual positions of each PPIF.

Treasury’s Response

SIGTARP Recommendation 2:
Treasury should periodically disclose trading activity and require PPIF managers to disclose to
SIGTARP, within seven days of the close of the quarter, all trading activity, holdings, and
valuations so that SIGTARP may disclose such information, subject to reasonable protections, in
its quarterly reports.

Treasury does not believe this recommendation is necessary or appropriate for the PPIP,
and has previously explained to SIGTARP officials the alternative ways that Treasury has
addressed concerns raised by the SIGTARP in a supplemental letter dated July 2, 2009.
As discussed, Treasury considers this recommendation closed.

Treasury’s Response

correspondence I Appendix H I OCTOBER 21, 2009

243

SIGTARP Recommendation 6:
Treasury should require PPIF managers to obtain and maintain information about the beneficial
ownership of all the private equity interests, and Treasury should have the unilateral ability to
prohibit participation of private equity investors.

Treasury accepts this recommendation and will require PPIP fund managers to disclose
holdings in derivatives in non-PPIF funds where derivative values are related to Eligible
Assets held in the PPIF.

Treasury’s Response

SIGTARP Recommendation 5:
Treasury should require fund managers to disclose to Treasury, as part of the Watch List process
outlined in the term sheet, info about holdings in eligible assets and holdings in related assets or
exposure to related liabilities.

Treasury does not believe this recommendation is necessary or appropriate for the PPIP,
and previously explained the alternative ways that Treasury has addressed concerns
raised by the SIGTARP in our supplemental letter dated July 2, 2009. As previously
discussed, Treasury considers this recommendation closed.

Treasury’s Response

SIGTARP Recommendation 4:
The conditions that give Treasury "cause" to remove a manager should be expanded to include a
manager's performance below a certain standard benchmark, or if Treasury concludes that the
manger has materially violated compliance or ethical rules.

Treasury has the ability to end the investment period after 12 months in its sole
discretion, and to the extent a certain PPIP fund manager is underperforming, Treasury
and the private investors will have the ability to replace the General Partner of the PPIF.
In addition, material violations of the Rules will be included as Events of Cause in the
Partnership Agreements governing each PPIF.

•

markets for Eligible Assets are expected to include pricing for Eligible Assets
including benchmark indices (e.g. ABX and CMBX).
Financial performance of a PPIF – Metrics are expected to include PPIF
returns relative to appropriate fixed income benchmarks. Treasury will work
with its fund advisor consultant to establish appropriate fixed income
benchmarks with which to measure performance.
Adherence to compliance regime – Treasury is presently discussing the
applicability of compliance metrics with its compliance contractor.

In our continuing effort to improve the transparency of our programs, and in order to
more closely adopt the recommendations in the SIGTARP report, Treasury is expanding
its Quarterly Capital Purchase Program (CPP) Report to include additional categories of
information included in the SIGTARP survey responses underlying the SIGTARP report,
such as financial institutions’ repayments of their outstanding debt obligations and total

Treasury's Response

SIGTARP Recommendation 8:
Treasury should require TARP recipients to submit periodic reports to Treasury on their use of
funds, including what they were able to do with their TARP funds, such as lending, investments,
acquisitions, and other activities that they could not have conducted without TARP funding.
Treasury should also require TARP recipients to retain all supporting documentation in
conjunction with any reporting requirement that Treasury may impose.

Treasury and the Federal Reserve have discussed concerns about potential overrating or
rating shopping with the rating agencies, and we will continue to develop and enhance
our risk management tools and processes, where appropriate.

The Treasury and Federal Reserve have a robust TALF risk management program that
does not rely solely on ratings issued by rating agencies. Additionally, the Federal
Reserve Bank of New York recently engaged collateral monitors to assess the risk
associated with ABS and CMBS collateral. The collateral monitors, in addition to the
credit ratings, conservative haircuts, interest premiums, and other terms and conditions,
collectively serve to protect taxpayer interests.

Treasury’s Response

SIGTARP Recommendation 7:
Treasury and the Federal Reserve Bank of New York should examine Moody’s assertions and
develop mechanisms to ensure that acceptance of collateral in the Term Asset-Backed Securities
Loan Facility (TALF) is not unduly influenced by the improper incentives to overrate that exist
among the rating agencies.

Treasury has adopted most of this recommendation, and explained measures employed to
address the concerns raised by the SIGTARP in our summary response and supplemental
letter, both dated July 2, 2009. As further explained in our supplemental letter, Treasury
does not agree that having the unilateral ability to prohibit participation of private equity
investors is necessary or appropriate for the PPIP. As previously discussed, Treasury
considers this recommendation closed.

