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UB LE DA OG RA TRO M L SP E C INSPE TOR GEN E RA AL CI S S E T R E LI E F P R SIGTARP Office of the Special Inspector General for the Troubled Asset Relief Program Advancing Economic Stability Through Transparency, Coordinated Oversight, and Robust Enforcement Quarterly Report to Congress October 29, 2013 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”), as 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@treasury.gov www.SIGTARP.gov M SP E L This report summarizes notable SIGTARP investigations that illustrate how tone at the top can breed a criminally corrupt culture. SIGTARP’s investigation resulted in convictions against 4 bank officers at TARP-applicant Bank of the Commonwealth and 6 co-conspirators for crimes to hide past-due loans and the bank’s near-failure condition. Six have been sentenced to prison including the Vice President (sentenced to 17 years) and President of a subsidiary (sentenced to 8 years). The CEO and another officer await sentencing. SIGTARP uncovered an alleged 6-year criminal enterprise at failed Premier Bank that led to an indictment against its Chairman and 3 officers/directors. More than $6 million in TARP money was lost when Premier failed. SIGTARP found that officers at failed United Commercial Bank (“UCB”) allegedly engaged in fraudulent accounting tricks to conceal the bank’s condition resulting in criminal charges against three officers. All of UCB’s $298 million in TARP funds are lost. SIGTARP’s investigation resulted in prison sentences of 12, 7, and 3 years for three senior officers of failed TARP-applicant FirstCity Bank for fraudulently tricking the loan committee into approving millions in loans to buyers of the CEO’s property, and for siphoning millions. SIGTARP’s investigation of failed TARP-applicant Appalachian Community Bank resulted in a 5-year prison sentence for the Vice President for criminal self-dealing and concealing bad loans. SIGTARP’s investigation into TARP-applicant First Community Bank led to the CEO being sentenced to 2 years in prison for criminally covering up bad loans. SIGTARP’s investigation of Mainstreet Bank resulted in a guilty plea by the CEO for lying to SIGTARP about his use of TARP funds to purchase a vacation condo days after receiving the funds. We also examine the Hardest Hit Fund, which has only spent 22% of funds available for homeowners. Despite SIGTARP’s recommendation, Treasury has never set a goal of how many homeowners it will help with HHF and instead has allowed the states to decrease significantly the number of homeowners they anticipate helping. I hope you find this report useful and would be happy to talk to you further about SIGTARP’s important mission. DA OG RA There must be real consequences for breaking the law, and that is why SIGTARP’s mission is so critical. Today 65 individuals have been sentenced to prison for crimes investigated by SIGTARP and its law enforcement partners, 112 individuals have been convicted and await sentencing, 154 individuals have been criminally charged and face trial, and 60 have been banned from their industries. Many of these were senior officers at their companies. CHRISTY L. ROMERO Special Inspector General C INSPE TOR GEN E RA UB LE Congress authorized the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) to investigate, search, seize, and arrest in criminal investigations related to the Troubled Asset Relief Program (“TARP”). The financial system has stabilized, but the toxic corporate culture that led up to the crisis and TARP has not sufficiently changed. At the core of the crisis was a pervasive culture at institutions of rampant risktaking and greed combined with significant unchecked power. SIGTARP has uncovered, stopped, and investigated TARP-related crimes that serve as an important lesson to be learned from the crisis: that toxic corporate cultures can serve as a breeding ground for criminal activity. SIGTARP will continue to change corrupt culture the way we do it best, by removing those who corrupt culture, through arrests, convictions, and jail time. Respectfully yours, AL TRO Message from the Special Inspector General CI S S E T R E LI E F P R CONTENTS Executive Summary Notable recent SIGTARP investigations Company change in culture 3 6 12 Section 1 THE OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM SIGTARP Creation and Statutory Authority SIGTARP Oversight Activities The SIGTARP Organization Section 2 TARP OVERVIEW TARP Funds Update Financial Overview of TARP Housing Support Programs Financial Institution Support Programs Asset Support Programs Automotive Industry Support Programs 15 17 17 48 51 53 57 67 102 161 179 Section 3 TREASURY APPROVED LARGE DECREASES IN THE ESTIMATED NUMBER OF HOMEOWNERS TO BE HELPED BY STATES THROUGH TARP’S HHF PROGRAM 189 Introduction 191 States Have Spent 22% of TARP Funds Available for HHF on Assistance for Struggling Homeowners 192 Treasury has Never Set a Goal of How Many Homeowners It Will Help with HHF or Required that States Set a Goal, Instead Approving Most States’ Significant Reductions of Estimates of the Number of Homeowners to be Helped 195 Treasury Has Rejected All of SIGTARP’s 2012 Recommendations for HHF 197 The Majority of States Have Significantly Reduced Their Estimates of How Many Homeowners They Will Help Through HHF 198 Section 4 TARP OPERATIONS AND ADMINISTRATION TARP Administrative and Program Operating Expenditures Financial Agents Section 5 SIGTARP RECOMMENDATIONS Recommendations Regarding the Appointing of Directors to the Boards of CPP Banks Additional Recommendations Regarding Homeowners Redefaulting on Modified Mortgages Under HAMP Recommendations Regarding Not Counting SBLF Funds as TARP “Repayments” Endnotes 257 259 260 271 273 276 281 305 APPENDICES A. Glossary B. Acronyms and Abbreviations C. Reporting Requirements D. Transaction Detail E. Debt Agreements, Equity Agreements, and Dividend/Interest Payments F. HAMP Modification Statistics G. Cross-Reference of Report to the Inspector General Act of 1978 H. Public Announcements of Audits I. Key Oversight Reports and Testimony J. Correspondence K. Peer Review Results L. Organizational Chart 336 340 343 347 485 489 490 491 492 494 510 511 EXECUTIVE SUMMARY 4 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 The financial system has stabilized in part due to five years of the TARP bailout, but the toxic corporate culture that led up to the financial crisis and TARP has not sufficiently changed. At the core of the financial crisis was a pervasive culture at financial institutions throughout the country of rampant risk-taking and greed combined with significant and unchecked power. SIGTARP has uncovered, stopped, and investigated crime related to TARP in the banking, housing, and securities industries. The crimes we have detected serve as an important lesson to be learned from the financial crisis: that toxic corporate cultures can serve as a breeding ground for criminal activity. At SIGTARP, we have arrested and continue to arrest bankers who cultivated a culture of reckless arrogance, believing they were untouchable even as they broke the law. Profit chasing and aggressive expansion led to risky gambles on lower quality loans that violated a bank’s internal policies and industry rules that CEOs were telling employees to follow while also directing actions which they knew violated the policies and rules. Culture will always be less about what is said and more about what behavior is allowed, encouraged, even rewarded. SIGTARP found that some bankers lied, plain and simple. They crossed a line, the line between legally disclosing losses when their risky gambling went south, and illegally hiding bad loans and declining bank health through criminal accounting tricks. Some had been fraudulently masking the bank’s true condition even before the financial crisis, but during the crisis, shrinking capital and increasing delinquent loans left fraudulent bankers with nowhere to hide. They sought TARP bailout dollars to have taxpayers fill in the holes on their fraud-riddled books. Others began their criminal accounting tricks to hide that the bank was near failure only after taxpayers invested TARP funds in what was supposed to be a “healthy” bank, but was instead one saddled with hidden, delinquent high-risk loans and insufficient reserves to cover losses. Some bankers cultivated a culture of self dealing, criminally concealing that the bank was funding their luxury lifestyles, believing they were entitled to the finest money could buy, even while they curtailed lending and foreclosed on struggling homeowners. There must be real consequences for breaking the law, and that is why SIGTARP’s mission is so critical. Regulators can change the rules of the road, but some executives will try to shape their cultures around loopholes, workarounds, or even criminal deception. Today 65 individuals have been sentenced to prison for their crimes investigated by SIGTARP and its law enforcement partners, 112 individuals have been convicted and await sentencing, 154 individuals have been criminally charged and face trial on those charges, and 60 individuals have been banned from their industries.i Many of these defendants were at the highest levels of banks or companies that applied for or received TARP bailout money. They were trusted to exercise good judgment and make sound decisions. However, they abused that trust. Many times they abused that trust for their own personal benefit. For some, a change in culture only happens when the corrupt person is removed by a law enforcement agency such as SIGTARP. Sometimes even an arrest by iC riminal charges are not evidence of guilt. A defendant is presumed innocent until proven guilty. 5 6 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM SIGTARP and subsequent conviction will not be enough to remove the sense of entitlement of a corrupt senior officer. For example, in a motion he drafted himself from prison, where he is serving his 30-year sentence for his $2.9 billion mortgage fraud scheme that SIGTARP uncovered, former Taylor, Bean and Whitaker Chairman Lee Farkas asked the court to allow him to keep his 1954 Cadillac, which was seized as a fruit of his crime, stating that it “is an irreplaceable, unique asset. Fewer than 700 were ever produced, a handful remain, and virtually none in the condition of this asset. It is impossible to replace. The proceeds that the Government may eventually get will never be able to replace this asset.” SIGTARP’s investigations stand as reminders that toxic corporate cultures can serve as a breeding ground for crime. Our investigations should serve as warning bells for companies before their culture develops into crime. The tone comes from the top. SIGTARP has uncovered CEOs leading and actively engaged in the fraud, enlisting subordinates to carry out their schemes. These CEOs may convince themselves that their actions are not criminally motivated, and are only intended to save the bank in tough economic times. However, we have found in our investigations that there is a slippery slope where a culture of crime starts to trickle down and then permeates their institutions. An ineffective or complacent board of directors failing to oversee management properly can add to the toxicity in the culture by enabling bank officers to engage in crime unchecked. These boards are often in complete shock when the bank’s true financial state is revealed, often when it is too late at the closing of the bank. Sometimes, directors actively participate in the crime. SIGTARP has identified and stopped crime in institutions with toxic cultures turned criminal. We will continue to bring justice and accountability to those who looked to, or involved, TARP in their crimes. NOTABLE RECENT SIGTARP INVESTIGATIONS Bank of the Commonwealth For 30 years the Bank of the Commonwealth operated as a community bank in Virginia, but that changed in 2006, when the bank began an aggressive expansion led by CEO and Chairman of the Board Edward Woodard to become a billion dollar bank in three years. SIGTARP’s investigation with its law enforcement partners uncovered that senior officers of the bank then began a culture of freeflowing high-risk lending to a few favored borrowers, circumventing internal policies and industry standards such as reviewing the cash flow of the borrower’s business or asking for adequate collateral. Bank officials issued $40 million in loans to two developers, Eric Menden and George Hranowskyj, knowing that the money was not used for construction, writing the word “fun” on checks, with bank employees joking that it was the “bank of Eric and George.” Instead of using these loans for construction or development as stated in the loan applications, the favored borrowers (like Eric and George) lived the high life, buying expensive antique and collector cars, homes, vacation homes, and rental properties. Bank QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 officials did not visit the properties to see if any bank-financed construction was actually completed. If they had, they would have seen empty half-built shells throughout Virginia. The bank’s risky lending culture set up a situation where the fate of the bank was tied to the fate of these few favored borrowers, but the bank had not adequately reserved to absorb losses on these loans, and then losses soared. Lawyers for bank officials argued at trial that when the crisis hit, in an effort to save the bank, bank officials responded by trying to help in “creative” ways to “shore up difficult borrowers.” The convictions of these bank officials confirmed what SIGTARP’s investigation revealed—that bank officers were not acting creatively but rather criminally in conspiracy with the favored borrowers. Our investigation with our law enforcement partners revealed a culture of deceit and corruption at the bank as senior officers conjured criminal scheme after scheme with the favored borrowers to hide from banking regulators who examined the bank and its application for TARP bailout funds that the favored borrower loans were past-due and that as a result, the bank was about to fail. We uncovered bank officers who falsified bank records to make bad loans look good, paying past-due balances using money designated for other purposes—overdrawn bank accounts to the tune of hundreds of thousands of dollars, new loans purportedly for new projects, and construction loans with little to no completed construction. We investigated how senior bank officials directed the favored borrowers to buy foreclosed property off the bank’s books in rigged auctions, bidding up the price, while disguising that the bank funded the purchase (adding more loans that would ultimately default). One co-conspirator testified at trial that his relationship with the bank was “you scratch my back, I will scratch yours.” We found that bank officials removed more than 1,000 bad loans from the past-due report that was presented to the board each month and back-dated documents. The bank officials defrauded customers, shareholders, and Federal regulators, and turned to taxpayers in an attempt to get TARP funds to cover up the massive holes caused by fraudulent loans. The culture at the bank also involved personal greed, with bank officers lining their own pockets on top of their big salaries, company cars, and generous expense accounts. Senior bank officers approved bank loans to officers and directors, without board approval or charging customary fees, including loans to CEO Woodard to purchase two condos that did not require a single payment, and $2 million in loans to the CEO’s son, Troy Brandon Woodard, who was a vice president of a bank subsidiary, so that he could try his hand for the first time in speculating in real estate. Brandon Woodard enjoyed a $100,000 spending spree on home renovations fraudulently billed to the bank, and when he could not sell his condo, Menden and Hranowskyj “bought it” using bank funds. Vice President and Commercial Loan Officer Stephen Fields, who was engaged in much of the fraud despite being a former federal bank examiner, accepted kickbacks in kitchen and bathroom renovations from Menden and Hranowskyj. What started out as an aggressive culture of high-risk loans at Bank of Commonwealth morphed into a corrupt culture where crime took root and 7 8 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM became rampant, driving the bank into the ground. Four bank officers and six co-conspirators including the favored borrowers have been convicted of the crimes investigated by SIGTARP and its law enforcement partners; six have been sentenced to prison, with CEO Woodard and loan officer Jeremy Churchill awaiting their sentence and two co-conspirators have been sentenced to probation. Stephen Fields was sentenced to 17 years in prison followed by 5 years of supervised release; Brandon Woodard was sentenced to 8 years in prison followed by 5 years of supervised release. The six convicted co-conspirators including Menden and Hranowskyj were sentenced to prison for as long as 14 years. Premier Bank SIGTARP’s investigation with its law enforcement partners uncovered an alleged bank fraud conspiracy that led to an indictment on July 30, 2013, by a Cook County Grand Jury in Illinois against Zulfikar Esmail, the chairman of Premier Bank in Wilmette, Illinois; his wife Shamim Esmail, who was the executive vice president and general counsel; Robert McCarty, an attorney and director; and director William Brannin, for their participation until the bank’s failure in 2012 in an alleged six year scheme to defraud the bank and hide its poor financial condition from state regulators.ii The scheme allegedly was ongoing when Premier sought and received more than $6 million in TARP funds, which was lost when the bank failed. The indictment alleges that Zulfikar Esmail headed a criminal enterprise in which the others participated. All defendants are awaiting trial but should the allegations be substantiated, the allegations of misuse by Esmail and the other officers and directors laid out in the indictment depict a culture of corruption and greed that put personal enrichment over the interests of the financial institution and the community. Esmail, his wife who served as the general counsel, and the two bank directors allegedly conspired to hide the true financial condition of the bank by manipulating past-due loans through various schemes to make them appear current and using deceptive financial records to obtain TARP funds. The criminal conduct alleged in the indictment describes numerous acts of fraudulent conduct including using Premier Bank for personal profit at the expense of the bank and federal taxpayers. Esmail allegedly solicited bribes, including that Esmail’s children be given ownership interests, in exchange for lending to several grocery stores in Illinois. Esmail allegedly falsified contractor invoices to use bank funds to pay for renovations to Esmail’s home and rental properties including the construction of an underground tunnel at his home. By late 2008, the charges allege that the bank was nearing failure and applied for and received the first of two payments from Treasury in connection with the bank’s application for TARP funds in order to further the criminal scheme. ii Criminal charges are not evidence of guilt. A defendant is presumed innocent until proven guilty. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 United Commercial Bank Since the 1970s, United Commercial Bank (“UCB”) was a commercial bank headquartered in San Francisco, California. Starting around 1998, UCB developed a plan to grow its assets to more than $10 billion, in part to meet foreign criteria to purchase a bank in China. UCB began to expand rapidly, nearly doubling its loan portfolio from $4.4 billion to more than $8 billion between 2004 and 2007. In 2007, it expanded its business and branches in the United States, Taiwan, and China. Beginning in 2008, the bank had increasing past-due loans, and in September 2008, the bank looked to TARP, receiving $298 million in TARP funds. SIGTARP’s investigation with its law enforcement partners uncovered a culture of excessive risk and circumvented internal controls. According to allegations in Federal indictments, beginning in September 2008, UCB executives, along with others, sought to hide UCB’s losses and deteriorating financial condition from Treasury, investors, depositors, regulators, and the bank’s independent auditor.iii SIGTARP’s investigation with its law enforcement partners uncovered that bank officers allegedly engaged in fraudulent accounting tricks to conceal the true financial condition of the bank, and to delay and avoid publicly reporting the bank’s impaired loans and true loan losses. Our investigation detected that bank officers allegedly concealed that loan collateral and repossessed assets had declined in value, fraudulently understated the risk of certain loans, and fraudulently delayed downgrading the risk ratings of certain loans. We uncovered that bank officers allegedly falsified the bank’s books and records so that they falsely described the value of the bank’s loan collateral and repossessed assets, and omitted material information on the likelihood that certain loans would be repaid and that bank officials caused the bank to issue materially false and misleading public statements and reports regarding its financial condition. Our investigation revealed that bank officials allegedly lied to and misled the bank’s outside auditor. In November 2009, UCB failed—the first TARP bank to fail—resulting in a complete loss of taxpayers’ $298 million TARP investment. SIGTARP’s investigation resulted in criminal charges against Ebrahim Shabudin, the bank’s chief credit officer and chief operation officer, Thomas Yu, a senior vice president and manager of credit risk and portfolio management, and Lauren Tran, a vice president and the manager of credit policy at the bank. The SEC filed civil charges against CEO Thomas Wu, Shabudin, Yu, and CFO Craig On. FirstCity Bank Georgia-based FirstCity Bank pursued a rapid growth strategy driven largely by loans to real estate developers, with the bank’s assets growing nearly 80% between December 2005 and 2008. SIGTARP’s investigation with its law enforcement partners revealed that the bank’s culture was one of deception, greed, self-dealing, and abuse of power. CEO, Chairman, and President Mark Conner and senior loan officer Clayton Coe tricked FirstCity’s loan committee into approving several iii Criminal charges are not evidence of guilt. A defendant is presumed innocent until proven guilty. 9 10 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM multi-million dollar real estate loans to borrowers who, unbeknownst to the loan committee, were actually buying property owned by Conner or his co-conspirators. Conner siphoned off millions of dollars from fraudulent commercial real estate loans, ultimately driving FirstCity to failure. Despite his fiduciary duties as president, CEO, and chairman, for years, Conner went to great lengths to lie to bank regulators, cheat the bank, and steal millions of dollars. To help fund FirstCity’s aggressive loan growth, Conner engineered loan participation deals with other banks to make larger loans, drawing other banks into his bad deals. Conner and his co-conspirators caused at least 10 other federally insured banks to invest in (participate in) fraudulent loans based on fraudulent misrepresentations, shifting all or part of the risk of default to the other banks. Some of these banks later failed. Conner himself pocketed $7 million. In 2008, when FirstCity was hit by significant losses due to fraud and poor risk decisions, Conner attempted unsuccessfully to get a $6 million TARP bailout to cover his tracks. In an effort to make FirstCity’s financial position look much better than it really was, Conner and his co-conspirators tried to unload bad loans and foreclosed homes to straw purchasers, with the bank loaning them the money for the purchases. Even after the bank’s failure, Conner’s deceit continued. Knowing he was under investigation by SIGTARP, Conner left the country and filed for personal bankruptcy, testifying under oath that he was “down to less than nothing.” In truth, Conner controlled more than $4.5 million in offshore cash and investments that he tried to hide. As a result of SIGTARP’s investigation, Conner was sentenced to 12 years in prison for his crimes, followed by 5 years of supervised release; Clayton Coe was sentenced to 7 years 3 months behind bars followed by 5 years of supervised release. The bank’s lawyer, Robert Maloney, was sentenced to 3 years 3 months in prison for bank fraud based on his disguising the transactions and funneling bank funds to Conner or to keep other bank loans current. All three were banned for life from working in the banking industry. SIGTARP found a storage unit rented in Maloney’s name containing artwork and furniture owned by Conner worth more than $89,000, including 19th Century European oil paintings, bronze sculptures, antique furniture, and a pair of gilt bronze candelabra worth $8,000. SIGTARP seized the contents of the storage unit. Appalachian Community Bank TARP-applicant Appalachian Community Bank was forced to close its doors on March 19, 2010, in large part because of high level executives that used the bank as their own personal piggy bank, committing numerous frauds that contributed to the bank’s failure. The culture at the bank was one of greedy endeavors by bank officers to hide bad loans and enrich themselves. Starting in 2006, the bank aggressively expanded operations and opened new branches increasing total loans (heavily concentrated in construction and development loans) from $457 million in 2005 to $812 million in 2008. The FDIC Inspector General found that as the bank grew larger and more risky, management continued to run it like a smaller, QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 less complex institution. Bank officials had shoddy underwriting, making loans that violated loan-to-value limits and without current appraisals. SIGTARP, together with its law enforcement partners, uncovered extensive criminal fraud by senior bank officials that started in 2007, well before the bank applied for TARP. In its aggressive expansion, senior bank officials created a culture of insider self-dealing using their positions in the bank to perpetuate their frauds and unjustly enrich themselves. SIGTARP uncovered that bank officials caused the bank to make loans to a straw borrower, disguising from the bank’s loan committee that the money actually went to the bank officials to purchase land they would immediately flip at a higher price. Our investigation disclosed that to further this fraud, bank officials wire-transferred funds to purchase real estate, which caused a bank account the officials controlled to be overdrawn by millions of dollars, but the bank officials never recorded it in the bank’s records. Bank officials’ authority to execute the transfers was never questioned by the board. Additionally, bank officials used shell corporations to purchase two Florida condominiums financed by the bank. Approximately two months later, bank officials refinanced their mortgages and pocketed more than $875,000 that they used for personal purposes. Subsequently, when the market took a downturn, the bank faced ever increasing losses that they could not cover. Having already turned a culture of risky lending to criminal self-dealing, bank officials added to their criminal culture. SIGTARP’s investigation uncovered that in order to prevent the FDIC from discovering the growing past due loans on Appalachian’s books, bank officials arranged a number of sham real estate transactions, with the intent to make it appear as if a coconspirator had purchased 11 properties from the bank’s foreclosure inventory and was making regular monthly payments on the new mortgages. Bank officials used shell companies they controlled called GPH Investments (“God Please Help”) and PHL Investments (“Please Help Lord”) to hide past-due loans and a growing inventory of foreclosed property by directing the bank to finance sales of the properties to the GPH Investments and PHL Investments. Former bank vice president Adam Teague was sentenced to 5 years in prison. Former vice president William Beamon has been charged with bank fraud in an alleged scheme to divert funds from the bank related to foreclosed property held by the bank.iv First Community Bank Louisiana-based First Community Bank had a culture that gave carte blanche authority to its CEO and President Reginald Harper. The bank board trusted Harper completely and even increased CEO Harper’s authority, on Harper’s request, to make decisions on new loans of up to half a million dollars. CEO Harper abused the board’s trust. Harper provided more than $2 million in loans to subdivision developer Troy Fouquet and made sure that the loans were in different quantities and in different names using Fouquet-controlled companies, so that Harper could sign off on the loans himself without board approval. Prior to the iv Criminal charges are not evidence of guilt. A defendant is presumed innocent until proven guilty. 11 12 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM financial crisis, Fouquet could not find buyers for homes he built to repay the loans. SIGTARP’s investigation revealed that CEO Harper turned a culture of unchecked CEO power into one of fraud to hide the fact that Fouquet’s loans were going bad. SIGTARP’s investigation uncovered that Harper devised various cover-up schemes to hide the bad loans from bank records that he used to apply for TARP, which would have filled in the hole caused by Fouquet’s bad loans. Treasury approved the TARP application but it was later withdrawn by the bank’s board who was unaware of the holes on the book’s records caused by the fraud. We found that Harper accepted checks from Fouquet that he knew would bounce and held the checks in limbo in the bank’s “cash items” bucket and falsified bank records to reflect the payment as having been made. We found that Harper and Fouquet used straw borrowers to take out new loans from the bank, the proceeds of which were used to pay Fouquet’s past-due loans. The judge who sentenced Harper to 2 years in prison followed by 3 years supervised release and sentenced Fouquet to 1½ years in prison followed by 3 years supervised release told Harper that this was not a onetime lapse in judgment or mistake, but a cover-up for years. At their sentencing, a director told the court how Harper had violated their trust. The losses from the fraud contributed to the bank being taken over by another bank. Mainstreet Bank (Calvert Financial) The culture at Missouri-based Mainstreet Bank is best evidenced by the bank’s use of the TARP money that its parent company Calvert Financial Corporation received and downstreamed to Mainstreet Bank. This was a bank where the tone certainly came from the top. The top was Darryl Woods, who was the chairman and CFO of Mainstreet Bank and the chairman, president and majority shareholder of Calvert. It was Woods who looked to TARP, signing the TARP application and TARP documents. SIGTARP’s investigation revealed that at the time Woods applied for TARP he had already been negotiating to buy a Florida waterfront condo. Within days of receiving the TARP funds, Woods directed the bank to spend more than a third of the funds to purchase the condo for his and other executives’ vacations. Our investigation revealed that eight days after the bank used TARP funds to buy the condo, Woods lied in response to a SIGTARP survey to the bank asking for a description on how it used TARP funds by omitting that TARP funds were used to purchase the vacation condo, which had taken place just days before. As a result of SIGTARP’s investigation with its law enforcement partners, Woods pled guilty to making the false statement to SIGTARP. He awaits sentencing. In addition, he will be banned from banking. COMPANY CHANGE IN CULTURE Law enforcement is but one effective method to change a corrupt culture at an institution, but by the time we are investigating, it is often too late to change culture. To fully address the corporate culture that led to TARP, companies must QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 change from within. They must adopt a culture of vigilance, with strong board and management oversight—one that curbs risk and greed to the point where the company can absorb its own losses without coming to taxpayers hat in hand again. Companies must not only commit to following policies and rules, CEOs and other senior officials must themselves be the example in following policies and rules, and must recognize and reward employees that adhere to company policies and industry rules and demonstrate accountability and integrity. And if companies are honest with themselves, they may just admit that a good starting point to change culture is executive pay. Excessive executive pay is far too routine in spite of corporate scandals and continued losses. One immediate change in culture that companies can make is to change to risk-based compensation that discourages reckless risk-taking and ties personal success to the long-term success of the company. Through changes in compensation and rewarding compliance with rules and internal policies, the best change in corporate culture that companies can make post-crisis is to focus on personal accountability. Although our jurisdiction is narrow, we at SIGTARP will continue to change corrupt culture and bring personal accountability the way we do it best, by removing those who corrupt culture, through arrests, convictions, jail time, and industry bans. 13 14 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM SECT IO N 1 THE OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM 16 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 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”) as amended by the Special Inspector General for the Troubled Asset Relief Program Act of 2009 (“SIGTARP Act”). Under EESA and the SIGTARP Act, 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”) or as deemed appropriate by the Special Inspector General. 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 the Government. Under the authorizing provisions of EESA, SIGTARP is to carry out its duties until the Government has sold or transferred all assets and terminated all insurance contracts acquired under TARP. In other words, SIGTARP will remain “on watch” as long as TARP assets remain outstanding. SIGTARP OVERSIGHT ACTIVITIES SIGTARP continues to fulfill its oversight role on multiple parallel tracks: investigating allegations of fraud, waste, and abuse related to TARP; conducting oversight over various aspects of TARP and TARP-related programs and activities through 22 published audits and evaluations, and 128 recommendations as of September 30, 2013, and promoting transparency in TARP and the Government’s response to the financial crisis as it relates to TARP. SIGTARP Investigations Activity SIGTARP is a white-collar law enforcement agency. As of September 30, 2013, SIGTARP had more than 150 ongoing criminal and civil investigations, many in partnership with other agencies in order to leverage resources. SIGTARP takes its law enforcement mandate seriously, working hard to deliver the accountability the American people demand and deserve. SIGTARP’s investigations have delivered substantial results, including: • criminal chargesi against 154 individuals, including 98 senior officers (CEOs, owners, founders, or senior executives) of their organizations • criminal convictions of 112 defendants • prison sentences for 65 defendants (others are awaiting sentencing) iC riminal charges are not evidence of guilt. A defendant is presumed innocent until and unless proven guilty. 17 18 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 1.1 CRIMINAL CHARGES FROM SIGTARP INVESTIGATIONS RESULTING IN PRISON SENTENCES 3% 4% 14% 26% 11% 9% 14% 19% Conspiracy to Commit Fraud Bank Fraud Wire and Mail Fraud • civil cases and other actions against 63 individuals (including 49 senior officers) and 51 entities (in some instances an individual will face both criminal and civil charges) • orders temporarily suspending or permanently banning 60 individuals from working in the banking or financial industry, working as a contractor with the Federal Government, or working as a licensed attorney • orders of restitution and forfeiture and civil judgments and other orders entered for $4.68 billion. This includes restitution orders entered for $4.2 billion, forfeiture orders entered for $233.1 million, and civil judgments and other orders entered for $288 million. Although the ultimate recovery of these amounts is not known, SIGTARP has already assisted in the recovery of $185.6 million. These orders happen only after conviction and sentencing or civil resolution and many SIGTARP cases have not yet reached that stage; accordingly, any recoveries that may come in these cases would serve to increase the $185.6 million • savings of $553 million in TARP funds that SIGTARP prevented from going to the now-failed Colonial Bank False Statements and Entries State Charges (Conspiracy to collect upfront fees/commit grand theft) Loan Fraud Alteration of records Other SIGTARP’s investigations concern a wide range of possible wrong-doing, and result in charges including: bank fraud, conspiracy to commit fraud or to defraud the United States, wire fraud, mail fraud, making false statements to the Government (including to SIGTARP agents), securities fraud, money laundering, and bankruptcy fraud, among others.ii Figure 1.1 represents a breakdown of criminal charges from SIGTARP investigations resulting in prison sentences. Although the majority of SIGTARP’s investigative activity remains confidential, over the past quarter there have been significant public developments in several SIGTARP investigations, described below. TARP-Related Investigations Activity Since the July 2013 Quarterly Report Two Bank Executives and Virginia Developer Sentenced to Federal Prison for Roles in Massive Bank Fraud Scheme – Bank of the Commonwealth In September and October 2013, three of four defendants were sentenced to Federal prison after a jury convicted all four of fraud charges relating to their roles in a $41 million bank fraud scheme that masked non-performing assets at Bank of the Commonwealth (“BOC”) and contributed to the failure of BOC in 2011. The fourth defendant, Edward J. Woodard, the bank’s former chief executive officer, president, and chairman of the board, is scheduled to be sentenced on November 6, 2013. On September 16, 2013, Stephen G. Fields, former executive vice president and senior commercial loan officer, was sentenced to 204 months in Federal prison, followed by five years of supervised release. He was also ordered ii T he prosecutors partnered with SIGTARP ultimately decide which criminal charges to bring resulting from SIGTARP’s investigations. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 to forfeit $61.6 million and to pay $332 million in restitution, jointly with the other co-defendants. On September 30, 2013, Troy Brandon Woodard, the son of Edward J. Woodard and the former vice president and mortgage loan specialist at a subsidiary of BOC, was sentenced to 96 months in Federal prison followed by five years of supervised release. He was also ordered to pay $2.4 million in restitution and forfeit $4.3 million as part of the joint restitution and forfeiture orders. On September 18, 2013, Dwight A. Etheridge, a favored BOC borrower who owned and operated a residential and commercial development company, was sentenced to 50 months in Federal prison, followed by five years of supervised release. Etheridge was also ordered to pay $5 million as part of the joint restitution order. Previously, on July 22, 2013, Thomas E. Arney, who pled guilty in the case, was sentenced to 27 months in Federal prison, followed by three years of supervised release. He was also ordered to pay $2 million in restitution as part of the joint restitution order and to forfeit $7.5 million and a substantial amount of personal property and real estate. BOC was a community bank headquartered in Norfolk, Virginia, that failed in September 2011. It was the eighth largest bank failure in the country that year and the largest bank failure in Virginia since 2008. The Federal Deposit Insurance Corporation (“FDIC”) estimates that BOC’s failure will cost the deposit insurance fund more than $268 million. In November 2008, BOC sought $28 million in TARP funds. Subsequently, BOC’s Federal banking regulator asked the bank to withdraw the TARP application, which BOC did. From 2005 to 2009, BOC more than doubled its assets, largely through brokered deposits, a financial tool that allows investors to pool their money and receive higher rates of returns. Because of the high volatility of these deposits, an institution must remain well-capitalized to accept and renew brokered deposits. BOC funded and administered many loans during this period without following industry standards or the bank’s own internal controls, and by 2008, the volume of the bank’s troubled loans and foreclosed real estate soared. From 2008 to 2011, BOC executives used various methods to fraudulently mask the bank’s true financial condition out of fear that the bank’s declining health would negatively impact investor and customer confidence and affect the bank’s ability to accept and renew brokered deposits. To fraudulently hide BOC’s troubled assets, the bank insiders overdrew demand deposit accounts to make loan payments, extended new loans or additional principal on existing loans to cover payment shortfalls, changed the terms of loan agreements to make loans appear current, and used funds from related entities (sometimes without authorization from the borrower) to make loan payments. In addition, the BOC executives hid millions of dollars of non-performing loans from the bank’s board of directors. The BOC executives also provided preferential treatment to troubled borrowers, including Etheridge and others, to purchase defaulted property. The borrowers were already having difficulty making payments on their existing loans and the financing allowed the borrowers to convert these non-earning assets into earning assets. In some instances, these new loans exceeded the purchase price of the property, which resulted in the borrowers 19 20 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM obtaining cash at closing that they used to make payments on their other loans at the bank and for their own personal purposes. In addition, BOC executives caused the bank to fund loans to troubled borrowers to purchase or attempt to purchase properties owned by Edward Woodard and Troy Brandon Woodard. BOC subsequently charged off $9 million of these loans as a loss. In addition, Edward Woodard and Troy Brandon Woodard caused BOC to pay fraudulent invoices for construction costs for a bank branch when the true costs were incurred for renovations to Troy Brandon Woodard’s personal residence. Also convicted in the case was Jeremy C. Churchill, a BOC vice president and commercial loan officer, who pled guilty to conspiracy to commit bank fraud. Churchill admitted that he submitted loan requests to BOC to provide more than $1 million to companies owned by Etheridge. BOC subsequently fully charged off these $1 million in loans as a loss. Churchill also admitted to requesting that BOC provide a $4.1 million loan to Etheridge’s company to be used to purchase an incomplete condominium project in Virginia Beach from the owners who were delinquent on their loan at the bank. Churchill admitted that he and Fields used approximately half the loan proceeds to pay down the underlying loan on the property. Churchill faces a maximum penalty of five years in prison when he is sentenced on November 1, 2013. Also, in July 2013, Recardo S. Lewis, a former vice president of Etheridge’s construction company, was sentenced to six months home detention and five years of probation for his role in the fraud scheme. Lewis was also ordered to pay $855,962 in restitution as well as $2 million in forfeiture, as part of the restitution and forfeiture orders issued. Lewis previously pled guilty to conspiracy to defraud BOC by submitting fraudulent draws on the incomplete condominium project in Virginia Beach. Also, in September 2012 and October 2012, business partners Eric H.Menden and George P. Hranowskyj, respectively, were sentenced to prison for their roles in the bank fraud scheme. Menden was sentenced to 11.5 years in Federal prison followed by three years of supervised release. Hranowskyj was sentenced to 14 years in Federal prison followed by three years of supervised release. Menden and Hranowskyj were ordered to pay $32.8 million in restitution and to forfeit $43.5 million as part of the joint restitution and forfeiture orders. On January 25, 2012, Natallia Green, a former employee of Menden and Hranowskyj, was sentenced to five years’ probation and was ordered to pay $106,519 in restitution after pleading guilty to making a false statement to BOC in a loan application. On August 10, 2011, Maria Pukhova, another former employee of Menden and Hranowskyj, was charged with making a false statement on a loan application to BOC in April 2010. Pukhova’s case is pending. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Eastern District of Virginia, the Federal Bureau of Investigation (“FBI”), Internal Revenue Service Criminal Investigation (“IRS-CI”), the Securities and Exchange Commission (“SEC”), the Federal Deposit Insurance Corporation Office of Inspector General (“FDIC OIG”) and the Office of the Inspector General-Board of Governors of the Federal Reserve System (“FRB OIG”). QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Chairman and Senior Executives of TARP Recipient Bank Charged in Criminal Fraud Scheme – Premier Bank On August 6, 2013, four former members of the board of directors and senior executives of TARP recipient Premier Bank (“Premier”) in Wilmette, Illinois, were charged in Cook County, Illinois, with operating an alleged long-running criminal scheme that caused the failure of the bank. Premier failed on March 23, 2012. As a result of the scheme, the charges also allege that Treasury was defrauded of nearly $6.8 million in TARP funds. All four defendants were arrested on July 10, 2013, by SIGTARP agents and its law enforcement partners. Zulfikar Esmail, former chairman of the board of directors; his wife, Shamim Esmail, former executive vice president and general counsel; Robert McCarty, an attorney and former member of the board; and William Brannin, former member of the board, were all charged for their alleged roles in the scheme. All four defendants are charged with financial institution fraud, continuing a financial crimes enterprise, conspiracy to commit a financial crime and theft by deception. In addition to those crimes, Zulfikar Esmail is also charged with organizer of a financial crimes enterprise and commercial bribery of a financial institution. According to the indictment, the defendants allegedly hid the bank’s rapidly declining financial condition from regulators beginning in 2006 until its failure in 2012 by repeatedly submitting allegedly materially false financial reports. By late 2008, the charges allege that the bank was nearing failure and applied for and received the first of two payments from Treasury in connection with the bank’s application for TARP funds in order to further the criminal scheme. To cover up the true condition of the bank, purportedly money from third parties was used to make payments on several loans that were past due, including payments from a limited liability corporation owned in part by the Esmails’ children. It is also alleged that Zulfikar Esmail solicited and demanded bribes from local businesspeople and demanded ownership stakes for his children in customers’ businesses in exchange for loans and lines of credit. It is also alleged that Zulfikar Esmail ordered construction and improvement work done on his home and rental properties that he owned and that the contractor prepare invoices that fraudulently showed the work was done at the bank in order to bill the bank for the work. The estimated cost to the FDIC as a result of the bank’s failure is $64.1 million. This case is being investigated by SIGTARP, the Office of the Attorney General for the State of Illinois, and the FDIC OIG. TARP Recipient Bank of America Liable for Defrauding the United States – Bank of America, Countrywide, and Rebecca Mairone On October 23, 2013, after a four-week trial and one day of deliberation, a Federal jury in Manhattan found Bank of America Corporation and its predecessors, Countrywide Financial Corporation and Countrywide Home Loans, Inc. (collectively, “Bank of America”) liable for defrauding the United States, namely the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), by selling thousands of defective loans to them. 21 22 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM The jury also found Rebecca Mairone, a former senior executive from Countrywide, liable for defrauding the United States in connection with her role in the fraudulent scheme. Civil penalty amounts will be determined by the court at a later date. Fannie Mae and Freddie Mac are government sponsored entities (“GSEs”) that were chartered by Congress to provide liquidity and stability to the U.S. housing and mortgage markets. To fulfill their mission, the GSEs purchase singlefamily residential mortgages from lenders and pool them into mortgage-backed securities (which they subsequently sell to investors) or hold the mortgages in their investment portfolios. To ensure that they purchase investment quality mortgages, the GSEs rely on representations and warranties by the lenders that the loans sold to the GSEs comply with certain underwriting standards. In a civil fraud lawsuit filed by the U.S. Attorney for the Southern District of New York against Bank of America and Mairone, the complaint alleged that the defendants caused U.S. taxpayers losses through the sale of toxic mortgage loans to Fannie Mae and Freddie Mac. The complaint sought civil penalties and damages of more than $1 billion. For many years Countrywide, on its own and as part of Bank of America, was the largest provider of residential mortgage loans to the GSEs. In 2007, Countrywide allegedly created a new loan origination program called the “High Speed Swim Lane” or “Hustle” to increase the speed at which it originated and sold loans to the GSEs. Around this same time, mortgage default rates were increasing throughout the country and, in response, the GSEs began to tighten their loan purchasing requirements to reduce risk. Under the Hustle, Countrywide executives eliminated certain internal quality control processes and fraud prevention measures that had been in place to ensure that its loans were sound. Countrywide executives ignored repeated warnings that the quality of loans originated under the Hustle would suffer. As a result of the Hustle program, Bank of America funneled loans to the GSEs while misrepresenting to the GSEs that the loans were investmentquality loans that complied with GSE underwriting requirements. After the Hustle loans defaulted, Bank of America refused to repurchase Hustle loans or reimburse the GSEs for losses incurred on those loans, even where the GSEs identified loans containing material defects or fraudulent misrepresentations. Bank of America received a total of $45 billion, in three infusions, in TARP funds in 2008 and 2009. Bank of America repaid the $45 billion TARP investment in full on December 9, 2009. The case was investigated by SIGTARP, the Commercial Litigation Branch of the U.S. Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Southern District of New York, and the Federal Housing Finance Agency Office of Inspector General. Bank Chairman Admits TARP Funds Used to Purchase Luxury Vacation Property – Darryl Layne Woods On August 26, 2013, Darryl Layne Woods, the former chairman, president, and majority shareholder of Calvert Financial Corporation (“Calvert”), the bank QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 holding company for Mainstreet Bank (“Mainstreet”), pled guilty in Federal court in Jefferson City, Missouri, to misleading Federal investigators about his use of TARP funds. Woods also served as the chairman and chief financial officer of Mainstreet. As part of his plea agreement, Woods also agreed to a ban from any future involvement in any banking activities, including but not limited to serving as an officer, director, employee, or affiliated party of any financial institution or agency. At sentencing, Woods faces up to one year in Federal prison, a fine of up to $100,000, and restitution. In January 2009, Calvert received $1,037,000 through the TARP Capital Purchase Program. Woods admitted that on February 2, 2009, he used $381,487 of the TARP funds received by Calvert to purchase a luxury seaside condominium in Ft. Myers, Florida. In February 2009, as part of its oversight function, SIGTARP sent letters to various financial institutions seeking specific information as to how TARP funds were used by each institution. As president of Calvert, Woods responded to SIGTARP’s Use of Funds Survey in a letter dated February 10, 2009, and did not disclose the purchase of the condominium. As part of his plea agreement, Woods admitted that, in his letter to SIGTARP, he failed to disclose that a significant portion of the TARP funds had been used to purchase a luxury property, a material misrepresentation relating to the true use of the TARP funds. Figure 1.2 shows the building in which Woods purchased the condominium. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Western District of Missouri, the FBI, and FRB OIG. Former Bank Senior Officer and TARP Bank Settle with the SEC Over Fraud Action – Anchor Bancorp Wisconsin On August 14, 2013, Anchor BanCorp Wisconsin, Inc. (“Anchor”), and its former chief financial officer, Dale C. Ringgenberg, agreed to a settlement with the SEC on charges that Anchor and Ringgenberg intentionally or recklessly made material misstatements in Anchor’s quarterly report for the period ending on June 30, 2009, which was required to be filed with the SEC. Anchor received $110 million in TARP funds in October 2008. The SEC’s complaint filed in Federal court in the District of Columbia alleged that Ringgenberg took, or failed to take, actions to keep from having to correct earnings that Anchor had already released to its shareholders. Ringgenberg manipulated an estimate to offset an accounting adjustment required by Anchor’s external auditors. He also refused or failed to properly account for real estate appraisals and related information that was available after the quarter closed but before Anchor filed its quarterly report. As part of the settlement, Ringgenberg is barred from serving as an officer or director of a public company for five years and will pay a civil penalty of $75,000. The settlement is subject to the approval of the court. Treasury has realized a loss of $104 million of its $110 million TARP principal investment in Anchor and has recouped the remaining $6 million pursuant to a “pre-packaged” Chapter 11 bankruptcy reorganization that Anchor entered on August 13, 2013, and completed on September 27, 2013. 23 FIGURE 1.2 Photo of Florida building in which senior executive of TARP bank Calvert Financial purchased luxury condominium. 24 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM This case was investigated by SIGTARP, SEC, the U.S. Attorney’s for the Western District of Wisconsin, and the FBI. California Attorney Sentenced to Seven Years in Federal Prison for Obstructing Investigation into $22 Million Ponzi Scheme – David Tamman On September 23, 2013, David Tamman, a lawyer who was a partner at the Nixon Peabody law firm, was sentenced to seven years in Federal prison followed by three years of supervised release and was ordered to pay a $2,500 fine for his role in obstructing two separate investigations into a fraudulent $22 million Ponzi scheme. Tamman was also suspended from practicing law by the state bar of California and has been banned from appearing before the SEC. On November 13, 2012, after a two-week criminal trial in Federal court in Los Angeles, California, Tamman was convicted of 10 counts relating to his role in the Ponzi scheme perpetrated by his client, New Point Financial Services, Inc., (“New Point”) and its owner, John Farahi. Tamman was convicted of conspiring with Farahi to obstruct the SEC’s investigation into Farahi’s illegal Ponzi scheme by (i) altering, creating, and backdating documents to make it falsely appear to the SEC that Farahi and New Point had made all the necessary disclosures to investors and that Farahi had properly transferred investor funds to his personal accounts and (ii) aiding and abetting Farahi in providing misleading and evasive testimony under oath to the SEC. Tamman also was convicted of being an accessory after the fact to Farahi’s mail and securities fraud crimes. At Tamman’s sentencing hearing, the court found that Tamman additionally altered documents that caused the National Association of Securities Dealers (now known as FINRA) to close an investigation, lied to federal investigators, gave false testimony at trial, and lied to a probation officer who was preparing a pre-sentence report after he was found guilty. As previously reported, Farahi, a former investment fund manager and radio personality, was sentenced on March 18, 2013, to 120 months in Federal prison followed by three years of supervised release for his role in the $20 million fraudulent Ponzi scheme that he perpetrated through his investment firm New Point. Farahi was also ordered to pay more than $22 million in restitution to victims. Farahi previously pled guilty on June 4, 2012, to running the Ponzi scheme through New Point from 2005 through 2009. Farahi admitted to bilking investors by falsely promising to purchase corporate bonds backed by TARP. Farahi also admitted that he used investor money to support his lavish lifestyle, to make payments to previous New Point investors in order to continue the Ponzi scheme, and to finance and cover trading losses on speculative options trades. Facing massive trading losses at the end of 2008, Farahi borrowed millions of dollars from TARP recipients Bank of America and U.S. Bank (and other banks) by providing false financial information to these banks. This case was investigated by SIGTARP, the U.S. Attorney’s Office for the Central District of California, and the FBI. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Over $17 Million Seized From Estate of Former CEO of TARP Bank – One Bank & Trust On July 12, 2013, $17.9 million in life insurance benefits, several bank accounts, and five vehicles were seized in connection with a SIGTARP civil forfeiture investigation of Layton Stuart, the former CEO of One Bank & Trust of Little Rock, Arkansas (“One Bank”). Layton Stuart was the former owner of One Financial Corporation (“One Financial”), the holding company for One Bank. In October 2008, One Financial applied for $10 million in TARP funds. The request was later amended and increased to $17.3 million. In June 2009, One Financial received the requested $17.3 million in TARP funds. In September 2012, Stuart was officially terminated from functioning in any capacity at One Bank by its board of directors as a result of an order by the Office of the Comptroller of the Currency (“OCC”). Layton Stuart passed away on March 26, 2013. The civil forfeiture complaint filed in Federal court in Little Rock, Arkansas, seeks the forfeiture of the proceeds of financial transactions in connection with a bank fraud and money laundering scheme allegedly committed by Stuart and others. The alleged scheme began in 2008 and ran until 2012 when Stuart was terminated as chief executive officer of One Bank. The complaint alleges that Stuart diverted almost $2 million of the TARP money for his personal use. Specifically, more than $1 million in TARP funds went to pay Federal and state taxes owed by Stuart. Stuart allegedly ensured the transactions would go undetected by disguising the payments as associated with a bank account known as the “Interdepartmental Account.” The remaining money was diverted into another bank account allegedly controlled by Stuart. The complaint was filed against the property, alleging that the assets were traceable as proceeds from the bank fraud and money laundering scheme. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Eastern District of Arkansas, the FBI, IRS-CI, and OCC. Car Dealership Owner Pleads Guilty to Defrauding Bank – Tariq Khan On September 3, 2013, Tariq Khan pled guilty to bank fraud in Federal court in Chicago, Illinois, for defrauding Old Second National Bank (“Old Second”). Old Second Bancorp, Inc., the parent company of Old Second, received $73 million in TARP funds in January 2009. Khan, the owner of Urban Motors Corporation (“Urban Motors”), a car and motorcycle dealership, secured a line of credit through Old Second. The proceeds of the line of credit were to be used to purchase used vehicles for resale. The proceeds from the sale of each vehicle were then to be applied against the loan balance. Additionally, Urban Motors was to provide the bank with the titles of the vehicles it acquired for resale. Urban Motors agreed to update this information as necessary and provide the bank with certain financial reports that would be accurate. Old Second relied on these reports when making decisions regarding the line of credit. Khan admitted that from December 2008 through November 2009, he failed to notify Old Second that Urban Motors sold specific vehicles, failed to pay the loan 25 26 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM amounts corresponding to those vehicles, and caused reports to be prepared that contained misrepresentations about the status of those vehicles. Khan also failed to provide Old Second with the titles of certain vehicles so that Urban Motors could sell those vehicles without notifying the bank of the sales. These actions allowed Urban Motors to avoid paying off the principal balance of the specific vehicle sold as well as to keep the proceeds from the sales. As a result of the scheme, Khan obtained $357,268 without applying those funds against the amount owed on the line of credit. Khan also admitted that he made misrepresentations to bank auditors about the status of particular vehicles so that the bank would continue to permit Urban Motors to access its line of credit. At sentencing on December 20, 2013, Khan faces up to 30 years in Federal prison, a fine of up to $1 million, and restitution. As a result of his plea, Khan is prohibited from participating in the affairs of any financial institution insured by the National Credit Union Share Insurance Fund or the FDIC for 10 years. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Northern District of Illinois, and the FBI. Missouri Businessman Sentenced to Federal Prison for Role in $2.8 Million Bank Fraud Scheme Against Two TARP Banks – Clint E. Dukes On August 29, 2013, Clint E. Dukes was sentenced in Federal court in Kansas City, Missouri, for his role in a bank fraud scheme that caused three banks, including two TARP-recipient banks, to lose more than $2 million. Clint Dukes was sentenced to 24 months in Federal prison followed by five years of supervised release, and ordered to pay $2.1 million in restitution to the victim banks U.S. Bank, Equity Bank (formerly First Community Bank), and First Central Bank. U.S. Bancorp of Minneapolis, the parent company of U.S. Bank, received $6.6 million in TARP funds and has since repaid the funds. First Community Bancshares, Inc., the parent company of First Community Bank, received $14.8 million in TARP funds that remains outstanding. Brandi Dukes, the former wife of Clint Dukes, was sentenced to five years of probation and ordered to pay $14,181 in restitution jointly with Clint Dukes to Equity Bank. As previously reported, in November and December 2012, Clint Dukes and Brandi Dukes, respectively, pled guilty for their roles in the bank fraud scheme. Clint Dukes was convicted of bank fraud and Brandi Dukes was convicted of misprision of felony. Clint Dukes, owner of Dukes Auto Repair, admitted to creating false invoices and contracts from the state of Missouri in order to obtain approximately $3 million in loans from U.S. Bank, First Community Bank, and First Central Bank from 2004 to 2011. Brandi Dukes worked as the bookkeeper for his auto repair shop. Brandi Dukes admitted to concealing her then-husband’s fraud by submitting a fraudulent disbursement request and authorization to First Community Bank. Through his fraudulent scheme, Clint Dukes caused losses totaling more than $2 million at U.S. Bank, First Community Bank, and First Central Bank. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 This case was investigated by SIGTARP, the U.S. Attorney’s Office for the Western District of Missouri, the FBI, and the Higginsville, Missouri, Police Department. Perpetrator of Mortgage Lending Scheme Pleads Guilty to $5.3 Million Fraud – Steven Pitchersky On September 23, 2013, Steven Pitchersky pled guilty in Federal court in Philadelphia, Pennsylvania, to wire fraud for his role in a fraudulent mortgage lending scheme that caused TARP recipient Ally Bank, previously known as GMAC Bank, to lose approximately $5.3 million. At sentencing on December 19, 2013, Pitchersky faces up to 20 years in Federal prison and a $250,000 fine. Pitchersky also agreed to pay $3.6 million in restitution. Pitchersky, who operated Nationwide Mortgage Concepts (“NMC”) admitted to running a fraudulent mortgage lending scheme through NMC. NMC was a mortgage lender licensed in more than 40 states to originate and refinance mortgages. NMC participated in several Federal housing programs sponsored by the United States Department of Veterans Affairs (“VA”) and Federal Housing Administration (“FHA”), and was authorized to originate VA and FHA mortgages. In November 2009, Pitchersky obtained a $10 million line of credit from Ally. From August 2009 through January 2011, NMC used Ally’s line of credit to refinance mortgages, including mortgages held by TARP recipient banks Bank of America and Wells Fargo. As part of the agreement to provide the line of credit, Ally retained a security interest in the mortgage loans until the loans were repaid. In most cases, Ally also purchased the NMC refinanced mortgages. In his application for the line of credit from Ally, Pitchersky falsely stated that he already had a $10 million line of credit with an independent company called MPL; however, MPL was run by Pitchersky. Ally approved the $10 million line of credit to Pitchersky. Also, Ally funds provided to NMC were required to go through a third-party settlement agent that would then disburse the funds for each NMC loan financed by Ally. As part of the fraud scheme, Pitchersky used a company that he created called Hanover Settlement, Inc. (“Hanover”) to be the settlement agent in Ally transactions. Pitchersky admitted that he repeatedly concealed from Ally his affiliation and ownership of Hanover. Pitchersky also admitted that, from December 2010 to January 2011, he instructed Hanover to forward to NMC at least $5.3 million it received from Ally and instead used those funds for other purposes. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Eastern District of Pennsylvania, the FBI, and the Department of Veterans Affairs Office of Inspector General. Former 12-Year Federal Fugitive Sentenced to Federal Prison in Massive Nationwide Foreclosure Scam – Glen Alan Ward On August 5, 2013, Glen Alan Ward, a former Los Angeles resident who fled to Canada and was a Federal fugitive for 12 years, was sentenced to 11 years in Federal prison followed by three years of supervised release, and ordered to pay 27 28 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM approximately $60,000 in restitution for his prominent role in a nearly 15-year foreclosure fraud scheme in California. As previously reported, Ward pled guilty to bankruptcy fraud and aggravated identity theft on April 8, 2013. Ward solicited and recruited homeowners whose properties were in danger of imminent foreclosure, including foreclosures by TARP banks, promising to delay the foreclosures for a $700 fee. Ward’s actions victimized more than 800 struggling homeowners, stole the identities of unsuspecting victims involved in bankruptcy proceedings, and exploited bankruptcy laws to defraud lenders, which included numerous TARP banks, including Bank of America and U.S. Bank. In order to impede these foreclosure sales, Ward stole identities of unsuspecting debtors who recently filed bankruptcy. He then directed his paying clients to grant an interest in their distressed home to one of those debtors, and subsequently directed the homeowner’s lender to stop the impending foreclosure sale due to the bankruptcy. The fraudulent scheme perpetrated by Ward and his coconspirators delayed the foreclosure sales of hundreds of distressed properties by using bankruptcies filed in 26 judicial districts. As part of the scheme, Ward admitted collecting more than $1.2 million from his clients who paid for his illegal foreclosure-delay service, all of which he agreed to forfeit. Ward also admitted that he worked with Frederic Alan Gladle to perpetrate the foreclosure-rescue fraud. As previously reported, Gladle was charged with and pled guilty to the fraud scheme. On May 3, 2012, Gladle was sentenced to 61 months in Federal prison and ordered to pay $214,259 in restitution and to forfeit $87,901. This case was investigated by SIGTARP, the U.S. Attorney’s Office for the Central District of California, the U.S. Attorney’s Office for the Northern District of California, the FBI, and the U.S. Trustee’s Office. Three Charged in Foreclosure Rescue Scam – KATN Trust On September 11, 2013, a superseding indictment was returned against Alan David Tikal, his wife Tamara Teresa Tikal, and Ray Jan Kornfeld for their roles in a fraudulent mortgage rescue operation. Tamara Tikal and Kornfeld were arrested by SIGTARP agents and its law enforcement partners on September 12, 2013. It is alleged that Tamara Tikal and Kornfeld continued the scheme after Alan Tikal’s initial arrest in September 2012. According to the superseding indictment, from January 2010 through August 20, 2013, the defendants conspired to deceive distressed homeowners throughout California and in other states. Alan David Tikal allegedly falsely told distressed homeowners that he was a “registered private banker” who could reduce their outstanding home loans by 75% and that he had a tremendous success rate. Through an entity named KATN Trust (allegedly short for “Kicking Ass, Taking Names”), distressed homeowners were promised that, for a significant upfront fee, the homeowners’ existing home loan would be replaced with a new loan in an amount equal to only 25% of the original loan principal. Homeowners allegedly were also instructed to send all payments on the new “loan” to Tikal or to a designated recipient and to ignore any demands for payment by the original QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 lenders. In 2011, Alan Tikal filed bankruptcy and allegedly listed the properties of many of his client victims as his personal property, and the financial institutions that extended those mortgage loans as his creditors. The bankruptcy filing initiated an automatic stay of any pending foreclosure actions, and thus, enabled the Tikals, Kornfeld, and his co-conspirators to allege that the mortgage relief program worked, to attract new distressed homeowners and to encourage the distressed homeowners to continue making payments to KATN. Because of the bankruptcy filing, and in spite of Alan Tikal’s arrest in September 2012, the indictment alleges that many homeowners continued to make “loan” payments to KATN. The Tikals, Kornfeld, and their co-conspirators allegedly never made any payments to financial institutions on behalf of homeowners in satisfaction of their pre-existing mortgages and never extended loans to any homeowners. This resulted in many victims losing their homes to foreclosure. It is alleged that more than 1,000 victimized homeowners paid in excess of $3.3 million to KATN and these funds were transferred to accounts controlled by the Tikals. Alan Tikal is scheduled to go on trial on February 3, 2014. If convicted, he faces up to 30 years in prison. Trial dates have not yet been scheduled for Tamara Tikal or Kornfeld. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Eastern District of California, the California Attorney General’s Office, IRS-CI, the California Department of Justice, and the Stanislaus County District Attorney’s Office. Four Sentenced to Prison for Running HAMP Mortgage Modification Scam – CFSA Home Solutions On July 29, 2013, Justin D. Koelle, Jacob J. Cunningham, John D. Silva, and Dominic A. Nolan were sentenced for their roles in operating a mortgage modification scheme that defrauded hundreds of victims. Koelle was sentenced to nine months in prison, followed by five years of probation. Cunningham and Silva were each sentenced to eight months in prison, followed by five years of probation, and jointly paid $40,000 in restitution. Nolan was sentenced to six months in prison, followed by five years of probation. Additional restitution for all four defendants will be determined at a later court hearing. All defendants were also prohibited from engaging in loan modification or loan consulting practices for the duration of their sentences. Koelle, Cunningham, Silva, and Nolan pled guilty in May 2013 to charges that stemmed from their roles in the fraud scheme. Also, in June 2012, co-defendant Andrew M. Phalen was sentenced to one year in prison followed by five years of probation for his role in the fraud scheme. All five defendants were arrested in March 2012 and charged with multiple felony counts of violating California state law, including conspiracy to charge illegal upfront fees for mortgage modifications, conspiracy to commit forgery, grand theft by false pretenses, theft from an elder, and money laundering. Between January 2009 and March 2012, the defendants enticed homeowners to participate in a fraudulent loan modification program by making numerous false 29 30 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM misrepresentations to homeowners through advertisements, websites, promotional letters, and direct conversations. The misrepresentations included: (i) Treasury’s HAMP program would apply to homeowners’ circumstances; (ii) the defendants had a 100% success rate in obtaining mortgage modifications for homeowners; and (iii) that homeowners would be refunded their paid fees if the defendants could not modify a homeowner’s loan. The defendants never submitted any loan applications to banks on behalf of any of the homeowners who paid this fee. To evade detection by law enforcement, the defendants changed the names, phone numbers, and addresses of the sham companies they operated, including CSFA Home Solutions, Mortgage Solution Specialists, Inc., CS & Associates, and National Mortgage Relief Center. The case was investigated by SIGTARP, Orange County, California, District Attorney’s Office, U.S. Secret Service, Huntington Beach Police Department, California Department of Real Estate, Orange County Probation Department, Orange County Sheriff’s Department, Costa Mesa Police Department, Irvine Police Department, and Santa Ana Police Department. Perpetrators in Nationwide Foreclosure Rescue Scam Sentenced to Federal Prison – Home Advocate Trustees On September 13, 2013, Mark S. Farhood and Jason S. Sant were sentenced to Federal prison for their roles in operating a nationwide online foreclosure rescue scam that went by various names, including Home Advocate Trustees (“HAT”) and Walk Away Today, and used various websites, including walkawaytoday.org and seefastusa.com, to deceive hundreds of vulnerable, distressed homeowners into surrendering their properties to the company. Farhood was sentenced to 11 years in prison, followed by three years of supervised release. Sant was sentenced to six years in prison, followed by two years of supervised release. Farhood and Sant were both barred from working in the real estate industry as part of their supervised release. Farhood was ordered to forfeit his interest in real property located in Costa Rica as well as his interest in several Peruvian businesses. The defendants were ordered to forfeit approximately $2 million in fraud proceeds as well as their interests in several bank accounts, silver coins and bars, and other assets. Farhood and Sant each pled guilty in May 2013 to conspiracy to commit wire fraud, wire fraud, and bank fraud in Federal court in Alexandria, Virginia. Farhood and Sant, co-owners and operators of HAT, admitted that they and their co-conspirators used their website walkawaytoday.org and other websites to fraudulently represent to hundreds of distressed homeowners that they could walk away from their homes and their mortgages without negative effect to their credit by selling their homes to HAT for a nominal fee. Farhood and Sant further admitted that, in order to obtain possession of the distressed homes, they executed quitclaim deeds in favor of HAT and sent the distressed homeowners fraudulent closing documents. The homeowners then stopped paying their mortgages and left their homes in the mistaken belief that they had sold their homes to HAT. Once HAT took possession of the homes, Farhood and Sant admitted to leasing the properties and collecting all rent and security deposit payments for their own QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 personal use. When lenders began foreclosure proceedings on the distressed properties, Farhood and Sant delayed the foreclosure process by submitting to the lenders fraudulent HAMP applications. Through these misrepresentations, HAT fraudulently obtained more than $2.8 million. This case was investigated by SIGTARP, the U.S. Attorney’s Office for the Eastern District of Virginia, and the FBI. California Attorneys Sentenced in Loan Modification Scam – Flahive Law Corporation On September 12, 2013, Gregory Flahive was sentenced to one year in county jail and three years of probation in connection with his conviction on 10 counts of state grand theft charges. The convictions stem from his participation in a fraudulent loan modification scheme perpetrated through the law firm he shared with his former wife, Cynthia Flahive, Flahive Law Corporation (“FLC”). Gregory Flahive was also suspended from the practice of law for three years by the State Bar of California in connection with the conviction. On July 10, 2013, Cynthia Flahive was sentenced to three years’ probation on a misdemeanor conspiracy conviction for her participation in the fraud scheme. She also was ordered to perform 240 hours of community service and to pay restitution of $8,965. As part of her plea agreement, Cynthia Flahive agreed not to engage in, offer, or advertise any residential loan modification services. Also, Cynthia Flahive served a 60-day bar suspension while on a two-year bar probation. As previously reported, on May 16, 2012, Michael Kent Johnson, the former managing attorney for FLC, entered a plea of no contest to misdemeanor conspiracy for his participation in the FLC fraud scheme. Johnson is required to serve three years of probation and 200 hours of community service, to pay restitution of $10,560, and to not participate in loan modification services. From January 2009 to December 2010, FLC promoted its loan modification services to homeowners through advertisements, including a television infomercial. FLC falsely represented that experienced lawyers would negotiate with banks on behalf of homeowners seeking modifications, including under HAMP, misrepresented that FLC’s law firm status would give them extra leverage when negotiating with such banks, and overstated FLC’s rate of success in obtaining loan modifications on behalf of homeowners. FLC allegedly collected up-front fees of up to $2,500 from homeowners for loan modification services that were never performed. The case is being investigated by SIGTARP, the California Attorney General, Folsom Police Department, Rancho Cordova Police Department, and El Dorado Sheriff’s Department. California Man Pleads Guilty in Foreclosure-Rescue Scam – Walter Bruce Harrell On August 2, 2013, Walter Bruce Harrell pled guilty in Federal court in San Francisco, California, to bankruptcy fraud and making false statements in bankruptcy proceedings. At sentencing on November 13, 2013, Harrell faces up to five years in Federal prison, a fine of up to $250,000, and restitution. 31 32 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Harrell admitted that from March 2011 through January 2013, he perpetrated a scheme to prevent lenders, including TARP-recipient banks, from lawfully foreclosing on properties. Harrell admitted to soliciting homeowners whose properties were facing foreclosure and promising to postpone the foreclosure in exchange for a monthly fee. After the fees were paid, Harrell admitted that he directly or indirectly had the property owners transfer a fractional interest in their distressed property to individuals paid by Harrell to voluntarily file for bankruptcy. As required by law, these bankruptcy filings automatically halted the foreclosure sales until the lenders sought relief from the stay or until the bankruptcy case was dismissed. In circumstances where the bankruptcy court allowed a foreclosure to proceed, Harrell admitted that he paid an individual to file bankruptcy petitions in which he could execute the scheme to defraud creditors who were attempting to lawfully foreclose on numerous properties. In doing so, he delayed and obstructed foreclosure sales by creditors, including TARP banks, through improper use of the Federal bankruptcy process. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Northern District of California, and the FBI. Executive at Debt Collection Agency Sentenced for Bribing Bank Official – Oxford Collection Agency On September 9, 2013, Patrick Pinto, a former vice president at Oxford Collection Agency, Inc. (“Oxford”), was sentenced to two years of probation accompanied by six months of home confinement, and a $10,000 fine for his role in a scheme to defraud business clients as well as Webster Bank, a TARP recipient bank. Pinto previously pled guilty in June 2013 in Federal court in Bridgeport, Connecticut, to conspiracy to commit bank bribery. Patrick Pinto admitted that, from August 2008 through October 2010, he and other Oxford executives engaged in a multi-year scheme to defraud its lender, TARP recipient Webster Bank, as well as its investors, clients and commercial debtors from which Oxford collected. As part of the scheme, Patrick Pinto and other Oxford executives made monthly cash payments to continue receiving debt collection business from TARP recipient U.S. Bank. As previously reported, in February 2013, Wilbur Tate III was arrested by SIGTARP agents and its law enforcement partners and charged with taking bribes from Oxford executives while he was an assistant vice president at TARPrecipient U.S. Bank. Tate’s case is pending. In January 2013, Richard Pinto, the now-deceased former chairman of Oxford, was sentenced to 60 months in Federal prison followed by five years of supervised release and was ordered to pay $12.3 million in restitution. Richard and his son, Peter Pinto, each pled guilty to using Oxford to perpetrate the multi-million dollar fraud scheme. Peter Pinto served as Oxford’s chief executive officer. In December 2012, three more former Oxford senior executives were charged and pled guilty for their roles in the scheme: Randall Silver, chief financial officer; Charles Harris, executive vice president; and Carlos Novelli, chief operations officer. At sentencing, Peter Pinto faces a maximum of 35 years in prison and a fine up to $20 million; Silver faces up to 25 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 years in prison and a $500,000 fine; and Harris and Novelli each face up to five years in prison and a $250,000 fine. From January 2007 through March 2011, Oxford had agreements with business clients to collect debts from debtors, to report such collections to the clients, and to remit the collected payments back to the clients. The clients would pay Oxford a portion of the monies collected by Oxford as a fee. As assistant vice president at U.S. Bank, Tate was responsible for outsourcing debt collection accounts to collection agencies, including Oxford. Silver, Harris, and Novelli admitted to conspiring with Richard Pinto and Peter Pinto to execute a fraud scheme in which they (i) collected funds from debtors on behalf of clients but did not remit those funds to the clients and (ii) created false documents and used other deceptive means to cover up their failure to remit collected funds to clients and their improper use of the funds. Richard Pinto and Peter Pinto also admitted to causing Oxford to secure a line of credit from TARP recipient Webster Bank without disclosing to the bank that Oxford was defrauding its clients and had significant outstanding payroll taxes. Silver also helped Richard Pinto and Peter Pinto defraud Webster Bank by inducing the bank to increase the line of credit to $6 million by withholding Oxford’s true financial condition and submitting falsified financial records to the bank. Richard Pinto, Peter Pinto, and Silver also admitted to laundering funds from the line of credit by providing those funds to clients to maintain the clients’ business, which continued the scheme. The fraudulent scheme led victims to lose more than $12 million. The case is being investigated by SIGTARP, the U.S. Attorney’s Office for the District of Connecticut, the U.S. Attorney’s Office for the Northern District of Georgia, IRS-CI, the FBI, and the Connecticut Securities, Commodities and Investor Fraud Task Force. Sentences Resulting from TARP-Related Crimes Of the 112 defendants convicted as a result of a SIGTARP investigation, 65 defendants have already been sentenced to prison for TARP-related crimes, 12 were sentenced to probation, and the remainder await sentencing. The consequences for TARP-related crime are severe. The average prison sentence imposed by courts for TARP-related crime investigated by SIGTARP is 67 months, which is nearly double the national average length of prison sentences involving white collar fraud of 35 months.iii Thirteen defendants investigated by SIGTARP were sentenced to 10 years or more in Federal prison, including Lee Farkas, former chairman of mortgage company Taylor, Bean and Whitaker, who is serving a 30-year prison sentence. Many of the criminal schemes uncovered by SIGTARP had been ongoing for years, involve millions of dollars, and complicated conspiracies with multiple co-conspirators. On average, as a result of SIGTARP investigations, criminals convicted of crimes related to TARP’s banking programs have been sentenced to serve 70 months in prison. Criminals convicted for mortgage modification fraud schemes or other mortgage fraud investigated by iii See the U.S. Sentencing Commission’s 2012 Sourcebook of Federal Sentencing Statistics for additional information. 33 34 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM SIGTARP were sentenced to serve an average of 42 months in prison. Criminals investigated by SIGTARP and convicted of investment schemes such as Ponzi schemes and sales of fake TARP-backed securities were sentenced to serve an average of 108 months in prison. Figure 1.3 shows the people sentenced to prison, the sentences they received, and their affiliations. FIGURE 1.3 Lee Bentley Farkas 360 months 3 years supervised release Chairman Taylor, Bean & Whitaker Stephen Fields 204 months 5 years supervised release Executive Vice President Bank of the Commonwealth David McMaster 188 months 5 years supervised release Vice President American Mortgage Specialists Inc. Mark Anthony McBride 170 months 5 years supervised release Omni National Bank Delroy Davy 168 months 5 years supervised release Omni National Bank George Hranowskyj 168 months 3 years supervised release Owner/Operator 345 Granby, LLC Mark A. Conner 144 months 5 years supervised release President FirstCity Bank Eric Menden 138 months 3 years supervised release Owner/Operator 345 Granby, LLC Robert Egan 132 months 3 years supervised release President Mount Vernon Money Center Mark Farhood 132 months 3 years supervised release Owner Home Advocate Trustees Glen Alan Ward 132 months 3 years supervised release Partner Timelender John Farahi 120 months 3 years supervised release Investment Fund Manager and Operator New Point Financial Services, Inc. Gordon Grigg 120 months 3 years supervised release Financial Advisor and Owner ProTrust Management, Inc. Scott Powers 96 months 5 years supervised release CEO American Mortgage Specialists Inc. Robin Bruhjell Brass 96 months 3 years supervised release Owner/Operator BBR Group, LLC Catherine Kissick 96 months 3 years supervised release Senior Vice President Colonial Bank Troy Brandon Woodard 96 months 5 years supervised release Vice President Bank of the Commonwealth Subsidiary Howard Shmuckler 90 months 3 years supervised release Owner/Operator The Shmuckler Group, LLC Clayton A. Coe 87 months 5 years supervised release Vice President Senior Commercial Loan Officer FirstCity Bank David Tamman 84 months 3 years supervised release Attorney Nixon Peabody LLP Lori Macakanja 72 months 3 years supervised release Housing Counselor Home Front, Inc. (a HUD-approved company) Jerry J. Williams 72 months 3 years supervised release President, CEO, and Chairman Orion Bank Desiree Brown 72 months 3 years supervised release Treasurer Taylor, Bean & Whitaker Jason Sant 72 months 2 years supervised release Co-owner Home Advocate Trustees Adam Teague 70 months 5 years supervised release Vice President Appalachian Community Bank Francesco Mileto 65 months 5 years supervised release Glenn Steven Rosofsky [deceased] 63 months 3 years supervised release Owner Federal Housing Modification Department Frederic Gladle 61 months 3 years supervised release Operator Timelender QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 William Cody 60 months 5 years supervised release Owner/Operator C&C Holdings, LLC Delton de Armas 60 months 3 years supervised release CFO Taylor, Bean & Whitaker Jeffrey Levine 60 months 5 years supervised release Executive Vice President Omni National Bank Bernard McGarry 60 months 3 years supervised release Chief Operatiing Officer Mount Vernon Money Center Richard Pinto [deceased] 60 months 5 years supervised release Chairman Oxford Collection Agency Dwight Etheridge 50 months 5 years supervised release President Tivest Development & Construction, LLC Julius Blackwelder 46 months 3 years supervised release Manager Friends Investment Group Paul Allen 40 months 2 years supervised release CEO Taylor, Bean & Whitaker Brent Merriell 39 months 5 years supervised release Robert E. Maloney, Jr. 39 months 3 years supervised release In-house Counsel FirstCity Bank Cheri Fu 36 months 5 years supervised release Owner/President Galleria USA Roger Jones 33 months 3 years supervised release Federal Housing Modification Department Raymond Bowman 30 months 2 years supervised release President Taylor, Bean & Whitaker Thomas Hebble 30 months 3 years supervised release Executive Vice President Orion Bank Michael Trap 30 months 3 years supervised release Owner Federal Housing Modification Department Tommy Arney 27 months 3 years supervised release Owner Residential Development Company Clint Dukes 24 months 5 years supervised release Owner Dukes Auto Collision Repair Angel Guerzon 24 months 3 years supervised release Senior Vice President Orion Bank Reginald Harper 24 months 3 years supervised release President and CEO First Community Bank Thomas Fu 21 months 5 years supervised release Owner/CFO Galleria USA, Inc. Karim Lawrence 21 months 5 years supervised release Loan Officer Omni National Bank Ziad Nabil Mohammed Al Saffar 21 months 3 years supervised release Operator Compliance Audit Solutions, Inc. Troy A. Fouquet 18 months 3 years supervised release Owner Team Management, LLC TRISA, LLC Gregory Flahive 12 months 3 years probation Owner/Attorney Flahive Law Corporation Lynn Nunes 12 months 5 years supervised release Owner Network Funding Carlos Peralta 12 months 3 years supervised release Park Avenue Bank Andrew M. Phalen 12 months 5 years probation Operator CSFA Home Solutions Sara Beth Bushore Rosengrant 12 months 3 years supervised release Operator Compliance Audit Solutions, Inc. Justin D. Koelle 9 months 5 years probation CEO CSFA Home Solutions Jacob J. Cunningham 8 months 5 years probation CEO CSFA Home Solutions John D. Silva 8 months 5 years probation Senior Official CSFA Home Solutions Daniel Al Saffar 6 months 3 years supervised release Sales Representative Compliance Audit Solutions, Inc. Dominic A. Nolan 6 months 5 years probation Owner CSFA Home Solutions Teresa Kelly 3 months 3 years supervised release Operations Supervisor Colonial Bank Sean Ragland 3 months 3 years supervised release Senior Financial Analyst Taylor, Bean & Whitaker Mark W. Shoemaker 1 day (with credit for time served) 5 years supervised release Michael Bradley Bowen 1 day (with credit for time served) 5 years supervised release 35 36 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Location of TARP-Related Crimes SIGTARP has found, investigated, and supported the prosecution of TARP-related crime throughout the nation. Our investigations have led to criminal charges by prosecutors against 154 defendants (112 of whom have been convicted as of September 30, 2013, while others await trial).iv Many of these defendants committed their alleged crimes against victims in multiple states. These defendants were charged in courts in 18 states and the District of Columbia. SIGTARP investigations have identified victims in 44 states and the District of Columbia. Figure 1.4 shows locations of victims in cases SIGTARP has investigated. Figure 1.5 shows locations of U.S. Attorney’s Offices and state prosecutorial offices where criminal charges were filed as a result of SIGTARP investigations.v FIGURE 1.4 SIGTARP INVESTIGATIONS HAVE IDENTIFIED VICTIMS IN 44 STATES AND WASHINGTON DC AK HI States with victims: AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, NC, NE, NH, NJ, NM, NV, NY, OH, OR, PA, RI, SC, TN, TX, UT, VA, WA, WI, WV, WY iv Criminal charges are not evidence of guilt. A defendant is presumed innocent until and unless proven guilty. v The prosecutors partnered with SIGTARP ultimately decide the venue in which to bring criminal charges resulting from SIGTARP’s investigations. