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L SP E N A ER 202.622.1419 Hotline: 877.SIG.2009 SIGTARP@do.treas.gov www.SIGTARP.gov RA M LE D OG UB SIG-QR-10-02 CT INSPE OR GE TRO SIGTARP: Quarterly Report to Congress | April 20, 2010 SIGTARP Q2 2010 AL CI ASS E T R ELIEF PR 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 April 20, 2010 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”) and amended by the Special Inspector General for the Troubled Asset Relief Program Act of 2009 (“SIGTARP Act”). Under EESA and the SIGTARP Act, the Special Inspector General has the duty, among other things, to conduct, supervise and coordinate audits and investigations of any actions taken under the Troubled Asset Relief Program (“TARP”) or as deemed appropriate by the Special Inspector General. 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 Oversight Activities of SIGTARP SIGTARP Recommendations on the Operation of TARP Report Organization 3 8 9 11 12 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 January 2010 Quarterly Report The SIGTARP Organization 13 15 15 29 Section 2 TARP overview TARP Funds Update Financial Overview of TARP Homeowners Support Program TARP Tutorial: What Do “Underwater” Homeowners Do? Financial Institution Support Programs Asset Support Programs TARP Tutorial: Federal Support for Small-Business Lending Automotive Industry Support Programs Executive Compensation 31 33 33 49 64 74 95 107 114 117 Section 3 tarp operations and administration TARP Administrative and Program Expenditures Current Contractors and Financial Agents Internal Controls 121 123 124 129 Section 4 SIGTARP Recommendations 131 Update on Treasury’s Adoption of SIGTARP’s Use of Funds Recommendation 133 Recommendations from SIGTARP’s Audit Report on the Implementation of the Home Affordable Modification Program (“HAMP”) 134 Recommendations Concerning Treasury’s Newly Announced Foreclosure Mitigation Initiatives 135 Tracking the Implementation of Recommendations in Previous Reports 145 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 J. UST/TCW Fund Holdings 153 165 168 170 174 219 220 221 226 236 237 quarterly report to congress I april 20, 2010 3 EXECUTIVE SUMMARY investigations 4 special inspector general I troubled asset relief program quarterly report to congress I april 20, 2010 There are clear signs that some aspects of the financial system may well be on the path to recovery. Many of the large banks and Wall Street firms propped up by unprecedented taxpayer support in the fall of 2008 — including massive infusions under the Troubled Asset Relief Program (“TARP”) — have returned to profitability, attracted private-sector capital, and enjoyed substantially rebounded stock prices. Many of those firms have been able to repay TARP far sooner than anyone reasonably would have anticipated, resulting in a profit on those particular investments for the Treasury Department (“Treasury”), and thus the American taxpayer. Even Citigroup Inc. (“Citigroup”) and Bank of America Corporation (“Bank of America”), firms that appear to have survived only with extraordinary TARP assistance, have rebounded, with Bank of America repaying its TARP bailouts in full and Citigroup on the verge of doing the same. All told, as of March 31, 2010, $205.9 billion has come back to the taxpayer through repayment of principal, interest, dividends, cancellation of guarantees, and warrant sales. As a result, although TARP is still expected to result in a large loss to taxpayers ($127 billion according to the Office of Management and Budget, as of February 2010), the expected loss is far lower than previous estimates, and is concentrated in the programs designed to support American International Group, Inc. (“AIG”) ($50 billion), the automotive industry ($31 billion), and housing ($49 billion). Even as Wall Street regains its footing, however, signs of distress on Main Street remain disturbingly persistent. Although unemployment has eased slightly in recent months, it still remains much higher than at any time since 1983. In addition, the long-term nature of unemployment is unprecedented in recent history — the March 2010 figure for the average duration of unemployment, 31.21 weeks, is the highest since such measurement began in 1948. Meanwhile, smaller and regional banks continue to struggle (with 50 closed so far in 2010), small-business lending remains substantially depressed from pre-recession levels, and the real estate markets, both residential and commercial, continue to suffer at crisis proportions in many areas of the country. Questions remain as to whether the real estate markets have truly found bottom or are headed for further decline. In sum, notwithstanding that the financial system appears to be stabilizing and record profits are returning to Wall Street, the plain fact is that too many Americans on Main Street are still in imminent danger of losing their businesses, their jobs, and their homes. In light of these circumstances, Treasury has shifted much of TARP’s focus to initiatives intended to offer economic relief to the broader public. A year ago this March, Treasury introduced the Making Home Affordable (“MHA”) initiative, which was designed to address the growing wave of home foreclosures ravaging many areas of the country. The centerpiece of MHA is the Home Affordable Modification Program (“HAMP”), which was intended to result in millions of sustainable mortgage modifications that would allow homeowners to remain in their 5 6 special inspector general I troubled asset relief program homes by reducing their monthly payments to affordable levels. The Administration has allocated $75 billion to HAMP, including $50 billion of TARP funds. Despite Treasury’s efforts, however, the home foreclosure crisis has not abated; indeed, the situation has continued to deteriorate since HAMP’s rollout. Nearly 2.8 million foreclosures were initiated in 2009.2 More ominously, 2010 is on pace to be even worse: there were more than 932,000 foreclosure filings during the first three months — a 16% increase from the already staggering rate for the first quarter of 2009. Similarly, for the first quarter of 2010, actual bank repossessions rose 35% from 2009 levels to nearly 258,000.3 Unfortunately, HAMP has made very little progress in stemming this onslaught, resulting in only 230,000 permanent modifications initiated over the approximately 12 months of the program’s existence. That figure represents only 8.2% of the foreclosures initiated in 2009 and fewer than just the most recent quarter’s actual bank repossessions. A SIGTARP audit report published on March 25, 2010, examined the design and operation of HAMP in detail. The audit first found that Treasury’s publicly touted measure of success, the number of short-term trial modification offers that have been made to struggling homeowners, was largely meaningless, and that Treasury needs to clearly identify the total number of homeowners it actually intends to help stay in their homes through sustainable permanent mortgage modifications. The audit also found that the limited results to date stemmed from, among other things, flaws in HAMP’s design, rollout, and marketing that diminished the program’s effectiveness in providing sustainable relief to at-risk homeowners. In its original version, HAMP involved frequent and time-consuming revisions of guidelines that created confusion and delay; permitted reliance on unverified verbal borrower data that slowed down conversions to permanent modifications; suffered from insufficient outreach to the American public about eligibility and benefits; and did not fully address risk factors for re-defaults among participating borrowers, including negative equity and high total debt levels even after modification. As noted in the report, without addressing the dangers of re-default, HAMP risks merely spreading out the foreclosure crisis at significant taxpayer expense. While this may benefit financial institutions that would not have to recognize the losses from immediate foreclosures, it would do little to accomplish the Emergency Economic Stabilization Act’s explicit purpose to “help families keep their homes.” Although Treasury was initially reluctant to address the issues raised in the audit report regarding re-default, including a suggestion that only modest changes would be made to the program to address negative equity, just days after the publication of SIGTARP’s audit report and a subsequent Congressional hearing discussing the report’s findings, Treasury changed course and introduced major revisions to HAMP, including new provisions designed to address the plight of unemployed homeowners and to require consideration of principal write-downs for borrowers with negative equity. To Treasury’s credit, the program changes appear intended to quarterly report to congress I april 20, 2010 expand HAMP participation and improve the rate of permanent modifications, as well as to address the significant re-default risk driven by homeowners’ negative equity. On the whole, the revisions to HAMP constitute a potentially important step forward in addressing some of the flaws identified in SIGTARP’s audit report. However, the program changes, as announced, also raise several issues that could impede HAMP’s effectiveness and efficiency. Treasury’s urgency in rolling out the new initiatives, laudable as it is, risks significant costs in the form of ill-defined goals, incomplete program guidelines, increased vulnerability to fraud, incentives that may prove ineffective, and the potential for arbitrary treatment of participating borrowers. SIGTARP has made a series of recommendations designed to address these issues as discussed more fully in Section 4: “SIGTARP Recommendations” in this report: • Treasury should identify its participation goals and anticipated costs for each HAMP program and subprogram and measure success against those expectations in its monthly reports. • Treasury should launch a broader based fraud awareness campaign for HAMP and include fraud warnings when it makes program announcements. • To protect against fraud, Treasury should abandon its differing valuation standards across HAMP and adopt the Federal Housing Authority’s appraisal standard for all HAMP principal reduction and short sale programs. • Treasury should reevaluate the voluntary nature of its principal reduction program, considering changes to maximize effectiveness, to ensure to the greatest extent possible consistent treatment of similarly situated borrowers, and to address potential servicer conflicts of interest. • Treasury should reconsider the length of the three-month minimum term of its unemployment forbearance program. In sum, until Treasury fulfills its commitment to provide a thoughtfully designed, consistently administered, and fully transparent program, HAMP risks being remembered not for catalyzing a recovery from our current housing crisis, but rather for bold announcements, modest goals, and meager results. 7 8 special inspector general I troubled asset relief program PROGRAM UPDATES AND FINANCIAL OVERVIEW CUMULATIVE PLANNED TARP EXPENDITURES, REPAYMENTS, AND REDUCTIONS IN EXPOSURE AS OF 3/31/2010 $ Billions $387.8 $185.8 $698.8 $496.8 Total TARP Available Planned TARP TARP TARP Expendituresa Repayments Balance and Remaining Reductions in Exposureb Notes: Numbers affected by rounding. The “planned expenditures” referenced throughout this report represent the funds Treasury currently plans to expend for each program, and a majority of those are committed funds (e.g., signed agreements with TARP fund recipients). a Treasury experienced a $2.3 billion loss on some investments under the Capital Purchase Program (“CPP”) . b Repayments include $135.8 billion for CPP, $40 billion for the Targeted Investment Program, $4.6 billion for Auto Programs, and a $5 billion reduction in exposure under the Asset Guarantee Program. Sources: Treasury, Transactions Report, 4/2/2010; Treasury, response to SIGTARP data call, 4/12/2010. TARP consists of 13 announced programs, all of which have been implemented. Six are closing or have already been wound down. As of March 31, 2010, Treasury had announced programs involving potential spending of $537.1 billion of the $698.8 billion maximum available for the purchase of troubled assets under TARP as authorized by Congress. Of this amount, Treasury had expended or committed to expend approximately $496.8 billion through the 13 implemented programs to provide support for U.S. financial institutions, the automobile industry, the markets in certain types of asset-backed securities (“ABS”), and homeowners. As of March 31, 2010, 77 TARP recipients had paid back all or a portion of their principal or repurchased shares for an aggregate total of $180.8 billion of repayments and a $5 billion reduction in exposure to possible further liabilities, leaving $387.8 billion, or 55.5%, of TARP’s allocated $698.8 billion available. 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 March 31, 2010, $14.5 billion in interest, dividends, and other income had been received by the Government, and $5.6 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 participants in the Capital Purchase Program (“CPP”), 104 have missed dividend payments to the Government, although some of them made the payments on a later date. As of March 31, 2010, there was $188.9 million in outstanding unpaid CPP dividends. In addition, three TARP recipients have failed and several others have restructured their agreements with Treasury, increasing the potential for further losses. quarterly report to congress I april 20, 2010 OVERSIGHT ACTIVITIES OF SIGTARP Since SIGTARP’s Quarterly Report to Congress dated January 30, 2010, SIGTARP has actively sought to fulfill its vital investigative and audit functions. SIGTARP’s Investigations Division continues to develop into a sophisticated white-collar investigative agency. Through March 31, 2010, SIGTARP has 84 ongoing criminal and civil investigations. Highlights from the last quarter include important developments in several cases that have been brought as the result of SIGTARP’s investigations. The Park Avenue Bank On March 15, 2010, Charles Antonucci, the former President and Chief Executive Officer of The Park Avenue Bank, was charged by the United States Attorney’s Office for the Southern District of New York with offenses including self-dealing, bank bribery, embezzlement of bank funds, and bank, mail and wire fraud, among others. In particular, Antonucci allegedly attempted to steal $11 million of TARP funds by, among other things, making fraudulent claims about the bank’s capital position. These charges mark the first time an individual has been criminally charged with attempting to steal TARP funds. According to the allegations, Antonucci falsely represented that he had personally invested $6.5 million in The Park Avenue Bank to improve its capital position. As set forth in the charges, however, the funds were actually borrowed from The Park Avenue Bank itself and reinvested as part of an undisclosed “round-trip” transaction. The complaint further alleges that this fraudulent transaction was touted by The Park Avenue Bank in support of its application for TARP funds as evidence of its supposedly improving capital position. Bank of America On February 4, 2010, the New York Attorney General charged Bank of America, its former Chief Executive Officer Kenneth D. Lewis, and its former Chief Financial Officer Joseph L. Price with civil securities fraud. According to the allegations, in order to complete a merger between Bank of America and Merrill Lynch & Co., Inc. (“Merrill Lynch”), the defendants failed to disclose to shareholders spiraling losses at Merrill Lynch. Additionally, after the merger was approved, it is alleged that Bank of America made misrepresentations to the Federal Government in order to obtain tens of billions of dollars in TARP funds. The investigation was conducted jointly by the New York Attorney General’s Office and SIGTARP, and the case remains pending in New York state court. SIGTARP also assisted the Securities and Exchange Commission (“SEC”) with its Bank of America investigation. On February 22, 2010, the Honorable Jed S. Rakoff, United States District Judge for the Southern District of New York, approved a $150 million civil settlement between the SEC and Bank of America to settle all outstanding SEC actions against the firm. 9 10 special inspector general I troubled asset relief program Nations Housing Modification Center On March 19, 2010, Glenn Steven Rosofsky was arrested by agents from SIGTARP and the Internal Revenue Service, Criminal Investigation Division and charged by the U.S. Attorney’s Office for the Southern District of California with one count of conspiracy to commit wire fraud and money laundering and one count of money laundering. A separate information the same day charged Michael Trap with conspiracy to commit fraud and money laundering. As set forth in the charges, Rosofsky, Trap, and others operated a telemarketing firm, ostensibly to assist delinquent homeowners with loan modification services. Operating under the names “Nations Housing Modification Center” and “Federal Housing Modification Department,” Rosofsky and Trap took advantage of the publicity surrounding the Administration’s mortgage modification efforts under the TARP-supported MHA program and are alleged to have used fraudulent statements to induce customers to pay $2,500 – $3,000 each to purchase loan modification services that were not actually provided. It is alleged in court documents that the fraud grossed more than $1 million. Trap pled guilty to the charges listed in his March 19 information the following day. The case against Rosofsky remains pending. Section 1: “The Office of the Special Inspector General for the Troubled Asset Relief Program” in this report describes these cases, other cases brought over the last quarter, and SIGTARP’s other Investigations Division activities in more detail. On the audit side, as noted above, SIGTARP released its latest audit report on March 25, 2010, which examined the “Factors Affecting Implementation of the Home Affordable Modification Program.” SIGTARP has 12 other ongoing audit projects, including 2 new audits that have been initiated over the past quarter: • Application of the HAMP Net Present Value (“NPV”) Test: This audit, which will be conducted in response to a request from Senator Jeff Merkley and eight other Senators, will assess: whether the participating loan servicers are correctly applying the NPV test under the program; the extent to which Treasury ensures that servicers are appropriately applying the NPV test per HAMP guidelines when assessing borrowers for program eligibility; and the procedures servicers follow to communicate to borrowers the reasons for NPV test failure, as well as to identify the full range of loss mitigation options available to such borrowers. quarterly report to congress I april 20, 2010 • Material Loss Review of United Commercial Bank: SIGTARP is participating in a Material Loss Review of United Commercial Bank, based in San Francisco, with the Office of the Inspector General of the Federal Deposit Insurance Corporation (“FDIC OIG”). In November 2008, United Commercial Bank received $298.7 million of TARP funds through CPP. On November 6, 2009, the California Department of Financial Institutions closed the bank and appointed FDIC as receiver. The objectives of the audit are: determining the causes of the financial institution’s failure and resulting material loss to the Deposit Insurance Fund; evaluating FDIC’s supervision of the institution; and determining whether FDIC and Treasury followed applicable procedures in recommending the bank for CPP funding and in monitoring its compliance with the securities purchase agreement. Section 1: “The Office of the Special Inspector General for the Troubled Asset Relief Program” in this report describes the HAMP audit in detail and discusses continuing and recently announced SIGTARP audits. 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. Section 4: “SIGTARP Recommendations” in this report provides updates on existing recommendations and summarizes implementation measures for previous recommendations. As noted above, this report makes a series of recommendations concerning the new HAMP initiatives. It also discusses Treasury’s introduction, on February 3, 2010, of the Community Development Capital Initiative (“CDCI”), a new TARP initiative designed to provide up to $1 billion in additional capital to Community Development Financial Institutions to incentivize lending. Section 2: “TARP Overview” in this report reviews CDCI’s provisions in detail, and Section 4: “SIGTARP Recommendations” in this report details a number of SIGTARP recommendations designed to improve the transparency of CDCI investments and better safeguard them against fraud or the failure of participating institutions. Over the past quarter, Treasury has also announced another new initiative designed to spur small-business lending, the Small Business Lending Fund (“SBLF”). As announced, although SBLF will be funded with $30 billion that will be rescinded from TARP, SBLF will not be part of TARP, but rather will be operated outside of TARP and thus will not be subject to the executive compensation restrictions and perceived stigma associated with TARP. However, many of the characteristics of SBLF are the same or very similar to the TARP’s CPP and CDCI: the economic 11 12 special inspector general I troubled asset relief program structure is basically the same, with Treasury providing capital in the form of preferred equity, and, like CPP and CDCI, the maximum amount of capital available under SBLF will be a percentage of the institution’s risk-weighted assets. It would also appear that the application and approval process for new participants will be similar and will involve the same primary regulators. Even many of the same banks will be participants — SBLF is expressly being designed so that many CPP participants will be able to convert their CPP capital into SBLF capital. SIGTARP has estimated that up to 95% of CPP participants could be eligible to convert to SBLF. In sum, the funds being utilized, the core mechanics, the economic terms of the program and even many of the participants all stem from TARP’s CPP. Because SIGTARP has developed considerable experience and expertise in its oversight of the very similar (and similarly complex) CPP, particularly in reporting, monitoring, deterring, and investigating fraud, SIGTARP has strongly encouraged that SIGTARP be included in the oversight provisions of Treasury’s legislative proposal concerning SBLF. SIGTARP’s letter to Treasury, objecting to its stated intent not to include SIGTARP in the proposed legislation, is included in Appendix H: “Correspondence.” REPORT ORGANIZATION The report is organized as follows: • Section 1: “The Office of the Special Inspector General for the Troubled Asset Relief Program” in this report discusses the activities of SIGTARP. • Section 2: “TARP Overview” in this report details how Treasury has spent TARP funds thus far and contains an explanation or update of each program, both implemented and announced. • Section 3: “TARP Operations and Administration” in this report describes the operations and administration of the Office of Financial Stability, the office within Treasury that manages TARP. • Section 4: “SIGTARP Recommendations” in this report states 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 March 31, 2010. 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 Section 2 are devoted to tutorials explaining the alternatives available to “underwater” homeowners and reviewing Federal support for smallbusiness lending. quarterly report to congress I aPRIL 20, 2010 section 1 13 The Office of the Special Inspector General for the Troubled Asset Relief Program investigations 14 special inspector general I troubled asset relief program exec summ endnote1 exec summ endnote2 exec summ endnote3 quarterly report to congress I aPRIL 20, 2010 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 JANUARY 2010 QUARTERLY REPORT SIGTARP has continued to fulfill its oversight role on multiple parallel tracks: from auditing various aspects of TARP and TARP-related programs and activities; 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. SIGTARP’s Investigations Activity SIGTARP’s Investigations Division continues to develop into a sophisticated whitecollar investigative agency. Through March 31, 2010, SIGTARP has 84 ongoing criminal and civil investigations. These investigations concern 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, theft of trade secrets, money laundering, and tax-related investigations. Although the majority of SIGTARP’s investigative activity remains confidential, over the past quarter there have been significant public developments in several of SIGTARP’s investigations. The Park Avenue Bank On March 15, 2010, Charles Antonucci, the former President and Chief Executive Officer of The Park Avenue Bank, was charged by the United States Attorney’s Office for the Southern District of New York with offenses including self-dealing, bank bribery, embezzlement of bank funds, and bank, mail, and wire fraud, among 15 16 special inspector general I troubled asset relief program others. In particular, Antonucci allegedly attempted to steal $11 million of TARP funds by, among other things, making fraudulent claims about the bank’s capital position. These charges mark the first time an individual has been criminally charged with attempting to steal TARP funds. According to the allegation, Antonucci falsely represented that he had personally invested $6.5 million in The Park Avenue Bank to improve its capital position. As set forth in the charges, however, the funds were actually borrowed from The Park Avenue Bank itself and reinvested as part of an undisclosed “round-trip” transaction. The complaint further alleges that this fraudulent transaction was touted by The Park Avenue Bank in its application for TARP funds as evidence of its supposedly improving capital position, a key factor regulators consider when awarding TARP funds. In addition, Antonucci allegedly made false representations to bank regulators about the source of the $6.5 million. The ongoing SIGTARP investigation is being conducted in partnership with U.S. Immigration and Customs Enforcement (“ICE”), the Superintendent of the Banks of New York, the Federal Bureau of Investigation (“FBI”), and the Office of the Inspector General of the Federal Deposit Insurance Corporation (“FDIC OIG”). Bank of America On February 4, 2010, the New York Attorney General charged Bank of America Corporation (“Bank of America”), its former Chief Executive Officer Kenneth D. Lewis, and its former Chief Financial Officer Joseph L. Price with civil securities fraud. According to the allegations, in order to complete a merger between Bank of America and Merrill Lynch & Co., Inc. (“Merrill Lynch”), the defendants failed to disclose to shareholders spiraling losses at Merrill Lynch. Additionally, after the merger was approved, it is alleged that Bank of America made misrepresentations to the Federal Government in order to obtain tens of billions of dollars in TARP funds. The investigation was conducted jointly by the New York Attorney General’s Office and SIGTARP, and the case remains pending in New York state court. SIGTARP also assisted the Securities and Exchange Commission (“SEC”) with its Bank of America investigation. On February 22, 2010, the Honorable Jed S. Rakoff, United States District Judge for the Southern District of New York, approved a $150 million civil settlement between the SEC and Bank of America to settle all outstanding SEC actions against the firm. The court found that Bank of America failed to disclose adequately to its shareholders, prior to their approval of a merger with Merrill Lynch, the extent of additional material losses that Merrill Lynch had suffered. Additionally, the court found that the proxy statement sent to shareholders in November 2008 failed to disclose adequately Bank of America’s agreement to allow the payment of bonuses to Merrill Lynch employees prior to the merger. In addition to the $150 million payment, Bank of America also agreed to the following settlement requirements: quarterly report to congress I aPRIL 20, 2010 • engaging an independent auditor to assess and report on the effectiveness of the company’s disclosure controls and procedures • furnishing management certifications signed by the chief executive officer and chief financial officer with respect to proxy statements • retaining disclosure counsel to the audit committee of the company’s board of directors • adopting independence requirements beyond those already applicable for all members of the compensation committee of the company’s board of directors • retaining an independent compensation consultant to the compensation committee • implementing and disclosing written incentive compensation principles on the company’s website and providing the company’s shareholders with an advisory vote concerning any proposed changes to such principles • providing the company’s shareholders with an annual “say on pay” advisory vote regarding the compensation of executives Finally, SIGTARP continues to investigate, in partnership with the FBI and U.S. Attorneys’ Offices for the Southern District of New York and Western District of North Carolina, the circumstances of Bank of America’s merger with Merrill Lynch and its receipt of additional TARP funds through the Targeted Investment Program. Omni National Bank Omni National Bank (“Omni”) was a national bank headquartered in Atlanta with branch offices in seven states. Omni failed and was taken over by the Federal Deposit Insurance Corporation (“FDIC”) on March 27, 2009. Before its failure, Omni had applied for, but did not receive, TARP funds under the Capital Purchase Program (“CPP”). SIGTARP has participated in several investigations concerning Omni that have led to criminal charges as part of a mortgage fraud task force that includes SIGTARP, the U.S. Attorney’s Office for the Northern District of Georgia, FDIC OIG, the Office of the Inspector General of the Department of Housing and Urban Development (“HUD OIG”), the U.S. Postal Inspection Service (“USPIS”), and the FBI. The Omni investigation yielded two convictions in the first quarter of 2010. On January 14, 2010, Jeffrey Levine, Omni’s former Executive Vice President, pled guilty in Federal district court to charges of causing material overvaluations of bank assets in the books, reports, and statements of Omni. On March 23, 2010, Brent Merriell pled guilty in Federal district court to charges of making false statements to the FDIC and six counts of aggravated identity theft in connection with a scheme to prompt Omni to forgive $2.2 million in loans. Sentencing for both men is scheduled for May 25, 2010. 17 18 special inspector general I troubled asset relief program SIGTARP’s involvement in the investigations, including whether the various frauds had an impact on Omni’s CPP application, is ongoing. Mount Vernon Money Center On March 11, 2010, the U.S. Attorney’s Office for the Southern District of New York indicted Robert Egan, president, and Bernard McGarry, chief operating officer, of the Mount Vernon Money Center (“MVMC”) with bank fraud for allegedly stealing $50 million entrusted to their company. MVMC engaged in various cash management businesses, including replenishing cash in more than 5,300 automated teller machines owned by banks and other financial institutions. According to the charges, from 2005 through February 2010, Egan and McGarry solicited and collected hundreds of millions of dollars from MVMC’s clients on the false representations that they would not commingle clients’ funds or use the money for purposes other than those specified in the various contracts with their clients. Egan and McGarry misappropriated their clients’ money — including the funds of several institutions in which the American taxpayer was an investor through TARP — to fund tens of millions of dollars in operating losses in MVMC’s businesses, to repay outstanding client obligations, and to enrich themselves at their clients’ expense. SIGTARP agents assisted with the investigation. A trial date remains to be set. Nations Housing Modification Center On March 19, 2010, Glenn Steven Rosofsky was arrested by agents from SIGTARP and the Internal Revenue Service, Criminal Investigation Division (“IRS-CI”) and charged by the U.S. Attorney’s Office for the Southern District of California with one count of conspiracy to commit wire fraud and money laundering and one count of money laundering. A separate information the same day charged Michael Trap with conspiracy to commit fraud and money laundering. As set forth in the charges, Rosofsky, Trap, and others operated a telemarketing firm, ostensibly to provide delinquent homeowners with loan modification services. Operating under the names “Nations Housing Modification Center” and “Federal Housing Modification Department,” Rosofsky and Trap took advantage of the publicity surrounding the Administration’s mortgage modification efforts under the TARP-supported Making Home Affordable (“MHA”) program and are alleged to have used fraudulent statements to induce customers to pay $2,500 - $3,000 each to purchase loan modification services that were not actually provided. The charges allege that the solicitation letters were mailed in envelopes that deceptively bore a Capitol Hill return address (in fact, it was merely a post office box) and were designed to mimic official Federal correspondence. It is alleged in court documents that the fraud grossed more than $1 million. Trap pled guilty to the charges listed in his March 19 information the following day. The case against Rosofsky remains pending. quarterly report to congress I aPRIL 20, 2010 The criminal charges follow the September 16, 2009, civil injunction obtained by the Federal Trade Commission (“FTC”), in connection with an investigation conducted in partnership with SIGTARP, against Rosofsky, Trap, and others, alleging violations of the FTC Act and telemarketing sales rules through misrepresentations about their organization as a Federal Government agency or affiliate and false claims that they would obtain mortgage modifications for consumers for a fee. United Law Group On March 11, 2010, SIGTARP, along with the USPIS, FBI, ICE, and the Orange County District Attorney’s Office, executed a publicly filed search warrant obtained by the U.S. Attorney for the Central District of California at the offices of United Law Group, LLC (“ULG”) in Irvine, California. This investigation focuses on allegations that ULG, taking advantage of the climate created by the TARP-supported MHA programs, engaged in a mortgage modification advance fee scheme. The company allegedly charged struggling homeowners fees ranging from $1,500 to $12,000 without performing services while advising victims to stop paying their mortgages and terminate contact with their lenders. Many ULG customers subsequently lost their homes to foreclosure. Board of Governors of the Federal Reserve System/Federal Reserve Bank of New York As disclosed to Congress in connection with the January 22, 2010 hearing entitled “Federal Bailout of AIG” before the House Committee on Oversight and Government Reform, SIGTARP has initiated several investigations relating to the decision of the Federal Reserve Bank of New York (“FRBNY”) to pay certain AIG swap counterparties the equivalent of par for certain distressed securities, including issues related to FRBNY’s cooperation with SIGTARP during the course of SIGTARP’s audit into the payments and to certain disclosures made by AIG in relation to the payments. SIGTARP Chairs Inaugural Meeting of the Rescue Fraud Working Group of the President’s Financial Fraud Enforcement Task Force On February 24, 2010, SIGTARP hosted the inaugural meeting of the Rescue Fraud Working Group. As previously reported, President Obama established the Financial Fraud Enforcement Task Force (“FFETF”) “to investigate and prosecute significant financial crimes and other violations relating to the current financial crisis and economic recovery efforts, recover the proceeds of such crimes and violations, and ensure just and effective punishment of those who perpetrate financial crimes and violations.” A component of FFETF is the Rescue Fraud Working 19 20 special inspector general I troubled asset relief program Group, co-chaired by Special Inspector General Neil M. Barofsky, Assistant Attorney General Lanny A. Breuer of the Criminal Division of the Department of Justice (“DOJ”), and Timothy G. Massad, chief counsel of Treasury’s Office of Financial Stability (“OFS”). Attendees at the inaugural meeting included officials from agencies across the Federal Government, including OFS; DOJ (Civil, Criminal, and Tax Divisions); the U.S. Attorneys’ Offices for the Northern and Central Districts of California, the Eastern District of Virginia, the Eastern and Southern Districts of New York, and the District of New Jersey; the Office of the Comptroller of the Currency; the Office of Thrift Supervision; the Financial Crimes Enforcement Network; USPIS; the Board of Governors of the Federal Reserve; the SEC; and the FBI. SIGTARP Hotline One of SIGTARP’s primary investigative priorities is to operate the SIGTARP Hotline, thus providing a simple, accessible way for the American public to report concerns, allegations, information, and evidence of violations of criminal and civil laws in connection with TARP. From its inception in February 2009 through March 31, 2010, the SIGTARP Hotline has received and analyzed more than 12,000 Hotline contacts. These contacts run the gamut from expressions of concern about the economy to serious allegations of fraud involving TARP. A substantial number of SIGTARP’s investigations were generated in connection with Hotline tips. The SIGTARP Hotline can receive information anonymously, and the confidentiality of whistleblowers is protected to the fullest extent possible. SIGTARP honors all applicable whistleblower protections. SIGTARP urges anyone aware of waste, fraud, or abuse relating to TARP programs or funds, whether it involves the Federal Government, state and local entities, private firms, or individuals, to contact its representatives at 877-SIG-2009 or www.sigtarp.gov. SIGTARP Audit Activity SIGTARP has initiated a total of 20 audits since its inception. Since SIGTARP’s Quarterly Report to Congress dated January 30, 2010 (the “January 2010 Quarterly Report”), SIGTARP has released an additional audit report and announced two new audit projects. Five other previously announced audits are nearing completion, and SIGTARP anticipates releasing reports on those audits in the coming months. Factors Affecting Implementation of the Home Affordable Modification Program On March 25, 2010, SIGTARP released its audit report entitled “Factors Affecting Implementation of the Home Affordable Modification Program.” Announced on March 4, 2009, the Home Affordable Modification Program (“HAMP”) was quarterly report to congress I aPRIL 20, 2010 designed to help homeowners stay in their homes by making their mortgages more affordable. Allocations for HAMP totaled $75 billion, including $50 billion of TARP funds. Loan servicer participation is voluntary, but HAMP encourages it by sharing some modification-related costs and offering incentive payments for successful modifications. HAMP targets owner-occupants who are in default on their pre-2009 mortgage loans or are deemed at risk of imminent default. Using funds from TARP, among other sources, HAMP offers financial incentives for parties to mortgage modifications. First, if a servicer’s modifications reduce a borrower’s first mortgage debt to 38% of gross income, HAMP assumes half of the marginal cost of further reducing that ratio to 31%. Second, under a pay-forsuccess structure, HAMP provides fixed-dollar incentive payments to servicers, borrowers, and lenders for successful loan modifications. Under HAMP, Treasury does not pay incentives during a trial period of several months; only after trial modifications convert successfully to permanent modifications will Treasury make incentive payments. SIGTARP’s audit examined HAMP’s status and whether the program has met participation goals thus far. It also discussed the challenges that have confronted Treasury in implementing the program. When HAMP was launched in early 2009, Treasury justified the program by stating that it would “help up to three to four million at-risk homeowners avoid foreclosure,” doing so “by reducing monthly payments to sustainable levels.” Notwithstanding this laudable aspiration that the program would actually help that number of homeowners avoid losing their homes, Treasury has stated that its numerical goal is not tied to how many homeowners actually receive sustainable relief and avoid foreclosure. Rather, its goal was that three to four million homeowners would receive offers for trial modifications. The audit report concluded that measuring trial modification offers, or even actual trial modifications, for that matter, is not particularly meaningful. The more significant measure is the number of people helped, through permanent modifications, to avoid foreclosure and stay in their homes. Transparency and accountability principles require that Treasury establish meaningful goals and that it report its progress in meeting those goals on a monthly basis. Continuing to frame HAMP’s success around the number of offers extended is simply not sufficient. A year into the program, although more than a million trial modifications have been initiated, the number of permanent modifications, as of the time the audit was issued, 168,708, has been, even according to Treasury, “disappointing.” One Treasury official’s estimate for how many permanent modifications would result from HAMP as it was designed at the time of the audit — 1.5 to 2 million over the course of the four-year program — may be only a small fraction of the total number of foreclosures that will occur during that period. The audit concluded that any 21 22 special inspector general I troubled asset relief program assessment of whether HAMP is worth the resources being expended or whether the program needs to be revamped to actually help more borrowers should be based on the projected estimate of permanent modifications, not Treasury’s figure of three- to four-million “offers.” There are several reasons that the audit identified for the disappointing results to date: • Repeated changes to program guidelines caused confusion and delay. Treasury attempted to roll out HAMP as fast as possible and, although it may have made substantial progress in meeting its servicer participation goals quickly, the program’s rules were not fully developed by the time the program began. As a result, Treasury has had to revise guidelines repeatedly, often causing confusion and delay. Treasury’s initial haste may have impaired the longer-term objective of delivering more permanent modifications quickly and efficiently. • Permitting unverified verbal modifications was counterproductive. To pursue fixed goals for trial modifications, Treasury permitted servicers to initiate trial modifications without document verification. This proved to be a mistake that impaired more meaningful relief, i.e., the conversion of trial modifications to permanent ones. Servicers have reported that weeding out ineligible borrowers among those who entered the program through verbal information is resource intensive, diverting time and effort that could have been devoted to processing eligible borrowers’ completed written applications. Moreover, the policy may have caused actual harm to homeowners placed into trial modifications that had no chance of becoming permanent. Treasury corrected this error and changed the rule for all trial modifications initiated after April 15, 2010. • Marketing efforts concerning HAMP have been limited. As of the time of the audit, Treasury had marketed HAMP to the public using an informational website, community outreach events, and a telephone hotline. However, Treasury has not provided sufficient guidance or metrics to support loan servicers’ own HAMP outreach efforts. It has also taken more than a year to produce unique public service announcements to educate the public about HAMP’s benefits and eligibility criteria and to warn against the dangers of fraud. • Re-defaults threaten the long-term success of the program. Even if HAMP resulted in the estimated 1.5 to 2 million permanent modifications, the audit noted that the program will fail if large numbers of those borrowers re-default and face foreclosure anyway. Treasury estimates that 40% of HAMP modified mortgages (both trial and permanent) will re-default during the program. Several aspects of HAMP’s design make it particularly vulnerable to re-defaults: • Debt-to-income ratios: Borrowers’ other debts aside from first-lien mortgages (e.g., car payments, student loans, credit card obligations, and second liens on the home) do not figure into determining HAMP eligibility or its calculation of affordable debt service, which likely overestimates many quarterly report to congress I aPRIL 20, 2010 • • • borrowers’ financial resilience. As a result, HAMP borrowers carry a median debt-to-income ratio of 61.3% even after modification.4 This stands in contrast to Federal Housing Administration (“FHA”) requirements for its own programs, including the newly announced TARP-related program intended to refinance loans with high negative equity. Interest rate increases post-modification: If the interest rate on a HAMP modification is adjusted to below market rates, after five years the rate can “step up” to prevailing market levels by up to 1% per year, capped at the 30-year conforming fixed rate on the day the modification was drafted. Borrowers, however, may be unable to meet the higher monthly payments after the step-up feature is invoked. Second liens: Up to 50% of at-risk mortgages are backed by second liens. Although borrowers may receive a HAMP permanent modification on their first-lien loan, the total monthly mortgage payments might still be unaffordable if the second lien is not also modified or extinguished. Treasury has instituted a second-lien program to address this issue, but participation to date has been limited. With the recent signing of Bank of America, Wells Fargo & Company, JPMorgan Chase & Co., and Citigroup Inc. (“Citigroup”), participation is improving. Negative equity and strategic defaults: At the time of the audit, HAMP did not require servicers to address negative equity (i.e., when the borrower owes more than the house is worth), which has been called by an industry expert the “most important predictor of default.” In light of the negative equity in many mortgages under trial modifications, the audit warned that resulting re-defaults could become a factor in HAMP’s difficulties as borrowers decide that it makes more economic sense to walk away from their mortgages and rent at a lower cost. In light of these conclusions, SIGTARP made the following recommendations, which are discussed in more detail in Section 4: “SIGTARP Recommendations” in this report: • Given its previously ambiguous statements concerning goals and metrics for HAMP, Treasury should clearly and prominently disclose, on an ongoing basis, its goals and estimates for the number of homeowners who will be helped through permanent modifications and report monthly on progress thereto. • Treasury should devise and publish additional performance metrics to gauge the success of HAMP. For example, Treasury could establish goals and report its progress in meeting those goals for key metrics such as servicer processing times, modifications as a proportion of defaulted loans or foreclosures, rates of borrower attrition prior to permanent loan modification, and rates of HAMP participants’ regression to default. 23 24 special inspector general I troubled asset relief program • Treasury should undertake a sustained public service campaign to reach additional borrowers who could be helped by the program and to equip the public with complete, accurate information about HAMP in order to prevent confusion, fraud, or abuse. • Treasury should reconsider its position that allows servicers to substitute alternative forms of income verification based on the subjective determination of the servicer, such as whether such documents are “appropriate” or relying on the servicer’s “good business judgment consistent with the judgment employed when modifying mortgage loans held under their own portfolio.” • Treasury should examine the program’s structure with an eye to minimizing the prospect of re-default. As constituted at the time of the audit, HAMP did not appear to address adequately risk factors such as negative equity, second-lien and non-mortgage debt service, and interest rate resets. Treasury concurred with SIGTARP’s first three recommendations. However, Treasury initially declined to adopt SIGTARP’s last two recommendations, claiming that the documentary guidelines were not intended to be a “comprehensive underwriting guide” and the prospect that “alternative modification structures that could lower re-default rates” would mean either decreased participation or increased cost. As a result, Treasury suggested that it would only consider program adjustments that would “modestly” address unemployed and underwater borrowers. In response, SIGTARP encouraged Treasury to reconsider its refusal to address more deeply the issues that fuel re-default, noting that under then-current Congressional Budget Office estimates, only $20 billion of the allocated $50 billion would be spent on permanent modifications. The audit stressed the importance for the success of the program of putting borrowers into sustainable permanent modifications. After the issuance of SIGTARP’s audit report, Treasury announced its plans to make dramatic and substantial revisions to HAMP’s structure that appear designed to address some of SIGTARP’s recommendations, including our previously rejected recommendation regarding the danger of negative equity, as follows: • requiring that servicers consider principal write-downs as part of the loan modification process, with increased incentives for successful principal write-downs • a new program funded with $14 billion in TARP funds that will be run by FHA and Treasury that will enable borrowers who are severely underwater to refinance their mortgages so that the total amount that they owe on their homes will be no greater than 115% of the home’s value • temporary payment reductions for unemployed borrowers for periods from three to six months while they seek new employment • increased incentives for servicers to provide permanent loan modifications in order to compensate them for costs associated with the revisions to the program, including assistance to unemployed homeowners • expansion of HAMP to include borrowers with FHA-guaranteed loans and, upon request, borrowers in active bankruptcy proceedings quarterly report to congress I aPRIL 20, 2010 • improved requirements for borrower solicitations, stating performance timeframes for all parties and prohibiting new foreclosure referrals during the HAMP modification process • additional assistance for homeowners who lose their homes through short sales or deeds-in-lieu of foreclosure, including financial assistance for moving and incentives to servicers and second-lien holders for use of foreclosure alternatives Although SIGTARP appreciates Treasury’s willingness to reconsider its opposition to more than modest changes to the program so promptly, the newly announced revisions raise several significant concerns that are addressed through additional recommendations set forth in Section 4: “SIGTARP Recommendations” in this report. Audits Underway SIGTARP has previously announced audits on 10 topics, and expects to issue reports covering those topics in the near future. 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 what processes and procedures Treasury has established to ensure that the Federal Government receives fair market value for the warrants and the extent to which Treasury has controls in place to facilitate a transparent and well-documented decision-making process. SIGTARP is scheduled to release this audit at a hearing before the House Financial Services Committee scheduled for May 11, 2010. 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 were slated for closure in connection with the recent GM and Chrysler bankruptcies. Its objectives are to determine whether GM and Chrysler developed and followed a fair, consistent, reasonable, and documented approach; to understand the role of the Federal Government in these decisions; and to review the cost savings or other benefits to GM and Chrysler. Governance Issues Where U.S. Holds Large Ownership Interests: SIGTARP received a request from Senator Max Baucus to undertake a body of audit work examining Federal Government oversight of, and interaction with, the management of institutions such as American International Group, Inc. (“AIG”), General Motors Company (“GM”), Chrysler Holding LLC (“Chrysler”), and Citigroup, in which the Government has or is approaching majority owner status. The audit, which is being conducted jointly with the Government Accountability Office (“GAO”), will also examine the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), which are under Government conservatorship. 25 26 special inspector general I troubled asset relief program Status of the Federal 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 the Asset Guarantee Program such as: 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; the characteristics of the assets deemed acceptable for inclusion in the program and how those assets differed from other Citigroup assets; whether adequate risk-management controls were in place to mitigate the risks to the taxpayer; and what safeguards existed to protect taxpayer interests and what the losses were on the portfolio. CPP Applications Receiving Conditional Approval: This audit examines 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 The Colonial BancGroup (“Colonial”), which received CPP approval for $553 million conditioned on Colonial raising $300 million in private capital. (As discussed in the January 2010 Quarterly Report, SIGTARP’s Investigations Division executed a search warrant of Colonial’s offices in Florida, and Colonial, now shut down, has announced it is the subject of an ongoing 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. Selection of Asset Managers for the Legacy Securities Program: This audit will examine the process Treasury followed to select fund managers to raise private capital for joint investment programs with Treasury through the Public-Private Investment Program (“PPIP”). It will examine the criteria used by Treasury to select Public-Private Investment Fund (“PPIF”) managers and minority partners, and the extent to which Treasury consistently applied established criteria when selecting fund managers and small, veteran- , minority- , and women-owned businesses. Internal Controls for the Legacy Securities Program: This audit will examine the internal controls in place for both Treasury and each of the PPIF managers for the Legacy Securities Program under PPIP. It will also assess the extent to which Treasury’s internal controls mitigate PPIF manager conflicts of interest and ensure overall program compliance. Term Asset-Backed Securities Loan Facility (“TALF”) Collateral Monitors’ Valuation: This audit will examine the Federal Reserve’s valuation determinations used to issue loans under TALF. It will assess how the Federal Reserve made valuation determinations, including the role of the collateral monitors, when making decisions regarding the eligibility of the collateral and the appropriateness of the requested loan amounts. quarterly report to congress I aPRIL 20, 2010 Office of the Special Master Decisions on Executive Compensation: This audit will examine the Special Master’s decisions on executive compensation at firms receiving exceptional assistance from the Federal Government. This audit will assess the criteria used by the Special Master to evaluate executive compensation and whether the criteria were consistently applied. CPP Exit Strategy: This audit will examine the process that OFS and Federal banking regulators have established for banks to repay Treasury and exit CPP. New Audits Underway Over the past quarter, SIGTARP has announced two new audits on which work has begun: Application of the HAMP Net Present Value (“NPV”) Test: This audit, which will be conducted in response to a request from Senator Jeff Merkley and eight other Senators, will assess: • whether the participating loan servicers are correctly applying the NPV test under the program • the extent to which Treasury ensures that servicers are appropriately applying the NPV test per HAMP guidelines when assessing borrowers for program eligibility • the procedures servicers follow to communicate to borrowers the reasons for NPV test failure, as well as to identify the full range of loss mitigation options available to such borrowers Material Loss Review of United Commercial Bank: SIGTARP is participating in a Material Loss Review of United Commercial Bank, based in San Francisco, with FDIC OIG. In November 2008, United Commercial Bank received $298.7 million of TARP funds through CPP. On November 6, 2009, the California Department of Financial Institutions closed the bank and appointed FDIC as receiver. The objectives of the audit are: determining the causes of the financial institution’s failure and resulting material loss to the Deposit Insurance Fund; evaluating FDIC’s supervision of the institution; and determining whether the FDIC and Treasury followed applicable procedures in recommending the bank for CPP funding and in monitoring its compliance with the securities purchase agreement. Materials related to SIGTARP’s audits, including the engagement letters describing the audits at the outset and the actual final audit reports, can be found on SIGTARP’s website, www.SIGTARP.gov. Specific recommendations from the audit released last quarter and an update on prior audit recommendations are discussed more fully in Section 4: “SIGTARP Recommendations” of this report. 27 28 special inspector general I troubled asset relief program 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 his staff meet regularly with and brief members and Congressional staff. Over the past quarter: • On January 22, 2010, Special Inspector General Barofsky testified before the House Committee on Oversight and Government Reform, during a hearing entitled, “The Federal Bailout of AIG.” The hearing focused on the Federal Government’s response to AIG’s collapse and on SIGTARP’s audit report on the decision to pay AIG’s credit default swap counterparties effectively at face value following AIG’s near-bankruptcy. • On February 2 and 3, 2010, SIGTARP Chief of Staff Christy Romero presented open briefings for House and Senate staff. The focus of the briefing was SIGTARP’s January 2010 Quarterly Report, which included, in addition to the typical subjects covered, an overview of Federal Government support for the residential mortgage market. • On March 25, 2010, Special Inspector General Barofsky testified before the House Committee on Oversight and Government Reform, during a hearing entitled, “Foreclosure Prevention: Is the Home Affordable Modification Program Preserving Homeownership?” The hearing focused on the execution and impact of Treasury’s foreclosure prevention efforts, with particular attention to HAMP, and featured the release of SIGTARP’s HAMP audit. Copies of all 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. Constitutionality of the Special Master On November 2, 2009, SIGTARP sent a letter to Treasury inquiring about the constitutionality of its appointment of the Special Master for TARP Executive Compensation, pursuant to the Interim Final Rule on TARP Standards for Compensation and Corporate Governance. On March 26, 2010, Treasury responded in a letter that set forth its arguments that the Special Master’s appointment is constitutional. SIGTARP has requested additional information from Treasury and is continuing to review the issue. quarterly report to congress I aPRIL 20, 2010 THE SIGTARP ORGANIZATION From the day the Senate confirmed the Special Inspector General, 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 contracting authority. Since the January 2010 Quarterly Report, SIGTARP has continued to make substantial progress in building its operation. Hiring Each of SIGTARP’s divisions has continued the process of filling out its ranks. As of April 15, 2010, SIGTARP had 116 full-time personnel, including one detailee from another agency. SIGTARP’s employees hail from many Federal agencies, including DOJ, the FBI, IRS-CI, the Air Force Office of Special Investigations, GAO, Department of Transportation, Department of Energy, HUD, the SEC, U.S. Secret Service, U.S. 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 Transportation-Office 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 HUD OIG. Hiring is ongoing, building to SIGTARP’s goal of approximately 160 full-time employees. The SIGTARP organizational chart, as of April 20, 2010, is included in Appendix I: “Organizational Chart.” Budget SIGTARP was established pursuant to Section 121 of EESA. SIGTARP commenced operations on December 15, 2008, with the swearing in of the Special Inspector General. Section 121(j) of EESA, as amended, provided $50 million in initial operating funds to SIGTARP. In the late spring of 2009, SIGTARP determined that its initial operating funds would be expended during the second quarter of fiscal year 2010, and that an additional $28.3 million would be needed to fund operations throughout the fiscal year. In light of $15 million made available to SIGTARP by the Ensign-Boxer Amendment, which SIGTARP expects to spend over three years (i.e., $5 million per year), SIGTARP requested additional fiscal year 2010 funding of $23.3 million. On December 16, 2009, the President signed Public Law No. 111-117, the Consolidated Appropriations Act for 2010. The Appropriations Act, at Division C, Title 1, provided SIGTARP with the $23.3 million requested. SIGTARP’s budget as submitted in the fiscal year 29 30 special inspector general I troubled asset relief program Figure 1.1 SIGTARP FY 2011 PROPOSED BUDGET $ Millions, percent of $54.6 Million Other $2.7 Physical and Technical SIGTARP Infrastructure 4.9% Transportation $3.4 6.2% Advisory 11.9% $6.5 54.0% Personnel Rent, Services $12.5 22.9% 2011 President’s budget request is $54.6 million. For a detailed breakdown of SIGTARP’s fiscal year 2011 budget, see Figure 1.1. $29.5 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 has begun to occupy a portion of its permanent quarters in that building while the renovation process is completed in the remainder. Primarily to facilitate investigative activities in those cities, SIGTARP has also opened a branch office at 290 Broadway in New York City, and is in the process of opening offices in Los Angeles and San Francisco. SIGTARP has a website, www.SIGTARP.gov, on which it posts all of its reports, testimony, audits, contracts, and more. Since its inception, SIGTARP’s website has had more than 42 million web “hits,” and there have been more than 2.4 million downloads of SIGTARP’s quarterly reports, which are available on the site.5 The website prominently features SIGTARP’s Hotline, which can also be accessed by phone at 877-SIG-2009 (877-744-2009). section 2 tarp overview quarterly report to congress I aPRIL 20, 2010 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 discussion of Treasury’s programs for homeowner relief under the Making Home Affordable initiative. Additionally, it outlines Treasury’s intended legislative proposal to remove $30 billion from TARP and re-appropriate it to fund a small-business lending program. This section also reviews TARP’s overall finances, provides updates on established TARP programs, and gives the status of TARP executive compensation restrictions. TARP Funds Update On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 (“EESA”), which created TARP and appropriated $700 billion to “restore liquidity and stability to the financial system of the United States,” in the midst of a deepening economic crisis.6 On December 9, 2009, the Treasury Secretary extended EESA until October 3, 2010, to “enable [Treasury] to continue to implement programs that address housing markets and the needs of small businesses, and to maintain the capacity to respond to unforeseen threats.”7 The Treasury Secretary said TARP’s focus would shift to addressing the foreclosure crisis and small-business and community lending initiatives, and that it may increase Term Asset-Backed Securities Loan Facility (“TALF”) commitments. Subsequently, Treasury indicated that it planned to submit a legislative proposal to Congress that would transfer $30 billion from TARP “to a new program outside of TARP to support small-business lending.”8 That could reduce overall available TARP funding from its current level of $698.8 billion to $668.8 billion. Financial Overview of TARP As of March 31, 2010, Treasury planned to allocate $537.1 billion of its $698.8 billion TARP maximum to buy troubled assets as authorized by Congress in EESA.9 Of this amount, Treasury plans TARP expenditures of approximately $496.8 billion (of which $382.2 billion had been disbursed) through 13 implemented programs to support U.S. financial institutions, companies, and individual mortgage borrowers.10 The Administration also announced plans to launch the Community Development Capital Initiative (“CDCI”) and the non-TARP Small Business Lending Fund (“SBLF”) to help small businesses.11 These programs will leverage up to approximately $1 billion of TARP funds for capital infusions in Community Development Financial Institutions (“CDFIs”) and another $30 billion in community banks. 33 34 special inspector general I troubled asset relief program Figure 2.1 CUMULATIVE PLANNED TARP EXPENDITURES, REPAYMENTS, AND REDUCTIONS IN EXPOSURE AS OF 3/31/2010 $ Billions $387.8 $185.8 $698.8 $496.8 Total TARP Available Planned TARP TARP TARP Expendituresa Repayments Balance and Remaining Reductions in Exposureb Notes: Numbers affected by rounding. The “planned expenditures” referenced throughout this report represent the funds Treasury currently plans to expend for each program, and a majority of those are committed funds (e.g., signed agreements with TARP fund recipients). a Treasury experienced a $2.3 billion loss on some investments under the Capital Purchase Program (“CPP”) . b Repayments include $135.8 billion for CPP, $40 billion for the Targeted Investment Program, $4.6 billion for Auto Programs, and a $5 billion reduction in exposure under the Asset Guarantee Program. Sources: Treasury, Transactions Report, 4/2/2010; Treasury, response to SIGTARP data call, 4/12/2010. Warrant: The right, but not the obligation, to purchase a certain number of shares of common stock at a fixed price. Because warrants rise in value as the company’s share price rises, Treasury (and the taxpayer) can benefit from a firm’s potential recovery. Common Stock: Equity ownership entitling an individual to share in corporate earnings and voting rights. As of March 31, 2010, 77 TARP recipients had repaid all or a portion of their principal or repurchased shares, for a total of $180.8 billion returned to Treasury and a $5 billion reduction in Government exposure, leaving $387.8 billion, or 55.5% of TARP’s allocated $698.8 billion, available for distribution.12 Figure 2.1 provides a snapshot of the cumulative expenditures, repayments, and exposure reductions as of March 31, 2010. Treasury also collected interest and dividends on its investments, as well as revenue from the sale of its warrants, all of which goes toward offsetting increases in the Federal deficit and cannot be re-issued by Treasury.13 As of March 31, 2010, the Government received $14.5 billion in interest, dividends, and other income and $5.6 billion in proceeds from the sale of warrants and preferred stock received as a result of exercised warrants.14 As of March 31, 2010, $311 billion of the $496.8 billion planned TARP expenditures were outstanding (i.e., had not been repaid or repurchased).15 Moreover, Treasury’s new plans to bolster small-business lending and help small businesses, for which Treasury has not finalized the funding source or amount associated with the programs, may increase TARP expenditures. Most outstanding TARP funds are in the form of equity ownership in troubled, or previously troubled, companies. Treasury (and therefore taxpayers) remain shareholders in the companies that have not yet paid back the Government. Treasury’s equity ownership is largely in two forms — common and preferred stock — and it has also received senior subordinated debentures. TARP consists of 13 programs, all of which have been implemented. Of these programs, six are already closed or winding down: the Capital Purchase Program (“CPP”), the Capital Assistance Program (“CAP”), the Targeted Investment Program (“TIP”), the Asset Guarantee Program (“AGP”), the Auto Supplier Support Program (“ASSP”), and the Auto Warranty Commitment Program (“AWCP”). The 13 programs fall into 4 categories, depending on the type of assistance offered: Preferred Stock: Equity ownership that usually pays a fixed dividend prior to distributions for common stock owners but only after payments due to holders of debt and depositors. It typically confers no voting rights. Preferred stock also has priority over common stock in the distribution of assets when a bankrupt company is liquidated. Senior Subordinated Debenture: A subordinated debenture is a debt instrument ranking below senior debt but above equity with regard to investors’ claims on company assets or earnings. Senior debt holders are paid in full before subordinated debt holders are paid. There may be additional distinctions of priority among subordinated debt holders. CPP invests in senior subordinated debt. 35 quarterly report to congress I aPRIL 20, 2010 Figure 2.2 • 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. • Financial Institution Support Programs — These programs share a common, stated goal of stabilizing the financial markets 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 to stabilize the American automotive industry, promoting market stability and a vigorous economy. Figure 2.2 provides a breakdown showing how TARP funding is distributed between the four categories of programs. Homeowner Support Program This program and its initiatives strive to help homeowners and financial institutions holding troubled housing-related assets. • Making Home Affordable (“MHA”) Program — According to Treasury, this foreclosure mitigation effort should “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.”16 MHA has three major components, only one of which involves TARP funds: the Home Affordable Modification Program (“HAMP”). HAMP helps homeowners with mortgage modifications and foreclosure prevention efforts. Treasury allocated up to $50 billion of TARP money for this $75 billion program.17 As of March 31, 2010, HAMP had expended $39.9 billion in TARP funds and disbursed $90.9 million in incentives on 65,482 permanent modifications offered by servicers.18 See the “Making Home Affordable” discussion in this section for more detailed information. Financial Institution Support Programs To date, Treasury has primarily invested capital directly in the financial institutions it has aided. Financial institutions, for TARP purposes, include banks, bank holding companies, and, if deemed critical to the financial system, certain systemically significant institutions. PLANNED TARP EXPENDITURES OUTSTANDING, REPAYMENTS, AND REDUCTIONS IN EXPOSURE BY SUPPORT CATEGORY, AS OF 3/31/2010 $ Billions 300 $180.8 200 $139.9 100 0 $39.9 $4.6 $0.4 $50.9 Homeowner Financial Asset Support Institution Support Programa Support Programsc Programsb $80.2 Automotive Industry Support Programsd Planned Expenditures Outstanding Repayments and Reductions in Exposure Notes: Numbers affected by rounding. The “planned expenditures” referenced throughout this report represent the funds Treasury currently plans to expend for each program, and a majority of those are committed funds (e.g., signed agreements with TARP fund recipients). a Includes MHA. b Includes CPP, CDCI, SSFI, TIP, and AGP. Repayments include $135.8 billion for CPP, $40 billion for TIP, and a $5 billion reduction in exposure under AGP. c Includes TALF, PPIP, and UCSB. d Includes AIFP, ASSP, and AWCP. Repayments include $3.5 billion for AIFP, $413 million for ASSP, and $642 million for AWCP. Sources: Treasury, Transactions Report, 4/2/2010; Treasury, response to SIGTARP data call, 4/12/2010. Systemically Significant: A term used for any financial institution whose failure would impose significant losses on creditors and counterparties, call into question the financial strength of similar institutions, disrupt financial markets, raise borrowing costs for households and businesses, and reduce household wealth (also commonly used to describe institutions known as “too big to fail”). 36 special inspector general I troubled asset relief program Community Development Financial Institutions (“CDFIs”): Financial institutions eligible for Treasury funding to serve a targeted demographic under the CDFI Fund. CDFIs were created in 1994 by the Riegle Community Development and Regulatory Improvement Act. Senior Preferred Stock: Shares that give the stockholder priority dividend and liquidation claims over junior preferred and common stockholders. • Capital Purchase Program (“CPP”) — Under CPP, Treasury directly purchases preferred stock or subordinated debentures in qualifying financial institutions (“QFIs”). 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].”19 Treasury invested $204.9 billion in 707 institutions through CPP, and $135.8 billion has been repaid as of March 31, 2010.20 CPP closed December 29, 2009, and will not disburse any new funds.21 See the “Capital Purchase Program” discussion in this section for more detailed information. • Community Development Capital Initiative (“CDCI”) — Under CDCI, TARP money is used to purchase preferred stock in Community Development Financial Institutions (“CDFIs”). Treasury created CDCI to “improve access to credit for small businesses.”22 Through March 31, 2010, Treasury had not begun investing through CDCI.23 The deadline for applications under the program was extended to April 30, 2010.24 • Small Business Lending Fund (“SBLF”) — Treasury intends to propose legislation to redirect $30 billion of TARP funding to create a new program outside TARP to stimulate small-business lending. Under SBLF, Treasury would give small banks capital in return for preferred shares in a manner similar to CPP and CDCI. See the “Small Business Lending Fund” discussion in this section for more detailed information. • Systemically Significant Failing Institutions (“SSFI”) Program/AIG Investment Program — The SSFI program allowed Treasury to invest in systemically significant institutions to prevent them from failing.25 Through March 31, 2010, only one firm received assistance under SSFI: American International Group, Inc. (“AIG”). There were two TARP-AIG transactions: on November 25, 2008, Treasury bought $40 billion of AIG’s preferred stock to repay a portion of AIG’s debt to the Federal Reserve; and, on April 17, 2009, Treasury committed approximately $29.8 billion to an equity capital facility on which AIG can draw, as needed.26 As of March 31, 2010, AIG had drawn down $7.5 billion of the facility and had not repaid any TARP funds, leading to total outstanding TARP assistance of $47.5 billion.27 See the “Systemically Significant Failing Institutions” portion of this section for a detailed discussion of the AIG transactions. • Targeted Investment Program (“TIP”) — Through TIP, Treasury helped financial institutions it deemed critical to the financial system.28 There were two expenditures under this program totaling $40 billion — the purchase of $20 billion worth of senior preferred stock in both Citigroup and Bank of America Corporation (“Bank of America”).29 Treasury also accepted warrants of common stock from both. Because both Citigroup and Bank of America fully repaid Treasury for those investments, TIP is effectively closed. Treasury auctioned its quarterly report to congress I aPRIL 20, 2010 Bank of America warrants March 3, 2010, but still holds its Citigroup warrants. See the “Targeted Investment Program and Asset Guarantee Program” portion of this section for more information on these two transactions. See the “Capital Purchase Program” discussion in this section for a more detailed description of Treasury’s sale of the warrants it received from Bank of America as part of TIP. • Asset Guarantee Program (“AGP”) — AGP was designed to provide insurance-like protection on a select pool of mortgage-related or similar assets held by participants whose portfolios of distressed or illiquid assets threatened market confidence.30 Treasury, the Federal Deposit Insurance Corporation (“FDIC”), and the Federal Reserve offered certain loss protections with respect to $301 billion in troubled Citigroup assets.31 On December 23, 2009, in connection with Citigroup’s repayment of Treasury’s TIP investment, the bank and the Government terminated the AGP agreement. The Government made no payments and retained $5.2 billion of preferred shares to compensate it for the protection that AGP extended (approximately $4 billion of which went to Treasury). Subsequently, Treasury converted its preferred shares to trust preferred securities on a dollar-for-dollar basis and later agreed to cancel $1.8 billion of its $4 billion in trust preferred securities.32 See the “Targeted Investment Program and 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 assetbacked securities (“ABS”) and several types of loans. Treasury’s asset support programs seek to bolster the balance sheets of financial firms and help free up capital so that these firms 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 TARP-backed Federal Reserve loan program. TALF provides non-recourse loans to investors secured by certain types of ABS, including credit card receivables, auto loans, equipment loans, student loans, floor plan loans, insurance-premium finance loans, loans guaranteed by the Small Business Administration (“SBA”), residential mortgage servicing advances, and commercial mortgage-backed securities (“CMBS”). Treasury estimates using up to $20 billion of TARP funds to support this program in the form of loss protection to the loans extended by the Federal Reserve Bank of New York (“FRBNY”).33 As of March 31, 2010, FRBNY had facilitated 13 TALF subscriptions of nonmortgage-related ABS, totaling approximately $58 billion, with $36.9 billion of TALF borrowings outstanding.34 As of March 31, 2010, FRBNY had conducted Illiquid Assets: Assets that cannot be quickly converted to cash. Trust Preferred Securities: Securities that have both equity and debt characteristics created by establishing a trust and issuing debt to it. Asset-Backed Securities (“ABS”): Bonds backed by a portfolio of non-mortgage consumer or corporate loans, e.g., credit card, auto, or small-business loans. Financial companies typically issue ABS backed by existing loans in order to fund new loans for their customers. Commercial Mortgage-Backed Securities (“CMBS”): A type of bond backed by one or more mortgages on commercial real estate (e.g., office buildings, rental apartments, hotels) rather than by residential real estate loans. 