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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 April 30, 2014 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 DA OG RA SIGTARP seeks individual accountability in the form of serious jail time, particularly for senior bank officers that put the safety of their bank and the taxpayers’ TARP investment at risk. As of April 2, 2014, SIGTARP’s investigations have resulted in criminal charges against 188 individuals. Already 129 have been convicted with others awaiting trial. Of those, 80 have been sentenced to prison, and 94 have industry bans/suspensions. We also seek corporate accountability. For example, Jefferies LLC agreed to substantial corporate changes and a $25 million penalty after a jury convicted Jefferies trader Jesse Litvak for criminally defrauding (by overcharging) customers, including PPIP funds in TARP; and Bank of America, its former CEO and former CFO agreed to pay $32.5 million to settle a civil action by the New York Attorney General resulting from a SIGTARP investigation into their failure to disclose losses at Merrill Lynch and snookering the Government into an additional TARP bailout. CEO Lewis agreed to be banned from serving as an officer or director of a public company for 3 years, and CFO Price agreed to be banned for 18 months. CHRISTY L. ROMERO Special Inspector General L SIGTARP’s law enforcement successes restore public confidence in our financial system and help end moral hazard by bringing consequences to those who break the law. We reduce vulnerabilities and mitigate future harm by removing those who have already shown a willingness to break the law. Recouping funds lost to TARP-related crime or civil violations of the law is a vital part of recovery, and SIGTARP’s investigations have already resulted in court orders for the return of $4.77 billion to the Government and victims. TARP-related crime has a dangerous ripple effect, hurting those beyond the immediate victims (homeowners and investors), such as American taxpayers who funded the bailout, the Government, local communities, and our broader economy. It can contribute to the failure of a bank, may leave a bank vulnerable to takeover, and can threaten the bank’s ability to repay TARP or pay TARP dividends. SIGTARP works to bring justice to all victims of TARP-related crime. Respectfully yours, C INSPE TOR GEN E RA UB LE I am pleased to present the Office of the Special Inspector General for the Troubled Asset Relief Program’s (“SIGTARP”) quarterly report. Recovery from a crisis comes in two equally important stages: immediate triage, followed by longer-term planning and rebuilding to reduce vulnerabilities, strengthen infrastructure, and mitigate future harm. In this second stage, there has been some progress through reforms that have been implemented, but there is much more work to be done. SIGTARP’s work is far from over as the long-term second stage of recovery from the crisis will take time and continued hard work. We continue to uncover new TARP-related criminal schemes. Persistent oversight and law enforcement by SIGTARP is necessary to restore confidence and advance economic stability through justice and accountability. Long term full recovery from the financial crisis depends on it. AL TRO Message from the Special Inspector General CI S S E T R E LI E F P R CONTENTS Executive Summary 3 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 TARP Programs Update Cost Estimates TARP Programs Housing Support Programs Financial Institution Support Programs Automotive Industry Support Programs Asset Support Programs 13 15 15 45 47 49 52 53 56 63 159 219 227 Section 3 BANKS AND CREDIT UNIONS IN TARP’S CDCI PROGRAM FACE CHALLENGES Introduction CDCI Institutions Face Challenges that Could Impact Their Financial Stability, Ability to Lend to Small Businesses, and Ability to Repay TARP Banks and Credit Unions in CDCI Are Not Reporting on Their Use of TARP Funds, Which Hinders Transparency, Oversight, and Treasury’s Ability to Judge Whether the Goals of the Program Are Being Met CDCI Institutions that Missed TARP Dividends and Interest Payments Section 4 TARP OPERATIONS AND ADMINISTRATION TARP Administrative and Program Operating Expenditures Financial Agents Section 5 SIGTARP RECOMMENDATIONS Additional Recommendations Regarding Homeowners Redefaulting On Modified Mortgages Under HAMP Update on Recommendations Regarding the Appointing of Directors to the Boards of CPP and CDCI Institutions Recommendations Regarding Educating Homeowners About Mortgage Modification Fraud Endnotes 247 249 251 257 261 263 265 266 279 281 283 284 310 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 340 344 347 351 494 498 500 501 502 504 509 510 EXECUTIVE SUMMARY 4 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Recovery from a crisis comes in two equally important stages: immediate triage, followed by longer-term thoughtful planning and action to reduce vulnerabilities, strengthen infrastructure, and mitigate future harm. With the financial system and TARP in this second stage, there has been some progress through reforms that have been implemented, but there is much more work to be done. Our nation needs continued progress in eliminating a significant legacy of TARP that has left our nation vulnerable — moral hazard — the belief by bailed-out institutions that they can play by their own set of rules without regard for consequences. Moral hazard is not just a concern for the largest TARP banks, but of TARP recipients of any size who believe that they can play by a different set of rules without consequences. Ending moral hazard requires important ongoing work by regulators on rules to strengthen the financial system and reduce vulnerabilities, and necessitates a change in culture by some institutions. SIGTARP has reported on cultures at TARP institutions that were vulnerable to moral hazard, including, for example, reports on the culture of profit-seeking and risk-taking at select large TARP companies that left them near failure, cultures at TARP companies that resulted in them fighting against limits on executive compensation while in TARP, and cultures that resulted in large TARP companies pushing to exit TARP short of capital requirements set by Federal banking regulators. A necessary part of the second stage of long-term crisis recovery is law enforcement, another area where SIGTARP plays a crucial role as a criminal law enforcement agency. Our law enforcement successes help end moral hazard by bringing consequences to those who did not play by the rules, but instead broke the law. This important work also reduces vulnerabilities in the financial system and mitigates future harm by removing from the system those who have already shown a willingness to break the law. It deters those who may contemplate breaking the law in the future. These are the broader reasons why SIGTARP’s work matters, whether related to a large or small TARP recipient. They matter to taxpayers who funded the bailout. They matter to the communities TARP institutions serve. They matter to instill confidence in the financial system, and make it stronger for the future. Recouping funds lost to TARP-related crime or civil violations of the law is a vital part of long-term recovery from the crisis, and SIGTARP’s investigations have already resulted in court orders for the return of money to the Government or victims (including the Government as a victim) of $4.77 billion. Not all crimes investigated by SIGTARP will result in a direct loss to Treasury. In some cases, bank insiders committed bank fraud by falsifying books and records that banking regulators relied on in reviewing a bank’s TARP application, but the bank ultimately did not receive TARP funds. For example, after uncovering that TARP-applicant Colonial Bank was engaged in a massive fraud scheme with Taylor, Bean and Whitaker, SIGTARP was able to prevent $550 million in TARP funds already approved by Treasury from going to Colonial, all of which would have been lost when the bank failed. While SIGTARP prevented the loss to Treasury, the FDIC estimated it would suffer a $4.5 billion loss from the bank failure — a failure due to the fraud. SIGTARP’s investigation led to prison sentences for eight senior 5 6 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM officers and court orders for the return of $3.5 billion. In other cases, a TARP bank may become a victim of a crime or civil fraud (by those inside or outside the bank) and suffer losses but may still be able to repay TARP or may be acquired by another bank that repays TARP. Sometimes, Treasury will suffer a loss from crime.i SIGTARP investigations also matter to the victims of TARP-related crimes and civil violations of the law. Previous SIGTARP reports have educated the public about how struggling homeowners can become victims of TARP-related crime, particularly those scammed into believing that they were applying to TARP’s HAMP program, but were instead being tricked out of their last dollars and the critical time necessary to seek other foreclosure alternatives. As a result, some even lost their homes. The HAMP program can also be a victim of these crimes if homeowners become wary to seek help from TARP. Beyond homeowners, it is not always fully understood who the victims are of other TARP-related white-collar crimes involving banks and other financial institutions. Anyone who has fallen victim to these crimes will tell you that these are not victimless crimes. SIGTARP has identified immediate victims of TARP-related crime in each of the 50 states and Washington, DC. The Dangerous Ripple Effect of TARP-related Crime TARP-related crimes (as well as civil fraud) leave many victims in their wake and have a dangerous ripple effect, hurting those beyond the immediate victims (homeowners and investors), such as taxpayers who funded the bailout, local communities, and our broader economy. Victims of TARP-related crime and civil fraud include: • • • • • • • • • • • • • • Struggling homeowners seeking TARP assistance to keep a roof over their heads TARP programs TARP banks Investors of TARP banks Employees of TARP banks Counterparties of TARP banks Investors in mortgage-backed securities as part of TARP programs Treasury on behalf of taxpayers who funded the TARP bailout The FDIC Government sponsored enterprises Fannie Mae & Freddie Mac Ginnie Mae The communities and small businesses TARP banks serve The communities devastated by the crisis The nation’s banking system and economy i Some banks have repaid the TARP investment 100% in full, and also paid dividends or interest to Treasury for taking on risk. However, not all banks paid the dividends as required and in some instances the dividends paid to Treasury did not adequately cover the risk. Treasury has realized or expects to realize losses of $4.73 billion from 29 failed or bankrupt TARP banks and 184 banks that did not fully repay TARP and Treasury took a loss on the investment. Not all of these losses will be associated with crime investigated by SIGTARP, but some will. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TARP-related crime can have a ripple effect through the financial system and economy. One lesson learned from TARP is that our financial system is built on institutions that are interconnected as counterparties and investors. Fraud at TARP-related crime can have a ripple one institution in this chain spreads risk to an institution’s shareholders effect through the financial system and counterparties. Law enforcement and economy. is critical to the second stage of crisis recovery, because it makes our system and economy less vulnerable to that ripple effect. Law enforcement is also necessary to restore public confidence in our financial system. When Treasury asked Congress for TARP authority, then-Treasury Secretary Paulson explained that TARP was necessary to restore confidence in the financial system. Crime in banks, particularly by insiders at banks that applied for or received TARP, erodes the American public’s confidence in the banking system making the banking system another victim of the crime. SIGTARP works to restore confidence in the banking system by arresting individuals charged with committing crime at TARP and TARP-applicant banks, assisting in their prosecution and ban from the banking industry, and investigating and assisting in the prosecution of corporations for their violations of the law. When TARP-related fraud seeps into the mortgage origination process, the securitization process (in which mortgages are bundled into complex mortgage backed securities), or the markets where mortgage bonds are traded, the consequences can spread to more victims including Americans whose retirements may be invested in these securities. An important lesson learned from the financial crisis is that dangerously interconnected mortgage-backed securities can have a significant impact on our economy. TARP schemes related to these investments can jeopardize confidence in these bonds and bond markets, which, if wide-spread, can limit credit access to American consumers, or raise their borrowing costs. They may also raise questions about the quality of the underlying mortgages in bonds, and can steer investors away from these securities, leading to less availability and higher costs for qualified applicants seeking mortgages. TARP was meant to establish broad confidence in the market, provide financial stability, and reignite the flow of credit. However, fraud in the mortgage market can undermine each of these goals. SIGTARP stands committed to stamping out all crime and civil violations of the law related to the TARP bailout at the corporate and individual level and securing justice for all victims. Corporate accountability: We seek corporate accountability for violations of the law. We will refer a corporation for criminal prosecution where appropriate. Our investigations have resulted in non-prosecution agreements and civil complaints by prosecutors against corporations that have led to significant corporate change to avoid future violations of the law and penalties. These penalties must be substantial 7 8 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM to avoid the risk that they become a cost of doing business. Some notable examples include: • Crime in TARP’s Public-Private Investment Program (PPIP) in which Treasury-hired fund managers bought and sold mortgage-backed securities using TARP funds, harms the Government, hinders taxpayers’ returns, hurts other investors, and could hurt the market as a whole. On January 29, 2014, as a result of SIGTARP’s investigation, mortgage broker-dealer Jefferies, LLC entered into a non-prosecution agreement with the U.S. Attorney for the District of Connecticut agreeing to substantial corporate changes and to pay a $25 million penalty, after a jury convicted Jefferies trader Jesse Litvak for criminally defrauding customers, including PPIP funds, by overcharging them for residential mortgage-backed securities by more than $2 million, which led to increased revenue for Jefferies and an increased bonus for Litvak. SIGTARP special agents arrested Litvak after conducting our investigation, which was the first criminal case brought under the President’s Residential Mortgage Backed Securities working group. • Violations of the securities laws by PPIP managers who were hired by Treasury for TARP also harm Treasury. The Securities and Exchange Commission and the Department of Labor settled a civil lawsuit resulting from a SIGTARP investigation with those agencies that uncovered that PPIP fund manager Western Asset Management Company, (“Western Asset”), a Legg Mason subsidiary, engaged in illegal “cross trades” that favored some clients over others. Western Asset agreed to significant corporate changes and to pay more than $21 million including $1 million to be paid to Treasury. • Corporate fraud related to TARP can hurt shareholders and Treasury, on behalf of taxpayers who funded TARP. This month, the New York State Attorney General (“NYAG”) settled a civil lawsuit resulting from one of SIGTARP’s first investigations that sought accountability from a TARP bank for not playing by the rules, in violation of the law. Our investigation with the NYAG revealed that Bank of America and two of its top executives, former CEO Kenneth Lewis and former CFO Joe Price, duped shareholders by not disclosing massive losses at Merrill Lynch (which Bank of America was in the process of acquiring) and snookered the Federal Government into investing billions of taxpayer dollars into the company through an additional TARP investment. Bank of America and CEO Lewis agreed to pay $25 million. CEO Lewis will pay $10 million of that amount and agreed to be banned from serving as an officer or director of a public company for three years. In addition, Price agreed to pay $7.5 million and be banned as an officer or director of a public company for 18 months. • Civil fraud at a TARP bank related to faulty mortgages can lead to substantial losses for Government-sponsored enterprises Fannie Mae and Freddie Mac. On October 23, 2013, a Federal jury in Manhattan, New York, found Bank of America and former executive Rebecca Mairone liable for defrauding the United States in a civil fraud case brought by the U.S. Attorney’s Office for the Southern District of New York, resulting from a SIGTARP investigation. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Our investigation with our law enforcement partners uncovered fraud by Countrywide Financial Corporation and its successor, TARP recipient Bank of America, before and during the bank’s time in TARP. Bank of America originated a high volume of mortgages in a high speed process called the “Hustle” (for “High-Speed Swim Lane” or “HSSL”) for sale to Fannie Mae and Freddie Mac. Bank of America removed quality control checks that could slow down the process. Senior management responsible for this program made no changes to the “Hustle,” despite repeated warnings that eliminating toll gates for quality control and fraud prevention and compensating loan processors based on volume would result in disastrous results. The results were, in fact, disastrous. Based on Bank of America’s representations about underwriting and other quality requirements of the loans, Fannie Mae and Freddie Mac purchased thousands of fraudulent and otherwise defective residential mortgage loans that later defaulted, causing enormous losses. Individual accountability: SIGTARP seeks individual accountability in the form of serious jail time particularly for senior bank officers that put the safety of their bank at risk and taxpayers’ TARP investment at risk because there must be real consequences for breaking the law. As of April 2, 2014, SIGTARP’s investigations have resulted in • Criminal charges against 188 defendants (123 of which were senior officers at their institution) filed in federal courts in 20 states. • Although it takes time to reach trial, already 129 of those defendants have been convicted, while others await trial. • Of those convicted, 80 have been sentenced to prison, and others await sentencing. • Permanent bans (or suspensions) of 94 defendants from the banking, financial or other industry. Crimes against a TARP bank bailed out with taxpayer dollars are, simply put, crimes against taxpayers. SIGTARP has uncovered criminal schemes committed by insiders of TARP banks or individuals outside the bank who target those institutions. The crime typically causes losses to the bank that shareholders must bear, including Treasury who became a shareholder in TARP banks on behalf of taxpayers in exchange for TARP funds. These losses can be enough to threaten the bank’s health and its ability to lend to its community. Victims of TARP-Related Crimes at Failed Banks TARP-related crime can contribute to the failure of a TARP bank or TARPapplicant bank. When a bank fails, it triggers losses to the FDIC who insures deposits. In some SIGTARP cases, courts have determined that the loss attributable to the crime includes the expected cost to the FDIC when taking over the bank. If the failed bank is a TARP bank, the failure typically wipes out taxpayers’ entire TARP investment and any unpaid TARP dividends. 9 10 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Beyond the bottom line, the impact Crimes against a TARP bank bailed on a community when a bank shuts its doors can be devastating. Employees out with taxpayer dollars are, simply become victims when their jobs are put, crimes against taxpayers. lost, an important source of lending quickly disappears for the community served making it harder for small businesses to get necessary loans and the public to get traditional banking services. The consequences can be particularly harmful where the crime impacts a bank operating in an underserved community, a community that is then deprived of a much-needed source of lending. SIGTARP investigations have resulted in criminal charges against bank officers at failed TARP banks and TARP-applicant banks for crimes such as bank fraud, wire fraud, conspiracy, false entries in bank books, obstructing a bank examination, bribery, and money laundering. Some of the alleged criminal conduct investigated by SIGTARP at TARP banks include, for example, bank officers who hid the bank’s true deteriorating financial condition from bank regulators; bank officers who used a variety of fraudulent accounting tricks such as falsifying “call reports” on loans to hide the true financial nature of the bank; a bank officer authorizing the bank to lend to purchasers that the officer knew were straw purchasers in order to circumvent the bank’s internal controls; and a bank officer scamming the bank into closing a real estate deal in order to personally pocket hundreds of thousands of dollars. SIGTARP investigations have also resulted in criminal charges against defendants outside the bank such as real estate developers or other bank customers for defrauding TARP banks that later failed. The alleged criminal conduct included, for example, husband and wife owners of a décor store who used a second set of books that overstated accounts receivables to obtain banks loans that later defaulted; a borrower who conspired with bank officers to use straw purchasers to obtain loans for real property fraudulently when the bank would have exceeded its legal lending limit to that borrower that later defaulted; borrowers who defrauded a TARP bank by submitting false requests to draw down on loans purportedly for construction costs, money that they used for other purposes, later defaulting on the loan; and a borrower who defrauded a TARP bank by submitting a false HUD-1 form in order to obtain a bigger loan from the bank so that he could pocket hundreds of thousands of dollars. Victims of TARP-Related Crimes at Banks where Bank Did Not Fail In some cases, crimes related to TARP may leave a bank with such declining health that it becomes vulnerable to be taken over by another institution. SIGTARP uncovered that First Community Bank President Reginald Harper turned to fraud to hide past due loans owed by Troy Fouquet from the bank, its regulators, and Treasury in the bank’s TARP application. After Treasury approved First Community QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Bank to receive $3.3 million in TARP funds, the bank withdrew its application believing the funds were not needed. Harper and Fouquet’s $3 million dollar fraud scheme, involved making sham loans to Fouquet through straw borrowers and their cover-up lasted years. According to courtroom testimony at sentencing by a First Community director, the losses the bank suffered as a result of the fraud left it vulnerable to acquisition and the bank was subsequently acquired. Harper was sentenced to 2 years in Federal prison (followed by 3 years of supervised release) and Fouquet was sentenced to 1.5 years in Federal prison (followed by 3 years of supervised release), and they were ordered to pay First Community Bank $570,955. The losses caused by crime can also threaten the ability of the bank to pay its TARP dividends. SIGTARP along with its law enforcement partners, arrested executives of mortgage loan originator American Mortgage Specialists, Inc. (“AMS”), including CEO Scott Powers and executive David McMaster after uncovering that they defrauded TARP bank BNC National Bank (“BNC”) about the financial condition of their mortgage origination company in order to obtain funding. The $28 million in losses BNC sustained as a result of the fraud scheme exceeded BNC’s $20 million TARP bailout, leaving it unable to pay its TARP dividend payments for three years. Powers was sentenced to 8 years in Federal prison (followed by 5 years supervised release) and McMaster was sentenced to 15 years 8 months in Federal prison (followed by 5 years supervised release). The court ordered each defendant to pay the Government $28 million and to pay restitution to BNC bank in that same amount. A defrauded TARP bank may be unable to repay the TARP investment in full. Following a SIGTARP investigation, loan officer Christopher Tumbaga was convicted of bank fraud and illegally receiving kickbacks for procuring loans. Tumbaga was involved in a two-year long scheme that defrauded TARP bank Colorado East Bank & Trust out of approximately $1.2 million. The bank was unable to repay the full $10 million TARP investment, and Treasury sold its stake for $9 million at a $1 million loss on the principal investment. In a separate case, SIGTARP uncovered that Edward Polen ran a $16 million Ponzi scheme writing insufficient fund checks to investors from accounts at TARP banks, including F&M Bank. F&M Bank was unable to repay TARP in full and Treasury realized a $3.8 million loss on its TARP investment. Polen was sentenced to 5 years in Federal prison (followed by 5 years supervised release). SIGTARP’s work is far from over as the long-term second stage of recovery from the crisis will take time and require continued hard work. Although these examples demonstrate patterns of crime and civil violations of the law that SIGTARP has found, we continue to uncover new TARP-related criminal schemes. Persistent oversight and law enforcement by SIGTARP is necessary to restore confidence and advance economic stability by bringing justice and accountability. Long term full recovery from the financial crisis depends on it. 11 12 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 14 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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 in order 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 130 recommendations as of April 10, 2014, 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 April 2, 2014, 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 188 individuals, including 123 senior officers (CEOs, owners, founders, or senior executives) of their organizations • criminal convictions of 129 defendants • prison sentences for 80 defendants (others are awaiting sentencing) i Criminal charges are not evidence of guilt. A defendant is presumed innocent until and unless proven guilty. 15 16 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 1.1 CRIMINAL CHARGES FROM SIGTARP INVESTIGATIONS RESULTING IN PRISON SENTENCES 2% 2% 4% 4% 7% 7% 29% 8% 15% 22% Wire and Mail Fraud Conspiracy to Commit Fraud Bank Fraud State Charges (Conspiracy to collect upfront fees/commit grand theft) False Statements and Entries Loan Fraud Money Laundering Bankruptcy Fraud Alteration of records Other Note: Numbers may not total due to rounding. FIGURE 1.2 DEFENDANTS CONVICTED IN CASES FILED AS A RESULT OF SIGTARP INVESTIGATIONS, BY EMPLOYEE TYPE 6% 4% 2% 2% 6% • civil cases and other actions against 64 individuals (including 50 senior officers) and 55 entities (in some instances an individual will face both criminal and civil charges) • orders temporarily suspending or permanently banning 94 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 $4.77 billion. This includes restitution orders entered for $4.2 billion, forfeiture orders entered for $241.6 million, and civil judgments and other orders entered for $353 million. Although the ultimate recovery of these amounts is not known, SIGTARP has already assisted in the recovery of $227.4 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 $227.4 million • savings of $553 million in TARP funds that SIGTARP prevented from going to the now-failed Colonial Bank SIGTARP’s investigations concern a wide range of possible violations of the law, 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 These investigations have resulted in charges against defendants holding a variety of jobs, including 123 senior executives. Figure 1.1 represents a breakdown of criminal charges from SIGTARP investigations resulting in prison sentences. Figure 1.2 represents a breakdown of defendants convicted in cases filed as a result of SIGTARP investigations, by employment or position of the individual. 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 January 2014 Quarterly Report 9% Former RMBS Trader Convicted of Defrauding TARP – Jesse C. Litvak 71% Senior Executive MMS/MHA Scam Individual Bank Employee Straw Borrower/Investor Attorney Other Note: Numbers may not total due to rounding. On March 7, 2014, Jesse C. Litvak was convicted after a jury trial in U.S. District Court for the District of Connecticut, on all 15 counts related to his scheme to defraud TARP and customers trading in residential mortgage-backed securities. Victim-customers included funds that were established by the U.S. Department of the Treasury’s (“Treasury”) Public-Private Investment Program (“PPIP”). Litvak, a former senior trader and managing director at the global securities and investment banking firm Jefferies, LLC (“Jefferies”), was convicted of defrauding TARP, ii The prosecutors partnered with SIGTARP ultimately decide which criminal charges to bring resulting from SIGTARP’s investigations. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 securities fraud, and making false statements to the Federal Government. Litvak was arrested by SIGTARP agents on January 28, 2013. Litvak is scheduled to be sentenced on May 30, 2014. For each count of the most serious charge, securities fraud, Litvak faces a maximum of 20 years in Federal prison. PPIP was intended to purchase certain troubled real estate-related securities, including types of residential mortgage-backed securities (“RMBS”) from financial institutions in order to allow those financial institutions to free up capital and extend new credit. Beginning in late 2009, as part of PPIP, the Federal Government used more than $20 billion in TARP money to fund the PublicPrivate Investment Funds (“PPIF”) that would purchase the troubled securities. To participate in the PPIP program, PPIF managers agreed to buy or sell only certain types of RMBS, including those in which Litvak specialized. RMBS are bonds that comprise large pools of residential mortgage loans created by banks and other financial institutions. RMBS bonds are sold through broker-dealers, who execute individually negotiated transactions. As a broker-dealer, only Litvak knew the sell and buy prices of RMBS bonds. As part of his scheme, Litvak exploited this lack of transparency by misrepresenting the seller’s asking price to the buyer as well as the buyer’s asking price to the seller. With the fraudulent buy and sell prices, Litvak was able to illegally increase commissions and keep the profits for Jefferies. Litvak also created fictitious third-party sellers to sell bonds actually held in Jefferies’ inventory. This allowed Litvak to charge the buyer an extra broker commission that Jefferies was not entitled to as Jefferies was the true owner. Through these schemes, Litvak stole more than $2 million from numerous PPIP funds and multiple private investment funds. This case was investigated by SIGTARP, the U.S. Attorney’s Office for the District of Connecticut, and the Federal Bureau of Investigation as part of the Residential Mortgage-Backed Securities Working Group. Investment Bank Agrees to Pay $25 Million for Fraudulent Trading – Jefferies, LLC On January 29, 2014, Jefferies, LLC (“Jefferies”), an investment bank and broker-dealer, entered into a non-prosecution agreement with the U.S. Attorney’s Office for the District of Connecticut relating to the firm’s purchase and sale of residential mortgage-backed securities (“RMBS”). Jefferies agreed to pay $25 million as part of the agreement related to abuses in the trading of mortgagebacked securities. In March 2009, the Department of the Treasury (“Treasury”) announced the creation of the Public-Private Investment Program (“PPIP”), with the goal to create partnerships with private investors to buy certain troubled real-estate securities in the wake of the financial crisis. These partnerships, known as Public-Private Investment Funds (“PPIF”), would invest in mortgage-backed securities using private investments and TARP equity. In response to the financial collapse, the Federal Government used more than $20 billion from TARP to fund the PPIFs. Each PPIF was established and managed by a PPIP fund manager selected by 17 18 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury. Jefferies’ Mortgage and Asset-Backed Securities Trading Group made trades in RMBS with PPIFs, among others. Starting in 2009, certain Jefferies traders fraudulently increased the profitability of certain Jefferies trades in various ways, including misrepresenting the RMBS seller’s asking price to the buyer, misrepresenting the buyer’s asking price to the seller, and concealing the fact that some bonds were being sold from Jefferies’ inventory in order to charge buyers an extra commission. The difference in sale and buy prices, and the extra commission charged to customers, were illegal profits obtained through Jefferies fraudulent trading practices. Additionally, some of Jefferies management in the fixed income division were aware of the fraudulent trading practices and failed to stop it. As part of the agreement, Jefferies agreed to pay $25 million: up to $11 million to customers harmed in the fraudulent trades, at least $10 million to the Treasury, and $4 million to the U.S. Securities and Exchange Commission. Jesse C. Litvak, a former Jefferies senior trader and managing director, was convicted on March 7, 2014, for TARP fraud, securities fraud, and making false statements to the Federal Government. Litvak was arrested by SIGTARP agents on January 28, 2013, and is scheduled to be sentenced on May 30, 2014. This matter is being investigated by SIGTARP, the U.S. Attorney’s Office for the District of Connecticut, and the Federal Bureau of Investigation as part of the Residential Mortgage-Backed Securities Working Group. Bank of America and Former CEO Kenneth Lewis Enter into $25 Million Settlement with the New York Attorney General over Misrepresentations to Shareholders and the Federal Government – Lewis Banned from Industry for Three Years On March 25, 2014, Bank of America Corporation (“Bank of America”) and its former CEO, Kenneth Lewis, agreed to settle a lawsuit filed by the New York Attorney General alleging that the bank and its top executives fraudulently withheld from investors forecasted losses in excess of $9 billion at Merrill Lynch & Co., Inc. (“Merrill”) for its 2008 fourth quarter, while at the same time asking shareholders to approve a merger with Merrill. Despite concealing these forecasted losses from investors, Bank of America then immediately sought massive financial assistance from the Federal Government in the form of $20 billion in TARP funds claiming that there had been a “material adverse change” in Merrill’s financial condition over the previous three months. Bank of America continued to conceal Merrill’s forecasted losses until mid-January 2009, when disclosure of Merrill’s multibillion dollar fourth quarter loss led to a $50 billion sell-off in the shares of Bank of America. The lawsuit also alleges that Lewis and the bank’s former CFO, Joe Price, misrepresented to shareholders the impact that the merger would have on Bank of America’s future earnings. According to settlement documents, Bank of America agreed to pay $15 million to reimburse the cost of the investigation. Bank of America also agreed to create numerous corporate reforms such as creating a new corporate development committee; enhancing the audit, disclosures, enterprise risk and corporate QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 governance committee charters; revising the corporate governance guidelines; and implementing and maintaining incentive compensation principles that are published on the Bank of America website. As part of the settlement, Kenneth Lewis agreed to a 3-year ban from serving as an officer or director of a public company, and to pay $10 million to the State of New York for his role in the matter. This case was investigated by SIGTARP and the Office of the Attorney General for the State of New York. Senior Officers of First Failed TARP Bank Charged with Falsifying Bank’s Books and Records Prior to TARP Application; Collapse of Bank Resulted in Loss of More than $300 Million in TARP Funds - UCBH On March 11, 2014, a superseding indictment in the U.S. District Court for the Northern District of California charged two former senior executives of TARP recipient United Commercial Bank Holdings, Inc. (“UCBH”), the first TARP bank to fail, with securities and bank fraud that involved deceiving the FDIC, the SEC and UCBH’s auditors by falsifying the bank’s books and records, including public filings and financial call reports. The FDIC reviewed these public filings and call reports as part of the bank’s application for TARP bailout funds and these records were part of the basis of the Treasury awarding UCBH $298.7 million in Federal taxpayer TARP funds in November 2008. Ebrahim Shabudin, former Executive Vice President, Chief Credit Officer, and Chief Operating Officer, and Thomas Yu, former Senior Vice President and manager of Credit Risk and Portfolio Management, are charged with concealing the true health of the bank in the months prior to the bank receiving TARP funds. Decisions on TARP applications were made by Federal banking regulators and Treasury based on the health of the bank. Previously, these senior officers had also been indicted for fraud related to the bank’s books after Treasury became a shareholder in the bank with TARP funds. For the most serious offense, bank fraud, each defendant faces a maximum of 30 years in Federal prison. Shabudin and Yu stand charged of participating in a scheme to hide the true financial state of UCBH as the bank’s loan portfolio deteriorated. Shabudin and Yu allegedly deceived the investing public, shareholders, and the FDIC by fraudulently manipulating the bank’s books, concealing known losses from bad loans, and hiding known decreases in the value of collateral for loans to give the impression that the bank’s performance and condition were far better than reality. The failure of UCBH in November 2009, less than one year after it received TARP funds, caused Treasury on behalf of Federal taxpayers to lose the initial TARP investment of $298.7 million and $3.7 million in TARP dividends the bank owed to Treasury. Bank Executives and Co-conspirators Indicted for Their Roles in a TARP Bank Fraud Scheme Leading to Bank Failure – Sonoma Valley Bank On March 18, 2014, in the U.S. District Court for the Northern District of California, an indictment was filed charging four defendants for their roles in a bank fraud scheme that caused TARP recipient Sonoma Valley Bank (“SVB”) to 19 20 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM suffer over $9 million in losses and caused SVB to fail in August 2010. SVB never repaid the $8.65 million in TARP funds it received in February 2009. The Federal Deposit Insurance Corporation (“FDIC”) was named receiver. Sean Cutting, the former President and CEO of SVB, was charged with twelve counts of money laundering, six counts of wire fraud, five counts of false bank entries, one count each of conspiracy to commit wire and bank fraud, conspiracy to commit money laundering, conspiracy to misapply bank funds, bank fraud, and making false statements. Brian Melland, the former chief lending officer of SVB, was charged with twelve counts of money laundering, six counts of wire fraud, and one count each of conspiracy to commit wire and bank fraud, conspiracy to make false statements, conspiracy to commit money laundering, conspiracy to misapply bank funds, and bank fraud. Bijan Madjlessi, a commercial real estate developer, and David Lonich, Madjlessi’s attorney and business partner, were each charged with twelve counts of money laundering, five counts of making false bank entries, six counts of wire fraud, and one count each of conspiracy to commit wire and bank fraud, conspiracy to make false statements, conspiracy to commit money laundering, and bank fraud. Madjlessi and Lonich are further charged with obstructing the Federal Government’s investigation into the fraud scheme. If convicted on any of the most serious offenses, each of the defendants faces a maximum of 30 years in Federal prison. In December 2012, the FDIC issued a lifetime ban against Cutting and Melland from working in the banking industry. Cutting was also ordered by the FDIC to pay a $10,000 civil money penalty, while Melland was ordered to pay a civil money penalty of $2,500. All four defendants were arrested on April 9, 2014, by SIGTARP agents and their law enforcement partners. According to the indictment, from March 2009 through September 2012, the defendants engaged in multiple bank fraud conspiracies that targeted SVB, the FDIC, and Freddie Mac. Between March 2009 and November 2009, as alleged, Melland and Cutting unscrupulously authorized more than $9 million in fraudulent loans to the other two defendants.The two SVB executives are alleged to have skirted the bank’s internal controls and defrauded SVB by authorizing the bank to lend $9.5 million to a straw purchaser so that the funds could be used by Madjlessi to repurchase part of the same condominium project for which Madjlessi had already defaulted on a construction loan. In order to help Madjlessi regain control of residential units in the project that had already been sold and to obtain financing from Freddie Mac, Cutting is alleged to have produced letters, on SVB letterhead, falsely stating that straw buyers had sufficient funds at the bank to purchase the units. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Northern District of California, the Federal Housing Financing Agency – Office of Inspector General, and the Federal Deposit Insurance Corporation – Office of Inspector General. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TARP PPIF Manager Sanctioned for Defrauding Clients – Western Asset Management Company On January 27, 2014, the U.S. Securities and Exchange Commission (SEC) issued sanctions and a cease and desist order against the California based registered investment adviser Western Asset Management Company (“Western Asset”) for conducting illegal cross-trades of residential mortgage-backed securities (“RMBS”) that favored certain clients over others and involved the Public-Private Investment Fund (“PPIF”). In June 2009, Treasury selected Western Asset to establish a PPIF as part of the Public-Private Investment Program of TARP. The sanctions against Western Asset include a $1 million civil monetary penalty payable to the U.S. Department of the Treasury (“Treasury”) and $7.4 million payable to Western Asset clients harmed by the illegal scheme. A “cross-trade” occurs when an investment advisor sells an RMBS security held by one of its clients directly to one or more of its other clients without exposing the transaction to the market. Although cross-trades can benefit clients in certain circumstances by saving transaction costs, they also represent a potential conflict of interest for the advisor, who has a duty to obtain the best execution prices for both its buying and selling clients. Further, some client accounts are specifically prohibited or restricted from engaging in cross-trades, particularly Registered Investment Companies and accounts regulated by the Employee Retirement Income Security Act of 1974. As a PPIF manager, Western Asset was also prohibited from conducting cross-trades to or from the PPIF and had established internal trading policies and procedures that explicitly prohibited cross-trades involving the PPIF. During the height of the financial crisis, many Western Asset clients were forced to liquidate RMBS securities for compliance reasons. At the same time, the PPIF managed by Western Asset had more than $2 billion of capital available for investment in RMBS securities. Investigators discovered that from 2007 through 2010, Western Asset had engaged in a pattern of cross-trades in violation of Section 17(a)(1) and (2) of the Investment Company Act, and Section 206(2) of the Advisors Act and PPIF guidelines. To accomplish the cross-trades, Western Asset pre-arranged with a cooperating broker-dealer to sell the RMBS securities to the broker at a price equal to the highest current bid otherwise available. Western Asset then re-purchased the security from the broker at a small pre-arranged markup over the sales price. The inter-positioning of the broker-dealer in these transactions did not remove them from the prohibitions of Section 17(a). By cross-trading the securities for the highest bid price, instead of the average between the bid and the asking price, as would be required under Section 17(a), Western Asset deprived its selling clients of their share of the market savings, an amount totaling approximately $6.2 million. This case was investigated by SIGTARP, the U.S. Securities and Exchange Commission, and the Department of Labor - Office of Inspector General. 21 22 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Owner of Sham Mortgage Relief Company Sentenced to Nine Years for Mortgage Modification Scam – American Home Recovery On March 20, 2014, Isaak Khafizov, the former owner of American Home Recovery (“AHR”), was sentenced to nine years in Federal prison followed by three years of supervised release for operating a mortgage modification scheme that defrauded hundreds of struggling homeowners and their lenders. Khavizov was also required to pay $399,999 in both forfeiture and restitution to his victims. Following a 10-day jury trial in U.S. District Court for the Southern District of New York, Khafizov was found guilty in May 2012 of conspiracy, mail fraud and wire fraud for perpetrating a scheme to defraud distressed homeowners and lenders. Khafizov founded AHR, a New York-based mortgage modification loan business, in the spring of 2008. He and AHR salespeople made fraudulent assertions to induce distressed homeowners to pay AHR thousands of dollars in up-front fees for mortgage modifications. Specifically, Khafizov and AHR informed homeowners that: they had been “pre-approved” for a mortgage modification by their lenders; AHR would ensure participation in the TARP-funded Making Home Affordable program; and AHR could obtain better interest rates and lower monthly fees on their mortgage. Khafizov and AHR falsely promised to return the up-front fees if AHR did not secure a mortgage modification desired by the homeowner. Khafizov and AHR also falsely claimed that: AHR was affiliated with Government agencies and programs established by the Emergency Economic Stabilization Act of 2008; AHR possessed unique expertise in mortgage modifications; and AHR had special relationships with lenders. Khafizov also directed distressed homeowners to stop paying their mortgages and to instead pay fees to AHR. After receiving up-front fees from the distressed homeowners, Khafizov and AHR did little or no work to try to renegotiate the homeowners’ mortgages. As a result, many AHR clients lost their homes in foreclosure by lenders and hundreds of thousands of dollars in up-front fees. In addition to Khafizov, AHR was also founded by Jaime Cassuto and David Cassuto. Each entered a guilty plea on April 2, 2012, relating to this mortgage modification scheme and are awaiting sentencing. In March 2011, Raymond Pampillonio, a former AHR employee, also pled guilty in connection with this scheme and is awaiting sentencing. This case was investigated by SIGTARP, the U.S. Attorney’s Office for the Southern District of New York, and the Federal Bureau of Investigation. Mortgage Modification Fraudsters Sentenced to Seven Years for Defrauding Homeowners in Nationwide $4 Million Fraud Scheme – Home Owners Protection Economics, Inc. On February 20, 2014, Christopher S. Godfrey and Dennis Fischer, president and vice president, respectively, of Home Owners Protection Economics, Inc. (“HOPE”) were each sentenced to seven years in Federal prison, followed by three years of supervised release, for defrauding homeowners in a mortgage modification scam perpetrated through their company, HOPE. Additionally, on February 25, 2014, Vernell Burris, Jr., manager and primary trainer of HOPE telemarketers, QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 was sentenced to one year and one day in Federal prison, followed by two years of supervised release, after pleading guilty to conspiracy and wire fraud for his role in the mortgage modification scam. On May 2, 2013, Brian M. Kelly, a telemarketer and trainer of HOPE telemarketers, pled guilty to conspiracy, nine counts of wire fraud, and nine counts of mail fraud. Kelly’s sentencing is scheduled for April, 24, 2014. In August 2011, SIGTARP agents, along with its law enforcement partners, arrested Godfrey, Fischer, Burris, and Kelly for their roles in the mortgage modification fraud scheme. On November 14, 2013, after a two-week trial, a Federal jury in Massachusetts convicted Godfrey and Fischer of all counts, including one count of conspiracy, eight counts of wire fraud, eight counts of mail fraud, and one count of misuse of a Government seal. Through a series of misrepresentations, HOPE induced thousands of financially distressed homeowners to pay up-front fees of up to $900 each in exchange for home loan modifications, modification services, and “software licenses.” In exchange for the fee, HOPE sent homeowners a “do-it-yourself” application package that was nearly identical to the U.S. Government’s free application through the Home Affordable Modification Program (“HAMP”), a Federally funded mortgage assistance program implemented under TARP. HOPE falsely represented to homeowners that, with HOPE’s assistance, the homeowners were virtually guaranteed to receive a loan modification under HAMP. HOPE lulled the distressed homeowners by telling them that HOPE had an almost perfect record of obtaining home loan modifications. HOPE customers, however, had no advantage in the application process and, in fact, most of their applications were denied. Through these misrepresentations, HOPE was able to persuade thousands of homeowners collectively to pay more than $4 million in fees to HOPE. Victims of HOPE lived in all 50 states and Washington, DC. This case was investigated by SIGTARP, the U.S. Attorney’s Office for the District of Massachusetts, and the Computer Crime and Intellectual Property Section of the U.S. Department of Justice’s Criminal Division. Former Bank CEO and President Charged in Fraud Scheme – Poppi Metaxas, Gateway Bank On March 31, 2014, Poppi Metaxas, former Chief Executive Officer and President of the California headquartered Gateway Bank, FSB (“Gateway”), was indicted for conspiracy to commit bank fraud, bank fraud, and perjury in the U.S. District Court for the Eastern District of New York. According to court documents, Metaxas is accused of engaging in a series of financial transactions to make it appear that Gateway took steps to improve its poor financial condition, when, in reality, those transactions defrauded Gateway, depleted its capital and placed the institution at financial risk. Metaxas surrendered to authorities on April 2, 2014. In 2008, Gateway applied for TARP funds through the Capital Purchase Program, and, during that time, the Office of Thrift Supervision (“OTS”), Gateway’s banking regulator, instructed Gateway to improve the bank’s financial condition by increasing capital and reducing the number of problem/ 23 24 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM non-performing assets. It was Metaxas’ responsibility to spearhead a plan to raise capital and ensure that a significant portion of problem assets would be sold. According to court filings, Metaxas, along with others, allegedly planned and executed a sham round-trip transaction that caused Gateway to use its own funds to subsidize a sale of Gateway’s nonperforming mortgage loans. Despite the defendant’s scheme to fraudulently improve Gateway’s financial condition, Gateway never received TARP funds. In February and March 2009, Metaxas presented to Gateway’s board for its approval a proposal to sell problem assets. Three entities, Cooper Capital Group Ltd., Empower International, Inc., and The Steve Manna Group, LLC (“the Purchasers”) had purportedly agreed to purchase Gateway’s problem assets for approximately $15 million. The sale required the Purchasers to make a 25% down payment of the purchase price with Gateway financing the remaining 75% of the sale. Metaxas and her co-conspirators allegedly had devised a scheme in which Gateway would provide the buyers with the funds necessary to satisfy the 25% down payment. Metaxas allegedly recommended that the board approve the sale without disclosing the relationship and the financing arrangement among the coconspirators. After the board approved the sale, Metaxas allegedly caused Gateway to extend a sham loan to Ideal Mortgage Bankers Ltd. d/b/a Lend America (“Lend America”), a mortgage lender and Gateway’s largest mortgage lending client, falsely claiming that the loan was to facilitate Lend America’s need for liquidity. On March 30, 2009, Gateway transferred $3.64 million to Lend America. The funds were immediately transferred to Lend America’s payroll accounts, and then wired to the Purchasers’ accounts. The Purchasers turned around and used the funds to submit the required 25% down payment. It is alleged that Metaxas failed to disclose the true source of the down payment to the board and lied about the source of the down payment to the OTS when she testified during the formal exam process. The round-trip transaction resulted in significant losses for Gateway. In November 2009, Lend America ceased operations after receiving a court-ordered injunction that prevented it from making loans insured by the Federal Housing Administration. Gateway was forced to write off the entire loan to Lend America. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Eastern District of New York, the Federal Bureau of Investigation, and the Department of Housing and Urban Development Office of Inspector General. Former Bank Executive Officer Charged with Bank Fraud and Money Laundering – Gary Alan Rickenbach, One Bank & Trust, N.A. On April 2, 2014, Gary Alan Rickenbach, the former Executive Vice President and Senior Executive Vice President of One Bank & Trust, N.A., (“Onebanc”) and One Financial Corporation, was indicted in the U.S. District Court for the Eastern District of Arkansas on one count each of conspiracy to commit bank fraud, misapplication of bank monies, making false entries to deceive bank regulators, obstructing a bank regulatory examination, and money laundering. One Financial Corporation, the bank holding company for Onebanc, received $17.3 million in TARP funds through the Capital Purchase Program in June 2009. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 In April 2007, Rickenbach arranged for the approval of a $1.5 million line of credit for an associate without going through the formal process of Onebanc’s loan committee, according to court documents. The associate never paid back the line of credit, leaving the bank with at least a $1.5 million loss. Beginning in 2009, Rickenbach allegedly conspired with others to make fraudulent loans and lines of credit in an attempt to hide the loss from bank regulators. Rickenbach also allegedly misled certain members of Onebanc’s Board of Directors concerning the transactions and diverted funds that were due to the bank. He ultimately misapplied the funds as payment on the loans. If convicted of the most serious offense, conspiracy to commit money laundering, Rickenbach faces up to 20 years in Federal prison. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Eastern District of Arkansas, Internal Revenue Service Criminal Investigation, the Federal Bureau of Investigation, the Federal Reserve Board Office of Inspector General, and the Federal Deposit Insurance Corporation Office of Inspector General. Bank Chairman Sentenced for Lying to SIGTARP Regarding Use of TARP Funds to Purchase Luxury Vacation Property – Darryl Layne Woods, Mainstreet Bank On March 25, 2014, Darryl Layne Woods, the former chairman, president, and majority shareholder of Calvert Financial Corporation (“Calvert”), the bank holding company for Mainstreet Bank (“Mainstreet”), was sentenced to eight months detention in a halfway house followed by four months home detention for lying about the use of TARP funds. Woods, who was also the former chairman and chief financial officer of Mainstreet, was also ordered to pay $96,977 in restitution to Calvert and a $10,000 fine. 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. In January 2009, Calvert received $1,037,000 through the TARP Capital Purchase Program. On August 26, 2013, Woods pled guilty in U.S. District Court for the Western District of Missouri to misleading SIGTARP investigators about his use of TARP funds. On February 2, 2009, shortly after receiving $1,037,000 through the TARP Capital Purchase Program, Woods used $381,487 of the TARP funds received by Calvert to purchase a luxury seaside condominium in Fort Myers, Florida. In February 2009, as part of its oversight function, SIGTARP sent letters to various financial institutions seeking specific information about 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, a material misrepresentation relating to the true use of the TARP funds. This case was investigated by SIGTARP, the U.S. Attorney’s Office for the Western District of Missouri, the Federal Bureau of Investigation, and Federal Reserve Board Office of Inspector General. 25 26 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Former Delaware Bank Officer Charged in Bank Fraud Scheme – Brian D. Bailey, Wilmington Trust On February 4, 2014, Brian D. Bailey, former head of commercial real estate and Delaware market manager at TARP-recipient Wilmington Trust Company (“Wilmington Trust”) was indicted by a Federal grand jury in Wilmington, Delaware. Bailey was charged in a 14-count indictment with nine counts of bank fraud and one count each of conspiracy to commit bank fraud, conspiracy to commit bank bribery, corruptly receiving a gift for procuring a loan, corruptly providing a gift with intent to influence a bank employee, and money laundering. Wilmington Trust received $330 million in TARP funds in December 2008. The indictment alleges that Bailey engaged in a 12-year lending relationship with James A. Ladio, former chief lending officer at Artisans’ Bank (“Artisans’”) and former chief executive officer of MidCoast Community Bank (“MidCoast”), that involved bank fraud, bribery, and money laundering. According to the indictment, Bailey and Ladio approved for each other approximately 23 loans and loan modifications through their respective positions at Wilmington Trust, Artisans’, and MidCoast. The indictment further alleges that the aggregate amount of all the loan facilities was in excess of $1.5 million. As previously reported, Ladio pled guilty on December 17, 2013, to bank fraud and money laundering. He admitted to using his position at MidCoast to approve business loans to MidCoast customers when in reality he hid the fact that he was scheming to personally receive the loans for his own use. He also admitted to borrowing money from a TARP-recipient bank to fund a number of businesses and investment projects, and securing the loans with investment properties. In March 2009, Ladio sold one investment property without informing the bank or using the proceeds to pay back the loans. For each count of the most serious offense, bank fraud, Ladio faces up to 30 years in prison. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the District of Delaware, the Federal Bureau of Investigation, and Internal Revenue Service Criminal Investigation. Bank Officer Admits to Bank Fraud and Approving Loans in Exchange for Kickbacks – Christopher Tumbaga, Colorado East Bank and Trust On March 24, 2014, Christopher Tumbaga, a former loan officer at Colorado East Bank and Trust (“CEBT”), pled guilty in U.S. District Court for the District of Colorado, to bank fraud and to fraudulently approving loans for co-defendant, Brian Headle, in return for illegal kickbacks. As part of his plea agreement, Tumbaga also agreed to a ban from future involvement in banking activities. Sentencing is set for September 30, 2014. For each count of the most serious offense, bank fraud, Tumbaga faces a maximum of 30 years in Federal prison. In February 2009, ColoEast Bankshares, Inc., the parent company of CEBT, received $10 million through the TARP Capital Purchase Program. The bank was later unable to pay more than $1 million in dividends it owed to taxpayers. In July 2013, the U.S. Department of the Treasury sold its stake in the company at auction QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 for approximately $9 million. In total, approximately $2 million owed to Federal taxpayers was lost on the investment. Tumbaga admitted that, from March 2009 through July 2011, he used his position as loan officer at CEBT to fraudulently approve more than $1 million in loans for the benefit of Headle. As part of the fraud scheme, Tumbaga admitted that he had Headle submit materially false loan applications, which Tumbaga approved without review. Tumbaga further admitted that he circumvented CEBT’s limits on loans to one person by fraudulently representing that the loans were for Headle’s company, Headle’s wife, or her company. When necessary, Tumbaga stated that he would forge the bank president’s signature to obtain approval for the fraudulent loans. He also admitted to withdrawing $100,000 from another bank client’s account and giving the money to Headle. To cover that theft, Tumbaga obtained another fraudulent loan under Headle’s name. When additional loans were necessary to make payments on the fraudulent earlier loans, Tumbaga admitted to obtaining fraudulent loans in the names of Headle’s parents and step-parents. As part of his plea agreement, Tumbaga admitted to accepting over $60,000 in kickbacks from Headle. Tumbaga and Headle were charged jointly on September 25, 2013. Headle was charged with seven counts of bank fraud and eleven counts of bribing a bank official. Headle is scheduled to stand trial on September 15, 2014. This case was investigated by SIGTARP, the U.S. Attorney’s Office for the District of Colorado, the Federal Deposit Insurance Corporation Office of Inspector General, and the Federal Bureau of Investigation. Borrower Sentenced to More Than Six Years for Defrauding Multiple TARP Banks Including Failed TARP Bank GulfSouth – Lawrence Allen Wright On January 14, 2014, Lawrence Allen Wright was sentenced to six years and three months in Federal prison to be followed by five years of supervised release. Wright was ordered to pay more than $3.7 million in restitution for carrying out a series of fraud schemes against several banks, including TARP-recipients GulfSouth Private Bank (“GulfSouth”), Regions Bank, and Bank of America. Wright pled guilty in Federal court in Pensacola, Florida, on October 29, 2013, to charges that included conspiracy to commit fraud, conspiracy to commit money laundering, bank fraud, mail fraud, aggravated identity theft, and making a false statement to a Federally insured bank. From November 2006 through January 2010, Wright engaged in a scheme where an individual’s identity was used without that individual’s knowledge or permission on mortgage and tax documents to obtain bank loans. After obtaining the loans, Wright stopped making payments, which resulted in foreclosure on the mortgaged properties and a civil action against the person whose identity was used by Wright. Wright engaged in this conduct to obtain loans on several properties, which resulted in losses to several banks. During this time, Wright also recruited individuals to purchase unimproved lots by promising that his company, Wright & Associates, would make the monthly loan payments. The purchasers’ incomes were 27 28 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM inflated on the loan applications, and ultimately, no payments were made on the loans, and the properties went into foreclosure. On October 19, 2012, GulfSouth failed, and the FDIC was named as receiver. At the time, $7.5 million in TARP funds had not been repaid. In addition, the FDIC estimates the cost to its Deposit Insurance Fund from the bank failure to be in excess of $36.1 million. This case was investigated by SIGTARP, the U.S. Attorney’s Office for the Northern District of Florida, Internal Revenue Service Criminal Investigation, Federal Deposit Insurance Corporation Office of the Inspector General, and the Okaloosa County Sheriff’s Office as part of the Northwest Florida Financial Crimes Task Force. Former Bank Manager Pleads Guilty in Narcotics Kickback Scheme Against Failed TARP Bank – Phillip Alan Owen, Superior Bank On February 4, 2014, Phillip Alan Owen, a former branch manager of Superior Financial Services, LLC, a subsidiary of Superior Bank, entered a guilty plea in U.S. District Court for the Northern District of Alabama to conspiring with others to carry out a loan scheme against Superior Bank. Superior Bancorp, Inc., the holding company for Superior Bank, received $69 million in TARP funds on December 5, 2008. On April 15, 2011, Superior Bank failed and the FDIC was named receiver. At that time, the $69 million in TARP funds remained unpaid. According to court documents, from September 26, 2007 through May 9, 2009, Owen used his position as bank manager to submit, certify, and approve falsified loan documents in exchange for narcotics. Owen also overvalued collateral in order to obtain approval for inflated loan amounts, unlawfully disbursed loan proceeds, and prematurely released collateral that had been used to secure loans. Owen’s role in the scheme caused the bank a loss of more than $200,000. Sentencing is scheduled for June 25, 2014. At sentencing, Owen faces up to 30 years in Federal prison. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Northern District of Alabama, and the Federal Bureau of Investigation. Missouri Businessmen Charged with Defrauding TARP Recipient Excel Bank – William Glasgow, James Crews, Michael Hilbert On January 10, 2014, the U.S. District Court for the Eastern District of Missouri unsealed two separate indictments against three Missouri businessmen charging them with bank fraud against TARP-recipient Excel Bank. William Glasgow was charged on December 11, 2013, with two counts of bank fraud. In a separate indictment, James Crews and Michael Hilbert were each indicted on two counts of bank fraud. All three defendants surrendered to authorities on January 10, 2014. If convicted, each defendant faces a maximum penalty of 30 years in Federal prison on each count. Trial dates have yet to be set. According to court documents, Glasgow was in the real estate business in Missouri, having owned a number of rental properties. Glasgow allegedly obtained two loans through Excel Bank by submitting falsified loan documents and financial QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 statements. Court documents state that Crews and Hilbert operated their real estate rental business in Missouri through various entities. Crews and Hilbert allegedly made several large fraudulent construction draw requests from Excel Bank using escrow funds set aside for the improvement of their rental properties. Investors Financial Corporation, the parent company of Excel Bank, received $4 million in TARP funds in May 2009. Excel Bank failed on October 19, 2012, and the FDIC was named receiver. The $4 million TARP investment was never repaid. The loss to the FDIC was $40.9 million. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Eastern District of Missouri, and the Federal Bureau of Investigation. Former TARP Bank Official Charged for Role in Fraud Scheme – David Weimert On February 19, 2014, David Weimert was charged in the U.S. District Court for the Western District of Wisconsin with six counts of wire fraud for allegedly participating in a scheme to obtain money through fraudulent pretenses. Weimert was the Senior Vice President in Lending Administration at Anchor BanCorp Wisconsin, Inc. (“Anchor”) and the President of Investment Directions, Inc. (“IDI”), a wholly-owned subsidiary of Anchor. If convicted, Weimert faces a maximum of 30 years in Federal prison on each count. A trial date has yet to be set. As alleged, from December 2008 through March 31, 2009, while serving in his positions at Anchor and IDI, Weimert misrepresented and omitted material information in order to obtain an ownership interest in a real estate partnership called Chandler Creek and to obtain a 4% commission fee in connection with the sale of Chandler Creek. Chandler Creek was a joint venture partnership formed with the Burke Real Estate Group (“The Burke Group”) to develop an industrial park in Round Rock, Texas. IDI and The Burke Group each owned a 50% interest in Chandler Creek. To further his fraud scheme, Weimert allegedly falsely represented in writing to the IDI Board of Directors that The Burke Group would buy IDI’s share of Chandler Creek contingent on Weimert purchasing a minority interest in Chandler Creek as part of the deal. Weimert failed to disclose that, in actuality, it was only Weimert who desired the minority interest for himself. As a result of his material misrepresentations, the IDI Board of Directors accepted The Burke Group’s offer to purchase Chandler Creek. As part of the purchase deal, Weimert was allegedly granted 4.785% ownership interest in Chandler Creek and was paid a 4% commission, totaling $311,000. In January 2009, Anchor received $110 million in TARP funds. The U.S. Department of the 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 Anchor’s “pre-packaged” Chapter 11 bankruptcy reorganization. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Western District of Wisconsin, and the Federal Bureau of Investigation. 29 30 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Conspirators in Real Estate Straw Purchase Fraud Scheme Sentenced – Winston and Marleen Shillingford, Robert Ilunga On January 28, 2014, in U.S. District Court for the District of Connecticut, Winston and Marleen Shillingford, husband and wife, were both sentenced for their roles in a mortgage fraud scheme that defrauded mortgage lenders, including TARP recipient banks. Winston Shillingford was sentenced to four years in Federal prison, followed by three years of supervised release. Marleen Shillingford was sentenced to three years in Federal prison, also to be followed with three years of supervised release. On January 31, 2014, their co-conspirator, Robert Ilunga, was sentenced to Federal prison for one year and six months, followed by three years of supervised release. All three defendants had previously pled guilty to conspiracy to commit wire fraud and conspiracy to commit money laundering related to their involvement in the mortgage fraud scheme. From approximately April 2004 through August 2011, the defendants conspired with others in a mortgage fraud and money laundering scheme to obtain false mortgages. Utilizing a real estate company called Waikele Properties Corporation, they and their co-conspirators purchased more than 40 multi-family and vacant properties in Bridgeport, Connecticut, on which they built new houses. The scheme involved recruiting straw purchasers for the properties who then applied for mortgages from banks, including Bank of America and other TARP banks. The defendants and their co-conspirators filed loan applications on behalf of the purchasers that materially misrepresented their employment, income, assets, and liabilities, and provided the banks with false documentation. As a result of the scheme, the defrauded financial institutions suffered more than $7 million in losses. This case was investigated by SIGTARP, the United States Attorney’s Office for the District of Connecticut, Internal Revenue Service Criminal Investigation, the Federal Bureau of Investigation, and the Department of Housing and Urban Development Office of Inspector General. Former Bank Executive Admits to Taking Kickbacks – Oxford Collection Agency On January 10, 2014, in U.S. District Court for the District of Connecticut, Michael Gesimondo pled guilty to taking kickbacks while he was a collections manager at Washington Mutual Bank (“Washington Mutual”). On September 25, 2008, Washington Mutual was closed by Federal regulators, and its banking operations were sold to JPMorgan Chase & Co. in a transaction facilitated by regulators. On October 28, 2008, JPMorgan Chase & Co. received $25 billion in TARP. The TARP funds were repaid in full on June 17, 2009. According to court documents Gesimondo was in charge of outsourcing collection accounts to collection agencies. Washington Mutual had a contract with Oxford Collection Agency (“Oxford”) to collect debts owed by its consumers. Gesimondo admitted that, from May 2008 through May 2009, he received kickbacks as reward for providing Oxford with Washington Mutual’s debt collection business. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 From January 2007 through March 2011, Oxford had agreements with business clients to collect debts, 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 what was collected by Oxford as a fee. During that time period, Oxford engaged in a large fraud scheme in which it defrauded its lender, investors, and clients, while also bribing bank officials. As previously reported, the investigation and prosecution of the multi-year fraud scheme at Oxford has resulted in several pleas of guilty by former Oxford officers: Richard Pinto, Chairman of the Board, Peter Pinto, CEO and President, Patrick Pinto, executive and co-owner, Randall Silver, chief financial officer, Charles Harris, executive vice president, and Carlos Novelli, chief operations officer. Wilbur Tate III, the former assistant vice president in charge of debt collection at TARP recipient U.S. Bank in Ohio also pled guilty to accepting bribes from executives of Oxford in exchange for U.S. Bank’s business. The case is being investigated by SIGTARP, the U.S. Attorney’s Office for the District of Connecticut, Internal Revenue Service Criminal Investigation, the Federal Bureau of Investigation, and the Connecticut Securities, Commodities and Investor Fraud Task Force. Perpetrators of Various Investor Fraud Schemes Plead Guilty – Marvin Solis, Michael P. Ramdat On January 29, 2014, Marvin Solis pled guilty in U.S. District Court for the Northern District of California to two counts of wire fraud relating to a fraudulent investor scheme in which illegal profits were funneled through banks that received TARP funding. Solis was indicted on September 5, 2013, and arrested on September 11, 2013, by SIGTARP agents and our law enforcement partners. Solis is scheduled to be sentenced on May 14, 2014. For each count of wire fraud, he faces a maximum of 20 years in Federal prison. Solis admitted that, from September 2008 through March 2009, he told investor clients he would help locate investment properties for them to purchase. Instead of fulfilling his promises, Solis used their money to, among other things, pay his own expenses and trade in the futures market. On February 26, 2014, Michael P. Ramdat pled guilty in U.S. District Court for the Northern District of California to conspiracy and multiple counts of wire fraud relating to a fraudulent investor scheme utilizing a TARP bank. As previously reported, Ramdat and his co-conspirator, Leigh F. Fiske, were indicted by a Federal grand jury on November 21, 2013. Fiske and Ramdat were arrested by SIGTARP agents and their law enforcement partners on September 16, 2013, and December 2, 2013, respectively. Ramdat is scheduled to be sentenced on June 4, 2014. For each count of wire fraud, he faces a maximum of 20 years in Federal prison. Ramdat admitted that from July 2008 through June 2009, he and Fiske told investors they would help obtain lines of credit for their businesses. Ramdat admitted that he and Fiske lied to investors by never providing any assistance to these individuals and instead transferring the money into their own personal bank accounts. Ramdat further admitted that they defrauded victims out of more than $400,000 and used the profits for their own personal expenses. 31 32 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Northern District of California, and the Federal Bureau of Investigation. Man Charged in TARP-related Scheme to Sell Properties from HomePath Program – Greenfield Advisors, LLC On January 22, 2014, Mark Steven Thompson was charged in the U.S. District Court for the Western District of Texas with aiding and abetting wire fraud for his alleged participation in a fraud scheme to sell TARP-related properties. Thompson was arrested on January 24, 2014. According to court documents, from November 2013 through January 2014, the defendant allegedly contacted real estate investment firms and misrepresented that his affiliated companies, Greenfield Advisors, LLC, and Escrow Professionals, Inc., were authorized to sell U.S. Government held properties under the TARP program HomePath. Court documents allege that the defendant entered into contracts with individuals to purchase properties from the HomePath program when, in fact, he had no authority to enter into such contracts. The defendant would then direct the victims to use Escrow Professionals, Inc., as the escrow company for the sale. As alleged, the money, intended as earnest money and property payments, was instead funneled into bank accounts controlled by the defendant and used for his personal expenses. The defendant is accused of defrauding victims out of more than $600,000. If convicted, Thompson faces up to 20 years in Federal prison. This case is being investigated by SIGTARP, the U.S. Attorney’s Office for the Western District of Texas, and the Federal Bureau of Investigation. Sentences Resulting from TARP-Related Crimes Of the 129 defendants convicted as a result of a SIGTARP investigation, 80 defendants have already been sentenced to prison for TARP-related crimes, 17 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 66 months, which is nearly double the national average length of prison sentences involving white-collar fraud of 35 months.iii Fourteen 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 Mortgage Corporation LLC, who is serving a 30-year prison sentence, and Edward Woodard, former chairman of the Bank of the Commonwealth, who is serving a 23-year prison sentence. Many of the criminal schemes uncovered by SIGTARP had been ongoing for years, and involved 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 74 months in prison. Criminals convicted for mortgage modification fraud schemes or other mortgage fraud related iii See the U.S. Sentencing Commission’s 2012 Sourcebook of Federal Sentencing Statistics for additional information. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 investigations by SIGTARP were sentenced to serve an average of 44 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. 33 34 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 1.3 Lee Bentley Farkas 360 months 3 years supervised release Chairman Taylor, Bean and Whitaker Edward Woodard 276 months 5 years supervised release President & CEO Bank of the Commonwealth 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 [deceased] 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. Isaak Khafizov 108 months 3 years supervised release Principle American Home Recovery 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 Christopher Godfrey 84 months 3 years supervised release President H.O.P.E. Dennis Fischer 84 months 3 years supervised release Vice President H.O.P.E. Lawrence Allen Wright 75 months 5 years supervised release Owner Wright & Associates 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 and Whitaker QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Jason Sant 72 months 2 years supervised release Co-owner Home Advocate Trustees Edward Shannon Polen 71 months 5 years supervised release Owner Polen Lawn Care and Maintenance/F&M 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 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 and 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 Peter Pinto 48 months 3 years supervised release President/COO Oxford Collection Agency Winston Shillingford 48 months 3 years supervised release Co-owner Waikele Properties Corp. Julius Blackwelder 46 months 3 years supervised release Manager Friends Investment Group Paul Allen 40 months 2 years supervised release CEO Taylor, Bean and 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 Marleen Shillingford 36 months 3 years supervised release Co-owner Waikele Properties Corp. Roger Jones 33 months 3 years supervised release Federal Housing Modification Department Raymond Bowman 30 months 2 years supervised release President Taylor, Bean and 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 Joseph D. Wheliss, Jr. 24 months 5 years supervised release Owner/Operator National Embroidery Works Inc 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 35 36 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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. Matthew Amento 18 months 3 years supervised release Owner Blue and White Management, Ameridream Christopher Woods 18 months 3 years supervised release Owner Blue and White Management, Ameridream Troy A. Fouquet 18 months 3 years supervised release Owner Team Management, LLC TRISA, LLC Robert Ilunga 18 months 3 years probation Manager Waikele Properties Corp. Vernell Burris 12 months 2 years supervised release Employee H.O.P.E. 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. Walter Bruce Harrell 10 months 3 years supervised release Owner 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 and 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 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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 against 188 defendants (129 of whom have been convicted as of April 2, 2014, while others await trial).iv These defendants were charged in courts in 23 states and Washington, DC. SIGTARP investigations have identified victims of TARP-related crimes in all 50 states and Washington, DC. Victims of TARP-related crimes include taxpayers, the Federal Government, including Treasury and FDIC, TARPrecipient banks, and homeowners targeted by mortgage modification scams. Figure 1.4 shows locations of U.S. Attorney’s Offices and state prosecutorial offices where criminal charges were filed as a result of SIGTARP investigations.v 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. 37 38 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 1.4 LOCATIONS WHERE CRIMINAL CHARGES WERE FILED AS A RESULT OF SIGTARP INVESTIGATIONS Fargo Buffalo Madison Brooklyn New York Chicago Sacramento San Francisco Las Vegas Denver Concord Boston New Haven Newark Philadelphia Wilmington Upper Marlboro District of Columbia Alexandria Springfield Kansas City Norfolk St. Louis Jefferson City Nashville Los Angeles Little Rock San Diego Atlanta Birmingham Macon Tallahassee San Antonio Birmingham, Alabama Northern District of Alabama Little Rock, Arkansas Eastern District of Arkansas 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 Denver, Colorado District of Colorado New Haven, Connecticut District of Connecticut Wilmington, Delaware District of Delaware Tampa, Florida Middle District of Florida Tallahassee, Florida Northern District of Florida Note: Italics denote state cases. New Orleans 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 St. Louis, Missouri Eastern District of Missouri Kansas City, Missouri Western District of Missouri Jefferson City, Missouri Western District of Missouri Fargo, North Dakota District of North Dakota Tampa 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 San Antonio, Texas Western District of Texas Alexandria, Virginia Eastern District of Virginia Madison, Wisconsin Western District of Wisconsin Washington, DC U.S. Department of Justice QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Restitution and Forfeiture from TARP-Related Crimes As of April 2, 2014, investigations conducted by SIGTARP have resulted in more than $4.77 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. Two cases in particular that SIGTARP investigated have resulted in not only lengthy prison sentences for a number of individuals in each case but also significant orders of forfeiture and restitution. In the Colonial Bank/Taylor, Bean and Whitaker Mortgage Corporation (“TBW”) case, former TBW chairman Lee Bentley Farkas spearheaded a $2.9 billion fraud scheme that contributed to the failure of Colonial Bank, the sixth largest bank failure in U.S. history. The case resulted in not only prison time for eight people, including Farkas, but also courtordered restitution of $3.5 billion and forfeiture of $38.5 million. In the Bank of the Commonwealth (“BOC”) case, where former chairman Edward J. Woodard led a $41 million bank fraud scheme that masked non-performing assets at BOC and contributed to the failure of BOC in 2011, the court entered a restitution order of $333 million and a forfeiture order of $65 million against nine defendants, each responsible for at least a portion. Overall in SIGTARP cases, orders of restitution and forfeiture to victims and the Government of numerous assets as well as seized assets pending final order include dozens of vehicles, more than 30 properties (including businesses and waterfront homes), more than 30 bank accounts (including a bank account located in the Cayman Islands), bags of silver, U.S. currency, antique and collector coins (including gold, silver, and copper coins), artwork, 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 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. As part of the Bank of the Commonwealth case, Thomas Arney, who pled guilty for his role in the bank fraud scheme, agreed to forfeit the proceeds from the sale of two antique cars to the Government: a 1948 Pontiac Silver Streak and a 1957 Cadillac Coup de Ville. Figure 1.5 includes pictures of the forfeited cars, as well as other examples of assets seized by the Government in SIGTARP investigations. 39 40 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 1.5 1957 Cadillac Coupe de Ville. 1948 Pontiac Silver Streak. 2010 Mercedes-Benz GLK 350 4Matic. Estimated value in 2013: $29,000. (Source Kelley Blue Book) 2005 Hummer H2. Estimated value in 2013: $24,000. (Source Kelley Blue Book) Property located in Norfolk, Virginia. (Photo courtesy of Bill Tiernan, The Virginian-Pilot) 1958 Mercedes-Benz Cabriolet 220. Estimated value in 2013: $185,000. (Source Hagerty.com) 19th century English painting of “Royal Family,” oil on canvas. Estimated appraised value: $6,000. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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. 41 42 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 April 2, 2014, SIGTARP investigations have resulted in orders temporarily suspending or permanently banning 94 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 94 individuals, 46 were heads or owners of companies, including those who were chairmen, chief executive officers, and presidents of financial institutions. Most of the remaining 48 individuals were chief financial officers, senior vice presidents, chief operating officers, chief credit officers, licensed attorneys, and other senior executives. This quarter SIGTARP investigations resulted in three significant industry prohibitions that are part of a settlement agreement or a condition of a guilty plea. Former Bank of America CEO, Kenneth Lewis, agreed to a 3-year ban from serving as an officer or director of a public company in order to settle a lawsuit with the New York Attorney General concerning misrepresentations to shareholders and the Federal Government. Darryl Layne Woods, the former chairman, president, and majority shareholder of Calvert Financial Corporation agreed to a ban from any future involvement in any banking activities as part of his guilty plea for misleading SIGTARP investigators about his use of TARP funds. Christopher Tumbaga, a former loan officer at Colorado East Bank and Trust, pled guilty in U.S. District Court for the District of Colorado to bank fraud and receiving kickbacks and also agreed to a ban from any future involvement in any bank activities. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Joseph Terranova, a former senior official at Delaware-based Wilmington Trust Company, pled guilty to conspiracy to commit bank fraud for his role in a fraud scheme that concealed the true financial condition of the TARP recipient. As part of his plea agreement, Terranova also agreed to a ban from any future involvement in the industry. Edward Woodard, former president, chief executive officer, and chairman of the board at the Bank of the Commonwealth, was not only sentenced to 23 years in Federal prison for his role in a $41 million bank fraud scheme, but also, once he is released from prison and begins to serve a five year term of supervised release, he is prohibited from engaging in any aspect of the banking business, or any similar occupation. In the $2.9 billion fraud that led to the failures of Taylor, Bean and Whitaker Mortgage Corporation (“TBW”) and Colonial Bank, the chief executive officer and chairman of TBW, Lee Bentley Farkas, was not only 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 from Federal prison. The Federal Deposit Insurance Corporation (“FDIC”) issued lifetime bans against former president, CEO, and chairman Mark Conner of failed TARP applicant FirstCity Bank, Stockton, Georgia, and former president and CEO Reginald Harper of failed TARP applicant First Community Bank, Hammond, Louisiana, for engaging in unsafe and unsound banking practices and breaching their fiduciary duty. FDIC bans prohibit these former CEOs from participating in the conduct of the affairs of their previously affiliated banks and any bank in the future. The bans were issued in addition to their 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. NewPoint Financial Services, Inc. (“NewPoint”) 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 FDIC while on supervised release. Farahi 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 seven 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 43 44 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM SIGTARP’s Consumer Fraud Alert and its Armed Services Mortgage Fraud Alert are reproduced inside the back cover of this report. For more about SIGTARP’s Hotline, see SIGTARP’s January 2014 Quarterly Report, pages 255-270. 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. Eleven attorneys who have been investigated by SIGTARP and its law enforcement partners have been sanctioned by their professional licensing groups. Robert Maloney, in-house counsel for FirstCity 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 NewPoint Financial Services, Inc., who was sentenced to 84 months in Federal prison for his role in obstructing the Government’s investigation, 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 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, LLC 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 was 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 March 31, 2014, 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. SIGTARP Hotline As a criminal law enforcement agency, SIGTARP created its Hotline as a crime tip hotline for the American public to report and offer leads on criminal investigations and suspected violations of criminal and civil laws in connection with TARP. As QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 of March 31, 2014, the SIGTARP Hotline has received and analyzed 33,622 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-SIG2009 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. Additionally, on January 31, 2013, SIGTARP’s Deputy Chief of Staff, Chuck Jones, and Senior Policy Advisor, Brian Sano, provided a briefing open to all House and Senate staff on SIGTARP’s January 29, 2014, Quarterly Report and SIGTARP’s special report entitled “Taxpayer Complaints to Hotline Help SIGTARP Fight Fraud and Highlight Continuing Problems with TARP Housing Programs.” 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 March 31, 2014, SIGTARP had 165 employees, plus one detailee from the Federal Housing Finance Agency Office of Inspector General. The SIGTARP organization chart as of April 11, 2014, 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 March 31, 2014, SIGTARP’s website has had more than 61.1million 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 45 46 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 10, 2012, through March 31, 2014, there have been 195,824 page views.vi From July 1, 2012, through March 31, 2014, there have been 13,734 downloads of SIGTARP’s quarterly reports.vii Budget Figure 1.6 provides a detailed breakdown of SIGTARP’s fiscal year 2014 budget, which reflects a total operating budget of $42.4 million. The Consolidated Appropriations Act, 2014 (P.L. 113-76) provided $34.9 million in annual appropriations. The operating budget includes $34.9 million in annual appropriation and portions of SIGTARP’s initial funding that have not yet been spent. Figure 1.7 provides a detailed breakdown of SIGTARP’s fiscal year 2015 proposed budget, which reflects a total operating plan of $46.1 million. This would include $34.2 million in requested annual appropriations and portions of SIGTARP’s initial funding. FIGURE 1.6 FIGURE 1.7 SIGTARP FY 2014 OPERATING PLAN SIGTARP FY 2015 PROPOSED BUDGET ($ MILLIONS, PERCENTAGE OF $42.4 MILLION) Other Services $2.3, 5% Other Services $1.6, 4% Advisory Services $2.6 Interagency Agreements $9.7 ($ MILLIONS, PERCENTAGE OF $46.1 MILLION) Advisory Services $3.2 6% 23% 65% Salaries and 7% Interagency Agreements 18% $8.2 Salaries and $31.3 $27.6 Travel $0.9, 2% 68% Travel $1.1, 2% 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. SECT IO N 2 TARP OVERVIEW 48 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.6 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 $456.5 billion as of March 31, 2014.7 Of that amount, $423.4 billion had been spent.8 Taxpayers are owed $41.2 billion as of March 31, 2014. According to Treasury, as of March 31, 2014, it had $33.2 billion in write-offs, realized losses, or amounts currently not collectible because of pending bankruptcies or receiverships, leaving $8.1 billion in TARP funds outstanding.9 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.10 These amounts do not include $11.7 billion in TARP funds spent on housing support programs, which are designed as a Government subsidy, with no repayments to taxpayers expected.11 In the quarter ended March 31, 2014, 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 March 31, 2014, $1.2 billion of TARP funds were spent on housing programs, leaving $26.8 billion obligated and available to be spent.12 Table 2.1 provides a breakdown of program obligations, changes in obligations, expenditures, principal repaid, principal refinanced, amounts still owed to taxpayers under TARP, and obligations available to be spent as of March 31, 2014. Table 2.1 lists 10 TARP sub-programs, instead of all 13, because it excludes the Capital Obligations: Definite commitments that create a legal liability for the Government to pay funds. Deobligations: An agency’s cancellation or downward adjustment of previously incurred obligations. 49 50 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Assistance Program (“CAP”), which was never funded, and summarizes three programs under “Automotive Industry Support Programs.” Table 2.2 details writeoffs, realized losses, and amounts currently not collectible in TARP as of March 31, 2014. TABLE 2.1 OBLIGATIONS, EXPENDITURES, PRINCIPAL REPAID, PRINCIPAL REFINANCED, AMOUNTS STILL OWED TO TAXPAYERS, AND OBLIGATIONS AVAILABLE TO BE SPENT ($ BILLIONS) Program Obligation After DoddFrank (As of 10/3/2010) Current Obligation (As of 3/31/2014) Expenditure (As of 3/31/2014) Principal Repaid (As of 3/31/2014) Principal Refinanced into SBLF (As of 3/31/2014) Still Owed to Taxpayers under TARP (As of 3/31/2014)a Available to Be Spent (As of 3/31/2014) Housing Support Programsb $45.6 $38.5c $11.7 NA $0.0 Capital Purchase Program 204.9 204.9 204.9 $196.0d 2.2 $6.7 0.0 0.6 0.6 0.2 0.1 0.0 0.5 0.0 Systemically Significant Failing Institutions 69.8 67.8f 67.8 54.4 0.0 13.5 0.0 Targeted Investment Program 40.0 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 81.8g 79.7h 79.7 59.1 0.0 20.6 0.0 4.3 0.1i 0.1 0.1 0.0 0.0 0.0 Public-Private Investment Program 22.4 19.6 18.6 18.6j 0.0 0.0 0.0k Unlocking Credit for Small Businesses 0.4 0.4 0.4 0.4 0.0 0.0 0.0 $474.8 $456.5 $423.4l $368.3 $2.2 $41.2 $26.8 Community Development Capital Initiativee Asset Guarantee Program Automotive Industry Support Programs Term Asset-Backed Securities Loan Facility Total NA $26.8 Notes: Numbers may not total due to rounding. NA=Not applicable. a Amount taxpayers still owed includes amounts disbursed and still outstanding, plus $33.2 billion in write-offs, realized losses, and investments currently not collectible because of pending bankruptcies or receiverships. It does not include $11.7 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 $368.3 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 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. h Treasury deobligated $2.1 billion of a Chrysler credit facility that was never drawn down. i 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. j 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. k 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 March 31, 2014, except for Invesco. l The $5 billion reduction in exposure under AGP is not included in the expenditure total because this amount was not an actual cash outlay. Sources: Treasury, Transactions Report, 3/19/2014; Treasury, Daily TARP Update, 4/1/2014; Treasury, response to SIGTARP data call, 4/9/2014. 51 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.2 TREASURY’S STATEMENT OF REALIZED LOSSES, WRITE-OFFS, AND AMOUNTS CURRENTLY NOT COLLECTIBLE IN TARP, AS OF 3/31/2014 ($ MILLIONS) TARP Program Institution Realized Lossa, Write-Offsb, Currently Not Collectiblec Total TARP Investment Description Autos Chrysler $1,328a Sold 98,461 shares and equity stake in the UAW Retiree trust for $560,000,000 Chrysler 1,600b Accepted $1.9 billion as full repayment for the debt of $3.5 billion Chrysler Total $10,465 $2,928 GM 3,203a Treasury sold to GM at a loss GM 7,130a Treasury sold to public at a loss GM 826a Loss due to bankruptcy plan of restructuring GM Total $49,500 $11,159 Ally Financial Ally Financial Total Total Investment 845a $17,174 $79,693d Sold 219,079 common shares at a loss in a private offering $845 Total Realized Loss, Write-Offs, Currently Not Collectible $14,932 CDCI Premier Bancorp, Inc. Total Investment $7a $570 Total Realized Loss, Write-Offs, Currently Not Collectible Liquidation of failed bank $7 CPP 179 CPP Banks $1,503a,b Pacific Coast National Bancorp CIT Group Inc. 26 CPP banks in bankruptcy or receivership Total Investment Bankruptcy, loss already written off by Treasury 104a Bankruptcy, loss already realized by Treasury 2,330b Bankruptcy, loss already written off by Treasury 791c Bankruptcy or receivership in process 4 Anchor Bancorp Wisconsin, Inc. $204,895 Total Realized Loss, Write-Offs, Currently Not Collectible Sales and exchanges b $4,731 SSFI AIGe $13,485a Total Investment Total Realized Loss Total TARP Investment $27,363 $350,439 $67,835 Total Realized Loss, Write-Offs, Currently Not Collectible Total Write-Offs $5,002 Sale of TARP common stock at a loss $13,485 Total Currently Not Collectible Total Realized Loss, Write-Offs, Currently Not Collectible $791 $33,155 Notes: Numbers may not total due to rounding. a Includes investments reported by Treasury as realized losses. Treasury changed its reporting methodology in calculating realized losses, effective June 30, 2012. Disposition expenses are no longer included in calculating realized losses. b Includes investments reported by Treasury as write-offs. According to Treasury, in the time since some transactions were classified as write-offs, Treasury has changed its practices and now classifies sales of preferred stock at a loss as realized losses. c Includes investments reported by Treasury as currently not collectible. 26 CPP banks, or their subsidiary banks, with total CPP investments of $791 million, 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. d Includes $1.5 billion investment in Chrysler Financial, $413 million ASSP investment, and $641 million AWCP investment. e 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. Sources: Treasury, Transactions Report, 3/19/2014; Treasury, Section 105(a) Report 4/10/2014; 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 4/1/2014; Treasury, response to SIGTARP data call, 4/9/2014; Treasury, Daily TARP Update, 6/3/2013, 6/13/2013, and 4/1/2014. 52 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TARP PROGRAMS UPDATE 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. As of March 31, 2014, 177 institutions remain in TARP: 71 banks with remaining CPP principal investments; 36 CPP banks for which Treasury now holds only warrants to purchase stock; 69 banks and credit unions in CDCI; and Ally Financial.13 Treasury does not consider the 36 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.14 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. According to Treasury, as of March 31, 2014, 268 TARP recipients (including 255 banks and credit unions, three auto companies, nine PPIP managers, and AIG) had paid back all of their principal or repurchased shares, although GM, Chrysler, and AIG did so at a loss to Treasury. Another 137 CPP banks refinanced into the Small Business Lending Fund (“SBLF”). In addition, eight TARP recipients (including seven banks and credit unions, and Ally Financial) had partially repaid their principal or repurchased their shares but remained in TARP.15 According to Treasury, as of March 31, 2014, 214 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 (25), or at a loss at auction (159), and institutions that are in various stages of bankruptcy or receivership (30).16 Thirteen banks have been sold at a profit at auction.17 Four CPP banks merged with other CPP banks.18 Figure 2.1 provides a snapshot of the cumulative expenditures, repayments, and amount owed as of March 31, 2014. Taxpayers also are entitled to dividend payments, interest, and warrants for taking on the risk of TARP investments. According to Treasury, as of March 31, 2014, Treasury had collected $47.9 billion in interest, dividends, and other income, including $9.5 billion in proceeds from the sale of warrants and stock received as a result of exercised warrants.19 Some TARP programs are scheduled to last as late as 2021. Other TARP programs have no scheduled ending date; TARP money will remain invested until recipients pay Treasury back or until Treasury sells its investments in the companies. Table 2.3 provides details of exit dates and remaining Treasury investments. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.3 FIGURE 2.1 STATUS OF CONTINUING TARP PROGRAMS CURRENT TARP EXPENDITURES, REPAYMENTS, AND AMOUNT OWED ($ BILLIONS) Program Investment status as of 3/31/2014 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 Capital Purchase Program Remaining principal investments in 71 banks; warrants for stock in an additional 36 banks Community Development Capital Initiative Remaining principal investments in 69 banks/ credit unions 200 Automotive Industry Financing Program Remaining investment: 37% stake in Ally 100 Term Asset-Backed Securities Loan Facility 2015 maturity of last loan Notes: Treasury’s Ally Financial stake as of 3/31/2014 was 37%, as of 4/10/2014 it is 17%. Sources: Treasury, Transactions Report, 3/19/2014; Treasury, Daily TARP Update, 4/1/2014; and Treasury, response to SIGTARP data call, 4/9/2014. 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.20 On March 4, 2014, OMB issued the Administration’s fiscal year 2015 budget, which included a TARP lifetime cost estimate of $39 billion, based largely on figures from November 30, 2013.21 This was a decrease from its estimate of $47.5 billion based on December 31, 2012, data.22 According to OMB, this decrease came largely from a smaller projected loss on the auto program, as well as from a technical adjustment to interest income that affects the overall Federal deficit, but has no direct affect on TARP program costs.23 The estimate also assumes principal repayments and revenue from dividends, warrants, interest, and fees for PPIP of $2.4 billion and for CPP of $8.3 billion. On April 17, 2014, CBO issued a TARP cost estimate based on its evaluation of data as of March 12, 2014. CBO estimated the ultimate cost of TARP would be $27 billion, up $6 billion from its estimate of $21 billion in May 2013.24 According to CBO, the increase is due primarily to an increase in projected mortgage program spending, offset by a decrease in the estimated costs associated with the automotive program. CBO estimates that TARP’s largest loss will come from the mortgage programs. CBO estimated that only $26 billion of obligated funds for housing will be spent. On December 11, 2013, Treasury issued its September 30, 2013, fiscal year audited agency financial statements for TARP, which contained a cost estimate of $40.3 billion.25 This estimate is a decrease from Treasury’s estimate of a $59.7 $500 400 $423.4 $368.3 300 $41.2 0 TARP Expenditures TARP Repaymentsa Amount Owedb Notes: As of 3/31/2014. Numbers may not total due to rounding. a Repayments include $196 billion for CPP, $40 billion for TIP, $59.1 billion for Auto Programs, $18.6 billion for PPIP, $54.4 billion for SSFI, and $0.4 billion for UCSB. The $196 billion for CPP repayments includes $363.3 million in non-cash conversion from CPP to CDCI, which is not included in the $368.3 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 $33.2 billion in write-offs, realized losses, and investments currently not collectible because of pending bankruptcies or receiverships. It does not include $11.7 billion in TARP dollars spent on housing programs. These programs are designed as Government subsidies, with no repayment to taxpayers expected. Sources: Treasury, Transactions Report, 3/19/2014; Treasury, Daily TARP Update, 4/1/2014. 53 54 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM billion loss as of September 30, 2012. According to Treasury, “These costs for the non-housing programs fluctuate in large part due to changes in the market prices of common stock for AIG and GM and the estimated value of the Ally stock.”26 According to Treasury, the largest costs from TARP are expected to come from housing programs and from assistance to AIG and the automotive industry.27 This estimate assumes that all of the funds obligated for housing support programs will be spent. The most recent TARP program cost estimates from each agency are listed in Table 2.4. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.4 COST (GAIN) OF TARP PROGRAMS ($ BILLIONS) CBO Estimate OMB Estimate Treasury Estimate, TARP Audited Agency Financial Statement 4/17/2014 3/12/2014 3/4/2014 11/30/2013 12/11/2013 9/30/2013 Housing Support Programs $26 $37.5 $37.7a Capital Purchase Program (17) (8.3) (16.1) Systemically Significant Failing Institutions 15 17.4 15.2 Targeted Investment Program and Asset Guarantee Program (8) (7.5) (8.0) Automotive Industry Support Programsb 14 20 14.7 Term Asset-Backed Securities Loan Facility (1) (0.5) (0.6) Public-Private Investment Program (3) (2.4) (2.7) * * * $56.3 $40.3e Program Name Report issued: Data as of: Otherc Total Interest on Reestimatesf Adjusted Total $27 d (17.2) $39.0e Notes: Numbers may not total due to rounding. a According to Treasury, “The estimated lifetime cost for Treasury Housing Programs under TARP represent the total commitment except for the FHA Refinance Program, which is accounted for under credit reform. The estimated lifetime cost of the FHA Refinance Program represents the total estimated subsidy cost associated with total obligated amount.” b Includes AIFP, ASSP, and AWCP. c Consists of CDCI and UCSB, both of which are estimated between a cost of $500 million and a gain of $500 million. d The estimate is before administrative costs and interest effects. e The estimate includes interest on reestimates but excludes administrative costs. f 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 2015,” 3/4/2014, www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/spec.pdf, accessed 4/18/2014; CBO Estimate - CBO, “Report on the Troubled Asset Relief Program—April 2014,” www.cbo.gov/sites/default/files/cbofiles/attachments/45260-TARP.pdf, accessed 4/18/2014; Treasury Estimate — Treasury, “Office of Financial Stability–Troubled Asset Relief Program Agency Financial Report Fiscal Year 2013,” 12/11/2013, www.treasury.gov/initiatives/financial-stability/reports/Documents/AFR_FY2013_TARP-1211-13_Final.pdf, accessed 4/1/2014. 55 56 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TARP PROGRAMS TARP programs fall into four categories: housing support programs, financial institution support programs, automotive industry support programs, and asset support programs. 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.28 As of March 31, 2014, $11.7 billion (30% of obligated funds) has been expended.29 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.”30 MHA, for which Treasury has obligated $29.8 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; the Second Lien Modification Program (“2MP”); and the U.S. Department of Veterans Affairs (“VA”) HAMP (“VA HAMP”), which TARP does not fund.31 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”).32 Additionally, the overall MHA obligation of $29.8 billion includes $2.7 billion to support the Treasury/FHA Second-Lien Program (“FHA2LP”), which expired as of December 31, 2013. FHA2LP was to complement the FHA Short Refinance program (discussed later) and was intended to support the extinguishment of second-lien loans, but no second liens had been partially written down or extinguished under the program before it expired.33 As of March 31, 2014, MHA had expended $7.8 billion of TARP money (26% of $29.8 billion).34 Of that amount, $6.4 billion was expended on HAMP, which includes $1.2 billion expended on homeowners’ HAMP permanent modifications that later redefaulted.35 In addition, $773.4 million QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 was expended on HAFA and $555.3 million on 2MP.36 As of March 31, 2014, there were 469,290 active Tier 1 and 44,856 active Tier 2 permanent first-lien modifications under the TARP-funded portion of HAMP, an increase of 6,383 Tier 1 and 12,474 Tier 2 active permanent modifications over the past quarter.37 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.”38 Treasury obligated $7.6 billion for this program.39 As of March 31, 2014, $3.8 billion had been drawn down by the states from HHF.40 However, as of December 31, 2013, the latest data available, only $2.3 billion had been spent assisting 161,783 homeowners, with the remaining $385.1 million funds used for administrative expenses and $509.8 million as unspent cash-on-hand.41 For more information, see the “Housing Support Programs” discussion in this section.42 • 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.43 As of March 31, 2014, there have been 4,238 refinancings under the FHA Short Refinance program, an increase of 425 refinancings during the past quarter.44 For more information, see the “Housing Support Programs” discussion in this section. Financial Institution Support Programs 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.45 • Capital Purchase Program (“CPP”) — Under CPP, Treasury directly purchased preferred stock or subordinated debentures in qualifying financial institutions.46 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].”47 Treasury invested $204.9 billion in 707 institutions through CPP, which closed to new funding on December 29, 2009.48 As of March 31, 2014, 107 of those institutions remained in TARP; in 36 of them, Treasury holds only warrants to purchase stock. Treasury does not consider these 36 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 March 31, 2014, 71 of the 107 institutions had outstanding CPP principal investments.49 Of the 707 banks that received CPP investments, 636 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.50 Only 241 of the banks, or 34% of the original 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. 57 58 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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. 707, fully repaid CPP otherwise.51 Of the other banks that have exited CPP, four CPP banks merged with other CPP banks, Treasury sold its investments in 25 banks for less than par and its investments in 172 banks at auction (159 of those investments sold at a loss), and 29 institutions or their subsidiary banks failed, meaning Treasury lost its entire investment in those banks.52 As of March 31, 2014, taxpayers were still owed $6.7 billion related to CPP. According to Treasury, it had write-offs, realized losses, and investments not currently collectible as a result of bankruptcy of $4.7 billion in the program, leaving $2 billion in TARP funds outstanding.53 Included as not currently collectible as a result of bankruptcy are investments in 26 CPP banks, or their subsidiary banks, with total CPP investments of $790.5 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.54 According to Treasury, $196 billion of the CPP principal (or 96%) had been repaid as of March 31, 2014. 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.55 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 March 31, 2014, Treasury has held 25 sets of auctions to sell all of its preferred stock investments in 172 banks, selling all but 13 investments at a discounted price resulting in a loss to Treasury.56 Treasury lost a total of $991 million in the auctions, including $772.2 million from discounts on principal investments in the institutions and $218.8 million in forfeited unpaid dividends and interest owed by the institutions. 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.”57 Under CDCI, TARP made capital investments in the preferred stock or subordinated debt of eligible banks, bank holding companies, thrifts, and credit unions.58 Eighty-four institutions received $570.1 million in funding under CDCI.59 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.60 Only $106 million of CDCI money went to institutions that were not already TARP recipients. As of March 31, 2014, 69 institutions remained in CDCI.61 As of March 31, 2014, two remaining CDCI institutions had unpaid dividend or interest payments.62 For more information, see the “Community Development Capital Initiative” discussion in this report. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 • Systemically Significant Failing Institutions (“SSFI”) Program — SSFI enabled Treasury to invest in systemically significant institutions to prevent them from failing.63 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.64 That included $67.8 billion in TARP funds. Treasury’s investment in AIG ended on March 1, 2013. As reflected on Treasury’s books and records, taxpayers recouped $54.4 billion of the $67.8 billion in TARP funds and realized losses from an accounting standpoint of $13.5 billion on Treasury’s sale of AIG stock.65 Due to a January 2011 restructuring of the FRBNY and Treasury investments, Treasury held common stock from both the TARP and FRBNY assistance, and, according to Treasury, the Government overall has made a $4.1 billion gain on the stock sales, and $959 million has been paid in dividends, interest, and other income.66 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.67 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.68 There were two expenditures under this program, totaling $40 billion — the purchases of $20 billion each of senior preferred stock in Citigroup Inc. (“Citigroup”) and Bank of America Corp. (“Bank of America”).69 Treasury also accepted common stock warrants from each, as required by EESA. Both banks fully repaid Treasury for its TIP investments.70 Treasury auctioned its Bank of America warrants on March 3, 2010, and auctioned its Citigroup warrants on January 25, 2011.71 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.72 Treasury, the Federal Deposit Insurance Corporation (“FDIC”), and the Federal Reserve offered certain loss protections in connection with $301 billion in troubled Citigroup assets.73 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.74 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 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. 59 60 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM $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.75 Treasury converted the TRUPS it received from FDIC into Citigroup subordinated notes and subsequently sold them for $894 million.76 For more information, see the “Targeted Investment Program and Asset Guarantee Program” discussion in this section. Automotive Industry Support Programs TARP’s automotive industry support through the Automotive Industry Financing Program (“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.”77 As of March 31, 2014, Ally Financial Inc. (“Ally Financial”), formerly GMAC Inc., remains the only auto-related company whose stock is owned by Treasury. As of March 31, 2014, taxpayers were owed $6.5 billion, however, following the IPO on April 10, 2014, taxpayers are now owed $4.1 billion for TARP’s investment in Ally Financial. In return for its investment, as of April 10, 2014, Treasury held approximately 17% of Ally Financial’s common stock, following its sale of 95 million shares as part of Ally’s IPO. Prior to the IPO, on January 23, 2014, Treasury sold 410,000 shares of Ally Financial common stock for approximately $3 billion in a private placement, after which it owned 37% of the company’s stock.78 Treasury sold its last shares in General Motors Company (“GM”) on December 9, 2013. Separately, on March 20, 2014, Treasury wrote off an $826 million administrative claim in the company’s 2009 bankruptcy, ending all taxpayer involvement with GM.79 As of March 31, 2014, taxpayers have lost $11.2 billion on the principal TARP investment in GM. Taxpayers had also lost $845 million on the sale of Ally Financial’s common stock, as well as $2.9 billion on the principal TARP investment in Chrysler Holding LLC (“Chrysler”). Chrysler Financial Services Americas LLC (“Chrysler Financial”) fully repaid its TARP investment.80 Through AIFP, Treasury made emergency loans to Chrysler, Chrysler Financial, and GM. Additionally, Treasury bought senior preferred stock from Ally Financial and assisted Chrysler and GM during their bankruptcy restructurings. As of March 31, 2014, $79.7 billion had been disbursed through AIFP and its subprograms, and Treasury had received $59.1 billion in principal repayments, preferred stock redemption proceeds, and stock sale proceeds. As of March 31, 2014, Treasury had received approximately $38.9 billion related to its GM investment, $10.7 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.81 As of March 31, 2014, Treasury had also received approximately $5.6 billion in dividends and interest under AIFP and its two subprograms, ASSP and AWCP.82 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.83 Through a series of stock sales, Treasury has divested its preferred stock and all of its common stock as of December 9, 2013. Because the common stock sales all took place below Treasury’s QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 break-even price, Treasury has booked a loss of $10.3 billion on the sales as of March 31, 2014.84 Treasury invested a total of $17.2 billion in Ally Financial, and $6.5 billion of that remained outstanding as of March 31, 2014. 