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 1.5 LOCATIONS WHERE CRIMINAL CHARGES WERE FILED AS A RESULT OF SIGTARP INVESTIGATIONS Fargo Buffalo Brooklyn New York Chicago Sacramento San Francisco Las Vegas Concord Boston New Haven Newark Philadelphia Wilmington Upper Marlboro District of Columbia Alexandria Springfield Kansas City Norfolk Jefferson City Nashville Los Angeles Riverside San Diego Atlanta Macon Tallahassee New Orleans Tampa Los Angeles, California Central District of California Sacramento, California Eastern District of California Sacramento, California Superior Court of California San Francisco, California Northern District of California San Diego, California Southern District of California New Haven, Connecticut District of Connecticut Wilmington, Delaware District of Delaware Tampa, Florida Middle District of Florida Tallahassee, Florida Northern District of Florida Macon, Georgia Middle District of Georgia Atlanta, Georgia Northern District of Georgia Springfield, Illinois Central District of Illinois Chicago, Illinois Northern District of Illinois Chicago, Illinois Circuit Court of Cook County, Illinois New Orleans, Louisiana Eastern District of Louisiana Boston, Massachusetts District of Massachusetts Upper Marlboro, Maryland Prince George’s District Court Kansas City, Missouri Western District of Missouri Jefferson City, Missouri Western District of Missouri Fargo, North Dakota District of North Dakota Concord, New Hampshire District of New Hampshire Newark, New Jersey District of New Jersey Las Vegas, Nevada District of Nevada Brooklyn, New York Eastern District of New York Buffalo, New York Western District of New York New York, New York Southern District of New York Philadelphia, Pennsylvania Eastern District of Pennsylvania Nashville, Tennessee Middle District of Tennessee Alexandria, Virginia Eastern District of Virginia Washington, DC District of Columbia Restitution and Forfeiture from TARP-Related Crimes As of September 30, 2013, investigations conducted by SIGTARP have resulted in more than $4.68 billion in court orders for the return of money to victims or the Government. These orders happen only after conviction and sentencing or civil resolution and many SIGTARP cases have not yet reached that stage; therefore, any additional court orders would serve to increase this amount. Orders of restitution and forfeiture to victims and the Government of numerous assets as well as seized assets pending final order include more than 65 vehicles, more than 35 properties (including businesses and waterfront homes), more than 30 bank accounts (including a bank account located in the Cayman Islands), bags of 37 38 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM silver, U.S. currency, antique and collector coins (including gold, silver, and copper coins), artwork, and antique furniture, Civil War memorabilia, NetSpend Visa and CashPass MasterCard debit cards, Western Union money orders with the “Pay To” line blank, and the entry of money judgments by courts against more than 20 defendants. Of the more than 65 vehicles ordered to be forfeited (including automobiles, a tractor, water craft, recreational and commercial vehicles) several are antique and expensive cars, including a 1969 Shelby Mustang, a 1932 Ford Model A, a 1954 Cadillac Eldorado convertible, a 1963 Rolls Royce, and a 1965 Shelby Cobra. Some examples of assets seized by the Government in SIGTARP investigations are included in Figure 1.6. FIGURE 1.6 2005 Hummer H2. Estimated value in 2013: $24,000. (Source Kelley Blue Book) 2010 Mercedes-Benz GLK 350 4Matic. Estimated value in 2013: $29,000. (Source Kelley Blue Book) 1958 Mercedes-Benz Cabriolet 220. Estimated value in 2013: $185,000. (Source Hagerty.com) Property located in Norfolk, Virginia. (Photo courtesy of Bill Tiernan, The Virginian-Pilot) QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 19th century English painting of “Royal Family,” oil on canvas. Estimated appraised value: $6,000. Property located in Chesapeake, Virginia. (Photo courtesy of Bill Tiernan, The Virginian-Pilot) French-style gilt, bronze, and green malachite columnar 16-light torchères with bronze candelabra arms. Estimated appraised value: $8,000. 2005 Scout Dorado. (Sold for $1,800) Cash seized from safe, $158,000. Alabama property ordered forfeited. Kubota tractor. 39 40 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TARP-Related Prohibitions from Working in Banking and Financial Services, as a Government Contractor, or as a Licensed Attorney SIGTARP investigations not only have led to lengthy prison terms, restitution and forfeiture orders and civil judgments for TARP-related offenses, but also have resulted in senior executives being suspended or permanently banned from working in banking and financial services, as a Government contractor, or as a licensed attorney. As of September 30, 2013, SIGTARP investigations have resulted in orders temporarily suspending or permanently banning 60 individuals from working in the banking or financial industry, working as a contractor with the Federal Government, or working as a licensed attorney. Many of these people were at the highest levels of companies that applied for or received a TARP bailout. They were trusted to exercise good judgment and make sound decisions. However, they abused that trust, many times for personal benefit. The suspensions and bans remove these senior executives from the banking and financial industries in which many practiced for years. A violation of the removal, in some instances, could be a basis for further prosecution. These high-level executives, some of whom were chief executive officers, chief financial officers, or licensed attorneys, have been sanctioned in a variety of ways, many by more than one authority: (i) by a sentencing court as part of the terms of supervised release after a prison term has been served; (ii) by the executive branch of the Federal government as a bar from engaging in a Government contract; (iii) by a Federal banking regulator, which has the authority to ban an individual from working in the banking industry; (iv) by the Securities and Exchange Commission(“SEC”), which has the authority to issue certain bans relating to working in the securities industry; (v) by a Federal court in enforcing a Federal Trade Commission (“FTC”) request to order a ban against advertising, marketing, promoting, or selling mortgage assistance or mortgage relief; and (vi) by a state bar association, which has the authority to suspend or disbar a licensed attorney. Of the 60 individuals, 35 were heads or owners of companies, including those who were chairmen, chief executive officers, and presidents of financial institutions. Most of the remaining 25 individuals were chief financial officers, senior vice presidents, chief operating officers, chief credit officers, licensed attorneys, and other senior executives. In the $2.9 billion fraud that led to the failures of Taylor, Bean and Whitaker Mortgage Corporation (“TBW”) and Colonial Bank, the chairman and chief executive officer of TBW, Lee Bentley Farkas, not only was sent to Federal prison for 30 years, but also was barred from contracting with the Federal Government and is prohibited by the court from working in the financial or real estate industries while he is on supervised release subsequent to his release from Federal prison. TBW’s chief executive officer, Paul Allen, was temporarily barred from working with the Federal Government, in addition to receiving a 40-month prison sentence. The Federal Deposit Insurance Corporation (“FDIC”) issued lifetime bans against former president, CEO, and chairman Mark Conner of failed TARPapplicant FirstCity Bank, Stockton, Georgia, and former president and CEO Reginald Harper of failed TARP-applicant First Community Bank, Hammond, QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Louisiana, for engaging in unsafe and unsound banking practices and breaching their fiduciary duty. The FDIC bans prohibit these former CEOs from participating in the conduct of the affairs not only of the banks where they were senior officials but also of any bank in the future. The bans were issued in addition to them receiving a 12-year prison term and two-year prison term, respectively. Jerry Williams, former president, CEO, and chairman of failed TARP-applicant Orion Bank, Naples, Florida, is barred from working in the banking industry or acting as an investment advisor while he is on supervised release after his release from his six-year prison term. New Point Financial CEO John Farahi, who engaged in a Ponzi scheme that caused losses of $7 million to investors, including TARP-funded banks, was not only sentenced to a 10-year prison term but also has been barred from working for or being affiliated with any financial institution insured by the FDIC while on supervised release and was separately banned by the SEC from any broker/dealer association. SIGTARP investigations in the civil arena have also led to FTC actions against seven senior executives engaged in two mortgage modification fraud schemes. Senior executives at Residential Relief Foundation and Freedom Companies Lending have been permanently banned from advertising, marketing, promoting, or selling mortgage assistance products or services. SIGTARP investigations have also led to professional bans or suspensions of six chief financial officers, chief operating officers, and chief credit officers of financial institutions. As part of the terms of his supervised release following his five-year prison sentence, TBW’s chief financial officer, Delton de Armas, is prohibited from engaging in any aspect of the banking business, mortgage or real estate industry, or finance for three years. Clayton Coe, FirstCity Bank’s chief financial officer, not only was sentenced to 87 months in Federal prison but also was banned for life from banking by the FDIC for engaging in unsafe and unsound banking practices and breaching his fiduciary duty. Adam Teague, former chief credit officer of failed TARP applicant Appalachian Community Bank, Ellijay, Georgia, was also banned for life from banking by the FDIC for engaging in unsafe and unsound banking practices and breaching his fiduciary duty, in addition to serving a 70-month prison sentence. Nine attorneys have been investigated and brought to justice by SIGTARP and its law enforcement partners. Robert Maloney, in-house counsel for First City Bank, not only was sentenced to a 39-month prison term but also was ordered by the FDIC to be banned from working in the banking industry and was disbarred by the Georgia state bar. David Tamman, outside counsel for New Point Financial of California, who was sentenced to 84 months in Federal prison for his role in obstructing the Government’s investigation of New Point, was ordered banned from appearing before the SEC and also had his law license suspended by the California state bar association. Co-defendants Greg Flahive, Cynthia Flahive, and Michael Kent Johnson of the Flahive Law Corporation not only were convicted of conducting a mortgage modification fraud scheme but also were suspended by the California bar association from practicing law. SIGTARP civil investigations have also led to three attorney suspensions by the state of California: Sean Rutledge of the United Law Group, John Michael Harrison of H.A.M.P. Resources, and 41 42 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Warren W. Quann of Second Chance Negotiations. Howard Shmuckler, convicted in 2012 both in state court in Maryland and in Federal court in Virginia for conducting a fraudulent mortgage rescue scheme while he was the owner and CEO of the Shmuckler Group, had also held himself out as a practicing attorney. But Shmuckler, having been previously convicted of bankruptcy fraud, had been disbarred by the District of Columbia bar association. In addition to his criminal convictions, Shmuckler is prohibited from practicing law without a valid law license in Maryland and is barred by the State of Maryland Department of Labor, Licensing and Regulation from providing credit services or foreclosure consultative services. SIGTARP Audit Activity SIGTARP has initiated 30 audits and six evaluations since its inception. As of September 30, 2013, SIGTARP has issued 22 reports on audits and evaluations. Among the ongoing audits and evaluations in process are reviews of: (i) Treasury’s decision to waive Internal Revenue Code Section 382 for Treasury’s sales of securities in TARP institutions; (ii) Treasury’s and the state housing finance agencies’ implementation and execution of the Hardest Hit Fund; and (iii) the Special Master’s 2013 executive compensation determinations at General Motors Company and Ally Financial Inc. Recent Audits/Evaluations Released Treasury’s Role in the Decision for GM to Provide Pension Payments to Delphi Employees On August 15, 2013, SIGTARP released an audit report, “Treasury’s Role in the Decision for GM to Provide Pension Payments to Delphi Employees,” which reviewed the decisions and actions involving the restructuring of General Motors Corporation (“GM”) during the auto bailout. Treasury’s injection of TARP funds in GM and Chrysler Group LLC (“Chrysler”) was the only bailout with a President’s Designee overseeing the companies’ restructurings – the Presidential Task Force on the Auto Industry (“Auto Task Force”). The Auto Task Force delegated the responsibility for GM’s restructuring to four primary officials who were part of an Auto Team led by Steven Rattner. GM’s bankruptcy would be one of the largest and fastest bankruptcies in our nation’s history. A new company, “New GM,” emerged from GM’s bankruptcy in July 2009, with Treasury owning 61% of its common stock. New GM purchased substantially all of GM’s assets while leaving behind many of its liabilities. One of the liabilities that New GM agreed to honor related to the pensions of certain former GM employees paid an hourly wage and represented by certain unions, and who had worked in GM’s automobile parts division that was spun off into Delphi Corporation (“Delphi”). The four Treasury Auto Team officials made it clear to SIGTARP that the decisions made and Treasury’s role related to Delphi pensions had to be viewed in the broader context of GM’s restructuring. The existence of Treasury’s Auto Team and the role these Treasury officials played sharply contrasted with the role played by Treasury officials under other QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TARP programs. The four Treasury Auto Team officials played a direct role in GM’s decisions and operations up to and through GM’s bankruptcy. As GM’s only lender and later GM’s largest investor, Treasury’s Auto Team had significant leverage and influence on GM’s decisions leading up to and through the bankruptcy, first exerted by replacing GM’s then-chief executive officer (“CEO”) Rick Wagoner with Treasury’s choice, Fritz Henderson. According to Mr. Henderson, this sent a message to GM executives and was an early indicator that Treasury, as the main investor in GM, would have significant influence over GM’s decisions and operations. After Treasury rejected GM’s restructuring plan, GM developed a new plan with significant influence and leverage from the Auto Team. One GM official said, “Ultimately it was that GM is not in control. And GM is totally dependent.” Although the Auto Team’s role was supposed to be advisory for matters not requiring Treasury’s consent under the TARP loan agreement, in practice, it was more than advisory. The TARP loan agreement gave Treasury the explicit right to approve transactions over $100 million and new pension obligations, but the Auto Team’s influence went far beyond that right. SIGTARP found that the Auto Team used their leverage as GM’s largest lender to influence GM to make decisions in areas that did not require Treasury’s consent, in line with Treasury’s preferences. Auto Team officials told SIGTARP that they “had to carefully manage GM,” that “we, the Government, were ultimately holding the purse strings” and “GM realized that there was no other available source of money.” When an Auto Team official was asked by SIGTARP how they conveyed their preference, given that ultimately GM could do its own thing, the official said, “Well they could, but then they couldn’t exist. I mean, as I said, as the lender we had a fair amount of leverage.” Driven by broader concerns about the auto industry, Treasury’s Auto Team directed GM’s restructuring toward bankruptcy, first through replacing the CEO who opposed bankruptcy, second by “highly” suggesting to GM that they felt “pretty strongly” that a “Section 363” bankruptcy was the best approach. Third, although CEO Henderson hoped to avoid bankruptcy through a bond exchange, the Auto Team, who opposed the exchange, communicated to GM their preference for 90% bondholder participation, a “very high” level of acceptance making bankruptcy more likely. When the exchange failed, Treasury agreed to fund GM’s bankruptcy. Treasury’s Auto Team created a condition on funding GM’s bankruptcy that would serve as pressure on GM and would drive pre-bankruptcy negotiations and decisions. Treasury conditioned giving GM $30.1 billion in TARP funds on a “quick-rinse bankruptcy” that would end in 40 days because Auto Team officials thought that was the best way to save the automobile industry, concerned that GM could not survive a lengthy bankruptcy and GM’s failure would have broader systemic consequences. Neither Treasury nor GM believed that the company could survive a lengthy bankruptcy; however, GM thought that the 40-day timeline was not realistic, with its lawyer telling the Auto Team that it was “impossibly aggressive. It’s never been done.” Treasury had leverage to set a timeframe that did not seem realistic to GM, and had never been done before. If GM’s bankruptcy was not completed in time, GM risked losing its only source of financing and its purchaser in bankruptcy. 43 44 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury’s influence over GM deepened after Treasury decided to fund GM’s bankruptcy and become the majority owner of New GM. With their leverage as the purchaser of GM’s assets in bankruptcy, Treasury’s Auto Team had significant influence on GM to make specific decisions that were in keeping with Treasury’s preferences. One Auto Team official called Treasury’s leverage “considerable” because the alternative was “catastrophic,” adding that he meant liquidation. GM’s then-chief financial officer (“CFO”) Ray Young told SIGTARP, “We put forward recommendations, but at the end of the day, the purchaser [Treasury] makes the final decision.” An Auto Team official stated, “it is my understanding that as the buyer, we get to determine which assets are, you know, assets we would buy and which liabilities” we would take on. Treasury used its significant financial leverage to get GM to reach agreement with the two stakeholders that Treasury believed could hold up GM’s bankruptcy – the bondholders and the International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America (“UAW”). Treasury’s requirement in the December 2008 TARP loan agreement that GM reach a new deal with the UAW, Treasury’s conditioning TARP funds on a 40-day quick-rinse bankruptcy, and UAW’s leverage to stall the bankruptcy or strike pressured GM on “getting the deal done” with the UAW and resulted in New GM taking on the liability to top up the pensions of UAW’s members who had worked at Delphi at the time of its 1999 spinoff from GM, increasing their pension benefit payments to their full benefit level. The Auto Team made it clear to GM that they wanted an agreement with the UAW prior to bankruptcy (which had to be before a June 1, 2009, bond payment due date) and the Auto Team actively negotiated and made the overall deal. The UAW understood that GM could not walk away from the May 18-19 negotiations and had to reach an agreement to be able to survive, and those same facts put pressure on GM. GM only had a couple of weeks to come to agreement with the UAW, and if they did not come to agreement, GM risked the UAW objecting to and prolonging the bankruptcy beyond 40 days, which GM believed would lead to liquidation. The UAW came to the negotiations with a “hit list” of priority items including the top-up. The top-ups were never discussed in the negotiations. The Auto Team’s role in the decision to top up the pensions of Delphi’s UAW workers was not advisory. Consistent with the Auto Team’s practice, it would have been Treasury’s decision as the buyer to assume or reject the top-up liability. Although the top-up was previously a separate written agreement, the top-up was now included as one of the obligations in the overall new collective bargaining agreement with the UAW, which was included in the Master Sale and Purchase Agreement selling assets to New GM. GM could not decide on its own to agree to the new collective bargaining agreement that included the top-up because Treasury’s consent was required under the TARP loan agreement and Treasury was the purchaser in bankruptcy. The decision that New GM would honor the top-up was a joint decision by Treasury and GM with Treasury deciding to approve the UAW collective bargaining agreement with the top-up. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Even though the top-up was never discussed in the negotiations with the UAW, it became a foregone conclusion that it would be included in the new UAW agreement. Auto Team leader Rattner told SIGTARP that GM had the option of honoring or not honoring the top-up, but GM needed UAW workers and UAW’s consent was necessary for the bankruptcy. Auto Team leader Rattner and another Auto Team official told SIGTARP that, because the UAW included it on their list, it was clear that the UAW expected the top-up to be part of the overall deal. Treasury had the power to object to New GM taking on the top-up obligation as part of the larger UAW agreement, but had no desire to blow up the larger deal. Although the Auto Team was concerned about the threat of a strike, they were also concerned with the UAW prolonging the bankruptcy, calling not having an agreement like “shooting yourself in the head.” Auto Team leader Rattner told SIGTARP that getting more on pensions “was a game of chicken we didn’t want to play. We were under incredible time pressure,” adding “it was not a ridiculous request, and one that we could have honored and needed to honor.” CEO Henderson told SIGTARP that the pressure to finish the negotiations resulted in no negotiation of the top-up, “the focus was on getting the deal done,” and that if the top-up was not assumed, “it would have been ‘mission impossible.’” Treasury’s Auto Team and GM did not agree to top up the pensions of other former GM employees at Delphi, which did not have active employees at GM, and therefore had no leverage to hold up GM’s bankruptcy. This included Delphi employees who were paid a salary and employees who were paid an hourly wage who were members of the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers (“IUE”) and the United Steelworkers of America (“USW”). Although in GM’s bankruptcy New GM did not assume the other top-up agreements with Delphi IUE and USW employees because those unions did not have leverage, subsequently New GM agreed to top up the smaller unions because of the leverage those unions had to prolong Delphi’s bankruptcy or strike, which GM believed would significantly impact its ability to survive. GM did not fail and the broader systemic consequences of a GM failure that Treasury feared were avoided. There are two important lessons to be learned from the role that Treasury played. First, the Auto Team’s deep involvement and significant influence on GM’s decisions leading up to and through GM’s bankruptcy led to expectations that Treasury would not act as a private investor, but as the Government. The Pension Benefit Guaranty Corporation (“PBGC”), a Government-backed insurer of pensions, had an expectation that decisions on what obligations GM would take on related to the Delphi pensions would proceed differently than what might have normally occurred, and could potentially have saved PBGC billions of dollars with Treasury involved. Also contributing to this expectation was the fact that the Auto Team negotiated with PBGC on behalf of GM related to what GM would pay on the pensions. Delphi and its workers, who had been former GM employees, also had the expectation that the Government would ensure that GM treat the pensions of all former GM employees at Delphi the same out of fairness. Also contributing to this expectation was the fact that TARP funds were being used, and that GM 45 46 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM had taken the position with Delphi (and PBGC) that taking on additional pension obligations violated the TARP loan agreement and required Treasury’s consent. A PBGC document stated that Delphi believed GM may be looking to the “car czar” to mandate that GM assume Delphi pensions as part of GM’s use of TARP funds. One former Delphi salaried employee told SIGTARP that Treasury “cannot throw off the mantle of Government and make themselves into a commercial enterprise” and “it is wrong of our Government to take funds from everyone and give it to the few.” However, Auto Team officials attempted to view top-ups as a private investor with one Auto Team official telling SIGTARP that the Government could not make everyone whole, saying, “I don’t think that anybody thinks bankruptcy is fair.” Treasury’s Auto Team did not always act as a private investor and at times acted as the Government to prevent GM from failing, concerned about financial stability in the auto industry. Although the Auto Team tried to view issues through a “commercially reasonable” lens like a private investor, they often did not act as a private investor, nor should they have. Without policies or procedures to define commercial reasonableness, Treasury used commercial reasonableness as a justification for all of its actions, even when those actions were based on other concerns. For example, Treasury decided not to move GM’s headquarters to save costs out of concerns over the impact on the city of Detroit. Treasury made other decisions based on broader concerns about the interconnectedness of the auto industry. No private investor holds the responsibility Treasury has to protect taxpayers and to promote financial stability in the economy. Treasury made the TARP injections in GM when no other private investor would lend or invest the money that GM needed, according to GM’s then CFO. Concerned about too much debt on GM’s balance sheet, Treasury funded GM’s bankruptcy and converted what would be higher priority TARP debt to a lower priority equity ownership in New GM and, according to GM, paid more than GM’s “Enterprise Value.” Treasury’s Auto Team took these actions based on concerns of the consequences of a GM failure on other companies in the American automotive industry, concerns not held by private investors. Even though the Auto Team tried to act as a private investor, they had considerations that no private investor would ever have had, blurring the lines between Treasury’s role as the investor and as the Government. Second, the additional leverage Treasury gave to certain stakeholders, such as the UAW, contributed to criticism of the disparate treatment between Delphi salaried and union employees. One Auto Team official told SIGTARP that the strength of the negotiating parties was dictated by the leverage they held, but SIGTARP found that additional leverage was given by Treasury. The Auto Team established a hierarchy of importance of stakeholders and issues that Auto Team officials believed had to be completed prior to GM’s bankruptcy filing to ensure a successful quick-rinse bankruptcy that would be completed in 40 days. Treasury did not view the non-UAW Delphi hourly employees or the Delphi salaried employees as having leverage because they did not have current employees at GM and therefore could not hold up GM’s bankruptcy. Two liabilities that the Auto Team had already decided to assume in bankruptcy were new agreements with the UAW and bondholders. The UAW had leverage QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 because it knew and understood from Treasury that it was committed to reorganize GM and not let GM fail. Treasury’s 40-day bankruptcy condition gave the UAW and bondholders additional leverage to threaten to hold up GM’s bankruptcy. They may have been able to obtain more concessions than in a traditional bankruptcy where the issues may be litigated. An Auto Team official told SIGTARP, “We had to negotiate a deal that the UAW and bondholders would accept.” With Treasury’s dictate of a 40-day bankruptcy and no indication that Treasury would extend that timeframe, GM officials were under pressure, believing they had to reach agreements with the bondholders and UAW prior to bankruptcy or risk losing Treasury’s funding and liquidating. It is very difficult for Treasury to act as only a private investor and still fulfill its greater governmental responsibilities. Treasury entered the TARP investments as the Government, and must continue to act as the Government the whole time it holds these investments, protecting taxpayers’ investment and fulfilling Treasury’s responsibility to promote financial stability in the economy. An important lesson Government officials should learn from the Government’s unprecedented TARP intervention into private companies is that the actions and decisions taken must represent the overarching responsibilities the Government owes to the American public. SIGTARP Hotline One of SIGTARP’s primary investigative priorities is to operate the SIGTARP Hotline and provide 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. The SIGTARP Hotline has received and analyzed more than 33,052 Hotline contacts. These contacts run the gamut from expressions of concern over the economy to serious allegations of fraud involving TARP, and a number of SIGTARP’s investigations were generated in connection with Hotline tips. The SIGTARP Hotline can receive information anonymously. SIGTARP honors all applicable whistleblower protections and will provide confidentiality to the fullest extent possible. SIGTARP urges anyone aware of fraud, waste, or abuse involving 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. Communications with Congress One of the primary functions of SIGTARP is to ensure that members of Congress remain adequately and promptly informed of developments in TARP initiatives and of SIGTARP’s oversight activities. To fulfill that role, the Special Inspector General and her staff meet regularly with and brief members of Congress and Congressional staff. • On September 11, 2013, the Special Inspector General, Christy Romero, testified on SIGTARP’s August 15, 2013, audit entitled “Treasury’s Role in the SIGTARP’s Consumer Fraud Alert and its Armed Services Mortgage Fraud Alert are reproduced inside the back cover of this report. 47 48 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Decision for GM to Provide Pension Payments to Delphi Employees” before the U.S. House Oversight and Government Reform Government Operations Subcommittee. • On July 22, 2013, SIGTARP’s Deputy Special Inspector General, Peggy Ellen, and Deputy Special Inspector General for Reporting, Mia Levine, presented briefings open to all House and Senate staff on SIGTARP’s July 24, 2013, Quarterly Report. Copies of written Congressional testimony are posted at www.sigtarp.gov/pages/ testimony.aspx. THE SIGTARP ORGANIZATION SIGTARP leverages the resources of other agencies, and, where appropriate and cost-effective, obtains services through SIGTARP’s authority to contract. Staffing and Infrastructure SIGTARP’s headquarters are in Washington, DC, with regional offices in New York City, Los Angeles, San Francisco, and Atlanta. As of September 30, 2013, SIGTARP had 169 employees, plus one detailee from the Federal Housing Finance Agency Office of Inspector General. The SIGTARP organization chart as of September 30, 2013, can be found in Appendix L, “Organizational Chart.” SIGTARP posts all of its reports, testimony, audits, and contracts on its website, www.sigtarp.gov. From its inception through September 30, 2012, SIGTARP’s website has had more than 61.1 million web “hits,” and there have been more than 5.4 million downloads of SIGTARP’s quarterly reports. The site was redesigned in May 2012. From May 10, 2012, through September 30, 2013, there have been 165,748 page views.vi From July 1, 2012, through September 30, 2013, there have been 11,297 downloads of SIGTARP’s quarterly reports.vii Budget Figure 1.7 provides a detailed breakdown of SIGTARP’s fiscal year 2013 budget, which reflects a total operating budget of $41.1 million. The Consolidated and Further Continuing Appropriations Act, 2013 (P.L. 113-6) provided $41.7 million in annual appropriations. The operating budget included $39.6 million in annual vi In October 2009, Treasury started to encounter challenges with its web analytics tracking system and as a result, migrated to a new system in January 2010. SIGTARP has calculated the total number of website “hits” reported herein based on three sets of numbers: • Numbers reported to SIGTARP as of September 30, 2009 • Archived numbers provided by Treasury for the period of October through December 2009 • Numbers generated from Treasury’s new system for the period of January 2010 through September 2012 Starting April 1, 2012, another tracking system has been introduced that tracks a different metric, “page views,” which are different than “hits” from the previous system. Moving forward, page views will be the primary metric to gauge use of the website. vii Measurement of quarterly report downloads from SIGTARP’s redesigned website did not begin until July 1, 2012. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 appropriations and portions of SIGTARP’s initial funding that have not yet been spent. Figure 1.8 provides a detailed breakdown of SIGTARP’s fiscal year 2014 budget, which reflects a total operating plan of $45.3 million. This would include $34.9 million in requested annual appropriations and portions of SIGTARP’s initial funding. FIGURE 1.7 FIGURE 1.8 SIGTARP FY 2013 OPERATING BUDGET SIGTARP FY 2014 OPERATING PLAN ($ MILLIONS, PERCENTAGE OF $41.1 MILLION) ($ MILLIONS, PERCENTAGE OF $45.3 MILLION) Other Services $1.6, 4% Other Services $1.6, 4% Advisory Services $3.2 Advisory Services $3.4 7% 8% Interagency Agreements $8.2 20% 66% Salaries and Interagency Agreements $9.3 $27.0 Travel $0.9, 2% 20% 67% Salaries and $30.2 Travel $1.0, 2% 49 50 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM SECT IO N 2 TARP OVERVIEW 52 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 This section summarizes how the U.S. Department of the Treasury (“Treasury”) has managed the Troubled Asset Relief Program (“TARP”). This section also reviews TARP’s overall finances and provides updates on established TARP component programs. TARP FUNDS UPDATE Initial authorization for TARP funding came through the Emergency Economic Stabilization Act of 2008 (“EESA”), which was signed into law on October 3, 2008.1 EESA appropriated $700 billion to “restore liquidity and stability to the financial system of the United States.”2 On December 9, 2009, the Secretary of the Treasury (“Treasury Secretary”) exercised the powers granted him under Section 120(b) of EESA and extended TARP through October 3, 2010.3 In accordance with Section 106(e) of EESA, Treasury may expend TARP funds after October 3, 2010, as long as it does so pursuant to obligations entered into before that date.4 The Dodd-Frank Wall Street Reform and Consumer Protection Act (“DoddFrank Act”), which became law (Public Law 111-203) on July 21, 2010, amended the timing and amount of TARP funding.5 The upper limit of the Treasury Secretary’s authority to purchase and guarantee assets under TARP was reduced to $475 billion from the original $700 billion. Treasury’s investment authority under TARP expired on October 3, 2010. This means that Treasury could not make new obligations after that date. However, dollars that have already been obligated to existing programs may still be expended. As of October 3, 2010, Treasury had obligated $474.8 billion to 13 announced programs. Subsequent to the expiration of Treasury’s investment authority, Treasury has deobligated funds, reducing obligations to $456.6 billion as of September, 30, 2013.6 Of that amount, $421.2 billion had been spent.7 Taxpayers are owed $53.4 billion as of September 30, 2013. According to Treasury, as of September 30, 2013, it had $30.7 billion in write-offs, realized losses, or amounts currently not collectible because of pending bankruptcies or receiverships, leaving $22.7 billion in TARP funds outstanding.8 Treasury’s write-offs and realized losses are money that taxpayers will never get back. Treasury generally expects the amounts currently not collectible will also be lost.9 These amounts do not include $9.5 billion in TARP funds spent on housing support programs, which are designed as a Government subsidy, with no repayments to taxpayers expected.10 In the quarter ended September 30, 2013, funds that were obligated but unspent remained available to be spent on only TARP’s housing support programs. According to Treasury, in the quarter ended September 30, 2013, $0.9 billion of TARP funds were spent on housing programs, leaving $29 billion obligated and available to be spent.11 Table 2.1 provides a breakdown of program obligations, changes in obligations, expenditures, principal repaid, principal refinanced, amounts still owed to taxpayers under TARP, and obligations available to be spent as of September 30, 2013. Table 2.1 lists 10 TARP sub-programs, instead of all 13, because it excludes the Obligations: Definite commitments that create a legal liability for the Government to pay funds. Deobligations: An agency’s cancellation or downward adjustment of previously incurred obligations. 53 54 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Capital Assistance Program (“CAP”), which was never funded, and summarizes three programs under “Automotive Industry Support Programs.” Table 2.2 details write-offs, realized losses, and amounts currently not collectible in TARP as of September 30, 2013. TABLE 2.1 OBLIGATIONS, EXPENDITURES, PRINCIPAL REPAID, PRINCIPAL REFINANCED, AMOUNTS STILL OWED TO TAXPAYERS, AND OBLIGATIONS AVAILABLE TO BE SPENT ($ BILLIONS) Program Obligation After DoddFrank (As of 10/3/2010) Current Obligation (As of 9/30/2013) Expenditure (As of 9/30/2013) Housing Support Programsb $45.6 $38.5c $9.5 Capital Purchase Program 204.9 204.9 204.9 0.6 0.6 0.2 Systemically Significant Failing Institutions 69.8 67.8f Targeted Investment Program 40.0 Asset Guarantee Program Term Asset-Backed Securities Loan Facility Community Development Capital Initiativee Principal Repaid (As of 9/30/2013) Principal Refinanced into SBLF (As of 9/30/2013) NA Still Owed to Taxpayers under TARP a (As of 9/30/2013) Available to Be Spent (As of 9/30/2013) $0.0 NA $29.0 2.2 $7.0 0.0 0.1 0.0 0.5 0.0 67.8 54.4 0.0 13.5 0.0 40.0 40.0 40.0 0.0 0.0 0.0 5.0 5.0 0.0 0.0 0.0 0.0 0.0 4.3 0.1g 0.1 0.1 0.0 0.0 0.0 $195.7d Public-Private Investment Program 22.4 19.6 18.6 18.6h 0.0 0.0 0.0i Unlocking Credit for Small Businesses 0.4 0.4 0.4 0.4 0.0 0.0 0.0 Automotive Industry Support Programs 81.8j 79.7k 79.7 47.2 0.0 32.5 0.0 $474.8 $456.6 $421.2l $356.1 $2.2 $53.4 $29.0 Total Notes: Numbers may not total due to rounding. NA=Not applicable. a Amount taxpayers still owed includes amounts disbursed and still outstanding, plus $30.7 billion in write-offs, realized losses, and investments currently not collectible because of pending bankruptcies or receiverships. It does not include $9.5 billion in TARP dollars spent on housing programs. These programs are designed as Government subsidies, with no repayments to taxpayers expected. b Housing support programs were designed as a Government subsidy, with no repayment to taxpayers expected. c On March 29, 2013, Treasury deobligated $7.1 billion of the $8.1 billion that was originally allocated to the FHA Short Refinance Program. d Includes $363.3 million in non-cash conversions from CPP to CDCI, which is not included in the total of $356.1 billion in TARP principal repaid because it is still owed to TARP from CDCI. Does not include $2.2 billion refinanced from CPP into the Small Business Lending Fund. e CDCI obligation amount of $570.1 million. There are no remaining dollars to be spent on CDCI. Of the total obligation, $363.3 million was related to CPP conversions for which no additional CDCI cash was expended; this is not counted as an expenditure, but it is counted as money still owed to taxpayers. Another $100.7 million was expended for new CDCI expenditures for previous CPP participants. Of the total obligation, only $106 million went to non-CPP institutions. f Treasury deobligated $2 billion of an equity facility for AIG that was never drawn down. g On June 28, 2012, Treasury deobligated $2.9 billion in TALF funding, reducing the total obligation to $1.4 billion. On January 23, 2013, Treasury deobligated $1.3 billion, reducing the total obligation to $0.1 billion. h On April 10, 2012, Treasury changed its reporting methodology to reclassify as repayments of capital to the Government $958 million in receipts previously categorized as PPIP equity distributions. That $958 million is included in this repayment total. i PPIP funds are no longer available to be spent because the three-year investment period ended during the quarter ended December 31, 2012. Total obligation of $22.4 billion and expenditure of $18.6 billion for PPIP includes $356.3 million of the initial obligation to The TCW Group, Inc. (“TCW”) that was funded. TCW subsequently repaid the funds that were invested in its PPIF. Current obligation of $19.6 billion results because Oaktree, BlackRock, AG GECC, Invesco and AllianceBernstein did not draw down all the committed equity and debt. The undrawn debt was deobligated, but the undrawn equity was not as of September 30, 2013, except for Invesco. j Includes $80.7 billion for Automotive Industry Financing Program, $0.6 billion for Auto Warranty Commitment Program, and $0.4 billion for Auto Supplier Support Program. k Treasury deobligated $2.1 billion of a Chrysler credit facility that was never drawn down. l The $5 billion reduction in exposure under AGP is not included in the expenditure total because this amount was not an actual cash outlay. Sources: Treasury, Transactions Report, 9/30/2013; Treasury, Daily TARP Update, 10/1/2013; Treasury, response to SIGTARP data call, 10/3/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.2 TREASURY’S STATEMENT OF REALIZED LOSSES, WRITE-OFFS, AND AMOUNTS CURRENTLY NOT COLLECTIBLE IN TARP, AS OF 9/30/2013 ($ MILLIONS) TARP Program Institution TARP Investment Realized Loss or Write-Offa Date $1,888 $1,328 4/30/2010 Sold 98,461 shares and equity stake in the UAW Retiree trust for $560,000,000 3,771 11/18/2010 Sold 358,546,795 common shares at a loss in Initial Public Offering (IPO) 566 11/26/2010 Sold 53,782,019 common shares at a loss in IPO overallotment 3,203 12/19/2012 Sold 200,000,000 common shares to GM at a loss 903 1/18/2013 – 4/17/2013 Sold 58,392,078 common shares at a loss in first pre-arranged trading plan 273 6/12/2013 Sold 30,000,000 common shares at a loss in public offering 979 5/6/2013 – Sold 110,336,510 common shares at a loss in 9/13/2013 second pre-arranged trading plan Description Realized Losses Autos Autos Chrysler 49,500 GM b CDCI Premier Bancorp, Inc.c CPP 161 CPP Banks SSFI AIGd 7 7 3,281 1,266 67,835 Total Realized Losses 1/29/2013 Liquidation of failed bank Sales, exchanges, and failed banks 1,918 5/24/2011 1,984 3/13/2012 1,621 5/10/2012 1,621 8/8/2012 4,636 9/14/2012 1,705 12/14/2012 Sale of common stock at a loss $25,781 Write-Offs Autos Chrysler CPP CIT Group Inc. CPP Pacific Coast National Bancorp CPP South Financial Group, Inc. CPP TIB Financial Corp e Accepted $1.9 billion as full repayment for the debt of $3.5 billion $3,500 $1,600 7/23/2009 2,330 2,330 12/10/2009 Bankruptcy 4 4 2/11/2010 Bankruptcy 347 217 9/30/2010 Sale of preferred stock at a loss 25 9/30/2010 Sale of preferred stock at a loss e Total Write-Offs 37 $4,176 Currently Not Collectiblef CPP 24 CPP banks in bankruptcy or receivership Total of Realized Losses, Write-Offs, and Amounts Currently Not Collectible $770 Bankruptcy or receivership in process $30,727 Notes: Numbers may not total due to rounding. a Treasury changed its reporting methodology in calculating realized losses, effective June 30, 2012. Disposition expenses are no longer included in calculating realized losses. b Since the company remains in TARP, a final determination of realized loss incurred on Treasury’s investment cannot be calculated until the investments have been fully divested. About $470 million in GM share losses during the second quarter came from Treasury’s pre-arranged stock trading plan, which ends on September 13, 2013. c On January 29, 2013, Treasury received $79,900 representing the total amount of distribution paid to creditors as a result of the liquidation of Premier Bancorp, Inc. d Treasury has sold a total of 1.66 billion AIG common shares at a weighted average price of $31.18 per share, consisting of 1,092,169,866 TARP shares and 562,868,096 non-TARP shares based upon the Treasury’s pro-rata holding of those shares. The non-TARP shares are those received from the trust created by the Federal Reserve Bank of New York for the benefit of the Treasury. Receipts for non-TARP common stock totaled $17.55 billion and are not included in TARP collections. The realized loss reflects the price at which Treasury sold common shares in AIG and TARP’s cost basis of $43.53 per common share. e According to Treasury, in the time since these transactions were classified as write-offs, Treasury has changed its practices and now classifies sales of preferred stock at a loss as realized losses. f Included as investments currently not collectible are 24 CPP banks, or their subsidiary banks, with total CPP investments of $770.7 million, that are currently in the process of bankruptcy or receivership, and while Treasury has not yet realized the losses, it expects that all of its investments in the banks will be lost. Sources: Treasury, Transactions Report, 9/30/2013; Treasury, Section 105(a) Report, 10/10/2013; Treasury Press Release, “Treasury Announces Agreement to Exit Remaining Stake in Chrysler Group LLC,” 6/2/2011, www.treasury.gov/press-center/press-releases/Pages/tg1199.aspx, accessed 10/1/2013; Treasury, response to SIGTARP data call, 10/3/2013; Treasury, Daily TARP Update, 6/3/2013, 6/13/2013, and 10/1/2013. 55 56 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Cost Estimates Several Government agencies are responsible under EESA for generating cost estimates for TARP, including the Congressional Budget Office (“CBO”), the Office of Management and Budget (“OMB”), and Treasury, whose estimated costs are audited each year by the Government Accountability Office (“GAO”). Cost estimates have decreased from CBO’s March 2009 cost estimate of a $356 billion loss and OMB’s August 2009 cost estimate of a $341 billion loss.12 On May 23, 2013, CBO issued a TARP cost estimate based on its evaluation of data as of April 17, 2013. CBO estimated the ultimate cost of TARP would be $21 billion, down $3 billion from its estimate of $24 billion in October 2012.13 According to CBO, the decrease stemmed primarily from an increase in the market value of the Government’s investment in General Motors shares and sales of a portion of those investments at prices that were higher than the market price at the time of CBO’s last report. CBO still estimates that TARP’s largest loss will come from automotive assistance programs. CBO estimated that only $16 billion of obligated funds for housing will be spent. On April 10, 2013, OMB issued the Administration’s fiscal year 2014 budget, which included a TARP lifetime cost estimate of $47.5 billion, based largely on figures from December 31, 2012.14 This was a decrease from its estimate of $63.5 billion based on May 31, 2012, data.15 According to OMB, this decrease “was due in large part [to] improved market conditions and significant progress winding down TARP investments over the past year, most notably the higher valuations of AIG common stock and realized sale proceeds, and higher valuation of GM common stock.”16 Additionally, this estimate assumes $37.6 billion of funds obligated to housing support programs will be spent, versus earlier estimates that $45.6 billion would be spent. The estimate also assumes that PPIP will make a profit of $1.8 billion and that CPP will make a profit of $7.7 billion, including principal repayments and revenue from dividends, warrants, interest, and fees. On November 9, 2012, Treasury issued its September 30, 2012, fiscal year audited agency financial statements for TARP, which contained a cost estimate of $59.7 billion.17 This estimate is a decrease from Treasury’s estimate of a $70.2 billion loss as of September 30, 2011. According to Treasury, “These costs fluctuate in large part due to changes in the market prices of common stock for AIG and General Motors and the estimated value of the Ally Financial stock.”18 According to Treasury, the largest losses from TARP are expected to come from housing programs and from assistance to AIG and the automotive industry.19 The most recent TARP program cost estimates from each agency are listed in Table 2.3. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.3 COST (GAIN) OF TARP PROGRAMS ($ BILLIONS) CBO Estimate OMB Estimate Treasury Estimate, TARP Audited Agency Financial Statement 5/23/2013 4/17/2013 4/10/2013 12/31/2012 11/10/2012 9/30/2012 Housing Support Programs $16 $37.6 $45.6 Capital Purchase Program (17) (7.7) (14.9) Systemically Significant Failing Institutions 15 18.1 15.3 Targeted Investment Program and Asset Guarantee Program (8) (7.4) (7.9) Term Asset-Backed Securities Loan Facility 0 (0.5) (0.5) (2) (1.8) (2.4) 17 23 24.3 * * * $61.5 $59.7d Program Name Report issued: Data as of: Public-Private Investment Program Automotive Industry Support Programsa Otherb Total $21 c Interest on Reestimatese Adjusted Total (13.9) $47.5d Notes: Numbers may not total due to rounding. a Includes AIFP, ASSP, and AWCP. b Consists of CDCI and UCSB, both of which are estimated between a cost of $500 million and a gain of $500 million. c The estimate is before administrative costs and interest effects. d The estimate includes interest on reestimates but excludes administrative costs. e Cumulative interest on reestimates is an adjustment for interest effects on changes in TARP subsidy costs from original subsidy estimates; such amounts are a component of the deficit impacts of TARP programs but are not a direct programmatic cost. Sources: OMB Estimate — OMB, “Analytical Perspectives, Budget of the United States Government, Fiscal Year 2014,” 4/10/2013, www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/econ_analyses.pdf, accessed 10/1/2013; CBO Estimate — CBO, “Report on the Troubled Asset Relief Program — March 2012,” 3/28/2012, www.cbo.gov/sites/default/files/cbofiles/ attachments/03-28-2012TARP.pdf, accessed 10/1/2013; Treasury Estimate — Treasury, “Office of Financial Stability–Troubled Asset Relief Program Agency Financial Report Fiscal Year 2011,” 11/10/2011, www.treasury.gov/initiatives/financial-stability/briefingroom/reports/agency_reports/Documents/2011_OFS_AFR_11-11-11.pdf, accessed 10/1/2013. FINANCIAL OVERVIEW OF TARP As of September 30, 2013, 212 institutions remain in TARP: 108 banks with remaining CPP principal investments; 31 CPP banks for which Treasury now holds only warrants to purchase stock; 71 banks and credit unions in CDCI; and GM and Ally Financial.20 Treasury does not consider the 31 CPP institutions in which it holds only warrants to be in TARP, however Treasury applies all proceeds from the sale of warrants in these banks to recovery amounts in TARP’s CPP program.21 Treasury (and therefore the taxpayer) remains a shareholder in companies that have not repaid the Government. Treasury’s equity ownership is largely in two forms — common and preferred stock — although it also has received debt in the form of senior subordinated debentures. Common Stock: Equity ownership entitling an individual to share in corporate earnings and voting rights. Preferred Stock: Equity ownership that usually pays a fixed dividend before distributions for common stock owners but only after payments due to debt holders. 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 Debentures: Debt instrument ranking below senior debt but above equity with regard to investors’ claims on company assets or earnings. 57 58 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.1 CURRENT TARP EXPENDITURES, REPAYMENTS, AND AMOUNT OWED ($ BILLIONS) $500 400 $421.2 $356.1 300 200 100 $53.4 0 TARP Expenditures TARP Repaymentsa Amount Owedb Notes: As of 9/30/2013. Numbers may not total due to rounding. a Repayments include $195.7 billion for CPP, $40 billion for TIP, $47.2 billion for Auto Programs, $18.6 billion for PPIP, $54.4 billion for SSFI, and $0.4 billion for UCSB. The $195.7 billion for CPP repayments includes $363.3 million in non-cash conversion from CPP to CDCI, which is not included in the $356.1 billion in TARP repayments because it is still owed to TARP from CDCI. Additionally, $2.2 billion was refinanced into SBLF. b Amount taxpayers still owed includes amounts disbursed and still outstanding, plus $30.7 billion in write-offs, realized losses, and investments currently not collectible because of pending bankruptcies or receiverships. It does not include $9.5 billion in TARP dollars spent on housing programs. These programs are designed as Government subsidies, with no repayment to taxpayers expected. Sources: Treasury, Transactions Report, 9/30/2013; Treasury, Daily TARP Update, 10/1/2013. According to Treasury, as of September 30, 2013, 254 TARP recipients (including 242 banks and credit unions, two auto companies, nine PPIP managers, and AIG) had paid back all of their principal or repurchased shares, although Chrysler and AIG did so at a loss to Treasury. Another 137 CPP banks refinanced into the Small Business Lending Fund (“SBLF”). In addition, 13 TARP recipients (including 11 banks and credit unions, GM, and Ally Financial) had partially repaid their principal or repurchased their shares but remained in TARP.22 According to Treasury, as of September 30, 2013, 193 banks and credit unions have exited CPP or CDCI with less than a full repayment, including institutions whose shares have been sold for less than par value (22), or at a loss at auction (143), and institutions that are in various stages of bankruptcy or receivership (28).23 Eight banks have been sold at a profit at auction.24 Four CPP banks merged with other CPP banks.25 According to Treasury, $356.1 billion in principal has been repaid.26 Additionally, 137 banks refinanced into SBLF, a non-TARP Government program, for $2.2 billion. Taxpayers are still owed $53.4 billion under TARP as of September 30, 2013. According to Treasury, it has incurred $4.2 billion in write-offs, $25.8 billion in realized losses, which it will never get back. Additionally, Treasury reported $770.7 million in amounts currently not collectible because of pending bankruptcies or receiverships as of September 30, 2013, money it generally expects will be lost.27 That leaves $22.7 billion in TARP funds outstanding (not including $9.5 billion in TARP funds spent as a subsidy for TARP housing programs).28 Figure 2.1 provides a snapshot of the cumulative expenditures, repayments, and amount owed as of September 30, 2013. Taxpayers also are entitled to dividend payments, interest, and warrants for taking on the risk of TARP investments. According to Treasury, as of September 30, 2013, Treasury had collected $46.9 billion in interest, dividends, and other income, including $9.4 billion in proceeds from the sale of warrants and stock received as a result of exercised warrants.29 As of September 30, 2013, obligated funds totaling $29 billion were still available to be drawn down under TARP’s housing support programs.30 Some TARP programs are scheduled to last as late as 2021. Table 2.4 provides details of those exit dates. TABLE 2.4 TARP PROGRAM SCHEDULE TARP Program Scheduled Program Dates Term Asset-Backed Securities Loan Facility 2015 maturity of last loan Home Affordable Modification Program 2021 to pay incentives on modifications Hardest Hit Fund 2017 for states to use TARP funds FHA Short Refinance Program 2020 for TARP-funded letter of credit Other TARP programs have no scheduled ending date; TARP money will remain invested until recipients pay Treasury back or until Treasury is able to sell its investments in the companies. Table 2.5 provides details on the status of the remaining Treasury investments under those programs. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.5 TARP INVESTMENTS IN FINANCIAL INSTITUTIONS, AS OF 9/30/2013 TARP Program Remaining Treasury Investment Capital Purchase Program Preferred stock in 108 banks; warrants for stock in an additional 31 banks Community Development Capital Initiative Preferred stock in 71 banks/credit unions Automotive Industry Financing Program 7.3% stake in GM 74% stake in Ally Notes: Treasury’s GM stake as of 9/26/2013. Sources: Treasury, Transactions Report, 9/30/2013; Treasury, response to SIGTARP data call, 10/3/2013. Housing Support Programs The stated purpose of TARP’s housing support programs is to help homeowners and financial institutions that hold troubled housing-related assets. Although Treasury originally committed to use $50 billion in TARP funds for these programs, it subsequently obligated only $45.6 billion, then in March 2013, reduced its obligation to $38.5 billion.31 As of September 30, 2013, $9.5 billion (25% of obligated funds) has been expended.32 However, some of these expended funds have been used for administrative expenses by the state Housing Finance Agencies participating in the Hardest Hit Fund program or remain with them as cash on hand. • Making Home Affordable (“MHA”) Program — According to Treasury, this umbrella program for Treasury’s foreclosure mitigation efforts is intended to “help bring relief to responsible homeowners struggling to make their mortgage payments, while preventing neighborhoods and communities from suffering the negative spillover effects of foreclosure, such as lower housing prices, increased crime, and higher taxes.”33 MHA, for which Treasury has obligated $29.9 billion of TARP funds, consists of the Home Affordable Modification Program (“HAMP”), which includes HAMP Tier 1 and HAMP Tier 2, which both modify first-lien mortgages to reduce payments; the Federal Housing Administration (“FHA”) HAMP loan modification option for FHA-insured mortgages (“Treasury/FHA-HAMP”); the U.S. Department of Agriculture Office of Rural Development (“RD”) HAMP (“RD-HAMP”); the Home Affordable Foreclosure Alternatives (“HAFA”) program; and the Second Lien Modification Program (“2MP”).34 HAMP in turn encompasses various initiatives in addition to the modification of first-lien mortgages, including Home Price Decline Protection (“HPDP”), the Principal Reduction Alternative (“PRA”), and the Home Affordable Unemployment Program (“UP”).35 Additionally, the overall MHA obligation of $29.9 billion includes $2.7 billion to support the Treasury/ FHA Second-Lien Program (“FHA2LP”), which complements the FHA Short Refinance program (discussed later) and is intended to support the extinguishment of second-lien loans.36 As of September 30, 2013, MHA had expended $6.5 billion of TARP money (22% of $29.9 billion).37 Of that amount, $5.4 billion was expended on HAMP, 59 60 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM $672.6 million on HAFA, and $453 million on 2MP.38 As of September 30, 2013, there were 456,542 active Tier 1 and 20,826 active Tier 2 permanent first-lien modifications under the TARP-funded portion of HAMP, an increase of 10,215 Tier 1 and 11,338 Tier 2 active permanent modifications over the past quarter.39 For more information, including participation numbers for each of the MHA programs and subprograms, see the “Housing Support Programs” discussion in this section. • Housing Finance Agency (“HFA”) Hardest Hit Fund (“HHF”) — The stated purpose of this program is to provide TARP funding for “innovative measures to help families in the states that have been hit the hardest by the aftermath of the housing bubble.”40 Treasury obligated $7.6 billion for this program.41 As of September 30, 2013, $2.9 billion had been drawn down by the states from HHF.42 However, as of June 30, 2013, the latest data available, only $1.7 billion had been spent assisting 126,858 homeowners, with the remaining $308.5 million funds used for administrative expenses and $719.7 million as unspent cash-on-hand.43 For more information, see the “Housing Support Programs” discussion in this section and Section 3 of this report.44 • FHA Short Refinance Program — Treasury has provided a TARP-funded letter of credit for up to $1 billion in loss protection on refinanced first liens.45 As of September 30, 2013, there have been 3,552 refinancings under the FHA Short Refinance program, an increase of 416 refinancings during the past quarter.46 For more information, see the “Housing Support Programs” discussion in this section. Financial Institution Support Programs Systemically Significant Institutions: Term referring to 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. Treasury primarily invested capital directly into financial institutions including banks, bank holding companies, and, if deemed by Treasury critical to the financial system, some systemically significant institutions.47 • Capital Purchase Program (“CPP”) — Under CPP, Treasury directly purchased preferred stock or subordinated debentures in qualifying financial institutions.48 CPP was intended 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].”49 Treasury invested $204.9 billion in 707 institutions through CPP, which closed to new funding on December 29, 2009.50 As of September 30, 2013, 139 of those institutions remained in TARP; in 31 of them, Treasury holds only warrants to purchase stock. Treasury does not consider these 31 institutions to be in TARP, however Treasury applies all proceeds from the sale of warrants in these banks to recovery amounts in TARP’s CPP program. As of September 30, 2013, 108 of the 139 institutions had outstanding CPP principal investments.51 Of the 707 banks that received CPP investments, 599 banks no longer have outstanding principal investments in CPP. Nearly a quarter of the 707 banks, or 165, refinanced into other Government programs — 28 of them into TARP’s CDCI and 137 into SBLF, a non-TARP program.52 Only 230 of the banks, or QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 33% of the original 707, fully repaid CPP otherwise.53 Of the other banks that have exited CPP, four CPP banks merged with other CPP banks, Treasury sold its investments in 22 banks for less than par and its investments in 151 banks at auction (143 of those investments sold at a loss), and 27 institutions or their subsidiary banks failed, meaning Treasury lost its entire investment in those banks.54 As of September 30, 2013, taxpayers were still owed $7 billion related to CPP. According to Treasury, it had write-offs, realized losses, and investments not currently collectible as a result of bankruptcy of $4.6 billion in the program, leaving $2.4 billion in TARP funds outstanding.55 Included as not currently collectible as a result of bankruptcy are 24 CPP banks, or their subsidiary banks, with total CPP investments of $770.7 million, that are currently in the process of bankruptcy. While Treasury has not yet realized the loss, it expects that all of its investments in the banks will be lost.56 According to Treasury, $195.7 billion of the CPP principal (or 96%) had been repaid as of September 30, 2013. The repayment amount includes $363.3 million in preferred stock that was converted from CPP investments into CDCI and therefore still represents outstanding obligations to TARP. Additionally, $2.2 billion was refinanced in 2011 into SBLF, a non-TARP Government program.57 Treasury continues to manage its portfolio of CPP investments, including, for certain struggling institutions, converting its preferred equity ownership into a more junior form of equity ownership, often at a discount to par value (which may result in a loss) in an attempt to preserve some value that might be lost if these institutions were to fail. As of September 30, 2013, Treasury has held 20 sets of auctions to sell all of its preferred stock investments in 151 banks and part of its investment in an additional bank, selling all but eight investments at a discounted price resulting in a loss to Treasury.58 For more information, see the “Capital Purchase Program” discussion in this section. • Community Development Capital Initiative (“CDCI”) — Under CDCI, Treasury used TARP money to buy preferred stock in or subordinated debt from Community Development Financial Institutions (“CDFIs”). Treasury intended for CDCI to “improve access to credit for small businesses in the country’s hardest-hit communities.”59 Under CDCI, TARP made capital investments in the preferred stock or subordinated debt of eligible banks, bank holding companies, thrifts, and credit unions.60 Eighty-four institutions received $570.1 million in funding under CDCI.61 However, 28 of these institutions converted their existing CPP investment into CDCI ($363.3 million of the $570.1 million) and 10 of those that converted received combined additional funding of $100.7 million under CDCI.62 Only $106 million of CDCI money went to institutions that were not already TARP recipients. As of September 30, 2013, 71 institutions remained in CDCI.63 As of September 30, 2013, three remaining CDCI institutions had unpaid dividend or interest payments.64 For more information, see the “Community Development Capital Initiative” discussion in this section. • Systemically Significant Failing Institutions (“SSFI”) Program — SSFI enabled Treasury to invest in systemically significant institutions to prevent Community Development Financial Institutions (“CDFIs”): Financial institutions eligible for Treasury funding to serve urban and rural low-income communities through the CDFI Fund. CDFIs were created in 1994 by the Riegle Community Development and Regulatory Improvement Act. 61 62 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Special Purpose Vehicle (“SPV”): A legal entity, often off-balancesheet, that holds transferred assets presumptively beyond the reach of the entities providing the assets, and that is legally isolated from its sponsor or parent company. them from failing.65 Only one firm received SSFI assistance: American International Group, Inc. (“AIG”). The Government’s rescue of AIG involved several different funding facilities provided by the Federal Reserve Bank of New York (“FRBNY”) and Treasury, with various changes to the transactions over time. Combined, Treasury and FRBNY committed $182 billion to bail out AIG, of which $161 billion was disbursed.66 There were two TARP investments in AIG. On November 25, 2008, Treasury bought $40 billion of AIG’s preferred stock, the proceeds of which were used to repay a portion of AIG’s debt to FRBNY. Then, on April 17, 2009, Treasury obligated approximately $29.8 billion that AIG could draw down as needed.67 On January 14, 2011, AIG executed a Recapitalization Plan under which AIG fully repaid FRBNY’s revolving credit facility, AIG purchased the remainder of FRBNY’s preferred equity interests in two AIG subsidiaries (which it then transferred to Treasury), AIG drew down $20.3 billion in TARP funds, and Treasury converted its preferred stock holdings into an approximately 92.1% common equity ownership stake in AIG.68 Through payments in February and March 2011, AIG fully repaid the Government’s preferred interests in the American Life Insurance Company (“ALICO”) special purpose vehicle (“SPV”), as well as its preferred interests in the American International Assurance Co., Ltd. (“AIA”) SPV. From May 2011 through December 2012, Treasury sold all 1.66 billion shares of AIG’s common stock that it controlled, which at one point was 92% of AIG’s common stock. Treasury’s investment in AIG ended on March 1, 2013, when Treasury sold its remaining investment, 2.7 million warrants for the right to purchase AIG common shares.69 AIG bought the warrants from the Government for $25.2 million, or about $9.35 per share.70 As of September 30, 2013, as reflected on Treasury’s books and records, taxpayers had recouped $54.4 billion of the $67.8 billion in TARP funds and had realized losses from an accounting standpoint of $13.5 billion on Treasury’s sale of AIG stock.71 Due to the January 2011 restructuring of the FRBNY and Treasury investments, Treasury held common stock from the TARP and FRBNY assistance, and, according to Treasury, the Government overall has made a $4.1 billion gain on the stock sales, and $956 million has been paid in dividends and other income.72 On July 9, 2013, the Financial Stability Oversight Council (“FSOC”) announced that it had designated AIG as a systemically important nonbank financial company under Dodd-Frank, thereby subjecting AIG to consolidated supervision by the Board of Governors of the Federal Reserve System (“Federal Reserve”) and to enhanced prudential standards.73 For more information, see the “Systemically Significant Failing Institutions Program” discussion in this section. • Targeted Investment Program (“TIP”) — Through TIP, Treasury invested in financial institutions it deemed critical to the financial system.74 There were two expenditures under this program, totaling $40 billion — the purchases of $20 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 billion each of senior preferred stock in Citigroup Inc. (“Citigroup”) and Bank of America Corp. (“Bank of America”).75 Treasury also accepted common stock warrants from each, as required by EESA. Both banks fully repaid Treasury for its TIP investments.76 Treasury auctioned its Bank of America warrants on March 3, 2010, and auctioned its Citigroup warrants on January 25, 2011.77 For more information on these transactions, see the “Targeted Investment Program and Asset Guarantee Program” discussion in this section. • Asset Guarantee Program (“AGP”) — AGP was designed to provide insurance-like protection for a select pool of mortgage-related or similar assets held by participants whose portfolios of distressed or illiquid assets threatened market confidence.78 Treasury, the Federal Deposit Insurance Corporation (“FDIC”), and the Federal Reserve offered certain loss protections in connection with $301 billion in troubled Citigroup assets.79 In exchange for providing the loss protection, Treasury received $4 billion of preferred stock that was later converted to trust preferred securities (“TRUPS”), and FDIC received $3 billion.80 On December 23, 2009, in connection with Citigroup’s TIP repayment, Citigroup and the Government terminated the AGP agreement and the Government suffered no loss. On December 28, 2012, FDIC transferred $800 million of Citigroup TRUPS to Treasury, as a result of Citigroup’s participation in FDIC’s Temporary Liquidity Guarantee Program having closed without a loss.81 Treasury converted the TRUPS it received from FDIC into Citigroup subordinated notes and subsequently sold them for $894 million.82 For more information, see the “Targeted Investment Program and Asset Guarantee Program” discussion in this section. Senior Preferred Stock: Shares that give the stockholder priority dividend and liquidation claims over junior preferred and common stockholders. Illiquid Assets: Assets that cannot be quickly converted to cash. Trust Preferred Securities (“TRUPS”): Securities that have both equity and debt characteristics, created by establishing a trust and issuing debt to it. Asset Support Programs The stated purpose of these programs was to support the liquidity and market value of assets owned by financial institutions to free capital so that these firms could extend more credit to support the economy. These assets included various classes of asset-backed securities (“ABS”) and several types of loans. • Term Asset-Backed Securities Loan Facility (“TALF”) — TALF was originally designed to increase credit availability for consumers and small businesses through a $200 billion Federal Reserve loan program. TALF provided investors with non-recourse loans 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”).83 TALF closed to new loans in June 2010.84 TALF ultimately provided $71.1 billion in Federal Reserve financing—$59 billion with non-mortgage related ABS as collateral and $12.1 billion with CMBS as collateral.85 Of that amount, $100.7 million remained outstanding as of September 30, 2013.86 As of early 2013, the TALF program collected fees totaling more than the amount of loans still outstanding.87 As of Asset-Backed Securities (“ABS”): Bonds backed by a portfolio of 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”): Bonds backed by one or more mortgages on commercial real estate (e.g., office buildings, rental apartments, hotels). 63 64 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Legacy Securities: Real estate-related securities originally issued before 2009 that remained on the balance sheets of financial institutions because of pricing difficulties that resulted from market disruption. Non-Agency Residential MortgageBacked Securities (“non-agency RMBS”): Financial instrument backed by a group of residential real estate mortgages (i.e., home mortgages for residences with up to four dwelling units) not guaranteed or owned by a Government-sponsored enterprise (“GSE”) or a Government agency. September 30, 2013, there had been no surrender of collateral related to these loans.88 For more information, see the “TALF” discussion in this section. • Public-Private Investment Program (“PPIP”) — PPIP’s goal was to restart credit markets by using a combination of private equity, matching Government equity, and Government debt to purchase legacy securities, i.e., CMBS and non-agency residential mortgage-backed securities (“non-agency RMBS”).89 Under the program, nine Public-Private Investment Funds (“PPIFs”) managed by private asset managers invested in non-agency RMBS and CMBS. Treasury originally obligated $22.4 billion in TARP funds to the program and reduced the amount over time to $19.6 billion as of September 30, 2013. Together, all nine PPIFs drew down $18.6 billion in debt and equity financing from Treasury funding out of the total obligation, and repaid all of it.90 As of September 30, 2013, the entire PPIP portfolio had been liquidated, and three PPIP funds were legally dissolved while the other five were in various stages of winding down operations.91 For more information, see the “Public-Private Investment Program” discussion in this section. • Unlocking Credit for Small Businesses (“UCSB”)/Small Business Administration (“SBA”) Loan Support Initiative — In March 2009, Treasury officials announced that Treasury would buy up to $15 billion in securities backed by SBA loans under UCSB.92 Treasury obligated a total of $400 million for UCSB and made purchases of $368.1 million in 31 securities under the program. Treasury sold the last of its UCSB securities on January 24, 2012, ending the program with a net investment gain of about $9 million.93 For more information, see the “Unlocking Credit for Small Businesses/Small Business Administration Loan Support” discussion in this section. Automotive Industry Financing Program (“AIFP”) TARP’s automotive industry support through AIFP 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.”94 As of September 30, 2013, General Motors Company (“GM”) and Ally Financial Inc. (“Ally Financial”), formerly GMAC Inc., remain in TARP. Taxpayers are still owed $32.5 billion. This includes about $15 billion for the TARP investment in GM and $14.6 billion for the TARP investment in Ally Financial, for which Treasury holds common stock in GM and common stock and mandatorily convertible preferred shares (“MCP”) in Ally Financial. This amount also includes a $2.9 billion loss taxpayers suffered on the principal TARP investment in Chrysler. Chrysler Financial fully repaid its TARP investment.95 Through AIFP, Treasury made emergency loans to Chrysler Holding LLC (“Chrysler”), Chrysler Financial Services Americas LLC (“Chrysler Financial”), and GM. Additionally, Treasury bought senior preferred stock from Ally Financial and assisted Chrysler and GM during their bankruptcy restructurings. As of September 30, 2013, $79.7 billion had been disbursed through AIFP and its subprograms, and Treasury had received $47.2 billion in principal repayments, preferred stock redemption proceeds, and stock sale proceeds. As of September 30, 2013, Treasury QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 had received approximately $35.2 billion related to its GM investment, $2.5 billion related to its Ally Financial/GMAC investment, $8 billion related to its Chrysler investment, and $1.5 billion related to its Chrysler Financial investment.96 As of September 30, 2013, Treasury had also received approximately $5.5 billion in dividends and interest under AIFP and its two subprograms, ASSP and AWCP.97 In return for a total of $49.5 billion in loans to GM, Treasury received $6.7 billion in debt in GM (which was subsequently repaid), in addition to $2.1 billion in preferred stock and a 61% common equity stake.98 Through a series of stock sales, Treasury has divested its preferred stock and most of its common stock, reducing its stake to 7.3%.99 Because the common stock sales have all taken place below Treasury’s break-even price, Treasury has so far booked a loss of $9.7 billion on the sales.100 Treasury invested a total of $17.2 billion in Ally Financial, and $14.6 billion of that is still outstanding. On December 30, 2010, Treasury’s investment was restructured to provide for a 74% common equity stake, $2.7 billion in TRUPS (including amounts received in warrants that were immediately converted into additional securities), and $5.9 billion in mandatorily convertible preferred shares.101 Treasury sold the $2.7 billion in TRUPS on March 2, 2011, resulting in a $2.5 billion principal repayment to Treasury.102 On May 14, 2012, Ally Financial announced that its mortgage subsidiary, Residential Capital, LLC (ResCap), and certain of its subsidiaries, filed for bankruptcy. On June 26, 2013, a bankruptcy court approved Ally Financial’s proposed $2.1 billion settlement with ResCap.103 Treasury provided approximately $12.5 billion in loan commitments to Chrysler, of which $2.1 billion was never drawn down.104 On July 21, 2011, Treasury sold to Fiat for $500 million Treasury’s remaining equity ownership interest in Chrysler.105 Treasury also sold to Fiat for $60 million Treasury’s rights to receive proceeds under an agreement with the United Auto Workers (“UAW”) retiree trust pertaining to the trust’s shares in Chrysler on a fully diluted basis.106 Treasury’s books reflect a $2.9 billion loss to taxpayers on their principal investment in Chrysler.107 Treasury provided a $1.5 billion loan to Chrysler Financial, which was fully repaid with interest in July 2009.108 For more information, see the “Automotive Industry Support Programs” discussion in this section. AIFP also included two subprograms: • Auto Supplier Support Program (“ASSP”) — According to Treasury, this program was intended 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.”109 Under the program, which ended in April 2010, Treasury made loans for GM ($290 million) and Chrysler ($123.1 million) that were fully repaid with $115.9 million in interest, fees and other income.110 For more information, see the “Auto Supplier Support Program” discussion in this section. • Auto Warranty Commitment Program (“AWCP”) — This program was designed to bolster consumer confidence by guaranteeing Chrysler and GM 65 66 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM vehicle warranties during the companies’ restructuring through bankruptcy. It ended in July 2009 after Chrysler fully repaid its AWCP loan of $280.1 million with interest and GM repaid just the principal — $360.6 million — of its loan.111 For more information, see the “Auto Warranty Commitment Program” discussion in this section. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 HOUSING SUPPORT PROGRAMS On February 18, 2009, the Administration announced a foreclosure prevention plan that became the Making Home Affordable (“MHA”) program, an umbrella program for the Administration’s homeowner assistance and foreclosure prevention efforts.112 MHA initially consisted of the Home Affordable Modification Program (“HAMP”), a Treasury program that uses TARP funds to provide incentives for mortgage servicers to modify eligible first-lien mortgages, and two initiatives at the Government-sponsored enterprises (“GSEs”) that use non-TARP funds.113 HAMP was originally intended “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.”114 On June 1, 2012, HAMP expanded the pool of homeowners potentially eligible to be assisted through the launch of HAMP Tier 2; however, Treasury has not estimated the number of homeowners that HAMP Tier 2 is intended to assist.115 On June 13, 2013, Treasury generally extended MHA programs for an additional two years, from December 31, 2013, to December 31, 2015.116 Treasury over time expanded MHA to include sub-programs. Treasury also allocated TARP funds to support two additional housing support efforts: TARP funding for 19 state housing finance agencies, called the Housing Finance Agency Hardest Hit Fund (“Hardest Hit Fund” or “HHF”) and a Federal Housing Administration (“FHA”) refinancing program. The HHF program is scheduled to expire on December 31, 2017. The FHA refinancing program is currently scheduled to expire on December 31, 2014.117 Not all housing support programs are funded, or completely funded, by TARP. Of the originally anticipated $75 billion cost for MHA, $50 billion was to be funded by TARP, with the remainder funded by the GSEs.118 Although Treasury originally committed to use $50 billion in TARP funds for these programs, it subsequently obligated only $45.6 billion, and in March 2013, reduced its obligation to $38.5 billion, which includes $29.9 billion for MHA incentive payments, $7.6 billion for the Hardest Hit Fund, and $1 billion for FHA Short Refinance.119 Under EESA and the SIGTARP Act, SIGTARP is required to report quarterly to Congress to provide certain information about TARP over that preceding quarter. Housing support programs include the following initiatives: • Home Affordable Modification Program (“HAMP” or “HAMP Tier 1”) — HAMP is intended to use incentive payments to encourage loan servicers (“servicers”) and investors to modify eligible first-lien mortgages so that the monthly payments of homeowners who are currently in default or generally at imminent risk of default will be reduced to affordable and sustainable levels.120 Incentive payments for modifications to loans owned or guaranteed by the GSEs are paid by the GSEs, not TARP.121 As of September 30, 2013, there were Government-Sponsored Enterprises (“GSEs”): Private corporations created and chartered by the Government to reduce borrowing costs and provide liquidity in the market, the liabilities of which are not officially considered direct taxpayer obligations. On September 7, 2008, the two largest GSEs, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), were placed into Federal conservatorship. They are currently being financially supported by the Government. Loan Servicers: Companies that perform administrative tasks on monthly mortgage payments until the loan is repaid. These tasks include billing, tracking, and collecting monthly payments; maintaining records of payments and balances; allocating and distributing payment collections to investors in accordance with each mortgage loan’s governing documentation; following up on delinquencies; and initiating foreclosures. Investors: Owners of mortgage loans or bonds backed by mortgage loans who receive interest and principal payments from monthly mortgage payments. Servicers manage the cash flow from borrowers’ monthly payments and distribute them to investors according to Pooling and Servicing Agreements (“PSAs”). 67 68 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Short Sale: Sale of a home for less than the unpaid mortgage balance. A borrower sells the home and the investor accepts the proceeds as full or partial satisfaction of the unpaid mortgage balance, thus avoiding the foreclosure process. Deed-in-Lieu of Foreclosure: Instead of going through foreclosure, the borrower voluntarily surrenders the deed to the home to the investor, as satisfaction of the unpaid mortgage balance. 888,394 active permanent HAMP Tier 1 modifications, 456,542 of which were under TARP, with the remainder under the GSE portion of the program.122 While HAMP generally refers to the first-lien mortgage modification program, it also includes the following subprograms: o Home Price Decline Protection (“HPDP”) — HPDP is intended to encourage additional investor participation and HAMP modifications in areas with recent price declines by providing TARP-funded incentives to offset potential losses in home values.123 As of September 30, 2013, there were 210,505 (Tier 1 and Tier 2) loan modifications under HPDP.124 o Principal Reduction Alternative (“PRA”) — PRA is intended to encourage the use of principal reduction in modifications for eligible borrowers whose homes are worth significantly less than the remaining outstanding balances of their first-lien mortgage loans. It provides TARP-funded incentives to offset a portion of the principal reduction provided by the investor.125 As of September 30, 2013, there were 104,771 (Tier 1 and Tier 2) active permanent modifications through PRA.126 o Home Affordable Unemployment Program (“UP”) — UP is intended to offer assistance to unemployed homeowners through temporary forbearance of all or a portion of their payments.127 As of August 31, 2013, which according to Treasury is the most recent data available, 5,739 borrowers were actively participating in UP.128 • Home Affordable Modification Program Tier 2 (“HAMP Tier 2”) — HAMP Tier 2 is an expansion of HAMP to permit HAMP modifications on non-owneroccupied “rental” properties, and to allow borrowers with a wider range of debtto-income ratios to receive modifications.129 As of September 30, 2013, 21,522 HAMP Tier 2 modifications had become permanent, of which 20,826 remained active.130 Of Tier 2 modifications started, 3,537 were previously HAMP Tier 1 permanent modifications. • Home Affordable Foreclosure Alternatives (“HAFA”) — HAFA is intended to provide incentives to servicers, investors, and borrowers to pursue short sales and deeds-in-lieu of foreclosure for borrowers in cases in which the borrower is unable or unwilling to enter or sustain a modification. Under this program, the servicer releases the lien against the property and the investor waives all rights to seek a deficiency judgment against a borrower who uses a short sale or deed-in-lieu when the property is worth less than the outstanding amount of the mortgage.131 As of September 30, 2013, the latest data provided by Treasury, there were 135,112 short sales or deeds-in-lieu under HAFA.132 • Second-Lien Modification Program (“2MP”) — 2MP is intended to modify second-lien mortgages when a corresponding first lien is modified under HAMP by a participating servicer.133 As of September 30, 2013, 16 servicers are participating in 2MP.134 These servicers represent approximately 55 – 60% of the second-lien servicing market.135 As of September 30, 2013, there were 76,935 active permanently modified second liens in 2MP.136 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 • Agency-Insured Programs — These programs are similar in structure to HAMP, but apply to eligible first-lien mortgages insured by FHA or guaranteed by the Department of Agriculture’s Office of Rural Development (“RD”) and the Department of Veterans Affairs (“VA”).137 Treasury provides TARP-funded incentives to encourage modifications under the FHA and RD modification programs. As of September 30, 2013, there were 77 RD-HAMP active permanent modifications and 14,895 FHA-HAMP active permanent modifications.138 • Treasury/FHA Second-Lien Program (“FHA2LP”) — In FHA2LP, Treasury uses TARP funds to provide incentives to servicers and investors who agree to principal reduction or extinguishment of second liens associated with an FHA refinance.139 As of September 30, 2013, no second liens had been partially written down or extinguished under the program.140 • Housing Finance Agency Hardest Hit Fund (“HHF”) — A TARP-funded program, HHF is intended to fund foreclosure prevention programs run by state housing finance agencies in states hit hardest by the decrease in home prices and in states with high unemployment rates. Eighteen states and Washington, DC, received approval for aid through the program.141 As of June 30, 2013, the latest data available, 126,858 borrowers had received assistance under HHF.142 • FHA Short Refinance Program — This program, which is partially supported by TARP funds, is intended to provide borrowers who are current on their mortgage an opportunity to refinance existing underwater mortgage loans that are not currently insured by FHA into FHA-insured mortgages with lower principal balances. Treasury has provided a TARP-funded letter of credit for up to $1 billion in loss coverage on these newly originated FHA loans.143 As of September 30, 2013, 3,552 loans had been refinanced under FHA Short Refinance.144 Status of TARP Funds Obligated to Housing Support Programs Treasury initially obligated $45.6 billion to housing support programs, which was reduced to $38.5 billion, of which $9.5 billion, or 25%, has been expended as of September 30, 2013.145 Of that, $0.9 billion was expended in the quarter ended September 30, 2013. However, some of the expended funds remain as cash on hand or paid for administrative expenses at state housing finance agencies (“HFAs”) participating in the Hardest Hit Fund program. Treasury has capped the aggregate amount available to pay servicer, borrower, and investor incentives under MHA programs at $29.9 billion, of which $6.5 billion (22%), has been spent as of September 30, 2013.146 Treasury allocated $7.6 billion to the Hardest Hit Fund. As of September 30, 2013, of the $7.6 billion in TARP funds available for HHF, states had drawn down $2.9 billion.147 As of June 30, 2013, states had spent $1.7 billion (22%) of those funds to assist 126,858 homeowners, spent $308.5 million (4%) Underwater Mortgage: Mortgage loan on which a homeowner owes more than the home is worth, typically as a result of a decline in the home’s value. Underwater mortgages also are referred to as having negative equity. 