37 38 special inspector general I troubled asset relief program Legacy Assets: Commonly called troubled or toxic assets, these are real estate-related loans and securities issued before the financial crisis that remain on financial institutions’ balance sheets. Legacy assets lost significant value at the onset of the crisis and were difficult to price because of market disruption. Residential Mortgage-Backed Securities (“RMBS”): A type of bond backed by a pool of mortgages for residential real estate (e.g., home mortgages for residences occupied by up to four families) rather than by commercial real estate loans. SBA Pool Certificate: An ownership interest in a bond backed by SBAguaranteed loans. 10 CMBS subscriptions totaling $12 billion, with $10.3 billion in loans outstanding.35 On March 31, 2010, TALF was closed to all but non-recourse loans backed by newly issued CMBS. It is scheduled to close completely in June. “Term Asset-Backed Securities Loan Facility,” later in this section, provides more information on these activities. • Public-Private Investment Program (“PPIP”) — PPIP’s goal was to thaw frozen credit markets by purchasing legacy assets, e.g., CMBS and residential mortgage-backed securities (“RMBS”).36 Under the program, Public-Private Investment Funds (“PPIFs”) buy real estate-related securities. The PPIFs were operated by nine fund managers, eight of which remain, and can receive up to a total of $30 billion of debt and equity financing from TARP.37 See the “PublicPrivate Investment Program” discussion later in this section for details about the program structure and fund manager terms. • Unlocking Credit for Small Businesses (“UCSB”)/Small Business Administration Loan Support Initiative — In March 2009, Treasury officials said they would buy up to $15 billion in securities backed by SBA loans under UCSB.38 On March 2, 2010, Treasury entered into an agreement with Coastal Securities Inc. (“Coastal”) as the sole pool assembler participating to date in the UCSB program. Under the agreement, Earnest Partners, on behalf of Treasury, can anonymously purchase SBA pool certificates from Coastal.39 Treasury reduced its commitment under this program to $1.0 billion in TARP funding, and has made initial purchases of $21.4 million in securities. See the discussion of “Unlocking Credit for Small Businesses/Small Business Administration Loan Support” in this section for more information on the program. Automotive Industry Financing Program (“AIFP”) TARP’s automotive industry support aimed 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.”40 Treasury made emergency loans to Chrysler, Chrysler Financial Services Americas LLC (“Chrysler Financial”), and General Motors Corporation (“GM”). Additionally, Treasury bought senior preferred stock from GMAC Inc. (“GMAC”) and provided assistance to Chrysler and GM during their restructuring under bankruptcy. As of March 31, 2010, $84.8 billion in AIFP investments were committed, $4.6 billion of which was repaid. Treasury received a 9.9% equity stake in New Chrysler (an amount that could be diluted should certain performance metrics be reached), and a 61% equity stake in New GM (an amount that could be diluted should GM’s bondholders exercise their warrants). See “Automotive Industry Financing Program” later in this section for a detailed discussion of these companies. AIFP also included two subprograms: quarterly report to congress I aPRIL 20, 2010 • Auto Supplier Support Program (“ASSP”) — This subprogram’s purpose was to provide “[auto] 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.”41 By March 31, 2010, its original allocation of $5.0 billion was reduced to $3.5 billion — $1.0 billion for Chrysler and $2.5 billion for GM.42 After emerging from bankruptcy, the automakers assumed the debts associated with ASSP.43 By March 31, 2010, ASSP recipients repaid all $413 million actually disbursed under the program; $290 million from GM and $123 million from Chrysler, plus interest. The program terminated on April 5, 2010, for GM and April 7, 2010, for Chrysler.44 See “Auto Supplier Support Program” in this section for more information. • Auto Warranty Commitment Program (“AWCP”) — The AWCP subprogram was designed to bolster consumer confidence by guaranteeing Chrysler and GM vehicle warranties during the period of uncertainty surrounding the GM and Chrysler bankruptcies. It ended in July 2009 after Chrysler fully repaid its AWCP loan with interest and GM repaid just the principal.45 The following figures and tables provide a status summary on TARP and TARPrelated initiatives: • total potential funds subject to SIGTARP oversight as of March 31, 2010 (Table 2.1) • planned programmatic expenditures as of March 31, 2010 (Table 2.2) • planned programmatic cumulative expenditures (Figure 2.3) • planned expenditures outstanding, repayments, and reductions in exposure, by program, as of March 31, 2010 (Figure 2.4) • summary of TARP terms and agreements (Table 2.3 and Table 2.4) • summary of largest warrant positions held by Treasury, by program, as of March 31, 2010 (Table 2.5) • summary of dividends, interest payments, and distributions received, by program, as of March 31, 2010 (Table 2.6) For a reporting of all purchases, obligations, expenditures, and revenues of TARP, see Appendix C: “Reporting Requirements.” 39 For more information on AWCP, see SIGTARP’s October 2009 Quarterly Report, page 91. 40 special inspector general I troubled asset relief program Table 2.1 TOTAL POTENTIAL FUNDS SUBJECT TO SIGTARP OVERSIGHT, AS OF 3/31/2010 ($ BILLIONS) Total Potential Funding ($) Potential TARP Funding ($)a Program Brief Description or Participant Capital Purchase Program (“CPP”) CLOSED Investments in 707 banks to date; received $135.8 billion in capital repayments $204.9 ($135.8) $204.9 ($135.8) Automotive Industry Financing Program (“AIFP”) GM, Chrysler, GMAC, Chrysler Financial; received $3.6 billion in loan repayments 80.7 (3.6) 80.7 (3.6) Auto Suppliers Support Program (“ASSP”) CLOSED Government-backed protection for auto parts suppliers 3.5b (0.4) 3.5b (0.4) Auto Warranty Commitment Program (“AWCP”) CLOSED Government-backed protection for warranties of cars sold during the GM and Chrysler bankruptcy restructuring periods. 0.6 (0.6) 0.6 (0.6) Unlocking Credit for Small Businesses (“UCSB”) Purchase of securities backed by SBA loans 1.0 1.0 Systemically Significant Failing Institutions (“SSFI”)/ AIG Investment Program AIG Investment 69.8a 69.8a Targeted Investment Program (“TIP”) CLOSED Citigroup, Bank of America Investments 40.0 (40.0) 40.0 (40.0) Asset Guarantee Program (“AGP”) CLOSED Citigroup, ring-fence asset guarantee 301.0 (301.0) 5.0 (5.0) Term Asset-Backed Securities Loan Facility (“TALF”) FRBNY non-recourse loans for purchase of asset-backed securities 200.0 20.0d Making Home Affordable (“MHA”) Program Modification of mortgage loans Community Development Capital Initiative (“CDCI”) Investments in Community Development Financial Institutions (“CDFIs”) Public-Private Investment Program (“PPIP”) 75.0d 50.0 1.0 1.0 Disposition of legacy assets; Legacy Securities Program 40.0 (0.4) 30.4 (0.4) Small Business Lending Fund Investments in small community banks — potentially TARP funding 30.0c 30.0c New Programs, or Funds Remaining for Existing Programs Capacity to respond if financial conditions worsen and threaten economy 347.7 347.7 $913.8 $698.8 Totale Notes: Numbers affected by rounding. a Actual TARP expenditures as of 3/31/2010. b Treasury’s original commitment under this program was $5 billion, it was but subsequently reduced to $3.5 billion effective 7/1/2009. c Treasury intends to propose legislation that would rescind $30 billion in TARP funds for support to small community banks. d $75 billion is for mortgage modification. e According to Treasury, TARP expenditures are not expected to exceed $537.1 billion. Sources: Treasury, Office of Financial Stability, Chief of Compliance and CFO, SIGTARP interview, 3/30/2009; Treasury, Transactions Report, 4/2/2010, www.financialstability.gov/docs/transactionreports/4-2-10%20Transactions%20Report%20as%20of%203-31-10.pdf, accessed 4/2/2010; Treasury, response to SIGTARP data call, 4/12/2010; Treasury, “Auto Supplier Support Program: Stabilizing the Auto Industry in a Time of Crisis,” 3/19/2009, www.treas.gov/press/releases/docs/supplier_support_program_3_18.pdf, accessed 3/19/2009; Treasury, “Treasury, Federal Reserve, and FDIC Provide Assistance to Bank of America,” 1/16/2009, www.treas.gov/press/releases/hp1356.htm, accessed 1/16/2009; Treasury Press Release, “U.S. Government Finalizes Terms of Citi Guarantee Announced in November,” 1/16/2009, www.financialstability.gov/latest/hp1358.html, accessed 6/8/2009; Treasury, “Financial Stability Plan Fact Sheet,” 2/10/2009, www.financialstability.gov/docs/fact-sheet.pdf, accessed 6/8/2009; Treasury, “Making Home Affordable: Updated Detailed Program Description,” 3/4/2009, www.treas.gov/press/releases/reports/housing_fact_sheet.pdf, accessed 6/10/2009; Treasury, “Public-Private Investment Program,” 4/6/2009, www.financialstability.gov/roadtostability/publicprivatefund.html, accessed 6/9/2009. quarterly report to congress I aPRIL 20, 2010 41 Table 2.2 EXPENDITURE LEVELS BY PROGRAM, AS OF 3/31/2010 Authorized Under EESA Released Immediately Released Under Presidential Certificate of Need Released Under Presidential Certificate of Need & Resolution to Disapprove Failed Helping Families Save Their Homes Act of 2009 Total Released Less: Expenditures by Treasury under TARPa Capital Purchase Program (“CPP”): Investments Repayments CPP Total Gross ($ BILLIONS) Amount $700.0 Percent (%) $250.0 100.0 35.8% 14.3% 350.0 50.1% (1.2) $698.8 -0.2% 100.0% Planned Planned Expenditure as Expenditure % of Released $204.9 29.3% $204.9 29.3% $1.0 CDCI Total $1.0 0.1% $69.8 $69.8 10.0% 10.0% $20.0 20.0 2.9% 2.9% $40.0 5.7% $5.0 0.7% $5.0 0.7% $20.0 $20.0 2.9% 2.9% Unlocking Credit for Small Businesses (“UCSB”) $1.0 0.1% UCSB Total $1.0 0.1% Automotive Industry Financing Program (“AIFP”): General Motors Corporation (“GM”) General Motors Acceptance Corporation LLC (“GMAC”) Chrysler Holding LLC Chrysler Financial Services Americas LLCc Repayments $49.5 17.2 12.5 1.5 7.1% 2.5% 1.8% 0.2% AIFP Total $80.7 11.6% $2.5 1.0 0.4% 0.1% $3.5 0.5% $0.4 0.3 0.1% 0.0% $0.6 0.1% Automotive Supplier Support Program (“ASSP”): GM Suppliers Receivables LLCd Chrysler Holding LLCd Repayments ASSP Total Automotive Warranty Commitment Program (“AWCP”): General Motors Corporation (“GM”) Chrysler Holding LLC Repayments AWCP Total Section Reference “Financial Institution Support Programs” ($135.8) $69.1 “Financial Institution Support Programs” Community Development Capital Initiative (“CDCI”) Systemically Significant Failing Institutions (“SSFI”) Program: American International Group, Inc. (“AIG”) SSFI Total Targeted Investment Program (“TIP”): Bank of America Corporation Citigroup Repayments TIP Total Asset Guarantee Program (“AGP”): Citigroupb Repayments AGP Total Term Asset-Backed Securities Loan Facility (“TALF”): TALF LLC TALF Total Repaid/ Reduced Exposure Outstanding — $1.0 “Financial Institution Support Programs” — $69.8 “Financial Institution Support Programs” ($40.0) — “Financial Institution Support Programs” ($5.0) — “Asset Support Programs” — $20.0 “Asset Support Programs” — $1.0 “Automotive Industry Support Programs” ($3.6) $77.2 “Automotive Industry Support Programs” ($0.4) $3.1 “Automotive Industry Support Programs” ($0.6) — Continued on next page. 42 special inspector general I troubled asset relief program EXPENDITURE LEVELS BY PROGRAM, AS OF 3/31/2010 ($ BILLIONS) (cont.) Planned Planned Expenditure as Expenditure % of Released Legacy Securities Public-Private Investment Program (“PPIP”): Invesco Legacy Securities Master Fund, L.P. Wellington Management Legacy Securities PPIF Master Fund, LP AllianceBernstein Legacy Securities Master Fund, L.P. Blackrock PPIF, L.P. AG GECC PPIF Master Fund, L.P. RLJ Western Asset Public/Private Master Fund, L.P. Marathon Legacy Securities Public-Private Investment Partnership, L.P. Oaktree PPIP Fund, L.P. Repayments PPIP Total Making Home Affordable (“MHA”): Countrywide Home Loans Servicing LP Wells Fargo Bank, NA J.P.Morgan Chase Bank, NA OneWest Bank GMAC Mortgage, Inc. CitiMortgage, Inc. Litton Loan Servicing LP Bank of America, NA American Home Mortgage Servicing, Inc Other Financial Institutions MHA Total TARP Expenditures Subtotal TARP Repayments/Reductions in Exposure Subtotal TARP Outstanding Subtotal Balance Remaining of Total Funds Made Available as of 3/31/2010 $3.7 0.5% 3.8 3.3 3.7 3.8 3.7 0.5% 0.5% 0.5% 0.5% 0.5% 3.7 3.7 0.5% 0.5% $30.0 4.3% $8.1 7.1 4.9 2.3 2.1 1.8 1.6 1.6 1.6 8.8 $39.9 $496.8 1.2% 1.0% 0.7% 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 1.3% 5.7% 71.1% Repaid/ Reduced Exposure Outstanding Section Reference “Asset Support Programs” $(0.4) $30.0 “Homeowner Support Programs” — $39.9 ($185.8) $311.1 $387.8 Notes: Numbers affected by rounding. a From a budgetary perspective, what Treasury has committed to spend (e.g., signed agreements with TARP fund recipients). b Treasury committed $5 billion to Citigroup under AGP; however, the funding was conditional based on losses that could potentially be realized and may potentially never be expended. This amount was not an actual outlay of cash. c 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. d 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 it was subsequently reduced to $3.5 billion effective 7/1/2009. 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, 4/2/2010; Treasury, response to SIGTARP data call, 4/12/2010. quarterly report to congress I aPRIL 20, 2010 Figure 2.3 PLANNED EXPENDITURES OUTSTANDING, BY PROGRAM, CUMULATIVE $ Billions $400 $1.0 CDCI $1.0 UCSB $30.0 PPIP 300 a $0.0 AGP $35.5 MHA $30.0 TALF b $0.0 TIP c $81.6 Auto Programs 200 100 0 $69.8 SSFI d $83.0 CPP 0 10/31 11/30 12/31 1/31 2/28 3/31 4/30 2008 5/31 6/30 7/31 8/31 9/30 10/31 11/30 12/31 1/31 2/28 3/31 2009 2010 Notes: Numbers affected by rounding. The “planned expenditures” referenced throughout this report represent the funds Treasury currently plans to expend for each program, and a majority of those are committed funds (e.g., signed agreements with TARP fund recipients). a Treasury committed $5 billion to Citigroup under AGP; however, the funding was conditional based on losses that could potentially be realized and may potentially never be expended. This amount was not an actual outlay of cash. It was never disbursed and the agreement was terminated. b TIP funding of $40 billion had been repaid. c Auto programs include AIFP, ASSP, and AWCP. The following auto-related funding had been repaid: $3.6 billion for AIFP, $0.6 billion for AWCP, and $413 million for ASSP. d CPP funding of $135.8 billion had been repaid. Sources: Treasury, Transactions Report, 4/2/2010; Treasury, response to SIGTARP data call, 4/12/2010. Figure 2.4 PLANNED EXPENDITURES OUTSTANDING, REPAYMENTS, AND REDUCTIONS IN EXPOSURE BY PROGRAM $ Billions, % of $496.8 Billion AIFPb $84.8 $80.2 $4.6 SSFI $69.8 TIP $40.0 $135.8a AGP $5.0 TALF $20.0 MHA $39.9 $69.1 CPP $204.9 PPIP $30.0 $30.4 $0.4 CDCI $1.0 UCSB $1.0 Planned Expenditures Outstanding Repayments and Reductions in Exposure Notes: Numbers affected by rounding. As of March 31, 2010. TIP and AGP are excluded. a As of 3/31/2010, $135.8 billion of CPP funding had been repaid. b As of 3/31/2010, $4.6 billion related to AIFP loans had been repaid (including $641 million for AWCP and $413 million for ASSP). Sources: Treasury, Transactions Report, 4/2/2010, www.financialstability.gov/docs/transaction-reports/4-210%20Transactions%20Report%20as%20of%203-31-10.pdf, accessed 4/2/2010; Treasury, response to SIGTARP data call, 4/12/2010. CDCI UCSB PPIP AGP MHA TALF TIP Auto Programs SSFI CPP 43 44 special inspector general I troubled asset relief program Table 2.3 Debt Agreements TARP Date of Program Company Agreement Cost Assigned Description of Investment CPP — S-Corps $0.5 billion Senior Subordinated Securities 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. Senior Subordinated Security Warrants that are exercised immediately Treasury will receive warrants to 13.8% purchase an amount equal to 5% of the senior securities purchased on the date of investment. 53 QFIs 1/14/2009a Investment Information Interest / Dividends Term of Agreement 7.7% for first 5 years; 13.8% thereafter 30 years 30 years AIFP General Motors 12/31/2008 $19.8 billionb Debt Obligation This loan was funded incrementally; with Warrants and $4 billion funded on 12/31/2008, Additional Note $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 — 12/29/2011 (i) the greater of (a) 3Month 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% AIFP General Motors 1/16/2009 $0.9 billion Debt Obligation This loan was exchanged for a portion 3-Month LIBOR + 3% of GM’s common equity interest in GMAC LLC on 5/29/2009. See Table 2.4 for more information. AIFP Chrysler 1/2/2009c $4.8 billionb Debt Obligation with Additional Note 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 subsequentlly de-obligated (General Advances). In addition, on 4/29/2009, $280 million was set aside in SPV for the AWCP, and this advance was repaid (Warrant Advances). For General Advances — 1/2/2012 (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% AIFP Chrysler Financial 1/16/2009 $1.5 billion Debt Obligation with Additional Note 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 AIFP Chrysler 5/1/2009 $3.8 billion Debt Obligation with Additional Note Loan of $3 billion committed to Chrysler (i) the greater of (a) for its bankruptcy period. Subsequently, 3-Month Eurodollar or (b) 2% plus (ii) 3.0% 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. 1/16/2012 1/16/2014 9/30/2009, subject to certain conditions Continued on next page. quarterly report to congress I aPRIL 20, 2010 Debt Agreements (CONT.) TARP Date of Program Company Agreement Cost Assigned Description of Investment Investment Information Interest / Dividends Term of Agreement AIFP Chrysler 5/27/2009 $6.6 billion Debt Obligation with Additional Note, Equity Interest Commitment to New CarCo Acquisition LLC (renamed Chrysler Group LLC on or about 6/10/2009) of up to $6.6 billion. The total loan amount is up to $7.1 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. AIFP General Motors 6/3/2009, amended 7/10/2009 $30.1 billion Debt Obligation with Additional Note 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. ASSP GM 4/9/2009 Supplier Receivables LLC $2.5 billion Debt Obligation with Additional Note The original amount was $3.5 billion, but it was decreased permanently to $2.5 billion effective 7/1/2009. (i) the greater of (a) LIBOR 4/9/2010 for the related interest period or (b) two percent (2%) plus (ii) three and fivetenths percent (3.5%) ASSP Chrysler 4/9/2009 Receivables SPV LLC $1.0 billion Debt Obligation with Additional Note The original amount was $1.5 billion, but it was decreased permanently to $1.0 billion effective 7/1/2009. (i) the greater of (a) LIBOR 4/9/2010 for the related interest period or (b) two percent (2%) plus (ii) three and fivetenths percent (3.5%) PPIP All PPIF Managers $20 billion Debt obligation with contingent interest promissory note Each of the loans will be funded LIBOR + 1% incrementally, upon demand by the fund manager. “9/30/2009 and later” The debt obligation for each fund matures at the earlier of the dissolution of the fund or 10 years. Notes: Numbers affected by rounding. a Announcement date of CPP S-Corporation Term Sheet. b Amount includes AWCP commitments. c Date from Treasury’s 1/27/2009 Transaction Report. The Security Purchase Agreement has a date of 12/31/2008. 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, 4/2/2010; Treasury, response to SIGTARP data call, 4/7/2010. 45 46 special inspector general I troubled asset relief program Table 2.4 Equity Agreements (cont.) TARP Date of Program Company Agreement CPP – Public CPP – Private SSFI SSFI TIP 286 QFIs 368 QFIs AIG AIG Citigroup Cost Assigned Description of Investment “10/14/2008a $200.1 billion and later” “11/17/2008b and later” 4/17/2009 4/17/2009 12/31/2008 Dividends Senior Preferred Equity 1-3% of risk-weighted assets, not to exceed $25 billion for each QFI “5% for first 5 years, 9% thereafter” Perpetual Common Stock Purchase Warrants 15% of senior preferred amount — Up to 10 years Preferred Equity 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 9% Perpetual Non-Cumulative Preferred Equity $41.6 billion aggregate liquidation preference 10% Perpetual Common Stock Purchase Warrants 2% of issued and outstanding common stock on investment date of 11/25/2008; the warrant was originally for 53,798,766 shares and had a $2.50 exercise price, but after the 6/30/2009 split, it is for 2,689,938.30 shares and has an exercise price of $50. — Up to 10 years Non-Cumulative Preferred Equity Up to $29.8 billion aggregate liquidation preference. As of 10% 9/30/2009, the aggregate liquidation preference was $3.2 billion. Perpetual (life of the facility is 5 years) Common Stock Purchase Warrants 150 common stock warrants — outstanding; $0.00002 exercise price Up to 10 years Trust Preferred Securities $20 billion 8% Perpetual Warrants 10% of total preferred stock issued; $10.61 exercise price — Up to 10 years 9% Converts to common equity interest after 7 years 9% Converts to common equity interest after 7 years 9% Converts to common equity interest after 7 years 5% of original preferred amount 9% Converts to common equity interest after 7 years $3.0 billion — Perpetual $4.0 billion “Preferred Stock Purchase Warrants that are exercised immediately” $41.6 billionc $29.8 billion d $20.0 billion e Mandatorily Convertible $5 billion Preferred Stockf AIFP GMAC Inc. 12/29/2008 $5.0 billion Preferred Stock Purchase Warrants that are exercised immediately 5% of original preferred amount Mandatorily Convertible $4.5 billion Preferred Stockg AIFP GMAC Inc. 5/21/2009 Term of Agreement Investment Information Preferred Stock $7.5 billion Purchase Warrants that are exercised immediately Common Equity Interestg Continued on next page. quarterly report to congress I aPRIL 20, 2010 Equity Agreements (cont.) TARP Date of Program Company Agreement AIFP AIFP GMAC Inc. 5/29/2009 GMAC Inc. 12/30/2009 Cost Assigned $0.9 billion Description of Investment Investment Information Dividends Term of Agreement Common Equity Interest This equity interest was obtained by exchanging a prior debt obligation with General Motors. See Table 2.3 for more information. — Perpetual Trust Preferred Securities $2.5 billion 8% Redeemable upon the repayment of the debenture 9% Converts to common equity interest after 7 years $2.5 billion Trust Preferred purchase warrants that are exercised immediately 5% of trust preferred amount Mandatorily Convertible $1.3 billion Preferred Stock AIFP GMAC Inc. 12/30/2009 AGP Citigroup 12/23/2009 PPIP All PPIF Managers “9/30/2009 and later” $1.3 billion Preferred Stock Purchase Warrants that are exercised immediately $2.2 billion 5% of preferred amount Trust Preferred Securities with warrants $10.0 billion Membership interest in a partnership Each of the membership interests will be funded upon demand from the fund manager. 8 years with the possibility of extension for 2 additional years. 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 On December 30, 2009, Treasury exchanged $5.25 billion of preferred stock, which it acquired on December 29, 2009, into mandatory convertible preferred stock (“MCP”). g On December 30, 2009, Treasury converted $3.0 billion of its existing MCP, which was invested in May 2009, into common equity. Treasury’s equity ownership of GMAC increased from 35% to 56% because of this conversion. Sources: “TARP Capital Purchase Program Agreement, Senior Preferred Stock and Warrants, Summary of Senior Preferred Terms,” 10/14/2008; Treasury, “TARP Capital Purchase Program Agreement, (NonPublic 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, Transactions Report, 4/2/2010; Treasury, response to SIGTARP data call, 4/7/2010. 47 48 special inspector general I troubled asset relief program Table 2.5 LARGEST POSITIONS IN WARRANTS HELD BY TREASURY, BY PROGRAM, AS OF 3/31/2010 Transaction Date Participant Current Number Stock Price of Warrants Current as of Outstanding Strike Price 3/31/2010 Amount “In” or “In the Money” “Out” or “Out of the of “the Money” as of Money?”a 3/31/2010 Capital Purchase Program (“CPP”): Citigroup Inc. 10/28/2008 210,084,034 $17.85 $4.05 OUT ($13.80) Wells Fargo & Company 10/28/2008 110,261,688 $34.01 $31.12 OUT ($2.89) Flagstar Bancorp, Inc. 1/30/2009 64,513,790 $0.62 $0.60 OUT ($0.02) Hartford Financial Services Group, Inc. 6/26/2009 52,093,973 $9.79 $28.42 IN $18.63 AIGb 11/25/2008 2,689,938 $50.00 $34.14 OUT ($15.86) AIG 4/17/2009 150 $0.00 $34.14 IN $34.14 12/31/2008 188,501,414 $10.61 $4.05 OUT ($6.56) 1/16/2009 66,531,728 $10.61 $4.05 OUT ($6.56) Systemically Significant Failing Institutions (“SSFI”) Program: b Targeted Investment Program (“TIP”): Citigroup Inc. Asset Guarantee Program (“AGP”): Citigroup Inc. Notes: Numbers affected by rounding. a When a stock’s current price rises above the warrant’s strike price, it is considered “in the money.” Otherwise, it is considered “out of the money.” b All warrant and stock data for AIG are based on the 6/30/2009 reverse stock split of 1 for 20. Sources: Treasury, Transactions Report, 4/2/2010; Treasury, response to SIGTARP data call, 4/8/2010; Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com. Table 2.6 Dividend, Interest Payments, and Distributions by Program ($ Millions) Dividends Interest Distributions Total AGP $321,366,667 — — $321,366,667 AIFPa,b 1,138,641,016 $583,820,931 — 1,722,461,947 ASSP — 14,874,984 — 14,874,984 CPP 8,955,944,812 28,340,210 — 8,984,285,021 PPIP — 9,671,733 $15,170,521 24,842,254 3,004,444,444 — — 3,004,444,444 $13,420,396,938 $636,707,858 $15,170,521 $14,072,275,317 TIP Total Notes: Numbers affected by rounding. Data as of 3/31/2010. These numbers were calculated using dividend and interest payments by TARP recipients provided by Treasury on 3/31/2010. This information does not reconcile to the “TARP Budget” provided by Treasury on 4/12/2010. Distributions are investment proceeds from the PPIF’s trading activities allocated to the partners, including Treasury, not later than 30 days after the end of each quarter. a Includes $13 million fee received as part of the Popular exchange. b Includes AWCP. Source: Treasury, response to SIGTARP data call, 4/8/2010. quarterly report to congress I aPRIL 20, 2010 Homeowners Support Program Making Home Affordable Program According to Treasury, “millions of workers have lost their jobs or had their hours cut, and are now struggling to stay current on their mortgage payments.”46 There were nearly 2.8 million foreclosures initiated in 2009, and 2010 forecasts are even higher.47 In response to this crisis, the Administration created the Making Home Affordable (“MHA”) program on February 18, 2009, to help struggling homeowners reduce their monthly mortgages, thereby preventing avoidable foreclosures. With recently announced changes, MHA will be composed of several major initiatives: a loan modification program, a loan refinancing program, and additional support for reductions in mortgage principal for underwater borrowers.48 TARP funds support MHA programs, including the largest component of MHA: the Home Affordable Modification Program (“HAMP”).49 According to Treasury, HAMP and the parallel programs at the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) together comprise a $75 billion initiative that will, among other things, lower homeowners’ monthly mortgage debt through incentive payments to loan servicers, borrowers, and loan holders (i.e., lenders or investors — referred to as investors in this section), and protect against further loss of collateral value.50 MHA now also includes foreclosure alternatives for those unable to complete a HAMP modification. Of the $75 billion reserved for HAMP and parallel GSE programs, $50 billion will be funded through TARP and used largely to modify, write down or extinguish private-label mortgages. Of the $50 billion earmarked for TARP-funded mortgages, $10 billion is allocated to the Home Price Decline Protection (“HPDP”) program, which is purportedly designed 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.”51 Treasury allocated $5.7 billion to the Second Lien Modification Program (“2MP”), through which participating servicers must modify second-lien mortgages when a corresponding first lien is modified under HAMP. Treasury also allocated $4.6 billion for foreclosure alternatives under the Home Affordable Foreclosure Alternatives (“HAFA”) program, previously referred to as short-sales/deeds-in-lieu of foreclosure (“SS/DIL”).52 On March 26, 2010, Treasury announced several new efforts or program revisions: temporary mortgage forbearance for unemployed homeowners; new guidelines for servicers to consider writing down principal on first mortgages greater than 115% of the home’s value; pay-for-performance incentives for borrowers and servicers who modify loans guaranteed by the Federal Housing Administration Private-Label Mortgages: Loans that are not owned or guaranteed by Fannie Mae, Freddie Mac, or a Federal agency. Short Sale: A sale of a home, typically for less than mortgage value, by which the borrower sells the home and the investor collects the sales proceeds as satisfaction of the unpaid mortgage balance, thus avoiding foreclosure (the costly legal process by which the investor would otherwise assume ownership of the home). Deed-in-Lieu of Foreclosure: Instead of going through the process of foreclosure, the borrower surrenders the deed to the home voluntarily to the investor, often as satisfaction of the unpaid mortgage balance. Forbearance: A temporary postponement of loan payments approved by the servicer. Postponing the payments gives the borrower time to make up for missed payments that were caused by financial hardship. For more information on HPDP and HAFA, see SIGTARP’s October 2009 Quarterly Report, page 97, and SIGTARP’s January 2010 Quarterly Report, page 98. 49 50 special inspector general I troubled asset relief program Underwater Mortgage: A situation in which a homeowner owes more on the mortgage than the home is worth, typically the result of a decline in the home’s value. Government-Sponsored Enterprises (“GSEs”): Private corporations created and chartered by the Government to reduce borrowing costs, the liabilities of which are not officially considered direct taxpayer obligations. Permanent Modification: Under HAMP, a permanent modification lasts five years, after which the interest rate can increase incrementally by up to 1% per year, capped at the 30-year conforming fixed rate at the date of the initial modification. Trial Modification: Under HAMP, a trial modification is generally intended to last three months. (“FHA”); additional incentives to encourage full or partial write downs of second mortgages in conjunction with first-mortgage HAMP modifications; and increased incentives through HAFA.53 Treasury and HUD also jointly announced another new $14 billion HAMP-funded program for FHA refinancing of existing underwater first-lien mortgage loans.54 With these expansions of MHA, Treasury expects to use the full $50 billion in TARP funding allocated.55 Before the changes, CBO estimated that, as of January 31, 2010, the program would cost no more than $22 billion, compared to OMB’s estimated cost of $49 billion.56 TARP money is not used with respect to loans owned or guaranteed by two Government-sponsored enterprises (“GSEs”) Fannie Mae and Freddie Mac. Instead, Fannie Mae or Freddie Mac pays incentives from its operating funds. When HAMP was announced in February 2009, the Administration estimated that the GSEs would contribute up to $25 billion to modify GSE-owned or guaranteed mortgages.57 Status of Funds As of March 31, 2010, Treasury had signed agreements with 115 loan servicers58 worth up to $39.9 billion.59 Of that $39.9 billion, $90.9 million was spent on incentives for 65,482 TARP-funded permanent modifications.60 Of that $90.9 million, approximately $68.4 million was used for incentive payments to servicers and $22.5 million went to investor payments.61 Because borrowers only receive incentive payments (applied directly as a reduction in principal) after they have participated in the program for at least a year, no payments toward borrowers’ principal reductions have been made.62 The amounts allocated for servicer incentives are not immediately paid. Rather, each allocation is the maximum amount, or cap, Treasury approved for each servicer based on the servicer’s eligible loan portfolio. The average allocation was $347 million.63 To date, the largest allocation is to Countrywide Home Loans Servicing LP, owned by Bank of America, which is eligible for up to $8.1 billion in TARP funds.64 Table 2.7 provides details regarding the five largest HAMP allocations as of March 31, 2010. As of March 31, 2010, 1,008,873 active mortgages were modified permanently or on a trial basis. Of those, 227,922 were active permanent modifications and 780,951 were trial modifications. A snapshot of HAMP modifications is shown in Table 2.8. The breakdown of incentive payments is shown in Table 2.9. 51 quarterly report to congress I aPRIL 20, 2010 Table 2.7 Table 2.8 FIVE LARGEST Hamp FUNDING ALLOCATIONS, AS OF 3/31/2010 ($ Billions) Institution Ultimate Parent Company Adjusted Funding Capa Countrywide Home Loans Servicing LP Bank of America Corporation $8.1 Wells Fargo Bank, NA Wells Fargo & Company 7.1 J.P. Morgan Chase Bank, NA JPMorgan Chase & Co. 4.9 OneWest Bank OneWest Bank Group, LLC 2.3 GMAC Mortgage, Inc. GMAC, Inc. 2.1 b 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 modification milestones. b Amount increased because of Wachovia’s merger with Wells Fargo Bank, NA. Sources: Treasury, Transactions Report, 4/2/2010; Factiva website, http://fce.factiva.com/pcs/default.aspx, accessed 4/7/2010; Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com, accessed 4/7/2010. HAMP SNAPSHOT, AS OF 3/31/2010 Number of HAMP Trials Started Since Program Inception 1,166,925 Active Permanent Modifications 227,922 Number of Trial Modifications Cancelled 155,173 Number of Permanent Modifications Cancelled 2,879 Notes: Survey data provided by servicers. Trial and permanent modifications as reported by the HAMP system of record. Source: Treasury, “Making Home Affordable Program Servicer Performance Report through March 2010,” no date, www.financialstability.gov/docs/report.pdf, accessed 4/14/2010. Table 2.9 HAMP According to Treasury, it designed HAMP “to help as many as three to four million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term.”65 The Administration envisions a “shared partnership” between the Government and investors to bring borrowers’ monthly payments down to an “affordable” level — defined as a 31% monthly mortgage payment ratio, which is the ratio of the borrower’s monthly mortgage payment on the first lien to the borrower’s monthly gross income. Under the existing program, the private-sector investor is responsible for all payment reductions necessary to bring a borrower’s monthly payment down to 38% of the borrower’s monthly gross income. The additional reductions needed to bring the monthly payment down to a 31% ratio will be shared equally between the investor and the Government.66 Under the anticipated changes to the program, in addition to compensating lenders for the reduction of payments from a 38% to a 31% monthly mortgage payment ratio, Treasury will also compensate lenders for reducing principal on certain underwater mortgages.67 breakdown of incentive payments, AS OF 3/31/2010 ($ Millions) Servicer Incentive Payment ($1,000) $65.5 Servicer Current Borrower Incentive Payment ($500) 2.9 Investor Current Borrower Incentive Payment ($1,500) 8.3 Investor Monthly Reduction Cost Sharea Total 14.2 $90.9 Notes: Numbers affected by rounding. a Investor monthly reduction cost share is considered an incentive payment. Source: Treasury, response to SIGTARP data call, 4/7/2010. For more information on HAMP, see SIGTARP’s April 2009 Quarterly Report, page 114. 52 special inspector general I troubled asset relief program HAMP Documentation Requirements Under HAMP’s initial guidance, much of the paperwork borrowers had to submit in order to qualify for a permanent modification was non-standardized, and did not have to be provided prior to the servicer initiating a trial modification, which could be offered based on unverified verbal information provided by the borrower.68 Subsequently, on October 8, 2009, Treasury created a standard MHA request for modification and affidavit form (“RMA”), which incorporates a borrower’s income and expense information, a revised hardship affidavit, a fraud notice, and portions of the HAMP trial-period plan.69 On January 28, 2010, Treasury directed that verbal trial modifications would no longer be permitted, and that full documentation be required for every trial modification offered after April 15, 2010.70 Thereafter, the servicer will need to receive the following documents, referred to as the “initial package:”71 • financial information from borrowers and co-borrowers, including the source of the hardship • signed and completed requests for tax return transcripts (or the most recent federal income tax return, including all schedules and forms) • income verification documentation (employment income, unemployed benefits, rental income, etc.) Figure 2.5 HAMP TRIAL AND PERMANENT MODIFICATIONS STARTED 9/2009 −3/2010 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 Sept (and prior) Oct Nov Dec Jan Feb Mar HAMP Trial Modifications (Cumulative) HAMP Permanent Modifications (Cumulative) Notes: All trial modifications started are reported on the month the first payment is posted. Data based on numbers reported by servicers to the HAMP system of record. Source: Treasury, “Making Home Affordable Program Servicer Performance Report Through March 2010,” no date, http://financialstability.gov/docs/report.pdf, accessed 4/14/2010. Servicer Performance Report The Administration released its first monthly servicer performance report on August 4, 2009, to “document the number of struggling homeowners already helped under the [MHA] program, provide information on servicer performance and expand transparency around the initiative.”72 Beginning with the November report, representing HAMP activity through September 30, 2009, Treasury added certain loan-level data from servicers.73 Overall Performance Figure 2.5 shows the monthly increases in HAMP trial and permanent modifications started. Servicer Metrics Activity by the five servicers initiating the most permanent HAMP modifications is shown in Table 2.10. Figure 2.6 shows the trial and permanent modifications started by each servicer as a percentage of that servicer’s estimated eligible mortgages. quarterly report to congress I aPRIL 20, 2010 Table 2.10 top 5 hamp servicers by NUMBER OF permanent modificationS Servicer Estimated Eligible Mortgagesa Active Trial Modificationsb Permanent Modifications Active Trials and Permanents as a Share of Estimated Eligible Mortgages Bank of America, NAc 1,085,894 250,658 32,900 26% J.P. Morgan Chase Bank, NAd 431,341 129,992 31,460 37% Wells Fargo Bank, NAd 378,480 114,918 30,014 38% CitiMortgage, Inc. 246,582 92,597 22,455 47% 66,750 14,742 17,102 48% e GMAC Mortgage, Inc. Notes: a Estimated eligible mortgages with 60+ day delinquencies are as of 2/28/2010. b Active trial and permanent modifications as reported into the HAMP system of record by servicers are as of 3/31/2010. c Bank of America, NA includes Bank of America, NA, BAC Home Loans Servicing LP, Home Loan Servicers and Wilshire Credit Corporation. d J.P. Morgan Chase Bank, NA includes EMC Mortgage Corporation. e Wells Fargo Bank, NA includes a portion of the loans previously included in Wachovia Mortgage, FSB. Source: Treasury, “Making Home Affordable Program Servicer Performance Report Through March 2010,” no date, www.financialstability.gov/docs/report.pdf, accessed 4/14/2010. Figure 2.6 TRIAL AND PERMANENT MODIFICATION TRACKER: TRIAL MODIFICATION STARTS AS A SHARE OF ESTIMATED ELIGIBLE MORTGAGES 50% 40 30 20 10 0 HomeEq Wachovia Carrington American Home Litton CCO US Bank PNC Mortgage Bank United Bank of America Ocwen Nationstar OneWest Aurora Green Tree Saxon J.P. Morgan Chase Wells Fargo Select Portfolio Bayview CitiMortgage GMAC Notes: Numbers affected by rounding. Treasury combines trial and permanent modifications when reporting the data shown above. Includes active trial and permanent modifications. March trials as a share of 60+ day delinquencies on 2/28/2010. Source: Treasury, “Making Home Affordable Program Servicer Performance Report Through March 2010,” no date, www.financialstability.gov/docs/report.pdf, accessed 4/14/2010. 53 54 special inspector general I troubled asset relief program MHA Update During this quarter, Treasury introduced new MHA-related programs to help underwater and unemployed homeowners and provide pay-for-performance incentives for modification of FHA-guaranteed loans. Treasury also enhanced HAMP borrower protections and offered increased incentives on second-lien modifications and foreclosure alternative programs. The changes are expected to be fully implemented by fall.74 Assistance for Unemployed Homeowners Under the new program, qualified homeowners who are otherwise HAMP eligible will receive temporary forbearance of a portion of their payments for a minimum of three and a maximum of six months.75 Participating servicers are required to offer assistance if the homeowner:76 • is otherwise HAMP eligible • can demonstrate that he or she is receiving unemployment insurance benefits • requests temporary assistance within the first 90 days of delinquency For qualifying homeowners, the mortgage payments will be adjusted to no more than a maximum of 31% of their monthly income, including their unemployment benefits.77 If a borrower becomes employed at any time during the forbearance period, the forbearance ends and he or she will be responsible for the difference between the scheduled payments and the lesser payments made during the modification. The terms of repayment for this difference will be negotiated between the servicer and the borrower and, according to Treasury, will likely result in either a short-term payment plan or a permanent forbearance that will not have to be paid back until the home is sold or the loan is fully repaid. If the period expires before the borrower gets a job, the homeowner might be eligible for HAMP foreclosure alternatives, such as HAFA.78 It is also possible that the borrower may qualify for a HAMP modification. The unpaid interest during the time of the borrower’s participation in the unemployment forbearance program will be added to the total amount the borrower owes, reducing any equity the borrower may have had or increasing the amount of negative equity, forcing the loan even further underwater. In a press release announcing the program, Treasury stated that this program would result in “no cost to government or taxpayers.” However, Treasury officials informed SIGTARP that a planned increase in servicer incentive payments was designed in part to compensate them for additional costs resulting from the program revisions, including the unemployment forbearance program.79 quarterly report to congress I aPRIL 20, 2010 Unemployment Assistance Example In 2005, Family A took out a 30-year 9% fixed $250,000 mortgage and earned $6,500 a month. The monthly mortgage payment was $2,012 per month. Today, all of Family A has been out of work for two months and is using savings to stay current. They are collecting total unemployment benefits of $2,000 per month. Temporarily, Family A’s mortgage will drop to 31% of its monthly unemployment income, reducing it by $1,380 per month while they look for new jobs. As shown in Table 2.11, a total of $8,280 in payments is thus postponed. After six months of forbearance, all of Family A get jobs and resume paying $2,012 per month. The postponed amount is either repaid through a short-term plan or carried by the servicer as a long-term forbearance due when the loan is paid off. If Family A’s new jobs pay less or other financial hardship continues, it will be considered for HAMP. Table 2.11 unemployment temporary assistance example Balance Remaining Years Interest Rate Monthly Payment Savings Existing Mortgage Six Month Temporary Assistance $239,700 $239,700 26 26 9.0% 9.0% $2,012 $620 $1,380 per month, for a total of $8,280 over six months. This amount must eventually be repaid by the borrower. The servicer will decide the disposition of the unpaid amount. Note: Numbers affected by rounding. Alternative Principal Write-Down Approach On March 26, 2010, Treasury released a broad outline for a significant revision to HAMP to encourage servicers and investors to write down principal on underwater loans. The Principal Forgiveness program is expected to be operational by the fall. To be considered for principal write-down, the borrower must be HAMP eligible and owe more than 115% of his or her home’s current value.80 For such borrowers, 55 56 special inspector general I troubled asset relief program Net Present Value Test: This test is used by the servicer to determine whether it will modify the mortgage, seek a foreclosure alternative or pursue foreclosure. The test compares investor returns if the mortgage is modified versus if nothing is done. If the result is positive, the investor would expect to receive a higher return from modifying the mortgage than from doing nothing. the servicer must run two different Net Present Value (“NPV”) tests. The original NPV test calculates investor return if the mortgage is modified per standard HAMP procedure, which relies primarily on interest rate deductions as the first step in the modification process to reach a 31% debt-to-income ratio (“DTI”), followed by term extensions and, finally, forbearance. Next, the servicer would run a second NPV test putting principal reduction at the beginning of the procedure and calculating the return to investors if the mortgage is modified through principal reductions, including payments from Treasury.81 If the expected cash flow to the investor of a modification with principal forgiveness is both positive and greater than that from the original HAMP NPV test, servicers have the option of offering principal forgiveness. When forgiveness is offered in conjunction with HAMP, the investor will initially postpone, or forbear, the principal amount owed above 115% in order to bring monthly payments down to 31% of the borrower’s monthly mortgage payment ratio. For homeowners who remain current on their payments, one-third of the forborne amount is permanently forgiven every year for three years.82 Investors will be compensated for a percentage of the dollar value of the principal forgiven in the same three year increments. According to Treasury, incentives potentially range from 6 to 21 cents on the dollar, depending on the extent of the delinquency or the loan to value ratio.83 In addition, investors will still receive the regular incentive payments available through HAMP for reducing payments from 38% to 31% of the borrower’s monthly mortgage payment ratio. Treasury will also require servicers to consider retroactively applying the benefits of this program for homeowners who previously received HAMP modifications and remained current.84 Table 2.12 indicates the schedule under which investors will be compensated to forgive principal. Although Treasury’s chart includes compensation for principal that is reduced below 115%, as of March 31, 2010, Treasury had not determined whether it would make incentive payments to investors to reduce principal below 115%. Similarly, Treasury has not determined whether it will compensate investors who decrease principal to a level that lowers borrowers’ monthly payments to less than a 31% ratio.85 According to Treasury, investors will be paid $0.06 per dollar of the unpaid principal balance that were six months or more delinquent in the previous year. Table 2.12 Incentives to Investors for every dollar of loan principal reduced Reduction of Principal (percentage) < 115 115 to 140 > 140 Incentive Amount $0.21 $0.15 $0.10 Note: Treasury has not committed to funding incentives for write-downs below 115% of the mortgage’s value. Source: Treasury, “Making Home Affordable Program Enhancements to Offer More Help for Homeowners,” 3/26/2010, http://makinghomeaffordable.gov/docs/HAMP%20Improvements_Fact_%20Sheet_032510%20FINAL2.pdf, accessed 3/26/2010. quarterly report to congress I aPRIL 20, 2010 Example of a HAMP Modification with Alternative Principal WriteDown Approach In 2005, Family B took out a 30-year 9% fixed $250,000 mortgage and had monthly income of $6,500. The monthly mortgage payment was $2,012. Since then, home prices have dropped nearly 30% and Family B’s home is only worth $180,000. A family member’s illness reduced its income to $4,000. Under HAMP, the servicer would first forbear principal to bring the loan down to 115% loan-to-value, or $207,000. This alone would not bring payments down to 31% DTI, so the servicer would then drop the interest rate from 9% to 5.4%, resulting in a monthly payment of $1,240, representing 31% DTI. The borrower then forgives the forborne principal over the course of three years (as long as the family remains current). As shown in Table Table 2.13, the reduction in principal and interest rate will reduce Family B’s monthly payments by $772. After three years, Family B’s principal reduction totals $32,700 and the investor’s incentive payment, because the loan value was 133% of the home’s value, is $4,900. Table 2.13 hamp modification with alternative principal write-down example Balance Remaining Years Interest Rate Monthly Payment Savings Existing Mortgage Reduced Principal After 3 Years $239,700 $207,000 26 23 9.0% 5.4% $2,012 $1,240 $32,700 in principal reduction; $772 monthly payment reduction. The balance is reduced to $207,000 to reflect 115% of market value and additionally the interest rate is reduced to 5.4%, in order to reach a monthly payment of $1,240. Note: Numbers affected by rounding. HAFA HAFA enables servicers and borrowers to pursue short sales or deeds in lieu of foreclosure in cases where the borrower meets basic HAMP eligibility criteria but does not qualify or cannot complete the three-month trial period. HAFA provides financial incentives and reimbursements to borrowers, servicers, and investors in the form of relocation assistance incentives, “pay-for-success” incentives, and the release of subordinate liens. The program went into effect on April 5, 2010. 57 58 special inspector general I troubled asset relief program According to Treasury’s March 26, 2010 guidance, the incentive payments for borrowers who agree to relinquish their homes increased from $1,500 to $3,000. Additionally, servicer incentives increased from $1,000 to $1,500 for each successful short sale or deed-in-lieu transaction. In the case of a short sale only, for the release of subordinate liens, the servicer “will authorize the settlement agent to allow a portion of the gross sale proceeds as payment(s) to subordinate mortgage/ lien holder(s) in exchange for a lien release and full release of borrower liability.”86 Investors will be reimbursed for moneys used to extinguish second liens. The maximum allowable reimbursement increased to 6% of the outstanding loan balance, subject to an aggregate cap of $6,000.87 For such short sales, HAFA will pay reimbursements for subordinate lien releases to a maximum of $2,000 per lien, which is to be earned on a one-for-three matching basis (for each $3 an investor pays to secure release of a subordinate lien, the investor gets $1, up to the $2,000 maximum). 2MP 2MP is purportedly designed to work in tandem with HAMP and includes homeowner relief for borrowers with second mortgages serviced by a participating 2MP servicer. As of March 31, 2010, Bank of America Corporation, Wells Fargo & Company, JPMorgan Chase & Co., and Citigroup Inc. all executed agreements to participate in the second lien program.88 Collectively, these servicers represent 50% of all second liens. Under the program, if the first lien is modified under HAMP, a participating servicer must modify and/or extinguish the second lien as well. For a modification, the servicer will first reduce the interest rate, which is determined by the nature of the loan. If it is an interest-only loan (not-amortizing), the interest rate decreases to 2%, while the interest rate for amortizing second liens (those that require payments of both interest and principal) decreases to 1%.89 When modifying the second lien, the servicer will also match the extension of the term of years for the modified first lien, and to the extent that there is forbearance and/or principal reduction for the modified first lien, the second lien will forbear a proportional amount. The servicer will receive a $500 incentive payment at the time of modification. Additionally, the servicer will receive an annual pay-for-success fee of $250 for up to three years if a borrower’s monthly second-lien payment is reduced by 6% or more and the borrower stays current on his payments. If that occurs, the borrower will receive an annual “pay for performance” principal balance reduction payment of up to $250 for up to five years.90 Investors will receive a modification incentive payment equal to an annualized amount of 1.6% of the unmodified unpaid principal balance, paid on a monthly basis for up to five years. If the borrower misses three consecutive payments on his or her modified second lien, no further quarterly report to congress I aPRIL 20, 2010 incentives payments will be made to the servicer. If the second lien is fully or partially extinguished, the investor will receive a payment of a percentage of the amount extinguished using the same schedule shown in Table 2.12, with a maximum payment of 6% for liens that have been in default for more than six months. Expanded Borrower Protections in HAMP Programs The new guidelines issued on March 26, 2010, changed certain HAMP provisions for offering expanded protection for borrowers. The new guidelines contain the following provisions:91 • require proactive outreach to borrowers who have missed two or more mortgage payments • require servicers to consider a borrower in bankruptcy for HAMP • prohibit referral to foreclosure for borrowers who are evaluated and found eligible for HAMP or until a borrower has been evaluated and found ineligible for HAMP Implementation of FHA-HAMP FHA-HAMP, which applies to borrowers with loans guaranteed by FHA, is similar to its TARP counterpart in that it reduces borrowers’ monthly mortgage payments to 31% of their gross monthly income and requires the borrower to complete a threemonth trial payment plan before permanently modifying the loan.92 Under the new guidance, when a loan is modified under the FHA-HAMP program, borrowers and servicers will be eligible for pay-for-success incentive payments. Unlike HAMP, no payments under FHA-HAMP will be made to investors because those investors already have the benefit of the FHA insurance guarantee program. TARP funds will be used to pay the same pay-for-success incentive payments to borrowers and servicers as those made under HAMP. Federal Housing Administration (“FHA”) Refinance Program — TARP Interaction FHA implemented a Refinance Program in the early 1980s. Under this program, a mortgage could be refinanced if, among other things, it was an existing FHA-insured mortgage, the borrower was current, and no cash was taken out after the mortgage was refinanced.93 On March 26, 2010, Treasury and HUD announced program revisions that will give investors the option of refinancing underwater, non-FHA insured mortgages into an FHA-insured mortgage at 97.75% of the home’s value, supported with up to $14 billion from TARP.94 The FHA refinance option is voluntary for the servicers; therefore, not all underwater mortgage borrowers who qualify may benefit from a refinanced loan. Moreover, it is only available to borrowers with mortgages 59 60 special inspector general I troubled asset relief program not currently insured by the FHA.95 The $14 billion in TARP funds will go toward purchasing first-loss coverage (in the form of a “letter of credit”) on certain mortgages, payments to holders of existing second liens for principal extinguishments, and $1,000 upfront servicer-incentive payments for each mortgage placed into the program.96 In order to qualify for an FHA refinance loan, homeowners must meet the following eligibility requirements:97 • • • • • • • be current on their existing mortgage occupy the home as their primary residence fully document their income qualify under standard FHA underwriting guidelines have at least a 500 FICO credit score have a DTI of less than 55% have a DTI for all housing-related debt (including second liens) of less than 31% after refinancing The FHA refinanced loan will have the following characteristics:98 • The aggregate FHA insurance and TARP-supported loss coverage for the refinanced loan will be 97.75% of the current value of the home. • The borrower’s combined mortgage debt (including all liens) must be written down to a maximum of 115% of the current value of the home. • The borrower’s original first lien mortgage must be written down by at least 10%. • The original first-lien investor has the option of converting any amount of the original mortgage that is greater than 97.75% of the value of the home to a subordinated second lien, up to 115% of the current value of the home. The balance of the mortgage above 115% would have to be forgiven. If a second lien already exists, the total combined mortgage amount after the refinance must not exceed 115% of the home’s value. The current value of the home will be determined consistent with FHA underwriting standards that, among other things, require third-party appraisal by a HUD-approved appraiser. By obtaining an FHA-guaranteed loan, the homeowner will receive a new monthly mortgage payment at a fixed interest rate. The total monthly mortgage payment (including all payments on subordinate liens) must not quarterly report to congress I aPRIL 20, 2010 be greater than 31% of the borrower’s monthly gross income.99 Under the program, borrowers benefit from a lower monthly payment, a fixed interest rate, and forgiveness of principal that is more than 115% of the value of the home. Although investors will have to recognize a loss as a result of the mortgage write-down, they will receive cash payment for 97.75% of the current home value, and may maintain a subordinate second lien for up to 17.25% of the home’s value (for a total balance of 115% of the home’s value). Preexisting second-lien holders will receive incentive payments to extinguish their debts consistent with the schedule set forth in Table 2.12 or they may negotiate with the first lien holder for a portion of the new subordinate loan.100 According to Treasury, FHA will publish data on the number of loans refinanced on a quarterly basis. The published data will include the average percentage of write downs and the quantity of mortgage principal reduced.101 If a refinanced loan under this program defaults, it is anticipated that the letter of credit purchased by TARP will approximately compensate the refinancing investor for the first 7.75% of losses on each defaulted mortgage up to the maximum amount specified by the program guidelines. FHA will thus be responsible for the remaining approximately 90% of potential loss on each mortgage. Treasury has not publicly stated what portion of the $14 billion allocated to this program will be used for the three TARP expenses in the program: servicer incentives, payments to relinquish preexisting second liens, and first loss protection for FHA. Example of an FHA Refinance In 2005, Family C took out a 30-year 9% fixed $250,000 mortgage. The monthly mortgage payment was $2,012. Since then, home prices dropped nearly 30% and Family C’s home is now worth $180,000. Under the program, the investor will write down Family C’s loan balance by approximately $32,700, resulting in $207,000 in total debt, which is 115% of the value of the home. A new FHA-arranged refinancing of that amount will pay the investor $175,950, or 97.75% of the home’s value. The original investor will also receive a second lien for $31,050, or 17.25%, to bring the total mortgage debt to 115% of the home’s value. The investor then writes off the remaining $32,700. 61 62 special inspector general I troubled asset relief program Table 2.14 shows that Family C’s total monthly payment will fall to about $1,308 per month, for a savings of $8,448 per year. Table 2.14 fha refinance example Existing Mortgage FHA Refinance Terms Loan to Value Terms Loan to Value Balance $239,700 133% $207,000 115% Remaining Years 26 First Lien $239,700 Second Lien 30 133% $175,950 97.75% 17.25% — $31,050 Interest Rate 9.0% 6.5% Monthly Payment $2,012 $1,308 Borrower saves in principal and interest $704 per month Investor writes down principal amount $32,700 Note: Numbers affected by rounding. What are HFAs and what do they do? HFAs are agencies or authorities created by state law that are charged with helping persons and families of low or moderate income attain affordable housing. HFAs provide responsible and affordable housing resources to low- and moderate-income borrowers who might not be served elsewhere. The primary activities of HFAs are as follows: • financing mortgages at low rates • funding the development of affordable rental properties • refinancing or modifying mortgage loans for at-risk borrowers. Housing Finance Agency (“HFA”) — The Hardest-Hit Fund On February 19, 2010, the Administration announced that $1.5 billion in TARP money will be allocated to develop foreclosure prevention programs to help families in the five states hit hardest by declining home prices.102 On March 29, 2010, the Administration expanded this program to include five more states and increased the potential subsidy by $600 million.103 The $1.5 billion in initial funding will be provided to those states (Arizona, California, Florida, Michigan, and Nevada) in which the average home price fell more than 20% from the peak.104 The additional $600 million will be allocated to Ohio, North Carolina, South Carolina, Oregon, and Rhode Island because of those states’ high unemployment rates.105 Each state’s Housing Finance Agency (“HFA”) will design programs tailored to that state. The first five states were to submit proposals to Treasury by April 16, 2010. Treasury’s review period then begins.106 The five new states’ proposals are due June 1.107 Treasury will determine whether the proposals meet EESA’s requirements and the program’s published guidelines. If Treasury approves, HFAs may be able to begin drawing down funds within four to six weeks. Treasury outlined categories of transactions that might be acceptable under EESA:108 63 quarterly report to congress I aPRIL 20, 2010 • Mortgage Modifications — Programs may provide for mortgage modification of loans held by HFAs or other financial institutions or provide incentives for servicers / investors to modify loans. • Mortgage Modifications with Principal Forbearance — Programs may provide for paying down all or a portion of an underwater loan and taking back a note from the borrower for that amount in order to facilitate additional modifications. • SS/DIL Foreclosures — Programs may provide for assistance with short sales and deeds in lieu of foreclosure in order to prevent avoidable foreclosures. • Principal Reduction Programs for Borrowers with Severe Negative Equity — Programs may provide incentives for financial institutions to write down a portion of the unpaid principal balance for homeowners with severe negative equity. • Unemployment Programs — Programs may provide for assistance to unemployed borrowers to help them avoid preventable foreclosures. • Second Lien Reductions — Programs may provide incentives to reduce or modify second liens. As of March 31, 2010, Treasury had not determined how it will evaluate HFA proposals. SIGTARP will monitor and document the program’s developments in future quarterly reports. Table 2.15 shows the $2.1 billion allocation by state. Table 2.15 Amount Allocated to each state ($ Millions) California $699.6 Florida 418.0 Ohio 172.0 North Carolina 159.0 Michigan 154.5 South Carolina 138.0 Arizona 125.1 Nevada 102.8 Oregon 88.0 Rhode Island 43.0 Total $2,100.0 Sources: Treasury, “HFA Hardest-Hit Fund FAQs,” 3/5/2010, www.makinghomeaffordable.gov/docs/HFA%20FAQ%20%20 030510%20FINAL%20(Clean).pdf, accessed 3/8/2010; Treasury, “Update to HFA Hardest-Hit Fund FAQs,” 3/29/2010, www.financialstability.gov/docs/Hardest%20Hit%20public%20 QA%200%2029%2010.pdf, accessed 3/29/2010. 64 special inspector general I troubled asset relief program TARP Tutorial: WHAT DO “UNDERWATER” HOMEOWNERS DO? Introduction The bursting of the real estate bubble left many homeowners owing more on their mortUnderwater Mortgage: A situation in which a homeowner owes more on the mortgage than the home is worth, typically the result of a decline in the home’s value. gages than their homes were worth, a situation known as being “underwater” or “upside down.” These homeowners have “negative equity.” Recent data on negative equity homes indicates that 11.3 million U.S. homes had negative equity at the end of the fourth quarter of 2009 — approximately 24% of all residential mortgages.109 This tutorial summarizes actions taken both by underwater homeowners and some of the problems raised by such actions. Whom Does Negative Equity Affect? With so many homeowners underwater, almost everyone has been hurt, including: • Borrowers: Borrowers become exposed when their home equity turns negative. Refinancing or moving becomes nearly impossible because they cannot make enough money selling the house to pay off the mortgage. • Lenders/Investors: Some studies show that underwater borrowers are much more likely to default, and negative equity has been described as the greatest predictor of default. Foreclosure in this situation is usually very costly to lenders and investors because they are forced to sell the property for less than they lent the borrower. • Communities: When properties with negative equity are concentrated in one area, that neighborhood or community suffers because those property owners have both fewer resources and less incentive to maintain their own homes. Homeowners might not make basic repairs or maintain their houses because they have no equity and think eventually the lender will foreclose on them. Additionally, the distressed sales that often accompany foreclosed underwater mortgages drag down the values of all homes in the neighborhood. Lenders who foreclose upon homes, but are unable to sell them, may not make the necessary repairs or maintenance. Vacant homes also attract vandals, squatters, and criminal activity. According to Treasury, the states with the hardest-hit housing markets are Nevada, California, Florida, Arizona, and Michigan.110 See Figure 2.7 for the geographic distribution of underwater mortgages for the top five states. In these five states, average property values have declined more than 20%.111 These states had the highest number of negative equity residential properties at the end of 2009.112 quarterly report to congress I aPRIL 20, 2010 Figure 2.7 GEOGRAPHIC DISTRIBUTION OF UNDERWATER MORTGAGES FOR TOP FIVE STATES California 35% Nevada 70% Arizona 51% Michigan 39% Florida 48% Note: Percentages represent number of underwater mortgages as a percentage of total residential mortgages as of 12/31/2009. Source: Real Estate Channel, “24% of All U.S. Residential Mortgages Now Underwater, Says CoreLogic Q-4 Report, ” 2/23/2010, www.realestatechannel.com/us-markets/residential-real-estate-1/real-estate-news-first-american-corelogic-underwater-mortgagesnegative-equity-mortgages-upside-down-home-equity-home-foreclosures-loan-defaults-2075.php, accessed 3/31/2010. Some question the link between negative equity and default rates. In 2009, a senior Treasury official remarked: “Data from past cycles suggest negative equity alone is unlikely to be sufficient to cause default, and though this cycle could be different, there is little evidence suggesting a dramatic change in behavior.”113 However, others have described negative equity as “the most important predictor of default,”114 and Treasury’s modifications to the Home Affordable Modification Program (“HAMP”) appear to acknowledge the 65 66 special inspector general I troubled asset relief program dangers presented by negative equity. When borrowers have negative equity, unemployment often acts as a catalyst increasing the probability for default.115 A study published in 2008 by the Federal Reserve Bank of Boston found that, during the downturn of housing prices in the early 1990s, negative equity had only a weak influence on a borrower’s decision to default. The study concluded that the overwhelming majority of negative equity households will not lose their homes. More than 100,000 homeowners who had negative equity were examined, and the study found that fewer than 10% of these owners eventually lost their homes to foreclosure.116 More recent market observers believe that the current financial crisis is different because the amount of negative equity is larger; one recent report published by First American CoreLogic estimated that, as an owner-occupant’s negative equity approaches 25%, owners begin to default on their loans.117 It has also been widely reported that defaults based on negative equity are becoming more widespread as the social stigma of defaulting decreases. Recent reports have also indicated that homeowners, for the first time, prioritize paying other debts, such as credit cards, before paying their mortgages.118 The deeper underwater the homeowner sinks, the greater the incentive to default on the loan. It can be expected that the tipping point for defaulting is even lower for absentee investor-owners and “house flippers.” What Options Do Underwater Homeowners Have? Recourse Loan: A loan in which the borrower is legally liable to repay a debt even if the asset mortgaged cannot be liquidated to cover the loan balance. In a default, a recourse loan gives the lender the right to seize and sell the mortgaged asset, in addition to other assets or property of the borrower, up to the value of the loan. Non-recourse Loan: A secured loan whereby the borrower is relieved of the obligation to repay the loan upon surrender of the collateral. Every situation in which a homeowner is underwater on his or her mortgage is likely to be different. An underwater borrower’s best course of action will require a cost-benefit analysis, one that balances personal factors against financial factors. The following are illustrative. Financial Factors: • How far underwater is the property? • Can the borrower meet current payments successfully? • How painful are the financial and non-financial costs, such as an impact on the borrower’s credit rating? • What levels of assistance are available from the Government, lender, family, or others? • Is the mortgage loan recourse or non-recourse? quarterly report to congress I aPRIL 20, 2010 Personal Factors: • How strongly does the borrower feel a moral obligation to pay back the loan? • How much attachment does the owner have to the house? • How attractive are alternative housing options? Some statistics illustrate these concepts: • The average mortgage in the U.S. is about $200,000.119 • The average negative equity share for underwater properties in the U.S. during the fourth quarter of 2009 was 23.8%.120 This will present an approximate $47,600 gross negative equity position. • Although there is a connection between being underwater and subsequently falling delinquent on a mortgage, most underwater homeowners are current on their mortgages. Option #1: Wait It Out Underwater borrowers frequently focus on the magnitude of their theoretical losses. A 23.8% difference between value and mortgage principal can seem daunting. But it may not be so daunting when compared with the costs of taking other actions, including the costs of moving, the impairment of the borrower’s credit rating after defaulting on a mortgage, and the possibility of being legally pursued by the lender if the mortgage loan provides recourse to the borrower’s other assets. Option #2: Seek Offsetting Revenue or Value A classic tactic to meet a financial shortfall is to bring in more revenue. For example, the borrower may rent out a room in the house. Option #3: Obtain a Loan Modification The lender may be willing to rewrite the terms of the original mortgage loan to address the homeowner’s current financial situation, such as through TARP’s HAMP. A borrower’s credit rating may be harmed, however, from a mortgage modification. Changes to the loan may include reducing the interest rate, extending the number of years to repay the loan, and forbearing or reducing the amount of the loan.121 Recent changes to HAMP, as well as new state and local programs financed through the “HFA Hardest-Hit Fund,” will require that lenders consider alternative modification approaches Loan Modification: Involves making a permanent change in one or more terms of the existing loan, such as the interest rate, the term, or converting from an adjustable-rate mortgage to a fixed-rate mortgage. 