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 (“MCP”).85 Treasury sold the $2.7 billion in TRUPS on March 2, 2011, resulting in a $2.5 billion principal repayment to Treasury.86 On November 20, 2013, Ally paid Treasury $5.2 billion to repurchase the $5.9 billion par value of MCP, plus a payment of $725 million to terminate the share adjustment right (reducing Treasury’s ownership stake from 74% to 63%).87 The November 20, 2013 repurchase represented a $5.6 billion repayment of principal, bringing total Ally principal repayments to $8.2 billion.88 Treasury’s sale of 410,000 shares of Ally common stock on January 23, 2014, for approximately $3 billion, brings the repayment to $10.7 billion.89 In addition, Treasury’s share sales in the April 10, 2014, IPO are reported at $2.4 billion.90 Treasury provided approximately $12.5 billion in loan commitments to Chrysler, of which $2.1 billion was never drawn down.91 On July 21, 2011, Treasury sold to Fiat for $500 million Treasury’s remaining equity ownership interest in Chrysler.92 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. Treasury’s books reflect a $2.9 billion loss to taxpayers on their principal investment in Chrysler.93 In addition, Treasury provided a $1.5 billion loan to Chrysler Financial, which was fully repaid with interest in July 2009.94 For more information, see the “Automotive Industry Support Programs” discussion in this section. AIFP also included two subprograms: • Auto Supplier Support Program (“ASSP”) — On March 19, 2009, Treasury committed $5 billion to ASSP to “help stabilize the automotive supply base and restore credit flows” with loans to GM ($290 million) and Chrysler ($123.1 million) that were fully repaid in April 2010.95 • Auto Warranty Commitment Program (“AWCP”) — This program guaranteed Chrysler and GM vehicle warranties during the companies’ bankruptcy with Treasury obligating $640.8 million —$360.6 million for GM and $280.1 million for Chrysler — both fully repaid to Treasury.96 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. 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. 61 62 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Servicing Advances: If borrowers’ payments are not made promptly and in full, mortgage 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. Commercial Mortgage-Backed Securities (“CMBS”): Bonds backed by one or more mortgages on commercial real estate (e.g., office buildings, rental apartments, hotels). 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. • 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”).97 TALF closed to new loans in June 2010.98 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.99 Of that amount, $82 million remained outstanding as of March 31, 2014.100 As of early 2013, the TALF program collected fees totaling more than the amount of loans still outstanding.101 As of March 31, 2014, there had been no surrender of collateral related to these loans.102 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”).103 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 March 31, 2014. 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.104 As of March 31, 2014, the entire PPIP portfolio had been liquidated, and six PPIP funds were legally dissolved while the other two were winding down operations.105 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.106 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.107 For more information, see the “Unlocking Credit for Small Businesses/Small Business Administration Loan Support” discussion in this section. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.108 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.109 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.”110 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.111 On June 13, 2013, Treasury generally extended MHA programs for an additional two years, from December 31, 2013, to December 31, 2015.112 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, known as FHA Short Refinance, is scheduled to expire on December 31, 2014.113 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.114 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 $29.8 billion for MHA incentive payments, $7.6 billion for the Hardest Hit Fund, and $1 billion for FHA Short Refinance.115 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.116 Incentive payments for modifications to loans owned or guaranteed by the GSEs are paid by the GSEs, not TARP.117 As of March 31, 2014, there were 900,967 active permanent HAMP Tier 1 modifications, 469,290 of which were under TARP, with the remainder under the GSE portion of the program.118 While HAMP generally refers to the first-lien mortgage modification program, it also includes the following subprograms: 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”). 63 64 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. • • • çç 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.119 As of March 31, 2014, there were 120,263 (Tier 1 and Tier 2) active permanent modifications through PRA.120 çç 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.121 As of March 31, 2014, 217,317 (Tier 1 and Tier 2) loan modifications had been started under HPDP, and 150,313 remained active.122 çç 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.123 As of February 28, 2014, which according to Treasury is the most recent data available, 5,165 borrowers were actively participating in UP.124 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 debt-to-income ratios to receive modifications.125 As of March 31, 2014, 48,706 HAMP Tier 2 modifications had become permanent, of which 44,856 remained active.126 Of Tier 2 permanent modifications started, 7,395 were previously HAMP Tier 1 permanent modifications of which 6,381 remained active. 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.127 As of March 31, 2014, there were 154,379 short sales or deeds-inlieu under HAFA.128 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.129 As of March 31, 2014, 16 servicers are participating in 2MP.130 These servicers represent approximately 55-60% of the second-lien servicing market.131 As of March 31, 2014, there were 82,471 active permanently modified second liens in 2MP.132 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”).133 Treasury provides TARP-funded incentives to encourage modifications under the FHA and RD modification QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 programs, but not for the VA modification program. As of March 31, 2014, there were 137 RD-HAMP active permanent modifications, 25,143 FHAHAMP active permanent modifications, and 271 VA-HAMP active permanent modifications.134 • 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.135 According to Treasury, as of December 31, 2013, the program had expired and no second liens had been partially written down or extinguished under the program.136 • 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.137 As of December 31, 2013, the latest data available, 161,783 homeowners had received assistance under HHF.138 • 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.139 As of March 31, 2014, 4,238 loans had been refinanced under FHA Short Refinance.140 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 $11.7 billion, or 30%, has been expended as of March 31, 2014.141 Of that, $1.2 billion was expended in the quarter ended March 31, 2014. 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 $29.8 billion, of which $7.8 billion (26%), has been spent as of March 31, 2014.142 Treasury allocated $7.6 billion to the Hardest Hit Fund. As of March 31, 2014, of the $7.6 billion in TARP funds available for HHF, states had drawn down $3.8 billion.143 As of December 31, 2013, the latest date for which spending analysis is available, the states had drawn down $3.2 billion.144 As of December 31, 2013, states had spent $2.3 billion (31%) of those funds to assist 161,783 homeowners, spent $385.1 million (5%) for administrative expenses, and held $509.8 million 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. 65 66 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM (7%) as unspent cash-on-hand.145,i,ii Treasury originally allocated $8.1 billion for FHA Short Refinance, but deobligated $7.1 billion in March 2013.146 Of the $1 billion currently allocated for FHA Short Refinance, $59.3 million has been spent, which includes $50 million held in a pre-funded reserve account to pay future claims, $9.3 million spent on administrative expenses, and $47,840 spent on one refinanced mortgage that later redefaulted.147 Table 2.5 shows the breakdown in expenditures and estimated funding allocations for these housing support programs. Figure 2.2 also shows these expenditures, as a percentage of allocations. TABLE 2.5 TARP ALLOCATIONS AND EXPENDITURES BY HOUSING SUPPORT PROGRAMS, AS OF 3/31/2014 ($ BILLIONS) ALLOCATIONS EXPENDITURES MHA HAMPa First Lien Modification $19.1 $5.4 PRA Modification 2.0 0.6 HPDP 1.6 UP 0.4 — — $22.7 $6.4 HAFA 4.2 0.8 2MP 0.1 0.6 Treasury FHA-HAMP 0.2 b HAMP Total RD-HAMP —c —d FHA2LP —d 2.7 MHA Total — $29.8 $7.8 HHF (Drawdown by States) $7.6 $3.8 FHA Short Refinance $1.0 $0.1 $38.5 $11.7 e f Total 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 $.05 billion for the Treasury FHA-HAMP program. d Treasury has allocated $0.02 billion to the RD-HAMP program. As of March 31, 2014, $144,733 has been expended for RD-HAMP. e Not all of the funds drawn down by states have been used to assist homeowners. As of December 31, 2013, HFAs had drawn down approximately $3.2 billion, and, according to the latest data available, only $2.3 billion (31%) of TARP funds allocated for HHF have gone to help 161,783 homeowners. f This amount includes up to $25 million in fees Treasury will incur for the availability and usage of the $1 billion letter of credit. Sources: Treasury, responses to SIGTARP data calls, 1/5/2012, and 4/9/2014; Treasury, Transactions Report-Housing Programs, 3/27/2014; Treasury, Daily TARP Update 4/1/2014. i According to Treasury, committed program funds are funds committed to homeowners who have been approved to participate in HHF programs that are anticipated to be disbursed over the duration of their participation; HFAs [states] vary as to when and how they capture and report funds as committed. HHF funds committed for homeowner assistance are recorded variously as homeowner assistance, cash-on-hand, or undrawn funds. ii States do not publish cash-on-hand in their quarterly performance reports; cash-on-hand is the amount drawn less homeowner assistance and administrative expenses; states may also hold additional cash generated from interest earned on HHF cash balances, cash repayments of assistance from lien satisfaction recoveries, or borrower remittances received less borrower partial payments made. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FIGURE 2.2 TARP HOUSING SUPPORT FUNDS ALLOCATED AND SPENT, AS OF 3/31/2014 ($ BILLIONS) 28% spent ($6.4 billion) HAMP $22.7 billion 50% spenta ($3.8 billion) Hardest Hit Fund $7.6 billion 18% spent ($0.8 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 27% spent ($0.05 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. TARP funds are not used to support the UP program, which provides forbearance of a portion of the homeowner’s mortgage payment. RD-HAMP expenditures equal $144,733 as of March 31, 2014. Treasury has allocated $0.1 billion for the 2MP program. As of March 31, 2014, $0.6 billion has been expended for 2MP. As of December 31, 2013, the FHA2LP program had expired. a In this figure, Hardest Hit Funds “spent” represents the amount of funds states had drawn down as of March 31, 2014. 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, response to SIGTARP data call, 4/9/2014. As of March 31, 2014, Treasury had active agreements with 86 servicers.148 That compares with 145 servicers that had agreed to participate in MHA as of October 3, 2010.149 According to Treasury, of the $29.8 billion obligated to participating servicers under their Servicer Participation Agreements (“SPAs”), as of March 31, 2014, only $7.8 billion (26%) has been spent, broken down as follows: $6.4 billion had been spent on completing permanent modifications of first liens, including HAMP Tier 1, HAMP Tier 2, PRA, and HPDP, (514,146 of which remain active); $555.3 million had been spent under 2MP; and $773.4 million had been spent on incentives for short sales or deeds-in-lieu of foreclosure under HAFA.150 Of the combined amount of incentive payments, according to Treasury, approximately $4 billion went to pay investor or lender incentives, $2.2 billion went to pay servicer incentives, and $1.6 billion went to pay borrower incentives.151 As of March 31, 2014, of the $7.6 billion in TARP funds available for HHF, states had drawn down $3.8 billion.152 As of December 31, 2013, states had drawn down $3.2 billion and, according to the latest data available, had spent $2.3 billion (31%) of those funds to assist 161,783 homeowners, spent $385.1 million (5%) for administrative expenses, and held $509.8 million (7%) as unspent cash-onhand.153 The remaining $1 billion has been obligated under FHA Short Refinance 67 68 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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.154 According to Treasury, it has paid only one claim for one default on the 4,238 loans refinanced under FHA Short Refinance. However, Treasury has pre-funded a reserve account with $50 million to pay future claims and has spent $9.3 million on administrative expenses.155 Table 2.6 shows the breakdown of TARP-funded expenditures related to housing support programs (not including the GSE-funded portion of HAMP). QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.6 BREAKDOWN OF TARP EXPENDITURES, AS OF 3/31/2014 ($ MILLIONS) MHA 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 $677.0 $16.8 $1,134.0 $68.3 Investor Monthly Reduction Cost Share $2,331.0 Annual Borrower Incentive Payment $1,134.5 Tier 2 Incentive Payments HAMP First Lien Modification Incentives Total $70.6 $5,432.3 PRA $643.4 HPDP $353.9 UP $—a HAMP Program Incentives Total $6,429.7 HAFA Incentives Servicer Incentive Payment $226.1 Investor Reimbursement $164.3 Borrower Relocation $383.0 HAFA Incentives Total $773.4 Second-Lien Modification Program Incentives 2MP Servicer Incentive Payment $63.5 2MP Annual Servicer Incentive Payment $33.1 2MP Annual Borrower Incentive Payment $30.6 2MP Investor Cost Share $169.2 2MP Investor Incentive $258.9 Second-Lien Modification Program Incentives Total $555.3 Treasury/FHA-HAMP Incentives Annual Servicer Incentive Payment $27.6 Annual Borrower Incentive Payment $25.7 Treasury/FHA-HAMP Incentives Total RD-HAMP FHA2LP $53.3 $—b $— MHA Incentives Total $7,811.7 HHF Disbursements (Drawdowns by State HFAs) $3,803.5 FHA Short Refinance (Loss-Coverage) Total Expenditures $59.3 $11,674.5 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 $144,733 as of March 31, 2014. Sources: Treasury, response to SIGTARP data call, 4/9/2014. 69 70 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.”156 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 designed to last three months, followed by a permanent modification. Treasury pays incentives for active TARP (non-GSE) HAMP permanent modifications for five years.157 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.158 The program description immediately below refers only to the original HAMP program, which was renamed “HAMP Tier 1,” after the launch of HAMP Tier 2. 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. For additional information about what happens to HAMP permanent modifications after five years, please see the discussion, “Payment Increases on HAMP-Modified Mortgages to Begin in 2014,” in this section. HAMP Modification Statistics As of March 31, 2014, a total of 900,967 mortgages were in active HAMP Tier 1 (“HAMP”) permanent modifications under both TARP (non-GSE) and GSE HAMP. Some 31,534 were in active trial modifications. As of March 31, 2014, for borrowers receiving permanent modifications, 95.1% received an interest rate reduction, 64.2% received a term extension, 34.1% received principal forbearance, and 16.7% received principal forgiveness.159 Table 2.7 shows HAMP modification activity, broken out by TARP and GSE loans. For more detail on redefaulted modifications over the life of HAMP, see Table 2.10 and Figure 2.4. For more detail on HAMP modification activity, broken out by TARP and GSE loans, see Table F.1 in Appendix F. TABLE 2.7 CUMULATIVE HAMP TIER 1 MODIFICATION ACTIVITY BY TARP/GSE, AS OF 3/31/2014 Trials Started Trials Cancelled Trials Active Trials Converted to Permanent Permanents Redefaulted Permanents Paid Off Permanents Active TARP 1,056,233 351,618 20,770 683,845 207,784 6,771 469,290 GSE 1,060,036 428,902 10,764 620,370 169,020 19,673 431,677 Total 2,116,269 780,520 31,534 1,304,215 376,804 26,444 900,967 Sources: Treasury, response to SIGTARP data call, 4/25/2014; Fannie Mae, response to SIGTARP data call, 4/24/2014. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 During the quarter ending March 31, 2014, 26,943 permanent modifications were started, which is 3,216 fewer than were started in the previous quarter and 140,277 fewer than were started in the second quarter of 2010, the quarter when the most HAMP permanent modifications were started. Figure 2.3 shows TARP and GSE HAMP permanent modifications started, by quarter. FIGURE 2.3 HAMP TIER 1 PERMANENT MODIFICATIONS STARTED, BY QUARTER, 2009-2014 180,000 160,000 140,000 120,000 100,000 26,943 HAMP permanent modifications were started in the quarter ended 3/31/2014. 80,000 60,000 40,000 20,000 0 Q1 Q2 Q3 2009 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2010 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4 Q1 Q2 Q3 2013 Q4 Q1 2014 Note: Includes TARP and GSE permanent modifications. Sources: Treasury, “Making Home Affordable Program Performance Report,” 1/19/2010, 4/20/2010, 7/19/2010, 10/25/2010, 1/31/2011, 5/6/2011, 8/5/2011, 11/3/2011, 2/6/2012, 5/4/2012, 8/3/2012, 11/9/2012, 2/8/2013, 5/10/2013, 8/9/2013, and 11/8/2013; Treasury, responses to SIGTARP data calls, 2/28/2013, 1/23/2014, 1/24/2014, and 4/25/2014; Fannie Mae, responses to SIGTARP data calls, 1/23/2014 and 4/24/2014. Payment Increases on HAMP–Modified Mortgages to Begin in 2014 Most homeowners who received HAMP permanent mortgage modifications saw the interest rates on their loans cut in order to reduce their monthly payments and make their mortgages more affordable and sustainable over the long term.160 For the HAMP permanent modifications made in 2009, interest rates will start to go up this year, and so will the payments, in some cases eventually by as much as $1,724 per month.161 HAMP permanent mortgage modifications lowered homeowners’ monthly mortgage payments to 31% of their gross monthly income through a series of steps including extending the term of the mortgage, reducing the principal owed, or cutting the interest rate to as low as 2%.162 The terms of HAMP permanent modifications remain fixed for five years.163 However, after five years, a homeowner’s mortgage interest rate can increase if the modified interest rate had been reduced below where the national average rate was for a 30-year conforming fixed-rate mortgage on the date of the modification.164 The average interest rate over the last five years has generally been between 3.5% and 5.4%, and most modifications cut rates well below that benchmark.165 After five years, the interest 71 72 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM rate on the modified loan can step up incrementally by up to 1% per year until it reaches that benchmark.166 Of the 898,262 homeowners who had active HAMP Tier 1 permanent modifications as of February 28, 2014, 88%, or 787,762 homeowners, are scheduled for these eventual interest rate and payment increases.167 That means just 110,500 homeowners, or 12%, will not experience payment increases.168 Among homeowners scheduled to have mortgage interest rate and payment increases, the median interest rate for these loans was 6.4% before modification; the median monthly payment was $1,422.169 HAMP permanent modifications reduced the median interest rate for these homeowners’ loans to 2% and the median monthly payment to $773.170 The scheduled payment increases will cause the median interest rate to rise to 4.5% and the median payment to increase to $990.171 The median rate increase will be 2.23% and the median payment increase will be $197.172 Some homeowners could eventually see their mortgage interest rates increase to as much as 5.4%; for some, payments eventually could increase by $1,724 per month; and after all payment increases, the highest mortgage payment any homeowner would pay per month would be $8,273.173 (SIGTARP’s rate and payment analysis excludes 70,860 HAMP permanent modifications that are scheduled to adjust but for which records are incomplete.) Table 2.8 shows before-modification, after-modification, and after all modification increases, median interest rates, interest rate increases, payments, and payment increases for homeowners who face interest rate and payment increases on HAMP mortgage modifications, by year. For more detail, see Table F.2 in Appendix F. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.8 HAMP TIER 1 PERMANENT MODIFICATIONS WITH SCHEDULED PAYMENT INCREASES BY YEAR, AS OF 2/28/2014 Year Modified 2009 2010 2011 2012 2013 2014 All Years Total Active Permanent Modifications Permanent Modifications with Scheduled Payment Increases 34,438 311,680 239,611 160,284 131,239 21,010 898,262 32,111 289,010 212,106 129,009 107,688 17,838 787,762 Interest Ratea Monthly Paymenta Modification Status Median Median Increase Median Median Increase Before Modification 6.50% — $1,438 $— After Modification 2.00% — 769 — After All Increases 4.94% 2.78% 1,030 244 Before Modification 6.50% — 1,450 — After Modification 2.00% -— 788 — After All Increases 4.98% 2.58% 1,042 238 Before Modification 6.38% — 1,436 — After Modification 2.00% — 807 — After All Increases 4.60% 2.35% 1,042 218 Before Modification 6.25% — 1,420 — After Modification 2.00% — 747 — After All Increases 3.66% 1.59% 898 140 Before Modification 6.06% — 1,347 — After Modification 2.00% — 714 — After All Increases 3.81% 1.57% 876 147 Before Modification 6.00% After Modification 2.00% After All Increases 4.37% Before Modification After Modification After All Increases 4.51% 1,278 706 2.37% 901 180 6.38% 1,422 — 2.00% 773 — 990 197 2.23% Notes: a Analysis of HAMP permanent modifications with scheduled interest rate and payment increases excludes 70,860 HAMP permanent modifications with incomplete records. Source: SIGTARP analysis of Treasury HAMP data. 73 74 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Homeowners in All States Will Be Affected by Payment Increases Four states account for half of homeowners with active HAMP permanent modifications that are scheduled for interest rate and payment increases: California, Florida, New York, and Illinois.174 Homeowners in 11 jurisdictions face mortgage payment increases that are more than the $197 national median: California, Hawaii, Maryland, Massachusetts, Nevada, New Jersey, New York, Virginia, Utah, Washington, and Washington, DC.175 While 88% of homeowners nationally with HAMP-modified mortgages face scheduled interest rate and payment increases, that percentage is even higher in 18 jurisdictions: Arizona, California, Connecticut, Guam, Hawaii, Illinois, Maine, Massachusetts, Minnesota, Nevada, New Jersey, New York, Oregon, Puerto Rico, Rhode Island, the Virgin Islands, Washington, and Washington, DC.176 Table 2.9 shows, as of February 28, 2014, all active HAMP permanent modifications with scheduled monthly mortgage payment increases, by state. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.9 HAMP TIER 1 PERMANENT MODIFICATIONS WITH SCHEDULED PAYMENT INCREASES, AS OF 2/28/2014 State Alabama Alaska Arizona Total Active Permanent Modifications Total Active Permanent Modifications With Scheduled Payment Increases Percentage of Active Permanent Modifications With Scheduled Payment Increase Median Payment Increase After All Increasesa Maximum Payment Increase After All Increasesa 4,802 3,604 75% $95 $928 405 326 80% 174 809 33,342 29,414 88% 186 1,208 Arkansas 1,820 1,468 81% 97 789 California 235,323 214,610 91% 299 1,724 Colorado 12,519 10,826 86% 171 1,094 Connecticut 11,633 10,215 88% 190 1,237 2,624 2,226 85% 170 834 Florida 111,625 97,737 88% 162 1,168 Georgia 31,593 26,349 83% 134 1,061 Delaware Guam 7 7 100% 53 173 Hawaii 3,562 3,265 92% 357 1,230 Idaho 3,323 2,809 85% 160 894 Illinois 46,156 40,858 89% 174 1,072 Indiana 8,110 6,321 78% 94 1,022 Iowa 1,970 1,603 81% 91 626 Kansas 2,036 1,652 81% 103 1,042 Kentucky 3,194 2,562 80% 92 865 Louisiana 4,847 3,806 79% 102 793 Maine 2,434 2,143 88% 143 789 Maryland 28,161 24,641 88% 242 1,174 Massachusetts 21,208 19,140 90% 233 1,064 Michigan 25,647 21,854 85% 121 1,273 Minnesota 13,542 11,879 88% 172 1,117 Mississippi 2,927 2,155 74% 87 730 Missouri 8,433 6,729 80% 105 889 Montana 1,040 870 84% 170 1,074 Nebraska 1,133 913 81% 88 632 19,109 17,064 89% 212 1,042 3,879 3,379 87% 180 806 New Jersey 29,071 26,321 91% 234 1,100 New Mexico 3,066 2,530 83% 140 913 47,095 43,474 92% 289 1,507 Nevada New Hampshire New York Continued on next page 75 76 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM HAMP TIER 1 PERMANENT MODIFICATIONS WITH SCHEDULED PAYMENT INCREASES, AS OF 2/28/2014 (CONTINUED) State North Carolina Total Active Permanent Modifications Total Active Permanent Modifications With Scheduled Payment Increases Percentage of Active Permanent Modifications With Scheduled Payment Increase Median Payment Increase After All Increasesa Maximum Payment Increase After All Increasesa 15,697 12,936 82% $115 $1,060 132 110 83% 108 560 18,196 15,100 83% 98 886 2,021 1,568 78% 83 784 North Dakota Ohio Oklahoma Oregon 10,145 9,032 89% 192 1,052 Pennsylvania 18,316 15,201 83% 129 890 Puerto Rico 3,173 2,967 94% 94 982 Rhode Island 4,276 3,844 90% 193 905 South Carolina 7,981 6,439 81% 117 1,105 South Dakota 293 244 83% 120 836 8,593 6,687 78% 96 1,075 Texas 23,892 18,830 79% 97 1,169 Utah 7,682 6,616 86% 197 1,023 788 681 86% 148 853 7 7 100% 183 549 Virginia 20,950 18,213 87% 227 1,118 Washington 19,287 17,185 89% 220 1,155 Washington, DC 1,537 1,357 88% 254 1,096 West Virginia 1,160 941 81% 123 569 Wisconsin 8,097 6,740 83% 124 968 Tennessee Vermont Virgin Islands Wyoming Total a 403 314 78% 166 829 898,262 787,762 88% $197 $1,724 Analysis of HAMP permanent modifications with scheduled interest rate and payment increases excludes 70,860 HAMP permanent modifications with incomplete records. Source: SIGTARP analysis of Treasury HAMP data. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Homeowners Who Have Redefaulted on HAMP Permanent Modifications or Are at Risk of Redefaultingiii As of March 31, 2014, HAMP has helped more than 900,967 homeowners avoid foreclosure through permanent mortgage modifications, but another 376,804 homeowners (or 29%) 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.177 This percentage (cumulative redefault rate) includes all homeowners who received HAMP permanent modifications since the start of the program. As of March 31, 2014, taxpayers lost $1.2 billion in TARP funds paid to servicers and investors as incentives for 207,784 homeowners who received TARP (non-GSE) HAMP permanent modifications and later redefaulted.178 Also, as of February 28, 2014, the latest data available, 94,554 (11% of active HAMP permanent modifications) had missed one to two monthly mortgage payments and, thus, are at risk of redefaulting out of the program.179 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 50.4%.iv As of February 28, 2014, 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 2010.180 As of February 28, 2014, the latest data provided by Treasury, homeowners who received HAMP permanent modifications in 2009 redefaulted at rates ranging from 44.3% to 50.4%.181 As of February 28, 2014, the latest data provided by Treasury, homeowners who received HAMP permanent modifications in 2010 redefaulted at rates ranging from 35.4% to 42.9%.182 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 twenty-one servicers that participated in a survey, as of February 28, 2014, the latest data provided by Treasury, 28% of homeowners who redefaulted received an alternative modification, usually a private sector modification, 23% of homeowners moved into the foreclosure process, and 11% of homeowners lost their home via a short sale or deed-in-lieu of foreclosure.183 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 29% at the end of the first quarter of 2014.184 Table 2.10 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 2.4 provides detail on the status (active and iii In this section, “HAMP” refers to the original HAMP First-Lien Modification Program, which Treasury later named HAMP Tier 1. iv Treasury’s calculation of redefault rates may exclude some modifications due to missing or invalid data. 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). 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. 77 78 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM redefaulted) over time of homeowners’ HAMP permanent modifications by the year they originated. TABLE 2.10 HAMP TIER 1 PERMANENT MODIFICATION REDEFAULT ACTIVITY, AS OF 3/31/2014 Permanents Started TARP GSE Total Permanents Redefaulted Annual Cumulative 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 98,423 665,317 49,413 196,497 30% 2014 18,528 683,845 11,287 207,784 30% Total 683,845 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 43,497 611,955 33,990 162,575 27% 2014 8,415 620,370 6,445 169,020 27% Total 620,370 2009 66,938 66,938 468 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 141,920 1,277,272 83,403 359,072 28% 2014 26,943 1,304,215 17,732 376,804 29% Total 1,304,215 207,784 169,020 468 376,804 Notes: Data is as of December 31, 2009; December 31, 2010; December 31, 2011; December 31, 2012; December 31, 2013 and March 31, 2014. 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, 10/23/2013, 1/23/2014, 1/24/2014 and 4/25/2014; Fannie Mae, responses to SIGTARP data calls 10/21/2013, 1/23/2014 and 4/24/2014; 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 APRIL 30, 2014 FIGURE 2.4 ACTIVE AND REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY YEAR OF MODIFICATION, STATUS AS OF 12/31/2009 - 3/31/2014 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 As of 12/31/2012 2012 2013 As of 12/31/2013 As of 3/31/2014 2014 Redefaulted Active Notes: According to Treasury and Fannie Mae, reporting by HAMP permanent modification effective date did not exist until January 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 (26,444 HAMP permanent modifications had been paid off as of 3/31/2014). Sources: Treasury, responses to SIGTARP data calls, 1/23/2014, 1/24/2014, and 4/25/2014; Fannie Mae, responses to SIGTARP data calls, 1/23/2014 and 4/24/2014; SIGTARP analysis of Treasury HAMP data. Servicer Redefault Rates As of March 31, 2014, of 1,172,252 homeowners’ HAMP permanent modifications currently serviced by 10 of the largest servicers, 322,923, or 28%, subsequently redefaulted, and three servicers account for more than half of these homeowners’ HAMP permanent modifications that redefaulted: Ocwen Loan Servicing, LLC, with 84,045 homeowners’ permanent modifications redefaulted; Wells Fargo Bank, N.A., with 46,371 homeowners’ permanent modifications redefaulted, and JPMorgan Chase Bank, NA, with 45,143 homeowners’ permanent modifications redefaulted.185 Of these 10 servicers participating in HAMP, the three servicers with the highest percentage of homeowners’ HAMP permanent modifications made that redefaulted were Select Portfolio Servicing, Inc. with 41% of homeowners’ permanent modifications redefaulted; Bank of America, N.A., with 31% of homeowners’ permanent modifications redefaulted; and Ocwen Loan Servicing, LLC, with 31% of homeowners’ permanent modifications redefaulted, as compared with the average for the 10 of 28%.186 Table 2.11 provides data on homeowners’ HAMP permanent modifications by servicers participating in HAMP and currently servicing the modifications listed. 79 80 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.11 HOMEOWNERS’ HAMP PERMANENT MODIFICATIONS AND REDEFAULTS CURRENTLY WITHIN SERVICERS’ PORTFOLIOS, BY SERVICER, AS OF 3/31/2014 Permanent Modifications Permanent Modifications Redefaulted Percentage of Permanent Modifications Redefaulted Ocwen Loan Servicing, LLCa 273,869 84,045 31% Wells Fargo Bank, N.A. 192,023 46,371 24% JPMorgan Chase Bank, N.A.c 191,438 45,143 24% Nationstar Mortgage LLC 129,965 33,845 26% Bank of America, N.A. b 106,388 33,501 31% Select Portfolio Servicing, Inc. 68,325 27,883 41% Seterus Incorporated 59,131 16,573 28% CitiMortgage Inc 64,826 15,443 24% Green Tree Servicing LLC 65,318 14,249 22% U.S. Bank National Association 20,969 5,870 28% d Other 180,669 57,571 32% Total 1,352,921 380,494 28% Notes: HAMP include HAMP Tier 1 and Tier 2 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. a Ocwen Loan Servicing, LLC includes the former Litton Loan Servicing, LLC, GMAC Mortgage, LLC, and Homeward Residential. b Wells Fargo Bank, N.A. includes Wachovia Bank, NA and Wachovia Mortgage, FSB. c JPMorgan Chase Bank, N.A. includes EMC Mortgage Corporation. d Bank of America includes the former BAC Home Loans Servicing LP, Home Loan Services, and Wilshire Credit Corporation. Sources: Treasury, response to SIGTARP data call, 4/25/2014; Fannie Mae, response to SIGTARP data call, 4/24/2014. Redefaults: Impact on Taxpayers Funding TARP Taxpayers have lost more than $1.2 billion in TARP funds paid to servicers and investors as incentives for 207,784 homeowners’ non-GSE, HAMP (Tier 1) permanent mortgage modifications that redefaulted.187 As of March 31, 2014, Treasury has distributed $6.3 billion in TARP funds for 683,845 homeowners’ non-GSE, HAMP (Tier 1) permanent modifications.188 According to Treasury, $3.4 billion of that was designated for investor incentives, $1.8 billion for servicer incentives, and $1.1 billion for homeowner incentives.189 (Homeowner incentives are paid to servicers that, in turn, apply the payment to a homeowner’s mortgage). According to Treasury, 19% of those funds were paid for incentives on homeowners’ HAMP permanent modifications that later redefaulted.190 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, Wells Fargo Bank, N.A., and Select Portfolio Servicing, Inc. (listed in Table 2.12).191,v Almost all (90%) of TARP 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 funds Treasury spent for HAMP permanent modifications that redefaulted were for mortgages currently serviced by 10 servicers (listed in Table 2.12).192 Table 2.12 shows payments for homeowners’ HAMP permanent modifications (active, redefaulted, and paid off mortgages) that are currently within servicers’ portfolios. TABLE 2.12 TARP INCENTIVE PAYMENTS ON HOMEOWNERS’ HAMP PERMANENT MODIFICATIONS CURRENTLY WITHIN SERVICERS’ PORTFOLIOS, AS OF 3/31/2014 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 $1,470,979,316 $374,156,452 $9,455,392 $1,854,591,159 20% Select Portfolio Servicing, Inc. 340,325,340 151,857,902 4,494,760 496,678,001 31% Wells Fargo Bank, N.A. 829,091,450 151,802,182 8,574,638 989,468,270 15% JPMorgan Chase Bank, NA 878,251,104 132,890,381 7,048,687 1,018,190,172 13% Bank of America, N.A. 520,999,757 98,153,424 5,908,853 625,062,033 16% Servicer Name Ocwen Loan Servicing, LLC Nationstar Mortgage LLC 371,902,985 72,965,480 2,401,432 447,269,897 16% CitiMortgage Inc 191,651,447 35,431,394 3,591,539 230,674,380 15% Specialized Loan Servicing LLC 29,052,952 23,880,321 537,023 53,470,295 45% Carrington Mortgage Services, LLC. 44,145,160 19,612,586 471,926 64,229,672 31% Bayview Loan Servicing LLC 78,529,737 18,954,103 810,038 98,293,878 19% Other 328,070,862 115,640,766 15,786,917 459,498,544 25% Total $5,083,000,110 $1,195,344,989 $59,081,203 $6,337,426,302 19% 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 HAMP Tier 1, Home Price Decline Protection (“HPDP”) and Principal Reduction Alternative (“PRA”) programs tied to these loans. Sources: Treasury, response to SIGTARP data call, 4/9/2014. 81 82 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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.193 For example, only 5,009 homeowners from Mississippi received HAMP permanent modifications, but these homeowners have redefaulted at a rate of 39%. 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, 69,681, but has one of the lowest redefault rates, 22%. (Only Guam, Puerto Rico, and the Virgin Islands have lower rates.) Florida, Illinois, and New York have the next highest number of homeowners who redefaulted, at 46,005, 22,184, and 17,499, respectively. After Mississippi, in Tennessee, Alabama, and Louisiana homeowners have redefaulted at a rate of 37%. Tables 2.13-2.19 and Figure 2.5 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.13 REDEFAULTED HOMEOWNERS’ HAMP PERMANENT MODIFICATIONS, BY REGION, CUMULATIVE AS OF 3/31/2014 Permanent Modifications Active Modifications Redefaulted Modifications 358,070 269,266 82,671 23% 71,227 47,748 21,268 30% Southwest/ South Central 106,450 69,095 34,340 32% Midwest 203,647 133,438 65,642 32% Mid-Atlantic/ Northeast 287,720 194,145 88,205 31% West Mountain West/ Plains Southeast TOTAL Redefault Rate 277,101 187,275 84,678 31% 1,304,215 900,967 376,804 29% Notes: Includes GSE and non-GSE modifications. Of HAMP permanent modifications, 26,444 loans have been paid off. Source: Treasury, response to SIGTARP data call, 4/25/2014. FIGURE 2.5 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY REGION, CUMULATIVE AS OF 3/31/2014 AK MOUNTAIN WEST/ PLAINS 21,268 WA MT OR ID WEST 82,671 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 88,205 NH MA CT RI NJ DE MD DC NC TN MS AL TX VT MI IA NE UT MIDWEST 65,642 SC GA SOUTHEAST 84,678 LA FL PR SOUTHWEST/ SOUTH CENTRAL 34,340 WEST MOUNTAIN WEST/PLAINS SOUTHWEST/SOUTH CENTRAL MIDWEST MID-ATLANTIC/NORTHEAST SOUTHEAST VI 83 84 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM West TABLE 2.14 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 3/31/2014 Permanent Modifications WA AK OR GU Redefaulted Modifications Redefault Rate AK 621 405 178 29% CA 310,460 235,793 69,681 22% GU CA Active Modifications 10 7 2 20% HI 4,892 3,571 1,178 24% OR 14,398 10,161 3,863 27% WA 27,689 19,329 7,769 28% 358,070 269,266 82,671 23% Total Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. HI Source: Treasury, response to SIGTARP data call, 4/25/2014. WEST Percentage of Redefaults on HAMP Permanent Modifications >27% 25-27% <25% Mountain West/Plains TABLE 2.15 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 3/31/2014 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 17,546 12,544 4,305 25% ID 4,850 3,325 1,367 28% KS 3,276 2,050 1,102 34% MT 1,468 1,033 362 25% ND 209 133 57 27% NE 1,896 1,137 658 35% NV 29,712 19,149 10,064 34% SD 483 294 152 31% UT 11,154 7,684 3,015 27% WY Total 633 399 186 29% 71,227 47,748 21,268 30% Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. Source: Treasury, response to SIGTARP data call, 4/25/2014. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Southwest/South Central TABLE 2.16 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 3/31/2014 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 3,011 1,831 1,053 35% AZ 50,949 33,331 16,302 32% LA 7,999 4,852 2,946 37% NM 4,493 3,083 1,280 28% OK 3,304 2,024 1,151 35% TX 36,694 23,974 11,608 32% 106,450 69,095 34,340 32% Total Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. Source: Treasury, response to SIGTARP data call, 4/25/2014. Midwest TABLE 2.17 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 3/31/2014 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 3,337 1,973 1,212 36% IL 69,348 46,229 22,184 32% IN 12,777 8,122 4,314 34% KY 5,148 3,195 1,787 35% MI 37,933 25,634 11,232 30% MN 20,490 13,537 6,412 31% MO 13,719 8,436 4,900 36% OH 27,943 18,224 9,096 33% WI 12,952 8,088 4,505 35% 203,647 133,438 65,642 32% Total Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. Source: Treasury, response to SIGTARP data call, 4/25/2014. 85 86 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Mid-Atlantic/Northeast TABLE 2.18 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 3/31/2014 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 17,657 11,704 5,690 32% DC 2,254 1,535 650 29% DE 4,213 2,624 1,514 36% MA 31,445 21,271 9,510 30% MD 42,210 28,262 13,182 31% ME 3,904 2,452 1,344 34% NH 6,050 3,897 1,979 33% NJ 45,249 29,281 15,262 34% NY 65,881 47,463 17,499 27% PA 29,257 18,436 10,154 35% RI 6,512 4,308 2,103 32% VA 30,077 20,952 8,372 28% VT 1,191 796 346 29% WV Total 1,820 1,164 600 33% 287,720 194,145 88,205 31% Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. Source: Treasury, response to SIGTARP data call, 4/25/2014. Southeast TABLE 2.19 REDEFAULTED HAMP PERMANENT MODIFICATIONS, BY STATE, CUMULATIVE AS OF 3/31/2014 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 7,964 4,828 2,910 37% FL 160,721 112,296 46,005 29% GA 47,880 31,638 15,362 32% MS 5,009 2,926 1,958 39% NC 24,641 15,769 8,208 33% PR 4,079 3,180 817 20% SC 12,575 8,011 4,221 34% TN 14,225 8,620 5,197 37% 7 7 — 0% 277,101 187,275 84,678 31% VI Region Notes: Includes GSE and non-GSE modifications, excludes permanent modifications paid off. Source: Treasury, response to SIGTARP data call, 4/25/2014. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Starting a HAMP Tier 1 Modification Borrowers may request participation in HAMP.194 Borrowers who have missed two or more payments must be solicited for participation by their servicers.195 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.”196 • 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. 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 2016.197 Participating servicers verify monthly gross income for the borrower and the borrower’s household, as well as other eligibility criteria.198 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.199 In the first step of that waterfall, 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.200 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.201 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 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.” 87 88 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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. 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.202 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.203 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.204 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.205 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.206 How HAMP Tier 1 First-Lien Modifications Work Treasury intended that HAMP trial modifications would last three months. Historically, many trial modifications have lasted longer. According to Treasury, as of March 31, 2014, of a combined total of 31,534 active trials under both GSE and TARP (non-GSE) HAMP, 7,118 (23%) had lasted more than six months.207 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.208 The terms of permanent modifications under HAMP Tier 1 remain fixed for five years.209 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.210 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 made during the trial. In addition, the borrower may be liable for late fees that were QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.211 What Happens When a HAMP Modification Is Denied: Servicer Obligations and Borrower Rights 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.212 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 $1,600.213 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 $400.214 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).215 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 $1,000.216 The principal reduction accrues monthly and is payable for each of the first five years as long as the borrower remains in good standing.217 Under both HAMP Tier 1 and HAMP Tier 2, the 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. For more information on HAMP servicer obligations and borrower rights, see SIGTARP’s April 2011 Quarterly Report, pages 67-76. 89 90 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM As of March 31, 2014, of the $29.8 billion in TARP funds allocated to the 86 servicers participating in MHA, 91% was allocated to 10 servicers.218 Table 2.20 shows incentive payments made to these servicer. TABLE 2.20 TARP INCENTIVE PAYMENTS BY 10 SERVICERS, AS OF 3/31/2014 SPA Cap Limit Incentive Payments to Borrowers Incentive Payments to Investors Incentive Payments to Servicers Total Incentive Payments $6,478,243,478 $297,980,678 $875,475,530 $461,047,632 $1,634,503,839 JPMorgan Chase Bank, NAb 3,401,687,695 308,157,101 808,415,245 415,582,725 1,532,155,071 Bank of America, N.A.c 7,140,264,697 318,937,768 663,938,342 396,010,448 1,378,886,558 Wells Fargo Bank, N.A.d 5,077,541,646 248,100,607 632,325,600 356,331,204 1,236,757,411 882,625,302 74,572,399 233,795,003 113,694,151 422,061,552 Select Portfolio Servicing, Inc. 1,360,285,111 85,370,773 167,072,969 113,345,115 365,788,858 OneWest Bank 1,516,138,915 61,349,149 205,703,540 85,769,864 352,822,553 Nationstar Mortgage LLCe 1,199,620,347 67,236,799 168,808,001 98,699,084 334,743,884 Saxon Mortgage Services Inc 100,807,086 19,655,075 41,738,413 39,413,598 100,807,086 U.S. Bank National Association 180,949,541 13,970,946 32,187,129 22,645,413 68,803,488 $27,338,163,818 $1,495,331,295 $3,829,459,771 $2,102,539,234 $7,427,330,300 Ocwen Loan Servicing, LLCa CitiMortgage Inc Total Notes: Numbers may not total due to rounding. 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, LLC includes the former Litton Loan Servicing, LLC, GMAC Mortgage, LLC, and Homeward Residential. b JPMorgan Chase Bank, NA includes EMC Mortgage Corporation. c Bank of America N.A. includes the former Countrywide Home Loans Servicing, BAC Home Loans Servicing LP, Home Loan Services, and Wilshire Credit Corporation. d Wells Fargo Bank, N.A. includes Wachovia Bank, NA and Wachovia Mortgage, FSB. e Nationstar Mortgage LLC includes MorEquity, Inc and the former Aurora Loan Services LLC. Source: Treasury, Transactions Report-Housing Programs, 3/27/2014. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 HAMP Tier 2 Effective June 1, 2012, HAMP Tier 2 expanded HAMP.219 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.220 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.221 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.”222 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.223 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.224 Approximately 6,381 of active HAMP Tier 2 permanent modifications were previously HAMP Tier 1 permanent modifications.225 According to Treasury, as of March 31, 2014, a total of 62 of the 86 servicers with active MHA servicer agreements had fully implemented HAMP Tier 2.226 The remaining 24 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 nonGSE servicing operations.227 All 10 of the largest servicers have reported that they had implemented HAMP Tier 2.228 According to Treasury, as of March 31, 2014, it had paid $70.6 million in incentives in connection with 48,706 HAMP Tier 2 permanent modifications, 44,856 of which remain active.229 According to Treasury, as of March 31, 2014, of the 68,038 HAMP Tier 2 trial mortgage modifications started, 63,646 (94%), were for owner-occupied properties; 3,893 (6%), were for tenant-occupied properties, and 499 (1%) were for vacant properties.230 Of owner-occupied properties that received a HAMP Tier 2 trial modification, 14,828 trial modifications (23%) were active and 45,504 (71%) were converted to permanent modifications, of which 41,894 (92%) were active.231 Of owner-occupied properties that received a HAMP Tier 2 trial modification, 3,314 (5%) were cancelled, and of those that received a permanent modification, 3,464 (8%) redefaulted.232 Around 90% of tenant-occupied properties that received either a trial or permanent HAMP Tier 2 mortgage modification have remained active, as of March 31, 2014.233 Of vacant properties that received a HAMP Tier 2 trial modification, 116 (23%) were in active trial modifications, 326 (65%) were in active permanent modifications, and 57 (11%) had their trial or permanent modification cancelled.234 HAMP Tier 2 mortgage modification activity and property occupancy status is shown in Table 2.21.235 For SIGTARP’s recommendations for the improvement of HAMP Tier 2, see SIGTARP’s April 2012 Quarterly Report, pages 185-189. 91 92 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.21 HAMP TIER 2 FIRST LIEN MODIFICATION ACTIVITY AND OCCUPANCY STATUS, AS OF 3/31/2014 Property Type Borrower Occupied Tenant Occupied Vacant Total Trials Started Trials Cancelled Trials Active Trials Converted Permanent Permanents Disqualified Permanents Paid-Off Permanents Active 63,646 3,314 14,828 45,504 3,464 146 41,894 3,893 189 850 2,854 204 14 2,636 499 35 116 348 22 0 326 68,038 3,538 15,794 48,706 3,690 160 44,856 Source: Treasury, response to SIGTARP data call, 4/22/2014. HAMP Tier 2 Eligibility HAMP Tier 2 expands the eligibility criteria related to a borrower’s debt-toincome ratio and also allows modifications on loans secured by “rental” properties. Owner-occupied loans that are ineligible for a HAMP Tier 1 modification due to excessive forbearance or negative NPV also may be 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.236 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.237 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.238 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.239 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.240 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.241 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 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.242 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 30-year conforming fixed interest rate on the date of the initial modification, 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.243 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.244 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.245 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.”246 NeighborWorks is a Congressionally chartered corporation that through 93 94 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM a national network of non-profit organizations administers housing programs, including housing counseling.247 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.248 Treasury allocated $18.3 million in TARP funds for the project.249 As of March 31, 2014, housing counselors have initiated HAMP application work for 8,611 homeowners, of whom 2,765 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.250 According to Treasury, housing counseling agencies are due $1,244,250 for those accepted applications.251 NeighborWorks has, as of March 31, 2014, requested $5.3 million in total funds, mostly for outreach, oversight, and administration, as well as for the counseling agency payments.252 For more information on these additional housing programs, see SIGTARP’s October 2013 Quarterly Report, pages 93-99. Additional TARP-Funded MHA Housing Support Programs From April 2009 until September 2010, Treasury announced a number of additional MHA support programs for homeowners with non-GSE mortgages. TARP funds have been allocated to most but not all of these additional programs. Three of these programs fall under the umbrella of the HAMP program: the Home Price Decline Protection (“HPDP”) program, the Home Affordable Unemployment Program (“UP”), and the Principal Reduction Alternative (“PRA”). The remaining additional MHA programs include collaborations with other Federal agencies, programs that aim to extinguish homeowners’ second mortgages (second liens), and programs that offer alternatives to foreclosure. Table 2.22 provides more detail on these programs. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 95 TABLE 2.22 ADDITIONAL MAKING HOME AFFORDABLE (“MHA”) HOUSING SUPPORT PROGRAMS, AS OF 3/31/2014 Program Principal Reduction Alternative (“PRA”)b Home Price Decline Protection (“HPDP”)b Home Affordable Unemployment Program (“UP”)b Home Affordable Foreclosure Alternatives (“HAFA”) Second Lien Modification Program (“2MP”) Treasury/ Federal Housing AdministrationHome Affordable Modification Program (“Treasury/FHAHAMP”) Date Announced 6/3/2010 7/31/2009 3/26/2010d 11/30/2009 4/28/2009 7/30/2009i Date Started 10/1/2010 Purpose To provide incentives to investors to modify homeowners’ mortgages under HAMP by reducing the principal amount owed. Homeowners Assisted Estimated Number of Homeowners to be Permanents Permanents Assisted Started Active Estimated TARP Allocation (In Billions)a TARP Expenditures (In Billions) — 146,330c 120,263c $2.00 $0.64 — 217,317c 150,313c 1.55 0.35 7/1/2010e To temporarily -- fully or partially -- suspend mortgage payments for unemployed homeowners. — 39,183f 5,165f —g —g 4/5/2010h To provide TARPfunded incentives to servicers, investors, and homeowners to complete short sales and deeds-in-lieu to avoid foreclosure and relocate homeowners unable to sustain a modified mortgage. — 154,379 — 4.15 0.77 To provide incentives to servicers, investors, and borrowers to modify second mortgages (second liens) -- with a partial 8/13/2009 or full extinguishment of the loan balance -- for homeowners with a corresponding first mortgage (first lien) that was modified under HAMP. “A Second Lien Program to Reach up to 1 to 1.5 Million Homeowners,” according to Treasury, “Making Home Affordable, Program Update, Fact Sheet, 4/28/2009. 131,179 82,471 0.13 0.56 To provide TARP-funded, HAMP-like incentives to servicers and 8/15/2009 homeowners to modify mortgages insured by the FHA. “Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the Administration’s Making Home Affordable program,” according to HUD Secretary Shaun Donovan, HUD “Press Release, “HUD Secretary Donovan Announces New FHA-Making Home Affordable Loan Modification Guidelines,” 7/30/2009. 31,378 25,143 0.23 0.05 To provide additional TARP-funded incentives to investors to modify mortgages through 9/1/2009 HAMP by partially offsetting possible losses from home price declines. Continued on next page 96 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM ADDITIONAL TARP-FUNDED MAKING HOME AFFORDABLE (“MHA”) HOUSING SUPPORT PROGRAMS, AS OF 3/31/2014 (CONTINUED) Program Department of Agriculture Rural DevelopmentHome Affordable Modification Program (“RDHAMP”) Treasury/ Federal Housing Administration Second Lien Program (“Treasury/FHA2LP”) l Department of Veterans Affairs-Home Affordable Modification Program (“VA HAMP”) Date Announced Date Started Purpose Homeowners Assisted Estimated Number of Homeowners to be Permanents Permanents Assisted Started Active Estimated TARP Allocation (In Billions)a TARP Expenditures (In Billions) 9/17/2010i To provide TARP-funded, HAMP-like incentives to servicers and borrowers 9/24/2010 for modifications of mortgages insured by RD. — 156 137 0.02 —j 3/26/2010i To provide TARP-funded incentives to servicers and investors to partially or fully extinguish 8/6/2010 second mortgages (second liens) for mortgages modified and insured by the FHA. — 0 0 2.69 0.00 To provide non-TARPfunded, HAMP-like incentives to servicers 2/1/2010 and borrowers for modifications of mortgages insured by the VA. — 346 271 —k —k 1/8/2010i Notes: a Estimated TARP allocations are as of January 5, 2012. b Program is a subprogram of the Home Affordable Modification Program (“HAMP”). c Includes HAMP Tier 1 and Tier 2 modifications. d In a 3/26/2010 press release, Treasury announced the concept of what was later named the “UP” program in Treasury’s May 11, 2010 Supplemental Directive. e Treasury announced that servicers could implement UP before July 1, 2010. f Data is as of 2/28/2014. As of 2/28/2014, 6,646 homeowners who received UP assistance subsequently received HAMP modifications. g Treasury does not allocate TARP funds to UP. h Treasury announced that some servicers could implement HAFA before April 5, 2010. i In its April 6, 2009 Supplemental Directive, Treasury announced that “Mortgage loans insured, guaranteed or held by a Federal Government agency (e.g., FHA, HUD, VA and Rural Development) may be eligible for the HAMP, subject to guidance issued by the relevant agency. Further details regarding inclusion of these loans in the HAMP will be provided in a subsequent Supplemental Directive.” j As of March 31, 2014, $144,733 has been expended for RD-HAMP. k Treasury does not provide incentive compensation related to VA-HAMP. l As of December 31, 2013, the FHA2LP program had expired. Sources: Treasury, responses to SIGTARP data calls, 1/5/2012, 1/8/2014, 1/24/2014, 4/9/2014 and 4/25/2014; VA, responses to SIGTARP data calls, 1/8/2014 and 4/3/2014; Treasury, Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 4.3, 9/16/2013; Treasury, press releases, 4/28/2013, 7/31/2009, 11/30/2009, and 3/26/2010; Treasury, “Supplemental Directive 09-01: Introduction of the Home Affordable Modification Program,” 4/6/2009; Treasury, “Supplemental Directive 09-04: Home Affordable Modification Program -- Home Price Decline Protection Incentives,” 7/31/2009; Treasury, “Supplemental Directive 09-09: Introduction of Home Affordable Foreclosure Alternatives -- Short Sale and Deed in Lieu of Foreclosure,” 11/30/2009; Treasury, “Supplemental Directive 09-09 Revised: Introduction of Home Affordable Foreclosure Alternatives -- Short Sale and Deed in Lieu of Foreclosure Update,” 3/26/2010; Treasury, “Supplemental Directive 09-05 Revised: Update to the Second Lien Modification Program (2MP),” 3/26/2010; Treasury, “Fact Sheet: FHA Program Adjustments to Support Refinancings for Underwater Homeowners,” 3/26/2010; Treasury, “HAMP Improvements Fact Sheet: Making Home Affordable Program Enhancements to Offer More Help for Homeowners,” 3/26/2010; Treasury, “Supplemental Directive 10-04: Home Affordable Unemployment Program,” 5/11/2010; Treasury, “Supplemental Directive 10-05: Home Affordable Modification Program - Modification of Loans with Principal Reduction Alternative,” 6/3/2010; Treasury, Supplemental Directive 10-10: Home Affordable Modification Program – Modifications of Loans Guaranteed by the Rural Housing Service,” 9/17/2010; HUD, press release, 7/30/2009; VA, Circular 26-10-2, 1/8/2010; and VA, Circular 26-10-6, 5/24/2010. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Housing Finance Agency Hardest Hit Fund (“HHF”) More than four 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”).253 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.”254 This TARP-funded housing support program was to be developed and administered by state housing finance agencies (“HFAs”) with Treasury’s approval and oversight.255,vi 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.256 Treasury approved each of the 19 states’ initial program proposals and approves any proposed changes to programs.257 These proposals include estimates of the number of homeowners to be helped through each program (some states have more than one program).258 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.259 Plans to use these funds were approved by Treasury on June 23, 2010.260 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 2009.261 Plans to use these funds were approved by Treasury on August 3, 2010.262 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.263 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.264 Treasury approved third round proposals on September 23, 2010.265 On September 29, 2010, a fourth round of HHF funding of an additional $3.5 billion was made available to existing HHF participants.266 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:267 vi 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 March 31, 2014, there were 68 active HHF programs run by the 19 state HFAs. According to Treasury, Illinois, New Jersey, Rhode Island and Washington, DC, 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. For more information on HHF, see: SIGTARP’s April 12, 2012, audit report, “Factors Affecting Implementation of the Hardest Hit Fund Program,” SIGTARP’s SIGTARP’s October 2013 Quarterly Report, pages 189-255, and SIGTARP’s January 29, 2014, Quarterly Report, pages 97-154. 97 98 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM • • • • • 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 According to Treasury, states can reallocate funds between programs and modify existing programs as needed, with Treasury approval, until December 31, 2017.268 According to Treasury, between December 31, 2013 and March 31, 2014, six states have reallocated funds, modified or eliminated existing programs, or established new HHF programs with Treasury approval, decreasing the total number of HHF programs in 18 states and Washington, DC, as of March 31, 2014, to 68, down from 69 programs as of December 31, 2014.269 According to Treasury, four states made changes to their HHF programs in February, 2014: Arizona expanded their Principal Reduction program to include severe negative equity; California defunded their Los Angeles Housing Department Principal Reduction Program; Ohio closed their application portal as of April 30, 2014, reaching their full commitment of funding. Oregon expanded its “Rebuilding America Homeownership Pilot Program.”270 On March 27, 2014, Illinois announced the introduction of a Blight Elimination Program, which would provide up to $35,000 per unit for demolition, greening and maintenance of blighted properties. Treasury has expressed support and is in the process of approving Illinois’ proposal.271 States’ TARP Allocations and Spending for HHF Of the $7.6 billion in TARP funds available for HHF, states collectively had drawn down $3.8 billion (50%) as of March 31, 2014.272 As of December 31, 2013, the latest date for which spending analysis is available, states had drawn down $3.2 billion (42%).273 However, not all of that has been spent on direct assistance to homeowners. States have spent $2.3 billion (31% of the $7.6 billion) to assist 161,783 individual homeowners. States have spent the rest of the funds on administrative expenses or hold the money as cash-on-hand. States have spent $385.1 million (5%) on administrative expenses; and held $509.8 million (7%) as unspent cash-on-hand, as of December 31, 2013, the latest data available.274 There remains $4.4 billion (58%) in undrawn funds available for HHF, as of December 31, 2013.275 As of December 31, 2013, the latest data available, in aggregate, after about three and a half years, states had spent 31% ($2.3 billion) of the $7.6 billion in TARP funds that Treasury allocated for the HHF program to provide assistance to 189,390 program participants (which translates to 161,783 individual homeowners), or 35% of the number of homeowners the states anticipated helping with HHF in 2011.276,vii vii 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 APRIL 30, 2014 As of December 31, 2013, 84.9% of the HHF assistance received by homeowners was for unemployment assistance, including past-due payment assistance.277 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 14.5% for mortgage modification, including principal reduction assistance, 0.4% for second-lien reduction assistance, and 0.2% for transition assistance.278 As of December 31, 2013, Michigan is the only state to have spent funds ($22,890) on demolition programs; removing and greening one property.279 Figure 2.6 shows state uses of TARP funds obligated for HHF by percent, as of December 31, 2013, the most recent figures available. 99 100 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.6 STATE USES OF $7.6 BILLION OF TARP FUNDS AVAILABLE FOR HHF, BY PERCENT, AS OF 12/31/2013 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 December 31, 2013, are the most recent available; Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, states have drawn down $3.8 billion. Sources: Treasury, Transactions Report-Housing Programs, 12/27/2013; Treasury, responses to SIGTARP data calls, 7/5/2013, 10/3/2013, 10/7/2013, 10/17/2013, 1/17/2014, 1/22/2014, 1/23/2014, and 4/9/2014. Treasury, HFA Aggregate Quarterly Report Q4 2013. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 State Estimates of Homeowner Participation in HHF According to Treasury, as of December 31, 2013, states had spent $2.3 billion to help 161,783 homeowners; in the quarter ended December 31, 2013, states had spent $338.4 million to help 16,702 homeowners.280 Each state estimates the number of borrowers to be helped in its programs. In the beginning of 2011, states collectively estimated that they would help 546,562 homeowners with HHF.281 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.282 As of December 31, 2013, the states estimated helping 303,192 homeowners with HHF, which is 243,370 fewer homeowners than the states estimated helping with HHF in 2011, a decline of 45%. States collectively have reduced their estimates even from last quarter. As of September 30, 2013, the 19 states collectively estimated helping as many as 310,012 homeowners over the life of the program. By December 31, 2013, the collective estimate had decreased by 6,820 homeowners, or 2%.283 Importantly, the states collectively estimate that HHF will help 303,192 homeowners but fail to take into account that when states report program participation numbers, homeowners may be counted more than once when they receive assistance from multiple HHF programs offered in their state (as of December 31, 2013, 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.284 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.285 As of December 31, 2013, the states reported that 189,390 homeowners participated in HHF programs.286 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, 161,783 individual homeowners participated in HHF programs.287 Table 2.23 provides each state’s estimate of the number of borrowers it projects it will help and the actual number of borrowers helped as of December 31, 2013.viii viii 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. 101 102 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.23 HHF ESTIMATED AND ACTUAL NUMBER OF BORROWERS ASSISTED AND ASSISTANCE PROVIDED BY STATE AS OF 12/31/2013 Recipient Alabama Arizona Estimated Number of Participating Households to be Assisted by 12/31/2017* Actual Borrowers Receiving Assistance as of 12/31/2013** Assistance Provided as of 12/31/2013** 5,800 3,108 $24,568,003 6,507 2,593 53,903,493 71,766 33,342 543,668,924 Florida 39,000 13,787 213,375,618 Georgia 15,100 4,431 62,849,719 Illinois 13,500 11,545 204,121,780 Indiana 10,150 2,722 29,573,414 Kentucky 5,960 4,874 53,458,893 Michigan California 11,477 17,171 126,386,728 Mississippi 3,500 2,042 24,331,160 Nevada 6,854 4,989 80,160,228 New Jersey 6,500 5,161 127,917,304 North Carolina 21,310 14,943 216,905,767 Ohio 35,575 15,779 213,412,401 Oregon 15,280 9,388 128,642,677 3,413 3,059 53,556,138 South Carolina 19,400 6,844 89,897,067 Tennessee 11,300 5,380 77,028,926 800 625 11,059,380 303,192 161,783 $2,334,817,620 Rhode Island Washington, DC Total Note: Estimated includes highest estimate of a range. *Source: Estimates are from the latest HFA Participation Agreements as of 12/31/2013. Later amendments are not included for consistency with Quarterly Performance reporting. States report the Estimated Number of Participating Households individually for each HHF program they operate. This column shows the totals of the individual program estimates for each state. Therefore, according to Treasury, these totals do not necessarily translate into the number of unique households that the states expect to assist because some households may participate in more than one HHF program. **Sources: Fourth Quarter 2013 HFA Performance Data quarterly reports and Fourth Quarter 2013 HFA Aggregate Quarterly Report. Both sources are as of 12/31/2013. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 State by State Updates Of the 19 states participating in HHF, over time 18 have reduced their estimates of how many homeowners will participate in HHF, most of them significantly since their peak estimates. One state, Oregon, increased its estimate. Collectively, since the peak in early 2011, the 19 states have reduced their estimates of how many people they would help by 45%. Nine states have reduced their estimates by more than 43%: Alabama (57% reduction), Arizona (46% reduction), Florida (63% reduction), Illinois (53% reduction), Kentucky (60% reduction), Michigan (77% reduction), Nevada (71% reduction), Ohio (44% reduction), and Rhode Island (74% reduction). Collectively, as of December 31, 2013, the states have spent $2.3 billion on direct assistance to homeowners, or 31% of the $7.6 billion in TARP funds obligated to HHF.288,ix Of the 19 HHF states, Rhode Island has spent the highest percentage, 67%, of its obligated funds on homeowner assistance. Indiana has spent the lowest percentage, 13%. In addition to Indiana, six other states have spent less than 26% of their obligated funds on assistance to homeowners: Alabama, Arizona, 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, Rhode Island, Illinois, New Jersey, and Washington, DC, 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.289,x Rhode Island stopped accepting applications after January 31, 2013.290 Illinois stopped accepting applications after September 30, 2013.291 New Jersey stopped accepting applications after November 30, 2013.292 Washington, DC stopped accepting applications after November 22, 2013.293 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 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. 103 104 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Alabama’s HHF Programs 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.294 As of December 31, 2013, the state had drawn down $34 million (21%) of those funds.295,xi As of December 31, 2013, the most recent data available, Alabama had spent $24.6 million (15% of its obligated funds) to help 3,108 individual homeowners with its HHF programs.296,xii The remaining $6 million (4%) was spent on administrative expenses, and $3.4 million (2%) is held as cash-on-hand.297,xiii As of December 31, 2013, the state had three active HHF programs, one to provide unemployment assistance to homeowners, a second to modify homeowners’ mortgages, and a third to provide HHF transition assistance. At the end of 2010, Alabama estimated that it would help as many as 13,500 homeowners with HHF but, as of December 31, 2013, reduced that peak estimate by 57%, to 5,800. Figure 2.7 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 December 31, 2013. Figure 2.8 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 December 31, 2013. xi Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Alabama had drawn down $34 million. xii 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. xiii 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 APRIL 30, 2014 FIGURE 2.7 ALABAMA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 15,000 Peak estimate: 13,500 12/31/2013 estimate: 5,800 12/31/2013 program participation: 3,108 Homeowners assisted: 3,108 12,000 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 Q3’13 Q4’13 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 - Q4 2013, no date. 105 106 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.8 ALABAMA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 HARDEST HIT FOR ALABAMA'S UNEMPLOYED HOMEOWNERS (UNEMPLOYMENT) 15,000 12,000 Peak estimate: 13,500 12/31/13 estimate: 3,100 12/31/13 program participation: 3,108 9,000 SHORT SALE ASSISTANCE PROGRAM (TRANSITION) 2,000 Peak estimate: 1,500 12/31/13 estimate: 1,500 12/31/13 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 Q3’13 Q4’13 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 Q3’13 Q4’13 Program Participation State Estimated Program Participation Program Participation LOAN MODIFICATION ASSISTANCE PROGRAM (MODIFICATION) 2,000 1,500 Peak estimate: 1,200 12/31/13 estimate: 1,200 12/31/13 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 Q3’13 Q4’13 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 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Arizona’s HHF Programs 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.298 As of December 31, 2013, the state had drawn down $127 million (47%) of those funds.299,xiv As of December 31, 2013, the most recent data available, Arizona had spent $53.9 million (20% of its obligated funds) to help 2,593 individual homeowners with its HHF programs.300,xv The remaining $11.7 million (4%) was spent on administrative expenses, and $61.3 million (23%) is held as cash-on-hand.301,xvi As of December 31, 2013, the state had four active HHF programs: one to modify homeowners’ mortgages with principal reduction assistance, a second to provide HHF second-lien reduction assistance to homeowners, a third to provide unemployment assistance to homeowners, and a fourth to provide transition assistance to homeowners. At the end of 2010, Arizona estimated that it would help as many as 11,959 homeowners with HHF but, as of December 31, had reduced that peak estimate by 46%, to 6,507. Figure 2.9 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 December 31, 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 2.10 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 December 31, 2013. xiv Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Arizona had drawn down $127 million. 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. 107 108 108 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.9 ARIZONA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 12,000 10,000 8,000 6,000 4,000 Peak estimate: 11,959 12/31/2013 estimate: 6,507 12/31/2013 program participation: 2,781 Homeowners assisted: 2,593 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 Q3’13 Q4’13 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 thirteenth 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, 10/30/2013, and 2/27/2014; Arizona (Home) Foreclosure Prevention Funding Corporation, Hardest Hit Fund Reporting (quarterly performance reports), Quarterly Performance Reports Q3 2010 - Q4 2013, no date; Treasury, responses to SIGTARP data calls, 10/3/2013 and 10/7/2013. 109 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FIGURE 2.10 ARIZONA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 PRINCIPAL REDUCTION ASSISTANCE (MODIFICATION) 10,000 SECOND MORTGAGE ASSISTANCE COMPONENT (SECOND-LIEN REDUCTION) Peak estimate: 7,227 12/31/13 estimate: 1,849 12/31/13 program participation: 594 8,000 1,500 6,000 1,000 4,000 500 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation UNEMPLOYMENT/UNDEREMPLOYMENT MORTGAGE ASSISTANCE COMPONENT (UNEMPLOYMENT) 6,000 Peak estimate: 1,875 12/31/13 estimate: 180 12/31/13 program participation: 148 2,000 Peak estimate: 4,140 12/31/13 estimate: 4,140 12/31/13 program participation: 1,960 4,000 3,000 Program Participation SHORT SALE ASSISTANCE COMPONENT (TRANSITION) Peak estimate: 1,200 12/31/13 estimate: 338 12/31/13 program participation: 79 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 Q3’13 Q4’13 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 Q3’13 Q4’13 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 thirteenth 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, 10/30/2013, and 2/27/2014; Arizona (Home) Foreclosure Prevention Funding Corporation, Hardest Hit Fund Reporting (quarterly performance reports), Quarterly Performance Reports Q3 2010 - Q4 2013, no date; Treasury, responses to SIGTARP data calls, 10/3/2013 and 10/7/2013. 109 110 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM California’s HHF Programs 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.302 As of December 31, 2013, the state had drawn down $717.5 million (36%) of those funds.303,xvii As of December 31, 2013, the most recent data available, California had spent $543.7 (28% of its obligated funds) to help 33,342 individual homeowners with its HHF programs.304,xviii The remaining $71.7 million (4%) was spent on administrative expenses, and $102.1 million (5%) is held as cash-on-hand.305,xix As of December 31, 2013, the state had six active HHF programs: one to provide unemployment assistance to homeowners, a second and third to modify homeowners’ mortgages with principal reduction assistance, a fourth to provide HHF transition assistance to homeowners, a fifth to provide pastdue payment assistance to homeowners, and a sixth to provide HHF second-lien, principal reduction assistance to homeowners. California had another program to provide transition assistance to homeowners but reduced the peak estimate for this program to zero and had not provided transition assistance to any homeowners as of December 31, 2013. California defunded the Los Angeles Housing Department Principal Reduction Program in February 2014. At the end of 2010, California estimated that it would help as many as 101,337 homeowners with HHF but, as of December 31, 2013, had reduced that peak estimate by 29%, to 71,766. Figure 2.11 shows, in aggregate, the number of homeowners estimated to 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 December 31, 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 2.12 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 December 31, 2013. xvii Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, California had drawn down $967.5 million. xviii 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. xix 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 APRIL 30, 2014 FIGURE 2.11 CALIFORNIA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 120,000 100,000 80,000 60,000 Peak estimate: 101,337 12/31/2013 estimate: 71,766 12/31/2013 program participation: 35,481 Homeowners assisted: 33,342 40,000 20,000 0 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q412 Q1’13 Q2’13 Q3’13 Q4’13 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 twelfth 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, 9/20/2013, and 2/27/2014; CalHFA Mortgage Assistance Corporation, “Keep Your Home California, Reports & Statistics, Quarterly Reports,” Quarterly Performance Reports Q4 2010 - Q4 2013, no date. 111 112 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.12 CALIFORNIA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 UNEMPLOYMENT MORTGAGE ASSISTANCE PROGRAM (UNEMPLOYMENT) 100,000 80,000 Peak estimate: 60,531 12/31/13 estimate: 50,380 12/31/13 program participation: 27,315 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation PRINCIPAL REDUCTION PROGRAM (MODIFICATION) 50,000 Peak estimate: 25,135 12/31/13 estimate: 11,560 12/31/13 program participation: 2,859 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation COMMUNITY SECOND MORTGAGE PRINCIPAL REDUCTION PROGRAM (SECOND-LIEN REDUCTION) 200 375 150 Peak estimate: 166 12/31/13 estimate: 166 12/31/13 program participation: 0 100 Peak estimate: 370 12/31/13 estimate: 370 12/31/13 program participation: 29 50 0 Program Participation LOS ANGELES HOUSING DEPARTMENT PRINCIPAL REDUCTION PROGRAM (MODIFICATION) 500 125 Peak estimate: 6,471 12/31/13 estimate: 460 12/31/13 program participation: 472 10,000 20,000 0 Program Participation TRANSITION ASSISTANCE PROGRAM (TRANSITION) 30,000 250 Peak estimate: 17,293 12/31/13 estimate: 8,830 12/31/13 program participation: 4,806 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 Q3’13 Q4’13 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 Q3’13 Q4’13 Program Participation State Estimated Program Participation Program Participation NEIGHBORWORKS SACRAMENTO SHORT SALE GATEWAY PROGRAM (TRANSITION) 200 150 Peak estimate: 91 12/31/13 estimate: 0 12/31/13 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 Q3’13 Q4’13 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 twelfth 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, 9/20/2013, and 2/27/2014; CalHFA Mortgage Assistance Corporation, “Keep Your Home California, Reports & Statistics, Quarterly Reports,” Quarterly Performance Reports Q4 2010 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/3/2013. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Florida’s HHF Programs 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.306 As of December 31, 2013, the state had drawn down $336.3 million (32%) of those funds.307,xx As of December 31, 2013, the most recent data available, Florida had spent $213.4 million (20% of its obligated funds) to help 13,787 individual homeowners with its HHF programs.308,xxi The remaining $36.3 million (3%) was spent on administrative expenses, and $86.5 million (8%) is held as cashon-hand.309,xxii As of December 31, 2013, the state had five active HHF programs: one to provide unemployment assistance to homeowners, a second and third to provide past-due payment assistance to homeowners, and a fourth and fifth to modify homeowners’ mortgages. At the start of 2011, Florida estimated that it would help as many as 106,000 homeowners with HHF but, as of December 31, 2013, had reduced that peak estimate by 63%, to 39,000. Figure 2.13 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 December 31, 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 2.14 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 December 31, 2013. xx Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Florida had drawn down $411.3 million. xxi 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. xxii 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. 113 114 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.13 FLORIDA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 120,000 100,000 80,000 Peak estimate: 106,000 12/31/2013 estimate: 39,000 12/31/2013 program participation: 23,196 Homeowners assisted: 13,787 60,000 40,000 20,000 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 Q3’13 Q4’13 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 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/3/2013. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FIGURE 2.14 FLORIDA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 UNEMPLOYMENT MORTGAGE ASSISTANCE PROGRAM (UNEMPLOYMENT) MORTGAGE LOAN REINSTATEMENT PROGRAM (PAST-DUE PAYMENT) 100,000 100,000 80,000 60,000 Peak estimate: 53,000 12/31/13 estimate: 25,000 12/31/13 program participation: 11,940 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 Q3’13 Q4’13 State Estimated Program Participation State Estimated Program Participation Peak estimate: 1,500 12/31/13 estimate: 1,500 12/31/13 program participation: 1 500 Program Participation PRINCIPAL REDUCTION PROGRAM (MODIFICATION) 50,000 2,000 1,000 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 Q3’13 Q4’13 Program Participation MODIFICATION ENABLING PILOT PROGRAM (MODIFICATION) 1,500 Peak estimate: 53,000 12/31/13 estimate: 25,000 12/31/13 program participation: 10,860 40,000 30,000 Peak estimate: 10,000 12/31/13 estimate: 10,000 12/31/13 program participation: 394 20,000 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation ELDERLY MORTGAGE ASSISTANCE PROGRAM (PAST-DUE PAYMENT) 10,000 8,000 6,000 Peak estimate: 2,500 12/31/13 estimate: 2,500 12/31/13 program participation: 1 4,000 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation Notes: Programs may have been started or ended at different times. Estimated includes highest estimate of a range. Florida estimates that it will serve approximately 25,000 homeowners in the aggregate between its Unemployment Mortgage Assistance Program and its Mortgage Loan Reinstatement Program. 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 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/3/2013. 115 116 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Georgia’s HHF Program 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.310 As of December 31, 2013, the state had drawn down $77.5 million (23%) of those funds.311,xxiii As of December 31, 2013, the most recent data available, Georgia had spent $62.8 million (19% of its obligated funds) to help 4,431 individual homeowners with its HHF program.312,xxiv The remaining $13.9 million (4%) was spent on administrative expenses, and $0.7 million (0.2%) is held as cash-on-hand.313,xxv As of December 31, 2013, the state had three active HHF programs: one to provide unemployment assistance to homeowners, a second to provide past-due payment assistance to homeowners, and a third to modify homeowners’ mortgages. At the end of 2010, Georgia estimated that it would help as many as 18,300 homeowners with HHF but, as of December 31, 2013, had reduced that peak estimate by 17%, to 15,100.314 Figure 2.15 shows the number of homeowners estimated to participate in Georgia’s program and the number of homeowners who have been assisted, as of December 31, 2013. Figure 2.16 shows the number of homeowners estimated to participate in each of Georgia’s programs (estimated program participation) and the reported number of homeowners who participated in each of Georgia’s programs (program participation), as of December 31, 2013. xxiii Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Georgia had drawn down $144.4 million. 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 APRIL 30, 2014 FIGURE 2.15 GEORGIA’S ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 20,000 15,000 Peak estimate: 18,300 12/31/2013 estimate: 15,100 12/31/2013 program participation: 4,431 Homeowners assisted: 4,431 10,000 5,000 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 Q3’13 Q4’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. Sources: States provide estimates for program participation and 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 sixth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 6/28/2011, 5/3/2012, 12/12/2013, and 1/31/2014; GHFA Affordable Housing Inc., HomeSafe Georgia, US Treasury Reports, Quarterly Performance Reports Q4 2010 - Q4 2013, no date. 117 118 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.16 GEORGIA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 MORTGAGE PAYMENT ASSISTANCE (UNEMPLOYMENT) Peak estimate: 18,300 25,000 20,000 12/31/13 estimate: 9,100 12/31/13 program participation: 4,431 15,000 MORTGAGE REINSTATEMENT PROGRAM (PAST-DUE PAYMENT) 10,000 Peak estimate: 5,000 12/31/13 estimate: 5,000 12/31/13 program participation: 0 7,500 5,000 10,000 2,500 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 Q3’13 Q4’13 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 Q3’13 Q4’13 Program Participation State Estimated Program Participation Program Participation RECAST/MODIFICATION (MODIFICATION) 2,000 1,500 1,000 Peak estimate: 1,000 12/31/13 estimate: 1,000 12/31/13 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 Q3’13 Q4’13 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 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 sixth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 6/28/2011, 5/3/2012, 12/12/2013, and 1/31/2014; GHFA Affordable Housing Inc., HomeSafe Georgia, US Treasury Reports, Quarterly Performance Reports Q4 2010 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Illinois’s HHF Programs 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.315 As of December 31, 2013, the state had drawn down $260 million (58%) of those funds.316,xxvi As of December 31, 2013, the most recent data available, Illinois had spent $204.1 million (46% of its obligated funds) to help 11,545 individual homeowners.317,xxvii The remaining $25.7 million (6%) was spent on administrative expenses, and $30.2 million (7%) is held as cash-onhand.318,xxviii As of December 31, 2013, the state had three HHF programs: one to provide unemployment assistance to homeowners and a second and third to modify homeowners’ mortgages. Illinois stopped accepting new applications from struggling homeowners seeking help from their HHF programs submitted after September 30, 2013.319,xxix In mid-2011, Illinois estimated that it would help as many as 29,000 homeowners with HHF but, as of December 31, 2013, reduced that peak estimate by 53%, to 13,500. Figure 2.17 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 December 31, 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 2.18 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 December 31, 2013. xxvi Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Illinois had drawn down $310 million. xxvii 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. xxviii 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. xxix 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. 119 120 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.17 ILLINOIS ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 30,000 25,000 20,000 15,000 10,000 Peak estimate: 29,000 12/31/2013 estimate: 13,500 12/31/2013 program participation: 11,554 Homeowners assisted: 11,545 5,000 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 Q3’13 Q4’13 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 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FIGURE 2.18 ILLINOIS ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 HARDEST HIT FUND HOMEOWNER EMERGENCY LOAN PROGRAM (UNEMPLOYMENT) 50,000 40,000 Peak estimate: 27,000 12/31/13 estimate: 12,000 12/31/13 program participation: 11,234 30,000 MORTGAGE RESOLUTION FUND PROGRAM (MODIFICATION) 2,000 1,500 Peak estimate: 2,000 12/31/13 estimate: 1,000 12/31/13 program participation: 143 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 Q3’13 Q4’13 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 Q3’13 Q4’13 Program Participation State Estimated Program Participation Program Participation HOME PRESERVATION PROGRAM (MODIFICATION) 500 375 250 Peak estimate: 500 12/31/13 estimate: 500 12/31/13 program participation: 177 125 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 Q3’13 Q4’13 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 - Q4 2013, no date. 121 122 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Indiana’s HHF Programs 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.320 As of December 31, 2013, the state had drawn down $66.3 million (30%) of those funds.321,xxx As of December 31, 2013, the most recent data available Indiana had spent $29.6 million (13% of its obligated funds) to help 2,722 individual homeowners with its HHF programs.322,xxxi The remaining $11.7 million (5%) was spent on administrative expenses, and $25 million (11%) is held as cashon-hand.323,xxxii As of December 31, 2013, the state had four active HHF programs: one to provide unemployment assistance to homeowners, a second to modify homeowners’ mortgages, a third to provide transition assistance to homeowners, and as of December 31, 2013, Indiana added a fourth to demolish vacant properties. At the start of 2011, Indiana estimated helping as many as 16,257 homeowners with HHF but, as of December 31, 2013, reduced that peak estimate by 38%, to 10,150. Figure 2.19 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 December 31, 2013. Figure 2.20 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 December 31, 2013. xxx Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Indiana had drawn down $66.3 million. xxxi 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. xxxii 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 APRIL 30, 2014 FIGURE 2.19 INDIANA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 20,000 15,000 10,000 Peak estimate: 16,257 12/31/2013 estimate: 10,150 12/31/2013 program participation: 2,722 Homeowners assisted: 2,722 5,000 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 Q3’13 Q4’13 State Estimated Program Participation Homeowners Assisted Program Participation Notes: Estimated includes highest estimate of a range. For its “Blight Elimination Program” (Demolition), Indiana 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. 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 eighth 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, 3/8/2013, and 12/12/2013; Indiana Housing and Community Development Authority, Indiana’s Hardest Hit Fund, Quarterly Reports to the U.S. Treasury, Quarterly Performance Reports Q2 2011 - Q4 2013, no date. 123 124 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.20 INDIANA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 HARDEST HIT FUND UNEMPLOYMENT BRIDGE PROGRAM (UNEMPLOYMENT) 25,000 20,000 15,000 Peak estimate: 16,257 12/31/13 estimate: 8,000 12/31/13 program participation: 2,712 HARDEST HIT FUND TRANSITION ASSISTANCE PROGRAM (TRANSITION) 200 150 100 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 Q3’13 Q4’13 State Estimated Program Participation 2,000 1,000 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation HARDEST HIT FUND RECAST/MODIFICATION PROGRAM (MODIFICATION) 1,500 Peak estimate: 150 12/31/13 estimate: 150 12/31/13 program participation: 0 Program Participation HARDEST HIT FUND BLIGHT ELIMINATION PROGRAM (DEMOLITION) 100 Peak estimate: 2,000 12/31/13 estimate: 2,000 12/31/13 program participation: 10 500 75 50 Peak estimate: 0 12/31/13 estimate: 0 12/31/13 program participation: 0 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 Q3’13 Q4’13 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 Q3’13 Q4’13 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), Indiana 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. 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 eighth 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, 3/8/2013, and 12/12/2013; Indiana Housing and Community Development Authority, Indiana’s Hardest Hit Fund, Quarterly Reports to the U.S. Treasury, Quarterly Performance Reports Q2 2011 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Kentucky’s HHF Program 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.324 As of December 31, 2013, the state had drawn down $84 million (56%) of those funds.325,xxxiii As of December 31, 2013, the most recent data available, Kentucky had spent $53.5 million (36% of its obligated funds) to help 4,874 individual homeowners with its HHF program.326,xxxiv The remaining $9.3 million (6%) was spent on administrative expenses, and $21.3 million (14%) is held as cash-on-hand.327,xxxv As of December 31, 2013, the state had one active HHF program, to provide unemployment assistance to homeowners. At the end of 2010, Kentucky estimated that it would provide HHF unemployment assistance to as many as 15,000 homeowners but, as of December 31, 2013, reduced that peak estimate by 60%, to 5,960. As of December 31, 2013, Kentucky had helped 4,874 homeowners with HHF unemployment assistance. Figure 2.21 shows the number of homeowners estimated to participate in Kentucky’s program and the number of homeowners who have been assisted, as of December 31, 2013. xxxiii Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Kentucky had drawn down $84 million. 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. 125 126 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.21 KENTUCKY’S UNEMPLOYMENT BRIDGE PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATION AND HOMEOWNERS ASSISTED, AS OF 12/31/2013 15,000 12,000 9,000 6,000 3,000 Peak estimate: 15,000 12/31/2013 estimate: 5,960 12/31/2013 program participation: 4,874 Homeowners assisted: 4,874 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 Q3’12 Q4’13 State Estimated Program Participation Homeowners Assisted 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 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Michigan’s HHF Programs 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.328 As of December 31, 2013, the state had drawn down $162.1 million (33%) of those funds.329,xxxvi As of December 31, 2013, the most recent data available, Michigan had spent $126.4 million (25% of its obligated funds) to help 17,171 individual homeowners with HHF programs.330,xxxvii As of December 31, 2013, Michigan had spent $22,890 to demolish vacant properties. The remaining $17.9 million (4%) was spent on administrative expenses, and $17.9 million (4%) is held as cash-on-hand.331,xxxviii As of December 31, 2013, the state had five HHF programs: one to modify homeowners mortgage, a second to modify homeowners’ mortgages with principal reduction assistance, a third to provide past-due payment assistance to homeowners, a fourth to unemployment assistance to homeowners, and a fifth to demolish vacant properties. At the end of 2010, Michigan estimated that it would help as many as 49,422 homeowners with HHF, but, as of December 31, 2013, had reduced that peak estimate by 77%, to 11,477. Figure 2.22 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 December 31, 2013. Figure 2.23 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 December 31, 2013. xxxvi Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Michigan had drawn down $180.3 million. xxxvii 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. xxxviii 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. 127 128 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.22 MICHIGAN ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 50,000 40,000 30,000 20,000 10,000 Peak estimate: 49,422 12/31/2013 estimate: 11,477 12/31/2013 program participation: 17,171 Homeowners assisted: 17,171 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 Q3’13 Q4’13 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 eighth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 8/3/2011, 6/28/2012, 11/15/2012, 6/6/2013, and 12/12/2013; Michigan Homeowner Assistance Nonprofit Housing Corporation, Hardest Hit U.S. Treasury Reports, Quarterly Performance Reports Q3 2010 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FIGURE 2.23 MICHIGAN ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 PRINCIPAL CURTAILMENT PROGRAM (MODIFICATION) 6,000 5,000 Peak estimate: 3,044 12/31/13 estimate: 300 12/31/13 program participation: 290 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 Q3’13 Q4’13 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 Q3’13 Q4’13 Program Participation UNEMPLOYMENT MORTGAGE SUBSIDY PROGRAM (UNEMPLOYMENT) 15,000 Peak estimate: 21,760 12/31/13 estimate: 6,600 12/31/13 program participation: 10,989 750 Peak estimate: 825 12/31/13 estimate: 295 12/31/13 program participation: 55 500 Peak estimate: 24,618 12/31/13 estimate: 4,282 12/31/13 program participation: 5,837 250 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation BLIGHT ELIMINATION PROGRAM (DEMOLITION) 200 150 100 Peak estimate: 0 12/31/13 estimate: 0 12/31/13 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 Q3’13 Q4’13 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. As of December 31, 2013, Michigan is the only state to have spent funds ($22,890) on demolition programs; removing and greening one property. 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 eighth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 8/3/2011, 6/28/2012, 11/15/2012, 6/6/2013, and 12/12/2013; Michigan Homeowner Assistance Nonprofit Housing Corporation, Hardest Hit U.S. Treasury Reports, Quarterly Performance Reports Q3 2010 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. 129 130 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Mississippi’s HHF Program 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.332 As of December 31, 2013, the state had drawn down $44.3 million (44%) of those funds.333,xxxix As of December 31, 2013, the most recent data available, Mississippi had spent $24.3 million (24% of its obligated funds) to help 2,042 individual homeowners with its HHF program.334,xl The remaining $6.2 million (6%) was spent on administrative expenses, and $13.8 million (14%) is held as cash-on-hand.335,xli As of December 31, 2013, the state had one HHF program, to provide unemployment assistance to homeowners. At the end of 2010, Mississippi estimated that it would provide HHF unemployment assistance to as many as 3,800 homeowners, but as of December 31, 2013, reduced that peak estimate by 8%, to 3,500. As of December 31, 2013, Mississippi had provided HHF unemployment assistance to 2,042 homeowners. Figure 2.24 shows the number of homeowners estimated to participate in Mississippi’s program and the number of homeowners who have been assisted, as of December 31, 2013. xxxix Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Mississippi had drawn down $44.3 million. xl 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. xli 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 APRIL 30, 2014 FIGURE 2.24 MISSISSIPPI’S HOME SAVER PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATION AND HOMEOWNERS ASSISTED, AS OF 12/31/2013 4,000 3,500 3,000 2,500 2,000 Peak estimate: 3,800 12/31/2013 estimate: 3,500 12/31/2013 program participation: 2,042 Homeowners assisted: 2,042 1,500 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 Q3’13 Q4’13 State Estimated Program Participation Homeowners Assisted 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 - Q4 2013, no date. 131 132 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Nevada’s HHF Programs 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.336 As of December 31, 2013, the state had drawn down $98.8 million (51%) of those funds.337,xlii As of December 31, 2013, the most recent data available, Nevada had spent $80.1 million (41% of its obligated funds) to help 4,989 individual homeowners with its HHF programs.338,xliii The remaining $11.3 million (6%) was spent on administrative expenses, and $7.4 million (4%) is held as cash-on-hand.339,xliv As of December 31, 2013, the state had six active HHF programs: two to provide unemployment assistance to homeowners, a third and fourth to modify homeowners’ mortgages with principal reduction assistance, a fifth for second-lien reduction assistance to homeowners, and a sixth to provide transition assistance to homeowners. In mid-2011, Nevada estimated that it would help as many as 23,556 homeowners with HHF but, as of December 31, 2013, reduced that peak estimate by 71%, to 6,854. Figure 2.25 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 December 31, 2013. Figure 2.26 shows 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 December 31, 2013. xlii Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Nevada had drawn down $98.8 million. 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 APRIL 30, 2014 FIGURE 2.25 NEVADA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 25,000 Peak estimate: 23,556 12/31/2013 estimate: 6,854 12/31/2013 program participation: 4,989 Homeowners assisted: 4,989 20,000 15,000 10,000 5,000 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 Q3’13 Q4’13 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 - Q4 2013, no date. 133 134 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.26 NEVADA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 PRINCIPAL REDUCTION PROGRAM (MODIFICATION) 6,000 5,000 Peak estimate: 3,016 12/31/13 estimate: 1,040 12/31/13 program participation: 1,205 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 Q3’13 Q4’13 State Estimated Program Participation 2,000 State Estimated Program Participation 15,000 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 Q3’13 Q4’13 State Estimated Program Participation 500 State Estimated Program Participation Program Participation HOME RETENTION PROGRAM (MODIFICATION) 2,000 375 125 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 Q3’13 Q4’13 Program Participation MORTGAGE ASSISTANCE PROGRAM ALTERNATIVE (UNEMPLOYMENT) 250 Peak estimate: 16,969 12/31/13 estimate: 4,033 12/31/13 program participation: 3,068 20,000 Peak estimate: 1,713 12/31/13 estimate: 60 12/31/13 program participation: 100 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 Q3’13 Q4’13 Program Participation SHORT-SALE ACCELERATION PROGRAM (TRANSITION) 1,000 Peak estimate: 2,200 12/31/13 estimate: 500 12/31/13 program participation: 404 5,000 1,500 Peak estimate: 416 12/31/13 estimate: 71 12/31/13 program participation: 212 Peak estimate: 1,150 12/31/13 estimate: 1,150 12/31/13 program participation: 0 1,000 500 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 Q3’13 Q4’13 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 Q3’13 Q4’13 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. 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 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 New Jersey’s HHF Program 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.340 As of December 31, 2013, the state had drawn down $190.5 million (63%) of those funds.341,xlv As of December 31, 2013, the most recent data available, New Jersey had spent $127.9 million (43% of its obligated funds) to help 5,161 individual homeowners with its HHF program.342,xlvi The remaining $19.5 million (6%) was spent on administrative expenses, and $43.1 million (14%) is held as cash-on-hand.343,xlvii As of December 31, 2013, the state had one active HHF program, to provide unemployment assistance to homeowners. Since the end of 2010, New Jersey estimated helping 6,900 homeowners with HHF but, as of December 31, 2013, reduced that peak estimate by 6%, to 6,500. According to Treasury, New Jersey stopped accepting new applications from struggling homeowners seeking help from their HHF programs submitted after November 30, 2013.344,xlviii Figure 2.27 shows the number of homeowners estimated to participate in New Jersey’s program and the number of homeowners who have been assisted, as of December 31, 2013. xlv Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, New Jersey had drawn down $190.5 million. xlvi 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. xlvii 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. xlviii According to Treasury, New Jersey 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. 135 136 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.27 NEW JERSEY’S HOMEKEEPER PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATION AND HOMEOWNERS ASSISTED, AS OF 12/31/2013 8,000 7,000 6,000 5,000 4,000 Peak estimate: 6,900 12/31/2013 estimate: 6,500 12/31/2013 program participation: 5,161 Homeowners assisted: 5,161 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 Q3’13 Q4’13 State Estimated Program Participation Homeowners Assisted 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 sixth Amendment[s] to Agreement[s], 9/29/2010, 12/16/2010, 8/31/2011, 1/25/2012, 8/24/2012, and 10/30/2013; New Jersey Housing and Mortgage Finance Agency, The New Jersey HomeKeeper Program, About the Program, Performance Reports, Quarterly Performance Reports Q3 2011 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 North Carolina’s HHF Programs 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.345 As of December 31, 2013, the state had drawn down $313.7 million (65%) of those funds.346,xlix As of December 31, 2013, the most recent data available, North Carolina had spent $216.9 million (45% of its obligated funds) to help 14,943 individual homeowners with its HHF programs.347,l The remaining $40.6 million (8%) was spent on administrative expenses, and $56.1 million (12%) is held as cash-on-hand.348,li As of December 31, 2013, the state had four active HHF programs: two to provide unemployment assistance to homeowners, a third to provide second-lien reduction assistance to homeowners, and a fourth to modify homeowners’ mortgages with principal reduction. North Carolina had another program to modify homeowners’ mortgages but reduced the peak estimate for this program to zero and had not modified any mortgages as of December 31, 2013. In December 2013, North Carolina replaced its inactive Principal Reduction Recast Program with a new Modification Enabling Pilot Program (a sixth program) and increased funds available to homeowners under its unemployment mortgage assistance program. From mid-2011 to mid-2013, North Carolina estimated that it would help as many as 22,290 homeowners with HHF, but as of December 31, 2013, reduced that peak estimate to 21,310. Figure 2.28 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 December 31, 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 2.29 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 December 31, 2013. xlix Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, North Carolina had drawn down $313.7 million. l 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. li 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. 137 138 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.28 NORTH CAROLINA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 25,000 20,000 Peak estimate: 22,290 12/31/2013 estimate: 21,310 12/31/2013 program participation: 15,020 Homeowners assisted: 14,943 15,000 10,000 5,000 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 Q3’13 Q4’13 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 seventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 5/25/2011, 1/25/2012, 8/9/2013, and 12/12/2013; North Carolina Housing Finance Agency, Hardest Hit Fund & Performance Reporting, Quarterly Performance Reports Q3 2010 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FIGURE 2.29 NORTH CAROLINA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 MORTGAGE PAYMENT PROGRAM-1 (UNEMPLOYMENT) MORTGAGE PAYMENT PROGRAM-2 (UNEMPLOYMENT) 6,000 15,000 5,000 12,000 4,000 3,000 2,000 1,000 0 Peak estimate: 5,750 12/31/13 estimate: 5,410 12/31/13 program participation: 4,100 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 Q3’13 Q4’13 State Estimated Program Participation 2,000 State Estimated Program Participation PERMANENT LOAN MODIFICATION PROGRAM (MODIFICATION) 375 Peak estimate: 2,000 12/31/13 estimate: 1,000 12/31/13 program participation: 95 0 125 0 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation PRINCIPAL REDUCTION RECAST PROGRAM (MODIFICATION) 2,000 Program Participation MODIFICATION ENABLING PILOT PROJECT (MODIFICATION) 1,000 1,500 500 Peak estimate: 440 12/31/13 estimate: 0 12/31/13 program participation: 0 250 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 Q3’13 Q4’13 1,000 Program Participation 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 Q3’13 Q4’13 Program Participation SECOND MORTGAGE REFINANCE PROGRAM (SECOND-LIEN REDUCTION) 1,000 Peak estimate: 14,100 12/31/13 estimate: 14,100 12/31/13 program participation: 10,825 9,000 750 Peak estimate: 680 12/31/13 estimate: 0 12/31/13 program participation: 0 0 Peak estimate: 800 12/31/13 estimate: 800 12/31/13 program participation: 0 500 250 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 Q3’13 Q4’13 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 Q3’13 Q4’13 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 seventh Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 5/25/2011, 1/25/2012, 8/9/2013, and 12/12/2013; North Carolina Housing Finance Agency, Hardest Hit Fund & Performance Reporting, Quarterly Performance Reports Q3 2010 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. 139 140 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Ohio’s HHF Programs 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.349 As of December 31, 2013, the state had drawn down $270.1 million (47%) of those funds.350,lii As of December 31, 2013, the most recent data available, Ohio had spent $213.4 million (37% of its obligated funds) to help 15,779 individual homeowners with its HHF programs.351,liii The remaining $34.6 million (6%) was spent on administrative expenses, and $22.1 million (4%) is held as cash-onhand.352,liv As of December 31, 2013, the state had eight active HHF programs: four to modify homeowners’ mortgages, a fifth to provide past-due payment assistance to homeowners, a sixth to provide unemployment assistance to homeowners, a seventh to provide transition assistance to homeowners and an eighth to demolish vacant properties. As of the quarter ending December 31, 2013, Ohio had reduced the peak estimate for one of its two transition assistance programs to zero and had not provided HHF transition assistance to any homeowners. At the end of 2010, Ohio estimated that it would help as many as 63,485 homeowners with HHF but, as of December 31, 2013, reduced that peak estimate by 44%, to 35,575. Figure 2.30 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 December 31, 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 2.31 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 December 31, 2013. lii Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Ohio had drawn down $321.6 million. liii 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. liv 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 APRIL 30, 2014 FIGURE 2.30 OHIO ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 80,000 Peak estimate: 63,485 12/31/2013 estimate: 35,575 12/31/2013 program participation: 25,068 Homeowners assisted: 15,779 70,000 60,000 50,000 40,000 30,000 20,000 10,000 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 Q3’13 Q4’13 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), Ohio 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. 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 tenth 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, 8/28/2013, 12/12/2013, and 2/27/2014; Ohio Homeowner Assistance LLC, Save the Dream Ohio: Quarterly Reports, Quarterly Performance Reports Q4 2010 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. 141 142 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.31 OHIO ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 RESCUE PAYMENT ASSISTANCE PROGRAM Peak estimate: 21,000 (PAST-DUE PAYMENT) 25,000 12/31/13 estimate: 19,000 12/31/13 program participation: 13,453 MORTGAGE PAYMENT ASSISTANCE PROGRAM (UNEMPLOYMENT) 50,000 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 Q3’13 Q4’13 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 Q3’13 Q4’13 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation TRANSITION ASSISTANCE PROGRAM (TRANSITION) 5,000 Peak estimate: 2,350 12/31/13 estimate: 700 12/31/13 program participation: 574 4,000 Peak estimate: 6,400 12/31/13 estimate: 4,600 12/31/13 program participation: 455 0 6,000 Program Participation LIEN ELIMINATION ASSISTANCE (MODIFICATION) 7,500 4,500 Peak estimate: 31,900 12/31/13 estimate: 9,375 12/31/13 program participation: 9,842 Peak estimate: 4,900 12/31/13 estimate: 100 12/31/13 program participation: 35 HOMEOWNERSHIP RETENTION ASSISTANCE (MODIFICATION) 6,000 5,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 0 Program Participation Peak estimate: 3,100 12/31/13 estimate: 900 12/31/13 program participation: 588 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 OHIO ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 (CONTINUED) HOMEOWNER STABILIZATION ASSISTANCE PROGRAM (MODIFICATION) 6,000 5,000 4,000 3,000 2,000 SHORT REFINANCE PROGRAM (TRANSITION) 10,000 Peak estimate: 900 12/31/13 estimate: 900 12/31/13 program participation: 121 8,000 Peak estimate: 6,500 12/31/13 estimate: 0 12/31/13 program participation: 0 6,000 4,000 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation NEIGHBORHOOD INITIATIVE PROGRAM (DEMOLITION) 10,000 8,000 Peak estimate: 0 12/31/13 estimate: 0 12/31/13 program participation: 0 6,000 4,000 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 Q3’13 Q4’13 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), Ohio 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. 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 tenth 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, 8/28/2013, 12/12/2013, and 2/27/2014; Ohio Homeowner Assistance LLC, Save the Dream Ohio: Quarterly Reports, Quarterly Performance Reports Q4 2010 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. 143 144 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Oregon’s HHF Programs Treasury obligated $220,042,786 of HHF funds to Oregon.353 As of December 31, 2013, the state had drawn down $155 million (70%) of those funds.354,lv As of December 31, 2013, the most recent data available, Oregon had spent $128.6 million (58% of its obligated funds) to help 9,388 individual homeowners.355,lvi The remaining $28.7 million (13%) was spent on administrative expenses, and $7.4 million (3%) is held as cash-on-hand.356,lvii As of December 31, 2013, the state had four active HHF programs: two to modify homeowners’ mortgages, a third to provide unemployment assistance to homeowners, and a fourth to provide pastdue payment assistance to homeowners. Oregon had another program to modify homeowners’ mortgages but had not assisted any homeowners in that program. As of December 31, 2013, Oregon had reduced the peak estimate for its transition assistance program and had not assisted any homeowners. As of mid-2010, Oregon estimated that it would help as many as 9,400 homeowners with HHF but, as of December 31, 2013, had increased that estimate to 15,280.357 Figure 2.32 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 December 31, 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 2.33 shows the number of homeowners estimated to participate in each of Oregon’s programs (estimated program participation) and the reported number of homeowners who participated in each of Oregon’s programs (program participation), as of December 31, 2013. lv Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Oregon had drawn down $188.7 million. lvi 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. lvii 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. Oregon has spent $2.4 million on program and administrative expenses in excess of what it has drawn from Treasury, but made up the for short fall using $9.1 million in collections from homeowners that received assistance. Including these collections, Oregon has $7.4 million cash-on-hand. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FIGURE 2.32 OREGON ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 20,000 Peak estimate: 15,280 12/31/2013 estimate: 15,280 12/31/2013 program participation: 12,034 Homeowners assisted: 9,388 15,000 10,000 5,000 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 Q3’13 Q4’13 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 fourteenth 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, 8/28/2013, and 2/27/2014; Oregon Affordable Housing Assistance Corporation, Oregon Homeownership Stabilization Initiative, Reporting, Quarterly Performance Reports Q2 2011 - Q4 2013, no date. 145 146 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.33 OREGON ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 LOAN MODIFICATION ASSISTANCE PROGRAM (MODIFICATION) 6,000 5,000 4,000 Peak estimate: 2,600 12/31/13 estimate: 0 12/31/13 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 Q3’13 Q4’13 State Estimated Program Participation 375 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation LOAN REFINANCE ASSISTANCE PROGRAM (MODIFICATION) 500 Peak estimate: 330 12/31/13 estimate: 330 12/31/13 program participation: 108 Peak estimate: 2,515 12/31/13 estimate: 0 12/31/13 program participation: 0 6,000 5,000 3,000 2,000 125 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation LOAN PRESERVATION ASSISTANCE PROGRAM (PAST-DUE PAYMENT) 5000 Program Participation TRANSITION ASSISTANCE PROGRAM (TRANSITION) 4,000 250 6000 Peak estimate: 11,000 12/31/13 estimate: 11,000 12/31/13 program participation: 9.025 15,000 Peak estimate: 4,000 12/31/13 estimate: 3,900 12/31/13 program participation: 2,890 4000 3000 Program Participation REBUILDING AMERICAN HOMEOWNERSHIP ASSISTANCE PILOT PROJECT (MODIFICATION) Peak estimate: 50 12/31/13 estimate: 50 12/31/13 program participation: 11 200 150 100 2000 50 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 Q3’13 Q4’13 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 Q3’13 Q4’13 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 fourteenth 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, 8/28/2013, and 2/27/2014; Oregon Affordable Housing Assistance Corporation, Oregon Homeownership Stabilization Initiative, Reporting, Quarterly Performance Reports Q2 2011 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Rhode Island’s HHF Program Treasury obligated $79,351,573 of HHF funds to Rhode Island.358 As of December 31, 2013, the state had drawn down $66.5 million (84%) of those funds.359,lviii As of December 31, 2013, the most recent data available, Rhode Island had spent $53.6 million (67% of its obligated funds) to help 3,059 individual homeowners with its HHF programs.360,lix The remaining $7.5 million (9%) was spent on administrative expenses, and $5.4 million (7%) is held as cash-on-hand.361,lx As of December 31, 2013, the state had five HHF programs: two to modify homeowners’ mortgages (one of which includes principal reduction assistance), a third to provide past-due payment assistance to homeowners, a fourth to provide transition assistance to homeowners, and a fifth to provide unemployment assistance to homeowners. According to Treasury, Rhode Island stopped accepting new applications from struggling homeowners seeking help from their HHF programs submitted after January 31, 2013.362,lxi At the end of 2010, Rhode Island estimated that it would help as many as 13,125 homeowners with HHF but, as of December 31, 2013, reduced that peak estimate by 74%, to 3,413. Figure 2.34 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, as of December 31, 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 2.35 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 December 31, 2013. lviii Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Rhode Island had drawn down $66.5 million. lix 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. lx 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. lxi 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. 147 148 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.34 RHODE ISLAND ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 15,000 Peak estimate: 13,125 12/31/2013 estimate: 3,413 12/31/2013 program participation: 3,301 Homeowners assisted: 3,059 12,000 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 Q3’13 Q4’13 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 ninth 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, 7/17/2013, and 1/31/2014; Rhode Island Housing and Mortgage Finance Corporation, Hardest Hit Fund – Rhode Island, About HHFRI, Reports, Quarterly Performance Reports Q4 2010 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FIGURE 2.35 RHODE ISLAND ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 LOAN MODIFICATION ASSISTANCE PROGRAM (MODIFICATION) 3,500 3,000 2,500 2,000 Peak estimate: 3,500 12/31/13 estimate: 477 12/31/13 program participation: 442 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation MOVING FORWARD ASSISTANCE (TRANSITION) 1,000 Peak estimate: 2,750 12/31/13 estimate: 681 12/31/13 program participation: 657 2,500 Peak estimate: 875 12/31/13 estimate: 70 12/31/13 program participation: 65 750 MORTGAGE PAYMENT ASSISTANCE – UNEMPLOYMENT (UNEMPLOYMENT) 6,000 Peak estimate: 6,000 12/31/13 estimate: 2,153 12/31/13 program participation: 2,109 5,000 4,000 500 Program Participation 3,000 2,000 250 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 Q3’13 Q4’13 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 Q3’13 Q4’13 Program Participation State Estimated Program Participation Program Participation PRINCIPAL REDUCTION PROGRAM (MODIFICATION) 200 150 Peak estimate: 100 9/30/13 estimate: 32 9/30/13 program participation: 28 100 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 Q3’13 Q4’13 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 ninth 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, 7/17/2013, and 1/31/2014; Rhode Island Housing and Mortgage Finance Corporation, Hardest Hit Fund – Rhode Island, About HHFRI, Reports, Quarterly Performance Reports Q4 2010 - Q4 2013, no date; Treasury, response to SIGTARP data call, 10/7/2013. 149 150 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM South Carolina’s HHF Programs 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.363 As of December 31, 2013, the state had drawn down $112.5 million (38%) of those funds.364,lxii As of December 31, 2013, the most recent data available, South Carolina had spent $89.9 million (30% of its obligated funds) to help 6,844 individual homeowners with its HHF programs.365,lxiii The remaining $17.3 million (6%) was spent on administrative expenses, and $5.3 million (2%) is held as cash-on-hand.366,lxiv As of December 31, 2013, the state had four active HHF programs: one to provide unemployment assistance to homeowners, a second to provide past-due payment assistance to homeowners, a third to modify homeowners’ mortgages, and a fourth to provide transition assistance to homeowners. South Carolina ended its program to provide secondlien reduction assistance to homeowners. As of December 31, 2013, South Carolina introduced a new program to modify homeowners’ mortgages and had reduced the peak estimates to zero for its original program to modify homeowners’ mortgages and its program to provide homeowners with second-lien reduction assistance. At the end of 2010, South Carolina estimated that it would help as many as 34,100 homeowners with HHF but, as of December 31, 2013, reduced that peak estimate by 43%, to 19,400. Figure 2.36 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 December 31, 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 2.37 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 December 31, 2013. lxii Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, South Carolina had drawn down $125 million. lxiii 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. lxiv 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 APRIL 30, 2014 FIGURE 2.36 SOUTH CAROLINA ESTIMATED PROGRAM PARTICIPATION, PROGRAM PARTICIPATION, AND INDIVIDUAL HOMEOWNERS ASSISTED, IN ALL HHF PROGRAMS, AS OF 12/31/2013 35,000 30,000 25,000 20,000 15,000 10,000 Peak estimate: 34,100 12/31/2013 estimate: 19,400 12/31/2013 program participation: 10,452 Homeowners assisted: 6,844 5,000 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 Q3’13 Q4’13 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 sixth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 8/31/2011, 11/15/2012, and 10/30/2013; SC Housing Corp., SC HELP, Reports, Quarterly Performance Reports Q1 2011 - Q4 2013, no date. 151 152 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.37 SOUTH CAROLINA ESTIMATED PROGRAM PARTICIPATION VS. PROGRAM PARTICIPATION, BY PROGRAM, AS OF 12/31/2013 MONTHLY PAYMENT ASSISTANCE PROGRAM (UNEMPLOYMENT) DIRECT LOAN ASSISTANCE PROGRAM (PAST-DUE PAYMENT) 15,000 15,000 12,000 12,000 9,000 6,000 3,000 Peak estimate: 14,000 12/31/13 estimate: 6,000 12/31/13 program participation: 3,718 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation HAMP ASSISTANCE PROGRAM (MODIFICATION) 6,000 Peak estimate: 6,000 12/31/13 estimate: 0 12/31/13 program participation: 0 5,000 4,000 3,000 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 Q3’13 Q4’13 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 Q3’13 Q4’13 State Estimated Program Participation Program Participation SECOND MORTGAGE ASSISTANCE PROGRAM (SECOND-LIEN REDUCTION) 4,000 Peak estimate: 6,000 12/31/13 estimate: 400 12/31/13 program participation: 120 6,000 2,000 5,000 Program Participation PROPERTY DISPOSITION ASSISTANCE PROGRAM (TRANSITION) 3,000 6,000 Peak estimate: 11,000 12/31/13 estimate: 9,500 12/31/13 program participation: 6,614 Peak estimate: 2,600 12/31/13 estimate: 0 12/31/13 program participation: 0 MODIFICATION ASSISTANCE PROGRAM (MODIFICATION) 6,000 5,000 Peak estimate: 3,500 12/31/13 estimate: 3,500 12/31/13 program participation: 0 4,000 3,000 3,000 2,000 2,000 1,000 1,000 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 Q3’13 Q4’13 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 Q3’13 Q4’13 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. 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 sixth Amendment[s] to Agreement[s], 9/23/2010, 9/29/2010, 12/16/2010, 8/31/2011, 11/15/2012, and 10/30/2013; SC Housing Corp., SC HELP, Reports, Quarterly Performance Reports Q1 2011 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Tennessee’s HHF Program 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.367 As of December 31, 2013, the state had drawn down $95.3 million (44%) of those funds.368,lxv As of December 31, 2013, the most recent data available Tennessee had spent $77 million (35% of its obligated funds) to help 5,380 individual homeowners.369,lxvi The remaining $12.3 million (6%) was spent on administrative expenses, and $6 million (3%) is held as cash-on-hand.370,lxvii As of December 31, 2013, the state had one HHF program, to provide unemployment assistance to homeowners. 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 December 31, 2013, reduced that peak estimate by 16%, to 11,300. As of December 31, 2013, Tennessee had provided HHF unemployment assistance to 5,380 homeowners. Figure 2.38 shows the number of homeowners estimated to participate in Tennessee’s program and the number of homeowners who have been assisted, as of December 31, 2013. lxv Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Tennessee had drawn down $111.3 million. lxvi 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. lxvii 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. 153 154 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.38 TENNESSEE’S HARDEST HIT FUND PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATIONAND HOMEOWNERS ASSISTED, AS OF 12/31/2013 15,000 12,000 9,000 6,000 Peak estimate: 13,500 12/31/2013 estimate: 11,300 12/31/2013 program participation: 5,380 Homeowners assisted: 5,380 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 Q3’13 Q4’13 State Estimated Program Participation Homeowners Assisted 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 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Washington, DC’s HHF Program Treasury obligated $20,697,198 of HHF funds to Washington, DC.371 As of December 31, 2013, Washington, DC had drawn down $18.2 million (88%) of those funds.372,lxviii As of December 31, 2013, the most recent data available, Washington, DC had spent $11.1 million (53% of its obligated funds) to help 625 individual homeowners.373,lxix The remaining $2.7 million (13%) was spent on administrative expenses and $4.5 million (22%) is held as cash-on-hand.374,lxx As of December 31, 2013, Washington, DC had one HHF program, to provide unemployment assistance to homeowners. 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 December 31, 2013, reduced that peak estimate by 20%, to 800. As of December 31, 2013, Washington, DC had provided HHF unemployment assistance to 625 homeowners. Washington, DC stopped accepting new applications after November 22, 2013.375 Figure 2.39 shows the number of homeowners estimated to participate in Washington, DC’s program and the number of homeowners who have been assisted, as of December 31, 2013. lxviii Treasury has separately published March 31, 2014, figures for amounts drawn down; as of March 31, 2014, Washington, DC had drawn down $18.2 million. lxix 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. lxx 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. 155 156 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.39 WASHINGTON, DC’S HOMESAVER PROGRAM (UNEMPLOYMENT) ESTIMATED PROGRAM PARTICIPATIONAND HOMEOWNERS ASSISTED, AS OF 12/31/2013 1000 800 600 Peak estimate: 1,000 12/31/2013 estimate: 800 12/31/2013 program participation: 625 Homeowners assisted: 625 400 200 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 Q3’13 Q4’13 State Estimated Program Participation Homeowners Assisted 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 9/20/2013; District of Columbia Housing Finance Agency, HomeSaver – A Foreclosure Prevention Program, Quarterly Performance Reports Q1 2011 - Q4 2013, no date. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.376 FHA Short Refinance is voluntary for servicers. Therefore, not all underwater borrowers who qualify may be able to participate in the program.377 As of March 31, 2014, according to Treasury, 4,238 loans had been refinanced under the program.378 As of March 31, 2014, 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.379 Treasury has deposited $50 million into a reserve account for future claims.380 It has also spent approximately $9.3 million on administrative expenses associated with the letter of credit.381 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.382 According to the Department of Housing and Urban Development (“HUD”), it evaluates the credit risk of the loans.383 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%.384 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).385 If a borrower defaults, the letter of credit purchased by Treasury compensates the investor for a first percentage of losses, up to specified amounts.386 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 For more information concerning FHA Short Refinance eligibility, see SIGTARP’s April 2011 Quarterly Report, pages 85-87. 157 158 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM at default.387 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.388 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, 2014.389 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FINANCIAL INSTITUTION SUPPORT PROGRAMS 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 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”).390 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.391 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.392 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. Subchapter S corporations (“S corporations”) paid an initial rate of 7.7%, that increases to 13.8%. Rate increases began in the quarter ended December 31, 2013. 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.393 Privately held institutions issued warrants to Treasury to purchase additional senior preferred stock worth 5% of Treasury’s initial preferred stock investment.394 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.395 Status of Funds As of March 31, 2014, 107 of the 707 institutions remained in CPP; in 36 of them, Treasury holds only warrants to purchase stock. Treasury does not consider these 36 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 March 31, 2014, 71 of the 107 institutions had outstanding principal 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. 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. 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 180183. 159 160 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.40 STATUS OF CPP RECIPIENTS, AS OF 3/31/2014 2% 21% 1% 34% 4% 4% 4% 19% 12% Fully Repaid Principal (241) Remaining Principal Investment in CPP (71) Refinanced into SBLF (137) Refinanced into CDCI (28) Sold for less than par (25) Failed/subsidiary failed (29) Merged (4) Auction: Sold at loss (159) Auction: Sold at profit (13) Note: 36 banks repaid CPP principal but remain in TARP with Treasury holding only warrants. Source: Treasury, response to SIGTARP data call, 4/9/2014. investments. Taxpayers were still owed $6.7 billion.396 According to Treasury, it had write-offs, realized losses, and investments currently not collectible as a result of bankruptcy of $4.7 billion in the program, leaving $2 billion in TARP funds outstanding. Included as investments currently not collectible are those in 26 CPP banks, or their subsidiary banks, with total CPP investments of $790.5 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.397 As of March 31, 2014, $196 billion of the CPP principal (or 96%) had been repaid.398 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.399 As of March 31, 2014, Treasury had received approximately $12.1 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.400 For a complete list of CPP share repurchases, see Appendix D: “Transaction Detail.” Of the 707 banks that received CPP investments, 636 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.401 Only 241 of the 707 banks, or 34%, fully repaid CPP principal otherwise.402 Of the other banks that no longer have outstanding principal investments, four CPP banks merged with other CPP banks; Treasury sold its investments in 25 banks for less than par and sold at auction its investments in 172 banks (all but 13 of these investments sold at a loss); and 29 institutions or their subsidiary banks failed, meaning Treasury has lost or expects to lose its entire investment in those banks.403 Figure 2.40 shows the status of the 707 CPP recipients as of March 31, 2014. 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.404 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 61%, having outstanding investments of less than $10 million.405 Table 2.24 shows the distribution of investments by amount. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.24 CPP INVESTMENT SIZE BY INSTITUTION, AS OF 3/31/2014 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 26 Less than $10 million 311 43 Total 707 71 $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 36 institutions that have repaid their CPP principal but still have warrants outstanding. Source: Treasury, response to SIGTARP data call, 4/9/2014. As of March 31, 2014, of the 71 banks with remaining principal investments in CPP, 20 were in the Southeast region, 14 were in the Midwest region, 12 were in the Mid-Atlantic/Northeast region, 12 were in the Southwest/South Central region, seven were in the West region, and six were in the Mountain West/Plains region. The Southeast region and the Mid-Atlantic/Northeast region had the largest total remaining CPP investments; $1.4 billion and $210 million, respectively. These regions were followed in remaining CPP investments by the Midwest region ($117.4 million), the Southwest/South Central region ($133 million), the Mountain West/Plains region ($42.3 million), and the West region ($50.1 million). Table 2.25 and Figure 2.41 show the geographical distribution of the banks that remain in CPP as of March 31, 2014, by region. Tables 2.26–2.31 show the distribution by state. 161 162 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.25 BANKS WITH CPP PRINCIPAL REMAINING, BY REGION, AS OF 3/31/2014 Banks with Remaining Principal Principal Investment Remaining Number of Banks with Missed Dividend/Interest Payments Value of Missed Dividend/Interest Payments 7 $50,056,000 6 $7,026,080 West Moutain West/Plains 6 42,315,000 3 3,186,503 12 132,967,000 10 18,662,852 Midwest 14 117,370,000 10 19,633,112 Mid-Atlantic/Northeast 12 209,979,000 9 24,138,946 Southwest/South Central Southeast 20 1,405,805,602 14 31,981,119 Total 71 $1,958,492,602 52 $104,628,606 FIGURE 2.41 AMOUNT OF CPP PRINCIPAL INVESTMENT REMAINING, BY REGION, AS OF 3/31/2014 AK MOUNTAIN WEST/ PLAINS $42 MILLION WA MT OR ID WEST $50 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 $210 MILLION NY MI IA NE UT MIDWEST $117 MILLION SC GA SOUTHEAST $1.4 BILLION LA FL SOUTHWEST/ SOUTH CENTRAL $133 MILLION WEST MOUNTAIN WEST/PLAINS SOUTHWEST/SOUTH CENTRAL MIDWEST MID-ATLANTIC/NORTHEAST SOUTHEAST PR QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 West TABLE 2.26 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 Principal Investment Remaining AK 0 $0 0 $0 CA 7 50,056,000 6 7,026,080 HI 0 0 0 0 OR 0 0 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 0 0 0 0 Total 7 $50,056,000 6 $7,026,080 HI WEST Principal investment remaining in CPP banks >$100 million $21-$100 million $1-$20 million $0 Mountain West/Plains TABLE 2.27 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 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 $789,865 ID 1 6,900,000 1 1,786,238 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 KS 2 17,600,000 1 610,400 MT 0 0 0 0 ND 0 0 0 0 NE 0 0 0 0 NV 0 0 0 0 SD 0 0 0 0 UT 0 0 0 0 WY 1 2,100,000 0 0 Total 6 $42,315,000 3 $3,186,503 163 164 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Southwest/South Central TABLE 2.28 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 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 4 $55,017,000 4 $7,908,175 AZ 2 6,440,000 1 559,680 LA 1 2,400,000 1 163,500 NM 0 0 0 0 OK 0 0 0 0 TX 5 69,110,000 4 10,031,497 12 $132,967,000 10 $18,662,852 Total Midwest TABLE 2.29 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 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 5 43,251,000 3 8,195,418 IN 0 0 0 0 KY 2 41,300,000 2 5,920,075 MI 0 0 0 0 MN 4 23,682,000 3 4,404,643 MO 2 4,037,000 1 70,663 OH 0 0 0 0 WI Total 1 5,100,000 1 1,042,313 14 $117,370,000 10 $19,633,112 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Mid-Atlantic/Northeast TABLE 2.30 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 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 3,015,750 MD 6 62,043,000 6 11,895,745 ME 0 0 0 0 NH 0 0 0 0 NJ 1 9,439,000 1 2,005,788 NY 0 0 0 0 PA 1 30,407,000 1 7,221,663 RI 0 0 0 0 VA 2 91,027,000 0 0 VT 0 0 0 0 WV 0 0 0 0 12 $209,979,000 9 $24,138,946 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 2.31 BANKS WITH CPP PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 MS AL Principal Investment Remaining AL 2 $4,466,000 2 $617,295 FL 5 74,307,000 5 16,195,863 GA 2 19,680,000 2 3,753,960 MS 2 7,443,320 0 0 NC 2 64,679,000 1 2,141,588 PR 2 1,173,972,282 0 0 SC 4 43,452,000 3 6,361,213 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 1 17,806,000 1 2,911,200 20 $1,405,805,602 14 $31,981,119 165 166 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.32 MISSED DIVIDEND/INTEREST PAYMENTS BY INSTITUTIONS, 9/30/2009 TO 3/31/2014 ($ 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 6/30/2010d 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 12/31/2013 183 506.9 3/31/2014 181 512.0 Quarter End 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, 4/10/2014; 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, 1/8/2014, 4/9/2014; SIGTARP Quarterly Report to Congress, 1/30/2010, 4/20/2010, 7/21/2010, and 10/26/2010. 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: • • • • 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 • selecting directors for recipients that have missed six or more quarterly dividend payments Dividends and Interest As of March 31, 2014, Treasury had received $12.1 billion in dividends on its CPP investments.406 However, as of that date, missed dividend and interest payments by 181 institutions, including banks with missed payments that no longer have outstanding CPP principal investments, totaled approximately $512 million, an increase from last quarter’s $506.9 million in missed payments from 183 institutions. Approximately $30.7 million of the unpaid amounts are noncumulative, meaning that the institution has no legal obligation to pay Treasury unless the institution declares a dividend.407 More than two-thirds, or 52 of the 71 banks that had remaining CPP principal investments as of March 31, 2014, were not current on their dividend and interest payments to Treasury.408 The 52 banks were behind by as many as 21 payments and in total were overdue in payments to Treasury of $104.6 million.409 As of March 31, 2014, 52 of the 71 banks with remaining principal investments were overdue by at least three payments, including 48 banks that were overdue by at least six payments.410 Of the banks with remaining principal investments that are not current on payments, 37 have unpaid dividend and interest payments that are cumulative, and 10 have unpaid dividend payments that are non-cumulative. Table 2.32 shows the number of institutions and total unpaid amount of dividend and interest payments by quarter from September 30, 2009, to March 31, 2014. Tables 2.26–2.31 show the distribution of missed payments and value of those payments by state. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 CPP Dividend Rates Increase for Remaining Banks As the banks with remaining principal investments reach the five-year anniversary of the date of investment, they face a dividend rate increase from 5% to 9% on the next quarterly payment due date. For example, if the investment in a bank matured to five years in December 2013, the payment due on the next quarterly payment date in February 2014 will be at the 9% dividend rate (some banks structured as S corporations face an interest rate increase from 7.7% to 13.8%). The rate increases have already started to take place and will affect large numbers of the remaining CPP banks throughout 2014. Of the 71 banks with remaining CPP principal investments, there are 26 banks whose rates have already increased as of March 31, 2014; of them, 18 are already behind on their dividend payments. By the May 15, 2014, payment date, rates will increase to 9% for an additional 29 banks, of which 25 are already behind on dividend payments. By the August 15, 2014, payment date, rates will increase for 13 more banks, nine of which have already missed dividend payments. Rates will increase for one more bank by November 15, 2014, and for the remaining two banks by February 15, 2015. Table 2.33 lists the remaining banks by date of dividend rate increase. As of March 31, 2014, of the 71 banks with remaining principal investments in CPP, 52 already have overdue missed dividends and interest. For these banks, with the increase in the dividend rate, the amount overdue to Treasury will grow more quickly. While all banks, regardless of size, received CPP on the same terms, the one-size-fits-all repayment terms may not fit all. Because so many of these banks are not paying the 5% dividend, an increase to 9% may not have the intended effect of incentivizing them to exit TARP, particularly if they lack the ability to raise capital. In October 2011, SIGTARP recommended to Treasury that it assess whether it should renegotiate the terms of its CPP contracts for those community banks that will not be able to exit TARP prior to the dividend rate increase. Treasury did not implement this recommendation. For more on SIGTARP’s October 2011 recommendation regarding how Treasury should treat community banks unable to exit TARP before the dividend rate increase, see SIGTARP’s October 2011 Quarterly Report, pages 167-169, and SIGTARP’s January 2012 Quarterly Report, pages 159161. 167 168 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.33 CPP-RELATED DIVIDEND RATE INCREASES, AS OF 3/31/2014 Institution Location Investment Date Outstanding Capital Amount San Juan, PR 12/5/2008 $935,000,000 Value of Missed Dividend/Interest Payments Number of Missed Dividend Payments Rate Increased 12/5/2013 Popular, Inc. Rate Increased 2/15/2014 First BanCorp San Juan, PR Hampton Roads Bankshares, Inc. Norfolk, VA 1/16/2009 238,972,282 12/31/2008 80,347,000 FNB United Corp. Asheboro, NC 2/13/2009 51,500,000 Porter Bancorp Inc. Louisville, KY 11/21/2008 35,000,000 $3,937,500 9 First United Corporation Oakland, MD 1/30/2009 30,000,000 4,875,000 13 Patriot Bancshares, Inc. Houston, TX 12/19/2008 26,038,000 4,257,240 12 Broadway Financial Corporation Los Angeles, CA 11/14/2008 15,000,000 Tidelands Bancshares, Inc Mount Pleasant, SC 12/19/2008 14,448,000 2,347,800 13 Bankers’ Bank of the West Bancorp, Inc. Denver, CO 1/30/2009 12,639,000 One United Bank Boston, MA 12/19/2008 12,063,000 2,864,963 19 Cecil Bancorp, Inc. Elkton, MD 12/23/2008 11,560,000 2,312,000 16 Community Bankers Trust Corporation Glen Allen, VA 12/19/2008 10,680,000 NCAL Bancorp Los Angeles, CA 12/19/2008 10,000,000 1,362,500 10 Western Community Bancshares, Inc. Palm Desert, CA 12/23/2008 7,290,000 1,390,725 14 Idaho Bancorp Boise, ID 1/16/2009 6,900,000 1,692,225 18 Greer Bancshares Incorporated Greer, SC 1/30/2009 6,843,000 Citizens Commerce Bancshares, Inc. Versailles, KY 2/6/2009 6,300,000 1,459,238 17 Patapsco Bancorp, Inc. Dundalk, MD 12/19/2008 6,000,000 1,226,250 15 Rising Sun Bancorp Rising Sun, MD 1/9/2009 5,983,000 1,385,755 17 CalWest Bancorp Rancho Santa Margarita, CA 1/23/2009 4,656,000 824,753 13 Lone Star Bank Houston, TX 2/6/2009 3,072,000 799,622 19 US Metro Bank Garden Grove, CA 2/6/2009 2,861,000 311,840 8 Goldwater Bank, N.A. Scottsdale, AZ 1/30/2009 2,568,000 524,700 15 Saigon National Bank Westminster, CA 12/23/2008 1,549,000 412,993 20 Calvert Financial Corporation Ashland, MO 1/23/2009 1,037,000 56,530 4 Royal Bancshares of Pennsylvania, Inc. Narberth, PA 2/20/2009 30,407,000 6,841,575 18 Central Bancorp, Inc. Garland, TX 2/27/2009 22,500,000 3,372,188 11 Community First Inc. Columbia, TN 2/27/2009 17,806,000 2,668,600 11 Liberty Shares, Inc. Hinesville, GA 2/20/2009 17,280,000 3,060,720 13 Northern States Financial Corporation Waukegan, IL 2/20/2009 17,211,000 3,657,338 17 White River Bancshares Company Fayetteville, AR 2/20/2009 16,800,000 2,746,800 12 Rate Increases 5/15/2014 Bank of the Carolinas Corporation Mocksville, NC 4/17/2009 13,179,000 1,976,850 12 HCSB Financial Corporation Loris, SC 3/6/2009 12,895,000 1,934,250 12 Farmers & Merchants Bancshares, Inc. Houston, TX 3/6/2009 11,000,000 749,375 5 Regent Bancorp, Inc. Davie, FL 3/6/2009 9,982,000 1,768,033 13 Continued on next page QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 CPP-RELATED DIVIDEND RATE INCREASES, AS OF 3/31/2014 Institution Location (CONTINUED) Investment Date Outstanding Capital Amount Value of Missed Dividend/Interest Payments Number of Missed Dividend Payments City National Bancshares Corporation Newark, NJ 4/10/2009 $9,439,000 $1,887,800 16 Provident Community Bancshares, Inc. Rock Hill, SC 3/13/2009 9,266,000 1,621,550 14 United American Bank San Mateo, CA 2/20/2009 8,700,000 2,245,627 19 Private Bancorporation, Inc. Minneapolis, MN 2/27/2009 8,222,000 1,408,615 13 Highlands Independent Bancshares, Inc. Sebring, FL 3/6/2009 6,700,000 1,095,450 12 Capital Commerce Bancorp, Inc. Milwaukee, WI 4/10/2009 5,100,000 972,825 14 Pinnacle Bank Holding Company, Inc. Orange City, FL 3/6/2009 4,389,000 837,060 14 Metropolitan Capital Bancorp, Inc. Chicago, IL 4/10/2009 4,388,000 Allied First Bancorp, Inc. Oswego, IL 4/24/2009 3,652,000 497,675 10 531,375 13 572,250 15 Marine Bank & Trust Company Vero Beach, FL St. Johns Bancshares, Inc. St. Louis, MO 3/6/2009 3,000,000 3/13/2009 3,000,000 Freeport Bancshares, Inc.a Freeport, IL 5/8/2009 3,000,000 Prairie Star Bancshares, Inc. Olathe, KS 4/3/2009 2,800,000 Citizens Bank & Trust Company Covington, LA 3/20/2009 2,400,000 163,500 5 CSRA Bank Corp. Wrens, GA 3/27/2009 2,400,000 425,100 13 Crazy Woman Creek Bancorp, Inc. Buffalo, WY 2/20/2009 2,100,000 Market Bancorporation, Inc. New Market, MN 2/20/2009 2,060,000 392,945 14 BCB Holding Company, Inc. Theodore, AL 4/3/2009 1,706,000 255,613 11 Maryland Financial Bank Towson, MD 3/27/2009 1,700,000 115,813 5 Rate Increases 8/15/2014 8/7/2009 50,236,000 10,951,520 16 5/29/2009 19,817,000 1,662,667 4 6/5/2009 17,300,000 2,456,997 7 6/19/2009 15,000,000 3,460,875 11 U.S. Century Bank Miami, FL Chambers Bancshares, Inc.b Danville, AR OneFinancial Corporation Little Rock, AR Suburban Illinois Bancorp, Inc.d Elmhurst, IL Equity Bancshares, Inc. (First Community Bancshares, Inc) Wichita, KS 5/15/2009 14,800,000 c Great River Holding Companye Baxter, MN 7/17/2009 8,400,000 2,290,470 13 Harbor Bankshares Corporation Baltimore, MD 7/17/2009 6,800,000 1,190,000 14 Covenant Financial Corporation Clarksdale, MS 6/5/2009 5,000,000 Duke Financial Group, Inc. Minneapolis, MN 6/19/2009 5,000,000 Community Bancshares, Inc. Kingman, AZ 7/24/2009 3,872,000 f Grand Mountain Bancshares, Inc. Granby, CO 5/29/2009 3,076,000 747,950 18 SouthFirst Bancshares, Inc. Sylacauga, AL 6/12/2009 2,760,000 300,840 8 Riverside Bancshares, Inc. Little Rock, AR 5/15/2009 1,100,000 46,145 2 Hattiesburg, MS 9/25/2009 2,443,320 Liberty Bancshares, Inc. Fort Worth, TX 12/4/2009 6,500,000 Wachusett Financial Services, Inc. Clinton, MA 12/11/2009 5,000,000 g Rate Increases 11/15/2014 Grand Financial Corporationh Rate Increases 2/15/2015 Notes: Numbers may not total due to rounding. a Freeport Bancshares, Inc. is an S-Corporation, so its interest rate increases from 7.7% to 13.8% on the five-year anniversary of Treasury’s investment (5/8/2009). b Chambers Bancshares, Inc. is an S-Corporation, so its interest rate increases from 7.7% to 13.8% on the five-year anniversary of Treasury’s investment (5/29/2009). c OneFinancial Corporation is an S-Corporation, so its interest rate increases from 7.7% to 13.8% on the five-year anniversary of Treasury’s investment (6/5/2009). d Suburban Illinois Bancorp, Inc. is an S-Corporation, so its interest rate increases from 7.7% to 13.8% on the five-year anniversary of Treasury’s investment (6/19/2009). e Great River Holding Company is an S-Corporation, so its interest rate increases from 7.7% to 13.8% on the five-year anniversary of Treasury’s investment (7/17/2009). f Duke Financial Group, Inc. is an S-Corporation, so its interest rate increases from 7.7% to 13.8% on the five-year anniversary of Treasury’s investment (6/19/2009). g Riverside Bancshares, Inc. is an S-Corporation, so its interest rate increases from 7.7% to 13.8% on the five-year anniversary of Treasury’s investment (5/15/2009). h Grand Financial Corporation is an S-Corporation, so its interest rate increases from 7.7% to 13.8% on the five-year anniversary of Treasury’s investment (9/25/2009). 169 170 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury’s Policy on Missed Dividend and Interest Payments 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. 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.411 For those that have unfavorable credit scores, including any institution that has missed more than three dividend (or 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.”412 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.413 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.414 As of March 31, 2014, of the 71 institutions with remaining principal investments, 48 CPP institutions have missed at least six payments.415 As of March 31, 2014, Treasury had made director appointments to the boards of directors of 16 CPP banks, as noted in Table 2.35.416 Most of those banks no longer have remaining CPP principal investments. Just three of the 71 banks with remaining principal investments have Treasury-appointed directors. On February 6, 2014, Treasury appointed Larry Mingledorff and Paul Clabuesch to the board of directors Central Bancorp, Inc., Garland, Texas, after it had missed 12 payments totaling $3.7 million.417 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.418 As of March 31, 2014, of the 71 CPP banks with remaining principal investments, 51 had missed at least five payments.419 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.”420 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.421 The findings of the observers are taken into account when Treasury evaluates whether to appoint individuals to an institution’s board of directors.422 As of March 31, 2014, Treasury had assigned observers to 21 current CPP recipients, as noted in Table 2.35.423 Twelve banks have rejected Treasury’s requests to send an observer to the institutions’ board meetings.424 The banks had initial CPP investments of as much as $27 million, have missed as many as 21 quarterly dividend payments to Treasury, and have been overdue in dividend payments by as much as $4.1 million.425 Five of these banks have since been sold at a loss to Treasury at auction.426 Five of these banks have remaining CPP principal investments, three of which continue to have missed payments.427 At 21 missed dividend payments, Saigon National Bank, QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Westminster, California, which has never made a dividend payment, has more missed payments than any TARP bank, yet rejected Treasury’s request to send an observer to its board meetings.428 Table 2.34 lists the banks that rejected Treasury observers. Seven of the 707 banks that received CPP investments have never made a single dividend payment to Treasury since receiving CPP investments. Of these seven banks, four have remaining CPP principal investments and two have exited TARP as a result of bankruptcy. Midwest Banc Holdings, Inc., Melrose Park, Illinois, and One Georgia Bank, Atlanta, Georgia, both exited CPP by bankruptcy. The four remaining banks that have never made a dividend payment are: Saigon National Bank, Westminster, California (21 missed payments); Lone Star Bank, Houston, Texas (20); United American Bank, San Mateo, California (20); and Grand Mountain Bankshares, Granby, Colorado (19). TABLE 2.34 CPP BANKS THAT REJECTED TREASURY OBSERVERS 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 Community Bankers Trust Corporation 17,680,000 — b — 10/18/2011 11/23/2011 White River Bancshares Company 16,800,000 13 2,975,700 3/28/2012 4/27/2012 Timberland Bancorp, Inc.c 16,641,000 —d — 6/27/2011 8/18/2011 Alliance Financial Services Inc. 12,000,000 12 e 3,020,400 3/10/2011 5/6/2011 Central Virginia Bankshares, Inc.f 11,385,000 15g 2,134,688 3/9/2011 5/18/2012 Commonwealth Business Bankc 7,701,000 10h 1,049,250 8/13/2010 9/20/2010 Pacific International Bancorpi 6,500,000 —j — 9/23/2010 11/17/2010 Rising Sun Bancorp 5,983,000 18 1,467,270 12/3/2010 2/28/2011 Omega Capital Corp.c 2,816,000 15k 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 21 434,088 8/13/2010 9/20/2010 Institution Intermountain Community Bancorp c 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 Central Virginia Bankshares, Inc. was sold to C&F Financial Corporation and its missed payments to Treasury were not repaid. h Commonwealth Business Bank was sold at a loss at auction and its missed payments to Treasury were not repaid. i Bank has exited the Capital Purchase Program. j 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. k 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, 4/10/2014. 171 172 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.429 SIGTARP generally includes such activity in Table 2.35 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 March 31, 2014, 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 143 banks had missed five dividend (or interest) payments totaling $426.1 million.430 Table 2.35 lists CPP recipients that had unpaid dividend (or interest) payments as of March 31, 2014. For a complete list of CPP recipients and institutions making dividend or interest payments, see Appendix D: “Transaction Detail.” 173 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.35 CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 3/31/2014 Observers Assigned to Board of Directors1 Company Dividend or Payment Type Number of Missed Payments Saigon National Bank Non-Cumulative 21 Lone Star Bank Non-Cumulative 20 ✓ OneUnited Bank Interest 20 ✓ United American Bank Non-Cumulative 20 Value of Missed Payments2 Value of Unpaid Amounts2,3,4 $434,088 $434,088 841,487 841,487 3,015,750 3,015,750 2,364,165 2,364,165 Grand Mountain Bancshares, Inc. Cumulative 19 ✓ 789,865 789,865 Idaho Bancorp Cumulative 19 ✓ 1,786,238 1,786,238 n 7,221,663 7,221,663 1,545,075 1,545,075 3,872,475 3,872,475 1,467,270 1,467,270 ✓ 2,456,500 2,456,500 2,005,788 2,005,788 ✓ 11,635,990 11,635,990 Royal Bancshares of Pennsylvania, Inc. Cumulative 19 Citizens Commerce Bancshares, Inc. Cumulative 18 Northern States Financial Corporation Cumulative 18 Rising Sun Bancorp Cumulative 18 Cecil Bancorp, Inc. Cumulative 17 n City National Bancshares Corporation Cumulative 17 U.S. Century Bank Non-Cumulative 17 Goldwater Bank, N.A.** Non-Cumulative 16 559,680 559,680 Patapsco Bancorp, Inc. Cumulative 16 1,308,000 1,308,000 Prairie Star Bancshares, Inc. Cumulative 16 610,400 610,400 Capital Commerce Bancorp, Inc. Cumulative 15 1,042,313 1,042,313 Harbor Bankshares Corporation** Cumulative 15 1,445,000 1,275,000 Market Bancorporation, Inc. Cumulative 15 421,013 421,013 Pinnacle Bank Holding Company Cumulative 15 896,850 896,850 Provident Community Bancshares, Inc. Cumulative 15 1,737,375 1,737,375 Western Community Bancshares, Inc. Cumulative 15 1,490,063 1,490,063 CalWest Bancorp Cumulative 14 888,195 888,195 CSRA Bank Corp. Cumulative 14 457,800 457,800 First United Corporation Cumulative 14 5,250,000 5,250,000 Great River Holding Company*,** Interest 14 2,466,660 2,466,660 Liberty Shares, Inc. Cumulative 14 3,296,160 3,296,160 Marine Bank & Trust Company Non-Cumulative 14 572,250 572,250 Private Bancorporation, Inc. Cumulative 14 1,516,970 1,516,970 ✓ ✓ Regent Bancorp, Inc Cumulative 14 1,904,035 1,904,035 Tidelands Bancshares, Inc Cumulative 14 ✓ 2,528,400 2,528,400 Bank of the Carolinas Corporation Cumulative 13 ✓ 2,141,588 2,141,588 HCSB Financial Corporation Cumulative 13 ✓ 2,095,438 2,095,438 Highlands Independent Bancshares, Inc. Cumulative 13 1,186,738 1,186,738 ** Continued on next page 174 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 3/31/2014 Number of Missed Payments Observers Assigned to Board of Directors1 (CONTINUED) Company Dividend or Payment Type Patriot Bancshares, Inc. Cumulative 13 White River Bancshares Company Cumulative 13 BCB Holding Company, Inc. Cumulative 12 278,850 278,850 Central Bancorp, Inc. Cumulative 12 n 3,678,750 3,678,750 ✓ Value of Missed Payments2 Value of Unpaid Amounts2,3,4 $4,612,010 $4,612,010 2,975,700 2,975,700 Community First, Inc. Cumulative 12 ✓ 2,911,200 2,911,200 Suburban Illinois Bancorp, Inc.*,** Interest 12 ✓ 3,775,500 3,775,500 Allied First Bancorp, Inc. Cumulative 11 547,443 547,443 NCAL Bancorp Cumulative 11 ✓ 1,498,750 1,498,750 Porter Bancorp, Inc. Cumulative 10 ✓ 4,375,000 4,375,000 SouthFirst Bancshares, Inc. Cumulative 9 338,445 338,445 US Metro Bank Non-Cumulative 9 350,820 350,820 ** OneFinancial Corporation Non-Cumulative 8 ✓ 2,807,996 2,807,996 Farmers & Merchants Bancshares, Inc.** Cumulative 6 ✓ 1,049,125 899,250 Maryland Financial Bank Non-Cumulative 6 138,975 138,975 Calvert Financial Corporation Cumulative 5 Chambers Bancshares, Inc.*,** Interest 5 Citizens Bank & Trust Company Non-Cumulative Riverside Bancshares, Inc.*,** Interest *,** 70,663 70,663 2,078,334 2,078,334 5 163,500 163,500 2 46,145 46,145 4,893,750 4,893,750 3,973,050 3,973,050 6,959,475 6,959,475 ✓ Exchanges, Sales, Recapitalizations, and Failed Banks with Missing Payments Blue Valley Ban Corp***** Cumulative 18 Pacific City Financial Corporation Cumulative 18 Centrue Financial Corporation***** Cumulative 18 n Georgia Primary Bank Non-Cumulative 18 ✓ 1,113,163 1,113,163 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 **** Syringa Bancorp Cumulative 17 ✓ 1,853,000 1,853,000 Central Virginia Bankshares, Inc. ***** Cumulative 15 2,134,688 2,134,688 Omega Capital Corp. Cumulative 15 Rogers Bancshares, Inc.**** Cumulative 15 Pathway Bancorp***** Cumulative 15 Bridgeview Bancorp, Inc.***** Cumulative 15 Madison Financial Corporation***** Cumulative 15 688,913 688,913 Midtown Bank & Trust Company**,***** Non-Cumulative 15 1,067,213 1,067,213 ***** ***** ***** n 575,588 575,588 n 5,109,375 5,109,375 761,588 761,588 n 7,766,250 7,766,250 Continued on next page 175 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 3/31/2014 Dividend or Payment Type Company TCB Holding Company**** Number of Missed Payments Observers Assigned to Board of Directors1 (CONTINUED) Value of Missed Payments2 Value of Unpaid Amounts2,3,4 Cumulative 15 ✓ $2,397,488 $2,397,488 Cumulative 14 ✓ 2,864,575 2,864,575 Dickinson Financial Corporation II Cumulative 14 27,859,720 27,859,720 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 Pacific Commerce Bank**,***** Non-Cumulative 13 751,089 695,771 Stonebridge Financial Corp. Cumulative 12 1,794,180 1,794,180 Premier Financial Corp*,**,***** Interest 12 1,597,857 1,597,857 Cumulative 12 4,086,000 4,086,000 1,716,750 1,716,750 1,792,350 1,792,350 1st FS Corporation ***** ***** ***** ***** ***** Citizens Bancshares Co. (MO) **** Northwest Bancorporation, Inc. Cumulative 12 Plumas Bancorp***** Cumulative 12 ***** n n ✓ n ✓ Gold Canyon Bank Non-Cumulative 12 254,010 254,010 Santa Clara Valley Bank, N.A.***** Non-Cumulative 12 474,150 474,150 4,905,000 4,905,000 3,020,400 3,020,400 **** Spirit BankCorp, Inc. Cumulative 12 Alliance Financial Services, Inc.*,***** Interest 12 First Trust Corporation Interest 12 n 4,522,611 4,522,611 Eastern Virginia Bankshares, Inc.***** Cumulative 11 ✓ 3,300,000 3,300,000 The Queensborough Company Cumulative 11 1,798,500 1,798,500 Boscobel Bancorp, Inc Interest 11 1,288,716 1,288,716 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 Reliance Bancshares, Inc. Cumulative 11 ✓ 5,995,000 5,995,000 Cumulative 11 ✓ 2,026,475 2,026,475 Cumulative 11 481,250 481,250 ***** *,***** ***** *,***** ***** Village Bank and Trust Financial Corp. ***** AB&T Financial Corporation***** ✓ Atlantic Bancshares, Inc. Cumulative 11 299,255 299,255 First Financial Service Corporation***** Cumulative 10 ✓ 2,500,000 2,500,000 Old Second Bancorp, Inc.***** Cumulative 10 n 9,125,000 ***** 9,125,000 Continued on next page 176 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 3/31/2014 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 $2,931,481 $2,931,481 364,150 364,150 Security State Bank HoldingCompany*,**,***** Interest 10 Bank of George***** Non-Cumulative 10 Valley Community Bank Non-Cumulative 10 749,375 749,375 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 RCB Financial Corporation Cumulative 9 1,055,520 1,055,520 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 Non-Cumulative 8 605,328 605,328 14,193,996 6,164,420 697,400 697,400 ***** **** ***** ***** One Georgia Bank **** Independent Bank Corporation Cumulative 8 First Intercontinental Bank***** Non-Cumulative 8 *** ✓ ✓ ✓ 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 Severn Bancorp, Inc.***** Cumulative 6 1,754,475 1,754,475 Central Pacific Financial Corp.***,9 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 — 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 177 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 3/31/2014 Dividend or Payment Type Number of Missed Payments Fort Lee Federal Savings Bank**** Non-Cumulative Alarion Financial Services, Inc. Observers Assigned to Board of Directors1 (CONTINUED) Value of Missed Payments2 Value of Unpaid Amounts2,3,4 6 $106,275 $106,275 Cumulative 6 532,560 532,560 Community Financial Shares, Inc. Cumulative 5 759,820 759,820 Delmar Bancorp***** 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 Company ***** *** *** Midwest Banc Holdings, Inc. ✓ Cumulative 5 4,239,200 4,239,200 Pacific Capital Bancorp***,9 Cumulative 5 13,547,550 — 5 GulfSouth Private Bank Non-Cumulative 5 494,063 494,063 Northwest Commercial Bank**** Non-Cumulative 5 135,750 135,750 IA Bancorp, Inc. Cumulative 5 472,365 393,638 CB Holding Corp.**** Cumulative 4 224,240 224,240 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.***,9 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 Superior Bancorp Inc.**** 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 **** **,***** ***** **** 6 ***** ***** **** Continued on next page 178 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM CPP-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 3/31/2014 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 Treaty Oak Bancorp, Inc.***** Cumulative 3 $133,553 $133,553 Bank of Commerce Non-Cumulative 3 122,625 122,625 Carolina Trust Bank Non-Cumulative 3 150,000 150,000 Commerce National Bank Non-Cumulative 3 150,000 150,000 ***** ***** Cadence Financial Corporation Cumulative 2 550,000 550,000 First Alliance Bancshares, Inc.***** 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 $593,864,739 $511,959,842 Notes: Numbers may not total due to rounding. Approximately $30.7 million of the $512 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. For 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, 4/10/2014; 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, 1/13/2014, 4/10/2014. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 CPP Recipients: Bankrupt or with Failed Subsidiary Banks Despite Treasury’s stated goal of limiting CPP investments to “healthy, viable institutions,” as of March 31, 2014, 29 CPP participants had gone bankrupt or had a subsidiary bank fail, as indicated in Table 2.36.431 As of March 31, 2014, 26 of those banks, with total CPP investments of $790.5 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.432 Closure of Syringa Bank On January 16, 2009, Treasury invested $8 million in Syringa Bancorp, Boise, Idaho, (“Syringa”) through CPP in return for preferred stock and warrants.433 On January 31, 2014, the Idaho Department of Finance, closed Syringa’s subsidiary bank, Syringa Bank, Boise, Idaho, (“Syringa Bank”) and named the Federal Deposit Insurance Corporation (“FDIC”) as receiver.434 FDIC entered into a purchase and assumption agreement with Sunwest Bank, Irvine, California, to assume all of the deposits of Syringa Bank. FDIC estimates that the cost of Syringa Bank’s failure to the deposit insurance fund will be $4.5 million.435 All of Treasury’s investment in Syringa is expected to be lost.436 179 180 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.36 CPP RECIPIENTS: BANKRUPT OR WITH FAILED SUBSIDIARY BANKS, AS OF 3/31/2014 Company Initial Invested Amount Investment Date Status Bankruptcy/ Failure Datea ($ 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 5.5 5/8/2009 Failed 7/15/2011 N/A 7/15/2011 First Peoples Bank, Port Saint Lucie, FL 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 One Georgia Bank, Atlanta, GA 11/1/2009 CIT Bank, Salt Lake City, UT FPB Bancorp, Port Saint Lucie, FL 5.8 12/5/2008 Subsidiary bank failed 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 Blue River Bancshares, Inc., Shelbyville, IN 5.0 3/6/2009 Subsidiary bank failed 2/10/2012 SCB Bank, Shelbyville, IN Fort Lee Federal Savings 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 CB Holding Corp., Aledo, IL Tennessee Commerce Bancorp, Inc., Franklin, TN Continued on next page QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 CPP RECIPIENTS: BANKRUPT OR WITH FAILED SUBSIDIARY BANKS, AS OF 3/31/2014 Company Premier Bank Holding Company GulfSouth Private Bank ($ MILLIONS) (CONTINUED) Initial Invested Amount Investment Date Status Bankruptcy/ Failure Datea Subsidiary Bank $9.5 3/20/2009 In bankruptcy 8/14/2012 N/A 7.5 9/25/2009 Failed 10/19/2012 N/A 10/19/2012 Excel Bank, Sedalia, MO Investors Financial Corporation of Pettis County, Inc. 4.0 5/8/2009 Subsidiary bank failed 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 1.6 6/26/2009 Failed 4/5/2013 N/A Gold Canyon Bank Indiana Bank Corp. Rogers Bancshares, Inc. Anchor BanCorp Wisconsin Inc. TCB Holding Company Syringa Bancorp Total 1.3 4/24/2009 In bankruptcy 4/9/2013 N/A 25.0 1/30/2009 In bankruptcy 7/5/2013 N/A 110.0 1/30/2009 Filed for and exited bankruptcy protectionc 8/12/2013 N/A 11.7 1/16/2009 Subsidiary bank failed 12/13/2013 Texas Community Bank, The Woodlands, TX 8.0 1/16/2009 Subsidiary bank failed 1/31/2014 Syringa Bank, Boise, ID $3,239.2 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, 3/19/2014. 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.437 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 March 31, 2014, Treasury had realized losses, writeoffs, and investments currently not collectible as a result of bankruptcy of $4.7 billion on its CPP investments. This total includes $8.2 million in realized losses this quarter. Also included is $790.5 million in 26 banks that Treasury classified this quarter as currently not collectible as a result of bankruptcy. Table 2.37 shows all realized losses, write-offs, and investments currently not collectible as a result of bankruptcy recorded by Treasury on CPP investments through March 31, 2014. 181 182 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.37 REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 3/31/2014 ($ 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 4 1 10/21/2011 Sale of preferred stock at a loss 124 14 4/3/2012 Sale of preferred stock at a loss Cadence Financial Corporation FBHC Holding Company Santa Lucia Bancorp Banner Corporation/Banner Bank Sale of subordinated debentures 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. Commonwealth Bancshares, Inc. 20 5 8/9/2012 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 Continued on next page QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 3/31/2014 ($ MILLIONS) (CONTINUED) Institution CBS Banc-Corp. TARP Investment Loss Date Description $24 $2 8/10/2012 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 Premier Financial Bancorp, Inc. Sale of preferred stock at a loss 7 2 8/10/2012 Sale of preferred stock at a loss 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 7 4 8/14/2012 Sale of preferred stock at a loss 303 188 31 2 Millennium Bancorp, Inc. Sterling Financial Corporation BNC Bancorp 8/20/2012 Sale of preferred stock at a loss 8/29/2012 Sale of preferred stock at a loss 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 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 Germantown Capital Corporation 5 0.4 10/31/2012 First Gothenburg Bancshares, Inc. 8 0.7 10/31/2012 Sale of preferred stock at a loss Blue Ridge Bancshares, Inc. Blackhawk Bancorp, Inc. 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 4 1 Hometown Bankshares Corporation Peoples Bancshares of TN, Inc. 10 0.8 Western Illinois Bancshares, Inc. 11 0.7 11/9/2012 Sale of preferred stock at a loss Capital Pacific Bancorp 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 Farmers Enterprises, Inc. 10/31/2012 Sale of preferred stock at a loss 10/31/2012 Sale of preferred stock at a loss Continued on next page 183 184 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 3/31/2014 ($ MILLIONS) (CONTINUED) Institution Franklin Bancorp, Inc. TARP Investment Loss Date Description $5 $2 11/13/2012 Sale of preferred stock at a loss 3 0.2 11/13/2012 16 5 Country Bank Shares, Inc. 8 0.6 11/29/2012 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 11/29/2012 Sale of preferred stock at a loss 11/29/2012 Sale of preferred stock at a loss Sound Banking Company Parke Bancorp, Inc. Sale of preferred stock at a loss 11/29/2012 Sale of preferred stock at a loss Sale of preferred stock at a loss Trisummit Bank 7 2 Layton Park Financial Group, Inc. 3 0.6 11/29/2012 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 0.6 0.1 11/30/2012 Sale of preferred stock at a loss Carolina Trust Bank 4 0.6 11/30/2012 Community Business Bank 4 0.3 11/30/2012 Sale of preferred stock at a loss 4 0.7 11/30/2012 Sale of preferred stock at a loss 195 15 11/30/2012 Corning Savings And Loan Association KS Bancorp, Inc Pacific Capital Bancorp Sale of preferred stock at a loss Sale of preferred stock at a loss Sale of common stock at a loss Community West Bancshares 16 4 12/11/2012 Sale of preferred stock at a loss Presidio Bank 11 2 12/11/2012 The Baraboo Bancorporation, Inc. 21 7 12/11/2012 Sale of preferred stock at a loss 2 0.7 22 2 Manhattan Bancshares, Inc. 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 Security Bancshares of Pulaski County, Inc. Central Community Corporation Century Financial Services Corporation 12/11/2012 Sale of preferred stock at a loss Sale of preferred stock at a loss 12/11/2012 Sale of preferred stock at a loss 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 Sale of preferred stock at a loss 12 3 2/7/2013 Sale of preferred stock at a loss Alliance Financial Services, Inc. Continued on next page QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 3/31/2014 ($ MILLIONS) (CONTINUED) TARP Investment Loss Date $6 $0.2 2/8/2013 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 9 3 2/8/2013 Sale of preferred stock at a loss Institution Biscayne Bancshares, Inc. Delmar Bancorp Dickinson Financial Corporation II F & M Bancshares, Inc. First Priority Financial Corp. HMN Financial, Inc. Waukesha Bankshares, Inc. Description Sale of subordinated debentures at a loss 146 65 2/8/2013 4 0.5 2/8/2013 Sale of preferred stock at a loss Sale of preferred stock at a loss 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 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 Santa Clara Valley Bank, N.A. 3 0.4 3/8/2013 Sale of preferred stock at a loss Coastal Banking Company, Inc. 10 0.4 3/11/2013 Sale of preferred stock at a loss CoastalSouth Bancshares, Inc. 16 3 3/11/2013 Sale of preferred stock at a loss Sale of subordinated debentures 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 The Queensborough Company 12 0.3 3/11/2013 Sale of preferred stock at a loss 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 33 18 9 0.1 52 1 First Security Group, Inc. BancStar, Inc. NewBridge Bancorp 4/11/2013 Sale of subordinated debentures at a loss Exchange of preferred stock at a loss 4/26/2013 Sale of preferred stock at a loss 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 Worthington Financial Holdings, Inc. 6/24/2013 Sale of preferred stock at a loss Continued on next page 185 186 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 3/31/2014 ($ MILLIONS) (CONTINUED) Institution Farmers & Merchants Financial Corporation TARP Investment Loss Date $0.4 $0.1 6/24/2013 Description 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 Centrue Financial Corporation 33 21.8 10/18/2013 Sale of preferred stock at a loss Coloeast Bankshares, Inc. 10 1 7/22/2013 Sale of preferred stock at a loss Anchor Bancorp Wisconsin, Inc. Sale of common 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 Severn Bancorp, Inc. 23 — 9/25/2013 Sale of preferred stock at a loss Universal Bancorp 10 0.5 8/12/2013 Sale of preferred stock at a loss Virginia Company Bank Central Virginia Bankshares, Inc. Bank of George 5 2 8/12/2013 Sale of preferred stock at a loss 11 8 10/1/2013 Sale of preferred stock at a loss 3 2 Blue Valley Ban Corp 22 0.5 10/21/2013 Sale of preferred stock at a loss 10/21/2013 Sale of preferred stock at a loss Spirit Bank Corp Inc. 30 21 10/21/2013 Sale of preferred stock at a loss Valley Community Bank 6 3 10/21/2013 Sale of preferred stock at a loss Monarch Community Bancorp, Inc. 7 2 11/15/2013 4 2.4 11/19/2013 Sale of preferred stock at a loss 38 28 11/19/2013 Sale of preferred stock at a loss AB&T Financial Corporation Bridgeview Bancorp, Inc. Midtown Bank & Trust Company Sale of common stock at a loss 5 2 11/19/2013 Sale of preferred stock at a loss Village Bank and Trust Financial Corp 15 9 11/19/2013 1st Financial Services Corporation 16 8 12/31/2013 Sale of preferred stock at a loss 4 2 2/10/2014 Sale of preferred stock at a loss 13 2 3/17/2014 Pacific Commerce Bank Meridian Bank Sale of preferred stock at a loss Sale of preferred stock at a loss IA Bancorp, Inc / Indus American Bank 6 0.1 3/17/2014 Sale of preferred stock at a loss Community First Bancshares, Inc. (AR) 13 0.2 2/10/2014 Sale of preferred stock at a loss 2/10/2014 Sale of preferred stock at a loss Georgia Primary Bank 5 3 Chicago Shore Corporation 7 0.1 Total CPP Realized Losses 3/17/2014 Sale of preferred stock at a loss $1,365 Continued on next page QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 REALIZED LOSSES, WRITE-OFFS, AND CURRENTLY NOT COLLECTIBLE IN CPP, AS OF 3/31/2014 ($ MILLIONS) (CONTINUED) Institution TARP Investment Loss $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 Date Description Write-Offs CIT Group Inc. Pacific Coast National Bancorp South Financial Group, Inc. a TIB Financial Corpa Total CPP Write-Offs 12/10/2009 Bankruptcy 2/11/2010 Bankruptcy $2,576 Currently Not Collectibleb UCBH Holdings Inc. Midwest Banc Holdings, Inc. $299 $299 11/6/2009 Bankruptcy 85 85 5/14/2010 Bankruptcy Sonoma Valley Bancorp 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 10/14/2011 Bankruptcy CB Holding Corp. Tennessee Commerce Bancorp, Inc. Blue River Bancshares, Inc. 4 4 30 30 5 5 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 10 10 8/14/2012 Bankruptcy GulfSouth Private Bank Premier Bank Holding Company 8 8 10/19/2012 Bankruptcy Investors Financial Corporation of Pettis County, Inc. 4 4 10/19/2012 First Place Financial Corp. 73 73 Princeton National Bancorp, Inc. 25 25 Bankruptcy 10/29/2012 Bankruptcy 11/2/2012 Bankruptcy Gold Canyon Bank 2 2 4/5/2013 Bankruptcy Indiana Bank Corp. 1 1 4/9/2013 Bankruptcy Rogers Bancshares, Inc 25 25 7/5/2013 Bankruptcy TCB Holding Company 12 12 12/13/2013 Bankruptcy 8 8 1/31/2014 Bankruptcy Syringa Bancorp Total CPP Currently Not Collectible Total of CPP Realized Losses, Write-Offs, and Currently Not Collectible $791 $4,731 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.” Source: Treasury, Transactions Report, 3/19/2014; Treasury, response to SIGTARP data call, 4/9/2014. 