69 70 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM for administrative expenses, and held $719.7 million (9%) as unspent cash-onhand.148,i,ii Treasury originally allocated $8.1 billion for FHA Short Refinance, but deobligated $7.1 billion in March 2013.149 Of the $1 billion currently allocated for FHA Short Refinance, $58.9 million has been spent, which includes $50 million held in a pre-funded reserve account to pay future claims, $8.9 million spent on administrative expenses, and $47,840 spent on one refinanced mortgage that later defaulted.150 Table 2.6 shows the breakdown in expenditures and estimated funding allocations for these housing support programs. Figure 2.2 also shows these expenditures, as a percentage of allocations. TABLE 2.6 TARP ALLOCATIONS AND EXPENDITURES BY HOUSING SUPPORT PROGRAMS, AS OF 9/30/2013 ($ BILLIONS) ALLOCATIONS EXPENDITURES MHA HAMP a First Lien Modification $19.1 $4.6 PRA Modification 2.0 0.4 HPDP 1.6 UP 0.3 — — $22.7 $5.4 b HAMP Total HAFA 4.2 0.7 2MP 0.1 0.5 Treasury FHA-HAMP 0.2 RD-HAMP —c —d FHA2LP — 2.7 — MHA Total $29.9 $6.5 HHF (Drawdown by States)e $7.6 $2.9 FHA Short Refinance $1.0 $0.1 Total $38.5 $9.5 f Notes: Numbers may not total due to rounding. According to Treasury, these numbers are “approximate.” a Includes HAMP Tier 1 and HAMP Tier 2. b Treasury does not allocate TARP funds to UP. c Treasury has expended $0.03 billion for the Treasury FHA-HAMP program. d Treasury has allocated $0.02 billion to the RD-HAMP program. As of September 30, 2013, $63,833 has been expended for RDHAMP. e Not all of the funds drawn down by states have been used to assist homeowners. As of June 30, 2013, HFAs had drawn down approximately $2.7 billion, and, according to the latest data available, only $1.65 billion (22%) of TARP funds allocated for HHF have gone to help 126,858 homeowners. f This amount includes up to $25 million in fees Treasury will incur for the availability and usage of the $1 billion letter of credit. Sources: Treasury, responses to SIGTARP data call, 10/3/2013 and 10/9/2013; Treasury, Transactions Report-Housing Programs, 9/27/2013; Treasury, Daily TARP Update, 10/1/2013. i According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; HFAs [states] vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. ii States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 2.2 TARP HOUSING SUPPORT FUNDS ALLOCATED AND SPENT, AS OF 9/30/2013 ($ BILLIONS) 24% spent ($5.4 billion) HAMP $22.7 billion 38% spenta ($2.9 billion) Hardest Hit Fund $7.6 billion 16% spent ($0.7 billion) HAFA $4.2 billion FHA2LP $2.7 billion Funds Allocated Funds Spent None spent 6% spent ($0.1 billion) FHA Short Refinance $1 billion 17% spent ($0.03 billion) Treasury FHA–HAMP $0.2 billion 0 $5 billion $10 billion $15 billion $20 billion $25 billion Notes: Numbers may not total due to rounding. HAMP includes HAMP Tier 1, HAMP Tier 2, HPDP, and PRA. a In this figure, Hardest Hit Funds “spent” represents the amount of funds states had drawn down as of September 30, 2013. Treasury requires states to return any HHF funds drawn down but unspent after December 31, 2017. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. Sources: Treasury, responses to SIGTARP data call, 10/3/2013, 10/7/2013, 10/9/2013, and 10/17/2013. As of September 30, 2013, Treasury had active agreements with 91 servicers.151 That compares with 145 servicers that had agreed to participate in MHA as of October 3, 2010.152 According to Treasury, of the $29.9 billion obligated to participating servicers under their Servicer Participation Agreements (“SPAs”), as of September 30, 2013, only $6.5 billion (22%) has been spent, broken down as follows: $5.4 billion had been spent on completing permanent modifications of first liens, including PRA and HPDP, (477,368 of which remain active); $453 million under 2MP; and $672.6 million on incentives for short sales or deedsin-lieu of foreclosure under HAFA.153 Of the combined amount of incentive payments, according to Treasury, approximately $3.2 billion went to pay investor or lender incentives, $2 billion went to pay servicer incentives, and $1.3 billion went to pay borrower incentives.154 As of September 30, 2013, of the $7.6 billion in TARP funds available for HHF, states had drawn down $2.9 billion.155 As of June 30, 2013, states had drawn down $2.7 billion and, according to the latest data available, had spent $1.7 billion (22%) of those funds to assist 126,858 homeowners, spent $308.5 million (4%) for administrative expenses, and held $719.7 million (9%) as unspent cash-on-hand.156 The remaining $1 billion has been obligated under FHA Short Refinance to purchase a letter of credit to provide up to $1 billion in first loss coverage and to pay $25 million in fees for the letter of credit.157 According to Treasury, it has paid only one claim for one default on the 71 72 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 3,552 loans refinanced under the program. However, Treasury has pre-funded a reserve account with $50 million to pay future claims and spent $8.9 million on administrative expenses.158 The breakdown of TARP-funded expenditures related to housing support programs (not including the GSE-funded portion of HAMP) are shown in Table 2.7. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.7 BREAKDOWN OF TARP EXPENDITURES, AS OF 9/30/2013 MHA ($ MILLIONS) TARP Expenditures HAMP HAMP First Lien Modification Incentives Servicer Incentive Payment Servicer Current Borrower Incentive Payment Annual Servicer Incentive Payment Investor Current Borrower Incentive Payment Investor Monthly Reduction Cost Share Annual Borrower Incentive Payment Tier 2 Incentive Payments HAMP First Lien Modification Incentives Total $638.8 $16.7 $986.5 $64.8 $1,944.0 $935.9 $24.0 $4,610.7 PRA $405.1 HPDP $335.8 UP HAMP Program Incentives Total $—a $5,351.6 HAFA Incentives Servicer Incentive Payment $194.5 Investor Reimbursement $133.0 Borrower Relocation $345.1 HAFA Incentives Total $672.6 Second-Lien Modification Program Incentives 2MP Servicer Incentive Payment $57.6 2MP Annual Servicer Incentive Payment $23.8 2MP Annual Borrower Incentive Payment $22.0 2MP Investor Cost Share $131.3 2MP Investor Incentive $218.4 Second-Lien Modification Program Incentives Total $453.0 Treasury/FHA-HAMP Incentives Annual Servicer Incentive Payment $17.5 Annual Borrower Incentive Payment $16.0 Treasury/FHA-HAMP Incentives Total RD-HAMP FHA2LP $33.5 $—b $— MHA Incentives Total $6,510.8 HHF Disbursements (Drawdowns by State HFAs) $2,911.8 FHA Short Refinance (Loss-Coverage) Total Expenditures $58.9 $9,481.6 Notes: Numbers may not total due to rounding. a TARP funds are not used to support the UP program, which provides forbearance of a portion of the homeowner’s mortgage payment. b RD-HAMP expenditures equal $63,833 as of September 30, 2013. Source: Treasury, responses to SIGTARP data calls, 10/3/2013, 10/7/2013, 10/9/2013, and 10/17/2013. 73 74 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM HAMP According to Treasury, HAMP was intended “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.”159 Although HAMP contains several subprograms, the term “HAMP” is most often used to refer to the HAMP First-Lien Modification Program, described below. HAMP First-Lien Modification Program The HAMP First-Lien Modification Program, which went into effect on April 6, 2009, modifies the terms of first-lien mortgages to provide borrowers with lower monthly payments. A HAMP modification consists of two phases: a trial modification that was originally designed to last three months, followed by a permanent modification. Treasury continues to pay incentives for five years.160 In designing HAMP, the Administration envisioned a “shared partnership” between the Government and investors to bring distressed borrowers’ first lien monthly payments down to an “affordable and sustainable” level.161 The program description immediately below refers only to the original HAMP program, which after the launch of HAMP Tier 2 has been renamed “HAMP Tier 1.” Trial Modification: Under HAMP, a period of at least three months in which a borrower is given a chance to establish that he or she can make lower monthly mortgage payments and qualify for a permanent modification. HAMP Tier 1 Modification Statistics As of September 30, 2013, a total of 888,394 mortgages were in active permanent modifications under both TARP (non-GSE) and GSE HAMP. Some 44,876 were in active trial modifications. As of September 30, 2013, for borrowers receiving permanent modifications, 95.9% received an interest rate reduction, 63.2% received a term extension, 33.5% received principal forbearance, and 15.3% received principal forgiveness.162 HAMP modification activity, broken out by TARP and GSE loans, is shown in Table 2.8. For more detail on redefaulted modifications over the life of HAMP, see Table 2.9 and Figure 2.3. For more detail on HAMP modification activity, broken out by TARP and GSE loans, see Table F.1 in Appendix F. TABLE 2.8 CUMULATIVE HAMP TIER 1 MODIFICATION ACTIVITY BY TARP/GSE, AS OF 9/30/2013 TARP Trials Started Trials Cancelled Trials Active Trials Converted to Permanent Permanents Redefaulted Permanents Paid Off Permanents Active 1,025,588 351,129 28,888 645,571 184,023 5,006 456,542 GSE 1,045,524 427,994 15,988 601,542 153,831 15,859 431,852 Total 2,071,112 779,123 44,876 1,247,113 337,854 20,865 888,394 Sources: Treasury, responses to SIGTARP data calls, 10/21/2013 and 10/23/2013; Fannie Mae, response to SIGTARP data call, 10/21/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Homeowners Who Have Redefaulted on HAMP Permanent Modifications or Are at Risk of Redefaultingiii As of September 30, 2013, HAMP has helped more than 888,000 homeowners avoid foreclosure through permanent mortgage modifications, but 337,854 homeowners (or 27%) fell three months behind in payments and, thus, redefaulted out of the program–often into a less advantageous private sector modification or even worse, into foreclosure.163 This percentage (cumulative redefault rate) includes all homeowners who received HAMP modifications since the start of the program. As of September 30, 2013, taxpayers lost over $972 million in TARP funds paid to servicers and investors as incentives for 184,023 homeowners who received TARP (non-GSE) HAMP permanent modifications and later redefaulted.164 Also, as of August 31, 2013, the latest data available, 92,361 (more than 10% of active HAMP permanent modifications) had missed one to two monthly mortgage payments and, thus, are at risk of redefaulting out of the program.165 The longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program, with homeowners redefaulting on the oldest HAMP permanent modifications at a rate of 48.3%.iv As of August 31, 2013, the latest data provided by Treasury, redefault rates of HAMP permanent mortgage modifications that had been started in each year, since 2009, continued to increase as the modifications age. Nearly half of all homeowners who received a HAMP permanent modification received it in 2009 and 2010.166 As of August 31, 2013, the latest data provided by Treasury, homeowners who received HAMP permanent modifications in 2009 redefaulted at rates ranging from 42.8% to 48.3%.167 As of August 31, 2013, the latest data provided by Treasury, homeowners who received HAMP permanent modifications in 2010 redefaulted at rates ranging from 32.6% to 40.5%.168 Homeowners who redefaulted fell out of the HAMP program, and their HAMP permanent modification was not sustainable. Once again, they risked losing their homes and some may have lost their homes. Treasury reported that of the homeowners with redefaulted loans reported by the eight largest servicers, as of August 31, 2013, the latest data available, 32% of homeowners who redefaulted received an alternative modification, usually a private sector modification, 22% of homeowners moved into the foreclosure process, and 13% of homeowners lost their home via a short sale or deed-in-lieu of foreclosure.169 Since HAMP’s inception in 2009, the cumulative redefault rate for homeowners who received permanent modifications has risen each year—from 1% at the end of 2009 to 27% in the first nine months of 2013.170 Table 2.9 provides detail on the annual and cumulative number and percentage of homeowners who received HAMP permanent modifications and have redefaulted over the life of HAMP. Figure 2.3 provides detail on the status (active and redefaulted) over time of homeowners’ HAMP permanent modifications by the year they originated. iii In this section, “HAMP” refers to the original HAMP First-Lien Modification Program, which Treasury later named HAMP Tier 1. iv T reasury’s calculation of redefault rates may exclude some modifications due to missing or invalid data. For more on homeowners who have redefaulted on HAMP permanent mortgages or are at risk of defaulting, see SIGTARP’s July 2013 Quarterly Report, pages 161-184. Cumulative Redefault Rate: The total number of HAMP permanent modifications that have redefaulted (as of a specific date) divided by the total number of HAMP permanent modifications started (as of the same specific date). 75 76 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.9 HAMP PERMANENT MODIFICATION REDEFAULT ACTIVITY, AS OF 9/30/2013 Permanents Started Annual TARP GSE Total Cumulative Permanents Redefaulted Annual Cumulative Redefault Rate Cumulative 2009 23,633 23,633 129 129 1% 2010 243,262 266,895 29,015 29,144 11% 2011 185,254 452,149 59,080 88,224 20% 2012 114,745 566,894 58,860 147,084 26% 2013 78,677 645,571 36,939 184,023 29% Total 645,571 2009 43,305 43,305 339 339 1% 2010 269,450 312,755 27,730 28,069 9% 2011 168,423 481,178 51,287 79,356 16% 2012 87,280 568,458 49,229 128,585 23% 2013 33,084 601,542 25,246 153,831 26% Total 601,542 2009 66,938 66,938 468 468 1% 2010 512,712 579,650 56,745 57,213 10% 2011 353,677 933,327 110,367 167,580 18% 2012 202,025 1,135,352 108,089 275,669 24% 2013 111,761 1,247,113 62,185 337,854 27% Total 1,247,113 184,023 153,831 337,854 Notes: Data is as of December 31, 2009; December 31, 2010; December 31, 2012; and September 30, 2013. Sources: Treasury, responses to SIGTARP data calls, 1/21/2011, 1/20/2012, 1/22/2013, 2/28/2013, 7/19/2013, 10/21/2013, and 10/23/2013; Fannie Mae, response to SIGTARP data call 10/21/2013; SIGTARP Quarterly Report to Congress, 1/30/2010; SIGTARP Quarterly Report to Congress, 1/26/2011; SIGTARP Quarterly Report to Congress, 1/26/2012; SIGTARP Quarterly Report to Congress, 1/30/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 2.3 ACTIVE AND REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY YEAR OF MODIFICATION, STATUS AS OF 12/30/2009 – 9/30/2013 600,000 500,000 400,000 300,000 200,000 100,000 0 As of 12/31/2009 Modification Year As of 12/31/2010 2009 2010 As of 12/31/2011 2011 2012 As of 12/31/2012 As of 9/30/2013 2013 Redefaulted Active Notes: According to Treasury and Fannie Mae, reporting by HAMP permanent modification effective date did not exist until January 2011. Modifications shown as active or redefaulted as of 12/31/2010 include modifications started in 2009, 2010, and early 2011. Because of reporting schedules, some of the HAMP permanent modification activity reported in any year may include some modifications with effective dates in the following year. Data excludes all HAMP permanent modifications started but paid off (20,865 HAMP permanent modifications had been paid off as of 9/30/2013). Source: Treasury and Fannie Mae, responses to SIGTARP data calls, 10/21/2013 and 10/22/2013. 77 78 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Servicer Redefault Rates As of September 30, 2013, of 967,328 homeowners’ HAMP permanent modifications currently serviced by the eight largest servicers, 261,804, or 27%, subsequently redefaulted, and three servicers account for nearly 60% of these homeowners’ permanent HAMP modifications redefaulted: Ocwen Loan Servicing, LLC, with 69,853 homeowners’ permanent modifications redefaulted; JPMorgan Chase Bank, NA, with 42,457 homeowners’ permanent modifications redefaulted; and Wells Fargo Bank, N.A., with 41,023 homeowners’ permanent modifications redefaulted.171 Of the eight largest servicers participating in HAMP, the four servicers with the highest percentage of homeowners’ permanent HAMP modifications made that later redefaulted were Select Portfolio Servicing, Inc. with 43% of homeowners’ permanent modifications redefaulted; Ocwen Loan Servicing, LLC, and Bank of America, N.A., each with 31% of homeowners’ permanent modifications redefaulted; and Nationstar Mortgage LLC, with 25% of homeowners’ permanent modifications redefaulted, as compared with the average for the eight of 27%.172 Table 2.10 provides data on homeowners’ HAMP permanent modifications by servicers participating in HAMP and currently servicing the modifications listed. TABLE 2.10 HOMEOWNERS’ HAMP PERMANENT MODIFICATIONS AND REDEFAULTS, BY SERVICER, AS OF 9/30/2013 Permanent Modifications Permanent Modifications Redefaulted Percentage of Permanent Modifications Redefaulted Ocwen Loan Servicing, LLC 223,971 69,853 31% JPMorgan Chase Bank, NA 190,143 42,457 22% Wells Fargo Bank, N.A. 176,391 41,023 23% Bank of America, N.A. 112,120 34,814 31% Nationstar Mortgage LLC 117,644 29,719 25% Select Portfolio Servicing, Inc. 49,777 21,626 43% CitiMortgage Inc. 69,423 15,550 22% OneWest Bank 27,859 6,762 24% Other TOTAL 279,785 76,050 27% 1,247,113 337,854 27% Notes: HAMP include only HAMP Tier 1 modifications, including those that received assistance under the Home Price Decline Protection (“HPDP”) and Principal Reduction Alternative (“PRA”) programs. Includes both TARP and GSE modifications. Includes modifications listed by the current servicer of the loan. Sources: Treasury, responses to SIGTARP data calls, 10/21/2013 and 10/22/2013; Fannie Mae, responses to SIGTARP data calls, 10/21/2013 and 10/22/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Redefaults: Impact on Taxpayers Funding TARP Taxpayers have lost over $972 million in TARP funds paid to servicers and investors as incentives for 184,023 homeowners’ non-GSE, HAMP (Tier 1) permanent mortgage modifications that redefaulted.173 As of September 30, 2013, Treasury has distributed $5.3 billion in TARP funds for 645,571 homeowners’ HAMP permanent modifications.174 According to Treasury, $2.7 billion of that was designated for investor incentives, $1.6 billion for servicer incentives, and $935.9 million for homeowner incentives.175 (Homeowner incentives are paid to servicers that, in turn, apply the payment to a homeowner’s mortgage). According to Treasury, 18% of those funds were paid for incentives on homeowners’ HAMP permanent modifications that later redefaulted.176 More than half of TARP funds that Treasury spent for HAMP permanent modifications that redefaulted were for mortgages currently serviced by three servicers, Ocwen Loan Servicing, LLC, J.P. Morgan Chase Bank, NA, and Wells Fargo Bank, N.A. (listed in Table 2.11).177,v Almost all (91%) of TARP funds Treasury spent for HAMP permanent modifications that redefaulted were for mortgages currently serviced by 10 servicers (listed in Table 2.11).178 Table 2.11 shows payments for homeowners’ HAMP permanent modifications (active, redefaulted, and paid off mortgages) that are currently within servicers’ portfolios. v Total incentive payments by the current status of the permanent modification (active, redefaulted, or paid off) is broken out in the table by the current servicer of the loan. The incentive payment totals may not tie to the actual amount paid to the servicer as servicing transfers are not taken into account when the current servicer on the loan is used. 79 80 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.11 TARP INCENTIVE PAYMENTS ON HOMEOWNERS’ HAMP PERMANENT MODIFICATIONS CURRENTLY WITHIN SERVICERS’ PORTFOLIOS, AS OF 9/30/2013 TARP Incentive Payments for Permanents Active TARP Incentive Payments for Permanents Redefaulted TARP Incentive Payments for Permanents Paid Off Total TARP Incentive Payments for Permanents All Percentage of Total TARP Incentive Payments for Permanents Redefaulted $896,593,158 $241,042,834 $5,758,799 $1,143,394,791 21% JPMorgan Chase Bank, NA 765,909,616 125,724,135 4,459,562 896,093,313 14% Wells Fargo Bank, N.A. 688,228,237 121,405,773 5,025,653 814,659,663 15% Select Portfolio Servicing, Inc. 262,557,325 115,098,695 3,602,860 381,258,880 30% Bank of America, N.A. 532,476,505 100,733,294 3,558,014 636,767,813 16% Nationstar Mortgage LLC 280,592,697 54,174,363 1,286,948 336,054,008 16% GMAC Mortgage, LLC 153,437,476 41,031,229 2,469,350 196,938,055 21% OneWest Bank 237,966,500 37,385,305 684,134 276,035,938 14% CitiMortgage Inc 222,467,769 33,326,645 2,457,953 258,252,367 13% 38,078,834 16,185,990 329,952 54,594,777 30% Other 235,133,067 86,059,487 8,031,828 329,224,382 26% Total 4,313,441,183 972,167,750 37,665,053 5,323,273,987 18% Servicer Name Ocwen Loan Servicing, LLC Carrington Mortgage Services, LLC. Notes: Total incentive payments by the current status of the permanent modification (active, redefaulted, or paid off) is broken out in the table by the current servicer of the loan. The incentive payment totals may not tie to the actual amount paid to the servicer as servicing transfers are not taken into account when the current servicer on the loan is used. Totals shown here exclude payments and/or drafts performed for modifications that are not currently Permanent Modifications. Totals shown here include payments under the Home Price Decline Protection (“HPDP”) and Principal Reduction Alternative (“PRA”) programs tied to these loans. Sources: Treasury, responses to SIGTARP data calls, 10/7/2013 and 10/9/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Redefaults: Impact on States Homeowners are redefaulting throughout the nation. While the cumulative number of homeowners’ HAMP permanent modifications in certain states may not be high, some states with a relatively small number of modifications have redefault rates of 30% or more.179 For example, only 4,768 homeowners from Mississippi received HAMP permanent modifications, but these homeowners have redefaulted at a rate of 36%. Meanwhile, some states with the highest number of homeowners who have redefaulted have the lowest redefault rates. For example, California, which has the most homeowners in permanent modifications, has the highest number of homeowners who redefaulted on HAMP permanent modifications, 62,660, but has one of the lowest redefault rates, 21%. (Only Guam, Puerto Rico, and the Virgin Islands have lower rates.) Florida, Illinois, and Arizona have the next highest number of homeowners who redefaulted, at 41,881, 19,762, and 15,262, respectively. After Mississippi, in Tennessee, Louisiana, Alabama, and Delaware, homeowners have redefaulted at a rate of 34%. Tables 2.12-2.18 and Figure 2.4 show regional and state breakdowns of the number of homeowners with HAMP permanent modifications, the number of homeowners with active permanent modifications, the number who have redefaulted on modifications, and the redefault rates. 81 82 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.12 REDEFAULTED HOMEOWNERS’ HAMP PERMANENT MODIFICATIONS, BY REGION, CUMULATIVE AS OF 9/30/2013 Permanent Modifications Active Modifications Redefaulted Modifications Redefault Rate 344,678 265,638 74,389 22% 68,799 47,563 19,475 28% Southwest/South Central 102,610 68,969 31,284 30% Midwest 195,348 133,042 58,656 30% Mid-Atlantic/Northeast 271,652 189,841 77,496 29% West Mountain West/Plains Southeast Total 264,026 183,341 76,554 29% 1,247,113 888,394 337,854 27% Notes: Includes GSE and non-GSE modifications. Of all permanent modifications, 20,865 loans have been paid off. Source: Treasury, response to SIGTARP data call, 10/23/2013. FIGURE 2.4 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY REGION, CUMULATIVE AS OF 9/30/2013 AK MOUNTAIN WEST/ PLAINS 19,475 WA MT OR ID WEST 74,389 CA NV ND WY MN WI SD CO IL KS MO HI AZ GU OK NM AR NY OH IN PA WV VA KY ME MID-ATLANTIC/ NORTHEAST 77,496 NH MA CT RI NJ DE MD DC NC TN MS AL TX VT MI IA NE UT MIDWEST 58,656 SC GA SOUTHEAST 76,554 LA FL PR SOUTHWEST/ SOUTH CENTRAL 31,284 WEST MOUNTAIN WEST/PLAINS SOUTHWEST/SOUTH CENTRAL MIDWEST MID-ATLANTIC/NORTHEAST SOUTHEAST VI QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 West TABLE 2.13 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 9/30/2013 Permanent Modifications WA AK OR GU Redefaulted Modifications Redefault Rate AK 597 398 166 28% CA 299,238 232,828 62,660 21% GU CA Active Modifications 10 7 2 20% HI 4,617 3,471 1,039 23% OR 13,817 10,013 3,501 25% WA 26,399 18,921 7,021 27% 344,678 265,638 74,389 22% Total Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. HI Source: Treasury, response to SIGTARP data call, 10/23/2013. WEST Percentage of Redefaults on HAMP Permanent Modifications >27% 25-27% <25% Mountain West/Plains TABLE 2.14 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 9/30/2013 MT ID NV ND WY SD NE UT CO MOUNTAIN WEST/ PLAINS Percentage of Redefaults on HAMP Permanent Modifications KS >27% 25-27% <25% Permanent Modifications Active Modifications Redefaulted Modifications Redefault Rate CO 16,879 12,470 3,892 23% ID 4,689 3,295 1,268 27% KS 3,125 2,038 989 32% MT 1,396 1,011 320 23% ND 196 130 49 25% NE 1,807 1,135 587 32% NV 28,783 19,060 9,308 32% SD 467 292 144 31% UT 10,854 7,730 2,755 25% WY Total 603 402 163 27% 68,799 47,563 19,475 28% Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. Source: Treasury, response to SIGTARP data call, 10/23/2013. 83 84 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Southwest/South Central TABLE 2.15 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 9/30/2013 Permanent Modifications AZ OK NM AR LA TX SOUTHWEST/ SOUTH CENTRAL >27% 25-27% <25% Percentage of Redefaults on HAMP Permanent Modifications Active Modifications Redefaulted Modifications Redefault Rate AR 2,869 1,821 940 33% AZ 49,962 33,657 15,262 31% LA 7,577 4,822 2,591 34% NM 4,236 2,999 1,134 27% OK 3,129 2,003 1,022 33% TX 34,837 23,667 10,335 30% 102,610 68,969 31,284 30% Total Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. Source: Treasury, response to SIGTARP data call, 10/23/2013. Midwest TABLE 2.16 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 9/30/2013 Permanent Modifications MN WI MI IA IL IN MO MIDWEST Percentage of Redefaults on HAMP Permanent Modifications OH KY >27% 25-27% <25% Active Modifications Redefaulted Modifications Redefault Rate IA 3,196 2,001 1,070 33% IL 66,169 45,661 19,762 30% IN 12,159 8,065 3,814 31% KY 4,842 3,138 1,568 32% MI 36,801 25,802 10,151 28% MN 19,880 13,614 5,844 29% MO 13,118 8,459 4,347 33% OH 26,756 18,184 8,074 30% WI 12,427 8,118 4,026 32% 195,348 133,042 58,656 30% Total Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. Source: Treasury, response to SIGTARP data call, 10/23/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Mid-Atlantic/Northeast TABLE 2.17 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 9/30/2013 ME VT NH MA NY CT NJ DE MD DC PA WV VA WV MID-ATLANTIC/ NORTHEAST Percentage of Redefaults on HAMP Permanent Modifications RI >27% 25-27% <25% Permanent Modifications Active Modifications Redefaulted Modifications Redefault Rate CT 16,597 11,391 4,989 30% DC 2,138 1,525 562 26% DE 3,992 2,582 1,355 34% MA 29,991 21,076 8,381 28% MD 40,118 27,771 11,722 29% ME 3,699 2,417 1,195 32% NH 5,767 3,850 1,777 31% NJ 42,536 28,514 13,461 32% NY 61,438 45,637 15,083 25% PA 27,469 18,076 8,856 32% RI 6,182 4,233 1,871 30% VA 28,872 20,864 7,385 26% VT 1,113 769 304 27% WV Total 1,740 1,136 555 32% 271,652 189,841 77,496 29% Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. Source: Treasury, response to SIGTARP data call, 10/23/2013. Southeast TABLE 2.18 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 9/30/2013 NC TN MS AL SC GA PR FL SOUTHEAST Percentage of Redefaults on HAMP Permanent Modifications VI >27% 25-27% <25% Permanent Modifications Active Modifications Redefaulted Modifications Redefault Rate AL 7,548 4,778 2,576 34% FL 152,755 108,892 41,881 27% GA 46,097 31,551 13,879 30% MS 4,768 2,933 1,735 36% NC 23,478 15,605 7,351 31% PR 3,911 3,146 694 18% SC 11,954 7,900 3,786 32% TN 13,509 8,530 4,652 34% 6 6 0 0% 264,026 183,341 76,554 29% VI Total Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. Source: Treasury, response to SIGTARP data call, 10/23/2013. 85 86 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Starting a HAMP Tier 1 Modification Borrowers may request participation in HAMP.180 Borrowers who have missed two or more payments must be solicited for participation by their servicers.181 Before offering the borrower a trial modification, also known as a trial period plan (“TPP”), the servicer must verify the accuracy of the borrower’s income and other eligibility criteria. In order to verify the borrower’s eligibility for a modification under the program, borrowers must submit the following documents as part of an “initial package.”182 • an MHA “request for mortgage assistance” (“RMA”) form, which provides the servicer with the borrower’s financial information, including the cause of the borrower’s hardship; • signed and completed requests for Federal tax return transcripts or the most recent Federal income tax return, including all schedules and forms; • income verification documentation, such as recent pay stubs or evidence of other sources of income; and • Dodd-Frank certification (either as part of the RMA form or as a standalone document) that the borrower has not been convicted in the past 10 years of any of the following in connection with a mortgage or real estate transaction: felony larceny, theft, fraud, or forgery; money laundering, or tax evasion. For more information on the RMA form and what constitutes hardship, see SIGTARP’s April 2011 Quarterly Report, page 62. For more information on the Verification Policy, see SIGTARP’s April 2011 Quarterly Report, page 63. For more about the HAMP NPV test, see the June 18, 2012, SIGTARP audit report “The NPV Test’s Impact on HAMP.” In order for a loan to be eligible for a HAMP modification, the borrower’s initial package, consisting of the four documents described above, must be submitted by the borrower on or before December 31, 2015. Additionally, in order to be eligible for incentive payments, the permanent modification must be effective on or before September, 2016.183 Participating servicers verify monthly gross income for the borrower and the borrower’s household, as well as other eligibility criteria.184 Then, in the case of HAMP Tier 1, the servicer follows the “waterfall” of modification steps prescribed by HAMP guidelines to calculate the reduction in the borrower’s monthly mortgage payment needed to achieve a 31% debt-to-income (“DTI”) ratio, that is, a payment equal to 31% of his or her monthly gross income.185 In the first step, the servicer capitalizes any unpaid interest and fees (i.e., adds them to the outstanding principal balance). Second, the servicer reduces the interest rate in incremental steps to as low as 2%. If the 31% DTI ratio threshold still has not been reached, in the third step the servicer extends the term of the mortgage to a maximum of 40 years from the modification date. If these steps are still insufficient to reach the 31% threshold, the servicer may forbear principal (defer its due date), subject to certain limits.186 The forbearance amount is not interest bearing and results in a lump-sum payment due upon the earliest of the sale date of the property, the payoff date of the interest-bearing mortgage balance, or the maturity date of the mortgage.187 Servicers are not required to forgive principal under HAMP. However, servicers may forgive principal in order to lower the borrower’s monthly payment to achieve QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 the HAMP Tier 1 DTI ratio goal of 31% on a stand-alone basis, at any point in the HAMP waterfall described above, or as part of PRA.188 After completing these modification calculations, all loans that meet HAMP eligibility criteria and are either deemed generally to be in imminent default or delinquent by two or more payments must be evaluated using a standardized net present value (“NPV”) test that compares the NPV result for a modification to the NPV result for no modification.189 The NPV test compares the expected cash flow from a modified loan with the expected cash flow from the same loan with no modifications to determine which option will be more valuable to the mortgage investor. A positive NPV test result indicates that a modified loan is more valuable to the investor than the existing loan. In that case, under HAMP rules, the servicer must offer the borrower a mortgage modification. If the test generates a negative result, modification is optional.190 Servicers cannot refuse to evaluate a borrower for a modification simply because the outstanding loan currently has a low loan-tovalue (“LTV”) ratio, meaning the borrower owes less than the value of the home. The lower the LTV ratio is, the higher the probability that a foreclosure will be more profitable to an investor than a modification. Since September 1, 2011, most of the largest mortgage servicers participating in MHA have been required to assign a single point of contact to borrowers potentially eligible for evaluation under HAMP, HAFA, or UP.191 The single point of contact has the primary responsibility for communicating with the borrower about options to avoid foreclosure, his/her status in the process, coordination of receipt of documents, and coordination with other servicer personnel to promote compliance with MHA timelines and requirements throughout the entire delinquency, imminent default resolution process, or foreclosure.192 How HAMP Tier 1 First-Lien Modifications Work Treasury originally intended that HAMP trial modifications would last three months. Historically, many trial modifications have lasted longer. According to Treasury, as of September 30, 2013, of a combined total of 44,876 active trials under both GSE and TARP (non-GSE) HAMP, 8,310 (19%) had lasted more than six months.193 Borrowers in trial modifications may qualify for conversion to a permanent modification as long as they make the required modified payments on time and provide proper documentation, including a signed modification agreement.194 The terms of permanent modifications under HAMP Tier 1 remain fixed for at least five years.195 After five years, the loan’s interest rate can increase if the modified interest rate had been reduced below the 30-year conforming fixed interest rate on the date of the initial modification. The interest rate can rise incrementally by up to 1% per year until it reaches that rate.196 Otherwise, the modified interest rate remains permanent. If the borrower misses a payment during the trial or is denied a permanent modification for any other reason, the borrower is, in effect, left with the original terms of the mortgage. The borrower is responsible for the difference between the original mortgage payment amount and the reduced trial payments that were Net Present Value (“NPV”) Test: Compares the money generated by modifying the terms of the mortgage with the amount an investor can reasonably expect to recover in a foreclosure sale. Loan-to-Value (“LTV”) Ratio: Lending risk assessment ratio that mortgage lenders examine before approving a mortgage; calculated by dividing the outstanding amount of the loan by the value of the collateral backing the loan. Loans with high LTV ratios are generally seen as higher risk because the borrower has less of an equity stake in the property. 87 88 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM made during the trial. In addition, the borrower may be liable for late fees that were generated during the trial. In other words, a borrower can be assessed late fees for failing to make the original pre-modification scheduled payments during the trial period, even though under the trial modification the borrower is not required to make these payments. Late fees are waived only for borrowers who receive a permanent modification.197 What Happens When a HAMP Modification Is Denied: Servicer Obligations and Borrower Rights For more information on HAMP servicer obligations and borrower rights, see SIGTARP’s April 2011 Quarterly Report, pages 67-76. Treasury has issued guidance governing both the obligations of servicers and the rights of borrowers in connection with the denial of loan modification requests. Borrowers must receive a Non-Approval Notice if they are rejected for a HAMP modification. A borrower who is not approved for HAMP Tier 1 is automatically considered for HAMP Tier 2. If the servicer offers the borrower a HAMP Tier 2 trial, no Non-Approval Notice would be issued on the HAMP Tier 1. The NonApproval Notice is sent only if the HAMP Tier 2 is not offered. Borrowers can request reconsideration or re-evaluation if they believe one or more NPV analysis inputs is incorrect or if they experience a change in circumstance. Servicers are obligated to have written procedures and personnel in place to respond to borrower inquiries and disputes that constitute “escalated cases” in a timely manner.198 Treasury’s web-based NPV calculator at www.CheckMyNPV.com can be used by borrowers prior to applying for a HAMP modification or after a denial of a HAMP modification. Borrowers can enter the NPV input values listed in the HAMP Non-Approval Notice received from their servicer, or substitute with estimated NPV input values, to compare the estimated outcome provided by CheckMyNPV.com against that on the Non-Approval Notice. Modification Incentives For new HAMP trials on or after October 1, 2011, Treasury changed the onetime flat $1,000 incentive payment to a sliding scale based on the length of time the loan was delinquent as of the effective date of the TPP. For loans less than or equal to 120 days delinquent, servicers receive $1,600.199 For loans 121-210 days delinquent, servicers receive $1,200. For loans more than 210 days delinquent, servicers receive only $400. Starting on March 1, 2014, incentive payments for servicers are scheduled to increase by $400.200 For borrowers whose monthly mortgage payment was reduced through HAMP by 6% or more, servicers also receive incentive payments of up to $1,000 annually for three years if the borrower remains in good standing (defined as less than three full monthly payments delinquent).201 For HAMP Tier 1, borrowers whose monthly mortgage payment is reduced through HAMP by 6% or more and who make monthly payments on time earn an annual principal reduction of up to $1,000.202 The principal reduction accrues monthly and is payable for each of the first five years as long as the borrower remains in good standing.203 Under both HAMP Tier 1 and HAMP Tier 2, the QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 investor is entitled to five years of incentives that make up part of the difference between the borrower’s new monthly payment and the old one. As of September 30, 2013, of the $29.9 billion in TARP funds allocated to the 91 servicers participating in MHA, approximately 91% was allocated to the 10 largest servicers.204 Table 2.19 shows incentive payments made to these servicers. TABLE 2.19 TARP INCENTIVE PAYMENTS BY 10 LARGEST SERVICERS, AS OF 9/30/2013 SPA Cap Limit Incentive Payments to Borrowers Incentive Payments to Investors Incentive Payments to Servicers Total Incentive Payments Ocwen Loan Servicing, LLCa $5,672,546,645 $239,349,683 $664,196,794 $398,119,873 $1,301,666,351 JPMorgan Chase Bank, NAb 3,558,389,503 269,623,325 646,850,846 374,958,315 1,291,432,486 c Bank of America, N.A. 7,448,199,983 280,879,949 583,912,298 359,596,274 1,224,388,520 Wells Fargo Bank, N.A. 5,092,409,516 204,892,075 501,229,808 307,604,066 1,013,725,949 946,956,828 63,897,793 206,298,351 103,663,748 373,859,892 OneWest Bank 1,836,129,467 56,326,072 188,473,660 81,586,508 326,386,240 Select Portfolio Servicing, Inc. 1,246,322,584 66,958,390 131,806,834 95,027,270 293,792,494 Nationstar Mortgage LLC 1,011,891,244 51,172,340 116,512,760 79,500,475 247,185,575 100,807,086 19,655,075 41,738,413 39,413,598 100,807,086 d CitiMortgage Inc e Saxon Mortgage Services Inc U.S. Bank National Association Total 181,168,009 11,293,758 27,770,081 20,423,591 59,487,430 $27,094,820,864 $1,264,048,460 $3,108,789,845 $1,859,893,718 $6,232,732,023 Notes: On July 1, 2012, Saxon Mortgage Services, Inc. ceased servicing operations by selling its mortgage servicing rights and transferring the subservicing relationships to third-party servicers. The remaining SPA Cap Limit stated above represents the amount previously paid to Saxon Mortgage Services, Inc. prior to ceasing servicing operations. a Ocwen Loan Servicing includes the former Litton Loan Servicing, LLC, GMAC Mortgage, LLC, and Homeward Residential. b JPMorgan Chase includes EMC Mortgage Corporation. c Bank of America includes the former Countrywide Home Loans Servicing, BAC Home Loans Servicing LP, Home Loan Services, and Wilshire Credit Corporation. d Wells Fargo includes Wachovia Bank, NA and Wachovia Mortgage, FSB. e Nationstar includes MorEquity, Inc and the former Aurora Loan Services LLC. Source: Treasury, Transactions Report-Housing Programs, 9/27/2013. 89 90 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM MHA Outreach and Borrower Intake Project On February 14, 2013, Treasury entered into an agreement with the Neighborhood Reinvestment Corporation, also called NeighborWorks America (“NeighborWorks”), to launch a nationwide MHA initiative with housing counselors “in an effort to increase the number of homeowners that successfully request assistance under MHA.”205 NeighborWorks is a Congressionally chartered corporation that through a national network of non-profit organizations administers housing programs, including housing counseling.206 The initiative, called the MHA Outreach and Borrower Intake Project, will pay $450 to housing counseling agencies for each homeowner they worked with to submit complete applications for HAMP to servicers.207 Treasury allocated $18.3 million in TARP funds for the project.208 As of September 30, 2013, housing counselors have initiated HAMP application work for 2,647 homeowners, of whom 758 have had their completed applications submitted to an MHA servicer and accepted by that MHA servicer, whether or not the borrower eventually receives a mortgage modification.209 According to Treasury, housing counseling agencies are due $341,000 for those accepted applications.210 NeighborWorks has, as of September 30, 2013, requested $3.3 million in total funds, mostly for outreach, oversight, and administration, as well as for the counseling agency payments.211 HAMP Tier 2 Effective June 1, 2012, HAMP Tier 2 expanded HAMP.212 As in HAMP Tier 1, HAMP Tier 2 permits HAMP modifications on mortgages of owner-occupied properties, but unlike HAMP Tier 1, HAMP Tier 2 also permits HAMP modifications on mortgages of non-owner-occupied “rental” properties that are tenant-occupied or vacant.213 Under the original HAMP (now HAMP Tier 1), mortgage modifications for “rental” properties had been expressly excluded; HAMP Tier 2 also allows borrowers with a wider range of debt-to-income situations to receive modifications.214 Treasury’s stated policy objectives for HAMP Tier 2 are that it “will provide critical relief to both renters and those who rent their homes, while further stabilizing communities from the blight of vacant and foreclosed properties.”215 A borrower may have up to five loans with HAMP Tier 2 modifications, as well as a single HAMP Tier 1 modification on the mortgage for his or her primary residence.216 If a borrower loses “good standing” on a HAMP Tier 1 modification and it has either been at least one year since the effective date of that modification or there has been a “change in circumstance,” he or she is eligible for a HAMP Tier 2 remodification.217 Approximately 3,537 of HAMP Tier 2 modifications started were previously HAMP Tier 1 permanent modifications.218 According to Treasury, as of September 30, 2013, a total of 62 of the 91 servicers with active MHA servicer agreements had fully implemented HAMP Tier 2.219 The remaining 29 of those servicers will not implement HAMP Tier 2 because they are in the process of terminating their servicer participation agreement, they have gone out of business, their servicer participation agreement was signed to participate only in FHA-HAMP, RD-HAMP, or FHA-2LP, or they are winding down their non-GSE servicing operations.220 All 10 of the largest servicers have QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 For SIGTARP’s recommendations for the improvement of HAMP Tier 2, see SIGTARP’s April 2012 Quarterly Report, pages 185-189. reported that they had implemented HAMP Tier 2.221 According to Treasury, as of September 30, 2013, it had paid $24 million in incentives in connection with 21,522 HAMP Tier 2 permanent modifications, 20,826 of which remain active.222 According to Treasury, as of September 30, 2013, of the 38,018 HAMP Tier 2 trial mortgage modifications started, 35,263 (93%), were for owner-occupied properties; 2,415 (6%), were for tenant-occupied properties, and 340 (1%) were for vacant properties.223 Of owner-occupied properties that received a HAMP Tier 2 trial modification, 14,032 trial modifications (40%) were active and 19,769 (56%) were converted to permanent modifications, of which 19,129 (97%) were active.224 Of owner-occupied properties that received a HAMP Tier 2 trial modification, 1,462 (4%) were cancelled, and of those that received a permanent modification, 601 (3%) redefaulted.225 Nearly all (94%) tenant-occupied properties that received either a trial or permanent HAMP Tier 2 mortgage modification have remained active, as of September 30, 2013.226 Of vacant properties that received a HAMP Tier 2 trial modification, 119 (35%) were in active trial modifications, 192 (56%) were in active permanent modifications, and 22 (6%) had their trial modifications cancelled.227 HAMP Tier 2 mortgage modification activity and property occupancy status is shown in Table 2.20.228 TABLE 2.20 HAMP TIER 2 FIRST LIEN MODIFICATION ACTIVITY AND OCCUPANCY STATUS, AS OF 9/30/2013 Property Type Trials Started Trials Cancelled Owner Occupied 35,263 1,462 Tenant Occupied 2,415 340 38,018 1,577 Vacant Total Trials Trials Converted to Active Permanent Permanent Redefaulted Permanent Paid Off Permanent Active 14,032 19,769 601 39 19,129 93 768 1,554 46 3 1,505 22 119 199 7 0 192 14,919 21,522 654 42 20,826 Source: Treasury, response to SIGTARP data call, 10/21/2013. 91 92 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM HAMP Tier 2 Eligibility HAMP Tier 2 expands the eligibility criteria related to a borrower’s debt-to-income ratio and also allows modifications on loans secured by “rental” properties. Owneroccupied loans that are ineligible for a HAMP Tier 1 modification due to excessive forbearance or negative NPV are also eligible for Tier 2. Vacant rental properties are permitted in the program, as are those occupied by legal dependents, parents, or grandparents, even if no rent is charged. The program is not, however, according to Treasury, intended for vacation homes, second homes, or properties that are rented only seasonally. Additionally, loans on rental properties must be at least two payments delinquent – those in imminent default are not eligible.229 However, Treasury does not require that the property be rented. Treasury requires only that a borrower certify intent to rent the property to a tenant on a year-round basis for at least five years, or make “reasonable efforts” to do so; and does not intend to use the property as a second residence for at least five years.230 According to Treasury, servicers are not typically required to obtain third-party verifications of the borrower’s rental property certification when evaluating a borrower for HAMP.231 To be considered for HAMP Tier 2, borrowers must satisfy several basic HAMP requirements: the loan origination date must be on or before January 1, 2009; the borrower must have a documented hardship; the property must conform to the MHA definition of a “single-family residence” (1-4 dwelling units, including condominiums, co-ops, and manufactured housing); the property must not be condemned; and the loan must fall within HAMP’s unpaid principal balance limitations.232 If a borrower satisfies these requirements, and in addition, the loan has never been previously modified under HAMP (except for the exceptions discussed above), the servicer is required to solicit the borrower for HAMP Tier 2. In certain other cases, the borrower may still be eligible for HAMP Tier 2, but the servicer is not required to solicit the borrower.233 How HAMP Tier 2 Modifications Work As with HAMP Tier 1, HAMP Tier 2 evaluates borrowers using an NPV test that considers the value of the loan to the investor before and after a modification. Owner-occupant borrowers are evaluated for both HAMP Tier 1 and Tier 2 in a single process. If a borrower is eligible for both modifications, he or she will receive a HAMP Tier 1 modification.234 As discussed above, HAMP Tier 1 modifications are structured using a waterfall of incremental steps that may stop as soon as the 31% post-modification DTI ratio target is reached. In HAMP Tier 2, the proposed permanent modification must meet two affordability requirements: (1) a post-modification DTI ratio of not less than 25% or greater than 42% and (2) a reduction of the monthly principal and interest payment by at least 10%. The post-modification DTI ratio range increased in February 2013 to not less than 10% or greater than 55%. If the borrower was previously in a HAMP Tier 1 modification (either trial or permanent), then the new payment must be at least 10% below the previously modified payment. Because QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 HAMP Tier 2 does not target a specific DTI ratio, the HAMP Tier 2 waterfall is not a series of incremental steps, but a consistent set of actions that are applied to the loan. After these actions are applied, if the result of the NPV test is positive and the modification also achieves the DTI and payment reduction goals, the servicer must offer the borrower a HAMP Tier 2 modification. If the result of the HAMP Tier 2 NPV test is negative, modification is optional.235 As in the HAMP Tier 1 waterfall, the first step in structuring a HAMP Tier 2 modification is to capitalize any unpaid interest and fees. The second step changes the interest rate to the “Tier 2 rate,” which is the current Freddie Mac Primary Mortgage Market Survey rate plus a 0.5% risk adjustment. The third step extends the term of the loan by up to 40 years from the modification effective date. Finally, if the loan’s pre-modification mark-to-market LTV ratio is greater than 115%, the servicer forbears principal in an amount equal to the lesser of (1) an amount that would create a post-modification LTV ratio of 115%, or (2) an amount equal to 30% of the post-modification principal balance. Unlike HAMP Tier 1, there is no excessive forbearance limit in HAMP Tier 2. The HAMP Tier 2 guidelines also include several exceptions to this waterfall to allow for investor restrictions on certain types of modifications.236 The HAMP Tier 2 NPV model also evaluates the loan using an “alternative modification waterfall” in addition to the one described here. This waterfall uses principal reduction instead of forbearance. However, as in HAMP Tier 1, principal reduction is optional. Servicers may also reduce principal on HAMP Tier 2 modifications using PRA.237 HAMP Tier 2 incentives are the same as those for HAMP Tier 1, with some exceptions, notably that HAMP Tier 2 modifications do not pay annual borrower or servicer incentives.238 Home Price Decline Protection (“HPDP”) HPDP provides investors with incentives for modifications of loans on properties located in areas where home prices have recently declined and where investors are concerned that price declines may persist. HPDP incentive payments are linked to the rate of recent home price decline in a local housing market, as well as the unpaid principal balance and mark-to-market LTV ratio of the mortgage loan.239 HPDP is intended to address the fears of investors who may withhold their consent to loan modifications because of potential future declines in the value of the homes that secure the mortgages, should the modification fail and the loan go into foreclosure.240 Under HPDP, Treasury has published a standard formula, based on the principal balance of the mortgage, the recent decline in area home prices during the six months before the start of the HAMP modification, and the LTV ratio, that will determine the size of the incentive payment.241 The HPDP incentive payments accrue monthly over a 24-month period and are paid annually on the first and second anniversaries of the initial HAMP trial period. Accruals are discontinued if the borrower loses good standing under HAMP because he or she is delinquent by three mortgage payments. As of September 30, 2013, according to Treasury, 93 94 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM approximately $335.8 million in TARP funds had been paid for incentives on 210,505 (Tier 1 and Tier 2) loan modifications under HPDP.242 Principal Reduction Alternative (“PRA”) PRA is intended to encourage principal reduction in HAMP loan modifications for underwater borrowers by providing mortgage investors with incentive payments in exchange for lowering the borrower’s principal balance. PRA is an alternative method to the standard HAMP modification waterfall for structuring a HAMP modification. Although servicers are required to evaluate every non-GSE HAMPeligible borrower with an LTV of 115% or greater for PRA, whether to actually offer principal reduction or not is up to the servicer.243 Because the GSEs, Fannie Mae and Freddie Mac, have refused to participate in PRA, the program applies only to loans modified under TARP-funded HAMP.244 As of September 30, 2013, there were 104,771 active permanent modifications in PRA.245 According to Treasury, 85% of borrowers who received PRA modifications were seriously delinquent on their mortgages at the start of the trial modification.246 As of September 30, 2013, PRA borrowers had a pre-modification median LTV ratio of 152%.247 After modification, however, PRA borrowers lowered their LTVs to a median ratio of 115%. As of September 30, 2013, the latest data provided by Treasury, PRA modifications reduced principal balances by a median amount of $72,686 or 32%, thereby lowering the LTV ratio.248 As of September 30, 2013, servicers had started 150,532 PRA trial modifications, of which 14,626 were still active trials, 124,093 had converted to permanent modifications, and 11,813 (or 8%) were subsequently cancelled or disqualified from the program.249 Of the PRA trials that converted to permanent modifications, 104,771 were still active as of September 30, 2013, and 18,807 (or 15%) redefaulted.250 Who Is Eligible Borrowers who meet all HAMP eligibility requirements and who owe more than 115% of their home’s market value (LTV >115%) are eligible for PRA.251 The principal balance used in this LTV calculation includes any amounts that would be capitalized under a HAMP modification.252 Eligible borrowers are evaluated by running NPV tests. There are standard and alternative NPV tests for HAMP Tier 1 and HAMP Tier 2. If the standard waterfall produces a positive NPV result, the servicer must offer a HAMP modification (with or without principal reduction). If the PRA waterfall using principal reduction produces a positive NPV result, the servicer may, but is not required to, offer a modification using principal reduction.253 How PRA Works For HAMP Tier 1, the PRA waterfall uses principal forbearance (which later becomes principal reduction) prior to interest rate reduction as the second step in structuring the modification. Under PRA, the servicer determines the modified QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 95 mortgage payment by first capitalizing unpaid interest and fees as in a standard HAMP modification. After capitalization, the servicer reduces the loan balance through principal forbearance until either a DTI ratio of 31% or an LTV ratio of 115% is achieved. No interest will be collected on the forborne amount. If an LTV ratio of 105% to 115% is achieved first, the servicer then applies the remaining HAMP waterfall steps (interest rate reduction, term extension, forbearance) until the 31% DTI ratio is reached. If the principal balance has been reduced by more than 5%, the servicer is allowed additional flexibility in implementing the remaining waterfall steps. Principal reduction is not immediate; it is earned over three years. On each of the first three anniversaries of the modification, one-third of the PRA forborne principal is forgiven. Therefore, after three years the borrower’s principal balance is permanently reduced by the amount that was placed in PRA forbearance.254 Who Gets Paid For PRA trials effective on or after March 1, 2012, the mortgage investors earn an incentive of $0.18 to $0.63 per dollar of principal reduced, depending on delinquency status of the loan and the level to which the outstanding LTV ratio was reduced.255 For loans that are more than six months delinquent, investors receive only $0.18 per dollar of principal reduction, regardless of LTV.256 The incentive schedule in Table 2.21 applies only to loans that have been six months delinquent or less within the previous year. Under certain conditions an investor may enter into an agreement with the borrower to share any future increase in the value of the property.257 According to Treasury, as of September 30, 2013, Treasury had paid a total of $405.1 million in PRA incentives.258 Home Affordable Unemployment Program (“UP”) UP, which was announced on March 26, 2010, provides temporary assistance to unemployed borrowers.259 Under the program, unemployed borrowers who meet certain qualifications can receive forbearance for a portion of their mortgage payments. Originally, the forbearance period was a minimum of three months, unless the borrower found work during this time. However, on July 7, 2011, after a SIGTARP recommendation to extend the term, Treasury announced that it would increase the minimum UP forbearance period from three months to 12 months. As of August 31, 2013, which according to Treasury is the latest data available, 5,739 borrowers were actively participating in UP.260 Who Is Eligible Borrowers who are approved to receive unemployment benefits and who also request assistance under HAMP must be evaluated by servicers for an UP forbearance plan and, if eligible, offered one. As of June 1, 2012, a servicer may consider a borrower for UP whose loan is secured by a vacant or tenant-occupied property and still must consider owner-occupied properties. The servicer must consider a borrower for UP regardless of the borrower’s monthly mortgage payment TABLE 2.21 PRA INCENTIVES TO INVESTORS PER DOLLAR OF FIRST LIEN PRINCIPAL REDUCED Mark-to-Market Loan-to-Value Ratio (“LTV”) Rangea Incentive Amounts 105% to 115% $0.63 115% to 140% > 140% $0.45 $0.30 Notes: This incentive structure applies to loans less than or equal to six months past due. For loans that were more than six months delinquent within the previous year, investors receive $0.18 per dollar of principal reduced in compensation, regardless of the LTV ratio. These incentives are effective for trials beginning on or after 3/1/2012. a The mark-to-market LTV is based on the pre-modified principal balance of the first-lien mortgage plus capitalized interest and fees divided by the market value of the property. Source: Treasury, “Supplemental Directive 12-01: Making Home Affordable Program – Principal Reduction Alternative and Second Lien Modification Program Investor Incentives Update,” 2/16/2012, www.hmpadmin.com/portal/news/docs/2012/ hampupdate021612.pdf, accessed 10/1/2013. 96 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM For more information on additional UP eligibility criteria, see SIGTARP’s April 2011 Quarterly Report, pages 80-81. ratio and regardless of whether the borrower had a payment default on a HAMP trial plan or lost good standing under a permanent HAMP modification. Servicers are not required to offer an UP forbearance plan to borrowers who are more than 12 months delinquent at the time of the UP request.261 Alternatively, the servicers may evaluate unemployed borrowers for HAMP and offer a HAMP trial period plan instead of an UP forbearance plan if, in the servicer’s business judgment, HAMP is the better loss mitigation option. If an unemployed borrower is offered a trial period plan but requests UP forbearance instead, the servicer may then offer UP, but is not required to do so.262 Eligible borrowers may request a HAMP trial period plan after the UP forbearance plan is completed. If an unemployed borrower in bankruptcy proceedings requests consideration for HAMP, the servicer must first evaluate the borrower for UP, subject to any required bankruptcy court approvals.263 A borrower who has been determined to be ineligible for HAMP may request assessment for an UP forbearance plan if he or she meets all the eligibility criteria.264 If a borrower who is eligible for UP declines an offer for an UP forbearance plan, the servicer is not required to offer the borrower a modification under HAMP or 2MP while the borrower remains eligible for an UP forbearance plan.265 How UP Works For qualifying homeowners, the mortgage payments during the forbearance period are lowered to no more than 31% of monthly gross income, which includes unemployment benefits.266 If the borrower regains employment, but because of reduced income still has a hardship, the borrower must be considered for HAMP. If the borrower is eligible, any payments missed prior to and during the period of the UP forbearance plan are capitalized as part of the normal HAMP modification process.267 If the UP forbearance period expires and the borrower is ineligible for HAMP, the borrower may be eligible for MHA foreclosure alternatives, such as HAFA.268 Deficiency Judgment: Court order authorizing a lender to collect all or part of an unpaid and outstanding debt resulting from the borrower’s default on the mortgage note securing a debt. A deficiency judgment is rendered after the foreclosed or repossessed property is sold when the proceeds are insufficient to repay the full mortgage debt. Home Affordable Foreclosure Alternatives (“HAFA”) HAFA provides $4.2 billion in incentives to servicers, borrowers, and subordinate lien holders to encourage a short sale or deed-in-lieu of foreclosure as an alternative to foreclosure.269 Under HAFA, the servicer forfeits the ability to pursue a deficiency judgment against a borrower when the proceeds from the short sale or deed-in-lieu are less than the outstanding amount on the mortgage.270 HAFA incentives include a $3,000 relocation incentive payment to borrowers or tenants, a $1,500 incentive payment to servicers, and incentive payments to subordinate mortgage lien holders of up to $2,000 in exchange for a release of the lien and the borrower’s liability.271 The program was announced on November 30, 2009.272 Treasury allows each servicer participating in HAFA to determine its own policies for borrower eligibility and many other aspects of how it operates the program, but requires the servicers to post criteria and program rules on their websites. According to Treasury, as of September 30, 2013, all but three have complied with this requirement.273 Servicers must notify eligible borrowers in QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 writing about the availability of the HAFA program and allow the borrower a minimum of 14 calendar days to apply.274 Servicers are not required by Treasury to verify a borrower’s financial information or determine whether the borrower’s total monthly payment exceeds 31% of his or her monthly gross income.275 Effective March 9, 2012, Treasury no longer required properties in HAFA to be occupied, allowing vacant properties to enter the program. However, relocation incentives will be paid only on occupied properties.276 As of September 30, 2013, approximately $672.6 million from TARP had been paid to investors, borrowers, and servicers under HAFA.277 As of August 31, 2013, the latest data provided by Treasury, 135,112 short sales or deeds-in-lieu of foreclosure transfers were completed under HAFA.278 As of August 31, 2013, the latest data provided by Treasury, Treasury reported that the eight largest servicers alone had completed 312,478 short sales and deeds-in-lieu outside HAMP for borrowers whose HAMP trial modifications had failed, borrowers who had chosen not to participate, or were ineligible for the program.279 The greater volume of activity outside HAFA may be explained, in part, by the fees and deficiency judgments that servicers are able to collect from the borrower in non-HAFA transactions, which are not available within HAFA. For more information about relocation incentives and borrower requirements related to primary residences in HAFA, see SIGTARP’s January 2012 Quarterly Report, pages 70-71. Second-Lien Modification Program (“2MP”) According to Treasury, 2MP, which was announced on August 13, 2009, is designed to provide modifications to the loans of borrowers with second mortgages of at least $5,000 with monthly payments of at least $100 that are serviced by a participating 2MP servicer, or full extinguishment of second mortgages below those thresholds. When a borrower’s first lien is modified under HAMP and the servicer of the second lien is a 2MP participant, that servicer must offer to modify or may extinguish the borrower’s second lien. Treasury pays the servicer a lump sum for full extinguishment of the second-lien principal or in exchange for a partial extinguishment (principal reduction) and modification of the remainder of the second lien.280 Second-lien servicers are not required to verify any of the borrower’s financial information and do not perform a separate NPV analysis.281 There is no minimum principal balance for a full extinguishment of a second lien under 2MP. For a second-lien modification under 2MP, the servicer first capitalizes any accrued interest and servicing advances, then reduces the interest rate to 1% to 2% for the first five years. After the five-year period, the rate increases to match the rate on the HAMP-modified first lien. When modifying the second lien, the servicer must, at a minimum, extend the term to match the term of the first lien, but can also extend the term up to a maximum of 40 years. To the extent that there is forbearance or principal reduction for the modified first lien, the second-lien holder must forbear or forgive at least the same percentage on the second lien.282 According to Treasury, as of September 30, 2013, 136,678 HAMP modifications had second liens that were eligible for 2MP.283 As of September 30, 2013, there were 76,935 active permanent modifications of second Servicing Advances: If borrowers’ payments are not made promptly and in full, servicers are contractually obligated to advance the required monthly payment amount in full to the investor. Once a borrower becomes current or the property is sold or acquired through foreclosure, the servicer is repaid all advanced funds. 97 98 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.22 2MP COMPENSATION PER DOLLAR OF SECOND-LIEN PRINCIPAL REDUCED (FOR 2MP MODIFICATIONS WITH AN EFFECTIVE DATE ON OR AFTER 6/1/2012) Combined Loanto-Value (“CLTV”) Ratio Rangea Incentive Amounts < 115% 115% to 140% > 140% $0.42 $0.30 $0.20 Notes: This incentive structure applies to loans less than or equal to six months past due. For loans that were more than six months delinquent within the previous year, investors receive $0.12 per dollar of principal reduced in compensation, regardless of the CLTV ratio. a Combined Loan-to-Value is the ratio of the sum of the outstanding principal balance of the HAMP-modified first lien and the outstanding principal balance of the unmodified second lien divided by the property value determined in connection with the permanent HAMP modification. Source: Treasury, “Supplemental Directive 12-03: Making Home Affordable Program – Handbook Mapping for MHA Extension and Expansion and Administrative Clarifications on Tier 2,” 4/17/2012, www.hmpadmin.com//portal/programs/docs/ hamp_servicer/sd1203.pdf, accessed 10/1/2013. liens.284 New 2MP modifications sharply peaked in March 2011 and have been generally declining since then. Most of the activity under the program has been modifications to the terms of the second liens. As of September 30, 2013, median principal reduction was $9,940 for partial extinguishments of second liens and $61,045 for full extinguishments of second liens.285 According to Treasury, as of September 30, 2013, approximately $431 million in TARP funds had been paid to servicers and investors under 2MP.286 As of September 30, 2013, there were 160,620 second-lien full and partial extinguishments and modifications under 2MP.287 The servicer receives a $500 incentive payment upon modification of a second lien and is eligible for further incentives if certain conditions are met. The borrower is eligible for an annual principal reduction payment of up to $250 per year for up to five years.288 Investors receive modification incentive payments equal to an annualized amount of 1.6% of the unmodified principal balance, paid on a monthly basis for up to five years.289 In addition, investors also receive incentives for fully or partially extinguishing the second lien on 2MP modifications. The current incentive schedule for loans six months delinquent or less is shown in Table 2.22. For loans that have been more than six months delinquent within the previous 12 months, investors are paid $0.12 for each dollar of principal reduced.290 Agency-Insured Loan Programs (FHA-HAMP, RD-HAMP, and VA-HAMP) Some mortgage loans insured or guaranteed by the Federal Housing Administration (“FHA”), Department of Veterans Affairs (“VA”), or the U.S. Department of Agriculture Rural Development (“RD”) are eligible for modification under programs similar to HAMP Tier 1 that reduce borrowers’ monthly mortgage payments to 31% of their monthly gross income. Borrowers are eligible to receive a maximum $1,000 annual incentive for five years and servicers are eligible to receive a maximum $1,000 annual incentive from Treasury for three years on mortgages in which the monthly payment was reduced by at least 6%.291 As of September 30, 2013, according to Treasury, approximately $33.5 million in TARP funds had been paid to servicers and borrowers in connection with FHA-HAMP modifications.292 According to Treasury, only $63,833 of TARP funds has been spent on the modifications under RD-HAMP.293 As of September 30, 2013, there were 14,895 active permanent Treasury/FHA-HAMP modifications and 77 active permanent modifications under RD-HAMP.294 Treasury does not provide incentive compensation related to VA-HAMP.295 Treasury/FHA Second-Lien Program (“FHA2LP”) FHA2LP, which was launched on September 27, 2010, provides incentives for partial or full extinguishment of non-GSE second liens of at least $2,500 originated on or before January 1, 2009, associated with an FHA refinance.296 Borrowers must also meet the eligibility requirements of FHA Short Refinance. According to Treasury, as of September 30, 2013, it had not made any incentive payments under QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FHA2LP, and no second liens had been partially written down or extinguished.297 TARP has allocated $2.7 billion for incentive payments to (1) investors ranging from $0.10 to $0.21 based on the LTV of pre-existing second-lien balances that are partially or fully extinguished under FHA2LP, or they may negotiate with the firstlien holder for a portion of the new loan, and (2) servicers, in the amount of $500 for each second-lien mortgage in the program.298 For more information concerning FHA2LP eligibility, see SIGTARP’s April 2011 Quarterly Report, pages 85-87. Housing Finance Agency Hardest Hit Fund (“HHF”) On February 19, 2010, the Administration announced a housing support program known as the Hardest Hit Fund. Under HHF, TARP dollars would fund “innovative measures” developed by 19 state housing finance agencies and approved by Treasury to help families in housing markets hit the hardest by the housing crisis.299 The first round of HHF allocated $1.5 billion of the amount initially allocated for MHA initiatives. According to Treasury, these funds were designated for five states where the average home price had decreased more than 20% from its peak. The five states were Arizona, California, Florida, Michigan, and Nevada.300 Plans to use these funds were approved by Treasury on June 23, 2010.301 On March 29, 2010, Treasury expanded HHF to include five additional states and increased the program’s potential funding by $600 million, bringing total funding to $2.1 billion. The additional $600 million was designated for North Carolina, Ohio, Oregon, Rhode Island, and South Carolina. Treasury indicated that these states were selected because of their high concentrations of people living in economically distressed areas, defined as counties in which the unemployment rate exceeded 12%, on average, in 2009.302 Plans to use these funds were approved by Treasury on August 3, 2010.303 On August 11, 2010, Treasury pledged a third round of HHF funding of $2 billion to states with unemployment rates at or above the national average.304 The states designated to receive funding were Alabama, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, and Washington, DC.305 Treasury approved third round proposals on September 23, 2010.306 On September 29, 2010, a fourth round of HHF funding of an additional $3.5 billion was made available to existing HHF participants.307 Treasury allocated the $7.6 billion in TARP funds to 18 states and the District of Columbia and has over time approved HHF programs in several categories:308 • • • • • Unemployment assistance, including past-due payment assistance Mortgage modification, including principal reduction assistance Second-lien reduction assistance Transition assistance, including short sale and deed-in-lieu of foreclosure Demolition Each state reports program results (i.e., number of applications approved or denied and assistance provided) on a quarterly basis on its own state website. Treasury indicated that states can reallocate funds between programs and modify See Section 3 of this report for additional information on HHF. 99 100 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM For more information on HHF, see SIGTARP’s April 12, 2012, audit report, “Factors Affecting Implementation of the Hardest Hit Fund Program.” existing programs as needed, with Treasury approval, until December 31, 2017. According to Treasury, between June 30, 2013 and September 30, 2013, 10 states have reallocated funds, modified or eliminated existing programs, or established new HHF programs with Treasury approval, increasing the total number of HHF programs in 18 states and Washington, DC, as of September 30, 2013, to 66, up from 63 programs as of June 30, 2013.309 As of September 30, 2013, of the $7.6 billion in TARP funds available for HHF, states had drawn down $2.9 billion.310 As of June 30, 2013, states had spent $1.7 billion (22%) of available funds to assist 126,858 individual homeowners, spent $308.5 million (4%) for administrative expenses, and held $719.7 million (9%) as unspent cash-on-hand.311,vi,vii According to Treasury, in the quarter from March 31, 2013 to June 30, 2013, HHF had spent $333.2 million to help 16,984 homeowners.312 Each state estimates the number of borrowers to be helped in its programs. Treasury allows the states to change this estimate, which was as high as 546,562 in the aggregate in March 2011.313 The aggregate of these estimates has decreased in the last two years. This is true even from last quarter. As of March 31, 2013, the 19 states collectively estimated helping as many as 374,795 homeowners over the life of the program. By June 30, 2013, the collective estimate had decreased by approximately 7,505 homeowners, or 2%, bringing to as many as 367,290 the estimated number of homeowners to be helped over the life of the program.314 As of June 30, 2013, 86.9% of the HHF assistance received by homeowners was for unemployment assistance, including past-due payment assistance. The remaining assistance can be broken down to 12.5% for mortgage modification, including principal reduction assistance, 0.4% for second-lien reduction assistance, and 0.2% for transition assistance.315 States had not spent any funds on demolition programs as of June 30, 2013.316 FHA Short Refinance Program On March 26, 2010, Treasury and HUD announced the FHA Short Refinance program, which gives borrowers the option of refinancing an underwater, nonFHA-insured mortgage into an FHA-insured mortgage at 97.75% of the home’s value. At that time, Treasury had allocated $8.1 billion to the program, but in March 2013, because of what it characterized as low participation rates, Treasury reduced TARP funds allocated for the FHA Short Refinance program to $1 billion to provide loss protection to FHA through a letter of credit, plus up to $25 million in fees for the letter of credit.317 FHA Short Refinance is voluntary for servicers. Therefore, not all underwater borrowers who qualify may be able to participate in the program.318 As of September 30, 2013, according to Treasury, 3,552 loans vi According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; HFAs [states] vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. vii States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 had been refinanced under the program.319 As of September 30, 2013, Treasury has paid $47,840 on one claim for one default under the program. According to Treasury, only one FHA Short Refinance loan has defaulted; however, it is possible that more loans have defaulted but FHA has not yet evaluated the claims.320 Treasury has deposited $50 million into a reserve account for future claims.321 It has also spent approximately $8.9 million on administrative expenses associated with the letter of credit.322 Who Is Eligible To be eligible for FHA Short Refinance, a homeowner must be current on the existing first-lien mortgage or have made three successful trial period payments; be in a negative equity position; occupy the home as a primary residence; qualify for the new loan under standard FHA underwriting and credit score requirements; and have an existing loan that is not insured by FHA.323 According to the Department of Housing and Urban Development (“HUD”), it evaluates the credit risk of the loans.324 How FHA Short Refinance Works Servicers must first determine the current value of the home using a third-party appraisal by a HUD-approved appraiser. The borrower is then reviewed for credit risk and, if necessary, referred for a review to confirm that the borrower’s total monthly mortgage payments on all liens after the refinance is not greater than 31% of the borrower’s monthly gross income and the borrower’s total household debt is not greater than 50%.325 Next, the lien holders must forgive principal that is more than 115% of the value of the home. In addition, the original first-lien lender must forgive at least 10% of the unpaid principal balance of the first-lien loan, in exchange for a cash payment for 97.75% of the current home value from the proceeds of the refinance. The lender may maintain a subordinate second lien for up to 17.25% of that value (for a total balance of 115% of the home’s value).326 If a borrower defaults, the letter of credit purchased by Treasury compensates the investor for a first percentage of losses, up to specified amounts.327 For mortgages originated between October 1, 2012, and May 31, 2013, the letter of credit would cover approximately 4.38-18.85% of the unpaid principal balance at default.328 FHA is responsible for the remaining losses on each mortgage. Funds may be paid from the FHA Short Refinance letter of credit until the earlier of either (1) the time that the $1 billion letter of credit is exhausted, or (2) 10 years from the issuance of the letter of credit (October 2020), at which point FHA will bear all of the remaining losses.329 Treasury’s letter of credit ended on June 1, 2013. This leaves FHA solely responsible for covering any losses for mortgages originated on or after June 1, 2013, through September 30, 2014. According to Treasury, Treasury and FHA are in discussions about Treasury’s letter of credit covering losses from September 30, 2014, through December 30, 2014.330 For more information concerning FHA Short Refinance eligibility, see SIGTARP’s April 2011 Quarterly Report, pages 85-87. 101 102 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FINANCIAL INSTITUTION SUPPORT PROGRAMS Mandatorily Convertible Preferred Stock (“MCP”): A type of preferred share (ownership in a company that generally entitles the owner of the shares to collect dividend payments) that can be converted to common stock under certain parameters at the discretion of the company – and must be converted to common stock by a certain time. Subordinated Debentures: Form of debt security that ranks below other loans or securities with regard to claims on assets or earnings. For discussion of SIGTARP’s recommendations on TARP exit paths for community banks, see SIGTARP’s October 2011 Quarterly Report, pages 167-169. For discussion of SIGTARP’s recommendations issued on October 9, 2012, regarding CPP preferred stock auctions, see SIGTARP’s October 2012 Quarterly Report, pages 180-183. Treasury created six TARP programs through which it made capital investments or asset guarantees in exchange for equity in participating financial institutions. Three of the programs, the Capital Purchase Program (“CPP”), the Community Development Capital Initiative (“CDCI”), and the Capital Assistance Program (“CAP”), were open to all qualifying financial institutions. The other three, the Systemically Significant Failing Institutions (“SSFI”) program, the Targeted Investment Program (“TIP”), and the Asset Guarantee Program (“AGP”), were available on a case-by-case basis to institutions that needed assistance beyond that available through CPP. With the expiration of TARP funding authorization, no new investments can be made through these six programs. According to Treasury, to help improve the capital structure of some struggling TARP recipients, Treasury has agreed to modify its investment in certain cases by converting the preferred stock it originally received into other forms of equity, such as common stock or mandatorily convertible preferred stock (“MCP”).331 Capital Purchase Program Treasury’s stated goal for CPP was to invest in “healthy, viable institutions” as a way to promote financial stability, maintain confidence in the financial system, and enable lenders to meet the nation’s credit needs.332 CPP was a voluntary program open by application to qualifying financial institutions, including U.S.-controlled banks, savings associations, and certain bank and savings and loan holding companies.333 Under CPP, Treasury used TARP funds predominantly to purchase preferred equity interests in the financial institutions. The institutions issued Treasury senior preferred shares that pay a 5% annual dividend for the first five years and a 9% annual dividend thereafter. Sixty-one, or 56%, of the banks with remaining principal investments in CPP as of September 30, 2013, will experience the rate hike to 9% between November 2013 and February 2014; the remaining banks will see their rates increase by the end of 2014.334 In addition to the senior preferred shares, publicly traded institutions issued Treasury warrants to purchase common stock with an aggregate market price equal to 15% of the senior preferred share investment.335 Privately held institutions issued Treasury warrants to purchase additional senior preferred stock worth 5% of Treasury’s initial preferred stock investment.336 In total, Treasury invested $204.9 billion of TARP funds in 707 institutions through CPP.337 According to Treasury, through CPP, in total Treasury purchased $204.9 billion in preferred stock and subordinated debentures from 707 institutions in 48 states, the District of Columbia, and Puerto Rico. Status of Funds As of September 30, 2013, 139 of those 707 institutions remained in CPP; in 31 of them, Treasury holds only warrants to purchase stock. Treasury does not consider these 31 institutions to be in TARP, however Treasury applies all proceeds from the sale of warrants in these banks to recovery amounts in TARP’s CPP program. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 As of September 30, 2013, 108 of the 139 institutions had outstanding principal investments. Taxpayers were still owed $7 billion.338 According to Treasury, it had write-offs, realized losses, and investments currently not collectible as a result of bankruptcy of $4.6 billion in the program, leaving $2.4 billion in TARP funds outstanding. Included as investments currently not collectible are those in 24 CPP banks, or their subsidiary banks, with total CPP investments of $770.7 million that are in the process of bankruptcy. While Treasury has not yet realized those losses, it expects that all of its investments in the banks will be lost.339 As of September 30, 2013, $195.7 billion of the CPP principal (or 96%) had been repaid.340 The repayment tally includes $363.3 million in preferred stock that was converted from CPP investments into CDCI and therefore still represents outstanding obligations to TARP. Additionally, $2.2 billion was refinanced in 2011 into SBLF, a non-TARP Government program.341 As of September 30, 2013, Treasury had received approximately $12 billion in interest and dividends from CPP recipients. Treasury also had received $7.9 billion through the sale of CPP warrants that were obtained from TARP recipients.342 For a complete list of CPP share repurchases, see Appendix D: “Transaction Detail.” Of the 707 banks that received CPP investments, 599 banks no longer have outstanding principal investments in CPP. Nearly a quarter of the 707 banks, or 165, refinanced into other government programs — 28 of them into TARP’s CDCI and 137 into the Small Business Lending Fund (“SBLF”), a non-TARP program.343 Only 230 of the 707 banks, or 33%, fully repaid CPP principal otherwise.344 Of the other banks that no longer have outstanding principal investments, four CPP banks merged with other CPP banks; Treasury sold its investments in 22 banks for less than par and sold at auction its investments in 151 banks and part of its investment in an additional bank (all but eight of these investments sold at a loss); and 27 institutions or their subsidiary banks failed, meaning Treasury has lost or expects to lose its entire investment in those banks.345 Figure 2.5 shows the status of the 707 CPP recipients as of September 30, 2013. Although the 10 largest investments accounted for $142.6 billion of the program, CPP made many smaller investments: 311 of the 707 recipients received less than $10 million.346 None of the banks that received investments greater than $1 billion remain in CPP. All but two of the recipients with remaining principal investments have outstanding investments of less than $100 million, with more than half of the banks with remaining principal investments, or 60%, having outstanding investments of less than $10 million.347 Table 2.23 shows the distribution of investments by amount. FIGURE 2.5 STATUS OF CPP RECIPIENTS, AS OF 9/30/2013 1% 1% 20% 33% 4% 3% 4% 19% 15% Fully Repaid Principal (230) Remaining Principal Investment in CPP (108) Refinanced into SBLF (137) Refinanced into CDCI (28) Sold for less than par (22) Failed/subsidiary failed (27) Merged (4) Auction: Sold at loss (143) Auction: Sold at profit (8) Note: 31 banks repaid CPP principal but remain in TARP with Treasury holding only warrants. Source: Treasury, response to SIGTARP data call, 10/7/2013. 103 104 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.23 CPP INVESTMENT SIZE BY INSTITUTION, AS OF 9/30/2013 Principal Investmenta Outstanding Principalb 6 0 $1 billion to $10 billion 19 0 $100 million to $1 billion 57 2 $10 million to $100 million 314 41 Less than $10 million 311 65 Total 707 108 $10 billion or more Notes: Data 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 Amount does not include those investments that have already been repaid, sold to a third party at a discount, merged out of the CPP portfolio, exchanged their CPP investments for an investment under CDCI, or are related to institutions that filed for bankruptcy protection or had a subsidiary bank fail. Figures are based on total investments outstanding. Included in those figures are the six banks that were converted to common shares at a discount. The outstanding amount represented is the original par value of the investment. Amount does not include the 137 banks that refinanced under SBLF. Amount does not include 31 institutions that have repaid their CPP principal but still have warrants outstanding. Source: Treasury, response to SIGTARP data call, 10/3/2013. As of September 30, 2013, of the 108 banks with remaining principal investments in CPP, 28 were in the Southeast region, 21 were in the Midwest region, 20 were in the Mid-Atlantic/Northeast region, 16 were in the Southwest/ South Central region, 12 were in the West region, and 11 were in the Mountain West/Plains region. The Southeast region and the Mid-Atlantic/Northeast region had the largest total remaining CPP investments; $1.5 billion and $297.5 million, respectively. These regions were followed in remaining CPP investments by the Midwest region ($190.7 million), the Southwest/South Central region ($189 million), the Mountain West/Plains region ($122.8 million), and the West region ($83 million). Table 2.24 and Figure 2.6 show the geographical distribution of the banks that remain in CPP as of September 30, 2013, by region. Tables 2.25–2.30 show the distribution by state. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.24 BANKS WITH CPP PRINCIPAL REMAINING, BY REGION, AS OF 9/30/2013 Banks with Remaining Principal Principal Investment Remaining Number of Banks with Missed Dividend/Interest Payments Value of Missed Dividend/Interest Payments West 12 $83,032,000 10 $12,136,421 Mountain West/Plains 11 122,830,000 6 9,840,248 Southwest/South Central 16 189,001,000 12 22,188,144 Midwest 21 190,662,788 14 32,740,535 Mid-Atlantic/Northeast 20 297,486,000 13 28,851,214 Southeast Total 28 1,489,217,602 20 34,483,618 108 $2,372,229,390 75 $140,240,180 FIGURE 2.6 AMOUNT OF CPP PRINCIPAL INVESTMENT REMAINING, BY REGION, AS OF 9/30/2013 AK MOUNTAIN WEST/ PLAINS $123 MILLION WA MT OR ID WEST $83 MILLION CA HI NV ND WY MN AZ WI SD CO IL KS OK NM MO AR OH IN PA WV VA KY NH MA CT RI NJ DE MD NC TN MS AL TX MID-ATLANTIC/ NORTHEAST VT ME $297 MILLION NY MI IA NE UT MIDWEST $191 MILLION SC GA SOUTHEAST $1.5 BILLION LA FL SOUTHWEST/ SOUTH CENTRAL $189 MILLION WEST MOUNTAIN WEST/PLAINS SOUTHWEST/SOUTH CENTRAL MIDWEST MID-ATLANTIC/NORTHEAST SOUTHEAST PR 105 106 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM West TABLE 2.25 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 9/30/2013 Principal Investment Remaining AK 0 $0 0 $0 CA 11 79,816,000 10 12,136,421 HI 0 0 0 0 OR 1 3,216,000 0 0 WA AK OR CA Number of Banks with Missed Value of Missed Dividend/Interest Dividend/Interest Payments Payments Banks with Remaining Principal WA Total 0 0 0 0 12 $83,032,000 10 $12,136,421 HI WEST Principal investment remaining in CPP banks >$100 million $21-$100 million $1-$20 million $0 Mountain West/Plains TABLE 2.26 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 9/30/2013 MT ID NV WY NE UT CO MOUNTAIN WEST/ PLAINS Principal investment remaining in CPP banks Principal Investment Remaining CO 2 $15,715,000 1 $706,035 ID 3 41,900,000 2 3,342,213 KS 3 39,350,000 2 5,427,850 MT 0 0 0 0 ND 1 20,093,000 0 0 NE 0 0 0 0 NV 1 2,672,000 1 364,150 SD 0 0 0 0 UT 0 0 0 0 ND SD KS >$100 million $21-$100 million $1-$20 million $0 Number of Banks with Missed Value of Missed Dividend/Interest Dividend/Interest Payments Payments Banks with Remaining Principal WY Total 1 3,100,000 0 0 11 $122,830,000 6 $9,840,248 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Southwest/South Central TABLE 2.27 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 9/30/2013 AZ OK NM TX SOUTHWEST/ SOUTH CENTRAL AR LA >$100 million $21-$100 million $1-$20 million $0 Principal investment remaining in CPP banks Number of Banks with Missed Value of Missed Dividend/Interest Dividend/Interest Payments Payments Banks with Remaining Principal Principal Investment Remaining AR 5 $62,724,000 4 $5,917,042 AZ 2 6,440,000 1 489,720 LA 1 2,400,000 1 163,500 NM 1 1,579,000 0 0 OK 1 30,000,000 1 4,905,000 TX 6 80,840,000 5 10,712,882 16 $189,001,000 12 $22,188,144 Total Midwest TABLE 2.28 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 9/30/2013 MN WI MI IA IL MO MIDWEST Principal investment remaining in CPP banks IN OH KY >$100 million $21-$100 million $1-$20 million $0 Number of Banks with Missed Value of Missed Dividend/Interest Dividend/Interest Payments Payments Banks with Remaining Principal Principal Investment Remaining IA 0 $0 0 $0 IL 7 88,251,000 4 14,284,858 IN 0 0 0 0 KY 4 47,935,788 3 5,516,385 MI 1 6,785,000 1 1,272,188 MN 4 30,682,000 3 3,779,418 MO 4 11,909,000 2 6,984,348 OH 0 0 0 0 WI Total 1 5,100,000 1 903,338 21 $190,662,788 14 $32,740,535 107 108 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Mid-Atlantic/Northeast TABLE 2.29 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 9/30/2013 NH MA NY CT NJ DE MD PA WV VA WV Principal Investment Remaining CT 0 $0 0 $0 DE 0 0 0 0 MA 2 17,063,000 1 2,714,175 MD 6 62,043,000 6 10,313,890 ME 0 0 0 0 NH 0 0 0 0 NJ 2 15,415,000 2 2,084,723 NY 0 0 0 0 PA 2 42,942,000 1 6,461,488 RI 1 1,065,000 0 0 VA 7 158,958,000 3 7,276,938 VT 0 0 0 0 WV 0 0 0 0 20 $297,486,000 13 $28,851,214 ME VT MID-ATLANTIC/ NORTHEAST Principal investment remaining in CPP banks RI >$100 million $21-$100 million $1-$20 million $0 Number of Banks with Missed Value of Missed Dividend/Interest Dividend/Interest Payments Payments Banks with Remaining Principal Total Southeast TABLE 2.30 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 9/30/2013 MS AL Principal Investment Remaining AL 2 $4,466,000 2 $495,610 FL 5 74,307,000 5 14,171,013 GA 4 29,402,000 4 5,265,595 MS 2 7,443,320 0 0 NC 6 129,655,000 3 4,909,575 PR 2 1,173,972,282 0 0 SC 5 48,602,000 5 7,215,825 NC TN SC GA PR FL SOUTHEAST Principal investment remaining in CPP banks >$100 million $21-$100 million $1-20 million $0 Number of Banks with Missed Value of Missed Dividend/Interest Dividend/Interest Payments Payments Banks with Remaining Principal TN Total 2 21,370,000 1 2,426,000 28 $1,489,217,602 20 $34,483,618 109 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Program Administration Although Treasury’s investment authority for CPP has ended, Treasury still has significant responsibilities for managing the existing CPP portfolio, including the following: • • • • TABLE 2.31 MISSED DIVIDEND/INTEREST PAYMENTS BY INSTITUTIONS, 9/30/2009 TO 9/30/2013 ($ MILLIONS) Number of Institutions Value of Unpaid Amountsa,b,c 9/30/2009 38 $75.7 12/31/2009 43 137.4 3/31/2010 67 182.0 6/30/2010 109 209.7 9/30/2010 137 211.3 12/31/2010 155 276.4 3/31/2011 173 277.3 6/30/2011 188 320.8 9/30/2011 193 356.9 12/31/2011 197 377.0 3/31/2012 200 416.0 6/30/2012 203 455.0 9/30/2012 199 480.1 12/31/2012 195 506.2 3/31/2013 192 529.0 6/30/2013 188 494.9 9/30/2013 184 501.8 collecting dividends and interest payments on outstanding investments monitoring the performance of outstanding investments disposing of warrants as investments are repaid selling or restructuring Treasury’s investments in some troubled financial institutions • selecting observers for recipients that have missed five quarterly dividend payments • potentially selecting directors for recipients that have missed six or more quarterly dividend payments Quarter End Dividends and Interest As of September 30, 2013, Treasury had received $12 billion in dividends on its CPP investments.348 However, as of that date, missed dividend and interest payments by 184 institutions, including banks with missed payments that no longer have outstanding CPP principal investments, totaled approximately $501.8 million, an increase from last quarter’s $494.9 million in missed payments from 188 institutions. Approximately $29.3 million of the unpaid amounts are noncumulative, meaning that the institution has no legal obligation to pay Treasury unless the institution declares a dividend.349 More than two-thirds, or 75 of the 108 banks that had remaining CPP principal investments as of September 30, 2013, were not current on their dividend and interest payments to Treasury.350 The 75 banks were behind by as many as 19 payments and in total were overdue in payments to Treasury of $140.2 million.351 As of September 30, 2013, 74 of the 108 banks with remaining principal investments were overdue by at least three payments, including 68 banks that were overdue by at least six payments.352 Of the banks with remaining principal investments that are not current on payments, 59 have unpaid dividend and interest payments that are cumulative, and 16 have unpaid dividend payments that are non-cumulative. Table 2.31 shows the number of institutions and total unpaid amount of dividend and interest payments by quarter from September 30, 2009, to September 30, 2013. Tables 2.25–2.30 show the distribution of missed payments and value of those payments by state. Treasury’s Policy on Missed Dividend and Interest Payments According to Treasury, it “evaluates its CPP investments on an ongoing basis with the help of outside advisors, including external asset managers. The external asset managers provide a valuation for each CPP investment” that results in Treasury assigning the institution a credit score.353 For those that have unfavorable credit scores, including any institution that has missed more than three dividend (or d Notes: a Includes unpaid cumulative dividends, non-cumulative dividends, and Subchapter S interest payments but does not include interest accrued on unpaid cumulative dividends. b Excludes institutions that missed payments but (i) had fully caught up on missed payments at the end of the quarter reported in column 1 or (ii) had repaid their investment amounts. c Includes institutions that missed payments and (i) entered into a recapitalization or restructuring with Treasury, (ii) for which Treasury sold the CPP investment to a third party or otherwise disposed of the investment to facilitate the sale of the institution to a third party without receiving full repayment of unpaid dividends, (iii) filed for bankruptcy relief, or (iv) had a subsidiary bank fail. d Includes four institutions and their missed payments not reported in Treasury’s Capital Purchase Program Missed Dividends and Interest Payments Report as of 6/30/2010 but reported in Treasury’s Dividends and Interest Report as of the same date. The four institutions are CIT, Pacific Coast National Bancorp, UCBH Holdings, Inc., and Midwest Banc Holdings, Inc. Sources: Treasury, Dividends and Interest Report, 10/10/2013; Treasury, responses to SIGTARP data calls, 10/7/2009, 1/12/2010, 4/8/2010, 6/30/2010, 10/11/2011,1/5/2012, 4/5/2012, 7/10/2012, 10/10/2012, 1/10/2013, 4/4/2013, 7/5/2013, 10/7/2013; SIGTARP Quarterly Report to Congress, 1/30/2010, 4/20/2010, 7/21/2010, and 10/26/2010. 110 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM On September 30, 2013, SIGTARP made three recommendations regarding appointments of directors to the boards of CPP and CDCI banks, which are discussed in Section 5 of this report. interest) payments, Treasury has stated that the “asset manager dedicates more resources to monitoring the institution and may talk to the institution on a more frequent basis.”354 Under the terms of the preferred shares or subordinated debentures held by Treasury as a result of its CPP investments, in certain circumstances, such as when a participant misses six dividend (or interest) payments, Treasury has the right to appoint up to two additional members to the institution’s board of directors.355 These directors will not represent Treasury, but rather will have the same fiduciary duties to shareholders as all other directors. They will be compensated by the institution in a manner similar to other directors.356 According to Treasury officials, in light of their recently announced strategy to exit their CPP investments, Treasury is no longer pursuing efforts to exercise its contractual rights to put directors on the board of CPP institutions that have missed six or more dividend payments.357 Treasury has decided not to pursue its contractual rights even though as of September 30, 2013, of the 108 institutions with remaining principal investments, 68 CPP institutions have missed at least six payments.358 As of September 30, 2013, Treasury had made director appointments to the boards of directors of 15 CPP banks, as noted in Table 2.32.359 Treasury has not made a director appointment since December 14, 2012.360 For institutions that miss five or more dividend (or interest) payments, Treasury has stated that it would seek consent from such institutions to send observers to the institutions’ board meetings.361 As of September 30, 2013, of the 108 CPP banks with remaining principal investments, 70 had missed at least five payments.362 According to Treasury, the observers would be selected from its Office of Financial Stability (“OFS”) and assigned to “gain a better understanding of the institution’s condition and challenges and to observe how the board is addressing the situation.”363 Their participation would be “limited to inquiring about distributed materials, presentations, and actions proposed or taken during the meetings, as well as addressing any questions concerning” their role.364 The findings of the observers are taken into account when Treasury evaluates whether to appoint individuals to an institution’s board of directors.365 As of September 30, 2013, Treasury had assigned observers to 28 current CPP recipients, as noted in Table 2.33.366 Twelve banks have rejected Treasury’s requests to send an observer to the institutions’ board meetings.367 The banks had initial CPP investments of as much as $27 million, have missed as many as 19 quarterly dividend payments to Treasury, and have been overdue in dividend payments by as much as $4.1 million.368 Four of these banks have since been sold at a loss to Treasury at auction.369 Seven of these banks have remaining CPP principal investments, five of which continue to have missed payments.370 At 19 missed dividend payments, Saigon National Bank of Westminster, California, has more missed payments than any TARP bank.371 Table 2.32 lists the banks that rejected Treasury observers. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.32 CPP BANKS THAT REJECTED TREASURY OBSERVERS Institution Intermountain Community Bancorp CPP Principal Investment Number of Missed Payments Value of Missed Payments Date of Treasury Request Date of Rejection $27,000,000 —a $— 3/11/2011 4/12/2011 b — 10/18/2011 11/23/2011 2,517,900 3/28/2012 4/27/2012 d Community Bankers Trust Corporation 17,680,000 — White River Bancshares Company 16,800,000 11 Timberland Bancorp, Inc. 16,641,000 — — 6/27/2011 8/18/2011 Alliance Financial Services Inc.c 12,000,000 12e 3,020,400 3/10/2011 5/6/2011 11,385,000 15 2,134,688 3/9/2011 5/18/2012 c Central Virginia Bankshares, Inc. f Commonwealth Business Bank 7,701,000 Pacific International Bancorph 6,500,000 Rising Sun Bancorp 5,983,000 16 1,304,240 12/3/2010 2/28/2011 Omega Capital Corp.c 2,816,000 15j 575,588 12/3/2010 1/13/2011 Citizens Bank & Trust Company 2,400,000 5 163,500 9/23/2010 11/17/2010 Saigon National Bank 1,549,000 19 391,898 8/13/2010 9/20/2010 c g 10 1,049,250 8/13/2010 9/20/2010 —i — 9/23/2010 11/17/2010 Notes: Numbers may not total due to rounding. a Bank later became current in accrued and unpaid dividends after missing the initial scheduled payment date(s). Prior to repayment, Intermountain Community Bancorp had 12 missed payments totaling $4.1 million. b Bank later became current in accrued and unpaid dividends after missing the initial scheduled payment date(s). Prior to repayment, Community Bankers had seven missed payments totaling $1.5 million. c Bank was sold at a loss at auction. d Bank later became current in accrued and unpaid dividends after missing the initial scheduled payment date(s). Prior to repayment, Timberland had eight missed payments totaling $1.7 million. e Alliance Financial Services Inc. was sold at a loss at auction and its missed payments to Treasury were not repaid. f Bank accepted and then declined Treasury’s request to have a Treasury observer attend board of directors meetings. g Commonwealth Business Bank was sold at a loss at auction and its missed payments to Treasury were not repaid. h Bank has exited the Capital Purchase Program. i Bank later became current in accrued and unpaid dividends after missing the initial scheduled payment date(s). Prior to repayment, Pacific International Bancorp had 10 missed payments totaling $0.8 million. j Omega Capital Corp. was sold at a loss at auction and its missed payments to Treasury were not repaid. Source: Treasury, Dividends and Interest Report, 10/10/2013. 111 112 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM SIGTARP and Treasury do not use the same methodology to report unpaid dividend and interest payments. For example, Treasury generally excludes institutions from its “non-current” reporting: (i) that have completed a recapitalization, restructuring, or exchange with Treasury (though Treasury does report such institutions as non-current during the pendency of negotiations); (ii) for which Treasury sold the CPP investment to a third party, or otherwise disposed of the investment to facilitate the sale of the institution to a third party; (iii) that filed for bankruptcy relief; or (iv) that had a subsidiary bank fail.372 SIGTARP generally includes such activity in Table 2.33 under “Value of Unpaid Amounts” with the value set as of the date of the bankruptcy, restructuring, or other event that relieves the institution of the legal obligation to continue to make dividend and interest payments. If a completed transaction resulted in payment to Treasury for all unpaid dividends and interest, SIGTARP does not include the institution’s obligations under unpaid amounts. As of September 30, 2013, for all CPP banks, including those that were missing payments when they exited, 94 banks had missed at least 10 dividend (or interest) payments and 142 banks had missed five dividend (or interest) payments totaling $414.2 million.373 Table 2.33 lists CPP recipients that had unpaid dividend (or interest) payments as of September 30, 2013. For a complete list of CPP recipients and institutions making dividend or interest payments, see Appendix D: “Transaction Detail.” 113 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.33 CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 9/30/2013 Company Dividend or Payment Type Number of Missed Payments Saigon National Bank Non-Cumulative 19 Observers Assigned to Board of Directors1 Value of Missed Payments2 Value of Unpaid Amounts2,3,4 $391,898 $391,898 Blue Valley Ban Corp Cumulative 18 n 4,893,750 4,893,750 Lone Star Bank Non-Cumulative 18 ✓ 757,757 757,757 OneUnited Bank Non-Cumulative 18 ✓ 2,714,175 2,714,175 United American Bank Non-Cumulative 18 2,127,090 2,127,090 Centrue Financial Corporation Cumulative 17 n 6,941,950 6,941,950 Grand Mountain Bancshares, Inc. Cumulative 17 ✓ 706,035 706,035 Idaho Bancorp Cumulative 17 ✓ Pacific City Financial Corporation Cumulative 17 Royal Bancshares of Pennsylvania, Inc. Cumulative 17 Georgia Primary Bank Non-Cumulative Premier Service Bank Non-Cumulative 1,598,213 1,598,213 3,752,325 3,752,325 n 6,461,488 6,461,488 17 ✓ 1,051,850 1,051,850 17 ✓ 923,472 923,472 1,373,400 1,373,400 n 3,442,200 3,442,200 Citizens Commerce Bancshares, Inc. Cumulative 16 Northern States Financial Corporation Cumulative 16 Rising Sun Bancorp Cumulative 16 1,304,240 1,304,240 Syringa Bancorp Cumulative 16 ✓ 1,744,000 1,744,000 Cecil Bancorp, Inc. Cumulative 15 ✓ 2,167,500 2,167,500 Central Virginia Bankshares, Inc. Cumulative 15 2,134,688 2,134,688 City National Bancshares Corporation Cumulative 15 1,769,813 1,769,813 Monarch Community Bancorp, Inc. Cumulative 15 1,272,188 1,272,188 U.S. Century Bank Non-Cumulative 15 ✓ 10,267,050 10,267,050 n Bridgeview Bancorp, Inc. Cumulative 14 7,248,500 7,248,500 Madison Financial Corporation Cumulative 14 642,985 642,985 Patapsco Bancorp, Inc. Cumulative 14 1,144,500 1,144,500 Prairie Star Bancshares, Inc. Cumulative 14 534,100 534,100 TCB Holding Company Cumulative 14 2,237,655 2,237,655 Goldwater Bank, N.A.** Non-Cumulative 14 489,720 489,720 Midtown Bank & Trust Company Non-Cumulative 14 996,065 996,065 1st FS Corporation Cumulative 13 2,659,963 2,659,963 Capital Commerce Bancorp, Inc. Cumulative 13 903,338 903,338 ** ✓ ✓ Harbor Bankshares Corporation Cumulative 13 1,275,000 1,105,000 Market Bancorporation, Inc. Cumulative 13 364,878 364,878 Pinnacle Bank Holding Company Cumulative 13 777,270 777,270 Provident Community Bancshares, Inc. Cumulative 13 1,505,725 1,505,725 Western Community Bancshares, Inc. Cumulative 13 1,291,388 1,291,388 CalWest Bancorp Cumulative 12 761,310 761,310 ** Continued on next page 114 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 9/30/2013 Number of Missed Payments Observers Assigned to Board of Directors1 Company Dividend or Payment Type CSRA Bank Corp. Cumulative 12 First United Corporation Cumulative 12 ✓ Liberty Shares, Inc. Cumulative 12 ✓ Private Bancorporation, Inc. Cumulative 12 (CONTINUED) Value of Missed Payments2 Value of Unpaid Amounts2,3,4 $392,400 $392,400 4,500,000 4,500,000 2,825,280 2,825,280 1,300,260 1,300,260 Regent Bancorp, Inc** Cumulative 12 1,632,030 1,632,030 Spirit BankCorp, Inc. Cumulative 12 ✓ 4,905,000 4,905,000 Tidelands Bancshares, Inc Cumulative 12 ✓ 2,167,200 2,167,200 Marine Bank & Trust Company Non-Cumulative 12 490,500 490,500 Pacific Commerce Bank** Non-Cumulative 12 695,771 640,454 Great River Holding Company Interest 12 2,114,280 2,114,280 Bank of the Carolinas Corporation Cumulative 11 ✓ 1,812,113 1,812,113 Eastern Virginia Bankshares, Inc. Cumulative 11 ✓ 3,300,000 3,300,000 Greer Bancshares Incorporated Cumulative 11 1,497,788 1,497,788 HCSB Financial Corporation Cumulative 11 1,773,063 1,773,063 Highlands Independent Bancshares, Inc. Cumulative 11 1,004,163 1,004,163 Patriot Bancshares, Inc. Cumulative 11 3,902,470 3,902,470 Reliance Bancshares, Inc. Cumulative 11 5,995,000 5,995,000 White River Bancshares Company Cumulative 11 2,517,900 2,517,900 AB&T Financial Corporation Cumulative 10 437,500 437,500 Atlantic Bancshares, Inc. Cumulative 10 272,050 272,050 BCB Holding Company, Inc. Cumulative 10 232,375 232,375 Central Bancorp, Inc. Cumulative 10 ✓ 3,065,625 3,065,625 Community First, Inc. Cumulative 10 ✓ 2,426,000 2,426,000 Village Bank and Trust Financial Corp. Cumulative 10 ✓ 1,842,250 1,842,250 Bank of George Non-Cumulative 10 364,150 364,150 Valley Community Bank Non-Cumulative 10 Suburban Illinois Bancorp, Inc.*,** Interest 10 Allied First Bancorp, Inc. Cumulative 9 NCAL Bancorp Cumulative 9 RCB Financial Corporation Cumulative 9 Porter Bancorp, Inc. Cumulative 8 SouthFirst Bancshares, Inc. Cumulative 7 US Metro Bank Non-Cumulative 7 272,860 272,860 Severn Bancorp, Inc. Cumulative 6 1,754,475 1,754,475 OneFinancial Corporation*,** Interest 6 2,105,997 *,** ** ✓ ✓ ✓ ✓ ✓ 749,375 749,375 3,146,250 3,146,250 447,908 447,908 1,226,250 1,226,250 1,055,520 1,055,520 3,500,000 3,500,000 263,235 263,235 2,105,997 Continued on next page 115 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 9/30/2013 Dividend or Payment Type Company Number of Missed Payments Observers Assigned to Board of Directors1 (CONTINUED) Value of Missed Payments2 Value of Unpaid Amounts2,3,4 Farmers & Merchants Bancshares, Inc.** Cumulative 5 $899,250 $749,375 Citizens Bank & Trust Company Non-Cumulative 5 163,500 163,500 IA Bancorp, Inc.** Cumulative 4 393,638 314,910 Maryland Financial Bank Non-Cumulative 4 92,650 92,650 Calvert Financial Corporation Cumulative 3 42,398 42,398 Chambers Bancshares, Inc. Interest 3 1,247,000 1,247,000 Riverside Bancshares, Inc.*,** Interest 2 46,145 46,145 *,** Exchanges, Sales, Recapitalizations, and Failed Banks with Missing Payments Anchor BanCorp Wisconsin, Inc.**** Cumulative 17 n 23,604,167 23,604,167 First Banks, Inc. Cumulative 17 n 64,543,063 64,543,063 Omega Capital Corp.***** Cumulative 15 575,588 575,588 Rogers Bancshares, Inc. Cumulative 15 5,109,375 5,109,375 Pathway Bancorp***** Cumulative 15 761,588 761,588 Dickinson Financial Corporation II Cumulative 14 27,859,720 27,859,720 ***** **** ***** n FC Holdings, Inc. Cumulative 14 4,013,730 4,013,730 Ridgestone Financial Services, Inc.***** Cumulative 14 2,079,175 2,079,175 Intervest Bancshares Corporation Cumulative 14 4,375,000 4,375,000 Fidelity Federal Bancorp***** Cumulative 14 1,229,924 1,229,924 Premierwest Bancorp Cumulative 14 7,245,000 7,245,000 First Southwest Bancorporation, Inc.***** Cumulative 13 974,188 974,188 Tennessee Valley Financial Holdings, Inc.***** Cumulative 13 531,375 531,375 First Sound Bank***** Non-Cumulative 13 1,202,500 1,202,500 Stonebridge Financial Corp. Cumulative 12 Premier Financial Corp*,**,***** Interest 12 Citizens Bancshares Co. (MO)**** Cumulative 12 Northwest Bancorporation, Inc. Cumulative 12 Plumas Bancorp***** Cumulative 12 Gold Canyon Bank Non-Cumulative Santa Clara Valley Bank, N.A.***** Non-Cumulative Alliance Financial Services, Inc. Interest 12 First Trust Corporation*,***** Interest 12 The Queensborough Company Cumulative Boscobel Bancorp, Inc*,***** Interest ***** ***** ***** ***** ***** **** *,***** ***** n n 1,794,180 1,794,180 1,597,857 1,597,857 4,086,000 4,086,000 1,716,750 1,716,750 1,792,350 1,792,350 12 254,010 254,010 12 474,150 474,150 3,020,400 3,020,400 4,522,611 4,522,611 11 1,798,500 1,798,500 11 1,288,716 1,288,716 ✓ n ✓ n Continued on next page 116 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 9/30/2013 Dividend or Payment Type Company Number of Missed Payments Observers Assigned to Board of Directors1 (CONTINUED) Value of Missed Payments2 Value of Unpaid Amounts2,3,4 Investors Financial Corporation of Pettis County, Inc.* Interest 11 $922,900 $922,900 Florida Bank Group, Inc.***** Cumulative 11 3,068,203 3,068,203 First Financial Service Corporation***** Cumulative 10 2,500,000 2,500,000 Old Second Bancorp, Inc. Cumulative 10 9,125,000 9,125,000 Security State Bank HoldingCompany*,**,***** Interest 10 2,931,481 2,254,985 Commonwealth Business Bank***** Non-Cumulative 10 1,049,250 1,049,250 Gregg Bancshares, Inc. Cumulative 9 101,115 101,115 Metropolitan Bank Group, Inc. / NC Bancorp, Inc.*** Cumulative 9 12,716,368 9,511,543 National Bancshares, Inc.***** Cumulative 9 3,024,383 3,024,383 SouthCrest Financial Group, Inc. Cumulative 9 1,581,863 1,581,863 Citizens Bancorp**** Cumulative 9 1,275,300 1,275,300 Community Pride Bank Corporation*,**,***** Interest 9 803,286 803,286 Premier Bank Holding Company**** Cumulative 9 1,164,938 1,164,938 Central Federal Corporation***** Cumulative 8 722,500 722,500 CoastalSouth Bancshares, Inc. Cumulative 8 1,687,900 1,687,900 HMN Financial, Inc. Cumulative 8 2,600,000 2,600,000 One Georgia Bank**** Non-Cumulative 8 605,328 605,328 ***** **** ***** ***** ***** n Independent Bank Corporation Cumulative 8 14,193,996 6,164,420 First Intercontinental Bank***** Non-Cumulative 8 697,400 697,400 *** Coloeast Bankshares, Inc. Cumulative 8 1,090,000 1,090,000 Cascade Financial Corporation***** Cumulative 7 3,409,875 3,409,875 Integra Bank Corporation Cumulative 7 7,313,775 7,313,775 Princeton National Bancorp, Inc.**** Cumulative 7 2,194,763 2,194,763 Brogan Bankshares, Inc. Interest 7 352,380 352,380 Central Pacific Financial Corp. Cumulative 6 10,125,000 — Coastal Banking Company, Inc.***** Cumulative 6 995,000 995,000 First Reliance Bancshares, Inc.***** Cumulative 6 1,254,720 1,254,720 FNB United Corp.*** Cumulative 6 3,862,500 — ***** **** * ***,9 FPB Bancorp, Inc. (FL) Cumulative 6 435,000 435,000 Indiana Bank Corp.**** Cumulative 6 107,310 107,310 Naples Bancorp, Inc. Cumulative 6 327,000 327,000 First Place Financial Corp. Cumulative 6 5,469,525 5,469,525 Worthington Financial Holdings, Inc.***** Cumulative 6 222,360 222,360 **** ***** Continued on next page 117 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 9/30/2013 Company Dividend or Payment Type Number of Missed Payments Fort Lee Federal Savings Bank**** Non-Cumulative Alarion Financial Services, Inc.***** Cumulative Community Financial Shares, Inc. Delmar Bancorp***** Observers Assigned to Board of Directors1 (CONTINUED) Value of Missed Payments2 Value of Unpaid Amounts2,3,4 6 $106,275 $106,275 6 532,560 532,560 Cumulative 5 759,820 759,820 Cumulative 5 613,125 613,125 First BanCorp (PR) Cumulative 5 42,681,526 — First Federal Bancshares of Arkansas, Inc.***** Cumulative 5 1,031,250 1,031,250 Flagstar Bancorp, Inc.***** Cumulative 5 16,666,063 16,666,063 Midwest Banc Holdings, Inc. Cumulative 5 4,239,200 4,239,200 Pacific Capital Bancorp***,9 Cumulative 5 13,547,550 — Non-Cumulative 5 494,063 494,063 Northwest Commercial Bank Non-Cumulative 5 135,750 135,750 CB Holding Corp.**** Cumulative 4 224,240 224,240 *** *** 5 GulfSouth Private Bank **** **** ✓ Colony Bankcorp, Inc. Cumulative 4 1,400,000 1,400,000 First Community Bank Corporation of America***** Cumulative 4 534,250 534,250 Green Bankshares, Inc.***** Cumulative 4 3,613,900 3,613,900 Hampton Roads Bankshares, Inc. Cumulative 4 4,017,350 4,017,350 Pierce County Bancorp**** Cumulative 4 370,600 370,600 Santa Lucia Bancorp Cumulative 4 200,000 200,000 Sterling Financial Corporation (WA)***,9 Cumulative 4 18,937,500 18,937,500 TIB Financial Corp***** ,7 Cumulative 4 1,850,000 1,850,000 Community Bank of the Bay Non-Cumulative 4 72,549 72,549 The Bank of Currituck***** Non-Cumulative 4 219,140 219,140 The Connecticut Bank and Trust Company***** Non-Cumulative 4 246,673 246,673 Plato Holdings Inc.*,***** Interest 4 207,266 207,266 Virginia Company Bank***** Non-Cumulative 3 185,903 185,903 Blue River Bancshares, Inc. Cumulative 3 204,375 204,375 Community West Bancshares***** Cumulative 3 585,000 585,000 Legacy Bancorp, Inc. Cumulative 3 206,175 206,175 Sonoma Valley Bancorp**** Cumulative 3 353,715 353,715 Cumulative 3 2,587,500 2,587,500 Tennessee Commerce Bancorp, Inc. Cumulative 3 1,125,000 1,125,000 The South Financial Group, Inc.***** ,7 Cumulative 3 13,012,500 13,012,500 Treaty Oak Bancorp, Inc.***** Cumulative 3 133,553 133,553 Bank of Commerce***** Non-Cumulative 3 122,625 122,625 ***** ***,9 ***** 6 **** **** Superior Bancorp Inc. **** **** Continued on next page 118 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 9/30/2013 Company Dividend or Payment Type Number of Missed Payments Carolina Trust Bank***** Non-Cumulative Commerce National Bank Non-Cumulative Cadence Financial Corporation First Alliance Bancshares, Inc.***** Observers Assigned to Board of Directors1 (CONTINUED) Value of Missed Payments2 Value of Unpaid Amounts2,3,4 3 $150,000 $150,000 3 150,000 150,000 Cumulative 2 550,000 550,000 Cumulative 2 93,245 93,245 Pacific Coast National Bancorp Cumulative 2 112,270 112,270 The Baraboo Bancorporation, Inc.***** Cumulative 2 565,390 565,390 Colonial American Bank Non-Cumulative 2 15,655 15,655 Fresno First Bank Non-Cumulative 2 33,357 33,357 FBHC Holding Company*,***** Interest 2 123,127 123,127 Gateway Bancshares, Inc. Cumulative 2 163,500 163,500 CIT Group Inc.****,8 Cumulative 2 29,125,000 29,125,000 UCBH Holdings, Inc.**** Cumulative 1 3,734,213 3,734,213 Exchange Bank***** Non-Cumulative 1 585,875 585,875 Non-Cumulative 1 ***** **** ***** *** Tifton Banking Company **** Total 51,775 51,775 $580,549,829 $501,849,757 Notes: Numbers may not total due to rounding. Approximately $29.3 million of the $501.8 million in unpaid CPP dividend/interest payments are non-cumulative and Treasury has no legal right to missed dividends that are non-cumulative. * Missed interest payments occur when a Subchapter S recipient fails to pay Treasury interest on a subordinated debenture in a timely manner. ** Partial payments made after the due date. *** Completed an exchange with Treasury. For an exchange of mandatorily convertible preferred stock or trust preferred securities, dividend payments normally continue to accrue. For an exchange of mandatorily preferred stock for common stock, no additional preferred dividend payments will accrue. **** Filed for bankruptcy or subsidiary bank failed. For completed bankruptcy proceedings, Treasury’s investment was extinguished and no additional dividend payments will accrue. For bank failures, Treasury may elect to file claims with bank receivers to collect current and/or future unpaid dividends. ***** Treasury sold or is selling its CPP investment to the institution or a third party. No additional preferred dividend payments will accrue after a sale, absent an agreement to the contrary. n ✓ Treasury has appointed one or more directors to the Board of Directors. Treasury has assigned an observer to the Board of Directors. F or First BanCorp and Pacific Capital Bancorp, Treasury had a contractual right to assign an observer to the board of directors. For the remainder, Treasury obtained consent from the institution to assign an observer to the board of directors. Includes unpaid cumulative dividends, non-cumulative dividends, and Subchapter S interest payments but does not include interest accrued on unpaid cumulative dividends. 3 Excludes institutions that missed payments but (i) have fully caught-up or exchanged new securities for missed payments, or (ii) have repaid their investment amounts and exited the Capital Purchase Program. 4 Includes institutions that missed payments and (i) completed an exchange with Treasury for new securities, (ii) purchased their CPP investment from Treasury, or saw a third party purchase its CPP investment from Treasury, or (iii) are in, or have completed bankruptcy proceedings or its subsidiary bank failed. 5 For Midwest Banc Holdings, Inc., the number of missed payments is the number last reported from SIGTARP Quarterly Report to Congress 4/20/2010, prior to bankruptcy filing; missed payment amounts are from Treasury’s response to SIGTARP data call, 10/13/2010. 6 Treasury reported four missed payments by Community Bank of the Bay before it was allowed to transfer from CPP to CDCI. Upon transfer, Treasury reset the number of missed payments to zero. 7 For South Financial Group, Inc. and TIB Financial Corp, the number of missed payments and unpaid amounts reflect figures Treasury reported prior to the sale. 8 For CIT Group Inc., the number of missed payments is from the number last reported from SIGTARP Quarterly Report to Congress 1/30/2010, shortly after the bankruptcy filing; missed payment amounts are from Treasury’s response to SIGTARP data call, 10/13/2010. 9 Completed exchanges: - The exchange between Treasury and Hampton Roads, and the exchange between Treasury and Sterling Financial did not account for unpaid dividends. The number of missed payments and unpaid amounts reflect the figures Treasury reported prior to the exchange. - The exchange between Treasury and Central Pacific Financial Corp., and the exchange between Treasury and Pacific Capital Bancorp did account for unpaid dividends, thereby eliminating any unpaid amounts. The number of missed payments reflects the amount Treasury reported prior to the exchange. 1 2 Sources: Treasury, Dividends and Interest Report, 10/10/2013; Treasury, responses to SIGTARP data calls, 1/7/2011, 4/6/2011, 7/8/2011, 10/11/2011, 1/10/2012, 4/5/2012, 7/10/2012, 10/4/2012, 1/10/2013, 4/4/2013, 7/5/2013, 10/7/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 CPP Recipients: Bankrupt or with Failed Subsidiary Banks Despite Treasury’s stated goal of limiting CPP investments to “healthy, viable institutions,” as of September 30, 2013, 27 CPP participants had gone bankrupt or had a subsidiary bank fail, as indicated in Table 2.34.374 As of September 30, 2013, 24 of those banks, with total CPP investments of $770.7 million, were in the process of bankruptcy, and while Treasury has not yet realized the loss, it expects that all of its investments in the banks will be lost.375 Bankruptcy of Rogers Bancshares, Inc. On January 30, 2009, Treasury invested $25 million in Rogers Bancshares, Inc., Little Rock, Arkansas, (“Rogers”) through CPP in return for preferred stock and warrants.376 On July 5, 2013, Rogers filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court, Eastern District of Arkansas.377 According to Treasury, while it will continue to monitor the matter while the bankruptcy is open, it expects that there are not sufficient funds in the estate to repay Treasury’s investment.378 Bankruptcy of Anchor Bancorp Wisconsin, Inc. On January 30, 2009, Treasury invested $110 million in Anchor Bancorp Wisconsin, Inc., Madison, Wisconsin, (“Anchor”) through CPP in return for preferred stock and warrants.379 On August 12, 2013, Anchor filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court, Western District of Wisconsin.380 On September 27, 2013, when the company’s restructuring plan became effective, Treasury’s preferred stock was converted to 60 million shares of common stock and its warrants were cancelled.381 On the same day, Treasury sold this common stock for $6 million, resulting in a loss to Treasury of $104 million.382 119 120 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.34 CPP RECIPIENTS: BANKRUPT OR WITH FAILED SUBSIDIARY BANKS, AS OF 9/30/2013 Company Initial Invested Amount Investment Date Status Bankruptcy/ Failure Datea ($ MILLIONS) Subsidiary Bank $2,330.0 12/31/2008 Bankruptcy proceedings completed with no recovery of Treasury’s investment; subsidiary bank remains active 298.7 11/14/2008 In bankruptcy; subsidiary bank failed 11/6/2009 United Commercial Bank, San Francisco, CA 4.1 1/16/2009 Bankruptcy proceedings completed with no recovery of Treasury’s investment; subsidiary bank failed 11/13/2009 Pacific Coast National Bank, San Clemente, CA 89.4b 12/5/2008 In bankruptcy; subsidiary bank failed 5/14/2010 Midwest Bank and Trust Company, Elmwood Park, IL Sonoma Valley Bancorp, Sonoma, CA 8.7 2/20/2009 Subsidiary bank failed 8/20/2010 Sonoma Valley Bank, Sonoma, CA Pierce County Bancorp, Tacoma, WA 6.8 1/23/2009 Subsidiary bank failed 11/5/2010 Pierce Commercial Bank, Tacoma, WA Tifton Banking Company, Tifton, GA 3.8 4/17/2009 Failed 11/12/2010 N/A Legacy Bancorp, Inc., Milwaukee, WI 5.5 1/30/2009 Subsidiary bank failed 3/11/2011 Legacy Bank, Milwaukee, WI Superior Bancorp, Inc., Birmingham, AL 69.0 12/5/2008 Subsidiary bank failed 4/15/2011 Superior Bank, Birmingham, AL Integra Bank Corporation, Evansville, IN 83.6 2/27/2009 Subsidiary bank failed 7/29/2011 Integra Bank, Evansville, IN One Georgia Bank, Atlanta, GA 5.5 5/8/2009 Failed 7/15/2011 N/A FPB Bancorp, Port Saint Lucie, FL 5.8 12/5/2008 Subsidiary bank failed 7/15/2011 First Peoples Bank, Port Saint Lucie, FL Citizens Bancorp, Nevada City, CA 10.4 12/23/2008 Subsidiary bank failed 9/23/2011 Citizens Bank of Northern California, Nevada City, CA 4.1 5/29/2009 Subsidiary bank failed 10/14/2011 Country Bank, Aledo, IL 30.0 12/19/2008 Subsidiary bank failed 1/27/2012 Tennessee Commerce Bank, Franklin, TN 5.0 3/6/2009 Subsidiary bank failed 2/10/2012 SCB Bank, Shelbyville, IN CIT Group Inc., New York, NY UCBH Holdings Inc., San Francisco, CA Pacific Coast National Bancorp, San Clemente, CA Midwest Banc Holdings, Inc., Melrose Park, IL CB Holding Corp., Aledo, IL Tennessee Commerce Bancorp, Inc., Franklin, TN Blue River Bancshares, Inc., Shelbyville, IN 11/1/2009 CIT Bank, Salt Lake City, UT Continued on next page QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 CPP RECIPIENTS: BANKRUPT OR WITH FAILED SUBSIDIARY BANKS, AS OF 9/30/2013 ($ MILLIONS) (CONTINUED) Initial Invested Amount Investment Date Status Bankruptcy/ Failure Datea Subsidiary Bank $1.3 5/22/2009 Failed 4/20/2012 N/A Gregg Bancshares, Inc. 0.9 2/13/2009 Subsidiary bank failed 7/13/2012 Glasgow Savings Bank, Glasgow, MO Premier Bank Holding Company 9.5 3/20/2009 In bankruptcy 8/14/2012 N/A GulfSouth Private Bank 7.5 9/25/2009 Failed 10/19/2012 N/A Investors Financial Corporation of Pettis County, Inc. 4.0 5/8/2009 Failed 10/19/2012 Excel Bank, Sedalia, MO First Place Financial Corporation 72.9 3/13/2009 In bankruptcy 10/29/2012 First Place Bank, Warren, OH Princeton National Bancorp 25.1 1/23/2009 Subsidiary bank failed 11/2/2012 Citizens First National Bank, Princeton, IL Gold Canyon Bank 1.6 6/26/2009 Failed 4/5/2013 N/A Indiana Bank Corp. 1.3 4/24/2009 In bankruptcy 4/9/2013 N/A 25.0 1/30/2009 In bankruptcy 7/5/2013 N/A 1/30/2009 Filed for and exited bankruptcy protectionc 8/12/2013 N/A Company Fort Lee Federal Savings Bank Rogers Bancshares, Inc. Anchor BanCorp Wisconsin Inc. Total 110.0 $3,219.5 Notes: Numbers may not total due to rounding. a Date is the earlier of the bankruptcy filing by holding company or the failure of subsidiary bank. b The amount of Treasury’s investment prior to bankruptcy was $89,874,000. On 3/8/2010, Treasury exchanged its $84,784,000 of preferred stock in Midwest Banc Holdings, Inc. (MBHI) for $89,388,000 of MCP, which is equivalent to the initial investment amount of $84,784,000, plus $4,604,000 of capitalized previously accrued and unpaid dividends. c Treasury recouped $6 million of its investment once the company’s plan of reorganization became effective. Source: Treasury, Transactions Report, 9/30/2013. Realized Losses, Write-offs, and Currently Not Collectible CPP Investments When a CPP investment is sold at a loss, or an institution that Treasury invested in finalizes bankruptcy, Treasury records the loss as a realized loss or a write-off. For these recorded losses, Treasury has no expectation of regaining any portion of the lost investment. When a CPP bank or its subsidiary bank fails or enters bankruptcy, Treasury does not record that loss until the matter is resolved. However, Treasury generally expects that all of its investment in the bank will be lost.383 As of September 2013, Treasury began reporting investments currently not collectible as a result of bankruptcy or receivership together with realized losses and write-offs; previously, it had reported those as investments still outstanding. According to Treasury, as of September 30, 2013, Treasury had realized losses, write-offs, and investments currently not collectible as a result of bankruptcy of $4.6 billion on its CPP investments. This total includes $403.2 million in realized losses this quarter. Also included is $770.7 million in 24 banks that Treasury classified this quarter as currently not collectible as a result of bankruptcy. Table 2.35 shows all realized losses, write-offs, and investments currently not collectible as a result of bankruptcy recorded by Treasury on CPP investments through September 30, 2013. 121 122 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.35 REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 9/30/2013 ($ MILLIONS) Institution TARP Investment Loss $4 $2 12/3/2010 Sale of preferred stock at a loss Date Description Realized losses The Bank of Currituck Treaty Oak Bancorp, Inc. 3 3 2/15/2011 Sale of preferred stock at a loss 44 6 3/4/2011 Sale of preferred stock at a loss 3 2 3/9/2011 First Federal Bancshares of Arkansas, Inc. 17 11 5/3/2011 Sale of preferred stock at a loss First Community Bank Corporation of America 11 3 5/31/2011 Sale of preferred stock at a loss Cascade Financial Corporation 39 23 6/30/2011 Sale of preferred stock at a loss Green Bankshares, Inc. 72 4 9/7/2011 Sale of preferred stock at a loss Cadence Financial Corporation FBHC Holding Company Santa Lucia Bancorp Banner Corporation/Banner Bank 4 1 124 14 10/21/2011 Sale of subordinated debentures at a loss Sale of preferred stock at a loss 4/3/2012 Sale of preferred stock at a loss First Financial Holdings Inc. 65 8 4/3/2012 Sale of preferred stock at a loss MainSource Financial Group, Inc. 57 4 4/3/2012 Sale of preferred stock at a loss Seacoast Banking Corporation of Florida 50 9 4/3/2012 Sale of preferred stock at a loss Wilshire Bancorp, Inc. 62 4 4/3/2012 Sale of preferred stock at a loss WSFS Financial Corporation 53 4 4/3/2012 Sale of preferred stock at a loss 135 62 Central Pacific Financial Corp. 4/4/2012 Sale of common stock at a loss Ameris Bancorp 52 4 6/19/2012 Sale of preferred stock at a loss Farmers Capital Corporation 30 8 6/19/2012 Sale of preferred stock at a loss First Capital Bancorp, Inc. 11 1 6/19/2012 Sale of preferred stock at a loss First Defiance Financial Corp. 37 1 6/19/2012 Sale of preferred stock at a loss LNB Bancorp, Inc. Taylor Capital Group, Inc. 25 3 105 11 6/19/2012 Sale of preferred stock at a loss 6/19/2012 Sale of preferred stock at a loss United Bancorp, Inc. 21 4 6/19/2012 Sale of preferred stock at a loss Fidelity Southern Corporation 48 5 7/3/2012 Sale of preferred stock at a loss First Citizens Banc Corp 21 2 7/3/2012 Sale of preferred stock at a loss Firstbank Corporation 33 2 7/3/2012 Sale of preferred stock at a loss Metrocorp Bancshares, Inc. 45 1 7/3/2012 Sale of preferred stock at a loss Peoples Bancorp Of North Carolina, Inc. 25 2 7/3/2012 Sale of preferred stock at a loss Pulaski Financial Corp. 33 4 7/3/2012 Sale of preferred stock at a loss Southern First Bancshares, Inc. 17 2 7/3/2012 Sale of preferred stock at a loss 4 3 7/12/2012 Sale of preferred stock at a loss Naples Bancorp, Inc. Continued on next page QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 9/30/2013 ($ MILLIONS) (CONTINUED) Institution TARP Investment Loss Date $20 $5 8/9/2012 Description Realized losses Commonwealth Bancshares, Inc. Sale of preferred stock at a loss Diamond Bancorp, Inc. 20 6 8/9/2012 Sale of preferred stock at a loss Fidelity Financial Corporation 36 4 8/9/2012 Sale of preferred stock at a loss Market Street Bancshares, Inc. 20 2 8/9/2012 Sale of preferred stock at a loss CBS Banc-Corp. 24 2 8/10/2012 Sale of preferred stock at a loss Marquette National Corporation 36 10 8/10/2012 Sale of preferred stock at a loss Park Bancorporation, Inc. 23 6 8/10/2012 Sale of preferred stock at a loss 7 2 8/10/2012 Sale of preferred stock at a loss Premier Financial Bancorp, Inc. Trinity Capital Corporation 36 9 8/10/2012 Sale of preferred stock at a loss Exchange Bank 43 5 8/13/2012 Sale of preferred stock at a loss Millennium Bancorp, Inc. 7 4 303 188 BNC Bancorp 31 2 First Community Corporation 11 0.2 8/29/2012 Sale of preferred stock at a loss First National Corporation 14 2 8/29/2012 Sale of preferred stock at a loss Mackinac Financial Corporation 11 0.5 8/29/2012 Sale of preferred stock at a loss Yadkin Valley Financial Corporation 13 5 9/18/2012 Sale of preferred stock at a loss Alpine Banks Of Colorado 70 13 9/20/2012 Sale of preferred stock at a loss F & M Financial Corporation (NC) 17 1 9/20/2012 Sale of preferred stock at a loss Sterling Financial Corporation 8/14/2012 Sale of preferred stock at a loss 8/20/2012 Sale of preferred stock at a loss 8/29/2012 Sale of preferred stock at a loss F&M Financial Corporation (TN) 17 4 9/21/2012 Sale of preferred stock at a loss First Community Financial Partners, Inc. 22 8 9/21/2012 Sale of preferred stock at a loss Central Federal Corporation 7 4 9/26/2012 Sale of preferred stock at a loss Congaree Bancshares, Inc. 3 0.6 10/31/2012 Sale of preferred stock at a loss Metro City Bank 8 0.8 10/31/2012 Sale of preferred stock at a loss 12 3 10/31/2012 Sale of preferred stock at a loss 5 0.4 10/31/2012 Blue Ridge Bancshares, Inc. Germantown Capital Corporation First Gothenburg Bancshares, Inc. Sale of preferred stock at a loss 8 0.7 10/31/2012 Sale of preferred stock at a loss 10 0.9 10/31/2012 Sale of preferred stock at a loss Centerbank 2 0.4 10/31/2012 Sale of preferred stock at a loss The Little Bank, Incorporated 8 0.1 10/31/2012 Sale of preferred stock at a loss Oak Ridge Financial Services, Inc. 8 0.6 10/31/2012 Sale of preferred stock at a loss 10/31/2012 Sale of preferred stock at a loss Blackhawk Bancorp, Inc. 4 1 Hometown Bankshares Corporation Peoples Bancshares Of TN, Inc. 10 0.8 Western Illinois Bancshares, Inc. 11 0.7 10/31/2012 Sale of preferred stock at a loss 11/9/2012 Sale of preferred stock at a loss Continued on next page 123 124 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 9/30/2013 ($ MILLIONS) (CONTINUED) TARP Investment Loss $4 $0.2 11/9/2012 Sale of preferred stock at a loss Three Shores Bancorporation, Inc. 6 0.6 11/9/2012 Sale of preferred stock at a loss Regional Bankshares, Inc. 2 0.1 11/9/2012 Sale of preferred stock at a loss Timberland Bancorp, Inc. 17 2 11/9/2012 Sale of preferred stock at a loss First Freedom Bancshares, Inc. 9 0.7 11/9/2012 Sale of preferred stock at a loss Bankgreenville Financial Corporation 1 0.1 11/9/2012 Sale of preferred stock at a loss F&C Bancorp. Inc. 3 0.1 11/13/2012 Sale of subordinated debentures at a loss 12 0.4 11/13/2012 Sale of subordinated debentures at a loss Institution Date Description Realized losses Capital Pacific Bancorp Farmers Enterprises, Inc. Franklin Bancorp, Inc. 5 2 11/13/2012 Sale of preferred stock at a loss Sound Banking Company 3 0.2 11/13/2012 Sale of preferred stock at a loss 16 5 11/29/2012 Sale of preferred stock at a loss Country Bank Shares, Inc. Parke Bancorp, Inc. 8 0.6 11/29/2012 Sale of preferred stock at a loss Clover Community Bankshares, Inc. 3 0.4 11/29/2012 Sale of preferred stock at a loss CBB Bancorp 4 0.3 11/29/2012 Sale of preferred stock at a loss Alaska Pacific Bancshares, Inc. 5 0.5 Trisummit Bank 7 2 11/29/2012 Sale of preferred stock at a loss Layton Park Financial Group, Inc. 3 0.6 11/29/2012 Sale of preferred stock at a loss Community Bancshares of Mississippi, Inc. (Community Holding Company of Florida, Inc.) 1 0.1 11/30/2012 Sale of preferred stock at a loss FFW Corporation 7 0.7 11/30/2012 Sale of preferred stock at a loss Hometown Bancshares, Inc. 2 0.1 11/30/2012 Sale of preferred stock at a loss Bank Of Commerce 3 0.5 11/30/2012 Sale of preferred stock at a loss Corning Savings And Loan Association 11/29/2012 Sale of preferred stock at a loss 0.6 0.1 11/30/2012 Sale of preferred stock at a loss Carolina Trust Bank 4 0.6 11/30/2012 Sale of preferred stock at a loss Community Business Bank 4 0.3 11/30/2012 Sale of preferred stock at a loss KS Bancorp, Inc 4 0.7 11/30/2012 Sale of preferred stock at a loss 195 15 11/30/2012 Sale of common stock at a loss 16 4 12/11/2012 Sale of preferred stock at a loss Pacific Capital Bancorp Community West Bancshares Presidio Bank 11 2 12/11/2012 Sale of preferred stock at a loss The Baraboo Bancorporation, Inc. 21 7 12/11/2012 Sale of preferred stock at a loss 2 0.7 12/11/2012 Sale of preferred stock at a loss 22 2 12/11/2012 Sale of preferred stock at a loss Security Bancshares Of Pulaski County, Inc. Central Community Corporation Continued on next page QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 9/30/2013 ($ MILLIONS) (CONTINUED) TARP Investment Loss Date $3 $0.1 12/11/2012 First Advantage Bancshares, Inc. 1 0.1 12/11/2012 Sale of preferred stock at a loss Community Investors Bancorp, Inc. 3 0.1 12/20/2012 Sale of preferred stock at a loss First Business Bank, National Association 4 0.4 12/20/2012 Sale of preferred stock at a loss Bank Financial Services, Inc. 1 0.1 12/20/2012 Sale of preferred stock at a loss 10 0.2 12/20/2012 Hyperion Bank 2 0.5 12/21/2012 Sale of preferred stock at a loss First Independence Corporation 3 0.9 12/21/2012 Sale of preferred stock at a loss Institution Description Realized losses Manhattan Bancshares, Inc. Century Financial Services Corporation Sale of subordinated debentures at a loss Sale of subordinated debentures at a loss First Alliance Bancshares, Inc. 3 1 12/21/2012 Sale of preferred stock at a loss Community Financial Shares, Inc. 7 4 12/21/2012 12 3 6 0.2 Citizens Bancshares Co. 25 12 2/8/2013 Sale of preferred stock at a loss Colony Bankcorp, Inc. 28 6 2/8/2013 Sale of preferred stock at a loss Alliance Financial Services, Inc. Biscayne Bancshares, Inc. Delmar Bancorp Sale of preferred stock at a loss 2/7/2013 Sale of preferred stock at a loss 2/8/2013 Sale of subordinated debentures at a loss 9 3 146 65 F & M Bancshares, Inc. 4 0.5 2/8/2013 Sale of preferred stock at a loss First Priority Financial Corp. 5 1 2/8/2013 Sale of preferred stock at a loss 26 7 2/8/2013 Sale of preferred stock at a loss 6 0.4 2/8/2013 Sale of preferred stock at a loss FC Holdings, Inc. 21 2 2/20/2013 Sale of preferred stock at a loss First Sound Bank 7 4 2/20/2013 Sale of preferred stock at a loss First Trust Corporation 18 4 2/20/2013 National Bancshares, Inc. 25 6 2/20/2013 Sale of preferred stock at a loss Dickinson Financial Corporation II HMN Financial, Inc. Waukesha Bankshares, Inc. 2/8/2013 Sale of preferred stock at a loss 2/8/2013 Sale of preferred stock at a loss Sale of subordinated debentures at a loss Ridgestone Financial Services, Inc. 11 2 2/20/2013 Sale of preferred stock at a loss Carolina Bank Holdings, Inc. 16 1 2/21/2013 Sale of preferred stock at a loss 3 0.4 3/8/2013 Sale of preferred stock at a loss 10 0.4 3/11/2013 Sale of preferred stock at a loss Santa Clara Valley Bank, N.A. Coastal Banking Company, Inc. CoastalSouth Bancshares, Inc. 16 3 3/11/2013 Sale of preferred stock at a loss First Reliance Bancshares, Inc. 15 5 3/11/2013 Sale of preferred stock at a loss Southcrest Financial Group, Inc. 13 1 3/11/2013 Sale of preferred stock at a loss Continued on next page 125 126 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 9/30/2013 ($ MILLIONS) (CONTINUED) TARP Investment Loss $12 $0.3 Old Second Bancorp, Inc. 73 47 3/27/2013 Sale of preferred stock at a loss Stonebridge Financial Corp. 11 9 3/27/2013 Sale of preferred stock at a loss Alliance Bancshares, Inc. 3 0.1 3/28/2013 Sale of preferred stock at a loss Amfirst Financial Services, Inc 5 0.2 3/28/2013 First Southwest Bancorporation, Inc. 6 0.5 3/28/2013 Sale of preferred stock at a loss Flagstar Bancorp, Inc. 267 24 3/28/2013 Sale of preferred stock at a loss United Community Banks, Inc. 180 7 3/28/2013 Sale of preferred stock at a loss Institution Date Description Realized losses The Queensborough Company First Security Group, Inc. BancStar, Inc. 3/11/2013 Sale of preferred stock at a loss Sale of subordinated debentures at a loss 33 18 Exchange of preferred stock at 4/11/2013 a loss 9 0.1 4/26/2013 Sale of preferred stock at a loss NewBridge Bancorp 52 1 4/29/2013 Sale of preferred stock at a loss First Financial Service Corporation 20 9 4/29/2013 Sale of preferred stock at a loss Guaranty Federal Bancshares, Inc. 17 0.4 4/29/2013 Sale of preferred stock at a loss Intervest Bancshares Corporation 25 1 6/24/2013 Sale of preferred stock at a loss First Western Financial, Inc. 20 3 6/24/2013 Sale of preferred stock at a loss 3 0.4 6/24/2013 Sale of preferred stock at a loss Farmers & Merchants Financial Corporation 0.4 0.1 6/24/2013 Sale of preferred stock at a loss Metropolitan Bank Group, Inc. 82 49 6/28/2013 Sale of preferred stock at a loss Alarion Financial Services, Inc. 7 0.1 7/22/2013 Sale of preferred stock at a loss 110 104 9/27/2013 Worthington Financial Holdings, Inc. Anchor Bancorp Wisconsin, Inc. Sale of common stock at a loss Centrue Financial Corporation 33 17 9/25/2013 Sale of preferred stock at a loss Coloeast Bankshares, Inc. 10 1 7/22/2013 Sale of preferred stock at a loss Commonwealth Business Bank 20 0.4 7/17/2013 Sale of preferred stock at a loss Crosstown Holding Company 11 0.2 7/22/2013 Sale of preferred stock at a loss Desoto County Bank 3 0.5 9/25/2013 Sale of preferred stock at a loss First Bancorp (PR) 400 72 9/13/2013 Sale of common stock at a loss First Banks, Inc. 295 190 9/25/2013 Sale of preferred stock at a loss 6 3 8/12/2013 Sale of preferred stock at a loss 20 12 8/14/2013 Sale of preferred stock at a loss First Intercontinental Bank Florida Bank Group, Inc. Mountain Valley Bancshares, Inc. 3 — 7/22/2013 Sale of preferred stock at a loss RCB Financial Corporation 9 0.8 9/25/2013 Sale of preferred stock at a loss 23 — 9/25/2013 Sale of preferred stock at a loss Severn Bancorp, Inc. Continued on next page QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 9/30/2013 ($ MILLIONS) (CONTINUED) Institution TARP Investment Loss $10 $0.5 8/12/2013 Sale of preferred stock at a loss 2 8/12/2013 Sale of preferred stock at a loss Date Description Realized losses Universal Bancorp Virginia Company Bank 5 Total CPP Realized Losses $1,263 Write-Offs CIT Group Inc. Pacific Coast National Bancorp South Financial Group, Inc. a TIB Financial Corpa $2,330 $2,330 4 4 347 217 9/30/2010 Sale of preferred stock at a loss 37 25 9/30/2010 Sale of preferred stock at a loss 11/6/2009 Bankruptcy Total CPP Write-Offs 12/10/2009 Bankruptcy 2/11/2010 Bankruptcy $2,576 Currently Not Collectibleb UCBH Holdings Inc. Midwest Banc Holdings, Inc. Sonoma Valley Bancorp $299 $299 85 85 5/14/2010 Bankruptcy 9 9 8/20/2010 Bankruptcy Pierce County Bancorp 7 7 11/5/2010 Bankruptcy Tifton Banking Company 4 4 11/12/2010 Bankruptcy Legacy Bancorp, Inc. 6 6 Superior Bancorp Inc. 69 69 3/11/2011 Bankruptcy 4/15/2011 Bankruptcy FPB Bancorp, Inc. 6 6 7/15/2011 Bankruptcy One Georgia Bank 6 6 7/15/2011 Bankruptcy Integra Bank Corporation 84 84 7/29/2011 Bankruptcy Citizens Bancorp 10 10 9/23/2011 Bankruptcy CB Holding Corp. 4 4 10/14/2011 Bankruptcy 30 30 5 5 Tennessee Commerce Bancorp, Inc. Blue River Bancshares, Inc. 1/27/2012 Bankruptcy 2/10/2012 Bankruptcy Fort Lee Federal Savings Bank, FSB 1 1 4/20/2012 Bankruptcy Gregg Bancshares, Inc. 1 1 7/13/2012 Bankruptcy Total CPP Currently Not Collectible Total of CPP Realized Losses, Write-Offs, and Currently Not Collectible $771 $4,612 Notes: Numbers may not total due to rounding. a In the time since these transactions were classified as write-offs, Treasury has changed its practices and now classifies sales of preferred stock at a loss as realized losses. b As of September 2013, Treasury no longer counts investments currently not collectible as result of bankruptcy as “outstanding.” Sources: Treasury, Transactions Report, 9/30/2013; Treasury, response to SIGTARP data call, 10/3/2013. 127 128 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Undercapitalized: 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. Due Diligence: Appropriate level of attention or care a reasonable person should take before entering into an agreement or a transaction with another party. In finance, it often refers to the process of conducting an audit or review of the institution before initiating a transaction. Restructurings, Recapitalizations, Exchanges, and Sales of CPP Investments Certain CPP institutions continue to experience high losses and financial difficulties, resulting in inadequate capital or liquidity. To avoid insolvency or improve the quality of their capital, these institutions may ask Treasury to convert its CPP preferred shares into a more junior form of equity or to accept a lower valuation, resulting in Treasury taking a discount or loss. If a CPP institution is undercapitalized and/or in danger of becoming insolvent, it may propose to Treasury a restructuring (or recapitalization) plan to avoid failure (or to attract private capital) and to “attempt to preserve value” for Treasury’s investment.384 Treasury may also sell its investment in a troubled institution to a third party at a discount in order to facilitate that party’s acquisition of a troubled institution. According to Treasury, although it may incur partial losses on its investment in the course of these transactions, such an outcome may be deemed necessary to avoid the total loss of Treasury’s investment that would occur if the institution failed.385 Under these circumstances, the CPP participant asks Treasury for a formal review of its proposal. The proposal details the institution’s recapitalization plan and may estimate how much capital the institution plans to raise from private investors and whether Treasury and other preferred shareholders will convert their preferred stock to common stock. The proposal may also involve a proposed discount on the conversion to common stock, although Treasury would not realize any loss until it disposes of the stock.386 In other words, Treasury would not know whether a loss will occur, or the extent of such a loss, until it sells the common stock it receives as part of such an exchange. According to Treasury, when it receives such a request, it asks one of the external asset managers that it has hired to analyze the proposal and perform due diligence on the institution.387 The external asset manager interviews the institution’s managers, gathers non-public information, and conducts loan-loss estimates and capital structure analysis. The manager submits its evaluation to Treasury, which then decides whether to restructure its CPP investment.388 Table 2.36 shows all restructurings, recapitalizations, exchanges, and sales of CPP investments through September 30, 2013. Recent Exchanges and Sales Central Virginia Bankshares, Inc. On January 9, 2009, Treasury invested $20 million in C&F Financial Corporation, West Point, Virginia, (“C&F”) through CPP, which C&F repaid at par as it exited TARP on April 11, 2012.389 On January 30, 2009, Treasury invested $11.4 million in Central Virginia Bankshares, Inc., Powhatan, Virginia, (“Central Virginia Bankshares”) through CPP in return for preferred stock and warrants.390 On July 17, 2013, Treasury entered into a securities purchase agreement with C&F and Central Virginia Bankshares, pursuant to which Treasury agreed to sell its investment in Central Virginia Bankshares at a discount.391 On October 1, 2013, after the close of this quarter, Treasury completed the sale of its investment in 129 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Central Virginia Bankshares to C&F for $3.4 million, resulting in an $8 million loss to Treasury.392 Florida Bank Group, Inc. On July 24, 2009, Treasury invested $20.5 million in Florida Bank Group, Inc., Tampa, Florida, (“Florida Bank”) through CPP in return for preferred stock and warrants.393 On August 14, 2013, Treasury sold its investment back to Florida Bank, pursuant to the terms of an agreement entered into between Treasury and Florida Bank on February 12, 2013, for $8 million.394 The sale resulted in a loss to Treasury of $12.5 million.395 Broadway Financial Corporation On November 14, 2008, Treasury invested $9 million and on December 4, 2009, Treasury invested an additional $6 million in Broadway Financial Corporation, Los Angeles, California, (“Broadway”) through CPP in return for preferred stock and warrants.396 On August 22, 2013, Treasury exchanged its preferred stock investment in Broadway for 10,146 shares of common stock equivalent in Broadway, which represented a 50% discount on its preferred stock combined with full value for Broadway’s outstanding $2.6 million in unpaid dividends.397 The common stock equivalent will be converted to common stock following a shareholder vote.398 TABLE 2.36 TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 9/30/2013 Original Investments Citigroup Inc. 10/28/2008 $2,500.0 Provident Bankshares 11/14/2008 151.5 M&T Bank Corporation 12/23/2008 600.0 Wilmington Trust Corporation 12/12/2008 330.0 Popular, Inc. 12/5/2008 935.0 Exchanged for trust preferred securities First BanCorp 1/6/2009 400.0 Exchanged for mandatorily convertible preferred stock South Financial Group, Inc. 12/5/2008 347.0 Sold Sterling Financial Corporation 12/5/2008 303.0 Exchanged for common stock, Sold Whitney Holding Corporation 12/19/2008 300.0 Sold First Banks, Inc. 12/31/2008 295.4 Sold at auction Company Flagstar Bancorp Inc. Combined Investments ($ MILLIONS) Investment Date Investment Status Exchanged for common stock/warrants and sold $1,081.5a Provident preferred stock exchanged for new M&T Bank Corporation preferred stock; Wilmington Trust preferred stock redeemed by M&T Bank Corporation; Sold 1/30/2009 267.0 Sold at loss in auction 11/21/2008 195.0 Exchanged for common stock United Community Banks, Inc. 12/5/2008 180.0 Sold at loss in auction Dickinson Financial Corporation II 1/16/2009 146.0 Sold at loss in auction 1/9/2009 135.0 Exchanged for common stock 11/21/2008 124.0 Pacific Capital Bancorp Central Pacific Financial Corp. Banner Corporation Sold at loss in auction Continued on next page 130 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 9/30/2013 Original Investments BBCN Bancorp, Inc. 11/21/2008 $67.0 Center Financial Corporation 12/12/2008 55.0 2/20/2009 116.0 Exchanged for trust preferred securities and preferred stock 11/21/2008 104.8 Sold at loss in auction Metropolitan Bank Group Inc. 6/26/2009 71.5 NC Bancorp, Inc. 6/26/2009 6.9 12/31/2008 80.3 Exchanged for common stock 1/16/2009 73.0 Sold at loss in auction Green Bankshares 12/23/2008 72.3 Sold Independent Bank Corporation 12/12/2008 72.0 Exchanged for mandatorily convertible preferred stock Alpine Banks of Colorado 3/27/2009 70.0 Sold at loss in auction Superior Bancorp, Inc.c 12/5/2008 69.0 Exchanged for trust preferred securities First Financial Holdings Inc. 12/5/2008 65.0 Sold at loss in auction 12/12/2008 62.2 Sold at loss in auction Company First Merchants Taylor Capital Group Hampton Roads Bankshares Old Second Bancorp, Inc. Wilshire Bancorp, Inc. Combined Investments ($ MILLIONS) (CONTINUED) Investment Date $122.0d 81.9b Investment Status Exchanged for a like amount of securities of BBCN Bancorp, Inc. Exchanged for new preferred stock in Metropolitan Bank Group, Inc. and later sold at loss Standard Bancshares Inc. 4/24/2009 60.0 Exchanged for common stock and securities purchase agreements MainSource Financial Group, Inc. 1/16/2009 57.0 Sold at loss in auction WSFS Financial Corporation 1/23/2009 52.6 Sold at loss in auction NewBridge Bancorp 12/12/2008 52.4 Sold at loss in auction Ameris Bancorp 11/21/2008 52.0 Sold at loss in auction Seacoast Banking Corporation of Florida 12/19/2008 50.0 Sold at loss in auction Fidelity Southern Corporation 12/19/2008 48.2 Sold at loss in auction MetroCorp Bancshares, Inc. 1/16/2009 45.0 Sold at loss in auction 1/9/2009 44.0 Sold at loss in auction 12/19/2008 43.0 Sold at loss in auction 1/9/2009 24.9 1/16/2009 17.9 Cadence Financial Corporation Exchange Bank Crescent Financial Bancshares, Inc. ECB Bancorp, Inc. PremierWest Bancorp Capital Bank Corporation Reliance Bancshares, Inc. 42.8e Exchanged for a like amount of securities of Crescent Financial Bancshares, Inc. 2/13/2009 41.4 Sold 12/12/2008 41.3 Sold 2/13/2009 40.0 Sold at auction 11/21/2008 39.0 Sold at loss in auction TIB Financial Corp. 12/5/2008 37.0 Sold First Defiance Financial Corp. 12/5/2008 37.0 Sold at loss in auction Fidelity Financial Corporation 12/19/2008 36.3 Sold at loss in auction Marquette National Corporation 12/19/2008 35.5 Sold at loss in auction Trinity Capital Corporation 3/27/2009 35.5 Sold at loss in auction Firstbank Corporation 1/30/2009 33.0 Sold at loss in auction 1/9/2009 33.0 Sold Pulaski Financial Corp 1/16/2009 32.5 Sold at loss in auction BNC Bancorp 12/5/2008 31.3 Sold at loss in auction 1/9/2009 30.0 Cascade Financial Corporation First Security Group, Inc. Farmers Capital Bank Corporation Sold at loss in auction Continued on next page 131 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 9/30/2013 Original Investments 1/9/2009 $28.0 Sold at loss in auction HMN Financial, Inc 12/23/2008 26.0 Sold at loss in auction LNB Bancorp Inc. 12/12/2008 25.2 Sold at loss in auction Peoples Bancorp of North Carolina, Inc. 12/23/2008 25.1 Sold at loss in auction 5/29/2009 25.0 Sold at loss in auction 12/23/2008 25.0 Sold at loss in auction 2/27/2009 24.7 Sold at loss in auction Company Colony Bankcorp, Inc. Citizens Bancshares Co. Intervest Bancshares Corporation National Bancshares, Inc. CBS Banc-Corp Combined Investments ($ MILLIONS) (CONTINUED) Investment Date Investment Status 3/27/2009 24.3 Sold at loss in auction 11/21/2008 23.4 Sold at auction First Citizens Banc Corp 1/23/2009 23.2 Sold at loss in auction Park Bancorporation, Inc. 3/6/2009 23.2 Sold at loss in auction Premier Financial Bancorp, Inc. 10/2/2009 22.3 Sold at loss in auction Central Community Corporation 2/20/2009 22.0 Sold at loss in auction 12/11/2009 22.0 Sold at loss in auction FC Holdings, Inc. 6/26/2009 21.0 Sold at loss in auction The Baraboo Bancorporation, Inc. 1/16/2009 20.7 Sold at loss in auction United Bancorp, Inc. 1/16/2009 20.6 Sold at loss in auction Florida Bank Group, Inc. 7/24/2009 20.5 Sold Diamond Bancorp, Inc. 5/22/2009 20.4 Sold at loss in auction Commonwealth Bancshares, Inc. 5/22/2009 20.4 Sold at loss in auction 2/6/2009 20.4 Sold at loss in auction 5/15/2009 20.3 Sold at loss in auction 1/9/2009 20.0 Sold at loss in auction Severn Bancorp, Inc. First Community Financial Partners, Inc. First Western Financial, Inc. Market Street Bancshares, Inc. First Financial Service Corporation First Trust Corporation 6/5/2009 18.0 Sold at loss in auction Southern First Bancshares, Inc. 2/27/2009 17.3 Sold at loss in auction F&M Financial Corporation (TN) 2/13/2009 17.2 Sold at loss in auction F & M Financial Corporation (NC) Guaranty Federal Bancshares, Inc. Timberland Bancorp Inc. First Federal Bankshares of Arkansas, Inc. Parke Bancorp Inc. Carolina Bank Holdings, Inc. 2/6/2009 17.0 Sold at loss in auction 1/30/2009 17.0 Sold at loss in auction 12/23/2008 16.6 Sold at loss in auction 3/6/2009 16.5 Sold 1/30/2009 16.3 Sold at loss in auction 1/9/2009 16.0 Sold at loss in auction CoastalSouth Bancshares, Inc. 8/28/2009 16.0 Sold at loss in auction Community West Bancshares 12/19/2008 15.6 Sold at loss in auction 3/6/2009 15.3 Sold at loss in auction Broadway Financial Corporation 11/14/2008 15.0 Exchanged for common stock First Community Bancshares, Inc 5/15/2009 14.8 Sold First National Corporation 3/13/2009 13.9 Sold at loss in auction Yadkin Valley Financial Corporation 7/24/2009 13.3 Sold at loss in auction SouthCrest Financial Group, Inc. 7/17/2009 12.9 First Reliance Bancshares, Inc Continued on next page 132 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 9/30/2013 Company Original Investments Alliance Financial Services Inc. 6/26/2009 $12.0 Sold at loss in auction Farmers Enterprises, Inc. 6/19/2009 12.0 Sold at loss in auction 1/9/2009 12.0 Sold at loss in auction 1/30/2009 11.9 Sold at auction First Community Corporation 11/21/2008 11.4 Sold at loss in auction Western Illinois Bancshares, Inc. 12/23/2008 11.4 Sold at loss in auction The Queensborough Company Plumas Bancorp First Capital Bancorp, Inc. Combined Investments ($ MILLIONS) (CONTINUED) Investment Date Investment Status 4/3/2009 11.0 Sold at loss in auction Mackinac Financial Corporation 4/24/2009 11.0 Sold at loss in auction Ridgestone Financial Services, Inc. 2/27/2009 11.0 Sold at loss in auction First Community Bank Corporation of America 12/23/2008 11.0 Sold Stonebridge Financial Corp. 1/23/2009 11.0 Sold at loss in auction Security State Bank Holding Company 5/1/2009 10.8 Sold at auction Presidio Bank 11/20/2009 10.8 Sold at loss in auction Crosstown Holding Company 1/23/2009 10.7 Sold at auction Northwest Bancorporation, Inc. 2/13/2009 10.5 Sold at auction Blackhawk Bancorp, Inc. 3/13/2009 10.0 Sold at loss in auction Century Financial Services Corporation 6/19/2009 10.0 Sold at loss in auction ColoEast Bankshares, Inc. 2/13/2009 10.0 Sold at auction HomeTown Bankshares Corporation 9/18/2009 10.0 Sold at loss in auction Coastal Banking Company, Inc. 12/5/2008 10.0 Sold at loss in auction Universal Bancorp 5/22/2009 9.9 Sold at auction Delmar Bancorp 12/4/2009 9.0 Sold at loss in auction RCB Financial Corporation 6/19/2009 8.9 Sold at auction 12/22/2009 8.7 Sold at loss in auction BancStar, Inc. 4/3/2009 8.6 Sold at loss in auction First Western Financial, Inc. 2/6/2009 8.6 Sold at loss in auction Commonwealth Business Bank 1/23/2009 7.7 Sold at auction Metro City Bank 1/30/2009 7.7 Sold at loss in auction Oak Ridge Financial Services, Inc. 1/30/2009 7.7 Sold at loss in auction First Gothenburg Bancshares, Inc. 2/27/2009 7.6 Sold at loss in auction Country Bank Shares, Inc. 1/30/2009 7.5 Sold at loss in auction The Little Bank, Incorporated 12/23/2009 7.5 Sold at loss in auction First Sound Bank 12/23/2008 7.4 Sold FFW Corporation 12/19/2008 7.3 Sold at loss in auction 4/3/2009 7.3 Sold Central Federal Corporation 12/5/2008 7.2 Sold Community Financial Shares, Inc. 5/15/2009 7.0 Sold 4/3/2009 7.0 Sold at loss in auction 11/13/2009 6.7 Sold at auction 1/23/2009 6.5 Sold at auction First Freedom Bancshares, Inc. Millennium Bancorp, Inc. TriSummit Bank Fidelity Federal Bancorp Alarion Financial Services, Inc. Continued on next page 133 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 9/30/2013 Company Original Investments First Intercontinental Bank 3/13/2009 $6.4 Sold at auction Biscayne Bancshares, Inc. 6/19/2009 6.4 Sold at loss in auction Premier Financial Bancorp, Inc. 5/22/2009 6.3 Sold at auction Three Shores Bancorporation, Inc. 1/23/2009 5.7 Sold at loss in auction Boscobel Bancorp Inc. 5/15/2009 5.6 Sold at auction Waukesha Bankshares, Inc. 6/26/2009 5.6 Sold at loss in auction First Southwest Bancorporation, Inc. Combined Investments ($ MILLIONS) (CONTINUED) Investment Date Investment Status 3/6/2009 5.5 Sold at loss in auction Franklin Bancorp, Inc. 5/22/2009 5.1 Sold at loss in auction AmFirst Financial Services, Inc. 8/21/2009 5.0 Sold at loss in auction 3/6/2009 5.0 Sold at loss in auction Germantown Capital Corporation Alaska Pacific Bancshares Inc. 2/6/2009 4.8 Sold at loss in auction 12/18/2009 4.6 Sold at loss in auction 6/12/2009 4.7 Sold at auction Community Pride Bank Corporation 11/13/2009 4.4 Sold at auction CBB Bancorp 12/20/2009 4.4 Sold at loss in auction First Priority Financial Corp. Virginia Company Bank Pinnacle Bank Holding Company, Inc. 3/6/2009 4.4 Sold at loss in auction 4/10/2009 4.2 Sold at loss in auction Bank of Currituck 2/6/2009 4.0 Sold Carolina Trust Bank 2/6/2009 4.0 Sold at loss in auction Bank of Southern California, N.A. Santa Lucia Bancorp 12/19/2008 4.0 Sold Capital Pacific Bancorp 12/23/2008 4.0 Sold at loss in auction Community Business Bank 2/27/2009 4.0 Sold at loss in auction KS Bancorp Inc. 8/21/2009 4.0 Sold at loss in auction Naples Bancorp, Inc. 3/27/2009 4.0 Sold Peoples of Bancshares of TN, Inc. 3/20/2009 3.9 Sold at loss in auction Pathway Bancorp 3/27/2009 3.7 Sold at auction F & M Bancshares, Inc. 11/6/2009 3.5 Sold at loss in auction First Alliance Bancshares, Inc. 6/26/2009 3.4 Sold at loss in auction Congaree Bancshares, Inc. 1/9/2009 3.3 Sold at loss in auction Mountain Valley Bancshares, Inc. 9/25/2009 3.3 Sold at auction Treaty Oak Bancorp, Inc. 1/16/2009 3.3 Sold First Independence Corporation 8/28/2009 3.2 Sold at loss in auction 1/9/2009 3.1 Sold at loss in auction Alliance Bancshares, Inc. 6/26/2009 3.0 Sold at loss in auction Bank of Commerce 1/16/2009 3.0 Sold at loss in auction Clover Community Bankshares, Inc. 3/27/2009 3.0 Sold at loss in auction F & C Bancorp. Inc. 5/22/2009 3.0 Sold at loss in auction Sound Banking Co. FBHC Holding Company 12/29/2009 3.0 Sold 6/26/2009 3.0 Exchanged for preferred stock in Veritex Holding Layton Park Financial Group, Inc. 12/18/2009 3.0 Sold at loss in auction Tennessee Valley Financial Holdings, Inc. 12/23/2008 3.0 Sold at auction Fidelity Resources Company Continued on next page 134 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 9/30/2013 Combined Investments ($ MILLIONS) (CONTINUED) Company Investment Date Original Investments Berkshire Bancorp 6/12/2009 $2.9 Exchanged for preferred stock in Customers Bancorp Santa Clara Valley Bank, N.A. 2/13/2009 2.9 Sold at loss in auction Omega Capital Corp. 4/17/2009 2.8 Sold at auction Worthington Financial Holdings, Inc. 5/15/2009 2.7 Sold at loss in auction Community Investors Bancorp, Inc. Investment Status 12/23/2008 2.6 Sold at loss in auction Manhattan Bancshares, Inc. 6/19/2009 2.6 Sold at loss in auction Plato Holdings Inc. 7/17/2009 2.5 Sold at loss in auction Brogan Bankshares, Inc. 5/15/2009 2.4 Sold at auction CenterBank 5/1/2009 2.3 Sold at loss in auction Security Bancshares of Pulaski County, Inc. 2/13/2009 2.2 Sold at loss in auction Hometown Bancshares, Inc. 2/13/2009 1.9 Sold at loss in auction Hyperion Bank 2/6/2009 1.6 Sold at loss in auction Regional Bankshares Inc. 2/13/2009 1.5 Sold at loss in auction Desoto County Bank 2/13/2009 1.2 Sold at auction First Advantage Bancshares, Inc. 5/22/2009 1.2 Sold at loss in auction Community Bancshares of MS 2/6/2009 1.1 Sold at loss in auction BankGreenville Financial Corp. 2/13/2009 1.0 Sold at loss in auction Bank Financial Services, Inc. 8/14/2009 1.0 Sold at loss in auction Corning Savings and Loan Association 2/13/2009 0.6 Sold at loss in auction Farmers & Merchants Financial Corporation 3/20/2009 0.4 Sold at loss in auction Notes: Numbers may be affected due to rounding. a M&T Bank Corporation (“M&T”) has redeemed the entirety of the preferred shares issued by Wilmington Trust Corporation plus accrued dividends. In addition, M&T has also repaid Treasury’s original $600 million investment. On August 21, 2012, Treasury sold all of its remaining investment in M&T at par. b The new investment amount of $81.9 million includes the original investment amount in Metropolitan Bank Group, Inc. of $71.5 million plus the original investment amount in NC Bank Group, Inc. of $6.9 million plus unpaid dividends of $3.5 million. c The subsidiary bank of Superior Bancorp, Inc. failed on April 15, 2011. All of Treasury’s TARP investment in Superior Bancorp is expected to be lost. d The new investment amount of $122 million includes the original investment amount in BBCN Bancorp, Inc. (formerly Nara Bancorp, Inc.) of $67 million and the original investment of Center Financial Corporation of $55 million. e The new investment amount of $42.8 million includes the original investment amount in Crescent Financial Bancshares, Inc. (formerly Crescent Financial Corporation) of $24.9 million and the original investment of ECB Bancorp, Inc. of $17.9 million. Source: Treasury, Transactions Report, 9/30/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Treasury’s Sale of TARP Preferred Stock Investments at Auction Overview of CPP Preferred Stock Auctions From March 2012 through September 30, 2013, Treasury has held 20 sets of auctions in which it has sold all of its preferred stock investments in 151 CPP banks and part of its investment in an additional bank.399 For publicly traded banks, Treasury auctioned the shares through a placement agent and the shares were available for purchase by the general public. For private banks, Treasury auctioned the shares directly and the auctions were accessible only to qualified purchasers. The preferred stock for all but eight of the banks sold at a discounted price and resulted in losses to Treasury.400 In the 20 auction sets, the range of discount on the investments was 1% to 83%.401 Treasury lost a total of $703.8 million in the auctions.402 More than a quarter of the banks, 40, bought back some of their shares at the discounted price.403 In three sets of auctions this quarter, Treasury sold all of its TARP preferred investment in 17 banks and part of its investment in an additional bank.404 The three auctions this quarter accrued losses to Treasury of $216.9 million, including the largest dollar loss on a specific bank in the history of these auctions; Treasury lost $190.7 million in the auctioning of First Banks, Inc.405 When Treasury sells all of its preferred shares of a CPP bank, it forfeits the right to collect missed dividends and interest payments from the bank. Of the 152 banks in which Treasury sold its stock through this auction process, 48 were overdue on payments to Treasury.406 The $189.8 million owed to Treasury for missed payments by these 48 banks will never be recovered.407 Table 2.37 shows details for the auctions of preferred stock in CPP banks through September 30, 2013. On October 9, 2012, SIGTARP made three recommendations regarding CPP preferred stock auctions, which are discussed in detail in SIGTARP’s October 2012 Quarterly Report, pages 180-183. 135 136 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.37 INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 9/30/2013 Institution Stonebridge Financial Corp. Centrue Financial Corporation Auction Date Investment Net Proceeds Auction Loss Discount Percentage 3/15/2013 $10,973,000 $1,879,145 $9,093,855 83% Percentage of Shares Repurchased by Institution Missed Dividends $1,794,180 9/25/2013 32,668,000 8,211,450 17,054,550 68% 6,941,950 8/12/2013 295,400,000 104,749,295 190,650,705 65% 68,422,025 Old Second Bancorp, Inc.b 3/1/2013 73,000,000 25,547,320 47,452,680 65% 9,125,000 First Priority Financial Corp. 1/29/2013 9,175,000 4,012,094 5,162,906 56% a First Banks, Inc. First Intercontinental Bank 8/12/2013 6,398,000 3,222,113 3,175,887 50% 697,400 Citizens Bancshares Co. 1/29/2013 24,990,000 12,679,301 12,310,699 49% 4,086,000 First Financial Service Corporation 4/29/2013 20,000,000 10,733,778 9,266,222 46% 2,500,000 Dickinson Financial Corporation II 1/29/2013 146,053,000 79,903,245 66,149,755 45% 27,859,720 Delmar Bancorp 1/29/2013 9,000,000 5,453,900 3,546,100 39% 613,125 185,903 Virginia Company Bank 8/12/2013 4,700,000 2,843,974 1,856,026 39% Franklin Bancorp, Inc. 11/9/2012 5,097,000 3,191,614 1,905,386 37% 12/20/2012 1,552,000 983,800 568,200 37% 9/12/2012 22,000,000 14,211,450 7,788,550 35% 12/11/2012 20,749,000 13,399,227 7,349,773 35% 565,390 1,254,720 Hyperion Bank First Community Financial Partners, Inc.c The Baraboo Bancorporation, Inc. First Reliance Bancshares, Inc. 3/1/2013 15,349,000 10,327,021 5,021,979 33% Security Bancshares of Pulaski County, Inc. 12/11/2012 2,152,000 1,475,592 676,408 31% First Alliance Bancshares, Inc. 12/20/2012 3,422,000 2,370,742 1,051,258 31% 7/27/2012 35,500,000 25,313,186 10,186,814 29% Parke Bancorp, Inc. Marquette National Corporation 11/30/2012 16,288,000 11,595,735 4,692,265 29% First Independence Corporation 12/20/2012 3,223,000 2,286,675 936,325 29% HMN Financial, Inc. 1/29/2013 26,000,000 18,571,410 7,428,590 29% Farmers Capital Bank Corporation 6/13/2012 30,000,000 21,594,229 8,405,771 28% Park Bancorporation, Inc. 7/27/2012 23,200,000 16,772,382 6,427,618 28% Diamond Bancorp, Inc. 7/27/2012 20,445,000 14,780,662 5,664,338 28% 12/11/2012 15,600,000 11,181,456 4,418,544 28% Commonwealth Bancshares, Inc. Community West Bancshares 7/27/2012 20,400,000 15,147,000 5,253,000 26% Trinity Capital Corporation 7/27/2012 35,539,000 26,396,503 9,142,497 26% TriSummit Bank Alliance Financial Services, Inc. National Bancshares, Inc. 11/30/2012 7,002,000 5,198,984 1,803,016 26% 1/29/2013 12,000,000 8,912,495 3,087,505 26% 2/7/2013 24,664,000 18,318,148 6,345,852 26% 93,245 31% 2,600,000 30% 585,000 26% 3,020,400 3,024,383 Continued on next page 137 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 9/30/2013 (CONTINUED) Auction Date Investment Net Proceeds Auction Loss Discount Percentage Blue Ridge Bancshares, Inc. 10/31/2012 $12,000,000 $8,969,400 $3,030,600 25% Peoples Bancshares of TN, Inc. 10/31/2012 3,900,000 2,919,500 980,500 25% Institution First Trust Corporation 2/7/2013 17,969,000 13,612,558 4,356,442 24% Colony Bankcorp, Inc. 1/29/2013 28,000,000 21,680,089 6,319,911 23% F&M Financial Corporation (TN) Layton Park Financial Group, Inc. 9/12/2012 17,243,000 13,443,074 3,799,926 22% 11/30/2012 3,000,000 2,345,930 654,070 22% CoastalSouth Bancshares, Inc. 3/1/2013 16,015,000 12,606,191 3,408,809 21% Seacoast Banking Corporation of Florida 3/28/2012 50,000,000 40,404,700 9,595,300 19% United Bancorp, Inc. 6/13/2012 20,600,000 16,750,221 3,849,780 19% Alpine Banks of Colorado CenterBank Ridgestone Financial Services, Inc. 9/12/2012 70,000,000 56,430,297 13,569,703 19% 10/31/2012 2,250,000 1,831,250 418,750 19% 2/7/2013 10,900,000 8,876,677 2,023,323 19% Congaree Bancshares Inc. 10/31/2012 3,285,000 2,685,979 599,021 18% Corning Savings and Loan Association 11/30/2012 638,000 523,680 114,320 18% KS Bancorp, Inc. 11/30/2012 4,000,000 3,283,000 717,000 18% DeSoto County Bank 9/25/2013 2,681,000 2,196,896 484,104 18% Bank of Commerce 11/30/2012 3,000,000 2,477,000 523,000 17% 7/27/2012 20,440,000 17,022,298 3,417,702 17% First Western Financial, Inc.d Carolina Trust Bank 11/30/2012 4,000,000 3,362,000 638,000 16% Presidio Bank 12/11/2012 10,800,000 9,058,369 1,741,631 16% 3/1/2013 2,900,000 2,440,379 459,621 16% Timberland Bancorp, Inc. Santa Clara Valley Bank, N.A. 11/9/2012 16,641,000 14,209,334 2,431,666 15% Worthington Financial Holdings, Inc. 6/24/2013 2,720,000 2,318,851 401,149 15% First Financial Holdings Inc. 3/28/2012 65,000,000 55,926,478 9,073,522 14% 11/30/2012 3,000,000 2,593,700 406,300 14% 3/28/2012 124,000,000 108,071,915 15,928,085 13% Clover Community Bankshares, Inc. Banner Corporation LNB Bancorp Inc. 6/13/2012 25,223,000 21,863,750 3,359,251 13% Pulaski Financial Corp 6/27/2012 32,538,000 28,460,338 4,077,662 13% Exchange Bank 7/27/2012 43,000,000 37,259,393 5,740,608 13% First National Corporation 8/23/2012 13,900,000 12,082,749 1,817,251 13% Taylor Capital Group 6/13/2012 104,823,000 92,254,460 12,568,540 12% Fidelity Financial Corporation 7/27/2012 36,282,000 32,013,328 4,268,672 12% Percentage of Shares Repurchased by Institution Missed Dividends $1,400,000 1,687,900 2,079,175 35% 79% 122,625 150,000 474,150 222,360 47% 58% Continued on next page 138 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 9/30/2013 (CONTINUED) Auction Date Investment Net Proceeds Auction Loss Discount Percentage Yadkin Valley Financial Corporatione 9/12/2012 $49,312,000 $43,486,820 $5,825,180 12% Three Shores Bancorporation, Inc. 11/9/2012 5,677,000 4,992,788 684,212 12% Alaska Pacific Bancshares, Inc. 11/30/2012 4,781,000 4,217,568 563,432 12% Institution 2/7/2013 21,042,000 18,685,927 2,356,073 11% Fidelity Southern Corporation FC Holdings, Inc. 6/27/2012 48,200,000 42,757,786 5,442,214 11% Southern First Bancshares, Inc. 6/27/2012 17,299,000 15,403,722 1,895,278 11% First Citizens Banc Corp 6/27/2012 23,184,000 20,689,633 2,494,367 11% Market Street Bancshares, Inc. 7/27/2012 20,300,000 18,069,213 2,230,787 11% Premier Financial Bancorp, Inc. Metro City Bank BankGreenville Financial Corporation Percentage of Shares Repurchased by Institution Missed Dividends $4,013,730 6% 89% 7/27/2012 22,252,000 19,849,222 2,402,778 11% 46% 10/31/2012 7,700,000 6,861,462 838,538 11% 15% 11/9/2012 1,000,000 891,000 109,000 11% FFW Corporation 11/30/2012 7,289,000 6,515,426 773,574 11% First Advantage Bancshares, Inc. 12/11/2012 1,177,000 1,046,621 130,379 11% First Southwest Bancorporation, Inc. 3/15/2013 5,500,000 4,900,609 599,391 11% ColoEast Bankshares, Inc. 7/22/2013 10,000,000 8,947,125 1,052,875 11% 1,090,000 3/1/2013 12,900,000 11,587,256 1,312,744 10% 1,581,863 SouthCrest Financial Group, Inc. WSFS Financial Corporation 3/28/2012 52,625,000 47,435,299 5,189,701 10% CBS Banc-Corp. 7/27/2012 24,300,000 21,776,396 2,523,604 10% First Gothenburg Banschares, Inc. 10/31/2012 7,570,000 6,822,136 747,864 10% Blackhawk Bancorp Inc. 10/31/2012 10,000,000 9,009,000 991,000 10% Bank Financial Services, Inc. 12/20/2012 1,004,000 907,937 96,063 10% 3/15/2013 266,657,000 240,627,277 26,029,723 10% Flagstar Bancorp, Inc. First Capital Bancorp, Inc. 6/13/2012 10,958,000 9,931,327 1,026,673 9% BNC Bancorp 8/23/2012 31,260,000 28,365,685 2,894,315 9% Germantown Capital Corporation, Inc. 10/31/2012 4,967,000 4,495,616 471,384 9% Oak Ridge Financial Services, Inc. 10/31/2012 7,700,000 7,024,595 675,405 9% HomeTown Bankshares Corporation 10/31/2012 10,000,000 9,093,150 906,850 9% First Freedom Bancshares, Inc. 11/9/2012 8,700,000 7,945,492 754,508 9% Sound Banking Company 11/9/2012 3,070,000 2,804,089 265,911 9% RCB Financial Corporation 9/25/2013 8,900,000 8,073,279 826,721 9% 974,188 95% 16,666,063 50% 25% 69% 1,055,520 Continued on next page 139 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 9/30/2013 (CONTINUED) Auction Date Investment Net Proceeds Auction Loss Discount Percentage Country Bank Shares, Inc. 11/30/2012 $7,525,000 $6,838,126 $686,874 9% Bank of Southern California, N.A. 12/20/2012 4,243,000 3,850,150 392,850 9% Farmers & Merchants Financial Corporation 6/24/2013 442,000 400,425 41,575 9% Waukesha Bankshares, Inc. 1/29/2013 5,625,000 5,161,674 463,326 8% MainSource Financial Group, Inc. 3/28/2012 57,000,000 52,277,171 4,722,829 8% Institution Percentage of Shares Repurchased by Institution 30% 37% Ameris Bancorp 6/13/2012 52,000,000 47,665,332 4,334,668 8% Peoples Bancorp of North Carolina, Inc. 6/27/2012 25,054,000 23,033,635 2,020,365 8% 50% Regional Bankshares, Inc. 11/9/2012 1,500,000 1,373,625 126,375 8% 47% 35% CBB Bancorp 11/30/2012 4,397,000 4,066,752 330,248 8% Central Community Corporation 12/11/2012 22,000,000 20,172,636 1,827,364 8% Carolina Bank Holdings, Inc. Wilshire Bancorp, Inc. 2/7/2013 16,000,000 14,811,984 1,188,016 7% 3/28/2012 62,158,000 57,766,994 4,391,006 7% 97% 48% Firstbank Corporation 6/27/2012 33,000,000 30,587,530 2,412,470 7% Capital Pacific Bancorp 11/9/2012 4,000,000 3,715,906 284,094 7% Western Illinois Bancshares, Inc. 11/9/2012 11,422,000 10,616,305 805,695 7% 89% 11/30/2012 1,050,000 977,750 72,250 7% 52% Community Bancshares of Mississippi, Inc. Community Business Bank 11/30/2012 3,976,000 3,692,560 283,440 7% Hometown Bancshares, Inc. 11/30/2012 1,900,000 1,766,510 133,490 7% F & M Bancshares, Inc. 1/29/2013 8,144,000 7,598,963 545,037 7% Commonwealth Business Bank 7/22/2013 7,701,000 7,250,414 450,586 6% Mackinac Financial Corporation 8/23/2012 11,000,000 10,380,905 619,095 6% F & M Financial Corporation (NC) 9/12/2012 17,000,000 15,988,500 1,011,500 6% Universal Bancorp 8/12/2013 9,900,000 9,312,028 587,972 6% Community Investors Bancorp, Inc. 12/20/2012 2,600,000 2,445,000 155,000 6% Coastal Banking Company, Inc. 3/1/2013 9,950,000 9,408,213 541,787 5% First Defiance Financial Corp. 6/13/2012 37,000,000 35,084,144 1,915,856 5% F&C Bancorp, Inc. 11/9/2012 2,993,000 2,840,903 152,097 5% Farmers Enterprises, Inc. 11/9/2012 12,000,000 11,439,252 560,748 5% Alliance Bancshares, Inc. 3/15/2013 2,986,000 2,831,437 154,563 5% AmFirst Financial Services, Inc. 3/15/2013 5,000,000 4,752,000 248,000 5% United Community Banks, Inc. 3/15/2013 180,000,000 171,517,500 8,482,500 5% Biscayne Bancshares, Inc. 1/29/2013 6,400,000 6,170,630 229,370 4% Missed Dividends 39% 100% $1,049,250 84% 54% 746,250 45% 99% 53% Continued on next page 140 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 9/30/2013 (CONTINUED) Auction Date Investment Net Proceeds Auction Loss Discount Percentage Guaranty Federal Bancshares, Inc.f 4/29/2013 $12,000,000 $11,493,900 $506,100 4% Intervest Bancshares Corporation 6/24/2013 25,000,000 24,007,500 992,500 4% Institution Crosstown Holding Company 7/22/2013 10,650,000 10,356,564 293,436 3% NewBridge Bancorp 4/29/2013 52,372,000 50,837,239 1,534,761 3% BancStar, Inc. 4/29/2013 8,600,000 8,366,452 233,548 3% The Queensborough Company MetroCorp Bancshares, Inc. 3/1/2013 12,000,000 11,605,572 394,428 3% 6/27/2012 45,000,000 43,490,360 1,509,640 3% Percentage of Shares Repurchased by Institution 25% 12% $1,798,500 97% First Community Corporation 8/23/2012 11,350,000 10,987,794 362,206 3% 33% The Little Bank, Incorporated 10/31/2012 7,500,000 7,285,410 214,590 3% 63% Manhattan Bancshares, Inc. 96% 12/11/2012 2,639,000 2,560,541 78,459 3% Alarion Financial Services, Inc. 7/22/2013 6,514,000 6,338,584 175,416 3% Mountain Valley Bancshares, Inc. 7/22/2013 3,300,000 3,242,000 58,000 2% 12/20/2012 10,000,000 9,751,500 248,500 2% Premier Financial Corp. 7/22/2013 6,349,000 6,270,436 78,564 1% Omega Capital Corp. 7/22/2013 2,816,000 2,791,000 25,000 1% Century Financial Services Corporation Missed Dividends 532,560 91% 60% 1,597,857 575,588 Plato Holdings Inc. 4/29/2013 2,500,000 2,478,750 21,250 1% 207,266 Fidelity Federal Bancorp 7/22/2013 6,657,000 6,586,509 70,491 1% 1,229,924 Community Pride Bank Corporation 8/12/2013 4,400,000 4,351,151 48,849 1% 803,286 Severn Bancorp, Inc. 9/25/2013 23,393,000 23,367,268 25,732 0% 1,754,475 Reliance Bancshares, Inc. 9/25/2013 40,000,000 40,196,000 (196,000) 0% 5,995,000 Tennessee Valley Financial Holdings, Inc 4/29/2013 3,000,000 3,041,330 (41,330) (1%) 531,375 3/1/2013 10,500,000 10,728,783 (228,783) (2%) 1,716,750 Brogan Bankshares, Inc. Northwest Bancorporation, Inc. 4/29/2013 2,400,000 2,495,024 (95,024) (4%) 352,380 Plumas Bancorp 4/29/2013 11,949,000 12,907,297 (958,297) (8%) 3/1/2013 5,586,000 6,116,943 (530,943) (10%) 1,288,716 Security State Bank Holding Company 6/24/2013 10,750,000 12,409,261 (1,659,261) (15%) 2,254,985 Pathway Bancorp 6/24/2013 3,727,000 4,324,446 (597,446) (16%) 761,588 Boscobel Bancorp, Inc. Total Auction Losses Total Missed Dividends 58% 1,792,350 $703,800,353 $189,847,115 Notes: Numbers may not total due to rounding. a Treasury did not sell all of its shares in Centrue Financial Corporation in this auction. The bank remains in TARP and Treasury records its remaining investment as $7,402,000. b Treasury sold 70,028 of its shares in Old Second in the 3/1/2013 auction and the remaining 2,972 shares in the 3/15/2013 auction. c Treasury additionally sold 1,100 shares of its Series C stock in First Community Financial Partners, Inc. in this auction, but its largest investment in the bank was sold in the auction that closed on 9/12/2012, and the data for the disposition of its investment is listed under the 9/12/2012 auction in this table. d Treasury sold 8,000 of its shares in First Western Financial, Inc. on 7/27/2012 and the remaining 12,440 in the 6/24/2013 auction. e This institution was auctioned separately from the other set that closed on the same date because it is a publicly traded company. f The original investment in Guaranty Federal Bancshares, Inc. was $17 million. The bank had previously paid down $5 million, leaving a $12 million investment remaining. Sources: Treasury, Transactions Report, 9/30/2013; SNL Financial LLC data. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 CPP Banks Refinancing into CDCI and SBLF On October 21, 2009, the Administration announced the Community Development Capital Initiative (“CDCI”) as another TARP-funded program.408 Under CDCI, TARP made $570.1 million in investments in 84 eligible banks and credit unions.409 Qualifying CPP banks applied for the new TARP program, and 28 banks were accepted. The 28 banks refinanced $355.7 million in CPP investments into CDCI.410 For more information on CDCI, see “Community Development Capital Initiative” in this section. On September 27, 2010, the President signed into law the Small Business Jobs Act of 2010 (“Jobs Act”), which created the non-TARP program SBLF for Treasury to make up to $30 billion in capital investments in institutions with less than $10 billion in total assets.411 According to Treasury, it received a total of 935 SBLF applications, of which 320 were TARP recipients under CPP (315) or CDCI (5).412 Treasury accepted 137 CPP participants into SBLF with financing of $2.7 billion. The 137 banks in turn refinanced $2.2 billion of Treasury’s TARP preferred stock with the SBLF investments.413 None of the CDCI recipients were approved for participation. Warrant Disposition As required by EESA, Treasury received warrants when it invested in troubled assets from financial institutions, with an exception for certain small institutions. With respect to financial institutions with publicly traded securities, these warrants gave Treasury the right, but not the obligation, to purchase a certain number of shares of common stock at a predetermined price.414 Because the warrants rise in value as a company’s share price rises, they permit Treasury (and the taxpayer) to benefit from a firm’s potential recovery.415 For publicly traded institutions, the warrants received by Treasury under CPP allowed Treasury to purchase additional shares of common stock in a number equal to 15% of the value of the original CPP investment at a specified exercise price.416 Treasury’s warrants constitute assets with a fair market value that Treasury estimates using relevant market quotes, financial models, and/or thirdparty valuations.417 As of September 30, 2013, Treasury had not exercised any of these warrants.418 For privately held institutions, Treasury received warrants to purchase additional preferred stock or debt in an amount equal to 5% of the CPP investment. Treasury exercised these warrants immediately.419 Unsold and unexercised warrants expire 10 years from the date of the CPP investment.420 As of September 30, 2013, Treasury had received $7.9 billion through the sale of CPP warrants obtained by TARP recipients.421 Repurchase of Warrants by Financial Institutions Upon repaying its CPP investment, a recipient may seek to negotiate with Treasury to buy back its warrants. As of September 30, 2013, 156 publicly traded institutions had bought back $3.8 billion worth of warrants, of which $8.6 million was purchased this quarter. As of that same date, 252 privately held institutions, the warrants of which had been immediately exercised, bought back the resulting For a discussion of SIGTARP’s August 20, 2013, recommendation to Treasury regarding the inclusion of SBLF funds as TARP repayments, see Section 5 of this report. For information on TARP banks that refinanced into SBLF, see SIGTARP’s April 9, 2013, audit report, “Banks that Used the Small Business Lending Fund to Exit TARP.” For a detailed list of CPP banks that refinanced into SBLF, see SIGTARP’s October 2012 Quarterly Report, pages 88-92. For a discussion of the impact of TARP and SBLF on community banks, see SIGTARP’s April 2012 Quarterly report, pages 145-167. For more information on warrant disposition, see SIGTARP’s audit report of May 10, 2010, “Assessing Treasury’s Process to Sell Warrants Received from TARP Recipients.” Exercise Price: Preset price at which a warrant holder may purchase each share. For warrants in publicly traded institutions issued through CPP, this was based on the average stock price during the 20 days before the date that Treasury granted preliminary CPP participation approval. 141 142 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM additional preferred shares for a total of $153.6 million, of which $36.5 million was bought back this quarter.422 Table 2.38 lists publicly traded institutions that repaid TARP and repurchased warrants in the quarter ended September 30, 2013. Table 2.39 lists privately held institutions that had done so in the same quarter.423 TABLE 2.38 CPP WARRANT SALES AND REPURCHASES (PUBLIC) FOR THE QUARTER ENDING 9/30/2013 Number of Warrants Repurchased Amount of Repurchase ($Thousands) Repurchase Date Company 8/30/2013 First M&F Corporation 513,113 $4,089,510.6 8/28/2013 Unity Bancorp, Inc. 764,778 2,707,314.0 8/7/2013 Heritage Oaks Bancorp 611,650 1,575,000.0 8/28/2013 Avidbank Holdings, Inc (Formerly Peninsula Bank Holding Co.) 81,670 190,781.1 7/31/2013 Security Federal Corporation 137,966 50,000.0 8/30/2013 Independent Bank Corporation 346,154 0.0 9/27/2013 Anchor Bancorp Wisconsin, Inc. 7,399,103 0.0 9,854,434 $8,612,605.7 Total Notes: Numbers may not total due to rounding. This table represents warrants for common stock issued to Treasury by publicly traded TARP recipients. Treasury may hold one warrant for millions of underlying shares rather than millions of warrants of an individual financial institution. Sources: Treasury, Transactions Report, 9/30/2013; Treasury, responses to SIGTARP data calls, 1/4/2011, 1/7/2011, 4/6/2011, 7/8/2011, 10/7/2011, 10/11/2011, 1/11/2012, 4/5/2012, 7/9/2012, 10/12/2012, 4/12/2013, 7/11/2013, and 10/10/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.39 CPP WARRANT SALES AND REPURCHASES (PRIVATE) FOR THE QUARTER ENDING 9/30/2013 Number of Warrants Repurchased Amount of Repurchase ($Thousands) Repurchase Date Company 8/12/2013 First Banks, Inc. 14,770,000 $14,770.0 7/24/2013 New York Private Bank & Trust Corp. / Emigrant Bank 13,364,000 13,364.0 9/25/2013 Reliance Bancshares, Inc. 2,000,000 2,000.0 8/14/2013 Florida Bank Group, Inc. 1,024,000 1,024.0 9/18/2013 PeoplesSouth Bancshares, Inc. 616,000 616.0 7/22/2013 Crosstown Holding Company/21st Century Bank 533,000 533.0 8/12/2013 Universal Bancorp/Bloomfield State Bank 495,000 495.0 7/17/2013 Commonwealth Business Bank 385,000 385.0 8/30/2013 BNB Financial Services Corporation 375,000 375.0 7/22/2013 Alarion Financial Services, Inc. 326,000 326.0 8/12/2013 First Intercontinental Bank 320,000 320.0 7/22/2013 Premier Financial Corpa 317,000 317.0 9/30/2013 Randolph Bank & Trust Company 311,000 311.0 9/25/2013 RCB Financial Corporation (River City Bank) 268,000 268.0 7/22/2013 Fidelity Federal Bancorp 200,000 200.0 9/25/2013 Todd Bancshares, Inc. / United Southern Bank 200,000 200.0 7/22/2013 Mountain Valley Bancshares, Inc. 165,000 165.0 8/28/2013 Hometown Bancorp of Alabama, Inc. 163,000 163.0 8/12/2013 Virginia Company Bank 143,000 143.0 7/22/2013 Omega Capital Corp./Front Range Bank 141,000 141.0 8/12/2013 Community Pride Bank Corporationa 132,000 132.0 9/25/2013 Ojai Community Bank 104,000 104.0 7/10/2013 Vision Bank - Texas 75,000 75.0 9/25/2013 DeSoto County Bank 59,000 59.0 7/22/2013 ColoEast Bankshares, Inc. 50,000 50.0 36,536,000 $36,536.0 Total Notes: Numbers may not total due to 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. Treasury may hold one warrant for millions of underlying shares rather than millions of warrants of an individual financial institution. a S-Corporation Institution: issued subordinated debt instead of preferred stock. Sources: Treasury, Transactions Report, 9/30/2013; Treasury, response to SIGTARP data call, 10/10/2013. 143 144 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury Warrant Auctions If Treasury and the repaying institution cannot agree upon the price for the institution to repurchase its warrants, Treasury may conduct a public or private offering to auction the warrants.424 As of September 30, 2013, the combined proceeds from Treasury’s public and private warrant auctions totaled $5.5 billion.425 Public Warrant Auctions In November 2009, Treasury began selling warrants via public auctions.426 Through September 30, 2013, Treasury had held 26 public auctions for warrants it received under CPP, TIP, and AGP, raising a total of approximately $5.4 billion.427 Treasury did not conduct any public warrant auctions this quarter.428 Final closing information for all public warrant auctions is shown in Table 2.40. 145 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.40 PUBLIC TREASURY WARRANT AUCTIONS, AS OF 9/30/2013 Auction Date 3/3/2010 Company Bank of America A Auction (TIP)a Bank of America B Auction (CPP) a Number of Warrants Offered Minimum Bid Price Selling Price Proceeds to Treasury ($ Millions) 150,375,940 $7.00 $8.35 $1,255.6 121,792,790 1.50 2.55 310.6 88,401,697 8.00 10.75 950.3 110,261,688 6.50 7.70 849.0 12/10/2009 JPMorgan Chase 5/20/2010 Wells Fargo and Company 9/21/2010 Hartford Financial Service Group, Inc. 52,093,973 10.50 13.70 713.7 4/29/2010 PNC Financial Services Group, Inc. 16,885,192 15.00 19.20 324.2 Citigroup A Auction (TIP & AGP) 255,033,142 0.60 1.01 257.6 Citigroup B Auction (CPP)a 210,084,034 0.15 0.26 54.6 a 1/25/2011 9/16/2010 Lincoln National Corporation 13,049,451 13.50 16.60 216.6 5/6/2010 Comerica Inc. 11,479,592 15.00 16.00 183.7 12/3/2009 Capital One 12,657,960 7.50 11.75 148.7 11/29/2012 M&T Bank Corporation 1,218,522 23.50 1.35 32.3 2/8/2011 Wintrust Financial Corporation 1,643,295 13.50 15.80 26.0 6/2/2011 Webster Financial Corporation 3,282,276 5.50 6.30 20.4 SunTrust A Auctionb 6,008,902 2.00 2.70 16.2 SunTrust B Auctionb 11,891,280 1.05 1.20 14.2 1,707,456 5.00 5.00 15.6 9/22/2011 3/9/2010 Washington Federal, Inc. 3/10/2010 Signature Bank 595,829 16.00 19.00 11.3 12/15/2009 TCF Financial 3,199,988 1.50 3.00 9.6 12/5/2012 Zions Bancorporation 5,789,909 23.50 26.50 7.8 3/11/2010 Texas Capital Bancshares, Inc. 758,086 6.50 6.50 6.7 2/1/2011 Boston Private Financial Holdings, Inc. 2,887,500 1.40 2.20 6.4 5/18/2010 Valley National Bancorp 2,532,542 1.70 2.20 5.6 11/30/2011 Associated Banc-Corpc 3,983,308 0.50 0.90 3.6 6/2/2010 First Financial Bancorp 465,117 4.00 6.70 3.1 6/9/2010 Sterling Bancshares Inc. 2,615,557 0.85 1.15 3.0 Total 1,090,695,026 $5,446.4 Notes: Numbers may not total due to rounding. a Treasury held two auctions each for the sale of Bank of America and Citigroup warrants. b Treasury held two auctions for SunTrust’s two CPP investments dated 11/14/2008 (B auction) and 12/31/2008 (A auction). c According to Treasury, the auction grossed $3.6 million and netted $3.4 million. Sources: The PNC Financial Services Group, Inc., “Final Prospectus Supplement,” 4/29/2010, www.sec.gov/Archives/edgar/data/713676/000119312510101032/d424b5.htm, accessed 10/1/2013; Valley National Bancorp, “Final Prospectus Supplement,” 5/18/2010, www.sec.gov/Archives/edgar/data/714310/000119312510123896/d424b5.htm, accessed 10/1/2013; Comerica Incorporated, “Final Prospectus Supplement,” 5/6/2010, www.sec.gov/Archives/edgar/data/28412/000119312510112107/d424b5.htm, accessed 10/1/2013; Wells Fargo and Company, “Definitive Prospectus Supplement,” 5/20/2010, www.sec.gov/Archives/edgar/data/72971/000119312510126208/d424b5.htm, accessed 10/1/2013; First Financial Bancorp, “Prospectus Supplement,” 6/2/2010, www.sec.gov/Archives/edgar/data/708955/000114420410031630/v187278_424b5.htm, accessed 10/1/2013; Sterling Bancshares, Inc., “Prospectus Supplement,” 6/9/2010, www.sec.gov/Archives/edgar/data/891098/000119312510136584/dfwp.htm, accessed 10/1/2013; Signature Bank, “Prospectus Supplement,” 3/10/2010, files.shareholder.com/downloads/ SBNY/1456015611x0x358381/E87182B5-A552-43DD-9499-8B56F79AEFD0/8-K__Reg_FD_Offering_Circular.pdf, accessed 10/1/2013; Texas Capital Bancshares, Inc., “Prospectus Supplement,” 3/11/2010, www.sec.gov/Archives/edgar/data/1077428/000095012310023800/d71405ae424b5.htm, accessed 10/1/2013; Bank of America, “Form 8-K,” 3/3/2010, www.sec.gov/Archives/edgar/ data/70858/000119312510051260/d8k.htm, accessed 10/1/2013; Bank of America, “Prospectus Supplement,” 3/1/2010, www.sec.gov/Archives/edgar/data/70858/000119312510045775/ d424b2.htm, accessed 10/1/2013; Washington Federal, Inc., “Prospectus Supplement,” 3/9/2010, www.sec.gov/Archives/edgar/data/936528/000119312510052062/d424b5.htm, accessed 10/1/2013; TCF Financial, “Prospectus Supplement,” 12/16/2009, www.sec.gov/Archives/edgar/data/814184/000104746909010786/a2195869z424b5.htm, accessed 10/1/2013; JPMorgan Chase, “Prospectus Supplement,” 12/11/2009, www.sec.gov/Archives/edgar/data/19617/000119312509251466/d424b5.htm, accessed 10/1/2013; Capital One Financial, “Prospectus Supplement,” 12/3/2009, www.sec.gov/Archives/edgar/data/927628/000119312509247252/d424b5.htm, accessed 10/1/2013; Treasury, Transactions Report, 9/30/2013; Hartford Financial Services Group, Prospectus Supplement to Prospectus filed with the SEC 8/4/2010, www.sec.gov/Archives/edgar/data/874766/000095012310087985/y86606b5e424b5.htm, accessed 10/1/2013; Treasury, “Treasury Announces Pricing of Public Offering to Purchase Common Stock of The Hartford Financial Services Group, Inc.,” 9/22/2010, www.treasury.gov/press-center/press-releases/Pages/tg865. aspx, accessed 10/1/2013; Lincoln National Corporation, Prospectus Supplement to Prospectus filed with SEC 3/10/2009, www.sec.gov/Archives/edgar/data/59558/000119312510211941/ d424b5.htm, accessed 10/1/2013; Lincoln National Corporation, 8-K, 9/22/2010, www.sec.gov/Archives/edgar/data/59558/000119312510214540/d8k.htm, accessed 10/1/2013; Treasury, Section 105(a) Report, 1/31/2011; Treasury, “Treasury Announces Public Offerings of Warrants to Purchase Common Stock of Citigroup Inc.,” 1/24/2011, www.treasury.gov/press-center/pressreleases/Pages/tg1033.aspx, accessed 10/1/2013; Citigroup, Prospectus, 1/24/2011, www.sec.gov/Archives/edgar/data/831001/000095012311004665/y89177b7e424b7.htm, accessed 10/1/2013; Citigroup, Prospectus, 1/24/2011, www.sec.gov/Archives/edgar/data/831001/000095012311004665/y89177b7e424b7.htm, accessed 10/1/2013; Boston Private Financial Holdings, Inc., Prospectus, 1/28/2011, www.sec.gov/Archives/edgar/data/821127/000119312511021392/d424b5.htm, accessed 10/1/2013; Boston Private Financial Holdings, Inc. 8-K, 2/7/2011, www. sec.gov/Archives/edgar/data/821127/000144530511000189/tarpwarrant020711.htm, accessed 10/1/2013; Wintrust Financial Corporation, Prospectus, 2/8/2011, www.sec.gov/Archives/edgar/ data/1015328/000095012311011007/c62806b5e424b5.htm, accessed 10/1/2013; Treasury, Section 105(a) Report, 1/31/2011; Treasury, “Treasury Announces Public Offerings of Warrants to Purchase Common Stock of Citigroup Inc.,” 1/24/2011, www.treasury.gov/press-center/press-releases/Pages/tg1033.aspx, accessed 10/1/2013; Treasury, Citigroup Preliminary Prospectus – CPP Warrants, 1/24/2011, www.sec.gov/Archives/edgar/data/831001/000095012311004666/y89178b7e424b7.htm, accessed 10/1/2013; Citigroup, Preliminary Prospectus – TIP & AGP Warrants, 1/24/2011, www.sec.gov/Archives/edgar/data/831001/000095012311004665/y89177b7e424b7.htm, accessed 10/1/2013; Treasury, responses to SIGTARP data call, 4/6/2011, 7/14/2011, 10/5/2011, 10/11/2011, and 1/11/2012; Treasury Press Release, “Treasury Department Announces Public Offerings of Warrants to Purchase Common Stock of SunTrust Banks, Inc.,” 9/21/2011, www.treasury.gov/press-center/press-releases/Pages/tg1300.aspx, accessed 10/1/2013; “Treasury Department Announces Public Offering of Warrants to Purchase Common Stock of Associated Banc-Corp,” 11/29/2011, www.treasury.gov/press-center/press-releases/Pages/tg1372.aspx, accessed 10/1/2013; Treasury, “Treasury Department Announces Public Offering of Warrant to Purchase Common Stock of M&T Bank Corporation,” 12/10/2012, www.treasury.gov/press-center/press-releases/Pages/tg1793.aspx, accessed 10/1/2013; Treasury, “Treasury Department Announces Public Offering of Warrants to Purchase Common Stock of Zions Bancorporation,” 11/28/2012, www.treasury.gov/press-center/press-releases/Pages/tg1782.aspx, accessed 10/1/2013. 146 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Private Warrant Auctions Qualified Institutional Buyers (“QIB”): Institutions that under U.S. securities law are permitted to buy securities that are exempt from registration under investor protection laws and to resell those securities to other QIBs. Generally these institutions own and invest at least $100 million in securities, or are registered brokerdealers that own or invest at least $10 million in securities. Accredited Investors: Individuals or institutions that by law are considered financially sophisticated enough so that they can invest in ventures that are exempt from investor protection laws. Under U.S. securities laws, these include many financial companies, pension plans, wealthy individuals, and top executives or directors of the issuing companies. On November 17, 2011, Treasury conducted a private auction to sell the warrants of 17 CPP institutions for $12.7 million.429 On June 6, 2013, it conducted a second private auction to sell the warrants of 16 banks for $13.9 million.430 Details from both auctions are listed in Table 2.41. Treasury stated that private auctions were necessary because the warrants did not meet the listing requirements for the major exchanges, it would be more cost-effective for these smaller institutions, and that grouping the warrants of several institutions in a single auction would raise investor interest in the warrants.431 The warrants were not registered under the Securities Act of 1933 (the “Act”). As a result, Treasury stated that the warrants were offered only in private transactions to “(1) ‘qualified institutional buyers’ as defined in Rule 144A under the Act, (2) the issuer, and (3) a limited number of ‘accredited investors’ affiliated with the issuer.”432 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.41 PRIVATE TREASURY WARRANT AUCTIONS AS OF 9/30/2013 Number of Warrants Offered Proceeds to Treasury Eagle Bancorp, Inc. 385,434 $2,794,422 11/17/2011 Horizon Bancorp 212,188 1,750,551 11/17/2011 Bank of Marin Bancorp 154,908 1,703,984 Date Company 11/17/2011 11/17/2011 First Bancorp (of North Carolina) 616,308 924,462 11/17/2011 Westamerica Bancorporation 246,698 878,256 11/17/2011 Lakeland Financial Corp 198,269 877,557 11/17/2011 F.N.B. Corporation 651,042 690,100 11/17/2011 Encore Bancshares 364,026 637,071 11/17/2011 LCNB Corporation 217,063 602,557 11/17/2011 Western Alliance Bancorporation 787,107 415,000 11/17/2011 First Merchants Corporation 991,453 367,500 11/17/2011 1st Constitution Bancorp 231,782 326,576 11/17/2011 Middleburg Financial Corporation 104,101 301,001 11/17/2011 MidSouth Bancorp, Inc. 104,384 206,557 11/17/2011 CoBiz Financial Inc. 895,968 143,677 11/17/2011 First Busey Corporation 573,833 63,677 11/17/2011 First Community Bancshares, Inc. 88,273 30,600 6/6/2013 Banner Corporation 243,998 134,201 6/6/2013 Carolina Trust Bank 86,957 19,132 6/6/2013 Central Pacific Financial Corp. 6/6/2013 Colony Bankcorp, Inc. 79,288 751,888 500,000 810,000 6/6/2013 Community West Bancshares 521,158 698,351 6/6/2013 Flagstar Bancorp, Inc. 645,138 12,905 6/6/2013 Heritage Commerce Corp 462,963 140,000 6/6/2013 International Bancshares Corporation 1,326,238 4,018,511 6/6/2013 Mainsource Financial Group, Inc. 571,906 1,512,177 6/6/2013 Metrocorp Bancshares, Inc. 771,429 2,087,368 6/6/2013 Old Second Bancorp, Inc. 815,339 106,891 6/6/2013 Parke Bancorp, Inc. 438,906 1,650,288 6/6/2013 S&T Bancorp, Inc. 517,012 527,361 6/6/2013 Timberland Bancorp, Inc. 370,899 1,301,856 6/6/2013 United Community Banks, Inc. 219,908 6,677 6/6/2013 Yadkin Financial Corporation 91,178 55,677 6/6/2013 Yadkin Financial Corporation Total 128,663 20,000 14,534,529 $26,566,831 Sources: “Treasury Announces Completion of Private Auction to Sell Warrant Positions,” 11/18/2011, www.treasury.gov/presscenter/press-releases/Pages/tg1365.aspx, accessed 10/1/2013; “Treasury Completes Auction to Sell Warrants Positions,” 6/6/2013, www.treasury.gov/press-center/press-releases/Pages/jl1972.aspx, accessed 10/1/2013. 147 148 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Community Development Capital Initiative Community Development Financial Institutions (“CDFIs”): Financial institutions eligible for Treasury funding to serve urban and rural low-income communities through the CDFI Fund. CDFIs were created in 1994 by the Riegle Community Development and Regulatory Improvement Act. The Administration announced the Community Development Capital Initiative (“CDCI”) on October 21, 2009. According to Treasury, the program was intended to help small businesses obtain credit.433 Under CDCI, TARP made $570.1 million in investments in the preferred stock or subordinated debt of 84 eligible banks, bank holding companies, thrifts, and credit unions certified as Community Development Financial Institutions (“CDFIs”) by Treasury. According to Treasury, these lower-cost capital investments were intended to strengthen the capital base of CDFIs and enable them to make more loans in low and moderate-income communities.434 CDCI was open to certified, qualifying CDFIs or financial institutions that applied for CDFI status by April 30, 2010.435 According to Treasury, CPP-participating CDFIs that were in good standing could exchange their CPP investments for CDCI investments.436 CDCI closed to new investments on September 30, 2010.437 Treasury invested $570.1 million in 84 institutions under the program — 36 banks or bank holding companies and 48 credit unions.438 Of the 36 investments in banks and bank holding companies, 28 were conversions from CPP (representing $363.3 million of the total $570.1 million); the remaining eight were not CPP participants. Treasury provided an additional $100.7 million in CDCI funds to 10 of the banks converting CPP investments. Only $106 million of the total CDCI funds went to institutions that were not in CPP. Status of Funds As of September 30, 2013, 71 institutions remained in CDCI. Twelve institutions, including two this quarter, have fully repaid Treasury and have exited CDCI. One institution has partially repaid and remains in the program. Premier Bancorp, Inc., Wilmette, Illinois, previously had its subsidiary bank fail and thus almost all of Treasury’s $6.8 million investment was lost, with $79,900 being paid to Treasury as a result of the liquidation of the institution.439 As of September 30, 2013, taxpayers were still owed $481.5 million related to CDCI.440 According to Treasury, it had realized losses of $6.7 million in the program that will never be recovered, leaving $474.8 million outstanding.441 According to Treasury, $88.6 million of the CDCI principal (or 16%) had been repaid as of September 30, 2013.442 As of September 30, 2013, Treasury had received approximately $33.2 million in dividends and interest from CDCI recipients.443 Table 2.42 lists the current status of all CDCI investments as of September 30, 2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.42 CDCI INVESTMENT SUMMARY, AS OF 9/30/2013 Institution Amount from CPP Additional Investment Total CDCI Investment $50,400,000 $30,514,000 $80,914,000 Institutions Remaining in CDCI BancPlus Corporation Community Bancshares of Mississippi, Inc. 54,600,000 Southern Bancorp, Inc. 11,000,000 22,800,000 4,000,000 Security Federal Corporation 18,000,000 Carver Bancorp, Inc 18,980,000 Security Capital Corporation 17,910,000 The First Bancshares, Inc. First American International Corp. 5,000,000 54,600,000 33,800,000 22,000,000 18,980,000 17,910,000 12,123,000 17,000,000 17,123,000 17,000,000 State Capital Corporation 15,750,000 15,750,000 Guaranty Capital Corporation 14,000,000 14,000,000 Citizens Bancshares Corporation M&F Bancorp, Inc. 7,462,000 4,379,000 11,735,000 11,841,000 11,735,000 Liberty Financial Services, Inc. 5,645,000 5,689,000 11,334,000 Mission Valley Bancorp 5,500,000 4,836,000 10,336,000 United Bancorporation of Alabama, Inc. IBC Bancorp, Inc. 10,300,000 4,205,000 10,300,000 3,881,000 Fairfax County Federal Credit Union 8,044,000 The Magnolia State Corporation First Eagle Bancshares, Inc. 8,086,000 7,922,000 7,875,000 7,875,000 First Vernon Bancshares, Inc. 6,245,000 6,245,000 IBW Financial Corporation 6,000,000 Carter Federal Credit Union* 6,300,000 6,000,000 CFBanc Corporation 5,781,000 American Bancorp of Illinois, Inc. 5,457,000 BankAsiana 5,250,000 Lafayette Bancorp, Inc. 4,551,000 4,551,000 Hope Federal Credit Union Community Bank of the Bay 4,520,000 1,747,000 2,313,000 4,060,000 Bainbridge Bancshares, Inc. 3,372,000 Border Federal Credit Union 3,260,000 Kilmichael Bancorp, Inc. PGB Holdings, Inc. 3,154,000 3,000,000 3,000,000 Santa Cruz Community Credit Union 2,828,000 Cooperative Center Federal Credit Union 2,799,000 Continued on next page 149 150 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM CDCI INVESTMENT SUMMARY, AS OF 9/30/2013 Institution (CONTINUED) Amount from CPP Additional Investment Total CDCI Investment Institutions Remaining in CDCI Tri-State Bank of Memphis Community First Guam Federal Credit Union $2,795,000 $2,795,000 2,650,000 Shreveport Federal Credit Union 2,646,000 Pyramid Federal Credit Union 2,500,000 Alternatives Federal Credit Union 2,234,000 Virginia Community Capital, Inc. 1,915,000 Southern Chautauqua Federal Credit Union 1,709,000 Tongass Federal Credit Union 1,600,000 D.C. Federal Credit Union 1,522,000 Vigo County Federal Credit Union 1,229,000 Southside Credit Union 1,100,000 Opportunities Credit Union 1,091,000 Butte Federal Credit Union 1,000,000 First Legacy Community Credit Union 1,000,000 Lower East Side People’s Federal Credit Union 898,000 Independent Employers Group Federal Credit Union 698,000 Bethex Federal Credit Union 502,000 Community Plus Federal Credit Union 450,000 Liberty County Teachers Federal Credit Union 435,000 Tulane-Loyola Federal Credit Union 424,000 Northeast Community Federal Credit Union 350,000 North Side Community Federal Credit Union 325,000 Genesee Co-op Federal Credit Union 300,000 Brooklyn Cooperative Federal Credit Union 300,000 Union Settlement Federal Credit Union 295,000 Neighborhood Trust Federal Credit Union 283,000 Prince Kuhio Federal Credit Union 273,000 Phenix Pride Federal Credit Union 153,000 Buffalo Cooperative Federal Credit Union 145,000 Hill District Federal Credit Union 100,000 Episcopal Community Federal Credit Union 100,000 Continued on next page QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 CDCI INVESTMENT SUMMARY, AS OF 9/30/2013 (CONTINUED) Amount from CPP Institution Additional Investment Total CDCI Investment Institutions Remaining in CDCI Thurston Union of Low-Income People (TULIP) Cooperative Credit Union $75,000 Renaissance Community Development Credit Union 31,000 Faith Based Federal Credit Union 30,000 Fidelis Federal Credit Union 14,000 Union Baptist Church Federal Credit Union 10,000 East End Baptist Tabernacle Federal Credit Union Total 7,000 $299,700,000 $90,535,000 $477,316,000 Institutions Fully Repaid First M&F Corporation $30,000,000 University Financial Corp, Inc. 11,926,000 PSB Financial Corporation $30,000,000 $10,189,000 9,734,000 22,115,000 9,734,000 Freedom First Federal Credit Union 9,278,000 First Choice Bank 5,146,000 5,146,000 Bancorp of Okolona, Inc. 3,297,000 Atlantic City Federal Credit Union 2,500,000 Gateway Community Federal Credit Union 1,657,000 Brewery Credit Union 1,096,000 UNO Federal Credit Union 743,000 Greater Kinston Credit Union 350,000 UNITEHERE Federal Credit Union (Workers United Federal Credit Union) 57,000 Total $56,806,000 $10,189,000 $85,973,000 Bankrupt or with Failed Subsidiary Banks Premier Bancorp, Inc. $6,784,000 Total Overall Total $6,784,000 $363,290,000 Notes: Numbers may not total due to rounding. * Institution has made a partial payment on Treasury’s investment. Source: Treasury, Transactions Report, 9/30/2013. $6,784,000 $6,784,000 $100,724,000 $570,073,000 151 152 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM On September 30, 2013, SIGTARP made a recommendation regarding the appointment of directors of the boards of CDCI banks, which is discussed in Section 5 of this report. Missed Dividends As of September 30, 2013, three institutions still in CDCI had unpaid dividend or interest payments to Treasury totaling $513,775.444 As a result of a bankrupt institution that exited CDCI without remitting its interest payments, the total value of all missed payments equals $830,399. Treasury has the right to appoint two directors to the board of directors of institutions that have missed eight dividends and interest payments, whether consecutive or nonconsecutive.445 As of September 30, 2013, Treasury had not appointed directors to the board of any CDCI institution.446 Table 2.43 lists CDCI institutions that are not current on dividend or interest payments. TABLE 2.43 CDCI-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 9/30/2013 Institution Dividend or Payment Type Number of Missed Payments Value of Missed Payments First Vernon Bancshares, Inc. PGB Holdings, Inc. Cumulative 11 $343,475 Cumulative 10 150,000 Premier Bancorp, Inc.* Community Bank of the Bay Interest 6 316,624 Non-Cumulative 1 20,300 Total $830,399 Notes: Numbers may not total due to rounding. * On 3/23/2012, the subsidiary bank of Premier Bancorp, Inc. failed. Risk-Weighted Assets: Risk-based measure of total assets held by a financial institution. Assets are assigned broad risk categories. The amount in each risk category is then multiplied by a risk factor associated with that category. The sum of the resulting weighted values from each of the risk categories is the bank’s total risk-weighted assets. Subchapter S Corporations (“S corporations”): Corporate form that passes corporate income, losses, deductions, and credit through to shareholders for Federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are taxed at their individual income tax rates. Source: Treasury, Dividends and Interest Report, 10/10/2013. Terms for Senior Securities and Dividends An eligible bank, bank holding company, or thrift could apply to receive capital in an amount up to 5% of its risk-weighted assets. A credit union (which is a memberowned, nonprofit financial institution with a capital and governance structure different from that of for-profit banks) could apply for Government funding of up to 3.5% of its total assets — roughly equivalent to the 5% of risk-weighted assets for banks.447 Participating credit unions and Subchapter S corporations (“S corporations”) issued subordinated debt to Treasury in lieu of the preferred stock issued by other CDFI participants.448 Many CDFI investments have an initial dividend rate of 2%, which increases to 9% after eight years. Participating S corporations pay an initial rate of 3.1%, which increases to 13.8% after eight years.449 A CDFI participating in CPP had the opportunity to request to convert those shares into CDCI shares, thereby reducing the annual dividend rate it pays the Government from 5% to as low as 2%.450 According to Treasury, CDFIs were not required to issue warrants because of the de minimis exception in EESA, which grants Treasury the authority to waive the warrant requirement for qualifying institutions in which Treasury invested $100 million or less. If during the application process a CDFI’s primary regulator deemed it to be undercapitalized or to have “quality of capital issues,” the CDFI had the opportunity to raise private capital to achieve adequate capital levels. Treasury would match the QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 private capital raised on a dollar-for-dollar basis, up to a total of 5% of the financial institution’s risk-weighted assets. In such cases, private investors had to agree to assume any losses before Treasury.451 153 154 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Systemically Significant Failing Institutions Program For more on SIGTARP’s September 2012 recommendation to Treasury and the Federal Reserve regarding AIG’s designation as a systemically important financial institution, see SIGTARP’s July 2013 Quarterly Report, pages 201-203. Special Purpose Vehicle (“SPV”): A legal entity, often off-balancesheet, that holds transferred assets presumptively beyond the reach of the entities providing the assets, and that is legally isolated from its sponsor or parent company. For more information on AIG and how the company changed while under TARP, see SIGTARP’s July 2012 Quarterly Report, pages 151-167. 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 a systemically significant institution.”452 Through SSFI, between November 2008 and April 2009, Treasury invested $67.8 billion in TARP funds in American International Group, Inc. (“AIG”), the program’s sole participant.453 AIG also received bailout funding from the Federal Reserve Bank of New York (“FRBNY”). Combined, Treasury and FRBNY committed $182 billion to bail out AIG, of which $161 billion was disbursed.454 AIG has repaid the amounts owed to both Treasury and FRBNY. Treasury’s investment in AIG ended on March 1, 2013, with the sale of its AIG stock warrants.455 In July 2013, the Financial Stability Oversight Council (“FSOC”) designated AIG as a systemically important nonbank financial company under Dodd-Frank, thereby subjecting AIG to enhanced prudential standards and to consolidated supervision by the Board of Governors of the Federal Reserve System (“Federal Reserve”).456 According to FSOC, “Because of AIG’s size and interconnectedness, certain characteristics of its liabilities and products, the potential effects of a rapid liquidation of its assets, potential challenges with resolvability, as well as other factors … material financial distress at AIG could cause an impairment of financial intermediation or of financial market functioning that would be sufficiently severe to inflict significant damage on the broader economy.”457 Under Dodd-Frank, enhanced prudential standards will require AIG to, among other things: (i) meet enhanced liquidity and capital standards; (ii) undergo and report periodic stress tests; (iii) adopt enhanced risk-management processes; and (iv) submit a “living will” resolution plan to be used in the event AIG faces material financial distress or fails.458 Prior to the TARP bailout, AIG received bailout funding from FRBNY, which eventually committed $35 billion in loans in a revolving credit facility; another $52.5 billion in loans to create two special purpose vehicles (“SPV”), Maiden Lane II and Maiden Lane III, to take mortgage-backed securities and credit default swaps off AIG’s books; and a $25 billion investment for which FRBNY acquired preferred interests in two other SPVs that housed certain AIG insurance businesses.459 In January 2011, FRBNY and Treasury restructured their agreements with AIG to use additional TARP funds and AIG funds to pay off amounts owed to FRBNY and transfer FRBNY’s common stock and its interests in the insurancerelated SPVs to Treasury. According to Treasury, in addition to recovering the full AIG bailout amount, taxpayers have received $22.7 billion in dividends, interest, gains, and other income.460 This included payment to FRBNY of the full amount owed on the revolving credit facility loan, plus interest and fees of $6.8 billion; full repayment of the loans to Maiden Lane II and Maiden Lane III, plus $8.2 billion in gains from securities cash flows and sales and $1.3 billion in interest; and full payment of the $25 billion owed on the insurance-business SPVs, plus interest and fees of $1.4 billion.461 Treasury’s books and records reflect only the shares of AIG that QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Treasury received in TARP, reflecting that taxpayers have recouped $54.4 billion of the $67.8 billion in TARP funds spent and realized losses on the sale of TARP shares from an accounting standpoint of $13.5 billion.462 However, in the January 2011 restructuring of FRBNY and Treasury investments, TARP funds were used to pay off AIG’s amounts owed to FRBNY and in return Treasury received FRBNY’s stock in AIG. According to Treasury, when those shares are combined with TARP shares in AIG, Treasury has made a $4.1 billion gain on the sale of the common shares and AIG has paid $956 million in dividends, interest, and other income on Treasury’s preferred shares.463 The Government’s rescue of AIG involved several different funding facilities provided by FRBNY and Treasury, with various changes to the transactions over time. The rescue of AIG was initially led by FRBNY and the Federal Reserve. With the passage of EESA on October 3, 2008, Treasury, through SSFI, took on a greater role in AIG’s bailout as the Government expanded and later restructured its aid. The amount and types of Treasury’s outstanding AIG investments changed over time as a result of the execution of AIG’s January 2011 Recapitalization Plan, preferred equity interest repayments, and Treasury’s sale of common stock which are described below. FRBNY Revolving Credit Facility In September 2008, FRBNY extended an initial $85 billion revolving credit facility to AIG, which was secured by AIG’s assets, in an effort to stabilize the company. In return, AIG committed 79.8% of its voting equity to a trust for the sole benefit of the United States Treasury (the “AIG Trust”).464 While the $85 billion revolving credit facility addressed the company’s severe liquidity shortage resulting from collateral calls related to the company’s credit default swap (“CDS”) business and securities lending activities, because the entire facility was drawn upon, AIG’s leverage ratios increased significantly. The rapid deterioration in AIG’s CDS and securities lending businesses, combined with this increased leverage, resulted in downward pressure on its credit rating.465 Federal officials feared that future downgrades in AIG’s credit rating could have “catastrophic” effects on the company, forcing it into bankruptcy.466 FRBNY and Treasury determined that this possibility posed a threat to the nation’s financial system and decided that additional transactions were necessary to modify the revolving credit facility.467 Restructurings of AIG Assistance In November 2008 and March 2009, FRBNY and Treasury took several actions to stabilize AIG’s operations.468 • Initial TARP Investment: On November 25, 2008, Treasury purchased $40 billion in AIG preferred shares under TARP, the proceeds of which went directly to FRBNY to pay down a portion of the outstanding balance of the existing revolving credit facility. In return, Treasury received AIG Series D cumulative preferred stock and warrants to purchase AIG common stock.469 After that Revolving Credit Facility: Line of credit for which borrowers pay a commitment fee, allowing them to repeatedly draw down funds up to a guaranteed maximum amount. The amount of available credit decreases and increases as funds are borrowed and then repaid. Credit Default Swap (“CDS”): A contract where the seller receives payments from the buyer in return for agreeing to pay the buyer when a particular credit event occurs, such as when the credit rating on a bond is downgraded or a loan goes into default. The buyer does not need to own the asset covered by the contract, meaning the swap can serve essentially as a bet against the underlying bond or loan. Cumulative Preferred Stock: Stock requiring a defined dividend payment. If the company does not pay the dividend on schedule, it still owes the missed dividend to the stock’s owner. 155 156 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Collateralized Debt Obligation (“CDO”): A security that entitles the purchaser to some part of the cash flows from a portfolio of assets such as mortgagebacked securities, bonds, loans, or other CDOs. Non-Cumulative Preferred Stock: Preferred stock with a defined dividend, without the obligation to pay missed dividends. Equity Capital Facility: Commitment to invest equity capital in a firm under certain future conditions. An equity facility when drawn down is an investment that increases the provider’s ownership stake in the company. The investor may be able to recover the amount invested by selling its ownership stake to other investors at a later date. For a more detailed description of the disposition of Treasury’s interest in the SPVs, see SIGTARP’s April 2012 Quarterly Report, pages 112-113. payment, the total amount available to AIG under FRBNY’s revolving credit facility was reduced from $85 billion to $60 billion. • Creation of Maiden Lane II & III: Also in November 2008, FRBNY created Maiden Lane II, an SPV, to take significant mortgage-backed securities off AIG’s books. FRBNY lent $19.5 billion (out of $22.5 billion committed) to Maiden Lane II to fund the purchase of residential mortgage-backed securities (“RMBS”) that were contained in several of AIG’s U.S.-regulated insurance subsidiaries’ portfolios. Finally, also in November 2008, FRBNY created Maiden Lane III, another SPV, to which FRBNY lent $24.3 billion (out of $30 billion committed) to buy from AIG’s counterparties some of the collateralized debt obligations (“CDOs”) underlying the CDS contracts written by AIG. • Second TARP Investment: On March 2, 2009, Treasury and FRBNY announced a restructuring of Government assistance to AIG that, according to Treasury, was designed to strengthen the company’s capital position.470 In that restructuring, AIG and Treasury signed an agreement on April 17, 2009, under which Treasury exchanged the Series D cumulative preferred stock, which required AIG to make quarterly dividend and interest payments, for $41.6 billion (including $1.6 billion in missed dividend payments) of less valuable Series E non-cumulative preferred stock, which required dividend and interest payments if AIG’s board of directors declared a dividend. Additionally, on April 17, 2009, Treasury committed to fund an equity capital facility under which AIG could draw down up to $29.8 billion in exchange for Series F non-cumulative preferred stock (that had similar terms to the Series E) and additional warrants, of which AIG drew down $27.8 billion.471 • Creation of Additional Special Purpose Vehicles and Sale of Assets Under SPVs: The restructuring measures announced in March 2009 also included an authorization for FRBNY to acquire up to $26 billion of preferred equity interests in two SPVs, AIA Aurora LLC (“AIA SPV”) and ALICO Holdings LLC (“ALICO SPV”). The creation of the SPVs also facilitated the independence of these two subsidiaries in anticipation of a sale or initial public offering (“IPO”).472 In 2009 and 2010, AIG sold the assets of these SPVs, and later paid back Treasury and FRBNY.473 AIG Recapitalization Plan On January 14, 2011, AIG executed its Recapitalization Plan with the Government, which extinguished FRBNY’s revolving credit facility, retired FRBNY’s remaining interests in the SPVs, and transferred those interests to Treasury, increasing Treasury’s TARP investment in AIG. AIG repaid $20.7 billion owed to FRBNY’s revolving credit facility with proceeds from the AIA IPO and ALICO sale. AIG drew down $20.3 billion in TARP funds under a Series F equity capital facility to purchase certain of FRBNY’s interests in the ALICO SPV and AIA SPV and transferred those interests to Treasury. AIG exchanged all prior outstanding preferred shares held by the Government and issued new common stock to Treasury representing a 92.1% interest in AIG. Treasury also created a new $2 billion Series G equity capital facility, which was never drawn down.474 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 For the period November 25, 2008, to January 14, 2011, AIG had failed to pay a total of $7.9 billion in dividend payments.475 After the Recapitalization Plan was executed, AIG no longer had an obligation to pay dividends. For a more detailed description of the AIG Recapitalization Plan, see SIGTARP’s January 2011 Quarterly Report, pages 135-139. Treasury’s Equity Ownership Interest in AIG As part of the Recapitalization Plan, AIG extinguished all prior outstanding preferred shares held by the Government, comprising $41.6 billion of Series E preferred shares and $7.5 billion drawn from the Series F equity capital facility. In exchange, it issued 1.655 billion shares of common stock (which included 563 million Series C shares held by the AIG Trust for the benefit of the U.S. Treasury), representing 92.1% of the common stock of AIG.476 The AIG Trust was then terminated. AIG issued 10-year warrants to its existing non-Government common shareholders to purchase up to a cumulative total of 75 million shares of common stock at a strike price of $45 per share.477 In a series of six offerings from May 2011 through December 2012, Treasury sold its 1.655 billion shares of AIG’s common stock at an average price of $31.18 per share, for a total of $51.6 billion.478 The last of those sales took place on December 14, 2012, when Treasury sold its remaining 234 million shares for $32.50 per share.479 As reflected on Treasury’s TARP books and records, taxpayers have recouped $54.4 billion of the $67.8 billion in TARP funds invested in AIG and realized losses from an accounting standpoint of $13.5 billion on Treasury’s sale of AIG stock.480 The shares sold included AIG common stock that Treasury obtained from FRBNY after the January 2011 restructuring of the FRBNY and Treasury investments. According to Treasury, the Government overall made a $4.1 billion gain on the common stock sales, and $956 million has been paid in dividends, interest, and other income.481 This does not include payments made to FRBNY prior to the restructuring measures completed in January 2011. On March 1, 2013, Treasury sold its remaining investment in AIG, which consisted of 2.7 million warrants that would have provided Treasury the right to purchase AIG common stock at an exercise price of $50 per share.482 AIG bought the warrants for $25.2 million, or about $9.35 per share. The same day the transaction was completed, AIG’s closing stock price was $37.85 per share on the New York Stock Exchange.483 For more information on Treasury’s sales of AIG common shares and AIG’s buybacks of shares, see SIGTARP’s July 2013 Quarterly Report, page 131. FRBNY’s Sales of Maiden Lane II Securities In February 2012, FRBNY completed the sale of all securities in the Maiden Lane II portfolio.484 According to FRBNY, its management of the Maiden Lane II portfolio resulted in full repayment of its $19.5 billion loan to Maiden Lane II, generating a net gain of approximately $2.3 billion, plus $580 million in accrued interest on the loan.485 According to FRBNY, as of September 30, 2013, a cash balance of about $64 million remained in Maiden Lane II to pay for final expenses of winding down the portfolio.486 For a more detailed description of the Maiden Lane II securities sales, see SIGTARP’s October 2012 Quarterly Report, pages 128-129. 157 158 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM For a more detailed description of the Maiden Lane III securities sales, see SIGTARP’s October 2012 Quarterly Report, pages 129-130. FRBNY’s Sales of Maiden Lane III Securities In August 2012, FRBNY completed the sale of all securities in the Maiden Lane III portfolio. According to FRBNY, its management of the Maiden Lane III portfolio resulted in full repayment of its $24.3 billion loan to Maiden Lane III, generating a net gain of approximately $5.9 billion, plus $737 million in accrued interest on the loan.487 According to FRBNY, as of September 30, 2013, a cash balance of about $22 million remained in Maiden Lane III to pay for final expenses of winding down the portfolio.488 According to auction details released by FRBNY on November 23, 2012, AIG received $5.6 billion as repayment of its equity contribution to Maiden Lane III, including interest.489 After FRBNY’s loan to Maiden Lane III and AIG’s equity interest were repaid with interest, FRBNY and AIG split remaining auction proceeds, with FRBNY receiving $5.9 billion and AIG receiving $2.9 billion.490 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Targeted Investment Program Treasury invested a total of $40 billion in two financial institutions, Citigroup Inc. (“Citigroup”) and Bank of America Corp. (“Bank of America”), through the Targeted Investment Program (“TIP”). Treasury invested $20 billion in Citigroup on December 31, 2008, and $20 billion in Bank of America on January 16, 2009, in return for preferred shares paying quarterly dividends at an annual rate of 8% and warrants from each institution.491 According to Treasury, TIP’s goal was to “strengthen the economy and protect American jobs, savings, and retirement security [where] the loss of confidence in a financial institution could result in significant market disruptions that threaten the financial strength of similarly situated financial institutions.”492 Both banks repaid TIP in December 2009.493 On March 3, 2010, Treasury auctioned the Bank of America warrants it received under TIP for $1.24 billion.494 On January 25, 2011, Treasury auctioned the Citigroup warrants it had received under TIP for $190.4 million.495 Asset Guarantee Program Under the Asset Guarantee Program (“AGP”), Treasury, the Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve, and Citigroup agreed to provide loss protection on a pool of Citigroup assets valued at approximately $301 billion. In return, as a premium, the Government received warrants to purchase Citigroup common stock and $7 billion in preferred stock. The preferred stock was subsequently exchanged for trust preferred securities (“TRUPS”).496 Treasury received $4 billion of the TRUPS and FDIC received $3 billion.497 Although Treasury’s asset guarantee was not a direct cash investment, it exposed taxpayers to a potential TARP loss of $5 billion. On December 23, 2009, in connection with Citigroup’s TIP repayment, Citigroup and Treasury terminated the AGP agreement. Although at the time of termination the asset pool suffered a $10.2 billion loss, this number was below the agreed-upon deductible and the Government suffered no loss.498 At that time, Treasury agreed to cancel $1.8 billion of the TRUPS issued by Citigroup, reducing the premium it received from $4 billion to $2.2 billion, in exchange for the early termination of the loss protection. FDIC retained all of its $3 billion in securities.499 Pursuant to that termination agreement, on December 28, 2012, FDIC transferred $800 million of those securities to Treasury because Citigroup’s participation in FDIC’s Temporary Liquidity Guarantee Program closed without a loss.500 On February 4, 2013, Treasury exchanged the $800 million of securities it received from FDIC into Citigroup subordinated notes, which it then sold for $894 million.501 Separately, on September 29, 2010, Treasury entered into an agreement with Citigroup to exchange the remaining $2.2 billion in Citigroup TRUPS that it then held under AGP for new TRUPS. Because the interest rate necessary to receive par value was below the interest rate paid by Citigroup to Treasury, Citigroup increased the principal amount of the securities sold by Treasury by an additional $12 million, thereby enabling Treasury to receive an additional $12 million in proceeds from the $2.2 billion sale of the Citigroup TRUPS, which occurred on September Trust Preferred Securities (“TRUPS”): Securities that have both equity and debt characteristics created by establishing a trust and issuing debt to it. For a discussion of the basis of the decision to provide Federal assistance to Citigroup, see SIGTARP’s audit report, “Extraordinary Financial Assistance Provided to Citigroup, Inc.,” dated January 13, 2011. 159 160 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 30, 2010.502 On January 25, 2011, Treasury auctioned the Citigroup warrants it had received under AGP for $67.2 million.503 In addition to recovering the full bailout amount, taxpayers have received $13.4 billion over the course of Citigroup’s participation in AGP, TIP, and CPP, including dividends, other income, and warrant sales.504 Bank of America announced a similar asset guarantee agreement with respect to approximately $118 billion in Bank of America assets, but the final agreement was never executed. Bank of America paid $425 million to the Government as a termination fee.505 Of this $425 million, $276 million was paid to Treasury, $92 million was paid to FDIC, and $57 million was paid to the Federal Reserve.506 QUARTERLY REPORT TO CONGRESS I JULY 25, 2012 ASSET SUPPORT PROGRAMS Three TARP programs have focused on supporting markets for specific asset classes: the Term Asset-Backed Securities Loan Facility (“TALF”), the PublicPrivate Investment Program (“PPIP”), and the Unlocking Credit for Small Businesses (“UCSB”) program. TALF was designed to support asset-backed securities (“ABS”) transactions by providing eligible borrowers $71.1 billion in non-recourse loans through the Federal Reserve Bank of New York (“FRBNY”) to purchase non-mortgage-backed ABS and commercial mortgage-backed securities (“CMBS”). Treasury initially obligated $4.3 billion in TARP funds to purchase and manage loan collateral from any TALF loans that defaulted.507 As of September 30, 2013, all TARP funding for TALF has now been either deobligated or repaid.508 Of the $71.1 billion in TALF loans, none have defaulted and $100.7 million remains outstanding as of September 30, 2013.509 PPIP used a combination of private equity and Government equity and debt through TARP to facilitate purchases of legacy mortgage-backed securities (“MBS”) held by financial institutions. In July 2009, Treasury announced the selection of nine Public-Private Investment Fund (“PPIF”) managers. Treasury originally obligated $22.4 billion in TARP funds to the program, then reduced the obligation over time when several PPIFs did not use the full amounts available to them. One PPIP manager, The TCW Group Inc. (“TCW”), withdrew soon after the program began. A total of $18.6 billion in TARP funding was drawn down and fully repaid by PPIP fund managers.510 As of September 30, 2013, the entire PPIP portfolio had been liquidated, and three PPIP funds were legally dissolved while the other five were in various stages of winding down operations.511 Through the UCSB loan support initiative, Treasury purchased $368.1 million in 31 SBA 7(a) securities, which are securitized small-business loans.512 According to Treasury, on January 24, 2012, Treasury sold its remaining securities and ended the program with a total investment gain of about $9 million for all the securities, including sale proceeds and payments of principal, interest, and debt.513 TALF TALF, which was announced in November 2008, issued loans collateralized by eligible ABS.514 According to FRBNY, TALF was “designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and business ABS.”515 TALF is divided into two parts:516 • a lending program, TALF, in which FRBNY originated and managed nonrecourse loans to eligible borrowers using eligible ABS and CMBS as collateral. TALF’s lending program closed in 2010. • an asset disposition facility, TALF LLC, that purchased the collateral from FRBNY if borrowers chose to surrender it and walk away from their loans or if the collateral is seized in the event of default. Non-Recourse Loan: Secured loan in which the borrower is relieved of the obligation to repay the loan upon surrendering the collateral. Collateral: Asset pledged by a borrower to a lender until a loan is repaid. Generally, if the borrower defaults on the loan, the lender gains ownership of the pledged asset and may sell it to satisfy the debt. In TALF, the ABS or CMBS purchased with the TALF loan is the collateral that is posted with FRBNY. 161 162 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM For a discussion of the credit rating agency industry and an analysis of the impact of NRSROs on TARP and the overall financial market, see SIGTARP’s October 2009 Quarterly Report, pages 113–148. Nationally Recognized Statistical Rating Organization (“NRSRO”): Credit rating agency registered with the SEC. Credit rating agencies provide their opinion of the creditworthiness of companies and the financial obligations issued by companies. The ratings distinguish between investment grade and non– investment grade equity and debt obligations. TALF Agent: Financial institution that is party to the TALF Master Loan and Security Agreement and that occasionally acts as an agent for the borrower. TALF agents include primary and nonprimary broker-dealers. Haircut: Difference between the value of the collateral and the value of the loan (the loan value is less than the collateral value). “Skin in the Game”: Equity stake in an investment; down payment; the amount an investor can lose. The asset disposition facility, TALF LLC, is managed by FRBNY and remains in operation until final TALF loans mature on March 30, 2015.517 TALF loans are non-recourse (unless the borrower has made any misrepresentations or breaches warranties or covenants), which means that FRBNY cannot hold the borrower liable for any losses beyond the surrender of collateral for the TALF loan.518 TALF LLC’s funding originates from a fee charged to FRBNY for the commitment to purchase any collateral surrendered by the borrowers. This fee is derived from the principal balance of each outstanding TALF program loan.519 As of September 30, 2013, $100.7 million in TALF loans was outstanding.520 According to FRBNY, no TALF borrowers have surrendered collateral in lieu of repayment and consequently no collateral has been purchased by TALF LLC since its inception.521 Lending Program TALF’s lending program made secured loans to eligible borrowers.522 The loans were issued with terms of three or five years and were available for non-mortgagebacked ABS, newly issued CMBS, and legacy CMBS.523 The final maturity date of loans in the TALF portfolio is March 30, 2015.524 To qualify as TALF collateral, the non-mortgage-backed ABS had to have underlying loans for automobile, student, credit card, or equipment debt; insurance premium finance; SBA-guaranteed small business loans; or receivables for residential mortgage servicing advances (“servicing advance receivables”). Collateral was also required to hold the highest investment grade credit ratings from at least two nationally recognized statistical rating organizations (“NRSROs”).525 To qualify as TALF collateral, newly issued CMBS and legacy CMBS had to have been issued by an institution other than a Government-sponsored enterprise (“GSE”) or an agency or instrumentality of the U.S. Government, offer principal and interest payments, not be junior to other securities with claims on the same pool of loans, and possess the highest long-term investment grade credit rating from at least two rating agencies.526 Newly issued CMBS had to be issued on or after January 1, 2009, while legacy CMBS were issued before that date.527 Loan Terms TALF participants were required to use a TALF agent to apply for a TALF loan.528 After the collateral (the particular asset-backed security financed by the TALF loan) was deemed eligible by FRBNY, the collateral was assigned a haircut. A haircut, which represents the amount of money put up by the borrower (the borrower’s “skin in the game”), was required for each TALF loan.529 Haircuts for nonmortgage-backed ABS varied based on the riskiness and maturity of the collateral, and generally ranged between 5% and 16% for non-mortgage-backed ABS with average lives of five years or less.530 The haircut for legacy and newly issued CMBS was generally 15% but rose above that amount if the average life of the CMBS was greater than five years.531 FRBNY lent each borrower the amount of the market price of the pledged collateral minus the haircut, subject to certain limitations.532 The borrower QUARTERLY REPORT TO CONGRESS I JULY 25, 2012 delivered the collateral to the custodian bank, which collected payments generated by the collateral and distributed them to FRBNY (representing the borrower’s payment of interest on the TALF loan).533 Any excess payments from the collateral above the interest due and payable to FRBNY on the loan go to the TALF borrower.534 TALF Loans TALF provided a total of $71.1 billion in loans through FRBNY. Treasury initially obligated $4.3 billion in TARP funds to purchase and manage loan collateral from any TALF loans that defaulted.535 On January 15, 2013, Treasury and FRBNY said the TARP-funded credit protection was no longer needed because lending fees collected by TALF had exceeded the amount of loans still outstanding.536 As of September 30, 2013, all TARP funding for TALF has now been either deobligated or repaid.537 TALF provided $59 billion of loans to purchase non-mortgage-backed ABS during the lending phase of the program, which ended on March 11, 2010. As of September 30, 2013, $49.8 million was outstanding, all in student loans.538 Table 2.44 lists all TALF loans collateralized by non-mortgage-backed ABS, by ABS sector. TABLE 2.44 TALF LOANS BACKED BY ABS (NON-MORTGAGE-BACKED COLLATERAL) ($ BILLIONS) ABS Sector Auto Loans Credit Card Receivables $12.8 26.3 Equipment Loans 1.6 Floor Plan Loans 3.9 Premium Finance 2.0 Servicing Advance Receivables 1.3 Small-Business Loans 2.2 Student Loans Total 8.9 $59.0 Notes: Numbers may not total due to rounding. Data as of 9/30/2013. Sources: FRBNY, “Term Asset-Backed Securities Loan Facility: non-CMBS,” no date, www.newyorkfed.org/markets/talf_operations. html, accessed 10/1/2013; FRBNY, “Term Asset-Backed Securities Loan Facility: non-CMBS,” no date, www.newyorkfed.org/ markets/TALF_recent_operations.html, accessed 10/1/2013. TALF provided $12.1 billion of loans to purchase CMBS during the lending phase of the program, which ended on June 28, 2010. Approximately 99% of the loan amount was used to purchase legacy CMBS, with 1% newly issued CMBS.539 As of September 30, 2013, $50.9 million was outstanding.540 Table 2.45 includes all TALF CMBS loans. Custodian Bank: Bank holding the collateral and managing accounts for FRBNY; for TALF the custodian is Bank of New York Mellon. 163 164 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.45 TALF LOANS BACKED BY CMBS ($ BILLIONS) Type of Collateral Assets Newly Issued CMBS $0.1 Legacy CMBS 12.0 Total $12.1 Notes: Numbers may not total due to rounding. Data as of 9/30/2013. Sources: FRBNY, “Term Asset-Backed Securities Loan Facility: CMBS,” no date, www.newyorkfed.org/markets/cmbs_operations. html, accessed 10/1/2013; FRBNY, “Term Asset-Backed Securities Loan Facility: CMBS,” no date, www.newyorkfed.org/markets/ CMBS_recent_operations.html, accessed 10/1/2013. TALF loans were issued with terms of three years or five years. The final maturity date of the last of the five-year loans is March 30, 2015.541 The outstanding TALF loans consist of $50.9 million in loans collateralized by CMBS and $49.8 million in loans collateralized by student loans. As of September 30, 2013, all of the TALF loans have more than a year remaining until maturity.542 The Federal Reserve posted on its website detailed information on the 177 TALF borrowers, including the identities of the borrowers, the amounts and rates of the loans, and details about the collateral.543 As of September 30, 2013, $71 billion in TALF loans had been repaid. According to FRBNY, the outstanding collateral on the remaining $100.7 million in TALF loans was performing as expected.544 Asset Disposition Facility When FRBNY created TALF LLC, TARP loaned the facility $100 million.545 As of September 30, 2013, the $100 million was repaid in full along with $13 million in interest, according to Treasury.546 During the remaining two years of the program, any interest, fees, and gains collected above the remaining principal on outstanding TALF loans will be shared by Treasury (90%) and FRBNY (10%).547 As of September 30, 2013, Treasury had received $570.1 million in additional gains and FRBNY had received $63.3 million.548 Excess Spread: Funds left over after required payments and other contractual obligations have been met. In TALF it is the difference between the periodic amount of interest paid out by the collateral and the amount of interest charged by FRBNY on the nonrecourse loan provided to the borrower to purchase the collateral. Current Status As of September 30, 2013, TALF LLC had assets of $112 million, which consisted of interest and other income and fees earned from permitted investments.549 From its February 4, 2009, formation through September 30, 2013, TALF LLC had spent approximately $2.9 million on administration.550 When TALF closed for new loans in June 2010, FRBNY’s responsibilities under the program shifted primarily to portfolio management, which includes maintaining documentation, overseeing the custodian that is responsible for holding ABS collateral, calculating and collecting principal and interest on TALF loans, disbursing excess spread to TALF borrowers in accordance with the governing documents, monitoring the TALF portfolio, collecting and managing collateral assets if a borrower defaults or surrenders the collateral in lieu of repayment, and paying TALF LLC interest that borrowers pay FRBNY on TALF loans, in excess of FRBNY’s cost of funding.551 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Public-Private Investment Program According to Treasury, the purpose of the Public-Private Investment Program (“PPIP”) was to purchase legacy securities from banks, insurance companies, mutual funds, pension funds, and other eligible financial institutions as defined in EESA, through Public-Private Investment Funds (“PPIFs”).552 PPIFs were partnerships, formed specifically for this program, that invested in mortgage-backed securities using equity capital from private-sector investors combined with TARP equity and debt. A private-sector fund management firm oversaw each PPIF on behalf of investors. According to Treasury, the aim of PPIP was to “restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit.”553 Treasury selected nine fund management firms to establish PPIFs. One PPIP manager, TCW, subsequently withdrew. As of September 30, 2013, the entire PPIP portfolio had been liquidated, and three PPIP funds were legally dissolved while the other five were in various stages of winding down operations. Private investors and Treasury co-invested in the PPIFs to purchase legacy securities from financial institutions. The fund managers raised private-sector capital. Treasury matched the private-sector equity dollar-for-dollar and provided debt financing in the amount of the total combined equity. Each PPIP manager was also required to invest at least $20 million of its own money in the PPIF.554 Each PPIF was approximately 75% TARP funded. PPIP was initially designed as an eight-year program giving PPIP managers until 2017 to sell the assets in their portfolio, allowing for a two-year extension under certain circumstances.555 Under the program, Treasury, the PPIP managers, and the private investors shared PPIF profits and losses on a pro rata basis based on their limited partnership interests. Treasury also received warrants in each PPIF that gave Treasury the right to receive an extra portion of the fund’s final profits that would otherwise be distributed to the private investors.556 The PPIP portfolio consisted of eligible securities and cash assets. The securities eligible for purchase by PPIFs (“eligible assets”) were non-agency residential mortgage-backed securities (“non-agency RMBS”) and commercial mortgage-backed securities (“CMBS”) that also met the following criteria: issued before January 1, 2009 (legacy); rated when issued AAA or equivalent by two or more credit rating agencies designated as nationally recognized statistical rating organizations (“NRSROs”); secured directly by actual mortgages, leases, or other Pro Rata: Refers to dividing something among a group of participants according to the proportionate share that each participant holds as a part of the whole. Limited Partnership: Partnership in which there is at least one partner whose liability is limited to the amount invested (limited partner) and at least one partner whose liability extends beyond monetary investment (general partner). Legacy Securities: Real estate-related securities originally issued before 2009 that remained on the balance sheets of financial institutions because of pricing difficulties that resulted from market disruption. Equity: Investment that represents an ownership interest in a business. Debt: Investment in a business that is required to be paid back to the investor, usually with interest. For more information on the selection of PPIP managers, see SIGTARP’s October 7, 2010, audit report entitled “Selecting Fund Managers for the Legacy Securities Public-Private Investment Program.” For more information on the withdrawal of TCW as a PPIP manager, see SIGTARP’s January 2010 Quarterly Report, page 88. Non-Agency Residential MortgageBacked Securities (“non-agency RMBS”): Financial instrument backed by a group of residential real estate mortgages (i.e., home mortgages for residences with up to four dwelling units) not guaranteed or owned by a Government-sponsored enterprise (“GSE”), or a Government agency. 165 166 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM assets, not other securities (other than certain swap positions, as determined by Treasury); and located primarily in the United States (the loans and other assets that secure the non-agency RMBS and CMBS); and purchased from financial institutions eligible for TARP participation.557 PPIP Process Funds chosen to participate in PPIP raised private capital, matched up to a preset maximum by Treasury. Additionally, each PPIF could borrow from TARP an amount up to 100% of the total private and Government equity investment. Treasury, which provided about 75% of the program’s equity and debt financing, also received warrants from each PPIF so that it could benefit further from funds that turned a profit. The PPIP managers were required to provide monthly portfolio reports to Treasury and other investors.558 To obtain obligated funds, PPIP managers sent a notice to Treasury and the private investors requesting a “draw down” of portions of obligated contributions in order to purchase specific investments or to pay certain expenses and debts of the partnerships.559 PPIF Purchasing Power During the capital-raising period, the eight PPIP fund managers raised $7.4 billion of private-sector equity capital, which Treasury matched with a dollar-for-dollar obligation, for a total of $14.7 billion in equity capital. Treasury also obligated $14.7 billion of debt financing, resulting in $29.4 billion of PPIF purchasing power. PPIF fund-raising was completed in December 2009. After the capitalraising stage, Treasury obligated a total of $22.4 billion in a combination of matching equity funds and debt financing for PPIP, which included funds for TCW, which subsequently withdrew from the program. Table 2.46 shows equity and debt committed by Treasury for the eight PPIFs that actively participated in the program. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 2.46 PUBLIC-PRIVATE INVESTMENT PROGRAM COMMITTED PURCHASING POWER Manager AG GECC PPIF Master Fund, L.P. ($ BILLIONS) Private-Sector Equity Treasury Equity Treasury Debt Total Purchasing Powera Purchasing Power Used $1.2 $1.2 $2.5 $5.0 90% AllianceBernstein Legacy Securities Master Fund, L.P. 1.2 1.2 2.3 4.6 92% BlackRock PPIF, L.P. 0.7 0.7 1.4 2.8 76% Invesco Legacy Securities Master Fund, L.P. 0.9 0.9 1.7 3.4 68% Marathon Legacy Securities Public-Private Investment Partnership, L.P. 0.5 0.5 0.9 1.9 100% Oaktree PPIP Fund, L.P. 1.2 1.2 2.3 4.6 48% RLJ Western Asset Public/Private Master Fund, L.P. 0.6 0.6 1.2 2.5 100% Wellington Management Legacy Securities PPIF Master Fund, LP 1.1 1.1 2.3 4.6 100% $7.4 $7.4 $14.7 $29.4 83% Totals for Fundsb Notes: Numbers may not total due to rounding. All PPIP fund managers have liquidated their portfolios. Five funds were winding down operations and had not been legally dissolved as of September 30, 2013: AllianceBernstein, AG GECC, BlackRock, Marathon, and Oaktree. a Table shows the total amount of purchasing power committed and available to each PPIF during its investment period. b TCW raised $156 million in private-sector equity capital, which was matched by Treasury. Treasury also provided $200 million of debt. TCW repaid the total amount committed by Treasury in early 2010. This is not included in the total purchasing power. Sources: Treasury, Transactions Report, 9/30/2013; Treasury, Transactions Report, 3/31/2011; Treasury, response to SIGTARP data call, 10/7/2013. The program gave each PPIP manager up to three years (the “PPIF investment period”) from closing its first private-sector equity contribution to draw upon the TARP funds obligated for the PPIF and buy legacy securities on behalf of private and Government investors.560 During that investment period, the program sought to maintain “predominantly a long-term buy and hold strategy.”561 The investment periods for all PPIFs expired in 2012.562 Subsequently, fund managers had up to five years ending in 2017 to manage and sell off the fund’s investment portfolio and return proceeds to taxpayers and investors, with the ability to extend that period under certain circumstances.563 Amounts Drawn Down The eight PPIP managers drew down a total of approximately $24.4 billion to buy legacy securities during their investment periods, spending $6.1 billion in privatesector equity capital and $18.3 billion in TARP equity and debt funding.564 The last fund’s investment period ended in December 2012.565 Treasury also disbursed $356.3 million to TCW, which TCW fully repaid in early 2010 when it withdrew from the program.566 As a group, the funds drew down and spent about 83% of the total money available to them to invest in legacy real estate-backed securities.567 All unused TARP debt financing has been deobligated by Treasury.568 Unused TARP equity financing is deobligated when each fund is legally dissolved. 167 168 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM PPIP Fund Repayments and Liquidations Throughout the program, PPIP managers were required to make TARP payments to Treasury for debt principal, debt interest, and equity capital. Under the program, the PPIP funds also shared profits from the investments with Treasury. All PPIFs have fully repaid their TARP debt and equity financing.569 The nine PPIFs together had repaid $12.4 billion in TARP debt and $6.3 billion in TARP equity, including payments by TCW, as of September 30, 2013. The PPIP managers wound down their portfolios as follows: • In June 2013, Oaktree liquidated its remaining PPIP investments.570 According to Treasury, Oaktree fully repaid Treasury’s equity investment of $555.9 million and Treasury debt of $1.1 billion, with interest. As of September 30, 2013, Oaktree’s PPIF still had approximately $1.5 million in cash to pay for winddown expenses.571 • In June 2013, Marathon liquidated its remaining PPIP investments.572 According to Treasury, Marathon fully repaid Treasury’s equity investment of $474.6 million and Treasury debt of $949 million, with interest. As of September 30, 2013, Marathon’s PPIF still had approximately $11.9 million in cash to pay for wind-down expenses.573 • In May 2013, AG GECC liquidated its remaining PPIP investments.574 According to Treasury, AG GECC fully repaid Treasury’s equity investment of $1.1 billion and Treasury debt of $2.2 billion, with interest. As of September 30, 2013, AG GECC’s PPIF still had approximately $4.1 million in cash to pay for wind-down expenses.575 • In February 2013, Wellington liquidated its remaining PPIP investments.576 According to Treasury, Wellington fully repaid Treasury’s equity investment of $1.1 billion and Treasury debt of $2.3 billion, with interest. On July 25, 2013, Wellington filed a formal certificate with the state of Delaware declaring that its PPIF had been dissolved.577 • In November 2012, BlackRock liquidated its remaining PPIP investments.578 According to Treasury, BlackRock fully repaid Treasury’s equity investment of $528.2 million and Treasury debt of $1.1 billion, with interest.579 As of September 30, 2013, BlackRock’s PPIF still had approximately $3.2 million in cash to pay for wind-down expenses.580 • In September 2012, AllianceBernstein liquidated its remaining PPIP investments.581 According to Treasury, AllianceBernstein fully repaid Treasury’s equity investment of $1.1 billion and its Treasury debt of $2.1 billion, with interest.582 As of September 30, 2013, AllianceBernstein’s PPIF had no cash remaining but had not yet been formally dissolved, according to Treasury.583 • In October 2012, RLJ Western liquidated its remaining PPIP investments.584 According to Treasury, RLJ Western fully repaid Treasury’s equity investment of $620.6 million and Treasury debt of $1.2 billion, with interest.585 On December 31, 2012, RLJ Western filed a formal certificate with the state of Delaware declaring that its PPIF had been dissolved.586 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 • Invesco was the first of the PPIP funds to sell its portfolio, liquidating it in March 2012.587 According to Treasury, Invesco fully repaid Treasury’s equity investment of $581 million and Treasury debt of $1.2 billion, with interest.588 On October 3, 2012, Invesco filed a formal certificate with the state of Delaware declaring that its PPIF had been dissolved.589 In addition to repaying Treasury’s $18.6 billion capital investments, PPIP managers paid a total of $3.5 billion in gross income payments and capital gains to the Government through September 30, 2013, as well as $86.7 million in warrant proceeds.590 Table 2.47 shows each fund’s payments to Treasury through September 30, 2013. TABLE 2.47 PPIP MANAGERS’ PAYMENTS TO TREASURY, AS OF 9/30/2013 ($ MILLIONS) Debt Principal Payments Debt Interest Payments Equity Capital Paymentsa Gross Income Payments and Capital Gains $2,235 $66 $1,117 $776 $19 AllianceBernstein Legacy Securities Master Fund, L.P. 2,128 58 1,064 481 12 BlackRock PPIF, L.P. 1,053 34 528 393 10 Invesco Legacy Securities Master Fund, L.P. 1,162 18 581 139 3 949 28 475 358 9 Oaktree PPIP Fund, L.P. 1,111 17 556 232 6 RLJ Western Asset Public/Private Master Fund, L.P. 1,241 37 621 421 11 200 0.3 156 20 0.5 2,299 61 1,149 651 16 $12,378 $320 $6,247 $3,471 $87 Manager AG GECC PPIF Master Fund, L.P. Marathon Legacy Securities Public-Private Investment Partnership, L.P. UST/TCW Senior Mortgage Securities Fund, L.P. Wellington Management Legacy Securities PPIF Master Fund, LP Totals for All Funds Equity Warrant Paymentsb Notes: Numbers may not total due to rounding. All PPIP fund managers have liquidated their portfolios. Five funds were winding down operations and had not been legally dissolved as of September 30, 2013: AllianceBernstein, AG GECC, BlackRock, Marathon, and Oaktree. a In April 2012, Treasury reclassified about $1 billion in combined payments from five PPIFs as equity capital payments instead of equity distributions. b Treasury received equity warrants from the PPIFs, which give Treasury the right to receive a percentage of any profits that would otherwise be distributed to the private partners in excess of their contributed capital. Sources: Treasury, Transactions Report, 9/30/2013; Treasury, response to SIGTARP data call, 10/7/2013; Treasury, Dividends and Interest Report, 10/10/2013. 169 170 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Securities Purchased by PPIFs According to their agreements with Treasury, PPIP managers invested in both RMBS and CMBS, except for Oaktree, which invested only in CMBS.591 Figure 2.7 shows the collective value of securities held by all PPIFs at the end of each calendar quarter from the beginning of the funds’ investment period, until all securities were sold in the quarter ended June 30, 2013, broken down by RMBS and CMBS. FIGURE 2.7 INVESTMENTS BY PPIP FUNDS, 2009–2013 ($ BILLIONS) 25 20 15 10 5 0 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Commercial Mortgage-Backed Securities Investments Residential Mortgage-Backed Securities Investments Notes: Numbers may not total due to rounding. Sources: Treasury, PPIP Quarterly Reports, December 2009, March 2010, June 2010, September 2010, December 2010, March 2011, June 2011, September 2011, December 2011, March 2012, June 2012, September 2012, December 2012, March 2013, and June 2013. PPIF investments were classified by underlying asset type. All non-agency RMBS investments were considered residential because the underlying assets were mortgages for residences with up to four dwelling units. For CMBS, the assets were commercial real estate mortgages: office, retail, multi-family, hotel, industrial (such as warehouses), mobile home parks, mixed-use (combination of commercial and/ or residential uses), and self-storage. Over the course of the program, the portfolio held large concentrations of office and retail. Figure 2.8 breaks down CMBS investment distribution by sector from December 31, 2009 through June 30, 2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 2.8 AGGREGATE CMBS SECTOR HOLDINGS BY MARKET VALUE, 2009–2013 ($ BILLIONS) 6 5 4 3 2 1 0 Q409* Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Office Retail Multifamily Industrial Lodging/Hotel Other Notes: Numbers affected by rounding. Calculated based on monthly data supplied by the PPIF managers. * Certain data for this period were incomplete. In the cases where data were incomplete, SIGTARP made estimates based on the best information available. Estimates do not have a material effect on the presentations in this report. Sources: SIGTARP Quarterly Reports, January 2010 through July 2013, PPIF Monthly Performance Reports. Non-agency RMBS and CMBS were classified by the degree of estimated default risk (sometimes referred to as “quality”). In general, the highest-quality rankings went to mortgages with the strictest requirements regarding borrower credit, completeness of documentation, and underwriting standards. Treasury characterized the investment-quality levels of risk for the types of mortgage loans that support non-agency RMBS as follows:592 • Prime — mortgage loan made to a borrower with good credit that generally met the lender’s strictest underwriting criteria. • 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. • Subprime — mortgage loan made to a borrower with a poor credit rating. • Option Adjustable Rate Mortgage (“Option ARM”) — mortgage loan that gave the borrower choices about how much interest and principal to pay each month, which could result in an increasing loan principal balance over time. • Other (RMBS) — RMBS that did not meet the definitions for prime, Alt-A, subprime, or option ARM but met the definition of “eligible assets” above. Treasury characterized CMBS according to the bond’s degree of “credit enhancement,” i.e., the percentage of the underlying mortgage pool by balance that must be written down before the bond had any losses.593 171 172 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM • Super Senior — most senior originally rated AAA bonds in a CMBS securitization with the highest level of credit enhancement. • AM (Mezzanine) — mezzanine-level originally rated AAA bond. Creditors receive interest and principal payments after super senior creditors but before junior creditors.594 • AJ (Junior) — the most junior bond in a CMBS securitization with a AAA rating at issuance. • Other (CMBS) — CMBS that did not meet the definitions for super senior, AM, or AJ but met the definition of “eligible assets” above. Figure 2.9 and Figure 2.10 show the distribution of non-agency RMBS and CMBS investments held in PPIP by respective risk levels from December 31, 2009, through June 30, 2013, by market value, as reported by PPIP managers. FIGURE 2.9 AGGREGATE RMBS QUALITY BY MARKET VALUE, 2009–2013 ($ BILLIONS) 20 18 16 14 12 10 8 6 4 2 0 Q409* Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Prime Alt-A Subprime Option Arm Other – RMBS Notes: Numbers affected by rounding. Calculated based on monthly data supplied by the PPIF managers. * Certain data for this period were incomplete. In the cases where data were incomplete, SIGTARP made estimates based on the best information available. Estimates do not have a material effect on the presentations in this report. Sources: SIGTARP Quarterly Reports, January 2010 through July 2013, PPIF Monthly Performance Reports. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 2.10 AGGREGATE CMBS QUALITY BY MARKET VALUE, 2009–2013 ($ BILLIONS) 6 5 4 3 2 1 0 Q409* Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Super Senior AM AJ Other – CMBS Notes: Numbers affected by rounding. Calculated based on monthly data supplied by the PPIF managers. * Certain data for this period were incomplete. In the cases where data were incomplete, SIGTARP made estimates based on the best information available. Estimates do not have a material effect on the presentations in this report. Sources: SIGTARP Quarterly Reports, January 2010 through July 2013, PPIF Monthly Performance Reports. Figure 2.11 and 2.12 show the distribution of non-agency RMBS and CMBS investments held in PPIP by respective risk levels from December 31, 2009, through June 30, 2013, as a percentage of market value, as reported by PPIP managers. 173 174 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.11 AGGREGATE RMBS QUALITY AS A PERCENTAGE OF MARKET VALUE, 2009–2013 100% 80% 60% 40% 20% 0% Q409* Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Prime Alt-A Subprime Option Arm Other – RMBS Notes: Numbers affected by rounding. Calculated based on monthly data supplied by the PPIF managers. * Certain data for this period were incomplete. In the cases where data were incomplete, SIGTARP made estimates based on the best information available. Estimates do not have a material effect on the presentations in this report. Sources: SIGTARP Quarterly Reports, January 2010 through July 2013, PPIF Monthly Performance Reports. FIGURE 2.12 AGGREGATE CMBS QUALITY AS A PERCENTAGE OF MARKET VALUE, 2009–2013 100% 80% 60% 40% 20% 0% Q409* Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Super Senior AM AJ Other – CMBS Notes: Numbers affected by rounding. Calculated based on monthly data supplied by the PPIF managers. * Certain data for this period were incomplete. In the cases where data were incomplete, SIGTARP made estimates based on the best information available. Estimates do not have a material effect on the presentations in this report. Sources: SIGTARP Quarterly Reports, January 2010 through July 2013, PPIF Monthly Performance Reports. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Non-agency RMBS and CMBS can be classified geographically, according to the states where the underlying mortgages are held. Figure 2.13 and 2.14 show the states with the greatest representation in the underlying non-agency RMBS and CMBS investments in PPIFs, as reported by PPIP managers from December 30, 2009 through June 30, 2013. FIGURE 2.13 AGGREGATE RMBS GEOGRAPHIC DISTRIBUTION BY MARKET VALUE, 2009–2013 ($ BILLIONS) 20 18 16 14 12 10 8 6 4 2 0 Q409* Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 California Florida New York Virginia/New Jersey Other Notes: Numbers affected by rounding. Calculated based on monthly data supplied by the PPIF managers. Virginia ranked fourth from Q4 2009 – Q2 2012 and was replaced by New Jersey from Q3 2012 forward. * Certain data for this period were incomplete. In the cases where data were incomplete, SIGTARP made estimates based on the best information available. Estimates do not have a material effect on the presentations in this report. Sources: SIGTARP Quarterly Reports, January 2010 through July 2013, PPIF Monthly Performance Reports. 175 176 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.14 AGGREGATE CMBS GEOGRAPHIC DISTRIBUTION BY MARKET VALUE, 2009–2013 ($ BILLIONS) 6 5 4 3 2 1 0 Q409* Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 California New York Texas Florida Other Notes: Numbers affected by rounding. Calculated based on monthly data supplied by the PPIF managers. * Certain data for this period were incomplete. In the cases where data were incomplete, SIGTARP made estimates based on the best information available. Estimates do not have a material effect on the presentations in this report. Sources: SIGTARP Quarterly Reports, January 2010 through July 2013, PPIF Monthly Performance Reports. Non-agency RMBS and CMBS can be classified by the delinquency of the underlying mortgages. Figure 2.15 and 2.16 show the distribution of non-agency RMBS and CMBS investments held in PPIP by delinquency levels, as reported by PPIP managers from December 30, 2009, through June 30, 2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 2.15 AGGREGATE AVERAGE RMBS DELINQUENCIES BY MARKET VALUE, 2009–2013 ($ BILLIONS) 20 18 16 14 12 10 8 6 4 2 0 Q409* Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Current 30-59 Days 60+ Days Notes: Numbers affected by rounding. Calculated based on monthly data supplied by the PPIF managers. * Certain data for this period were incomplete. In the cases where data were incomplete, SIGTARP made estimates based on the best information available. Estimates do not have a material effect on the presentations in this report. Sources: SIGTARP Quarterly Reports, January 2010 through July 2013, PPIF Monthly Performance Reports. FIGURE 2.16 AGGREGATE AVERAGE CMBS DELINQUENCIES BY MARKET VALUE, 2009–2013 ($ BILLIONS) 6 5 4 3 2 1 0 Q409* Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Current 30-59 Days 60+ Days Notes: Numbers affected by rounding. Calculated based on monthly data supplied by the PPIF managers. * Certain data for this period were incomplete. In the cases where data were incomplete, SIGTARP made estimates based on the best information available. Estimates do not have a material effect on the presentations in this report. Sources: SIGTARP Quarterly Reports, January 2010 through July 2013, PPIF Monthly Performance Reports. 177 178 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 7(a) Loan Program: SBA loan program guaranteeing a percentage of loans for small businesses that cannot otherwise obtain conventional loans at reasonable terms. Pool Assemblers: Firms authorized to create and market pools of SBAguaranteed loans. SBA Pool Certificates: Ownership interest in a bond backed by SBAguaranteed loans. For more information on SBA 7(a) Loan Program mechanics and TARP support for the program, see SIGTARP’s April 2010 Quarterly Report, pages 105-106. For a full listing of the SBA 7(a) securities Treasury purchased through UCSB, including investment amounts, sales proceeds, and other proceeds received by Treasury, see SIGTARP’s April 2012 Quarterly Report, page 134. Unlocking Credit for Small Businesses (“UCSB”)/Small Business Administration (“SBA”) Loan Support Initiative On March 16, 2009, Treasury announced the Unlocking Credit for Small Businesses (“UCSB”) program, which according to Treasury was designed to encourage banks to increase lending to small businesses. Through UCSB, Treasury purchased $368.1 million in securities backed by pools of loans from the Small Business Administration’s (“SBA”) 7(a) Loan Program.595 Treasury signed contracts with two pool assemblers, Coastal Securities, Inc. (“Coastal Securities”), and Shay Financial Services, Inc. (“Shay Financial”), on March 2, 2010, and August 27, 2010, respectively.596 Under the governing agreement, EARNEST Partners, on behalf of Treasury, purchased SBA pool certificates from Coastal Securities and Shay Financial without confirming to the counterparties that Treasury was the buyer.597 From March 19, 2010, to September 28, 2010, Treasury purchased 31 floating-rate 7(a) securities from Coastal Securities and Shay Financial for a total of approximately $368.1 million.598 In a series of sales from June 2011 through January 2012, Treasury sold all its SBA 7(a) securities, for total proceeds of $334.9 million, ending the program.599 According to Treasury, over the life of the program Treasury also had received $29 million and $13.3 million in amortizing principal and interest payments, respectively.600 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 AUTOMOTIVE INDUSTRY SUPPORT PROGRAMS During the financial crisis, Treasury, through TARP, launched three automotive industry support programs: the Automotive Industry Financing Program (“AIFP”), the Auto Supplier Support Program (“ASSP”), and the Auto Warranty Commitment Program (“AWCP”). According to Treasury, these programs were established “to prevent the collapse of the U.S. auto industry, which would have posed a significant risk to financial market stability, threatened the overall economy, and resulted in the loss of one million U.S. jobs.”601 As of September 30, 2013, General Motors Company (“GM”) and GMAC Inc., now Ally Financial Inc. (“Ally Financial”), remain in TARP, owing $15 billion and $14.6 billion, respectively, to taxpayers.602 Treasury owned 101.3 million GM shares, or 7.3% of GM’s common stock outstanding as of September 26, 2013, the most recent date for which it has disclosed share ownership.603 As of September 30, 2013, Treasury owned 74% of Ally Financial’s common stock and $5.9 billion of its mandatorily convertible preferred shares (“MCP”).604 Taxpayers have lost $9.7 billion on the TARP investment in GM as of September 30, 2013, from selling GM common stock at prices below the Government’s cost basis, according to Treasury.605 Taxpayers also lost $2.9 billion on Treasury’s investment in Chrysler LLC, which exited TARP in 2011. A fourth company, Chrysler Financial Services Americas LLC (“Chrysler Financial”), repaid all its TARP money in 2009. ASSP was terminated in April 2010 and AWCP was terminated in July 2009. Treasury initially obligated approximately $84.8 billion in TARP funds through the three auto assistance programs to GM, Ally Financial, Chrysler, and Chrysler Financial.606 Ultimately, Treasury spent $79.7 billion in TARP funds on the auto bailout after $2.1 billion in loan commitments to Chrysler were never drawn down, and all available funding for the ASSP program was not used.607 As of September 30, 2013, taxpayers are owed $32.5 billion, of which $12.6 billion in losses have been realized or written off and will never be repaid, leaving $19.9 billion outstanding. Treasury’s investments in AIFP and the two related programs and the companies’ principal repayments are summarized in Table 2.48. For more information on GMAC/Ally Financial, see “Taxpayers Continue to Own 74% of GMAC (Rebranded as Ally Financial Inc.) from the TARP Bailouts,” in SIGTARP’s January 2013 Quarterly Report, pages 147-164. 