67 68 special inspector general I troubled asset relief program that will emphasize principal write-downs for underwater homeowners. Treasury will also be offering incentives to lenders to write down second liens in the HAMP Second Lien Modification Program.122 Private lenders may also consider principal write-downs outside Government programs, such as Bank of America’s recent announcement that it will write down a total of $3 billion of principal for certain qualifying mortgages in its own portfolio.123 Refinancing: Paying off an existing mortgage and replacing it with a new mortgage. Typically, the proceeds from the new loan are used to pay off the debt of the old loan. Option #4: Refinance Home refinancing involves paying off the existing mortgage of a home and replacing it with a new mortgage.124 Refinancing a loan may be difficult if a home is underwater,125 although the Government’s Home Affordable Refinance Program (“HARP”) will permit certain borrowers to refinance to up to 125% of the value of the loan. In addition, recently announced Federal Housing Administration (“FHA”) program adjustments supported by TARP will support refinancing for underwater homeowners if certain criteria are met. Under this program, which is expected to be available to underwater homeowners by fall 2010,126 lenders may voluntarily write down the principal of the original first mortgage on the For more information about loan modifications, refinancing, and principal writedown options available to homeowners, see “MHA Update” and “Federal Housing Administration (“FHA”) Refinance Program – TARP Interaction” in this section. underwater home by at least 10%. Lenders will also be provided with incentives to write down the principal balance owed on second liens so that both the first and second lien on the underwater property total no more than 115% of the current value of the home.127 In order to qualify, homeowners must be current on their existing mortgage, must occupy the home as the principal residence, and must have a qualifying credit score.128 Reasons to consider refinancing are as follows: • lowering the interest rate (refinancing can result in a lower interest rate and a lower monthly payment)129 • adjusting the terms of the mortgage130 • switching from an adjustable-rate mortgage (“ARM”) to a fixed-rate mortgage131 Private Mortgage Insurance (“PMI”): Mortgage insurance provided by non-Government insurers to protect a lender against losses if a borrower defaults. Lenders may require borrowers to purchase this if the loan-to-value ratio of the loan is 80% or higher. • securing an ARM with better terms132 Option #5: Make a Partial Payment If the homeowner’s mortgage is insured by private mortgage insurance (“PMI”), the insurer may provide a one-time, interest-free loan to bring the delinquent account up to date. The interest-free loan becomes due and payable when the homeowner is able to refinance, pay off the mortgage, or sell the property.133 quarterly report to congress I aPRIL 20, 2010 Option #6: Offer a Short Sale If the property cannot be sold for the full amount of the outstanding loan balance, the homeowner may be able to work with the lender so that the lender will accept, as full payment of the loan, whatever the home actually sells for, even if it is less than what is owed on the property. Such an arrangement is known as a “short sale,” or “pre-foreclosure sale.”134 In a short sale, the bank agrees to release the borrower from owing the difference between what the home sells for and the outstanding amount of the mortgage (an amount typically termed a “deficiency payment”). Although the lender must write off the resulting loss, the lender avoids the costs and complications associated with foreclosure. A borrower’s credit rating will typically suffer Short Sale: A sale of a home, typically less than mortgage value, by which the borrower sells the home and the lender collects the sales proceeds as satisfaction for the unpaid mortgage balance, thus avoiding foreclosure (which is the legal process by which the lender assumes ownership of the home). from a short sale, and there also may be income tax consequences in such a situation135 because some states may require the homeowner to recognize as income the amount of the forgiven deficiency payment. Under HAMP’s Home Affordable Foreclosure Alternatives (“HAFA”) program, Treasury provides incentives to qualifying borrowers who complete a short sale. Option #7: Offer a Deed-In-Lieu of Foreclosure In this approach, the borrower offers the lender the deed to the house in exchange for release from all or a portion of any difference between the loan amount and the collateral value. Similar to a short sale, this approach enables the lender to avoid the time and expense of pursuing a legal case for months or even years. If agreed to, the borrower generally is required to move out of the house, although it might be possible to stay in the house as a renter. Similar to short sales, there are incentives in HAFA to facilitate these transactions. There may also be income tax consequences in such a situation136 similar to those in a short sale. Although this option does not save the homeowner’s home, it is typically less damaging to the homeowner’s credit rating than a bankruptcy or a foreclosure.137 Deficiency Payment: A payment made by the borrower to the lender in an amount usually equal to the difference between what the lender is able to sell the home for in a foreclosure sale and what was owed by the borrower on the loan. Deed-in-Lieu of Foreclosure: Instead of going through the process of foreclosure, the borrower surrenders the deed to the home voluntarily to the lender, often as satisfaction of the unpaid mortgage balance. 69 70 special inspector general I troubled asset relief program Option #8: Pursue Leaseback In a leaseback, the borrower transfers the deed to the house to the lender, who then immediately leases the house back to the original borrower/occupant. Both Fannie Mae and Freddie Mac have implemented such programs, which are available to certain borrowers whose houses have been foreclosed upon and whose loans were owned by Fannie Mae or Freddie Mac.138 Option #9: Declare Bankruptcy Deficiency Judgment: A court order that authorizes a lender of a recourse loan to collect part of an outstanding debt resulting from the foreclosure and sale of a homeowner’s property or from the repossession of a property securing a debt. A deficiency judgment will take place after the foreclosed or repossessed property is sold and the proceeds collected are insufficient to pay the mortgage in full. Filing for bankruptcy potentially provides the underwater homeowner with the option of surrendering the home and walking away from the debt without a resulting deficiency judgment and without incurring any tax consequences.139 A bankruptcy will, however, have a severe impact on the borrower’s credit report.140 According to U.S. Bankruptcy Law, “a bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In effect, the debtor is no longer legally required to pay any debts that are discharged.”141 The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. Secured debts, such as debt secured by collateral or real property (a home mortgage), are generally not extinguished in a bankruptcy filing.142 Depending on the type of bankruptcy the homeowner files, the debtors’ personal liability may be discharged; however, the lender can still repossess the property because the bankruptcy discharge does not release the lien on the property.143 According to the Internal Revenue Service, in the case of a discharged mortgage debt, the Mortgage Forgiveness Debt Relief Act of 2007, enacted on December 20, 2007, allows taxpayers to exclude, for Federal tax purposes, income realized as a result of the For more information about bankruptcy, see SIGTARP’s July 2009 Quarterly Report to Congress, “TARP Tutorial: Bankruptcy,” page 97. discharge of a debt resulting from the modification of the terms of the mortgage, or foreclosure on a homeowner’s principal residence.144 This relief is effective for calendar years 2007 through 2012.145 quarterly report to congress I aPRIL 20, 2010 Option #10: Default The last option for underwater homeowners is to stop making the mortgage payments — defaulting. If no other option is available, this will typically lead to a foreclosure on the home. In cases of negative equity, some borrowers may choose to default “strategically” as they decide that it makes more economic sense for them to walk away from their mortgages. Renting at a lower price may be a more economically rational decision than continuing to make payments on a severely underwater home. Typically, in a foreclosure, the bank will seize the property, the homeowner will be evicted, and the home will be sold at auction. In a foreclosure, the period between when a homeowner stops making payments until such time as he or she is evicted can last up to two years.146 During this period, the homeowner essentially can remain in the home rentfree.147 Foreclosure may result in a deficiency judgment against the homeowner.148 After a foreclosure, the homeowner’s credit will be impaired for 5 to 10 years. As with short sales, if a deficiency judgment is not pursued, the forgiven debt may be considered income to the homeowner in certain states and therefore reported as taxable income.149 Options Available to Underwater Commercial Property Owners The credit crisis is also affecting the commercial property market. According to a report published on February 10, 2010, by the Congressional Oversight Panel (“COP”), more than half a trillion dollars’ worth of commercial real estate loans set to come due between now and 2014 are considered underwater. Commercial property values have fallen more than 40% since the beginning of 2007; vacancy rates have increased about 8% for multifamily housing and 18% for commercial office space.150 Rents have also declined 40% for office space and 33% for retail space.151 These conditions are leading to an increase in commercial mortgage delinquencies. Figure 2.8 published by the Mortgage Bankers Association illustrates delinquency rates on the various categories of commercial mortgage-backed investor groups from the first quarter of 1996 through the fourth quarter of 2009. The chart demonstrates that 71 72 special inspector general I troubled asset relief program Figure 2.8 COMMERCIAL/MULTIFAMILY MORTGAGE DELIQUENCY RATES AMONG MAJOR INVESTOR GROUPS 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0 Q1 1996 Q4 1997 Q1 1998 Q1 1999 Q1 2000 CMBS (30+ days and REO) Life Companies (60+ days) Fannie Mae* (60+ days) Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Freddie Mac (60+/90+ days) Banks and Thrifts (90+ days) Notes: Selected delinquency rates at the end of the period. Delinquency rates shown are not comparable between investor groups. These rates show how performance of loans for each investor groups has varied over time, but cannot be used to compare one investor group to another. Source: Q4 2009, MBA Commercial/Multifamily, Mortgage Delinquency Rates for Major Investor Groups, www.mortgagebankers.org/files/Research/CommercialNDR/4Q09CommercialNDR.pdf, accessed 3/12/2010. Chart taken verbatim from Mortgage Banker’s Association. delinquency rates among commercial mortgage-backed securities (“CMBS”) loan portfolios and loan portfolios held by Federal Deposit Insurance Corporation-insured banks and Commercial Mortgage-Backed Securities (“CMBS”): A type of bond backed by one or more mortgages on commercial real estate (e.g., office buildings, rental apartments, hotels) rather than by residential real estate loans. thrifts are at their highest levels since the beginning of the report.152 These delinquencies appear to be on an upward trend. Data published in RealPoint Research’s March 2010 “Monthly Delinquency Report” forecasts CMBS delinquencies to grow to between 8% and 9% by mid-2010. According to the report, delinquency rates on CMBS could grow as high as 11% to 12% by the end of 2010. What Happens to Underwater Commercial Properties? Many of the options available to underwater commercial property owners are similar to the traditional options available to underwater residential property owners discussed above, other than relief through TARP or HARP. As set forth in COP’s report, the typical options for resolving defaulting or non-performing commercial loans are as follows:153 quarterly report to congress I aPRIL 20, 2010 • The lender or servicer proceeds with foreclosure on the property. • The lender and owner participate in a “workout” arrangement in which the principal balance or interest rate, or both, are reduced. • The lender can agree to modify the terms of the loan so that it can be repaid over a longer period of time on the same terms. Lenders proceeding to foreclose on a property in default may use alternatives to “hostile foreclosure,” such as accepting a deed-in-lieu of foreclosure, agreeing with the property owner to a “friendly foreclosure” (in which the owner does not fight the foreclosure process), or a short sale.154 Resolving underwater commercial properties may differ slightly from resolving underwater residential mortgages in three ways: • An underwater commercial property owner who declares bankruptcy may temporarily forestall the foreclosure process. In such a bankruptcy, unlike in residential real estate, the bankruptcy court may order a write-down of the loan balance.155 • Commercial mortgages typically are non-recourse,156 so that there are fewer repercussions for borrowers if they default because they will not be liable for the unrecovered amounts of the loan.157 Also, commercial real estate is typically owned by corporate entities created for the sole purpose of holding the subject property, insulating the shareholders from the effects of a default.158 • In contrast to residential mortgage foreclosures, in which foreclosed properties often sit vacant for many months, in a commercial property foreclosure, the lender can more readliy arrange for a new borrower to step in and purchase the foreclosed property.159 Historically, commercial property owners are more likely to walk away from underwa- ter properties than are residential homeowners, in part because it is strictly a business decision that may have few consequences to the borrower.159 Write-down: A reduction in the principal balance of a loan. Write-downs may reduce the incentive for a borrower to default because the new principal balance usually is lower than what the property would sell for. 73 74 special inspector general I troubled asset relief program Financial Institution Support Programs Treasury created five TARP programs in which it made capital investments or asset guarantees in exchange for equity in financial institutions. Two, the Capital Purchase Program (“CPP”) and Capital Assistance Program (“CAP”), were open to all qualifying financial institutions (“QFIs”). The other three, the Systemically Significant Failing Institutions program (“SSFI”), the Targeted Investment Program (“TIP”), and the Asset Guarantee Program (“AGP”), were available on a caseby-case basis to institutions needing assistance beyond what is available through CPP. Treasury does not expect to make new investments through these established programs, although it is launching new ones to support small-business lending that mirror CPP.160 Treasury may also alter the terms of its existing CPP investments by converting the preferred shares that it originally received into common shares of stock or other forms of equity to help improve the capital structure of struggling CPP recipients.161 As of March 31, 2010, CPP, CAP, TIP, and AGP were effectively closed to new investment. For further information on the closing of these programs, see previous SIGTARP Quarterly Reports. Figure 2.13 Capital Purchase Program SNAPSHOT OF CPP FUNDS OUTSTANDING AND REPAID, BY QUARTER $ Billions $200 $198.8 $0.4 $203.2 $204.6 $204.9 $204.9 $177.5 $198.4 $70.1 $70.7 $121.9 $135.8 150 $177.5 $133.1 $133.9 100 $83.0 50 $69.1 0 Q408 Q109 Q209 Q309 Q409 Q110 CPP Funds Outstanding at Quarter’s End CPP Funds Repaid at Quarter’s End Notes: Numbers affected by rounding. Data as of 3/31/2010 and reflected in calendar quarters. Source: Treasury, Transactions Report, 4/2/2010. Treasury’s goal for CPP was to invest in healthy, viable banks as a way of promoting financial stability, maintaining confidence in the financial system, and permitting lenders to meet the nation’s credit needs.162 Through CPP, $204.9 billion of TARP money was invested in 707 different QFIs.163 The Treasury Secretary announced on December 9, 2009, that TARP will wind down, saying that CPP, “through which the majority of TARP investments in banks have been made, is effectively closed.”164 However, Treasury announced plans to launch a structurally similar program to stimulate small-business lending through capital investments in small banks. As of March 31, 2010, CPP recipients had paid approximately $8.96 billion in dividends, $28.3 million in interest, and repurchased approximately $2.9 billion in warrants. Additionally, Treasury received approximately $1.5 billion from the sale of warrants through public Treasury warrant auctions.165 For a summary of CPP funds outstanding and associated repayments, see Figure 2.13. As of February 17, 2010, the Congressional Budget Office (“CBO”) estimates that CPP will generate $2 billion in gains, while the Office of Management and Budget (“OMB”) estimates that CPP will cost $1 billion.166 75 quarterly report to congress I aPRIL 20, 2010 Status of Funds By March 31, 2010, Treasury had purchased $204.9 billion in preferred stock and subordinated debentures from 707 different QFIs in 48 states, the District of Columbia, and Puerto Rico. Figure 2.14 shows the geographical distribution of funded QFIs. Although the eight largest investments accounted for $134.2 billion of the program, CPP also had many more modest investments: 331 of 707 recipients received $10 million or less. Table 2.16 and Table 2.17 show the distribution of the investments by amount. Table 2.16 Table 2.17 CPP investment size by institution CPP investment summary BY TRANSACTION Total Investment Originala Currentb $204.9 Billion $66.7 Billion Originala Outstandingb 6 1 $10 Billion or More Largest Capital Investment $25 Billion $25 Billion $1 Billion to $10 Billion 19 9 Smallest Capital Investment $301,000 $301,000 $100 Million to $1 Billion 57 43 Average Capital Investment $277.6 Million $103.9 Million Less than $100 Million 625 589 Median Capital Investment $10.3 Million $10.2 Million Total 707 642 Notes: Numbers affected by rounding. Data as of 3/31/2010. a These numbers are based on total Treasury CPP investment since 10/28/2008. b Amount does not include those investments that have already been repaid and is based on total investments outstanding. Source: Treasury, Transactions Report, 4/2/2010. Notes: Numbers affected by rounding. Data as of 3/31/2010. Data is based on the institutions’ total CPP investments. There are more than 30 institutions that have received multiple transactions through CPP. a These numbers are based on total Treasury CPP investment since 10/28/2008. b Current amount does not include those investments that have already been repaid and is based on total investments outstanding. Source: Treasury, Transactions Report, 4/2/2010. Figure 2.14 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 did not receive any CPP funds. Source: Treasury, “Local Impact of the Capital Purchase Program,” 12/9/2009, www.financialstability.gov, accessed 1/7/2010. 76 special inspector general I troubled asset relief program Table 2.18 cpp sHARE REPURCHASES Greater than $1 billion, AS OF 3/31/2010 Repurchase Date Institution Amount of Repurchase 6/17/2009 JPMorgan Chase & Co. $25.0 12/23/2009 Wells Fargo & Company 25.0 12/09/2009 Bank of America Corporation 25.0 6/17/2009 Morgan Stanley 10.0 6/17/2009 The Goldman Sachs Group, Inc. 10.0 2/10/2010 The PNC Financial Services Group Inc. 7.6 6/17/2009 U.S. Bancorp 6.6 6/17/2009 Capital One Financial Corporation 3.6 6/17/2009 American Express Company 3.4 3/31/2010 Hartford Financial Services Group, Inc. 3.4 6/17/2009 BB&T Corp. 3.1 6/17/2009 The Bank of New York Mellon Corporation 3.0 3/17/2010 Comerica Inc. 2.3 6/17/2009 State Street Corporation 2.0 6/17/2009 Northern Trust Corporation Total 1.6 $131.6 Notes: Numbers affected by rounding. Data as of 3/31/2010. Source: Treasury, Transactions Report, 4/2/2010. Repayment of Funds As of March 31, 2010, 74 banks had repaid CPP investments by repurchasing from Treasury some or all of their preferred shares, including seven of the eight largest CPP investments.167 Treasury received approximately $135.8 billion in principal repayments, leaving approximately $69.1 billion outstanding.168 Table 2.18 shows the amount of outstanding CPP funds, adjusting for repayments. For a full listing of CPP share repurchases, see Appendix D: “Transaction Detail.” Program Administration As previously discussed, Treasury does not anticipate investing more in QFIs or small banks under CPP. However, the program still requires administering. Ongoing responsibilities include: • • • • • managing the portfolio of assets acquired through the program collecting dividends and interest payments on outstanding investments disposing of warrants as CPP investments are repaid overseeing the program’s wind-down restructuring the investments for certain troubled financial institutions quarterly report to congress I aPRIL 20, 2010 77 Dividends and Interest As of March 31, 2010, Treasury collected $8.98 billion in both dividends and interest from its CPP investments.169 Meanwhile, 104 QFIs missed scheduled dividend payments to Treasury totaling $188.98 million.170 Approximately $5.2 million of the $188.98 million in missed CPP dividend payments are non-cumulative, and Treasury has no legal right to missed dividends that are non-cumulative. Of the 104 QFIs missing the deadline, 17 have since paid their outstanding dividends. One has not paid the Government any dividends over the last five quarters.171 If a QFI misses six quarterly payments, Treasury has the right to appoint two members of the institution’s board of directors.172 As of March 31, 2010, only five quarters had passed; thus, no such appointments have occurred. Table 2.19 lists banks missing one or more payment as of March 31, 2010. For a complete listing of CPP recipients and institutions making dividend or interest payments, see Appendix D: “Transaction Detail.” Non-cumulative Dividends: Dividends that do not accrue when a company does not make a dividend payment. For more information on CPP repayment, see SIGTARP’s July 2009 Quarterly Report, page 48. Table 2.19 CPP-ReLATED MISSED DIVIDEND PAYMENTS, AS OF 3/31/2010 Number of Missed Dividend Payments Value of Missed Dividends ($ Thousands) Institution Dividend Type Alliance Financial Services Inc. Cumulative 1 $251.7 Anchor BanCorp Wisconsin, Inc. Cumulative 4 5,729.2 Beach Business Bank Non-Cumulative 2 163.5 Bern Bancshares, Inc.* Cumulative 1 13.4 Blue Valley Ban Corp Cumulative 4 1,087.5 BNCCORP, Inc. Cumulative 1 273.8 Cascade Financial Corporation Cumulative 2 974.3 Cecil Bancorp, Inc. Cumulative 1 144.5 Central Pacific Financial Corp. Cumulative 3 5,062.5 Central Virginia Bankshares, Inc. Cumulative 1 142.3 Centrue Financial Corporation Cumulative 3 1,225.1 CIT Group Inc. Cumulative 2 58,250.0 Citizens Bancorp Cumulative 3 425.1 Citizens Bancshares Co. Cumulative 1 340.5 Citizens Bank & Trust Company Non-Cumulative 3 98.1 Citizens Commerce Bancshares, Inc. Cumulative 2 171.7 Citizens Republic Bancorp, Inc. Cumulative 1 3,750.0 City National Bancshares Corporation Cumulative 1 117.9 Continued on next page 78 special inspector general I troubled asset relief program CPP-ReLATED MISSED DIVIDEND PAYMENTS, AS OF 3/31/2010 Number of Missed Dividend Payments Value of Missed Dividends ($ Thousands) Institution Dividend Type Commerce National Bank Non-Cumulative 3 150.0 Commonwealth Business Bank Non-Cumulative 4 419.7 Community Bank of the Bay Non-Cumulative 4 72.5 Community First Bank Non-Cumulative 2 45.9 Congaree Bancshares, Inc.** Cumulative 2 89.5 Corning Savings and Loan Association* Non-Cumulative 1 8.6 DeSoto County Bank* Non-Cumulative 1 25.6 Dickinson Financial Corporation II Cumulative 3 5,969.9 Duke Financial Group, Inc. (Peoples Bank of Commerce) Cumulative 1 251.7 Exchange Bank Non-Cumulative 1 585.9 Farmers & Merchants Bancshares, Inc.* Cumulative 1 149.9 FC Holdings, Inc. (First Community Bank, National Association) Cumulative 2 573.4 Fidelity Federal Bancorp Cumulative 1 89.7 First BanCorp Cumulative 2 15,000.0 First Banks, Inc. Cumulative 3 12,074.5 First Federal Bancshares of Arkansas, Inc. Cumulative 1 206.3 First Security Group, Inc. Cumulative 1 412.5 First Sound Bank Non-Cumulative 1 92.5 First Southwest Bancorporation, Inc. Cumulative 1 74.9 FPB Bancorp, Inc. Cumulative 1 72.5 Fresno First Bank Non-Cumulative 2 33.4 Georgia Primary Bank Non-Cumulative 3 193.5 Goldwater Bank, N.A.* Non-Cumulative 1 70.0 Grand Mountain Bancshares, Inc. Cumulative 3 119.2 Green Circle Investments, Inc. / Peoples Trust & Savings Bank* Cumulative 1 32.7 Hampton Roads Bankshares, Inc. Cumulative 2 2,008.7 Harbor Bankshares Corporation Cumulative 1 85.0 Heartland Bancshares, Inc. Cumulative 1 93.1 Heritage Commerce Corp. Cumulative 2 1,000.0 IA Bancorp, Inc / Indus American Bank* Cumulative 1 49.9 Idaho Bancorp Cumulative 3 282.0 Independent Bank Corporation Cumulative 2 1,800.0 Integra Bank Corporation Cumulative 2 2,089.7 Intermountain Community Bancorp/Panhandle State Bank Cumulative 1 337.5 Intervest Bancshares Corporation Cumulative 1 312.5 Investors Financial Corporation of Pettis County, Inc. (Excel Bank) Cumulative 1 83.9 Continued on next page 79 quarterly report to congress I aPRIL 20, 2010 CPP-ReLATED MISSED DIVIDEND PAYMENTS, AS OF 3/31/2010 Number of Missed Dividend Payments Value of Missed Dividends ($ Thousands) Institution Dividend Type Lone Star Bank Non-Cumulative 4 171.6 Maryland Financial Bank Non-Cumulative 2 46.3 Midtown Bank & Trust Company* Non-Cumulative 1 71.1 Midwest Banc Holdings, Inc. Cumulative 4 4,239.2 Millennium Bancorp, Inc.* Cumulative 1 98.9 Monarch Community Bancorp, Inc. Cumulative 1 84.8 Northeast Bancorp* Cumulative 1 52.8 Northern States Financial Corporation / Norstates Bank Cumulative 2 430.3 Omega Capital Corp./ Front Range Bank Cumulative 2 76.7 One Georgia Bank Non-Cumulative 3 230.6 One United Bank Non-Cumulative 4 603.2 OSB Financial Services, Inc. Cumulative 2 255.9 Pacific Capital Bancorp Cumulative 4 9,031.7 Pacific City Financial Corporation/ Pacific City Bank Cumulative 3 662.2 Pacific Coast National Bancorp Cumulative 4 224.5 Pacific Commerce Bank** Non-Cumulative 2 87.3 Pacific International Bancorp Inc Cumulative 3 243.8 Pathway Bancorp Cumulative 2 101.5 Patterson Bancshares, Inc Cumulative 3 150.9 Peninsula Bank Holding Co. Cumulative 4 312.5 Pierce County Bancorp Cumulative 2 185.3 Popular, Inc. Cumulative 1 11,687.5 PremierWest Bancorp Cumulative 2 1,035.0 Premier Service Bank Non-Cumulative 4 215.0 Presidio Bank Non-Cumulative 1 134.4 Redwood Capital Bancorp* Cumulative 1 51.8 Regent Bancorp, Inc* Cumulative 1 136.0 Ridgestone Financial Services, Inc. / Ridgestone Bank Cumulative 2 297.0 Rising Sun Bancorp Cumulative 2 163.0 Rogers Bancshares, Inc. Cumulative 2 681.3 Royal Bancshares of Pennsylvania, Inc. Cumulative 3 1,140.3 Saigon National Bank Non-Cumulative 5 96.6 Seacoast Banking Corporation of Florida/Seacoast National Bank Cumulative 4 2,500.0 Seacoast Commerce* Non-Cumulative 1 14.2 Security State Bank Holding-Company (Bank Forward) Cumulative 1 225.5 Sonoma Valley Bancorp Cumulative 1 118.0 Continued on next page 80 special inspector general I troubled asset relief program CPP-ReLATED MISSED DIVIDEND PAYMENTS, AS OF 3/31/2010 Number of Missed Dividend Payments Value of Missed Dividends ($ Thousands) Institution Dividend Type South Financial Group, Inc./ Carolina First Bank Cumulative 1 4,337.5 Sterling Financial Corporation/Sterling Savings Bank Cumulative 3 11,362.5 Syringa Bancorp Cumulative 2 218.0 Tennessee Valley Financial Holdings, Inc. Cumulative 1 40.9 The Bank of Currituck Non-Cumulative 1 54.8 The Connecticut Bank and Trust Company Non-Cumulative 3 178.6 The Freeport State Bank Non-Cumulative 2 8.2 TIB Financial Corp/TIB Bank Cumulative 2 925.0 Tri-State Bank of Memphis* Non-Cumulative 1 69.8 TriState Capital Holdings, Inc.* Cumulative 1 313.4 UCBH Holdings, Inc. Cumulative 3 11,202.6 United American Bank Non-Cumulative 4 467.6 U.S. Century Bank Non-Cumulative 1 684.5 US Metro Bank* Non-Cumulative 2 Total 81.9 $188,980 Notes: Numbers affected by rounding. Approximately $5.2 million of the $188.98 million in missed CPP dividend payments are non-cumulative and Treasury has no legal right to missed dividends that are non-cumulative. *CPP recipients that have since fully paid missed dividends. **CPP recipients that have partially paid missed dividends. Source: Treasury, response to SIGTARP data call, 4/6/2010. Warrant: The right, but not the obligation, to purchase a certain number of shares of common stock at a fixed price. Because warrants rise in value as the company’s share price rises, they permit Treasury (and the taxpayer) to benefit from a firm’s potential recovery. Warrant Disposition EESA mandates that Treasury receive warrants when it invests in troubled assets, with exceptions for certain small institutions. Warrants give Treasury the right to purchase, at a predetermined price, shares of common stock for publicly traded institutions or preferred stock or debt for private institutions.173 CPP warrants expire 10 years from the date of the CPP investment. As of March 31, 2010, Treasury had not exercised its right under the warrants to purchase common shares in any of the program’s publicly traded institutions.174 For private institutions, warrants are immediately exercised upon closing of the initial investment.175 Repurchase of Warrants by Financial Institutions QFIs that repaid their CPP investments have the option of buying back their warrants. As of March 31, 2010, 34 public institutions bought back warrants for a total of $2.92 billion, and 6 private institutions, the warrants of which were immediately quarterly report to congress I aPRIL 20, 2010 81 Table 2.20 tOP 10 CPP WARRANT REPURCHASES (PUBLIC), AS OF 3/31/2010 Number of Warrants Repurchased Amount of Repurchase ($ Millions) The Goldman Sachs Group, Inc. 12,205,045 $1,100.0 Morgan Stanley 65,245,759 950.0 7/29/2009 American Express Company 24,264,129 340.0 7/15/2009 U.S. Bancorp 32,679,102 139.0 8/05/2009 The Bank of New York Mellon Corporation 14,516,129 136.0 8/26/2009 Northern Trust Corporation 3,824,624 87.0 7/22/2009 BB&T Corp. 13,902,573 67.0 7/08/2009 State Street Corporationa 2,788,104 60.0 12/30/2009 Trustmark Corporation 1,647,931 10.0 5/27/2009 FirstMerit Corporation Repurchase Date Institution 7/22/2009 8/12/2009 Total 952,260 5.0 172,025,656 $2,894.0 Notes: Numbers affected by rounding. This table represents warrants for common stock issued to Treasury by publicly traded TARP recipients. a State Street Corporation reduced its original amount of warrants issued through a qualified equity offering. Source: Treasury, Transactions Report, 4/2/2010. Table 2.21 CPP REPURCHASES of preferred shares resulting from immediate exercise of warrants (private), AS OF 3/31/2010 Number of Warrants Repurchased Amount of Repurchase ($ Thousands) Centra Financial Holdings, Inc. 750 $750.0 4/22/2009 First ULB Corp. 245 245.0 5/27/2009 First Manitowoc Bancorp, Inc. 600 600.0 11/10/2009 Midwest Regional Bancorp, Inc. 35 35.0 11/18/2009 1st United Bancorp, Inc. 500 500.0 12/23/2009 Midland States Bancorp, Inc. 509 509.0 2,639 $2,639.0 Repurchase Date Institution 4/15/2009 Total Qualified Equity Offering: A cash sale in an amount at least equal to Treasury’s original investment of common stock or certain types of preferred stock that qualify as Tier 1 capital. Notes: Numbers affected by rounding. This table represents the preferred shares held by Treasury as a result of the exercise of warrants issued by non-publicly traded TARP recipients. These warrants were exercised immediately upon the transaction date. Source: Treasury, Transactions Report, 4/2/2010. exercised as additional preferred share purchases, bought back those shares for a total of $2.6 million.176 Table 2.20 lists public institutions that paid back TARP and repurchased warrants. Table 2.21 lists private institutions that had done so as of March 31, 2010.177 December 31, 2009, marked the last day under CPP when an institution could cancel as many as half its outstanding warrants through a qualified equity offering that repaid the TARP funds. Table 2.22 lists 38 institutions that successfully completed the qualified equity offering. For a full listing of all warrant repurchases, see Appendix D: “Transaction Detail.” For more information on CPP warrant disposition, see SIGTARP’s January 2010 Quarterly Report, page 58. 82 special inspector general I troubled asset relief program Table 2.22 CPP-ReLATED Qualified equity offerings, AS OF 3/31/2010 Institution Investment Date Investment Size ($ Millions) Repurchase Date Investment Outstanding ($ Millions) Warrant Exercise Price State Street 10/28/2008 2000 6/17/2009 — East West Bancorp 12/5/2008 306.5 N/A 306.5 15.15 1,517,555 PrivateBancorp, Inc. 1/30/2009 243.8 N/A 243.8 28.35 645,013 Adjusted Number of Warrant Shares Warrants Repurchased SVB Financial Group 12/12/2008 235 12/23/2009 — 49.78 354,058 Umpqua Holdings Corp. 11/14/2008 214.2 2/17/2010 — 14.46 1,110,898 12/5/2008 196 N/A 196 29.05 506,024 MB Financial Inc. First Niagara Financial Group 11/21/2008 184 5/27/2009 — United Community Banks, Inc. 12/5/2008 180 N/A 180 Warrants Repurchased 12.28 1,099,542 National Penn Bancshares, Inc. 12/12/2008 150 N/A 150 15.3 735,294 Western Alliance Bancorporation 13.34 787,107 11/21/2008 140 N/A 140 CVB Financial Corp 12/5/2008 130 9/2/2009 — F.N.B. Corporation 1/9/2009 100 9/9/2009 — 11.52 651,042 First Busey Corporation Pinnacle Financial Partners, Inc. Iberiabank Corporation Warrants Repurchased 3/6/2009 100 N/A 100 13.07 573,833 12/12/2008 95 N/A 95 26.64 267,455 12/5/2008 90 3/31/2009 — Warrants Repurchased First Financial Bancorp 12/23/2008 80 2/24/2010 0 12.9 465,117 Columbia Banking System Inc. 11/21/2008 76.9 N/A 76.9 14.49 398,023 Flushing Financial Corporation 12/19/2008 70 10/28/2009 — Nara Bancorp, Inc. 11/21/2008 67 N/A 67 9.64 521,266 12/5/2008 65 N/A 65 20.17 241,696 First Financial Holdings Inc. Warrants Repurchased Union Bankshares Corporation 12/19/2008 59 11/18/2009 — Lakeland Financial Corporation 2/27/2009 56 N/A 56 21.2 198,269 12/12/2008 55 N/A 55 9.54 432,390 Center Financial Corporation Home Bancshares, Inc. Warrants Repurchased 1/16/2009 50 N/A 50 26.03 144,065 Seacoast Banking Corporation of Florida 12/19/2008 50 N/A 50 6.36 589,623 The Bancorp, Inc. 12/12/2008 45.2 3/10/2010 — 3.46 980,203 First Community Bancshares Inc. 35.26 88,273 11/21/2008 41.5 7/8/2009 — OceanFirst Financial Corp. 1/16/2009 38.3 12/30/2009 — Eagle Bancorp, Inc.* 12/5/2008 38.2 12/23/2009 23.2 Centerstate Banks of Florida Inc. Warrants Repurchased 7.44 385,434 11/21/2008 27.9 9/30/2009 — Washington Banking Company 1/16/2009 26.4 N/A 26.4 8.04 246,082 Heritage Financial Corporation 11/21/2008 24 N/A 24 13.04 138,037 1/30/2009 22 12/23/2009 — 15.85 104,101 1/9/2009 20 N/A — 14.37 104,384 26.81 52,455 Middleburg Financial Corporation MidSouth Bancorp, Inc. Bar Harbor Bankshares** Monarch Financial Holdings, Inc. Center Bancorp, Inc. Central Valley Community Bancorp Total Warrants Repurchased 1/16/2009 18.8 2/24/2010 — 12/19/2008 14.7 12/23/2009 — 1/9/2009 10 N/A 10 8.65 86,705 7 N/A 7 6.64 79,067 1/30/2009 5,327.4 Notes: Numbers affected by rounding. *Eagle Bancorp has partially redeemed the CPP preferred. ** Bar Harbor has not yet provided an official notice of its qualified equity offering for Treasury approval. Source: Treasury, Warrant Disposition Report, 1/20/2010, Treasury, Respone to SIGTARP data call, 4/8/2010, Treasury, Transactions Report, 4/2/2010. Warrants Repurchased 280.1 83 quarterly report to congress I aPRIL 20, 2010 Treasury Warrant Auctions When a CPP recipient decides not to buy back its warrants directly from Treasury or cannot reach agreement on a repurchase price, Treasury holds a modified Dutch auction to sell the warrants publicly. Potential investors submit bids to the auction agent (Deutsche Bank) at specified increments above a minimum price. Once Deutsche Bank receives all bids, it determines the final price and distributes the warrants to the winning bidders. As of March 31, 2010, Treasury had successfully auctioned all its warrants in Bank of America, Washington Federal, Inc., Signature Bank, Texas Capital Bancshares, Inc., Capital One, JP Morgan Chase, and TCF Financial after each opted not to buy back its warrants directly after repaying TARP.178 Since January 1, 2010, Treasury has held five public auctions in all (including two different classes of Bank of America warrants) raising approximately $1.6 billion. The auction of Bank of America A warrants was for the warrants Treasury received for its investment in Bank of America under TIP, and the B warrant auction was for the warrants it received under CPP. Final closing information for all auctions is shown in Table 2.23. Dutch Auction: For Treasury’s warrant auctions (buyers bid for different quantities at once) the accepted price is set at the lowest bid of the group of high bidders whose collective bids fulfill the amount offered by Treasury. Auction Agent: A firm (such as an investment bank) that buys a series of securities from one institution for resale — also called an “underwriter.” For more information on CPP warrant auctions, see SIGTARP’s January 2010 Quarterly Report, page 60. Table 2.23 Treasury Auctions, As of 3/31/2010 Date of Auction # of Warrants Offered Minimum Bid Price Minimum Bid Size Clearing Price Proceeds to Treasury Texas Capital Bancshares, Inc. 3/11/2010 758,086 $ 6.50 100 warrants $6.50 $6.7 million Signature Bank 3/10/2010 595,829 16.00 100 warrants 19.00 11.3 million Washington Federal, Inc 3/9/2010 1,707,456 5.00 100 warrants 5.00 15.6 million Bank of America A Auction (TIP) 3/3/2010 150,375,940 7.00 100 warrants 8.35 1,255.6 million Bank of America B Auction (CPP) 3/3/2010 121,792,790 1.50 100 warrants 2.55 310.6 million TCF Financial 12/15/2009 3,199,988 1.50 100 warrants 3.00 9.6 million JP Morgan Chase 12/10/2009 88,401,697 8.00 100 warrants 10.75 950.3 million 12/3/2009 12,657,960 7.50 100 warrants 11.75 148.7 million Capital One Note: Numbers affected by rounding. Sources: Signature Bank, “Prospectus Supplement,” 3/10/2010, http://files.shareholder.com/downloads/SBNY/865263367x0x358381/E87182B5-A552-43DD-9499-8B56F79AEFD0/8-K__Reg_FD_ Offering_Circular.pdf, accessed 3/11/2010; Texas Capital Bancshares, Inc, “Prospectus Supplement,” 3/11/2010, www.sec.gov/Archives/edgar/data/1077428/000095012310023800/d71405ae424b5. htm, accessed 3/12/2010; Bank of America, “Form 8-K,” 3/3/2010, www.sec.gov/Archives/edgar/data/70858/000119312510051260/d8k.htm, accessed 3/4/2010; Bank of America, “Prospectus Supplement,” 3/1/2010, www.sec.gov/Archives/edgar/data/70858/000119312510044940/d424b7.htm, accessed 3/4/2010; Bank of America, “Prospectus Supplement,” 3/1/2010, www.sec.gov/Archives/edgar/data/70858/000119312510044945/d424b7.htm, accessed 3/4/2010; Washington Federal, “Prospectus Supplement,” 3/9/2010, www.sec.gov/Archives/edgar/ data/936528/000119312510052062/d424b5.htm, accessed 3/10/2010;TCF Financial, “Prospectus Supplement,” 12/16/2009, www.sec.gov/Archives/edgar/data/814184/000104746909010786/ a2195869z424b5.htm, accessed 12/29/2009; JP Morgan Chase, “Prospectus Supplement,” 12/11/2009, www.sec.gov/Archives/edgar/data/19617/000119312509251466/d424b5.htm, accessed 12/29/2009; Capital One Financial, “Prospectus Supplement,” 12/3/2009, www.sec.gov/Archives/edgar/data/927628/000119312509247252/d424b5.htm, accessed 12/4/2009; Treasury, Transactions Report, 4/2/2010, www.financialstability.gov/docs/transaction-reports/4-2-10%20Transactions%20Report%20as%20of%203-31-10.pdf, accessed 4/2/2010. 84 special inspector general I troubled asset relief program Undercapitalized: A condition in which a financial institution does not meet its regulator’s requirements for sufficient capital to operate under a defined level of adverse conditions. For more information on CPP recipient restructurings approved by Treasury, see SIGTARP’s October 2009 Quarterly Report regarding Banco Popular, page 61, and SIGTARP’s July 2009 Quarterly Report regarding Citigroup, page 66. CPP Recapitalizations and Restructurings If a CPP bank is undercapitalized and in danger of becoming insolvent, it may propose a restructuring (or recapitalization) plan in “an attempt to preserve value” and stabilize itself. Under this process, the bank asks Treasury to conduct a formal review of its proposal. The bank’s proposal will discuss its recapitalization plan at length, may estimate how much capital it plans to raise from private investors, and may include discussion of a discount on Treasury’s shares.179 According to Treasury, after it receives a restructuring proposal, an external asset manager performs due diligence on the bank and analyzes the proposal.180 The external asset manager interviews bank managers, gathers non-public information, and conducts loan loss estimates and capital structure analysis. The manager submits its evaluation to Treasury, which in turn decides whether to restructure its CPP investment. According to Treasury, CPP-recipient restructuring may result in accepting less than par for the original CPP security, in effect resulting in a loss to Treasury. Treasury is willing to engage in these transactions however, because it believes that inaction may lead to the bank failing, resulting in a total loss to the taxpayer.181 Citigroup Common Stock Sale For more information on Citigroup’s December 22, 2009, equity offering, see SIGTARP’s January 2010 Quarterly Report, page 73. On March 29, 2010, Treasury announced its intention to sell the approximately 7.7 billion shares of Citigroup common stock that it held after converting the $25 billion in preferred stock shares that it had received under CPP. Treasury agreed to a 90-day lockout period, which ended March 16, 2010 to facilitate Citigroup’s December 22, 2009, equity offering. In exchange for the 90-day lockout period, Citigroup agreed to pay all the costs associated with a sale of any securities issued to Treasury by Citigroup or any of its subsidiaries in connection with TARP. Treasury hired Morgan Stanley as its capital markets advisor in connection with its Citigroup position. Treasury announced its intention to sell its Citigroup common shares into the market through various means in an orderly and measured fashion over the course of 2010, subject to market conditions pursuant to a prearranged written trading plan.182 quarterly report to congress I aPRIL 20, 2010 Midwest Banc Holdings Exchange As part of a Federal Reserve Board-approved capital plan, Midwest Banc Holding, Inc. (“Midwest”) asked Treasury on October 15, 2009, to convert into common stock the $84.4 million in preferred shares Treasury received for its CPP investment. The capital plan required Midwest to: convert into common stock all of its Series A preferred shares and approximately $78.8 million of its senior and subordinated debt; raise at least $125 million in private capital; and make anti-dilution adjustments as necessary.183 On January 4, 2010, Midwest converted all of its Series A preferred stock to common stock at 11% of par value (or an 89% discount), thereby completing the first part of its capital plan.184 Subsequently, on February 25, 2010, Treasury agreed to exchange its full CPP investment ($84.8 million in preferred stock and $4.5 million in unpaid dividends) in Midwest for mandatorily convertible preferred stock (“MCP”).185 The new stock’s liquidation preference is similar to the original’s and will have the same 5% annual dividend rate from the issue date until February 15, 2014, after which the rate becomes 9%.186 Treasury’s new MCP is worth approximately 16% of the par value of the previous preferred shares resulting in an 84% loss in value.187 Treasury may convert the new MCP into common stock at any time but Midwest can convert the MCP to common stock only if it completes its capital plan. Unless otherwise converted, the new MCP automatically converts seven years from the issue date. Additionally, Midwest agreed with Treasury to revise the exercise price of its 4.3 million outstanding warrants issued through CPP from $2.97 to approximately $0.31 per share.188 As of March 31, 2010, Midwest had not completed two steps of the capital plan. It had neither converted its senior and subordinated debt to common stock at a price less than 25% of the par value of such debt nor raised new equity capital. As a result of its poor financial position, the Federal Reserve issued Midwest a prompt corrective action order.189 Sterling Financial Corporation Exchange In a letter dated March 16, 2010, Treasury tentatively agreed to exchange its entire CPP investment ($303 million)190 in Sterling Financial Corporation (“Sterling”) for MCP. The MCP will have the same 5% annual dividend rate from the issue date until December 5, 2013, after which the rate becomes 9%.191 However, before Sterling receives final approval for the exchange from Treasury it needs to meet several criteria, including acquiring the consent of a substantial number of its trust preferred securities holders to buy back those securities, raising at least $650 million by issuing new common equity, and reaching a definitive conversion agreement with Treasury.192 After Sterling meets all the criteria set by Treasury and the exchange is Mandatorily Convertible Preferred Stock (“MCP”): A type of preferred share that can be converted to common stock at the issuer’s discretion if specific criteria are met by a certain date. Prompt Corrective Action Order: A federal law that requires Federal bank regulators to take necessary actions to resolve the problems of insured depository institutions at the least possible long-term loss to the Deposit Insurance Fund. 85 86 special inspector general I troubled asset relief program completed, Sterling will be able to convert the MCP to common stock at its discretion.193 First Merchants Corporation Exchange Direct Private Placement: Sale of securities to investors meeting minimum net worth and sophistication requirements, thus receiving an exception from normal Securities and Exchange Commission securities registration requirements. On March 23, 2010, Treasury consented to a partial exchange with First Merchants Corporation, in which Treasury would convert up to $58 million of its $116 million in First Merchants preferred stock for up to $58 million in First Merchants trust preferred securities.194 The exchange is contingent on First Merchants maintaining its current Tier 1 capital ratio, paying Treasury all accrued and unpaid dividends on the preferred stock, and entering into definitive documentation that is acceptable to Treasury. The exchange is also subject to First Merchants raising capital through a registered direct private placement of between 2.1 and 4.2 million common shares.195 On March 30, 2010, First Merchants announced it had completed a direct private placement of 4.2 million common shares, raising $24.1 million.196 Use of Funds As reported in the January 2010 Quarterly Report, Treasury finally adopted SIGTARP’s longstanding recommendation that it collect and report data concerning TARP recipients’ use of TARP funds in December 2009. Specifically, Treasury agreed to obtain and report publicly qualitative data from each TARP recipient on its use of TARP funds, backed by data from the institutions’ regulators and Treasury’s own analysis. In March 2010, Treasury sent its use of funds survey to TARP recipients. Responses are due before April 19, 2010. Small-Business Lending Initiatives During the past quarter, Treasury unveiled two new small-business related initiatives that are similar to TARP’s Capital Purchase Program (“CPP”) in that both exchange capital for shares of the approved institutions’ preferred stock or subordinated debt. The first, the Community Development Capital Initiative (“CDCI”), will directly use TARP funds. According to Treasury’s description of its intended legislative proposal, the other initiative, the Small Business Lending Fund (“SBLF”), will operate outside of TARP, although it will use $30 billion in previously authorized TARP money.197 As of March 31, 2010, the Administration’s proposal had not been formally introduced in Congress. quarterly report to congress I aPRIL 20, 2010 Community Development Capital Initiative Under CDCI, TARP will make capital investments in the preferred stock or subordinated debt of eligible banks and credit unions certified as Community Development Financial Institutions (“CDFIs”). In general, these organizations provide financial services to under-served communities.198 The Obama Administration announced CDCI on February 3, 2010, as an initiative to “improve access to credit for small businesses.”199 The “CDFI” designation is a certification granted by Treasury’s CDFI Fund division. There had not been any transactions under CDCI as of March 31, 2010.200 Treasury announced that it would invest up to $1 billion in the program.201 As of February 17, 2010, CBO estimated that the program will cost the Government less than $500 million; OMB did not have an estimated program cost, as the agency’s cutoff date for analysis was December 31, 2009.202 CDCI has two components: one for banks and one for credit unions. In exchange for Treasury’s investment, the Government will earn annual dividends or effective interest of 2% (which is lower than CPP’s 5%) on the instruments issued by CDFIs. In the eighth year, the dividend rises to 9%. Under this program, TARP can invest up to a total of 5% of an institution’s total risk-weighted assets.203 Credit unions are member-owned, non-profit entities that have a different capital structure than banks, which are shareholder-owned, for-profit entities.204 Credit unions may apply for Government funds totaling up to 3.5% of their total assets — approximately matching the 5% of risk-weighted assets for banks. Participating credit unions, S-corps, electing institutions, and mutual banks will issue subordinated debt in lieu of preferred stock issued by banks, bank holding companies, thrifts, and savings and loan holding companies.205 Terms for Senior Securities and Dividends CDCI is open to qualifying financial institutions certified as CDFIs or that have applied for CDFI status by April 30, 2010. The original deadline for both existing and prospective CDFIs to receive funds was extended from April 2, 2010, to April 30, 2010.206 The applications for new funding must be reviewed and approved by each financial institution’s regulator.207 Under CPP, Treasury funded 22 CDFIs (see Table 2.15); however there are a total of 61 CDFIs and 141 credit unions that are eligible to participate in CDCI.208 A CDFI that is already utilizing CPP may request to convert those shares into CDCI shares, thereby reducing the dividend percentage it must pay the Government from 5% to 2%.209 According to Treasury, CDFIs will not be required to issue warrants, due to the de minimus exception in the Emergency Economic Stabilization Act of 2008 (“EESA”), which grants Treasury the authority to waive the warrant requirements for qualifying institutions in which Treasury has invested Community Development Financial Institutions (“CDFIs”): Financial institutions eligible for Treasury funding to serve the CDCI’s targeted demographic under the CDFI Fund. CDFIs were created in 1994 by the Riegle Community Development and Regulatory Improvement Act. Under-Served Communities: Either geographic areas or demographic groups that Treasury’s CDFI Fund division determines lack adequate access to financial services. Total Risk-Weighted Assets: A bank’s total assets after making adjustments based on each individual asset’s risk factor. Dividend: Distributions of cash or stock to shareholders as announced by the company’s board of directors. 87 88 special inspector general I troubled asset relief program Table 2.24 CPP PARTICIPANTS ELIGIBLE FOR CDCI, AS OF 4/2/2010 Name of Institution City State Investment Description Investment Amount Broadway Financial Corporation Los Angeles CA Preferred Stock $15,000,000 Carver Bancorp, Inc. New York NY Preferred Stock 18,980,000 Citizens Bancshares Corporation Atlanta GA Preferred Stock 7,462,000 City National Bancshares Corporation Newark NJ Preferred Stock 9,439,000 Community Bank of the Bay Oakland CA Preferred Stock 1,747,000 First American International Corp. Brooklyn NY Preferred Stock 17,000,000 First Independence Corporation Detroit MI Preferred Stock 3,223,000 Guaranty Capital Corporation Belzoni MS Subordinated Debentures Harbor Bankshares Corporation Baltimore MD Preferred Stock 6,800,000 4,205,000 14,000,000 IBC Bancorp, Inc. Chicago IL Subordinated Debentures IBW Financial Corporation Washington DC Preferred Stock 6,000,000 Legacy Bancorp, Inc. Milwaukee WI Preferred Stock 5,498,000 Liberty Financial Services, Inc. New Orleans LA Preferred Stock 5,645,000 M&F Bancorp, Inc. Durham NC Preferred Stock 11,735,000 Mission Community Bancorp San Luis Obispo CA Preferred Stock 5,116,000 Mission Valley Bancorp Sun Valley CA Preferred Stock 5,500,000 OneUnited Bank Boston MA Preferred Stock 12,063,000 PGB Holdings, Inc. Chicago IL Preferred Stock 3,000,000 Premier Bancorp, Inc. Wilmette IL Subordinated Debentures 6,784,000 Southern Bancorp, Inc. Arkadelphia AR Preferred Stock 11,000,000 Tri-State Bank of Memphis Memphis TN Preferred Stock 2,795,000 University Financial Corp, Inc. St. Paul MN Subordinated Debentures Total 11,926,000 $184,918,000 Note: Numbers affected by rounding. Source: Treasury, Transactions Report, 4/2/2010. $100 million or less.210 Table 2.24 lists all CPP participants that are currently eligible for CDCI. If, during the application process, a CDFI bank’s primary regulator deems it undercapitalized, Treasury will match private investments on a dollar-for-dollar basis up to 5% of the bank’s risk-weighted assets, but only if the combined investment is enough to give the institution adequate capitalization leading the regulator to deem it healthy and viable.211 The private capital must be junior to Treasury’s investment.212 The following examples are illustrative. quarterly report to congress I aPRIL 20, 2010 Example A: A CDFI needs additional capital equaling 4% of its risk-weighted assets to reach the standard set by its regulator. If it raises 2% (of risk-weighted assets) from private investors, Treasury would match the investment so that the institution reaches its viability standard.213 This provides the CDFI with a 4% capital infusion. Example B: A CDFI needs additional capital equaling 4% of its risk-weighted assets to reach the standard set by its regulator. If it raises 3% (of risk-weighted assets) from private investors, Treasury would match the investment, thereby pushing the institution above its viability standard. This provides the CDFI with a 6% capital infusion, and the institution exceeds its minimum capital requirement. Example C: A CDFI needs additional capital equaling 4% of its risk-weighted assets to reach the standard set by its regulator. If it raises 6% (of risk-weighted assets) from private investors, Treasury would match 5% (of risk-weighted assets), the maximum the program allows. This provides the CDFI with an 11% capital infusion, and it exceeds its minimum capital requirement. Example D: A CDFI needs additional capital equaling 11% of its risk-weighted assets to reach the standard set by its regulator. Unless the CDFI can raise at least 6% from private investors, the capital requirement cannot be met and the CDFI cannot participate in the program. As of April 2, 2010, OFS received the following from current CPP participants:214 • 20 applications to exchange CPP capital for CDCI capital from current CDFIs • four applications to exchange CPP capital for CDCI capital from bank/thrifts that are not currently CDFIs • one application for increased funding under CDCI for a current CPP CDFI (which CDFI also filed a CPP/CDFI exchange application) Small Business Lending Fund (“SBLF”) On February 2, 2010, the Administration announced it will seek new legislation to create the Small Business Lending Fund (“SBLF”) to provide up to $30 billion to stimulate small-business lending.215 As described in Treasury’s “Summary Response to SIGTARP’s Outstanding Recommendations” in Appendix H: “Correspondence,” Treasury does not intend to include TARP oversight mechanisms in its proposed legislation. SIGTARP’s objection to possibly being excluded from SBLF oversight can be found in Appendix H. According to Treasury, SBLF would be structured as follows:216 • SBLF would not be an EESA- or TARP-related program. • SBLF would be funded with $30 billion that special legislation would transfer from TARP’s original allocation. 89 90 special inspector general I troubled asset relief program • Under SBLF, banks increasing small-business lending above 2009 levels would receive incentives through reduced dividend or interest obligations. Executive Compensation: Payments to a corporation’s employees, particularly those executives who have policymaking authority at the corporation, in exchange for their services. These payments often include base salary, bonuses, grants of shares and stock options, and other company benefits (including, for example, health care and retirement benefits). The proposal includes two different incentives for lenders to increase smallbusiness lending. First, eligible financial institutions would be able to receive capital investments in amounts up to 3% or 5% of their risk-weighted assets, based on each institution’s size. Banks with $1 billion or less in assets could receive capital investments of up to 5% of risk-weighted assets, whereas banks with assets between $1 billion and $10 billion would be eligible for up to 3%.217 Second, Treasury would decrease dividend or interest rates from an initial 5% by 1% for every 2.5% increase in small-business lending made within the next two years above the 2009 levels. Through this arrangement, the dividend or interest rate could be reduced to as little as 1%. Because the dividend rate a bank pays is based on its percentage increase in small-business lending, it would be required to report the increase from its 2009 baseline.218 Example: Bank A, with $500 million in risk-weighted assets, held $250 million in business loans at the end of every quarter of 2009. In 2010 it earns approval to draw capital equal to 5% of its risk-weighted assets from SBLF (the maximum) — $25 million. It then boosts small-business lending to $275 million after two years (a 10% increase). As a result, although it received capital with an initial dividend rate of 5%, the rate would drop to 1%. Because Treasury’s proposed legislation for SBLF would be outside of TARP, participants would not be subject to the executive compensation limits or the requirements to issue warrants to Treasury or other restrictions required under EESA, nor, as Treasury currently contemplates SBLF, would the administration of the program or its participants be subject to TARP oversight, including that of SIGTARP.219 According to Treasury, eligible banks that have previously received CPP funds will be able to convert into SBLF. Under the Treasury proposal for SBLF, CPP recipients would be allowed to refinance CPP securities for SBLF securities. Because the SBLF proposal is still pending, the final terms for such refinancing have not been determined.220 Due to the removal of executive oversight restrictions, lower potential interest rates, and, apparently, less oversight, SIGTARP anticipates that most eligible banks will choose to convert. Systemically Significant Failing Institutions Program/AIG Investment 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.”221 The Government has allocated $69.8 billion through SSFI in American International Group, Inc. (“AIG”), the program’s sole quarterly report to congress I aPRIL 20, 2010 participant.222 As of February 17, 2010, CBO estimated that SSFI will ultimately cost Treasury $36 billion; OMB estimated a cost of approximately $50 billion.223 Status of SSFI Funds On November 25, 2008, Treasury made its initial investment in AIG with the purchase of $40 billion of cumulative preferred AIG stock and common stock warrants. In addition to this equity investment, on April 17, 2009, Treasury committed to fund an equity capital facility under which AIG could draw up to $29.8 billion in exchange for more preferred stock and additional common stock warrants. As of March 31, 2010, AIG had drawn down $7.54 billion from the equity capital facility.224 AIG Update On February 26, 2010, AIG reported a net loss of $8.9 billion for the quarter ending December 31, 2009 — its first quarterly loss following profits of $455 million and $1.8 billion, respectively, for each of the two previous quarters.225 Dividend Payments As of March 31, 2010, AIG had not paid dividends for five consecutive quarters (bringing its total arrears to $4.2 billion226). As a result, under the documents governing Treasury’s preferred AIG shares, Treasury has the right to elect the greater of two directors and a number of directors (rounded upward) equal to 20% of the total number of directors of AIG after giving notice to such election to AIG’s board. On April 1, 2010, Treasury executed and delivered a written consent to AIG which appointed, at Treasury’s direction, Donald H. Layton and Ronald A Rittenmeyer as directors of AIG.227 The term of these directors will extend until the earlier of (i) AIG’s next annual meeting of shareholders (or special meeting called for that purpose), (ii) the removal of such directors as provided for in the Certificates of Designations for Treasury’s preferred stock, or (iii) dividends payable on Treasury’s preferred stock have been declared and paid in full for four consecutive quarterly dividend periods. At the next annual meeting of shareholders of AIG (scheduled for May 2010), Treasury can re-elect these directors or elect replacements. Because, at present, AIG’s board consists of 12 members, Treasury has the right to elect an additional individual as director. Treasury continues to move forward with a process to identify additional potential candidates to fill that position.228 Use of Funds Report As part of AIG’s equity capital facility agreement with Treasury, it must submit a report describing how it plans to use the facility’s proceeds.229 As of March 31, 2010, the funds drawn down on the equity capital facility have been used to meet capital 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 stock’s owner. Equity Capital Facility: A commitment to invest equity capital in a firm under certain future conditions. 91 92 special inspector general I troubled asset relief program solvency requirements resulting from declines in the value of investments and to purchase shares of United Guaranty Corporation (“UGC”), an AIG subsidiary. In addition, funds have been used to provide capital support to UGC and to settle payments for UGC.230 Additional drawdowns totaling approximately $2.2 billion were made on February 19, 2010, and March 16, 2010. These drawdowns were used to fund three transactions:231 • AIG’s redemption of 100% of its preferred shares held by National Union Fire Insurance Company of Pittsburgh (“NUFI”) for approximately $1.94 billion • continued capital support for UGC totaling approximately $48 million • purchase of AIG shares from AIA subsidiaries AIA(B) and Philam Life AIG and purchase of AIG shares held by the ALICO (Japan) unit for approximately $213.5 million Revolving Credit Facility: A line of credit for which the borrower pays a commitment fee and is then allowed to use up to a guaranteed maximum amount of funds when they are needed. 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 and is legally isolated. Face Value: The nominal value or dollar value of a security stated by the issuer. Federal Reserve Credit Facility Reduction As discussed in SIGTARP’s January 2010 Quarterly Report, on December 1, 2009, FRBNY received $25 billion in preferred equity interests in two special purpose vehicles (“SPVs”) established to hold the outstanding stock of AIG’s largest foreign insurance subsidiaries, American Life Insurance Company (“ALICO”) and AIA Group, Limited (“AIA”), as satisfaction for $25 billion owed by AIG under the Revolving Credit Facility (a Federal Reserve facility not involving TARP funds) and a corresponding reduction in the amount available under the facility. This transaction decreased AIG’s outstanding principal balance on the facility from $42 billion to $17 billion and reduced its total borrowing capacity under the facility from $60 billion to $35 billion.232 As of March 31, 2010, AIG’s total outstanding principal balance under the facility was $21.7 billion.233 Sale of Business and Assets On March 1, 2010, AIG announced the signing of an agreement to sell its AIA unit to Prudential plc for approximately $35.5 billion, including approximately $25 billion in cash, $8.5 billion in face value of equity and equity-linked securities, and $2.0 billion in face value of Prudential preferred stock. AIG will use the cash portion of the proceeds to redeem FRBNY’s approximately $16 billion of preferred interests in the AIA SPV and to repay approximately $9 billion of its debt under the Revolving Credit Facility. AIG will sell the $10.5 billion of Prudential securities, subject to minimum holding periods and market conditions. The proceeds will be used to repay outstanding debt under the Revolving Credit Facility.234 On March 8, 2010, AIG announced the signing of an agreement to sell ALICO to MetLife, Inc., for approximately $15.5 billion, including $6.8 billion in cash and the remainder in equity securities of MetLife, subject to closing adjustments. AIG quarterly report to congress I aPRIL 20, 2010 will use the cash portion of the proceeds to redeem approximately $6.8 billion of the preferred interests held by FRBNY in the ALICO SPV. AIG will sell the remaining MetLife securities over time, subject to minimum holding periods and market conditions. The net cash proceeds from this sale will be used first to redeem the remainder of the preferred shares in the ALICO SPV held by FRBNY and then to repay outstanding debt under the Revolving Credit Facility.235 In addition to these two transactions, AIG continues to explore opportunities to sell other non-core assets and raise capital. AIG must pay off its FRBNY debt before it can repay Treasury for the TARP investments.236 AIG is continuing to make progress in the “wind down” of its financial products unit. The unit’s notional exposure is now under $1 trillion, as compared to $2 trillion in September 2008. In addition, the number of employees at the financial products unit has been reduced from more than 400 to less than 250. It is now anticipated that the wind-down process will be substantially completed by the end of 2010.237 Targeted Investment Program and Asset Guarantee Program Through the Targeted Investment Program (“TIP”), Treasury invested $40 billion of TARP funds in Citigroup, Inc. (“Citigroup”) and Bank of America Corporation (“Bank of America”). Treasury invested $20 billion in Citigroup on December 31, 2008, and $20 billion in Bank of America on January 16, 2009.238 By December 2009, both banks had repaid the TIP investments.239 The program is effectively closed.240 Under the Asset Guarantee Program (“AGP”), Treasury, the FDIC, the Federal Reserve, and Citigroup agreed to share losses on a pool of Citigroup assets valued at approximately $301 billion. Although Treasury’s asset guarantee was not a direct cash investment, it exposed taxpayers to a potential TARP loss of $5 billion. In return, Treasury received approximately $4 billion in Citigroup trust preferred securities. This program was terminated without any TARP losses on December 23, 2009.241 Treasury still holds the $2.2 billion in Citigroup trust preferred shares it acquired through the termination of AGP. As of February 17, 2010, CBO estimates that the additional assistance given to Bank of America and Citibank under TIP and AGP will result in a $5 billion gain to taxpayers; OMB projects a $7 billion gain.242 Bank of America 93 94 special inspector general I troubled asset relief program Bank of America repaid the $45 billion in TARP assistance it received under the TIP and CPP programs by December 31, 2009. After Bank of America repaid its principal balance, Treasury still owned warrants of the institution’s shares. On March 3, 2010, Treasury auctioned two groups of Bank of America warrants with net proceeds of approximately $1.56 billion.243 (For more information on the auction of Bank of America warrants, see the “Capital Purchase Program” section of this report.) This auction effectively disposed of Treasury’s remaining holdings in the company and ended Bank of America’s participation in CPP and TIP.244 quarterly report to congress I aPRIL 20, 2010 Asset Support Programs Three programs under TARP have been designed to support markets for specific asset classes: the Term Asset-Backed Securities Loan Facility (“TALF”), the Public-Private Investment Program (“PPIP”), and the Unlocking Credit for Small Businesses (“UCSB”) program. TALF provides up to $200 billion in Federal Reserve financing through the Federal Reserve Bank of New York (“FRBNY”), backed by up to $20 billion in TARP loss protection, to support asset-backed securities (“ABS”) transactions.245 TALF closed its lending program for non-mortgage-backed ABS and legacy commercial mortgage-backed securities (“CMBS”) on March 31, 2010; the last subscription closed on March 11, 2010.246 The last scheduled subscription for newly issued CMBS is June 18, 2010, which will mark the close of the program.247 PPIP utilizes equity and debt financing provided by Treasury through TARP to facilitate purchases of legacy mortgage-backed securities (“MBS”) held by various financial institutions. Finally, through the UCSB/Small Business Administration (“SBA”) loan support initiatives, Treasury launched a program to purchase SBA 7(a) securities and proposed that Congress transfer $30 billion of TARP money to a non-TARP initiative intended to extend credit to small businesses. Term Asset-Backed Securities Loan Facility (“TALF”) In November 2008, the Federal Reserve and Treasury announced TALF, under which FRBNY would issue up to $200 billion in loans collateralized by ABS, with the ultimate goal to make credit available to consumers and small businesses; up to $20 billion of TARP money would be used to fund the purchase by a special purpose vehicle, TALF LLC, of any surrendered collateral.248 Under TALF, FRBNY issues loans secured by ABS collateral on a non-recourse basis. Because TALF loans are non-recourse, borrowers may walk away, surrender the collateral to FRBNY, and have no further obligations (unless the borrower breaches any of its representatives, warranties or covenants). As of March 31, 2010, there had been no surrender of collateral and therefore, no loss of TARP funds.249 Through that same date, TALF LLC incurred approximately $824,000 in administrative expenses since its formation on February 4, 2009.250 CBO projects TALF will cost Treasury approximately $1 billion, while OMB projects it will produce a $1 billion gain.251 Eligible collateral assets for TALF loans are: • non-mortgage-backed ABS — certain ABS backed by collateral other than commercial or residential real estate loans (eligibility criteria are discussed in 95 96 special inspector general I troubled asset relief program detail in SIGTARP’s Quarterly Report to Congress dated October 21, 2009, pages 75–76). • legacy CMBS — CMBS issued before January 1, 2009 • newly issued CMBS — CMBS issued on or after January 1, 2009 The program, however, is now closed to loans with non-mortgage-backed ABS and legacy CMBS as collateral. Therefore, the only eligible collateral for new TALF loans are newly issued CMBS. Program Updates The following program-related developments occurred over the last quarter, which are discussed in greater detail in this section: • Final subscriptions have been placed for ABS and legacy CMBS. • A third collateral monitor was hired to analyze TALF’s CMBS portfolio. • FRBNY announced the rejection of 29 legacy CMBS CUSIPs during the first quarter of 2010. Final Quarter for Subscriptions of ABS and Legacy CMBS When TALF was extended on August 17, 2009, from its original December 31, 2009 termination date because markets still had not recovered, the Federal Reserve Board extended the availability of TALF loans collateralized by newly issued ABS and legacy CMBS through March 31, 2010; TALF loans collateralized by newly issued CMBS were made available through June 30, 2010, in order to provide the market enough time to arrange newly issued CMBS transactions.252 The Federal Reserve does not anticipate further extension of the program. For more information on the TALF risk assessment process, see SIGTARP’s October 2009 Quarterly Report, page 78, and SIGTARP’s January 2010 Quarterly Report, page 78. Third Collateral Monitor Added for CMBS Portfolio FRBNY previously hired two TALF collateral monitors — Trepp, LLC (“Trepp”) and Pacific Investment Management Company (“PIMCO”).253 The collateral monitors are independent third parties engaged by FRBNY to assess the riskiness of the pools of assets collateralizing the ABS and CMBS and to provide other analytical and reporting services related to the TALF portfolio. Trepp is engaged to support CMBS asset classes; PIMCO is supporting all asset classes. On February 16, 2010, FRBNY hired BlackRock Financial Management, Inc. (“BlackRock”) as a third collateral monitor to provide an independent, qualitative viewpoint on selected assets of legacy CMBS CUSIPs and to analyze FRBNY’s entire TALF CMBS portfolio of collateral.254 In addition to the stress valuations performed by Trepp and PIMCO, BlackRock used a different methodology to evaluate TALF-eligible legacy CMBS that are collateralizing outstanding TALF loans.255 The BlackRock contract expired on March 31, 2010.256 quarterly report to congress I aPRIL 20, 2010 Conflict-of-Interest Mitigation BlackRock is one of the eight fund managers participating in PPIP and is also the primary provider of risk and analytical support for FRBNY’s MBS Purchase Program.257 A separate BlackRock business division worked with FRBNY in managing portfolios for Maiden Lane LLC (regarding the Bear Stearns and J.P. Morgan merger) and for Maiden Lane II LLC and Maiden Lane III LLC (which involved the AIG restructuring).258 The collateral monitor agreement includes specific provisions restricting information sharing and mitigating conflicts of interest between the two entities:259 • FRBNY approved all collateral monitor staff members engaged in TALF, and all were required to execute acknowledgment agreements regarding their confidentiality requirements and complete compliance training. • TALF team members were physically separated from PPIP team members. • Collateral monitors were required to identify and provide mitigation plans for potential conflicts of interest. SIGTARP is entitled to review the TALFspecific inspection results and audit reports produced by FRBNY, the Board of Governors of the Federal Reserve System, the Board’s Inspector General, and the Federal Open Market Committee. Rejected CUSIPs FRBNY rejected 29 CUSIPs in the first quarter of 2010.260 For more information on why FRBNY rejects CUSIPs, see the January 2010 Quarterly Report, page 79. On January 5, 2010, FRBNY announced it had identified and corrected a methodological error in the implementation of the FRBNY’s stressed scenario analysis, which led to the acceptance of legacy CMBS CUSIP 059497AX5, which would have been rejected as collateral if the methodology had been correct.261 TALF Subscription Activity FRBNY offered 13 TALF non-mortgage-backed ABS subscriptions as of March 31, 2010, totaling approximately $58.7 billion in TALF loans settled.262 Of the nonmortgage-backed ABS loans settled, $36.9 billion was outstanding.263 Table 2.25 includes all non-mortgage-backed ABS TALF loans settled since the inception of the program. On March 11, 2010, the final TALF subscription using non-mortgage-backed collateral closed.264 Subscriptions Using Commercial Mortgage-Backed Collateral FRBNY had facilitated 10 TALF CMBS subscriptions as of March 31, 2010, totaling approximately $12.1 billion in TALF loans settled. Of the CMBS loans settled, $10.3 billion was outstanding.265 Table 2.26 includes all CMBS TALF loans settled CUSIP: Unique identifying number assigned to all registered securities in the United States and Canada. 