187 188 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.438 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.439 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.440 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.441 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.442 Table 2.38 shows all restructurings, recapitalizations, exchanges, and sales of CPP investments through March 31, 2014. 189 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.38 TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 3/31/2014 Investment Date Original Investments Citigroup Inc. 10/28/2008 $2,500.0 Provident Bankshares 11/14/2008 151.5 M&T Bank Corporation 12/23/2008 600.0 Wilmington Trust Corporation Company Combined Investments ($ MILLIONS) 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 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 Flagstar Bancorp Inc. Pacific Capital Bancorp 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 Sold at loss in auction Central Pacific Financial Corp. Banner Corporation 11/21/2008 124.0 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 Sold at loss in auction First Merchants Taylor Capital Group 122.0b Exchanged for a like amount of securities of BBCN Bancorp, Inc. 11/21/2008 104.8 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.d 12/5/2008 69.0 Exchanged for trust preferred securities Hampton Roads Bankshares Old Second Bancorp, Inc. First Financial Holdings Inc. Wilshire Bancorp, Inc. Standard Bancshares Inc. 81.9c Exchanged for new preferred stock in Metropolitan Bank Group, Inc. and later sold at loss 12/5/2008 65.0 Sold at loss in auction 12/12/2008 62.2 Sold at loss in auction 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 Continued on next page 190 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 3/31/2014 Investment Date Original Investments Seacoast Banking Corporation of Florida 12/19/2008 $50.0 Fidelity Southern Corporation 12/19/2008 48.2 Sold at loss in auction MetroCorp Bancshares, Inc. 1/16/2009 45.0 Sold at loss in auction Company Cadence Financial Corporation Exchange Bank Crescent Financial Bancshares, Inc. ECB Bancorp, Inc. PremierWest Bancorp Combined Investments ($ MILLIONS) (CONTINUED) Investment Status 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 $42.8e Exchanged for a like amount of securities of Crescent Financial Bancshares, Inc. 2/13/2009 41.4 Sold Capital Bank Corporation 12/12/2008 41.3 Sold Reliance Bancshares, Inc. 2/13/2009 40.0 Sold at auction Cascade Financial Corporation 11/21/2008 39.0 Sold at loss in auction Bridgeview Bancorp, Inc. 12/19/2008 38.0 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 First Security Group, Inc. Centrue Financial Corporation Pulaski Financial Corp 1/9/2009 32.7 Sold at loss in auction 1/16/2009 32.5 Sold at loss in auction BNC Bancorp 12/5/2008 31.3 Sold at loss in auction Spirit Bank Corp. Inc. 3/27/2009 30.0 Sold at loss in auction Farmers Capital Bank Corporation 1/9/2009 30.0 Sold at loss in auction Colony Bankcorp, Inc. 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 Citizens Bancshares Co. 12/23/2008 25.0 Sold at loss in auction National Bancshares, Inc. Intervest Bancshares Corporation 2/27/2009 24.7 Sold at loss in auction CBS Banc-Corp 3/27/2009 24.3 Sold at loss in auction 1/9/2009 24.0 Sold at auction Eastern Virginia Bankshares, Inc. Severn Bancorp, Inc. First Citizens Banc Corp 11/21/2008 23.4 Sold at auction 1/23/2009 23.2 Sold at loss in auction Continued on next page 191 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 3/31/2014 Company Park Bancorporation, Inc. Investment Date Original Investments Combined Investments ($ MILLIONS) (CONTINUED) Investment Status 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 12/5/2008 21.8 Sold at loss in auction First Community Financial Partners, Inc. Blue Valley Ban Corp 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 First Western Financial, Inc. Market Street Bancshares, Inc. 5/15/2009 20.3 Sold at loss in auction BNCCORP, Inc. 1/16/2009 20.1 Sold at auction First Financial Service Corporation 1/9/2009 20.0 Sold at loss in auction 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 2/6/2009 17.0 Sold at loss in auction F & M Financial Corporation (NC) Guaranty Federal Bancshares, Inc. Timberland Bancorp Inc. First Federal Bankshares of Arkansas, Inc. 1st Financial Services Corporation Parke Bancorp Inc. Pacific City Financial Corporation Carolina Bank Holdings, Inc. 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 11/14/2008 16.4 Sold 1/30/2009 16.3 Sold at loss in auction 12/19/2008 16.2 Sold at 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 First Reliance Bancshares, Inc Broadway Financial Corporation 11/14/2008 15.0 Exchanged for common stock First Community Bancshares, Inc 5/15/2009 14.8 Sold Village Bank and Trust Financial Corp First National Corporation 5/1/2009 14.7 Sold at loss in auction 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 Sold Continued on next page 192 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 3/31/2014 Company Community First Bancshares, Inc. Investment Date Original Investments Combined Investments ($ MILLIONS) (CONTINUED) Investment Status 4/3/2009 $12.7 Sold at loss in auction 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 The Queensborough Company Plumas Bancorp 1/30/2009 11.9 Sold at auction Central Virginia Bankshares 1/30/2009 11.4 Sold 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 4/3/2009 11.0 Sold at loss in auction First Capital Bancorp, Inc. 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 11/20/2009 10.8 Sold at loss in auction Presidio Bank 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 4/3/2009 8.6 Sold at loss in auction First Freedom Bancshares, Inc. BancStar, Inc. 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 1/30/2009 7.5 Sold at loss in auction The Little Bank, Incorporated Country Bank Shares, Inc. 12/23/2009 7.5 Sold at loss in auction First Sound Bank 12/23/2008 7.4 Sold Continued on next page 193 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 3/31/2014 Company FFW Corporation Millennium Bancorp, Inc. Combined Investments ($ MILLIONS) (CONTINUED) Investment Date Original Investments 12/19/2008 $7.3 Sold at loss in auction 4/3/2009 7.3 Sold Investment Status Central Federal Corporation 12/5/2008 7.2 Sold Community Financial Shares, Inc. 5/15/2009 7.0 Sold TriSummit Bank Chicago Shore Corporation Monarch Community Bancorp, Inc Fidelity Federal Bancorp 4/3/2009 7.0 Sold at loss in auction 7/31/2009 7.0 Sold at loss in auction 2/6/2009 6.8 Sold 11/13/2009 6.7 Sold at auction Alarion Financial Services, Inc. 1/23/2009 6.5 Sold at auction 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 Meridian Bank 2/13/2009 6.2 Sold at loss in auction IA Bancorp, Inc. 9/18/2009 6.0 Sold at loss in 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 3/6/2009 5.5 Sold at loss in auction First Southwest Bancorporation, Inc. Valley Community Bank Midtown Bank & Trust Company 1/9/2009 5.5 Sold at loss in auction 2/27/2009 5.2 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 Germantown Capital Corporation 3/6/2009 5.0 Sold at loss in auction Alaska Pacific Bancshares Inc. 2/6/2009 4.8 Sold at loss in auction 12/18/2009 4.6 Sold at loss in auction Virginia Company Bank 6/12/2009 4.7 Sold at auction Georgia Primary Bank 5/1/2009 4.5 Sold at loss in 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. Pinnacle Bank Holding Company, Inc. Bank of Southern California, N.A. Pacific Commerce Bank 3/6/2009 4.4 Sold at loss in auction 4/10/2009 4.2 Sold at loss in auction 12/23/2008 4.1 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 Santa Lucia Bancorp 12/19/2008 4.0 Sold Capital Pacific Bancorp 12/23/2008 4.0 Sold at loss in auction 2/27/2009 4.0 Community Business Bank Sold at loss in auction Continued on next page 194 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 3/31/2014 Investment Date Original Investments KS Bancorp Inc. 8/21/2009 $4.0 Sold at loss in auction Naples Bancorp, Inc. 3/27/2009 4.0 Sold Company Combined Investments ($ MILLIONS) (CONTINUED) Investment Status 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 AB&T Financial Corporation 1/23/2009 3.5 Sold at loss in auction First Alliance Bancshares, Inc. 6/26/2009 3.4 Sold at loss in auction Madison Financial Corporation 3/13/2009 3.4 Sold at auction 1/9/2009 3.3 Sold at loss in auction Congaree Bancshares, Inc. 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 Oregon Bancorp, Inc. 4/24/2009 3.2 Sold at auction 1/9/2009 3.1 Sold at loss in auction Alliance Bancshares, Inc. Sound Banking Co. 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 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 6/12/2009 2.9 Exchanged for preferred stock in Customers Bancorp Fidelity Resources Company Berkshire 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 Bank of George 3/13/2009 2.7 Sold at loss in auction Worthington Financial Holdings, Inc. 5/15/2009 2.7 Sold at loss in auction Community Investors Bancorp, Inc. 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 5/1/2009 2.3 Sold at loss in auction 2/13/2009 2.2 Sold at loss in auction 12/29/2009 2.0 Sold at auction 2/13/2009 1.9 Sold at loss in auction CenterBank Security Bancshares of Pulaski County, Inc. Atlantic Bancshares, Inc. Hometown Bancshares, Inc. Continued on next page QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TREASURY RESTRUCTURINGS, RECAPITALIZATIONS, EXCHANGES, & SALES, AS OF 3/31/2014 Company Hyperion Bank Regional Bankshares Inc. Combined Investments ($ MILLIONS) (CONTINUED) Investment Date Original Investments 2/6/2009 $1.6 Sold at loss in auction 2/13/2009 1.5 Sold at loss in auction Investment Status 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 $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. c 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. d 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. 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, 3/19/2014. 195 196 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Treasury’s Sale of TARP Preferred Stock Investments at Auction Overview of CPP Preferred Stock Auctions 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. From March 2012 through March 31, 2014, Treasury has held 24 sets of auctions in which it has sold all of its preferred stock investments in 172 CPP banks.443 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 13 of the banks sold at a discounted price and resulted in losses to Treasury.444 In the 24 auction sets, the range of discount on the investments was 1% to 83%.445 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 172 banks in which Treasury sold its stock through the auction process, 63 were overdue on payments to Treasury.446 The $218.8 million owed to Treasury for missed payments by these 63 banks will never be recovered.447 As of March 31, 2014, Treasury lost a total of $991 million in the auctions, which includes $772.2 million lost on principal investments sold at a discount and $218.8 million on forfeited missed dividends and interest owed by these institutions.448 More than a quarter of the banks, 43 bought back some of their shares at the discounted price.449 In two sets of auctions this quarter, Treasury sold all of its TARP preferred investment in 10 banks.450 The two auctions this quarter accrued losses to Treasury of $30.7 million.451 Table 2.39 shows details for the auctions of preferred stock in CPP banks through March 31, 2014. 197 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.39 INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 3/31/2014 Percentage of Shares Repurchased by Institution Auction Date Investment Net Proceeds Auction Loss Discount Percentage 3/15/2013 $10,973,000 $1,879,145 $9,093,855 83% $1,794,180 AB&T Financial Corporation 11/19/2013 3,500,000 914,215 2,585,785 74% 481,250 Bridgeview Bancorp, Inc. 11/19/2013 38,000,000 10,450,000 27,550,000 73% 7,766,250 Spirit Bank Corp. Inc. 11/19/2013 30,000,000 9,000,000 21,000,000 70% 4,905,000 Georgia Primary Bank 2/10/2014 4,500,000 1,531,145 2,968,855 66% 1,113,163 Old Second Bancorp, Inc.a 3/1/2013 73,000,000 25,547,320 47,452,680 65% 9,125,000 First Banks, Inc. 8/12/2013 295,400,000 104,749,295 190,650,705 65% 64,543,063 Centrue Financial Corporation 10/21/2013 32,668,000 10,631,697 21,186,665 65% 6,959,475 Bank of George 10/21/2013 2,672,000 955,240 1,716,760 64% 364,150 Village Bank and Trust Financial Corp 11/19/2013 14,738,000 5,672,361 9,065,639 62% 2,026,475 Valley Community Bank 749,375 Institution Stonebridge Financial Corp. Missed Dividends 10/21/2013 5,500,000 2,296,800 3,203,200 58% First Priority Financial Corp. 1/29/2013 9,175,000 4,012,094 5,162,906 56% 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 Midtown Bank & Trust Company 11/19/2013 5,222,000 3,133,200 2,088,800 40% Virginia Company Bank 8/12/2013 4,700,000 2,843,974 1,856,026 39% 185,903 Delmar Bancorp 1/29/2013 9,000,000 5,453,900 3,546,100 39% 613,125 Pacific Commerce Bank 2/10/2014 4,060,000 2,494,961 1,565,039 39% 695,771 Franklin Bancorp, Inc. 11/9/2012 5,097,000 3,191,614 1,905,386 37% Hyperion Bank 12/20/2012 1,552,000 983,800 568,200 37% The Baraboo Bancorporation, Inc. 12/11/2012 20,749,000 13,399,227 7,349,773 35% 9/12/2012 22,000,000 14,211,450 7,788,550 35% First Community Financial Partners, Inc.b 100% 1,067,213 565,390 Continued on next page 198 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 3/31/2014 (CONTINUED) Percentage of Shares Repurchased by Institution Auction Date Investment Net Proceeds Auction Loss Discount Percentage 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% First Independence Corporation 12/20/2012 3,223,000 2,286,675 936,325 29% Parke Bancorp, Inc. 11/30/2012 16,288,000 11,595,735 4,692,265 29% Marquette National Corporation 7/27/2012 35,500,000 25,313,186 10,186,814 29% HMN Financial, Inc. 1/29/2013 26,000,000 18,571,410 7,428,590 29% 2,600,000 12/11/2012 15,600,000 11,181,456 4,418,544 28% 585,000 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% TriSummit Bank 11/30/2012 7,002,000 5,198,984 1,803,016 26% Commonwealth Bancshares, Inc. 7/27/2012 20,400,000 15,147,000 5,253,000 26% 2/7/2013 24,664,000 18,318,148 6,345,852 26% 3,024,383 Alliance Financial Services, Inc. 1/29/2013 12,000,000 8,912,495 3,087,505 26% 3,020,400 Trinity Capital Corporation 7/27/2012 35,539,000 26,396,503 9,142,497 26% 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% 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) 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% Alpine Banks of Colorado 9/12/2012 70,000,000 56,430,297 13,569,703 19% Seacoast Banking Corporation of Florida 3/28/2012 50,000,000 40,404,700 9,595,300 19% Institution First Reliance Bancshares, Inc. Community West Bancshares National Bancshares, Inc. Layton Park Financial Group, Inc. Missed Dividends $1,254,720 93,245 31% 30% 26% 1,400,000 1,687,900 Continued on next page 199 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 3/31/2014 Institution United Bancorp, Inc. CenterBank Ridgestone Financial Services, Inc. Meridian Bank Auction Date Investment Net Proceeds Auction Loss (CONTINUED) Discount Percentage 6/13/2012 $20,600,000 $16,750,221 $3,849,779 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% Percentage of Shares Repurchased by Institution Missed Dividends $2,079,175 3/17/2014 12,535,000 10,328,152 2,206,848 18% Congaree Bancshares Inc. 10/31/2012 3,285,000 2,685,979 599,021 18% 35% DeSoto County Bank 9/25/2013 2,681,000 2,196,896 484,104 18% 79% KS Bancorp, Inc. 11/30/2012 4,000,000 3,283,000 717,000 18% Corning Savings and Loan Association 11/30/2012 638,000 523,680 114,320 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% Presidio Bank 12/11/2012 10,800,000 9,058,369 1,741,631 16% Carolina Trust Bank 11/30/2012 4,000,000 3,362,000 638,000 16% 150,000 3/1/2013 2,900,000 2,440,379 459,621 16% 474,150 Worthington Financial Holdings, Inc. 6/24/2013 2,720,000 2,318,851 401,149 15% 222,360 Timberland Bancorp, Inc. 11/9/2012 16,641,000 14,209,334 2,431,666 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% First Western Financial, Inc.c Santa Clara Valley Bank, N.A. Clover Community Bankshares, Inc. Exchange Bank 7/27/2012 43,000,000 37,259,393 5,740,607 13% LNB Bancorp Inc. 6/13/2012 25,223,000 21,863,750 3,359,250 13% First National Corporation 8/23/2012 13,900,000 12,082,749 1,817,251 13% Banner Corporation 3/28/2012 124,000,000 108,071,915 15,928,085 13% Pulaski Financial Corp 6/27/2012 32,538,000 28,460,338 4,077,662 13% Three Shores Bancorporation, Inc. 11/9/2012 5,677,000 4,992,788 684,212 12% Taylor Capital Group 6/13/2012 104,823,000 92,254,460 12,568,540 12% Yadkin Valley Financial Corporationd 9/12/2012 49,312,000 43,486,820 5,825,180 12% Alaska Pacific Bancshares, Inc. 11/30/2012 4,781,000 4,217,568 563,432 12% Fidelity Financial Corporation 7/27/2012 36,282,000 32,013,328 4,268,672 12% Fidelity Southern Corporation 6/27/2012 48,200,000 42,757,786 5,442,214 11% 122,625 47% 58% Continued on next page 200 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 3/31/2014 Institution (CONTINUED) Auction Date Investment Net Proceeds Auction Loss Discount Percentage Percentage of Shares Repurchased by Institution FC Holdings, Inc. 2/7/2013 $21,042,000 $18,685,927 $2,356,073 11% First Advantage Bancshares, Inc. 12/11/2012 1,177,000 1,046,621 130,379 11% Market Street Bancshares, Inc. 7/27/2012 20,300,000 18,069,213 2,230,787 11% 89% Southern First Bancshares, Inc. 6/27/2012 17,299,000 15,403,722 1,895,278 11% 6% BankGreenville Financial Corporation 11/9/2012 1,000,000 891,000 109,000 11% First Southwest Bancorporation, Inc. 3/15/2013 5,500,000 4,900,609 599,391 11% Metro City Bank 10/31/2012 7,700,000 6,861,462 838,538 11% 15% Premier Financial Bancorp, Inc. 7/27/2012 22,252,000 19,849,222 2,402,778 11% 46% First Citizens Banc Corp 6/27/2012 23,184,000 20,689,633 2,494,367 11% 11/30/2012 7,289,000 6,515,426 773,574 11% ColoEast Bankshares, Inc. 7/22/2013 10,000,000 8,947,125 1,052,875 11% CBS Banc-Corp. 7/27/2012 24,300,000 21,776,396 2,523,604 10% 3/1/2013 12,900,000 11,587,256 1,312,744 10% Blackhawk Bancorp Inc. 10/31/2012 10,000,000 9,009,000 991,000 10% First Gothenburg Banschares, Inc. 10/31/2012 7,570,000 6,822,136 747,864 10% WSFS Financial Corporation 3/28/2012 52,625,000 47,435,299 5,189,701 10% Flagstar Bancorp, Inc. 3/15/2013 266,657,000 240,627,277 26,029,723 10% Bank Financial Services, Inc. 12/20/2012 1,004,000 907,937 96,063 10% Germantown Capital Corporation, Inc. 10/31/2012 4,967,000 4,495,616 471,384 9% Farmers & Merchants Financial Corporation 6/24/2013 442,000 400,425 41,575 9% First Capital Bancorp, Inc. 6/13/2012 10,958,000 9,931,327 1,026,673 9% RCB Financial Corporation 9/25/2013 8,900,000 8,073,279 826,721 9% BNC Bancorp FFW Corporation SouthCrest Financial Group, Inc. 8/23/2012 31,260,000 28,365,685 2,894,315 9% Bank of Southern California, N.A. 12/20/2012 4,243,000 3,850,150 392,850 9% Country Bank Shares, Inc. 11/30/2012 7,525,000 6,838,126 686,874 9% Missed Dividends $4,013,730 974,188 1,090,000 95% 1,581,863 16,666,063 25% 50% 1,055,520 30% Continued on next page QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 3/31/2014 (CONTINUED) Percentage of Shares Repurchased by Institution Auction Date Investment Net Proceeds Auction Loss Discount Percentage HomeTown Bankshares Corporation 10/31/2012 $10,000,000 $9,093,150 $906,850 9% Oak Ridge Financial Services, Inc. 10/31/2012 7,700,000 7,024,595 675,405 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% Regional Bankshares, Inc. 11/9/2012 1,500,000 1,373,625 126,375 8% Ameris Bancorp 6/13/2012 52,000,000 47,665,332 4,334,668 8% 12/11/2012 22,000,000 20,172,636 1,827,364 8% MainSource Financial Group, Inc. 3/28/2012 57,000,000 52,277,171 4,722,829 8% Waukesha Bankshares, Inc. 1/29/2013 5,625,000 5,161,674 463,326 8% Peoples Bancorp of North Carolina, Inc. 6/27/2012 25,054,000 23,033,635 2,020,365 8% 50% CBB Bancorp 11/30/2012 4,397,000 4,066,752 330,248 8% 35% Carolina Bank Holdings, Inc. 2/7/2013 16,000,000 14,811,984 1,188,016 7% Firstbank Corporation 6/27/2012 33,000,000 30,587,530 2,412,470 7% Community Business Bank 11/30/2012 3,976,000 3,692,560 283,440 7% Institution Central Community Corporation 69% 47% 37% 48% Capital Pacific Bancorp 11/9/2012 4,000,000 3,715,906 284,094 7% Wilshire Bancorp, Inc. 3/28/2012 62,158,000 57,766,994 4,391,006 7% 97% Western Illinois Bancshares, Inc. 11/9/2012 11,422,000 10,616,305 805,695 7% 89% Hometown Bancshares, Inc. 11/30/2012 1,900,000 1,766,510 133,490 7% 39% Community Bancshares of Mississippi, Inc. 11/30/2012 1,050,000 977,750 72,250 7% 52% 1/29/2013 8,144,000 7,598,963 545,037 7% 12/20/2012 2,600,000 2,445,000 155,000 6% 54% F & M Financial Corporation (NC) 9/12/2012 17,000,000 15,988,500 1,011,500 6% 84% F & M Bancshares, Inc. Community Investors Bancorp, Inc. Universal Bancorp 8/12/2013 9,900,000 9,312,028 587,972 6% 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% Missed Dividends 100% $1,049,250 Continued on next page 201 202 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 3/31/2014 (CONTINUED) Percentage of Shares Repurchased by Institution Auction Date Investment Net Proceeds Auction Loss Discount Percentage 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% Alliance Bancshares, Inc. 3/15/2013 2,986,000 2,831,437 154,563 5% F&C Bancorp, Inc. 11/9/2012 2,993,000 2,840,903 152,097 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% Farmers Enterprises, Inc. 11/9/2012 12,000,000 11,439,252 560,748 5% Guaranty Federal Bancshares, Inc.e 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% 25% Biscayne Bancshares, Inc. 1/29/2013 6,400,000 6,170,630 229,370 4% 53% MetroCorp Bancshares, Inc. 6/27/2012 45,000,000 43,490,360 1,509,640 3% 97% 3/1/2013 12,000,000 11,605,572 394,428 3% 8/23/2012 11,350,000 10,987,794 362,206 3% 33% 12/11/2012 2,639,000 2,560,541 78,459 3% 96% 4/29/2013 52,372,000 50,837,239 1,534,761 3% 10/31/2012 7,500,000 7,285,410 214,590 3% Crosstown Holding Company 7/22/2013 10,650,000 10,356,564 293,436 3% BancStar, Inc. 4/29/2013 8,600,000 8,366,452 233,548 3% Alarion Financial Services, Inc. 7/22/2013 6,514,000 6,338,584 175,416 3% Century Financial Services Corporation 12/20/2012 10,000,000 9,751,500 248,500 2% Blue Valley Ban Corp Institution Coastal Banking Company, Inc. The Queensborough Company First Community Corporation Manhattan Bancshares, Inc. NewBridge Bancorp The Little Bank, Incorporated 10/21/2013 21,750,000 21,263,017 486,983 2% Mountain Valley Bancshares, Inc. 7/22/2013 3,300,000 3,242,000 58,000 2% IA Bancorp, Inc. 3/17/2014 5,976,000 5,863,113 112,887 2% Community First Bancshares, Inc. 2/10/2014 12,725,000 12,446,703 278,297 2% Premier Financial Corp. 7/22/2013 6,349,000 6,270,436 78,564 1% Missed Dividends $746,250 45% 99% 1,798,500 63% 12% 532,560 4,893,750 91% 472,365 60% 1,597,857 Continued on next page 203 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 INVESTMENTS IN CPP BANKS SOLD AT A LOSS AT AUCTION, AS OF 3/31/2014 (CONTINUED) Percentage of Shares Repurchased by Institution Auction Date Investment Net Proceeds Auction Loss Discount Percentage Community Pride Bank Corporation 8/12/2013 $4,400,000 $4,351,151 $48,849 1% $803,286 Fidelity Federal Bancorp 7/22/2013 6,657,000 6,586,509 70,491 1% 1,229,924 Omega Capital Corp. 7/22/2013 2,816,000 2,791,000 25,000 1% 575,588 Plato Holdings Inc. 4/29/2013 2,500,000 2,478,750 21,250 1% 207,266 Chicago Shore Corporation 3/17/2014 7,000,000 6,937,000 63,000 1% Institution Missed Dividends Severn Bancorp, Inc. 9/25/2013 23,393,000 23,367,268 25,732 0% Oregon Bancorp, Inc. 10/21/2013 3,216,000 3,216,000 0 0% Reliance Bancshares, Inc. 9/25/2013 40,000,000 40,196,000 (196,000) 0% BNCCORP, Inc. 3/17/2014 20,093,000 20,114,700 (21,700) 0% 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 11/19/2013 3,370,000 3,446,196 (76,196) (2%) 688,913 Brogan Bankshares, 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 10/21/2013 24,000,000 26,498,640 (2,498,640) (10%) 3,300,000 Atlantic Bancshares, Inc. 2/10/2014 2,000,000 2,275,000 (275,000) (14%) 299,255 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 11/19/2013 16,200,000 19,685,754 (3,485,754) (22%) Northwest Bancorporation, Inc. Madison Financial Corporation Boscobel Bancorp, Inc. Eastern Virginia Bankshares, Inc. Pacific City Financial Corporation Total Auction Losses Total Missed Dividends 1,754,475 78% 5,995,000 58% 53% 1,792,350 3,973,050 $772,160,183 $218,808,658 Notes: Numbers may not total due to rounding. a 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. b 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. c 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. d This institution was auctioned separately from the other set that closed on the same date because it is a publicly traded company. e 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, 3/19/2014; SNL Financial LLC data. 204 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM For a discussion of SIGTARP’s August 20, 2013, recommendation to Treasury regarding the inclusion of SBLF funds as TARP repayments, see SIGTARP’s October 2013 Quarterly Report, pages 281-282. 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. 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.452 Under CDCI, TARP made $570.1 million in investments in 84 eligible banks and credit unions.453 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.454 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.455 According to Treasury, it received a total of 935 SBLF applications, of which 320 were TARP recipients under CPP (315) or CDCI (5).456 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.457 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.458 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.459 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.460 Treasury’s warrants constitute assets with a fair market value that Treasury estimates using relevant market quotes, financial models, and/or third-party valuations.461 As of March 31, 2014, Treasury had not exercised any of these warrants.462 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.463 Unsold and unexercised warrants expire 10 years from the date of the CPP investment.464 As of March 31, 2014, Treasury had received $7.9 billion through the sale of CPP warrants obtained by TARP recipients.465 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 March 31, 2014, 164 publicly traded institutions had bought back $3.9 billion worth of warrants, of which $33.3 million was purchased this quarter. As of that same date, 275 privately held institutions, the warrants of which had been immediately exercised, bought back the resulting QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 additional preferred shares for a total of $163 million, of which $3.2 million was bought back this quarter.466 Table 2.40 lists publicly traded institutions that repaid TARP and repurchased warrants in the quarter ended March 31, 2014. Table 2.41 lists privately held institutions that had done so in the same quarter.467 TABLE 2.40 CPP WARRANT SALES AND REPURCHASES (PUBLIC) FOR THE QUARTER ENDING 3/31/2014 Repurchase Date Company 1/31/2014 Virginia Commerce Bancorp, Inc. Total Number of Warrants Repurchased Amount of Repurchase ($ Thousands) 2,696,203 $33,263,000.0 2,696,203 $33,263,000.0 Notes: Numbers may not total due to rounding. This table represents warrants for common stock issued to Treasury by publicly traded TARP recipients. Treasury may hold one warrant for millions of underlying shares rather than millions of warrants of an individual financial institution. Sources: Treasury, Transactions Report, 3/19/2014; Treasury, responses to SIGTARP data calls, 1/4/2011, 1/7/2011, 4/6/2011, 7/8/2011, 10/7/2011, 10/11/2011, 1/11/2012, 4/5/2012, 7/9/2012, 10/12/2012, 4/12/2013, 7/11/2013, 10/10/2013, 1/8/2014, and 4/11/2014. TABLE 2.41 CPP WARRANT SALES AND REPURCHASES (PRIVATE) FOR THE QUARTER ENDING 3/31/2014 Number of Warrants Repurchased Amount of Repurchase ($ Thousands) 1,005,000 $1,005.0 Repurchase Date Company 3/17/14 BNCCORP, Inc. 2/10/14 Community First Bancshares, Inc. 636,000 636.0 3/17/14 Chicago Shore Corporation (Delaware Place Bank) 350,000 350.0 3/17/14 Meridian Bank 310,000 310.0 2/10/14 Georgia Primary Bank 225,000 225.0 1/31/14 Pacific Commerce Bank 203,000 203.0 1/31/14 Premier Service Bank 200,000 200.0 3/17/14 IA Bancorp, Inc / Indus American Bank 179,000 179.0 2/10/14 Atlantic Bancshares, Inc. 98,000 98.0 3/19/14 Kirksville Bancorp, Inc. / American Trust Bank 24,000 24.0 3,230,000 $3,230.0 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. Sources: Treasury, Transactions Report, 3/19/2014; Treasury response to SIGTARP data call, 4/11/2014. 205 206 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.468 As of March 31, 2014, the combined proceeds from Treasury’s public and private warrant auctions totaled $5.5 billion.469 Public Warrant Auctions In November 2009, Treasury began selling warrants via public auctions.470 Through March 31, 2014, Treasury had held 26 public auctions for warrants it received under CPP, TIP, and AGP, raising a total of approximately $5.4 billion.471 Treasury did not conduct any public warrant auctions this quarter.472 Final closing information for all public warrant auctions is shown in Table 2.42. 207 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.42 PUBLIC TREASURY WARRANT AUCTIONS, AS OF 3/31/2014 Auction Date 3/3/2010 Number of Warrants Offered Minimum Bid Price Selling Price Proceeds to Treasury ($ Millions) Bank of America A Auction (TIP)a 150,375,940 $7.00 $8.35 $1,255.6 Bank of America B Auction (CPP)a 121,792,790 1.50 2.55 310.6 Company 12/10/2009 JPMorgan Chase 5/20/2010 Wells Fargo and Company 88,401,697 8.00 10.75 950.3 110,261,688 6.50 7.70 849.0 9/21/2010 4/29/2010 Hartford Financial Service Group, Inc. 52,093,973 10.50 13.70 713.7 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 15.6 595,829 16.00 19.00 11.3 9/22/2011 3/9/2010 Washington Federal, Inc. 3/10/2010 Signature Bank 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 4/1/2014; Valley National Bancorp, “Final Prospectus Supplement,” 5/18/2010, www.sec.gov/Archives/edgar/data/714310/000119312510123896/d424b5.htm, accessed 4/1/2014; Comerica Incorporated, “Final Prospectus Supplement,” 5/6/2010, www.sec.gov/Archives/edgar/data/28412/000119312510112107/d424b5.htm, accessed 4/1/2014; Wells Fargo and Company, “Definitive Prospectus Supplement,” 5/20/2010, www.sec.gov/Archives/edgar/data/72971/000119312510126208/d424b5.htm, accessed 4/1/2014; First Financial Bancorp, “Prospectus Supplement,” 6/2/2010, www.sec.gov/Archives/edgar/data/708955/000114420410031630/v187278_424b5.htm, accessed 4/1/2014; Sterling Bancshares, Inc., “Prospectus Supplement,” 6/9/2010, www.sec.gov/Archives/edgar/data/891098/000119312510136584/dfwp.htm, accessed 4/1/2014; 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 4/1/2014; Texas Capital Bancshares, Inc., “Prospectus Supplement,” 3/11/2010, www.sec.gov/Archives/edgar/data/1077428/000095012310023800/d71405ae424b5.htm, accessed 4/1/2014; Bank of America, “Form 8-K,” 3/3/2010, www.sec.gov/Archives/edgar/ data/70858/000119312510051260/d8k.htm, accessed 4/1/2014; Bank of America, “Prospectus Supplement,” 3/1/2010, www.sec.gov/Archives/edgar/data/70858/000119312510045775/ d424b2.htm, accessed 4/1/2014; Washington Federal, Inc., “Prospectus Supplement,” 3/9/2010, www.sec.gov/Archives/edgar/data/936528/000119312510052062/d424b5.htm, accessed 4/1/2014; TCF Financial, “Prospectus Supplement,” 12/16/2009, www.sec.gov/Archives/edgar/data/814184/000104746909010786/a2195869z424b5.htm, accessed 4/1/2014; JPMorgan Chase, “Prospectus Supplement,” 12/11/2009, www.sec.gov/Archives/edgar/data/19617/000119312509251466/d424b5.htm, accessed 4/1/2014; Capital One Financial, “Prospectus Supplement,” 12/3/2009, www.sec.gov/Archives/edgar/data/927628/000119312509247252/d424b5.htm, accessed 4/1/2014; 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 4/1/2014; 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 4/1/2014; Lincoln National Corporation, Prospectus Supplement to Prospectus filed with SEC 3/10/2009, www.sec.gov/Archives/edgar/data/59558/000119312510211941/ d424b5.htm, accessed 4/1/2014; Lincoln National Corporation, 8-K, 9/22/2010, www.sec.gov/Archives/edgar/data/59558/000119312510214540/d8k.htm, accessed 4/1/2014; 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 4/1/2014; Citigroup, Prospectus, 1/24/2011, www.sec.gov/Archives/edgar/data/831001/000095012311004665/y89177b7e424b7.htm, accessed 4/1/2014; Citigroup, Prospectus, 1/24/2011, www.sec.gov/Archives/edgar/data/831001/000095012311004665/y89177b7e424b7.htm, accessed 4/1/2014; Boston Private Financial Holdings, Inc., Prospectus, 1/28/2011, www.sec.gov/Archives/edgar/data/821127/000119312511021392/d424b5.htm, accessed 4/1/2014; Boston Private Financial Holdings, Inc. 8-K, 2/7/2011, www.sec. gov/Archives/edgar/data/821127/000144530511000189/tarpwarrant020711.htm, accessed 4/1/2014; Wintrust Financial Corporation, Prospectus, 2/8/2011, www.sec.gov/Archives/edgar/ data/1015328/000095012311011007/c62806b5e424b5.htm, accessed 4/1/2014; 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 4/1/2014; Treasury, Citigroup Preliminary Prospectus – CPP Warrants, 1/24/2011, www.sec.gov/Archives/edgar/data/831001/000095012311004666/y89178b7e424b7.htm, accessed 4/1/2014; Citigroup, Preliminary Prospectus – TIP & AGP Warrants, 1/24/2011, www.sec.gov/Archives/edgar/data/831001/000095012311004665/y89177b7e424b7.htm, accessed 4/1/2014; 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 4/1/2014; “Treasury Department Announces Public Offering of Warrants to Purchase Common Stock of Associated BancCorp,” 11/29/2011, www.treasury.gov/press-center/press-releases/Pages/tg1372.aspx, accessed 4/1/2014; 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 4/1/2014; 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 4/1/2014. 208 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.473 On June 6, 2013, it conducted a second private auction to sell the warrants of 16 banks for $13.9 million.474 Details from both auctions are listed in Table 2.43. 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.475 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.”476 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.43 PRIVATE TREASURY WARRANT AUCTIONS AS OF 3/31/2014 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 1,301,856 219,908 6,677 91,178 55,677 6/6/2013 United Community Banks, Inc. 6/6/2013 Yadkin Financial Corporation 6/6/2013 Yadkin Financial Corporation Total 128,663 20,000 14,613,817 $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 4/6/2014; “Treasury Completes Auction to Sell Warrants Positions,” 6/6/2013, www.treasury.gov/press-center/press-releases/Pages/jl1972.aspx, accessed 4/6/2014. 209 210 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM For more information on CDCI institutions that remain in TARP and their use of TARP funds, see Section 3: “Banks and Credit Unions in TARP’s CDCI Program Face Challenges.” 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. Community Development Capital Initiative 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.477 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.478 CDCI was open to certified, qualifying CDFIs or financial institutions that applied for CDFI status by April 30, 2010.479 According to Treasury, CPP-participating CDFIs that were in good standing could exchange their CPP investments for CDCI investments.480 CDCI closed to new investments on September 30, 2010.481 Treasury invested $570.1 million in 84 institutions under the program — 36 banks or bank holding companies and 48 credit unions.482 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 March 31, 2014, 69 institutions remained in CDCI. Fourteen institutions have fully repaid Treasury and have exited CDCI. One institution has partially repaid and remains in the program. No institutions exited CDCI this quarter. Premier Bancorp, Inc., Wilmette, Illinois, previously had its subsidiary bank fail and thus almost all of Treasury’s $6.8 million investment was lost.483 As of March 31, 2014, taxpayers were still owed $475.2 million related to CDCI.484 According to Treasury, it had realized losses of $6.7 million in the program that will never be recovered, leaving $468.5 million outstanding.485 According to Treasury, $94.9 million of the CDCI principal (or 17%) had been repaid as of March 31, 2014.486 As of March 31, 2014, Treasury had received approximately $38.3 million in dividends and interest from CDCI recipients.487 Table 2.44 lists the current status of all CDCI investments as of March 31, 2014. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.44 CDCI INVESTMENT SUMMARY, AS OF 3/31/2014 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 33,800,000 Security Federal Corporation 18,000,000 4,000,000 22,000,000 Carver Bancorp, Inc 18,980,000 Security Capital Corporation 17,910,000 The First Bancshares, Inc. 5,000,000 54,600,000 18,980,000 17,910,000 12,123,000 17,123,000 First American International Corp. 17,000,000 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 Carter Federal Credit Union* 6,300,000 First Vernon Bancshares, Inc. 6,245,000 6,245,000 IBW Financial Corporation 6,000,000 6,000,000 CFBanc Corporation 5,781,000 American Bancorp of Illinois, Inc. Lafayette Bancorp, Inc. 5,457,000 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. 3,154,000 PGB Holdings, Inc. 3,000,000 Santa Cruz Community Credit Union 2,828,000 Cooperative Center Federal Credit Union Tri-State Bank of Memphis 3,000,000 2,799,000 2,795,000 2,795,000 Continued on next page 211 212 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM CDCI INVESTMENT SUMMARY, AS OF 3/31/2014 Institution (CONTINUED) Amount from CPP Additional Investment Total CDCI Investment Institutions Remaining in CDCI Community First Guam Federal Credit Union $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 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 Thurston Union of Low-Income People (TULIP) Cooperative Credit Union 75,000 Continued on next page QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 CDCI INVESTMENT SUMMARY, AS OF 3/31/2014 (CONTINUED) Amount from CPP Institution Additional Investment Total CDCI Investment Institutions Remaining in CDCI 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 $470,966,000 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 BankAsiana 5,250,000 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 Southside Credit Union 1,100,000 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 $92,323,000 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, 3/19/2014. $6,784,000 $6,784,000 $100,724,000 $570,073,000 213 214 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM On September 30, 2013, SIGTARP made a recommendation regarding the appointment of directors to the boards of CDCI banks, which is discussed in Section 5 of this report. Missed Dividends As of March 31, 2014, two institutions still in CDCI had unpaid dividend or interest payments to Treasury totaling $200,300.488 As a result of a bankrupt institution that exited CDCI without remitting its interest payments, the total value of all missed payments equals $516,924. 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.489 As of March 31, 2014, Treasury had not appointed directors to the board of any CDCI institution.490 Treasury has sent an observer to the board meetings of one institution, First Vernon Bancshares, Inc., Vernon, Alabama, however no observer is currently attending board meetings of this institution.491 Treasury made a request to send an observer to the board meetings of First American International Corp., Brooklyn, New York, in February 2013, but the institution, which remains in TARP as of March 31, 2014, rejected Treasury’s request.492 Table 2.45 lists CDCI institutions that are not current on dividend or interest payments. TABLE 2.45 CDCI-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 3/31/2014 Institution Dividend or Payment Type PGB Holdings, Inc. Cumulative Premier Bancorp, Inc.* Interest Community Bank of the Bay Non-Cumulative Total Notes: Numbers may not total due to rounding. * On 3/23/2012, the subsidiary bank of Premier Bancorp, Inc. failed. Source: Treasury, Dividends and Interest Report, 4/10/2014. Number of Missed Payments Value of Missed Payments 12 $180,000 6 316,624 1 20,300 $516,924 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.493 Participating credit unions and S corporations issued subordinated debt to Treasury in lieu of the preferred stock issued by other CDFI participants.494 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.495 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%.496 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 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.497 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. 215 216 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF 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. For more information on AIG and how the company changed while under TARP, see SIGTARP’s July 2012 Quarterly Report, pages 151-167. 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 a more detailed description of the AIG Recapitalization Plan, see SIGTARP’s January 2014 Quarterly Report, pages 219-220. 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. For more information on Treasury’s Equity Ownership Interest in AIG, see SIGTARP’s January 2014 Quarterly Report, page 220. Systemically Significant Failing Institutions Program According to Treasury, the Systemically Significant Failing Institutions (“SSFI”) program was established to “provide stability and prevent disruptions to financial markets from the failure of a systemically significant institution.”498 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.499 AIG also received bailout funding from the Federal Reserve Bank of New York (“FRBNY”). 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 to Treasury.500 AIG has repaid the amounts owed to both Treasury and FRBNY. Treasury’s investment in AIG ended on March 1, 2013.501 According to Treasury, taxpayers have received full payment on FRBNY’s loans, plus interest and fees of $6.8 billion; full repayment of the loans to two special purpose vehicles (“SPVs”), called 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 insurance-business SPVs, plus interest and fees of $1.4 billion.502 Treasury’s books and records reflect only the shares of AIG that 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.503 However, because TARP funds paid off amounts owed to FRBNY in return for stock, Treasury’s position is that the Government has made $4.1 billion selling AIG common shares and $959 million in dividends, interest, and other income.504 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.505 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.”506 Both banks repaid TIP in December 2009.507 On March 3, 2010, Treasury auctioned the Bank of America warrants it received under TIP for $1.24 billion.508 On January 25, 2011, Treasury auctioned the Citigroup warrants it had received under TIP for $190.4 million.509 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”).510 Treasury received $4 billion of the TRUPS and FDIC received $3 billion.511 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.512 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.513 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.514 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.515 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 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. 217 218 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM proceeds from the $2.2 billion sale of the Citigroup TRUPS, which occurred on September 30, 2010.516 On January 25, 2011, Treasury auctioned the Citigroup warrants it had received under AGP for $67.2 million.517 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.518 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.519 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.520 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.”521 On December 9, 2013, Treasury sold its remaining shares of General Motors Company (“GM”) common stock.522 Separately, on March 20, 2014, Treasury wrote off an $826 million administrative claim in the company’s 2009 bankruptcy, ending all taxpayer involvement in GM.523 As of March 31, 2014, Ally Financial Inc. (“Ally Financial”), formerly GMAC Inc., is the only remaining auto-related company in which Treasury owns a stake, with $6.5 billion owed to taxpayers. On January 23, 2014, Treasury sold 410,000 shares of Ally Financial common stock for approximately $3 billion in a private placement, reducing its stake to 37% of the company’s stock.524 Following this, on April 9, 2014, Treasury announced they would sell 95 million shares of Ally common stock for $2.4 billion as part of an initial public offering (IPO). Following the Ally Financial IPO, Treasury reported that it would still hold 82,311,010 shares; reducing Treasury’s stake in Ally to about 17%.525 As of March 31, 2014, taxpayers had lost $11.2 billion on the TARP investment in GM from selling GM common stock at prices below the Government’s cost basis, as well as from the write-off of its remaining investment in Old GM in the amount of $826 million, according to Treasury.526 Additionally, taxpayers lost $845 million on the sale of Ally Financial’s common stock.527 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. AWCP and ASSP were terminated in July 2009, and April 2010, respectively. Treasury initially obligated approximately $84.8 billion in TARP funds through the three auto assistance programs to GM, Ally Financial, Chrysler, and Chrysler Financial.528 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.529 As of March 31, 2014, taxpayers were owed $20.6 billion, of which $14.9 billion in losses have been realized or written off and will never be repaid, leaving $5.7 billion outstanding.530 Treasury’s investments in AIFP and the two related programs and the companies’ principal repayments are summarized in Table 2.46. For more information on GMAC/Ally Financial, see “Taxpayers Continue to Own 74% of GMAC (Rebranded as Ally Financial Inc.) from the TARP Bailouts,” in SIGTARP’s January 2013 Quarterly Report, pages 147-164. 219 220 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.46 TARP AUTOMOTIVE PROGRAM INVESTMENTS AND PRINCIPAL REPAYMENTS, AS OF 3/31/2014 ($ BILLIONS) General Motorsa Ally Financial Inc.b Chryslerc Chrysler Financial Total $49.5 $17.2 $10.5 $1.5 $78.6 38.3 10.7 7.6 1.5 58.0 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 $38.9 $10.7 $8.0 $1.5 $59.1 $11.2 e $6.5 $2.9 $0.0 $20.6 ($11.2d) ($0.8) ($2.9) Still Owed to Taxpayers Realized Loss on Investment d ($14.9) Notes: Numbers may not total due to rounding. a Principal repaid includes a series of debt payments totaling $160 million recovered from GM bankruptcy. b Investment includes an $884 million Treasury loan to GM, which GM 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. d Realized loss on investment and amount still owed to taxpayers include the $826 million claim in GM’s bankruptcy, which Treasury wrote off in the first quarter of 2014. e Following Ally’s IPO on April 10, 2014, taxpayers are still owed $4.1 billion. Sources: Treasury, Transactions Report, 3/19/2014; Treasury, response to SIGTARP data call, 4/9/2014; Treasury, Daily TARP Update, 4/1/2014. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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, 2009.531 Of AIFP-related loan principal repayments and share sale proceeds, as of March 31, 2014, Treasury had received approximately $38.3 billion related to its GM investment, $10.7 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.532 In addition to principal repayments, Treasury had received approximately $5.6 billion in dividends and interest as of March 31, 2014.533 GM Between September 26, 2013 and December 9, 2013, Treasury sold its remaining 101.3 million shares of GM common stock. As of March 31, 2014, taxpayers had lost $11.2 billion on the investment in GM.534 Treasury provided approximately $49.5 billion to GM through AIFP, the largest of the automotive rescue programs.535 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). Debt Repayments As of March 31, 2014, GM had made approximately $756.7 million in dividend and interest payments to Treasury under AIFP.536 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.537 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.538 As part of the IPO priced at $33 per share, Treasury sold 412.3 million common shares for $13.5 billion in net proceeds, reducing its number of common shares to 500.1 million and its ownership in GM from 61% to 33%.539 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.540 In early 2011, Treasury further diluted its ownership from 33% to 32% when GM contributed 61 million of its common shares to fund GM’s pension plans.541 After that, Treasury 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.542 On January 18, 2013, Treasury announced the first of four pre-arranged written trading plans to divest its remaining shares.543 Under the first trading plan, which ended April For more on the results of GM’s November 2010 IPO, see SIGTARP’s January 2011 Quarterly Report, page 163. 221 222 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 17, 2013, Treasury sold 58.4 million shares at an average share price of $28.05 for total proceeds of $1.6 billion.544 During Treasury’s second trading plan that ended on September 13, 2013, it sold 110.3 million shares at an average share price of $34.65, for total proceeds of $3.8 billion.545 In Treasury’s third trading plan, ending on November 20, 2013, 70.2 million GM shares sold at an average share price of $36.51, for proceeds of $2.6 billion.546 In the fourth and final trading plan, between November 21, 2013, and December 9, 2013, Treasury sold its remaining 31.1 million GM shares for an average price of $38.82 per share, for proceeds of $1.2 billion.547 In addition to the trading plans, on June 12, 2013, Treasury sold 30 million shares of common stock at $34.41 per share in a public equity offering that raised $1 billion.548 As of March 31, 2014, taxpayers had realized losses from an accounting standpoint of $10.3 billion on all GM common shares sold from November 2010 through December 9, 2013, according to Treasury.549 The losses are due to Treasury’s sales of GM common shares at prices below its cost basis of $43.52 per share. In addition, Treasury’s write-off of an $826 million claim in GM’s bankruptcy, brought the total loss to taxpayers to $11.2 billion.550 For a discussion of the history and financial condition of Ally Financial, see SIGTARP’s January 2013 Quarterly Report, pages 147-164. Ally Financial, formerly known as GMAC Ally Financial is still in TARP and as of March 31, 2014, taxpayers were owed $6.5 billion for the TARP investment in it. In return for its investment, as of March 31, 2014, Treasury held approximately 37% of Ally Financial’s common stock.551 On January 23, 2014, Treasury sold 410,000 shares of Ally Financial common stock for approximately $3 billion in a private placement, after which its ownership stake was reduced from 63% to 37% of the company’s stock. The stock sold at $7,375 per share.552 Following this, Treasury announced it would sell 95 million shares of common stock for $2.4 billion in Ally’s IPO on April 10, 2014, further reducing the taxpayer’s share to 82,311,010 shares, or 17%. These shares would need to sell at $50 each to recover the outstanding principal owed to taxpayers of $4.1 billion. The IPO also included an option to sell an additional 14.3 million of Treasury’s shares.553 On November 20, 2013, Ally paid 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.554 As of March 31, 2014, Ally Financial had made three principal payments for a total of $10.7 billion to Treasury since receiving bailout assistance almost five years ago.555 The company also had paid a total of $3.7 billion in quarterly dividends to Treasury through March 31, 2014, as required by the terms of the preferred stock that Ally Financial issued to Treasury.556 Ally Financial received $17.2 billion in three separate direct injections of TARP funds, plus a TARP-funded capital injection from GM. 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 $2,500.557 In January 2009, Treasury loaned GM $884 million to invest in GMAC.558 In May 2009, Treasury exchanged this $884 million debt for a 35% common equity ownership in GMAC.559 On May 21, QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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 $75,000.560 On December 30, 2009, Treasury invested another $3.8 billion in GMAC, and Treasury received $2.5 billion in trust preferred securities (“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.561 Additionally, Treasury converted $3 billion of its MCP into GMAC common stock, increasing its common equity ownership from 35% to 56%.562 On May 10, 2010, GMAC changed its name to Ally Financial Inc.563 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%.564 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.565 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.566 Later, GM’s interests were consolidated in the trust and on December 12, 2013, GM sold its stake for $0.9 billion.567 As of March 27, 2014, Treasury held a 37% stake in Ally’s common stock, and Third Point Loan LLC and Cerberus held 9.5% and 8.7%, respectively.568 Ally Financial Sells Some Stock in Private Placement; Repurchases Preferred Shares from Treasury On November 20, 2013, Ally Financial closed two transactions that reduced Treasury’s stake in the company from 74% to 63%.569 In one transaction, Ally Financial completed a private placement of 216,667 shares of its common stock for an aggregate purchase price of $1.3 billion. In the other transaction, Ally Financial repurchased from Treasury all of its MCP and also terminated Treasury’s existing share adjustment right associated with those shares.570 Ally said it paid 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.571 According to Treasury, under new agreements associated with these transactions, Treasury had the right to designate a majority of the Ally Financial Board of Directors as long as its ownership stake exceeded 50%, which it no longer does.572 As of March 31, 2014, Treasury had designated six of the 11 directors.573 On December 23, 2013, Ally Financial announced that the Federal Reserve had granted the company financial holding company status, permitting it to engage in a broader range of business activities, while continuing to operate its insurance and remarketing businesses.574 In addition, on March 24, 2014 the Federal Reserve announced that Ally Financial had passed its CCAR “stress test.”575 223 224 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Ally Financial IPO On April 9, 2014, Treasury announced an initial public offering (IPO) of Ally Financial common stock, reporting that it would sell 95 million shares of Ally stock with an option for the purchase of an additional 14.3 million of Treasury’s shares.576 Treasury reported that the shares would be offered at $25 per share for $2.375 billion in proceeds. In addition, Treasury granted a 30-day option to purchase the additional shares, which traded on the New York stock exchange.577 Ally had announced its IPO plans as early as March 31, 2011, by filing a Form S-1 Registration statement for an IPO with the Securities and Exchange Commission (“SEC”).578 The document includes a prospectus relating to the issuance of Ally Financial common stock.579 The prospectus also outlines certain aspects of Ally Financial’s business operations and risks facing the company.580 Ally Financial disclosed additional details about its IPO in several amended Form S-1 Registration statements filed over time with the SEC, the most recent on March 27, 2014.581 Ally Financial Released from Mortgage Claims of Bankrupt Subsidiary 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.582 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.583 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.584 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.585 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 when the reorganization plan became effective.586 The U.S. Bankruptcy Court approved the ResCap reorganization plan on December 11, 2013, marking the court’s formal approval of broad releases for all mortgage-related claims against Ally Financial. The plan became effective December 17, 2013.587 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.588 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.589 Ally Financial also has said it expects the sale of a joint venture stake in China to close in 2014.590 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.591 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.592 Both sales were completed on April 17, 2013, according to Ally Bank, which said it received a combined $850 million in proceeds from the transactions.593 Table 2.47 summarizes Ally Financial’s international and domestic asset sales. TABLE 2.47 ALLY FINANCIAL - 2013 ASSET SALES ($ MILLIONS) Sale Proceeds Buyer Sale Closed $4,100 Royal Bank of Canada 2/1/13 N/A Walter Investment Management 2/28/13 $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 Ally Credit Canada, ResMor Trust Ally Bank wholesale mortgage unit Units in Latin America, Europe, China Total Proceeds: $9,026 Notes: Numbers may not total due to rounding. a The closing on 4/2/2013 did not include China assets, which are expected to close in 2014. Sources: Ally Financial SEC filings, press releases. Chrysler 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: $4 billion before bankruptcy to CGI Holding LLC, parent of Chrysler and Chrysler Financial; $1.9 billion in financing to Chrysler during bankruptcy; and $6.6 billion to Chrysler afterwards, in exchange for 10% of Chrysler common equity.594 In 2010, following the bankruptcy court’s approval of Chrysler’s liquidation plan, the $1.9 billion loan was extinguished without repayment.595 As of March 31, 2014, Treasury had recovered approximately $57.4 million from asset sales during bankruptcy.596 Of the $4 billion lent to Chrysler’s parent company, CGI Holding LLC, $500 million of the debt was assumed by Chrysler while the remaining $3.5 billion was held by CGI Holding LLC.597 Treasury later accepted $1.9 billion in full satisfaction of the $3.5 billion loan.598 225 226 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM In spring 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.599 In mid-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 (“UAW”) retiree trust pertaining to the trust’s shares in Chrysler.600 As of July 21, 2011, the Chrysler entities had made approximately $1.2 billion in interest payments to Treasury under AIFP.601 Chrysler Financial Chrysler Financial fully repaid the TARP investment, which included a Treasury loan of $1.5 billion to support Chrysler Financial’s retail lending in January 2009. On July 14, 2009, Chrysler Financial fully repaid the loan in addition to approximately $7.4 million in interest payments.602 Additionally, on May 14, 2010, Treasury accepted $1.9 billion in full satisfaction of a $3.5 billion loan to CGI Holding LLC, relinquishing any claim on Chrysler Financial.603 On December 21, 2010, TD Bank Group agreed to purchase Chrysler Financial from Cerberus, the owner of CGI Holding LLC, for approximately $6.3 billion completing its acquisition on April 1, 2011.604 Auto Supplier Support Program (“ASSP”) and Auto Warranty Commitment Program (“AWCP”) On March 19, 2009, Treasury committed $5 billion to ASSP to “help stabilize the automotive supply base and restore credit flows,” with loans to GM ($290 million) and Chrysler ($123.1 million) fully repaid in April 2010.605 AWCP guaranteed Chrysler and GM vehicle warranties during the companies’ bankruptcy, with Treasury obligating $640.8 million — $360.6 million for GM and $280.1 million for Chrysler, both fully repaid to Treasury.606 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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”).607 Treasury initially obligated $4.3 billion in TARP funds to purchase and manage loan collateral from any TALF loans that defaulted.608 As of February 6, 2013, all TARP funding for TALF was either deobligated or repaid.609 Of the $71.1 billion in TALF loans, none have defaulted and $82 million remained outstanding as of March 31, 2014.610 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.611 As of March 31, 2014, the entire PPIP portfolio had been liquidated, and six PPIP funds were legally dissolved while the other two were winding down operations.612 Through the UCSB loan support initiative, Treasury purchased $368.1 million in 31 SBA 7(a) securities, which are securitized small-business loans.613 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.614 TALF TALF, which was announced in November 2008, issued loans collateralized by eligible ABS.615 According to FRBNY, TALF was “designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and business ABS.”616 TALF is divided into two parts:617 • 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. 