179 180 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.48 TARP AUTOMOTIVE PROGRAM INVESTMENTS AND PRINCIPAL REPAYMENTS, AS OF 9/30/2013 ($ BILLIONS) General Motorsa Ally Financial Inc.b Chryslerc Chrysler Financial Total $49.5 $17.2 $10.5 $1.5 $78.6 34.5 2.5 7.6 1.5 46.1 Automotive Industry Financing Program Treasury Investment Principal Repaid Auto Supplier Support Program Treasury Investment 0.3 0.1 0.4 Principal Repaid 0.3 0.1 0.4 0.4 0.3 0.6 Auto Warranty Commitment Program Treasury Investment Principal Repaid 0.4 0.3 0.6 Total Treasury Investment $50.2 $17.2 $10.9 $1.5 $79.7 Total Principal Repaid $35.2 $2.5 $8.0 $1.5 $47.2 Still Owed to Taxpayers $15.0 $14.6 $2.9 $0.0 $32.5 Realized Loss on Investment ($9.7) ($2.9) Notes: Numbers may not total due to rounding. a Principal repaid includes a series of debt payments totaling $159 million recovered from GM bankruptcy. b Investment includes an $884 million loan to GM, which it invested in GMAC in January 2009. c Principal repaid includes $560 million Fiat paid in July 2011 for Treasury’s remaining equity stake in Chrysler and for Treasury’s rights under an agreement with the UAW retirement trust related to Chrysler shares. Sources: Treasury, Transactions Report, 9/30/2013; Treasury, response to SIGTARP data call, 10/3/2013; Treasury, Daily TARP Update, 10/1/2013. Automotive Industry Financing Program AIFP, the largest of the three auto bailout programs, has not expended any TARP funds for the automotive industry since December 30, 2009.608 Of AIFPrelated loan principal repayments and share sale proceeds, as of September 30, 2013, Treasury has received approximately $34.5 billion related to its GM investment, $2.5 billion related to its Ally Financial/GMAC investment, $7.6 billion related to its Chrysler investment, and $1.5 billion related to its Chrysler Financial investment.609 In addition to principal repayments, Treasury has received approximately $5.5 billion in dividends and interest as of September 30, 2013.610 GM GM is still in TARP and taxpayers are owed $15 billion for the investment in GM. In return for its investment, Treasury held 101.3 million shares or 7.3% of GM’s common stock as of September 26, 2013, the most recent date for which it has disclosed share ownership.611 Treasury provided approximately $49.5 billion to GM through AIFP, the largest of the automotive rescue programs. Of that amount, QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 $19.4 billion was provided before bankruptcy and $30.1 billion was provided as financing during bankruptcy. During bankruptcy proceedings, Treasury’s loans were converted into common or preferred stock in GM or debt assumed by GM. As a result of GM’s bankruptcy, Treasury’s investment was converted to a 61% common equity stake in GM, $2.1 billion in preferred stock in GM, and a $7.1 billion loan to GM ($6.7 billion through AIFP and $360.6 million through AWCP). As part of a credit agreement with Treasury, $16.4 billion in TARP funds were placed in an escrow account that GM could access only with Treasury’s permission.612 Treasury also holds an administrative claim in the company’s bankruptcy with an outstanding principal amount of approximately $826.9 million. However, according to Treasury, it does not expect to recover any significant additional proceeds from this claim.613 Debt Repayments As of September 30, 2013, GM had made approximately $756.7 million in dividend and interest payments to Treasury under AIFP.614 GM repaid the $6.7 billion loan provided through AIFP with interest, using a portion of the escrow account that had been funded with TARP funds. What remained in escrow was released to GM with the final debt payment by GM.615 Sales of GM Stock In November and December 2010, GM successfully completed an initial public offering (“IPO”) in which GM’s shareholders sold 549.7 million shares of common stock and 100 million shares of Series B mandatorily convertible preferred shares (“MCP”) for total gross proceeds of $23.1 billion.616 As part of the IPO priced at $33 per share, Treasury sold 412.3 million common shares for $13.5 billion in net proceeds (after taking into account underwriting fees associated with the IPO), reducing its number of common shares to 500.1 million and its ownership in GM from 61% to 33%.617 On December 15, 2010, GM repurchased Treasury’s Series A preferred stock (83.9 million shares) for total proceeds of $2.1 billion and a capital gain to Treasury of approximately $41.9 million.618 On January 13, 2011, Treasury’s ownership in GM was diluted from 33% to 32% as a result of GM contributing 61 million of its common shares to fund GM’s hourly and salaried pension plans.619 Since then, Treasury has continued to sell GM stock, both directly to GM and in the public markets. On December 21, 2012, Treasury sold 200 million common shares to GM at $27.50 per share, for total proceeds of $5.5 billion.620 According to Treasury, the stock sale was the first step in a plan to fully exit its GM investment by early 2014.621 As part of the transaction, Treasury agreed, among other things, to waive previously required reports from GM on its liquidity and budget and to drop a ban on GM owning private aircraft for its executives’ use.622 GM said it would take a charge of approximately $400 million for the share buyback.623 On January 18, 2013, Treasury announced the initiation of the first of several pre-arranged written trading plans in conjunction with the divestment of its remaining shares.624 Under the first trading plan, which expired April 17, 2013, Treasury sold 58.4 million shares at an average price of $28.05 per share, for total proceeds of $1.6 For more on the results of GM’s November 2010 IPO, see SIGTARP’s January 2011 Quarterly Report, page 163. 181 182 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM billion.625 On May 6, 2013, Treasury announced a second pre-arranged written trading plan that ended on September 13, 2013.626 Under that plan, Treasury sold 110.3 million shares at an average price of $34.65 per share, for total proceeds of $3.8 billion.627 On September 26, 2013, Treasury announced that it had begun a third pre-arranged trading plan, which it expects to end on or around December 20, 2013.628 In addition to the trading plans, on June 6, 2013, Treasury sold 30 million shares of common stock at $34.41 per share in a public equity offering that raised $1 billion.629 As of September 26, 2013, at the commencement of the third trading plan, Treasury held 101.3 million shares, or 7.3% of GM’s common stock outstanding.630 Taxpayers have realized losses from an accounting standpoint of $9.7 billion on all GM common shares sold from November 2010 through September 13, 2013, the end of the second pre-arranged trading plan, according to Treasury.631 The losses are due to Treasury’s sales of GM common shares at prices below its cost basis of $43.52 per share. Table 2.49 summarizes Treasury’s sales of GM stock. TABLE 2.49 TREASURY’S SALES OF GM COMMON SHARES # Shares Sold Share Price Proceeds ($ Millions) Date Description July 2009 During GM’s bankruptcy, Treasury received an equity stake in GM with a cost basis of $43.52 per common share. 11/18/2010 Initial Public Offering (IPO) Realized Loss ($ Millions) # Shares Remaining Remaining Equity Owned 912,394,068 60.8% 358,546,795 $32.75 $11,743 $3,771 553,847,273 36.9% 11/26/2010 IPO Overallotment 53,782,019 $32.75 1,761 566 500,065,254 32.0% 12/21/2012 GM buyback of shares 200,000,000 $27.50 5,500 3,203 300,065,254 22.0% 1/18/2013 – 4/11/2013 1st trading plan 58,392,078 $28.05a 1,638 903 241,673,176 17.7% 6/12/2013 Public equity offering 30,000,000 $34.41b 1,032 273 189,194,989c 13.8% 5/6/2013 – 9/13/2013 2nd trading plan 110,336,510 $34.65 3,823 979 101,336,666 7.3% $25,497 $9,695 Total 811,057,402 Notes: Numbers may not total due to rounding. “NA” means data not available. In most instances, dates reflect when Treasury received proceeds. a Weighted average price of shares sold. Treasury’s January 18, 2013, trading plan gave Citigroup and JPMorgan the discretion to sell up to 58,392,078 shares of common stock during a three-month period ending on April 17, 2013. Sales were completed on April 11, 2013. b Weighted average price of shares sold. Treasury’s May 6, 2013, trading plan gave Citigroup and JPMorgan the discretion to sell up to 142,814,136 shares of common stock during the period ending on September 13, 2013. c General Motors Company prospectus, 6/6/2013. Sources: Treasury, Transactions Report, 9/30/2013; Treasury, response to SIGTARP data call, 10/3/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Treasury owned 101.3 million common shares of GM stock as of September 26, 2013, a total that did not change from the completion of the second trading plan on September 13, 2013.632 In order to recoup its total investment in GM, Treasury will need to recover an additional $15 billion in proceeds from future stock sales.633 This translates to an average of $147.95 per share on its remaining common shares in GM at that point in time, not taking into account dividend and interest payments received from GM.634 The break-even price — $147.95 per share — is calculated by dividing the $15 billion (the amount that remained outstanding to Treasury as of September 30, 2013) by the 101.3 million remaining common shares owned by Treasury on that date. If the $756.7 million in dividends and interest received by Treasury as of September 30, 2013, is included in this computation, then Treasury will need to recover $14.2 billion in proceeds, which translates into a break-even price of $140.48 per share, not taking into account other fees or costs associated with selling the shares. Other GM shareholders that participated in the 2009 auto bailout have also announced recent sales. On September 10, 2013, the governments of Canada and of Ontario sold a block of 30 million shares of General Motors common stock they had purchased as part of GM’s bailout. Following the sale, the governments will still hold 110 million shares of GM.635 Separately, on September 23, 2013, GM announced it would buy back about $3.2 billion (120 million shares) of preferred stock from the United Auto Workers (“UAW”) Retiree Medical Benefits Trust.636 The UAW trust also sold 20 million shares of its GM common stock in conjunction with the June 6, 2013, Treasury public offering.637 Ally Financial, formerly known as GMAC Ally Financial is still in TARP and taxpayers are owed $14.6 billion for the TARP investment in it. In return for its investment, as of September 30, 2013, Treasury holds approximately 74% of Ally Financial’s common stock and $5.9 billion worth of mandatorily convertible preferred shares (“MCP). As of September 30, 2013, Ally Financial had made one principal payment of $2.5 billion to Treasury since receiving bailout assistance almost five years ago. The company also has paid a total of $3.5 billion in quarterly dividends to Treasury through September 30, 2013, as required by the terms of the preferred stock that Ally Financial issued to Treasury.638 Ally Financial received $17.2 billion in three separate injections of TARP funds. On December 29, 2008, Treasury purchased $5 billion in senior preferred equity from GMAC and received an additional $250 million in preferred shares through warrants that Treasury exercised immediately at a cost of $2,500.639 In January 2009, Treasury loaned GM $884 million to invest in GMAC.640 In May 2009, Treasury exchanged this $884 million debt for a 35% common equity ownership in GMAC.641 On May 21, 2009, Treasury made an additional investment in GMAC when it purchased $7.5 billion of MCP and received warrants that Treasury immediately exercised for an additional $375 million in MCP at an additional cost of approximately $75,000.642 On December 30, 2009, Treasury invested another $3.8 billion in GMAC, and Treasury received $2.5 billion in trust preferred securities For a discussion of the history and financial condition of Ally Financial, see SIGTARP’s January 2013 Quarterly Report, pages 147-164. 183 184 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Figure 2.17 OWNERSHIP IN ALLY FINANCIAL/GMAC GM Trust Third-Party Investors 8% Cerberus 9% 10% 74% United States Department of the Treasury Notes: Ownership as of September 30, 2013. Numbers may be affected by rounding. Source: Ally Financial, Inc., Amendment No. 8 to Form S-1, www.sec.gov/Archives/edgar/data/40729/ 000119312513285728/d388008ds1a.htm, accessed 10/7/2013. (“TRUPS”) and $1.3 billion in MCP. Treasury also received warrants, which were immediately exercised, to purchase an additional $127 million in TRUPS and $62.5 million in MCP at an additional cost of approximately $1,270 and $12,500, respectively.643 Additionally, Treasury converted $3 billion of its MCP into GMAC common stock, increasing its common equity ownership from 35% to 56%.644 On May 10, 2010, GMAC changed its name to Ally Financial Inc.645 On December 30, 2010, Treasury announced the conversion of $5.5 billion of its MCP in Ally Financial to common equity, increasing Treasury’s ownership stake in Ally Financial’s common equity from 56% to 74%.646 On March 7, 2011, Treasury sold its $2.7 billion in TRUPS in Ally Financial in a public offering, resulting in a $2.5 billion principal repayment to Treasury.647 As of September 30, 2013, no other principal repayments have been made. As a result of its conversion of MCP to common stock in Ally Financial, and for as long as Treasury maintains common equity ownership at or above 70.8%, Treasury can appoint six of the 11 directors on Ally Financial’s board.648 Treasury completed the initial round of appointments to its six new board seats in August 2012, and since then has replaced two of those appointees.649 The conversion of $5.5 billion of Treasury’s MCP diluted the shares of other existing shareholders in Ally Financial. Following the conversion, the private equity firm Cerberus Capital Management, L.P. (“Cerberus”) held 8.7%, third-party investors collectively held 7.6%, an independently managed trust owned by GM held 5.9%, and GM directly held a 4% stake in Ally Financial’s common equity.650 GM’s interests have since been consolidated in the trust. Figure 2.17 shows the breakdown of common equity ownership in Ally Financial as of September 30, 2013. Ally Financial Announces Stock Sale and Plan to Repurchase Securities from Treasury On August 20, 2013, Ally Financial announced two transactions that it said would reduce Treasury’s stake in the company.651 In one transaction, Ally Financial said it had agreed to a private placement of 166,667 shares of its common stock for an aggregate purchase price of $1 billion. In the other transaction, Ally Financial said it had agreed to repurchase from Treasury all of its MCP and also to terminate Treasury’s existing share adjustment right associated with those shares.652 Ally said it will pay Treasury $5.2 billion to repurchase $5.938 billion par value of MCP, plus a payment of $725 million to terminate the share adjustment right.653 The transactions, which are scheduled to close by November 30, 2013, are subject to conditions including the Federal Reserve not objecting to Ally Financial’s capital plan.654 According to Treasury, under new agreements associated with these transactions, Treasury would have the right to designate a majority of the Ally Financial Board of Directors as long as its ownership stake exceeds 50%.655 Proposed Ally Financial IPO On March 31, 2011, Ally Financial filed a Form S-1 Registration statement for an IPO with the Securities and Exchange Commission (“SEC”).656 The document QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 includes a prospectus relating to the issuance of Ally Financial common stock.657 The prospectus also outlines certain aspects of Ally Financial’s business operations and risks facing the company.658 Ally Financial stated that the proposed IPO would consist of “common stock to be sold by the U.S. Department of the Treasury.”659 Ally Financial has disclosed additional details about its proposed IPO in several amended Form S-1 Registration statements filed over time with the SEC, the most recent on July 9, 2013.660 Ally Financial Subsidiary Files for Chapter 11 Bankruptcy Relief On May 14, 2012, Ally Financial announced that its mortgage subsidiary, Residential Capital, LLC, and certain of its subsidiaries (“ResCap”) filed for bankruptcy court relief under Chapter 11 of the U.S. Bankruptcy Code, and that it was exploring strategic alternatives for its international operations.661 As a result of the Chapter 11 filing, Ally Financial said that it deconsolidated ResCap from its financial statements and wrote down its equity interest in ResCap to zero.662 On June 26, 2013, the U.S. Bankruptcy Court approved Ally Financial’s proposed settlement to pay $2.1 billion to the ResCap estate for release from certain mortgage claims and liabilities.663 As part of the settlement, ResCap on June 13, 2013, fully repaid Ally Financial’s secured claim for $1.13 billion owed under existing credit facilities.664 Ally Financial recorded a charge of about $1.6 billion in the second quarter of 2013 related to the settlement, and said it would make its settlement payment to the ResCap estate in the fourth quarter of 2013 on the effective date of the reorganization plan, pending court approval.665 Ally Financial Agrees to Sell International, Other Assets On November 21, 2012, Ally Financial announced it had reached agreements to sell its remaining international assets over time for $9.2 billion in proceeds. According to Ally Financial, that included the sale of most of its operations in Europe and Latin America to GM Financial Company, Inc. (“GM Financial”), and a 40% stake in a joint venture in China. From this, Ally Financial received $2.6 billion in total proceeds.666 In June, 2013, Ally Financial said it completed the sale of its business in France, and on October 1, 2013, it said it completed the sale of its Brazil operations to GM Financial for $611 million.667 Ally Financial also has said it expects the sale of a joint venture stake in China to close later in 2013 or 2014.668 In addition, it sold its Canadian auto finance operation to Royal Bank of Canada for $4.1 billion and its Mexican insurance business to ACE Group for $865 million, in sales completed on February 1, 2013, and May 2, 2013, respectively.669 Additionally, Ally Financial’s subsidiary, Ally Bank, announced in March 2013 that it agreed to sell its entire agency mortgage servicing rights to Ocwen Financial and Quicken Loans.670 Both sales were completed on April 17, 2013, according to Ally Bank, which said it received a combined $850 million in proceeds from the transactions.671 Table 2.50 summarizes Ally Financial’s international and domestic asset sales in 2013. 185 186 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.50 ALLY FINANCIAL - 2013 ASSET SALES ($ MILLIONS) Sale Proceeds Buyer Sale Closed $4,100 Royal Bank of Canada 2/1/13 Ally Bank wholesale mortgage unit N/A Walter Investment Management 2/28/13 Units in Latin America, Europe, China $2,600 GM Financial 4/2/13a Ally Bank mortgage servicing $850 Ocwen Financial, Quicken Loans 4/17/13 ABA Seguros Insurance $865 ACE Group 5/2/13 Brazilian operations $611 GM Financial 10/1/13 Total Proceeds: $9,026 Ally Credit Canada, ResMor Trust Notes: a The closing on 4/2/2013 did not include China assets, which are expected to close later in 2013/2014. Sources: Ally Financial SEC filings, press releases. Chrysler Chrysler is no longer in TARP and taxpayers suffered a $2.9 billion loss on the TARP investment in Chrysler. Through October 3, 2010, Treasury made approximately $12.5 billion available to Chrysler directly through AIFP in three stages: $4 billion before bankruptcy to CGI Holding LLC, which was the parent of Chrysler and Chrysler Financial; $1.9 billion in financing to Chrysler during bankruptcy; and $6.6 billion to Chrysler afterwards.672 In exchange, Treasury received 10% of the common equity in Chrysler. On April 30, 2010, following the bankruptcy court’s approval of the plan of liquidation for Chrysler, the $1.9 billion loan was extinguished without repayment. In return, Treasury retained the right to recover proceeds from the sale of assets that were collateral for the loan from the liquidation of Chrysler assets.673 According to Treasury, it is unlikely to fully recover its initial investment of approximately $1.9 billion related to the loan.674 As of September 30, 2013, Treasury had recovered approximately $57.4 million from asset sales during bankruptcy.675 Of the $4 billion lent to Chrysler’s parent company, CGI Holding LLC, before bankruptcy, $500 million of the debt was assumed by Chrysler while the remaining $3.5 billion was held by CGI Holding LLC.676 Under the terms of this loan agreement, as amended on July 23, 2009, Treasury was entitled to the greater of approximately $1.4 billion or 40% of any proceeds that Chrysler Financial paid to its parent company, CGI Holding LLC, after certain other QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 distributions were made.677 On May 14, 2010, Treasury accepted $1.9 billion in full satisfaction of its $3.5 billion loan to CGI Holding LLC.678 On May 24, 2011, Chrysler used the proceeds from a series of refinancing transactions and an equity call option exercised by Fiat North America LLC (“Fiat”) to repay the loans from Treasury and the Canadian government.679 The repaid loans were made up of $6.6 billion in post-bankruptcy financing (of which $2.1 billion was never drawn down), and the $500 million in debt assumed by Chrysler.680 Treasury terminated Chrysler’s ability to draw the remaining $2.1 billion TARP loan.681 Over time, Fiat increased its ownership of Chrysler. On July 21, 2011, Treasury sold to Fiat for $500 million Treasury’s remaining equity ownership interest in Chrysler. Treasury also sold to Fiat for $60 million Treasury’s rights to receive proceeds under an agreement with the United Auto Workers retiree trust pertaining to the trust’s shares in Chrysler.682 As of July 21, 2011, the Chrysler entities had made approximately $1.2 billion in interest payments to Treasury under AIFP.683 Chrysler Financial Chrysler Financial is no longer in TARP, having fully repaid the TARP investment. In January 2009, Treasury loaned Chrysler Financial $1.5 billion under AIFP to support Chrysler Financial’s retail lending. On July 14, 2009, Chrysler Financial fully repaid the loan in addition to approximately $7.4 million in interest payments.684 In connection with the $3.5 billion pre-bankruptcy loan remaining with CGI Holding LLC, the parent company of Chrysler (the bankrupt entity) and Chrysler Financial, Treasury was entitled to the greater of approximately $1.4 billion or 40% of any proceeds that Chrysler Financial paid to its parent company, CGI Holding LLC, after certain other distributions were made.685 On May 14, 2010, Treasury accepted $1.9 billion in full satisfaction of its $3.5 billion loan to CGI Holding LLC, thereby relinquishing any interest in or claim on Chrysler Financial.686 Seven months later, on December 21, 2010, TD Bank Group announced that it had agreed to purchase Chrysler Financial from Cerberus, the owner of CGI Holding LLC, for approximately $6.3 billion.687 TD Bank Group completed its acquisition of Chrysler Financial on April 1, 2011, and has rebranded Chrysler Financial under the TD Auto Finance brand.688 Auto Supplier Support Program (“ASSP”) On March 19, 2009, Treasury announced a commitment of $5 billion to ASSP to “help stabilize the automotive supply base and restore credit flows in a critical sector of the American economy.”689 Because of concerns about the auto manufacturers’ ability to pay their invoices, suppliers had not been able to borrow from banks by using their receivables as collateral. ASSP enabled automotive parts suppliers to access Government-backed protection for money owed to them for the products they shipped to manufacturers. Under the program, Treasury made loans for GM ($290 million) and Chrysler ($123.1 million) that were fully repaid in April 2010.690 187 188 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Auto Warranty Commitment Program (“AWCP”) AWCP was designed to bolster consumer confidence by guaranteeing Chrysler and GM vehicle warranties during the companies’ restructuring in bankruptcy.691 Treasury obligated $640.8 million to this program — $360.6 million for GM and $280.1 million for Chrysler.692 On July 10, 2009, the companies fully repaid Treasury upon their exit from bankruptcy.693 SECT IO N 3 TREASURY APPROVED LARGE DECREASES IN THE ESTIMATED NUMBER OF HOMEOWNERS TO BE HELPED BY STATES THROUGH TARP’S HHF PROGRAM 190 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 INTRODUCTIONi More than three years ago, in February 2010, in an attempt to help families in places hurt the most by the housing crisis, the Administration launched the TARPfunded Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (“Hardest Hit Fund” or “HHF”).694 The Administration announced that TARP funds would be used for “innovative measures to help families in the states that have been hit the hardest by the aftermath of the housing bubble.”695 This TARP-funded housing support program was to be developed and administered by state housing finance agencies (“HFAs”) with Treasury’s approval and oversight.696,ii Treasury allocated $7.6 billion in TARP funds for the HHF program and, through four rounds of funding in 2010, obligated these TARP funds to 18 states and the District of Columbia (“states”) – those states that Treasury deemed to have significant home price declines and high unemployment rates.697 Treasury approved each of the 19 states’ initial program proposals and approves any proposed changes to programs.698 These proposals include estimates of the number of homeowners to be helped through each program (some states have more than one program).699 However, as SIGTARP reported in its April 12, 2012, audit “Factors Affecting Implementation of the Hardest Hit Fund Program,” “This number has limited usefulness because states can, and have, changed estimates, creating a shifting baseline that makes it difficult to measure performance against expectations. The states’ estimated number of homeowners to be assisted by HHF has steadily decreased over the last year.” For that reason, in the April 2012 audit, SIGTARP recommended that Treasury: (1) set meaningful and measurable performance goals for the Hardest Hit Fund program including, at a minimum, the number of homeowners Treasury estimates will be helped by the program, and measure the program’s progress against those goals; and (2) instruct state housing finance agencies in the Hardest Hit Fund to set meaningful and measurable overarching and interim performance goals with appropriate metrics to measure progress for their individual state programs. Treasury rejected SIGTARP’s recommendations. As a result, the baseline has shifted such that Treasury has allowed the states to significantly decrease the number of homeowners that they anticipate will get help from TARP-funded HHF.700 In other words, rather than fix the problem that SIGTARP warned Treasury about in its audit, Treasury allowed the problem to get worse. Rather than following SIGTARP’s recommendations, which were designed to make Treasury and states set goals and work hard to achieve those goals, Treasury is refusing to hold itself or the states accountable to any goal of the number of homeowners to be assisted in HHF, and the result has been that the program is reaching far fewer homeowners than the states expected in 2011. iS IGTARP is issuing this report under the Emergency Economic Stabilization Act. It is not an audit or evaluation under the Inspector General Act of 1978 as amended. ii Participating HFAs in HHF are from: Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, and Washington, DC. As of June 30, 2013, there were 63 active HHF programs run by the 19 state HFAs. According to Treasury, Illinois and Rhode Island are no longer accepting applications for assistance from homeowners because they determined that their allocated HHF funds would be spent on homeowners who already have been approved for HHF assistance. 191 192 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM For more information on HHF, see SIGTARP’s April 12, 2012, audit report, “Factors Affecting Implementation of the Hardest Hit Fund Program.” At the peak estimate, made in the first few months of 2011, the states collectively estimated that they would help as many as 546,562 homeowners with HHF.701 Since then, with Treasury’s approval, states have changed their programs (including reducing the estimated number of homeowners to be helped), cancelled programs, and started new programs.702 The states now estimate helping 33% fewer homeowners than they estimated in 2011. As of June 30, 2013, the states estimated helping as many as 367,290 homeowners with HHF, which is 179,272 fewer homeowners than the states estimated helping with HHF in 2011.703 Importantly, the states collectively estimate that HHF will help 367,290 homeowners but fail to take into account that when states report program participation numbers, homeowners may be double counted when they receive assistance from multiple HHF programs offered in their state (14 states have more than one program). For example, a homeowner may have lost his job, missed three months of mortgage payments, and then sought help from his state. This homeowner might be qualified to receive assistance from two HHF programs offered by his state, one that could help him make up missed mortgage payments, and a second that could help him pay his future mortgage payments while he seeks new employment. Treasury requires states to estimate the number of people who will participate in each of their programs, and then report the number who actually participate in each program.704 It also requires them to report the total number of individual homeowners assisted, which is lower than the reported program participation numbers when homeowners have participated in more than one program offered by their state.705 As of June 30, 2013, the latest data available, in aggregate, after nearly three and a half years, states had spent 22% ($1.7 billion) of the $7.6 billion in TARP funds that Treasury allocated for the HHF program to provide assistance to 146,356 program participants (which translates to 126,858 individual homeowners), or 27% of the number of homeowners the states anticipated helping with HHF in 2011.706,iii STATES HAVE SPENT 22% OF TARP FUNDS AVAILABLE FOR HHF ON ASSISTANCE FOR STRUGGLING HOMEOWNERS Of the $7.6 billion in TARP funds available for HHF, states collectively had drawn down $2.7 billion (35%) as of June 30, 2013.707 However, not all of that has been spent on direct assistance to homeowners. States have spent $1.7 billion (22% of the $7.6 billion) to assist 126,858 individual homeowners. States have spent the rest of the funds on administrative expenses or hold the money as cash-onhand. States have spent $308.5 million (4%) on administrative expenses; and held iii According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 $719.7 million (9%) as unspent cash-on-hand, as of June 30, 2013, the latest data available.708 There remains $4.9 billion (65%) in undrawn funds available for HHF, as of June 30, 2013.709 Treasury allows states to reallocate funds between programs and modify existing programs as needed, with Treasury approval, until December 31, 2017.710 After this date, states must return unused funds to Treasury.711 As of June 30, 2013, 86.9% of the HHF assistance received by homeowners was for unemployment assistance, including past-due payment assistance.712 As SIGTARP found in its April 2012 audit, these were the only types of assistance for which the Government-sponsored enterprises (“GSE”s) previously directed servicers to participate. The remaining assistance can be broken down to 12.5% for mortgage modification, including principal reduction assistance, 0.4% for secondlien reduction assistance, and 0.2% for transition assistance.713 States had not spent any funds on demolition programs as of June 30, 2013.714 Figure 3.1 shows state uses of TARP funds obligated for HHF by percent, as of June 30, 2013, the most recent figures available.  193 194 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.1 STATE USES OF $7.6 BILLION OF TARP FUNDS AVAILABLE FOR HHF, BY PERCENT, AS OF 6/30/2013 Alabama $162.5 million allocated Arizona $267.8 million allocated California $1,975.3 million allocated Florida $1,057.8 million allocated Georgia $339.3 million allocated Illinois $445.6 million allocated Indiana $221.7 million allocated Kentucky $148.9 million allocated Michigan $498.6 million allocated Mississippi $101.9 million allocated Nevada $194.0 million allocated New Jersey $300.5 million allocated North Carolina $482.8 million allocated Ohio $570.4 million allocated Oregon $220.0 million allocated Rhode Island $79.4 million allocated South Carolina $295.4 million allocated Tennessee $217.3 million allocated Washington D.C. $20.7 million allocated TOTAL $7.6 billion 0% 20% 40% Homeowner Assistance Cash-on-Hand Administrative Expenses Undrawn Funds 60% 80% 100% Notes: According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. State spending figures as of June 30, 2013, are the most recent available; Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, states have drawn down $2.9 billion. Sources: Treasury, Transactions Report-Housing Programs, 6/27/2013; Treasury, responses to SIGTARP data calls, 7/5/2013, 10/7/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Arizona (Home) Foreclosure Prevention Funding Corporation, Hardest Hit Fund Reporting, Quarterly Performance Report Q2 2013, no date; GHFA Affordable Housing Inc., HomeSafe Georgia, US Treasury Reports, Quarterly Performance Report Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TREASURY HAS NEVER SET A GOAL OF HOW MANY HOMEOWNERS IT WILL HELP WITH HHF OR REQUIRED THAT STATES SET A GOAL, INSTEAD APPROVING MOST STATES’ SIGNIFICANT REDUCTIONS OF ESTIMATES OF THE NUMBER OF HOMEOWNERS TO BE HELPED Treasury has never set a goal of how many homeowners Treasury will help with HHF, rejecting SIGTARP’s recommendation that Treasury set such a goal. Treasury has also not required states participating in HHF to set a goal of how many homeowners they will help with HHF, rejecting SIGTARP’s recommendation that Treasury require that each state set such a goal. Instead, Treasury required states to estimate the number of homeowners who will participate in each of its programs.715 However, as SIGTARP reported in its April 2012 audit, “this number has limited usefulness.” With Treasury’s approval, states can modify programs, cancel programs, introduce new programs, and change the estimate of how many homeowners will participate in each of their programs, creating a shifting baseline that makes it difficult to measure performance against expectations.716 Most states have made many changes to programs and the estimated number of homeowners to be helped. Fourteen HHF states have reduced their estimates, most of them significantly, of how many homeowners they will help using TARP’s HHF program.717 In the beginning of 2011, states collectively estimated that they would help 546,562 homeowners with HHF. As of June 30, 2013, the states estimated helping 367,290 homeowners with HHF, which is 179,172 fewer homeowners than the states estimated helping with HHF in 2011. As of June 30, 2013, the states reported that 146,356 homeowners participated in HHF programs.718 However, because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. According to Treasury, 126,858 individual homeowners participated in HHF programs.719 Figure 3.2 shows, in the aggregate, the number of homeowners estimated to participate in HHF programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013.iv  iv Program participation and homeowners assisted data does not take into account the status of the mortgage (i.e., active, delinquent, in foreclosure, foreclosed, or sold) of homeowners who received TARP-funded HHF assistance. 195 196 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.2 STATE ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED IN ALL HHF PROGRAMS, AS OF 6/30/2013 600,000 Peak estimate: 546,562 6/30/2013 estimate: 367,290 6/30/2013 program participation: 146,356 Homeowners assisted: 126,858 500,000 400,000 300,000 200,000 100,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. For its “Blight Elimination Program” (Demolition), Michigan neither estimated the number of homeowners it would serve nor reported the number of homeowners this program has served. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Treasury, Transactions Report-Housing Programs, 6/27/2013; Treasury, response to SIGTARP data call, 7/5/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, responses to SIGTARP data calls, 10/3/2013 and 10/7/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TREASURY HAS REJECTED ALL OF SIGTARP’S 2012 RECOMMENDATIONS FOR HHF In April 2012, SIGTARP issued an audit report, “Factors Affecting Implementation of the Hardest Hit Fund Program.”720 SIGTARP reviewed Treasury’s administration of the HHF program and issued five recommendations to Treasury: 1. Treasury should set meaningful and measurable performance goals for the Hardest Hit Fund program including, at a minimum, the number of homeowners Treasury estimates will be helped by the program, and measure the program’s progress against those goals. 2. Treasury should instruct state housing finance agencies in the Hardest Hit Fund to set meaningful and measurable overarching and interim performance goals with appropriate metrics to measure progress for their individual state programs. 3. Treasury should set milestones at which the state housing finance agencies in the Hardest Hit Fund must review the progress of individual state programs and make program adjustments from this review. 4. Treasury should publish on its website and in the Housing Scorecard on a quarterly basis the total number of homeowners assisted, funds drawn down by states, and dollars expended for assistance to homeowners, assistance committed to homeowners, and cash on hand, aggregated by all state Hardest Hit Fund programs. 5. Treasury should develop an action plan for the Hardest Hit Fund that includes steps to increase the numbers of homeowners assisted and to gain industry support for Treasury-approved HHF programs. Treasury should set interim metrics for how many homeowners it intends to assist in a Treasury-defined time period in each particular program (such as principal reduction, secondlien reduction, or reinstatement). If Treasury cannot achieve the desired level of homeowners assisted in any one program area in the defined time period, Treasury should put the funds to better use toward programs that are reaching homeowners. Treasury has rejected SIGTARP’s important recommendations. Treasury’s failure to set meaningful goals and metrics to identify program successes and failures results in a lack of accountability on both the part of Treasury and the 19 HHF states. Treasury’s failure to implement these recommendations harms oversight, reducing Treasury’s ability to identify and assess weaknesses in a timely manner and bring prompter corrective changes. It is important that Treasury fulfill its role as steward over TARP programs, make determinations of which programs are successful and which programs are not working and ensure that HHF funds are reaching homeowners. This may include putting the funds toward programs that are more successful at reaching homeowners. Treasury approved the states’ HHF programs and estimates, and Treasury should take steps to ensure that states meet these estimates, rather than decrease the estimates, lowering the bar for successful performance. It is also 197 198 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM unacceptable to delegate all of this responsibility to the states. Treasury should create its own goals for HHF, including the number of homeowners it estimates helping with HHF. Treasury should fully implement SIGTARP’s recommendations, and by not doing so, Treasury has allowed the states to decrease the number of homeowners that HHF expects to help. THE MAJORITY OF STATES HAVE SIGNIFICANTLY REDUCED THEIR ESTIMATES OF HOW MANY HOMEOWNERS THEY WILL HELP THROUGH HHF For more on SIGTARP’s 2012 recommendations, see: • SIGTARP’s audit report, “Factors Affecting Implementation of the Hardest Hit Fund Program,” April 12, 2012. • SIGTARP Quarterly Report, July 2012, pages 183-185. Of the 19 states participating in HHF, over time 14 have reduced their estimates from their peak estimates of how many homeowners will participate in HHF, most of them significantly. Four states have not reduced their estimates: Georgia, Mississippi, New Jersey, and North Carolina. One state, Oregon, increased its estimate. However, these five states represented only 12% of the peak collective estimate during the first few months of 2011, and only 18% of the collective estimate as of June 30, 2013. Collectively, as of June 30, 2013, the states have spent $1.7 billion on direct assistance to homeowners, or 22% of the $7.6 billion in TARP funds obligated to HHF.721,v Of the 19 HHF states, Rhode Island has spent the highest percentage, 56%, of its obligated funds on homeowner assistance. Indiana has spent the lowest percentage, 8%. In addition to Indiana, seven other states have spent less than 22% of their obligated funds on assistance to homeowners: Alabama, Arizona, California, Florida, Georgia, Michigan, and Mississippi. For each of the states, the following pages review estimates of program participation and reported numbers of homeowners who have been assisted, as well as expenditures compared with obligated funds. According to Treasury, two states that received TARP funds for HHF, Illinois and Rhode Island, have stopped accepting new applications from struggling homeowners seeking help from their HHF programs.722,vi Rhode Island stopped accepting applications after January 31, 2013.723 Illinois stopped accepting applications after September 30, 2013.724 v According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. vi According to Treasury, Illinois and Rhode Island are no longer accepting applications for assistance from homeowners because they determined that their allocated HHF funds would be spent on homeowners who already have been approved for HHF assistance. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Alabama has spent 13% of available HHF funds to help homeowners Even though Treasury obligated $162,521,345 of HHF funds to Alabama, Alabama is not getting a significant amount of these funds out the door to help homeowners with HHF.725 As of June 30, 2013, the state had drawn down $28 million (17%) of those funds.726 As of June 30, 2013, the state had three HHF programs and had spent $20.9 million (13% of its obligated funds) to help 2,741 individual homeowners.727,vii The remaining $5 million (3%) was spent on administrative expenses, and $2 million (1%) is held as cash-on-hand.728,viii At the end of 2010, Alabama estimated that it would help as many as 13,500 homeowners with HHF but, as of June 30, 2013, reduced that peak estimate by 57%, to 5,800. At the end of 2010, Alabama estimated that it would provide HHF unemployment assistance to 13,500 homeowners. As of June 30, 2013, Alabama lowered that peak estimate to 3,100 homeowners and has helped 2,741 homeowners with HHF unemployment assistance. In 2013, Alabama introduced two additional HHF programs: one to modify mortgages for an estimated 1,200 homeowners, and one to provide HHF transition assistance to an estimated 1,500 homeowners. As of June 30, 2013, no homeowners had been helped by Alabama under these new HHF programs. Figure 3.3 shows, in aggregate, the number of homeowners estimated to participate in Alabama’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Figure 3.4 shows Alabama’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.5 shows the number of homeowners estimated to participate in each of Alabama’s programs (estimated program participation) and the reported number of homeowners who participated in each of Alabama’s programs (program participation), as of June 30, 2013. vii A ccording to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. viii S tates do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. 199 200 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.3 FIGURE 3.4 ALABAMA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 ALABAMA USES OF $162.5 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) $175 15,000 Peak estimate: 13,500 6/30/2013 estimate: 5,800 6/30/2013 program participation: 2,741 Homeowners assisted: 2,741 12,000 150 125 9,000 100 75 6,000 Available: $162.5 Million Drawn, as of 6/30/2013: $28 Million 50 3,000 25 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Alabama Housing Finance Authority, Proposal, 8/31/2010; Treasury and Alabama Housing Finance Authority, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Alabama Housing Finance Authority, first through seventh Amendment[s] to Agreement[s], 9/29/2010, 12/16/2010, 1/26/2011, 3/31/2011, 5/25/2011, 6/28/2012, and 3/8/2013; Alabama Housing Finance Authority, Treasury Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Alabama spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Alabama had drawn down $34 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press release 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Alabama Housing Finance Authority, Treasury Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.5 ALABAMA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 HARDEST HIT FOR ALABAMA'S UNEMPLOYED HOMEOWNERS (UNEMPLOYMENT) 15,000 12,000 Peak estimate: 13,500 6/30/13 estimate: 3,100 6/30/13 program participation: 2,741 9,000 SHORT SALE ASSISTANCE PROGRAM (TRANSITION) 2,000 Peak estimate: 1,500 6/30/13 estimate: 1,500 6/30/13 program participation: 0 1,500 1,000 6,000 500 3,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation LOAN MODIFICATION ASSISTANCE PROGRAM (MODIFICATION) 2,000 1,500 Peak estimate: 1,200 6/30/13 estimate: 1,200 6/30/13 program participation: 0 1,000 500 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. Alabama Housing Finance Authority, Proposal, 8/31/2010; Treasury and Alabama Housing Finance Authority, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Alabama Housing Finance Authority, first through seventh Amendment[s] to Agreement[s], 9/29/2010, 12/16/2010, 1/26/2011, 3/31/2011, 5/25/2011, 6/28/2012, and 3/8/2013; Alabama Housing Finance Authority, Treasury Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. 201 202 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Arizona has spent 11% of available HHF funds to help homeowners Even though Treasury obligated $267,766,006 of HHF funds to Arizona, Arizona is not getting a significant amount of these funds out the door to help homeowners with HHF.729 As of June 30, 2013, the state had drawn down $91.8 million (34%) of those funds.730 As of June 30, 2013, the state had four HHF programs and had spent $30.3 million (11% of its obligated funds) to help 1,916 individual homeowners.731,ix The remaining $9.6 million (4%) was spent on administrative expenses, and $51.9 million (19%) is held as cash-on-hand.732,x At the end of 2010, Arizona estimated that it would help as many as 11,959 homeowners with HHF but, as of June 30, 2013, had reduced that peak estimate by 46%, to 6,507. At the end of 2010, Arizona estimated that it would modify mortgages with HHF principal reduction assistance for as many as 7,227 homeowners. As of June 30, 2013, Arizona had reduced that peak estimate to modify mortgages with HHF principal reduction assistance for 1,849 homeowners and had modified 313 homeowners’ mortgages. In mid-2010, Arizona estimated that it would provide HHF second-lien reduction assistance to 1,875 homeowners. As of June 30, 2013, Arizona lowered that peak estimate to 180 homeowners and provided 59 homeowners with HHF second-lien reduction assistance. In mid-2010, Arizona estimated that it would provide HHF unemployment assistance to 1,428 homeowners, but as of June 30, 2013, Arizona had increased that estimate to a peak estimate of 4,140, and has helped 1,564 homeowners with HHF unemployment assistance. In mid-2011, Arizona estimated that it would provide HHF transition assistance to 1,200 homeowners. As of June 30, 2013, Arizona lowered that peak estimate to 338 homeowners and provided 59 homeowners with HHF transition assistance. Figure 3.6 shows, in aggregate, the number of homeowners estimated to participate in Arizona’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. Figure 3.7 shows Arizona’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.8 shows the number of homeowners estimated to participate in each of Arizona’s programs (estimated program participation) and the reported number of homeowners who participated in each of Arizona’s programs (program participation), as of June 30, 2013. ix According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. x States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.6 FIGURE 3.7 ARIZONA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 ARIZONA USES OF $267.8 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) 12,000 $300 10,000 250 8,000 200 6,000 150 4,000 Peak estimate: 11,959 6/30/2013 estimate: 6,507 6/30/2013 program participation: 1,995 Homeowners assisted: 1,916 Available: $267.8 Million Drawn, as of 6/30/2013: $91.8 Million 100 50 2,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Arizona (Home) Foreclosure Prevention Funding Corporation, Proposal, no date; Treasury and Arizona (Home) Foreclosure Prevention Funding Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 6/23/2010; Arizona (Home) Foreclosure Prevention Funding Corporation, first through eleventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 1/26/2011, 3/31/2011, 5/25/2011, 8/31/2011, 3/29/2012, 7/17/2012, 8/24/2012, 6/6/2013; Arizona (Home) Foreclosure Prevention Funding Corporation, Hardest Hit Fund Reporting (quarterly performance reports), Quarterly Performance Reports Q3 2010 - Q2 2013, no date; Treasury, responses to SIGTARP data calls, 10/3/2013 and 10/7/2013. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Arizona spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Arizona had drawn down $91.8 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press releases, 3/5/2010 and 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Arizona (Home) Foreclosure Prevention Funding Corporation, Hardest Hit Fund Reporting (quarterly performance reports), Quarterly Performance Reports Q3 2010 - Q2 2013, no date. 203 204 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.8 ARIZONA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 PRINCIPAL REDUCTION ASSISTANCE (MODIFICATION) 10,000 SECOND MORTGAGE ASSISTANCE COMPONENT (SECOND-LIEN REDUCTION) Peak estimate: 7,227 6/30/13 estimate: 1,849 6/30/13 program participation: 313 8,000 2,000 1,500 6,000 500 2,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation 5,000 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation UNEMPLOYMENT/UNDEREMPLOYMENT MORTGAGE ASSISTANCE COMPONENT (UNEMPLOYMENT) 6,000 Peak estimate: 1,875 6/30/13 estimate: 180 6/30/13 program participation: 59 1,000 4,000 Peak estimate: 4,140 6/30/13 estimate: 4,140 6/30/13 program participation: 1,564 4,000 3,000 Program Participation SHORT SALE ASSISTANCE COMPONENT (TRANSITION) Peak estimate: 1,200 6/30/13 estimate: 338 6/30/13 program participation: 59 2,000 1,500 1,000 2,000 500 1,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. Arizona (Home) Foreclosure Prevention Funding Corporation, Proposal, no date; Treasury and Arizona (Home) Foreclosure Prevention Funding Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 6/23/2010; Arizona (Home) Foreclosure Prevention Funding Corporation, first through eleventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 1/26/2011, 3/31/2011, 5/25/2011, 8/31/2011, 3/29/2012, 7/17/2012, 8/24/2012, 6/6/2013; Arizona (Home) Foreclosure Prevention Funding Corporation, Hardest Hit Fund Reporting (quarterly performance reports), Quarterly Performance Reports Q3 2010 - Q2 2013, no date; Treasury, responses to SIGTARP data calls, 10/3/2013 and 10/7/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 California has spent 19% of available HHF funds to help homeowners Even though Treasury obligated $1,975,334,096 of HHF funds to California, California is not getting a significant amount of these funds out the door to help homeowners with HHF.733 As of June 30, 2013, the state had drawn down $717.5 million (36%) of those funds.734 As of June 30, 2013, the state had seven HHF programs and had spent $381.6 (19% of its obligated funds) to help 26,242 individual homeowners.735,xi The remaining $57.8 million (3%) was spent on administrative expenses, and $278 million (14%) is held as cash-on-hand.736,xii At the end of 2010, California estimated that it would help as many as 101,337 homeowners with HHF but, as of June 30, 2013, had reduced that peak estimate by 30%, to 70,914. At the end of 2010, California estimated that it would provide HHF unemployment assistance to as many as 60,531 homeowners. As of June 30, 2013, California had lowered that peak estimate to 52,021 homeowners and has helped 21,522 homeowners with HHF unemployment assistance. In mid-2010, California estimated that it would provide HHF past-due payment assistance to 17,293 homeowners. As of June 30, 2013, California lowered that peak estimate to 8,830 homeowners and provided HHF past-due payment assistance to 3,695 homeowners. California has two HHF programs to modify homeowners’ mortgages with HHF principal reduction assistance: for one California estimated, at the end of 2010, that it would modify mortgages for 25,135 homeowners; and for the other, in mid2011, California estimated that it would modify mortgages for 166 homeowners. As of June 30, 2013, California lowered the peak estimate for its first program to 8,976 homeowners and had modified mortgages for 1,708 homeowners; California had not modified any mortgages with HHF principal reduction for homeowners under its second program. As of June 30, 2013, California estimated that it would provide HHF secondlien, principal reduction assistance to as many as 370 homeowners and helped 25 homeowners. California has two HHF programs to provide HHF transition assistance to homeowners: for one, in mid-2010, California estimated that it would provide HHF transition assistance to 6,471 homeowners; and for the other, in mid2011, California estimated that it would provide HHF transition assistance to 91 homeowners. As of June 30, 2013, California lowered its peak estimate for the first program to 460 and provided 309 homeowners with HHF transition assistance; California had not provided any homeowners with HHF transition assistance under its second program. Figure 3.9 shows, in aggregate, the number of homeowners estimated to xi According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xii S tates do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. 205 206 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM participate in California’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. Figure 3.10 shows California’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.11 shows the number of homeowners estimated to participate in each of California’s programs (estimated program participation) and the reported number of homeowners who participated in each of California’s programs (program participation), as of June 30, 2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.9 FIGURE 3.10 CALIFORNIA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 CALIFORNIA USES OF $1,975.3 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) $2,000 120,000 100,000 1,500 80,000 1,000 60,000 40,000 Available: $1,975.3 Million Drawn, as of 6/30/2013: $717.5 Million Peak estimate: 101,337 6/30/2013 estimate: 70,914 6/30/2013 program participation: 27,259 Homeowners assisted: 26,242 500 20,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. CalHFA Mortgage Assistance Corporation, Proposal, no date; Treasury and CalHFA Mortgage Assistance Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 6/23/2010; CalHFA Mortgage Assistance Corporation, first through eleventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 3/31/2011, 8/3/2011, 10/28/2011, 5/3/2012, 7/17/2012, 12/14/2012, 6/6/2013, and 9/20/2013; CalHFA Mortgage Assistance Corporation, “Keep Your Home California, Reports & Statistics, Quarterly Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: California spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, California had drawn down $717.5 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press releases, 3/5/2010 and 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; CalHFA Mortgage Assistance Corporation, “Keep Your Home California, Reports & Statistics, Quarterly Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date. 207 208 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.11 CALIFORNIA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 UNEMPLOYMENT MORTGAGE ASSISTANCE PROGRAM (UNEMPLOYMENT) 100,000 80,000 Peak estimate: 60,531 6/30/13 estimate: 52,021 6/30/13 program participation: 21,522 MORTGAGE REINSTATEMENT ASSISTANCE PROGRAM (PAST-DUE PAYMENT) 20,000 60,000 15,000 40,000 10,000 20,000 5,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation 40,000 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation PRINCIPAL REDUCTION PROGRAM (MODIFICATION) 50,000 Peak estimate: 25,135 6/30/13 estimate: 8,976 6/30/13 program participation: 1,708 8,000 6,000 4,000 10,000 2,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation COMMUNITY SECOND MORTGAGE PRINCIPAL REDUCTION PROGRAM (SECOND-LIEN REDUCTION) 200 375 150 Peak estimate: 166 6/30/13 estimate: 166 6/30/13 program participation: 0 100 Peak estimate: 370 6/30/13 estimate: 370 6/30/13 program participation: 25 50 0 Program Participation LOS ANGELES HOUSING DEPARTMENT PRINCIPAL REDUCTION PROGRAM (MODIFICATION) 500 125 Peak estimate: 6,471 6/30/13 estimate: 460 6/30/13 program participation: 309 10,000 20,000 0 Program Participation TRANSITION ASSISTANCE PROGRAM (TRANSITION) 30,000 250 Peak estimate: 17,293 6/30/13 estimate: 8,830 6/30/13 program participation: 3,695 25,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation NEIGHBORWORKS SACRAMENTO SHORT SALE GATEWAY PROGRAM (TRANSITION) 200 150 Peak estimate: 91 6/30/13 estimate: 91 6/30/13 program participation: 0 100 50 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. CalHFA Mortgage Assistance Corporation, Proposal, no date; Treasury and CalHFA Mortgage Assistance Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 6/23/2010; CalHFA Mortgage Assistance Corporation, first through eleventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 3/31/2011, 8/3/2011, 10/28/2011, 5/3/2012, 7/17/2012, 12/14/2012, 6/6/2013, and 9/20/2013; CalHFA Mortgage Assistance Corporation, “Keep Your Home California, Reports & Statistics, Quarterly Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/3/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Florida has spent 13% of available HHF funds to help homeowners Even though Treasury obligated $1,057,839,136 of HHF funds to Florida, Florida is not getting a significant amount of these funds out the door to help homeowners with HHF.737 As of June 30, 2013, the state had drawn down $231.3 million (22%) of those funds.738 As of June 30, 2013, the state had three HHF programs and had spent $132.9 million (13% of its obligated funds) to help 9,745 individual homeowners.739,xiii The remaining $27.6 million (3%) was spent on administrative expenses, and $70.7 million (7%) is held as cash-on-hand.740,xiv At the start of 2011, Florida estimated that it would help as many as 106,000 homeowners with HHF but, as of June 30, 2013, had reduced that peak estimate by 14%, to 91,500. At the start of 2011, Florida estimated that it would provide HHF unemployment assistance to 53,000 homeowners. As of June 30, 2013, Florida lowered that peak estimate to 45,000 homeowners and has helped 8,760 homeowners with HHF unemployment assistance. At the start of 2011, Florida estimated that it would provide HHF past-due payment assistance to 53,000 homeowners. As of June 30, 2013, Florida lowered that peak estimate to 45,000 homeowners and provided HHF past-due payment assistance to 7,334 homeowners. In mid-2013, Florida introduced a new program to modify mortgages for an estimated 1,500 homeowners. As of June 30, 2013, no homeowners had been helped under this new HHF program. Figure 3.12 shows, in aggregate, the number of homeowners estimated to participate in Florida’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. Figure 3.13 shows Florida’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.14 shows the number of homeowners estimated to participate in each of Florida’s programs (estimated program participation) and the reported number of homeowners who participated in each of Florida’s programs (program participation), as of June 30, 2013. xiii A ccording to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xiv States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. 209 210 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.12 FIGURE 3.13 FLORIDA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 FLORIDA USES OF $1,057.8 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) 120,000 $1,200 100,000 1,000 80,000 800 Peak estimate: 106,000 6/30/2013 estimate: 91,500 6/30/2013 program participation: 16,094 Homeowners assisted: 9,745 60,000 600 40,000 400 20,000 200 0 Available: $1,057.8 Million Drawn, as of 6/30/2013: $231.3 Million 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Florida Housing Finance Corporation, Proposal, no date; Treasury and Florida Housing Finance Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 6/23/2010; Florida Housing Finance Corporation, first through eighth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 3/31/2011, 5/30/2012, 9/28/2012, 5/25/2013, and 9/20/2013; Florida Housing Finance Corporation, Florida Hardest Hit Fund (HHF) Information, Quarterly Reports, Quarterly Performance Reports Q3 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/3/2013. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Florida spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Florida had drawn down $271.3 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press releases, 3/5/2010 and 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Florida Housing Finance Corporation, Florida Hardest Hit Fund (HHF) Information, Quarterly Reports, Quarterly Performance Reports Q3 2010 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.14 FLORIDA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 UNEMPLOYMENT MORTGAGE ASSISTANCE PROGRAM (UNEMPLOYMENT) MORTGAGE LOAN REINSTATEMENT PROGRAM (PAST-DUE PAYMENT) 100,000 100,000 80,000 60,000 Peak estimate: 53,000 6/30/13 estimate: 45,000 6/30/13 program participation: 8,760 Peak estimate: 53,000 6/30/13 estimate: 45,000 6/30/13 program participation: 7,334 80,000 60,000 40,000 40,000 20,000 20,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation MODIFICATION ENABLING PILOT PROGRAM (MODIFICATION) 2,000 1,500 1,000 Peak estimate: 1,500 6/30/13 estimate: 1,500 6/30/13 program participation: 0 500 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. Florida Housing Finance Corporation, Proposal, no date; Treasury and Florida Housing Finance Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 6/23/2010; Florida Housing Finance Corporation, first through eighth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 3/31/2011, 5/30/2012, 9/28/2012, 5/25/2013, and 9/20/2013; Florida Housing Finance Corporation, Florida Hardest Hit Fund (HHF) Information, Quarterly Reports, Quarterly Performance Reports Q3 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/3/2013. 211 212 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Georgia has spent 13% of available HHF funds to help homeowners Even though Treasury obligated $339,255,819 of HHF funds to Georgia, Georgia is not getting a significant amount of these funds out the door to help homeowners with HHF.741 As of June 30, 2013, the state had drawn down $77.5 million (23%) of those funds.742 As of June 30, 2013, the state had one HHF program and had spent $42.9 million (13% of its obligated funds) to help 3,552 individual homeowners.743,xv The remaining $11 million (3%) was spent on administrative expenses, and $23.7 million (7%) is held as cash-on-hand.744,xvi Since the end of 2010, Georgia estimated that it would provide HHF unemployment assistance to as many as 18,300 homeowners and had helped 3,552 homeowners with HHF unemployment assistance, as of June 30, 2013. Figure 3.15 shows the number of homeowners estimated to participate in Georgia’s program and the number of homeowners who have been assisted, as of June 30, 2013. Figure 3.16 shows Georgia’s HHF expenditures compared with its obligated funds, as of June 30, 2013. xv According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xvi States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.15 FIGURE 3.16 GEORGIA’S MORTGAGE PAYMENT ASSISTANCE PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATION AND HOMEOWNERS ASSISTED, AS OF 6/30/2013 GEORGIA USES OF $339.3 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) $350 20,000 300 15,000 10,000 250 Peak estimate: 18,300 6/30/2013 estimate: 18,300 6/30/2013 program participation: 3,552 Homeowners assisted: 3,552 200 150 Available: $339.3 Million Drawn, as of 6/30/2013: $77.5 Million 100 5,000 50 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Notes: Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and homeowners assisted numbers. GHFA Affordable Housing Inc., Proposal, no date; Treasury and GHFA Affordable Housing Inc., Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; GHFA Affordable Housing Inc., first through fourth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 6/28/2011, and 5/3/2012; GHFA Affordable Housing Inc., HomeSafe Georgia, US Treasury Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date. Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Georgia spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Georgia had drawn down $77.5 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press release, 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; GHFA Affordable Housing Inc., HomeSafe Georgia, US Treasury Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date. 213 214 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Illinois has spent 32% of available HHF funds to help homeowners Even though Treasury obligated $445,603,557 of HHF funds to Illinois, Illinois is not getting a significant amount of these funds out the door to help homeowners with HHF.745 As of June 30, 2013, the state had drawn down $210 million (47%) of those funds.746 As of June 30, 2013, the state had three HHF programs and had spent $144.7 million (32% of its obligated funds) to help 8,838 individual homeowners.747,xvii The remaining $19.8 million (4%) was spent on administrative expenses, and $45.5 million (10%) is held as cash-on-hand.748,xviii Illinois stopped accepting new applications from struggling homeowners seeking help from their HHF programs submitted after September 30, 2013.749,xix In mid-2011, Illinois estimated that it would help as many as 29,000 homeowners with HHF but, as of June 30, 2013, reduced that peak estimate by 50%, to 14,500. At the end of 2010, Illinois estimated that it would provide HHF unemployment assistance to 27,000 homeowners. As of June 30, 2013, Illinois lowered that peak estimate to 12,000 homeowners and has helped 8,542 homeowners with HHF unemployment assistance. Illinois has two HHF programs to modify homeowners’ mortgages: for one Illinois estimated, in mid-2011, that it would modify mortgages for 2,000 homeowners; and for the other Illinois estimated, in mid-2012, that it would modify mortgages for 500 homeowners. As of June 30, 2013, Illinois’s first program modified mortgages for 209 homeowners, and its second program modified mortgages for 90 homeowners. Figure 3.17 shows, in aggregate, the number of homeowners estimated to participate in Illinois’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. Figure 3.18 shows Illinois’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.19 shows the number of homeowners estimated to participate in each of Illinois’s programs (estimated program participation) and the reported number of homeowners who participated in each of Illinois’s programs (program participation), as of June 30, 2013. xvii According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xviii States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. xix According to Treasury, Illinois is no longer accepting applications for assistance from homeowners because it determined that its allocated HHF funds would be spent on homeowners who already have been approved for HHF assistance. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.17 FIGURE 3.18 ILLINOIS ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 ILLINOIS USES OF $445.6 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) $500 30,000 25,000 400 20,000 300 15,000 10,000 Peak estimate: 29,000 6/30/2013 estimate: 14,500 6/30/2013 program participation: 8,841 Homeowners assisted: 8,838 200 Available: $445.6 Million Drawn, as of 6/30/2013: $210 Million 100 5,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Illinois Housing Development Authority, Proposal, no date; Treasury and Illinois Housing Development Authority, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Illinois Housing Development Authority, first through ninth Amendment[s] to Agreement[s], 9/29/2010, 12/16/2010, 5/11/2011, 8/3/2011, 1/25/2012, 8/2/2012, 9/28/2012, 3/8/2012, and 8/9/2013; Illinois Housing Development Authority, Illinois Hardest Hit Program, Reporting, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Illinois spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Illinois had drawn down $260 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press release, 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Illinois Housing Development Authority, Illinois Hardest Hit Program, Reporting, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. 215 216 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.19 ILLINOIS ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 HARDEST HIT FUND HOMEOWNER EMERGENCY LOAN PROGRAM (UNEMPLOYMENT) 50,000 40,000 Peak estimate: 27,000 6/30/13 estimate: 12,000 6/30/13 program participation: 8,542 30,000 MORTGAGE RESOLUTION FUND PROGRAM (MODIFICATION) 2,000 1,500 Peak estimate: 2,000 6/30/13 estimate: 2,000 6/30/13 program participation: 209 1,000 20,000 500 10,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation HOME PRESERVATION PROGRAM (MODIFICATION) 500 375 250 125 Peak estimate: 500 6/30/13 estimate: 500 6/30/13 program participation: 90 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. Illinois Housing Development Authority, Proposal, no date; Treasury and Illinois Housing Development Authority, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Illinois Housing Development Authority, first through ninth Amendment[s] to Agreement[s], 9/29/2010, 12/16/2010, 5/11/2011, 8/3/2011, 1/25/2012, 8/2/2012, 9/28/2012, 3/8/2012, and 8/9/2013; Illinois Housing Development Authority, Illinois Hardest Hit Program, Reporting, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Indiana has spent 8% of available HHF funds to help homeowners Even though Treasury obligated $221,694,139 of HHF funds to Indiana, Indiana is not getting a significant amount of these funds out the door to help homeowners with HHF.750 As of June 30, 2013, the state had drawn down $66.3 million (30%) of those funds.751 As of June 30, 2013, the state had three HHF programs and had spent $18.8 million (8% of its obligated funds) to help 1,859 individual homeowners.752,xx The remaining $8.2 million (4%) was spent on administrative expenses, and $39.4 million (18%) is held as cash-on-hand.753,xxi At the start of 2011, Indiana estimated helping as many as 16,257 homeowners with HHF but, as of June 30, 2013, reduced that peak estimate by 38%, to 10,150. At the start of 2011, Indiana estimated that it would provide HHF unemployment assistance to as many as 16,257 homeowners. As of June 30, 2013, Indiana lowered that peak estimate to 8,000 homeowners and has helped 1,859 homeowners with HHF unemployment assistance. Indiana introduced two additional HHF programs in 2013: for one Indiana estimated that it would modify mortgages for 2,000 homeowners; and for the other Indiana estimated that it would provide HHF transition assistance to 150 homeowners. As of June 30, 2013, no homeowners had been assisted under these two HHF programs. Figure 3.20 shows, in aggregate, the number of homeowners estimated to participate in Indiana’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Figure 3.21 shows Indiana’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.22 shows the number of homeowners estimated to participate in each of Indiana’s programs (estimated program participation) and the reported number of homeowners who participated in each of Indiana’s programs (program participation), as of June 30, 2013. xx According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xxi States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. 217 218 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.20 FIGURE 3.21 INDIANA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 INDIANA USES OF $221.7 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) $250 20,000 Peak estimate: 16,257 6/30/2013 estimate: 10,150 6/30/2013 program participation: 1,859 Homeowners assisted: 1,859 15,000 200 150 10,000 100 Available: $221.7 Million Drawn, as of 6/30/2013: $66.3 Million 5,000 50 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Indiana Housing and Community Development Authority, Proposal, 9/1/2010 and (amended) 2/14/2011; Treasury and Indiana Housing and Community Development Authority, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Indiana Housing and Community Development Authority, first through seventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 3/9/2011, 9/28/2011, 1/25/2012, 7/17/2012, 9/28/2012, and 3/8/2013; Indiana Housing and Community Development Authority, Indiana’s Hardest Hit Fund, Quarterly Reports to the U.S. Treasury, Quarterly Performance Reports Q2 2011 - Q2 2013, no date. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Indiana spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Indiana had drawn down $66.3 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press release, 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Indiana Housing and Community Development Authority, Indiana’s Hardest Hit Fund, Quarterly Reports to the U.S. Treasury, Quarterly Performance Reports Q2 2011 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.22 INDIANA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 HARDEST HIT FUND UNEMPLOYMENT BRIDGE PROGRAM (UNEMPLOYMENT) 25,000 20,000 15,000 Peak estimate: 16,257 6/30/13 estimate: 8,000 6/30/13 program participation: 1,859 HARDEST HIT FUND RECAST/MODIFICATION PROGRAM (MODIFICATION) 2,000 1,500 Peak estimate: 2,000 6/30/13 estimate: 2,000 6/30/13 program participation: 0 1,000 10,000 500 5,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation HARDEST HIT FUND TRANSITION ASSISTANCE PROGRAM (TRANSITION) 200 150 100 Peak estimate: 150 6/30/13 estimate: 150 6/30/13 program participation: 0 50 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. Indiana Housing and Community Development Authority, Proposal, 9/1/2010 and (amended) 2/14/2011; Treasury and Indiana Housing and Community Development Authority, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Indiana Housing and Community Development Authority, first through seventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 3/9/2011, 9/28/2011, 1/25/2012, 7/17/2012, 9/28/2012, and 3/8/2013; Indiana Housing and Community Development Authority, Indiana’s Hardest Hit Fund, Quarterly Reports to the U.S. Treasury, Quarterly Performance Reports Q2 2011 - Q2 2013, no date. 219 220 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Kentucky has spent 28% of available HHF funds to help homeowners Even though Treasury obligated $148,901,875 of HHF funds to Kentucky, Kentucky is not getting a significant amount of these funds out the door to help homeowners with HHF.754 As of June 30, 2013, the state had drawn down $64 million (43%) of those funds.755 As of June 30, 2013, the state had one HHF program and had spent $41.4 million (28% of its obligated funds) to help 4,036 individual homeowners.756,xxii The remaining $7.6 million (5%) was spent on administrative expenses, and $15 million (10%) is held as cash-on-hand.757,xxiii At the end of 2010, Kentucky estimated that it would provide HHF unemployment assistance to as many as 15,000 homeowners but, as of June 30, 2013, reduced that peak estimate by 60%, to 5,960. As of June 30, 2013, Kentucky had helped 4,036 homeowners with HHF unemployment assistance. Figure 3.23 shows the number of homeowners estimated to participate in Kentucky’s program and the number of homeowners who have been assisted, as of June 30, 2013. Figure 3.24 shows Kentucky’s HHF expenditures compared with its obligated funds, as of June 30, 2013. xxii According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xxiii States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.23 FIGURE 3.24 KENTUCKY’S UNEMPLOYMENT BRIDGE PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATION AND HOMEOWNERS ASSISTED, AS OF 6/30/2013 KENTUCKY USES OF $148.9 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) 15,000 $150 12,000 120 9,000 90 6,000 Peak estimate: 15,000 6/30/2013 estimate: 5,960 6/30/2013 program participation: 4,036 Homeowners assisted: 4,036 60 Available: $148.9 Million Drawn, as of 6/30/2013: $64 Million 30 3,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Notes: Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and homeowners assisted numbers. Kentucky Housing Corporation, Proposal, 8/31/2010; Treasury and Kentucky Housing Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Kentucky Housing Corporation, first through sixth Amendment[s] to Agreement[s], 9/29/2010, 12/16/2010, 3/31/2011, 9/28/2011, 3/3/2012, and 12/14/2012; Kentucky Housing Corporation, American Recovery and Reinvestment Act and Troubled Asset Relief Program, Kentucky Unemployment Bridge Program, Quarterly Performance Reports Q4 2010 - Q2 2013, no date. Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Kentucky spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Kentucky had drawn down $64 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press release, 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Kentucky Housing Corporation, American Recovery and Reinvestment Act and Troubled Asset Relief Program, Kentucky Unemployment Bridge Program, Quarterly Performance Reports Q4 2010 - Q2 2013, no date. 221 222 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Michigan has spent 17% of available HHF funds to help homeowners Even though Treasury obligated $498,605,738 of HHF funds to Michigan, Michigan is not getting a significant amount of these funds out the door to help homeowners with HHF.758 As of June 30, 2013, the state had drawn down $109.8 million (22%) of those funds.759 As of June 30, 2013, the state had five HHF programs and had spent $86 million (17% of its obligated funds) to help 12,706 individual homeowners.760,xxiv The remaining $14 million (3%) was spent on administrative expenses, and $9.9 million (2%) is held as cash-on-hand.761,xxv At the end of 2010, Michigan estimated that it would help as many as 49,422 homeowners with HHF, but, as of June 30, 2013, had reduced that peak estimate by 77%, to 11,477. Michigan has two HHF programs to modify homeowners’ mortgages: for one Michigan estimated, in mid-2010, that it would modify mortgages with HHF principal reduction assistance for 3,044 homeowners; and for the other, in mid2012, Michigan estimated that it would modify mortgages for 825 homeowners. As of June 30, 2013, Michigan lowered the peak estimate for its first program to 300 homeowners and had modified mortgages with HHF principal reduction assistance for 281 homeowners, and Michigan lowered the peak estimate for its second program to 295 homeowners and had modified mortgages for 39 homeowners. At the end of 2010, Michigan estimated that it would provide HHF past-due payment assistance to 21,760 homeowners. As of June 30, 2013, Michigan had lowered that peak estimate to 6,600 homeowners and provided HHF past-due payment assistance to 7,096 homeowners. At the end of 2010, Michigan estimated that it would provide HHF unemployment assistance to as many as 24,618 homeowners. As of June 30, 2013, Michigan had lowered that peak estimate to 4,282 homeowners and has helped 5,290 homeowners with HHF unemployment assistance. In 2013, Michigan introduced a new HHF program to demolish vacant properties with HHF funds but did not estimate the number of homeowners the HHF program would help or report the number of homeowners that it has helped. Figure 3.25 shows, in aggregate, the number of homeowners estimated to participate in Michigan’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Figure 3.26 shows Michigan’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.27 shows the number of homeowners estimated to participate in each of Michigan’s programs (estimated program participation) and the reported number of homeowners who participated in each of Michigan’s programs (program participation), as of June 30, 2013. xxiv According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xxv States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.25 FIGURE 3.26 MICHIGAN ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 MICHIGAN USES OF $498.6 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) 50,000 $500 40,000 400 30,000 300 20,000 200 10,000 Peak estimate: 49,422 6/30/2013 estimate: 11,477 6/30/2013 program participation: 12,706 Homeowners assisted: 12,706 Available: $498.6 Million Drawn, as of 6/30/2013: $109.8 Million 100 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. For its “Blight Elimination Program” (Demolition), Michigan neither estimated the number of homeowners it would serve nor reported the number of homeowners this program has served. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Michigan Homeowner Assistance Nonprofit Housing Corporation, Proposal, 10/15/2010; Treasury and Michigan Homeowner Assistance Nonprofit Housing Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 6/23/2010; Michigan Homeowner Assistance Nonprofit Housing Corporation, first through seventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 8/3/2011, 6/28/2012, 11/15/2012, and 6/6/2012; Michigan Homeowner Assistance Nonprofit Housing Corporation, Hardest Hit U.S. Treasury Reports, Quarterly Performance Reports Q3 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Michigan spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Michigan had drawn down $146.2 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press releases, 3/5/2010 and 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Michigan Homeowner Assistance Nonprofit Housing Corporation, Hardest Hit U.S. Treasury Reports, Quarterly Performance Reports Q3 2010 - Q2 2013, no date. 223 224 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.27 MICHIGAN ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 PRINCIPAL CURTAILMENT PROGRAM (MODIFICATION) 6,000 5,000 Peak estimate: 3,044 6/30/13 estimate: 300 6/30/13 program participation: 281 4,000 LOAN RESCUE PROGRAM (PAST-DUE PAYMENT) 25,000 20,000 15,000 3,000 10,000 2,000 5,000 1,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation 20,000 5,000 State Estimated Program Participation Program Participation MODIFICATION PLAN PROGRAM (MODIFICATION) 1,000 25,000 10,000 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation UNEMPLOYMENT MORTGAGE SUBSIDY PROGRAM (UNEMPLOYMENT) 15,000 Peak estimate: 21,760 6/30/13 estimate: 6,600 6/30/13 program participation: 7,096 750 Peak estimate: 825 6/30/13 estimate: 295 6/30/13 program participation: 39 500 Peak estimate: 24,618 6/30/13 estimate: 4,282 6/30/13 program participation: 5,290 250 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation BLIGHT ELIMINATION PROGRAM (DEMOLITION) 200 150 100 Peak estimate: 0 6/30/13 estimate: 0 6/30/13 program participation: 0 50 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. For its “Blight Elimination Program” (Demolition), Michigan neither estimated the number of homeowners it would serve nor reported the number of homeowners this program has served. Sources: States provide estimates for program participation and report program participation numbers. Michigan Homeowner Assistance Nonprofit Housing Corporation, Proposal, 10/15/2010; Treasury and Michigan Homeowner Assistance Nonprofit Housing Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 6/23/2010; Michigan Homeowner Assistance Nonprofit Housing Corporation, first through seventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 8/3/2011, 6/28/2012, 11/15/2012, and 6/6/2012; Michigan Homeowner Assistance Nonprofit Housing Corporation, Hardest Hit U.S. Treasury Reports, Quarterly Performance Reports Q3 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Mississippi has spent 16% of available HHF funds to help homeowners Even though Treasury obligated $101,888,323 of HHF funds to Mississippi, Mississippi is not getting a significant amount of these funds out the door to help homeowners with HHF.762 As of June 30, 2013, the state had drawn down $28.3 million (28%) of those funds.763 As of June 30, 2013, the state had one HHF program and had spent $16.5 million (16% of its obligated funds) to help 1,516 individual homeowners.764,xxvi The remaining $4.8 million (5%) was spent on administrative expenses, and $7 million (7%) is held as cash-on-hand.765,xxvii Since the end of 2010, Mississippi estimated that it would provide HHF unemployment assistance to as many as 3,800 homeowners and had helped 1,516 homeowners with HHF unemployment assistance, as of June 30, 2013. Figure 3.28 shows the number of homeowners estimated to participate in Mississippi’s program and the number of homeowners who have been assisted, as of June 30, 2013. Figure 3.29 shows Mississippi’s HHF expenditures compared with its obligated funds, as of June 30, 2013. xxvi According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xxvii S tates do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. 225 226 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.28 FIGURE 3.29 MISSISSIPPI’S HOME SAVER PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATION AND HOMEOWNERS ASSISTED, AS OF 6/30/2013 MISSISSIPPI USES OF $101.9 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) $120 4,000 3,500 100 3,000 80 2,500 2,000 1,500 Peak estimate: 3,800 6/30/2013 estimate: 3,800 6/30/2013 program participation: 1,516 Homeowners assisted: 1,516 60 Available: $101.9 Million Drawn, as of 6/30/2013: $28.3 Million 40 1,000 20 500 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Notes: Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and homeowners assisted numbers. Mississippi Home Corporation, Proposal, 9/1/2010; Treasury and Mississippi Home Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Mississippi Home Corporation, first through seventh Amendment[s] to Agreement[s], 9/29/2010, 12/16/2010, 12/8/2011, 9/28/2011, 1/25/2012, 9/28/2012, 4/25/2013, and 9/20/2013; Mississippi Home Corporation, Financial Disclosures, Hardest Hit Fund, HFA Performance Data Report[s], Quarterly Performance Reports Q4 2010 - Q2 2013, no date. Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Mississippi spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Mississippi had drawn down $28.3 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press release, 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Mississippi Home Corporation, Financial Disclosures, Hardest Hit Fund, HFA Performance Data Report[s], Quarterly Performance Reports Q4 2010 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 Nevada has spent 36% of available HHF funds to help homeowners Even though Treasury obligated $194,026,240 of HHF funds to Nevada, Nevada is not getting a significant amount of these funds out the door to help homeowners with HHF.766 As of June 30, 2013, the state had drawn down $98.8 million (51%) of those funds.767 As of June 30, 2013, the state had five HHF programs and had spent $69.9 million (36% of its obligated funds) to help 4,316 individual homeowners.768,xxviii The remaining $9.1 million (5%) was spent on administrative expenses, and $19.8 million (10%) is held as cash-on-hand.769,xxix In mid-2011, Nevada estimated that it would help as many as 23,556 homeowners with HHF but, as of June 30, 2013, reduced that peak estimate by 67%, to 7,766. In mid-2011, Nevada estimated that it would modify mortgages with HHF principal reduction assistance for 3,016 homeowners. As of June 30, 2013, Nevada lowered that peak estimate to 2,354 homeowners and had modified mortgages for 1,120 homeowners with HHF principal reduction assistance. At the end of 2010, Nevada estimated that it would provide HHF second-lien reduction assistance to 2,200 homeowners. As of June 30, 2013, Nevada lowered that peak estimate to 500 homeowners and provided 348 homeowners with HHF second-lien reduction assistance. In mid-2010, Nevada estimated that it would provide HHF transition assistance to 1,713 homeowners. As of June 30, 2013, Nevada lowered that peak estimate to 200 homeowners and provided 101 homeowners with HHF transition assistance. Nevada has two HHF programs to provide HHF unemployment assistance to homeowners: for one Nevada estimated, at the end of 2010, that it would provide 16,969 homeowners with HHF unemployment assistance; and for the other Nevada estimated, at the start of 2012, that it would provide 416 homeowners with HHF unemployment assistance. As of June 30, 2013, Nevada lowered the peak estimate for its first program to 4,545 homeowners and has helped 2,688 homeowners with HHF unemployment assistance, and it also lowered the peak estimate for its second program to 167 and has helped 209 homeowners with HHF unemployment assistance. Figure 3.30 shows, in aggregate, the number of homeowners estimated to participate in Nevada’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. Figure 3.31 shows Nevada’s HHF expenditures xxviii A ccording to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xxix States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. 