97 98 special inspector general I troubled asset relief program Table 2.25 TALF LOANS SETTLED by ABS Sector (non-mortgage-backed COLLATERAL) ABS Sector Auto Loans 1st Quarter 2009 2nd Quarter 2009 3rd Quarter 2009 4th Quarter 2009 $ 1.9 $ 6.1 $ 4.5 — 2.5 3.6 Student Loans Credit Card Receivables ($ BILLIONS) 1st Quarter 2010 Totals $ 0.2 — $ 12.7 1.0 1.8 8.9 2.8 12.4 8.4 1.8 0.9 26.3 Equipment Loans — 1.0 0.1 0.3 0.2 1.6 Floor Plan Loans — — 1.0 1.5 1.4 3.9 Small-Business Loans — 0.1 0.4 0.9 0.7 2.1 Servicing Advance Receivables — 0.4 0.1 0.6 0.1 1.2 Premium Finance Total — 0.5 0.5 — 1.0 2.0 $ 4.7 $23.0 $18.6 $6.3 $6.1 $58.7 Notes: Numbers affected by rounding. Data as of 3/31/2010. The first subscription in the program was in March 2009; therefore, the first quarter of 2009 represents one subscription while the remaining quarters represent three subscriptions. Source: FRBNY, “TALF Non-CMBS Operations,” no date, www.newyorkfed.org/markets/TALF_recent_operations.html, accessed 3/12/2010. Table 2.26 TALF LOANS SETTLED (CMBS COLLATERAL) Type of 2nd Quarter Collateral Assets 2009 Newly Issued CMBS Legacy CMBS Total $— ($ BILLIONS) 3rd Quarter 2009 4th Quarter 2009 1st Quarter 2010 Total $— $ 0.1 $— $ 0.1 — 4.1 4.5 3.3 12.0 $— $4.1 $4.6 $3.3 $12.1 Notes: Numbers affected by rounding. Data as of 3/31/2010. The first subscription in the program was in June 2009; therefore, the second quarter of 2009 represents one subscription while the remaining quarters represent three subscriptions. Source: FRBNY, “TALF CMBS Operations,” no date, www.newyorkfed.org/markets/CMBS_recent_operations.html, accessed 4/1/2010. since the inception of the program. Three possible subscriptions remain for newly issued CMBS.266 Next Steps — What Is TALF Now that the Active Lending Phase Is Substantially Complete? TALF loans have maturities of up to five years.267 Now that TALF is closed for new loans secured by ABS and legacy CMBS and will close for all asset classes on June 30, 2010, FRBNY’s responsibilities under the program will shift primarily to portfolio management, which includes the following duties:268 • • • • documentation maintenance overseeing custodians responsible for holding the ABS collateral calculating and collecting principal and interest on TALF loans collecting interest on existing TALF loans quarterly report to congress I aPRIL 20, 2010 • disbursing excess spread to TALF borrowers per the governing documents • ongoing monitoring of TALF portfolio • collecting and managing collateral assets if a borrower defaults on a loan or surrenders the collateral without recourse in lieu of repayment In addition to managing the portfolio of TALF loans, if TALF borrowers surrender collateral, the collateral is purchased by a special purpose vehicle, TALF LLC. According to Treasury, the funding for TALF LLC comes first from interest on TALF loans then from Treasury’s TARP commitment of up to $20 billion, and finally from FRBNY. As of March 31, 2010, TALF LLC had assets of $404 million, including approximately $100 million in initial TARP funding and approximately $305 million in interest payments and interest income earned from permitted investments.269 It has not purchased collateral from FRBNY.270 According to the Security and Intercreditor Agreement amongst TALF LLC, the FRBNY, and Treasury, payments by TALF LLC from all amounts available in the collateral account (other than amounts available in the loan proceeds account) will first be used to cover the operating expenses of TALF LLC and to fund the expense reimbursement account. Funds will then be distributed in the following order: Excess Spread: Interest generated by an asset less its financing costs, charge-offs, servicing costs, and any other related expenses. For TALF, the difference between interest received from the underlying ABS or CMBS collateral and the interest payments on the TALF loan. 1. the principal due to the FRBNY and funding of the FRBNY’s senior loan commitment 2. the principal due to Treasury 3. the interest due to FRBNY 4. the interest due to Treasury Any remaining funds will be shared by FRBNY and Treasury according to a 10% and 90% split, respectively.271 Public-Private Investment Program The Public-Private Investment Program (“PPIP”) is purportedly designed to purchase legacy securities from financial institutions through Public-Private Investment Funds (“PPIFs”), which are partnerships that combine capital from private-sector investors and public equity investments and non-recourse debt from TARP funds. PPIP is designed as an eight-year program with the possibility of two one-year extensions.272 As of March 31, 2010, Treasury had committed $30 billion of equity and debt financing to PPIP.273 As of January 31, 2010, CBO estimated that PPIP will cost Treasury approximately $1 billion; OMB estimated the cost or gain at less than $500 million.274 Legacy Securities: Real estate-related securities lingering on the balance sheets of financial institutions because of pricing difficulties resulting from market disruption. 99 100 special inspector general I troubled asset relief program For an analysis of the impact of NRSROs on TARP and the overall financial market, see SIGTARP’s October 2009 Quarterly Report, page 113. Non-Agency Residential MortgageBacked Securities (“non-agency RMBS”): A financial instrument backed by a group of residential real estate mortgages that are not guaranteed by a Government-sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Legacy Securities Program According to Treasury, the Legacy Securities Program was designed to “restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit.”275 The securities eligible for purchase by PPIFs are asset-backed and supported by real estate-related loans, including non-agency residential mortgage-backed securities (“non-agency RMBS”) and CMBS that meet the following criteria:276 • issued before January 1, 2009 (legacy) • bear an original AAA rating, or equivalent, from two or more credit rating agencies designated as nationally recognized statistical ratings organizations (“NRSROs”) • secured directly by actual mortgages, leases, or other assets, and not other securities (other than certain swap positions, as determined by Treasury) • located primarily in the United States (the loans and other assets securing the non-agency RMBS and CMBS) • purchased from financial institutions eligible for TARP participation PPIF Purchasing Power Through March 31, 2010, the eight remaining fund managers had raised $6.3 billion of private-sector equity capital, which Treasury matched for a total equity capital of $12.5 billion. Treasury also provided $12.5 billion of debt capital, resulting in $25.1 billion of PPIF purchasing power. Of that $25.1 billion, PPIFs had purchased approximately $10 billion of PPIP-eligible assets, as of March 31, 2010.277 Generally, PPIF managers have six months from the completion date of their first private-sector equity investment to raise additional private-sector equity. Oaktree was the final PPIF to begin raising private-sector equity capital; its Table 2.27 PUBLIC-PRIVATE INVESTMENT PROGRAM ($billions) Private-Sector Equity Capital Treasury Equity Treasury Debt Total Purchasing Power $0.9 $0.9 $1.7 $3.4c Wellington Management Legacy Securities PPIF Master Fund, LP 1.1 1.1 2.1 4.3 AllianceBernstein Legacy Securities Master Fund, L.P. 1.1 1.1 2.1 4.2 BlackRock PPIF, L.P. 0.7 0.7 1.4 2.8 AG GECC PPIF Master Fund, L.P. 0.9 0.9 1.8 3.7 RLJ Western Asset Public/Private Master Fund, L.P. 0.6 0.6 1.2 2.4 Marathon Legacy Securities Public-Private Investment Partnership, L.P. 0.4 0.4 0.8 1.7 Oaktree PPIP Fund, Inc. 0.6 0.6 1.3 2.5 Invesco Legacy Securities Master Fund, L.P. Current Totals as of 3/31/2010 Maximum Potential Totals $6.3 $6.3 $12.5 25.1 $10.00 $10.00a $20.00b $40.00 Note: Numbers affected by rounding. a Represents Treasury’s maximum equity obligation if limited partners other than Treasury fund their maximum equity obligations. b Represents Treasury’s maximum debt obligation if limited partners other than Treasury fund their maximum equity obligations. c Fundraising period completed. Source: PPIF Monthly Performance Reports submitted by each PPIF Manager, March 2010. quarterly report to congress I aPRIL 20, 2010 fundraising period ends June 18, 2010.278 Table 2.27 shows all equity and debt invested under the program. Disclosure of PPIF Transactions and Holdings Since the PPIFs commenced trading operations in October 2009, SIGTARP has been in discussions with Treasury and PPIF managers concerning the appropriate disclosure of information about PPIF activity. As previously stated, SIGTARP believes that transparency in PPIP is vital to the program’s overall success and credibility. However, as urged by Treasury and PPIF managers, SIGTARP acknowledges that publishing security-by-security information poses a risk during the ramp-up period while PPIF managers are still building their portfolios, and that this may not be in the best interest of taxpayers and other PPIF investors. Specifically, disclosing such data could reveal PPIF managers’ investment strategies, putting them at a disadvantage relative to private investors who could anticipate a PPIF manager’s strategy, purchase the targeted securities, then sell those securities back to the PPIF at a higher price. Accordingly, and consistent with SIGTARP’s previous recommendation that contemplated a temporary redaction of information that could harm taxpayer interests, SIGTARP will not disclose security-by-security information for active PPIFs in this report. SIGTARP anticipates that it will disclose such data in future quarterly reports. As indicated below, SIGTARP is publishing data related to the closed PPIF. TCW Final Analysis As previously reported, one of the initial nine PPIF managers, The TCW Group, Inc. (“TCW”), is no longer a PPIF manager. Its PPIF was liquidated after the dismissal of its chief investment officer and PPIF portfolio manager, who was identified as a key person in its agreement with Treasury. (For more information, see SIGTARP’s January 2010 Quarterly Report, page 88.) On January 4, 2010, TCW entered into a winding-up and liquidation agreement with Treasury, dissolving its PPIF. Private investors received a letter explaining the agreement and allowing them to invest in other PPIFs.279 As of December 31, 2009, by which time the TCW PPIF was already frozen, its portfolio comprised $477.8 million in non-agency RMBS, 87.2% of the underlying mortgages were classified as Alt-A, and 12.8% were classified as Prime. Appendix J: “UST/TCW Fund Holdings” contains a security-by-security listing of the RMBS holdings that were in the fund as of December 31, 2009, before it was liquidated, as reported by TCW to SIGTARP. On January 13, 2010, TCW repaid the outstanding $200 million loan to Treasury, plus interest of $342.2 thousand.280 It also repaid Treasury’s full equity investment, plus a $20.1 million profit.281 Key Person: An individual recognized as being necessary for the operation of an investment fund. 101 102 special inspector general I troubled asset relief program Fund Performance The performance of each PPIF — its gross and net returns since inception — is listed in Table 2.28, as reported by PPIF managers. The returns are calculated based on a methodology requested by Treasury. Each PPIF has three years to buy legacy securities in the market on behalf of its private and Government investors.282 The program strives for “predominantly a long-term buy and hold strategy” of up to eight years for each PPIF. Extensions of up to two additional years are allowed but require Treasury’s written permission.283 The data in Table 2.28 is a snapshot of the funds’ performance over the quarter ending March 31, 2010, and may not be predictive of the funds’ performance over Table 2.28 PPIF INVESTMENT STATUS, AS OF 3/31/2010 Manager 1-Month Return (percent)a 3-Month Return (percent)a Cumulative Since Inception (percent)a AG GECC PPIF Master Fund, L.P. Gross 7.94 16.23 21.88 Net 7.89 15.98 20.55 AllianceBernstein Legacy Securities Master Fund, L.P. Gross 2.39 6.20 6.46 BlackRock PPIF, L.P. Invesco Legacy Securities Master Fund, L.P. Marathon Legacy Securities Public-Private Investment Partnership, L.P. Net 2.18 5.68 5.08 Gross 2.55 10.95 12.65 Net 2.44 10.59 11.77 Gross 0.95 7.52 11.54 Net 0.84 7.11 10.14 Gross 2.28 7.02 7.03 Net 2.17 6.58 5.14 Gross 3.45 N/A 6.26 Net 1.91 N/A 1.09 RLJ Western Asset Public/ Private Master Fund, L.P. Gross 1.34 3.59 7.47 Net 1.25 3.42 6.79 Wellington Management Legacy Securities PPIF Master Fund, LP Gross 0.61 8.14 7.27 Net 0.52 7.72 6.39 Oaktree PPIP Fund, L.P. Notes: Oaktree has not actively traded for three months and therefore does not have a three-month return. The performance indicators are listed as reported by PPIF managers without further analysis by SIGTARP. The net returns include the deduction of certain management fees and expenses. Further, several fund managers have told SIGTARP that they are capitalizing start-up expenses in the first few quarters, which accounts for some of these expenses. a Time-weighted, geometrically linked returns. The net returns include the deduction of management fees and partnership expenses attributable to Treasury. Sources: PPIF Monthly Performance Reports submitted by each PPIF manager, March 2010. SIGTARP; Response to Initial Report, 3/23/2010. 103 quarterly report to congress I aPRIL 20, 2010 the long term. According to some PPIF managers, it would be premature to draw any long-term conclusions because, among other things, some PPIF managers have not fully implemented investment strategies and have not yet fully drawn down on capital commitments from Treasury. According to Treasury, each PPIF manager may trade in both RMBS and CMBS, except for Oaktree, which may purchase only CMBS.284 Figure 2.15 shows the collective value of securities purchased by all PPIFs as of March 31, 2010, broken down by RMBS and CMBS. PPIF investments can be classified by underlying asset type. For non-agency RMBS, the underlying assets are mortgages for homes occupied by up to four families; all non-agency RMBS investments are considered residential. For CMBS, the assets are commercial real estate mortgages: office, retail, multi-family, hotel, industrial (such as warehouses), mobile home parks, mixed-use (a combination of commercial and residential), and self storage. Figure 2.16 breaks down CMBS investment distribution by sector. The aggregate CMBS portfolio had large concentrations in office loans (32%) and retail loans (26%). Non-agency RMBS and CMBS can be classified by estimated risk (sometimes referred to as “quality”). Investors are most concerned with whether the borrower(s) will default and the underlying collateral will be sold at a loss. There are no universal standards for ranking mortgage quality, and the designations vary depending on context. In general, the highest quality rankings are granted to mortgages with the highest requirements for the borrower’s credit, completeness of documentation, and underwriting standards. Treasury characterizes these investment-quality levels of risk for non-agency RMBS:285 • Prime — Mortgage loan made to a borrower with good credit that generally meets the lender’s strictest underwriting criteria. Non-agency prime loans generally exceed the dollar amount eligible for purchase by Government-sponsored enterprises (jumbo loans), but may include lower balance loans as well. • Alt-A — Mortgage loan made to a borrower with good credit but with limited documentation or other characteristics that do not meet the standards for Prime loans. An Alt-A loan may have a borrower with a lower credit rating, a higher loan-to-value ratio, or limited or no documentation compared to a Prime loan. • Subprime — Mortgage loan made to a borrower with a poor credit rating. • Option Adjustable Rate Mortgage (“ARM”) — Mortgage loan that gives the borrower a set of choices of how much interest and principal to pay each month. This may result in negative amortization (an increasing loan principal balance over time). Figure 2.15 AGGREGATE COMPOSITION OF PPIF PURCHASES, AS OF 3/31/2010 percent of $10 Billion CMBS 12% 88% RMBS Note: Numbers affected by rounding. Source: PPIF Monthly Performance Reports, March 2010. Figure 2.16 AGGREGATE CMBS PURCHASES BY SECTOR, AS OF 3/31/2010 Other 2% Hotel 7% Lodging 12% 32% Office Industrial 6% Multi-family 15% 26% Retail Notes: Numbers affected by rounding. Calculated based on monthly data supplied by PPIF managers. Source: PPIF Monthly Performance Reports, March 2010. 104 special inspector general I troubled asset relief program Treasury characterizes these investment-quality levels of risk for CMBS:286 Figure 2.17 AGGREGATE RMBS PURCHASES BY QUALITY, AS OF 3/31/2010 percent of $8.8 Billion 7% Option ARM 13% Subprime 36% Prime • Super Senior — Most senior originally rated AAA bonds in a CMBS securitization with the highest level of credit enhancement. Credit enhancement refers to the percentage of the underlying mortgage pool by balance that must be written down before the bond experiences any losses. Super Senior bonds often comprised 70% of a securitization and therefore had 30% credit enhancement at issuance. • AM (Mezzanine) — Mezzanine-level originally rated AAA bond. Creditors receive interest and principal payments after super senior creditors but before junior creditors. AM bonds often comprise approximately 10% of a CMBS securitization. • AJ (Junior) — The most junior bond in a CMBS securitization that attained a AAA rating at issuance. Figure 2.17 and Figure 2.18 show the distribution of the PPIP-held non-agency RMBS and CMBS investments by respective risk levels, as reported by PPIF managers. Non-agency RMBS and CMBS can be classified geographically — by the states 44% Alt-A Note: Numbers affected by rounding. Sources: PPIF Monthly Performance Reports, March 2010; Treasury, response to SIGTARP draft report, 4/17/2010. Treasury, response to SIGTARP draft report, 4/17/2010. Figure 2.18 AGGREGATE CMBS PURCHASES BY QUALITY, AS OF 3/31/2010 percent of $1.2 Billion Figure 2.19 Figure 2.20 AGGREGATE GEOGRAPHICAL DISTRIBUTION — PERCENT OF TOTAL RMBS, AS OF 3/31/2010 AGGREGATE GEOGRAPHICAL DISTRIBUTION — PERCENT OF TOTAL CMBS, AS OF 3/31/2010 50% 40% 25% 45% 20% 20.9% Other (CMBS) 30% 15% 20% 10% 10% 5% 12% 15% 26% Super Senior 9.7% AJ (Junior) 29% 8% 33% AM (Mezzanine) 0% CA FL 5% 2% NY VA 7.6% 0% CA NY FL TX Note: Numbers affected by rounding. Notes: Only states with the largest representation shown. Calculated based on monthly data supplied by PPIF managers. Notes: Only states with the largest representation shown. Calculated based on monthly data supplied by PPIF managers. Source: PPIF Monthly Performance Reports, March 2010. Source: PPIF Monthly Performance Reports, March 2010. Source: PPIF Monthly Performance Reports, March 2010. quarterly report to congress I aPRIL 20, 2010 Figure 2.21 represented by the underlying mortgages. Figure 2.19 and Figure 2.20 show the states with the greatest representation in the underlying non-agency RMBS and CMBS investments in the PPIFs, as reported by PPIF managers. Non-agency RMBS and CMBS can also be classified by delinquency of the underlying mortgages. Figure 2.21 and Figure 2.22 show the distribution of the PPIP-held non-agency RMBS and CMBS investments by respective delinquency levels, as reported by PPIF managers. Departure of AG GECC Key Person On February 22, 2010, SIGTARP was notified that Joseph Parsons, a GE representative on the Investment Committee of AG GECC GP, LLC, announced his departure. Although Mr. Parsons is a key person listed in the Master Fund limited partnership agreement, his absence does not trigger the freezing of the AG GECC PPIF or the halting of its transactions under Treasury’s contract with AG GECC.287 Treasury’s agreement with AG GECC GP, LLC provided that Treasury would freeze the PPIF only if, at any time, a majority of the named key persons or two specific named key persons, not including Mr. Parsons, departed.288 AGGREGATE AVERAGE RMBS DELINQUENCIES BY MARKET VALUE, AS OF 3/31/2010 60+ Days 27% 30+ Days 4% 69% Current Note: Numbers affected by rounding. Source: PPIF Monthly Performance Reports, March 2010. Figure 2.22 AGGREGATE AVERAGE CMBS DELINQUENCIES BY MARKET VALUE, AS OF 3/31/2010 2% 30 Days 60+ Days 6% Unlocking Credit for Small Businesses (“UCSB”)/Small Business Administration (“SBA”) Loan Support Initiative To encourage banks to extend more credit to small businesses, Treasury announced the Unlocking Credit for Small Businesses (“UCSB”) program on March 16, 2009, stating it would purchase up to $15 billion in securities backed by pools of Small Business Administration (“SBA”) loans from two SBA programs: 7(a) and 504 Community Development Loan.289 On March 19, 2009, Treasury made its first purchase of 7(a) securities under this program in the amount of $21.4 million.290 Treasury now expects to buy no more than $1 billion in securities via UCSB.291 SBA 7(a) Loan Program Mechanics The 7(a) program was established to provide financing for start-up and existing small businesses that might have difficulty qualifying for traditional loans. It helps finance a wide variety of business needs, including working capital; machinery, equipment, furniture and fixture, and land and building purchases; leasehold improvements; and debt refinancing, subject to certain conditions. Repayment terms range from 10 years for working capital funds to 25 years for other assets.292 Borrowers must meet lenders’ and SBA’s criteria. The SBA does not directly issue 7(a) loans to small businesses but rather provides a partial guaranty against default. Borrowers must apply through approved SBA lenders, which then determine whether to grant the loan and if SBA backing is required. In the event of default, the lender receives partial reimbursement from SBA based on the guaranty terms. The business owner, however, remains liable for the loan’s full amount.293 92% Current Notes: Numbers affected by rounding. Calculated based on monthly data supplied by PPIF managers. Source: PPIF Monthly Performance Reports, March 2010. 7(a) Loan Program: SBA 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. 105 106 special inspector general I troubled asset relief program Pool Assembler: A firm authorized to create and market pools of SBA-guaranteed loans. TARP Support for 7(a) To raise cash, banks typically sell portions of their 7(a) loans to third parties on the secondary market known as pool assemblers, which pool or securitize the loans for sale to investors. Such sales free up cash for banks to make more small-business loans.294 During the recession, 7(a) activity slowed.295 Under TARP’s 7(a) support program, Treasury purchases pools of 7(a) loans anonymously on the secondary market through an approved pool assembler.296 Treasury initiated the program and signed a contract with the sole pool assembler to date, Coastal Securities, on March 2, 2010.297 According to Treasury, Earnest Partners, as Treasury’s investment advisor, is conducting a survey to determine how similar securities are trading and the current volume of trades and also to assess other market information. As Treasury purchases 7(a) loan securities, a second firm, Gifford Fong Associates, is providing independent valuation services to determine whether received bids are financially viable and appropriately priced.298 Earnest Partners will purchase the securities anonymously but can buy only from Coastal Securities at this stage.299 Purchasing decisions on 7(a) loan securities are determined by a pricing committee within Treasury, which reviews each bid based on market data and an independent valuation assessment.300 On March 19, 2010, Treasury bought $21.4 million in three floating rate 7(a) securities from Costal Securities, its first purchases under this program.301 The CUSIPs for these securities are as follows:302 • Floating Rate SBA 7(a) Security CUSIP 83164KYN7 for $4.4 million • Floating Rate SBA 7(a) Security CUSIP 83165ADC5 for $8.3 million • Floating Rate SBA 7(a) Security CUSIP 83165ADE1 for $8.7 million 107 quarterly report to congress I aPRIL 20, 2010 TARP Tutorial: federal support for small-business lending Overview and Description of Market In December 2009, Treasury stated that it is shifting TARP’s focus and will limit future TARP investments to “housing, small business, and securitization markets that facilitate consumer and small-business loans.”303 This section examines the broader role of small businesses, both in the economy and in the financial system, and the Government’s support of small-business lending. What Is a Small Business? The Small Business Administration (“SBA”) defines a small business as “[a business] that is organized for profit; has a place of business in the U.S.; operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials, or labor; is independently owned and operated; and is not dominant in its field on a national basis. The business may be a sole proprietorship, partnership, corporation, or any other legal form.”304 How small a “small business” is varies by industry and is usually measured either in average receipts or average number of employees. These are some examples of maximum size standards for the “small” category:305 • $7 million in average annual sales receipts for retail stores and service firms • 500 to 1,500 employees for manufacturers • 100 employees for wholesale trade firms • 500 employees for mining companies No other Federal department or agency may categorize a business as a “small business” without SBA approval.306 Its definition of small business will be used throughout this section. Importance of Small Businesses to the U.S. Economy The Government’s intention to provide assistance to the small business sector underscores its belief in the vital role small businesses can play in reviving growth in the U.S. economy. This sector is a significant part of the workforce and contributes greatly to the country’s Gross Domestic Product (“GDP”). Three characteristics contribute to the small-business sector’s dynamic role throughout the economy in shifting resources from outdated processes and industries to more productive ones — a large percentage of high-tech workers, a higher patent-to-employee ratio than for large businesses, and small The Small Business Administration (“SBA”) is an independent Federal agency with a mission to aid, counsel, assist, and protect the interests of small businesses, to preserve free competitive enterprise, and to maintain and strengthen the overall economy. A more complete description of the SBA, as well as a description of its programs, can be found later in this section. Gross Domestic Product: A measure of the total market value of all final goods and services produced in the U.S. during any quarter or year. GDP equals total consumer spending, business investment, Government spending and investment, and the value of exports minus the value of imports. 107 108 special inspector general I troubled asset relief program 108 businesses’ short average duration.307 The small business sector’s positive impact on net new job growth underscores its vitality to eventual economic recovery. Small-Business Employment Small businesses account for approximately half of all private-sector employment. This ratio fluctuates in response to economic cycles and conditions, but it has been relatively stable over the past few decades. In 2006, the last year for which data are available, small and big businesses employed roughly the same number of people, 60 million each, as shown in Figure 2.9.308 The Financial Crisis Since the onset of the financial crisis, lending to small businesses has dropped, making it difficult to launch or expand small businesses, meet payrolls, or acquire inventory. Lending Market Response to the Recession Small businesses rely heavily on banks for financing. After self-financing, small business owners get approximately 40% of their financing from banks, 30% from trade creditors, Figure 2.9 SMALL BUSINESSES’ SHARE OF EMPLOYMENT FROM 1988 − 2006 60% 50% 40% 30% 20% 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Total Retail (SIC) Retail (NAICS) Manufacturing (SIC) Manufacturing (NAICS) Note: The North American Industry Classification System (”NAICS”) was adopted in 1997 to replace the Standard Industry Classification (”SIC”) system. Source: SBA, “An Analysis of Small Business and Jobs,” 3/2010, www.sba.gov/advo/research/rs359tot.pdf, p.5, accessed 3/31/2010. 109 109 quarterly report to congress I aPRIL 20, 2010 and 10% from commercial finance companies.309 As the recession set in, banks and other lenders tightened credit standards, restricting lending to all but the strongest borrowers and “reducing the amount of credit, increasing haircuts on positions financed, and shortening the term for which credit was extended.”310 These new and sudden restrictions caught many small business owners off guard. For example, banks are typically allowed to cancel some working capital lines of credit at any time. In that event, small business owners may suddenly find that an expected source of credit has not only disappeared, but they must repay what they already borrowed sooner than expected.311 A small business’s finances are usually intertwined with its owner’s finances, which only exacerbates the problem. For example, many small business owners use credit cards for business purchases.312 Often banks unilaterally reduce available credit or increase interest rates on credit cards.313 With this combination, many small business owners faced a reduction or withdrawal of the credit available to the business and were unable to make up the difference with personal funds. When a bank abruptly pulls credit and raises interest rates on existing debt, even a business that is otherwise stable may suddenly be unable to pay its bills and be forced to restrict business activities or even file for bankruptcy. Figure 2.10 NET PERCENTAGE OF DOMESTIC RESPONDENTS TIGHTENING STANDARDS FOR COMMERCIAL AND INDUSTRIAL LOANS 100% 80% 60% 40% 20% 0 -20% -40% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Loans to large and medium-sized firms Loans to small firms Source: Federal Reserve, “The January 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices,” 2/1/2010, www.federalreserve.gov/boarddocs/snloansurvey/201002/fullreport.pdf., accessed 3/3/2010. 110 special inspector general I troubled asset relief program 110 Although a recent survey showed that most banks have finally stopped tightening Credit Underwriting: The process used by a financial institution to determine the risks involved in providing credit to a borrower and to measure those risks against standards established by the financial institution’s board of directors. For a small business loan, credit underwriting standards can be applied to the firm, the owner, or both. credit-underwriting standards as illustrated in Figure 2.10, most have not relaxed standards either.314 The same survey showed that the few banks that continued tightening credit terms were more restrictive to small firms than to larger firms.315 Lending by Small Banks vs. Large Banks Federal banking regulators do not specifically collect data on loans to small businesses. For reporting purposes, small-business loans are categorized as business loans with original amounts of $1 million or less. Even that data is only collected every June 30.316 As of June 30, 2009, commercial banks with total assets of $1 billion or more (classified as large banks) represented 89.5% of all commercial banking assets and originated 65.8% of small-business loans.317 Small-business loans are a larger portion of small banks’ loan Figure 2.12 portfolios, as shown in Figure 2.11. Large banks have received a much larger portion of SMALL-BUSINESS LOANS VS. TARP ASSISTANCE BY BANK SIZE, AS OF 6/30/2009 TARP assistance, as shown in Figure 2.12. $ MILLIONS From June 30, 2008, to June 30, 2009, outstanding small-business loans dropped $14.5 billion, or 2.3%. Small banks with less than $100 million in assets had the largest percentage decline ($2.3 billion or 7.9%) while large banks had the largest decline in loan $500,000 volume ($7.6 billion or 1.8%).318 According to the Federal Deposit Insurance Corporation $400,000 Figure 2.11 $300,000 CONCENTRATION OF SMALL-BUSINESS LOANS BY BANK SIZE/ASSETS, AS OF 6/30/2009 $200,000 < $100 MILLION $100,000 $100 MILLION TO $1 BILLION > $1 BILLION 0 <$100 Million $100 Million – $1 Billion >$1 Billion Small-Business Loans TARP Assistance 17% 66% 41% Notes: Business loans with original amounts less than $1 million used as a proxy for small-business loans. Bank size for TARP assistance based on risk-weighted assets, calculated based on participation in CPP. Sources: FDIC, “Statistics on Banking,” no date, www2.fdic.gov/SDI/SOB/, accessed 3/30/2010. Treasury, “Transactions Report,” 7/2/2009, www.financialstability.gov/docs/ transaction-reports/transactions-report_070209.pdf, accessed 4/1/2010. Small-Business Loans Other Loans Note: Business Loans with original amounts less than $1 million used as a proxy for Small Business Loans. Source: FDIC, “Statistics on Banking,” no date, www2.fdic.gov/sdi/sob, accessed 3/20/2010. 111 quarterly report to congress I aPRIL 20, 2010 (“FDIC”), all commercial bank lending declined in 2009. During the fourth quarter, commercial and industrial loans dropped the most, at $54.5 billion or 4.3%. During all of 2009, total commercial banking assets fell by a net $731.7 billion, or 5.3%, the largest one-year percentage drop since the FDIC was formed in 1933.319 Small Business Administration (“SBA”) Congress established the Small Business Administration (“SBA”) in 1953 to “aid, counsel, assist and protect, insofar as is possible, the interests of small businesses.” SBA’s mission is to help small businesses start and grow by providing loan assistance.320 SBA supports small businesses primarily by guaranteeing loans from private lenders, as well as offering debt financing, surety bonds, equity financing, grants, and other forms of financial assistance.321 To guarantee private loans, SBA uses several programs, including 7(a), CDC/504, microloan, and the disaster assistance loan program. As of September 30, 2009, SBA’s outstanding loan portfolio of $90.5 billion primarily consisted of the following programs:322 • 7(a) Loan Program: Section 7(a) of the Small Business Act authorizes SBA to guarantee loans to small businesses. As SBA’s primary program, it assists start-up and existing businesses that are unable to secure loans without a guarantee. A business may borrow up to $2 million through this program.323 As of fiscal year-end 2009, the program had an outstanding principal balance of $49.7 billion.324 • Certified Development Company (“CDC”) 504 Loan Program: Provides longterm, fixed-rate financing so borrowers may purchase long-term fixed assets for expansion or modernization, including real estate and equipment. CDC is a private, notfor-profit corporation that works with SBA and private lenders.325 As of fiscal year-end 2009, the program had an outstanding principal balance of $23.8 billion.326 • Microloan Program: SBA provides funds to intermediaries that lend to small businesses, making small and short-term loans to start-ups, newly established businesses, and growing businesses. Although SBA does not directly lend to qualifying businesses, it gives funds to non-profit, community-based lenders, which in turn lend up to $35,000 to qualified borrowers.327 • Disaster Assistance Loan Program: Provides low-interest loans of up to $2 million to homeowners, renters, any size business, and most private non-profit organizations to replace or repair assets damaged or destroyed in a Government-declared 111 112 special inspector general I troubled asset relief program disaster.328 For the fiscal year ending September 30, 2009, SBA approved 21,780 of these loans, totaling $1.1 billion.329 As of fiscal year-end 2009, the program had an outstanding principal balance of $8.4 billion.330 Seed and Venture Capital Program (Equity Financing) Venture Capital: A type of private equity capital typically provided for earlystage, high-growth potential companies in the interest of generating a return through an eventual realization event, such as the sale of the company, a merger, or an initial public offering. The SBA also provides venture capital through its public-private investment partnership with SBA’s Small Business Investment Company (“SBIC”). In 1958, Congress created SBIC to help businesses raise the necessary capital for growth. Although licensed and regulated by SBA, SBIC is a privately owned and managed fund that raises private capital and borrows at favorable interest rates. The for-profit organization makes long-term loans to, or equity investments in, qualifying start-ups with growth potential.331 Generally, SBIC makes three types of investments:332 • Loans with Warrants — SBIC provides loans to the qualifying business and receives as part of the loan terms warrants to purchase common stock at a predetermined price within a specified time period. • Convertible Debentures — loans that can be converted to common stock at SBIC’s discretion • Stock Purchases For the definition of warrants, see “Capital Purchase Program” in Section 2: “TARP Overview” in this report. Since its inception, SBIC has invested approximately $50.6 billion.333 As of the end of fiscal year 2009, SBA had more than $8.2 billion invested with SBIC. When combined with private capital of approximately $8.7 billion, the program had invested more than $16.9 billion, including loans with an outstanding principal balance of $6.8 billion.334 SBA America’s Recovery Capital (“ARC”) Loan Program The ARC program aims to help stressed businesses meet debt obligations. ARC loans can be put toward principal and interest payments on existing, qualifying debts, thereby freeing up money for investment, job creation, and retention. ARC loans are 100% guaranteed by SBA, and there are no SBA fees. Although ARC borrowers do not pay interest, SBA pays interest to the lenders. Usually, the loans extend for up to five years.335 Businesses can qualify for only one ARC loan, which is capped at $35,000.321 As of December 31, 2009, more than $167 million was lent through ARC.336 quarterly report to congress I aPRIL 20, 2010 Bonding Program (Surety Bonds) A surety bond is an agreement between a surety (such as a bank), a contractor, and a project owner, which states that if the contractor is unable to perform the contract, the surety will take responsibility for project completion. The Bonding Program is for small and minority contractors who cannot secure surety bonds through regular commercial channels. Through the surety bond program, SBA offers bid, payment, and performance bond guarantees. The guarantee makes SBA liable for a pre-determined loss percentage if the contractor breaches the contract terms.337 Contractors can obtain multiple guarantees, but the amount of each contract that can be guaranteed is limited to $5 million.338 The fiscal year 2010 Federal budget includes $1 billion for the surety bond program.339 SBA Grant Program The Program for Investment in Micro-Entrepreneurs (“PRIME”) makes grants to organizations providing management, technical, or financial assistance. Generally, these grants go to non-profit organizations, intermediary lenders, and state and local governments that help business owners and low-income entrepreneurs access capital to start or expand their companies. Through PRIME, SBA supports large and small micro-enterprise development organizations — as well as those serving urban, rural, and Native American tribal communities — by making grants for four purposes: technical assistance, capacity building, research and development, and discretionary purposes.340 The American Recovery and Reinvestment Act of 2009 (“ARRA”) ARRA, enacted February 17, 2009, authorized another $730 million for SBA to help small businesses get private loans. This funding provides:341 • $375 million to temporarily eliminate the guarantee fees that borrowers normally pay to get SBA-backed loans (In addition, it raises the guarantee amount for 7(a) loans to 90%. 7(a) loans are normally guaranteed by as much as 85% on loans of up to $150,000, and 75% on loans of more than $150,000.)342 • $255 million to create a new program, America’s Recovery Capital (“ARC”) Loan Program, to help stressed businesses pay off debts and expenses • $30 million for the microloan program • $24 million for technical assistance grants to microlenders • $15 million to expand SBA’s surety bond guarantee program Bid Bond: Guarantees that the bidder on a contract will enter into the contract and furnish any required payment and performance bonds. Payment Bond: Guarantees that the contractor will pay anyone who furnishes labor, materials, equipment, and/or supplies for the contract. Performance Bond: Guarantees that the contractor will complete the contract in accordance with its terms. 113 114 special inspector general I troubled asset relief program Automotive Industry Support Programs For a breakdown of Treasury’s investments under the Automotive Industry Support Programs, see SIGTARP’s January 2010 Quarterly Report, pages 90-91. During the financial crisis, Treasury, through TARP, launched the Automotive Industry Financing Program (“AIFP”), under which two additional subprograms fall — the Auto Supplier Support Program (“ASSP”) and the Auto Warranty Commitment Program (“AWCP”). According to Treasury, AIFP was 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.”343 The auto industry has not received Government assistance since the capital infusion of $3.8 billion into GMAC through AIFP on December 30, 2009. The ASSP, designed to allay fears that auto companies would not be able to make their payments to the auto parts suppliers, terminated for GM on April 5, 2010, and for Chrysler on April 7, 2010.344 As of March 31, 2010, Treasury committed $84.8 billion to General Motors Corporation (“GM”), GMAC, Chrysler, and Chrysler Financial through these programs. The companies have paid back approximately $4.6 billion.345 As of February 17, 2010, CBO estimates AIFP will result in a $34 billion cost to Treasury, compared to OMB’s estimated cost of $31 billion.346 Automotive Industry Financing Program As of March 31, 2010, Treasury had invested $80.7 billion through AIFP to support automakers and their financing arms in order to “avoid a disorderly bankruptcy of one or more automotive companies.”347 As of March 31, 2010, Treasury had received approximately $1.7 billion in dividends and interest payments on these investments.348 AIFP-related principal repayments included approximately $2.4 billion from GM and $1.8 billion from Chrysler Financial.349 General Motors As of March 31, 2010, Treasury committed approximately $52.4 billion to GM, including $2.9 billion through ASSP and AWCP. Of the $49.5 billion committed directly to GM through AIFP, $19.4 billion was granted pre-bankruptcy and $30.1 billion during bankruptcy. Most of Treasury’s GM investment was converted either into common and preferred stock in New GM (the company that emerged from bankruptcy) or into debt assumed by New GM. As a result, Treasury’s $49.5 billion investment in GM was converted to a 60.8% 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. As part of the warranty program wind-down, $360 million of the debt was repaid on July 10, 2009. In addition, New GM repaid $1 billion on December 18, 2009; $35 million on January 21, 2010; and $1 billion on March 31, 2010.350 quarterly report to congress I aPRIL 20, 2010 Under the terms of the sale of certain assets from Old GM to New GM under Section 363 of the Bankruptcy Code, the United Auto Workers (“UAW”), bondholders, Treasury, and the governments of Canada and Ontario are the owners of New GM.351 The operating agreement between GM and the Federal Government, which is monitoring GM’s restructuring efforts, provides that GM will make a “reasonable best effort” to conduct an initial public offering (“IPO”) by July 10, 2010, the first anniversary of its emergence from bankruptcy.352 Treasury may reduce its ownership in GM by gradually selling its shares following an IPO.353 According to Treasury, the state of the securities markets and other factors — such as GM’s profitability, liquidity, market share, and sales volume — will determine the timing.354 Debt Repayments GM has made several payments on its outstanding loan to Treasury and expects to pay it in full by June 30, 2010. The source of funds for these quarterly payments will be other TARP funds currently held in an escrow account.355 GM made the first and second of the quarterly $1 billion payments to Treasury on December 18, 2009, and March 31, 2010.356 After these two quarterly principal payments, GM’s remaining Treasury debt is approximately $4.7 billion, as of March 31, 2010.357 For more information on this arrangement, see SIGTARP’s audit report, “Additional Insight on Use of Troubled Asset Relief Program Funds,” dated December 10, 2009, available at www.SIGTARP.gov. Restructuring Plans According to the approved restructuring plans submitted to Treasury, New GM will move forward by focusing on its four core brands — Chevrolet, Cadillac, Buick, and GMC cars, trucks, and crossovers — and by developing energy-saving technologies, including advanced internal combustion engines, biofuels, fuel cells, and hybrids. By the end of 2010, New GM’s goals will be to operate only 34 assembly plants (down from 47 in 2008) and to reach a capacity-utilization rate of 100% during 2011.358 In May 2009, New GM began to accelerate its dealer consolidation efforts, reducing the number of New GM dealers in the United States from 6,000 to approximately 3,600 by the end of the year.359 As a result, 1,454 dealers received notice that their franchise agreements would be terminated.360 On December 16, 2009, Congress passed legislation requiring GM and Chrysler to offer binding arbitration to dealers whose outlets were being closed under the companies’ bankruptcy reorganizations.361 In March 2010, New GM announced an offer to reinstate 666 of the approximately 1,169362 dealers that had appealed the loss of their franchises.363 These reinstatements are not yet final. For more detail on New GM’s ownership, see SIGTARP’s October 2009 Quarterly Report, page 93. 115 116 special inspector general I troubled asset relief program Chrysler As of March 31, 2010, Treasury committed approximately $13.8 billion to Chrysler, including $1.3 billion through ASSP and AWCP. Of the approximately $12.5 billion committed directly to Chrysler through AIFP, Treasury retains an investment in New Chrysler of $9 billion in debt and an ownership stake in 9.9% of the company’s equity.364 Chrysler filed for Chapter 11 bankruptcy on April 30, 2009. Pursuant to a sale under Section 363 of the Bankruptcy Code, most of its assets were sold to a new entity, Chrysler Group LLC (“New Chrysler”), on June 10, 2009. The remaining assets and debt, including the $3.5 billion original loan and the $1.9 debtor-inpossession loan remained with the old company, renamed Old Carco LLC (“Old Chrysler”), which is still in bankruptcy.365 Chrysler terminated franchise agreements with 789366 dealers, or about 25% of its U.S. network, in June 2009 as it emerged from bankruptcy under new management led by Italy’s Fiat SpA. Chrysler began accepting arbitration requests following the passage of Congressional legislation in December 2009. As of March 2010, Chrysler had offered to reinstate 50 of the 418 dealers appealing the loss of their franchises.367 These reinstatements are not yet final. For a summary of Treasury’s investments in GMAC, see SIGTARP’s January 2010 Quarterly Report, page 94. Automotive Financing Companies GMAC As of March 31, 2010, Treasury owned 56.3% of GMAC’s common stock, $2.5 billion in trust-preferred securities, and $11.4 billion in mandatorily convertible preferred (“MCP”) shares.368 Status of Funds Treasury’s latest capital injection and share conversions increased the quality of GMAC’s capital. GMAC told the Congressional Oversight Panel that it aims to launch an IPO within the next two years.369 Treasury would have the option of selling a portion of its ownership during an IPO.370 Chrysler Financial The Government loaned $1.5 billion to support Chrysler Financial’s retail loan originations in January 2009. In July 2009, Chrysler Financial repaid the loan, with interest.371 Auto Supplier Support Program/Auto Warranty Commitment Program On March 19, 2009, Treasury announced the $5 billion Auto Supplier Support Program (“ASSP”) to “help stabilize the automotive supply base and restore credit flows in a critical sector of the American economy.”372 As of July 1, 2009, the total quarterly report to congress I aPRIL 20, 2010 commitment was reduced from $5 billion to $3.5 billion.373 Because of worries about the auto manufacturers’ ability to pay their invoices, suppliers had not been able to borrow from banks using their receivables as collateral. ASSP allowed automotive parts suppliers to access Government-backed protection for money owed them for the products they shipped to manufacturers. New Chrysler and New GM participated in the program with commitments of $1 billion for New Chrysler and $2.5 billion for New GM and added receivables related to participating suppliers.374 ASSP continued to operate through the last quarter but was terminated for GM on April 5, 2010, and for Chrysler on April 7, 2010, at which time both GM and Chrysler repaid the full amount of their borrowings; GM repaid $290 million and Chrysler $123 million, plus interest.375 For a summary of ASSP investments, see SIGTARP’s January 2010 Quarterly Report, page 95. Executive Compensation As discussed in SIGTARP’s previous quarterly reports, TARP recipients are subject to executive compensation restrictions. The rules set forth in Section 111 of the Emergency Economic Stabilization Act of 2008 (“EESA”) have been changed by Congress and interpreted and implemented by successive Treasury regulations and notices. These include the Interim Final Rule on TARP Standards for Compensation and Corporate Governance (the “Rule”), which Treasury issued on June 10, 2009.376 This Rule consolidated all previous executive compensation-related regulations into a single directive and implemented the restrictions mandated by Congress in the American Recovery and Reinvestment Act of 2009 (“ARRA”).377 As long as a TARP recipient has an outstanding “obligation” to Treasury (as defined by ARRA, this does not include warrants to purchase common stock), it must adhere to the guidelines set forth under the Rule.378 However, some program participants are exempt from the Rule:379 • TALF recipients, since they do not directly receive TARP assistance (instead, TARP funds purchase collateral surrendered to TALF) • PPIP participants, because none owns more than 50% of any PPIF, which is the actual TARP recipient (PPIP rules cap ownership interests in any PPIF at 9.9%) • Making Home Affordable (“MHA”) program participants, who are statutorily exempt under ARRA Special Master Treasury created the Office of the Special Master for TARP Executive Compensation (the “Special Master”) on June 15, 2009, and appointed Kenneth R. Feinberg to the position. Special Master Feinberg’s responsibilities include:380 For more information on the Rule and a summary of the timeline on TARP executive compensation restrictions, see SIGTARP’s July 2009 Quarterly Report, page 118. For more information on executive compensation issues and findings, refer to SIGTARP’s audits, “Despite Evolving Rules on Executive Compensation, SIGTARP Survey Provides Insights on Compliance,” issued on August 19, 2009, and “Extent of Federal Agencies Oversight of AIG Compensation Varied and Important Challenges Remain,” issued on October 14, 2009. 117 118 special inspector general I troubled asset relief program Senior Executive Officer (“SEO”): 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 executive officers. • Top 25 Payment Reviews — review and approve compensation structures and payments for the 5 most senior executive officers (“SEOs”) and the next 20 most highly paid employees at institutions that received exceptional financial assistance under the TARP • Top 26 through 100 Payment Reviews — review and approve compensation structures for the next 75 employees at institutions that received exceptional financial assistance: employees who are not in the top 25 and who are either executive officers or among the top 100 most highly paid employees • Prior Payment Reviews — review bonuses, retention awards, and other compensation paid to SEOs and the 20 next most highly compensated employees of each entity receiving TARP assistance before February 17, 2009, 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 Exceptional Assistance Compensation Determinations for the 25 Most Highly Compensated Employees Exceptional Assistance: Companies receiving assistance under SSFI, TIP, AIFP, and any future Treasury program designated by the Treasury Secretary as providing exceptional assistance. Current recipients are: AIG, GM, GMAC, Chrysler, and Chrysler Financial.384 As of March 31, 2010, only five firms were still considered “exceptional assistance” recipients: AIG, Chrysler, Chrysler Financial, GM, and GMAC. Although Chrysler Financial repaid its TARP funds, it is still considered a recipient of exceptional assistance because it is a subsidiary of Chrysler Holdings, which has an outstanding obligation that qualifies as exceptional assistance. Citigroup’s and Bank of America’s repayments removed them from the designation. Bank of America has repaid all the funds it received under TARP and is no longer subject to any compensation restrictions.381 In contrast, Citigroup still has outstanding TARP obligations but is no longer considered by Treasury to be a recipient of “exceptional assistance.” Until those obligations are repaid in full, Citigroup will remain subject to the EESA compensation restrictions that apply to all TARP recipients, including those set forth in ARRA and the Rule. On March 23, 2010, Special Master Feinberg issued his rulings on the 2010 pay packages for the top 25 executives at the aforementioned five firms. According to Treasury, the Special Master reaffirmed the guiding principles used in the 2009 rulings to make determinations for 2010.382 These principles included the following:383 • reform pay practices for top executives to align compensation practices with long-term value creation and financial stability • require that a majority of salaries be paid in company stock held over the long term quarterly report to congress I aPRIL 20, 2010 • require that incentive compensation be in the form of long-term restricted stock and contingent on performance and TARP repayment • place tougher limits on perquisites and retirement benefits The 2010 rulings included the following significant determinations:385 • on average, a 33% decrease in overall cash payments from 2009 levels for the specific executives subject to the rulings • on average, a 15% decrease in total compensation from 2009 levels for the specific executives subject to the rulings • cash salaries frozen at $500,000 unless good cause is shown; 18% of executives subject to the March 2010 rulings (21 employees) will receive cash salaries greater than $500,000 The Special Master also issued a letter to 419 banks that received TARP funding prior to February 17, 2009, requesting information on the compensation paid to the 25 most highly paid executives prior to that date.386 In an effort to ease the administrative burden on small banks, the Special Master limited the scope of his request, requiring the banks to provide detailed compensation data only for those executives earning compensation above $500,000.387 The banks’ responses were due within 30 days. The Special Master will examine the payments and decide if any ran contrary to the public interest.388 If he concludes any payments were contrary to the Public Interest Standard, the Special Master is required to seek to negotiate with the TARP recipient and the subject employee for appropriate reimbursements to the Federal Government.389 Public Interest Standard: Regulatory standard that the Special Master is required to apply in making determinations. Refers to the determination of whether TARP recipient compensation plans are aligned with the best interests of the U.S. taxpayer, based on a balancing of specific principles set forth in the Rule. For more information on the specific principles used in reviewing compensation plans, see SIGTARP’s July 2009 Quarterly Report, pages 122-123. 119 120 special inspector general I troubled asset relief program Se ction 3 TARP Operations and Administration 122 special inspector general I troubled asset relief program quarterly report to congress I aPRIL 20, 2010 Under the Emergency Economic Stabilization Act of 2008 (“EESA”), Congress authorized the Secretary of the Treasury (“Treasury Secretary”) to create the operational and administrative mechanisms to carry out the Troubled Asset Relief Program (“TARP”). EESA established the Office of Financial Stability (“OFS”) within the U.S. Department of the Treasury (“Treasury”), which is responsible for administering TARP.390 Treasury has 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.391 In addition to permanent and interim staff, OFS relies on contractors and financial agents in legal, investment consulting, accounting, and other key service areas.392 TARP Administrative and Program Expenditures As of March 31, 2010, Treasury spent $92.8 million administering TARP.393 Table 3.1 provides a summary of expenditures and obligations through March 31, 2010. These costs are categorized as “personnel services” and “non-personnel other services,” with a few exceptions. Table 3.1 TARP Administrative expenditures and obligations Budget Object Class Title Obligations for Period Ending 3/31/2010 Expenditures for Period Ending 3/31/2010 $29,595,486 $29,126,778 $29,595,486 $29,126,778 $573,418 $531,878 Personnel Services Personnel Compensation & Services Total Personnel Services Non-Personnel Services Travel & Transportation of Persons Transportation of Things 11,960 11,960 669,885 545,485 395 395 91,165,716 62,011,503 Supplies & Materials 349,899 341,435 Equipment 232,054 222,675 Rents, Communications, Utilities & Misc. Charges Printing & Reproduction Other Services Land & Structures — — Dividends and Interest 13 13 $93,003,340 $63,665,344 $122,598,826 $92,792,122 Total Non-Personnel Services Grand Total Note: Numbers affected by rounding. Source: Treasury, response to SIGTARP data call, 4/7/2010. 123 124 special inspector general I troubled asset relief program Treasury released a summary of programmatic expenditures, including costs to hire financial agents and legal firms. Treasury spent $276.1 million on programs as of March 31, 2010.394 Current Contractors and Financial Agents As of March 31, 2010, Treasury retained 51 private-sector vendors, including 13 financial agents and 35 contractors, to provide help in administering TARP.395 Treasury streamlined solicitation procedures and structured several agreements and contracts pursuant to Federal Acquisition Regulations to allow for flexibility in obtaining the required services expeditiously. Table 3.2 includes service providers retained as of March 31, 2010.396 Table 3.2 OFS SERVICE CONTRACTS (Cont.) Date Vendor Purpose Type of Transaction Obligated Value Expended Value 10/8/2008 PricewaterhouseCoopers Internal control services Contract $22,597,082 $14,675,021 10/10/2008 Simpson Thacher & Bartlett LLP Legal services for the implementation of TARP Contract $1,025,000 $931,090 10/11/2008 Ennis, Knupp & Associates Inc Investment and Advisory Services Contract $2,860,965 $2,587,164 10/14/2008 The Bank of New York Mellon Corporation Custodian Financial Agency Agreement $21,870,268 $13,199,149 10/18/2008 Ernst & Young LLP Accounting Services Contract $11,493,786 $8,251,391 10/29/2008 Squire, Sanders & Dempsey LLP Legal services for the Capital Purchase Program Contract $6,985,000 $2,680,499 10/29/2008 Hughes Hubbard & Reed LLP Legal services for the Capital Purchase Program Contract $7,109,312 $2,780,807 10/31/2008 Lindholm & Associates, Inc Human resources services Contract $751,302 $492,140 11/7/2008 Sonnenschein Nath & Rosenthal LLP Legal services related to auto industry loans Contract $2,722,326 $2,722,326 12/3/2008 Alcohol and Tobacco Tax and Trade Bureau IAA - TTB Development, MGMT & Operation of SharePoint Inter Agency Agreement $67,489 $67,489 12/10/2008 Sonnenschein Nath & Rosenthal, LLP Legal Services for the purchase of asset-backed securities Contract $249,999 $82,884 12/12/2008 Pension Benefit Guaranty Corporation Financial Advisory Services related to Auto program Inter Agency Agreement $8,220,000 $7,750,000 12/24/2008 Cushman and Wakefield of VA Inc Painting Services for TARP Offices Contract $8,841 $8,841 1/7/2009 Colonial Parking Inc. Lease of parking spaces Contract $191,650 $72,003 Continued on next page. 125 quarterly report to congress I aPRIL 20, 2010 OFS SERVICE CONTRACTS (Cont.) Date Vendor Purpose Type of Transaction Obligated Value Expended Value 1/9/2009 The United States Mint “Making Home Affordable” Logo search Inter Agency Agreement $975 $325 1/27/2009 Cadwalader, Wickersham & Taft LLP Bankruptcy Legal Services Contract $417,563 $409,955 1/27/2009 Whitaker Brothers Business Machines Inc Paper Shredder Contract $3,213 $3,213 2/2/2009 US Government Accountability Office IAA - GAO Required by P. L. 110-343 to conduct certain activities related to TARP Inter Agency Agreement $20,360,000 $12,122,421 2/9/2009 Pat Taylor & Associates, Inc Temporary Services for Document Production, Freedom of Information Act (“FOIA”) Assistance, and Program Support Contract $799,960 $692,108 2/12/2009 Locke Lord Bisell & Liddell LLP Initiate Interim Legal Services in support of Treasury Investments under EESA Contract $693,600 $272,225 2/18/2009 Fannie Mae Homeownership Preservation Program Financial Agency Agreement $113,365,363 $72,166,646 2/18/2009 Freddie Mac Homeownership Preservation Program Financial Agency Agreement $107,089,955 $46,645,162 2/20/2009 Congressional Oversight Panel IAA - Review Current State Of financial markers & regulatory sys & rpt certain activities Inter Agency Agreement $6,205,000 $4,000,000 2/20/2009 Venable LLP Capital Assistance Program (II) Contract $1,770,750 $1,394,724 2/20/2009 Simpson Thacher & Bartlett LLP Capital Assistance Program (I) Contract $2,796,180 $1,433,095 3/6/2009 The Boston Consulting Group Management Consulting relating to the Auto industry Contract $1,000,000 $991,169 3/16/2009 Earnest Partners Small Business Assistance Program Financial Agency Agreement $4,050,000 $1,305,000 3/30/2009 Cadwalader, Wickersham &Taft LLP Auto Investment Legal Services Contract $22,269,120 $16,631,060 3/30/2009 Haynes and Boone, LLP Auto Investment Legal Services Contract $532,175 $345,746 3/30/2009 Mckee Nelson LLP SBA Initiative Legal Services - Contract Novated to TOFS-10-D-0001 with Bingham McCutcheon Contract $149,349 $126,631 3/30/2009 Sonnenschein Nath & Rosenthal LLP Auto Investment Legal Services Contract $2,159,709 $1,834,193 3/31/2009 FI Consulting Credit Reform Modeling and Analysis Contract $2,037,325 $1,153,944 4/3/2009 American Furniture Rentals Inc. Furniture Rental 1801 Inter Agency Agreement $35,190 $25,812 Continued on next page. 126 special inspector general I troubled asset relief program OFS SERVICE CONTRACTS (Cont.) Obligated Value Expended Value Contract $5,892,689 $3,604,315 Chairs Contract $53,799 $53,799 FSI Group, LLC Asset Management Services Financial Agency Agreement $11,245,000 $7,252,500 4/21/2009 AllianceBernstein L.P. Asset Management Services Financial Agency Agreement $19,460,000 $14,753,920 4/21/2009 Piedmont Investment Advisors, LLC Asset Management Services Financial Agency Agreement $5,795,000 $3,479,999 5/14/2009 KnowledgeBank, Inc. Executive Search and recruiting Services - Chief Homeownership Officer Contract $124,340 $124,340 5/15/2009 Phacil, Inc FOIA Analysts to support the Disclosure Services, Privacy and Treasury Records Contract $103,427 $90,304 5/26/2009 Anderson, McCoy & Orta Legal services for work under Treasury’s Public-Private Investment Fund (“PPIF”) program Contract $425,600 $337,197 5/26/2009 Simpson Thacher & Bartlett LLP Legal services for work under Treasury’s Public-Private Investment Fund (“PPIF”) program Contract $8,893,250 $3,065,781 6/8/2009 Financial Management Service Development of an Information Management Plan to articulate strategies to be used by the Office of Financial Stability (“OFS”) to manage its portfolio of information management transformation activities Inter Agency Agreement $93,292 $93,292 6/29/2009 National Business Center Federal Consulting Group IAA to Department of Interior’s Federal Consulting Group to support Stability. Gov website Inter Agency Agreement $24,000 $24,000 7/17/2009 Korn/Ferry International Executive search services for the OFS Chief Investment Officer position Contract $75,017 $75,017 7/30/2009 Debevoise & Plimpton LLP Restructuring Legal Services Contract $0 $0 7/30/2009 Fox, Hefter, Swibel, Levin & Caroll, LLP Restructuring Legal Services Contract $0 $0 7/30/2009 Cadwalader, Wickersham & Taft LLP Restructuring Legal Services Contract $4,382,790 $1,038,413 8/18/2009 Mercer LLC Executive-Compensation Data Subscription Contract $3,000 $3,000 9/2/2009 Knowledge Mosaic Inc. SEC filings subscription service Contract $5,000 $5,000 9/10/2009 Equilar, Inc. Executive-Compensation Data Subscription Contract $59,990 $59,990 Date Vendor Purpose 4/3/2009 The Boston Consulting Group Management Consulting relating to the Auto industry 4/17/2009 Herman Miller, Inc 4/21/2009 Type of Transaction Continued on next page. 127 quarterly report to congress I aPRIL 20, 2010 OFS SERVICE CONTRACTS (Cont.) Date Vendor Purpose Type of Transaction Obligated Value 9/11/2009 PricewaterhouseCoopers PPIP compliance Expended Value Contract $1,029,150 $619,225 9/18/2009 Treasury Franchise Fund US-4 Administrative Resource Center Inter Agency Agreement $1,696,694 $1,046,624 9/30/2009 SNL Financial LC SNL Unlimited, a web-based financial analytics service Contract $110,000 $110,000 9/30/2009 NNA INC. Newspaper delivery Contract $7,765 $7,765 10/1/2009 Departmental Offices Financial management, human resources, information technology, general counsel and other reimbursable support services Inter Agency Agreement $23,852,786 $18,847,180 12/22/2009 Hughes Hubbard & Reed LLP Document Production services and Litigation Support Contract $0 $0 12/22/2009 KBW Asset Management, Inc. Asset Management Services Financial Agency Agreement $2,300,000 $2,000,000 12/22/2009 Avondale Investments LLC Asset Management Services Financial Agency Agreement $750,000 $187,500 12/22/2009 Bell Rock Capital, LLC Asset Management Services Financial Agency Agreement $750,000 $187,500 12/22/2009 Howe Barnes Hoefer & Arnett, Inc. Asset Management Services Financial Agency Agreement $1,250,000 $312,500 12/22/2009 Lombardia Capital Partners, Inc. Asset Management Services Financial Agency Agreement $1,250,000 $312,500 12/22/2009 Paradigm Asset Management Co. LLC Asset Management Services Financial Agency Agreement $1,250,000 $312,500 1/15/2010 Association of Government Accountants CEAR Program Application Contract $5,000 $5,000 1/19/2010 Bingham Mccutchen LLP SBA Initiative Legal Services - Contract Novated from TOFS-09-D-0005 with McKee Nelson Contract $750,651 $100,457 2/16/2010 The MITRE Corporation FNMA IR2 Assessment Contract $408,075 $120,883 3/8/2010 Qualx Corporation FOIA Support Services Contract $0 $0 Date not available Washington Post HR Advertisement Inter Agency Agreement $395 $395 Notes: Treasury also provided a separate list of contracts; however 15 of these entities were not included in the obligations and expenditures list. All but 3 of the 15 appear to be Inter-Agency Agreements. Source: Treasury, response to SIGTARP data call, 4/7/2010. 128 special inspector general I troubled asset relief program Asset Managers EESA requires SIGTARP to provide biographical information for each person or entity hired to manage assets acquired through TARP.397 From January 1, 2010, to March 31, 2010, no new PPIP fund managers were hired. Morgan Stanley On March 29, 2010, Treasury hired Morgan Stanley to manage the sale of its Citigroup stock. According to Treasury, it will sell all of its approximately 7.7 billion common stock shares in 2010, subject to market conditions.398 According to Treasury, “Morgan Stanley is a global financial services firm providing a wide range of investment banking, securities, investment management, and wealth management services.”399 Duties According to Treasury, Morgan Stanley will perform duties including, but not limited to, the following:400 • act as broker or market-maker for all disposition services executed pursuant to Rule 144 of the Securities Act of 1933 • act as sole book-running manager for disposition services executed in underwritten offerings pursuant to a prospectus or prospectus supplement, subject to Treasury’s satisfaction with the performance of the disposition services • execute and confirm transfers, trades, and other transactions as instructed by Treasury and maintain records of any executed trades or transfers • reconcile books and records with the custodian’s and Treasury’s accounting systems • advise Treasury regarding the optimal timing and strategy for the sale of the securities • maintain a compliance program designed to detect and prevent securities law violations • identify, document, and enforce controls to mitigate conflicts of interest quarterly report to congress I aPRIL 20, 2010 Internal Controls According to Treasury, “[it] requires financial institutions participating in exceptional assistance TARP programs—such as the Targeted Investment Program (“TIP”), Asset Guarantee Program (“AGP”), AIG Investment Program, and Automotive Industry Financing Program (“AIFP”)—to establish appropriate internal controls to monitor compliance with certain requirements under the securities purchase agreement with the Treasury. Requirements under these agreements include restrictions on dividends and repurchases, executive compensation restrictions, and restrictions on lobbying and expenses. Treasury also requires these TARP participants to submit a report and certification on a quarterly basis regarding implementations of internal controls and compliance (including any instances of non-compliance) with the requirements in the securities purchase agreement.”401 129 130 special inspector general I troubled asset relief program S e ct ion 4 SIGtarp recommendations 132 special inspector general I troubled asset relief program quarterly report to congress I aPRIL 20, 2010 One of the critical 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 its quarterly reports to Congress and in several of its audit reports. This section discusses developments with respect to SIGTARP’s prior recommendations, makes new recommendations concerning newly announced initiatives, 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” includes Treasury’s written response to this section. UPDATE ON TREASURY’S ADOPTION OF SIGTARP’S USE OF FUNDS RECOMMENDATION From its inception, SIGTARP’s most fundamental recommendation with respect to basic transparency in the operation of TARP has been that Treasury should require all TARP recipients to report periodically on their use of TARP funds. The efficacy of this common-sense recommendation — initially made in December 2008 (just eight days into SIGTARP’s existence) and later examined through a survey of 364 TARP recipients and supported by an initial audit report issued in July 2009 — was reconfirmed in a further audit report entitled “Additional Insight on Use of Troubled Asset Relief Program Funds,” which was released December 10, 2009. As reported in SIGTARP’s Quarterly Report to Congress dated January 30, 2010 (the SIGTARP “January 2010 Quarterly Report”), Treasury finally adopted this recommendation in December 2009 and committed to survey and report upon recipients’ use of TARP funds. Specifically, Treasury stated that it will be obtaining and reporting to the public qualitative responses from each TARP recipient on its use of TARP funds, backed by quantitative data obtained from the recipients’ regulators and Treasury’s own analysis. Since the SIGTARP January 2010 Quarterly Report, Treasury has sent out its survey to TARP recipients. The first responses are due back to Treasury before April 19, 2010. SIGTARP will continue to monitor and report upon Treasury’s progress on this front. 