227 228 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. Custodian Bank: Bank holding the collateral and managing accounts for FRBNY; for TALF the custodian is Bank of New York Mellon. The asset disposition facility, TALF LLC, is managed by FRBNY and remains in operation until final TALF loans mature on March 11, 2015.618 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.619 TALF LLC’s funding originated from a fee charged to FRBNY for the commitment to purchase any collateral surrendered by the borrowers. This fee was derived from the principal balance of each outstanding TALF program loan.620 As of March 31, 2014, $82 million in TALF loans was outstanding.621 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.622 Lending Program TALF’s lending program made secured loans to eligible borrowers.623 The loans were issued with terms of three or five years and were available for non-mortgagebacked ABS, newly issued CMBS, and legacy CMBS.624 The final maturity date of loans in the TALF portfolio is March 11, 2015.625 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”).626 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.627 Newly issued CMBS had to be issued on or after January 1, 2009, while legacy CMBS were issued before that date.628 Loan Terms TALF participants were required to use a TALF agent to apply for a TALF loan.629 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.630 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.631 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.632 FRBNY lent each borrower the amount of the market price of the pledged collateral minus the haircut, subject to certain limitations.633 The borrower delivered the collateral to the custodian bank, which collected payments generated QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 by the collateral and distributed them to FRBNY (representing the borrower’s payment of interest on the TALF loan).634 Any excess payments from the collateral above the interest due and payable to FRBNY on the loan go to the TALF borrower.635 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.636 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.637 As of February 6, 2013, all TARP funding for TALF was either deobligated or repaid.638 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 March 31, 2014, $31.6 million was outstanding, all in student loans.639 Table 2.48 lists all TALF loans collateralized by non-mortgage-backed ABS, by ABS sector. TABLE 2.48 TALF LOANS BACKED BY ABS (NON-MORTGAGE-BACKED COLLATERAL) ($ 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 ABS 8.9 $59.0 Notes: Numbers may not total due to rounding. Data as of 3/31/2014. Sources: FRBNY, “Term Asset-Backed Securities Loan Facility: non-CMBS,” no date, www.newyorkfed.org/markets/talf_operations. html, accessed 4/1/2014; FRBNY, “Term Asset-Backed Securities Loan Facility: non-CMBS,” no date, www.newyorkfed.org/markets/ TALF_recent_operations.html, accessed 4/1/2014. 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.640 As of March 31, 2014, $50.4 million was outstanding.641 Table 2.49 includes all TALF CMBS loans. 229 230 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.49 TALF LOANS BACKED BY CMBS ($ BILLIONS) Type of Collateral Assets Newly Issued CMBS $0.1 Legacy CMBS 12.0 Total CMBS $12.1 Notes: Numbers may not total due to rounding. Data as of 3/31/2014. Sources: FRBNY, “Term Asset-Backed Securities Loan Facility: CMBS,” no date, www.newyorkfed.org/markets/cmbs_operations. html, accessed 4/1/2014; FRBNY, “Term Asset-Backed Securities Loan Facility: CMBS,” no date, www.newyorkfed.org/markets/ CMBS_recent_operations.html, accessed 4/1/2014. 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 11, 2015.642 The outstanding TALF loans consist of $50.4 million in loans collateralized by CMBS and $31.6 million in loans collateralized by student loans. The remaining $82 million worth of TALF loans will mature by the final maturity date of March 11, 2015.643 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.644 As of March 31, 2014, $71 billion in TALF loans had been repaid. According to FRBNY, the outstanding collateral on the remaining $82 million in TALF loans was performing as expected.645 Asset Disposition Facility When FRBNY created TALF LLC, TARP loaned the facility $100 million.646 As of March 31, 2014, the $100 million had been repaid in full along with $13 million in interest, according to Treasury.647 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%).648 As of March 31, 2014, Treasury had received $576.6 million in additional gains and FRBNY had received $64.1 million.649 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 March 31, 2014, TALF LLC had assets of $105 million, which consisted of interest and other income and fees earned from permitted investments.650 From its February 4, 2009, formation through March 31, 2014, TALF LLC had spent approximately $3.2 million on administration.651 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, 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.652 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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”).653 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.”654 Treasury selected nine fund management firms to establish PPIFs. One PPIP manager, TCW, subsequently withdrew. As of March 31, 2014, the entire PPIP portfolio had been liquidated, and six PPIP funds were legally dissolved while the other two were winding down operations. Private investors and Treasury coinvested 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.655 Each PPIF was approximately 75% TARP funded. 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.656 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 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 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. 231 232 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM that secure the non-agency RMBS and CMBS); and purchased from financial institutions eligible for TARP participation.657 PPIP Process Funds chosen to participate in PPIP raised private capital, which Treasury matched on a three to one basis (one part equity and two parts debt) up to a preset maximum set by Treasury. 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.658 After obtaining the funds, PPIP managers were required to provide monthly portfolio reports to Treasury and other investors.659 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 $22.4 billion in a combination of matching equity funds and debt financing for PPIP, which included funds for TCW, which subsequently withdrew from the program. Table 2.50 shows equity and debt committed by Treasury for the eight PPIFs that actively participated in the program. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 2.50 PUBLIC-PRIVATE INVESTMENT PROGRAM COMMITTED PURCHASING POWER Manager AG GECC PPIF Master Fund, L.P. ($ 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. Two funds were winding down operations and had not been legally dissolved as of March 31, 2014: AG GECC and Marathon. 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, 3/19/2014; Treasury, Transactions Report, 3/31/2011; Treasury, response to SIGTARP data call, 4/9/2014. 233 234 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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.660 During that investment period, the program sought to maintain “predominantly a long-term buy and hold strategy.”661 The investment periods for all PPIFs expired in 2012.662 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.663 However, by June 30, 2013, all PPIP managers had liquidated their portfolios. 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.664 The last fund’s investment period ended in December 2012.665 Treasury also disbursed $356.3 million to TCW, which TCW fully repaid in early 2010 when it withdrew from the program.666 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.667 All unused TARP debt financing has been deobligated by Treasury.668 Unused TARP equity financing is deobligated when each fund is legally dissolved. 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.669 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 March 31, 2014. The PPIP managers wound down their portfolios as follows: • In June 2013, Oaktree liquidated its remaining PPIP investments.670 According to Treasury, Oaktree fully repaid Treasury’s equity investment of $555.9 million and Treasury debt of $1.1 billion, with interest. On December 31, 2013, Oaktree filed a formal certificate with the state of Delaware declaring that its PPIF had been dissolved.671 • In June 2013, Marathon liquidated its remaining PPIP investments.672 According to Treasury, Marathon fully repaid Treasury’s equity investment of $474.6 million and Treasury debt of $949 million, with interest. As of March 31, 2014, Marathon had made its final distribution but had not completed dissolving the fund.673 • In May 2013, AG GECC liquidated its remaining PPIP investments.674 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 March 31, QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 • • • • • 2014, AG GECC’s PPIF still had approximately $3.5 million in cash to pay for wind-down expenses.675 In February 2013, Wellington liquidated its remaining PPIP investments.676 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.677 In November 2012, BlackRock liquidated its remaining PPIP investments.678 According to Treasury, BlackRock fully repaid Treasury’s equity investment of $528.2 million and Treasury debt of $1.1 billion, with interest.679 On December 20, 2013, BlackRock filed a formal certificate with the state of Delaware declaring that its PPIF had been dissolved.680 In September 2012, AllianceBernstein liquidated its remaining PPIP investments.681 According to Treasury, AllianceBernstein fully repaid Treasury’s equity investment of $1.1 billion and its Treasury debt of $2.1 billion, with interest.682 On August 23, 2013, AllianceBernstein filed a formal certificate with the state of Delaware declaring that its PPIF had been dissolved.683 In October 2012, RLJ Western liquidated its remaining PPIP investments.684 According to Treasury, RLJ Western fully repaid Treasury’s equity investment of $620.6 million and Treasury debt of $1.2 billion, with interest.685 On December 31, 2012, RLJ Western filed a formal certificate with the state of Delaware declaring that its PPIF had been dissolved.686 Invesco was the first of the PPIP funds to sell its portfolio, liquidating it in March 2012.687 According to Treasury, Invesco fully repaid Treasury’s equity investment of $581 million and Treasury debt of $1.2 billion, with interest.688 On October 3, 2012, Invesco filed a formal certificate with the state of Delaware declaring that its PPIF had been dissolved.689 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 March 31, 2014, as well as $87 million in warrant proceeds.690 Table 2.51 shows each fund’s payments to Treasury through March 31, 2014. 235 236 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM TABLE 2.51 PPIP MANAGERS’ PAYMENTS TO TREASURY, AS OF 3/31/2014 ($ 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 34 528 395 10 Invesco Legacy Securities Master Fund, L.P. 1,162 18 581 139 3 949 28 475 364 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 $3,479 $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. Two funds were winding down operations and had not been legally dissolved as of March 31, 2014: AG GECC and Marathon. a In April 2012, Treasury reclassified about $1 billion in combined payments from five PPIFs as equity capital payments instead of equity distributions. b Treasury received equity warrants from the PPIFs, which give Treasury the right to receive a percentage of any profits that would otherwise be distributed to the private partners in excess of their contributed capital. Sources: Treasury, Transactions Report, 3/19/2014; Treasury, response to SIGTARP data call, 4/9/2014; Treasury, Dividends and Interest Report, 4/10/2014. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Securities Purchased by PPIFs According to their agreements with Treasury, PPIP managers invested in both RMBS and CMBS, except for Oaktree, which invested only in CMBS.691 Figure 2.42 shows the collective value of securities held by all PPIFs at the end of each calendar quarter from the beginning of the funds’ investment period, until all securities were sold in the quarter ended June 30, 2013, broken down by RMBS and CMBS. FIGURE 2.42 INVESTMENTS BY PPIP FUNDS, 2009–2013 ($ 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 2.43 breaks down CMBS investment distribution by sector from December 31, 2009 through June 30, 2013. 237 238 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.43 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:692 • 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.693 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 • 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.694 • 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 2.44 and Figure 2.45 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 2.44 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. 239 240 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.45 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. Figures 2.46 and 2.47 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FIGURE 2.46 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 2.47 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. 241 242 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Non-agency RMBS and CMBS can be classified geographically, according to the states where the underlying mortgages are held. Figures 2.48 and 2.49 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 31, 2009 through June 30, 2013. FIGURE 2.48 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 FIGURE 2.49 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. Figures 2.50 and 2.51 show the distribution of non-agency RMBS and CMBS investments held in PPIP by delinquency levels, as reported by PPIP managers from December 31, 2009, through June 30, 2013. 243 244 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM FIGURE 2.50 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 2.51 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.695 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.696 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.697 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.698 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.699 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.700 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. 245 246 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM SECT IO N 3 BANKS AND CREDIT UNIONS IN TARP’S CDCI PROGRAM FACE CHALLENGES 248 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 INTRODUCTIONi TARP’s Capital Purchase Program bailout of 707 banks is well known, but there is a lesser known TARP bailout of 36 small banks and 48 credit unions called the Community Development Capital Initiative (“CDCI”) that will likely continue until at least 2018. Although the program itself is much smaller than CPP and the participating institutions are small, they play a vital role in serving low-income communities not traditionally served by larger institutions. In February 2010, in a release announcing “New Efforts to Improve Access to Credit for Small Businesses,” the Administration announced that CDCI would support “small business lending in the hardest-hit rural and urban communities by making lowcost capital available.” The announcement stated that CDCI and the non-TARP Small Business Lending Fund were new measures as “part of an ongoing effort to help small businesses access credit and create jobs.” This report is designed to raise awareness of the challenges that these banks and credit unions face and the need for careful oversight by Treasury, which oversees CDCI and taxpayer investments in these companies. The financial stability of CDCI banks and credit unions must be an ongoing concern to Treasury as a long-term investment in the financial recovery of small businesses in underserved communities. Treasury’s oversight over the financial stability of CDCI institutions cannot solely be viewed as ending at the time it made TARP investments, because it made those investments with a specific and important goal that must be measured and met to help small businesses. Treasury’s Office of Financial Stability that administers TARP should keep careful watch over the financial stability of these institutions the entire time they are in TARP so that these institutions can lend to small businesses while getting themselves in a position to repay TARP. Treasury needs to conduct adequate oversight over these institutions to ensure that the purpose of the program, to increase small business lending in hard hit communities, is met, and to work with CDCI institutions and their regulators to ensure that eventually they will be able to stand on their own, financially stable, without taxpayer assistance. Although announced as a separate TARP program, Treasury allowed banks already in TARP’s CPP to apply for CDCI funds with the idea that these banks would promote small business lending in their communities. Treasury made the decision in 2010 that 81% of the $570.1 million in TARP money for CDCI would go to 28 banks already in TARP’s CPP and the great majority of those funds ($363.3 million) would be used to convert the CPP obligation to a CDCI obligation. These 28 TARP banks in CPP that converted to CDCI got two significant benefits. First, they got TARP funds at a cheaper cost because the dividend they pay to Treasury decreased from 5% to 2%. Second, they got to keep that low dividend for eight years (2018), rather than for the five-year term in CPP (2014-2015). Only $106 million of the $570.1 million invested by CDCI went to i The Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) is issuing this report under the Emergency Economic Stabilization Act. The report is based on SIGTARP internal information. It is not an audit or evaluation under the Inspector General Act of 1978, as amended. 249 250 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM institutions that were not already in TARP.701 Because these banks received a great benefit from converting to CDCI, and Treasury agreed to accept less in dividend payments, it is vitally important that Treasury ensure that these institutions earn those benefits by meeting the goal of the program to promote small business lending in their communities. Otherwise, taxpayers will have been paid less in dividend payments, with little benefit. Unlike the smaller banks in CPP that have already faced or will soon face the dividend increase and are scrambling to raise capital or debt to repay TARP or face Treasury auctioning their shares, the banks and credit unions in CDCI could be in TARP for many years to come. Whereas in CPP the TARP dividend rate began increasing to 9% after five years (beginning in 2014 for many banks), putting pressure on banks to repay TARP, the dividend rate for CDCI banks and credit unions does not rise to 9% until 2018. Only 14 CDCI institutions have been able to repay TARP and an additional bank exited the program via bankruptcy. The 69 banks and credit unions remaining in CDCI as of March 31, 2014, continue to face challenges that could impact their financial stability, ability to lend to small businesses in their communities, and their ability to repay TARP. Community banks continue to have difficulty in gaining access to capital. Credit unions have experienced a rise in non-performing loans, which impacts their balance sheet and capital. Eight of the remaining CDCI institutions have current enforcement actions by their Federal banking regulator.702 Moreover, many of the CDCI institutions are in economically hard-hit areas around the country that are still struggling to recover from the crisis. Because of these challenges, it is especially important that Treasury keeps a watchful eye on taxpayer investments in CDCI institutions. These small banks and credit unions do not disclose the same amount of information about their health and performance as larger banks. However, Treasury and the public have a tool designed to provide some transparency on the financial stability of these institutions. In December 2008, SIGTARP recommended that Treasury require TARP recipients to report quarterly on their use of TARP funds. While Treasury did not require CPP banks to comply with this requirement, in 2010 they began sending annual surveys to CPP banks asking for voluntary responses, and they required annual reporting for CDCI participants. Never once has Treasury received 100% compliance. In other words, never in the history of the program have all the banks and credit unions in CDCI complied with the mandatory requirement to report on how they used the TARP funds. Eight banks and credit unions in CDCI have never told Treasury how they used TARP funds, despite being required to do so in the contract they signed to get the TARP money. Worse yet is that Treasury does not enforce its contract, a fact which does not go unnoticed by the CDCI institutions. The number of survey responses that CDCI institutions actually submitted to Treasury has decreased dramatically; from 83% reporting in 2010, to 74% in 2011, and only 33% in 2012.703 As a result, Treasury and the public do not know what these TARP funds were actually used for, or have access to other information requested in the surveys that could provide insight into the financial stability of these institutions. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Treasury also has access to another key piece of information that would shed light on the financial stability of CDCI institutions, which is whether those institutions are paying timely dividend payments to Treasury and the reason why delinquent institutions missed dividend payments. Given the low 2% dividend rate, missed dividends can provide important insight into a bank or credit union’s health. This is particularly true if the institution misses five payments to Treasury, which would trigger Treasury’s policy of sending observers to board meetings of the institutions, or eight payments which triggers Treasury’s right to appoint two directors to the board. Attendance at the board meetings can provide a wealth of information to Treasury on the financial stability of the CDCI institution, which impacts their ability to meet the program’s goals, their ability to pay dividends, and their ability to repay TARP. However, Treasury did not request to send an observer to one CDCI bank that had missed six payments. That bank later failed. Treasury has failed to appoint directors to the board of one CDCI institution that had converted from CPP and has missed 12 dividend payments. SIGTARP previously recommended that Treasury enforce this important right that could help provide independent and experienced board members who could provide effective internal oversight and help detect any potential mismanagement or fraud.704 CDCI INSTITUTIONS FACE CHALLENGES THAT COULD IMPACT THEIR FINANCIAL STABILITY, ABILITY TO LEND TO SMALL BUSINESSES, AND ABILITY TO REPAY TARP Limited Access to Capital CDCI provided capital to smaller community banks that had limited access to capital through other means. Banks with assets under $1.5 billion do not have access to capital from private equity firms, mutual funds, foundations, and other institutional investors. “Capital offerings for less than $20 million to $30 million are often too small for many institutional investors regardless of structure or investment thesis. Institutional investors have fixed costs to cover and deal size minimums. They simply cannot monitor an unlimited number of small investments, no matter how promising,” according to a white paper by the Conference of State Bank Supervisors.705 Institutional investors also want a bank to have a business plan that allows the investors to eventually realize gains through a stock offering or by selling the bank to a larger institution. Capital is a measure of a bank’s health and strength. Capital is necessary to build stronger balance sheets and absorb unexpected losses. CDCI institutions at the same time are expected to provide small businesses in their communities with access to capital. Small banks in CPP continue to experience problems with access 251 252 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM to capital, which has become a challenge to their ability to repay TARP. CDCI institutions may face the same challenge. Rise of Non-Performing Loans at Credit Unions Credit unions, including CDCI participants, experienced slow to no loan growth between 2009 and 2011, but saw loan delinquencies and loan charge-offs increase.706 Pre-crisis, in 2006, 0.68% of credit union loans were more than 60 days past due.707 By 2008 loan delinquency rates more than doubled to 1.37% and were even higher the following year at 1.82%.708 In 2011, the rate of delinquencies started to decrease slowly to 1.75%.709 In 2012, loan delinquency rates dropped to 1.15%, but are still nowhere near the pre-financial crisis rate of 0.68%.710 Similarly, net loan charge-offs in 2006 accounted for 0.45% of credit union loans, and that number grew almost three-fold to 1.21% by 2009.711 As of 2012, the net charge off rate was at 0.73%, which was nearly double the 2006 rate.712 Regulatory Orders Eight of the remaining 69 CDCI institutions (12%) have current enforcement actions by their Federal banking regulator.713 The enforcement actions include sanctions against personnel, formal agreements and consent orders, and sanctions due to Home Mortgage Disclosure Act (HMDA) violations. Four of those enforcement actions, including sanctions against personnel for two institutions, were issued after the institutions had received TARP funds through CDCI.714 Hardest Hit Communities The CDCI recipients were specifically chosen because the communities they serve are the hardest hit rural and urban communities. This continues to present challenges as many of those communities, including states such as Mississippi, California, Illinois, Louisiana, and New York have not yet recovered. The largest concentration of CDCI outstanding funds, by far, is in the Southeast with $290 million outstanding. The Mid-Atlantic/Northeast region and the Southeast continue to have the largest number of remaining CDCI institutions, 21 and 19 remaining respectively. Ten CDCI institutions are in one state – Mississippi.715 The West and Mid-Atlantic/Northeast regions have a considerably larger number of CDCI credit unions than CDCI banks; 11 of the 13 remaining institutions in the West and 16 of the 21 remaining institutions in the Mid-Atlantic/Northeast region are credit unions.716 The opposite is true in the Southeast, where 16 of the 19 remaining CDCI institutions are banks.717 Tables 3.1 through 3.7 show banks and credit unions remaining in CDCI by region and state as of March 31, 2014. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TABLE 3.1 BANKS AND CREDIT UNIONS WITH CDCI PRINCIPAL REMAINING, BY REGION, AS OF 3/31/2014 Original Number of Participants Remaining Number of Participants Remaining Investment Remaining Number of Banks Remaining Number of Credit Unions 24 21 67,151,000 5 16 Mid-Atlantic/Northeast Southeast 22 19 289,885,000 16 3 West 14 13 $26,799,000 2 11 Southwest/South Central 11 8 58,199,000 2 6 Midwest 11 8 26,432,000 4 4 2 0 0 0 0 84 69 $468,466,000 29 40 Mountain West/Plains Total Source: Treasury, Transactions Report, 3/19/2014. FIGURE 3.1 AMOUNT OF CDCI PRINCIPAL INVESTMENT REMAINING, BY REGION, AS OF 3/31/2014 AK MOUNTAIN WEST/ PLAINS $0 WA MT OR ID WEST $22 MILLION GU HI CA NV ND WY MN AZ WI SD CO IL KS OK NM MO AR NY OH IN PA WV VA KY ME MID-ATLANTIC/ NORTHEAST $67 MILLION NH MA CT RI NJ DE MD NC TN MS AL TX VT MI IA NE UT MIDWEST $26 MILLION SC GA SOUTHEAST $290 MILLION LA FL SOUTHWEST/ SOUTH CENTRAL $58 MILLION WEST MOUNTAIN WEST/PLAINS SOUTHWEST/SOUTH CENTRAL MIDWEST MID-ATLANTIC/NORTHEAST SOUTHEAST PR 253 254 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Mid-Atlantic/Northeast TABLE 3.2 BANKS AND CREDIT UNIONS WITH CDCI PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 ME VT NH MA NY CT NJ DE MD DC PA WV VA WV MID-ATLANTIC/ NORTHEAST RI >$10 million $1 million-$10 million $1-$1 million $0 Principal investment remaining in CDCI banks Original Number of Participants Remaining Number of Participants Remaining Investment Remaining Number of Banks Remaining Number of Credit Unions CT 1 1 $7,000 0 1 DC 3 3 13,303,000 2 1 NJ 2 1 31,000 0 1 NY 13 12 42,660,000 2 10 PA 1 1 100,000 0 1 VA 3 2 9,959,000 1 1 VT 1 1 1,091,000 0 1 24 21 $67,151,000 5 16 Total Source: Treasury, Transactions Report, 3/19/2014. Southeast TABLE 3.3 BANKS AND CREDIT UNIONS WITH CDCI PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 NC TN MS AL AL SC GA PR FL SOUTHEAST Principal investment remaining in CDCI banks Remaining Number of Participants Remaining Investment Remaining Number of Banks Remaining Number of Credit Unions 3 3 $16,698,000 2 1 GA 2 2 15,213,000 2 0 MS 12 10 220,444,000 9 1 NC 3 2 12,735,000 1 1 SC 1 1 22,000,000 1 0 TN >$10 million $1 million-$10 million $1-1 million $0 Original Number of Participants Total 1 1 2,795,000 1 0 22 19 $289,885,000 16 3 Source: Treasury, Transactions Report, 3/19/2014. 255 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 West TABLE 3.4 BANKS AND CREDIT UNIONS WITH CDCI PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 WA AK OR GU Original Number of Participants Remaining Number of Participants Remaining Investment Remaining Number of Banks Remaining Number of Credit Unions AK 1 1 $1,600,000 0 1 CA 9 8 21,503,000 2 6 GU 1 1 2,650,000 0 1 HI 2 2 971,000 0 2 WA 1 1 75,000 0 1 14 13 $26,799,000 2 11 Total CA Source: Treasury, Transactions Report, 3/19/2014. HI WEST Principal investment remaining in CDCI banks >$10 million $1 million-$10 million $1-$1 million $0 Southwest/South Central TABLE 3.5 BANKS AND CREDIT UNIONS WITH CDCI PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 AZ OK NM TX AR LA Original Number of Participants Remaining Number of Participants Remaining Investment Remaining Number of Banks Remaining Number of Credit Unions AR 1 1 $33,800,000 1 0 AZ 1 1 2,500,000 0 1 LA 6 4 18,204,000 1 3 TX 3 2 3,695,000 0 2 11 8 $58,199,000 2 6 Total SOUTHWEST/ SOUTH CENTRAL Principal investment remaining in CDCI banks >$10 million $1 million-$10 million $1-$1 million $0 Source: Treasury, Transactions Report, 3/19/2014. 256 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Midwest TABLE 3.6 BANKS AND CREDIT UNIONS WITH CDCI PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 MN WI MI IA MO Remaining Investment Remaining Number of Banks Remaining Number of Credit Unions IL 7 6 $25,193,000 4 2 IN 2 2 1,239,000 0 2 MN 1 0 0 0 0 Total KY MIDWEST Remaining Number of Participants WI OH IN IL Original Number of Participants 1 0 0 0 0 11 8 $26,432,000 4 4 Source: Treasury, Transactions Report, 3/19/2014. >$10 million $1 million -$10 million $1-$1 million $0 Principal investment remaining in CDCI banks Mountain West/Plains TABLE 3.7 BANKS AND CREDIT UNIONS WITH CDCI PRINCIPAL REMAINING, BY STATE, AS OF 3/31/2014 MT ID NV ND WY SD NE UT CO MOUNTAIN WEST/ PLAINS Principal investment remaining in CDCI banks Original Number of Participants Remaining Number of Participants Remaining Investment Remaining Number of Banks Remaining Number of Credit Unions MT 1 0 $0 0 0 WY 1 0 0 0 0 Total 2 0 $0 0 0 Source: Treasury, Transactions Report, 3/19/2014. KS >$10 million $1 million-$10 million $1-$1 million $0 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 CDCI Recipients Need New Capital and Financial Stability to Exit TARP Community banks and credit unions in CDCI provide a financial lifeline to underserved communities. Both Treasury and taxpayers have an interest in ensuring that CDCI institutions remain financially stable so that they can help their communities recover by loaning funds to small businesses, and eventually be strong enough to repay TARP. Given the challenges these banks and credit unions face, there is a need for careful oversight by Treasury over the financial stability of the institutions to ensure that the purpose of the CDCI program, to promote small business lending, continues to be met and to increase the likelihood that taxpayers are repaid in full. Treasury’s oversight over the financial stability of these institutions cannot solely be viewed in the past, as a one-time capital investment. Treasury’s TARP investments in CDCI banks and credit unions were long-term investments in the financial recovery of underserved communities. In addition, to exit TARP, banks must obtain the approval of their primary Federal banking regulator, which determines if an institution is strong enough to maintain adequate capitalization after repaying TARP. Fourteen institutions in CDCI have repaid TARP and one bank has exited the program as a result of bankruptcy as of March 31, 2014. Treasury must maintain careful oversight over the financial stability of the remaining CDCI recipients the entire time they are in TARP so that these banks and credit unions can lend to small businesses while getting themselves in a position to repay TARP and be financially stable without taxpayer assistance. BANKS AND CREDIT UNIONS IN CDCI ARE NOT REPORTING ON THEIR USE OF TARP FUNDS, WHICH HINDERS TRANSPARENCY, OVERSIGHT AND TREASURY’S ABILITY TO JUDGE WHETHER, THE GOALS OF THE PROGRAM ARE BEING MET Because of the challenges CDCI institutions face, it is especially important that Treasury keep a watchful eye on taxpayer investments in CDCI institutions. Small banks and credit unions do not disclose the same amount of information about their health and performance as larger banks. However, Treasury has an important source of information about the financial stability of CDCI institutions in the TARP requirement that these institutions respond annually to a Treasury survey on the use of TARP funds. However, many CDCI institutions have not complied with this requirement, refusing to provide transparency. Treasury has not enforced the disclosure, thereby losing an important tool to gain information on the CDCI institutions. Because Treasury did not put limitations in its TARP contracts with institutions on how they could use TARP funds, one of the first recommendations that 257 258 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM SIGTARP made to Treasury was that Treasury require all TARP recipients to report on the actual use of TARP funds they received. As a result, when Treasury invested TARP dollars in institutions, it was entirely unclear what was done with the TARP money. TARP agreements generally did not require recipients to report or even to track internally the use of TARP funds, which posed two significant problems. First, it does not provide necessary basic transparency. It is not unreasonable to expect that American taxpayers, who were asked to fund the unprecedented bailout, and their representatives in Congress have some understanding as to how the recipients used the TARP funds. Second, the lack of transparency affects oversight because Treasury and SIGTARP cannot assess the effectiveness of TARP programs over time and are hindered in the ability to oversee certain recipients’ compliance with conditions of the TARP agreement. At the time of SIGTARP’s December 2008 recommendation, Treasury refused to adopt SIGTARP’s recommendation and did not believe that “requiring reports as to how the specific funds were spent would be meaningful, since it could never be said with certainty that particular funds were used for a particular purpose.” In February 2009, SIGTARP itself sent a survey to 360 TARP recipient banks in CPP (CDCI did not yet exist), asking them to report on their anticipated and actual use of TARP funds, a survey that had a 100% response rate. Every CPP bank responded to SIGTARP’s survey and SIGTARP found that despite Treasury’s argument that money is fungible, TARP banks were able to provide meaningful information on their use of TARP funds. Notably, 80% of the banks cited that they used the funds for lending, 40% reported that some of the TARP funds were used to maintain capital cushions, and some banks reported repaying outstanding loans, investing in mortgage-backed securities, or buying other banks. SIGTARP followed with another survey for the automotive companies bailed out by TARP and for AIG. SIGTARP posted every survey response on its website. One year after SIGTARP’s recommendation, in December 2009, Treasury finally agreed to act on SIGTARP’s recommendation to require CPP recipients to report on the use of TARP funds. However, Treasury made compliance voluntary for CPP recipients. On March 11, 2010, following Treasury’s February 3, 2010, announcement of CDCI, SIGTARP made a related recommendation for CDCI. SIGTARP then recommended that Treasury require quarterly reporting on the use of TARP funds for CDCI participants, rather than annual reporting, to more effectively emphasize the purpose of the program. Treasury rejected quarterly reporting, but did include a requirement in CDCI contracts that the recipient annually report on the use of their TARP funds and the effects of the TARP capital on the operations and status of the TARP recipient. Never in the history of the CDCI program have all 84 CDCI banks and credit unions complied with the contractual requirement to report annually to Treasury on their use of funds. Treasury, in other words, has never had a 100% response rate, even though SIGTARP was able to obtain a 100% response rate from 360 CPP institutions in 2009. Moreover eight banks and credit unions in CDCI have never told Treasury how they used TARP funds, despite being required to do so in QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 the contract they signed to get the TARP money. Table 3.8 lists the names of these institutions and the amount of TARP funds they received. TABLE 3.8 CDCI INSTITUTIONS THAT NEVER SUBMITTED USE OF FUNDS SURVEYS Institution TARP Investment Bancorp of Okolona, Inc. $3,297,000 Okolona D.C. Federal Credit Union Faith Based Federal Credit Union Greater Kinston Credit Union Neighborhood Trust Federal Credit Union Tri-State Bank of Memphis City 1,522,000 Washington 30,000 State MS DC Oceanside CA 350,000 Kinston NC 283,000 New York NY 2,795,000 Memphis TN Union Settlement Federal Credit Union 295,000 New York NY UNITEHERE Federal Credit Union (Workers United Federal Credit Union) 57,000 New York NY Source: Treasury, “Use of Capital Survey,” 2010, 2011, 2012. Despite this red flag, surprisingly Treasury has failed to enforce its contract and the requirement that all CDCI banks and credit unions report on their use of TARP funds, which likely has contributed to less and less compliance each year. Eight institutions have never responded to the survey. While 59 institutions have failed to respond to the survey at least once, 25 of those have failed to respond for two of the three years. The number of CDCI institutions that have met this contractual requirement of reporting annual use of TARP funds has decreased dramatically from year to year. For the year 2010 survey, 14 of the 84 CDCI recipients failed to report to Treasury on their use of TARP funds.718 For 2011, 22 of the 84 CDCI recipients failed to report to Treasury on their use of TARP funds.719 For 2012, the most recent annual data available, 67% (56) of the 84 recipients that had outstanding TARP funds at any point during that year failed to report to Treasury on their use of TARP funds.720 Simply put, the American people have a right to know how tax dollars are being spent. Without reporting on the use of TARP funds, Treasury, SIGTARP, and taxpayers are left in the dark, deprived of the transparency required by the terms of CDCI participation. Requiring institutions to report on their use of TARP funds is fundamental to making TARP transparent to the public. In addition, Treasury does not have access to important information that could provide insight into the financial stability of these TARP institutions. Prior disclosures by CDCI banks and credit unions shed light on TARP fund use and have provided important information related to charge-offs, capital, new investments, and other performance measures. The annual use of funds surveys are also a source by which Treasury can gauge whether the CDCI program is meeting its goals. It is critical to the oversight of CDCI that Treasury is aware of how these institutions are using TARP funds and whether the funds are being used to best promote the long-term financial stability 259 260 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM of these institutions and to support small businesses in the communities they serve. The White House announcement of CDCI entitled “President Obama Announces New Efforts to Improve Access to Credit for Small Businesses” stated that CDCI was a program to support small business lending. However, Treasury, when it gave the funds, did not require CDCI institutions to lend the TARP funds to small businesses. Even though Treasury did not restrict the use of TARP funds, it can use the results of the surveys to determine whether the goal of supporting small business lending has been met. However, in its survey to CDCI recipients, Treasury does not even ask about small business lending, instead asking about lending in general. To qualify for CDCI, an institution must have been certified by Treasury that at least 60% of its lending and other economic development activities are to underserved areas. However, Treasury should not assume that any increase in lending went to small businesses. Therefore, it is unclear how Treasury measures whether CDCI recipients actually increased small business lending. SIGTARP’s review of the CDCI survey responses showed that while approximately two-thirds of the banks responded that they either increased lending in general or did not decrease lending as much as they would have without the TARP funds, nearly one-third (29%) of the banks/credit unions in CDCI either answered “no”, left blank the lending question, or ignored Treasury’s survey. This included banks that were initially in CPP and converted to CDCI, thereby obtaining the benefit of an immediate reduction in their dividend payment rate from 5% to 2% and the ability to keep that low 2% rate for eight years rather than five years. If those institutions did not use the funds to increase small business lending, then it is unclear what they did to earn the benefit of that dividend rate reduction. Treasury’s ability to gauge the effectiveness of the CDCI program is hindered without information from those CDCI institutions that ignored Treasury’s survey. Moreover, it is unclear whether Treasury finds it acceptable to have nearly onethird of the CDCI recipients not reporting any increase in lending in general (or at least no decrease in lending). One of these CDCI participants for example, Carter Federal Credit Union in Louisiana, which received $6.3 million in TARP funding, reported no increase in lending, instead reporting, “the CDCI program allowed us to continue offering worthwhile dividends on our members’ share accounts without having to worry that additional asset growth might drag our Net Worth ratio below the 7.00% threshold.” TARP recipients’ reporting on how they used TARP funds also helps identify potential fraud and wrong doing. SIGTARP could use information included in the use of funds surveys in criminal investigations. In one public example, after a SIGTARP investigation, Darryl Lane Woods, the former Chairman and President of Calvert Financial Corporation, was convicted for misleading SIGTARP in its February 2009 survey about his bank’s use of TARP funds. In January 2009, the bank received $1,037,000 though CPP. SIGTARP was able to uncover that the bank used $381,487 of TARP funds, days after receiving them, to purchase a luxury seaside condominium in Fort Myers, Florida. Because Treasury had not included any restrictions on the use of TARP funds in the contract, this use of QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 TARP funds was not prohibited. However, one week later, Woods signed a letter responding to SIGTARP’s “use of funds” survey failing to disclose the purchase of the condominium. As part of his plea agreement, Woods admitted that he failed to disclose to SIGTARP that a significant portion of TARP funds had been used to purchase the condominium. CDCI INSTITUTIONS THAT MISSED TARP DIVIDENDS AND INTEREST PAYMENTS Treasury also has access to another piece of information that would shed some light on the financial stability of CDCI institutions, which is whether those institutions are paying timely dividend payments to Treasury, and if not, the reason why payments were missed.721,ii Given that a 2% dividend rate (some pay 3.1%) is very low, the fact that a bank or credit union missed paying the Treasury dividend can provide important insight into their health. This is particularly true if multiple payments are missed. As of March 31, 2014, two institutions had non-current unpaid dividends or interest payments to Treasury totaling $200,300.722 Table 3.9 lists the institutions that have ever missed payments to Treasury and those that were not current as of March 31, 2014. TABLE 3.9 CDCI-RELATED MISSED DIVIDEND AND INTEREST PAYMENTS, AS OF 3/31/2014 Number of Missed Payments Unpaid Dividends/ Interest Non-Current Dividends/ Interest Institution Dividend or Payment Type PGB Holdings, Inc. Cumulative 12 $180,000 $180,000 Premier Bancorp, Inc.* Interest 6 316,624 — Community Bank of The Bay Non-Cumulative 1 20,300 20,300 Tri-State Bank of Memphis Non-Cumulative —a 55,900 — Carver Bancorp, Inc. Cumulative a — 284,700 — First American International Corp. Cumulative —a 765,000 — First Vernon Bancshares, Inc. Cumulative —a 343,475 — Neighborhood Trust Federal Credit Union Credit Union Interest —a 4,245 — UNITEHERE Federal Credit Union (Workers United Federal Credit Union) Credit Union Interest —a 570 — Notes: Numbers may not total due to rounding. * On 3/23/2012, the subsidiary bank of Premier Bancorp, Inc. failed. a Institution later became current in accrued and unpaid dividends after missing initial scheduled payment date(s). Source: Treasury, Dividends and Interest Report, 4/10/2014. ii As of March 31, 2014, Treasury has received $38.3 million in dividends and interest from CDCI recipients. 261 262 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM In its TARP contracts with CPP and CDCI recipients, Treasury created a right to appoint up to two directors to the boards of those institutions that miss a required number of quarterly dividend payments (six for CPP and eight for CDCI). Treasury-appointed directors have value in their independence, and their experience helps them provide effective internal oversight and a contribution to CDCI institutions that face challenges with their condition, health, or existing board. In addition, a Treasury-appointed director’s experience and expertise could also help detect any potential mismanagement or fraud. On September 30, 2013, SIGTARP expressed concern and recommended to Treasury that Treasury enforce its important right to appoint directors to the boards of CPP and CDCI institutions. For example, although PGB Holdings, Inc. has missed more than eight TARP dividend payments, triggering Treasury’s right to appoint up to two directors to its board, Treasury has not enforced that right.723 PGB was a CPP bank that got the benefit of reducing its CPP dividend rate from 5% to 2% when it converted to CDCI, but now it has missed 12 of those payments. As explained in Section 5 of this report, Treasury has made some progress in implementing SIGTARP’s recommendation for CPP banks. It should continue to do so for CDCI recipients as well. Treasury can also have a significant impact just by making it clear that it intends to enforce these rights. Treasury’s policy is to have a Treasury employee observe the board meetings of CDCI recipients that have missed five dividend payments. Attendance at the board meetings can provide a wealth of information to Treasury on the financial stability of the CDCI institutions. Treasury made a request to send an observer to the board meetings of CDCI-participant First American International Corp. in February 2013. The bank rejected Treasury’s request, but subsequently paid the missing dividends.724 Treasury has only sent an observer to the board meetings of one CDCI bank, First Vernon Bancshares Inc., and since doing that, First Vernon paid the delinquent dividends. However, CDCI participant Premier Bank failed on March 23, 2012. Despite the fact that at the time of its failure Premier Bank had already missed six TARP dividend payments, Treasury had not made a request to place a Treasury observer at its board meetings. Treasury also never placed a Treasury official to observe PGB’s board meetings despite the bank missing 12 Treasury dividend payments. SECT IO N 4 TARP OPERATIONS AND ADMINISTRATION 264 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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.725 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.726 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 March 31, 2014, Treasury has obligated $408.9 million for TARP administrative costs and $1.2 billion in programmatic operating expenditures for a total of $1.6 billion since the beginning of TARP. Of that, $192.3 million has been obligated in the year since March 31, 2013. According to Treasury, as of March 31, 2014, it had spent $357.7 million on TARP administrative costs and $1 billion on programmatic operating expenditures, for a total of $1.4 billion since the beginning of TARP. Of that, $221.2 million has been spent in the year since March 31, 2013.727 Much of the work on TARP is performed by private vendors rather than Government employees. Treasury reported that as of March 31, 2014, it employs 38 career civil servants, 61 term appointees, and 22 reimbursable detailees, for a total of 121 full-time employees.728 Between TARP’s inception in 2008 and March 31, 2014, Treasury had retained 156 private vendors — 21 financial agents and 135 contractors — to help administer TARP.729 According to Treasury, as of March 31, 2014, 57 private vendors were active — 10 financial agents and 47 contractors, some with multiple contracts.730 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 December 31, 2013, together they had about 555 people dedicated to working on their TARP contracts.731 According to Treasury, as of December 31, 2013, or March 31, 2014 — the latest numbers available vary due to reporting cycles — at least another 186 people were working on other active OFS contracts, including financial agent and legal services contracts, for a total of approximately 741 private-sector employees working on TARP.732 Table 4.1 provides a summary of the expenditures and obligations for TARP administrative and programmatic operating costs through March 31, 2014. The administrative costs are categorized as “personnel services” and “non-personnel services.” Table 4.2 provides a summary of OFS service contracts, which include 265 266 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM costs to hire financial agents and contractors, and obligations through March 31, 2014, 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 3/31/2014 Ending 3/31/2014 Administrative Personnel Services Personnel Compensation & Benefits Total Personnel Services $127,590,590 $127,525,796 $127,590,590 $127,525,796 $2,442,392 $2,417,836 11,960 11,960 787,371 712,609 459 459 275,991,797 224,943,190 1,849,236 1,845,051 253,286 243,907 — — 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 $281,337,135 $230,175,646 Dividends and Interest Total Non-Personnel Services $408,927,135 $357,701,441 Programmatic Total Administrative $1,167,640,211 $1,026,613,256 Total Administrative and Programmatic $1,576,567,936 $1,384,314,697 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, 4/9/2014 and 4/15/2014. FINANCIAL AGENTS EESA requires SIGTARP to provide biographical information for each person or entity hired to manage assets acquired through TARP.733 Treasury hired no new financial agents in the quarter ended March 31, 2014.734 267 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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 $931,165 $931,165 Investment and Advisory Services Contract 2,635,827 2,635,827 The Bank of New York Mellon Corporation Custodian FAA Listing 59,496,769 56,157,931 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 119,771 119,771 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 268 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM OFS SERVICE CONTRACTS (CONTINUED) Date Vendor 1/6/2009 Securities and Exchange Commission 1/7/2009 Purpose Type of Transaction Obligated Value Expended Value Detailees Interagency Agreement $30,416 $30,416 Colonial Parking Inc. Lease of parking spaces Contract 347,634 244,017 1/27/2009 Cadwalader Wickersham & Taft LLP Bankruptcy Legal Services Contract 409,955 409,955 1/27/2009 Whitaker Brothers Bus Machines Inc. Paper Shredder 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 479,012,013 430,562,781 2/18/2009 Freddie Mac Homeownership Preservation Program Financial Agent 347,825,041 297,642,225 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 991,169 991,169 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 295,724 143,893 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 269 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 OFS SERVICE CONTRACTS Date (CONTINUED) 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 $126,631 $126,631 Auto Investment Legal Services Contract 1,834,193 1,834,193 FI Consulting Inc. Credit Reform Modeling and Analysis Contract 4,817,759 3,979,667 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 4,100,195 4,099,923 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 50,180,673 48,952,777 4/21/2009 AllianceBernstein LP Asset Management Services Financial Agent 4/21/2009 FSI Group, LLC Asset Management Services Financial Agent 27,569,450 27,438,003 4/21/2009 Piedmont Investment Advisors, LLC Asset Management Services Financial Agent 12,961,866 12,912,419 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 7,849,026 3,526,454 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 270 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM OFS SERVICE CONTRACTS (CONTINUED) Date Vendor Purpose Type of Transaction Obligated Value Expended Value 7/8/2009 Judicial Watch6 Litigation Settlement Other Listing $1,500 $1,500 7/17/2009 Korn/Ferry International Executive search services for the OFS Chief Investment Officer position Contract 74,023 74,023 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 54,679 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 9/18/2009 Treasury Franchise Fund — BPD Administrative Support Interagency Agreement 436,054 436,054 9/28/2009 Judicial Watch6 Litigation Settlement Other Listing 2,146 2,146 210,184 — 108,000 — 9/30/2009 Immixtechnology Inc.3 EnCase eDiscovery ProSuite Interagency Agreement 9/30/2009 Immixtechnology Inc.3 Guidance Inc. Interagency Agreement 9/30/2009 NNA INC. Newspaper Delivery 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 2,839,498 2,818,929 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 4,260,808 4,227,758 Continued on next page 271 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 OFS SERVICE CONTRACTS (CONTINUED) Date Vendor Purpose 12/22/2009 Raymond James (f/k/a Howe Barnes Hoefer & Arnett, Inc.) 12/23/2009 Type of Transaction Obligated Value Expended Value Asset Management Services Financial Agent $432,068 $432,068 Howe Barnes Hoefer & Arnett, Inc. Asset Management Services FAA Listing 3,124,094 3,124,094 1/14/2010 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 549,518 549,518 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. Investment Consulting Services Contract 5,468,948 4,458,789 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 17,260,533 14,828,510 4/23/2010 RDA Corporation Data and Document Management Consulting Services Contract 8,799,246 8,075,082 5/4/2010 Internal Revenue Service Detailees 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 3,774,673 990,689 7/21/2010 Regis & Associates PC Program Compliance Support Services Contract 1,933,557 1,187,248 1 Continued on next page 272 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM OFS SERVICE CONTRACTS Date (CONTINUED) 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 $9,221,175 $5,488,418 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 232,482 232,482 8/6/2010 Cadwalader Wickersham & Taft LLP Omnibus procurement for legal services Contract 7,046,853 3,611,991 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 2,446,277 1,315,510 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 12,743,975 6,661,619 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 367,641 213,347 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 — 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 4,482,164 3,611,521 9/27/2010 Continued on next page 273 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 OFS SERVICE CONTRACTS Date (CONTINUED) Type of Transaction Vendor Purpose 9/30/2010 CCH Incorporated GSA Task Order for procurement books — FAR, T&M, Government Contracts Reference, World Class Contracting Obligated Value Expended Value 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 Contract 1,025 1,025 10/8/2010 Management Concepts Inc. 10/8/2010 Management Concepts Inc. Training Course — CON 216 Contract 1,025 1,025 Training Course — CON 218 Contract 2,214 2,214 10/8/2010 10/8/2010 Management Concepts Inc. Training Course — 11107705 Contract 995 995 Management Concepts Inc. Training Course — Analytic Boot Contract 1,500 1,500 10/8/2010 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 274 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM OFS SERVICE CONTRACTS (CONTINUED) Date Vendor Purpose Type of Transaction 3/22/2011 Harrison Scott Publications Inc. Subscription Service Contract 3/28/2011 Fox News Network LLC7 Litigation Settlement 4/20/2011 Federal Reserve Bank of New York (FRBNY) HR 4/26/2011 4/27/2011 Obligated Value Expended Value $5,894 $5,894 Interagency Agreement 121,000 121,000 Oversight Services Interagency Agreement 1,300,000 1,004,063 PricewaterhouseCoopers, LLP Financial Services Omnibus Contract 5,805,636 4,707,096 ASR Analytics LLC Financial Services Omnibus Contract 5,356,872 2,321,865 4/27/2011 Ernst & Young LLP Financial Services Omnibus Contract 1,756,616 630,835 4/27/2011 FI Consulting, Inc. Financial Services Omnibus Contract 3,954,123 2,939,173 4/27/2011 Lani Eko & Company CPAs LLC Financial Services Omnibus Contract 50,000 — 4/27/2011 MorganFranklin Corporation Financial Services Omnibus Contract 1,187,957 454,848 4/27/2011 Oculus Group, Inc. Financial Services Omnibus Contract 3,643,643 2,446,801 4/28/2011 Booz Allen Hamilton, Inc. Financial Services Omnibus Contract 1,034,953 31,789 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 10,262 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 711,698 664,590 6/21/2011 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 78,000 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 275 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 OFS SERVICE CONTRACTS (CONTINUED) Date Vendor Purpose Type of Transaction Obligated Value Expended Value 11/3/2011 Judicial Watch6 Litigation Settlement Other Listing $850 $850 11/18/2011 Qualx Corporation FOIA Support Services Contract 68,016 68,016 12,050,000 11,225,000 19,065 19,065 11/29/2011 Houlihan Lokey, Inc. Transaction Structuring Services Financial Agent 12/20/2011 The Allison Group LLC Pre-Program and Discovery Process Team Building Contract 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 2,637,775 2,472,275 2/7/2012 Greenhill & Co., LLC Structuring and Disposition Services Financial Agent 1,680,000 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 2,148,649 1,963,102 3/14/2012 Department of Interior National Business Center, Federal Consulting Group Interagency Agreement 57,500 57,500 3/30/2012 Department of the Treasury — Departmental Offices WCF Administrative Support Interagency Agreement 1,137,451 1,137,451 3/30/2012 E-Launch Multimedia, Inc. Subscription Service Contract — — 4/2/2012 Cartridge Technology, Inc. Maintenance Agreement for Canon ImageRunner Contract 15,692 14,384 5/10/2012 Equilar Inc. Executive Compensation Data Subscription Contract 44,995 44,995 6/12/2012 Department of Justice Detailees Interagency Agreement 1,737,884 267,991 6/15/2012 Qualx Corporation FOIA Support Services Contract 104,112 104,112 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 8/1/2012 Internal Revenue Service Training Interagency Agreement 4,303 4,303 8/3/2012 Harrison Scott Publications Inc. Subscription to Commercial Mortgage Alert Online Service Contract 3,897 3,897 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 276 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM OFS SERVICE CONTRACTS Date (CONTINUED) Vendor Purpose Type of Transaction Obligated Value Expended Value $4,800,000 $3,155,093 5,000 5,000 12,884,241 11,303,093 11/19/2012 Government Accountability Office Oversight services Interagency Agreement 12/13/2012 Association of Government Accountants CEAR Program Application Contract 12/19/2012 Department of the Treasury — Departmental Offices Administrative Support Interagency Agreement 1/1/2013 Lazard Fréres & Co. LLC Asset Management Services Financial Agent 2,708,333 2,708,333 1/1/2013 Lazard Fréres & Co. LLC Legal Advisory Financial Agent 6,750,000 5,625,000 2/13/2013 Mercer (US) Inc. Executive Compensation Data Subscription Contract 4,050 — 2/14/2013 Neighborhood Investment Corp Foreclosure Prevention under MHA Contract 18,262,000 5,239,313 3/4/2013 Department of the Treasury — Departmental Offices WCF Administrative Support Interagency Agreement 1,159,268 1,159,268 3/7/2013 Department of Housing and Urban Development Research and Analysis Services Interagency Agreement 499,348 444,381 3/26/2013 Bloomberg Finance L.P. Subscription 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. Executive Compensation Data Subscription Contract 45,995 45,995 6/13/2013 West Publishing Corporation Subscription Contract 8,131 8,131 8/1/2013 Evolution Management Inc. Outplacement Services for OFS Contract 26,670 24,420 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 200,000 200,000 9/27/2013 Treasury Franchise Fund — BPD Administrative Support Interagency Agreement 644,988 322,499 11/22/2013 Department of the Treasury — Departmental Offices Administrative Support Interagency Agreement 8,821,234 1,563,905 11/22/2013 Internal Revenue Service Legal Services Interagency Agreement 107,185 9,311 11/25/2013 Treasury Franchise Fund — BPD Administrative Support Interagency Agreement 1,862,792 931,394 12/12/2013 Association of Government Accountants CEAR Program Application Contract 5,000 5,000 12/16/2013 Department of Justice Legal Services Interagency Agreement 1,459,000 — Continued on next page 277 QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 OFS SERVICE CONTRACTS Date (CONTINUED) Vendor Purpose Type of Transaction 3/5/2014 Department of Justice Legal Services Interagency Agreement 3/12/2014 Department of the Treasury — DO OCIO Administrative Support Interagency Agreement 3/24/2014 Mercer (US) Inc. On-line Subscription Service Executive Compensation Data Contract Total Obligated Value Expended Value $2,000,000 $— 2,705,893 — 4,472 — $1,470,801,740 $1,274,448,629 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, 4/15/2014. 