227 228 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM compared with its obligated funds, as of June 30, 2013. Figure 3.32 show the number of homeowners estimated to participate in each of Nevada’s programs (estimated program participation) and the reported number of homeowners who participated in each of Nevada’s programs (program participation), as of June 30, 2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.30 FIGURE 3.31 NEVADA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 NEVADA USES OF $194 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) $200 25,000 20,000 150 Available: $194 Million Drawn, as of 6/30/2013: $98.8 Million 15,000 100 10,000 5,000 Peak estimate: 23,556 6/30/2013 estimate: 7,766 6/30/2013 program participation: 4,466 Homeowners assisted: 4,316 0 50 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Nevada Affordable Housing Assistance Corporation, Proposal, 6/14/2010; Treasury and Nevada Affordable Housing Assistance Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 6/23/2010; Nevada Affordable Housing Assistance Corporation, first through eleventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 4/5/2011, 5/25/2011, 10/28/2011, 12/8/2011, 2/28/2012, 6/28/2012, 9/28/2012, and 8/28/2013; Nevada Affordable Housing Assistance Corporation, Nevada Hardest Hit Fund, US Treasury Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Nevada spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Nevada had drawn down $98.8 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press releases, 3/5/2010 and 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Nevada Affordable Housing Assistance Corporation, Nevada Hardest Hit Fund, US Treasury Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. 229 230 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.32 NEVADA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 PRINCIPAL REDUCTION PROGRAM (MODIFICATION) 6,000 5,000 Peak estimate: 3,016 6/30/13 estimate: 2,354 6/30/13 program participation: 1,120 SECOND MORTGAGE REDUCTION PLAN (SECOND-LIEN REDUCTION) 6,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation 2,000 State Estimated Program Participation Peak estimate: 16,969 6/30/13 estimate: 4,545 6/30/13 program participation: 2,688 20,000 15,000 Peak estimate: 1,713 6/30/13 estimate: 200 6/30/13 program participation: 101 Program Participation MORTGAGE ASSISTANCE PROGRAM (UNEMPLOYMENT) 25,000 1,500 500 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation SHORT-SALE ACCELERATION PROGRAM (TRANSITION) 1,000 Peak estimate: 2,200 6/30/13 estimate: 500 6/30/13 program participation: 348 5,000 10,000 5,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation MORTGAGE ASSISTANCE PROGRAM ALTERNATIVE (UNEMPLOYMENT) 500 375 250 125 Peak estimate: 416 6/30/13 estimate: 167 6/30/13 program participation: 209 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. Nevada Affordable Housing Assistance Corporation, Proposal, 6/14/2010; Treasury and Nevada Affordable Housing Assistance Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 6/23/2010; Nevada Affordable Housing Assistance Corporation, first through eleventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 4/5/2011, 5/25/2011, 10/28/2011, 12/8/2011, 2/28/2012, 6/28/2012, 9/28/2012, and 8/28/2013; Nevada Affordable Housing Assistance Corporation, Nevada Hardest Hit Fund, US Treasury Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 New Jersey has spent 24% of available HHF funds to help homeowners Even though Treasury obligated $300,548,144 of HHF funds to New Jersey, New Jersey is not getting a significant amount of these funds out the door to help homeowners with HHF.770 As of June 30, 2013, the state had drawn down $133.5 million (44%) of those funds.771 As of June 30, 2013, the state had one HHF program and had spent $72.2 million (24% of its obligated funds) to help 3,621 individual homeowners.772,xxx The remaining $13.6 million (5%) was spent on administrative expenses, and $47.7 million (16%) is held as cash-on-hand.773,xxxi Since the end of 2010, New Jersey has estimated that it would provide HHF unemployment assistance to as many as 6,900 homeowners and had helped 3,621 homeowners with HHF unemployment assistance, as of June 30, 2013. Figure 3.33 shows the number of homeowners estimated to participate in New Jersey’s program and the number of homeowners who have been assisted, as of June 30, 2013. Figure 3.34 shows New Jersey’s HHF expenditures compared with its obligated funds, as of June 30, 2013. xxx According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xxxi States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. 231 232 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.33 FIGURE 3.34 NEW JERSEY’S HOMEKEEPER PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATION AND HOMEOWNERS ASSISTED, AS OF 6/30/2013 NEW JERSEY USES OF $300.5 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) 8,000 $350 7,000 300 6,000 5,000 4,000 250 Peak estimate: 6,900 6/30/2013 estimate: 6,900 6/30/2013 program participation: 3,621 Homeowners assisted: 3,621 200 150 Available: $300.5 Million Drawn, as of 6/30/2013: $133.5 Million 3,000 100 2,000 50 1,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Notes: Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and homeowners assisted numbers. New Jersey Housing and Mortgage Finance Agency, Proposal, 9/1/2010; Treasury and New Jersey Housing and Mortgage Finance Agency, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; New Jersey Housing and Mortgage Finance Agency, first through fifth Amendment[s] to Agreement[s], 9/29/2010, 12/16/2010, 8/31/2011, 1/25/2012, and 8/24/2012; New Jersey Housing and Mortgage Finance Agency, The New Jersey HomeKeeper Program, About the Program, Performance Reports, Quarterly Performance Reports Q3 2011 - Q2 2013, no date. Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: New Jersey spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, New Jersey had drawn down $133.5 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press release, 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; New Jersey Housing and Mortgage Finance Agency, The New Jersey HomeKeeper Program, About the Program, Performance Reports, Quarterly Performance Reports Q3 2011 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 North Carolina has spent 35% of available HHF funds to help homeowners Even though Treasury obligated $482,781,786 of HHF funds to North Carolina, North Carolina is not getting a significant amount of these funds out the door to help homeowners with HHF.774 As of June 30, 2013, the state had drawn down $222.4 million (46%) of those funds.775 As of June 30, 2013, the state had four HHF programs and had spent $168.2 million (35% of its obligated funds) to help 12,537 individual homeowners.776,xxxii The remaining $34.6 million (7%) was spent on administrative expenses, and $19.6 million (4%) is held as cash-on-hand.777,xxxiii In mid-2011 and as of June 30, 2013, North Carolina estimated that it would help as many as 22,290 homeowners with HHF. North Carolina has two HHF programs that would provide HHF unemployment assistance to homeowners: for one North Carolina estimated, in mid-2010 and as of June 30, 2013, that it would provide 5,750 homeowners with HHF unemployment assistance; and for the other North Carolina estimated, in mid-2011 and as of June 30, 2013, that it would provide 14,100 homeowners with HHF unemployment assistance. As of June 30, 2013, North Carolina provided unemployment assistance to 3,946 homeowners through its first program and to 8,575 homeowners through its second program. In mid-2011 and as of June 30, 2013, North Carolina estimated that it would provide HHF second-lien reduction assistance to as many as 2,000 homeowners. As of June 30, 2013, North Carolina provided 70 homeowners with HHF secondlien reduction assistance. In mid-2010 and as of June 30, 2013, North Carolina estimated that it would modify mortgages for 440 homeowners but, as of June 30, 2013, had not modified mortgages for any homeowners. Figure 3.35 shows, in aggregate, the number of homeowners estimated to participate in North Carolina’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. Figure 3.36 shows North Carolina’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.37 shows the number of homeowners estimated to participate in each of North Carolina’s programs (estimated program participation) and the reported number of homeowners who participated in each of North Carolina’s programs (program participation), as of June 30, 2013. xxxii According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xxxiii States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. 233 234 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.35 FIGURE 3.36 NORTH CAROLINA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 NORTH CAROLINA USES OF $482.8 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) 25,000 $500 20,000 400 Peak estimate: 22,290 6/30/2013 estimate: 22,290 6/30/2013 program participation: 12,591 Homeowners assisted: 12,537 15,000 300 10,000 200 5,000 100 Available: $482.8 Million Drawn, as of 6/30/2013: $222.4 Million 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. North Carolina Housing Finance Agency, Proposal, 7/23/2010; Treasury and North Carolina Housing Finance Agency, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 8/23/2010; North Carolina Housing Finance Agency, first through sixth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 5/25/2011, 1/25/2012, 8/9/2013; North Carolina Housing Finance Agency, Hardest Hit Fund & Performance Reporting, Quarterly Performance Reports Q3 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: North Carolina spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, North Carolina had drawn down $270.5 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press releases, 3/29/2010 and 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; North Carolina Housing Finance Agency, Hardest Hit Fund & Performance Reporting, Quarterly Performance Reports Q3 2010 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.37 NORTH CAROLINA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 MORTGAGE PAYMENT PROGRAM-1 (UNEMPLOYMENT) MORTGAGE PAYMENT PROGRAM-2 (UNEMPLOYMENT) 6,000 15,000 5,000 12,000 4,000 2,000 1,000 0 Peak estimate: 5,750 6/30/13 estimate: 5,750 6/30/13 program participation: 3,946 6,000 3,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation 2,000 State Estimated Program Participation Program Participation PERMANENT LOAN MODIFICATION PROGRAM (MODIFICATION) 500 1,500 500 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation SECOND MORTGAGE REFINANCE PROGRAM (SECOND-LIEN REDUCTION) 1,000 Peak estimate: 14,100 6/30/13 estimate: 14,100 6/30/13 program participation: 8,575 9,000 3,000 375 Peak estimate: 2,000 6/30/13 estimate: 2,000 6/30/13 program participation: 70 0 Peak estimate: 440 6/30/13 estimate: 440 6/30/13 program participation: 0 250 125 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. North Carolina Housing Finance Agency, Proposal, 7/23/2010; Treasury and North Carolina Housing Finance Agency, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 8/23/2010; North Carolina Housing Finance Agency, first through sixth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 5/25/2011, 1/25/2012, 8/9/2013; North Carolina Housing Finance Agency, Hardest Hit Fund & Performance Reporting, Quarterly Performance Reports Q3 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. 235 236 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Ohio has spent 25% of available HHF funds to help homeowners Even though Treasury obligated $570,395,099 of HHF funds to Ohio, Ohio is not getting a significant amount of these funds out the door to help homeowners with HHF.778 As of June 30, 2013, the state had drawn down $208.1 million (36%) of those funds.779 As of June 30, 2013, the state had seven active HHF programs and had spent $144.5 million (25% of its obligated funds) to help 11,546 individual homeowners.780,xxxiv The remaining $27 million (5%) was spent on administrative expenses, and $36.6 million (6%) is held as cash-on-hand.781,xxxv At the end of 2010, Ohio estimated that it would help as many as 63,485 homeowners with HHF but, as of June 30, 2013, reduced that peak estimate by 40%, to 38,215. At the end of 2011, Ohio estimated that it would provide HHF past-due payment assistance to 21,000 homeowners. As of June 30, 2013, Ohio lowered that peak estimate to 18,022 homeowners and provided HHF past-due payment assistance to 10,031 homeowners. At the end of 2010, Ohio estimated that it would provide HHF unemployment assistance to as many as 31,900 homeowners. As of June 30, 2013, Ohio lowered that peak estimate to 10,510 homeowners and has helped 7,392 homeowners with HHF unemployment assistance. Ohio has four HHF programs that would modify homeowners’ mortgages. For its first HHF modification program, Ohio estimated, at the end of 2012, that it would modify mortgages for 6,400 homeowners but, as of June 30, 2013, lowered that peak estimate to 5,746 homeowners and had modified mortgages for 116 homeowners. For its second HHF modification program, Ohio estimated, in mid2010, that it would modify mortgages for 2,350 homeowners but, as of June 30, 2013, lowered that peak estimate to 955 homeowners and had modified mortgages for 370 homeowners. For its third HHF modification program, Ohio estimated, at the end of 2012, that it would modify mortgages for 3,100 homeowners but, as of June 30, 2013, lowered that peak estimate to 1,982 homeowners and had modified mortgages for 79 homeowners. For its fourth HHF modification program, Ohio estimated, at the start of 2013, that it would modify mortgages for 900 homeowners but, as of June 30, 2013, had not modified mortgages for any homeowners. Ohio had two HHF programs to provide HHF transition assistance to homeowners: for one Ohio estimated, at the end of 2010, that it would provide HHF transition assistance to 4,900 homeowners; and for the other Ohio estimated, at the end of 2010, that it would provide HHF transition assistance to 6,500 homeowners. As of June 30, 2013, Ohio lowered the peak estimate for its xxxiv According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xxxv States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 first program to 100 homeowners and has provided 21 homeowners with HHF transition assistance, and Ohio reduced the peak estimate for its second program to zero and had not provided HHF transition assistance to any homeowners. Figure 3.38 shows, in aggregate, the number of homeowners estimated to participate in Ohio’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. Figure 3.39 shows Ohio’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.40 shows the number of homeowners estimated to participate in each of Ohio’s programs (estimated program participation) and the reported number of homeowners who participated in each of Ohio’s programs (program participation), as of June 30, 2013. 237 238 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.38 FIGURE 3.39 OHIO ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 OHIO USES OF $570.4 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) $600 80,000 70,000 500 60,000 400 50,000 40,000 30,000 Peak estimate: 63,485 6/30/2013 estimate: 38,215 6/30/2013 program participation: 18,009 Homeowners assisted: 11,546 Available: $570.4 Million Drawn, as of 6/30/2013: $208.1 Million 300 200 20,000 100 10,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Ohio Homeowner Assistance LLC, Proposal [revised], 4/11/2011; Treasury and Ohio Homeowner Assistance LLC, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Ohio Homeowner Assistance LLC, first through eighth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 3/31/2011, 12/8/2011, 12/14/2012, 3/22/2013, and 8/28/2013; Ohio Homeowner Assistance LLC, Save the Dream Ohio: Quarterly Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Ohio spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Ohio had drawn down $239.1 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. Ohio program expense totals for Q1 2013 through Q2 2013 are correct. However, previous quarters include up to $3.3 million in partial payments made by homeowners incorrectly credited as program assistance. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press releases, 3/29/2010 and 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 9/16/2013, 9/19/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Ohio Homeowner Assistance LLC, Save the Dream Ohio: Quarterly Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.40 OHIO ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 RESCUE PAYMENT ASSISTANCE PROGRAM Peak estimate: 21,000 (PAST-DUE PAYMENT) 25,000 6/30/13 estimate: 18,022 6/30/13 program participation: 10,031 MORTGAGE PAYMENT ASSISTANCE PROGRAM (UNEMPLOYMENT) 20,000 40,000 15,000 30,000 10,000 20,000 5,000 10,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation MODIFICATION WITH CONTRIBUTION ASSISTANCE PROGRAM (MODIFICATION) 6,000 6,000 5,000 3,000 1,500 3,000 2,000 1,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation TRANSITION ASSISTANCE PROGRAM (TRANSITION) 5,000 Peak estimate: 4,900 6/30/13 estimate: 100 6/30/13 program participation: 21 5,000 4,000 3,000 2,000 2,000 1,000 1,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation HOMEOWNER STABILIZATION ASSISTANCE PROGRAM (MODIFICATION) 5,000 Peak estimate: 3,100 6/30/13 estimate: 1,982 6/30/13 program participation: 79 6,000 3,000 0 Program Participation HOMEOWNERSHIP RETENTION ASSISTANCE (MODIFICATION) 4,000 6,000 Peak estimate: 2,350 6/30/13 estimate: 955 6/30/13 program participation: 370 4,000 Peak estimate: 6,400 6/30/13 estimate: 5,746 6/30/13 program participation: 116 0 6,000 Program Participation LIEN ELIMINATION ASSISTANCE (MODIFICATION) 7,500 4,500 Peak estimate: 31,900 6/30/13 estimate: 10,510 6/30/13 program participation: 7,392 50,000 Peak estimate: 900 6/30/13 estimate: 900 6/30/13 program participation: 0 4,000 Program Participation SHORT REFINANCE PROGRAM (TRANSITION) Peak estimate: 6,500 6/30/13 estimate: 0 6/30/13 program participation: 0 10,000 8,000 6,000 3,000 4,000 2,000 2,000 1,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. Ohio Homeowner Assistance LLC, Proposal, 8/3/2010; Treasury and Ohio Homeowner Assistance LLC, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Ohio Homeowner Assistance LLC, first through eighth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 3/31/2011, 12/8/2011, 12/14/2012, 3/22/2013, and 8/28/2013; Ohio Homeowner Assistance LLC, Save the Dream Ohio: Quarterly Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. 239 240 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Oregon has spent 48% of available HHF funds to help homeowners Treasury obligated $220,042,786 of HHF funds to Oregon.782 As of June 30, 2013, the state had drawn down $155 million (70%) of those funds.783 As of June 30, 2013, the state had six HHF programs and had spent $105.4 million (48% of its obligated funds) to help 8,579 individual homeowners.784,xxxvi The remaining $25.8 million (12%) was spent on administrative expenses, and $23.8 million (11%) is held as cash-on-hand.785,xxxvii As of mid-2010, Oregon estimated that it would help as many as 9,400 homeowners with HHF but, as of June 30, 2013, had increased that estimate to 15,280. Oregon has three HHF programs to modify homeowners’ mortgages. For its first HHF modification program, Oregon estimated, at the end of 2010, that it would modify mortgages for 2,600 homeowners but, as of June 30, 2013, Oregon had unfolded its first program, which had not modified mortgages for any homeowners. For its second HHF modification program, Oregon estimated, at the start of 2011, that it would modify mortgages for 330 homeowners and, as of June 30, 2013, had modified mortgages for 79 homeowners. For its third HHF modification program, Oregon estimated, at the start of 2013, that it would modify mortgages for 50 homeowners but, as of June 30, 2013, it had not modified mortgages for any homeowners. As of June 30, 2013, Oregon estimated that it would provide HHF unemployment assistance to 11,000 homeowners and has helped 8,186 homeowners with HHF unemployment assistance. At the end of 2011, Oregon estimated that it would provide HHF past-due payment assistance to 4,000 homeowners. As of June 30, 2013, Oregon lowered that peak estimate to 3,900 homeowners and provided HHF past-due payment assistance to 2,495 homeowners. At the end of 2010, Oregon estimated that it would provide HHF transition assistance to 2,515 homeowners. As of June 30, 2013, Oregon unfunded this program, which had not provided HHF transition assistance to any homeowners. Figure 3.41 shows, in aggregate, the number of homeowners estimated to participate in Oregon’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. Figure 3.42 shows Oregon’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.43 shows the number of homeowners estimated to participate in each of Oregon’s programs xxxvi According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xxxvii States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 (estimated program participation) and the reported number of homeowners who participated in each of Oregon’s programs (program participation), as of June 30, 2013. 241 242 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.41 FIGURE 3.42 OREGON ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 OREGON USES OF $220 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 $250 20,000 15,000 ($ MILLIONS) Peak estimate: 15,280 6/30/2013 estimate: 15,280 6/30/2013 program participation: 10,760 Homeowners assisted: 8,579 200 Available: $220 Million Drawn, as of 6/30/2013: $155 Million 150 10,000 100 5,000 50 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Oregon Affordable Housing Assistance Corporation, Proposal, no date; Treasury and Oregon Affordable Housing Assistance Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 8/3/2010; Oregon Affordable Housing Assistance Corporation, first through thirteenth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 3/31/2011, 5/25/2011, 9/28/2011, 12/8/2011, 3/29/2012, 7/17/2012, 2/6/2013, 4/25/2013, 6/6/2013, and 8/28/2013; Oregon Affordable Housing Assistance Corporation, Oregon Homeownership Stabilization Initiative, Reporting, Quarterly Performance Reports Q2 2011 - Q2 2013, no date. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Oregon spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Oregon had drawn down $155 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press releases, 3/29/2010 and 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Oregon Affordable Housing Assistance Corporation, Oregon Homeownership Stabilization Initiative, Reporting, Quarterly Performance Reports Q2 2011 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.43 OREGON ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 LOAN MODIFICATION ASSISTANCE PROGRAM (MODIFICATION) 6,000 5,000 4,000 Peak estimate: 2,600 6/30/13 estimate: 0 6/30/13 program participation: 0 MORTGAGE PAYMENT ASSISTANCE PROGRAM (UNEMPLOYMENT) 12,000 9,000 3,000 6,000 2,000 3,000 1,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation 5,000 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation LOAN PRESERVATION ASSISTANCE PROGRAM (PAST-DUE PAYMENT) 6,000 Peak estimate: 4,000 6/30/13 estimate: 3,900 6/30/13 program participation: 2,495 5,000 4,000 3,000 2,000 2,000 1,000 1,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation LOAN REFINANCE ASSISTANCE PROGRAM (MODIFICATION) 375 Peak estimate: 2,515 6/30/13 estimate: 0 6/30/13 program participation: 0 6,000 3,000 0 Program Participation TRANSITION ASSISTANCE PROGRAM (TRANSITION) 4,000 500 Peak estimate: 11,000 6/30/13 estimate: 11,000 6/30/13 program participation: 8,186 15,000 Peak estimate: 330 6/30/13 estimate: 330 6/30/13 program participation: 79 REBUILDING AMERICAN HOMEOWNERSHIP ASSISTANCE PILOT PROJECT (MODIFICATION) Peak estimate: 50 6/30/13 estimate: 50 6/30/13 program participation: 0 200 150 250 100 125 50 0 Program Participation 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. Oregon Affordable Housing Assistance Corporation, Proposal, no date; Treasury and Oregon Affordable Housing Assistance Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 8/3/2010; Oregon Affordable Housing Assistance Corporation, first through thirteenth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 3/31/2011, 5/25/2011, 9/28/2011, 12/8/2011, 3/29/2012, 7/17/2012, 2/6/2013, 4/25/2013, 6/6/2013, and 8/28/2013; Oregon Affordable Housing Assistance Corporation, Oregon Homeownership Stabilization Initiative, Reporting, Quarterly Performance Reports Q2 2011 - Q2 2013, no date. 243 244 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Rhode Island has spent 56% of available HHF funds to help homeowners Treasury obligated $79,351,573 of HHF funds to Rhode Island.786 As of June 30, 2013, the state had drawn down $54.5 million (69%) of those funds.787 As of June 30, 2013, the state had five HHF programs and had spent $44.7 million (56% of its obligated funds) to help 2,968 individual homeowners.788,xxxviii The remaining $7 million (9%) was spent on administrative expenses, and $2.8 million (4%) is held as cash-on-hand.789,xxxix According to Treasury, Rhode Island stopped accepting new applications from struggling homeowners seeking help from their HHF programs submitted after January 31, 2013.790,xl At the end of 2010, Rhode Island estimated that it would help as many as 13,125 homeowners with HHF but, as of June 30, 2013, reduced that peak estimate by 75%, to 3,331. Rhode Island has two HHF programs to modify homeowners’ mortgages: for one Rhode Island estimated, at the end of 2010, that it would modify mortgages for 3,500 homeowners; and for the other Rhode Island estimated, in mid-2011, that it would modify mortgages with HHF principal reduction assistance for 100 homeowners. As of June 30, 2013, Rhode Island lowered the peak estimate for its first program to 520 homeowners and has modified mortgages for 424 homeowners; and lowered the peak estimate for its second program to 45 homeowners and had modified mortgages with HHF principal reduction assistance for 18 homeowners. At the end of 2010, Rhode Island estimated that it would provide HHF pastdue payment assistance to 2,750 homeowners. As of June 30, 2013, Rhode Island lowered that peak estimate to 642 homeowners and provided HHF past-due payment assistance to 633 homeowners. At the end of 2010, Rhode Island estimated that it would provide HHF transition assistance to 875 homeowners. As of June 30, 2013, Rhode Island lowered that peak estimate to 66 homeowners and provided 64 homeowners with HHF transition assistance. As of June 30, 2013, Rhode Island estimated that it would provide HHF unemployment assistance to as many as 6,000 homeowners. As of June 30, 2013, Rhode Island lowered that peak estimate to 2,058 homeowners and has helped 2,058 homeowners with HHF unemployment assistance. Figure 3.44 shows, in aggregate, the number of homeowners estimated to participate in Rhode Island’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, xxxviii According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xxxix States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. xl According to Treasury, Rhode Island is no longer accepting applications for assistance from homeowners because it determined that its allocated HHF funds would be spent on homeowners who already have been approved for HHF assistance. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 as of June 30, 2013. Because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. Figure 3.45 shows Rhode Island’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure 3.46 shows the number of homeowners estimated to participate in each of Rhode Island’s programs (estimated program participation) and the reported number of homeowners who participated in each of Rhode Island’s programs (program participation), as of June 30, 2013. 245 246 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.44 FIGURE 3.45 RHODE ISLAND ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 RHODE ISLAND USES OF $79.4 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) $80 15,000 Peak estimate: 13,125 6/30/2013 estimate: 3,331 6/30/2013 program participation: 3,197 Homeowners assisted: 2,968 12,000 70 60 Available: $79.4 Million Drawn, as of 6/30/2013: $54.5 Million 50 9,000 40 6,000 30 20 3,000 10 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. Rhode Island Housing and Mortgage Finance Corporation, Proposal, 5/27/2010 and (amended) 7/22/2010; Treasury and Rhode Island Housing and Mortgage Finance Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 8/3/2010; Rhode Island Housing and Mortgage Finance Corporation, first through eighth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 5/25/2011, 1/25/2012, 3/29/2012, 12/14/2012, and 7/17/2013; Rhode Island Housing and Mortgage Finance Corporation, Hardest Hit Fund – Rhode Island, About HHFRI, Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Rhode Island spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Rhode Island had drawn down $66.5 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press releases, 3/29/2010 and 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Rhode Island Housing and Mortgage Finance Corporation, Hardest Hit Fund – Rhode Island, About HHFRI, Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.46 RHODE ISLAND ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 LOAN MODIFICATION ASSISTANCE PROGRAM (MODIFICATION) 3,500 3,000 2,500 2,000 Peak estimate: 3,500 6/30/13 estimate: 520 6/30/13 program participation: 424 TEMPORARY AND IMMEDIATE HOMEOWNER ASSISTANCE (PAST-DUE PAYMENT) 3,000 2,000 1,500 1,500 1,000 1,000 500 500 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation MOVING FORWARD ASSISTANCE (TRANSITION) 1,000 Peak estimate: 2,750 6/30/13 estimate: 642 6/30/13 program participation: 633 2,500 Peak estimate: 875 6/30/13 estimate: 66 6/30/13 program participation: 64 750 MORTGAGE PAYMENT ASSISTANCE – UNEMPLOYMENT (UNEMPLOYMENT) 6000 Peak estimate: 6,000 6/30/13 estimate: 2,058 6/30/13 program participation: 2,058 5000 4000 500 Program Participation 3000 2000 250 1000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation PRINCIPAL REDUCTION PROGRAM (MODIFICATION) 200 150 Peak estimate: 100 6/30/13 estimate: 45 6/30/13 program participation: 18 100 50 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. Rhode Island Housing and Mortgage Finance Corporation, Proposal, 5/27/2010 and (amended) 7/22/2010; Treasury and Rhode Island Housing and Mortgage Finance Corporation, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 8/3/2010; Rhode Island Housing and Mortgage Finance Corporation, first through eighth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 5/25/2011, 1/25/2012, 3/29/2012, 12/14/2012, and 7/17/2013; Rhode Island Housing and Mortgage Finance Corporation, Hardest Hit Fund – Rhode Island, About HHFRI, Reports, Quarterly Performance Reports Q4 2010 - Q2 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. 247 248 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM South Carolina has spent 23% of available HHF funds to help homeowners Even though Treasury obligated $295,431,547 of HHF funds to South Carolina, South Carolina is not getting a significant amount of these funds out the door to help homeowners with HHF.791 As of June 30, 2013, the state had drawn down $90 million (30%) of those funds.792 As of June 30, 2013, the state had four active HHF programs and had spent $69.3 million (23% of its obligated funds) to help 5,635 individual homeowners.793,xli The remaining $14.3 million (5%) was spent on administrative expenses, and $6.5 million (2%) is held as cash-on-hand.794,xlii At the end of 2010, South Carolina estimated that it would help as many as 34,100 homeowners with HHF but, as of June 30, 2013, reduced that peak estimate by 34%, to 22,400. In mid-2011, South Carolina estimated that it would provide HHF unemployment assistance to as many as 14,000 homeowners. As of June 30, 2013, South Carolina lowered that peak estimate to 6,000 homeowners and has helped 3,084 homeowners with HHF unemployment assistance. At the end of 2010, South Carolina estimated that it would provide HHF past-due payment assistance to 11,000 homeowners. As of June 30, 2013, South Carolina lowered that peak estimate to 10,000 homeowners and provided HHF past-due payment assistance to 5,437 homeowners. At the end of 2012 and as June 30, 2013, South Carolina estimated that it would modify 6,000 homeowners’ mortgages but, as of June 30, 2013, had not modified mortgages for any homeowners. At the end of 2010, South Carolina estimated that it would provide HHF transition assistance to 6,000 homeowners. As of June 30, 2013, South Carolina lowered that peak estimate to 400 homeowners and provided 87 homeowners with HHF transition assistance. In mid-2010, South Carolina estimated that it would provide HHF second-lien reduction assistance to as many as 2,600 homeowners but, as of June 30, 2013, had ended the program and not provided HHF second-lien reduction assistance to any homeowners. Figure 3.47 shows, in aggregate, the number of homeowners estimated to participate in South Carolina’s programs (estimated program participation), the reported number of homeowners who participated in one or more programs (program participation), and the total number of individual homeowners assisted, as of June 30, 2013. Because homeowners may participate in more than one program, the reported program participation numbers are higher than the total number of individual homeowners assisted. Figure 3.48 shows South Carolina’s HHF expenditures compared with its obligated funds, as of June 30, 2013. Figure xli According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xlii States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 3.49 shows the number of homeowners estimated to participate in each of South Carolina’s programs (estimated program participation) and the reported number of homeowners who participated in each of South Carolina’s programs (program participation), as of June 30, 2013. 249 250 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 3.47 FIGURE 3.48 SOUTH CAROLINA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 6/30/2013 SOUTH CAROLINA USES OF $295.4 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) $300 35,000 30,000 250 25,000 200 Available: $295.4 Million Drawn, as of 6/30/2013: $90 Million 20,000 Peak estimate: 34,100 6/30/2013 estimate: 22,400 6/30/2013 program participation: 8,608 Homeowners assisted: 5,635 15,000 150 100 10,000 50 5,000 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Program participation numbers may have double-counted individual homeowners who received assistance from more than one program in states that have more than one program. Sources: States provide estimates for program participation and report program participation and homeowners assisted numbers. SC Housing Corp., Proposal, 6/1/2010; Treasury and SC Housing Corp., Commitment to Purchase Financial Instrument and HFA Participation Agreement, 8/3/2010; SC Housing Corp., first through fifth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 8/31/2011, and 11/15/2012; SC Housing Corp., SC HELP, Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: South Carolina spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, South Carolina had drawn down $100 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press releases, 3/29/2010 and 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; SC Housing Corp., SC HELP, Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.49 SOUTH CAROLINA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 6/30/2013 MONTHLY PAYMENT ASSISTANCE PROGRAM (UNEMPLOYMENT) 15,000 6,000 3,000 12,000 Peak estimate: 14,000 6/30/13 estimate: 6,000 6/30/13 program participation: 3,084 0 9,000 6,000 3,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation 5,000 4,000 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation HAMP ASSISTANCE PROGRAM (MODIFICATION) 6,000 Peak estimate: 11,000 6/30/13 estimate: 10,000 6/30/13 program participation: 5,437 15,000 12,000 9,000 DIRECT LOAN ASSISTANCE PROGRAM (PAST-DUE PAYMENT) Program Participation PROPERTY DISPOSITION ASSISTANCE PROGRAM (TRANSITION) Peak estimate: 6,000 6/30/13 estimate: 6,000 6/30/13 program participation: 0 5,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 0 Peak estimate: 6,000 6/30/13 estimate: 400 6/30/13 program participation: 87 6,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Program Participation State Estimated Program Participation Program Participation SECOND MORTGAGE ASSISTANCE PROGRAM (SECOND-LIEN REDUCTION) 6,000 5,000 4,000 Peak estimate: 2,600 6/30/13 estimate: 0 6/30/13 program participation: 0 3,000 2,000 1,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and report program participation numbers. SC Housing Corp., Proposal, 6/1/2010; Treasury and SC Housing Corp., Commitment to Purchase Financial Instrument and HFA Participation Agreement, 8/3/2010; SC Housing Corp, first through fifth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 8/31/2011, and 11/15/2012; SC Housing Corp., SC HELP, Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. 251 252 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Tennessee has spent 23% of available HHF funds to help homeowners Even though Treasury obligated $217,315,593 of HHF funds to Tennessee, Tennessee is not getting a significant amount of these funds out the door to help homeowners with HHF.795 As of June 30, 2013, the state had drawn down $77.3 million (36%) of those funds.796 As of June 30, 2013, the state had one HHF program and had spent $50.3 million (23% of its obligated funds) to help 3,968 individual homeowners.797,xliii The remaining $9.4 million (4%) was spent on administrative expenses, and $17.5 (8%) is held as cash-on-hand.798,xliv At the end of 2011, Tennessee estimated that it would provide HHF unemployment assistance to as many as 13,500 homeowners with HHF but, as of June 30, 2013, reduced that peak estimate by 16%, to 11,300. As of June 30, 2013, Tennessee had provided HHF unemployment assistance to 3,968 homeowners. Figure 3.50 shows the number of homeowners estimated to participate in Tennessee’s program and the number of homeowners who have been assisted, as of June 30, 2013. Figure 3.51 shows Tennessee’s HHF expenditures compared with its obligated funds, as of June 30, 2013. xliii According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xliv States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.50 FIGURE 3.51 TENNESSEE’S HARDEST HIT FUND PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATION AND HOMEOWNERS ASSISTED, AS OF 6/30/2013 TENNESSEE USES OF $217.3 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) 15,000 $250 12,000 200 9,000 Peak estimate: 13,500 6/30/2013 estimate: 11,300 6/30/2013 program participation: 3,968 Homeowners assisted: 3,968 150 6,000 100 3,000 50 Available: $217.3 Million Drawn, as of 6/30/2013: $77.3 Million 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Notes: Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and homeowners assisted numbers. Tennessee Housing Development Agency, Proposal, 9/1/2010; Treasury and Tennessee Housing Development Agency, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; Tennessee Housing Development Agency, first through seventh Amendment[s] to Agreement[s], 9/29/2010, 12/16/2010, 5/25/2011, 9/28/2011, 12/8/2011, 5/3/2012, and 11/15/2012; Tennessee Housing Development Agency, Keep My Tennessee Home, Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Tennessee spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Tennessee had drawn down $77.3 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press release, 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; Tennessee Housing Development Agency, Keep My Tennessee Home, Reports, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. 253 254 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Washington, DC has spent 46% of available HHF funds to help homeowners Treasury obligated $20,697,198 of HHF funds to Washington, DC.799 As of June 30, 2013, Washington, DC had drawn down $14.1 million (68%) of those funds.800 As of June 30, 2013, Washington, DC had one HHF program and had spent $9.5 million (46% of its obligated funds) to help 537 individual homeowners.801,xlv The remaining $2.3 million (11%) was spent on administrative expenses and $2.4 million (12%) is held as cash-on-hand.802,xlvi At the end of 2010, Washington, DC estimated that it would provide HHF unemployment assistance to as many as 1,000 homeowners with HHF but, as of June 30, 2013, reduced that peak estimate by 10%, to 900. As of June 30, 2013, Washington, DC had provided HHF unemployment assistance to 537 homeowners. Figure 3.52 shows the number of homeowners estimated to participate in Washington, DC’s program and the number of homeowners who have been assisted, as of June 30, 2013. Figure 3.53 shows Washington, DC’s HHF expenditures compared with its obligated funds, as of June 30, 2013. xlv According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. xlvi States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 FIGURE 3.52 FIGURE 3.53 WASHINGTON, DC’S HOMESAVER PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATION AND HOMEOWNERS ASSISTED, AS OF 6/30/2013 WASHINGTON, DC USES OF $20.7 MILLION OF TARP FUNDS AVAILABLE FOR HHF, CUMULATIVE, AS OF 6/30/2013 ($ MILLIONS) 1,000 $25 800 20 600 Peak estimate: 1,000 6/30/2013 estimate: 900 6/30/2013 program participation: 537 Homeowners assisted: 537 15 400 10 200 5 Available: $20.7 Million Drawn, as of 6/30/2013: $14.1 Million 0 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 State Estimated Program Participation Homeowners Assisted Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Undrawn HHF Funds Homeowner Assistance Notes: Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and homeowners assisted numbers. District of Columbia Housing Finance Agency, Proposal, 9/1/2010; Treasury and District of Columbia Housing Finance Agency, Commitment to Purchase Financial Instrument and HFA Participation Agreement, 9/23/2010; District of Columbia Housing Finance Agency, first through eighth Amendment[s] to Agreement[s], 9/29/2010, 12/16/2010, 3/31/2011, 5/25/2011, 10/28/2011, 3/29/2012, 12/14/2012, and 9/20/2012; District of Columbia Housing Finance Agency, HomeSaver – A Foreclosure Prevention Program, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. Cash-on-Hand and Administrative Expenses Administrative Expenses Notes: Washington, DC spending figures as of June 30, 2013, are the most recent available. Treasury has separately published September 30, 2013, figures for amounts drawn down; as of September 30, 2013, Washington, DC had drawn down $14.1 million. Treasury did not require states to report administrative expenses until the third quarter of 2012. According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; states vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. Sources: Treasury, press release, 8/11/2010; Treasury, TARP Transactions Report, 9/29/2010; Treasury, responses to SIGTARP data calls, 12/23/2010, 3/28/2011, 6/29/2011, 10/5/2011, 1/5/2012, 4/5/2012, 7/5/2012, 10/4/2012, 11/6/2012, 1/1/2013, 4/4/2013, 7/5/2013, 10/3/2013, and 10/17/2013; Treasury, HFA Aggregate Quarterly Report Q2 2013, no date; Treasury, Transaction Report-Housing Programs, 6/27/2013; District of Columbia Housing Finance Agency, HomeSaver – A Foreclosure Prevention Program, Quarterly Performance Reports Q1 2011 - Q2 2013, no date. 255 256 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM SECT IO N 4 TARP OPERATIONS AND ADMINISTRATION 258 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 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”). OFS is responsible for administering TARP.803 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 Government.804 In addition to using permanent and interim staff, OFS relies on contractors and financial agents for legal services, investment consulting, accounting, and other key services. TARP ADMINISTRATIVE AND PROGRAM OPERATING EXPENDITURES As of September 30, 2013, Treasury has obligated $372.9 million for TARP administrative costs and $1 billion in programmatic operating expenditures for a total of $1.4 billion since the beginning of TARP. Of that, $269.5 million has been obligated in the year since September 30, 2012. According to Treasury, as of September 30, 2013, it had spent $337.7 million on TARP administrative costs and $951.1 million on programmatic operating expenditures, for a total of $1.3 billion since the beginning of TARP. Of that, $248.1 million has been spent in the year since September 30, 2012.805 Much of the work on TARP is performed by private vendors rather than Government employees. Treasury reported that as of September 30, 2013, it employs 47 career civil servants, 69 term appointees, and 24 reimbursable detailees, for a total of 140 full-time employees.806 Between TARP’s inception in 2008 and September 30, 2013, Treasury had retained 153 private vendors — 20 financial agents and 133 contractors — to help administer TARP.807 According to Treasury, as of September 30, 2013, 62 private vendors were active — 12 financial agents and 50 contractors, some with multiple contracts.808 The number of private-sector staffers who provide services under these agreements dwarfs the number of people working for OFS. According to Fannie Mae and Freddie Mac, as of June 30, 2013, together they had about 710 people dedicated to working on their TARP contracts.809 According to Treasury, as of June 30, 2013, or September 30, 2013 — the latest numbers available vary due to reporting cycles — at least another 340 people were working on other active OFS contracts, including financial agent and legal services contracts, for a total of 1,050 private-sector employees working on TARP.810 Table 4.1 provides a summary of the expenditures and obligations for TARP administrative and programmatic operating costs through September 30, 2013. The administrative costs are categorized as “personnel services” and “non-personnel services.” Table 4.2 provides a summary of OFS service contracts, which include 259 260 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM costs to hire financial agents and contractors, and obligations through September 30, 2013, excluding costs and obligations related to personnel services, travel, and transportation. TABLE 4.1 TARP ADMINISTRATIVE AND PROGRAMMATIC OBLIGATIONS AND EXPENDITURES Budget Object Class Title Obligations for Period Expenditures for Period Ending 9/30/2013 Ending 9/30/2013 Administrative Personnel Services Personnel Compensation & Benefits Total Personnel Services $120,765,753 $120,700,959 $120,765,753 $120,700,959 $2,355,654 $2,340,078 11,960 11,960 786,273 711,510 402 402 246,865,999 212,080,097 1,828,680 1,624,495 253,286 243,907 — — Non-Personnel Services Travel & Transportation of Persons Transportation of Things Rents, Communications, Utilities & Misc. Charges Printing & Reproduction Other Services Supplies & Materials Equipment Land & Structures Insurance Claims & Indemnities — — 634 634 $252,102,888 $217,013,083 Dividends and Interest Total Non-Personnel Services $372,868,641 $337,714,041 Programmatic Total Administrative $1,015,981,777 $951,088,650 Total Administrative and Programmatic $1,388,850,418 $1,288,802,691 Notes: Numbers may not total due to rounding. The cost associated with “Other Services” under TARP Administrative Expenditures and Obligations are composed of administrative services including financial, administrative, IT, and legal (non-programmatic) support. Amounts are cumulative since the beginning of TARP. Source: Treasury, responses to SIGTARP data call, 10/10/2013 and 10/16/2013. FINANCIAL AGENTS EESA requires SIGTARP to provide biographical information for each person or entity hired to manage assets acquired through TARP.811 Treasury hired no new financial agents in the quarter ended September 30, 2013.812 261 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 TABLE 4.2 OFS SERVICE CONTRACTS Date Vendor Purpose 10/10/2008 Simpson Thacher & Bartlett MNP LLP Legal services for the implementation of TARP 10/11/2008 Ennis Knupp & Associates Inc.1 10/14/2008 10/16/2008 Type of Transaction Obligated Value Expended Value Contract $931,090 $931,090 Investment and Advisory Services Contract 2,635,827 2,635,827 The Bank of New York Mellon Corporation Custodian FAA Listing 54,627,204 54,265,824 PricewaterhouseCoopers, LLP Internal control services Contract 34,980,857 33,505,992 10/17/2008 Turner Consulting Group, Inc.2 For process mapping consultant services Interagency Agreement 9,000 — 10/18/2008 Ernst & Young LLP Accounting Services Contract 14,550,519 13,640,626 10/29/2008 Hughes Hubbard & Reed LLP Legal services for the Capital Purchase Program Contract 3,060,921 2,835,357 10/29/2008 Squire Sanders & Dempsey LLP Legal services for the Capital Purchase Program Contract 2,687,999 2,687,999 10/31/2008 Lindholm & Associates, Inc. Human resources services Contract 614,963 614,963 11/7/2008 Sonnenschein Nath & Rosenthal LLP4 Legal services related to auto industry loans Contract 2,702,441 2,702,441 11/9/2008 Internal Revenue Service Detailees Interagency Agreement 97,239 97,239 11/17/2008 Internal Revenue Service CSC Systems & Solutions LLC2 Interagency Agreement 8,095 8,095 11/25/2008 Department of the Treasury — Departmental Offices Administrative Support Interagency Agreement 16,512,820 16,131,121 12/3/2008 Trade and Tax Bureau — Treasury IAA — TTB Development, Mgmt & Operation of SharePoint Interagency Agreement 67,489 67,489 12/5/2008 Washington Post3 Subscription Interagency Agreement 395 — 12/10/2008 Sonnenschein Nath & Rosenthal LLP4 Legal services for the purchase of asset-backed securities Contract 102,769 102,769 12/10/2008 Thacher Proffitt & Wood4 Admin action to correct system issue Contract — — 12/15/2008 Office of Thrift Supervision Detailees Interagency Agreement 225,547 164,823 12/16/2008 Department of Housing and Urban Development Detailees Interagency Agreement — — 12/22/2008 Office of Thrift Supervision Detailees Interagency Agreement — — 12/24/2008 Cushman and Wakefield of VA Inc. Painting Services for TARP Offices Contract 8,841 8,841 Continued on next page 262 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM OFS SERVICE CONTRACTS (CONTINUED) Date Vendor Purpose 1/6/2009 Securities and Exchange Commission Detailees 1/7/2009 Colonial Parking Inc. 1/27/2009 Cadwalader Wickersham & Taft LLP 1/27/2009 Type of Transaction Obligated Value Expended Value Interagency Agreement $30,416 $30,416 Lease of parking spaces Contract 347,634 244,017 Bankruptcy Legal Services Contract 409,955 409,955 Whitaker Brothers Bus Machines Inc. Office Machines Contract 3,213 3,213 1/30/2009 Office of the Comptroller of the Currency Detailees Interagency Agreement 501,118 501,118 2/2/2009 Government Accountability Office IAA — GAO required by P.L. 110343 to conduct certain activities related to TARP IAA Interagency Agreement 7,459,049 7,459,049 2/3/2009 Internal Revenue Service2 Detailees Interagency Agreement 242,499 242,499 2/9/2009 Pat Taylor & Associates, Inc. Temporary Services for Document Production, FOIA assistance, and Program Support Contract 692,108 692,108 2/12/2009 Locke Lord Bissell & Liddell LLP Initiate Interim Legal Services in support of Treasury Investments under EESA Contract 272,225 272,225 2/18/2009 Fannie Mae Homeownership Preservation Program Financial Agent 403,961,037 395,516,902 2/18/2009 Freddie Mac Homeownership Preservation Program Financial Agent 284,926,162 270,456,430 2/20/2009 Financial Clerk U.S. Senate Congressional Oversight Panel Interagency Agreement 3,394,348 3,394,348 2/20/2009 Office of Thrift Supervision Detailees Interagency Agreement 203,390 189,533 2/20/2009 Simpson Thacher & Bartlett MNP LLP Capital Assistance Program (I) Contract 1,530,023 1,530,023 2/20/2009 Venable LLP Capital Assistance Program (II) Legal Services Contract 1,394,724 1,394,724 2/26/2009 Securities and Exchange Commission Detailees Interagency Agreement 18,531 18,531 2/27/2009 Pension Benefit Guaranty Corporation Rothschild, Inc. Interagency Agreement 7,750,000 7,750,000 3/6/2009 The Boston Consulting Group Inc. Management Consulting relating to the Auto industry Contract 866,169 866,169 3/16/2009 Earnest Partners Small Business Assistance Program Financial Agent 2,947,780 2,947,780 3/30/2009 Bingham McCutchen LLP5 SBA Initiative Legal Services — Contract Novated from TOFS09-D-0005 with McKee Nelson Contract 273,006 143,893 3/30/2009 Cadwalader Wickersham & Taft LLP Auto Investment Legal Services Contract 17,392,800 17,392,800 3/30/2009 Haynes and Boone, LLP Auto Investment Legal Services Contract 345,746 345,746 Continued on next page 263 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 OFS SERVICE CONTRACTS (CONTINUED) Date Vendor Purpose 3/30/2009 McKee Nelson LLP5 SBA Initiative Legal Services — Contract Novated to TOFS10-D-0001 with Bingham McCutchen LLP 3/30/2009 Sonnenschein Nath & Rosenthal LLP4 3/31/2009 Type of Transaction Obligated Value Expended Value Contract $149,349 $126,631 Auto Investment Legal Services Contract 1,834,193 1,834,193 FI Consulting Inc. Credit Reform Modeling and Analysis Contract 4,865,419 3,830,691 4/3/2009 American Furniture Rentals Inc.3 Furniture Rental 1801 Interagency Agreement 35,190 25,812 4/3/2009 The Boston Consulting Group Inc. Management Consulting relating to the Auto industry Contract 3,975,195 3,974,923 4/17/2009 Bureau of Engraving and Printing Detailee for PTR Support Interagency Agreement 45,822 45,822 4/17/2009 Herman Miller Inc. Aeron Chairs Contract 53,799 53,799 4/21/2009 AllianceBernstein LP Asset Management Services Financial Agent 48,666,459 47,341,511 4/21/2009 FSI Group, LLC Asset Management Services Financial Agent 26,834,515 26,515,862 4/21/2009 Piedmont Investment Advisors, LLC Asset Management Services Financial Agent 12,727,955 12,536,844 4/30/2009 State Department Detailees Interagency Agreement — — 5/5/2009 Federal Reserve Board Detailees Interagency Agreement 48,422 48,422 5/13/2009 Department of the Treasury — U.S. Mint “Making Home Affordable” Logo search Interagency Agreement 325 325 5/14/2009 Knowledgebank Inc.2 Executive Search and recruiting Services — Chief Homeownership Officer Contract 124,340 124,340 5/15/2009 Phacil Inc. Freedom of Information Act (FOIA) Analysts to support the Disclosure Services, Privacy and Treasury Records Contract 90,304 90,304 5/20/2009 Securities and Exchange Commission Detailees Interagency Agreement 430,000 430,000 5/22/2009 Department of Justice — ATF Detailees Interagency Agreement 243,778 243,772 5/26/2009 Anderson, McCoy & Orta Legal services for work under Treasury’s Public-Private Investment Funds (PPIF) program Contract 2,287,423 2,287,423 5/26/2009 Simpson Thacher & Bartlett MNP LLP Legal services for work under Treasury’s Public-Private Investment Funds (PPIF) program Contract 7,849,101 3,526,529 6/9/2009 Gartner, Inc. Financial Management Services Interagency Agreement 89,436 89,436 6/29/2009 Department of the Interior Federal Consulting Group (Foresee) Interagency Agreement 49,000 49,000 Continued on next page 264 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM OFS SERVICE CONTRACTS Date Vendor 7/8/2009 Judicial Watch (CONTINUED) 6 Purpose Type of Transaction Obligated Value Expended Value Litigation Settlement Other Listing $1,500 $1,500 Contract 74,023 74,023 7/17/2009 Korn/Ferry International Executive search services for the OFS Chief Investment Officer position 7/30/2009 Cadwalader Wickersham & Taft LLP Restructuring Legal Services Contract 1,278,696 1,278,696 7/30/2009 Debevoise & Plimpton LLP Restructuring Legal Services Contract 1,650 1,650 7/30/2009 Fox, Hefter, Swibel, Levin & Carol, LLP Restructuring Legal Services Contract 26,493 26,493 8/10/2009 Department of Justice Detailees Interagency Agreement 63,109 63,109 8/10/2009 National Aeronautics and Space Administration (NASA) Detailees Interagency Agreement 140,889 140,889 8/18/2009 Mercer (US) Inc. Executive Compensation Data Subscription Contract 3,000 3,000 8/25/2009 Department of Justice Detailees Interagency Agreement 63,248 63,248 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 9/11/2009 PricewaterhouseCoopers, LLP PPIP compliance Contract 3,647,526 3,559,089 436,054 436,054 2,146 2,146 9/18/2009 Treasury Franchise Fund — BPD Administrative Support Interagency Agreement 9/28/2009 Judicial Watch6 Litigation Settlement Other Listing 9/30/2009 Immixtechnology Inc.3 EnCase eDiscovery ProSuite Interagency Agreement 210,184 — 9/30/2009 Immixtechnology Inc.3 Guidance Inc. Interagency Agreement 108,000 — 9/30/2009 NNA INC. Administrative Support Contract 8,220 8,220 9/30/2009 SNL Financial LC SNL Unlimited, a web-based financial analytics service Contract 460,000 460,000 11/9/2009 Department of the Treasury — Departmental Offices Administrative Support Interagency Agreement 18,239,373 17,772,584 12/16/2009 Internal Revenue Service Detailees Interagency Agreement — — 12/22/2009 Avondale Investments, LLC Asset Management Services Financial Agent 772,657 772,657 12/22/2009 Bell Rock Capital, LLC Asset Management Services Financial Agent 2,633,111 2,565,797 12/22/2009 Hughes Hubbard & Reed LLP Document Production services and Litigation Support Contract 1,653,289 869,755 12/22/2009 KBW Asset Management, Inc. Asset Management Services Financial Agent 4,937,433 4,937,433 12/22/2009 Lombardia Capital Partners, LLC Asset Management Services Financial Agent 3,217,866 3,217,866 12/22/2009 Paradigm Asset Management Co., LLC Asset Management Services Financial Agent 4,057,671 3,925,272 Continued on next page 265 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 OFS SERVICE CONTRACTS (CONTINUED) Date Vendor Purpose 12/22/2009 Raymond James (f/k/a Howe Barnes Hoefer & Arnett, Inc.) Asset Management Services 12/23/2009 Howe Barnes Hoefer & Arnett, Inc. 1/14/2010 Type of Transaction Obligated Value Expended Value Financial Agent $485,371 $3,388,319 Asset Management Services FAA Listing 3,124,094 3,124,094 Government Accountability Office IAA — GAO required by P.L.110343 to conduct certain activities related to TARP Interagency Agreement 7,304,722 7,304,722 1/15/2010 Association of Government Accountants CEAR Program Application Contract 5,000 5,000 2/16/2010 Internal Revenue Service Detailees Interagency Agreement 52,742 52,742 2/16/2010 The MITRE Corporation FNMA IR2 assessment — OFS task order on Treasury MITRE Contract Contract 730,192 730,192 2/18/2010 Treasury Franchise Fund — BPD Administrative Support Interagency Agreement 1,221,140 1,221,140 3/8/2010 Qualx Corporation FOIA Support Services Contract 549,528 549,528 3/12/2010 Department of the Treasury — Departmental Offices Administrative Support Interagency Agreement 671,731 671,731 3/22/2010 Gartner, Inc. Financial Management Services Interagency Agreement 73,750 73,750 3/26/2010 Federal Maritime Commission (FMC) Detailees Interagency Agreement 158,600 158,600 3/29/2010 Morgan Stanley & Co. Incorporated Disposition Agent Services Financial Agent 16,685,290 16,685,290 4/2/2010 Financial Clerk U.S. Senate Congressional Oversight Panel Interagency Agreement 4,797,556 4,797,556 4/8/2010 Squire Sanders & Dempsey LLP Housing Legal Services Contract 1,229,350 918,224 4/12/2010 Hewitt EnnisKnupp, Inc.1 Investment Consulting Services Contract 5,468,948 4,317,919 4/22/2010 Digital Management Inc. Data and Document Management Consulting Services Contract — — 4/22/2010 MicroLink LLC Data and Document Management Consulting Services Contract 15,284,135 13,751,560 4/23/2010 RDA Corporation Data and Document Management Consulting Services Contract 7,531,683 6,992,221 5/4/2010 Internal Revenue Service Training — Bulux CON 120 Interagency Agreement 1,320 1,320 5/17/2010 Lazard Fréres & Co. LLC Transaction Structuring Services Financial Agent 14,222,312 14,222,312 6/24/2010 Reed Elsevier Inc (dba LexisNexis) Accurint subscription service for one year — 4 users Contract 8,208 8,208 6/30/2010 The George Washington University Financial Institution Management & Modeling — Training course (J.Talley) Contract 5,000 5,000 7/21/2010 Navigant Consulting Inc. Program Compliance Support Services Contract 3,774,673 730,244 7/21/2010 Regis & Associates PC Program Compliance Support Services Contract 1,933,557 980,405 Continued on next page 266 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM OFS SERVICE CONTRACTS (CONTINUED) Date Vendor Purpose 7/22/2010 Ernst & Young LLP Program Compliance Support Services 7/22/2010 PricewaterhouseCoopers, LLP 7/22/2010 7/27/2010 Type of Transaction Obligated Value Expended Value Contract $9,221,312 $4,896,796 Program Compliance Support Services Contract — — Schiff Hardin LLP Housing Legal Services Contract 97,526 97,526 West Publishing Corporation Subscription Service for 4 users Contract 6,664 6,664 8/6/2010 Alston & Bird LLP Omnibus procurement for legal services Contract 1,357,061 232,482 8/6/2010 Cadwalader Wickersham & Taft LLP Omnibus procurement for legal services Contract 7,406,866 3,435,669 8/6/2010 Fox, Hefter, Swibel, Levin & Carol, LLP Omnibus procurement for legal services Contract 227,415 150,412 8/6/2010 Haynes and Boone, LLP Omnibus procurement for legal services Contract — — 8/6/2010 Hughes Hubbard & Reed LLP Omnibus procurement for legal services Contract 2,741,512 1,250,803 8/6/2010 Love & Long LLP Omnibus procurement for legal services Contract — — 8/6/2010 Orrick Herrington Sutcliffe LLP Omnibus procurement for legal services Contract — — 8/6/2010 Paul, Weiss, Rifkind, Wharton & Garrison LLP Omnibus procurement for legal services Contract 9,567,075 6,046,081 8/6/2010 Perkins Coie LLP Omnibus procurement for legal services Contract — — 8/6/2010 Seyfarth Shaw LLP Omnibus procurement for legal services Contract — — 8/6/2010 Shulman, Rogers, Gandal, Pordy & Ecker, PA Omnibus procurement for legal services Contract 367,641 213,447 8/6/2010 Sullivan Cove Reign Enterprises JV Omnibus procurement for legal services Contract — — 8/6/2010 Venable LLP Omnibus procurement for legal services Contract 498,290 1,150 8/12/2010 Knowledge Mosaic Inc. SEC filings subscription service Contract 5,000 5,000 8/30/2010 Department of Housing and Urban Development Detailees Interagency Agreement 29,915 29,915 9/1/2010 CQ-Roll Call Inc. One-year subscription (3 users) to the CQ Today Breaking News & Schedules, CQ Congressional & Financial Transcripts, CQ Custom Email Alerts Contract 7,500 7,500 9/17/2010 Bingham McCutchen LLP5 SBA 7(a) Security Purchase Program Contract 11,177 11,177 Davis Audrey Robinette Program Operations Support Services to include project management, scanning and document management and correspondence Contract 4,006,627 3,283,503 9/27/2010 Continued on next page 267 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 OFS SERVICE CONTRACTS (CONTINUED) Type of Transaction Date Vendor Purpose Obligated Value Expended Value 9/30/2010 CCH Incorporated GSA Task Order for procurement books — FAR, T&M, Government Contracts Reference, World Class Contracting Contract $2,430 $2,430 10/1/2010 Financial Clerk U.S. Senate Congressional Oversight Panel Interagency Agreement 5,200,000 2,777,752 10/8/2010 Management Concepts Inc. Training Course — CON 217 10/8/2010 Management Concepts Inc. Training Course — CON 216 Contract 1,025 1,025 Contract 1,025 1,025 10/8/2010 Management Concepts Inc. 10/8/2010 Management Concepts Inc. Training Course — CON 218 Contract 2,214 2,214 Training Course — 11107705 Contract 995 995 10/8/2010 10/8/2010 Management Concepts Inc. Training Course — Analytic Boot Contract 1,500 1,500 Management Concepts Inc. Training Course — CON 218 Contract 2,214 2,214 10/8/2010 Management Concepts Inc. Training Course — CON 217 Contract 1,025 1,025 10/8/2010 Management Concepts Inc. Training Course — CON 218 Contract 2,214 2,214 10/14/2010 Hispanic Association of Colleges & Universities Detailees Contract 12,975 12,975 10/26/2010 Government Accountability Office IAA — GAO required by P.L. 110343 to conduct certain activities related to TARP Interagency Agreement 5,600,000 3,738,195 11/8/2010 The MITRE Corporation FNMA IR2 assessment — OFS task order on Treasury MITRE Contract for cost and data validation services related to HAMP FA Contract 2,288,166 1,850,677 11/18/2010 Greenhill & Co., Inc. Structuring and Disposition Services Financial Agent 6,139,167 6,139,167 12/2/2010 Addx Corporation Acquisition Support Services — PSD TARP (action is an order against BPA) Contract 1,311,314 1,299,002 12/29/2010 Reed Elsevier Inc. (dba LexisNexis) Accurint subscription services one user Contract 684 684 1/5/2011 Canon U.S.A. Inc. Administrative Support Interagency Agreement 12,937 12,013 1/18/2011 Perella Weinberg Partners & Co. Structuring and Disposition Services Financial Agent 5,542,473 5,542,473 1/24/2011 Treasury Franchise Fund — BPD Administrative Support Interagency Agreement 1,090,860 1,090,860 1/26/2011 Association of Government Accountants CEAR Program Application Contract 5,000 5,000 2/24/2011 ESI International Inc. Mentor Program Training (call against IRS BPA) Contract 20,758 20,758 2/28/2011 Department of the Treasury — Departmental Offices Administrative Support Interagency Agreement 13,523,880 13,001,815 3/3/2011 Equilar, Inc. Executive Compensation Data Subscription Contract 59,995 59,995 3/10/2011 Mercer (US) Inc. Executive Compensation Data Subscription Contract 7,425 3,600 Continued on next page 268 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM OFS SERVICE CONTRACTS (CONTINUED) Type of Transaction Date Vendor Purpose 3/22/2011 Harrison Scott Publications Inc. Subscription Service Contract Obligated Value Expended Value $5,894 $5,894 121,000 121,000 3/28/2011 Fox News Network LLC7 Litigation Settlement Interagency Agreement 4/20/2011 Federal Reserve Bank of New York (FRBNY) HR Oversight Services Interagency Agreement 1,300,000 1,004,063 4/26/2011 PricewaterhouseCoopers, LLP Financial Services Omnibus Contract 5,810,662 3,833,611 4/27/2011 ASR Analytics LLC Financial Services Omnibus Contract 2,645,423 1,610,203 4/27/2011 Ernst & Young LLP Financial Services Omnibus Contract 1,584,282 598,039 4/27/2011 FI Consulting, Inc. Financial Services Omnibus Contract 2,812,304 2,565,946 4/27/2011 Lani Eko & Company CPAs LLC Financial Services Omnibus Contract 50,000 — 4/27/2011 MorganFranklin Corporation Financial Services Omnibus Contract 619,375 306,768 4/27/2011 Oculus Group, Inc. Financial Services Omnibus Contract 3,643,643 1,897,527 4/28/2011 Booz Allen Hamilton, Inc. Financial Services Omnibus Contract 50,000 — 4/28/2011 KPMG LLP Financial Services Omnibus Contract 50,000 — 4/28/2011 Office of Personnel Management (OPM) — Western Management Development Center Leadership Training Interagency Agreement 21,300 — 5/31/2011 Reed Elsevier Inc (dba LexisNexis) Accurint subscriptions by LexisNexis for 5 users Contract 10,433 10,262 5/31/2011 West Publishing Corporation Five (5) user subscriptions to CLEAR by West Government Solutions Contract 7,515 7,515 6/9/2011 CQ-Roll Call Inc. One year subscription to the CQ Today Breaking News & Schedules, CQ Congressional & Financial Transcripts, CQ Custom Email Alerts Contract 7,753 7,753 6/17/2011 Winvale Group LLC Anti-Fraud Protection and Monitoring Subscription Services Contract 711,698 632,686 6/24/2011 Department of the Treasury — Departmental Offices Administrative Support Interagency Agreement 660,601 660,601 7/28/2011 Internal Revenue Service — Procurement Detailee Interagency Agreement 84,234 84,234 9/9/2011 Financial Management Service FMS — NAFEO Interagency Agreement 22,755 22,755 9/12/2011 ADC LTD NM MHA Felony Certification Background Checks (BPA) Contract 447,799 339,489 9/15/2011 ABMI — All Business Machines, Inc 4 Level 4 Security Shredders and Supplies Contract 4,392 4,392 9/29/2011 Department of the Interior National Business Center, Federal Consulting Group Interagency Agreement 51,000 51,000 9/29/2011 Knowledge Mosaic Inc. Renewing TD010-F-249 SEC filings Subscription Service Contract 4,200 4,200 10/4/2011 Internal Revenue Service Detailees Interagency Agreement 168,578 84,289 10/20/2011 ABMI — All Business Machines, Inc. 4 Level 4 Security Shredders and Supplies Contract 4,827 4,827 Continued on next page 269 QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 OFS SERVICE CONTRACTS Date Vendor (CONTINUED) Purpose Type of Transaction Obligated Value Expended Value 11/3/2011 Judicial Watch Litigation Settlement Other Listing $850 $850 11/18/2011 Qualx Corporation FOIA Support Services Contract 68,006 68,006 11/29/2011 Houlihan Lokey, Inc. Transaction Structuring Services Financial Agent 9,650,000 8,786,290 12/20/2011 The Allison Group LLC Pre-Program and Discovery Process Team Building Contract 19,065 19,065 12/30/2011 Department of the Treasury Administrative Support Interagency Agreement 901,433 899,268 12/30/2011 Department of the Treasury — Departmental Offices Administrative Support Interagency Agreement 15,098,746 10,127,276 1/4/2012 Government Accountability Office IAA — GAO required by P.L. 110343 to conduct certain activities related to TARP IAA Interagency Agreement 2,500,000 2,475,937 1/5/2012 Office of Personnel Management (OPM) — Western Management Development Center Office of Personnel Management (OPM) — Western Management Development Center Interagency Agreement 31,088 — 2/2/2012 Moody’s Analytics Inc. ABS/MBS Data Subscription Services Contract 2,769,000 2,407,125 2/7/2012 Greenhill & Co., LLC Structuring and Disposition Services Financial Agent 1,855,000 1,680,000 2/14/2012 Association of Govt Accountants CEAR Program Application Contract 5,000 5,000 2/27/2012 Diversified Search LLC CPP Board Placement Services Contract 346,112 296,112 3/6/2012 Integrated Federal Solutions, Inc. TARP Acquisition Support (BPA) Contract 1,949,620 1,356,638 3/14/2012 Department of Interior National Business Center, Federal Consulting Group Interagency Agreement 57,500 26,000 3/30/2012 Department of the Treasury — Departmental Offices WCF Administrative Support Interagency Agreement 1,137,451 950,816 3/30/2012 E-Launch Multimedia, Inc. Subscription Service Contract — — 4/2/2012 Cartridge Technology, Inc. Maintenance Agreement for Canon ImageRunner Contract 15,692 10,461 5/10/2012 Equilar Inc. Executive Compensation Data Subscription Contract 44,995 44,995 6/12/2012 Department of Justice Detailees Interagency Agreement 1,737,884 252,702 6/15/2012 Qualx Corporation FOIA Support Services Contract 104,112 96,089 6/30/2012 West Publishing Corporation Subscription for Anti Fraud Unit to Perform Background Research Contract 8,660 8,660 7/26/2012 Knowledge Mosaic Inc. SEC filings subscription service Contract 4,750 4,750 4,303 4,303 3,897 3,897 6 8/1/2012 Internal Revenue Service Training Interagency Agreement 8/3/2012 Harrison Scott Publications Inc. Subscription to Commercial Mortgage Alert Online Service Contract 9/19/2012 Treasury Franchise Fund — BPD Administrative Resource Center (ARC) Interagency Agreement 826,803 826,803 9/28/2012 SNL Financial LC Data Subscription Services for Financial, Regulatory, and Market Data and Services Contract 180,000 180,000 Continued on next page 270 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM OFS SERVICE CONTRACTS (CONTINUED) Type of Transaction Date Vendor Purpose Obligated Value Expended Value 11/19/2012 Government Accountability Office Oversight services Interagency Agreement $2,400,000 $2,270,330 12/13/2012 Association of Government Accountants CEAR Program Application Contract 5,000 5,000 12/19/2012 Department of the Treasury — Departmental Offices Administrative Support Interagency Agreement 12,884,112 10,278,730 1/1/2013 Lazard Fréres & Co. LLC Asset Management Services Financial Agent 2,250,000 2,250,000 1/1/2013 Lazard Fréres & Co. LLC Legal Advisory Financial Agent 4,500,000 3,375,000 2/13/2013 2/14/2013 Mercer (US) Inc. Personnel detail Contract 4,050 — Neighborhood Investment Corp Foreclosure Prevention under MHA Contract 18,262,000 3,561,329 3/4/2013 Department of the Treasury — Departmental Offices WCF Administrative Support Interagency Agreement 1,331,732 — 3/7/2013 Department of Housing and Urban Development Research and Analysis Services Interagency Agreement 499,348 499,348 3/26/2013 Bloomberg Finance L.P. Administrative Support Contract 5,400 5,400 21,000 — 3/28/2013 Treasury Acquisition Institute Legal Advisory Interagency Agreement 5/1/2013 Internal Revenue Service Legal Services Interagency Agreement 88,854 88,854 5/10/2013 Equilar Inc. Administrative Support Contract 45,995 45,995 6/13/2013 West Publishing Corporation Administrative Support Contract 8,131 8,131 8/1/2013 Evolution Management Inc. Outplacement Services for OFS Contract 26,670 — 8/20/2013 Knowledge Mosaic Inc SEC Filings subscription service Contract 4,500 4,500 — — 8/27/2013 Bureau of Public Debt — ARC Administrative Support Interagency Agreement 8/28/2013 Bureau of Public Debt — ARC Administrative Support Interagency Agreement 3,575,805 — 9/25/2013 Treasury Franchise Fund — BPD Administrative Support Interagency Agreement 46,832 — 9/26/2013 SNL Financial Financial Data Subscription Services — Information Technology Contract 200,000 — $1,289,366,918 $1,188,330,603 Total Notes: Numbers may not total due to rounding. Table 4.2 includes all vendor contracts administered under Federal Acquisition Regulations, interagency agreements, and financial agency agreements entered into in support of OFS since the beginning of the program. The table does not include salary, benefits, travel, and other non-contract related expenses. For some contracts, $0 is obligated if no task orders have been awarded and so those contracts are not reflected in this table. 1 EnnisKnupp Contract TOFS-10-D-0004, was novated to Hewitt EnnisKnupp (TOFS-10-D-0004). 2 Awarded by other agencies on behalf of OFS and are not administered by PSD. 3 Awarded by other branches within the PSD pursuant to a common Treasury service level and subject to a reimbursable agreement with OFS. 4 Thacher Proffitt & Wood, Contract TOS09-014B, was novated to Sonnenschein Nath & Rosenthal (TOS09-014C). 5 McKee Nelson Contract, TOFS-09-D-0005, was novated to Bingham McCutchen. 6 Judicial Watch is a payment in response to a litigation claim. No contract or agreement was issued to Judicial Watch. 7 Fox News Network LLC is a payment in response to a litigation claim. No contract or agreement was issued to Fox News Network LLC. Source: Treasury, response to SIGTARP data call, 10/18/2013. S ECT I O N 5 SIGTARP RECOMMENDATIONS 272 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 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 other Federal agencies related to the Troubled Asset Relief Program (“TARP”) to facilitate transparency and effective oversight and to prevent fraud, waste, and abuse. SIGTARP has made 128 recommendations in its quarterly reports to Congress and its audit reports. This section discusses developments with respect to SIGTARP’s prior recommendations, including recommendations made since SIGTARP’s Quarterly Report to Congress dated July 24, 2013 (the “July 2013 Quarterly Report”), and, in the table at the end of this section, summarizes SIGTARP’s recommendations from past quarters and notes the extent of implementation. RECOMMENDATIONS REGARDING THE APPOINTING OF DIRECTORS TO THE BOARDS OF CPP BANKS Treasury’s responsibility did not end on the day it injected TARP funds into banks participating in TARP’s Capital Purchase Program (“CPP”). Indeed, one of the stated purposes of CPP is “to enable lenders to meet the credit needs of our nation and local communities.” Treasury’s injection of TARP funding in these smaller banks was less about preventing the collapse of the financial system, and more about ensuring that local communities have access to loans. Then-Treasury Assistant Secretary for Financial Stability Neel Kashkari remarked on December 5, 2008, that, “we firmly believe that healthy banks of all sizes should use this program to continue making credit available in their communities.” Despite TARP, many of these banks continue to suffer from the financial crisis and are having difficulty lending to their customers or repaying taxpayers’ TARP funds. Treasury has many tools available to protect taxpayers’ investments in all TARP recipients, and ensure their contribution was not wasted or in vain. Among those tools, Treasury established a contractual right to nominate directors to boards of TARP recipients who miss required dividends payments, including in TARP’s bank programs: CPP and the Community Development Capital Initiative (“CDCI”). SIGTARP is concerned that Treasury has not effectively exercised that right. SIGTARP raised this concern over two years ago, in an October 11, 2011, letter to then-Treasury Secretary Timothy F. Geithner, stressing: “Treasury should also aggressively exercise its TARP contractual rights to appoint a board member for banks that miss six or more TARP dividends or interest payments.” However, despite the value of Treasury-selected directors at TARP banks that have missed multiple TARP dividends, Treasury has rarely exercised its right to appoint directors and appears to be abandoning its efforts to enforce that right. Treasury has only appointed directors at 15 CPP banks, even though there have been at least 132 banks that had missed six or more dividend payments throughout the history of TARP, not including those banks that had missed six dividends and 273 274 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM then caught up. As of June 30, 2013, even though 85 of the 142 CPP banks with remaining principal investments had missed at least six payments, only eight of those institutions had a Treasury-appointed director. Moreover, Treasury has not appointed a director at a CPP bank since December 2012, despite its ability to do so. TARP’s purpose for ensuring that local communities have access to loans from community banks in TARP must continue to be fulfilled while the bank remains in TARP, and Treasury-appointed directors can assist in ensuring that this purpose is met. Moreover, Treasury informed SIGTARP that some TARP recipients keep Treasury-appointed directors on boards even after Treasury sells its TARP shares because of their knowledge, experience, and valuable contribution. As former Treasury official David Miller testified to Congress, these directors “provide an independent voice.” Along with independence, Treasury searches for qualified candidates who have the ability to provide effective oversight and who can “make a contribution” to the board and institution. The need for an independent and effective board member who is looking out for all shareholders’ rights, including taxpayers, continues to this day for remaining CPP banks that struggle with challenges to their condition, health or their existing board. If these challenges did not exist, these banks would have likely already repaid TARP. TARP community banks face these types of challenges even though Treasury may be contemplating selling the TARP investment at a loss. Additionally, qualified Treasury-appointed directors could provide effective governance at TARP banks, including after Treasury sells its interest, further ensuring that the taxpayers’ investment was not in vain. For example, a Treasury-appointed director’s experience and expertise could also help detect any potential mismanagement or even fraud. Treasury is giving up the value directors could provide if it does not enforce this right. Treasury has stated that its decision to appoint directors will be based on “Treasury’s evaluation of the condition and health of the institution and the functioning of its board of directors, including the information provided by the [Treasury] observers.” To help it do so, Treasury often first requests permission to send Treasury officials to observe certain CPP institutions once they miss five dividend (or interest) payments, a “proactive step” which according to Treasury’s Fact Sheet, “will help Treasury determine where the appointment of directors would be most effective.” According to Treasury, these observers are assigned to “gain a better understanding of the institution’s condition and challenges and to observe how the board is addressing the situation.” In addition, if Treasury is continuing to send observers to these board meetings, it clearly recognizes the benefits of attending the meetings. However, these Treasury officials have no voting rights or ability to impact the board’s decisions. Despite the current and ongoing value these independent directors could provide, Treasury officials recently told SIGTARP that Treasury currently has no intention of appointing directors to banks that remain in TARP’s CPP, instead focusing on auctioning its interests in the remaining CPP banks. It’s unclear why Treasury believes that the appointment of directors and its selloff of its investments in TARP’s CPP program, which could take some time and are typically at a loss, QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 are mutually exclusive. Treasury does not need to focus solely on selling off its investments in struggling banks in TARP. Even while it continues to pursue that path, Treasury could simultaneously appoint directors who could protect taxpayers’ investment and ensure that TARP’s purpose of injecting funds in community banks to ensure that communities have access to loans continues to be met while the banks remain in TARP. Treasury should not give up this valuable tool just because over the next year or so, it has plans to sell its interests in TARP’s CPP banks. After making such an important investment in community banks for nearly five years, Treasury must not turn its back on TARP banks still struggling to lend to communities. Based on our concerns that Treasury is not enforcing its contractual right to appoint directors to the boards of TARP banks or under CDCI, on September 30, 2013, SIGTARP made the following recommendations: To protect the investment taxpayers made through TARP in community banks and to ensure that these banks continue to lend in their communities which is a goal of TARP’s Capital Purchase Program, Treasury should enforce its right to appoint directors for CPP institutions that have failed to pay six or more quarterly TARP dividend or interest payments. In enforcing its right to appoint directors to the board of CPP institutions that have failed to pay six or more quarterly dividend or interest payments, Treasury should prioritize appointing directors to the board of those CPP institutions that meet one or more of the following criteria: (1) rejected Treasury’s request to send officials to observe board meetings; (2) have failed to pay a large number of TARP dividend payments or that owe the largest amount of delinquent TARP dividends; or (3) is currently subject to an order from their Federal banking regulator, particularly orders related to the health or condition of the bank or its board of directors. In addition, Treasury should use information learned from Treasury officials that have observed the bank’s board meetings to assist in prioritizing its determination of banks to which Treasury should appoint directors. To determine how to prioritize director appointments, Treasury should use the valuable information it already has gathered or could gather. For instance, as of June 30, 2013, 12 CPP institutions that received taxpayer support rejected Treasury’s request to allow a Treasury official to observe board meetings, stating excuses including a plan and desire to pay dividends soon and a fear Treasury would leak confidential information. Treasury still had principal TARP investments in nine of those institutions as of June 30, 2013. Most of the banks that rejected observers were seriously overdue in dividend payments to Treasury having not paid TARP dividends for years. Most of the banks had not paid 10 to 18 dividend payments to Treasury. It is appalling and alarming, and should be unacceptable to Treasury, that banks that needed a taxpayer-funded rescue that were not paying TARP dividends for years would reject a Treasury representative from observing board meetings. Treasury’s ability to oversee the condition, health and functioning of the boards of those banks is diminished if it cannot send officials to observe 275 276 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM the board meetings. However, when Treasury’s requests were denied, Treasury retreated from its position that these banks needed extra scrutiny rather than assuring the banks that Treasury would not leak confidential information. Treasury should prioritize appointing directors at those institutions. Treasury can also prioritize appointing directors at TARP banks that are subject to a regulatory order, particularly orders that focus on the condition or health of the bank or its board of directors. Typically these orders are publicly available. Treasury can also prioritize appointing directors at banks that have the largest number or largest amount of missed TARP dividends. In addition, Treasury can prioritize appointing directors based on information learned from the Treasury officials that have been overseeing boards and collecting information since 2010. To protect the investment taxpayers made in TARP and to ensure that institutions continue to lend in low and moderate income communities which is the goal of TARP’s Community Development Capital Initiative, Treasury should enforce its right to appoint directors to CDCI institutions that have failed to pay eight or more TARP quarterly dividend (or interest) payments. In CDCI, although at least two institutions have failed to pay more than eight quarterly payments, Treasury has not appointed directors to the boards of those institutions. As of June 30, 2013, 73 institutions remained in the CDCI program. Moreover, Treasury is not selling its investments in the CDCI program. Accordingly, Treasury should continue to support struggling CDCI recipients, including by enforcing its right to appoint directors. ADDITIONAL RECOMMENDATIONS REGARDING HOMEOWNERS REDEFAULTING ON MODIFIED MORTGAGES UNDER HAMP Since the inception of HAMP, in order to improve transparency as well as the effectiveness and efficiency of the program, SIGTARP has made a series of recommendations to Treasury regarding TARP’s signature housing program, HAMP. These recommendations address SIGTARP’s concerns about the process by which a homeowner gets into HAMP, the treatment of the homeowner while in HAMP, and the long-term sustainability of homeowners’ HAMP permanent mortgage modifications. In April 2013, SIGTARP expressed our concerns to Treasury that the number of homeowners who have redefaulted on HAMP permanent mortgage modifications is increasing at an alarming rate, leaving those homeowners more at risk of foreclosure. This trend is contrary to Treasury’s goal in creating HAMP to “help as many as 3 to 4 million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term.” Accordingly, on April 1, QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 2013, SIGTARP made various recommendations urging Treasury to curb HAMP redefaults to keep homeowners safe from losing their homes. It is a positive sign that following SIGTARP’s April 2013 recommendations that Treasury initially expressed its commitment to assessing and reducing redefault rates as much as possible, including by conducting research on the causes of redefaults. Following that, however, on July 22, 2013, Treasury posted a blog: “Understanding HAMP Re-default Rates,” explaining that “mortgage modification programs include an inherent risk of homeowner default, given the difficult situations homeowners face when they seek assistance (like job loss).” Treasury stated that a challenge of HAMP’s design was “giving as many struggling homeowners as possible the chance to keep their home while recognizing that not all will succeed.” But, despite Treasury’s understanding that redefaults would be likely, as SIGTARP indicated in April 2013, Treasury still does not understand well the reason the permanent modifications in HAMP actually failed. Instead, Treasury merely noted that “homeowners in HAMP consistently exhibit lower delinquency and re-default rates than those in private industry modifications.” As a result, on September 3, 2013, SIGTARP made three additional recommendations related to HAMP to encourage Treasury to uncover and address the root causes of HAMP redefaults: To ensure that homeowners in HAMP get sustainable relief from foreclosure, Treasury should research and analyze whether and to what extent the conduct of HAMP mortgage servicers may contribute to homeowners redefaulting on HAMP permanent mortgage modifications. To provide transparency and accountability, Treasury should publish its conclusions and determinations. Treasury should better understand the factors impacting homeowners’ ability to remain in HAMP, particularly if it involves factors where Treasury can exercise control and oversight. To do so, Treasury should include, as part of its research and analysis, the conduct of mortgage servicers participating in HAMP. Given that Treasury does not know the causes and contributing factors that lead homeowners to redefault on their HAMP permanent modification, Treasury cannot know whether conduct by any of the mortgage servicers who administer HAMP, particularly the 10 largest servicers, may be contributing to homeowners redefaulting on HAMP permanent modifications. As SIGTARP and others have reported on multiple occasions, HAMP is a program that has been plagued with servicer misconduct. Moreover, SIGTARP provided Treasury with specific ideas with regard to research and analysis related to the conduct of mortgage servicers participating in HAMP, ranging from additional servicer reporting requirements to direct outreach to homeowners who redefaulted, as to how it could conduct thorough research and analysis to bring accountability to servicers that may be contributing to this growing problem and could identify areas where Treasury can implement oversight. In response to SIGTARP’s additional September 2013 recommendations on HAMP redefaults, Treasury stated that it agrees with SIGTARP’s broad points. Treasury indicated that it will monitor servicer performance with respect to 277 278 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM income calculation, publish the results, and exercise the appropriate remedies as necessary. However, Treasury seems unwilling to fully implement this recommendation by conducting additional research because, according to Treasury, SIGTARP’s recommendation did not derive from an audit and because SIGTARP has apparently not identified specific types of servicer behavior that contribute to redefaults. It is Treasury’s responsibility to conduct meaningful oversight of its own program and of those that are participating in it. Therefore, Treasury’s research and analysis is what is needed to determine whether and to what extent the conduct of HAMP mortgage servicers may contribute to homeowners redefaulting on HAMP permanent mortgage modifications. Treasury clearly has the resources and ability to conduct its own research. In fact, as Treasury’s response to SIGTARP suggests, it has already begun and is continuing to conduct research concerning the causes of HAMP redefaults relating to the implementation of SIGTARP’s April 2013 recommendation. As with the early recommendation, this recommendation relating to redefaults of permanent HAMP loan modifications was not a direct outcome of an audit. Treasury, with no caveat, has begun to address those earlier concerns raised by SIGTARP, particularly, Treasury responded to SIGTARP’s September 2013 recommendations explaining that it is proceeding with plans to conduct a survey of borrowers who have redefaulted, the results of which will help Treasury better understand the causes of redefault. SIGTARP will continue to monitor Treasury’s progress in addressing and implementing this important recommendation. Treasury should establish an achievable benchmark for a redefault rate on HAMP permanent mortgage modifications that represents acceptable program performance and publicly report against that benchmark. In March 2010, SIGTARP issued an audit “Factors Affecting Implementation of the Home Affordable Modification Program,” in which SIGTARP reported that one of the factors that could impede HAMP’s long-term success is the impact of redefaults. As part of the March 2010 audit, SIGTARP recommended that Treasury develop a performance metric for the rates of how many homeowners fall out of the program at the trial stage prior to permanent modification, and redefault rates for permanent HAMP modifications. Treasury has not implemented SIGTARP’s important 2010 recommendation. Treasury initially had predicted that four out of every ten (40%) HAMP modifications (trial and permanent) would fail. More than three years after SIGTARP’s 2010 recommendation, Treasury has still not identified benchmarks or set goals and performance measures for each metric, particularly relating to redefaults of HAMP permanent modifications. During that time, more than half (54%) of homeowners’ HAMP modifications (trial or permanent) failed, and over a quarter (26%) of homeowners who received a HAMP permanent modification have fallen out of the program. Had Treasury measured and reported on HAMP modification performance, at least, against its initial prediction – that 40% of HAMP modifications would fail homeowners, the public would have been made QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 aware that homeowners had modifications (trial and permanent) that were failing at a rate exceeding 40 percent, and Treasury could have interceded to improve performance and lower the redefault rate. Treasury should publicly assess and report quarterly on the status of the ten largest HAMP servicers in meeting Treasury’s benchmark for an acceptable homeowner redefault rate on HAMP permanent mortgage modifications, indicate why any servicer fell short of the benchmark, require the servicer to make changes to reduce the number of homeowners who redefault in HAMP, and use enforcement remedies including withholding, permanently reducing, or clawing back incentive payments for any servicer that fails to comply in a timely manner. A clear and transparent benchmark would also make it clear to servicers where they need to improve, and allow Treasury, homeowners, and the public to evaluate a servicer’s performance. Treasury should include in its quarterly assessment of the top 10 servicers, ratings of each individual servicer’s performance on homeowners who have redefaulted measured against the benchmark that SIGTARP recommends Treasury establish. A meaningful benchmark for program performance on redefaults is essential to provide transparent standards of acceptable performance, greatly improve accountability, allow for more effective oversight, and encourage servicers to improve their performance. It is important to bring accountability and transparency to HAMP by regularly reporting on actual performance as measured against a clear and transparent benchmark and assessing why there may be a shortfall either because of servicer conduct or because of changes in their portfolios. Measuring actual performance against a known quantifiable standard is essential to gauging the true success of a servicer. It is also a necessary tool to bring accountability should servicers not be doing all that can be done to reach what Treasury determines to be the expected and achievable goal. Without such determinations, programmatic flaws may remain undetected or servicers may choose to maintain the status quo. Treasury should require any servicer falling short of the redefault benchmark to make changes necessary to reduce the number of homeowners who redefault out of HAMP. Treasury must take all necessary steps to encourage maximum performance by servicers to improve the overall performance of HAMP and increase the likelihood that the redefault rate for permanent loan modifications does not continue to climb. Measuring performance against a known standard and determining whether servicer conduct has contributed to redefaults also allows Treasury to use available enforcement remedies. Just as SIGTARP recommended in the past, Treasury should use all available financial remedies to force servicer compliance through withholding, permanently reducing, or clawing back incentive payments. As Treasury extended the HAMP application period for two years until December 31, 2015, it is crucial that Treasury fully and expeditiously implement all of SIGTARP’s recommendations addressing TARP’s housing programs to maximize TARP assistance to homeowners and to prevent taxpayers’ dollars that funded HAMP from going to waste, as Congress intended. 