133 134 special inspector general I troubled asset relief program RECOMMENDATIONS FROM SIGTARP’S AUDIT REPORT ON THE IMPLEMENTATION OF THE HOME AFFORDABLE MODIFICATION PROGRAM (“HAMP”) As discussed in Section 1: “The Office of the Special Inspector General for the Troubled Asset Relief Program” in this report, in a March 25, 2010, audit report entitled “Factors Affecting the Implementation of the Home Affordable Modification Program” (“SIGTARP’s HAMP audit”), SIGTARP examined Treasury’s implementation of HAMP. SIGTARP’s HAMP audit questioned Treasury’s emphasis on the number of trial modification offers as the program’s measure of success — as opposed to how many homeowners were sustainably helped through permanent modification of their mortgages — and observed, among other things, that the rate of permanent modifications had been, in Treasury’s own estimation, “disappointing.” The audit report noted a number of factors contributing to the low number of permanent modifications, including that: • Haste in the program’s rollout led to frequent revisions that added to confusion, inefficiency, and delay in the program’s implementation. • Treasury’s decision to allow the initiation of trial modifications without written documentation was counterproductive and added to the difficulty of identifying eligible borrowers and completing permanent modifications for them. • There has been insufficient outreach to the American public and eligible borrowers about the features and benefits of HAMP, including no unique television public service advertisements. • The program lacked features designed to address risk factors for re-default in the HAMP borrower population, including negative equity and high total debt service; these factors could lead to modifications that will not be successful in the long term. To improve the administration and effectiveness of HAMP, SIGTARP recommended that Treasury: • rectify the confusion that its own statements have caused for HAMP by prominently disclosing its goals and estimates (updated over time, as necessary) of how many homeowners the program will help through permanent modifications and report monthly on its progress toward meeting that goal • set other performance benchmarks and publicly report against them to measure over time the implementation and success of HAMP • undertake a sustained public service campaign as soon as possible, both to reach additional borrowers who could benefit from the program and to arm the public with complete, accurate information — this will help to avoid confusion and delay, and prevent fraud and abuse quarterly report to congress I aPRIL 20, 2010 • reconsider its policy that allows servicers to substitute alternative forms of income verification based on subjective determinations by the servicer • re-examine HAMP’s structure to ensure that it is adequately minimizing the risk of re-default driven by negative equity, high non-first-mortgage debt service, and other risk factors Treasury concurred with the first three of SIGTARP’s recommendations, but has not yet implemented them. Treasury initially declined to adopt SIGTARP’s last two recommendations, claiming that the documentary guidelines were not intended to be a “comprehensive underwriting guide,” and that the prospect that “alternative modification structures that could lower re-default rates” would mean either decreasing participation in the program or increasing its cost. As a result, Treasury indicated that it was only considering program adjustments that would “modestly” address unemployed and underwater borrowers. In response, SIGTARP encouraged Treasury to reconsider its refusal to address more deeply the issues that fuel re-default, stressing the importance for the success of the program of putting borrowers into sustainable permanent modifications, and noting that, under thencurrent Congressional Budget Office estimates, only $20 billion of the allocated $50 billion would be spent on permanent modifications. RECOMMENDATIONS CONCERNING TREASURY’S NEWLY ANNOUNCED FORECLOSURE MITIGATION INITIATIVES Within days of the release of SIGTARP’s HAMP audit and a related Congressional hearing, Treasury announced its intent to introduce dramatic and substantial revisions to the HAMP program structure that, as announced, would address in part the recommendations in SIGTARP’s HAMP audit, including the previously rejected recommendation that Treasury reconsider changes in the program to address re-default caused by, among other things, negative equity. Treasury’s new initiatives, as described in greater detail in Section 2: “TARP Overview” in this report include: • requiring that servicers “consider” principal write-downs at their option as part of the loan modification process when indicated by program guidelines, with increased incentives for successful principal write-downs • a new program, to be backed by $14 billion in TARP funds and managed by both Treasury and the Federal Housing Administration (“FHA”), that will enable severely underwater borrowers to refinance their mortgages so that the total amount that they owe on their homes will not exceed 115% of the home’s value • temporary payment reductions for unemployed borrowers for periods from three to six months while they seek new employment 135 136 special inspector general I troubled asset relief program • increased incentives for servicers to provide permanent loan modifications in order to compensate them for costs associated with the revisions to the program, including assistance to unemployed homeowners • expansion of HAMP to include borrowers with FHA loans and borrowers in active bankruptcy proceedings • improved requirements for borrower solicitations, stating performance timeframes for all parties and prohibiting new foreclosure referrals during the HAMP modification process • additional assistance for homeowners who lose their homes through a short sale or deed-in-lieu, including increased financial assistance for moving and incentives to servicers and second-lien holders for use of foreclosure alternatives SIGTARP appreciates Treasury’s willingness to reconsider its opposition and change the program substantially to address these issues. To Treasury’s credit, the program changes appear intended to expand HAMP participation and improve the rate of permanent modifications, as well as address the significant re-default risks driven by homeowners’ negative equity. The new revisions to HAMP, as a whole, constitute a potentially important step forward for homeowner relief. However, the program changes, as announced, also raise several issues that could impede HAMP’s effectiveness and efficiency and thus warrant several new recommendations. SIGTARP’s recommendations are not intended to convey approval or disapproval of Treasury’s policy decisions, but instead are intended to ensure that those policy decisions are carried out in a manner that will maximize their effectiveness. The Program Revisions Were Announced Before Being Completely Formulated, Leading to Potential Confusion and a Lack of Transparency The newly announced programs lacked detail in certain key aspects, and, in some circumstances, appear to be only partially formed. Although Treasury’s sense of urgency and its desire to preview the direction of the program is laudable, it risks contributing to some of the same confusion and inefficiency that was associated with the rollout of HAMP’s first-lien modification program. To date, Treasury has not articulated a clear, integrated vision of the number of borrowers it expects to assist in each program, the expected costs of many of the program adjustments, how some of the program components are to work together, or how their form and design optimally address the problems at hand. These circumstances risk creating problems that could affect HAMP’s long-term success: • unclear expectations about the program’s eligibility, benefits, and effectiveness, particularly absent well-defined benchmarks for success quarterly report to congress I aPRIL 20, 2010 • servicers’ and borrowers’ hesitation to participate until the “kinks are worked out” or because they expect to benefit from a later revision, which results in their not taking advantage of a program whose success depends on widespread participation by eligible parties • opportunities for fraud created by confusion and ambiguity Time pressures have led to servicer complaints in the past about unclear and frequently revised HAMP guidelines. Unfortunately, early indications provide cause for concern that the new revisions may aggravate those problems rather than improve them. Loan servicers have already expressed to SIGTARP their concerns about the announced guidelines for the revisions, and some (including one of the largest servicers) have told SIGTARP that they were not consulted about their formulation or implementation. Preliminary feedback obtained by SIGTARP also indicates that some of the servicers anticipate difficulty in implementing the new changes, which have been described as potentially “time consuming” and creating “further lag time,” particularly with respect to evolving information technology requirements. Moreover, after the new HAMP revisions were publicly announced, loan servicer participants have reported a surge of borrower phone calls regarding program changes. These reportedly were difficult to answer and process both because the program’s elements had not been fully released and because the servicers had little time in advance of the announcement to prepare and train their staffs to respond. One large servicer noted to SIGTARP that the rollout was “anticipated to create borrower confusion and potential borrower reluctance to execute modifications” until the new programs are launched. Furthermore, the haste in announcing the new programs has led to the dissemination of undeveloped information. For example, one of the key components to the announced principal reduction program included a chart that listed the amounts that lenders would receive in return for forgiving principal based upon the degree to which the loan is underwater. Although the chart indicated an amount that would be paid to investors to forgive principal for loans that had a loan-to-value ratio less than 115%, Treasury officials initially indicated to SIGTARP that they had not yet determined whether they will make any payments to investors under the 115% level. Two weeks later, Treasury indicated that, because a Supplemental Directive had not been issued for the principal forgiveness programs, it could not specify details on circumstances in which unpaid principal balance would be forgiven below 115%. These types of changes, along with the other demands on the servicers to implement the programs, will tap available servicer resources and could lead to a repeat of problems that have plagued the HAMP program since inception — a diversion of resources that has contributed to slow conversion rates for permanent modifications. The resulting lack of clarity, in turn, serves to impair the program’s transparency. Treasury has not provided SIGTARP with meaningful estimates of the costs 137 138 special inspector general I troubled asset relief program and benefits of these still-to-be-developed initiatives. Regarding costs, for example, Treasury has repeatedly asserted that HAMP will spend no more than $50 billion of TARP funds (the amount currently allocated to the program), but has not provided the public with specific breakdowns of estimated costs of the components of many of the new initiatives. Treasury has also indicated to SIGTARP that it intends to increase servicer incentive payments to compensate them for additional costs from the program revisions (specifically including those related to the unemployed borrower forbearance program), which is hard to reconcile, from a transparency perspective, with its public statement that there would be “no cost to government or taxpayers from the forbearance plans.” Moreover, Treasury still has not defined its goals or expectations for permanent modifications, the impact and expectations for each of the new initiatives, or other key indicators of success. Treasury must set clear expectations and goals for each of the programs’ results and costs so that Congress and the American public can measure their success and critically evaluate whether the program’s considerable cost is worthwhile. Recommendation: • The new initiatives add to the previously discussed imperative that Treasury clearly define meaningful metrics for HAMP’s success, along with well-founded cost estimates, in order to facilitate informed consideration of the program’s value to the American people. SIGTARP recommends that, for each HAMP program and subprogram, Treasury publish the anticipated costs and expected participation in each and that, after each program is launched, it report monthly as to the programs’ performance against these expectations. In response to this recommendation, Treasury indicated that it will take additional steps to increase transparency, and “will continue to expand the number and depth of reports on program implementation, successes and challenges.” Treasury also committed to “set targets for key program objectives this year.” The Program Revisions Might Increase Fraud Vulnerabilities Both the lack of clear guidelines and some features of the revised programs themselves leave HAMP vulnerable to fraud. Criminals feed on borrower confusion, and frequent changes to the programs provide opportunities for experienced criminal elements to prey on desperate homeowners who have not been educated as to the risks of fraud. For the existing HAMP program, this has been demonstrated by the high incidence of mortgage modification schemes, where thieves trick borrowers into paying upfront fees for modifications that never materialize. SIGTARP alone has initiated dozens of criminal investigations into these schemes, some of which are described in Section 1: “The Office of the Special Inspector General for the Troubled Asset Relief Program” in this report. Although the announcement of the new programs was done with great fanfare, little was done at the time to warn quarterly report to congress I aPRIL 20, 2010 borrowers about the dangers of potential fraud, which is particularly dangerous given the current ambiguity in many of the programs. As SIGTARP has repeatedly warned, Treasury must take a more proactive role in using its podium not only to highlight and market its new initiatives, which are certainly important exercises, but also to warn of the dangers of fraud. Although Treasury has taken some important steps to advance fraud awareness through its website and at borrower events, it can and should do more to educate a broader audience of the dangers of fraud. Furthermore, revisions to the Home Affordable Foreclosure Alternatives (“HAFA”) program present an increased prospect of potential fraud. As part of the new initiatives, Treasury has announced that additional incentive payments will be paid to borrowers and servicers who participate in its short sale provisions. This also increases the incentives for those participating in criminal short sale scams, and it appears that the program may lack necessary antifraud protections. For example, one prevalent short sale scheme – called “flopping” – centers on home values that are fraudulently deflated for the purpose of decreasing the cost of the short sale to a “straw purchaser.” The property is then quickly resold for its true market value, leaving the difference in the crook’s pocket. Historically, these schemes often involve the participation of corrupt brokers and servicers. As constituted now, the program permits home valuation, the key vulnerability point for a flopping scheme, without a true appraisal, allowing estimates from brokers or other “independent” providers at the discretion of the servicer, subject to its contractual agreement with the investor. Similarly, with respect to the principal forgiveness component of HAMP — where there is a similar vulnerability to fraud from underestimating the home’s value — Treasury has indicated that this critical parameter will derive from a computer model that will not even require a visual inspection of the home. These less-than-robust valuation methods, along with the increased incentives through Government-funded payouts, leave the program vulnerable to fraud. It also fails to emulate the FHA’s more rigorous home valuation protocol that requires use of an FHA-approved appraiser following standard procedures; ironically, the more rigorous procedures will be used in the TARP-funded FHA-refinance program and have been used by the FHA in its own short sale program. No program of this type and scale can be considered well designed without robust protections of taxpayer funds against the predation of criminals, particularly given the inconsistent treatment of home valuation across the different principal forgiveness programs. Taxpayer-assisted short sales and principal forgiveness programs through TARP should have at least the same protections against fraud as those instituted in similar programs by FHA. 139 140 special inspector general I troubled asset relief program Recommendations: • SIGTARP recommends that Treasury launch a broader based information campaign, including public service announcements in target markets that focus on warnings about potential fraud and include conspicuous fraud warnings whenever it makes broad public announcements about the program. • SIGTARP recommends that Treasury adopt a uniform appraisal process across all HAMP and HAMP-related short sale and principal reduction programs consistent with FHA’s procedures. In response to these recommendations, Treasury agreed that fraud is a serious condition and cited its efforts at educating the public about mortgage fraud through its MHA website, at borrower outreach efforts throughout the country, and in local media. Treasury also indicatd that it is about to roll out a public service campaign and is committing to provide fraud warnings to homeowners in the rollout of each new program. Treasury has deferred commenting on SIGTARP’s recommendation regarding a uniform appraisal process until 30 days after issuance of this report. The Discretionary Nature of Principal Reductions by Servicers Raises Several Concerns That May Undermine the Effectiveness of the Program One of the most dramatic changes in the HAMP program is its expansion to address negative equity by mandating consideration of — but not requiring — mortgage principal reductions. The relevant guidelines will require servicers to use an alternative Net Present Value (“NPV”) test, similar to the NPV test currently in place, that calculates the value of the modification to the investor taking into account the incentive payments Treasury would pay for forgiving principal as part of the modification. Even if that test demonstrates that a principal reduction modification will yield a greater positive return to the investor than a traditional HAMP modification, however, the guidelines do not require the servicer to modify the mortgage with principal reduction. This raises several important concerns as to the potential impact of this program revision and whether it will effectively deal with the re-defaults associated with negative equity. First, as it stands, the program could create a conflict of interest for the servicers that could result in an incentive for them to avoid principal reduction, even if the NPV test indicates that it will yield a greater return for the investor. As the Congressional Oversight Panel observed in its recent report to Congress, servicers are compensated primarily on the total amount of outstanding principal on the mortgages they service, giving them a disincentive to forgive principal compared to other modifications to the mortgage, such as principal forbearance.401 While servicers undoubtedly often have an interest in bringing a defaulted mortgage current quarterly report to congress I aPRIL 20, 2010 through some modification, it is unclear whether the program will provide the necessary servicer incentives to overcome the potential loss of income from choosing a principal reduction modification. In other words, as currently structured, there may be a built-in incentive for servicers to try to bring a mortgage current through a traditional non-principal reducing mortgage modification under HAMP, even when the NPV test indicates that principal forgiveness would be in the best financial interests of both the investor and borrower. Second, the discretionary nature of principal forgiveness threatens to foster perceptions of unequal treatment and arbitrariness. Under the proposed discretionary system, two neighbors living in identical homes, in the same community, with an identical hardship, income, debt-to-income ratio, and loan-to-value ratio, could end up with dramatically different results from the same Government program based solely on whether their servicer is one that is amenable to principal forgiveness or not. In other words, whether a borrower receives relief on the issue of negative equity (and thus arguably has a higher or lower chance of eventually re-defaulting on his mortgage) will depend not on the borrower’s circumstances, but rather on the whims of the borrower’s servicer. This kind of arbitrary result should be limited, to the extent possible, in a Government-administered program — a basic fairness concept that Treasury has implicitly recognized by trying to limit arbitrariness in HAMP by both making other aspects of HAMP mandatory and by requiring servicers to attempt to renegotiate their agreements with investors to permit HAMP modification mechanisms if the agreements prohibit them. Third, giving servicers the discretion to implement principal reduction introduces a questionable inconsistency into the HAMP program and stands in stark contrast to the mandatory nature of the other significant mortgage modification triggers. For example, first lien modifications are mandatory if the original NPV test is positive (subject only to the servicer’s contractual agreement with the investors); servicers are similarly required to modify second liens whenever a first lien is modified and the servicer for the second lien is a participant in the HAMP second lien program; and even the newly announced unemployed borrower forbearance program is mandatory for participating servicers. In order to encourage broad application in HAMP, Treasury has made mandatory performance its preferred course. SIGTARP recognizes that there are critically important policy considerations associated with principal forgiveness, such as moral hazard and unfairness to borrowers who may have acted more responsibly, and takes no position as to whether the newly announced programs appropriately balance those concerns. By introducing the principal forgiveness programs in the manner that it has, however (including allocating more than a quarter of TARP-related HAMP funds to support the FHA-Refinance program, which is intended exclusively to reduce principal balances), Treasury has clearly weighed these costs against the benefits resulting from the reduced risk of re-defaults associated with lower loan-to-value ratios, and it has decided in favor of the latter. 141 142 special inspector general I troubled asset relief program Moral hazard is of particular concern. In the HAMP context, it represents, among other things, the danger that a homeowner who is not eligible for the program will intentionally default on his mortgage in order to receive a principal reduction through HAMP. As the Congressional Oversight Panel recently observed, giving servicers discretion over principal reductions might serve to reduce the incentive for a borrower to attempt to game the system, as the inherent randomness in a discretionary system may deter intentional default.402 On the other hand, Treasury officials have expressed confidence that their existing protocols for borrower screenings, such as hardship affidavits and third-party income verification, already protect the program from many of the dangers of moral hazard. These mechanisms require a borrower to demonstrate that they have a legitimate financial hardship before they can enter the program, require verifiable third-party information to confirm the hardship, and inform the borrower of the criminal penalties he might face if he attempts to defraud the system. As a result, a borrower who is otherwise unaffected by the financial crisis should be unable to take advantage of the program by intentionally defaulting on his mortgage without criminally defrauding the program by lying about a fictitious hardship and securing fraudulent documentation to support his claim. The program also ameliorates the moral hazard effects because it does not award full principal reduction at the outset of a modification but rather requires the borrower to make three years of modified payments to take advantage of the program fully. In sum, although making principal reduction modifications mandatory could incrementally increase the moral hazard incentives, there are at least mechanisms in place to limit this danger. Treasury has also informed SIGTARP that it has concerns that servicers may opt out if principal forgiveness is made mandatory, citing concerns in particular about the implication of principal reduction where second liens are present. It is not clear that servicers would necessarily do so, however, and as reported to SIGTARP by several servicers, Treasury did not consult with at least some of them, including one of the larger ones, before the program was announced. Further, there may be other program modifications that could address concerns about second liens, including through the Second Lien Modification Program. Further, this potential fear has not prevented Treasury from repeatedly modifying HAMP guidelines on other important changes to the program, including mandatory forbearance for unemployed borrowers. The agreements themselves explicitly contemplate the servicers going back to the investors to negotiate a change in their agreements when necessary. Moreover, Treasury has expressed confidence that its NPV tests are sound, and, accordingly, principal reduction would only be called for when it would be the most economically advantageous option for the investor. In sum: • Although there are important and difficult policy considerations to weigh before principal reduction is utilized as a modification option, now that Treasury has quarterly report to congress I aPRIL 20, 2010 made a decision to go forward with principal reduction, it should endeavor to implement as effective a program as possible. • Making principal reduction discretionary may limit HAMP’s effectiveness and result in unequal and arbitrary results for similarly situated homeowners. • Although there are substantial vulnerabilities associated with principal reduction, the program does have barriers designed to minimize moral hazard vulnerabilities. Recommendation: • SIGTARP recommends that Treasury reevaluate the voluntary nature of its principal reduction program and, irrespective of whether it is discretionary or mandatory, Treasury should consider changes to better maximize its effectiveness, ensure to the greatest extent possible the consistent treatment of similarly situated borrowers, and to address potential conflict of interest issues. Treasury has deferred commenting on SIGTARP’s recommendations on its principal reduction program until 30 days after issuance of this report. The Proposed Unemployed Forbearance May Not Be of Sufficient Duration Another aspect of the new initiatives — assistance to unemployed homeowners — may not go far enough to assist the average unemployed homeowner effectively. The unemployment assistance component of the new revisions provides payment forbearance for a minimum of three months, although some borrowers may get relief for up to six months, with the amount forborne added to the balance of the mortgage. One prominent feature of this recession is an unusually high degree of long-term unemployment. According to the Bureau of Labor Statistics, the average length of reported unemployment is 31.2 weeks, the longest recorded since its measurement began in 1948.403 The median length of unemployment has risen to 21.6 weeks, well above the three-month lower end of the standard assistance period. Indeed, nearly 43% of unemployed workers have been out of work for 27 weeks, a length of time longer than the six-month contemplated maximum for unemployment assistance. To be sure, many homeowners may be unemployed for some period of time before they enter into the program, but unless the long-term unemployment situation radically improves (and it is widely anticipated that it will not do so any time soon), large numbers of unemployed homeowners may still be unemployed at the end of the forbearance period, particularly if servicers elect to forbear only for the three-month minimum. For the fortunate who quickly find jobs, the program may be an important lifeline. But for the rest, the forbearance time period will end before a job is found, their unpaid amount will still be owed, and they will still face an unaffordable mortgage with a principal balance that has been made higher by the unpaid interest amounts during the forbearance period, 143 144 special inspector general I troubled asset relief program potentially eliminating equity for some and plunging others even deeper underwater. In light of this reality, Treasury should consider implementing a program with a longer minimum term and that will have a broader impact. Although no program will assist all unemployed borrowers, Treasury should strive for a program that will at least assist the typical unemployed borrower. Recommendation: • SIGTARP recommends that Treasury reconsider the length of the minimum term of HAMP’s unemployment forbearance program. Treasury has deferred commenting on SIGTARP’s recommendations on its unemployment forbearance program until 30 days after issuance of this report. RECOMMENDATIONS RELATING TO THE COMMUNITY DEVELOPMENT CAPITAL INITIATIVE (“CDCI”) As discussed more extensively in Section 2: “TARP Overview” of this report, Treasury announced CDCI on February 3, 2010. The program will invest capital in Community Development Financial Institutions (“CDFIs”), which work in communities that are underserved by traditional financial institutions and target more than 60% of their small business lending and community development activities in such communities. Under CDCI, qualified CDFIs are eligible for capital investments of up to 5% of their risk-weighted assets. Moreover, when a regulator deems a CDFI insufficiently capitalized to qualify for CDCI funding, the CDFI can raise private capital that Treasury will match dollar for dollar up to the 5% of risk-weighted assets threshold. The announced terms of CDCI provide that Treasury can examine the corporate books of participating institutions as long as Treasury retains at least 10% of its initial investment therein and that the CDFI must submit annually a survey to Treasury describing its use of TARP funds. Recommendations: The framework for CDCI raises potential oversight issues that Treasury should consider as it further develops the controls for the program, reflected in the following recommendations. • First, because capitalization is one of the primary measures of a financial institution’s health, SIGTARP recommends that Treasury institute careful screening before putting additional capital into an institution with insufficient capital to ensure that the TARP matching funds are not flowing into an institution that is on the verge of failure. • Second, experience has demonstrated that there must be controls to ensure the legitimacy of any claimed private investments. As noted in Section 1: “The Office of the Special Inspector General for the Troubled Asset Relief Program” in this report, SIGTARP has already secured criminal charges against the former quarterly report to congress I aPRIL 20, 2010 Chief Executive Officer of The Park Avenue Bank who attempted to defraud TARP through a fraudulent capital raise, and other similar investigations are pending. SIGTARP thus recommends that Treasury develop a robust procedure to audit and verify the bona fides of any purported capital raise and to establish adequate controls to verify the source, amount, and closing of all claimed private investments. • Third, with respect to access to a CDFI’s books and records, SIGTARP recommends that Treasury revise CDCI terms to clarify that Treasury’s inspection and copy rights continue until the entire CDCI investment is terminated. Additionally, consistent with recommendations made in connection with other TARP programs, the terms should be revised to provide expressly that SIGTARP shall have access to the CDFI’s records equal to that of Treasury. • Finally, to more forcefully encourage CDFIs to increase lending in their underserved communities, SIGTARP recommends that Treasury consider more frequent surveys than annually, as currently contemplated. Quarterly surveys would more effectively emphasize the purpose of the program. In response to these recommendations, Treasury has indicated that it will address the first two recommendations as it establishes the screening and approval processes for CDCI. Treasury indicated that it will adopt SIGTARP’s recommendation that Treasury’s inspection rights will continue as long as Treasury holds an interest in the CDFI and will include SIGTARP in those inspection rights. Treasury declined to increase the frequency of the use of funds surveys under the program. SIGTARP sent a letter to Treasury concerning its recommendations regarding CDCI on March 11, 2010. A copy of that letter is included in Appendix H: “Correspondence.” 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 4.1, 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.” 145 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. Treasury quickly determines its going-forward valuation methodology. Treasury begins to develop an overall investment strategy to address its portfolio of stocks and decide whether it intends to exercise warrants of common stock. 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. Agreements with TALF participants should include an acknowledgment 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. Treasury should give careful consideration before agreeing 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. * * * * * * * * 2 3 4 5 6 7 8 9 X X X X X X Implemented *Indicates that Treasury considers the recommendation closed and will take no further action. 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. * Note: Treasury should include language in the automobile industry transaction term sheet acknowledging SIGTARP’s oversight role and expressly giving SIGTARP access to relevant documents and personnel. (continued) 1 Recommendation SIGTARP RECOMMENDATIONS TABLE table 4.1 X Partially Implemented X In Process X Not Implemented TBD/NA 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 adopted mechanisms that address this recommendation. See discussion in this section. 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 continue to implement this recommendation with respect to new TARP programs going forward as it deems “appropriate.” Comments 146 special inspector general I troubled asset relief program In TALF, Treasury should require significantly higher haircuts for all MBS, with particularly high haircuts for legacy RMBS, or other equally effective mitigation efforts. Treasury should require additional anti-fraud and credit protection provisions, specific to all MBS, before participating in an expanded TALF, including minimum underwriting standards and other fraud prevention measures. Treasury should design a robust compliance protocol with complete access rights to all TALF transaction participants for itself, SIGTARP, and other relevant oversight bodies. 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. * * * * * 14 15 16 17 18 X X X X X X Implemented *Indicates that Treasury considers the recommendation closed and will take no further action. 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. * 13 Note: 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. * * (continued) 12 11 10 Recommendation SIGTARP RECOMMENDATIONS TABLE Partially Implemented In Process X X Not Implemented X TBD/NA Continued on next page. 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. 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. Treasury has committed to publish its valuation estimates four times each year. 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 aPRIL 20, 2010 147 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. * * 23 24 X X Implemented *Indicates that Treasury considers the recommendation closed and will take no further action. 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. * 22 Note: Treasury should impose strict conflict-of-interest rules upon PPIF managers across all programs that specifically address 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. * 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 require CAP participants to (1) establish an internal control to monitor their actual use of TARP funds, (2) 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. * Treasury should address the confusion and uncertainty on executive compensation by immediately issuing the required regulations. (continued) 21 20 19 Recommendation SIGTARP RECOMMENDATIONS TABLE X X Partially Implemented X In Process Not Implemented X TBD/NA Continued on next page. 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. Treasury has adopted some significant conflict-of-interest rules related to this recommendation, but has failed to impose other significant safeguards. Treasury closed the program with no investments having been made, rendering this recommendation moot. Treasury has made improvements in this area. SIGTARP will address particular issues regarding OFS staffing levels in upcoming audit reports. Comments 148 special inspector general I troubled asset relief program X Implemented *Indicates that Treasury considers the recommendation closed and will take no further action. * 29 Note: In MHA, Treasury should require that verifiable, third-party information be obtained to confirm an applicant’s income before any modification payments are made. * 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 the servicer to compare the income reported on a mortgage modification application with the income reported on the original loan application. * 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. 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. (continued) 28 27 26 25 Recommendation SIGTARP RECOMMENDATIONS TABLE X Partially Implemented X X In Process X Not Implemented TBD/NA Comments Continued on next page. Treasury has rejected SIGTARP’s recommendation and does not require income reported on the modification application to be compared to income reported on the original loan application. Treasury stated that its program administrator Fannie Mae is in the process of hiring a third party entity to perform a fraud detection surveillance process to review loan level data to check for owner occupancy and identity of the borrower. See discussion in Section 5: “SIGTARP Recommendations” of SIGTARP’s October 2009 Quarterly Report. Treasury has decided to adopt this important SIGTARP recommendation and stated that its program administrator Fannie Mae is in the process of hiring a third-party entity to perform a fraud-detection surveillance process to review loan level data to check for owner occupancy and identity of the borrower. quarterly report to congress I aPRIL 20, 2010 149 In MHA, Treasury should require its agents to keep track of the names and identifying information for each participant in each mortgage modification transaction and to maintain a database of such information. 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. * * * * 32 33 34 X Implemented *Indicates that Treasury considers the recommendation closed and will take no further action. In MHA, Treasury should proactively educate homeowners about the nature of the program, warn them about modification rescue fraudsters, and publicize that no fee is necessary to participate in the program. 31 Note: In MHA, Treasury should defer payment of the $1,000 incentive to the servicer until after the homeowner has verifiably made a minimum number of payments under the mortgage modification program. * (continued) 30 Recommendation SIGTARP RECOMMENDATIONS TABLE X Partially Implemented In Process X X X Not Implemented TBD/NA Continued on next page. Treasury has committed to publish on a quarterly basis certain highlevel information about aggregated purchases by the PPIFs, but not within seven days of the close of the quarter. 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. SIGTARP is including in the report all transactions conducted by one former fund manager, TCW, and anticipates providing additional detail in our future quarterly reports. Treasury has refused to adopt this significant anti-fraud measure designed to prevent conflicts of interest. This represents a material deficiency in the program. While Treasury’s program administrator, Fannie Mae, has developed a HAMP system of record that maintains the servicers’ and investors’ names and participating borrowers’ personally identifiable information, such as names and addresses, the database is not constructed to maintain other information that may assist in detecting insiders who are committing large-scale fraud. Rather than deferring payment of the incentive until after the homeowner has verifiably made a minimum number of payments on its permanent modification, Treasury will pay the incentive after the servicer represents that the homeowner has made three payments during the trial period. Comments 150 special inspector general I troubled asset relief program Note: 39 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. X X Implemented *Indicates that Treasury considers the recommendation closed and will take no further action. * * 37 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 holdings in related assets or exposures to related liabilities. * 38 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. (continued) 36 35 Recommendation SIGTARP RECOMMENDATIONS TABLE Partially Implemented X In Process X X Not Implemented TBD/NA Comments Continued on next page. Treasury and the Federal Reserve have discussed concerns about potential overrating or rating shopping with the rating agencies, and have agreed to continue to develop and enhance risk management tools and processes, where appropriate. 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. 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 as well as internal controls to administer PPIP. quarterly report to congress I aPRIL 20, 2010 151 Treasury should improve existing control systems to document the occurrence and nature of external phone calls and inperson 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. The Secretary of the Treasury should direct the Special Master to work with FRBNY officials in understanding AIG compensation programs and retention challenges before developing future compensation decisions that may affect both institutions’ ability to get repaid by AIG for Federal assistance provided. Treasury should establish policies to guide any similar future decisions to take a substantial ownership position in financial institutions that would require an advance review so that Treasury can be reasonably aware of the obligations and challenges facing such institutions. Treasury should establish policies to guide decision making in determining whether it is appropriate to defer to another agency when making TARP programming decisions where more than one Federal agency is involved. * * * * 41 42 43 44 X X X Implemented Note: *Indicates that Treasury considers the recommendation closed and will take no further action. Treasury should more explicitly document the vote of each Investment Committee member for all decisions related to the investment of TARP funds. * (continued) 40 Recommendation SIGTARP RECOMMENDATIONS TABLE X Partially Implemented In Process Not Implemented X TBD/NA Treasury has agreed to work closely with other Federal agencies that are involved in TARP. Although Treasury stated that it does not anticipate taking a substantial percentage ownership position in any other financial institution pursuant to EESA, Treasury also stated that it could use EESA funds if necessary to respond to an immediate and substantial threat to the economy. Treasury stated that it will address the issues raised in the recommendation if it becomes necessary to make an investment. The Special Master has consulted with FRBNY regarding AIG executive compensation programs. Treasury adopted SIGTARP’s recommendation related to an application for TARP funding. Treasury’s Office of Financial Stability has implemented SIGTARP’s recommendation to document each specific vote of individual Investment Committee members when deciding whether to approve or disapprove proposed TARP investments. Comments 152 special inspector general I troubled asset relief program quarterly report to congress I aPRIL 20, 2010 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 33. 34. 35. 36. 37. 38. 39. 40. Bureau of Labor Statistics Release, “Economic News Release,” 4/4/2010, http://www.bls.gov/news.release/empsit.t12.htm, accessed 4/15/2010. SIGTARP, “Factors Affecting Implementation of the Home Affordable Modification Program,” 3/25/2010, http://sigtarp.gov/reports/audit/2010/ Factors_Affecting_Implementation_of_the_HomeAffordable_Modification_Program.pdf, accessed 3/25/2010. RealtyTrac Press Release, 4/15/2010, www.realtytrac.com/contentmanagement/pressrelease.aspx?channellid=9&itemid=8927, accessed 4/17/2010. Treasury, “Making Home Affordable Program Servicer Performance Report Through March 2010,” no date, www.financialstability.gov/docs/report.pdf, accessed 4/14/2010. In October 2009, Treasury started to encounter challenges with its website counting system, and, as a result, it changed to a new system in January 2010. SIGTARP has calculated the total number of website hits reported herein based on the number reported to SIGTARP as of September 30, 2009, plus an archived number provided by Treasury for the period of October – December 2009, and information generated from Treasury’s new system for the period of January – March 2010. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008. Treasury Press Release, “Treasury Department Releases Text of Letter from Secretary Geithner to Hill Leadership on Administration’s Exit Strategy for TARP,” 12/9/2009, www.financialstability.gov/latest/pr_12092009.html, accessed 3/10/2009. White House Press Release, “President Obama Outlines New Small Business Lending Fund,” 2/2/2010, www.whitehouse.gov/the-press-office/president-obama-outlines-new-small-business-lending-fund, accessed 3/14/2010. Commitment source: Treasury, response to SIGTARP data call, 4/7/2010. 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 (P.L. 111-22). From a budgetary perspective, what Treasury has committed to spend (e.g., signed agreements with TARP fund recipients). Treasury, Transactions Report, 4/2/2010, http://financialstability.gov/docs/transaction-reports/4-2-10%20Transactions%20Report%20as%20of%203-31-10.pdf, accessed 4/2/2010; Treasury, response to SIGTARP data call, 4/12/2010. White House Press Release, “President Obama Outlines New Small Business Lending Fund,” 2/2/2010, www.whitehouse.gov/the-press-office/president-obama-outlines-new-small-business-lending-fund, accessed 3/14/2010; Treasury, “Community Development Capital Initiative,” 2/18/2010, http:// financialstability.gov/roadtostability/comdev.html, accessed 3/12/2010. As of March 31, 2010, 77 TARP recipients in various programs had repaid their TARP funds. Under the Capital Purchase Program (“CPP”) 74 TARP recipients had repaid a total $135.9 billion. Chrysler Financial, LLC, General Motors, and Chrysler had repaid TARP funds under the Automotive Industry Financing Program (“AIFP”) totaling $4.6 billion. Under the Targeted Investment Program (“TIP”) Bank of America and Citigroup had repaid $40 billion. Treasury and Citigroup also terminated their agreement under the Asset Guarantee Program (“AGP”), reducing Treasury’s exposure by $5 billion. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008; Treasury, response to SIGTARP draft report, 1/15/2010. Treasury, response to SIGTARP data call, 4/12/2010. Treasury, response to SIGTARP data call, 4/12/2010. Treasury Press Release, “Relief for Responsible Homeowners One Step Closer Under New Treasury Guidelines,” 3/4/2009, www.financialstability.gov/ latest/tg48.html, accessed 3/10/2010. Treasury, “Making Home Affordable Updated Detailed Program Description,” 4/28/2009, www.treas.gov/press/releases/reports/housing_fact_sheet.pdf, accessed 3/10/2010. Treasury, response to SIGTARP data call, 4/7/2010. Treasury, “Factsheet on Capital Purchase Program,” 3/17/2009, www.financialstability.gov/roadtostability/CPPfactsheet.htm, accessed 3/10/2010. Treasury, response to SIGTARP data call, 4/7/2010. Treasury Press Release, “Treasury Department Releases Text of Letter from Secretary Geithner to Hill Leadership on Administration’s Exit Strategy for TARP,” 12/9/2009, www.financialstability.gov/latest/pr_12092009.html, accessed 3/10/2010. Treasury, “Community Development Capital Initiative,” 2/18/2010, http://financialstability.gov/roadtostability/comdev.html, accessed 3/12/2010. Treasury, response to SIGTARP data call, 4/7/2010. Treasury, response to SIGTARP data call, 4/7/2010. Treasury, “Programs,” 5/7/2009, www.financialstability.gov/roadtostability/programs.htm, accessed 3/10/2010. The $40 billion Series D cumulative preferred shares were effectively converted to $41.6 billion Series E non-cumulative preferred without any cash outlay by Treasury. Treasury, Transactions Report, 4/2/2010, http://financialstability.gov/docs/transaction-reports/4-2-10%20Transactions%20Report%20 as%20of%203-31-10.pdf, accessed 4/2/2010. Treasury, response to SIGTARP data call, 4/7/2010. OFS, Agency Financial Report, Fiscal Year 2009, 12/10/2009, www.treas.gov/press/releases/OSF%20AFR%2009.pdf, accessed 3/10/2010. Treasury, Transactions Report, 4/2/2010, http://financialstability.gov/docs/transaction-reports/4-2-10%20Transactions%20Report%20as%20of%203-3110.pdf, accessed 4/2/2010. OFS, Agency Financial Report, Fiscal Year 2009, 12/10/2009, www.treas.gov/press/releases/OSF%20AFR%2009.pdf, accessed 3/10/2010. 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SBA, “Guaranteed Loan Program (Debt Financing),” www.sba.gov/financialassistance/borrowers/role/index.html, accessed 3/12/2009. SBA, “Summary of Performance and Financial Information, Fiscal Year 2009,” 2/22/2010, www.sba.gov/idc/groups/public/documents/sba_homepage/ serv_aboutsba_perf_summ.pdf, accessed 3/12/2009. SBA, 7(a) Loan Program, www.sba.gov/financialassistance/borrowers/guaranteed/7alp/FINANCIAL_GLP_7A_TERMS.html, accessed 3/12/2009. SBA, “Summary of Performance and Financial Information, Fiscal Year 2009,” 2/22/2010, www.sba.gov/idc/groups/public/documents/sba_homepage/ serv_aboutsba_perf_summ.pdf., accessed 3/12/2009. SBA, “CDC/504 Loan Program,” www.sba.gov/financialassistance/borrowers/guaranteed/CDC504lp/index.html, accessed 3/12/2010. SBA, “Summary of Performance and Financial Information, Fiscal Year 2009,” 2/22/2010, www.sba.gov/idc/groups/public/documents/sba_homepage/ serv_aboutsba_perf_summ.pdf, accessed 3/12/2009. 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U.S. Department of Commerce, “Small Business Investment Company (SBIC) Program,” 10/16/2009, www.mbda.gov/?section_id=3&bucket_ id=134&content_id=2282&well=entire_page, accessed 3/12/2010. NASBIC, “SBIC Financing Step by Step,” no date, www.nasbic.org/?page=SBIC_financing, accessed 3/12/2010. Total Investment: SBA, “Investment Division FAQs,” no date, www.sba.gov/aboutsba/sbaprograms/inv/faq/index.html, accessed 3/31/2010. Loan Principal Balance: SBA, “Summary of Performance and Financial Information, Fiscal Year 2009,” 2/22/2010, www.sba.gov/idc/groups/public/documents/sba_homepage/serv_aboutsba_perf_summ.pdf, accessed 3/12/2009. 161 162 special inspector general I troubled asset relief program 335. 336. 337. 338. 339. 340. 341. 342. 343. 344. 345. 346. 347. 348. 349. 350. 351. 352. 353. 354. 355. 356. 357. 358. 359. 360. 361. 362. 363. 364. 365. SBA, “About the ARC Loan Program,” no date, www.sba.gov/recovery/arcloanprogram/REC_ARCLOAN_ELIGIBLE.html, accessed 3/12/2010. SBA, “SBA Recovery Act Report Card,” December 2009, www.sba.gov/idc/groups/public/documents/sba_homepage/recov_perform_rptcard_12_2009. pdf, accessed 3/12/2010. SBA, “Guaranteed Loan Program (Debt Financing),” no date, www.sba.gov/financialassistance/borrowers/role/index.html, accessed 312/09. U.S. Department of Commerce, “SBA Guarantee Bond Program,” 10/19/2009, www.mbda.gov/?section_id=3&bucket_id=138&content_ id=2277&well=entire_page, accessed 3/12/2010. OMB, “Budget FY 2010 - Small Business Administration,” no date, www.gpo.gov/fdsys/pkg/BUDGET-2010-APP/pdf/BUDGET-2010-APP-1-29.pdf, p. 1159, accessed 3/13/2010. SBA, “PRIME Program,” no date, www.sba.gov/financialassistance/prospectivelenders/prime/index.html, accessed 3/12/2010. ARRA enacted: GAO, “Status of the Small Business Administration’s Implementation of Administrative Provisions in the American Recovery and Reinvestment Act of 2009,” 1/19/2010, www.gao.gov/products/GAO-10-298R, accessed 3/24/2010. ARRA provisions: SBA, Implementing the American Recovery and Reinvestment Act of 2009 (Recovery Act), www.sba.gov/recovery/REC_LEARN_PROGRAMS.html, accessed 3/12/2010. Treasury, “Fact Sheet: Unlocking Credit for Small Businesses,” 10/19/2009, www.financialstability.gov/roadtostability/unlockingCreditforSmallBusinesses.html, accessed 3/8/2010. Treasury, “Guidelines for Automotive Industry Financing Program,” no date, www.financialstability.gov/docs/AIFP/AIFP_guidelines.pdf, accessed 9/2/2009. Treasury, Transactions Report, 4/9/2010, www.financialstability.gov/docs/transaction-reports/4-9-10%20Transactions%20Report%20as%20of%204-7-10. pdf, accessed 4/13/2010. Treasury, Transactions Report, 4/9/2010, www.financialstability.gov/docs/transaction-reports/4-9-10%20Transactions%20Report%20as%20of%204-7-10. pdf, accessed 4/13/2010. Congressional Budget Office, “Report on the Troubled Asset Relief Program-March 2010,” 3/17/2010, www.cbo.gov/ftpdocs/112xx/doc11227/03-17TARP.pdf, accessed 3/23/2010. Concerning the purpose of investment, see Treasury, “Automotive Industry Financing Program,” 9/4/2009, www.financialstability.gov/roadtostability/ autoprogram.html, accessed 9/4/2009; for the amount of Government investment, see Treasury, Transactions Report, 2/25/2010, www.financialstability. gov/docs/transaction-reports/3-1-10%20Transactions%20Report%20as%20of%202-25-10.pdf, accessed 3/4/2010. Treasury, Dividends and Interest Reports, 3/17/2010, www.financialstability.gov/docs/dividends-interest-reports/February%202010%20Dividends%20 and%20Interest%20Report.pdf (data as of 2/28/2010), accessed 4/7/2010; Treasury, Dividends and Interest Reports, 3/31/2010; Treasury, response to SIGTARP data call, 4/8/2010. Treasury, Transactions Report, 3/31/2010, www.financialstability.gov/docs/transaction-reports/4-2-10%20Transactions%20Report%20as%20of%203-3110.pdf, accessed 4/7/2010. For Total Commitments, see Congressional Budget Office, “Report on the Troubled Asset Relief Program-March 2010,” 3/17/2010, www.cbo.gov/ ftpdocs/112xx/doc11227/03-17-TARP.pdf, accessed 3/23/2010; for Debt Repayments, see Treasury, Transactions Report, 3/31/2010, www.financialstability.gov/docs/transaction-reports/4-2-10%20Transactions%20Report%20as%20of%203-31-10.pdf, accessed 4/7/2010. Treasury, “Obama Administration Auto Restructuring Initiative: General Motors Restructuring,” 6/1/2009, www.financialstability.gov/latest/05312009_ gm-factsheet.html, accessed 3/17/2009; Treasury, responses to SIGTARP draft reports, 7/9/2009 and 7/13/2009. Treasury Press Release, “Written Testimony of Herbert M. Allison, Jr., Assistant Secretary for Financial Stability Domestic Policy Subcommittee of the Oversight and Government Reform Committee,” 12/17/2009, www.financialstability.gov/latest/st_12172009.html, accessed 3/10/2010. Treasury Press Release, “The U.S. Treasury Department’s Summary Response to GAO Recommendations,” 1/4/2010, www.financialstability.gov/docs/ Summary%20Response%20to%20GAO%20Auto%20Report%201%204%2010.pdf, accessed 3/9/2010. Treasury, “The U.S. Treasury Department’s Summary Response to GAO Recommendations,” 1/4/2010, www.financialstability.gov/docs/Summary%20 Response%20to%20GAO%20Auto%20Report%201%204%2010.pdf, accessed 3/17/2010. GM, 8K, Exhibit 99.1: “News Release Dated November 16, 2009 and Financial Statements,” 11/16/2009, p. 3, www.sec.gov/Archives/edgar/ data/1467858/000119312509238453/dex991.htm, accessed 12/11/2009. Treasury, Transactions Report, 3/31/2010, www.financialstability.gov/docs/transaction-reports/4-2-10%20Transactions%20Report%20as%20of%203-3110.pdf, accessed 4/7/2010. Treasury, Transactions Report, 3/31/2010, www.financialstability.gov/docs/transaction-reports/4-2-10%20Transactions%20Report%20as%20of%203-3110.pdf, accessed 4/7/2010. GM Press Release, “The New General Motors Company Launches Today: Part 2,” 7/10/2009, www.gmreinvention.com/index.php/site/progress_reports/the_new_general_motors_company_launches_today_part_2/#206, accessed 3/5/2010. GM Press Release, “The New General Motors Company Launches Today: Part 2,” 7/10/2009, www.gmreinvention.com/index.php/site/progress_reports/the_new_general_motors_company_launches_today_part_2/#206, accessed 3/5/2010. Conference call with SIGTARP Audit, 4/12/2010. American Arbitration Association, Rules and Guides, “Automobile Industry Special Binding Arbitration Program,” no date, www.adr.org/ sp.asp?id=37159, accessed 3/31/2010. Conference call with SIGTARP Audit, 4/12/2010. Treasury, response to SIGTARP data call, 4/5/2010; partial answer received 4/6/2010 from Shannon Williams, SIGTARP Audit Supervisor; GM, GM Statement Regarding Dealer Arbitration, 3/5/2010, http://media.gm.com/content/media/us/en/news/news_detail.print.GMCOM.html/content/Pages/ news/us/en/2010/Mar/0305_dealers, accessed 4/8/2010. For total commitments: Treasury, Transactions Report, 4/9/2010, http://www.financialstability.gov/docs/transaction-reports/4-9-10%20Transactions%20 Report%20as%20of%204-7-10.pdf, accessed 4/13/2010; for debt and equity stake numbers, see Congressional Budget Office, “Report on the Troubled Asset Relief Program-March 2010,” 3/17/2010, www.cbo.gov/ftpdocs/112xx/doc11227/03-17-TARP.pdf, accessed 3/23/2010. OFS vetting comment, 4/8/2010; U.S. Bankruptcy Court, Southern District of New York, Case No. 09-50002, Docket No. 6078, “Disclosure Statement with Respect to the Joint Plan of Liquidation of Debtors and Debtors in Possession,” 12/14/2009, summary page and pp. 6, 9, http:// chap11.epiqsystems.com/ViewDocument.aspx?DocumentPk=4cb6e8a2-cef6-4982-bb7b-d7409bc74512, accessed 12/16/2009; for DIP Loan Amount, see Transactions Report, 4/9/2010, www.financialstability.gov/docs/transaction-reports/4-9-10%20Transactions%20Report%20as%20of%204-7-10.pdf, accessed 4/13/2010. quarterly report to congress I aPRIL 20, 2010 366. 367. 368. 369. 370. 371. 372. 373. 374. 375. 376. 377. 378. 379. 380. 381. 382. 383. 384. 385. 386. 387. 388. 389. FOX Business, Chrysler Sends Out Termination Letters to Dealers, 5/14/2009, www.foxbusiness.com/story/markets/industries/transportation/chryslersends-termination-letters-dealers/, accessed 4/8/2010. Conference call with SIGTARP audit, 4/12/2010; Treasury, response to SIGTARP data call 4/5/2010; partial answer received 4/6/2010 from Shannon Williams, SIGTARP Audit Supervisor. Treasury, Transactions Report, 3/31/2010, www.financialstability.gov/docs/transaction-reports/4-2-10%20Transactions%20Report%20as%20of%203-3110.pdf, accessed 4/7/2010. GMAC, Corporate Statements, “Written Statement of Michael A. Carpenter, GMAC Chief Executive Officer GMAC Financial Services Before the Congressional Oversight Panel,” 2/25/2010, http://media.gmacfs.com/file.php/345/Carpenter+Testimony+-+Final.pdf, accessed 3/17/2010. Congressional Oversight Panel, “March Oversight Report: The Unique Treatment of GMAC under the TARP,” 3/10/2010, http://cop.senate.gov/documents/cop-031110-report.pdf, accessed 3/18/2010. Concerning the principal, see Treasury, Transactions Report, 2/25/2010, www.financialstability.gov/docs/transaction-reports/3-1-10%20Transactions%20 Report%20as%20of%202-25-10.pdf, accessed 3/4/2010; for interest amounts, see Treasury, Dividends and Interest Reports, 2/19/2010, www.financialstability.gov/docs/dividends-interest-reports/January%202010_Dividends%20and%20Interest%20Report.pdf, accessed 3/4/2010, and 3/17/2010. Treasury Press Release, “Treasury Announces Auto Supplier Support Program,” 3/19/2009, www.financialstability.gov/latest/auto3_18.html, accessed 12/10/2009. Treasury, Transactions Report, 2/25/2010, www.financialstability.gov/docs/transaction-reports/3-1-10%20Transactions%20Report%20as%20of%202-2510.pdf, accessed 3/17/2010. Treasury, Transactions Report, 2/25/2010, www.financialstability.gov/docs/transaction-reports/3-1-10%20Transactions%20Report%20as%20of%202-2510.pdf, accessed 3/17/2010. OFS vetting comment, 4/8/2010.Treasury, Transactions Report, 4/9/2010, www.financialstability.gov/docs/transaction-reports/4-9-10%20 Transactions%20Report%20as%20of%204-7-10.pdf, accessed 4/13/2010. Treasury Press Release, “Interim Final Rule on TARP Standards for Compensation and Corporate Governance,” 6/10/2009, www.treas.gov/press/releases/tg165.htm, accessed 11/30/2009. American Recovery and Reinvestment Act of 2009, P.L. 111-5, 2/13/2009. Treasury, “TARP Standards for Compensation and Corporate Governance,” 6/10/2009, www.treas.gov/press/releases/reports/ec%20ifr%20fr%20 web%206.9.09tg164.pdf, accessed 11/30/2009. Treasury, “TARP Standards for Compensation and Corporate Governance,” 6/10/2009, www.treas.gov/press/releases/reports/ec%20ifr%20fr%20 web%206.9.09tg164.pdf, accessed 11/30/2009. Treasury, “Special Master for Executive Compensation,” 9/4/2009, www.financialstability.gov/about/spcMaster.html, accessed 11/30/2009. Treasury, “Special Master Issues 2010 Rulings for ‘Top 25’ Executives at Firms Receiving Exceptional Taxpayer Assistance and ‘Look Back’ Letter on Review of Pre-Recovery Act Compensation,” 3/23/2010, www.financialstability.gov/latest/tg_03232010c.html, accessed 3/23/2010. Treasury, “Special Master Issues 2010 Rulings for ‘Top 25’ Executives at Firms Receiving Exceptional Taxpayer Assistance and ‘Look Back’ Letter on Review of Pre-Recovery Act Compensation,” 3/23/2010, www.financialstability.gov/latest/tg_03232010c.html, accessed 3/23/2010. Treasury, “Special Master Issues 2010 Rulings for ‘Top 25’ Executives at Firms Receiving Exceptional Taxpayer Assistance and ‘Look Back’ Letter on Review of Pre-Recovery Act Compensation,” 3/23/2010, www.financialstability.gov/latest/tg_03232010c.html, accessed 3/23/2010. Treasury, “Special Master Issues 2010 Rulings for ‘Top 25’ Executives at Firms Receiving Exceptional Taxpayer Assistance and ‘Look Back’ Letter on Review of Pre-Recovery Act Compensation,” 3/23/2010, www.financialstability.gov/latest/tg_03232010c.html, accessed 3/23/2010. Treasury, “Special Master Issues 2010 Rulings for ‘Top 25’ Executives at Firms Receiving Exceptional Taxpayer Assistance and ‘Look Back’ Letter on Review of Pre-Recovery Act Compensation,” 3/23/2010, www.financialstability.gov/latest/tg_03232010c.html, accessed 3/23/2010. Treasury, “Special Master Issues 2010 Rulings for ‘Top 25’ Executives at Firms Receiving Exceptional Taxpayer Assistance and ‘Look Back’ Letter on Review of Pre-Recovery Act Compensation,” 3/23/2010, www.financialstability.gov/latest/tg_03232010c.html, accessed 3/23/2010. Treasury, “Special Master Issues 2010 Rulings for ‘Top 25’ Executives at Firms Receiving Exceptional Taxpayer Assistance and ‘Look Back’ Letter on Review of Pre-Recovery Act Compensation,” 3/23/2010, www.financialstability.gov/latest/tg_03232010c.html, accessed 3/23/2010. Treasury, “Special Master Issues 2010 Rulings for ‘Top 25’ Executives at Firms Receiving Exceptional Taxpayer Assistance and ‘Look Back’ Letter on Review of Pre-Recovery Act Compensation,” 3/23/2010, www.financialstability.gov/latest/tg_03232010c.html, accessed 3/23/2010. Treasury, “Special Master Issues 2010 Rulings for ‘Top 25’ Executives at Firms Receiving Exceptional Taxpayer Assistance and ‘Look Back’ Letter on Review of Pre-Recovery Act Compensation,” 3/23/2010, www.financialstability.gov/latest/tg_03232010c.html, accessed 3/23/2010. 163 164 special inspector general I troubled asset relief program 390 391 392 393 394 395 396 397 398 399 400 401 402 403 404 Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008. Treasury, response to SIGTARP data call, 4/7/2010. Treasury, response to SIGTARP data call, 4/7/2010. Treasury, response to SIGTARP data call, 4/7/2010. The 51 private-sector vendors include 3 private firms that were provided on a separate contracts list from Treasury but were not included in the obligations and expenditures list. Eleven Inter-Agency Agreements were not included in the calculation of 51 private-sector vendors. Treasury, response to SIGTARP data call, 4/7/2010. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008. Treasury, response to SIGTARP data call, 4/1/2010. Treasury, response to SIGTARP data call, 4/1/2010. Treasury, response to SIGTARP data call, 4/1/2010. Treasury, response to SIGTARP data call, 4/1/2010. Congressional Oversight Panel, “April Oversight Report, Evaluating Progress on TARP Foreclosure Mitigation Programs,” 4/14/2010, http://cop.senate. gov/documents/cop-041410-report.pdf, page 51, accessed 4/15/2010. Congressional Oversight Panel, “April Oversight Report, Evaluating Progress on TARP Foreclosure Mitigation Programs,” 4/14/2010. Bureau of Labor Statistics Release, “Economic News Release,”4/4/2010, http://www.bls.gov/news.release/empsit.t12.htm, accessed 4/15/2010. glossary I Appendix A I April 20, 2010 glossary This appendix provides a glossary of terms that are used throughout the context of this report. 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. 7(a) Program: SBA loan program guaranteeing a percentage of loans for small businesses that cannot otherwise obtain conventional loans at reasonable terms. Asset-Backed Securities (“ABS”): Bonds backed by a portfolio of non-mortgage consumer or corporate loans, e.g., credit card, auto, or small-business loans. Financial companies typically issue ABS backed by existing loans in order to fund new loans for their customers. Auction Agent: A firm (such as an investment bank) that buys a series of securities from one institution for resale — also called an “underwriter.” Bid Bond: Guarantees that the bidder on a contract will enter into the contract and furnish any required payment and performance bonds. Commercial Mortgage-Backed Securities (“CMBS”): A type of bond backed by one or more mortgages on commercial real estate (e.g., office buildings, rental apartments, hotels) rather than by residential real estate loans. Common Stock: Equity ownership entitling an individual to share in corporate earnings and voting rights. Community Development Financial Institutions (“CDFIs”): Financial institutions eligible for Treasury funding to serve a targeted demographic under the CDFI Fund. CDFIs were created in 1994 by the Riegle Community Development and Regulatory Improvement Act. Credit Underwriting: The process used by a financial institution to determine the risks involved in providing credit to a borrower and to measure those risks against standards established by the financial institution’s board of directors. For a small-business loan, credit underwriting standards can be applied to the firm, the owner, or both. Direct Private Placement: Sale of securities to investors meeting minimum net worth and sophistication requirements, thus receiving an exception from normal Securities and Exchange Commission securities registration requirements. Dividend: Distributions of cash or stock to shareholders as announced by the company’s board of directors. Dutch Auction: For Treasury’s warrant auctions (buyers bid for different quantities at once) the accepted price is set at the lowest bid of the group of high bidders whose collective bids fulfill the amount offered by the Treasury. Equity Capital Facility: A commitment to invest equity capital in a firm under certain future conditions. Exceptional Assistance: Companies receiving assistance under SSFI, TIP, AIFP, and any future Treasury program designated by the Treasury Secretary as providing exceptional assistance. Current recipients are: AIG, GM, GMAC, Chrysler, and Chrysler Financial. Excess Spread: Interest generated by an asset less its financing costs, charge-offs, servicing costs, and any other related expenses. For TALF, the difference between interest received from the underlying ABS or CMBS collateral and the interest payments on the TALF loan. Executive Compensation: Payments to a corporation’s employees, particularly those executives who have policymaking authority at the corporation in exchange for their services. These payments often include base salary, bonuses, grants of shares and stock options, and other company benefits (including, for example, health care and retirement benefits). Face Value: The nominal value or dollar value of a security stated by the issuer. Forbearance: A temporary postponement of loan payments approved by the servicer. Postponing the payments gives the borrower time to make up for missed payments that were caused by financial hardship. 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 dividends to the stock’s owner. Government-Sponsored Enterprises (“GSEs”): Private corporations created and chartered by the Government to reduce borrowing costs, the liabilities of which are not officially considered direct taxpayer obligations. CUSIP: Unique identifying number assigned to all registered securities in the United States and Canada. Gross Domestic Product: A measure of the total market value of all final goods and services produced in the U.S. during any quarter or year. GDP equals total consumer spending, business investment, and government spending and investment, plus the value of exports, minus the value of imports. Deed-in-Lieu of Foreclosure: Instead of going through the process of foreclosure, the borrower surrenders the deed to the home voluntarily to the lender, often as satisfaction of the unpaid mortgage balance. Deficiency Judgment: A court order that authorizes a lender to collect part of an outstanding debt resulting from the foreclosure and sale of a homeowner’s property or from the repossession of a property securing a debt. A deficiency judgment will take place after the foreclosed or repossessed property is sold and the proceeds collected are insufficient to pay the mortgage in full. Deficiency Payment: A payment made by the borrower to the lender in an amount usually equal to the difference between what the lender is able to sell the home for in a foreclosure sale and what was owed by the borrower on the loan. Illiquid Assets: Assets that cannot be quickly converted to cash. Key Person: An individual recognized as being necessary for the operation of the investment fund. Legacy Assets: Commonly called troubled or toxic assets, these are real estate-related loans and securities issued before the financial crisis’s that remain on financial institutions’ balance sheets. Legacy assets lost significant value at the onset of the crisis and were difficult to price because of market disruption. 165 166 Appendix a I glossary I April 20, 2010 Legacy Securities: Real estate-related securities lingering on the balance sheets of financial institutions because of pricing difficulties resulting from market disruption. Loan Modification: Involves making a permanent change in one or more terms of the existing loan such as the interest rate, the term, or converting from an adjustable-rate mortgage to a fixed-rate mortgage. Mandatorily Convertible Preferred Stock (“MCP”): A type of preferred share that can be converted to common stock at the issuer’s discretion if specific criteria are met by a certain date. Net Present Value Test: This test is used by the servicer to determine whether it will modify the mortgage, seek a foreclosure alternative, or pursue foreclosure. The test compares investor returns if the mortgage is modified versus if nothing is done. If the result is positive, the investor would expect to receive more from modifying the mortgage than from doing nothing. Non-Agency Residential Mortgage-Backed Securities (“non-agency RMBS”): A financial instrument backed by a group of residential real estate mortgages that are not guaranteed by a Government-sponsored enterprise (“GSE”) such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Non-Cumulative Dividends: Dividends that do not accrue when a company does not make a dividend payment. Non-Cumulative Preferred Stock: Shares of preferred stock where unpaid dividends do not accrue when the company does not make a dividend payment. Prompt Corrective Action Order: A Federal law that requires Federal bank regulators to take necessary actions to resolve the problems of insured depository institutions at the least possible long-term loss to the Deposit Insurance Fund. Public Interest Standard: Regulatory standard that the Special Master is required to apply in making determinations. Refers to the determination of whether TARP recipient compensation plans are aligned with the best interests of the U.S. taxpayer, based on a balancing of specific principles set forth in the Rule. Qualified Equity Offering: A cash sale in an amount at least equal to Treasury’s original investment of common stock or certain types of preferred stock that qualify as Tier 1 capital. Recourse Loan: A loan in which the borrower is legally liable to repay a debt even if the asset mortgaged cannot be liquidated to cover the loan balance. In a default, a recourse loan gives the lender the right to seize and sell the mortgaged asset, in addition to other assets or property of the borrower, up to the value of the loan. Refinancing: Paying off an existing mortgage and replacing it with a new mortgage. Typically, the proceeds from the new loan are used to pay off the debt of the old loan. Residential Mortgage-Backed Securities (“RMBS”): A type of bond backed by a pool of mortgages for residential real estate (e.g., home mortgages for residences occupied by up to four families) rather than by commercial real estate loans. Non-Recourse Loan: A secured loan whereby the borrower is relieved of the obligation to repay the loan upon surrender of the collateral. Revolving Credit Facility: A line of credit where the borrower pays a commitment fee and is then allowed to use up to a guaranteed maximum amount of funds when they are needed. Payment Bond: Guarantees that the contractor will pay anyone who furnishes labor, materials, equipment, and/or supplies for the contract. SBA Pool Certificate: An ownership interest in a bond backed by SBA-guaranteed loans. Performance Bond: Guarantees that the contractor will perform the contract in accordance with its terms. Senior Executive Officer (“SEO”): 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 executive officers. Permanent Modification: Under HAMP, a permanent modification lasts five years, after which the interest rate can increase incrementally by up to 1% per year, capped at the 30-year conforming fixed rate at the date of the initial modification. Pool Assembler: A firm authorized to create and market pools of SBA-guaranteed loans. Preferred Stock: Equity ownership that usually pays a fixed dividend prior to distributions for common stock owners but only after payments due to holders of debt and depositors. It typically confers no voting rights. Preferred stock also has priority over common stock in the distribution of assets when a bankrupt company is liquidated. Private Mortgage Insurance (“PMI”): Mortgage insurance provided by non-Government insurers to protect a lender against losses if a borrower defaults. Lenders may require borrowers to purchase this if the loan-to-value ratio of the loan is 80% or higher. Private-Label Mortgages: Loans that are not owned or guaranteed by Fannie Mae, Freddie Mac, or another Federal agency. Senior Preferred Stock: Shares that give the stockholder priority dividend and liquidation claims over junior preferred and common stockholders. Senior Subordinated Debenture: A subordinated debenture is a debt instrument ranking below senior debt but above equity with regard to investors’ claims on company assets or earnings. Senior debt holders are paid in full before subordinated debt holders are paid. There may be additional distinctions of priority among subordinated debt holders. CPP invests in senior subordinated debt. Short Sale: A sale of a home, typically for less than mortgage value, by which the borrower sells the home and the lender collects the sales proceeds as satisfaction of the unpaid mortgage balance, thus avoiding foreclosure (the costly legal process by which the investor would otherwise assume ownership of the home). 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 and is legally isolated. glossary I Appendix A I April 20, 2010 Systemically Significant: A term used for any financial institution whose failure would impose significant losses on creditors and counterparties, call into question the financial strength of similar institutions, disrupt financial markets, raise borrowing costs for households and businesses, and reduce household wealth (also commonly used to describe institutions known as “too big to fail”). Total Risk-Weighted Assets: A bank’s total assets after making adjustments based on each individual asset’s risk factor. Trial Modification: Under HAMP, a trial modification is generally intended to last three months. Trust Preferred Securities: Securities that have both equity and debt characteristics created by establishing a trust and issuing debt to it. Undercapitalized: A condition in which a financial institution does not meet its regulator’s requirements for having sufficient capital to continue to operate under a defined level of adverse conditions. Under-Served Communities: Either geographic areas or demographic groups that Treasury’s CDFI Fund division determines lack adequate access to financial services. Underwater Mortgage: A situation in which a homeowner owes more on the mortgage than the home is worth, typically the result of a decline in the home’s value. Venture Capital: A type of private equity capital typically provided for earlystage, high-growth-potential companies in the interest of generating a return through an eventual realization event, such as the sale of the company, a merger, or an initial public offering. Warrant: The right, but not the obligation, to purchase a certain number of shares of common stock at a fixed price. Because warrants rise in value as the company’s share price rises, Treasury (and the taxpayer) can benefit from a firm’s potential recovery. Write-down: A reduction in the principal balance of a loan. Write-downs may reduce the incentive for a borrower to default because the new principal balance usually is lower than what the property would sell for. Sources: COP, “February Oversight Report - Commercial Real Estate Losses and the Risk to Financial Stability,” 2/10/2010, http://cop.senate.gov/documents/cop-021110-report.pdf, accessed 4/16/2010. FDIC, “Credit Card Securitization Manual,” no date, www.fdic.gov/regulations/examinations/credit_card_ securitization/glossary.html, accessed 4/9/2010. FDIC, “FDIC Laws, Regulations, and Related Acts: 1000 Federal Deposit Insurance Act,” www.fdic.gov/ regulations/laws/rules/1000-4000.html, accessed 4/12/2010. FHFA, “Mortgage Markets and the Enterprises 2007,” 7/2008, www.fhfa.gov, accessed 4/9/2009. FRB, “5 Tips for Protecting your Home from Foreclosure,” 4/28/2009, www.federalreserve.gov/pubs/ foreclosuretips/default.htm, accessed 3/11/2010. FRB, “A Consumer’s Guide to Refinancing,” no date, www.federalreserve.gov/pubs/refinancings/default. htm, accessed 3/11/2010. SBA, “An Exploration of a Secondary Market for Small Business Loans,” 4/2003, www.sba.gov/advo/ research/rs227_tot.pdf, accessed 3/16/2010. SBA, “Office of Surety Guarantees, FAQs,” no date, www.sba.gov/aboutsba/sbaprograms/osg/faq/index. html, accessed 3/17/2010. SBA, “Venture Capital,” no date, www.sba.gov/financialassistance/borrowers/vc/, accessed 3/19/2010. SBA, “Notice of Changes to SBA Secondary Market Program,” 9/24/2004, www.sba.gov/idc/groups/ public/documents/sba_program_office/bank_notice_of_changes.htm, accessed 4/9/2010. SIGTARP, “Factors Affecting Implementation of the Home Affordable Modification Program,” 3/25/2010, http://sigtarp.gov/reports/audit/2010/Factors_Affecting_Implementation_of_the_Home_Affordable_ Modification_Program.pdf, , accessed 03/28/2010. SIGTARP, “Factors Affecting Implementation of the Home Affordable Modification Program,” 3/25/2010, http://sigtarp.gov/reports/audit/2010/Factors_Affecting_Implementation_of_the_Home_Affordable_ Modification_Program.pdf, accessed 03/28/2010. SIGTARP, “Factors Affecting Implementation of the Home Affordable Modification Program,” 3/25/2010, http://sigtarp.gov/reports/audit/2010/Factors_Affecting_Implementation_of_the_Home_Affordable_ Modification_Program.pdf, accessed 3/28/2010. Treasury, “Community Development Financial Institutions Fund,” 9/11/2009, /www.cdfifund.gov/who_we_ are/about_us.asp, accessed 4/9/2010. Treasury, “Decoder,” no date, www.financialstability.gov/roadtostability/decoder.htm, accessed 4/9/2009. Treasury, “Guidelines for Small Business and Community Lending Initiative,” no date, http://financialstability.gov/docs/Small%20Business%20Initiative%20Program%20Guidelines%20Final.pdf, accessed 4/9/2010. Treasury, “Making Home Affordable Update: Foreclosure Alternatives and Home Price Decline Protection Incentives,” 5/14/2009, www.treas.gov/press/releases/docs/05142009FactSheet-MakingHomesAffordable.pdf, accessed 12/30/2009. Treasury, “TARP Standards for Compensation and Corporate Governance,” 6/10/2009, www.financialstability.gov/docs/EC_IFR_FR_web60909.pdf, accessed 6/10/2009. U.S. Bureau of the Census, “Business Help Site,” no date, bhs.econ.census.gov/BHS/glossary.html, accessed 3/12/2010. U.S. Department of Housing and Urban Development, “Glossary,” no date, www.hud.gov/offices/hsg/sfh/ buying/glossary.cfm, accessed 4/8/2009. 