Treasury's Response

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Appendix H I correspondence I OCTOBER 21, 2009

SIGTARP Recommendation 2:
Treasury should include language in new TARP agreements to facilitate compliance and
oversight. Specifically, each program participant should (1) acknowledge explicitly the
jurisdiction and authority of SIGTARP and other oversight bodies, as relevant, to oversee
compliance of the conditions contained in the agreement in question, (2) establish internal
controls with respect to that condition, (3) report periodically to the Compliance department of
the Office of Financial Stability (“OFS-Compliance”) regarding the implementation of those

Recommendations from the SIGTARP Chart

The SIGTARP report provided descriptions of the general uses of capital by TARP
recipients but did not contain quantitative data on such uses. By tracking the additional
information discussed above, we believe that these reports will now capture all of the
categories of information covered by SIGTARP’s audit responses. Moreover, because
quantitative data used in these reports is based on data that is provided and reviewed by
the financial institution's primary banking regulator, they constitute a more reliable and
measurable way of tracking how financial institutions use their capital.

In addition to the Monthly Lending and Intermediation Snapshot, Treasury provides an
expanded CPP Monthly Lending Report that includes the monthly average outstanding
balances of consumer loans and commercial loans and total loans from all CPP
participants. Finally, Treasury publishes a Quarterly CPP Report that provides extensive
detail on the financial positions and activities of both CPP and non-CPP banks based on
regulatory data collected by each institution’s primary financial regulator.

Most of the information contained in SIGTARP survey responses is already captured by
Treasury’s Monthly Lending and Intermediation Snapshot, CPP Monthly Lending Report
or Quarterly CPP Report. Specifically, these Treasury reports capture financial
institution activities regarding lending, capital cushions and other reserves, and
investments in mortgage-backed securities and asset-backed securities. Treasury
publishes its Monthly Lending and Intermediation Snapshot to help measure the lending
activities of the nation’s largest Capital Purchase Program (CPP) financial institutions.
This report includes quantitative information on lending and other intermediation
activities, as well as a qualitative section that allows banks to comment on the lending
environment and the host of factors outside a bank’s control that affect lending levels,
such as loan demand, borrower creditworthiness, capital markets liquidity and the
macroeconomic environment. Although some of the largest recipients of TARP funds
have recently repaid the assistance, Treasury has obtained their agreement to provide this
information to Treasury for the remainder of 2009.

investments. This expansion will begin with the next Quarterly CPP Report, scheduled to
be released during October 2009.

Please see response below under Recommendation 11.

SIGTARP Recommendation 5
Treasury should formalize its going-forward valuation methodology.

Treasury has previously explained the alternative ways that Treasury has addressed
concerns raised by the SIGTARP in our summary response dated July 2, 2009, and as
described above, plans to expand its current quarterly report to capture all categories of
uses of TARP funds identified by participants in response to SIGTARP's survey. As
previously discussed, Treasury considers this recommendation closed.

Treasury’s Response

SIGTARP Recommendations 4:
Treasury should require all TARP recipients to report on the actual use of TARP funds.

Additionally, Treasury has posted all previously executed TARP agreements, except for
approximately 78 CPP agreements. Treasury is working towards posting the remaining
78 CPP agreements, and expects to complete this task by November 1, 2009.

Treasury continues to make progress on implementing this recommendation. Treasury
posts all the agreements governing new transactions on its Financial Stability website.
Treasury posts a redacted version of the new agreement for each transaction on the
Treasury website ten business days from the closing date of the transaction.

Treasury’s Response

SIGTARP Recommendation 3:
All existing TARP agreements, as well as those governing new transactions, should be posted on
the Treasury website as soon as possible.

Treasury will implement this recommendation with respect to new TARP programs going
forward, as appropriate. Additional details on how Treasury has implemented this
recommendation are available in our summary responses dated April 7, 2009 and July 2,
2009. As previously discussed, Treasury considers this recommendation closed.

Treasury's Response

controls and its compliance with the condition, and (4) provide a signed certification from an
appropriate senior official to OFS-Compliance that such report is accurate.

correspondence I Appendix H I OCTOBER 21, 2009

245

With respect to the recommendation on warrants, as previously stated in our summary
response dated July 2, 2009, Treasury does not, at this time, intend to exercise the
warrants except under certain circumstances related to mergers and acquisitions activity,
although Treasury could consider exercising the warrants in the future. Treasury will
review its policies from time to time to ensure they serve the goals of promoting financial
stability and protecting the taxpayer. Treasury considers this recommendation closed.

Treasury has been implementing this recommendation. In Treasury’s July 2, 2009
response to the SIGTARP’s April 21, 2009 Quarterly Report to Congress, Treasury
described its investment strategy policy and asset management tenets prescribed by
EESA. Treasury is refining the investment and asset management guidelines for CPP and
the other programs which comprise the TARP portfolio. Such a strategy considers
financial market stability and broader economic goals, taxpayer protection and
transparency, a portfolio approach with discipline at the individual investment level, risk
management at the portfolio, program and individual investment levels, and a disposition
methodology which minimizes market disruption.

Treasury’s Response

SIGTARP Recommendation 6:
Treasury should develop an overall investment strategy to address its portfolio of stocks and
decide whether it intends to exercise warrants of common stock.