279 280 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury still has the opportunity to establish a meaningful benchmark and goal for homeowners who redefault. Upon doing so, Treasury could take appropriate steps to make changes to the program to reduce redefaults and ensure that HAMP helps struggling homeowners avoid foreclosure in a way that is sustainable over the long term, including by publicly assessing and reporting on the status of the 10 largest HAMP servicers in meeting Treasury’s benchmark. Treasury responded to SIGTARP’s recommendation, agreeing that establishing appropriate benchmarks and publishing servicer performance against those benchmarks is important. However, Treasury seems unwilling to specifically implement this important measure, reasoning that the lack of an industry-wide metric prevents it from doing so. First, the absence of any industry metric to measure servicer impact on redefault does not prevent Treasury from implementing SIGTARP’s recommendation. In fact, SIGTARP’s recommendation actually called on Treasury to establish an achievable benchmark for a redefault rate on HAMP permanent mortgage modifications. As Treasury has been managing HAMP for nearly five years now and is familiar with servicers’ participation in the program, it surely has gained some valuable expertise and knowledge that could be useful in developing this benchmark. Second, Treasury’s argument appears contrary to Treasury’s July blog post in which Treasury compared HAMP redefaults to the redefault rate of private sector mortgage modifications, suggesting that could serve as a valid benchmark for HAMP permanent modification redefault rates. Treasury also suggests that it cannot establish a benchmark without SIGTARP’s guidance. Again, it is up to Treasury to set performance standards for its own program and measure the participants’ performance in Treasury’s program against a benchmark that Treasury believes is achievable and sustainable. Treasury clearly has the expertise and resources to do so. In fact, Treasury’s response to this recommendation demonstrates that Treasury is already assessing performance against the redefault rate for private sector mortgage modifications and if this is the benchmark, Treasury should state it as such or develop a benchmark, as SIGTARP recommended. Because Treasury has not yet established a benchmark on HAMP permanent modification redefault rates, it has not yet implemented this recommendation. SIGTARP continues to monitor Treasury’s efforts in reducing HAMP redefault rates and looks forward to Treasury assessing and reporting on servicers’ progress toward meeting a Treasury-established benchmark. Moreover, SIGTARP does not believe that Treasury’s Servicer Assesment reports adequately address SIGTARP’s concerns. SIGTARP was fully aware of what steps Treasury has taken to date to address these issues, and if they had been sufficient, SIGTARP would not have made these recommendations. Regardless, it is a positive sign that Treasury recognizes the importance of a benchmark and Treasury should take the further step to establish one for its program against which performance can be measured and assessed. SIGTARP encourages Treasury to use its expertise and resources to fully implement these two important recommendations. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 RECOMMENDATIONS REGARDING NOT COUNTING SBLF FUNDS AS TARP “REPAYMENTS” Throughout 2011, 137 banks exited TARP by refinancing Treasury’s TARP investment into a separate taxpayer-funded investment under Treasury’s Small Business Lending Fund (“SBLF”). Those TARP banks in SBLF did not use their money to repay the $2.1 billion in TARP funds, but instead used taxpayer money to refinance. As a result, Treasury did not recover the funds by selling its TARP investment in these banks to third parties. In 2011, Senator Charles E. Grassley expressed concerns about these TARP funds, asking then-Treasury Secretary Geithner to ensure that TARP funds received through banks refinancing into SBLF “not be counted as funds ‘repaid’ to the Government.” Senator Grassley added, “To claim that TARP funds are being ‘repaid’ by government-lent SBLF funds would be an egregious example of budget gimmickry….” In response, Secretary Geithner promised, “We will also break out and report separately any TARP investments repaid using SBLF funds.” However, despite Treasury’s assurance, SIGTARP remains concerned that Treasury counts the $2.1 billion in SBLF funds as TARP funds repaid or recovered. Doing so inaccurately implies that these funds are no longer owed. SIGTARP issued a report on April 9, 2013, entitled “Banks that Used the Small Business Lending Fund to Exit TARP” (the “SBLF Report”) in which we reported, “when discussing in press releases and blog posts how much Treasury has received in TARP repayments, Treasury includes the more than $2 billion of SBLF funds that banks used to repay TARP.” It is confusing for Treasury to imply that the SBLF funding used to exit TARP has been fully recovered or repaid to taxpayers, when the funds were merely refinanced into another taxpayer-funded program. Other TARP repayments or recoveries reflect actual repayments by TARP recipients or proceeds from Treasury’s sale of the TARP investment to a non-Government third party investor. The only change that Treasury has recently made on this issue is to begin adding an explanation to its CPP press releases, blog posts, and Treasury’s Transaction Report. For example, Treasury’s May 29, 2013, press release on CPP warrant sales stated: Taxpayers have already earned a significant profit from TARP’s bank programs. Through the CPP, Treasury has recovered $271 billion to date through repayments, dividends, interest, and other income — compared to the $245 billion initially invested. Approximately $2 billion of the repayments were refinanced under the Small Business Lending Fund. Congress created the SBLF outside of TARP and required Treasury to let CPP institutions repay TARP funds by borrowing under that program. (emphasis added) Treasury’s explanation that some “repayments” came from SBLF does not remedy the concerns Senator Grassley and SIGTARP raised. 281 282 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury should not count the $2.1 billion in TARP repayment/recovery totals or call these funds “repayments” or “recoveries.” Treasury owes taxpayers fundamental, clear and accurate transparency and reporting on monies actually repaid. Although Treasury could easily decrease the amount of TARP funds repaid/ recovered by $2.1 billion in its reporting, it still has not done so. In addition, Treasury can note in its Transaction Report and in other statements discussing the amount of disbursed CPP funds that the funds are no longer outstanding under TARP because they were refinanced, rather than calling them “repayments” or “recoveries.” This is also a necessary change to bring full transparency and accuracy to Treasury’s reporting on TARP. Accordingly, SIGTARP made the following recommendation in an August 20, 2013 letter to Treasury: In order to prevent confusion, promote transparency, and present taxpayers who funded TARP with clear and accurate reporting, when Treasury discusses the amount of TARP funds (or CPP funds) recovered or repaid, Treasury should not count the $2.1 billion in TARP investments that Treasury refinanced into the Small Business Lending Fund, which is outside of TARP. Treasury responded agreeing with the goals of SIGTARP’s recommendation, stressing that it is in the public interest to make clear the amount of TARP investments that were repaid with SBLF funds. As Treasury’s also noted, “Congress specifically directed that SBLF not be a part of TARP, and thus SBLF and TARP accounts are kept separate.” However, Treasury has not agreed to implement SIGTARP’s recommendation. First, although Treasury claims to have taken steps to achieve the goals of the recommendation, SIGTARP does not believe those steps are adequate. If they were, SIGTARP’s recommendation would not have been necessary. Second, Treasury claims that it is actually prohibited from providing this additional transparency because it is required to count SBLF refinancings as “repayments” in its financial statements. Despite Treasury’s acknowledgement that adequate transparency is necessary, Treasury does not, however, explain what prevents Treasury from being wholly transparent in its various representations to the public. But Treasury does not limit itself to talking about these payments to its financial statements, and Treasury should be more transparent about the costs to taxpayers in its other statements, including in its CPP press releases, blog posts, and Treasury's Transaction Report, as SIGTARP explained. In fact, Treasury even describes these refinances in various ways in those instances, often referring to those amounts as being “recovered” rather than solely labeling them as “repayments” or amounts “repaid.” Treasury can still implement SIGTARP’s recommendation by not counting the $2.1 billion in TARP investments that Treasury refinanced into the Small Business Lending Fund, which is outside of TARP, when Treasury discusses the amount of TARP funds (or CPP funds) recovered or repaid. SIGTARP looks forward to Treasury providing this additional transparency it agrees is important. * * * * * * * * 2 3 4 5 6 7 8 9 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. Agreements with TALF participants should include an acknowledgment that: (1) they are subject to the oversight of OFS-Compliance 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. 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. 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. Treasury quickly determines its going-forward valuation methodology. Treasury should require all TARP recipients to report on the actual use of TARP funds. All existing TARP agreements, as well as those governing new transactions, should be posted on the Treasury website as soon as possible. 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 (“OFSCompliance”) 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. 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. X X X X X X X Implemented X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. * 1 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X Not Implemented TBD/NA Continued on next page This recommendation was implemented with respect to CMBS, and the Federal Reserve did not expand TALF to RMBS. The Federal Reserve adopted mechanisms that address this recommendation. 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. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 283 * * * * * * 13 14 15 16 17 18 X X X X X X Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. All TALF modeling and decisions, whether on haircuts or any other credit or fraud loss mechanisms, should account for potential losses to Government interests broadly, including TARP funds, and not just potential losses to the Federal Reserve. Treasury should not allow Legacy Securities PPIFs to invest in TALF unless significant mitigating measures are included to address these dangers. 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 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. In TALF, Treasury should require significantly higher haircuts for all MBS, with particularly high haircuts for legacy RMBS, or other equally effective mitigation efforts. 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. Treasury and the Federal Reserve should provide to SIGTARP, for public disclosure, the identity of the borrowers who surrender collateral in TALF. * 12 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. Treasury should formalize its valuation strategy and begin providing values of the TARP investments to the public. * (CONTINUED) 11 10 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X Not Implemented X X TBD/NA Continued on next page The Federal Reserve adopted mechanisms that address this recommendation with respect to CMBS, and did not expand TALF to RMBS. This recommendation was implemented with respect to CMBS, and the Federal Reserve did not expand TALF to RMBS. The Federal Reserve announced that RMBS were ineligible for TALF loans, rendering this recommendation moot. On December 1, 2010, the Federal Reserve publicly disclosed the identities of all TALF borrowers and that there had been no surrender of collateral. SIGTARP will continue to monitor disclosures if a collateral surrender takes place. Treasury has formalized its valuation strategy and regularly publishes its estimates. This recommendation was implemented with respect to CMBS, and the Federal Reserve did not expand TALF to RMBS. Comments 284 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM * * * * * 20 21 22 23 24 Treasury should require servicers in MHA to submit thirdparty verified evidence that the applicant is residing in the subject property before funding a mortgage modification. Treasury should require PPIP managers to provide most favored nation clauses to PPIF equity stakeholders, to acknowledge that they owe Treasury a fiduciary duty, and to adopt a robust ethics policy and compliance apparatus. Treasury should require that all PPIF fund managers (1) have stringent investor-screening procedures, including comprehensive “Know Your Customer” requirements at least as rigorous as that of a commercial bank or retail brokerage operation to prevent money laundering and the participation of actors prone to abusing the system, and (2) be required to provide Treasury with the identities of all 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. 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 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 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 address the confusion and uncertainty on executive compensation by immediately issuing the required regulations. (CONTINUED) X X Implemented X X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 25 * 19 Recommendation SIGTARP RECOMMENDATIONS TABLE X In Process Not Implemented X TBD/NA Continued on next page Treasury has decided to adopt this important SIGTARP recommendation. SIGTARP will monitor Treasury’s implementation of the recommendation. 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 did not impose 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. According to Treasury, OFS-Compliance has increased its staffing level and has contracted with four private firms to provide additional assistance to OFSCompliance. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 285 * * * * * 27 28 29 30 31 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. 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. In MHA, Treasury should require that verifiable, third-party information be obtained to confirm an applicant’s income before any modification payments are made. 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 applications. Additional anti-fraud protections should be adopted in MHA to verify the identity of the participants in the transaction and to address the potential for servicers to steal from individuals receiving Government subsidies without applying them for the benefit of the homeowner. In MHA, Treasury should require a closing-like procedure be conducted that would include (1) a closing warning sheet that would warn the applicant of the consequences of fraud; (2) the notarized signature and thumbprint of each participant; (3) mandatory collection, copying, and retention of copies of identification documents of all participants in the transaction; (4) verbal and written warnings regarding hidden fees and payments so that applicants are made fully aware of them; (5) the benefits to which they are entitled under the program (to prevent a corrupt servicer from collecting payments from the Government and not passing the full amount of the subsidies to the homeowners); and (6) the fact that no fee should be charged for the modification. (CONTINUED) X X Implemented X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. * 26 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X Not Implemented TBD/NA Continued on next page 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. 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 has taken steps to implement policies and conduct compliance reviews to address this recommendation. However, it remains unclear if Treasury has an appropriate method to ensure the irregularities identified in the compliance reviews are resolved. Treasury rejected SIGTARP’s recommendation for a closing-like procedure. However, since this recommendation was issued, Treasury has taken several actions to prevent fraud on the part of either MHA servicers or applicants. Comments 286 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM * 37 X Implemented X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. 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. * 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. 36 * 34 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 define appropriate metrics and an evaluation system should 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. * 33 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. (CONTINUED) 35 * 32 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X Not Implemented TBD/NA Continued on next page Treasury has refused to adopt this recommendation, relying solely on Treasury’s right to end the investment period after 12 months. That timeframe has already expired. Treasury’s failure to adopt this recommendation potentially puts significant Government funds at risk. Treasury has stated that it has developed risk and performance metrics. However, more than four years into the program, it is still not clear how Treasury will use these metrics to evaluate the PPIP managers and take appropriate action as recommended by SIGTARP. Treasury has committed to publish on a quarterly basis certain high-level 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 PPIFs. 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 servicers’ names, investor group (private, portfolio, GSE), 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. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 287 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. * * * * * * 39 40 41 42 43 44 X X X X Implemented X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. 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. 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 improve existing control systems to document the occurrence and nature of external phone calls and in-person meetings about actual and potential recipients of funding under the CPP and other similar TARP-assistance programs to which they may be part of the decision making. Treasury should more explicitly document the vote of each Investment Committee member for all decisions related to the investment of TARP funds. 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. (CONTINUED) 38 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X Not Implemented X TBD/NA Continued on next page Treasury has agreed to work closely with other Federal agencies that are involved in TARP. Treasury stated that it does not anticipate taking a substantial percentage ownership position in any other financial institution pursuant to EESA. 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. Comments 288 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury should develop other performance metrics and publicly report against them to measure over time the implementation and success of HAMP. For example, Treasury could set goals and publicly report against those goals for servicer processing times, modifications as a proportion of a servicer’s loans in default, modifications as a proportion of foreclosures generally, rates of how many borrowers fall out of the program prior to permanent modification, and re-default rates. Treasury should 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. Treasury should reconsider its position that allows servicers to substitute alternative forms of income verification based on subjective determinations by the servicer. Treasury should re-examine HAMP’s structure to ensure that it is adequately minimizing the risk of re-default stemming from non-mortgage debt, second liens, partial interest rate resets after the five-year modifications end, and from many borrowers being underwater. Treasury should institute careful screening before putting additional capital through CDCI 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. Treasury should develop a robust procedure to audit and verify the bona fides of any purported capital raise in CDCI and to establish adequate controls to verify the source, amount and closing of all claimed private investments. Treasury should revise CDCI terms to clarify that Treasury 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. 46 47 48 49 50 51 52 X X X X Implemented X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. Treasury should 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. (CONTINUED) 45 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X Not Implemented TBD/NA Continued on next page Treasury has adopted some programs to assist underwater mortgages to address concerns of negative equity but has not addressed other factors contained in this recommendation. Although Treasury has increased its reporting of servicer performance, it has not identified goals for each metric and measured performance against those goals. Treasury has not set an acceptable metric for redefaults. Despite SIGTARP’s repeated highlighting of this essential transparency and effectiveness measure, Treasury has refused to disclose clear and relevant goals and estimates for the program. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 289 Treasury should ensure that more detail is captured by the Warrant Committee meeting minutes. At a minimum, the minutes should include the members’ qualitative considerations regarding the reasons bids were accepted or rejected within fair market value ranges. Treasury should document in detail the substance of all communications with recipients concerning warrant repurchases. Treasury should develop and follow guidelines and internal controls concerning how warrant repurchase negotiations will be pursued, including the degree and nature of information to be shared with repurchasing institutions concerning Treasury’s valuation of the warrants. * * * 54 55 56 57 58 X Implemented X X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. Treasury should develop guidelines that apply consistently across TARP participants for when a violation is sufficiently material to merit reporting, or in the alternative require that all violations be reported. Treasury should promptly take steps to verify TARP participants’ conformance to their obligations, not only by ensuring that they have adequate compliance procedures but also by independently testing participants’ compliance. Treasury should consider more frequent surveys of a CDCI participant’s use of TARP funds than annually as currently contemplated. Quarterly surveys would more effectively emphasize the purpose of CDCI. (CONTINUED) 53 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X Not Implemented TBD/NA Continued on next page Treasury states that it has developed guidance and provided that guidance to the exceptional assistance participants that were remaining in TARP as of June 30, 2011. Treasury has not addressed other factors contained in this recommendation, citing its belief that materiality should be subject to a fact and circumstances review. Although Treasury largely continues to rely on self-reporting, stating that it only plans to conduct testing where they have particular concerns as to a TARP recipient’s compliance procedures or testing results, it has conducted independent testing of compliance obligations during some compliance reviews. Treasury has adopted procedures designed to address this recommendation, including a policy to discuss only warrant valuation inputs and methodologies prior to receiving a bid, generally to limit discussion to valuation ranges after receiving approval from the Warrant Committee, and to note the provision of any added information in the Committee minutes. However, Treasury believes that its existing internal controls are sufficient to ensure adequate consistency in the negotiation process. Treasury has agreed to document the dates, participants, and subject line of calls. It has refused to document the substance of such conversations. Treasury has indicated that it has implemented this recommendation. Although the detail of the minutes has improved, Treasury is still not identifying how each member of the committee casts his or her vote. Comments 290 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM When Treasury considers whether to accept an existing CPP participant into SBLF, because conditions for many of the relevant institutions have changed dramatically since they were approved for CPP, Treasury and the bank regulators should conduct a new analysis of whether the applying institution is sufficiently healthy and viable to warrant participation in SBLF. When Treasury conducts the new analysis of an institution’s health and viability, the existing CPP preferred shares should not be counted as part of the institution’s capital base. 64 65 X X X Implemented X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. Treasury should launch a broad-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 HAMP program. 63 Treasury should reconsider the length of the minimum term of HAMP’s unemployment forbearance program. 62 * Treasury should adopt a uniform appraisal process across all HAMP and HAMP-related short-sale and principal reduction programs consistent with FHA’s procedures. 61 Treasury should re-evaluate the voluntary nature of its principal reduction program and, irrespective of whether it is discretionary or mandatory, consider changes to better maximize its effectiveness, ensure to the greatest extent possible the consistent treatment of similarly situated borrowers, and address potential conflict of interest issues. 60 * For each HAMP-related program and subprogram, Treasury should publish the anticipated costs and expected participation in each and that, after each program is launched, it report monthly as to the program’s performance against these expectations. (CONTINUED) 59 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X Not Implemented X TBD/NA Continued on next page Treasury refused to adopt this recommendation, citing its belief that current CPP participants may be unfairly disadvantaged in their SBLF applications if their existing CPP investments are not counted as part of their capital base, and that SBLF “already provides substantial hurdles that CPP recipients must overcome” that don’t apply to other applicants. For more than a year, Treasury refused to adopt this recommendation, even though average U.S. terms of unemployment were lengthening. However, in July 2011, the Administration announced a policy change, and Treasury has extended the minimum term of the unemployment program from three months to 12 months, effective October 1, 2011. Treasury plans to maintain the voluntary nature of the program, providing an explanation that on its face seems unpersuasive to SIGTARP. SIGTARP will continue to monitor performance. Treasury has provided anticipated costs, but not expected participation. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 291 Treasury, as part of its due diligence concerning any proposed restructuring, recapitalization, or sale of its CPP investment to a third party, should provide to SIGTARP the identity of the CPP institution and the details of the proposed transaction. * * * * * 67 68 69 70 71 X X X X Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. OFS should adopt the legal fee bill review standards and procedures contained in the FDIC’s Outside Counsel Deskbook, or establish similarly specific instructions and guidance for OFS COTRs to use when reviewing legal fee bills, and incorporate those instructions and guidance into OFS written policies. OFS should include in its open legal service contracts detailed requirements for law firms on the preparation and submission of legal fee bills, or separately provide the instructions to law firms and modify its open contracts, making application of the instructions mandatory. OFS should adopt the legal fee bill submission standards contained in the FDIC’s Outside Counsel Deskbook, or establish similarly detailed requirements for how law firms should prepare legal fee bills and describe specific work performed in the bills, and which costs and fees are allowable and unallowable. When a CPP participant refinances into SBLF and seeks additional taxpayer funds, Treasury should provide to SIGTARP the identity of the institution and details of the proposed additional SBLF investment. Treasury should take steps to prevent institutions that are refinancing into the SBLF from CPP from securing windfall dividend reductions without any relevant increase in lending. (CONTINUED) 66 Recommendation SIGTARP RECOMMENDATIONS TABLE X In Process X Not Implemented TBD/NA Continued on next page Treasury told SIGTARP that OFS has held training on its newly adopted guidance prescribing how legal fee bills should be prepared with OFS COTRs and other staff involved in the review of legal fee bills, and that the OFS COTRs will begin reviewing invoices in accordance with its new guidance for periods starting with March 2011. OFS also stated that it incorporated relevant portions of its training on the new legal fee bill review standards into written procedures. Treasury told SIGTARP that OFS has distributed its new guidance to all law firms currently under contract to OFS. Treasury further stated that OFS will work with Treasury’s Procurement Services Division to begin modifying base contracts for OFS legal services to include those standards as well. Treasury told SIGTARP that OFS has created new guidance using the FDIC’s Outside Counsel Deskbook and other resources. Treasury refused to adopt this recommendation, suggesting that its adoption would subvert the will of Congress and that SIGTARP’s recommendation “may not be helpful” because “it is unclear that using this statutorily mandated baseline will lead to anomalies.” Comments 292 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM * * * 73 74 75 Treasury should require that MHA servicer communications with homeowners relating to changes in the status or terms of a homeowner’s modification application, trial or permanent modification, HAFA agreement, or any other significant change affecting the homeowner’s participation in the MHA program, be in writing. Treasury should ensure that more detail is captured by the MHA Compliance Committee meeting minutes. At a minimum, the minutes should include MHA-C’s proposed rating for each servicer, the committee members’ qualitative and quantitative considerations regarding each servicer’s ratings, the votes of each committee member, the final rating for each servicer, justification for any difference in that rating with MHA-C’s proposed rating, and any followup including escalation to Treasury’s Office of General Counsel or the Assistant Secretary and the outcomes of that escalation. Treasury should establish detailed guidance and internal controls governing how the MHA Servicer Compliance Assessment will be conducted and how each compliance area will be weighted. OFS should review previously paid legal fee bills to identify unreasonable or unallowable charges, and seek reimbursement for those charges, as appropriate. (CONTINUED) Implemented X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. * 72 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X Not Implemented TBD/NA Continued on next page Treasury has refused to adopt this recommendation, saying it already requires a loan servicer to communicate in writing with a borrower an average of 10 times. However, most written requirements apply to a HAMP application and Treasury’s response fails to address homeowners who receive miscommunication from servicers on important milestones or changes. Minutes of recent MHA Compliance Committee meetings contain brief explanations of servicer assessment rating decisions. However, these minutes do not explain the Committee’s deliberations in detail, do not indicate how members voted beyond a tally of the votes, and do not discuss follow-up actions or escalation. Treasury made important changes to its servicer assessments by including metrics for the ratings, including several quantitative metrics. However, qualitative metrics to assess the servicer’s internal controls in the three ratings categories remain, and guidelines or criteria for rating the effectiveness of internal controls are still necessary. Although Treasury previously agreed to implement this recommendation, Treasury only reviewed the legal fee bills for one of the five law firms that SIGTARP had already described as unreasonable. Treasury refuses to seek any reimbursement for those charges. See also Recommendation 81 concerning this issue. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 293 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. The Treasury contracting officer should disallow and seek recovery from Simpson Thacher & Bartlett LLP for $91,482 in questioned, ineligible fees and expenses paid that were not allowed under the OFS contract. Specifically, those are $68,936 for labor hours billed at rates in excess of the allowable maximums set in contract TOFS-09-0001, task order 1, and $22,546 in other direct costs not allowed under contract TOFS-09-007, task order 1. Treasury must ensure that all servicers participating in MHA comply with program requirements by vigorously enforcing the terms of the servicer participation agreements, including using all financial remedies such as withholding, permanently reducing, and clawing back incentives for servicers who fail to perform at an acceptable level. Treasury should be transparent and make public all remedial actions taken against any servicer. 80 * 78 Treasury should publicly assess the top 10 MHA servicers’ program performance against acceptable performance benchmarks in the areas of: the length of time it takes for trial modifications to be converted into permanent modifications, the conversion rate for trial modifications into permanent modifications, the length of time it takes to resolve escalated homeowner complaints, and the percentage of required modification status reports that are missing. Treasury should specifically determine the allowability of $7,980,215 in questioned, unsupported legal fees and expenses paid to the following law firms: Simpson Thacher & Bartlett LLP ($5,791,724); Cadwalader Wickersham & Taft LLP ($1,983,685); Locke Lord Bissell & Liddell LLP ($146,867); and Bingham McCutchen LLP (novated from McKee Nelson LLP, $57,939). * 77 Treasury should establish benchmarks and goals for acceptable program performance for all MHA servicers, including the length of time it takes for trial modifications to be converted into permanent modifications, the conversion rate for trial modifications into permanent modifications, the length of time it takes to resolve escalated homeowner complaints, and the percentage of required modification status reports that are missing. (CONTINUED) 79 * 76 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X X X Not Implemented TBD/NA Continued on next page Treasury neither agreed nor disagreed with the recommendation. Treasury neither agreed nor disagreed with the recommendation. Treasury has rejected this important recommendation, stating that it believes that the remedies enacted have been appropriate and that appropriate transparency exists. Treasury has rejected this recommendation, saying only that it would “continue to develop and improve the process where appropriate.” Treasury told SIGTARP that it already established benchmarks in this area, including that trial periods should last three to four months, and escalated cases should be resolved in 30 days. If these are the benchmarks for acceptable performance, many servicers have missed the mark. Also, Treasury has yet to establish a benchmark for conversion rates from trial modifications to permanent modifications. Comments 294 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury should pre-approve specified labor categories and rates of all contracted legal staff before they are allowed to work on and charge time to OFS projects. Treasury, in consultation with Federal banking regulators, should develop a clear TARP exit path to ensure that as many community banks as possible repay the TARP investment and prepare to deal with the banks that cannot. Treasury should develop criteria pertaining to restructurings, exchanges, and sales of its TARP investments (including any discount of the TARP investment, the treatment of unpaid TARP dividend and interest payments, and warrants). * * 83 84 85 Treasury should protect borrower personally identifiable information (“PII”) and other sensitive borrower information compiled for the Hardest Hit Fund (“HHF”) by: (1) requiring that within 90 days, all Housing Finance Agencies (and their contractors) (“HFAs”) participating in HHF develop and implement effective policies and procedures to ensure protection against unauthorized access, use, and disposition of PII and other sensitive borrower information; (2) Treasury reviewing each HFA’s policies and procedures to determine if they are effective, and taking such action as is required to ensure effectiveness; (3) requiring that all parties granted access to borrower information should be made aware of restrictions on copying and disclosing this information; (4) requiring annual certification by HFAs to Treasury that they are in compliance with all applicable laws, policies and procedures pertaining to borrower information; and (5) requiring that HFAs promptly notify Treasury and SIGTARP within 24 hours, when a breach of security has occurred involving borrower information. Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 86 Treasury should require in any future solicitation for legal services multiple rate categories within the various partner, counsel, and associate labor categories. The additional labor rate categories should be based on the number of years the attorneys have practiced law. 82 Treasury should assess whether it should renegotiate the terms of its Capital Purchase Program contracts for those community banks that will not be able to exit TARP prior to the dividend rate increase in order to help preserve the value of taxpayers’ investments. Treasury should promptly review all previously paid legal fee bills from all law firms with which it has a closed or open contract to identify unreasonable or unallowable charges and seek reimbursement for those charges, as appropriate. (CONTINUED) 81 Recommendation SIGTARP RECOMMENDATIONS TABLE X X In Process X X X X Not Implemented TBD/NA Continued on next page Treasury has said it will adopt this recommendation in part. Treasury did not agree to review each HFA’s policies and procedures to determine if they are effective. Also, Treasury did not require notification within 24 hours or notification to SIGTARP. SIGTARP will monitor Treasury’s efforts to implement the recommendation. Treasury rejected this recommendation without ever addressing why. Treasury responded that it continues its efforts to wind down CPP through repayments, restructuring, and sales. Treasury has not addressed the criteria for these divestment strategies or consulted with regulators. Treasury neither agreed nor disagreed with the recommendation. Treasury neither agreed nor disagreed with the recommendation. Treasury only reviewed the legal fee bills for one of the five law firms that SIGTARP had already described as unreasonable. Treasury refuses to seek any reimbursements for those charges. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 295 * * 88 89 In order to allow for effective compliance and enforcement in HAMP Tier 2, Treasury should require that the borrower prove that the property has been rented and is occupied by a tenant at the time the borrower applies for a loan modification, as opposed to requiring only a certification that the borrower intends to rent the property. As part of the Request for Mortgage Assistance (“RMA”) application for HAMP Tier 2, the borrower should provide the servicer with a signed lease and third-party verified evidence of occupancy in the form of documents showing that a renter lives at the property address, such as a utility bill, driver’s license, or proof of renter’s insurance. In the case of multiple-unit properties under one mortgage Treasury should require that the borrower provide the servicer with evidence that at least one unit is occupied by a tenant as part of the RMA. The Office of the Special Master should develop more robust policies, procedures, or guidelines to help ensure that its pay determination process and its decisions are evenhanded. These measures will improve transparency and help the Office of the Special Master consistently apply the Interim Final Rule principles of “appropriate allocation,” “performance-based compensation,” and “comparable structures and payments.” The Office of the Special Master should better document its use of market data in its calculations. At a minimum, the Office of the Special Master should prospectively document which companies and employees are used as comparisons in its analysis of the 50th percentile of the market, and it should also maintain records and data so that the relationship between its determinations and benchmarks are clearly understood. To ensure that the Office of the Special Master consistently grants exceptions to the $500,000 cash salary cap, the Office of the Special Master should substantiate each exception requested and whether the requests demonstrate or fail to demonstrate “good cause.” (CONTINUED) X Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 90 * 87 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X Not Implemented TBD/NA Continued on next page Treasury responded to this recommendation by requiring that borrowers certify that they intend to rent the property for at least five years and that they will make reasonable efforts to rent. This does not go far enough. Requiring only a self-certification, under penalty of perjury, without a strong compliance and enforcement regime to ensure that the intent is carried out and the property is actually rented, leaves the program vulnerable to risks that TARP funds will pay investors for modifications for mortgages on vacation homes that are not rented, and may delay, as opposed to prevent, foreclosures and increase HAMP redefault rates. Treasury has not agreed to implement this important recommendation. OSM began memorializing in its records justifications for exceptions. However, SIGTARP found in its review of the 2012 determinations that those records do not substantiate each exception requested and whether the request for an exception demonstrates or fails to demonstrate “good cause.” Comments 296 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM (b) Treasury should undertake a sustained public service campaign as soon as possible both to reach additional borrowers who could potentially be helped by HAMP Tier 2 and to arm the public with complete, accurate information about the program to avoid confusion and delay, and to prevent fraud and abuse. (a) Treasury should require that servicers provide the SIGTARP/CFPB/Treasury Joint Task Force Consumer Fraud Alert to all HAMP-eligible borrowers as part of their monthly mortgage statement until the expiration of the application period for HAMP Tier 1 and 2. In order to protect against the possibility that the extension and expansion of HAMP will lead to an increase in mortgage modification fraud, (c) Treasury should bar payment of TARP-funded incentives to any participant for a loan modification on a property that has been reported vacant for more than three months, until such time as the property has been re-occupied by a tenant and the borrower has provided third-party verification of occupancy. (b) Treasury should require servicers to provide monthly reports to Treasury of any properties that have remained vacant for more than three months. Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 93 To prevent a property that has received a HAMP Tier 2 modification from remaining vacant for an extended period of time after a lease expires or a tenant vacates, 92 (a) Treasury should require that borrowers immediately notify their servicer if the property has remained vacant for more than three months. To continue to allow for effective compliance and enforcement in HAMP Tier 2 after the trial modification has started, Treasury should require that, prior to conversion of a trial modification to a permanent modification, the borrower certify under penalty of perjury that none of the occupancy circumstances stated in the RMA have changed. (CONTINUED) 91 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X Not Implemented TBD/NA Continued on next page Treasury has not implemented this recommendation. It is important that Treasury educate as many homeowners as possible with accurate information about HAMP in an effort to prevent mortgage modification fraud. Treasury told SIGTARP that implementing this recommendation would create significant additional procedures and documentation requirements. With no compliance regime to determine that a renter is in place, the program remains vulnerable to TARP funds being paid to modify mortgages that do not fit within the intended expansion of the program. Treasury rejected this recommendation, stating that eligibility is not retested prior to conversion. This does not go far enough. Requiring only a self-certification, without a strong compliance and enforcement regime to ensure that the intent is carried out and the property is actually rented, leaves the program vulnerable to risks that TARP funds will pay investors for modifications for mortgages on vacation homes that are not rented, and may delay, as opposed to prevent, foreclosures and increase HAMP redefault rates. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 297 To ensure servicer compliance with HAMP Tier 2 guidelines and assess servicer performance, 95 Treasury should set meaningful and measurable performance goals for the Hardest Hit Fund program including, at a minimum, the number of homeowners Treasury estimates will be helped by the program, and measure the program’s progress against those goals. Treasury should instruct state housing finance agencies in the Hardest Hit Fund to set meaningful and measurable overarching and interim performance goals with appropriate metrics to measure progress for their individual state programs. 97 98 Implemented X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. To allow for assessment of the progress and success of HAMP Tier 2, Treasury should set meaningful and measurable goals, including at a minimum the number of borrowers Treasury estimates will be helped by HAMP Tier 2. Treasury should unambiguously and prominently disclose its goals and report monthly on its progress in meeting these goals. 96 (b) Treasury should develop and publish separate metrics related to HAMP Tier 2 in the compliance results and program results sections of the quarterly Making Home Affordable (“MHA”) servicer assessments of the Top 10 MHA servicers. (a) Treasury should include additional criteria in its servicer compliance assessments that measure compliance with the program guidelines and requirements of HAMP Tier 2. Given the expected increase in the volume of HAMP applications due to the implementation of HAMP Tier 2, Treasury should convene a summit of key stakeholders to discuss program implementation and servicer ramp-up and performance requirements so that the program roll-out is efficient and effective. (CONTINUED) 94 Recommendation SIGTARP RECOMMENDATIONS TABLE X In Process X X X Not Implemented TBD/NA Continued on next page Treasury issued letters to five housing finance agencies requiring those states to provide an action plan with measurable interim and overall goals, including benchmarks, to improve the level of homeowner assistance under the HHF program. Treasury should fully adopt SIGTARP’s recommendation with the remaining 14 housing finance agencies in the HHF program. SIGTARP will continue to monitor implementation of this recommendation. Treasury has not implemented this recommendation. It is important that Treasury sets meaningful goals and metrics to identify program successes and set-backs, in order to change the program as necessary, and to provide transparency and accountability. Treasury has rejected this recommendation. Treasury’s refusal to provide meaningful and measurable goals leaves it vulnerable to accusations that it is trying to avoid accountability. Treasury said that it will include metrics in the future. SIGTARP will continue to monitor Treasury’s implementation of this recommendation. Treasury has not implemented this recommendation. Treasury has not held a summit of all key stakeholders to make the program roll-out efficient and effective. Comments 298 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury should publish on its website and in the Housing Scorecard on a quarterly basis the total number of homeowners assisted, funds drawn down by states, and dollars expended for assistance to homeowners, assistance committed to homeowners, and cash on hand, aggregated by all state Hardest Hit Fund programs. Treasury should develop an action plan for the Hardest Hit Fund that includes steps to increase the numbers of homeowners assisted and to gain industry support for Treasury-approved HHF programs. Treasury should set interim metrics for how many homeowners it intends to assist in a Treasury-defined time period in each particular program (such as principal reduction, second lien reduction, or reinstatement). If Treasury cannot achieve the desired level of homeowners assisted in any one program area in the defined time period, Treasury should put the funds to better use toward programs that are reaching homeowners. Treasury should stop allowing servicers to add a risk premium to Freddie Mac’s discount rate in HAMP’s net present value test. 100 101 102 Implemented X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. Treasury should set milestones at which the state housing finance agencies in the Hardest Hit Fund must review the progress of individual state programs and make program adjustments from this review. (CONTINUED) 99 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X Not Implemented TBD/NA Continued on next page Treasury has not implemented this recommendation. The addition of a risk premium reduces the number of otherwise qualified homeowners Treasury helps through HAMP. Treasury should implement this recommendation to increase assistance to struggling homeowners. Treasury has rejected this recommendation. It is important that Treasury change the status quo and fulfill its role as steward over TARP programs, make determinations of which programs are successful and which programs are not working, and ensure that HHF funds are reaching homeowners. This may include putting the funds toward programs that are more successful at reaching homeowners. It is unacceptable to delegate all of this responsibility to the states. Treasury has only partially implemented this recommendation. Treasury recently started publishing some aggregated data on its website. However, Treasury does not publish all of the data SIGTARP recommended nor does Treasury publish any data at all concerning the Hardest Hit Fund in the Housing Scorecard. Treasury issued letters to five housing finance agencies requiring those states to provide an action plan with measurable interim and overall goals, including benchmarks, to improve the level of homeowner assistance under the HHF program. Treasury should fully adopt SIGTARP’s recommendation with the remaining 14 housing finance agencies in the HHF program. SIGTARP will continue to monitor implementation of this recommendation. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 299 Treasury should require servicers to improve their communication with homeowners regarding denial of a HAMP modification so that homeowners can move forward with other foreclosure alternatives in a timely and fully informed manner. To the extent that a servicer does not follow Treasury’s guidelines on these communications, Treasury should permanently withhold incentives from that servicer. Treasury should ensure that more detail is captured by the Making Home Affordable Compliance Committee meeting minutes regarding the substance of discussions related to compliance efforts on servicers in HAMP. Treasury should make sure that minutes clearly outline the specific problems encountered by servicers, remedial options discussed, and any requisite actions taken to remedy the situation. In order to protect taxpayers who funded TARP against any future threat that might result from LIBOR manipulation, Treasury and the Federal Reserve should immediately change any ongoing TARP programs including, without limitation, PPIP and TALF, to cease reliance on LIBOR. In order to protect taxpayers who invested TARP funds into AIG to the fullest extent possible, Treasury and the Federal Reserve should recommend to the Financial Stability Oversight Council that AIG be designated as a systemically important financial institution so that it receives the strongest level of Federal regulation. 104 105 106 107 X Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. Treasury should ensure that servicers use accurate information when evaluating net present value test results for homeowners applying to HAMP and should ensure that servicers maintain documentation of all net present value test inputs. To the extent that a servicer does not follow Treasury’s guidelines on input accuracy and documentation maintenance, Treasury should permanently withhold incentives from that servicer. (CONTINUED) 103 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X X Not Implemented TBD/NA Continued on next page On July 8, 2013, the Financial Stability Oversight Council unanimously voted to designate AIG as systemically important. Neither Treasury nor the Federal Reserve has agreed to implement this recommendation despite Treasury telling SIGTARP that it “share[s SIGTARP’s] concerns about the integrity” of LIBOR, and the Federal Reserve telling SIGTARP that it agreed that “recent information regarding the way the LIBOR has been calculated has created some uncertainty about the reliability of the rate.” Treasury has not implemented this recommendation. SIGTARP found a lack of detail in Treasury’s meeting minutes and because Treasury failed to document its oversight, SIGTARP was unable to verify Treasury’s role in the oversight of servicers or its compliance agent Freddie Mac. Treasury has not implemented this recommendation. Servicers’ failure to communicate denial in a timely manner can have serious consequences because a delay may prevent homeowners from finding other foreclosure alternatives sooner. Treasury has not implemented this recommendation. Servicer errors using NPV inputs and the lack of properly maintained records on NPV inputs have diminished compliance and placed the protection of homeowner’s rights to challenge servicer error at risk. Comments 300 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM In order to fulfill Treasury’s responsibility to wind down its TARP investments in a way that promotes financial stability and preserves the strength of our nation’s community banks, Treasury should undertake an analysis in consultation with Federal banking regulators that ensures that it is exiting its Capital Purchase Program investments in a way that satisfies the goals of CPP, which are to promote financial stability, maintain confidence in the financial system and enable lending. This financial stability analysis of a bank’s exit from TARP should determine at a minimum: (1) that the bank will remain healthy and viable in the event of an auction of Treasury’s preferred shares; and (2) that the bank’s exit from TARP does not have a negative impact on the banking industry at a community, state, regional, and national level. Treasury should document that analysis and consultation. Treasury should better document its decision whether or not to auction its preferred shares in a TARP bank to adequately reflect the considerations made for each bank and detailed rationale. Each year, Treasury should reevaluate total compensation for those employees at TARP exceptional assistance companies remaining in the Top 25 from the prior year, including determining whether to reduce total compensation. To ensure that Treasury effectively applies guidelines aimed at curbing excessive pay and reducing risk taking, Treasury should develop policies, procedures, and criteria for approving pay in excess of Treasury guidelines. 109 110 111 * 112 * Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. In order to fulfill Treasury’s responsibility to wind down its TARP Capital Purchase Program investments in a way that protects taxpayer interests, before allowing a TARP bank to purchase Treasury’s TARP shares at a discount to the TARP investment (for example as the successful bidder at auction), Treasury should undertake an analysis, in consultation with Federal banking regulators, to determine that allowing the bank to redeem its TARP shares at a discount to the TARP investment outweighs the risk that the bank will not repay the full TARP investment. Treasury should document that analysis and consultation. (CONTINUED) 108 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X X X Not Implemented TBD/NA Continued on next page Treasury has not agreed to implement this important recommendation. Treasury has not agreed to implement this important recommendation. Treasury has not agreed to implement this important recommendation, but is reviewing its practices in light of SIGTARP’s recommendations. SIGTARP will monitor Treasury’s efforts to implement this recommendation. Treasury has not agreed to implement this important recommendation. Treasury has not agreed to implement this important recommendation. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 301 To be consistent with Treasury’s Interim Final Rule that the portion of performance-based compensation compared to total compensation should be greater for positions that exercise higher levels of responsibility, Treasury should return to using long-term restricted stock for employees, particularly senior employees such as CEOs. Treasury should conduct in-depth research and analysis to determine the causes of redefaults of HAMP permanent mortgage modifications and the characteristics of loans or the homeowner that may be more at risk for redefault. Treasury should require servicers to submit any additional information that Treasury needs to conduct this research and analysis. Treasury should make the results of this analysis public and issue findings based on this analysis, so that others can examine, build on, and learn from this research. As a result of the findings of Treasury’s research and analysis into the causes of HAMP redefaults, and characteristics of redefaults, Treasury should modify aspects of HAMP and the other TARP housing programs in ways to reduce the number of redefaults. Treasury should require servicers to develop and use an “early warning system” to identify and reach out to homeowners that may be at risk of redefaulting on a HAMP mortgage modification, including providing or recommending counseling and other assistance and directing them to other TARP housing programs. 114 * 115 116 117 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. Treasury should independently analyze whether good cause exists to award a Top 25 employee a pay raise or a cash salary over $500,000. To ensure that the Office of the Special Master has sufficient time to conduct this analysis, Treasury should allow OSM to work on setting Top 25 pay prior to OSM’s receiving the company pay proposals, which starts the 60-day timeline. (CONTINUED) 113 * Recommendation SIGTARP RECOMMENDATIONS TABLE X X In Process X X Not Implemented X TBD/NA Continued on next page Treasury has agreed to implement this important recommendation and is considering taking further action. SIGTARP will monitor Treasury’s efforts to implement the recommendation. Treasury has agreed to consider this important recommendation, based on the results of research it is conducting. SIGTARP will monitor Treasury’s efforts to implement the recommendation. Treasury has agreed to implement this important recommendation. Treasury told SIGTARP that it is in the process of conducting the recommended research. SIGTARP will monitor Treasury’s efforts to implement the recommendation. Treasury made some progress in implementing this important recommendation by including long-term restricted stock in the 2013 Treasuryapproved pay packages. It is important that Treasury continue to address this recommendation by using long-term restricted stock in pay packages going forward. Treasury has not agreed to implement this important recommendation. Comments 302 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury and the Federal banking regulators should improve coordination when collaborating on current and future initiatives by (1) defining the roles of all participants at the outset of collaborative efforts by creating precise and directed governing documents (i.e., charters) that clearly address the responsibilities of each entity; and (2) jointly documenting processes and procedures, including flowcharts, risk management tools, and reporting systems to ensure that objectives are met. Each participant should sign off to demonstrate their understanding of, and agreement with, these procedures. To increase small-business lending by former TARP banks participating in SBLF, Treasury should work with the banks to establish new, achievable plans to increase lending going forward. To preserve the amount of capital former TARP banks participating in SBLF have to lend, the primary Federal banking regulators (the Federal Reserve, FDIC, or OCC) should not approve dividend distributions to common shareholders of former TARP banks that have not effectively increased small-business lending while in SBLF. In order to prevent confusion, promote transparency, and present taxpayers who funded TARP with clear and accurate reporting, when Treasury discusses the amount of TARP funds (or CPP funds) recovered or repaid, Treasury should not count the $2.1 billion in TARP investments that Treasury refinanced into the Small Business Lending Fund, which is outside of TARP. To ensure that homeowners in HAMP get sustainable relief from foreclosure, Treasury should research and analyze whether and to what extent the conduct of HAMP mortgage servicers may contribute to homeowners redefaulting on HAMP permanent mortgage modifications.To provide transparency and accountability, Treasury should publish its conclusions and determinations. 119 120 121 122 123 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. In the letter Treasury already requires servicers to send to homeowners who have redefaulted on a HAMP modification about possible options to foreclosure, Treasury should require the servicers to include other available alternative assistance options under TARP such as the Hardest Hit Fund and HAMP Tier 2, so that homeowners can move forward with other alternatives, if appropriate, in a timely and fully informed manner. To the extent that a servicer does not follow Treasury’s rules in this area, Treasury should permanently withhold incentives from that servicer. (CONTINUED) 118 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X X Not Implemented TBD/NA Continued on next page See discussion in this section See discussion in this section Treasury has not agreed to implement this important recommendation. Treasury has not agreed to implement this important recommendation. Treasury has not agreed to implement this important recommendation. Treasury has agreed to implement this important recommendation and is considering taking further action. SIGTARP will monitor Treasury’s efforts to implement the recommendation. Comments QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 303 Treasury should publicly assess and report quarterly on the status of the ten largest HAMP servicers in meeting Treasury’s benchmark for an acceptable homeowner redefault rate on HAMP permanent mortgage modifications, indicate why any servicer fell short of the benchmark, require the servicer to make changes to reduce the number of homeowners who redefault in HAMP, and use enforcement remedies including withholding, permanently reducing, or clawing back incentive payments for any servicer that fails to comply in a timely manner. To protect the investment taxpayers made through TARP in community banks and to ensure that these banks continue to lend in their communities which is a goal of TARP’s Capital Purchase Program, Treasury should enforce its right to appoint directors for CPP institutions that have failed to pay six or more quarterly TARP dividend or interest payments. In enforcing its right to appoint directors to the board of CPP institutions that have failed to pay six or more quarterly dividend or interest payments, Treasury should prioritize appointing directors to the board of those CPP institutions that meet one or more of the following criteria: (1) rejected Treasury’s request to send officials to observe board meetings; (2) have failed to pay a large number of TARP dividend payments or that owe the largest amount of delinquent TARP dividends; or (3) is currently subject to an order from their Federal banking regulator, particularly orders related to the health or condition of the bank or its board of directors. In addition, Treasury should use information learned from Treasury officials that have observed the bank’s board meetings to assist in prioritizing its determination of banks to which Treasury should appoint directors. To protect the investment taxpayers made in TARP and to ensure that institutions continue to lend in low and moderate income communities which is the goal of TARP’s Community Development Capital Initiative, Treasury should enforce its right to appoint directors to CDCI institutions that have failed to pay eight or more TARP quarterly dividend (or interest) payments. 125 126 127 128 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. Treasury should establish an achievable benchmark for a redefault rate on HAMP permanent mortgage modifications that represents acceptable program performance and publicly report against that benchmark. (CONTINUED) 124 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process Not Implemented TBD/NA See discussion in this section See discussion in this section See discussion in this section See discussion in this section See discussion in this section Comments 304 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM ENDNOTES QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 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. 32. 33. 34. 35. 36. 37. 38. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008, p. 1. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008, pp. 2,16. 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.treasury.gov/press-center/press-releases/Pages/tg433.aspx, accessed 10/1/2013. 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OMB, “Analytical Perspectives, Budget of the United States Government, Fiscal Year 2014,” 4/10/2013, www.whitehouse.gov/sites/default/files/ omb/budget/fy2014/assets/econ_analyses.pdf, accessed 10/1/2013. Treasury, “Office of Financial Stability – Troubled Asset Relief Program Agency Financial Report Fiscal Year 2012,”11/8/2012, www.treasury.gov/ initiatives/financial-stability/reports/Documents/2012_OFS_AFR_Final_11-9-12.pdf, accessed 10/1/2013. Treasury, “Office of Financial Stability – Troubled Asset Relief Program Agency Financial Report Fiscal Year 2012,”11/8/2012, www.treasury.gov/ initiatives/financial-stability/reports/Documents/2012_OFS_AFR_Final_11-9-12.pdf, accessed 10/1/2013. Treasury, “Office of Financial Stability – Troubled Asset Relief Program Agency Financial Report Fiscal Year 2012,”11/8/2012, www.treasury.gov/ initiatives/financial-stability/reports/Documents/2012_OFS_AFR_Final_11-9-12.pdf, accessed 10/1/2013. 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Treasury, Transactions Report, 9/30/2013, www.treasury.gov/initiatives/financial-stability/reports/Documents/10-02-13%20Transactions%20 Report%20as%20of%209-30-13_INVESTMENT.pdf, accessed 10/2/2013. Treasury, Section 105(a) Report, 10/10/2013, www.treasury.gov/initiatives/financial-stability/reports/Documents/September%202013%20 Monthly%20Report%20to%20Congress.pdf, accessed 10/11/2013. Treasury, replies to SIGTARP data calls, various. Treasury, response to SIGTARP data call, 10/3/2013. Treasury, Section 105(a) Report, 10/10/2013, www.treasury.gov/initiatives/financial-stability/reports/Documents/September%202013%20 Monthly%20Report%20to%20Congress.pdf, accessed 10/11/2013. Treasury, response to SIGTARP data call, 10/3/2013. Treasury, response to SIGTARP data call, 10/3/2013. Treasury, response to SIGTARP data call, 10/3/2013. 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Treasury, briefing to SIGTARP and other Federal agency staff, 3/8/2013; Treasury, “AMENDMENT NO.1 TO FACILITY PURCHASE AGREEMENT,” 3/4/2013, www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/mha/Documents_Contracts_Agreements/ Citi%20Amendment%201%20to%20Facility%20Purchase%20Agreement.pdf, accessed 10/1/2013. Treasury, response to SIGTARP data call, 10/9/2013. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008, p. 3. Treasury, “Factsheet on Capital Purchase Program,” 3/17/2009, www.treasury.gov/initiatives/financial-stability/programs/investment-programs/ cpp/Pages/capitalpurchaseprogram.aspx, accessed 10/1/2013. Treasury, “Investment Programs, Capital Purchase Program, Key Information,” 3/17/2009, www.treasury.gov/initiatives/financial-stability/ programs/investment-programs/cpp/Pages/capitalpurchaseprogram.aspx, accessed 10/1/2013. 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Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. SIGTARP, “Factors Affecting Implementation of the Home Affordable Modification Program,” 3/25/2010, www.sigtarp.gov/Audit%20Reports/ Factors_Affecting_Implementation_of_the_Home_Affordable_Modification_Program.pdf, accessed 10/1/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, response to SIGTARP data call, 10/23/2013; Fannie Mae, response to SIGTARP data call, 10/21/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. SIGTARP, “Factors Affecting Implementation of the Home Affordable Modification Program,” 3/25/2010, www.sigtarp.gov/Audit%20Reports/ Factors_Affecting_Implementation_of_the_Home_Affordable_Modification_Program.pdf, accessed 10/1/2013. SIGTARP, “Factors Affecting Implementation of the Home Affordable Modification Program,” 3/25/2010, www.sigtarp.gov/Audit%20Reports/ Factors_Affecting_Implementation_of_the_Home_Affordable_Modification_Program.pdf, accessed 10/1/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Supplemental Directive 13-08, Making Home Affordable Program – Borrower Post-Modification Counseling and Servicer Incentives,” 9/30/2013, www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1308.pdf, accessed 10/10/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. 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QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 207. 208. 209. 210. 211. 212. 213. 214. 215. 216. 217. 218. 219. 220. 221. 222. 223. 224. 225. 226. 227. 228. 229. 230. 231. 232. 233. 234. 235. 236. 237. 238. 239. 240. 241. 242. 243. 244. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www. hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013; NeighborWorks, “Making Home Affordable Outreach and Intake Project Funding Announcement, Revised,” 3/7/2013, www.nw.org/network/foreclosure/documents/ MHAOutreachandIntakeProjectFundingAnnouncementRevised3713.pdf, accessed 10/1/2013; NeighborWorks, “Making Home Affordable Outreach and Intake Project Eligible Applicant Briefing for NeighborWorks Organizations,” 3/6/2013. Treasury, “MEMORANDUM OF AGREEMENT Between the U.S. Department of the Treasury and NeighborWorks America,” 2/14/2013, www.treasury.gov/initiatives/financial-stability/Documents/NeighborWorks%20America%20Memorandum%20of%20Agreement.pdf, accessed 10/1/2013. Treasury, response to SIGTARP data call, 10/8/2013. Treasury, response to SIGTARP data call, 10/8/2013. Treasury, response to SIGTARP data call, 10/8/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Expanding our efforts to help more homeowners and strengthen hard-hit communities,” 1/27/2012, www.treasury.gov/connect/blog/ Pages/Expanding-our-efforts-to-help-more-homeowners-and-strengthen-hard-hit-communities.aspx, accessed 10/1/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, response to SIGTARP data call, 10/21/2013. Treasury, response to SIGTARP data call, 10/3/2013. 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Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013 Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. 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Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, response to SIGTARP data call, 10/9/2013. 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Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, response to SIGTARP data call, 10/9/2013. Treasury Press Release, “Housing Program Enhancements Offer Additional Options for Struggling Homeowners,” 3/26/2010, www.treasury.gov/ press-center/press-releases/Pages/tg614.aspx, accessed 10/1/2013. Treasury, response to SIGTARP data call, 10/23/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. 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Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “HAMP Update — New Program Offers Borrowers Foreclosure Alternatives,” 11/30/2009, www.hmpadmin.com/portal/news/ docs/2009/hampupdate113009.pdf, accessed 10/1/2013. Treasury, response to SIGTARP data call, 10/3/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, response to SIGTARP data call, 10/9/2013. Treasury, response to SIGTARP data call, 10/23/2013. Treasury, response to SIGTARP data call, 10/17/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, response to SIGTARP data call, 10/23/2013. Treasury, response to SIGTARP data call, 10/23/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 285. 286. 287. 288. 289. 290. 291. 292. 293. 294. 295. 296. 297. 298. 299. 300. 301. 302. 303. 304. 305. 306. 307. 308. 309. 310. 311. 312. 313. 314. 315. 316. 317. 318. 319. 320. 321. 322. Treasury, response to SIGTARP data call, 10/9/2013. Treasury, response to SIGTARP data call, 10/9/2013. Treasury, response to SIGTARP data call, 10/23/2013. 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Department of Veterans Affairs, “Revised VA Making Home Affordable Program, Circular 26-10-6,” 5/24/2010, www.benefits.va.gov/ HOMELOANS/circulars/26_10_6.pdf, accessed 10/1/2013. HUD, “Mortgagee Letter 2010-23,” 8/6/2010, www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-23ml.pdf, accessed 10/1/2013; Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, response to SIGTARP data call, 10/9/2013. Treasury, “Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3,” 9/16/2013, www.hmpadmin.com/ portal/programs/docs/hamp_servicer/mhahandbook_43.pdf, accessed 10/4/2013. Treasury, “Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets,” 2/2010, www.treasury.gov/initiatives/financialstability/TARP-Programs/housing/Documents/HFA%20Proposal%20Guidelines%20-%201st%20Rd.pdf, accessed 10/1/2013. Treasury, “Obama Administration Approves State Plans for Use of $1.5 Billion in ‘Hardest Hit Fund’ Foreclosure-Prevention Funding,” 6/23/2010, www.treasury.gov/press-center/press-releases/Pages/tg757.aspx, accessed 10/1/2013. Treasury, “Obama Administration Approves State Plans for Use of $1.5 Billion in ‘Hardest Hit Fund’ Foreclosure-Prevention Funding,” 6/23/2010, www.treasury.gov/press-center/press-releases/Pages/tg757.aspx, accessed 10/1/2013. Treasury, “Administration Announces Second Round of Assistance for Hardest-Hit Housing Markets,” 3/29/2010, www.treasury.gov/presscenter/press-releases/Pages/tg618.aspx, accessed 10/1/2013. 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Treasury, “Hardest Hit Fund Program Guidelines Round 3,” 8/11/2010, www.treasury.gov/initiatives/financial-stability/TARP-Programs/ housing/Documents/HFA%20Proposal%20Guidelines%20Third%20Funding%20FINAL.pdf, accessed 10/16/2013; Treasury, “Hardest Hit Fund, Archived Program Information, Participation Agreements and Amendments,” no date, www.treasury.gov/initiatives/financial-stability/ TARP-Programs/housing/hhf/Pages/Archival-information.aspx, accessed 10/16/2013; SIGTARP analysis of HFA participation agreements and amendments. Treasury, “Hardest Hit Fund, Archived Program Information, Participation Agreements and Amendments,” no date, www.treasury.gov/initiatives/ financial-stability/TARP-Programs/housing/hhf/Pages/Archival-information.aspx, accessed 10/16/2013; SIGTARP analysis of HFA participation agreements and amendments. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 718. 719. 720. 721. 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Treasury, responses to SIGTARP data calls, 7/5/2013 and 10/17/2013; Treasury, Transactions Report-Housing Programs, 6/27/2013, www. treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013; Treasury, response to SIGTARP data call, 7/5/2013; Treasury, “HFA Aggregate Quarterly Report Q2 2013,” no date, www.treasury. gov/initiatives/financial-stability/TARP-Programs/housing/Pages/Program-Documents.aspx, accessed 10/16/2013; Oregon Affordable Housing Assistance Corporation, “Oregon Homeownership Stabilization Initiative, Reporting, OHSI Quarter 2 2013 Report (April - June 2013),” no date, www.oregonhomeownerhelp.org/en/reporting, accessed 10/16/2013; SIGTARP analysis of Oregon Affordable Housing Assistance Corporation quarterly performance report. 333 334 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 785. 786. 787. 788. 789. 790. 791. 792. 793. 794. 795. 796. 797. 798. 799. 800. 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Treasury, responses to SIGTARP data calls, 7/5/2013 and 10/17/2013; Treasury, Transactions Report-Housing Programs, 6/27/2013, www. treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013; Treasury, response to SIGTARP data call, 7/5/2013; Treasury, “HFA Aggregate Quarterly Report Q2 2013,” no date, www.treasury. gov/initiatives/financial-stability/TARP-Programs/housing/Pages/Program-Documents.aspx, accessed 10/16/2013; Rhode Island Housing and Mortgage Finance Corporation, “Hardest Hit Fund – Rhode Island, About HHFRI, REPORTS, Q2 2013,” no date, www.hhfri.org/HHFRI_ Dynamic_Content.aspx?id=10737418256&ekmensel=c580fa7b_10737418238_10737418240_btnlink, accessed 10/16/2013; SIGTARP analysis of Rhode Island Housing and Mortgage Finance Corporation quarterly performance report. Treasury, Transactions Report-Housing Programs, 6/27/2013, www.treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20 Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013; Treasury, response to SIGTARP data call, 7/5/2013; Treasury, “HFA Aggregate Quarterly Report Q2 2013,” no date, www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/Pages/ Program-Documents.aspx, accessed 10/16/2013; Rhode Island Housing and Mortgage Finance Corporation, “Hardest Hit Fund – Rhode Island, About HHFRI, REPORTS, Q2 2013,” no date, www.hhfri.org/HHFRI_Dynamic_Content.aspx?id=10737418256&ekmensel=c58 0fa7b_10737418238_10737418240_btnlink, accessed 10/16/2013; SIGTARP analysis of Rhode Island Housing and Mortgage Finance Corporation quarterly performance report. Treasury, responses to SIGTARP data calls, 7/5/2013, 10/7/2013, and 10/17/2013; Rhode Island Housing and Mortgage Finance Corporation, “HHFRI News,” no date, www.hhfri.org, accessed 10/3/2013. Treasury, Transactions Report-Housing Programs, 6/27/2013, www.treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20 Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013. Treasury, Transactions Report-Housing Programs, 6/27/2013, www.treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20 Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013; Treasury, response to SIGTARP data call, 7/5/2013. Treasury, responses to SIGTARP data calls, 7/5/2013 and 10/17/2013; Treasury, Transactions Report-Housing Programs, 6/27/2013, www. treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013; Treasury, response to SIGTARP data call, 7/5/2013; Treasury, “HFA Aggregate Quarterly Report Q2 2013,” no date, www.treasury. gov/initiatives/financial-stability/TARP-Programs/housing/Pages/Program-Documents.aspx, accessed 10/16/2013; SC Housing Corp, “SC HELP, Reports, Quarter ending June 30, 2013,” no date, www.schelp.gov/Resources/Reports.aspx, accessed 10/16/2013; SIGTARP analysis of SC Housing Corp quarterly performance report. Treasury, Transactions Report-Housing Programs, 6/27/2013, www.treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20 Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013; Treasury, response to SIGTARP data call, 7/5/2013; Treasury, “HFA Aggregate Quarterly Report Q2 2013,” no date, www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/Pages/ProgramDocuments.aspx, accessed 10/16/2013; SC Housing Corp, “SC HELP, Reports, Quarter ending June 30, 2013,” no date, www.schelp.gov/ Resources/Reports.aspx, accessed 10/16/2013; SIGTARP analysis of SC Housing Corp quarterly performance report. Treasury, Transactions Report-Housing Programs, 6/27/2013, www.treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20 Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013. 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Treasury, responses to SIGTARP data calls, 7/5/2013 and 10/17/2013; Treasury, Transactions Report-Housing Programs, 6/27/2013, www. treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013; Treasury, response to SIGTARP data call, 7/5/2013; Treasury, “HFA Aggregate Quarterly Report Q2 2013,” no date, www. treasury.gov/initiatives/financial-stability/TARP-Programs/housing/Pages/Program-Documents.aspx, accessed 10/16/2013; Tennessee Housing Development Agency, “Keep My Tennessee Home, Reports, Second Quarter 2013 Report,” no date, www.keepmytnhome.org/news-and-reports/, accessed 10/16/2013; SIGTARP analysis of Tennessee Housing Development Agency quarterly performance report. 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Treasury, Transactions Report-Housing Programs, 6/27/2013, www.treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20 Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013; Treasury, response to SIGTARP data call, 7/5/2013. QUARTERLY REPORT TO CONGRESS I OCTOBER 29, 2013 801. 802. 803. 804. 805. 806. 807. 808. 809. 810. 811. 812. Treasury, responses to SIGTARP data calls, 7/5/2013 and 10/17/2013; Treasury, Transactions Report-Housing Programs, 6/27/2013, www. treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20Transactions%20Report%20as%20of%2006.27.2013.pdf, accessed 10/16/2013; Treasury, response to SIGTARP data call, 7/5/2013; Treasury, “HFA Aggregate Quarterly Report Q2 2013,” no date, www.treasury. gov/initiatives/financial-stability/TARP-Programs/housing/Pages/Program-Documents.aspx, accessed 10/16/2013; District of Columbia Housing Finance Agency, “HomeSaver – A Foreclosure Prevention Program[quarterly performance reports], DCHFA HomeSaver Program – June 2013 Quarterly Report,” www.dchfa.org/DCHFAHome/Homebuyers/ForeclosurePrevention/QuarterlyReports/tabid/219/Default.aspx, accessed 10/16/2013; SIGTARP analysis of District of Columbia Housing Finance Agency quarterly performance report. 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Treasury, response to SIGTARP data call, 10/16/2013. Treasury, response to SIGTARP data call, 10/3/2013. Treasury, response to SIGTARP data call, 10/7/2013. Treasury, response to SIGTARP data call, 10/7/2013. Fannie Mae, response to SIGTARP data call, 10/3/2103; Freddie Mac, response to SIGTARP data call, 10/3/2013. Treasury, response to SIGTARP data call, 10/16/2013. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008. Treasury, response to SIGTARP data call, 10/3/2013. 335 336 APPENDIX A I GLOSSARY I OCTOBER 29, 2013 GLOSSARY This appendix provides a glossary of terms that are used in the context of this report. 7(a) Loan Program: SBA loan program guaranteeing a percentage of loans for small businesses that cannot otherwise obtain conventional loans at reasonable terms. Accredited Investors: Individuals or institutions that by law are considered financially sophisticated enough so that they can invest in ventures that are exempt from investor protection laws. Under U.S. securities laws, these include many financial companies, pension plans, wealthy individuals, and top executives or directors of the issuing companies. Asset-Backed Securities (“ABS”): Bonds backed by a portfolio of 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. Collateral: Asset pledged by a borrower to a lender until a loan is repaid. Generally, if the borrower defaults on the loan, the lender gains ownership of the pledged asset and may sell it to satisfy the debt. In TALF, the ABS or CMBS purchased with the TALF loan is the collateral that is posted with FRBNY. Collateralized Debt Obligation (“CDO”): A security that entitles the purchaser to some part of the cash flows from a portfolio of assets such as mortgage-backed securities, bonds, loans, or other CDOs. Commercial Mortgage-Backed Securities (“CMBS”): Bonds backed by one or more mortgages on commercial real estate (e.g., office buildings, rental apartments, hotels). 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 urban and rural low-income communities through the CDFI Fund. CDFIs were created in 1994 by the Riegle Community Development and Regulatory Improvement Act. Credit Default Swap (“CDS”): A contract where the seller receives payments from the buyer in return for agreeing to pay the buyer when a particular credit event occurs, such as when the credit rating on a bond is downgraded or a loan goes into default. The buyer does not need to own the asset covered by the contract, meaning the swap can serve essentially as a bet against the underlying bond or loan. Cumulative Preferred Stock: Stock requiring a defined dividend payment. If the company does not pay the dividend on schedule, it still owes the missed dividend to the stock’s owner. Cumulative Redefault Rate: The total number of HAMP permanent modifications that have redefaulted (as of a specific date) divided by the total number of HAMP permanent modifications started (as of the same specific date). Custodian Bank: Bank holding the collateral and managing accounts for FRBNY; for TALF the custodian is Bank of New York Mellon. Debt: Investment in a business that is required to be paid back to the investor, usually with interest. Deed-in-Lieu of Foreclosure: Instead of going through foreclosure, the borrower voluntarily surrenders the deed to the home to the investor as
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