167 168 Appendix B I Acronyms and abbreviations I April 20, 2010 Acronyms and Abbreviations 2MP Second Lien Modification Program FDIC Federal Deposit Insurance Corporation ABS asset-backed securities FDIC OIG AGP Asset Guarantee Program Office of the Inspector General of the Federal Deposit Insurance Corporation AIA AIA Group, Limited FFETF Financial Fraud Enforcement Task Force AIFP Automotive Industry Financing Program FHA Federal Housing Administration AIG American International Group, Inc. FRBNY Federal Reserve Bank of New York ALICO American Life Insurance Company Freddie Mac Federal Home Loan Mortgage Corporation ARC America's Recovery Capital program FTC Federal Trade Commission ARM adjustable-rate mortgage GAO Government Accountability Office ARRA American Recovery and Reinvestment Act of 2009 GM General Motors Corporation ASSP Auto Supplier Support Program GMAC GMAC Inc. AWCP Auto Warranty Commitment Program GSE Government-sponsored enterprises Bank of America Bank of America Corporation HAFA Home Affordable Foreclosure Alternatives program HAMP Home Affordable Modification Program BlackRock BlackRock Financial Management, Inc. HERA Housing and Economic Recovery Act of 2008 CAP Capital Assistance Program HFA Housing Finance Agency CBO Congressional Budget Office HPDP Home Price Decline Protection program CDCI Community Development Capital Initiative HUD Department of Housing and Urban Development CDFI Community Development Financial Institution HUD OIG CEO chief executive officer Office of the Inspector General of the Department of Housing and Urban Development Chrysler Financial Chrysler Financial Services Americas LLC IAA Inter-Agency Agreement ICE Immigration and Customs Enforcement CMBS commercial mortgage-backed securities IG Inspector General Colonial Colonial Bancgroup SIGTARP's Initial Report to Congress COP Congressional Oversight Panel Initial Report CPP Capital Purchase Program IPO initial public offering DIL deed-in-lieu of foreclosure IRS Internal Revenue Service DOJ Department of Justice LIBOR London Interbank Offered Rate DTI debt-toi-ncome ratio LLC limited liability company EESA Emergency Economic Stabilization Act of 2008 MBS mortgage-backed securities Fannie Mae Federal National Mortgage Association MCP mandatorily convertible preferred shares FBI Federal Bureau of Investigation Merrill Lynch Merrill Lynch & Co. Inc. Acronyms and abbreviations I Appendix B I April 20, 2010 MHA Making Home Affordable program TIP Targeted Investment Program Midwest Midwest Banc Holdings, Inc. Treasury Department of the Treasury MVMC Mt. Vernon Money Center UCB United Commercial Bank NPV net present value UCBH UCB Holdings Inc. NRSRO nationally recognized statistical rating organization UCSB Unlocking Credit for Small Businesses initiative NUFI National Union Fire Insurance Company of Pittsburgh UGC United Guaranty Corporation OMB Office of Management and Budget ULG United Law Group, LLC OFS Office of Financial Stability USPIS U.S. Postal Inspection Service PIMCO Pacific Investment Management Company LLC PPIF Public-Private Investment Fund PPIP Public-Private Investment Program PRIME Program for Investment in Micro-Entrepreneurs QFI qualifying financial institution RMBS residential mortgage-backed securities S&P Standard & Poor’s SBA Small Business Administration SBIC Small Business Investment Company SBLF Small Business Lending Fund SEC Securities and Exchange Commission SEO senior executive officer SIGTARP Special Inspector General for the Troubled Asset Relief Program Special Master Office of the Special Master for the Troubled Asset Relief Program SPV special purpose vehicle SS/DIL short sales/deed-in-lieu of foreclosure SSFI systemically significant failing institutions TALF Term Asset-Backed Securities Loan Facility TARP Troubled Asset Relief Program TARP-IG Council TARP Inspector General Council the Rule Interim Final Rule on TARP Standards for Compensation and Corporate Governance 169 170 Appendix C I Reporting Requirements I april 20, 2010 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 teh Emergency Economic Stabilization Act of 2008 section 121, as well as a cross-reference to related data presented in this report and prior reports. Italics style indicates 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. Treasury describes the assets purchased under TARP during the period from January 31, 2010 through March 31, 2010 in the Monthly 105(a) reports for January 2010, February 2010 and March 2010 and in 31 separate transaction reports posted on www.financialstability.gov. Below are program descriptions from Treasury’s FinancialStability.gov website, as of 3/31/2010: 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. 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” Reporting Requirements I Appendix C I april 20, 2010 # EESA Section EESA Reporting Requirement Treasury Response to SIGTARP Data Call SIGTARP Report Section PPIP: The Legacy Securities Public-Private Investment Program (“S-PPIP”) is designed to purchase troubled legacy securities that are central to the problems currently impacting the U.S. financial system. Under this program, Treasury will invest equity and debt in multiple Public-Private Investment Funds (“PPIFs”) established with private sector fund managers and private sector investors for the purpose of purchasing eligible assets. PPIF managers will invest in securities backed directly by mortgages that span the residential credit spectrum (e.g., prime, Alt-A, subprime mortgages) as well as the commercial mortgage market. CDCI: In February 2010, Treasury announced the Community Development Capital Initiative (CDCI) to improve access to credit for small businesses. Through this TARP program, Treasury will invest lower-cost capital in Community Development Financial Institutions (CDFIs) that lend to small businesses in the country’s hardest-hit communities. 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 was created to] 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)]. Information on all transactions as well as additional information about these programs and related purchases is available in the transaction reports and monthly 105(a) reports posted at http://www.financialstability.gov/latest/reportsanddocs.html. Appendix D: “Transaction Detail” 3 Section 121(c)(C) An explanation of the reasons the Secretary deemed it necessary to purchase each such troubled asset. During the first quarter of 2010, the Secretary of the Treasury signed Troubled Asset Determination for the SBA 7(A) program. The Treasury Secretary determined that the TARP’s purchase of the Pooled Certificates is necessary to promote financial market stability. Section 2: “TARP Overview” A listing of each financial institution that such troubled assets were purchased from. See #2 above See #2 4 Section 121(c)(D) Appendix C: “Reporting Requirements” of prior SIGTARP Quarterly Reports to Congress 171 172 Appendix C I Reporting Requirements I april 20, 2010 # 5 EESA Section EESA Reporting Requirement Section 121(c)(E) A listing of and detailed biographical information on each person or entity hired to manage such troubled assets. Treasury Response to SIGTARP Data Call There have been no new PPIP fund managers hired between January 1, 2001 and March 31, 2010. On March 29, 2010, the Treasury engaged Morgan Stanley as a financial agent and capital markets disposition agent in connection with its investment in the common stock of Citigroup, Inc. The Treasury intends to fully dispose of its approximately 7.7 billion shares of Citigroup common stock over the course of 2010 subject to market conditions. Morgan Stanley is a global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. SIGTARP Report Section Section 3: “TARP Operations and Administration” Appendix C: “Reporting Requirements” of prior SIGTARP Quarterly Reports to Congress Morgan Stanley, acting as Treasury’s capital markets disposition agent, will perform various services, including: • Acting as broker or market-maker for all disposition services executed pursuant to Rule 144 of the Securities Act of 1933, • Acting as sole book-running manager for disposition services executed in underwritten offerings pursuant to a prospectus or prospectus supplement, subject to the Treasury’s satisfaction with the performance of the disposition services at such time, • Executing and confirming transfers, trades, and other transactions as instructed by the Treasury, and maintaining records of any trades or transfers executed, • Reconciling books and records with the custodian’s and with the Treasury’s accounting systems, • Acting as the Treasury’s advisor regarding the optimal timing and strategy for the disposition of the securities, and, • Maintaining a compliance program designed to detect and prevent violations of Federal securities laws, and identifying, documenting, and enforcing controls to mitigate conflicts of interest. Additionally, Morgan Stanley will permit the Treasury’s internal and external auditors, or other governmental oversight entities, to audit books and records related to their services provided to Treasury under their Financial Agency Agreement. The FAA is available on Treasury website at http://www.financialstability.gov/impact/contractDetail2.html. 6 7 Section 121(c)(F) Section 121(c)(G) 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. This information [estimate of total amount of troubled assets purchased] is contained in [Treasury’s] transaction reports, which are posted on Treasury’s website at http://www. financialstability.gov/latest/reportsanddocs.html. The transactions report captures the total obligation under each TARP program. A listing of the insurance contracts issued under section 102. There have been no new insurance contracts issued under TARP from January 1, 2010 to March 31, 2010. Information on the repayments of Treasury’s investments under the CPP and proceeds from the sale of warrants are available within Treasury’s press releases, transactions reports and 105(a) Monthly Reports to Congress at http://www.financialstability.gov/latest/pressreleases.html and http://www.financialstability.gov/latest/reportsanddocs.html. Table C.1; Section 2: “TARP Overview” Appendix D: “Transaction Detail” Section 2: “TARP Overview” Section 2: “Targeted Investment Program and Asset Guarantee Program” 173 Reporting Requirements I Appendix C I april 20, 2010 # 8 EESA Section EESA Reporting Requirement Section 121(f) 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. SIGTARP Report Section Treasury Response to SIGTARP Data Call 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 website on April 9, 2010. The transactions reports and TARP Budget capture detailed information about TARP purchases, obligations, expenditures, and revenues. The latest transactions reports are available on Treasury’s public website at http://www.financialstability.gov/latest/ reportsanddocs.html Table C.1 Section 2: “TARP Overview” Section 3: “TARP Operations and Administration” Appendix D: “Transaction Detail” Sources: Treasury, responses to SIGTARP data call, 4/8/2010 and 4/12/2010; Program Descriptions: Treasury, “Programs” webpage, www.financialstability.gov/roadtostability/programs.htm, accessed 4/9/2010; ASSP: “Treasury Announces Auto Suppliers Support Program,” 3/19/2009, 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, www.federalreserve.gov/newsevents/press/monetary/monetary20090303a2.pdf, accessed 6/30/2009; MHA: “Making Home Affordable Updated Detailed Description Update,” 3/26/2010, www.financialstability.gov/latest/pr_03262010.html, accessed 4/9/2010. Table C.1 TOTAL AMOUNT OF TROUBLED ASSETS PURCHASED AND HELD ON TREASURY’S BOOKS, AS OF 3/31/2010 ($ BILLIONS) Capital Purchase Program (“CPP”) Obligationsa Expendedb On Treasury’s Booksc $204.89 $204.89 $69.07 Systemically Significant Failing Institutions (“SSFI”) 69.84 47.54 47.54 Home Affordable Modification Program (“HAMP”) 41.13 1.35 1.35 Targeted Investment Program (“TIP”) 40.00 40.00 — Automotive Industry Financing Program (“AIFP”) d 84.84 $79.69 75.09 Asset Guarantee Program (“AGP”) — — — Consumer and Business Lending Initiative (CBLI) — — — 20.00 0.10 0.10 — — — 0.02 0.02 0.02 — — — 30.36 8.59 8.23 $491.08 $382.18 $201.40 Term Asset-Backed Securities Loan Facility (“TALF”) Small Business Lending Program Unlocking Credit for Small Businesses (“UCSB”) Community Development Capital Initiative (“CDCI”) Legacy Securities Public-Private Investment Program (“PPIP”) Total Notes: Numbers affected by rounding. a For purposes of this table, “Obligations” refers to “Face Value Obligations” on the Treasury TARP/Financial Stability Plan Budget Table (“TARP Budget” as of 4/12/2010). b “Expended” refers to “Face Value Disbursed/Outlays,” defined as “TARP cash that has left the Treasury,” according to the TARP Budget. c “On Treasury’s Books” calculated as “Face Value Disbursed/Outlays” net of repayments per the Transactions Report if they do not appear to be already netted out. d According to Treasury, “TARP funds obligated include the total amount of funds that may be provided to servicers under existing agreements for the Home Affordable Modification Program (HAMP). In light of recent changes to HAMP as well as recent experience, Treasury expects to reestimate and revise these amounts in the next few months which will change this total. Treasury expects that the process will also result in there being sufficient funds to finance two recently announced TARP housing initiatives, consisting of $2.1B for the HFA Hardest Hit Fund and $14B for the FHA Refinance program. The $50B also includes $1.244B to offset costs of program changes for the “Helping Families Save Their Homes Act of 2009,” Public Law No: 111-22, Section 202 (b) and $15M for administrative expenditures relating to the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).” Source: Repayments data: Treasury, Transactions Report, 4/2/2010; all other data: Treasury, response to SIGTARP data call, 4/8/2010. $3,500,000 $12,720,000 $6,514,000 $4,781,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants 01/30/2009 Adbanc, Inc, Ogallala, NE 2 Alarion Financial Services, Inc., Ocala, FL 2 Alaska Pacific Bancshares, Inc., Juneau, AK Alliance Bancshares, Inc., Dalton, GA 2 01/23/2009 02/06/2009 06/26/2009 $12,000,000 Alliance Financial Services Subordinated Debentures w/ Exercised Warrants Inc., Saint Paul, MN 8 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Allied First Bancorp, Inc., Oswego, IL 2 06/26/2009 04/24/2009 Alpine Banks of Colorado, 03/27/2009 Glenwood Springs, CO 2 AMB Financial Corp., 01/30/2009 Munster, IN 2 AmeriBank Holding 03/06/2009 Company, Collinsville, OK 2 American Express 01/09/2009 Company, New York, NY 4 $21,000,000 $5,000,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants American State 01/09/2009 Bancshares, Inc., Great Bend, KS 2 Ameris Bancorp, Moultrie, 11/21/2008 GA AmeriServ Financial, Inc, 12/19/2008 Johnstown, PA AmFirst Financial Services, Subordinated Debentures w/ Exercised Warrants Inc., McCook, NE 8 $7,400,000 $21,100,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Avenue Financial Holdings, 02/27/2009 Inc., Nashville, TN 2 BancIndependent, Inc., Sheffield, AL 2 $2,000,000 Preferred Stock w/ Exercised Warrants Atlantic Bancshares, Inc., Bluffton, SC 2, 10 12/29/2009 03/13/2009 $525,000,000 Preferred Stock w/ Warrants Associated Banc-Corp, Green Bay, WI 11/21/2008 $8,152,000 Preferred Stock w/ Warrants Annapolis Bancorp, Inc., Annapolis, MD $110,000,000 $52,000,000 01/30/2009 Anchor BanCorp 01/30/2009 Wisconsin Inc., Madison, WI 08/21/2009 Preferred Stock w/ Warrants $1,800,000 $6,000,000 $3,388,890,000 Preferred Stock w/ Exercised Warrants American Premier Bancorp, Arcadia, CA 2 05/29/2009 Preferred Stock w/ Warrants $2,492,000 $3,674,000 $70,000,000 $3,652,000 $26,918,000 Preferred Stock w/ Warrants Alliance Financial 12/19/2008 Corporation, Syracuse, NY 4 $2,986,000 $10,000,000 Preferred Stock w/ Exercised Warrants 03/13/2009 AB&T Financial 01/23/2009 Corporation, Gastonia, NC 1st United Bancorp, Inc., Boca Raton, FL 2, 4, 7 $111,000,000 $16,369,000 Preferred Stock w/ Warrants 1st FS Corporation, Hendersonville, NC 11/14/2008 Preferred Stock w/ Warrants $4,400,000 Preferred Stock w/ Exercised Warrants 1st Enterprise Bank, Los Angeles, CA 2, c 02/13/2009 1st Source Corporation, 01/23/2009 South Bend, IN $6,000,000 Preferred Stock 1st Enterprise Bank, Los Angeles, CA 2, 10a, c 12/11/2009 $12,000,000 Investment Amount Preferred Stock w/ Warrants Investment Description 1st Constitution Bancorp, Cranbury, NJ Institution 12/23/2008 Purchase Date CPP Transaction Detail, as of 3/31/2010 Table D.1 06/17/2009 05/13/2009 11/18/2009 Capital Repayment Date $3,388,890,000 $26,918,000 $10,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 $0 Remaining Capital Amount 07/29/2009 06/17/2009 11/18/2009 Final Disposition Date R R R Note15 $340,000,000 $900,000 $500,000 Final Disposition Proceeds Final Disposition $13.76 $3.50 $1.10 $1.67 $9.03 $41.26 $29.48 $6.00 $2.65 $17.55 $2.15 $7.90 Stock Price as of 3/31/2010 $2,388.9 $13.7 $23.9 $35.4 $125.8 $49,287.9 $137.2 $3.9 $7.1 $439.9 $10.8 $35.7 Market Capitalization as of 3/31/2010 (in millions) $19.77 $4.08 $2.23 $2.40 $11.31 $4.08 $6.55 $19.87 $8.87 $8.15 Current Strike Price a 3,983,308 299,706 7,399,103 1,312,500 689,936 175,772 80,153 837,947 276,815 220,745 Current Outstanding Warrants a ($6.01) ($0.58) ($1.13) ($0.73) ($2.28) $1.92 ($3.90) ($2.32) ($6.72) ($0.25) $1,060,510 $389,857 $13,905 $32,375,000 $424,583 $0 $202,760 $1,213,333 $3,206,667 $359,700 $69,760 $74,367,308 $127,926 $208,604 $3,369,916 $160,916 $388,742 $538,360 $103,502 $245,026 $376,737 $722,125 $185,694 $370,903 $5,889,167 $1,025,336 $294,465 $686,667 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT OUT OUT IN OUT OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 174 Appendix D I Transaction Detail I april 20, 2010 $50,000,000 $1,004,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants BancStar, Inc., Festus, 04/03/2009 MO 2 BancTrust Financial Group, 12/19/2008 Inc., Mobile, AL Bank Financial Services, 08/14/2009 Inc., Eden Prairie, MN 2 Bank of America 01/09/2009 Corporation, Charlotte, NC 1a, 1b, 4, c Bank of America 10/28/2008 Corporation, Charlotte, NC 1a, 1b, 4, c Bank of Commerce Holdings, Redding, CA $3,000,000 $2,672,000 $28,000,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Bank of George, Las 03/13/2009 Vegas, NV 2 Bank of Marin Bancorp, Novato, CA 4 Bank of the Carolinas 04/17/2009 Corporation, Mocksville, NC Bank of the Ozarks, Inc., Little Rock, AR 4 $40,000,000 $985,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Berkshire Bancorp, Inc., 06/12/2009 Wyomissing, PA 2 Berkshire Hills Bancorp, Inc., Pittsfield, MA 4 Bern Bancshares, Inc., Bern, KS 2 12/19/2008 02/13/2009 $2,892,000 $6,000,000 $10,800,000 Preferred Stock w/ Exercised Warrants Beach Business Bank, 01/30/2009 Manhattan Beach, CA 2 $1,706,000 Preferred Stock w/ Warrants BCSB Bancorp, Inc., 12/23/2008 Baltimore, MD $3,133,640,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants BB&T Corp., WinstonSalem, NC 4 11/14/2008 $18,751,000 $795,000 $124,000,000 $1,000,000 $15,500,000 $12,639,000 $75,000,000 BCB Holding Company, 04/03/2009 Inc., Theodore, AL 2 Preferred Stock w/ Warrants Bar Harbor Bankshares, Bar Harbor, ME 5, b Preferred Stock w/ Warrants Banner Corporation, Walla Walla, WA 11/21/2008 01/16/2009 Preferred Stock w/ Exercised Warrants BankGreenville, Greenville, SC 2 02/13/2009 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants BankFirst Capital Corporation, Macon, MS 2 01/23/2009 Banner County Ban 02/06/2009 Corporation, Harrisburg, NE 2 Preferred Stock w/ Exercised Warrants Bankers’ Bank of the West 01/30/2009 Bancorp, Inc., Denver, CO 2 12/12/2008 12/05/2008 $13,179,000 $17,000,000 Preferred Stock w/ Exercised Warrants Bank of Commerce, 01/16/2009 Charlotte, NC 2 11/14/2008 Preferred Stock w/ Warrants $15,000,000,000 $10,000,000,000 $8,600,000 $48,000,000 Preferred Stock w/ Exercised Warrants BancPlus Corporation, Ridgeland, MS 2 02/20/2009 $13,669,000 $30,000,000 07/10/2009 Preferred Stock w/ Warrants Investment Amount Preferred Stock w/ Exercised Warrants Investment Description Bancorp Financial, Inc., Oak Brook, IL 2, 10 Institution Bancorp Rhode Island, 12/19/2008 Inc., Providence, RI 4 Purchase Date CPP Transaction Detail, as of 3/31/2010 05/27/2009 06/17/2009 02/24/2010 11/04/2009 03/31/2009 12/09/2009 12/09/2009 08/05/2009 Capital Repayment Date $40,000,000 $3,133,640,000 $18,751,000 $75,000,000 $28,000,000 $15,000,000,000 $10,000,000,000 $30,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 $0 $0 $0 $0 $0 $0 Remaining Capital Amount 06/24/2009 07/22/2009 11/24/2009 03/03/2010 03/03/2010 09/30/2009 Final Disposition Date R R R A A R Note15 $1,040,000 $67,010,402 $2,650,000 $186,342,969 $124,228,646 $1,400,000 Final Disposition Proceeds Final Disposition $18.33 $9.50 $32.39 $30.50 $3.84 $35.19 $4.50 $33.08 $4.73 $17.85 $4.85 $27.35 Stock Price as of 3/31/2010 $257.1 $29.6 $22,397.8 $115.1 $86.4 $595.2 $17.5 $173.2 $75.3 $179,074.1 $85.8 $126.3 Market Capitalization as of 3/31/2010 (in millions) $8.83 $26.81 $10.89 $4.16 $27.23 $6.29 $10.26 Current Strike Price a 183,465 52,455 1,707,989 475,204 154,242 405,405 730,994 Current Outstanding Warrants a $0.67 $3.69 ($7.05) $0.34 $5.85 ($1.56) ($5.41) $54,049 $877,778 $106,414 $177,125 $618,000 $80,558 $92,703,517 $1,036,514 $44,434 $7,646,667 $54,803 $896,374 $717,532 $3,354,167 $545,464 $451,111 $134,331 $176,671 $1,064,861 $1,293,750,000 $27,502 $2,888,889 $406,207 $2,579,666 $941,667 $430,209 Interest/ Dividends Paid to Treasury Continued on next page IN IN OUT IN IN OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 175 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Blue Valley Ban Corp, 12/05/2008 Overland Park, KS BNB Financial Services 04/17/2009 Corporation, New York, NY 2 Preferred Stock w/ Warrants Boston Private Financial 11/21/2008 Holdings, Inc., Boston, MA 4 Bridge Capital Holdings, San Jose, CA $2,400,000 Preferred Stock Subordinated Debentures w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Broadway Financial 11/14/2008 Corporation, Los Angeles, CA 3a, c - 11/24/2009 Brogan Bankshares, Inc., Kaukauna, WI 8 Brotherhood Bancshares, 07/17/2009 Inc., Kansas City, KS 2 Preferred Stock w/ Exercised Warrants Cache Valley Banking 12/23/2008 Company, Logan, UT 2, c 2, 10a, c 02/27/2009 California Bank of Commerce, Lafayette, CA 2 Cadence Financial 01/09/2009 Corporation, Starkville, MS $44,000,000 $4,000,000 Preferred Stock w/ Exercised Warrants $4,640,000 $4,767,000 $20,000,000 $607,000 $15,000,000 $11,000,000 Preferred Stock w/ Warrants Preferred Stock Preferred Stock w/ Warrants C&F Financial Corporation, 01/09/2009 West Point, VA Cache Valley Banking 12/18/2009 Company, Logan, UT Preferred Stock w/ Exercised Warrants Butler Point, Inc., 03/13/2009 Catlin, IL 2 04/24/2009 05/15/2009 Preferred Stock w/ Exercised Warrants $9,000,000 Preferred Stock Business Bancshares, Inc., Clayton, MO 2 $38,000,000 Broadway Financial 12/04/2009 Corporation, Los Angeles, CA 3, 10a, c $6,000,000 $23,864,000 Preferred Stock w/ Exercised Warrants Bridgeview Bancorp, Inc., 12/19/2008 Bridgeview, IL 2 12/23/2008 Preferred Stock w/ Warrants $154,000,000 $5,586,000 Subordinated Debentures w/ Exercised Warrants Boscobel Bancorp, Inc, Boscobel, WI 8 05/15/2009 $10,000,000 Preferred Stock w/ Exercised Warrants BOH Holdings, Inc., Houston, TX 2 $20,093,000 Preferred Stock w/ Exercised Warrants BNCCORP, Inc., Bismarck, 01/16/2009 ND 2 03/06/2009 $4,797,000 Preferred Stock w/ Exercised Warrants $31,260,000 $7,500,000 $21,750,000 $5,000,000 $12,000,000 $5,000,000 BNC Financial Group, Inc., 02/27/2009 New Canaan, CT 2 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Blue River Bancshares, 03/06/2009 Inc., Shelbyville, IN 2 BNC Bancorp, Thomasville, NC Preferred Stock w/ Exercised Warrants Blue Ridge Bancshares, 03/06/2009 Inc., Independence, MO 2 12/05/2008 Preferred Stock w/ Exercised Warrants Blackridge Financial, Inc., Fargo, ND 2 05/22/2009 $10,000,000 Preferred Stock w/ Exercised Warrants Blackhawk Bancorp, Inc., Beloit, WI 2 03/13/2009 $6,400,000 Subordinated Debentures w/ Exercised Warrants Biscayne Bancshares, 06/19/2009 Inc., Coconut Grove, FL 8, 10 $1,635,000 Preferred Stock w/ Exercised Warrants $1,744,000 Investment Amount Birmingham Bloomfield 04/24/2009 Bancshares, Inc, Birmingham, MI 2, c Investment Description Preferred Stock Institution Birmingham Bloomfield 12/18/2009 Bancshares, Inc, Birmingham, MI 2, 10a, c Purchase Date CPP Transaction Detail, as of 3/31/2010 01/13/2010 Capital Repayment Date Remaining Capital Amount $50,000,000 $104,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) Final Disposition Date Note15 Final Disposition Proceeds Final Disposition $1.83 $19.64 $9.15 $7.37 $7.90 $8.50 Stock Price as of 3/31/2010 $21.8 $60.4 $64.9 $507.0 $58.0 $24.0 Market Capitalization as of 3/31/2010 (in millions) $5.76 $17.91 $9.03 $8.00 $8.63 $29.37 Current Strike Price a 1,145,833 167,504 396,412 2,887,500 543,337 111,083 Current Outstanding Warrants a ($3.93) $1.73 $0.12 ($0.63) ($0.73) ($20.87) $210,733 $2,420,000 $334,026 $1,100,000 $30,480 $660,813 $346,378 $151,020 $622,917 $2,393,156 $1,365,551 $9,274,444 $351,468 $513,208 $909,542 $252,734 $1,866,917 $338,354 $211,458 $256,605 $615,850 $199,076 $502,611 $341,514 $85,854 Interest/ Dividends Paid to Treasury Continued on next page OUT IN IN OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 176 Appendix D I Transaction Detail I april 20, 2010 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants CalWest Bancorp, Rancho Santa Margarita, CA 2 Capital Bancorp, Inc., Rockville, MD 2 01/23/2009 12/23/2008 $2,250,000 $27,875,000 $15,000,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants 05/01/2009 CenterBank, Milford, OH 2 Centerstate Banks of 11/21/2008 Florida Inc., Davenport, FL 5, 9 Centra Financial Holdings, Inc., Morgantown, WV 2, 4, 7 $55,000,000 Preferred Stock w/ Warrants Center Financial 12/12/2008 Corporation, Los Angeles, CA b 01/16/2009 $3,564,000 Preferred Stock w/ Warrants Center Bancorp, Inc., 01/09/2009 Union, NJ b $10,000,000 $11,560,000 Preferred Stock w/ Exercised Warrants $24,300,000 CedarStone Bank, 02/06/2009 Lebanon, TN 2 Preferred Stock w/ Exercised Warrants CBS Banc-Corp., Russellville, AL 2 03/27/2009 $2,644,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants CBB Bancorp, Cartersville, GA 2, c 02/20/2009 $1,753,000 $4,114,000 $3,000,000 Cecil Bancorp, Inc., 12/23/2008 Elkton, MD Preferred Stock CBB Bancorp, Cartersville, GA 2, 10a, c 12/29/2009 Preferred Stock w/ Exercised Warrants CB Holding Corp., Aledo, IL 2 $3,500,000 Preferred Stock w/ Exercised Warrants Catskill Hudson Bancorp, 02/27/2009 Inc, Rock Hill, NY 2, c 05/29/2009 $258,000,000 Preferred Stock w/ Exercised Warrants Catskill Hudson Bancorp, 12/22/2009 Inc, Rock Hill, NY 2, 10a, c $38,970,000 $18,980,000 Preferred Stock w/ Warrants 01/16/2009 $4,000,000 $9,201,000 Cathay General Bancorp, 12/05/2008 Los Angeles, CA Preferred Stock w/ Warrants Carrollton Bancorp, Baltimore, MD 02/13/2009 $16,000,000 Preferred Stock Preferred Stock w/ Warrants Carolina Trust Bank, 02/06/2009 Lincolnton, NC $6,251,000 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Carolina Bank Holdings, 01/09/2009 Inc., Greensboro, NC $4,000,000 Cascade Financial 11/21/2008 Corporation, Everett, WA Subordinated Debentures w/ Exercised Warrants Cardinal Bancorp II, Inc., 10/23/2009 Washington, MO 8 $3,555,199,000 $5,100,000 $41,279,000 $4,700,000 $4,656,000 $1,037,000 $3,300,000 Investment Amount Carver Bancorp, Inc, New York, NY 3 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Capital Pacific Bancorp, 12/23/2008 Portland, OR 2 Capital One Financial Corporation, McLean, VA 4 Preferred Stock w/ Exercised Warrants Capital Commerce 04/10/2009 Bancorp, Inc., Milwaukee, WI 2 11/14/2008 Preferred Stock w/ Warrants Capital Bank Corporation, 12/12/2008 Raleigh, NC 01/23/2009 Calvert Financial 01/23/2009 Corporation, Ashland, MO 2 Investment Description Preferred Stock w/ Exercised Warrants Institution California Oaks State Bank, Thousand Oaks, CA 2 Purchase Date CPP Transaction Detail, as of 3/31/2010 03/31/2009 09/30/2009 06/17/2009 Capital Repayment Date $15,000,000 $27,875,000 $3,555,199,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 $0 Remaining Capital Amount 04/15/2009 10/28/2009 12/03/2009 Final Disposition Date R R A Note15 $750,000 $212,000 $148,731,030 Final Disposition Proceeds Final Disposition $12.24 $4.85 $8.31 $4.20 $11.62 $1.96 $5.26 $5.00 $3.50 $41.41 $4.46 Stock Price as of 3/31/2010 $315.5 $97.9 $121.1 $15.5 $912.2 $23.9 $13.5 $7.8 $11.9 $18,898.4 $50.9 Market Capitalization as of 3/31/2010 (in millions) $9.54 $8.65 $6.63 $20.96 $6.77 $6.72 $6.90 $6.71 $8.26 Current Strike Price a 432,390 86,705 261,538 1,846,374 863,442 205,379 86,957 357,675 749,619 Current Outstanding Warrants a ($4.69) ($0.34) ($2.43) ($9.34) ($4.81) ($1.46) ($1.90) ($3.21) ($3.80) $172,938 $1,196,303 $96,773 $3,231,250 $550,000 $199,076 $516,989 $1,169,842 $153,279 $159,460 $185,311 $15,408,333 $1,428,900 $1,025,447 $462,606 $205,000 $880,000 $163,187 $249,489 $105,174,638 $235,486 $2,425,142 $293,150 $269,279 $59,985 $190,841 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT OUT OUT OUT OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 177 $22,500,000 $10,000,000 $7,225,000 $3,000,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock Citizens Community Bank, South Hill, VA 2 Citizens First Corporation, 12/19/2008 Bowling Green, KY Citizens Republic Bancorp, 12/12/2008 Inc., Flint, MI Citizens South Banking Corporation, Gastonia, NC City National Bancshares Corporation, Newark, NJ 3 12/12/2008 04/10/2009 12/23/2008 $6,300,000 Preferred Stock w/ Exercised Warrants $9,439,000 $20,500,000 $300,000,000 $8,779,000 $2,400,000 Citizens Commerce 02/06/2009 Bancshares, Inc., Versailles, KY 2 $7,462,000 Preferred Stock Preferred Stock w/ Exercised Warrants Citizens Bank & Trust 03/20/2009 Company, Covington, LA 2 03/06/2009 $24,990,000 Citizens Bancshares Corporation, Atlanta, GA 3 Preferred Stock w/ Exercised Warrants Citizens Bancshares Co., Chillicothe, MO 2 05/29/2009 $10,400,000 Preferred Stock w/ Exercised Warrants Citizens Bancorp, Nevada City, CA 2 12/23/2008 $26,440,000 Preferred Stock w/ Warrants Citizens & Northern 01/16/2009 Corporation, Wellsboro, PA $25,000,000,000 Common Stock w/ Warrants Citigroup Inc., New York, NY 11 $2,330,000,000 10/28/2008 Contingent Value Rights $7,000,000 $19,817,000 CIT Group Inc., New York, NY 16 Preferred Stock w/ Exercised Warrants Subordinated Debentures w/ Exercised Warrants 12/31/2008 Chicago Shore 07/31/2009 Corporation, Chicago, IL 2 Chambers Bancshares, Inc., Danville, AR 8 $10,000,000 05/29/2009 $32,668,000 Century Financial Services Subordinated Debentures 06/19/2009 Corporation, Santa w/ Exercised Warrants Fe, NM 8 $7,500,000 $6,056,000 $11,385,000 $7,000,000 $135,000,000 $11,300,000 Preferred Stock w/ Warrants Centrue Financial 01/09/2009 Corporation, St. Louis, MO Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Centric Financial 12/18/2009 Corporation, Harrisburg, PA 2, 10 Centrix Bank & Trust, Bedford, NH 2 Preferred Stock w/ Warrants Central Virginia 01/30/2009 Bankshares, Inc., Powhatan, VA 02/06/2009 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Central Pacific Financial Corp., Honolulu, HI 01/09/2009 Central Valley Community 01/30/2009 Bancorp, Fresno, CA b Preferred Stock w/ Warrants Preferred Stock w/ Warrants Central Federal 12/05/2008 Corporation, Fairlawn, OH Central Jersey Bancorp, Oakhurst, NJ $22,000,000 Preferred Stock w/ Exercised Warrants Central Community Corporation, Temple, TX 2 02/20/2009 12/23/2008 $5,800,000 Preferred Stock w/ Exercised Warrants Central Bancshares, Inc., Houston, TX 2 01/30/2009 02/27/2009 Preferred Stock w/ Warrants Investment Amount Central Bancorp, Inc., 12/05/2008 Somerville, MA Investment Description Preferred Stock w/ Exercised Warrants Institution Central Bancorp, Inc., Garland, TX 2 Purchase Date CPP Transaction Detail, as of 3/31/2010 02/08/2010 Capital Repayment Date -$2,330,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 Remaining Capital Amount Final Disposition Date Note15 Final Disposition Proceeds Final Disposition $6.15 $1.14 $7.10 $12.55 $4.05 $3.45 $3.43 $5.50 $1.68 $3.28 $1.19 $9.11 Stock Price as of 3/31/2010 $46.3 $339.2 $14.0 $152.1 $115,663.6 $7,794.3 $20.8 $9.0 $49.2 $51.0 $30.4 $4.9 $14.9 Market Capitalization as of 3/31/2010 (in millions) $7.17 $2.56 $5.18 $20.36 $17.85 $9.64 $6.48 $6.64 $12.77 $6.31 $3.22 $6.39 Current Strike Price a 428,870 17,578,125 254,218 194,794 210,084,034 508,320 263,542 79,067 1,585,748 268,621 336,568 234,742 Current Outstanding Warrants a ($1.02) ($1.42) $1.92 ($7.81) ($13.80) ($6.19) ($3.05) ($1.14) ($11.09) ($3.03) ($2.03) $2.72 $281,859 $1,204,375 $13,875,000 $507,232 $187,117 $180,258 $19,983 $351,336 $628,033 $223,571 $1,428,494 $932,291,667 $43,687,500 $206,646 $1,182,341 $550,011 $571,690 $418,968 $50,537 $450,656 $364,583 $2,362,500 $646,611 $431,493 $1,182,347 $329,271 $597,222 $1,185,375 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT IN OUT OUT OUT OUT OUT OUT OUT OUT IN Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 178 Appendix D I Transaction Detail I april 20, 2010 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Coastal Banking Company, 12/05/2008 Inc., Fernandina Beach, FL CoastalSouth Bancshares, 08/28/2009 Inc., Hilton Head Island, SC 2, 10 Preferred Stock w/ Warrants Commerce National Bank, Newport Beach, CA 4 Preferred Stock w/ Exercised Warrants Community Business 02/27/2009 Bank, West Sacramento, CA 2 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Community Financial 05/15/2009 Shares, Inc., Glen Ellyn, IL 2 Community First 03/20/2009 Bancshares Inc., Union City, TN 2 Community First 04/03/2009 Bancshares, Inc., Harrison, AR 2 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Community Bankers 12/19/2008 Trust Corporation, Glen Allen, VA Community Financial Corporation, Staunton, VA Preferred Stock w/ Warrants Community Bank Shares 05/29/2009 of Indiana, Inc., New Albany, IN 12/19/2008 Preferred Stock Community Bank of the Bay, Oakland, CA 3 01/16/2009 $3,872,000 Preferred Stock w/ Exercised Warrants Community Bancshares, Inc., Kingman, AZ 2, 10 Preferred Stock w/ Exercised Warrants Community Bancshares of 09/11/2009 Mississippi, Inc., Brandon, MS 2 07/24/2009 $52,000,000 Preferred Stock w/ Exercised Warrants Community Bancshares of Kansas, Inc., Goff, KS 2 03/06/2009 $12,725,000 $20,000,000 $6,970,000 $12,643,000 $3,976,000 $17,680,000 $19,468,000 $1,747,000 $500,000 $2,550,000 Preferred Stock w/ Exercised Warrants Community 1st Bank, Roseville, CA 2 01/16/2009 $7,701,000 Preferred Stock w/ Exercised Warrants Commonwealth Business Bank, Los Angeles, CA 2 $20,400,000 $5,000,000 01/23/2009 Commonwealth 05/22/2009 Bancshares, Inc., Louisville, KY 8 Subordinated Debentures w/ Exercised Warrants $2,250,000,000 Preferred Stock w/ Warrants 11/14/2008 Comerica Inc., Dallas, TX 4 01/09/2009 $2,260,000 $76,898,000 Preferred Stock w/ Exercised Warrants Columbine Capital Corp., 02/27/2009 Buena Vista, CO 2 $28,000,000 Preferred Stock w/ Warrants Columbia Banking System, 11/21/2008 Inc., Tacoma, WA b $574,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants $10,000,000 $16,500,000 $64,450,000 $16,015,000 $9,950,000 $3,000,000 $400,000,000 Investment Amount Colony Bankcorp, Inc., 01/09/2009 Fitzgerald, GA Colonial American Bank, West Conshohocken, PA 2 Preferred Stock w/ Exercised Warrants ColoEast Bankshares, 02/13/2009 Inc., Lamar, CO 2 03/27/2009 Preferred Stock w/ Warrants Codorus Valley Bancorp, 01/09/2009 Inc., York, PA 12/19/2008 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Clover Community 03/27/2009 Bankshares, Inc., Clover, SC 2 CoBiz Financial Inc., Denver, CO Preferred Stock w/ Warrants 11/21/2008 City National Corporation, 11/21/2008 Beverly Hills, CA 4, c Investment Description Preferred Stock w/ Warrants Institution City National Corporation, Beverly Hills, CA 4, c Purchase Date CPP Transaction Detail, as of 3/31/2010 10/07/2009 03/17/2010 03/03/2010 12/30/2009 Capital Repayment Date Remaining Capital Amount $5,000,000 $2,250,000,000 $200,000,000 $0 $0 $0 $200,000,000 $200,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) Final Disposition Date Note15 Final Disposition Proceeds Final Disposition $4.16 $2.91 $8.95 $5.05 $38.04 $20.31 $5.84 $7.39 $6.23 $3.01 $53.97 Stock Price as of 3/31/2010 $18.1 $62.5 $29.2 $13.2 $6,620.1 $573.4 $42.2 $30.1 $228.9 $7.7 $2,819.2 Market Capitalization as of 3/31/2010 (in millions) $5.40 $3.40 $7.56 $8.60 $29.40 $14.49 $8.40 $9.38 $10.79 $7.26 $53.16 Current Strike Price a 351,194 780,000 386,270 87,209 11,479,592 398,023 500,000 263,859 895,968 205,579 1,128,668 Current Outstanding Warrants a ($1.24) ($0.49) $1.39 ($3.55) $8.64 $5.82 ($2.56) ($1.99) ($4.56) ($4.25) $0.81 $601,025 $984,028 $284,932 $730,485 $209,486 $1,021,511 $692,195 $21,838 $113,922 $1,212,322 $25,660 $104,265 $25,648 $1,250,395 $36,111 $150,937,500 $119,064 $4,742,043 $1,540,000 $27,658 $548,028 $907,500 $3,723,778 $391,499 $594,236 $144,425 $23,916,667 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT IN OUT IN IN OUT OUT OUT OUT IN Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 179 $7,525,000 Preferred Stock w/ Exercised Warrants Country Bank Shares, Inc., Milford, NE 2 $10,650,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Crosstown Holding 01/23/2009 Company, Blaine, MN 2 CSRA Bank Corp., Wrens, 03/27/2009 GA 2 CVB Financial Corp, 12/05/2008 Ontario, CA 4, 9, c CVB Financial Corp, Ontario, CA 4, c D.L. Evans Bancorp, Burley, ID 2 12/05/2008 02/27/2009 $1,173,000 $20,445,000 Preferred Stock w/ Exercised Warrants Subordinated Debentures w/ Exercised Warrants DeSoto County Bank, Horn Lake, MS 2, c Diamond Bancorp, Inc., Washington, MO 8 02/13/2009 05/22/2009 $12,000,000 $38,235,000 Duke Financial Group, Inc., Subordinated Debentures 06/19/2009 w/ Exercised Warrants Minneapolis, MN 8 Preferred Stock w/ Warrants Eagle Bancorp, Inc., 12/05/2008 Bethesda, MD 5, b $11,750,000 Preferred Stock w/ Warrants DNB Financial Corporation, 01/30/2009 Downingtown, PA $1,224,558,000 Preferred Stock w/ Warrants Discover Financial 03/13/2009 Services, Riverwoods, IL $146,053,000 Preferred Stock w/ Exercised Warrants Dickinson Financial 01/16/2009 Corporation II, Kansas City, MO 2 $1,508,000 Preferred Stock DeSoto County Bank, Horn Lake, MS 2, 10a, c $9,000,000 12/29/2009 Preferred Stock w/ Exercised Warrants Delmar Bancorp, Delmar, MD 2 $2,639,000 $19,891,000 $130,000,000 $2,400,000 12/04/2009 Deerfield Financial 05/15/2009 Corporation, Deerfield, WI 8 Subordinated Debentures w/ Exercised Warrants $24,900,000 Preferred Stock w/ Warrants Crescent Financial Corporation, Cary, NC 01/09/2009 $3,100,000 Preferred Stock w/ Exercised Warrants Crazy Woman Creek 02/20/2009 Bancorp, Inc., Buffalo, WY 2 $5,000,000 Preferred Stock w/ Exercised Warrants Covenant Financial 06/05/2009 Corporation, Clarksdale, MS 2 01/30/2009 $638,000 Preferred Stock w/ Exercised Warrants Corning Savings and Loan 02/13/2009 Association, Corning, AR 2 $3,285,000 Preferred Stock w/ Exercised Warrants Congaree Bancshares, 01/09/2009 Inc., Cayce, SC 2 $15,600,000 Preferred Stock w/ Warrants $24,000,000 $4,400,000 $9,000,000 $2,600,000 $1,050,000 $17,806,000 Investment Amount Community West 12/19/2008 Bancshares, Goleta, CA Preferred Stock w/ Exercised Warrants Subordinated Debentures w/ Exercised Warrants Community Pride Bank 11/13/2009 Corporation, Ham Lake, MN 8, 10 Community Trust Financial Corporation, Ruston, LA 2 Preferred Stock w/ Warrants Community Partners 01/30/2009 Bancorp, Middletown, NJ 01/09/2009 Preferred Stock w/ Exercised Warrants Community Investors 12/23/2008 Bancorp, Inc., Bucyrus, OH 2 Preferred Stock w/ Exercised Warrants Investment Description Preferred Stock w/ Exercised Warrants Community First Inc., Columbia, TN 2 Institution Community Holding 02/06/2009 Company of Florida, Inc., Miramar Beach, FL 2 02/27/2009 Purchase Date CPP Transaction Detail, as of 3/31/2010 12/23/2009 08/26/2009 09/02/2009 Capital Repayment Date $15,000,000 $97,500,000 $32,500,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $23,235,000 $32,500,000 $0 Remaining Capital Amount 10/28/2009 Final Disposition Date R Note15 $1,307,000 Final Disposition Proceeds Final Disposition $11.85 $5.15 $14.90 $9.93 $3.49 $2.95 $3.58 Stock Price as of 3/31/2010 $232.6 $13.5 $8,102.3 $1,055.4 $33.6 $17.4 $25.7 Market Capitalization as of 3/31/2010 (in millions) $7.44 $9.46 $8.96 $4.48 $4.49 $4.54 Current Strike Price a 385,434 186,311 20,500,413 833,705 521,158 297,116 Current Outstanding Warrants a $4.41 ($4.31) $5.94 ($0.99) ($1.54) ($0.96) $2,175,146 $408,316 $611,979 $56,465,729 $2,631,197 $1,253,128 $73,949 $96,738 $166,064 $1,047,964 $4,739,583 $115,540 $615,944 $1,369,500 $166,603 $189,236 $427,178 $34,973 $152,159 $901,333 $1,438,800 $91,237 $468,750 $162,168 $58,426 $938,053 Interest/ Dividends Paid to Treasury Continued on next page IN OUT IN OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 180 Appendix D I Transaction Detail I april 20, 2010 Equity Bancshares, Inc., Wichita, KS 2 $8,752,000 $7,289,000 Preferred Stock w/ Exercised Warrants 05/29/2009 Fidelity Bancorp, Inc, Baton Rouge, LA 8 $3,942,000 $9,294,000 Preferred Stock w/ Exercised Warrants FCB Bancorp, Inc., Louisville, KY 2 12/19/2008 Subordinated Debentures w/ Exercised Warrants $21,042,000 Preferred Stock w/ Exercised Warrants FC Holdings, Inc., Houston, TX 2 06/26/2009 FFW Corporation, Wabash, 12/19/2008 IN 2 $3,035,000 Subordinated Debentures w/ Exercised Warrants FBHC Holding Company, Boulder, CO 8, 10 12/29/2009 $700,000 Preferred Stock w/ Exercised Warrants $12,000,000 Farmers Enterprises, Inc., Subordinated Debentures 06/19/2009 Great Bend, KS 8 w/ Exercised Warrants Farmers State 03/20/2009 Bankshares, Inc., Holton, KS 2 $30,000,000 Preferred Stock w/ Warrants Farmers Capital Bank 01/09/2009 Corporation, Frankfort, KY Farmers Bank, Windsor, VA 2 Preferred Stock w/ Exercised Warrants 01/23/2009 $442,000 Preferred Stock w/ Exercised Warrants Farmers & Merchants 03/20/2009 Financial Corporation, Argonia, KS 2 $11,000,000 Preferred Stock w/ Exercised Warrants $100,000,000 $17,243,000 Farmers & Merchants 03/06/2009 Bancshares, Inc., Houston, TX 2 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants F&M Financial 02/13/2009 Corporation, Clarksville, TN 2 F.N.B. Corporation, Hermitage, PA 4, b Preferred Stock w/ Exercised Warrants F & M Financial 02/06/2009 Corporation, Salisbury, NC 2 01/09/2009 $4,609,000 $17,000,000 $3,535,000 Preferred Stock Preferred Stock w/ Exercised Warrants F & M Bancshares, Inc., 01/30/2009 Trezevant, TN 2, c 11/06/2009 $2,993,000 $43,000,000 Preferred Stock w/ Exercised Warrants Subordinated Debentures w/ Exercised Warrants $8,750,000 Preferred Stock w/ Exercised Warrants $4,000,000 $35,000,000 $34,000,000 $7,500,000 $17,949,000 $24,000,000 $306,546,000 Investment Amount F & M Bancshares, Inc., Trezevant, TN 2, 10a, c F & C Bancorp, Inc., Holden, MO 8 05/22/2009 Exchange Bank, Santa 12/19/2008 Rosa, CA 2 01/30/2009 Preferred Stock w/ Exercised Warrants Enterprise Financial 06/12/2009 Services Group, Inc., Allison Park, PA 2 Preferred Stock w/ Warrants Encore Bancshares Inc., Houston, TX 12/05/2008 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Emclaire Financial Corp., Emlenton, PA 12/23/2008 Enterprise Financial 12/19/2008 Services Corp., St. Louis, MO Preferred Stock w/ Warrants ECB Bancorp, Inc., Engelhard, NC 01/16/2009 Preferred Stock w/ Warrants Investment Description Preferred Stock w/ Warrants East West Bancorp, Pasadena, CA b Institution Eastern Virginia 01/09/2009 Bankshares, Inc., Tappahannock, VA 12/05/2008 Purchase Date CPP Transaction Detail, as of 3/31/2010 09/09/2009 Capital Repayment Date $100,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 Remaining Capital Amount Final Disposition Date Note15 Final Disposition Proceeds Final Disposition $8.57 $8.11 $11.06 $9.47 $14.51 $12.29 $7.55 $17.42 Stock Price as of 3/31/2010 $63.2 $925.1 $164.3 $99.4 $20.8 $35.0 $44.9 $1,925.0 Market Capitalization as of 3/31/2010 (in millions) $20.09 $11.52 $16.20 $14.01 $22.45 $18.57 $9.63 $15.15 Current Strike Price a 223,992 651,042 324,074 364,026 50,111 144,984 373,832 1,517,555 Current Outstanding Warrants a ($11.52) ($3.41) ($5.14) ($4.54) ($7.94) ($6.28) ($2.08) $2.27 $235,180 $458,999 $585,347 $156,090 $31,466 $34,847 $660,016 $1,650,000 $506,171 $21,739 $564,530 $3,333,333 $944,950 $949,663 $310,221 $183,488 $2,122,169 $496,792 $147,150 $2,022,222 $2,030,556 $429,167 $969,745 $1,320,000 $18,307,608 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT OUT OUT OUT OUT IN Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 181 Preferred Stock w/ Exercised Warrants Financial Security 02/13/2009 Corporation, Basin, WY 2 First Alliance Bancshares, Inc., Cordova, TN 2 $65,000,000 $7,350,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants 01/09/2009 First Bancorp, Troy, NC First BancTrust 02/20/2009 Corporation, Paris, IL 2 First Bank of Charleston, 02/06/2009 Inc., Charleston, WV 2 $2,211,000 $10,958,000 $2,200,000 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock First California Financial 12/19/2008 Group, Inc, Westlake Village, CA First Capital Bancorp, Inc., 04/03/2009 Glen Ellen, VA First Choice Bank, 02/13/2009 Cerritos, CA 2, c First Choice Bank, 12/22/2009 Cerritos, CA 2, 10a, c $23,184,000 $4,500,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants First Colebrook Bancorp, 03/20/2009 Inc., Colebrook, NH 2 01/23/2009 First Citizens Banc Corp, Sandusky, OH $2,836,000 $25,000,000 $2,032,000 Preferred Stock Preferred Stock w/ Exercised Warrants First Business Bank, N.A., 04/10/2009 San Diego, CA 2, c $100,000,000 $295,400,000 $10,000,000 First Business Bank, N.A., 12/11/2009 San Diego, CA 2, 10a, c Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants First Banks, Inc., Clayton, MO 2 12/31/2008 First Busey Corporation, 03/06/2009 Urbana, IL b Preferred Stock w/ Exercised Warrants First Bankers Trustshares, Inc., Quincy, IL 2 01/16/2009 $3,345,000 $400,000,000 01/16/2009 Preferred Stock w/ Warrants First BanCorp, San Juan, PR $17,000,000 $50,000,000 $3,422,000 $1,177,000 $3,742,000 $5,000,000 $37,515,000 $3,408,000,000 $48,200,000 $3,000,000 Preferred Stock w/ Warrants Preferred Stock Subordinated Debentures w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants First American 03/13/2009 International Corp., Brooklyn, NY 3 First American Bank 07/24/2009 Corporation, Elk Grove Village, IL 8 06/26/2009 First Advantage 05/22/2009 Bancshares Inc., Coon Rapids, MN 2 Subordinated Debentures w/ Exercised Warrants Preferred Stock w/ Warrants Financial Institutions, Inc., Warsaw, NY 12/23/2008 Financial Services of 07/31/2009 Winger, Inc., Winger, MN 8, 10 Preferred Stock w/ Warrants Fifth Third Bancorp, Cincinnati, OH 12/31/2008 Preferred Stock w/ Warrants Fidelity Southern 12/19/2008 Corporation, Atlanta, GA $36,282,000 Preferred Stock w/ Exercised Warrants Fidelity Financial Corporation, Wichita, KS 2 12/19/2008 Preferred Stock w/ Exercised Warrants $6,657,000 Preferred Stock w/ Exercised Warrants Fidelity Federal Bancorp, Evansville, IN 2, 10 11/13/2009 Fidelity Resources 06/26/2009 Company, Plano, TX 2 $7,000,000 Investment Amount Preferred Stock w/ Warrants Investment Description Fidelity Bancorp, Inc., Pittsburgh, PA Institution 12/12/2008 Purchase Date CPP Transaction Detail, as of 3/31/2010 Capital Repayment Date Capital Repayment Amount Capital Repayment Details (CONTINUED) Remaining Capital Amount Final Disposition Date Note15 Final Disposition Proceeds Final Disposition $4.48 $8.13 $2.64 $4.42 $13.52 $2.41 $14.62 $13.56 $5.75 $4.90 Stock Price as of 3/31/2010 $34.5 $24.2 $68.7 $293.3 $226.3 $223.0 $159.6 $10,778.1 $58.8 $14.9 Market Capitalization as of 3/31/2010 (in millions) $7.41 $6.55 $6.26 $13.07 $15.82 $10.27 $14.88 $11.72 $3.11 $8.65 Current Strike Price a 469,312 250,947 599,042 573,833 616,308 5,842,259 378,175 43,617,747 2,323,689 121,387 Current Outstanding Warrants a ($2.93) $1.58 ($3.62) ($8.65) ($2.30) ($7.86) ($0.26) $1.84 $2.64 ($3.75) $221,406 $1,230,040 $141,442 $474,847 $1,444,444 $120,186 $4,708,333 $6,037,238 $588,903 $186,837 $395,056 $3,575,000 $6,611,111 $783,889 $2,342,225 $118,628 $46,872 $164,445 $274,014 $2,146,692 $213,000,000 $2,784,889 $104,004 $2,284,949 $0 $411,250 Interest/ Dividends Paid to Treasury Continued on next page OUT IN OUT OUT OUT OUT OUT IN IN OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 182 Appendix D I Transaction Detail I april 20, 2010 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Subordinated Debentures w/ Exercised Warrants First Community 11/21/2008 Bankshares Inc., Bluefield, VA 5 First Community Corporation, Lexington, SC First Community Financial 12/11/2009 Partners, Inc., Joliet, IL 2 First Defiance Financial 12/05/2008 Corp., Defiance, OH First Eagle Bancshares, 09/11/2009 Inc., Hanover Park, IL 8 $3,756,000 First Financial Bancshares, Subordinated Debentures Inc., Lawrence, KS 8, 10 w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants First Gothenburg 02/27/2009 Bancshares, Inc., Gothenburg, NE 2 First Guaranty 08/28/2009 Bancshares, Inc., Hammond, LA 2 $6,398,000 Preferred Stock w/ Warrants First Litchfield Financial 12/12/2008 Corporation, Litchfield, CT $12,000,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants First Manitowoc Bancorp, Inc., Manitowoc, WI 2, 4, 7 01/16/2009 First Menasha 02/13/2009 Bancshares, Inc., Neenah, WI 2 $13,900,000 Preferred Stock w/ Exercised Warrants First NBC Bank Holding 03/20/2009 Company, New Orleans, LA 2 $17,836,000 $193,000,000 Preferred Stock w/ Exercised Warrants First National Corporation, 03/13/2009 Strasburg, VA 2 $116,000,000 Preferred Stock w/ Warrants Preferred Stock w/ Warrants First Merchants Corporation, Muncie, IN 02/20/2009 First Midwest Bancorp, 12/05/2008 Inc., Itasca, IL $4,797,000 $30,000,000 Preferred Stock w/ Warrants First M&F Corporation, Kosciusko, MS 02/27/2009 $10,000,000 $3,223,000 Preferred Stock Preferred Stock w/ Exercised Warrants First Intercontinental Bank, 03/13/2009 Doraville, GA 2 $866,540,000 $20,699,000 $7,570,000 $8,700,000 $20,000,000 First Independence 08/28/2009 Corporation, Detroit, MI 2, 3 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants First Freedom 12/22/2009 Bancshares, Inc., Lebanon, TN 2, 10 First Horizon National Corporation, Memphis, TN Preferred Stock w/ Warrants First Financial 01/09/2009 Service Corporation, Elizabethtown, KY 11/14/2008 Preferred Stock w/ Warrants First Financial Holdings 12/05/2008 Inc., Charleston, SC b $65,000,000 $80,000,000 Preferred Stock w/ Warrants First Financial Bancorp, 12/23/2008 Cincinnati, OH 5, b 06/12/2009 $16,500,000 Preferred Stock w/ Warrants First Federal Bancshares 03/06/2009 of Arkansas, Inc., Harrison, AR $5,000,000 Preferred Stock w/ Exercised Warrants $7,500,000 $37,000,000 $22,000,000 $11,350,000 $41,500,000 $10,685,000 $14,800,000 Investment Amount First Express of Nebraska, 02/06/2009 Inc., Gering, NE 2 11/21/2008 Preferred Stock w/ Warrants First Community Bank 12/23/2008 Corporation of America, Pinellas Park, FL Investment Description Preferred Stock w/ Exercised Warrants Institution First Community 05/15/2009 Bancshares, Inc, Overland Park, KS 2, b Purchase Date CPP Transaction Detail, as of 3/31/2010 05/27/2009 02/24/2010 07/08/2009 Capital Repayment Date $12,000,000 $80,000,000 $41,500,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 $0 Remaining Capital Amount 05/27/2009 Final Disposition Date R Note15 $600,000 Final Disposition Proceeds Final Disposition $13.55 $6.96 $3.15 $14.95 $14.05 $8.75 $15.06 $17.78 $3.65 $10.12 $6.20 $12.37 $2.25 Stock Price as of 3/31/2010 $1,003.1 $177.5 $28.8 $35.2 $3,125.2 $41.3 $248.9 $1,028.1 $17.7 $82.2 $20.2 $219.8 $9.3 Market Capitalization as of 3/31/2010 (in millions) $22.18 $17.55 $8.77 $7.53 $9.32 $13.89 $20.17 $12.90 $7.69 $10.08 $8.69 $35.26 $7.02 Current Strike Price a 1,305,230 991,453 513,113 199,203 13,954,779 215,983 241,696 465,117 321,847 550,595 195,915 88,273 228,312 Current Outstanding Warrants a ($8.63) ($10.59) ($5.62) $7.42 $4.74 ($5.14) ($5.11) $4.88 ($4.04) $0.04 ($2.49) ($22.89) ($4.77) $877,572 $698,630 $11,526,389 $5,719,444 $262,902 $237,983 $1,450,000 $587,500 $321,579 $74,756 $54,279,103 $523,104 $398,856 $67,500 $1,100,000 $3,881,944 $205,744 $4,677,778 $570,625 $279,313 $269,180 $2,209,722 $213,156 $699,917 $1,308,403 $611,420 $604,950 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT IN IN OUT OUT IN OUT IN OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 183 First Niagara Financial Group, Lockport, NY 5, 9 Institution First Security Group, Inc., Chattanooga, TN $10,900,000 Preferred Stock w/ Exercised Warrants First Southwest 03/06/2009 Bancorporation, Inc., Alamosa, CO 2 $13,533,000 Preferred Stock w/ Exercised Warrants First Texas BHC, Inc., Fort Worth, TX 2 03/06/2009 $8,559,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants First Western Financial, Inc., Denver, CO 2, c Firstbank Corporation, Alma, MI 02/06/2009 01/30/2009 FirstMerit Corporation, 01/09/2009 Akron, OH 4 Flagstar Bancorp, Inc., 01/30/2009 Troy, MI $12,000,000 Preferred Stock w/ Exercised Warrants 02/27/2009 FNB Bancorp, South San Francisco, CA 2 $70,000,000 Preferred Stock w/ Warrants Flushing Financial 12/19/2008 Corporation, Lake Success, NY 5, 9 $9,495,000 Preferred Stock w/ Exercised Warrants Florida Business 02/20/2009 BancGroup, Inc., Tampa, FL 2 $20,471,000 Preferred Stock w/ Exercised Warrants 07/24/2009 Florida Bank Group, Inc., Tampa, FL 2 $266,657,000 $125,000,000 $33,000,000 $11,881,000 $6,000,000 Preferred Stock w/ Exercised Warrants First Vernon Bancshares, 06/12/2009 Inc., Vernon, AL 2, 10 Preferred Stock $30,000,000 Preferred Stock w/ Warrants First United Corporation, 01/30/2009 Oakland, MD First Western Financial, Inc., Denver, CO 2, 10a, c $4,900,000 Preferred Stock w/ Exercised Warrants First ULB Corp., Oakland, 01/23/2009 CA 2, 4, 7 12/11/2009 $17,969,000 Subordinated Debentures w/ Exercised Warrants First Trust Corporation, 06/05/2009 New Orleans, LA 8 $731,000 Preferred Stock w/ Exercised Warrants First State Bank of Mobeetie, Mobeetie, TX 2 02/27/2009 $5,500,000 $50,000,000 Preferred Stock w/ Exercised Warrants First Southern Bancorp, 01/30/2009 Inc., Boca Raton, FL 2 $7,400,000 $33,000,000 Preferred Stock w/ Warrants Preferred Stock w/ Warrants $2,600,000 $2,417,000 $15,349,000 $4,579,000 $4,596,000 $72,927,000 First South Bancorp, Inc., Subordinated Debentures 07/17/2009 Lexington, TN 8 w/ Exercised Warrants First Sound Bank, 12/23/2008 Seattle, WA 01/09/2009 Preferred Stock Preferred Stock w/ Exercised Warrants First Resource Bank, 01/30/2009 Exton, PA 2, c Preferred Stock w/ Exercised Warrants First Reliance Bancshares, Inc., Florence, SC 2 03/06/2009 First Resource Bank, 12/11/2009 Exton, PA 2, 10a, c Preferred Stock w/ Exercised Warrants First Priority Financial Corp., Malvern, PA 2, c Preferred Stock 02/20/2009 First Priority Financial 12/18/2009 Corp., Malvern, PA 2, 10a, c Preferred Stock w/ Warrants First Place Financial Corp., Warren, OH 03/13/2009 $19,300,000 $17,390,000 Preferred Stock w/ Warrants First PacTrust Bancorp, Inc., Chula Vista, CA $184,011,000 Preferred Stock w/ Warrants Investment Amount Preferred Stock w/ Warrants Investment Description 11/21/2008 First Northern Community 03/13/2009 Bancorp, Dixon, CA 11/21/2008 Purchase Date CPP Transaction Detail, as of 3/31/2010 10/28/2009 04/22/2009 04/22/2009 05/27/2009 Capital Repayment Date $70,000,000 $125,000,000 $4,900,000 $184,011,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 $0 $0 Remaining Capital Amount 12/30/2009 05/27/2009 04/22/2009 06/24/2009 Final Disposition Date R R R R Note15 $900,000 $5,025,000 $245,000 $2,700,000 Final Disposition Proceeds Final Disposition $12.66 $0.60 $21.57 $5.90 $6.00 $0.49 $2.16 $3.99 $7.77 $4.89 $14.23 Stock Price as of 3/31/2010 $394.4 $837.0 $1,875.4 $45.7 $36.9 $1.0 $35.5 $67.7 $33.0 $44.3 $2,682.4 Market Capitalization as of 3/31/2010 (in millions) $0.62 $8.55 $13.79 $9.73 $6.01 $2.98 $10.31 $7.39 Current Strike Price a 64,513,790 578,947 326,323 114,080 823,627 3,670,822 280,795 352,977 Current Outstanding Warrants a ($0.02) ($2.65) ($7.79) ($9.24) ($3.85) $1.01 ($2.54) ($2.50) $632,200 $3,004,167 $510,313 $622,938 $13,888,384 $1,788,194 $1,718,750 $583,740 $217,384 $1,562,500 $66,021 $1,046,896 $694,554 $38,551 $207,327 $618,802 $2,423,777 $330,944 $1,402,500 $169,089 $787,686 $282,479 $3,362,744 $1,190,167 $801,872 $4,753,618 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT OUT OUT IN OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 184 Appendix D I Transaction Detail I april 20, 2010 $5,800,000 $3,240,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants FPB Bancorp, Inc., Port St. Lucie, FL 12/05/2008 $3,000,000 Frontier Bancshares, Inc., Subordinated Debentures Austin, TX 8, 4 w/ Exercised Warrants 04/24/2009 Gold Canyon Bank, Gold Canyon, AZ 2, 10 $2,400,000 Preferred Stock w/ Exercised Warrants Green City Bancshares, Inc., Green City, MO 2 02/27/2009 $651,000 $72,278,000 Preferred Stock w/ Exercised Warrants Green Circle Investments, Inc., Clive, IA 2 02/27/2009 $58,000,000 $8,400,000 $9,000,000 Preferred Stock w/ Warrants Green Bankshares, Inc., 12/23/2008 Greeneville, TN Subordinated Debentures w/ Exercised Warrants Preferred Stock w/ Warrants Great River Holding Company, Baxter, MN 8 Preferred Stock w/ Exercised Warrants Preferred Stock Great Southern Bancorp, 12/05/2008 Springfield, MO 07/17/2009 GrandSouth 01/09/2009 Bancorporation, Greenville, SC 2, c GrandSouth 12/11/2009 Bancorporation, Greenville, SC 2, 10a, c $6,319,000 $3,076,000 Grand Mountain 05/29/2009 Bancshares, Inc., Granby, CO 2 Preferred Stock w/ Exercised Warrants $2,443,320 04/24/2009 $4,000,000 $2,568,000 Preferred Stock w/ Exercised Warrants Grand Financial Subordinated Debentures 09/25/2009 Corporation, Hattiesburg, w/ Exercised Warrants MS 8 $1,607,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Grand Capital Corporation, Tulsa, OK 2 Goldwater Bank, N.A., 01/30/2009 Scottsdale, AZ 2 06/26/2009 Germantown Capital 03/06/2009 Corporation, Inc., Germantown, TN 2 $4,967,000 $4,500,000 Preferred Stock w/ Exercised Warrants 05/01/2009 Preferred Stock w/ Exercised Warrants $8,700,000 Preferred Stock w/ Exercised Warrants Georgia Commerce 02/06/2009 Bancshares, Inc., Atlanta, GA 2 Georgia Primary Bank, Atlanta, GA 2 $6,000,000 Preferred Stock w/ Exercised Warrants Gateway Bancshares, Inc., Ringgold, GA 2 05/08/2009 $376,500,000 Preferred Stock w/ Warrants Fulton Financial 12/23/2008 Corporation, Lancaster, PA $1,968,000 Preferred Stock w/ Exercised Warrants Fresno First Bank, Fresno, CA 2 01/23/2009 $35,000,000 $3,000,000 Fremont Bancorporation, 06/26/2009 Fremont, CA 8 Subordinated Debentures w/ Exercised Warrants $5,097,000 Freeport Bancshares, Inc., Subordinated Debentures 05/08/2009 Freeport, IL 8 w/ Exercised Warrants $3,100,000 Preferred Stock w/ Exercised Warrants 05/22/2009 Franklin Bancorp, Inc., Washington, MO 2 FPB Financial Corp., 01/23/2009 Hammond, LA 2, 4 Preferred Stock w/ Exercised Warrants Fortune Financial Corporation, Arnold, MO 2 04/03/2009 $1,300,000 $15,000,000 Preferred Stock w/ Exercised Warrants $51,500,000 Investment Amount Fort Lee Federal Savings 05/22/2009 Bank, Fort Lee, NJ 2 Preferred Stock w/ Warrants Investment Description Preferred Stock w/ Exercised Warrants FNB United Corp., Asheboro, NC Institution Foresight Financial Group, 05/15/2009 Inc., Rockford, IL 2 02/13/2009 Purchase Date CPP Transaction Detail, as of 3/31/2010 11/24/2009 12/16/2009 Capital Repayment Date $1,600,000 $1,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $1,400,000 $2,240,000 Remaining Capital Amount Final Disposition Date Note15 Final Disposition Proceeds Final Disposition $8.16 $22.44 $10.20 $1.22 $1.21 Stock Price as of 3/31/2010 $107.5 $301.3 $1,800.0 $2.5 $13.8 Market Capitalization as of 3/31/2010 (in millions) $17.06 $9.57 $10.25 $4.75 $3.50 Current Strike Price a 635,504 909,091 5,509,756 183,158 2,207,143 Current Outstanding Warrants a ($8.90) $12.87 ($0.05) ($3.53) ($2.29) $34,336 $126,440 $4,135,908 $3,463,889 $407,195 $595,719 $0 $79,710 $176,217 $145,750 $53,860 $254,881 $0 $486,004 $251,608 $21,544,167 $175,737 $80,415 $1,867,955 $193,668 $202,948 $179,177 $273,889 $146,424 $51,760 $613,125 $2,589,305 Interest/ Dividends Paid to Treasury Continued on next page OUT IN OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 185 Preferred Stock w/ Exercised Warrants Guaranty Bancorp, Inc., 02/20/2009 Woodsville, NH 2 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Hamilton State 02/20/2009 Bancshares, Hoschton, GA 2 Hampton Roads 12/31/2008 Bankshares, Inc., Norfolk, VA Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Heartland Bancshares, 09/11/2009 Inc., Franklin, IN 2, 10 Heartland Financial USA, 12/19/2008 Inc., Dubuque, IA Heritage Bankshares, Inc., 09/25/2009 Norfolk, VA 2, 10 $26,000,000 $50,000,000 Preferred Stock w/ Warrants Home Bancshares, Inc., Conway, AR b 01/16/2009 $4,000,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Hilltop Community 01/30/2009 Bancorp, Inc., Summit, NJ 2 $3,091,000 HMN Financial, Inc., Rochester, MN Preferred Stock w/ Exercised Warrants Highlands State Bank, Vernon, NJ 2, c 05/08/2009 $2,359,000 12/23/2008 Preferred Stock Highlands State Bank, Vernon, NJ 2, 10a, c Preferred Stock w/ Exercised Warrants Highlands Independent 03/06/2009 Bancshares, Inc., Sebring, FL 2 12/22/2009 $25,000,000 Preferred Stock w/ Warrants HF Financial Corp., Sioux 11/21/2008 Falls, SD 4 $6,700,000 $21,000,000 Preferred Stock w/ Warrants Heritage Oaks Bancorp, 03/20/2009 Paso Robles, CA $24,000,000 Preferred Stock w/ Warrants $40,000,000 $10,103,000 $81,698,000 $7,000,000 $12,895,000 Heritage Financial 11/21/2008 Corporation, Olympia, WA b Preferred Stock w/ Warrants Preferred Stock w/ Warrants HCSB Financial 03/06/2009 Corporation, Loris, SC Heritage Commerce Corp., San Jose, CA Preferred Stock w/ Warrants Hawthorn Bancshares, 12/19/2008 Inc., Lee’s Summit, MO 11/21/2008 $425,000 Preferred Stock w/ Exercised Warrants Haviland Bancshares, Inc., 03/13/2009 Haviland, KS 2 $30,255,000 $3,400,000,000 Preferred Stock w/ Warrants $6,800,000 $80,347,000 $7,000,000 $7,500,000 $7,500,000 $17,000,000 $14,000,000 $6,920,000 $825,000 $9,993,000 Investment Amount Hartford Financial 06/26/2009 Services Group, Inc., Hartford, CT 4 Preferred Stock Preferred Stock w/ Exercised Warrants Gulfstream Bancshares, Inc., Stuart, FL 2 06/26/2009 Harbor Bankshares 07/17/2009 Corporation, Baltimore, MD 2,3 Preferred Stock w/ Exercised Warrants GulfSouth Private Bank, Destin, FL 10, 21 Preferred Stock w/ Warrants 09/25/2009 Guaranty Federal 01/30/2009 Bancshares, Inc., Springfield, MO Subordinated Debentures Preferred Stock w/ Exercised Warrants Gregg Bancshares, Inc., Ozark, MO 2 02/13/2009 Guaranty Capital 09/25/2009 Corporation, Belzoni, MS 3, 8 Preferred Stock w/ Exercised Warrants Investment Description Greer Bancshares Incorporated, Greer, SC 2 Institution 01/30/2009 Purchase Date CPP Transaction Detail, as of 3/31/2010 06/03/2009 03/31/2010 Capital Repayment Date $25,000,000 $3,400,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 Remaining Capital Amount 06/30/2009 Final Disposition Date R Note15 $650,000 Final Disposition Proceeds Final Disposition $26.44 $5.50 $10.10 $3.94 $15.09 $4.18 $15.97 $5.25 $11.69 $28.42 $1.56 $5.30 Stock Price as of 3/31/2010 $679.9 $23.7 $70.1 $30.6 $167.6 $49.4 $261.1 $19.9 $50.3 $12,401.9 $34.1 $14.0 Market Capitalization as of 3/31/2010 (in millions) $26.03 $4.68 $5.15 $13.04 $12.96 $20.10 $21.09 $17.78 $9.79 $9.09 $5.55 144,065 833,333 611,650 138,037 462,963 609,687 91,714 255,261 52,093,973 1,325,858 459,459 Current Outstanding Warrants a $0.41 $0.82 ($1.21) $2.05 ($8.78) ($4.13) ($15.84) ($6.09) $18.63 ($7.53) ($0.25) $2,701,389 $1,487,778 $227,083 $147,016 $343,850 $666,667 $947,916 $1,480,000 $1,466,667 $207,052 $4,720,329 $66,190 $607,140 $1,748,067 $21,341 $129,861,111 $111,444 $2,510,844 $376,202 $260,010 $312,724 $885,417 $419,216 $371,902 $45,190 $567,344 Interest/ Dividends Paid to Treasury Continued on next page IN IN OUT IN OUT OUT OUT OUT IN OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Current Strike Price a 186 Appendix D I Transaction Detail I april 20, 2010 $1,552,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Horizon Bancorp, 12/19/2008 Michigan City, IN Howard Bancorp, Inc., 02/27/2009 Ellicott City, MD 2 HPK Financial Corporation, 11/13/2009 Chicago, IL 2, 10a, c HPK Financial Corporation, Chicago, IL 2, c Huntington Bancshares, Columbus, OH 05/01/2009 11/14/2008 IA Bancorp, Inc., Iselin, NJ 2, 10 $6,900,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants 01/16/2009 Idaho Bancorp, Boise, ID 2 Illinois State Bancorp, Inc., Chicago, IL 2, 10a, c Illinois State Bancorp, Inc., Chicago, IL 2, c Independence Bank, East Greenwich, RI 2 Independent Bank Corp., Rockland, MA 4 Independent Bank Corporation, Ionia, MI 12/29/2009 05/22/2009 01/09/2009 01/09/2009 12/12/2008 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Indiana Community 12/12/2008 Bancorp, Columbus, IN Integra Bank Corporation, 02/27/2009 Evansville, IN Intermountain Community Bancorp, Sandpoint, ID International Bancshares Corporation, Laredo, TX 12/19/2008 12/23/2008 $83,586,000 $25,000,000 $4,000,000 Investors Financial Subordinated Debentures 05/08/2009 Corporation of Pettis w/ Exercised Warrants County, Inc., Sedalia, MO 8 $216,000,000 $27,000,000 Preferred Stock w/ Warrants Intervest Bancshares 12/23/2008 Corporation, New York, NY $1,312,000 Preferred Stock w/ Exercised Warrants $21,500,000 $72,000,000 Preferred Stock w/ Warrants Indiana Bank Corp., 04/24/2009 Dana, IN 2 $78,158,000 $1,065,000 $6,272,000 $4,000,000 $6,000,000 Preferred Stock w/ Exercised Warrants $6,000,000 03/06/2009 ICB Financial, Ontario, CA 2 11/13/2009 IBW Financial Corporation, 03/13/2009 Washington, DC 2, 3a - Preferred Stock $2,295,000 Preferred Stock w/ Exercised Warrants IBT Bancorp, Inc., Irving, TX 2 03/27/2009 $90,000,000 $4,205,000 Preferred Stock w/ Warrants Subordinated Debentures $5,976,000 $4,000,000 $5,000,000 $5,983,000 $25,000,000 $18,400,000 $10,000,000 Iberiabank Corporation, 12/05/2008 Lafayette, LA 5, 9 IBC Bancorp, Inc., 05/15/2009 Chicago, IL 3, 8 09/18/2009 Preferred Stock w/ Exercised Warrants $1,398,071,000 Preferred Stock w/ Warrants HopFed Bancorp, 12/12/2008 Hopkinsville, KY Hyperion Bank, 02/06/2009 Philadelphia, PA 2 Preferred Stock w/ Exercised Warrants $1,900,000 HomeTown Bankshares 09/18/2009 Corporation, Roanoke, VA 2, 10 $3,250,000 Preferred Stock w/ Exercised Warrants Investment Amount Hometown Bancshares, 02/13/2009 Inc., Corbin, KY 2 Investment Description Preferred Stock w/ Exercised Warrants Institution Hometown Bancorp of 02/20/2009 Alabama, Inc., Oneonta, AL 2 Purchase Date CPP Transaction Detail, as of 3/31/2010 04/22/2009 03/31/2009 Capital Repayment Date $78,158,000 $90,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 Remaining Capital Amount 05/27/2009 05/20/2009 Final Disposition Date R R Note15 $2,200,000 $1,200,000 Final Disposition Proceeds Final Disposition $3.90 $23.01 $2.02 $0.62 $9.15 $0.70 $24.66 $60.01 $5.39 $19.30 $12.01 Stock Price as of 3/31/2010 $32.3 $1,567.1 $17.0 $13.0 $30.7 $16.8 $516.3 $1,604.7 $3,862.8 $63.5 $43.2 Market Capitalization as of 3/31/2010 (in millions) $5.42 $24.43 $6.20 $1.69 $17.09 $3.12 $8.90 $17.68 $11.32 Current Strike Price a 691,882 1,326,238 653,226 7,418,876 188,707 3,461,538 23,562,994 212,104 243,816 Current Outstanding Warrants a ($1.52) ($1.42) ($4.18) ($1.07) ($7.94) ($2.42) ($3.51) $1.62 $0.69 $174,325 $1,118,056 $12,360,000 $1,222,500 $1,950,340 $1,263,125 $57,829 $2,430,000 $1,118,094 $63,822 $276,361 $124,306 $307,925 $288,067 $110,505 $1,450,000 $242,839 $128,588 $86,736 $87,573,615 $239,179 $315,191 $1,444,444 $1,081,000 $217,911 $104,125 $174,710 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT OUT OUT OUT OUT IN IN Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 187 Liberty Shares, Inc., Hinesville, GA 2 02/20/2009 LNB Bancorp Inc., Lorain, OH $3,370,000 $13,795,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Mackinac Financial 04/24/2009 Corporation, Manistique, MI Madison Financial 03/13/2009 Corporation, Richmond, KY 2 Magna Bank, Memphis, TN 2-4 12/23/2008 $11,000,000 $600,000,000 Preferred Stock w/ Warrants 12/23/2008 $151,500,000 $11,735,000 M&T Bank Corporation, Buffalo, NY Preferred Stock Preferred Stock w/ Warrants M&F Bancorp, Inc., Durham, NC 2, 3, 10 06/26/2009 $15,000,000 $3,072,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants $25,223,000 $950,000,000 $17,280,000 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants $5,645,000 $21,900,000 $57,500,000 $6,500,000 $5,498,000 $5,830,000 $13,400,000 $3,000,000 $56,044,000 $59,000,000 $1,998,000 $2,453,000 $4,000,000 M&T Bank Corporation 11/14/2008 (Provident Bancshares Corp.), Baltimore, MD d LSB Corporation, North Andover, MA 4 12/12/2008 Lone Star Bank, Houston, 02/06/2009 TX 2 12/12/2008 Lincoln National 07/10/2009 Corporation, Radnor, PA Liberty Financial Services, Inc., New Orleans, LA 3 02/06/2009 Preferred Stock Preferred Stock w/ Exercised Warrants Liberty Bancshares, Inc., 02/13/2009 Springfield, MO 2 12/04/2009 Preferred Stock w/ Exercised Warrants Preferred Stock Legacy Bancorp, Inc., 01/30/2009 Milwaukee, WI 3 Liberty Bancshares, Inc., 01/23/2009 Jonesboro, AR 2 Preferred Stock w/ Exercised Warrants Leader Bancorp, Inc., 12/23/2008 Arlington, MA 2 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants LCNB Corp., Lebanon, OH 4 01/09/2009 Liberty Bancshares, Inc., Fort Worth, TX 2, 10 Preferred Stock w/ Exercised Warrants Layton Park Financial Group, Milwaukee, WI 2 12/18/2009 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Lakeland Bancorp, Inc., Oak Ridge, NJ 02/06/2009 Lakeland Financial 02/27/2009 Corporation, Warsaw, IN b Preferred Stock w/ Exercised Warrants Lafayette Bancorp, Inc., Oxford, MS 2, c 02/20/2009 KS Bancorp, Inc., 08/21/2009 Smithfield, NC 2 Preferred Stock Preferred Stock w/ Exercised Warrants Kirksville Bancorp, Inc., 03/20/2009 Kirksville, MO 2 Lafayette Bancorp, Inc., 12/29/2009 Oxford, MS 2, 10a, c $2,500,000,000 Preferred Stock w/ Exercised Warrants 11/14/2008 KeyCorp, Cleveland, OH $470,000 $10,449,000 Preferred Stock w/ Warrants Katahdin Bankshares Corp., Houlton, ME 2 01/30/2009 $25,000,000,000 Investment Amount Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Investment Description JPMorgan Chase & Co., New York, NY 4 Institution 10/28/2008 Purchase Date CPP Transaction Detail, as of 3/31/2010 11/24/2009 11/18/2009 10/21/2009 06/17/2009 Capital Repayment Date $3,455,000 $15,000,000 $13,400,000 $25,000,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $10,340,000 $0 $0 $0 Remaining Capital Amount 12/16/2009 12/10/2009 Final Disposition Date R A Note15 $560,000 $950,318,243 Final Disposition Proceeds Final Disposition $4.72 $79.38 $79.38 $12.50 $4.45 $30.70 $12.00 $19.05 $8.85 $7.75 $44.75 Stock Price as of 3/31/2010 $16.1 $9,423.2 $9,423.2 $56.3 $32.8 $9,279.4 $80.2 $306.6 $211.6 $6,850.6 $177,792.2 Market Capitalization as of 3/31/2010 (in millions) $4.35 $73.86 $55.76 $6.74 $10.92 $9.26 $21.20 $9.32 $10.64 379,310 1,218,522 407,542 561,343 13,049,451 217,063 198,269 949,571 35,244,361 Current Outstanding Warrants a $0.37 $5.52 $23.62 ($2.29) $19.78 $2.74 ($2.15) ($0.47) ($2.89) $821,582 $169,422 $444,583 $34,333,333 $9,489,792 $373,238 $700,000 $0 $1,481,852 $28,368,054 $928,680 $289,306 $1,200,181 $3,325,257 $67,576 $286,354 $363,682 $524,833 $25,888 $2,708,793 $3,023,750 $123,059 $105,367 $23,165 $156,597,222 $593,156 $795,138,889 Interest/ Dividends Paid to Treasury Continued on next page IN IN IN OUT IN IN OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Current Strike Price a 188 Appendix D I Transaction Detail I april 20, 2010 Mainline Bancorp, Inc., Ebensburg, PA 2 Institution $2,060,000 $20,300,000 Subordinated Debentures w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Manhattan Bancshares, 06/19/2009 Inc., Manhattan, IL 8 Marine Bank & Trust 03/06/2009 Company, Vero Beach, FL 2 Market Bancorporation, 02/20/2009 Inc., New Market, MN 2 Market Street Bancshares, Subordinated Debentures Inc., Mt. Vernon, IL 8 w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Medallion Bank, Salt Lake 02/27/2009 City, UT 2, c Mercantile Bank 05/15/2009 Corporation, Grand Rapids, MI Preferred Stock Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Mid Penn Bancorp, Inc., Millersburg, PA Middleburg Financial 01/30/2009 Corporation, Middleburg, VA 5, b 12/19/2008 Preferred Stock w/ Exercised Warrants Metropolitan Capital 04/10/2009 Bancorp, Inc., Chicago, IL 2, c Preferred Stock w/ Exercised Warrants Metropolitan Bank Group, Inc., Chicago, IL 2 06/26/2009 Preferred Stock Preferred Stock w/ Warrants MetroCorp Bancshares, Inc., Houston, TX 01/16/2009 Metropolitan Capital 11/20/2009 Bancorp, Inc., Chicago, IL 2, 10a, c Preferred Stock w/ Exercised Warrants Metro City Bank, Doraville, GA 2 01/30/2009 12/11/2009 Meridian Bank, Devon, 02/13/2009 PA 2, c Preferred Stock w/ Exercised Warrants Merchants and Planters 03/06/2009 Bancshares, Inc., Toone, TN 2 Meridian Bank, Devon, PA 2, 10a, c Preferred Stock w/ Exercised Warrants Merchants and 06/19/2009 Manufacturers Bank Corporation, Joliet, IL 2 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Medallion Bank, Salt Lake City, UT 2, 10a, c 12/22/2009 Mercantile Capital Corp., Boston, MA 2 Preferred Stock w/ Exercised Warrants McLeod Bancshares, Inc., Shorewood, MN 2 11/20/2009 02/06/2009 Preferred Stock w/ Warrants MB Financial Inc., Chicago, IL b $22,000,000 $10,000,000 $2,040,000 $2,348,000 $71,526,000 $45,000,000 $7,700,000 $6,200,000 $6,335,000 $1,881,000 $3,510,000 $3,500,000 $21,000,000 $11,800,000 $9,698,000 $6,000,000 $196,000,000 $1,700,000 Preferred Stock w/ Exercised Warrants Maryland Financial Bank, 03/27/2009 Towson, MD 2 12/05/2008 $1,715,000,000 Preferred Stock w/ Warrants Marshall & Ilsley 11/14/2008 Corporation, Milwaukee, WI $35,500,000 Preferred Stock w/ Exercised Warrants Marquette National 12/19/2008 Corporation, Chicago, IL 2 05/15/2009 $3,000,000 $2,639,000 $1,700,000 Preferred Stock w/ Warrants 12/05/2008 Manhattan Bancorp, El Segundo, CA 4 $4,500,000 Investment Amount $57,000,000 Preferred Stock w/ Exercised Warrants Investment Description Preferred Stock w/ Warrants MainSource Financial 01/16/2009 Group, Inc., Greensburg, IN 12/29/2009 Purchase Date CPP Transaction Detail, as of 3/31/2010 12/23/2009 09/16/2009 Capital Repayment Date $22,000,000 $1,700,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 Remaining Capital Amount 10/14/2009 Final Disposition Date R Note15 $63,364 Final Disposition Proceeds Final Disposition $15.06 $10.00 $2.83 $3.97 $22.53 $8.05 $6.75 $6.73 Stock Price as of 3/31/2010 $104.2 $34.8 $31.2 $34.1 $1,164.0 $4,241.3 $26.9 $135.5 Market Capitalization as of 3/31/2010 (in millions) $15.85 $20.52 $8.75 $5.11 $29.05 $18.62 $14.95 Current Strike Price a 104,101 73,099 771,429 616,438 506,024 13,815,789 571,906 Current Outstanding Warrants a ($0.79) ($10.52) ($5.92) ($1.14) ($6.52) ($10.57) ($8.22) $986,944 $577,778 $121,914 $2,479,650 $2,431,250 $437,136 $396,088 $96,530 $125,434 $195,518 $787,500 $693,780 $77,208 $11,705,556 $35,516 $107,425,694 $2,235,712 $1,277,378 $110,710 $153,963 $145,153 $66,347 $3,079,583 $31,338 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT OUT OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 189 $5,222,000 $89,388,000 Mandatory Convertible Preferred Stock w/ Warrants Midwest Banc Holdings, Inc., Melrose Park, IL 20 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants MidWestOne Financial 02/06/2009 Group, Inc., Iowa City, IA Mid-Wisconsin Financial 02/20/2009 Services, Inc., Medford, WI 2 Millennium Bancorp, Inc., Edwards, CO 2 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Monarch Community 02/06/2009 Bancorp, Inc., Coldwater, MI Monarch Financial 12/19/2008 Holdings, Inc., Chesapeake, VA 5, 9 $7,723,000 Preferred Stock w/ Exercised Warrants NCAL Bancorp, Los Angeles, CA 2 12/19/2008 $10,000,000 $6,880,000 Preferred Stock w/ Exercised Warrants NC Bancorp, Inc., Chicago, IL 2 06/26/2009 $2,000,000 $150,000,000 $24,664,000 $67,000,000 $4,000,000 $32,382,000 Subordinated Debentures w/ Exercised Warrants Preferred Stock w/ Warrants National Penn Bancshares, 12/12/2008 Inc., Boyertown, PA b Nationwide Bankshares, 12/11/2009 Inc., West Point, NE 8 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Nara Bancorp, Inc., Los Angeles, CA b 11/21/2008 National Bancshares, Inc., 02/27/2009 Bettendorf, IA 2 Preferred Stock w/ Exercised Warrants Naples Bancorp, Inc., Naples, FL 2 03/27/2009 MutualFirst Financial, Inc., 12/23/2008 Muncie, IN Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants MS Financial, Inc., Kingwood, TX 2 03/27/2009 $3,300,000 Preferred Stock w/ Exercised Warrants $6,216,000 Mountain Valley 09/25/2009 Bancshares, Inc., Cleveland, GA 2 $13,000,000 Preferred Stock w/ Exercised Warrants $10,000,000,000 Moscow Bancshares, Inc., 01/23/2009 Moscow, TN 2 Preferred Stock w/ Warrants Morgan Stanley, New York, NY 4 10/28/2008 $4,734,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Monument Bank, Bethesda, MD 2 01/30/2009 $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 Morrill Bancshares, Inc., 01/16/2009 Merriam, KS 2 Preferred Stock w/ Exercised Warrants Moneytree Corporation, Lenoir City, TN 2 03/13/2009 12/19/2008 Preferred Stock w/ Exercised Warrants Preferred Stock Mission Valley Bancorp, 12/23/2008 Sun Valley, CA 3 Monadnock Bancorp, Inc., Peterborough, NH 2 Preferred Stock Mission Community 01/09/2009 Bancorp, San Luis Obispo, CA 3 04/03/2009 Preferred Stock w/ Exercised Warrants Midwest Regional 02/13/2009 Bancorp, Inc., Festus, MO 2, 4, 7 12/05/2008 $20,000,000 Preferred Stock w/ Exercised Warrants $10,189,000 Midtown Bank & Trust 02/27/2009 Company, Atlanta, GA 2 01/23/2009 Preferred Stock w/ Warrants Investment Amount MidSouth Bancorp, Inc., 01/09/2009 Lafayette, LA b Investment Description Preferred Stock w/ Exercised Warrants Institution Midland States Bancorp, Inc., Effingham, IL 2, 4, 7 Purchase Date CPP Transaction Detail, as of 3/31/2010 06/17/2009 12/23/2009 11/10/2009 12/23/2009 Capital Repayment Date $10,000,000,000 $14,700,000 $700,000 $10,189,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 $0 $0 Remaining Capital Amount 08/12/2009 02/10/2010 11/10/2009 12/23/2009 Final Disposition Date R R R R Note15 $950,000,000 $260,000 $35,000 $509,000 Final Disposition Proceeds Final Disposition $6.90 $8.76 $6.65 $29.29 $7.79 $2.16 $11.79 $16.50 Stock Price as of 3/31/2010 $868.9 $331.3 $46.5 $40,950.0 $44.4 $4.4 $101.5 $9.0 $160.4 Market Capitalization as of 3/31/2010 (in millions) $15.30 $9.64 $7.77 $3.90 $12.08 $2.97 $14.37 Current Strike Price a 735,294 521,266 625,135 260,962 198,675 4,282,020 104,384 Current Outstanding Warrants a ($8.40) ($0.88) ($1.12) ($1.74) ($0.29) $2.13 $629,778 $238,516 $29,831 $8,812,500 $1,299,364 $4,131,667 $192,567 $1,852,970 $371,786 $69,942 $359,494 $765,574 $318,055,555 $268,780 $478,301 $743,167 $262,919 $115,532 $314,722 $281,380 $342,914 $537,431 $820,000 $28,294 $824,289 $275,104 $1,100,000 $508,989 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT OUT OUT IN Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 190 Appendix D I Transaction Detail I april 20, 2010 Preferred Stock w/ Warrants Oak Valley Bancorp, Oakdale, CA $6,100,000 Preferred Stock w/ Warrants Pacific Capital Bancorp, 11/21/2008 Santa Barbara, CA $180,634,000 $3,216,000 Subordinated Debentures w/ Exercised Warrants OSB Financial Services, 05/01/2009 Inc., Orange, TX 8 $12,063,000 $2,816,000 Preferred Stock w/ Exercised Warrants Oregon Bancorp, Inc., Salem, OR 2 04/24/2009 Preferred Stock OneFinancial Corporation, Subordinated Debentures 06/05/2009 w/ Exercised Warrants Little Rock, AR 8, 10 OneUnited Bank, Boston, MA 3 $17,300,000 Preferred Stock w/ Exercised Warrants One Georgia Bank, Atlanta, GA 2 05/08/2009 12/19/2008 $5,500,000 Preferred Stock w/ Exercised Warrants Omega Capital Corp., Lakewood, CO 2 04/17/2009 $73,000,000 $100,000,000 Preferred Stock w/ Warrants Old Second Bancorp, Inc., Aurora, IL 01/16/2009 $7,000,000 $2,080,000 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Old Line Bancshares, Inc., 12/05/2008 Bowie, MD 4 $38,263,000 Old National Bancorp, Evansville, IN 4 Preferred Stock w/ Exercised Warrants Ojai Community Bank, 01/30/2009 Ojai, CA 2 $13,500,000 12/12/2008 Preferred Stock w/ Warrants OceanFirst Financial 01/16/2009 Corp., Toms River, NJ 5, 9 12/05/2008 $7,700,000 $1,992,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Northwest Commercial Bank, Lakewood, WA 2 $10,500,000 $10,000,000 $1,576,000,000 $17,211,000 $1,341,000 $1,230,000 $4,227,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Oak Ridge Financial 01/30/2009 Services, Inc., Oak Ridge, NC 02/13/2009 Northwest 02/13/2009 Bancorporation, Inc., Spokane, WA 2 01/30/2009 Northway Financial, Inc., Berlin, NH 2 Preferred Stock w/ Warrants Northern Trust 11/14/2008 Corporation, Chicago, IL 4 02/20/2009 Preferred Stock w/ Warrants Northern State Bank, 05/15/2009 Closter, NJ 2, c Northern States Financial Corporation, Waukegan, IL Preferred Stock Preferred Stock w/ Exercised Warrants Northern State Bank, 12/18/2009 Closter, NJ 2, 10a, c $10,200,000 Preferred Stock w/ Warrants North Central Bancshares, Inc., Fort Dodge, IA 01/09/2009 Preferred Stock w/ Warrants $14,964,000 Preferred Stock w/ Exercised Warrants Nicolet Bankshares, Inc., Green Bay, WI 2 12/23/2008 Northeast Bancorp, 12/12/2008 Lewiston, ME $52,372,000 Preferred Stock w/ Warrants NewBridge Bancorp, Greensboro, NC $267,274,000 $10,000,000 $2,330,000 Investment Amount 12/12/2008 Preferred Stock w/ Exercised Warrants New York Private Bank & 01/09/2009 Trust Corporation, New York, NY 2 Subordinated Debentures w/ Exercised Warrants Investment Description Preferred Stock w/ Warrants NEMO Bancshares Inc., Madison, MO 8 Institution New Hampshire Thrift 01/16/2009 Bancshares, Inc., Newport, NH 06/19/2009 Purchase Date CPP Transaction Detail, as of 3/31/2010 03/31/2009 07/15/2009 12/30/2009 06/17/2009 Capital Repayment Date $100,000,000 $7,000,000 $38,263,000 $1,576,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 $0 $0 Remaining Capital Amount 05/08/2009 09/02/2009 02/03/2010 08/26/2009 Final Disposition Date R R R R Note15 $1,200,000 $225,000 $430,797 $87,000,000 Final Disposition Proceeds Final Disposition $1.81 $6.59 $11.95 $7.42 $11.36 $4.10 $4.73 $55.26 $3.30 $14.00 $14.30 $3.56 $10.49 Stock Price as of 3/31/2010 $85.5 $91.9 $1,041.6 $28.7 $213.8 $31.5 $8.5 $13,362.3 $13.4 $32.5 $19.3 $55.7 $62.6 Market Capitalization as of 3/31/2010 (in millions) $17.92 $13.43 $5.78 $7.05 $4.42 $9.33 $15.43 $3.06 $8.14 1,512,003 815,339 350,346 163,830 584,084 67,958 99,157 2,567,255 184,275 Current Outstanding Warrants a ($16.11) ($6.84) ($1.68) ($2.32) ($1.12) $4.67 ($1.13) $0.50 $2.35 $2,107,397 $147,848 $141,692 $93,823 $974,995 $0 $50,310 $3,944,028 $1,513,889 $213,889 $118,083 $1,828,122 $806,250 $401,042 $109,203 $575,430 $567,708 $46,623,333 $418,322 $64,548 $248,337 $561,000 $933,317 $3,076,855 $16,023,106 $540,278 $128,198 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT OUT OUT IN OUT IN IN Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Current Strike Price a Transaction detail I Appendix D I april 20, 2010 191 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Pacific Coast National 01/16/2009 Bancorp, San Clemente, CA 2, 19 Pacific Commerce Bank, Los Angeles, CA 2 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Park National Corporation, 12/23/2008 Newark, OH Parke Bancorp, Inc., 01/30/2009 Sewell, NJ Parkvale Financial 12/23/2008 Corporation, Monroeville, PA Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Pathfinder Bancorp, Inc., 09/11/2009 Oswego, NY Pathway Bancorp, Cairo, 03/27/2009 NE 2 Patriot Bancshares, Inc., Houston, TX 2 Patterson Bancshares, Inc, Patterson, LA 2 12/19/2008 04/17/2009 Peapack-Gladstone 01/09/2009 Financial Corporation, Gladstone, NJ 4 $9,960,000 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Peoples Bancorp Inc., Marietta, OH Peoples Bancorp of North Carolina, Inc., Newton, NC 01/30/2009 12/23/2008 Peoples Bancorp, Lynden, 02/13/2009 WA 2 Pierce County Bancorp, 01/23/2009 Tacoma, WA 2 $3,000,000 $6,800,000 $1,500,000 $12,325,000 Preferred Stock Preferred Stock w/ Exercised Warrants PFSB Bancorporation, 09/11/2009 Inc., Pigeon Falls, WI 2, 10 $3,900,000 $12,660,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants PeoplesSouth Bancshares, 03/06/2009 Inc., Colquitt, GA 2 PGB Holdings, Inc., Chicago, IL 3 Preferred Stock w/ Exercised Warrants Peoples Bancshares of TN, Inc, Madisonville, TN 2 03/20/2009 02/06/2009 Preferred Stock w/ Exercised Warrants Peoples Bancorporation, Inc., Easley, SC 2 04/24/2009 $18,000,000 $25,054,000 $39,000,000 $6,000,000 Preferred Stock w/ Exercised Warrants Penn Liberty Financial 04/17/2009 Corp., Wayne, PA 2 $28,685,000 $3,690,000 $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 $16,200,000 Investment Amount Preferred Stock w/ Warrants 01/30/2009 Peninsula Bank Holding Co., Palo Alto, CA Preferred Stock w/ Exercised Warrants 12/19/2008 Patapsco Bancorp, Inc., Dundalk, MD 2 13 - 2/10/2010 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Park Bancorporation, Inc., 03/06/2009 Madison, WI 2 Pascack Bancorp, Inc. (Pascack Community 02/06/2009 Bank), Westwood, NJ 2, Preferred Stock w/ Warrants Pacific International 12/12/2008 Bancorp, Seattle, WA 12/23/2008 Preferred Stock w/ Exercised Warrants Pacific Coast Bankers’ 12/23/2008 Bancshares, San Francisco, CA 2 Investment Description Preferred Stock w/ Exercised Warrants Institution Pacific City Financial 12/19/2008 Corporation, Los Angeles, CA 2 Purchase Date CPP Transaction Detail, as of 3/31/2010 01/06/2010 02/11/2010 Capital Repayment Date $7,172,000 -$4,120,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $21,513,000 $0 Remaining Capital Amount Final Disposition Date Note15 Final Disposition Proceeds Final Disposition $5.95 $16.48 $6.55 $15.71 $7.85 $7.46 $9.12 $62.31 $4.00 Stock Price as of 3/31/2010 $33.0 $173.0 $12.1 $137.1 $19.5 $41.1 $36.8 $927.4 $8.0 Market Capitalization as of 3/31/2010 (in millions) $10.52 $18.66 $11.02 $28.63 $6.58 $12.66 $8.15 $65.97 $7.63 Current Strike Price a 357,234 313,505 81,670 150,296 154,354 376,327 299,779 227,376 127,785 Current Outstanding Warrants a ($4.57) ($2.18) ($4.47) ($12.92) $1.27 ($5.20) $0.97 ($3.66) ($3.63) $207,948 $153,750 $34,817 $632,508 $191,885 $557,726 $986,450 $1,433,646 $2,031,250 $449,334 $0 $1,538,827 $15,645 $1,639,826 $77,852 $144,824 $377,867 $209,838 $1,817,492 $848,333 $5,722,222 $1,190,643 $138,125 $221,270 $18,088 $723,518 $358,065 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT OUT IN OUT IN OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 192 Appendix D I Transaction Detail I april 20, 2010 Plato Holdings Inc., Saint Paul, MN 8, 10 07/17/2009 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Premier Service Bank, Riverside, CA 2 PremierWest Bancorp, Medford, OR Presidio Bank, San Francisco, CA 2, 10 02/20/2009 02/13/2009 11/20/2009 $6,229,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants RCB Financial Corporation, 06/19/2009 Rome, GA 2, 10 Redwood Capital Bancorp, Eureka, CA 2 Redwood Financial Inc., Redwood Falls, MN 2 01/16/2009 01/09/2009 $2,995,000 $3,800,000 $8,900,000 $38,237,000 Preferred Stock w/ Exercised Warrants $32,538,000 Randolph Bank & Trust 10/30/2009 Company, Asheboro, NC 2 Preferred Stock w/ Warrants Pulaski Financial Corp, Creve Coeur, MO 01/16/2009 $4,500,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Puget Sound Bank, Bellevue, WA 2 01/16/2009 $9,270,000 QCR Holdings, Inc., 02/13/2009 Moline, IL Preferred Stock w/ Exercised Warrants PSB Financial Corporation, Many, LA 2 Preferred Stock w/ Warrants 02/27/2009 $4,000,000 Provident Community 03/13/2009 Bancshares, Inc., Rock Hill, SC $9,266,000 $243,815,000 Preferred Stock w/ Exercised Warrants Providence Bank, Rocky 10/02/2009 Mount, NC 2, 10 PrivateBancorp, Inc., Chicago, IL b 01/30/2009 $4,960,000 $3,262,000 $25,083,000 $10,800,000 $41,400,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Private Bancorporation, Inc., Minneapolis, MN 2, b, c Preferred Stock 02/27/2009 2, 10a, b, c Private Bancorporation, 12/29/2009 Inc., Minneapolis, MN Princeton National 01/23/2009 Bancorp, Inc., Princeton, IL Preferred Stock w/ Warrants $6,349,000 $4,000,000 $22,252,000 Preferred Stock w/ Warrants Subordinated Debentures w/ Exercised Warrants $9,500,000 $6,784,000 Premier Financial Corp, 05/22/2009 Dubuque, IA 8 10/02/2009 Premier Financial Bancorp, Inc., Huntington, WV Subordinated Debentures 05/08/2009 Premier Bank Holding 03/20/2009 Company, Tallahassee, FL 2 $2,800,000 Premier Bancorp, Inc., Wilmette, IL 3, 8 $35,000,000 Preferred Stock w/ Exercised Warrants Prairie Star Bancshares, 04/03/2009 Inc., Olathe, KS 2 $935,000,000 $11,949,000 $2,500,000 $87,631,000 Preferred Stock w/ Warrants Trust Preferred Securities w/ Warrants Preferred Stock w/ Warrants Subordinated Debentures w/ Exercised Warrants Preferred Stock w/ Exercised Warrants $95,000,000 $4,389,000 Investment Amount Porter Bancorp Inc., 11/21/2008 Louisville, KY Popular, Inc., San Juan, 12/05/2008 PR 12 Plumas Bancorp, 01/30/2009 Quincy, CA Plains Capital Corporation, Dallas, TX 2 12/19/2008 Preferred Stock w/ Warrants Pinnacle Financial 12/12/2008 Partners, Inc., Nashville, TN b Investment Description Preferred Stock w/ Exercised Warrants Institution Pinnacle Bank Holding 03/06/2009 Company, Inc., Orange City, FL 2 Purchase Date CPP Transaction Detail, as of 3/31/2010 Capital Repayment Date Capital Repayment Amount Capital Repayment Details (CONTINUED) Remaining Capital Amount Final Disposition Date Note15 Final Disposition Proceeds Final Disposition $8.90 $6.70 $2.50 $13.70 $8.69 $0.45 $8.62 $13.10 $2.91 $2.74 $15.11 Stock Price as of 3/31/2010 $40.8 $70.7 $4.5 $977.3 $28.7 $11.1 $68.4 $114.7 $1,861.1 $13.1 $503.2 Market Capitalization as of 3/31/2010 (in millions) $10.99 $6.27 $7.77 $28.35 $24.27 $5.70 $5.31 $16.68 $6.70 $7.54 $26.64 Current Strike Price a 521,888 778,421 178,880 645,013 155,025 1,090,385 628,588 314,820 20,932,836 237,712 267,455 Current Outstanding Warrants a ($2.09) $0.43 ($5.27) ($14.65) ($15.58) ($5.25) $3.31 ($3.58) ($3.79) ($4.80) ($11.53) $179,576 $223,783 $307,534 $99,003 $1,922,472 $1,757,956 $265,007 $488,418 $427,266 $79,708 $12,698,698 $282,150 $1,330,792 $0 $1,046,500 $0 $389,108 $411,044 $467,412 $401,933 $132,253 $2,158,333 $42,984,028 $622,344 $119,754 $5,518,853 $5,581,250 $225,209 Interest/ Dividends Paid to Treasury Continued on next page OUT IN OUT OUT OUT OUT IN OUT OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 193 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Regions Financial 11/14/2008 Corporation, Birmingham, AL Reliance Bancshares, Inc., Frontenac, MO 2 Ridgestone Financial 02/27/2009 Services, Inc., Brookfield, WI 2 Preferred Stock w/ Exercised Warrants Subordinated Debentures w/ Exercised Warrants River Valley 06/12/2009 Bancorporation, Inc., Wausau, WI 8 Riverside Bancshares, Inc., Little Rock, AR 8 $25,000,000 $30,407,000 $108,676,000 $1,549,000 $83,094,000 $2,900,000 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Royal Bancshares of 02/20/2009 Pennsylvania, Inc., Narberth, PA 01/16/2009 S&T Bancorp, Indiana, PA Saigon National Bank, 12/23/2008 Westminster, CA 2 Salisbury Bancorp, Inc., 03/13/2009 Lakeville, CT Sandy Spring Bancorp, Inc., Olney, MD Santa Clara Valley Bank, N.A., Santa Paula, CA 2 12/05/2008 02/13/2009 $2,152,000 $5,803,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Seacoast Commerce Bank, Chula Vista, CA 2 Security Bancshares 02/13/2009 of Pulaski County, Inc., Waynesville, MO 2 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Security California 01/09/2009 Bancorp, Riverside, CA 2 Security Capital 06/26/2009 Corporation, Batesville, MS 2, 10 01/09/2009 Security Business Bancorp, San Diego, CA 2 $1,800,000 Preferred Stock w/ Warrants Seacoast Banking 12/19/2008 Corporation of Florida, Stuart, FL b 12/23/2008 $50,000,000 Preferred Stock w/ Warrants SCBT Financial 01/16/2009 Corporation, Columbia, SC 4 $17,388,000 $6,815,000 $64,779,000 $4,000,000 Preferred Stock w/ Exercised Warrants SBT Bancorp, Inc., 03/27/2009 Simsbury, CT 2 $4,000,000 Preferred Stock w/ Warrants Santa Lucia Bancorp, 12/19/2008 Atascadero, CA $8,816,000 $1,100,000 Preferred Stock w/ Exercised Warrants 05/15/2009 Rogers Bancshares, Inc., 01/30/2009 Little Rock, AR 2 $15,000,000 $5,983,000 $10,900,000 $40,000,000 Subordinated Debentures w/ Exercised Warrants 01/09/2009 Rising Sun Bancorp, Rising Sun, MD 2 02/13/2009 $3,500,000,000 $1,500,000 Preferred Stock w/ Exercised Warrants Regional Bankshares, Inc., Hartsville, SC 2 02/13/2009 $12,700,000 $2,655,000 Preferred Stock w/ Exercised Warrants $9,982,000 Investment Amount Regents Bancshares, Inc., 10/23/2009 Vancouver, WA 2, 10 Preferred Stock w/ Exercised Warrants Investment Description Preferred Stock w/ Exercised Warrants Regent Bancorp, Inc., Davie, FL 2 Institution Regent Capital 02/27/2009 Corporation, Nowata, OK 2 03/06/2009 Purchase Date CPP Transaction Detail, as of 3/31/2010 05/20/2009 Capital Repayment Date $64,779,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 Remaining Capital Amount 06/24/2009 Final Disposition Date R Note15 $1,400,000 Final Disposition Proceeds Final Disposition $1.69 $37.04 $7.50 $15.00 $24.80 $20.90 $2.47 $7.85 Stock Price as of 3/31/2010 $99.5 $472.1 $15.0 $346.6 $41.8 $580.1 $51.9 $9,379.9 Market Capitalization as of 3/31/2010 (in millions) $6.36 $15.75 $19.13 $22.93 $31.53 $4.13 $10.88 Current Strike Price a 589,623 38,107 651,547 57,671 517,012 1,104,370 48,253,677 Current Outstanding Warrants a ($4.67) ($8.25) ($4.13) $1.87 ($10.63) ($1.66) ($3.03) $582,919 $408,585 $347,876 $117,972 $112,270 $388,889 $1,115,639 $192,567 $231,111 $158,928 $4,962,558 $406,516 $0 $5,871,523 $358,971 $738,021 $69,218 $849,488 $195,637 $277,224 $2,192,111 $219,236,111 $82,204 $208,223 $139,896 $512,276 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT IN OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 194 Appendix D I Transaction Detail I april 20, 2010 Security Federal Corporation, Aiken, SC Institution Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Southern First 02/27/2009 Bancshares, Inc., Greenville, SC Southern Heritage 05/15/2009 Bancshares, Inc., Cleveland, TN 2 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Spirit BankCorp, Inc., Bristow, OK 2 St. Johns Bancshares, 03/13/2009 Inc., St. Louis, MO 2 Standard Bancshares, Inc., Hickory Hills, IL 2 03/27/2009 State Capital Corporation, Greenwood, MS 2 Preferred Stock w/ Exercised Warrants $15,000,000 $50,000,000 Preferred Stock w/ Exercised Warrants State Bankshares, Inc., 01/16/2009 Fargo, ND 2-4 02/13/2009 $36,842,000 Preferred Stock w/ Warrants $60,000,000 $3,000,000 State Bancorp, Inc., 12/05/2008 Jericho, NY 04/24/2009 $18,215,000 Preferred Stock w/ Exercised Warrants Sovereign Bancshares, Inc., Dallas, TX 2 03/13/2009 $30,000,000 $70,000,000 Preferred Stock w/ Warrants Southwest Bancorp, Inc., Stillwater, OK 12/05/2008 $2,760,000 Preferred Stock w/ Exercised Warrants SouthFirst Bancshares, Inc., Sylacauga, AL 2 $9,550,000 $17,299,000 $42,750,000 $11,000,000 06/12/2009 Southern Missouri 12/05/2008 Bancorp, Inc., Poplar Bluff, MO 01/23/2009 Preferred Stock w/ Warrants $5,000,000 Preferred Stock w/ Warrants Southern Community 12/05/2008 Financial Corp., WinstonSalem, NC Southern Illinois Bancorp, Inc., Carmi, IL 2 $4,862,000 Preferred Stock Southern Bancorp, Inc., Arkadelphia, AR 3 01/16/2009 $12,900,000 $347,000,000 Preferred Stock w/ Exercised Warrants SouthCrest Financial 07/17/2009 Group, Inc., Fayetteville, GA 2 $3,070,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Sound Banking Company, Morehead City, NC 2 01/09/2009 $8,653,000 $7,414,000 $120,000,000 $1,700,000 $25,000,000 $23,393,000 $10,750,000 $12,500,000 $18,000,000 Investment Amount South Financial Group, 12/05/2008 Inc., Greenville, SC Preferred Stock w/ Exercised Warrants Sonoma Valley Bancorp, Sonoma, CA 2 02/20/2009 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Signature Bank, New York, NY 4 12/12/2008 Subordinated Debentures w/ Exercised Warrants Somerset Hills Bancorp, 01/16/2009 Bernardsville, NJ 4 Signature Bancshares, Inc., Dallas, TX 8 Preferred Stock w/ Warrants Shore Bancshares, Inc., 01/09/2009 Easton, MD 4 06/26/2009 Preferred Stock w/ Warrants Subordinated Debentures w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Investment Description Severn Bancorp, Inc., 11/21/2008 Annapolis, MD Security State Bank 05/01/2009 Holding-Company, Jamestown, ND 8 Security State 02/20/2009 Bancshares, Inc., Charleston, MO 2 12/19/2008 Purchase Date CPP Transaction Detail, as of 3/31/2010 08/12/2009 05/20/2009 03/31/2009 04/15/2009 Capital Repayment Date $12,500,000 $7,414,000 $120,000,000 $25,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $37,500,000 $0 $0 $0 Remaining Capital Amount 06/24/2009 03/10/2010 Final Disposition Date R A Note15 $275,000 $11,320,751 Final Disposition Proceeds Final Disposition $7.87 $8.27 $14.20 $8.10 $2.19 $0.69 $8.10 $37.05 $14.25 $3.75 $9.86 Stock Price as of 3/31/2010 $129.8 $122.2 $29.6 $25.1 $36.8 $149.1 $42.1 $1,504.0 $120.3 $37.8 $24.3 Market Capitalization as of 3/31/2010 (in millions) $11.87 $14.92 $12.53 $7.85 $3.95 $5.15 $21.68 $6.30 $19.57 Current Strike Price a 465,569 703,753 114,326 330,554 1,623,418 10,106,796 172,970 556,976 137,966 Current Outstanding Warrants a ($4.00) ($6.65) $1.67 $0.25 ($1.76) ($4.46) ($7.43) ($2.55) ($9.71) $822,042 $2,626,806 $2,200,286 $2,643,250 $150,783 $1,444,250 $915,527 $4,180,556 $101,534 $570,347 $289,153 $198,728 $836,118 $2,553,125 $594,306 $406,207 $16,386,111 $184,096 $347,164 $127,686 $1,816,667 $90,729 $333,333 $1,442,569 $486,075 $671,788 $1,040,000 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT IN IN OUT OUT OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 195 Subordinated Debentures w/ Exercised Warrants Subordinated Debentures w/ Exercised Warrants Steele Street Bank 09/25/2009 Corporation, Denver, CO 8, 10 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Sterling Bancshares, Inc., 12/12/2008 Houston, TX 4 Sterling Financial 12/05/2008 Corporation, Spokane, WA Stewardship Financial 01/30/2009 Corporation, Midland Park, NJ Stockmens Financial 02/06/2009 Corporation, Rapid City, SD 2 $15,000,000 $235,000,000 $13,644,000 Preferred Stock w/ Warrants SVB Financial Group, 12/12/2008 Santa Clara, CA 5, b Sword Financial Subordinated Debentures 05/08/2009 Corporation, Horicon, WI 8 w/ Exercised Warrants $30,000,000 $2,000,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants TCNB Financial Corp., Dayton, OH 2 12/23/2008 Tennessee Commerce 12/19/2008 Bancorp, Inc., Franklin, TN $361,172,000 Preferred Stock w/ Warrants $11,730,000 TCF Financial Corporation, Wayzata, MN 4 Preferred Stock w/ Exercised Warrants $9,720,000 11/14/2008 TCB Holding Company, 01/16/2009 Texas Community Bank, The Woodlands, TX 2 $104,823,000 Preferred Stock w/ Warrants Taylor Capital Group, 11/21/2008 Rosemont, IL Subordinated Debentures w/ Exercised Warrants $8,000,000 Preferred Stock w/ Exercised Warrants Syringa Bancorp, 01/16/2009 Boise, ID 2 TCB Corporation, 08/28/2009 Greenwood, SC 8, 10 $967,870,000 Preferred Stock w/ Warrants Synovus Financial Corp., 12/19/2008 Columbus, GA $4,000,000 Preferred Stock w/ Exercised Warrants SV Financial, Inc., 04/10/2009 Sterling, IL 2 $300,000,000 Preferred Stock w/ Warrants $2,000,000 $3,500,000,000 Susquehanna Bancshares, 12/12/2008 Inc, Lititz, PA Preferred Stock w/ Exercised Warrants Surrey Bancorp, Mount Airy, NC 2 01/09/2009 $69,000,000 Trust Preferred Securities w/ Warrants Preferred Stock w/ Warrants SunTrust Banks, Inc., 12/31/2008 Atlanta, GA Superior Bancorp Inc., Birmingham, AL 17 Preferred Stock w/ Warrants SunTrust Banks, Inc., 11/14/2008 Atlanta, GA 12/05/2008 $1,350,000,000 Preferred Stock w/ Warrants Sun Bancorp, Inc., 01/09/2009 Vineland, NJ 4 $89,310,000 Preferred Stock w/ Warrants Summit State Bank, Santa 12/19/2008 Rosa, CA $8,500,000 $10,973,000 01/23/2009 Suburban Illinois Bancorp, Subordinated Debentures 06/19/2009 w/ Exercised Warrants Inc., Elmhurst, IL 8 $15,568,000 $10,000,000 $303,000,000 $125,198,000 $42,000,000 $30,000,000 $11,019,000 $24,900,000 $2,000,000,000 Investment Amount Preferred Stock w/ Exercised Warrants Stonebridge Financial Corp., West Chester, PA 2 Preferred Stock w/ Warrants Preferred Stock w/ Warrants StellarOne Corporation, Charlottesville, VA 12/19/2008 Sterling Bancorp, New 12/23/2008 York, NY 10/28/2008 Stearns Financial 06/26/2009 Services, Inc., St. Cloud, MN 8 Investment Description Preferred Stock w/ Warrants Institution State Street Corporation, Boston, MA 5, 9 Purchase Date CPP Transaction Detail, as of 3/31/2010 04/22/2009 12/23/2009 04/08/2009 05/05/2009 06/17/2009 Capital Repayment Date $361,172,000 $235,000,000 $89,310,000 $125,198,000 $2,000,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 $0 $0 $0 Remaining Capital Amount 12/15/2009 05/27/2009 07/08/2009 Final Disposition Date A R R Note15 $9,599,964 $2,100,000 $60,000,000 Final Disposition Proceeds Final Disposition $7.55 $15.94 $12.98 $3.29 $46.66 $9.81 $3.13 $26.79 $3.94 $6.75 $8.86 $0.57 $5.60 $10.05 $13.37 $45.14 Stock Price as of 3/31/2010 $42.6 $2,261.3 $143.8 $1,611.6 $1,930.4 $1,216.2 $36.6 $13,452.1 $92.1 $32.0 $51.7 $29.7 $574.3 $257.4 $304.9 $22,427.7 Market Capitalization as of 3/31/2010 (in millions) $9.75 $10.75 $9.36 $49.78 $14.86 $5.38 $33.70 $44.15 $5.33 $11.24 $7.06 $7.18 $12.19 $14.87 461,538 1,462,647 15,510,737 354,058 3,028,264 1,923,792 6,008,902 11,891,280 239,212 133,475 6,437,677 2,615,557 516,817 302,623 Current Outstanding Warrants a ($2.20) $2.23 ($6.07) ($3.12) ($5.05) ($2.25) ($6.91) ($17.36) $1.42 ($2.38) ($6.49) ($1.58) ($2.14) ($1.50) $1,733,333 $124,744 $7,925,719 $690,832 $365,886 $6,464,086 $253,122 $55,921,378 $880,786 $12,109,028 $184,694 $17,625,000 $119,900 $4,120,833 $315,381,944 $1,103,971 $491,111 $825,020 $634,609 $869,631 $520,833 $6,733,333 $2,486,571 $2,403,333 $1,733,333 $347,722 $1,328,906 $63,611,111 Interest/ Dividends Paid to Treasury Continued on next page OUT IN OUT OUT OUT OUT OUT OUT IN OUT OUT OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Current Strike Price a 196 Appendix D I Transaction Detail I april 20, 2010 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants The Baraboo 01/16/2009 Bancorporation, Baraboo, WI 2 The Connecticut Bank 12/19/2008 and Trust Company, Hartford, CT The Elmira Savings Bank, 12/19/2008 FSB, Elmira, NY The First Bancorp, Inc., 01/09/2009 Damariscotta, ME $5,450,000 Preferred Stock w/ Exercised Warrants The Private Bank of 02/20/2009 California, Los Angeles, CA 2 TIB Financial Corp, Naples, FL Tidelands Bancshares, 12/19/2008 Inc, Mt. Pleasant, SC 12/05/2008 13 - 12/4/2009 Three Shores Bancorporation, Inc. 01/23/2009 (Seaside National Bank & Trust), Orlando, FL 2, Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants The Victory Bancorp, Inc., Limerick, PA 2, 10a, c 12/11/2009 Preferred Stock w/ Exercised Warrants $14,448,000 $37,000,000 $5,677,000 $1,505,000 $541,000 $1,697,000 The State Bank of Bartley, Subordinated Debentures Bartley, NE 8, 10 w/ Exercised Warrants 09/04/2009 The Victory Bancorp, 02/27/2009 Inc. (The Victory Bank), Limerick, PA 2, 13 - 12/4/2009, c $12,000,000 Preferred Stock w/ Exercised Warrants The Queensborough Company, Louisville, GA 2 01/09/2009 $7,579,200,000 Preferred Stock w/ Warrants The PNC Financial 12/31/2008 Services Group Inc., Pittsburgh, PA 4 $7,500,000 $15,000,000 Preferred Stock w/ Exercised Warrants The Little Bank, 12/23/2008 Incorporated, Kinston, NC 2 The Landrum Company, Columbia, MO 2 Preferred Stock w/ Exercised Warrants 05/22/2009 $10,000,000,000 Preferred Stock w/ Warrants The Goldman Sachs 10/28/2008 Group, Inc., New York, NY 4 $301,000 Preferred Stock w/ Exercised Warrants $5,000,000 $25,000,000 $9,090,000 $5,448,000 $20,749,000 $3,000,000,000 $34,000,000 $4,021,000 $45,220,000 $20,000,000 $3,981,000 $75,000,000 $3,000,000 Investment Amount The Freeport State Bank, 02/06/2009 Harper, KS 2 Preferred Stock w/ Warrants Preferred Stock w/ Warrants The Bank of New York 10/28/2008 Mellon Corporation, New York, NY 4 The First Bancshares, Inc., Hattiesburg, MS Preferred Stock w/ Warrants The Bank of Kentucky 02/13/2009 Financial Corporation, Crestview Hills, KY 02/06/2009 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants The Bancorp, Inc., Wilmington, DE 5, b 12/12/2008 The Bank of Currituck, 02/06/2009 Moyock, NC 2 Preferred Stock w/ Exercised Warrants The ANB Corporation, Terrell, TX 2 08/07/2009 Texas National 01/09/2009 Bancorporation, Jacksonville, TX 2 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants 01/16/2009 Texas Capital Bancshares, Inc., Dallas, TX 4 Investment Description Preferred Stock w/ Exercised Warrants Institution Tennessee Valley Financial 12/23/2008 Holdings, Inc., Oak Ridge, TN 2 Purchase Date CPP Transaction Detail, as of 3/31/2010 02/10/2010 06/17/2009 06/17/2009 03/10/2010 05/13/2009 Capital Repayment Date $7,579,200,000 $10,000,000,000 $3,000,000,000 $45,220,000 $75,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 $0 $0 $0 Remaining Capital Amount 07/22/2009 08/05/2009 03/11/2010 Final Disposition Date R R A Note15 $1,100,000,000 $136,000,000 $6,709,061 Final Disposition Proceeds Final Disposition $2.50 $0.70 $59.70 $170.63 $9.45 $15.94 $17.20 $4.50 $30.88 $19.94 $8.90 $18.99 Stock Price as of 3/31/2010 $10.7 $10.4 $30,889.3 $89,897.0 $28.5 $155.4 $29.9 $16.1 $37,315.3 $113.0 $233.0 $686.6 Market Capitalization as of 3/31/2010 (in millions) $3.79 $5.02 $67.33 $13.71 $16.60 $11.70 $4.65 $18.56 $3.46 Current Strike Price a 571,821 1,106,389 16,885,192 54,705 225,904 116,538 175,742 274,784 980,203 Current Outstanding Warrants a ($1.29) ($4.32) ($7.63) ($4.26) ($0.66) $5.50 ($0.15) $1.38 $5.44 $834,773 $1,284,722 $328,319 $42,420 $61,585 $719,400 $292,944 $421,066,667 $467,792 $597,229 $318,055,555 $8,610 $256,250 $1,375,000 $525,200 $136,200 $1,221,872 $95,416,667 $1,709,444 $169,834 $2,813,689 $569,222 $238,657 $1,218,750 $146,242 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT OUT OUT IN OUT IN IN Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 197 $16,641,000 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants U.S. Century Bank, 08/07/2009 Miami, FL 2 UBT Bancshares, Inc., 01/30/2009 Marysville, KS 2 Union Bank & Trust Company, Oxford, NC 2, c Preferred Stock Preferred Stock w/ Warrants Union First Market Bankshares Corporation 12/19/2008 (Union Bankshares Corporation), Bowling Green, VA 5, 9, 18 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Union First Market Bankshares Corporation 02/06/2009 (First Market Bank, FSB), Bowling Green, VA 18 Union Financial 12/29/2009 Corporation, Albuquerque, NM 2, 10 05/01/2009 2, 10a, c Preferred Stock Preferred Stock w/ Warrants Umpqua Holdings Corp., Portland, OR 5, 9 11/14/2008 Union Bank & Trust 12/18/2009 Company, Oxford, NC Preferred Stock w/ Warrants UCBH Holdings, Inc., San Francisco, CA 14 11/14/2008 11/14/2008 U.S. Bancorp, Minneapolis, MN 4 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Trustmark Corporation, Jackson, MS 4 11/21/2008 Two Rivers Financial 05/29/2009 Group, Burlington, IA 2 Preferred Stock w/ Exercised Warrants TriSummit Bank, Kingsport, TN 2, c 04/03/2009 Preferred Stock TriSummit Bank, Kingsport, TN 2, 10a, c 12/22/2009 Preferred Stock w/ Exercised Warrants Preferred Stock TriState Capital Holdings, 02/27/2009 Inc., Pittsburgh, PA 2 Tri-State Bank of Memphis, Memphis, TN 2, 3 04/03/2009 Preferred Stock w/ Exercised Warrants Tri-County Financial 12/19/2008 Corporation, Waldorf, MD 2 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Triad Bancorp, Inc., 03/27/2009 Frontenac, MO 2 Trinity Capital Corporation, Los Alamos, NM 2 Preferred Stock w/ Exercised Warrants Treaty Oak Bancorp, Inc., 01/16/2009 Austin, TX 2 03/27/2009 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Todd Bancshares, Inc., Hopkinsville, KY 2 02/06/2009 TowneBank, Portsmouth, 12/12/2008 VA Preferred Stock w/ Exercised Warrants Titonka Bancshares, Inc, Titonka, IA 2 04/03/2009 $59,000,000 $33,900,000 $2,179,000 $3,194,000 $2,997,000 $214,181,000 $298,737,000 $8,950,000 $50,236,000 $6,599,000,000 $12,000,000 $215,000,000 $2,765,000 $4,237,000 $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 $3,800,000 04/17/2009 Preferred Stock w/ Warrants Investment Amount Timberland Bancorp, Inc., 12/23/2008 Hoquiam, WA Investment Description Preferred Stock w/ Exercised Warrants Institution Tifton Banking Company, Tifton, GA 2 Purchase Date CPP Transaction Detail, as of 3/31/2010 11/18/2009 02/17/2010 06/17/2009 12/09/2009 Capital Repayment Date $59,000,000 $214,181,000 $6,599,000,000 $215,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) $0 $0 $0 $0 Remaining Capital Amount 12/23/2009 03/31/2010 07/15/2009 12/30/2009 Final Disposition Date R R R R Note15 $450,000 $4,500,000 $139,000,000 $10,000,000 Final Disposition Proceeds Final Disposition $15.10 $13.26 $0.04 $25.88 $24.43 $13.96 $4.00 Stock Price as of 3/31/2010 $391.5 $1,265.5 $4.3 $49,563.6 $1,556.0 $390.4 $28.2 Market Capitalization as of 3/31/2010 (in millions) $5.71 $21.31 $6.73 Current Strike Price a 7,847,732 538,184 370,899 Current Outstanding Warrants a ($5.67) ($7.35) ($2.73) $2,695,972 $1,893,739 $14,669 $161,072 $13,475,555 $7,509,920 $508,334 $745,312 $195,220,417 $465,067 $11,287,500 $161,770 $1,215,893 $121,116 $1,710,911 $978,675 $178,124 $192,415 $4,491,908 $223,450 $100,004 $952,236 $171,433 Interest/ Dividends Paid to Treasury Continued on next page OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 198 Appendix D I Transaction Detail I april 20, 2010 United American Bank, San Mateo, CA 2 Institution Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants United Community Banks, Inc., Blairsville, GA b 12/05/2008 United Financial Banking 01/16/2009 Companies, Inc., Vienna, VA 2 $9,900,000 $11,926,000 Preferred Stock w/ Exercised Warrants University Financial Corp, Subordinated Debentures Inc., St. Paul, MN 3, 8 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Valley National Bancorp, 11/14/2008 Wayne, NJ 4, c Valley National Bancorp, Wayne, NJ 4, c $4,700,000 Preferred Stock w/ Exercised Warrants 11/14/2008 Washington Federal, Inc., Seattle, WA 4 $26,380,000 $200,000,000 Preferred Stock w/ Warrants Preferred Stock w/ Warrants $22,000,000 Washington Banking 01/16/2009 Company, Oak Harbor, WA b Wainwright Bank & Trust Company, Boston, MA 4 Preferred Stock w/ Warrants 12/19/2008 $12,000,000 Preferred Stock w/ Exercised Warrants $110,000,000 Wachusett Financial 12/11/2009 Services, Inc., Clinton, MA 2, 10 $25,000,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants VIST Financial Corp., Wyomissing, PA 12/19/2008 W.T.B. Financial 01/30/2009 Corporation, Spokane, WA 2 Preferred Stock w/ Exercised Warrants Vision Bank - Texas, Richardson, TX 2 04/24/2009 $1,500,000 $71,000,000 Preferred Stock w/ Warrants 12/12/2008 Virginia Company Bank, 06/12/2009 Newport News, VA 2, 10 $14,738,000 $300,000,000 $1,300,000 $16,019,000 $5,500,000 Virginia Commerce Bancorp, Arlington, VA Village Bank and Trust 05/01/2009 Financial Corp, Midlothian, VA 11/14/2008 Preferred Stock w/ Warrants Preferred Stock w/ Warrants 11/14/2008 Valley National Bancorp, Wayne, NJ 4, c Preferred Stock w/ Exercised Warrants Valley Financial Group, 12/18/2009 Ltd., 1st State Bank, Saginaw, MI 2 Preferred Stock w/ Exercised Warrants Valley Community Bank, Pleasanton, CA 2 01/09/2009 Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Valley Commerce Bancorp, Visalia, CA 2 01/30/2009 Valley Financial 12/12/2008 Corporation, Roanoke, VA $10,000,000 Preferred Stock w/ Exercised Warrants Uwharrie Capital Corp, 12/23/2008 Albemarle, NC 2 $7,700,000 $2,861,000 Preferred Stock w/ Exercised Warrants US Metro Bank, Garden 02/06/2009 Grove, CA 2 06/19/2009 $20,649,000 Preferred Stock w/ Warrants Universal Bancorp, 05/22/2009 Bloomfield, IN 2 12/05/2008 Unity Bancorp, Inc., Clinton, NJ $5,658,000 $180,000,000 $14,400,000 Subordinated Debentures w/ Exercised Warrants United Bank Corporation, Barnesville, GA 8 05/22/2009 $20,600,000 $10,300,000 Preferred Stock w/ Warrants United Bancorporation of Alabama, Inc., Atmore, AL $8,700,000 Preferred Stock w/ Warrants Investment Amount Preferred Stock w/ Exercised Warrants Investment Description 12/23/2008 United Bancorp, Inc., 01/16/2009 Tecumseh, MI 02/20/2009 Purchase Date CPP Transaction Detail, as of 3/31/2010 05/27/2009 11/24/2009 12/23/2009 09/23/2009 06/03/2009 Capital Repayment Date Remaining Capital Amount $200,000,000 $22,000,000 $100,000,000 $0 $0 $0 $125,000,000 $100,000,000 $75,000,000 $225,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) 03/09/2010 12/16/2009 Final Disposition Date A R Note15 $15,623,222 $568,700 Final Disposition Proceeds Final Disposition $20.32 $12.59 $9.73 $8.97 $6.65 $3.47 $15.37 $4.45 $5.29 $4.41 $4.95 $7.00 Stock Price as of 3/31/2010 $2,284.9 $192.7 $70.9 $52.5 $179.1 $14.7 $2,353.8 $20.8 $37.8 $415.0 $35.5 Market Capitalization as of 3/31/2010 (in millions) $8.04 $10.30 $3.95 $4.43 $18.66 $6.97 $4.05 $12.28 $14.56 $9.92 Current Strike Price a 246,082 364,078 2,696,203 499,029 2,411,944 344,742 764,778 1,099,542 106,131 311,492 Current Outstanding Warrants a $4.55 ($1.33) $2.70 ($0.96) ($3.29) ($2.52) $1.24 ($7.87) ($9.61) ($2.92) $5,361,111 $1,425,253 $1,023,611 $114,315 $6,244,791 $1,444,444 $66,082 $167,312 $4,171,250 $581,332 $12,979,167 $11,218 $941,117 $329,726 $437,136 $623,722 $159,818 $601,998 $394,171 $1,233,205 $333,211 $10,750,000 $882,631 $589,389 $1,112,972 $0 Interest/ Dividends Paid to Treasury Continued on next page IN OUT IN OUT OUT OUT IN OUT OUT OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Transaction detail I Appendix D I april 20, 2010 199 Preferred Stock Preferred Stock w/ Warrants Preferred Stock w/ Warrants Webster Financial 11/21/2008 Corporation, Waterbury, CT 4 Wells Fargo & Company, San Francisco, CA 4 Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Westamerica 02/13/2009 Bancorporation, San Rafael, CA 4, c Westamerica 02/13/2009 Bancorporation, San Rafael, CA 4, c Western Alliance 11/21/2008 Bancorporation, Las Vegas, NV b Western Community 12/23/2008 Bancshares, Inc., Palm Desert, CA 2 $4,871,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Warrants Preferred Stock w/ Exercised Warrants Worthington Financial 05/15/2009 Holdings, Inc., Huntsville, AL 2 WSFS Financial 01/23/2009 Corporation, Wilmington, DE Yadkin Valley Financial 01/16/2009 Corporation, Elkin, NC c Yadkin Valley Financial 07/24/2009 Corporation, Elkin, NC c Zions Bancorporation, Salt 11/14/2008 Lake City, UT Preferred Stock w/ Warrants Preferred Stock w/ Warrants Wintrust Financial 12/19/2008 Corporation, Lake Forest, IL York Traditions Bank, York, PA 2 Preferred Stock w/ Warrants Wilshire Bancorp, Inc., Los 12/12/2008 Angeles, CA 04/24/2009 $13,312,000 Preferred Stock w/ Warrants Wilmington Trust 12/12/2008 Corporation, Wilmington, DE $1,400,000,000 $36,000,000 $52,625,000 $2,720,000 $250,000,000 $62,158,000 $330,000,000 $300,000,000 Preferred Stock w/ Warrants $16,800,000 Whitney Holding 12/19/2008 Corporation, New Orleans, LA $4,700,000 Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Western Reserve Bancorp, Inc, Medina, OH 2 $6,855,000 Preferred Stock w/ Exercised Warrants $4,567,000 $7,290,000 $140,000,000 $83,726,000 $36,000,000 $75,000,000 $25,000,000,000 $400,000,000 $5,625,000 $6,842,000 $6,633,000 Investment Amount White River Bancshares 02/20/2009 Company, Fayetteville, AR 2 05/15/2009 Western Illinois 12/23/2008 Bancshares Inc., Monmouth, IL 2, c Preferred Stock Preferred Stock w/ Warrants West Bancorporation, Inc., 12/31/2008 West Des Moines, IA Western Illinois 12/29/2009 Bancshares Inc., Monmouth, IL 2, 10a, c Preferred Stock w/ Warrants WesBanco, Inc., Wheeling, 12/05/2008 WV 4 10/28/2008 Preferred Stock w/ Exercised Warrants Waukesha Bankshares, 06/26/2009 Inc., Waukesha, WI 2, 10 01/30/2009 WashingtonFirst 10/30/2009 Bankshares, Inc., Reston, VA 2, 10a, c Investment Description Preferred Stock w/ Exercised Warrants Institution WashingtonFirst Bankshares, Inc. (WashingtonFirst Bank), Reston, VA 2, 13 - 10/30/2009, c Purchase Date CPP Transaction Detail, as of 3/31/2010 11/18/2009 09/02/2009 09/09/2009 12/23/2009 03/03/2010 Capital Repayment Date Remaining Capital Amount $41,863,000 $41,863,000 $75,000,000 $25,000,000,000 $0 $41,863,000 $0 $0 $100,000,000 $300,000,000 Capital Repayment Amount Capital Repayment Details (CONTINUED) 12/23/2009 Final Disposition Date R Note15 $950,000 Final Disposition Proceeds Final Disposition $21.84 $4.30 $39.00 $37.21 $11.03 $16.57 $13.79 $5.69 $57.65 $6.58 $16.26 $31.12 $17.49 Stock Price as of 3/31/2010 $3,284.8 $69.4 $276.3 $1,121.6 $324.5 $1,463.6 $1,330.1 $415.4 $1,687.3 $114.5 $432.0 $161,454.6 $1,371.6 Market Capitalization as of 3/31/2010 (in millions) $36.27 $7.30 $13.99 $45.08 $22.82 $9.82 $26.66 $17.10 $13.34 $50.92 $11.39 $34.01 $18.28 Current Strike Price a 5,789,909 273,534 385,990 175,105 1,643,295 949,460 1,856,714 2,631,579 787,107 246,640 474,100 110,261,688 3,282,276 Current Outstanding Warrants a ($14.43) ($3.00) ($9.69) ($6.08) $14.39 $1.21 ($10.09) ($3.31) ($7.65) $6.73 ($4.81) ($2.89) ($0.79) $24,916,667 $188,581 $476,373 Interest/ Dividends Paid to Treasury $87,694,444 $214,620 $2,316,627 $2,792,049 $111,180 $14,444,444 $3,651,782 $19,387,500 $17,333,333 $902,883 $192,112 $456,766 $454,746 $8,633,333 $2,755,981 $2,025,000 Continued on next page OUT OUT OUT OUT IN IN OUT OUT OUT IN OUT $2,854,167 OUT $1,440,972,222 OUT Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies 200 Appendix D I Transaction Detail I april 20, 2010 Institution Investment Amount Capital Repayment Amount Total Losses ($2,334,120,000) Total Capital Repayment $135,829,721,000 Amount Capital Repayment Date TOTAL TREASURY CPP INVESTMENT AMOUNT $66,735,489,320 Total Purchase Amount $204,899,330,320 Investment Description Capital Repayment Details (CONTINUED) Remaining Capital Amount Final Disposition Date Final Disposition Proceeds Total Warrant $4,377,690,148 Proceeds Note15 Final Disposition Stock Price as of 3/31/2010 Market Capitalization as of 3/31/2010 (in millions) Current Strike Price a Current Outstanding Warrants a Amount “In the Money” or “Out of In or Out of the Money” the Money e Warrant and Market Data for Publicly Traded Companies Interest/ Dividends Paid to Treasury Sources: Treasury, Transactions Report, 4/2/2010; Treasury, responses to SIGTARP data call, 4/7/2010 and 4/8/2010; Market Data: Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com, accessed 4/6/2010. 1a Notes: Numbers affected by rounding. Data as of 3/31/2010. Numeric notes taken verbatim from Treasury’s 4/2/2010 Transactions Report. All amounts and totals reflect cumulative receipts since inception through 3/31/2010. 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. 1b The warrant disposition proceeds amount are stated pro rata in respect of the CPP investments in Bank of America Corporation that occurred on 10/28/2008 and 1/9/2009. The total gross disposition proceeds from CPP warrants on 3/3/2010 was $310,571,615, consisting of $186,342,969 and $124,228,646. Proceeds from the disposition of TIP warrants on 3/3/2010 appear on a following page of this report. 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. 3a Treasury cancelled the warrants received from this institution due to its designation as a CDFI. 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. 10a This institution received an additional investment through the expansion of CPP for small banks. 11 Treasury made 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 Series M. 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. 13 This institution converted to a bank holding company structure and Treasury exchanged its securities for a like amount of securities that comply with the CPP terms applicable to bank holding companies. The institution in which Treasury’s original investment was made is shown in parentheses. 14 As of the date of this report, this institution is in bankruptcy proceedings. 15 For final disposition of warrants, “R” represents proceeds from a repurchase of warrants by the financial institution, and “A” represents the proceeds to Treasury, before underwriting fees and selling expenses, from a sale by Treasury in a registered public offering of the warrants issued by the financial institution. 16 On 12/10/2009, the bankruptcy reorganization plan of CIT Group Inc. became effective and Treasury’s preferred stock and warrant investment were extinguished and replaced by Contingent Value Rights (CVRs). On 2/8/2010, the CVRs expired without value as the terms and conditions for distribution of common shares to holders of CVRs were not met. 17 On 12/11/2009, Treasury exchanged its Series A Preferred Stock issued by Superior Bancorp, Inc. for a like amount of non tax-deductible Trust Preferred Securities issued by Superior Capital Trust II, administrative trustee for Superior Bancorp. 18 On 2/1/2010, following the acquisition of First Market Bank (First Market) by Union Bankshares Corporation (the acquiror), the preferred stock and exercised warrants issued by First Market on 2/6/2009 were exchanged for a like amount of securities of the acquiror in a single series but with a blended dividend rate equivalent to those of Treasury’s original investment. 19 On 2/11/2010, Pacific Coast National Bancorp dismissed its bankruptcy proceedings with no recovery to any creditors or investors, including Treasury, and the investment was extinguished. 20 On 3/8/2010, Treasury exchanged its $84,784,000 of Preferred Stock in Midwest Banc Holdings, Inc. (MBHI) for $89,388,000 of Mandatory Convertible Preferred Stock (MCP), which is equivalent to the initial investment amount of $84,784,000, plus $4,604,000 of capitalized previously accrued and unpaid dividends. Subject to the fulfillment by MBHI of the conditions related to its capital plan, the MCP may be converted to common stock. 21 On 3/30/2010, Treasury exchanged its $7,500,000 of Subordinated Debentures in GulfSouth Private Bank for an equivalent amount of Preferred Stock, in connection with its conversion from a Subchapter S-Corporation, that comply with the CPP terms applicable to privately held qualified financial institutions. 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 price 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. Amounts are presented as of 3/31/2010. b According to Treasury, these institutions executed Qualified Equity Offerings which “reduce the number of outstanding warrants held by Treasury.” c Treasury made more than one investment in these institutions. For purposes of this table, income (dividends and interest), is presented on a combined basis because it could not be split between the two transactions based on the data provided by Treasury. d According to Treasury, M&T acquired Provident, therefore “warrant details changed as per the conversion ratio.” The previous investment in Provident now reflects M&T market data above. e When a warrant’s underlying current stock price rises above the strike price, it is considered “In the Money,” otherwise it is considered “Out of the Money.” Purchase Date CPP Transaction Detail, as of 3/31/2010 Transaction detail I Appendix D I april 20, 2010 201 11/25/2008 04/17/2009 1 2, 3 AIG AIG Institution New York New York City NY NY State Purchase Purchase Transaction Type $29,835,000,000 $69,835,000,000 Preferred Stock w/ Warrants Total $40,000,000,000 Investment Amount Preferred Stock w/ Warrants Investment Description Purchase Details Par Par Pricing Mechanism 04/17/2009 Date Exchange Preferred Stock w/ Warrants Transaction Investment Type Description Pricing Mechanism $40,000,000,000 Par Investment Amount Exchange Details $34.14 $34.14 $50.00 Strike Price $4,606.4 $0.00002 $4,606.4 Stock Market Price as of Capitalization 3/31/2010 (in millions) 150 2,689,938 $34.14 ($15.86) Outstanding Amount “In the Warrant Money” or “Out of Shares a the Money” a Warrants and Market Data IN OUT In/Out NC Bank of America Corporation 01/16/ 2009 Charlotte NY Citigroup Inc. New York City Purchase Purchase $40,000,000,000 Total Investment $20,000,000,000 $20,000,000,000 Capital Repayment Amount Total Capital Repayment $40,000,000,000 Par Par Pricing Mechanism Total Treasury TIP Investment Amount $0 $20,000,000,000 $20,000,000,000 Preferred Stock w/ Warrants Trust Preferred Securities w/ Warrants Investment Amount 12/09/ 2009 12/23/ 2009 $0 $0 Warrants Warrants Warrants Final Disposition Description $1,255,639,099.00 $17.85 $4.05 $179,074 ($6.56) Amount “In Outstanding the Money” Warrant or “Out of Shares the Money”a $115,664 $10.61 188,501,414 Strike Price Market and Warrants Data Final Stock Market Disposition Price as of Capitalization Proceeds 3/31/2010 (in millions) $1,255,639,099.00 Final Disposition Total Warrant Proceeds 03/03/2010 Remaining Final Capital Disposition Description Date Treasury Investment Remaining After Capital Repayment Capital Remaining Repayment Capital Amount Date2 Capital Repayment Details a Dividends/ Interest Paid to Treasury $0 $0 $1,435,555,556 OUT $1,568,888,889 In/ Out a Dividends/ Interest Paid to Treasury Sources: Treasury, Transactions Report, 4/2/2010; Treasury, responses to SIGTARP data call, 4/7/2010 and 4/8/2010; Market Data: Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com, accessed 4/6/2010. 1 Notes: Numbers affected by rounding. Data as of 3/31/2010. Numbered notes taken verbatim from Treasury’s 4/2/2010 Transactions Report. Treasury made 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. 2 Repayment pursuant to Title VII, Section 7001 of the American Recovery and Reinvestment Act of 2009. a When a warrant’s underlying current stock price rises above the strike price, it is considered “In the Money,” otherwise it is considered “Out of the Money.” 1 Institution Transaction Investment State Type Description 12/31/ 2008 Note Date Seller TIP Transaction Detail, as of 3/31/2010 Table D.3 Sources: Treasury, Transactions Report, 4/2/2010; Treasury, responses to SIGTARP data call, 4/7/2010 and 4/8/2010; Market Data: Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com, accessed 4/6/2010. Notes: Numbers affected by rounding. Data as of 3/31/2010. Numbered notes taken verbatim from Treasury’s 4/2/2010 Transactions Report. 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. a When a warrant’s underlying current stock price rises above the strike price, it is considered “In the Money,” otherwise it is considered “Out of the Money.” Date Note Seller SSFI (AIG) Transaction Detail, as of 3/31/2010 Table D.2 202 Appendix D I Transaction Detail I april 20, 2010 Termination 12/23/ Citigroup Inc., 2009 New York, NY 3 Total Termination Agreement Master Agreement $0 ($5,000,000,000) $5,000,000,000 Guarantee Limit Date Type Date Payment Type Partial Trust cancellation Preferred 12/23/ $4,034,000,000 for early Securities 2009 termination w/ Warrants of guarantee Description Amount Exchange/Transfer/Other Details Exchange Preferred preferred 06/09/ Stock $4,034,000,000 stock for 2009 w/ Warrants trust preferred securities Description Amount Premium Remaining Premium Desc Remaining Premium Amount $10.61 66,531,728 ($6.56) OUT Market Stock Capitalization Strike Price (in millions) Price Amount “In the Money” Outstanding or “Out Warrant of the Shares Money”a In/Out Market and Warrants Data Trust Preferred ($1,800,000,000) Securities w/ $2,234,000,000 $4.05 $115,663.6 Warrants Payment Amount Payment or Disposition a $321,366,667 Dividends/ Interest Paid to Treasury 03/03/2009 1 TALF LLC Institution Wilmington City DE State Purchase Transaction Type Investment Amount $20,000,000,000 Investment Description Debt Obligation w/ Additional Note N/A Pricing Mechanism Source: Treasury, Transactions Report, 4/2/2010. Note: Numbers affected by rounding. Data as of 3/31/2010. Numbered notes taken verbatim from Treasury’s 4/2/2010 Transactions Report. 1 The loan was funded through TALF LLC, a special purpose vehicle created by The Federal Reserve Bank of New York. The amount of $20,000,000,000 represents the maximum loan amount. The loan will be incrementally funded. Date Note Seller TALF Transaction Detail, as of 3/31/2010 Table D.5 Sources: Treasury, Transactions Report, 4/2/2010; Treasury, responses to SIGTARP data call, 4/7/2010 and 4/8/2010; Market Data: Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com, accessed 4/6/2010. Notes: Numbers affected by rounding. Data as of 3/31/2010. Numbered notes taken verbatim from 4/2/2010 Transactions Report. 1 In consideration for the guarantee, Treasury received $4.03 billion of preferred stock, which pays 8% interest. 2 Treasury made 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. 3 On 12/23/2009, Treasury entered into a Termination Agreement with the other parties to the Master Agreement which served to terminate Treasury’s guarantee and obligations under the Master Agreement. In connection with the early termination of the guarantee, Treasury agreed to cancel $1.8 billion of the AGP Trust Preferred Securities, and the Federal Deposit Insurance Corporation (FDIC) and Treasury agreed that, subject to the conditions set out in the Termination Agreement, the FDIC may transfer $800 million of Trust Preferred Securities to Treasury at the close of Citigroup’s participation in the FDIC’s Temporary Liquidity Guarantee Program. a When a warrant’s underlying current stock 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. Guarantee 01/16/ Citigroup Inc., 2009 New York, NY Transaction Type Description 1,2,3 Note Date Institution Name Initial Investment b AGP Transaction Detail, as of 3/31/2010 Table D.4 Transaction detail I Appendix D I april 20, 2010 203 DE AllianceBernstein Legacy Securities Master Fund, Wilmington L.P. 10/02/2009 10/02/2009 10/02/2009 09/30/2009 09/30/2009 11/25/2009 11/25/2009 12/18/2009 12/18/2009 11/04/2009 11/04/2009 09/30/2009 09/30/2009 10/01/2009 10/01/2009 1, 6 2, 6 1, 6 1, 6 2, 6 2, 6 1, 6 2, 6 1, 6 2, 6 1, 6 2, 4 1, 4 2, 6 1, 6 DE DE Marathon Legacy Securities Public-Private Invest- Wilmington ment Partnership, L.P. Marathon Legacy Securities Public-Private Invest- Wilmington ment Partnership, L.P. DE DE DE DE DE RLJ Western Asset Public/ Wilmington Private Master Fund, L.P. RLJ Western Asset Public/ Wilmington Private Master Fund, L.P. UST/TCW Senior MortWilmington gage Securities Fund, L.P. UST/TCW Senior MortWilmington gage Securities Fund, L.P. Wilmington Wilmington Wellington Management Legacy Securities PPIF Master Fund, LP Wellington Management Legacy Securities PPIF Master Fund, LP Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase $1,111,111,111 $1,111,111,111 $2,222,222,222 Membership Interest Membership Interest Debt Obligation w/ Contingent Proceeds Membership Interest Debt Obligation w/ Contingent Proceeds Membership Interest $1,111,111,111 $2,222,222,222 $1,111,111,111 $2,222,222,222 $2,222,222,222 Debt Obligation w/ Contingent Proceeds Debt Obligation w/ Contingent Proceeds $1,111,111,111 Membership Interest $1,111,111,111 $2,222,222,222 Debt Obligation w/ Contingent Proceeds Membership Interest $1,111,111,111 Membership Interest $2,222,222,222 $2,222,222,222 Debt Obligation w/ Contingent Proceeds Debt Obligation w/ Contingent Proceeds $1,111,111,111 $2,222,222,222 $1,111,111,111 $2,222,222,222 Investment Amount Membership Interest Debt Obligation w/ Contingent Proceeds Membership Interest Debt Obligation w/ Contingent Proceeds Transaction Investment Type Description Par Par Par Par Par Par Par Par Par Par Par Par Par Par Par Par Par Par Amount $1,262,037,500 $2,524,075,000 $156,250,000 $200,000,000 $1,244,437,500 $2,488,875,000 $1,244,437,500 $2,488,875,000 $1,244,437,500 $2,488,875,000 $2,488,875,000 $1,244,437,500 $1,244,437,500 $2,488,875,000 $1,244,437,500 $2,488,875,000 $1,271,337,500 $2,542,675,000 3 Total Investment Amount $30,356,250,000 03/22/2010 03/22/2010 01/04/2009 01/04/2009 03/22/2010 03/22/2010 03/22/2010 03/22/2010 03/22/2010 03/22/2010 03/22/2010 03/22/2010 03/22/2010 03/22/2010 03/22/2010 03/22/2010 03/22/2010 03/22/2010 Pricing Mechanism Date Adjusted Investment Total Capital Repayment 01/15/2010 01/12/2010 01/11/2010 02/18/2010 Repayment Date Amount $361,138,718 $156,250,000 $166,000,000 $34,000,000 $0 $0 $166,000,000 Membership Interest 5 Contingent Proceeds Debt Obligation w/ Contingent Proceeds Debt Obligation w/ Contingent Proceeds Description Investment after Capital Repayment $4,888,718 $2,483,986,282 Repayment Amount Capital Repayment Details N/A Description Total Proceeds $20,644,319 $48,922 $20,091,872 01/29/2010 Distribution 5 02/24/2010 Distribution 5 $1,223 $502,302 Proceeds 5 02/24/2010 Distribution 01/29/2010 Distribution 5 Date Distribution or Disposition $1,949,973 $342,176 $3,235,572 $16,720 $180,296 $5,075,052 $2,690,844 $5,739,171 $5,612,449 Interest/ Distributions Paid to Treasury Sources: Treasury, Transactions Report, 4/2/2010; Treasury, responses to SIGTARP data call, 4/7/2010 and 4/8/2010. 2 1 Notes: Numbers affected by rounding. Data as of 3/31/2010. Numbered notes taken verbatim from Treasury’s 4/2/2010 Transactions Report. 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. 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. 3 Adjusted to show Treasury’s maximum obligations to a fund. 4 On 1/4/2010, Treasury and the fund manager entered into a Winding-Up and Liquidation Agreement. The adjusted amount shows Treasury’s final investments in the fund. (See note 6.) 5 Profit after capital repayments will be paid pro rata (subject to prior distribution of Contingent Proceeds to Treasury) to the fund’s partners, including Treasury, in respect of their membership interests. 6 Following termination of the TCW fund, the $3.33 billion of obligations have been reallocated to the remaining eight funds pursuant to consent letters from Treasury dated as of 3/22/2010. $133 million of maximum equity capital obligation and $267 million of maximum debt obligation were reallocated per fund, after adjustment for the $17.6 million and $26.9 million equity capital reallocations from private investors in the TCW fund to the Wellington fund and the AG GECC fund, respectively. The $356 million of final investment in the TCW fund will remain a part of Treasury’s total maximum S-PPIP investment amount. DE DE Wilmington Oaktree PPIP Fund, L.P. DE DE Invesco Legacy Securities Wilmington Master Fund, L.P. Wilmington DE Invesco Legacy Securities Wilmington Master Fund, L.P. Oaktree PPIP Fund, L.P. DE DE Wilmington Blackrock PPIF, L.P. Wilmington DE AllianceBernstein Legacy Securities Master Fund, Wilmington L.P. 10/02/2009 2, 6 Blackrock PPIF, L.P. DE Wilmington 10/30/2009 1, 6 DE Wilmington AG GECC PPIF Master Fund, L.P. 10/30/2009 2, 6 State City Institution AG GECC PPIF Master Fund, L.P. Note Date Seller PPIP Transaction Detail, as of 3/31/2010 Table D.6 204 Appendix D I Transaction Detail I april 20, 2010 General Motors,b,d Detroit, MI GMAC, Detroit, MI Institution GMAC 5/21/2009 General Debt Obligation Motors w/ Additional Corporation Note Debt Obligation General w/ Additional Motors Corporation Note 12/31/2008 Purchase Purchase Purchase Purchase 4/22/2009 5/20/2009 5/27/2009 Purchase General Debt Obligation Motors Corporation 12/29/2008 Purchase 6/3/2009 GMAC 12/30/2009 Purchase General Debt Obligation Motors w/ Additional Corporation Note General Debt Obligation Motors w/ Additional Corporation Note General Debt Obligation Motors w/ Additional Corporation Note Convertible Preferred Stock w/ Exercised Warrants GMAC Trust Preferred Securities w/ Exercised Warrants Convertible Preferred Stock w/ Exercised Warrants Preferred Stock w/ Exercised Warrants Description 12/30/2009 Purchase Purchase GMAC 12/29/2008 Purchase Date Transaction Type Seller Initial Investment $30,100,000,000 8 $360,624,198 6 $4,000,000,000 5 $2,000,000,000 4 $13,400,000,000 $884,024,131 2 $1,250,000,000 22 $2,540,000,000 $7,500,000,000 22 $5,000,000,000 $884,024,131 3 $3,000,000,000 $5,000,000,000 Debt left at Old GM 7/10/2009 $985,805,085 9 $7,072,488,605 9 Transfer of debt to New GM 7/10/2009 $360,624,198 7 $4,000,000,000 7 $2,000,000,000 7 Exchange for preferred $22,041,706,310 9 and common stock in New GM Exchange for preferred and common stock in New GM Exchange for preferred and common stock in New GM Exchange for preferred and common stock in New GM Motors Liquidation Company Debt Obligation General Motors 11, 12 Debt Holdings LLC Obligation General Motors 10, 11 Common Company Stock General Motors 10, 11 Preferred Company Stock Common Stock GMAC 3 Common Stock 21, 22 Convertible Preferred Stock 21, 22 Convertible Preferred Stock Description GMAC GMAC GMAC Note $985,805,085 Partial repayment Partial repayment 3/31/2010 $1,000,000,000 Debt Obligation $35,084,421 Debt Obligation $1,000,000,000 Debt Obligation 12/18/2009 Partial repayment 1/21/2010 $360,624,198 Debt Obligation Type Remaining Amount/ Investment Proceeds Description Payment or Disposition1 Partial repayment $7,072,488,605 7/10/2009 60.8% $2,100,000,000 56.3% $4,875,000,000 $5,250,000,000 Amount/ Equity % Date Treasury Investment After Exchange/Transfer/Other Amount Note Obligor Exchange for preferred $13,400,000,000 7 and common stock in New GM Exchange for equity interest in GMAC Partial exchange for common stock Exchange for convertible preferred stock Type Exchange/Transfer/Other Details 7/10/2009 7/10/2009 7/10/2009 7/10/2009 7/10/2009 5/29/2009 12/30/2009 12/30/2009 Amount Note Date AIFP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.7 $524,198,730 $1,010,171,736 Dividends/ Interest Paid to Treasury Continued on next page. $4,676,779,986 $5,676,779,986 $5,711,864,407 $6,711,864,407 Remaining Investment Amount/ Equity % Transaction detail I Appendix D I april 20, 2010 205 Chrysler,c Auburn Hills, MI Chrysler FinCo, Farmington Hills, MI Institution Purchase Purchase 5/20/2009 5/27/2009 Purchase 4/29/2009 Purchase Purchase 4/29/2009 5/1/2009 Purchase 1/2/2009 Purchase 1/16/2009 Debt Obligation w/ Additional Note Debt Obligation w/ Additional Note Debt Obligation w/ Additional Note Debt Obligation w/ Additional Note Description Debt Obligation w/ Additional Note, Equity $6,642,000,000 18 $— 17 $1,888,153,580 16 $280,130,642 15 $— 14 $4,000,000,000 $1,500,000,000 13 6/10/2009 6/10/2009 Amount Note Date Total Initial Investment $81,344,932,551 Amount Chrysler Group LLC Chrysler LLC Debt Obligation w/ Additional Note Chrysler LLC Debt Obligation w/ Additional Note Chrysler Holding Chrysler Holding Chrysler Holding Chrysler FinCo Transaction Type Seller Date Initial Investment AIFP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.7 Issuance of equity in New Chrysler Transfer of debt to New Chrysler Type $— $500,000,000 19 Common Equity Chrysler Group LLC Debt Obligation Debt Obligation 20 Description Chrysler Group 19 LLC Chrysler Holding Note 9.9% $7,142,000,000 $3,500,000,000 Repayment Repayment 7/14/2009 7/14/2009 None $4,190,839,261 $280,130,642 Additional Note $15,000,000 $1,369,197,029 Additional Note $44,357,710 Debt Obligation w/ Additional Note $51,136,084 Debt Obligation w/ Additional Note $31,810,122 Debt Obligation w/ Additional Note $3,499,055 Debt Obligation w/ Additional Note Remaining Amount/ Investment Proceeds Description Payment or Disposition1 Total Treasury $77,154,093,290 Investment Amount Total Payments Repayment Partial repayment 6/17/2009 7/10/2009 Partial repayment Partial repayment 4/17/2009 5/18/2009 Partial repayment Type 3/17/2009 Amount/ Equity % Date Treasury Investment After Exchange/Transfer/Other Amount Note Obligor Exchange/Transfer/Other Details $180,685,587 $7,405,894 Dividends/ Interest Paid to Treasury Continued on next page. $0 — $0 $1,369,197,029 $1,413,554,739 $1,464,690,823 $1,496,500,945 Remaining Investment Amount/ Equity % 206 Appendix D I Transaction Detail I april 20, 2010 Date Description Amount Note Date Type Note Description Amount/ Equity % Date Treasury Investment After Exchange/Transfer/Other Amount Note Obligor Exchange/Transfer/Other Details Type Remaining Amount/ Investment Proceeds Description Payment or Disposition1 Remaining Investment Amount/ Equity % Dividends/ Interest Paid to Treasury Sources: Treasury, Transactions Report, 4/2/2010; Treasury, responses to SIGTARP data call, 4/7/2010 and 4/8/2010. Notes: Numbers affected by rounding. Data as of 3/31/2010. Definitions and numbered notes taken verbatim from Treasury’s 4/2/2010 Transactions Report. See www.financialstability.gov to see Transactions Report including colored lines referred to by Treasury. “GMAC” refers to GMAC Inc., formerly known as GMAC LLC. “Old GM” refers to General Motors Corporation, which is now known as Motors Liquidation Company. “New GM” refers to General Motors Company, the company that purchased Old GM’s assets on 7/10/2009 in a sale pursuant to section 363 of the Bankruptcy Code. See also footnote 11. “Chrysler FinCo” refers to Chrysler Financial Services Americas LLC. “Chrysler Holding” refers to CGI Holding LLC, the company formerly known as “Chrysler Holding LLC”. “Old Chrysler” refers to Chrysler LLC. “New Chrysler” refers to Chrysler Group LLC, the company that purchased Old Chrysler’s assets on 6/10/2009 in a sale pursuant to section 363 of the Bankruptcy Code. 1 Payment amount does not include accrued and unpaid interest on a debt obligation, which must be paid at the time of principal repayment. 2 Treasury committed to lend General Motors Corporation up to $1,000,000,000. The ultimate 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. 3 Pursuant to its rights under the loan agreement with Old GM reported on 12/29/2008, Treasury exchanged its $884 million loan to Old GM for a portion of Old GM’s common equity interest in GMAC. Treasury held a 35.4% common equity interest in GMAC until the transactions reported on 12/30/2009. (See transactions marked by orange line in the table above and footnote 22.) 4 This transaction is an amendment to Treasury’s 12/31/2008 agreement with Old GM (the “Old GM Loan”), which brought the total loan amount to $15,400,000,000. 5 This transaction was a further amendment to the Old GM Loan, which brought the total loan amount to $19,400,000,000. 6 This transaction was a further amendment to the Old GM Loan, which brought the total loan amount to $19,760,624,198. The $360,624,198 loan was used to capitalize GM Warranty LLC, a special purpose vehicle created by . 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 10. 7 On 7/10/2009, the principal amount outstanding under the Old GM Loan and interest accrued thereunder were extinguished and exchanged for privately placed preferred and common equity in New GM. (See green lines in the table above.) 8 Under the terms of the $33.3 billion debtor-in-possession credit agreement dated 6/3/2009 with Old GM (the “GM DIP Loan”), Treasury’s commitment amount was $30.1 billion. The remaining $2.2 billion of the financing was provided by Canadian government entities. As of 7/9/2009, $30.1 billion of funds had been disbursed by Treasury. 9 On 7/10/2009, Treasury and Old GM amended the GM DIP Loan, and the principal amount and interest accrued thereunder were extinguished and exchanged for privately placed preferred and common equity in New GM, except for (i) $7.07 billion, which was assumed by New GM as a new obligation under the terms of a separate credit agreement between Treasury and New GM (see transactions marked by green lines in table above) and (ii) $986 million, which remained a debt obligation of Old GM. 10 In total, for the exchange of the Old GM Loan and the GM DIP Loan (other than as explained in footnote 9), Treasury received $2.1 billion in preferred shares and 60.8% of the common shares of New GM. (See transactions marked by green lines in the table above.) 11 Pursuant to a corporate reorganization completed on or about 10/19/2009, the shareholders of New GM, including with respect to Treasury’s preferred and common stock, became shareholders of General Motors Holding Company (the ultimate parent company of New GM), which was renamed “General Motors Company” on an equal basis to their shareholdings in New GM, and New GM was converted to “General Motors LLC”. General Motors LLC is a wholly owned subsidiary of General Motors Holdings LLC, and General Motors Holdings LLC is a wholly owned subsidiary of General Motors Company. 12 Pursuant to a corporate reorganization completed on 10/19/2009, Treasury’s loan with New GM was assigned and assumed by General Motors Holdings LLC. 13 The loan was funded through Chrysler LB Receivables Trust, a special purpose vehicle created by Chrysler FinCo. 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. 14 This transaction was an amendment to Treasury’s 1/2/2009 agreement with Chrysler Holding. As of 4/30/2009, Treasury’s obligation to lend any funds committed under this amendment had terminated. No funds were disbursed. 15 The loan was used to capitalize Chrysler Warranty SPV LLC, a special purpose vehicle created by Old Chrysler. 16 This transaction was set forth in a credit agreement with Old Chrysler fully executed on 5/5/2009 following a term sheet executed on 5/1/2009 and made effective on 4/30/2009. Treasury’s commitment was $3.04 billion of the total $4.1 billion debtor-in-possession credit facility (the “Chrysler DIP Loan”). As of 6/30/2009, Treasury’s commitment to lend under the Chrysler DIP Loan had terminated. The remaining principal amount reflects the final amount of funds disbursed under the Chrylser DIP Loan. 17 This transaction was an amendment to Treasury’s commitment under the Chrysler DIP Loan, which increased Treasury’s commitment by an amount $756,857,000 to a total of $3.8 billion under the Chrysler DIP Loan. As of 6/30/2009, Treasury’s obligation to lend funds committed under the Chrysler DIP Loan had terminated. 18 This transaction, first reported based on a term sheet fully executed on 5/27/2009 for an amount up to $6.943 billion, was set forth in a credit agreement with New Chrysler fully executed on 6/10/2009. Under the terms of the credit agreement, Treasury made a new commitment to New Chrysler of up to $6.642 billion. The total loan amount is up to $7.142 billion including $500 million of debt assumed on 6/10/2009 from Chrysler Holding originally incurred under Treasury’s 1/2/2009 credit agreement with Chrysler Holding. The debt obligations are secured by a first priority lien on the assets of New Chrysler. When the sale to new Chrysler was completed, Treasury acquired the rights to 9.85% of the common equity in new Chrysler. 19 Pursuant to the agreement explained in footnote 18, $500 million of this debt obligation was assumed by New Chrysler. 20 Under the terms of an agreement dated 7/23/2009, Treasury agreed to hold the outstanding loans of Chrysler Holding in forbearance, and Chrysler Holding agreed to pay the greater of $1.375 billion or 40% of the equity value of Chrysler FinCo in the event it receives proceeds from Chrysler FinCo. 21 Amount of the Treasury investment after exchange includes the exercised warrants from Treasury’s initial investment. 22 Under the terms of an agreement dated 12/30/2009, the convertible preferred shares will mandatorily convert to common stock under the conditions and the conversion price as set forth in the terms of the agreement. a For the purpose of this table, income (dividends and interest) are presented in aggregate for each AIFP participant. b According to Treasury, the GM warrant was “Exchanged out of bankruptcy exit.” c This table includes AWCP transactions. Institution Transaction Type Seller Initial Investment AIFP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.7 Transaction detail I Appendix D I april 20, 2010 207 DE DE DE 1, 3 04/09/2009 GM Supplier Wilmington Receivables LLC 1, 3 04/09/2009 GM Supplier Wilmington Receivables LLC 1, 3 04/09/2009 GM Supplier Wilmington Receivables LLC Purchase Purchase Purchase Purchase Initial Total Debt Obligation w/ Additional Note Debt Obligation w/ Additional Note Debt Obligation w/ Additional Note Debt Obligation w/ Additional Note $5,000,000,000 $3,500,000,000 $1,500,000,000 Adjustment Date 3 Amount Dividends/ Interest Paid to Treasury $3,500,000,000 $50,000,000.00 Partial $100,000,000.00 repayment Partial $140,000,000.00 $9,087,808.00 repayment 03/04/2010 Repayment5 $2,500,000,000 11/20/2009 N/A 07/08/2009 Adjusted Total Type $1,000,000,000 03/09/2010 Repayment5 $123,076,734.86 $5,787,176.00 Date 02/11/2010 ($1,000,000,000) ($500,000,000) Adjustment Adjusted Investment Amount Amount Repayment4 N/A 07/08/2009 N/A 07/08/2009 N/A 07/08/2009 Investment Pricing Amount Mechanism Adjustment Details Sources: Treasury, Transactions Report, 4/2/2010; Treasury, responses to SIGTARP data call, 4/7/2010 and 4/8/2010. Notes: Numbers affected by rounding. Data as of 3/31/2010. Numbered notes taken verbatim from Treasury’s 4/2/2010 Transactions Report. 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. Chyrsler 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. 4 Does not include accrued and unpaid interest due on the amount of principal repayment, which interest must be paid at the time of principal repayment. 