Treasury agrees with SIGTARP that it is in the public interest to provide periodic
disclosure of the estimated value of the TARP portfolio so that the public knows the
value of the investments that Treasury has made. A valuation of the portfolio was
previously provided as part of the President's 2010 Budget. Under Federal law, Treasury
is required to provide a valuation of its investments in connection with the preparation of
its annual financial statements. On November 16, 2009, Treasury will publish the
financial statements for the fiscal year ended September 30, 2009. The methodology
used for such valuation is governed by Federal accounting principles and the financial
statements and the methodology are being audited by the GAO.

Treasury’s Response

SIGTARP Recommendation 11:
Treasury should formalize its valuation strategy and begin providing values of the TARP
investments to the public.

Freddie Mac, Treasury’s compliance agent for the Home Affordable Modification
Program (“HAMP”), is in the process of refining procedures to verify that incentives paid

Incentive payments to servicers include servicer incentives, investor payments, and
borrower incentives. Payments represent (i) incentive payments to the servicer at the
successful conclusion of the trial loan modification period (90-120 days) and (ii)
payments to the servicer to be passed on to the investor as a partial offset to reduced
interest income resulting from the loan modification. After one year (and annually
thereafter, and for up to five years) payments to servicers also include borrower
incentives, assuming the borrower is current, which would be applied to reduce the
principal amount of the residential mortgage loan for the borrower.

Treasury’s Response

SIGTARP Recommendation 27:
Additional anti-fraud protections should be adopted in MHA to verify the identity of the
participants in the transaction and to address the potential for services to steal from individuals
by receiving Government subsidies without applying them for the benefit of the homeowner.

In the meantime, the compliance staff is receiving assistance from other OFS personnel,
including those in the risk management, financial management, home ownership
preservation and investment areas, to ensure that TARP participants are meeting their
responsibilities under the investment agreements. In addition, Treasury is using Freddie
Mac, Fannie Mae, and contractors to provide substantive expertise and program
monitoring services under the direction of the compliance staff.

Treasury has made significant progress in increasing staffing levels in its compliance
functions; notably, we now have a team of executive compensation professionals and a
dedicated lead of conflicts has joined the OFS-Compliance staff (overseeing conflicts
issues involving contractors and financial agents). A number of other hires are in various
stages of the hiring process and we expect a number of additional hires to begin work in
the next few weeks in various functions within OFS-Compliance, including anti-fraud,
conflicts, reporting, and oversight. In addition, Treasury has posted job descriptions and
is reviewing resumes and conducting interviews to fill remaining compliance positions at
all levels in the organization. When fully staffed, the compliance department will have
senior compliance professionals and supporting teams overseeing each TARP program.

Treasury’s Response

SIGTARP Recommendation 20:
Treasury should significantly increase the staffing levels of OFS-Compliance and ensure the
timely development and implementation of an integrated risk management and compliance
program.

246
Appendix H I correspondence I OCTOBER 21, 2009

Treasury also does not believe that additional anti-fraud protections are necessary to
identify incentives paid to investors since the ownership of mortgage loans can change on
a regular basis, as they are often traded in the secondary mortgage market, or in the case
of any mortgage loans held in a securitization, the loans are held in a pooled trust and
many investors may hold separate slices of this pooled trust. Freddie Mac will, as part of
its servicer compliance reviews, reconcile on a sample basis the investor payments
remitted to the servicer to verify that servicers are not retaining these incentives.

Treasury does not believe that additional anti-fraud protections are necessary to identify
borrowers and/or co-borrowers involved in HAMP because borrower incentives are in the
form of a principal reduction of the related borrower’s residential mortgage loan, and
thus, no cash payments are made to the borrowers. In addition, controls are in place to
ensure that borrowers can receive benefit for only one modification to a first lien loan
and, if applicable, only one modification to a second lien loan.

to servicers are applied to the respective borrower participating in HAMP, and to
investors. These compliance procedures will be performed by Freddie Mac on each
HAMP participating servicer by reviewing a random sample of serviced mortgage loans,
starting in October, since cash payments have only just begun (Treasury made payments
to just one HAMP servicer in August). Through this random sampling, Freddie Mac’s
procedures will look to verify that borrower incentives paid to servicers were properly
applied to reduce the outstanding principal balance of the related borrower’s residential
mortgage loan by tracing the incentives allocated to such loan. Freddie Mac will also
look to verify that the investor incentives have been passed through to the related
investors. Additional procedures include loan file reviews performed by Freddie Mac to
verify that the loan exists, and that the data submitted by the servicer to the HAMP
system of record is accurate. Freddie Mac will also use third party databases to verify the
existence of the mortgaged property.

correspondence I Appendix H I OCTOBER 21, 2009

247

248

Appendix H I correspondence I OCTOBER 21, 2009

correspondence I Appendix H I OCTOBER 21, 2009

249

250

Appendix H I correspondence I OCTOBER 21, 2009

organizational chart I Appendix I I OCTOBER 21, 2009

organizational chart

251

SIGTARP
SIG-QR-09-04

202.622.1419
Hotline: 877.SIG.2009
SIGTARP@do.treas.gov
www.SIGTARP.gov

Full text of Semiannual Report to Congress : Quarterly Report to Congress, Fourth Quarter 2009

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