5 All outstanding principal drawn under the credit agreement was repaid. DE Transaction Investment State Type Description Wilmington Institution Name City 2, 3 04/09/2009 Chrysler Receivables SPV LLC Note Date Seller ASSP Transaction Detail, as of 3/31/2010 Table D.8 208 Appendix D I Transaction Detail I april 20, 2010 Purchase Purchase Purchase CitiMortgage, Inc., O’Fallon, MO Wells Fargo Bank, NA, Des Moines, IA GMAC Mortgage, Inc., Ft. Washington, PA Saxon Mortgage Services, Inc., Irving, TX 4/13/2009 4/13/2009 4/13/2009 4/13/2009 4/13/2009 Ocwen Financial Corporation, Inc., West Palm Beach, FL Bank of America, N.A., Simi Valley, CA Countrywide Home Loans Servicing LP, Simi Valley, CA 4/16/2009 4/17/2009 as amended on 1/26/2010 4/17/2009 as amended on 1/26/2010 4/13/2009 Purchase Purchase Purchase Purchase Purchase Select Portfolio Servicing, Salt Lake City, UT Chase Home Finance, LLC,2 Iselin, NJ Purchase Name of Institution Date Transaction Type Servicer Modifying Borrowers’ Loans Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $1,864,000,000 N/A $798,900,000 N/A $659,000,000 N/A $3,552,000,000 N/A $407,000,000 N/A $633,000,000 N/A $2,873,000,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $2,071,000,000 N/A $376,000,000 N/A Cap of Incentive Payments on Behalf of Borrowers and to Servicers & Lenders/ Pricing Investors (Cap) 1 Mechanism Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Investment Description HAMP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.9 $1,010,180,000 ($105,410,000) ($199,300,000) ($462,990,000) $65,070,000 9/30/2009 12/30/2009 3/26/2010 6/17/2009 9/30/2009 $5,540,000 $162,680,000 6/12/2009 9/30/2009 $450,100,000 $905,010,000 1/26/2010 3/26/2010 9/30/2009 $2,290,780,000 ($717,420,000) 6/12/2009 12/30/2009 ($829,370,000) $3,318,840,000 3/26/2010 $800,390,000 $46,860,000 3/26/2010 $665,510,000 $277,640,000 12/30/2009 1/26/2010 $102,580,000 9/30/2009 12/30/2009 ($105,620,000) 6/12/2009 ($57,720,000) ($3,552,000,000) 3/26/2010 7/31/2009 $355,710,000 12/30/2009 ($1,679,520,000) 12/30/2009 $254,380,000 $2,537,240,000 9/30/2009 9/30/2009 $384,650,000 6/12/2009 $225,040,000 $683,130,000 3/26/2010 6/17/2009 $668,108,890 3/19/2010 $190,180,000 $54,767 3/12/2010 3/26/2010 $2,050,236,344 2/17/2010 $1,213,310,000 ($991,580,000) 6/12/2009 12/30/2009 $131,340,000 ($355,530,000) $121,910,000 9/30/2009 3/26/2010 $284,590,000 6/12/2009 12/30/2009 Cap Adjustment Amount Adjustment Date $8,111,310,000 Updated portfolio data from servicer $7,206,300,000 Initial 2MP cap $6,756,200,000 Updated portfolio data from servicer & HAFA initial cap $4,465,420,000 Updated portfolio data from servicer & HPDP initial cap $5,182,840,000 Updated portfolio data from servicer $1,603,650,000 Updated portfolio data from servicer $2,433,020,000 Initial 2MP cap $1,632,630,000 Updated portfolio data from servicer & HAFA initial cap $967,120,000 Updated portfolio data from servicer & HPDP initial cap $804,440,000 Updated portfolio data from servicer $980,460,000 Updated portfolio data from servicer $933,600,000 Updated portfolio data from servicer & HAFA initial cap $655,960,000 Updated portfolio data from servicer & HPDP initial cap $553,380,000 Updated portfolio data from servicer $0 Termination of SPA $1,184,410,000 Updated portfolio data from servicer $1,242,130,000 Updated portfolio data from servicer & HAFA initial cap $886,420,000 Updated portfolio data from servicer & HPDP initial cap $632,040,000 Updated portfolio data from servicer $2,065,550,000 Updated portfolio data from servicer $1,875,370,000 Updated portfolio data from servicer & HAFA initial cap $3,554,890,000 Updated portfolio data from servicer & HPDP initial cap $1,017,650,000 Updated portfolio data from servicer $7,089,920,000 Updated portfolio data from servicer $6,406,790,000 Initial 2MP cap $5,738,681,110 Transfer of cap (from Wachovia) due to merger $5,738,626,344 Transfer of cap (from Wachovia) due to merger $3,688,390,000 Updated portfolio data from servicer & HAFA initial cap $2,475,080,000 Updated portfolio data from servicer & HPDP initial cap $2,410,010,000 Updated portfolio data from servicer $1,784,890,000 Updated portfolio data from servicer & 2MP initial cap $1,984,190,000 Updated portfolio data from servicer & HAFA initial cap $2,089,600,000 Updated portfolio data from servicer & HPDP initial cap $1,079,420,000 Updated portfolio data from servicer $558,310,000 Updated portfolio data from servicer $913,840,000 Updated portfolio data from servicer & HAFA initial cap $782,500,000 Updated portfolio data from servicer & HPDP initial cap $660,590,000 Updated portfolio data from servicer Adjusted Reason for Adjustment Cap Adjustment Details Continued on next page. $179,074 $1,109 $161,455 Market Capitalization (in Millions) Transaction detail I Appendix D I april 20, 2010 209 Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Name of Institution Home Loan Services, Inc., Pittsburgh, PA Wilshire Credit Corporation, Beaverton, OR Green Tree Servicing LLC, Saint Paul, MN Carrington Mortgage Services, LLC, Santa Ana, CA Aurora Loan Services, LLC, Littleton, CO Nationstar Mortgage LLC, Lewisville, TX Residential Credit Solutions, Fort Worth, TX CCO Mortgage, Glen Allen, VA RG Mortgage Corporation, San Juan, PR First Federal Savings and Loan, Port Angeles, WA 4/20/2009 4/20/2009 4/24/2009 4/27/2009 5/1/2009 5/28/2009 6/12/2009 6/17/2009 6/17/2009 6/19/2009 Date Transaction Type Servicer Modifying Borrowers’ Loans Financial Instrument for Home Loan Modifications $770,000 N/A $57,000,000 N/A $16,520,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $19,400,000 N/A $101,000,000 N/A $798,000,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $195,000,000 N/A $156,000,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $366,000,000 N/A $319,000,000 N/A Cap of Incentive Payments on Behalf of Borrowers and to Servicers & Lenders/ Pricing Investors (Cap) 1 Mechanism Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Investment Description HAMP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.9 ($42,210,000) $65,640,000 $2,020,000 $11,370,000 12/30/2009 3/26/2010 ($11,300,000) 9/30/2009 3/26/2010 ($116,950,000) 3/26/2010 12/30/2009 $145,510,000 $13,070,000 9/30/2009 12/30/2009 ($1,390,000) ($1,860,000) 9/30/2009 3/26/2010 $67,250,000 3/26/2010 $27,920,000 $80,250,000 12/30/2009 12/30/2009 $16,140,000 $9,150,000 3/26/2010 $134,560,000 $21,330,000 12/30/2009 9/30/2009 ($11,860,000) 9/30/2009 6/12/2009 ($338,450,000) ($116,750,000) 12/30/2009 6/17/2009 $130,780,000 9/30/2009 $74,520,000 ($64,990,000) 6/17/2009 3/26/2010 $52,270,000 3/26/2010 $57,980,000 $119,700,000 12/30/2009 12/30/2009 ($249,670,000) 9/30/2009 $90,990,000 $87,130,000 6/12/2009 9/30/2009 ($17,440,000) 3/26/2010 ($63,980,000) $145,820,000 12/30/2009 6/17/2009 $46,730,000 $13,080,000 $128,300,000 6/12/2009 9/30/2009 3/26/2010 Cap Adjustment Amount Adjustment Date $14,160,000 Updated portfolio data from servicer $2,790,000 Updated portfolio data from servicer & HAFA initial cap $69,130,000 Updated portfolio data from servicer $3,490,000 Updated portfolio data from servicer & HAFA initial cap $45,700,000 Updated portfolio data from servicer & HPDP initial cap $58,150,000 Updated portfolio data from servicer $175,100,000 Updated portfolio data from servicer & HAFA initial cap $29,590,000 Updated portfolio data from servicer & HPDP initial cap $44,070,000 Updated portfolio data from servicer $45,460,000 Updated portfolio data from servicer & HAFA initial cap $17,540,000 Updated portfolio data from servicer & HPDP initial cap $399,200,000 Updated portfolio data from servicer $331,950,000 Updated portfolio data from servicer & HAFA initial cap $251,700,000 Updated portfolio data from servicer & HPDP initial cap $117,140,000 Updated portfolio data from servicer $478,170,000 Updated portfolio data from servicer $469,020,000 Updated portfolio data from servicer & HAFA initial cap $447,690,000 Updated portfolio data from servicer & HPDP initial cap $459,550,000 Updated portfolio data from servicer $354,510,000 Updated portfolio data from servicer $279,990,000 Updated portfolio data from servicer & HAFA initial cap $222,010,000 Updated portfolio data from servicer & HPDP initial cap $131,020,000 Updated portfolio data from servicer $118,120,000 Updated portfolio data from servicer $105,040,000 Updated portfolio data from servicer & HAFA initial cap $221,790,000 Updated portfolio data from servicer & HPDP initial cap $91,010,000 Updated portfolio data from servicer $375,430,000 Updated portfolio data from servicer $323,160,000 Updated portfolio data from servicer & HAFA initial cap $203,460,000 Updated portfolio data from servicer & HPDP initial cap $453,130,000 Updated portfolio data from servicer $622,410,000 Updated portfolio data from servicer $639,850,000 Updated portfolio data from servicer & HAFA initial cap $494,030,000 Updated portfolio data from servicer & HPDP initial cap $447,300,000 Updated portfolio data from servicer Adjusted Reason for Adjustment Cap Adjustment Details Continued on next page. Market Capitalization (in Millions) 210 Appendix D I Transaction Detail I april 20, 2010 Purchase Wescom Central Credit Union, Anaheim, CA Citizens First Wholesale Mortgage Company, The Villages, FL 6/19/2009 6/26/2009 Purchase Purchase Purchase Purchase Wachovia Mortgage, FSB, Des Moines, IA Bayview Loan Servicing, LLC, Coral Gables, FL Lake National Bank, Mentor, OH IBM Southeast Employees’ Federal Credit Union, Delray Beach, FL MorEquity, Inc., Evansville, IN PNC Bank, National Association, Pittsburgh, PA 7/1/2009 7/1/2009 7/10/2009 7/10/2009 7/17/2009 7/17/2009 3 National City Bank, Miamisburg, OH 6/26/2009 Purchase Purchase Purchase Technology Credit Union, San Jose, CA 6/26/2009 Purchase Purchase Name of Institution Date Transaction Type Servicer Modifying Borrowers’ Loans $54,470,000 N/A $23,480,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $870,000 N/A $100,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $44,260,000 N/A $634,010,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $294,980,000 N/A $70,000 N/A $30,000 N/A $540,000 N/A Cap of Incentive Payments on Behalf of Borrowers and to Servicers & Lenders/ Pricing Investors (Cap) 1 Mechanism Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Investment Description HAMP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.9 $2,470,000 3/26/2010 ($36,240,000) 9/30/2009 $19,280,000 $18,360,000 12/30/2009 $24,510,000 9/30/2009 3/26/2010 ($10,000) $18,530,000 3/26/2010 12/30/2009 $250,000 ($10,000) 9/30/2009 12/30/2009 $50,000 3/26/2010 $150,000 9/30/2009 $130,000 $34,540,000 12/30/2009 $43,590,000 $23,850,000 9/30/2009 3/26/2010 ($54,767) 3/12/2010 12/30/2009 ($2,050,236,344) $692,640,000 2/17/2010 $723,880,000 9/30/2009 12/30/2009 $90,280,000 ($18,690,000) 3/26/2010 9/30/2009 12/30/2009 ($720,000) $315,170,000 3/26/2010 ($580,000) $2,180,000 3/26/2010 12/30/2009 $590,000 ($10,000) 12/30/2009 ($14,260,000) 3/26/2010 9/30/2009 $330,000 $16,490,000 9/30/2009 12/30/2009 Cap Adjustment Amount Adjustment Date $39,980,000 Updated portfolio data from servicer $37,510,000 Updated portfolio data from servicer & HAFA initial cap $18,230,000 Updated portfolio data from servicer & HPDP initial cap $84,880,000 Updated portfolio data from servicer $66,520,000 Updated portfolio data from servicer & HAFA initial cap $42,010,000 Updated portfolio data from servicer & HPDP initial cap $1,100,000 Updated portfolio data from servicer $1,110,000 Updated portfolio data from servicer & HAFA initial cap $860,000 Updated portfolio data from servicer & HPDP initial cap $430,000 Updated portfolio data from servicer $380,000 Updated portfolio data from servicer & HAFA initial cap $250,000 Updated portfolio data from servicer & HPDP initial cap $146,240,000 Updated portfolio data from servicer $111,700,000 Updated portfolio data from servicer & HAFA initial cap $68,110,000 Updated portfolio data from servicer & HPDP initial cap $238,890 Transfer of cap (to Wells Fargo Bank) due to merger $293,656 Transfer of cap (to Wells Fargo Bank) due to merger $2,050,530,000 Updated portfolio data from servicer & HAFA initial cap $1,357,890,000 Updated portfolio data from servicer & HPDP initial cap $681,740,000 Updated portfolio data from servicer $700,430,000 Updated portfolio data from servicer & HAFA initial cap $610,150,000 Updated portfolio data from servicer & HPDP initial cap $1,530,000 Updated portfolio data from servicer $2,250,000 Updated portfolio data from servicer & HAFA initial cap $30,000 Updated portfolio data from servicer $610,000 Updated portfolio data from servicer & HAFA initial cap $20,000 Updated portfolio data from servicer & HPDP initial cap $3,100,000 Updated portfolio data from servicer $17,360,000 Updated portfolio data from servicer & HAFA initial cap $870,000 Updated portfolio data from servicer & HPDP initial cap Adjusted Reason for Adjustment Cap Adjustment Details Continued on next page. $30,889 Market Capitalization (in Millions) Transaction detail I Appendix D I april 20, 2010 211 Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase ShoreBank, Chicago, IL American Home Mortgage Servicing, Inc, Coppell, TX Mortgage Center, LLC, Southfield, MI Mission Federal Credit Union, San Diego, CA First Bank, St. Louis, MO Purdue Employees Federal Credit Union, West Lafayette, IN Wachovia Bank, N.A., Charlotte, NC J.P.Morgan Chase Bank, NA, Lewisville, TX EMC Mortgage Corporation, Lewisville, TX Lake City Bank, Warsaw, IN Oakland Municipal Credit Union, Oakland, CA 7/17/2009 7/22/2009 7/22/2009 7/22/2009 7/29/2009 7/29/2009 7/29/2009 7/31/2009 7/31/2009 8/5/2009 8/5/2009 Purchase Farmers State Bank, West Salem, OH Transaction Type 7/17/2009 Date Name of Institution Servicer Modifying Borrowers’ Loans $140,000 N/A $420,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $707,380,000 N/A Financial Instrument for Home Loan Modifications $2,699,720,000 N/A $85,020,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $1,090,000 N/A $6,460,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $860,000 N/A $4,210,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $1,272,490,000 N/A $1,410,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $170,000 N/A Cap of Incentive Payments on Behalf of Borrowers and to Servicers & Lenders/ Pricing Investors (Cap) 1 Mechanism Financial Instrument for Home Loan Modifications Investment Description HAMP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.9 $210,000 $170,000 3/26/2010 $290,000 9/30/2009 12/30/2009 $20,000 3/26/2010 ($350,000) $180,000 9/30/2009 12/30/2009 ($134,560,000) 3/26/2010 ($10,000) 9/30/2009 $502,430,000 $1,006,580,000 12/30/2009 $1,178,180,000 ($14,850,000) 9/30/2009 3/26/2010 $9,820,000 12/30/2009 $26,160,000 ($37,700,000) 9/30/2009 3/26/2010 $2,070,000 3/26/2010 12/30/2009 $1,260,000 ($60,000) 9/30/2009 12/30/2009 $680,000 $2,460,000 3/26/2010 ($1,530,000) 9/30/2009 12/30/2009 ($6,340,000) 3/26/2010 ($490,000) $6,750,000 9/30/2009 12/30/2009 $2,800,000 3/26/2010 $1,780,000 9/30/2009 $2,840,000 $124,820,000 12/30/2009 $250,450,000 ($53,670,000) 9/30/2009 3/26/2010 ($20,000) 12/30/2009 $1,260,000 $890,000 9/30/2009 3/26/2010 $100,000 3/26/2010 12/30/2009 $50,000 ($90,000) 9/30/2009 12/30/2009 Cap Adjustment Amount Adjustment Date $810,000 Updated portfolio data from servicer $640,000 Updated portfolio data from servicer & HAFA initial cap $430,000 Updated portfolio data from servicer & HPDP initial cap $270,000 Updated portfolio data from servicer $250,000 Updated portfolio data from servicer & HAFA initial cap $600,000 Updated portfolio data from servicer & HPDP initial cap $1,075,240,000 Updated portfolio data from servicer & 2MP initial cap $1,209,800,000 Updated portfolio data from servicer & HAFA initial cap $707,370,000 Updated portfolio data from servicer & HPDP initial cap $4,869,630,000 Updated portfolio data from servicer & 2MP initial cap $3,863,050,000 Updated portfolio data from servicer & HAFA initial cap $2,684,870,000 Updated portfolio data from servicer & HPDP initial cap $83,300,000 Updated portfolio data from servicer $73,480,000 Updated portfolio data from servicer & HAFA initial cap $47,320,000 Updated portfolio data from servicer & HPDP initial cap $4,360,000 Updated portfolio data from servicer $2,290,000 Updated portfolio data from servicer & HAFA initial cap $1,030,000 Updated portfolio data from servicer & HPDP initial cap $8,070,000 Updated portfolio data from servicer $5,610,000 Updated portfolio data from servicer & HAFA initial cap $4,930,000 Updated portfolio data from servicer & HPDP initial cap $780,000 Updated portfolio data from servicer $7,120,000 Updated portfolio data from servicer & HAFA initial cap $370,000 Updated portfolio data from servicer & HPDP initial cap $11,630,000 Updated portfolio data from servicer $8,830,000 Updated portfolio data from servicer & HAFA initial cap $5,990,000 Updated portfolio data from servicer & HPDP initial cap $1,594,090,000 Updated portfolio data from servicer $1,469,270,000 Updated portfolio data from servicer & HAFA initial cap $1,218,820,000 Updated portfolio data from servicer & HPDP initial cap $3,540,000 Updated portfolio data from servicer $3,560,000 Updated portfolio data from servicer & HAFA initial cap $2,300,000 Updated portfolio data from servicer & HPDP initial cap $230,000 Updated portfolio data from servicer $130,000 Updated portfolio data from servicer & HAFA initial cap $80,000 Updated portfolio data from servicer & HPDP initial cap Adjusted Reason for Adjustment Cap Adjustment Details Continued on next page. $177,792 Market Capitalization (in Millions) 212 Appendix D I Transaction Detail I april 20, 2010 Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Litton Loan Servicing LP, Houston, TX PennyMac Loan Services, LLC, Calasbasa, CA Servis One, Inc., Titusville, PA OneWest Bank, Pasadena, CA Stanford Federal Credit Union, Palo Alto, CA RoundPoint Mortgage Servicing Corporation, Charlotte, NC Horicon Bank, Horicon, WI Vantium Capital, Inc., Plano, TX Central Florida Educators Federal Credit Union, Lake Mary, FL U.S. Bank National Association, Owensboro, KY CUC Mortgage Corporation, Albany, NY 8/12/2009 8/12/2009 8/12/2009 8/28/2009 8/28/2009 8/28/2009 9/2/2009 9/2/2009 9/9/2009 9/9/2009 9/9/2009 Purchase Purchase Purchase HomEq Servicing, North Highlands, CA 8/5/2009 Date Transaction Type Name of Institution Servicer Modifying Borrowers’ Loans $668,440,000 N/A Financial Instrument for Home Loan Modifications $6,000,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $4,350,000 N/A $114,220,000 N/A $1,250,000 N/A $560,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $570,000 N/A Financial Instrument for Home Loan Modifications $300,000 N/A $29,730,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $6,210,000 N/A $774,900,000 N/A $674,000,000 N/A Cap of Incentive Payments on Behalf of Borrowers and to Servicers & Lenders/ Pricing Investors (Cap) 1 Mechanism Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Investment Description HAMP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.9 $740,000 3/26/2010 $950,000 10/2/2009 $5,700,000 $41,830,000 12/30/2009 $49,410,000 $24,920,000 10/2/2009 3/26/2010 $120,000 3/26/2010 12/30/2009 ($750,000) $280,000 10/2/2009 12/30/2009 $410,000 3/26/2010 ($3,390,000) $1,310,000 10/2/2009 12/30/2009 ($1,680,000) 3/26/2010 $130,000 10/2/2009 $1,040,000 $2,110,000 3/26/2010 12/30/2009 ($310,000) 12/30/2009 $350,000 $130,000 3/26/2010 10/2/2009 $70,000 10/2/2009 $2,680,000 $121,180,000 12/30/2009 $1,355,930,000 $145,800,000 10/2/2009 3/26/2010 $4,330,000 3/26/2010 12/30/2009 $520,000 9/30/2009 12/30/2009 $23,200,000 ($25,510,000) 3/26/2010 ($1,200,000) 9/30/2009 $30,800,000 $278,910,000 12/30/2009 $275,370,000 $313,050,000 9/30/2009 3/26/2010 $199,320,000 3/26/2010 12/30/2009 ($36,290,000) ($121,190,000) 9/30/2009 12/30/2009 Cap Adjustment Amount Adjustment Date $11,740,000 Updated portfolio data from servicer $11,000,000 Updated portfolio data from servicer & HAFA initial cap $5,300,000 HPDP initial cap $230,380,000 Updated portfolio data from servicer $188,550,000 Updated portfolio data from servicer & HAFA initial cap $139,140,000 HPDP initial cap $900,000 Updated portfolio data from servicer $780,000 Updated portfolio data from servicer & HAFA initial cap $1,530,000 HPDP initial cap $4,330,000 Updated portfolio data from servicer $3,920,000 Updated portfolio data from servicer & HAFA initial cap $7,310,000 HPDP initial cap $50,000 Updated portfolio data from servicer $1,730,000 Updated portfolio data from servicer & HAFA initial cap $690,000 HPDP initial cap $2,500,000 Updated portfolio data from servicer $390,000 Updated portfolio data from servicer & HAFA initial cap $700,000 HPDP initial cap $3,400,000 Updated portfolio data from servicer $3,050,000 Updated portfolio data from servicer & HAFA initial cap $370,000 HPDP initial cap $2,291,350,000 Updated portfolio data from servicer $2,170,170,000 Updated portfolio data from servicer & HAFA initial cap $814,240,000 HPDP initial cap $9,070,000 Updated portfolio data from servicer $4,740,000 Updated portfolio data from servicer & HAFA initial cap $4,220,000 Updated portfolio data from servicer & HPDP initial cap $59,010,000 Updated portfolio data from servicer $35,810,000 Updated portfolio data from servicer & HAFA initial cap $5,010,000 Updated portfolio data from servicer & HPDP initial cap $1,642,230,000 Updated portfolio data from servicer $1,363,320,000 Updated portfolio data from servicer & HAFA initial cap $1,087,950,000 Updated portfolio data from servicer & HPDP initial cap $715,840,000 Updated portfolio data from servicer $516,520,000 Updated portfolio data from servicer & HAFA initial cap $552,810,000 Updated portfolio data from servicer & HPDP initial cap Adjusted Reason for Adjustment Cap Adjustment Details Continued on next page. Market Capitalization (in Millions) Transaction detail I Appendix D I april 20, 2010 213 Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase ORNL Federal Credit Union, Oak Ridge, TN Allstate Mortgage Loans & Investments, Inc., Ocala, FL Metropolitan National Bank, Little Rock, AR Franklin Credit Management Corporation, Jersey City, NJ Bay Federal Credit Union, Capitola, CA AMS Servicing, LLC, Buffalo, NY Schools Financial Credit Union, Sacramento, CA Glass City Federal Credit Union, Maumee, OH Central Jersey Federal Credit Union, Woodbridge, NJ Yadkin Valley Bank, Elkin, NC SEFCU, Albany, NY Great Lakes Credit Union, North Chicago, IL Mortgage Clearing Corporation, Tulsa, OK United Bank Mortgage Corporation, Grand Rapids, MI Bank United, Miami Lakes, FL 9/11/2009 9/11/2009 9/11/2009 9/11/2009 9/16/2009 9/23/2009 9/23/2009 9/23/2009 9/23/2009 9/23/2009 9/25/2009 10/14/2009 10/14/2009 10/21/2009 10/23/2009 Purchase Purchase Purchase Name of Institution Date Transaction Type Servicer Modifying Borrowers’ Loans $4,390,000 N/A Financial Instrument for Home Loan Modifications $440,000 N/A Financial Instrument for Home Loan Modifications $410,000 N/A $93,660,000 N/A Financial Instrument for Home Loan Modifications $4,860,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $570,000 N/A $240,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $30,000 N/A $230,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $390,000 N/A $410,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $27,510,000 N/A $280,000 N/A $250,000 N/A $2,070,000 N/A Cap of Incentive Payments on Behalf of Borrowers and to Servicers & Lenders/ Pricing Investors (Cap) 1 Mechanism Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Investment Description HAMP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.9 $960,000 10/2/2009 ($880,000) ($2,900,000) ($1,600,000) $20,000 $400,000 $4,370,000 $23,880,000 12/30/2009 3/26/2010 1/22/2010 3/26/2010 1/22/2010 3/26/2010 $1,030,000 12/30/2009 3/26/2010 ($290,000) 3/26/2010 $20,000 $100,000 10/2/2009 12/30/2009 $1,360,000 3/26/2010 $60,000 10/2/2009 $350,000 $10,000 3/26/2010 12/30/2009 $120,000 $10,000 10/2/2009 12/30/2009 $130,000 3/26/2010 $60,000 10/2/2009 ($10,000) ($980,000) 3/26/2010 12/30/2009 $940,000 $90,000 10/2/2009 12/30/2009 $230,000 3/26/2010 ($3,090,000) $160,000 3/26/2010 12/30/2009 $1,460,000 $90,000 10/2/2009 12/30/2009 ($4,780,000) 3/26/2010 $6,010,000 ($19,750,000) 10/2/2009 12/30/2009 $100,000 3/26/2010 $70,000 10/2/2009 $620,000 $280,000 3/26/2010 12/30/2009 ($80,000) $60,000 10/2/2009 12/30/2009 $13,280,000 3/26/2010 $460,000 $2,730,000 10/2/2009 12/30/2009 Cap Adjustment Amount Adjustment Date $121,910,000 Updated portfolio data from servicer $98,030,000 Updated HPDP cap & HAFA initial cap $830,000 Updated portfolio data from servicer $430,000 Updated HPDP cap & HAFA initial cap $360,000 Updated portfolio data from servicer $1,960,000 Updated portfolio data from servicer & HAFA initial cap $720,000 Updated portfolio data from servicer $1,600,000 Updated portfolio data from servicer & HAFA initial cap $270,000 Updated portfolio data from servicer $560,000 Updated portfolio data from servicer & HAFA initial cap $540,000 HPDP initial cap $2,010,000 Updated portfolio data from servicer $650,000 Updated portfolio data from servicer & HAFA initial cap $300,000 HPDP initial cap $170,000 Updated portfolio data from servicer $160,000 Updated portfolio data from servicer & HAFA initial cap $40,000 HPDP initial cap $410,000 Updated portfolio data from servicer $280,000 Updated portfolio data from servicer & HAFA initial cap $290,000 HPDP initial cap $440,000 Updated portfolio data from servicer $1,420,000 Updated portfolio data from servicer & HAFA initial cap $480,000 HPDP initial cap $2,490,000 Updated portfolio data from servicer $2,260,000 Updated portfolio data from servicer & HAFA initial cap $5,350,000 HPDP initial cap $2,120,000 Updated portfolio data from servicer $1,960,000 Updated portfolio data from servicer & HAFA initial cap $500,000 HPDP initial cap $8,990,000 Updated portfolio data from servicer $13,770,000 Updated portfolio data from servicer & HAFA initial cap $33,520,000 HPDP initial cap $1,070,000 Updated portfolio data from servicer $970,000 Updated portfolio data from servicer & HAFA initial cap $350,000 HPDP initial cap $510,000 Updated portfolio data from servicer $230,000 Updated portfolio data from servicer & HAFA initial cap $310,000 HPDP initial cap $18,540,000 Updated portfolio data from servicer $5,260,000 Updated portfolio data from servicer & HAFA initial cap $2,530,000 HPDP initial cap Adjusted Reason for Adjustment Cap Adjustment Details Continued on next page. $69 Market Capitalization (in Millions) 214 Appendix D I Transaction Detail I april 20, 2010 Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Hillsdale County National Bank, Hillsdale, MI QLending, Inc., Coral Gables, FL Marix Servicing, LLC, Pheonix, AZ Home Financing Center, Inc, Coral Gables, FL First Keystone Bank, Media, PA Community Bank & Trust Company, Clark Summit, PA Idaho Housing and Finance Association, Boise, ID Spirit of Alaska Federal Credit Union, Fairbanks, AK American Eagle Federal Credit Union, East Hartford, CT Silver State Schools Credit Union, Las Vegas, NV Fidelity Homestead Savings Bank, New Orleans, LA Bay Gulf Credit Union, Tampa, FL The Golden 1 Credit Union, Sacramento, CA Sterling Savings Bank, Spokane, WA 11/18/2009 11/18/2009 11/25/2009 11/25/2009 11/25/2009 12/4/2009 12/4/2009 12/9/2009 12/9/2009 12/9/2009 12/9/2009 12/9/2009 12/9/2009 12/9/2009 Purchase Purchase Purchase Quantum Servicing Corporation, Tampa, FL 11/18/2009 $6,160,000 N/A $2,250,000 N/A Financial Instrument for Home Loan Modifications $230,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $2,940,000 N/A $1,880,000 N/A $1,590,000 N/A $360,000 N/A $9,430,000 N/A $380,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $1,280,000 N/A Financial Instrument for Home Loan Modifications $20,360,000 N/A Financial Instrument for Home Loan Modifications $230,000 N/A $20,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $1,670,000 N/A $18,960,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $700,000 N/A Purchase Los Alamos National Bank, Los Alamos, NM 11/6/2009 Financial Instrument for Home Loan Modifications Purchase DuPage Credit Union, Naperville, IL 10/30/2009 $70,000 N/A Purchase Members Mortgage Company, Inc, Woburn, MA 10/28/2009 Financial Instrument for Home Loan Modifications Purchase 10/28/2009 $510,000 N/A $1,070,000 N/A Financial Instrument for Home Loan Modifications Harleysville National Bank & Trust Company, Harleysville, PA Financial Instrument for Home Loan Modifications $760,000 N/A Financial Instrument for Home Loan Modifications Investment Description Cap of Incentive Payments on Behalf of Borrowers and to Servicers & Lenders/ Pricing Investors (Cap) 1 Mechanism IC Federal Credit Union, Fitchburg, MA Purchase Name of Institution Transaction Type 10/23/2009 Date Servicer Modifying Borrowers’ Loans HAMP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.9 $290,000 1/22/2010 ($740,000) $440,000 3/26/2010 3/26/2010 $10,000 1/22/2010 $40,000 $6,300,000 3/26/2010 $100,000 $140,000 1/22/2010 1/22/2010 $1,110,000 3/26/2010 3/26/2010 $90,000 3/26/2010 1/22/2010 $850,000 1/22/2010 $70,000 $10,000 3/26/2010 ($290,000) $14,480,000 1/22/2010 3/26/2010 $440,000 3/26/2010 1/22/2010 $10,000 $520,000 1/22/2010 $50,000 $1,020,000 3/26/2010 1/22/2010 $950,000 ($17,880,000) 1/22/2010 3/26/2010 $0 $330,000 3/26/2010 ($10,000) $80,000 1/22/2010 1/22/2010 $3,840,000 3/26/2010 3/26/2010 $50,000 $890,000 $40,000 1/22/2010 1/22/2010 $10,000 3/26/2010 $10,000 3/26/2010 3/26/2010 $40,000 ($760,000) 1/22/2010 1/22/2010 Cap Adjustment Amount Adjustment Date $1,610,000 Updated portfolio data from servicer $2,350,000 Updated HPDP cap & HAFA initial cap $6,490,000 Updated portfolio data from servicer $6,450,000 Updated HPDP cap & HAFA initial cap $680,000 Updated portfolio data from servicer $240,000 Updated HPDP cap & HAFA initial cap $9,380,000 Updated portfolio data from servicer $3,080,000 Updated HPDP cap & HAFA initial cap $3,080,000 Updated portfolio data from servicer $1,970,000 Updated HPDP cap & HAFA initial cap $1,370,000 Updated portfolio data from servicer $1,660,000 Updated HPDP cap & HAFA initial cap $1,220,000 Updated portfolio data from servicer $370,000 Updated HPDP cap & HAFA initial cap $24,350,000 Updated portfolio data from servicer $9,870,000 Updated HPDP cap & HAFA initial cap $910,000 Updated portfolio data from servicer $390,000 Updated HPDP cap & HAFA initial cap $2,350,000 Updated portfolio data from servicer $1,330,000 Updated HPDP cap & HAFA initial cap $3,430,000 Updated portfolio data from servicer $21,310,000 Updated HPDP cap & HAFA initial cap $10,000 Updated portfolio data from servicer $20,000 Updated HPDP cap & HAFA initial cap $2,080,000 Updated portfolio data from servicer $1,750,000 Updated HPDP cap & HAFA initial cap $23,690,000 Updated portfolio data from servicer $19,850,000 Updated HPDP cap & HAFA initial cap $790,000 Updated portfolio data from servicer $740,000 Updated HPDP cap & HAFA initial cap $90,000 Updated portfolio data from servicer $80,000 Updated HPDP cap & HAFA initial cap $40,000 Updated portfolio data from servicer $800,000 Updated HPDP cap & HAFA initial cap Adjusted Reason for Adjustment Cap Adjustment Details Continued on next page. Market Capitalization (in Millions) Transaction detail I Appendix D I april 20, 2010 215 Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Golden Plains Credit Union, Garden City, KS First Federal Savings and Loan Association of Lakewood, Lakewood, OH Sound Community Bank, Seattle, WA Horizon Bank, NA, Michigan City, IN Park View Federal Savings Bank, Solon, OH Iberiabank, Sarasota, FL Grafton Suburban Credit Union, North Grafton, MA Eaton National Bank & Trust Company, Purchase Eaton, OH Purchase Citizens 1st National Bank, Spring Valley, IL Tempe Schools Credit Union, Tempe, AZ Fresno County Federal Credit Union, Fresno, CA Roebling Bank, Roebling, NJ First National Bank of Grant Park, Grant Park, IL Specialized Loan Servicing, LLC, Highlands Ranch, CO Greater Nevada Mortgage Services, Carson City, NV Digital Federal Credit Union, Marlborough, MA 12/16/2009 12/16/2009 12/16/2009 12/16/2009 12/16/2009 12/16/2009 12/23/2009 12/23/2009 12/23/2009 12/23/2009 1/13/2010 1/13/2010 1/13/2010 1/13/2010 1/13/2010 1/15/2010 Purchase Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $3,050,000 N/A $770,000 N/A $64,150,000 N/A $140,000 N/A $240,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $260,000 N/A Financial Instrument for Home Loan Modifications $110,000 N/A $60,000 N/A $340,000 N/A $4,230,000 N/A Financial Instrument for Home Loan Modifications $700,000 N/A Financial Instrument for Home Loan Modifications $760,000 N/A $440,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $3,460,000 N/A $170,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $620,000 N/A Financial Instrument for Home Loan Modifications $150,000 N/A Financial Instrument for Home Loan Modifications Purchase The Bryn Mawr Trust Co., Bryn Mawr, PA 12/11/2009 $630,000 N/A Financial Instrument for Home Loan Modifications Purchase Hartford Savings Bank, Hartford, WI $600,000 N/A 12/11/2009 Purchase Financial Instrument for Home Loan Modifications Verity Credit Union, Seattle, WA $370,000 N/A Financial Instrument for Home Loan Modifications 12/11/2009 Purchase Glenview State Bank, Glenview, IL 12/11/2009 $310,000 N/A Cap of Incentive Payments on Behalf of Borrowers and to Servicers & Lenders/ Pricing Investors (Cap) 1 Mechanism Financial Instrument for Home Loan Modifications Purchase HomeStar Bank & Financial Services, Manteno, IL 12/11/2009 Investment Description Name of Institution Date Transaction Type Servicer Modifying Borrowers’ Loans HAMP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.9 $30,000 3/26/2010 ($1,470,000) $20,000 ($320,000) $0 $90,000 $0 ($20,000) 1/22/2010 3/26/2010 1/22/2010 3/26/2010 1/22/2010 3/26/2010 1/22/2010 3/26/2010 3/26/2010 3/26/2010 3/26/2010 3/26/2010 3/26/2010 $12,190,000 $8,680,000 ($51,240,000) $150,000 $610,000 $480,000 $200,000 3/26/2010 3/26/2010 $40,000 $140,000 1/22/2010 $30,000 $1,740,000 3/26/2010 3/26/2010 1/22/2010 $20,000 $1,430,000 1/22/2010 $160,000 $10,000 1/22/2010 1/22/2010 $30,000 3/26/2010 ($580,000) 1/22/2010 3/26/2010 $30,000 $800,000 3/26/2010 1/22/2010 $30,000 $400,000 1/22/2010 $20,000 $1,250,000 3/26/2010 3/26/2010 1/22/2010 $20,000 $820,000 1/22/2010 Cap Adjustment Amount Adjustment Date $15,240,000 Updated portfolio data from servicer $9,450,000 Updated portfolio data from servicer $12,910,000 Updated portfolio data from servicer $290,000 Updated portfolio data from servicer $850,000 Updated portfolio data from servicer $740,000 Updated portfolio data from servicer $90,000 Updated portfolio data from servicer $110,000 Updated HPDP cap & HAFA initial cap $150,000 Updated portfolio data from servicer $60,000 Updated HPDP cap & HAFA initial cap $40,000 Updated portfolio data from servicer $360,000 Updated HPDP cap & HAFA initial cap $2,960,000 Updated portfolio data from servicer $4,430,000 Updated HPDP cap & HAFA initial cap $940,000 Updated portfolio data from servicer $800,000 Updated HPDP cap & HAFA initial cap $2,470,000 Updated portfolio data from servicer $730,000 Updated HPDP cap & HAFA initial cap $1,890,000 Updated portfolio data from servicer $460,000 Updated HPDP cap & HAFA initial cap $3,620,000 Updated HPDP cap & HAFA initial cap $210,000 Updated portfolio data from servicer $180,000 Updated HPDP cap & HAFA initial cap $70,000 Updated portfolio data from servicer $650,000 Updated HPDP cap & HAFA initial cap $1,460,000 Updated portfolio data from servicer $660,000 Updated HPDP cap & HAFA initial cap $1,030,000 Updated portfolio data from servicer $630,000 Updated HPDP cap & HAFA initial cap $1,640,000 Updated portfolio data from servicer $390,000 Updated HPDP cap & HAFA initial cap $1,150,000 Updated portfolio data from servicer $330,000 Updated HPDP cap & HAFA initial cap Adjusted Reason for Adjustment Cap Adjustment Details Continued on next page. Market Capitalization (in Millions) 216 Appendix D I Transaction Detail I april 20, 2010 iServe Residential Lending, LLC, San Diego, CA United Bank, Griffin, GA Urban Trust Bank, Lake Mary, FL iServe Servicing, Inc., Irving, TX Navy Federal Credit Union, Vienna, VA Vist Financial Corp, Wyomissing, PA 1/29/2010 1/29/2010 3/3/2010 3/5/2010 3/10/2010 3/10/2010 $540,000 N/A Total Initial Cap Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications TOTAL CAP $23,755,130,000 $300,000 N/A $60,780,000 N/A $28,040,000 N/A $1,060,000 N/A Financial Instrument for Home Loan Modifications Financial Instrument for Home Loan Modifications $960,000 N/A Financial Instrument for Home Loan Modifications Investment Description Cap of Incentive Payments on Behalf of Borrowers and to Servicers & Lenders/ Pricing Investors (Cap) 1 Mechanism Total Cap Adjustments 3/26/2010 3/26/2010 Adjustment Date $39,886,548,890.00 $16,131,418,890.00 $160,000 ($730,000) Cap Adjustment Amount $700,000 Updated portfolio data from servicer $230,000 Updated portfolio data from servicer Adjusted Reason for Adjustment Cap Adjustment Details Market Capitalization (in Millions) Sources: Treasury, Transactions Report, 4/2/2010; Treasury, responses to SIGTARP data call, 4/7/2010 and 4/8/2010; Market Data: Capital IQ, Inc. (a division of Standard & Poor’s), www.capitaliq.com, accessed 4/6/2010. Notes: Numbers affected by rounding. Data as of 3/31/2010. Numbered notes and definitions taken verbatim from Treasury’s 4/2/2010 Transactions Report. 1 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. 3 Wachovia Mortgage, FSB was merged with Wells Fargo Bank, NA, and the remaining Adjusted Cap stated above represents the amount previously paid to Wachovia Mortgage, FSB prior to such merger. “HAFA” means the Home Affordable foreclosure Alternatives program. “HPDP” means the Home Price Decline Protection program. “2MP” means the Second Lien Modification Program. Purchase Purchase Purchase Purchase Purchase Purchase Name of Institution Date Transaction Type Servicer Modifying Borrowers’ Loans HAMP TRANSACTION DETAIL, AS OF 3/31/2010 Table D.9 Transaction detail I Appendix D I april 20, 2010 217 Floating Rate SBA 7a security due 2025 Floating Rate SBA 7a security due 2022 Floating Rate SBA 7a security due 2022 3/19/2010 3/19/2010 3/19/2010 Coastal 83165ADE1 Securities, Inc. Coastal 83165ADC5 Securities, Inc. Coastal 83164KYN7 Securities, Inc. CUSIP $19,717,617 $8,030,000 $7,617,617 $4,070,000 Original Face Value Purchase Details1 108.875 109 107.75 Pricing Mechanism N 3/24/2010 3/24/2010 3/24/2010 Settlement Date Total Treasury SBA 7a investment amount $8,716,265 N $8,279,156 N $4,377,249 Initial Investment Amount 2 TBA3 $21,372,670 $8,716,265 $8,279,156 $4,377,249 Total Senior Security Proceeds TBA3 Settlement Details Final Investment Amount $10,661 $4,348 $4,130 $2,184 Senior Security Proceeds4 Trade Date Total Disposition Proceeds Current Face Value Final Disposition Life-to-date Principal Received1 $— Disposition Amount5 Source: Treasury, Transactions Report, 4/2/2010, accessed 4/6/2010. Notes: Numbers affected by rounding. Data as of 3/31/2010. Numbered notes taken verbatim from Treasury’s 4/2/2010 Transactions Report. 1 The amortizing principal and interest payments are reported on the monthly Dividends and Interest Report available at www.FinancialStability.gov. 2 Investment Amount is stated after giving effect to factor and, if applicable, the purchase of accrued principal and interest. 3 If a purchase is listed as TBA, or To-Be-Announced, the underlying loans in the SBA Pool have yet to come to market, and the actual Investment Amount will be adjusted within the variance permitted under the program terms. 4 In order to satisfy the requirements under Section 113 of the Emergency Economic Stabilization Act of 2008, Treasury will acquire a senior indebtedness instrument (a Senior Security) from the seller of each respective SBA 7a Security. Each Senior Security will (i) have an aggregate principal amount equal to the product of (A) 0.05% and (B) the Final Investment Amount (excluding accrued interest) paid by Treasury for the respective SBA 7a Security, and (ii) at the option of the respective seller, may be redeemed at par value immediately upon issuance, or remain outstanding with the terms and conditions as set forth in the Master Purchase Agreement. 5 Disposition Amount is stated after giving effect, if applicable, to sale of accrued principal and interest. Total Orignal Face Value Investment Description Trade Date Institution Name UCSB Transaction Detail, as of 3/31/2010 Table D.10 218 Appendix D I Transaction Detail I april 20, 2010 Cross-Reference of Report to the Inspector General Act of 1978 I april 20, 2010 | Appendix E 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 4: “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 4: “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 4: “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 4: “SIGTARP Recommendations” 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 4: “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 “Factors Affecting Implementation of the Home Affordable Modification Program” in Section 1: “The Office of the SIGTARP,” and Section 4: “SIGTARP Recommendations.” 219 220 Appendix F I public announcements of audits I april 20, 2010 PUBLIC ANNOUNCEMENTS OF AUDITS GAO2 This appendix provides an announcement of new and ongoing public audits by the agencies listed below. See Appendix G: “Key Oversight Reports and Testimonies” for a listing of published reports. Italics style indicates narrative taken as verbatim from the agencies’ responses to SIGTARP’s data call. • U.S. Department of the Treasury Office of the Inspector General (“Treasury OIG”) • Federal Reserve Board Office of Inspector General (“Federal Reserve OIG”) • Government Accountability Office (“GAO”) • Federal Deposit Insurance Corporation Office of the Inspector General (“FDIC OIG”) Ongoing Audits • AIG Financial Update tracks indicators through 4th quarter 2009. April issuance. • Treasury’s Decision to Extend TARP. Comment on process and criteria for making decision. Probable May [issuance]. • CPP Approval and Return Process: Review Treasury’s process as well as regulators’ processes for approval, as well as Treasury and regulators’ application of criteria for repayment. Probable June/July issuance. • Partnering with SIGTARP on oversight of government management of formerly private sector entities. • Effect of TARP on Treasury’s Debt Management. Likely May issuance. • Effectiveness of HAMP and oversight of servicers. Likely July issuance. • Review of SCAP. Likely June/July issuance. Treasury OIG FDIC OIG Ongoing Audits • None provided Federal Reserve OIG1 Ongoing Audits • Review of the Federal Reserve’s Lending Facilities and Special Programs (report is being drafted) Ongoing Audits • None provided Endnotes 1 Federal Reserve OIG, response to SIGTARP data call, 4/1/2010. 2 GAO, response to SIGTARP data call, 3/31/2010. KEY OVERSIGHT REPORTS AND TESTIMONIES I Appendix g I april 20, 2010 KEY OVERSIGHT REPORTS AND TESTIMONIES This list reflects TARP-related reports and testimonies published since SIGTARP’s last quarterly report. See prior SIGTARP quarterly reports for lists of prior oversight reports and testimonies. U.S. DEPARTMENT OF THE TREASURY (Treasury) ROLES AND MISSION The mission of Treasury is to serve the American people and strengthen national security by managing the U.S. government’s finances effectively; promoting economic growth and stability; and ensuring the safety, soundness, and security of the U.S. and international financial systems. Treasury advises the President on economic and financial issues, encourages sustainable economic growth, and fosters improved governance in financial institutions. OVERSIGHT REPORTS Treasury, Transactions Report, 1/4/2010 -- 3/31/2010, www.financialstability.gov/latest/reportsanddocs.html, accessed 4/6/2010 (released weekly). Treasury, Section 105(a) Report, 1/11/2010 -- 3/10/2010, www.financialstability.gov/latest/reportsanddocs.html, accessed 4/6/2010. Treasury, Citizens’ Report on the Troubled Asset Relief Program, Fiscal Year 2009, 3/2/2010, www.financialstability.gov/docs/09%20OFS_ CitizensReport%20MAR2.pdf, accessed 4/6/2010. Treasury, “Summary Response to GAO Report, November 2009,” 1/14/2010, www.financialstability.gov/docs/Summary%20Response%20to%20 GAO%20Auto%20Report%201%204%2010.pdf, accessed 4/6/2010. Treasury, Warrant Disposition Report, 1/20/2010, www.financialstability.gov/docs/TARP%20Warrant%20Disposition%20Report%20v4.pdf, accessed 4/6/2010. RECORDED TESTIMONY Treasury, “Treasury Secretary Timothy F. Geithner Opening Statement -- As Prepared for Delivery, Senate Committee on Finance,” 2/2/2010, www. financialstability.gov/latest/st_02022010.html, accessed 4/6/2010. Treasury, “Treasury Secretary Timothy F. Geithner Written Testimony before the US Senate Budget Committee,” 2/4/2010, www.financialstability.gov/ latest/st_02042010.html, accessed 4/6/2010. Treasury, “Special Master Kenneth Feinberg Testimony before the House Committee on Financial Services,” 2/25/2010, www.financialstability.gov/latest/ st_02252010.html, accessed 4/6/2010. Treasury, “Written Testimony of Herbert M. Allison, Jr., Assistant Secretary for Financial Stability, before the Congressional Oversight Panel,” 3/4/2010, www.financialstability.gov/latest/st_03042010.html, accessed 4/6/2010. Treasury, “Secretary Timothy F. Geithner Written Testimony before the House Committee on Financial Services,” 3/23/2010, www.financialstability.gov/ latest/tg_03232010b.html, accessed 4/6/2010. Treasury, “Foreclosure Prevention: Is the Home Affordable Modification Program Preserving Homeownership?” Testimony of Herbert M. Allison, Assistant Secretary for Financial Stability, U.S. Department of the Treasury, before the House Committee on Oversight and Government Reform, 3/25/2010, www.financialstability.gov/latest/tg_03252010.html, accessed 4/6/2010. FINANCIAL STABILITY OVERSIGHT BOARD (FSOB) ROLES AND MISSION FSOB is responsible for reviewing the exercise of authority under programs developed in accordance with EESA, including: • policies implemented by the Secretary and the Office of Financial Stability, including the appointment of financial agents, the designation of asset classes to be purchased, and plans for the structure of vehicles used to purchase troubled assets • the effect of such actions in assisting American families in preserving home ownership, stabilizing financial markets, and protecting taxpayers In addition, FSOB is responsible for making recommendations to the Secretary on the use of the authority under EESA, as well as for reporting any suspected fraud, misrepresentation, or malfeasance to SIGTARP or the U.S. Attorney General. OVERSIGHT REPORTS None RECORDED TESTIMONY None 221 222 Appendix g I KEY OVERSIGHT REPORTS AND TESTIMONIES I april 20, 2010 SECURITIES AND EXCHANGE COMMISSION (SEC) ROLES AND MISSION SEC administers the federal securities laws, requires disclosure by public companies, and brings enforcement actions against violators of securities law. While other federal and state agencies are legally responsible for regulating mortgage lending and the credit markets, SEC has taken these decisive actions to address the extraordinary challenges caused by the current credit crisis: • aggressively combating fraud and market manipulation through enforcement actions • taking swift action to stabilize financial markets • enhancing transparency in financial disclosure OVERSIGHT REPORTS None RECORDED TESTIMONY SEC, “Testimony Concerning the State of the Financial Crisis,” Chairman Mary L. Schapiro, before the Financial Crisis Inquiry Commission, 1/14/2010, sec.gov/news/testimony/2010/ts011410mls.htm, accessed 4/6/2010. GOVERNMENT ACCOUNTABILITY OFFICE (GAO) ROLES AND MISSION GAO is tasked with performing ongoing oversight of TARP’s performance, including: • evaluating the characteristics of asset purchases and the disposition of assets acquired • assessing TARP’s efficiency in using the funds • evaluating compliance with applicable laws and regulations • assessing the efficiency of contracting procedures • auditing TARP’s annual financial statements and internal controls • submitting reports to Congress at least every 60 days OVERSIGHT REPORTS GAO, “Troubled Asset Relief Program, Treasury Needs to Strengthen Its Decision-Making Process on the Term Asset-Backed Securities Loan Facility,” 2/28/2010, www.gao.gov/new.items/d1025.pdf, accessed 4/6/2010. GAO, “Troubled Asset Relief Program, Automaker Pension Funding and Multiple Federal Roles Pose Challenges for the Future,” 4/6/2010, www.gao.gov/ new.items/d10492.pdf, accessed 4/6/2010. RECORDED TESTIMONY GAO, “Troubled Asset Relief Program, Home Affordable Modification Program Continues to Face Implementation Challenges,” Statement of Gene L. Dodaro, Acting Comptroller General of the United States, before the Committee on Oversight and Government Reform, U.S. House of Representatives, 3/25/2010, www.gao.gov/new.items/d10556t.pdf, accessed 4/6/2010. KEY OVERSIGHT REPORTS AND TESTIMONIES I Appendix g I april 20, 2010 Congressional oversight panel (cop) ROLES AND MISSION COP is tasked with reviewing the current state of the financial markets and the regulatory system. As a by-product of these oversight activities, COP is required to produce the following reports to Congress: • regular reports every 30 days that cover a variety of issues, including administration of the program, the impact of purchases on the financial markets/financial institutions, market transparency, and the effectiveness of foreclosure mitigation, minimization of long-term costs, and maximization of benefits for taxpayers • a special report on regulatory reform, published no later than January 20, 2009, analyzing the current state of the regulatory system and its effectiveness at overseeing the participants in the financial system and protecting consumers. The report is to provide recommendations for improvement regarding whether any participants in the financial markets that are currently outside the regulatory system should become subject to the regulatory system, the rationale underlying such recommendation, and whether there are any gaps in existing consumer protections. OVERSIGHT REPORTS COP, “Exiting TARP and Unwinding Its Impact on the Financial Markets,” 1/14/2010, http://cop.senate.gov/reports/library/report-011410-cop.cfm, accessed 4/5/2010. COP, “Commercial Real Estate Losses and the Risk to Financial Stability,”2/11/2010, http://cop.senate.gov/reports/library/report-021110-cop.cfm, accessed 4/5/2010. COP, “The Unique Treatment of GMAC Under TARP,” 3/11/2010, http://cop.senate.gov/reports/library/report-031110-cop.cfm, accessed 4/5/2010. RECORDED TESTIMONY COP, "Atlanta Field Hearing on Commercial Real Estate," 1/27/2010, http://cop.senate.gov/hearings/library/hearing-012710-atlanta.cfm, accessed 4/5/2010. COP, “COP Hearing on GMAC Financial Services,” 2/25/2010, http://cop.senate.gov/hearings/library/hearing-022510-gmac.cfm, accessed 4/5/2010. COP, "COP Hearing on Assistance Provided to Citigroup Under TARP," 3/4/2010, http://cop.senate.gov/hearings/library/hearing-030410-citi.cfm, accessed 4/5/2010. OFFICE OF MANAGEMENT AND BUDGET (OMB) ROLES AND MISSION OMB’s predominant mission is to assist the President in overseeing the preparation of the federal budget and to supervise its administration in Executive Branch agencies. In helping to formulate the President’s spending plans, OMB evaluates the effectiveness of agency programs, policies, and procedures, assesses competing funding demands among agencies, and sets funding priorities. OMB ensures that agency reports, rules, testimony, and proposed legislation are consistent with the President’s Budget and with Administration policies. In addition, OMB oversees and coordinates the Administration’s procurement, financial management, information, and regulatory policies. In each of these areas, OMB’s role is to help improve administrative management, to develop better performance measures and coordinating mechanisms, and to reduce any unnecessary burdens on the public. OVERSIGHT REPORTS None RECORDED TESTIMONY None 223 224 Appendix g I KEY OVERSIGHT REPORTS AND TESTIMONIES I april 20, 2010 CONGRESSIONAL BUDGET OFFICE (CBO) ROLES AND MISSION CBO’s mandate is to provide the Congress with objective, nonpartisan, and timely analyses to aid in economic and budgetary decisions on the wide array of programs covered by the Federal budget, and the information and estimates required for the Congressional budget process. CBO assists the House and Senate Budget Committees, and the Congress more generally, by preparing reports and analyses. In accordance with the CBO’s mandate to provide objective and impartial analysis, CBO’s reports contain no policy recommendations. OVERSIGHT REPORTS CBO, “Report on the Troubled Asset Relief Program,” 3/2010, http://cbo.gov/ftpdocs/112xx/doc11227/03-17-TARP.pdf, accessed on 4/5/2010. RECORDED TESTIMONY None FEDERAL RESERVE BOARD (Federal Reserve) ROLES AND MISSION Federal Reserve’s duties fall into four general areas: • conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates • supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers • maintaining the stability of the financial system and containing systemic risk that may arise in financial markets • providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system OVERSIGHT REPORTS None RECORDED TESTIMONY Federal Reserve, “Commercial Real Estate,” Jon D. Greenlee, Associate Director, Division of Banking Supervision and Regulation, before the Congressional Oversight Panel Field Hearing, Atlanta, Georgia, 1/27/2010, http://federalreserve.gov/newsevents/testimony/greenlee20100127a.htm, accessed 4/6/2010. Federal Reserve, “Federal Reserve’s Exit Strategy,” Chairman Ben S. Bernanke, before the Committee on Financial Services, U.S. House of Representatives, 2/10/2010, http://federalreserve.gov/newsevents/testimony/bernanke20100210a.htm, accessed 4/6/2010. Federal Reserve, “Incentive Compensation,” Scott G. Alvarez, General Counsel, before the Committee on Financial Services, U.S. House of Representatives, 2/25/2010, http://federalreserve.gov/newsevents/testimony/alvarez20100225a.htm, accessed 4/6/2010. Federal Reserve, “Small Business Lending,” Governor Elizabeth A. Duke, before the Committee on Financial Services and Committee on Small Business, U.S. House of Representatives, 2/26/2010, http://federalreserve.gov/newsevents/testimony/duke20100226a.htm, accessed 4/6/2010. Federal Reserve, “The Federal Reserve’s Role in Bank Supervision,” Chairman Ben S. Bernanke, before the Committee on Financial Services, U.S. House of Representatives, 3/17/2010, http://federalreserve.gov/newsevents/testimony/bernanke20100317a.htm, accessed 4/6/2010. Federal Reserve, “Federal Reserve’s Exit Strategy,” Chairman Ben S. Bernanke, before the Committee on Financial Services, U.S. House of Representatives, 3/25/2010, http://federalreserve.gov/newsevents/testimony/bernanke20100325a.htm, accessed 4/6/2010. KEY OVERSIGHT REPORTS AND TESTIMONIES I Appendix g I april 20, 2010 FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) ROLES AND MISSION FDIC is an independent agency created by Congress that maintains the stability and public confidence in the nation’s financial system by insuring deposits, examining and supervising financial institutions, and managing receiverships. OVERSIGHT REPORTS None RECORDED TESTIMONY FDIC, Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation, before the Financial Crisis Inquiry Commission, 1/14/2010, http:// fdic.gov/news/news/speeches/chairman/spjan1410.html, accessed 4/6/2010. FDIC, Statement of Mitchell L. Glassman, Director, Division of Resolutions and Receiverships, Federal Deposit Insurance Corporation before the Subcommittee on Financial Institutions and Consumer Credit, House Committee on Financial Services, U.S. House of Representatives, 1/21/2010, http://fdic.gov/news/news/speeches/chairman/spjan2110.html, accessed 4/6/2010. FDIC, Statement of Martin J. Gruenberg, Vice Chairman, Federal Deposit Insurance Corporation before the Committee on Financial Services and Committee on Small Business, U.S. House of Representatives, 2/26/2010, http://fdic.gov/news/news/speeches/others/spfeb2610.html, accessed 4/6/2010. FEDERAL DEPOSIT INSURANCE CORPORATION office of the inspector general (FDIC OIG) ROLES AND MISSION The Office of Inspector General promotes the economy, efficiency, and effectiveness of FDIC programs and operations, and protects against fraud, waste, and abuse, to assist and augment the FDIC’s contribution to stability and public confidence in the nation’s financial system. OVERSIGHT REPORTS None RECORDED TESTIMONY None SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM (SIGTARP) ROLES AND MISSION Under EESA, the Special Inspector General 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”). 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. OVERSIGHT REPORTS SIGTARP, Quarterly Report to Congress, 1/30/2010, www.sigtarp.gov/reports/congress/2010/January2010_Quarterly_Report_to_Congress.pdf, accessed 4/6/2010. SIGTARP, “Factors Affecting Implementation of The Home Affordable Modification Program,” 3/25/2010, www.sigtarp.gov/reports/audit/2010/Factors_ Affecting_Implementation_of_the_Home_Affordable_Modification_Program.pdf, accessed 4/6/2010. RECORDED TESTIMONY SIGTARP, “Statement of Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program, before the House Committee on Oversight and Government Reform,” 1/27/2010, www.sigtarp.gov/reports/testimony/2010/Testimony%20Jan%2027_2010_House%20Committee%20on%20 Oversight%20and%20Government%20Reform.pdf, accessed 4/6/2010. Note: Italics style indicates verbatim narrative taken from source documents. Sources: Treasury, www.treas.gov, accessed 4/6/2010; Treasury Inspector General, www.treas.gov, accessed 4/6/2010; FSOB, www.treas.gov, accessed 4/6/2010; SEC, www.sec.gov, accessed 4/6/2010; GAO, www.gao.gov, accessed 4/6/2010; COP, www.cop.senate.gov, accessed 4/6/2010; OMB, www.whitehouse.gov, accessed 4/6/2010; CBO, www.cbo.gov, accessed 4/6/2010; Federal Reserve Board, www.federalreserve.gov, accessed 4/6/2010; FDIC, www.fdic.gov, accessed 4/6/2010; FDIC OIG, www.fdicoig.gov, accessed 4/6/2010; SIGTARP, www.sigtarp.gov, accessed 4/6/2010. 225 226 Appendix H I correspondence I april 20, 2010 correspondence This appendix provides a copy of the following correspondence: Correspondence Date From To Regarding 2/19/2010 SIGTARP Treasury Oversight of Small Business Lending Fund 3/30/2010 Treasury SIGTARP Status Report on Recommendations in the SIGTARP Quarterly Report 4/17/2010 Treasury SIGTARP Response to SIGTARP Quarterly Report correspondence I Appendix H I april 20, 2010 227 228 Appendix H I correspondence I april 20, 2010 1 The definitive documentation for the Community Development Capital Initiative (CDCI) will expressly acknowledge the jurisdiction and authority of SIGTARP and other oversight bodies in the TARP agreements. Treasury’s Response Treasury continues to implement this recommendation with respect to new TARP programs going forward, as appropriate. SIGTARP Recommendation 1 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 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. Specific Recommendations from SIGTARP’s Reports Treasury has given careful consideration to all recommendations in SIGTARP’s quarterly and audit 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 many cases, Treasury has taken specific actions to implement 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. Finally, SIGTARP Recommendations 6, 7, 8, 9, 11 and 13 identified in this summary response should be closed because Treasury has implemented the substance of the recommendation, and believes that no further action is necessary or appropriate. The Department of the Treasury (Treasury) welcomes the recommendations on the Troubled Asset 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 specific recommendations included in SIGTARP’s quarterly and audit reports, which appear in the SIGTARP recommendation chart included in the January 2010 Quarterly Report to Congress. March 30, 2010 The U.S. Department of the Treasury Summary Response to SIGTARP’s Outstanding Recommendations correspondence I Appendix H I april 20, 2010 229 2 Treasury’s Response Treasury continues to hire staff for OFS-Compliance with experience regarding conflicts of interest, anti-fraud, audit, internal controls, and securities, banking and investment company SIGTARP Recommendation 3 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. Additionally, under CDCI, participating CDFIs will be required to comply with the rules, regulations and guidance of the Treasury with respect to transparency, accountability and monitoring, as published and in effect at the time of the investment closing. This will include participating in the annual use of funds survey described above. Treasury sent the Use of Funds Survey to CPP participants on March 12, 2010. Financial institutions will have 30 days to complete and submit their survey responses to Treasury. Treasury will post all answers that are collected from each individual CPP recipient through the Use of Funds Survey, and will publish the names of any financial institutions that fail to submit a survey response to Treasury, on the FinancialStability.gov website. Treasury will also post a summary of quantitative data on the categories provided in the overall Quarterly CPP Report for each individual CPP recipient on the FinancialStability.gov website. Treasury’s Response As you know, Treasury has worked with SIGTARP to design a process that addresses this recommendation, which includes a Use of Funds Survey. The scope of the annual Use of Funds Survey will cover how each financial institution has employed the capital infusion of CPP funds from the date they initially received the funds until the end of the fourth quarter 2009. SIGTARP Recommendation 2 Treasury should require TARP recipients to report on the actual use of TARP funds. Treasury will also require Community Development Financial Institutions (CDFIs) participating in the CDCI to provide to OFS Compliance any assessments of internal controls (performed with their own internal resources or by external auditors). CDFIs are generally small, mission driven institutions with limited resources. Therefore, Treasury believes that requiring that any internal controls assessments performed by the CDFI (or an outside party) be given to Treasury, and not imposing a requirement on CDFIs to perform internal control assessments, accomplishes the spirit of this recommendation without being burdensome to these small, mission driven institutions and, lessens the likelihood of deterrence to participate in the CDCI. 3 Finally, Treasury’s Compliance Agent, Freddie Mac, conducts loan file reviews of participating servicers. Freddie Mac selects a sample of loan files from servicers in order to identify noncompliance, including cases where borrowers’ residency has not been adequately verified. Additionally, Freddie Mac will receive reporting from the above described Fannie Mae surveillance procedure and randomly sample loans to ensure the servicers have appropriately resolved flagged items. Secondly, Treasury's Program Administrator, Fannie Mae, is establishing a fraud detection surveillance procedure using reported IR2 data that specifically focuses on verifying borrower residency. When occupancy discrepancies or potential misrepresentations are identified, servicers will be notified and will be required to take appropriate action to resolve the discrepancy prior to any incentive is paid. During evaluation for HAMP, servicers must obtain a credit report from an independent credit reporting agency for every borrower and joint-borrower. Servicers use this credit report to confirm that the property securing the mortgage loan is the borrower’s principal residence. If the credit report is inconsistent with other information provided by the borrower, the servicer must reconcile the inconsistency. Treasury’s Response Treasury ensures that borrowers reside in their HAMP-modified property in three ways. Two of these mechanisms occur prior to the funding of the modification. SIGTARP Recommendation 4 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. As stated in prior responses, OFS-Compliance continues to receive assistance from other OFS personnel, including those in the risk management, financial management, home ownership preservation and investment areas as well as engaged financial agents/contractors, specifically for the Public Private Investment Program (PPIP) and the Home Affordability Modification Program (HAMP), to ensure that TARP participants are meeting their responsibilities under the investment agreements. regulations/compliance. Two new employees began within the last six weeks, and an additional two employees will start in April 2010. Treasury continues to advertise for candidates with the above experience to fill open positions. 230 Appendix H I correspondence I april 20, 2010 4 Treasury's Response Treasury has implemented this recommendation. Servicers are required to verify borrower income using tax returns, credit reports and other third party data sources. This verification must be retained by the servicer in the case file and provided to Treasury or its agent upon request or during a compliance audit. Additionally, Supplemental Directive 10-1 will require servicers to verify borrowers' income prior to offering a HAMP trial modification. This procedure will take effect beginning with trial plans offered after April 15, 2010. SIGTARP Recommendation 6 Treasury should require that verifiable, third-party information be obtained to confirm an applicant’s income before any modification payments are made. Freddie Mac, Treasury’s Compliance Agent for HAMP, has developed procedures to verify that incentives paid to servicers are accurately applied to the respective borrower participating in HAMP during its servicer compliance reviews. Freddie Mac will select and review a sample of serviced mortgage loans. Freddie Mac will then compare the source information from the loan files to IR2 to validate existence. After the first anniversary date, Freddie Mac will assess whether servicers’ controls and processes appropriately applied the borrowers’ reduction in principal, and for a selected sample of loans will assess whether the servicers reduced the borrowers’ principal amount of the loans appropriately. Freddie Mac also reviews on a sample basis the investor payments remitted to the servicer to verify that servicers are not retaining these incentives. Additionally, Freddie Mac will receive reporting from the above described Fannie Mae surveillance procedure and randomly sample loans to ensure the servicers have appropriately resolved flagged items. Treasury's Response Treasury has designed the HAMP program to address SIGTARP’s concern in this recommendation. Under the HAMP program, servicers are not eligible to receive the $1,000 upfront incentive until the borrower has made three full payments under the modification and submitted documentation verifying borrower income. Treasury’s Response Treasury’s Program Administrator for HAMP, Fannie Mae, is establishing fraud detection surveillance procedures using data reported by servicers in the HAMP system of record (IR2), similar to that mentioned in response 4 that will specifically focuses on the borrower identity. When borrower identity discrepancies or potential misrepresentations are identified, servicers will be notified and will be required to take appropriate action to resolve the discrepancy prior to any incentive being paid. 5 Treasury does not, however, obtain the names of individual employees involved in each mortgage modification transaction because of feasibility, costs, and privacy issues. The names and identifying information of appraisers, mortgage brokers, and attorneys are not collected because these entities do not play a significant role in the mortgage modification process. Treasury requires Fannie Mae, Treasury’s Program Administrator for HAMP, to maintain servicers’ and investors’ names and participating borrowers’ personally-identifiable information. The information collected is retained in a repository that facilitates analysis and allows for customized searches. Fannie Mae is also evaluating potential automated methods to validate reported Social Security numbers for borrowers. Treasury's Response Treasury already tracks the identity of servicers and borrowers involved in the mortgage modification. Tracking of investors (both participating and non-participating) is being enhanced in Supplemental Directive 10-02. SIGTARP Recommendation 8 Treasury should require its agents to keep track of the names and identifying information for each participant in each mortgage modification transaction and to maintain a database of such information. Furthermore, Treasury’s Compliance Agent, Freddie Mac, includes procedures in servicer compliance reviews to verify that borrowers have made the required number of payments under the trial modification. Freddie Mac’s loan file reviews ensure that all HAMP requirements were met in the modification of the loan. Treasury also has the ability to claw-back any servicer incentive if a permanent modification is deemed to be inappropriate. In such an event, incentives paid to date on loan modifications, including any up front one-time incentives, monthly investor cost share reductions, or annual incentives, will be recouped from the servicer. SIGTARP Recommendation 7 In MHA, Treasury should defer payment of the $1,000 incentive to the servicer until after the homeowner has verifiably made a minimum number of payments under the mortgage modification program. SIGTARP Recommendation 5 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 by receiving Government subsidies without applying them for the benefit of the homeowner. correspondence I Appendix H I april 20, 2010 231 Additionally, the Administration has proposed legislation to create a new regulatory regime that will allow for better monitoring, mitigation and responses to risks in the financial system so as to avoid repeating the need for the types of actions that were taken under EESA. The proposed regime would include “resolution authority” for major banks and bank-like entities. This 7 6 Going forward, Treasury does not anticipate taking a substantial percentage ownership position in any other financial institution pursuant to its EESA authority. Since the SIGTARP issued its recommendation, Treasury has made clear its intentions in this regard. When Secretary Geithner sent letters to Congress on December 9, 2009, extending the statutory authority to purchase troubled assets to October 3, 2010, the Secretary stated Treasury’s plans regarding future TARP purchases and said that future commitments of funds would be limited to three areas: (i) actions to address the housing crisis and mitigate foreclosures, (ii) capital investment in small and community banks and other efforts to support small business lending, and (iii) potential additional support for the Term Asset Backed Securities Lending Facility (TALF). Treasury will not otherwise use remaining EESA funds unless necessary to respond to an immediate and substantial threat to the economy stemming from financial stability. Treasury’s Response As you know, Treasury has made very few decisions to take substantial ownership position in particular financial institutions under EESA. In those few cases where it was necessary to do so, Treasury was acting to address situations where the financial distress at a company could have significant repercussions for the financial system. Treasury assessed the obligations and challenges of each situation as thoroughly as possible given the need to act quickly, often working in conjunction with federal banking regulators, and designed its interventions accordingly. SIGTARP Recommendation 10 Treasury should have appropriate metrics defined and an evaluation should be 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. As previously indicated in our prior correspondence, Treasury continues to believe that receiving the report within 15 calendar days following month end as required under the terms of the definitive legal agreements that Treasury has entered into with each fund manager is a reasonable period to ensure that Treasury receives accurate and complete data from the fund managers for inclusion in the public report on PPIP capital activity. More specifically, each fund manager participates in a formal valuation process for determining the market value of portfolio investments at the end of each month. This process takes approximately six business days for fund managers and the valuation agent to complete. Upon completion, the collateral administrator authors a draft collateral administration report, which is delivered to each fund manager no later than seven business days after month end. The fund manager reviews this report for accuracy and consistency, and incorporates the results of the report into the discussion and analysis of the previous month’s fund performance. This validation review can take several days to complete before a final report is delivered to both Treasury and SIGTARP. Each PPIF must disclose a report to Treasury and SIGTARP containing trading activity, holdings, and valuations through the end of each quarter. The process for preparing these reports takes significant time following the end of each month to validate the report for release to both Treasury and SIGTARP. Treasury also continues to develop internal controls policies and procedures specific to the ongoing administration of the PPIP to ensure that the fund managers achieve Treasury’s investment objectives while also protecting taxpayers from potential risks through robust oversight of the business, legal, operational, and compliance requirements of the PPIP. Treasury's Response Treasury requires the PPIP fund managers (PPIFs) to submit the requested trading activity data within 15 calendar days following month end. This period is needed because the month end reporting process for fund managers is very involved, requiring numerous steps and multiple parties to ensure accuracy, consistency, and data integrity. Treasury confirmed the need for the 15 calendar day timeframe with the recent publication of the initial quarterly report summarizing PPIP capital activity, portfolio holdings and current pricing and fund performance for the quarter ended on December 31, 2009. SIGTARP Recommendation 11 Treasury should establish policies to guide any similar future decisions to take a substantial ownership position in financial institutions that would require an advance review so that Treasury can be reasonably aware of the obligations and challenges facing such institutions. Treasury’s Response Treasury continues to develop appropriate metrics to monitor financial performance of the PPIFs. Metrics are expected to include each PPIF’s actual cumulative returns on equity investments in each PPIF relative to the total equity investment returns promised by each fund manager. SIGTARP Recommendation 9 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. 232 Appendix H I correspondence I april 20, 2010 8 For example, Treasury has worked closely with the Federal Reserve Board and the Federal Reserve Bank of New York (FRBNY) to implement the TALF. Treasury provides a backstop in the form of a $20 billion subordinated debt facility to TALF LLC for losses on loans. The FRBNY provides the funds for all loans in the first instance and administers the program. Treasury has broad oversight of the TALF, and has worked extensively with the Federal Reserve and FRBNY to develop appropriate controls and oversight mechanisms over this TARP program, including robust safeguards to assure measured, informed, and well thought out decision making. Specifically, Treasury engages in daily phone conversations with the Federal Reserve and FRBNY on TALF, requires multiple levels of approval for program amendments, and coordinates all decision-making between its investment and legal departments. Treasury is creating explicit policies and procedures for documenting its decision-making process. These policies and procedures will codify already existing practice, and we expect these documents to be approved and implemented shortly. Treasury’s Response Treasury maintains broad oversight of all TARP programs. Treasury does not defer to another agency when making TARP programming decisions. However, Treasury has coordinated with other Federal agencies when executing or implementing programs and it may continue to do so in the future. This is in order to leverage platforms that are currently in place at these agencies or to otherwise utilize expertise or resources of another agency. Treasury will continue to work closely with other federal agencies that are involved in TARP programs to ensure that Treasury can carry out its oversight role. 9 Treasury’s Response Treasury has implemented this recommendation. Treasury issued guidance in September 2009 regarding communications with lobbyists and outside persons on the American Recovery and Reinvestment Act and EESA. This guidance prohibits meetings and other oral communications with any party or entity concerning a pending application for funding under TARP-assisted programs. This guidance also requires the posting of all written communications from TARP applicants or their representatives while the application is pending. In addition, the guidance requires that Treasury employees disclose oral and written communications regarding EESA policy or applications with federally registered lobbyists. Treasury has conducted training presentations on the above guidance informing employees of the communication prohibitions and necessary reporting mechanisms. Treasury believes these developments, which have occurred since the recommendation was issued, may render this recommendation moot. Treasury will continue to monitor the progress of the proposed legislation, and will address the issues raised by the recommendation if it becomes necessary to make such an investment in the interim. SIGTARP Recommendations 12 Treasury should establish policies to guide decision making in determining whether it is appropriate to defer to another agency when making TARP programming decisions where more than one Federal agency is involved. To the extent that Treasury chooses to rely on another agency to provide oversight over TARP related activities, Treasury should establish controls to ensure that effective communication takes place so that Treasury can carry out its own oversight role. SIGTARP Recommendation 13 Treasury should improve existing control systems to document the occurrence and nature of external phone calls and in-person meetings about action and potential recipients of funding under the CPP and other similar TARP-assistance programs to which they may be part of the decision making. resolution authority would not constitute a permanent bailout fund, and neither the Senate nor House versions provide authority to inject capital into financial institutions. Instead, the legislation would give the government the ability to put an entity into receivership so that it can be wound down safely, at less cost to the taxpayer and less risk to the financial system as a whole. correspondence I Appendix H I april 20, 2010 233 234 Appendix H I correspondence I april 20, 2010 correspondence I Appendix H I april 20, 2010 235 Investigators Attorney Advisors Note: SIGTARP organizational chart as of 4/20/2010. Analysts Minh-Tu Nguyen Hotline Supervisor Auditors Auditors Mark Little Scott Rebein Richard Rosenfeld Mike Kennedy Associate Director Associate Director Special Agent in Charge Chief Investigative Counsel Paul Conlon Kurt Hyde Chris Sharpley Desk Officer -- SSA Deputy SIG– Audit Cathy Alix Auditors Jim Shafer Associate Director Lynn Perkoski Principal ADSIG Deborah Mason ADSIG -- HR Dr. Eileen Ennis Deputy SIG– Operations AJ Germek ADSIG -- CIO Tim Lee Deputy Chief of Staff Senior Policy Advisor Chief of Staff Kevin Puvalowski Deputy Special Inspector General Special Inspector General Neil Barofsky Christy Romero Deputy SIG– Investigations organizational chart Deborah Mathis ADSIG -- CFO Chief Counsel Kristine Belisle Communications Director Lori Hayman Director of Congressional Affairs Bryan Saddler 236 Appendix i I organizational chart I April 20, 2010 UST/TCW Fund Holdings I Appendix j I april 20, 2010 UST/TCW Fund Holdings The following is an excerpt from the UST/TCW Senior Mortgage Securities Fund, LP Monthly Report dated December 31, 2009. 237 Section 6.01(c)(i)(A) of Loan Agreement. Appendix j I UST/TCW Fund Holdings I april 20, 2010 1 238 L SP E N A ER 202.622.1419 Hotline: 877.SIG.2009 SIGTARP@do.treas.gov www.SIGTARP.gov RA M LE D OG UB SIG-QR-10-02 CT INSPE OR GE TRO SIGTARP: Quarterly Report to Congress | April 20, 2010 SIGTARP Q2 2010 AL CI ASS E T R ELIEF PR 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 April 20, 2010
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