278 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM S ECT I O N 5 SIGTARP RECOMMENDATIONS 280 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 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 130 recommendations in its quarterly reports to Congress and its audit reports. This section discusses developments with respect to SIGTARP’s recommendations and, in the table at the end of this section, summarizes all of SIGTARP’s recommendations and notes the extent of implementation. ADDITIONAL RECOMMENDATIONS REGARDING HOMEOWNERS REDEFAULTING ON MODIFIED MORTGAGES UNDER HAMP SIGTARP is committed to ensuring TARP is efficient and effective. Indeed, this is a critical function of an inspector general, along with the mission to prevent fraud, waste, and abuse. SIGTARP has and continues to make recommendations to Treasury concerning TARP for these reasons. For example, over the past year, we raised concerns and made several recommendations to Treasury about the support provided to homeowners through HAMP, TARP’s signature housing program. Not all homeowners are getting the sustainable relief Treasury promised through HAMP. Although, as of March 31, 2014, HAMP has helped more than 900,967 homeowners avoid foreclosure through sustainable permanent modifications, another 376,804 homeowners fell three months behind in their payments, thereby redefaulting, and prematurely falling out of the program as a result. SIGTARP remains concerned that the level of redefaults has increased at an alarming rate, leaving those homeowners more at risk of foreclosure. While Treasury has made progress in implementing SIGTARP’s April 2013 recommendation to analyze and determine the causes of HAMP redefaults, homeowners in HAMP continue to struggle. In fact, since SIGTARP made that recommendation, more than 80,000 homeowners have redefautled out of HAMP, including 6,557 homeowners from the end of January 2014 to the end of February 2014. SIGTARP is concerned that homeowners who redefault out of HAMP may not receive the full benefits of HAMP support paid for taxpayers. The TARP funds that Treasury uses for HAMP are actually spent as incentive payments that Treasury makes to mortgage servicers, investors, and homeowners. For example, to reward homeowners for maintaining good standing in a HAMP permanent modification, Treasury pays a “Pay-for-Performance Success Payment” of $1,000 (or less, in certain circumstances) on the anniversary of the time the homeowner entered into that modification. Treasury also pays the mortgage servicer an identical payment of $1,000 in TARP funds on that anniversary (for up to three years). 281 282 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM However, there is an imbalance between the amounts Treasury pays to servicers and investors compared to homeowners. As of December 31, 2013, whereas Treasury paid investors $3 billion and mortgage servicers $1.76 billion in TARP funds, homeowners had received only approximately $1 billion in TARP funds as incentive payments. In other words, of the $422.2 billion in TARP funds spent by Treasury, only $1 billion went to homeowners. Additionally, although Treasury has used TARP funds on several occasions to increase the amount of incentives paid to servicers (doubling the amount) and investors (tripling the amount), it has never increased homeowner HAMP incentives. Moreover, the homeowner incentives in HAMP do not actually go directly or immediately to homeowners themselves. Rather, Treasury makes those incentive payments to the servicer, for the benefit of the homeowner, to be applied as a credit to reduce the principal balance owed on the mortgage. Although HAMP’s incentive-based payment structure was apparently designed to help homeowners build equity faster, some struggling homeowners may not have the luxury of time. Instead, they need more immediate action to avoid redefaulting and losing their homes. HAMP’s incentives may not be immediately helping homeowners with HAMP permanent modifications in the short term stay current on their mortgage payments. In fact, as of March 31, 2014, taxpayers lost $1.2 billion in TARP funds paid to servicers and investors for the 376,804 homeowners who later redefautled. In other words, in those instances, taxpayers’ HAMP money enriched mortgage servicers and investors, without helping homeowners. As Treasury continues to explore the reasons why homeowners are redefaulting from HAMP, Treasury could provide more immediate relief to homeowners still struggling to make ends meet. Specifically, Treasury should increase the amount of incentive payments to homeowners and apply homeowners’ incentives to reduce their out-of-pocket costs. While some homeowners who received TARP assistance through HAMP continue to struggle to stay in their homes, approximately 74% of the $22.7 billion in TARP funds Treasury set aside to spend on HAMP sits unused and unspent. Treasury should be equally willing to spend unused HAMP funds to increase the incentive payment to homeowners, providing more direct and immediate relief to try to curb redefaults. Treasury clearly has the resources to do so. Additionally, Treasury could act now to try to curb redefaults by applying the homeowner incentive to the mortgage payment rather than the outstanding balance. As a result, Treasury could reduce homeowners’ out-of pocket costs in the short term. That may give some homeowners much-needed breathing room to remain current on their HAMP modification payments. Otherwise, the incentive payment goes to reducing the principal balance and only benefits the homeowner when the home is sold or refinanced, if foreclosure does not happen first. To address the issue of redefaults by giving homeowners in HAMP additional incentives to stay in HAMP, and to address the imbalance of HAMP incentive payments, on April 7, 2014, SIGTARP recommended: QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 Treasury should increase the amount of the annual incentive payment paid to each homeowner who remains in HAMP. Treasury should require the mortgage servicer to apply the annual incentive payment earned by the homeowner to reduce the amount of money that the homeowner must pay to the servicer for the next month’s mortgage payment (or monthly payments if the incentive exceeds the monthly mortgage payment), rather than to reduce the outstanding principal balance of the mortgage. SIGTARP looks forward to continuing its work with Treasury on implementing SIGTARP’s crucial recommendations concerning redefaults. As Treasury continues its review into the causes of redefaults, Treasury should, as SIGTARP recommended, take action to address whether and how servicers’ conduct may contribute to redefaults. For example, Treasury should permanently withhold, reduce, and/or claw back incentive payments to servicers who fail to perform at acceptable levels in HAMP. UPDATE ON RECOMMENDATIONS REGARDING THE APPOINTING OF DIRECTORS TO THE BOARDS OF CPP AND CDCI INSTITUTIONS On September 30, 2013, SIGTARP expressed its concern to Treasury that Treasury was not enforcing its contractual right to appoint directors to the boards of Capital Purchase Program (“CPP”) and Community Development Capital Initiative (“CDCI”) institutions. SIGTARP recommended that Treasury, instead, should aggressively enforce its contractual right to appoint directors in order to protect taxpayers’ TARP investments and to preserve the strength of these community banks and their ability to make credit available to their communities. Additionally, SIGTARP noted that Treasury-appointed directors could use their knowledge and experience to prevent TARP dollars from being wasted, or even root out fraud. Even though Treasury recognized the value of having Treasury-selected directors at TARP banks that had missed multiple TARP dividend payments, Treasury had rarely exercised and actually appeared to be abandoning its efforts to enforce that right. In fact, at the time SIGTARP made its recommendation in September 2013, only three then-remaining CPP banks had Treasury–appointed directors and Treasury had not exercised its right to appoint a director nearly a year, last doing so in December 2012. Overall, Treasury had only appointed directors at 15 CPP banks, even though there had been at least 132 banks that had missed enough dividend payments throughout the history of TARP to warrant a Treasuryappointed director. As a result, SIGTARP issued three recommendations calling upon Treasury to use this important tool to protect taxpayers’ long-term investments in TARP banks by promoting the fiscal health of lenders and their ability to meet the credit needs of our nation and local communities. Specifically, SIGTARP recommended 283 284 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM that Treasury: (1) enforce its right to appoint directors for CPP institutions that have failed to pay six or more quarterly TARP dividend or interest payments; (2) prioritize the appointing of directors to the board of CPP institutions that have rejected Treasury’s requests to send officials to observe board meetings, that have failed to pay a large number of TARP dividend payments or owe the largest amount of delinquent TARP dividends, or that are 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 (and to use information learned by Treasury observers in assisting prioritization of banks to which Treasury should appoint directors); (3) enforce its right to appoint directors to CDCI institutions that have failed to pay eight or more TARP quarterly dividend or interest payments. After Treasury responded to SIGTARP, in an October 28, 2013 letter rejecting SIGTARP’s recommendations, SIGTARP again emphasized the importance and value of enforcing this right in SIGTARP’s January 29, 2014 Quarterly Report. SIGTARP stressed that, despite Treasury’s focus on selling its investments in banks in TARP banks, Treasury should act upon, rather than give up this important right. Doing so would promote TARP’s and CPP’s goals of enabling lenders to meet credit needs of our nation and local communities, ensuring local communities have access to loans from TARP banks who support them. Following SIGTARP’s repeated efforts, Treasury recently agreed with SIGTARP and took encouraging steps towards implementing SIGTARP’s recommendation. In February 2014, Treasury appointed two directors to Central Bancorp, Inc. Additionally, in March 2014, Treasury requested that two TARP banks, Chambers Bancshares and Farmers & Merchants, allow Treasury observers to attend board meetings to monitor whether directors should be appointed to the boards of those institutions as well. SIGTARP looks forward to continuing its work with Treasury on implementing these important recommendations. Treasury should prioritize its decisions to appoint directors, based on the goals of TARP and CPP, and in light of issues that raise the most concern, especially considering banks that actually rejected Treasury observers, as SIGTARP recommended. In addition, as SIGTARP recommended, Treasury should also continue to consider appointing directors to struggling CDCI institutions. RECOMMENDATIONS REGARDING EDUCATING HOMEOWNERS ABOUT MORTGAGE MODIFICATION FRAUD SIGTARP has taken, and continues to take a 360 degree approach to combating mortgage modification fraud that includes law enforcement, homeowner education, and homeowner protection initiatives. Under that approach, SIGTARP has uncovered, investigated, and assisted in the prosecution of criminals that viewed HAMP as an opportunity to line their own pockets by taking advantage QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 of unsuspecting homeowners who are seeking to apply to lower their mortgages through HAMP. Nationwide, homeowners have lost millions of dollars and many have been forced into foreclosure as a result of this predatory fraud. These crimes also hurt the credibility of the Government and HAMP, possibly scaring homeowners away from receiving real help through legitimate TARP programs. For example, in some instances, we have found that some homeowner victims erroneously believe they are actually communicating with Treasury representatives. That is because some of these fraudsters are even more brazen and masquerade as the Government, lurking behind logos or seals resembling Treasury’s seal or the Making Home Affordable logo, or use the word HAMP in their website name to deceive homeowners into believing their legitimacy. SIGTARP learned from these criminal investigations that because the Internet is generally the place where homeowners first look when seeking assistance with their mortgage payment, this is exactly where they are most often targeted in TARP-related rescue fraud scams. The Internet also allows fraudsters to increase the size and scope of their scams, allowing them to shut down and start up again quickly, and operate from anywhere, hurting victims all over the country. Rather than being a weapon fraudsters use to cheat homeowners, the Internet, especially Treasury’s HAMP-related websites, should serve as a tool to empower Americans still struggling to stay in their homes. As co-chairs of the Rescue Fraud Working Group of the President’s Financial Fraud Enforcement Task Force, SIGTARP, Treasury, and the Department of Justice must stand together to combat this type of rescue fraud. SIGTARP and Treasury have already worked together to police the Internet for websites bearing the hallmarks of mortgage modification fraud and also have worked to educate homeowners so that they can arm themselves with legitimate information to avoid falling prey to these rescue fraud scams. For example, SIGTARP and Treasury have provided information at homeowner outreach events and in December 2011, as co-chairs of the Rescue Fraud Working Group, collaborating with the Consumer Financial Protection Bureau, a member of the working group, SIGTARP and Treasury issued a Consumer Fraud Alert listing the hallmarks of these horrific scams. Recently, to continue our joint efforts to prevent these frauds, SIGTARP made the following recommendation to Treasury: To educate homeowners and help them avoid becoming victims to mortgage modification fraud, Treasury should prominently display all of the information containing in the Consumer Fraud Alert “Tips For Avoiding Mortgage Modification Scams” created jointly by SIGTARP, Treasury and the Consumer Financial Protection Bureau on the home page of websites related to HAMP, including Treasury’s TARP website and the “Making Home Affordable” website along with simple and direct information on SIGTARP’s mission and how to contact SIGTARP’s hotline if they suspect mortgage modification fraud. Prominently featuring the information in our joint Consumer Fraud Alert on HAMP-related websites helps preserve the integrity of HAMP, protects 285 286 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM homeowners from this type of rescue fraud by putting them on alert, and serves as a strong statement of Treasury’s commitment to combatting mortgage modification fraud. After discussing this recommendation with Treasury officials, Treasury added a link to the Consumer Fraud Alert on the MHA website. Although we commend Treasury’s efforts to implement SIGTARP’s recommendation in a timely manner, the page containing the link is confusing because it lists four different tips to avoid scams with a link to view additional tips. Given that SIGTARP and Treasury worked together to develop the tips, it does not make sense that Treasury would list different tips in the text and then link to the Consumer Fraud Alert. Treasury should prominently display all of the information contained in the Consumer Fraud Alert on these websites, to avoid causing additional confusion to homeowners. * * * * * * * 2 3 4 5 6 7 8 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 Implemented X 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 The Federal Reserve adopted mechanisms that address this recommendation. While Treasury has required CDCI participants to report on their actual use of TARP funds, no other TARP recipients were required to do so. Treasury made the reporting by CPP recipients only voluntary. 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 APRIL 30, 2014 287 Treasury should design a robust compliance protocol with complete access rights to all TALF transaction participants for itself, SIGTARP, and other relevant oversight bodies. Treasury should not allow Legacy Securities PPIFs to invest in TALF unless significant mitigating measures are included to address these dangers. * * * * * 13 14 15 16 17 X X X X X X Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. * 10 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. (CONTINUED) 11 * 9 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. This recommendation was implemented with respect to CMBS, and the Federal Reserve did not expand TALF to RMBS. Comments 288 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM * * * * * * 19 20 21 22 23 24 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. 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. (CONTINUED) X X X Implemented X X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. * 18 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process Not Implemented X TBD/NA Continued on next page Treasury’s agreements with PPIF managers include investor-screening procedures such as “Know Your Customer” requirements. Treasury has agreed that it will have access to any information in a fund manager’s possession relating to beneficial owners. However, Treasury 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 APRIL 30, 2014 289 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. * * * * * 26 27 28 29 30 X Implemented X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. 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. (CONTINUED) 25 Recommendation SIGTARP RECOMMENDATIONS TABLE X 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. Treasury has decided to adopt this important SIGTARP recommendation. SIGTARP will monitor Treasury’s implementation of the recommendation. Comments 290 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM In Process X X Not Implemented TBD/NA Treasury has committed to publish on a quarterly basis certain highlevel information about aggregated purchases by the PPIFs, but not within seven days of the close of the quarter. Treasury has not committed to providing full transparency to show where public dollars are invested by requiring periodic disclosure of every trade in the 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 largescale fraud. Comments Continued on next page 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. 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. X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. * 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. X Implemented X * 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. 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. (CONTINUED) 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. * 32 35 * 31 Recommendation SIGTARP RECOMMENDATIONS TABLE QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 291 * * * 40 41 42 X X X X X Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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 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 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. 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. * 37 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. (CONTINUED) 38 * 36 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X Not Implemented TBD/NA Continued on next page Treasury and the Federal Reserve have discussed concerns about potential overrating or rating shopping with the rating agencies, and have agreed to continue to develop and enhance risk management tools and processes, where appropriate. Treasury has agreed that it can have access to any information in a fund manager’s possession relating to beneficial owners. However, Treasury is not making an affirmative requirement that managers obtain and maintain beneficial owner information. Treasury will not adopt the recommendation to give itself unilateral ability to deny access to or remove an investor, stating that such a right would deter participation. Treasury has refused to adopt this recommendation, relying solely on Treasury’s right to end the investment period after 12 months. That timeframe has already expired. Treasury’s failure to adopt this recommendation potentially puts significant Government funds at risk. Comments 292 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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. 47 48 49 50 X X Implemented X X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. 46 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 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. * 44 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. (CONTINUED) 45 * 43 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X Not Implemented X TBD/NA Comments 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. 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 293 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. 56 X X Not Implemented TBD/NA 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 Continued on next page Treasury should document in detail the substance of all communications with recipients concerning warrant repurchases. 55 X In Process Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. 54 Partially Implemented X 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. 53 X X Implemented 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 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. 52 * 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. (CONTINUED) 51 Recommendation SIGTARP RECOMMENDATIONS TABLE 294 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM X Implemented X X X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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 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. 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. * 58 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. (CONTINUED) 59 * 57 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X Not Implemented X TBD/NA Comments Continued on next page 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. 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 295 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. 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. 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. * * * 64 65 66 67 68 69 X 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 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 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. (CONTINUED) 63 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X Not Implemented TBD/NA Continued on next page 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.” 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. Comments 296 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM * * * 71 72 73 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. 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. (CONTINUED) X Implemented X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. * 70 Recommendation SIGTARP RECOMMENDATIONS TABLE X In Process X Not Implemented TBD/NA Comments Continued on next page 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. 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 297 * * * 75 76 77 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 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. 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. (CONTINUED) Implemented X Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. * 74 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X Not Implemented TBD/NA Continued on next page 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. 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. Comments 298 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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. 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). 82 83 84 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. 81 * 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. 80 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. 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). * (CONTINUED) 79 78 Recommendation SIGTARP RECOMMENDATIONS TABLE X In Process X X X X X X Not Implemented TBD/NA Comments Continued on next page 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. 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 299 * 88 X Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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.” * 87 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 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. * (CONTINUED) 86 85 Recommendation SIGTARP RECOMMENDATIONS TABLE X In Process X X Not Implemented TBD/NA Continued on next page 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.” 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. Comments 300 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. 91 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.” 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. * (CONTINUED) 90 89 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X Not Implemented TBD/NA Comments Continued on next page 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. 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 selfcertification, 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. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 301 In order to protect against the possibility that the extension and expansion of HAMP will lead to an increase in mortgage modification fraud, (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. (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. 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. To ensure servicer compliance with HAMP Tier 2 guidelines and assess servicer performance, (a) Treasury should include additional criteria in its servicer compliance assessments that measure compliance with the program guidelines and requirements of HAMP Tier 2. (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. 93 94 95 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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, (a) Treasury should require that borrowers immediately notify their servicer if the property has remained vacant for more than three months. (b) Treasury should require servicers to provide monthly reports to Treasury of any properties that have remained vacant for more than three months. (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. (CONTINUED) 92 Recommendation SIGTARP RECOMMENDATIONS TABLE X In Process X X X Not Implemented TBD/NA Continued on next page 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. 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. Comments 302 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. 100 X X X Not Implemented TBD/NA Comments 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 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. Continued on next page 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. 99 X In Process Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. 98 Partially Implemented X 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. 97 Implemented 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. 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. (CONTINUED) 96 Recommendation SIGTARP RECOMMENDATIONS TABLE QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 303 Treasury should stop allowing servicers to add a risk premium to Freddie Mac’s discount rate in HAMP’s net present value test. 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. 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. 102 103 104 105 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. (CONTINUED) 101 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X X X Not Implemented TBD/NA Continued on next page 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. 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. Comments 304 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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. 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. 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. 107 108 109 X Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. (CONTINUED) 106 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X Not Implemented TBD/NA Comments Continued on next page Treasury has not agreed to implement this important recommendation. Treasury has not agreed to implement this important recommendation. 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.” QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 305 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. * * * * 111 112 113 114 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. 116 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. 115 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 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. 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. 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. (CONTINUED) 110 Recommendation SIGTARP RECOMMENDATIONS TABLE X X In Process X X X X Not Implemented X TBD/NA Continued on next page 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. 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. Comments 306 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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. 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. 118 119 120 121 122 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. (CONTINUED) 117 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X X X X X Not Implemented TBD/NA Comments 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. 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. Treasury has agreed to implement this important recommendation and is considering taking further action. SIGTARP will monitor Treasury’s efforts to implement the recommendation. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 307 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. 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. 124 125 126 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. (CONTINUED) 123 Recommendation SIGTARP RECOMMENDATIONS TABLE X X In Process X X Not Implemented TBD/NA Continued on next page Treasury has made some progress implementing this important recommendation. See discussion in this section. Treasury has not agreed to implement this important recommendation. Treasury has made progress toward implementing this recommendation. In Treasury’s quarterly “MHA Servicer Assessment,” published in its October 2013 “Making Home Affordable Performance Report,” Treasury included a new servicer performance metric, assessing whether seven HAMP servicers complied with Treasury’s guidelines concerning homeowners’ HAMP modifications that servicers disqualified. SIGTARP looks forward to working with Treasury to fully implement this recommendation. Treasury has not agreed to implement this important recommendation. Comments 308 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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. Treasury should increase the amount of the annual incentive payment paid to each homeowner who remains in HAMP. Treasury should require the mortgage servicer to apply the annual incentive payment earned by the homeowner to reduce the amount of money that the homeowner must pay to the servicer for the next month’s mortgage payment (or monthly payments if the incentive exceeds the monthly mortgage payment), rather than to reduce the outstanding principal balance of the mortgage. To educate homeowners and help them avoid becoming victims to mortgage modification fraud, Treasury should prominently display all of the information containing in the Consumer Fraud Alert: “Tips For Avoiding Mortgage Modification Scams” created jointly by SIGTARP, Treasury, and the Consumer Financial Protection Bureau on the home page of websites related to HAMP, including Treasury’s TARP website and the “Making Home Affordable” website along with simple and direct information on SIGTARP’s mission and how to contact SIGTARP’s hotline if they suspect mortgage modification fraud. 128 129 130 Implemented Partially Implemented Note: * Indicates that Treasury considers the recommendation closed and will take no further action. 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. (CONTINUED) 127 Recommendation SIGTARP RECOMMENDATIONS TABLE In Process X X Not Implemented X X TBD/NA See discussion in this section. See discussion in this section. Treasury has not agreed to implement this important recommendation. See discussion in this section. Treasury has not agreed to implement this important recommendation. See discussion in this section. Comments QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 309 ENDNOTES 310 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 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 4/1/2014. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008, p. 9. Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, 7/21/2010, pp. 1, 759. Helping Families Save Their Homes Act of 2009, P.L. 111-22, 5/20/2009, §202; Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, 7/21/2010, §1302. Treasury, Daily TARP Update, 4/1/2014, www.treasury.gov/initiatives/financial-stability/reports/Documents/Daily_TARP_Update%20-%20 04.01.2014.pdf, accessed 4/2/2014. Treasury, Section 105(a) Report, 4/10/2014, www.treasury.gov/initiatives/financial-stability/reports/Documents/March%202014%20Monthly%20 Report%20to%20Congress.pdf, accessed 4/10/2014. Treasury, response to SIGTARP data call, 4/9/2014; Treasury, Daily TARP Update, 4/1/2014, www.treasury.gov/initiatives/financial-stability/ reports/Documents/Daily_TARP_Update%20-%2004.01.2014.pdf, accessed 4/2/2014. Treasury, replies to SIGTARP data calls, various. Treasury, Daily TARP Update, 4/1/2014, www.treasury.gov/initiatives/financial-stability/reports/Documents/Daily_TARP_Update%20-%20 04.01.2014.pdf, accessed 4/2/2014. Treasury, Daily TARP Update, 4/1/2014, www.treasury.gov/initiatives/financial-stability/reports/Documents/Daily_TARP_Update%20-%20 04.01.2014.pdf, accessed 4/2/2014. Treasury, Transactions Report, 3/19/2014, www.treasury.gov/initiatives/financial-stability/reports/Documents/3-21-14%20Transactions%20 Report%20as%20of%203-19-14_INVESTMENT.pdf, accessed 4/3/2014; Treasury, response to SIGTARP data call, 4/9/2014. 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Treasury, responses to SIGTARP data calls, 4/9/2014 and 4/25/2014. Treasury, Transactions Report-Housing Programs, 3/27/2014, www.treasury.gov/initiatives/financial-stability/reports/Documents/Housing%20 Transactions%20Report%20as%20of%2003.27.2014.pdf, accessed 4/1/2014; Treasury, response to SIGTARP data call, 4/9/2014. QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 152. 153. 154. 155. 156. 157. 158. 159. 160. 161. 162. 163. 164. 165. 166. 167. 168. 169. 170. 171. 172. 173. 174. 175. 176. 177. Treasury, response to SIGTARP data call, 4/9/2014; Treasury, Transactions Report-Housing Programs, 3/27/2014, www.treasury.gov/initiatives/ financial-stability/reports/Documents/Housing%20Transactions%20Report%20as%20of%2003.27.2014.pdf, accessed 4/1/2014. Treasury, responses to SIGTARP data calls, 1/17/2014 and 4/9/2014; Treasury, “HFA Aggregate Quarterly Report Q4 2013,” no date, www. treasury.gov/initiatives/financial-stability/TARP-Programs/housing/Documents/FINAL%20Q4%202013%20HFA%20Aggregate%20Report%20 -%203.18.14.pdf, accessed 4/1/2014; Alabama Housing Finance Authority, “Hardest Hit Alabama, Treasury Reports,” no date, www. hardesthitalabama.com/resources/treasury_reporting.aspx, accessed 4/1/2014; Arizona (Home) Foreclosure Prevention Funding Corporation, “Hardest Hit Fund Reporting [quarterly performance reports],” no date, www.azhousing.gov/ShowPage.aspx?ID=405&CID=11, accessed 4/1/2014; CalHFA Mortgage Assistance Corporation, “Keep Your Home California, Reports & Statistics, Quarterly Reports,” no date, keepyourhomecalifornia.org/quarterly-reports/, accessed 4/1/2014; Florida Housing Finance Corporation, “Florida Hardest Hit Fund (HHF) Information, Quarterly Reports,” no date, apps.floridahousing.org/StandAlone/FHFC_ECM/ContentPage.aspx?PAGE=0277, accessed 4/1/2014; GHFA Affordable Housing Inc., “HomeSafe Georgia, US Treasury Reports,” no date, www.dca.state.ga.us/housing/homeownership/programs/ treasuryReports.asp, accessed 4/1/2014; Illinois Housing Development Authority, “Illinois Hardest Hit Program, Reporting,” no date, www. illinoishardesthit.org/spv-7.aspx, accessed 4/1/2014; Indiana Housing and Community Development Authority, “Indiana’s Hardest Hit Fund, Quarterly Reports to the U.S. Treasury,” no date, www.877gethope.org/reports/, accessed 4/1/2014; Kentucky Housing Corporation, “American Recovery and Reinvestment Act and Troubled Asset Relief Program, Kentucky Unemployment Bridge Program [quarterly reports],” no date, www.kyhousing.org/page.aspx?id=3165, accessed 4/1/2014; Michigan Homeowner Assistance Nonprofit Housing Corporation, “Hardest Hit U.S. Treasury Reports,” no date, www.michigan.gov/mshda/0,4641,7-141-45866_62889_47905-250571--,00.html, accessed 4/1/2014; Mississippi Home Corporation, “Financial Disclosures, Hardest Hit Fund, HFA Performance Data Report[s],” no date, www.mshomecorp. com/about%20mhc/disclosures.htm, accessed 4/1/2014; Nevada Affordable Housing Assistance Corporation, “Nevada Hardest Hit Fund, US Treasury Reports,” no date, nevadahardesthitfund.nv.gov/, accessed 4/1/2014; New Jersey Housing and Mortgage Finance Agency, “The New Jersey HomeKeeper Program, About the Program, Performance Reports,” no date, www.njhomekeeper.com/spv-55.aspx, accessed 4/1/2014; North Carolina Housing Finance Agency, “Hardest Hit Fund™ & Performance Reporting, …Quarterly Reports,” no date, www. ncforeclosureprevention.gov/hardest_hit_funds.aspx, accessed 4/1/2014; Ohio Homeowner Assistance LLC, “Save the Dream Ohio: Quarterly Reports,” ohiohome.org/savethedream/quarterlyreports.aspx, accessed 4/1/2014; Oregon Affordable Housing Assistance Corporation, “Oregon Homeownership Stabilization Initiative, Reporting,” no date, www.oregonhomeownerhelp.org/en/reporting, accessed 4/1/2014; Rhode Island Housing and Mortgage Finance Corporation, “Hardest Hit Fund – Rhode Island, About HHFRI, REPORTS,” no date, www.hhfri.org/HHFRI_ Dynamic_Content.aspx?id=10737418256&ekmensel=c580fa7b_10737418238_10737418240_btnlink, accessed 4/1/2014; SC Housing Corp, “SC HELP, Reports,” no date, www.schelp.gov/Resources/Reports.aspx, accessed 4/1/2014; Tennessee Housing Development Agency, “Keep My Tennessee Home, Reports,” no date, www.keepmytnhome.org/news-and-reports/, accessed 4/1/2014; District of Columbia Housing Finance Agency, “HomeSaver – A Foreclosure Prevention Program[quarterly performance reports],” www.dchfa.org/DCHFAHome/Homebuyers/ ForeclosurePrevention/QuarterlyReports/tabid/219/Default.aspx, accessed 4/1/2014; SIGTARP analysis of HFA quarterly performance reports. 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Treasury, “Home Affordable Modification Program: Overview,” no date, www.hmpadmin.com/portal/programs/hamp.jsp, accessed 8/20/2010; SIGTARP analysis of Treasury HAMP data. SIGTARP analysis of Treasury HAMP data. 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 4/1/2014. 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 4/1/2014. 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 4/1/2014. Freddie Mac, “Primary Mortgage Market Survey Archives,” www.freddiemac.com/pmms/pmms_archives.html, accessed 4/1/2014; SIGTARP analysis of Treasury HAMP data. 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Treasury, response to SIGTARP data call, 4/25/2014; Fannie Mae, response to SIGTARP data call, 4/24/2014; OCC, “Mortgage Metrics Report, Fourth Quarter 2013,” 3/27/2014, www.occ.gov/publications/publications-by-type/other-publications-reports/index-mortgage-metrics.html, accessed 4/21/2014; In its “Mortgage Metrics Report, Fourth Quarter 2013,” OCC compared a snapshot of HAMP permanent modifications 315 316 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 178. 179. 180. 181. 182. 183. 184. 185. 186. 187. 188. 189. 190. 191. 192. 193. 194. 195. 196. 197. 198. 199. 200. 201. 202. 203. 204. 205. 206. 207. 208. 209. 210. 211. 212. 213. 214. 215. 216. and private modifications, from the fourth quarter of 2011 through the third quarter of 2013, between three and 15 months after the modifications became effective, and 60 or more days late on payments. Treasury, responses to SIGTARP data calls, 4/9/2014 and 4/25/2014. SIGTARP analysis of Treasury HAMP data. Treasury, responses to SIGTARP data calls, 4/19/2013, 5/23/2013, 7/19/2013, 10/21/2013,10/23/2013, 1/24/2014 and 4/25/2014; Fannie Mae, responses to SIGTARP data calls, 4/19/2013, 5/2212013, 10/21/2013, 10/23/2013 and 4/24/2014. Treasury, “HAMP Redefault Tables 1-16-March 2014,” accessed 4/25/2014. Treasury, “HAMP Redefault Tables 1-16-March 2014,” accessed 4/25/2014. Treasury, responses to SIGTARP data calls, 4/18/2014. Treasury, responses to SIGTARP data calls, 1/21/2011, 1/20/2012, 1/22/2013, 2/28/2013, 4/19/2013, 5/23/2013, 10/21/2013,10/23/2013,1/24/2014 and 4/25/2014; Fannie Mae, responses to SIGTARP data calls, 4/19/2013, 5/22/2013, 10/21/2013,1/23/2014 and 4/24/2014. Treasury, response to SIGTARP data call, 4/25/2014; Fannie Mae, response to SIGTARP data call, 4/24/2014. Treasury, response to SIGTARP data call, 4/25/2014; Fannie Mae, response to SIGTARP data call, 4/24/2014. Treasury, responses to SIGTARP data calls, 4/9/2014 and 4/25/2014; Fannie Mae, response to SIGTARP data call, 4/24/2014. Treasury, responses to SIGTARP data calls, 4/9/2014 and 4/25/2014; Fannie Mae, response to SIGTARP data call, 4/24/2014. Treasury, response to SIGTARP data call, 4/9/2014. Treasury, response to SIGTARP data call, 4/9/2014. Treasury, response to SIGTARP data call, 4/9/2014. Treasury, response to SIGTARP data call, 4/9/2014. Treasury, response to SIGTARP data call, 4/25/2014. 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 4/1/2014. 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 4/1/2014. 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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 4/1/2014. 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 4/1/2014. 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 4/1/2014. Treasury, response to SIGTARP data call, 4/25/2014; Fannie Mae, response to SIGTARP data call, 4/24/2014. 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 4/1/2014. 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Treasury, “HFA Aggregate Quarterly Report Q4 2013,” no date, www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/ Documents/FINAL%20Q4%202013%20HFA%20Aggregate%20Report%20-%203.18.14.pdf, accessed 4/1/2014; Alabama Housing Finance Authority, “Hardest Hit Alabama, Treasury Reports,” no date, www.hardesthitalabama.com/resources/treasury_reporting.aspx, accessed 4/1/2014; Arizona (Home) Foreclosure Prevention Funding Corporation, “Hardest Hit Fund Reporting [quarterly performance reports],” no date, www.azhousing.gov/ShowPage.aspx?ID=405&CID=11, accessed 4/1/2014; CalHFA Mortgage Assistance Corporation, “Keep Your Home California, Reports & Statistics, Quarterly Reports,” no date, keepyourhomecalifornia.org/quarterly-reports/, accessed 4/1/2014; Florida Housing Finance Corporation, “Florida Hardest Hit Fund (HHF) Information, Quarterly Reports,” no date, apps.floridahousing. org/StandAlone/FHFC_ECM/ContentPage.aspx?PAGE=0277, accessed 4/1/2014; GHFA Affordable Housing Inc., “HomeSafe Georgia, US Treasury Reports,” no date, www.dca.state.ga.us/housing/homeownership/programs/treasuryReports.asp, accessed 4/1/2014; Illinois Housing Development Authority, “Illinois Hardest Hit Program, Reporting,” no date, www.illinoishardesthit.org/spv-7.aspx, accessed 4/1/2014; Indiana Housing and Community Development Authority, “Indiana’s Hardest Hit Fund, Quarterly Reports to the U.S. Treasury,” no date, www.877gethope.org/reports/, accessed 4/1/2014; Kentucky Housing Corporation, “American Recovery and Reinvestment Act and Troubled Asset Relief Program, Kentucky Unemployment Bridge Program [quarterly reports],” no date, www.kyhousing.org/page.aspx?id=3165, accessed 4/1/2014; Michigan Homeowner Assistance Nonprofit Housing Corporation, “Hardest Hit U.S. Treasury Reports,” no date, www.michigan. 321 322 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 287. 288. 289. 290. 291. 292. 293. 294. 295. 296. gov/mshda/0,4641,7-141-45866_62889_47905-250571--,00.html, accessed 4/1/2014; Mississippi Home Corporation, “Financial Disclosures, Hardest Hit Fund, HFA Performance Data Report[s],” no date, www.mshomecorp.com/about%20mhc/disclosures.htm, accessed 4/1/2014; Nevada Affordable Housing Assistance Corporation, “Nevada Hardest Hit Fund, US Treasury Reports,” no date, nevadahardesthitfund. nv.gov/, accessed 4/1/2014; New Jersey Housing and Mortgage Finance Agency, “The New Jersey HomeKeeper Program, About the Program, Performance Reports,” no date, www.njhomekeeper.com/spv-55.aspx, accessed 4/1/2014; North Carolina Housing Finance Agency, “Hardest Hit Fund™ & Performance Reporting, …Quarterly Reports,” no date, www.ncforeclosureprevention.gov/hardest_hit_funds.aspx, accessed 4/1/2014; Ohio Homeowner Assistance LLC, “Save the Dream Ohio: Quarterly Reports,” ohiohome.org/savethedream/quarterlyreports.aspx, accessed 4/1/2014; Oregon Affordable Housing Assistance Corporation, “Oregon Homeownership Stabilization Initiative, Reporting,” no date, www.oregonhomeownerhelp.org/en/reporting, accessed 4/1/2014; Rhode Island Housing and Mortgage Finance Corporation, “Hardest Hit Fund – Rhode Island, About HHFRI, REPORTS,” no date, www.hhfri.org/HHFRI_Dynamic_Content.aspx?id=10737418256&ekmensel=c580 fa7b_10737418238_10737418240_btnlink, accessed 4/1/2014; SC Housing Corp, “SC HELP, Reports,” no date, www.schelp.gov/Resources/ Reports.aspx, accessed 4/1/2014; Tennessee Housing Development Agency, “Keep My Tennessee Home, Reports,” no date, www.keepmytnhome. org/news-and-reports/, accessed 4/1/2014; District of Columbia Housing Finance Agency, “HomeSaver – A Foreclosure Prevention Program[quarterly performance reports],” www.dchfa.org/DCHFAHome/Homebuyers/ForeclosurePrevention/QuarterlyReports/tabid/219/ Default.aspx, accessed 4/1/2014; SIGTARP analysis of HFA quarterly performance reports. 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CUNA, “Frequently Requested Bank and Credit Union Comparisons,” www.cuna.org/Research-And-Strategy/Credit-Union-Data-And-Statistics/ QUARTERLY REPORT TO CONGRESS I APRIL 30, 2014 710. 711. 712. 713. 714. 715. 716. 717. 718. 719. 720. 721. 722. 723. 724. 725. 726. 727. 728. 729. 730. 731. 732. 733. 734. Credit-Union-Versus-Bank-Comparisons/, accessed 3/28/2014. CUNA, “Frequently Requested Bank and Credit Union Comparisons,” www.cuna.org/Research-And-Strategy/Credit-Union-Data-And-Statistics/ Credit-Union-Versus-Bank-Comparisons/, accessed 3/28/2014. CUNA, “Frequently Requested Bank and Credit Union Comparisons,” www.cuna.org/Research-And-Strategy/Credit-Union-Data-And-Statistics/ Credit-Union-Versus-Bank-Comparisons/, accessed 3/28/2014. CUNA, “Frequently Requested Bank and Credit Union Comparisons,” www.cuna.org/Research-And-Strategy/Credit-Union-Data-And-Statistics/ Credit-Union-Versus-Bank-Comparisons/, accessed 3/28/2014. SNL Financial LLC data. SNL Financial LLC data. 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Treasury, response to SIGTARP data call, 4/9/2014. Treasury, response to SIGTARP data call, 4/9/2014. Treasury, response to SIGTARP data call, 4/9/2014. Fannie Mae, response to SIGTARP data call, 4/9/2014; Freddie Mac, response to SIGTARP data call, 4/9/2014. Treasury, response to SIGTARP data call, 4/11/2014. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008. Treasury, response to SIGTARP data call, 4/15/2014. 339 340 APPENDIX A I GLOSSARY I APRIL 30, 2014 APPENDICES 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. 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. 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 satisfaction of the unpaid mortgage balance. Deobligations: An agency’s cancellation or downward adjustment of previously incurred obligations. 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. Equity: Investment that represents an ownership interest in a business. 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. 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. 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. Haircut: Difference between the value of the collateral and the value of the loan (the loan value is less than the collateral value). GLOSSARY I APPENDIX A I APRIL 30, 2014 Illiquid Assets: Assets that cannot be quickly converted to cash. 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”). 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. 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). 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. 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. 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. 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. 341 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. Non-Agency Residential Mortgage-Backed 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. Non-Recourse Loan: Secured loan in which the borrower is relieved of the obligation to repay the loan upon surrendering the collateral. Obligations: Definite commitments that create a legal liability for the Government to pay funds. Pool Assemblers: Firms authorized to create and market pools of SBA-guaranteed loans. 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. 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. 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 broker-dealers that own or invest at least $10 million in securities. 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. SBA Pool Certificates: Ownership interest in a bond backed by SBA-guaranteed loans. 342 APPENDIX A I GLOSSARY I APRIL 30, 2014 Senior Preferred Stock: Shares that give the stockholder priority dividend and liquidation claims over junior preferred and common stockholders. Senior Subordinated Debentures: Debt instrument ranking below senior debt but above equity with regard to investors’ claims on company assets or earnings. Servicing Advances: If borrowers’ payments are not made promptly and in full, mortgage 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. 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. Skin in the Game: Equity stake in an investment; down payment; the amount an investor can lose. Special Purpose Vehicle (“SPV”): A legal entity, often offbalance-sheet, 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. 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. Subordinated Debentures: Form of debt security that ranks below other loans or securities with regard to claims on assets or earnings. 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. 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. 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. Trust Preferred Securities (“TRUPS”): Securities that have both equity and debt characteristics, created by establishing a trust and issuing debt to it. 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. 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. GLOSSARY I APPENDIX A I APRIL 30, 2014 Sources: Board of Governors of the Federal Reserve System, “Bank Holding Companies,” no date, www. fedpartnership.gov/bank-life-cycle/manage-transition/bank-holding-companies.cfm, accessed 4/2/2014. Federal Reserve Board, Federal Reserve Banks Operating Circular No. 9: Treasury Investments and Collateral Securing Public Funds and Financial Interests of the Government, www.frbservices.org/ files/regulations/pdf/operating_circular_9_072513.pdf, accessed 4/2/2014. FCIC, glossary, no date, www.fcic.gov/resource/glossary, accessed 4/2/2014. FDIC, “Credit Card Securitization Manual,” no date, www.fdic.gov/regulations/examinations/credit_ card_securitization/glossary.html, accessed 4/2/2014. FDIC, “FDIC Law, Regulations, Related Acts,” no date, www.fdic.gov/regulations/laws/ rules/2000-4600.html, accessed 4/2/2014. FRBNY, “TALF FAQ’s,” 7/21/2010, www.newyorkfed.org/markets/talf_faq.html, accessed 4/2/2014. 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 4/2/2014. GAO, “Principles of Federal Appropriations Law, Third Edition, Volume II,” 1/2004, www.gao.gov/ special.pubs/d06382sp.pdf, p. 7-3, accessed 4/2/2014. GAO, “Troubled Asset Relief Program Treasury Needs to Strengthen Its Decision-Making Process on the Term Asset-Backed Securities Loan Facility,” 2/2010, www.gao.gov/new.items/d1025. pdf, accessed 4/2/2014; GAO, “Troubled Asset Relief Program: Third Quarter 2010 Update of Government Assistance Provided to AIG and Description of Recent Execution of Recapitalization Plan,” 1/20/2011, www.gao.gov/new.items/d1146.pdf, accessed 4/2/2014. IRS, “Glossary of Offshore Terms,” no date, www.irs.gov/Businesses/Small-Businesses-&-SelfEmployed/Abusive-Offshore-Tax-Avoidance-Schemes-Glossary-of-Offshore-Terms, accessed 4/2/2014. Making Home Affordable base NPV model documentation v5.01, updated 10/1/2012, www. hmpadmin.com/portal/programs/docs/hamp_servicer/npvmodeldocumentationv501.pdf, pp. 23-24, accessed 4/2/2014. SBA, “Notice of Changes to SBA Secondary Market Program,” 9/21/2004, archive.sba.gov/idc/ groups/public/documents/sba_program_office/bank_notice_of_changes.htm, accessed 4/2/2014. SEC, “NRSRO,” no date, www.sec.gov/answers/nrsro.htm, accessed 4/2/2014. Treasury, “Decoder,” www.treasury.gov/initiatives/financial-stability/Pages/Glossary.aspx, accessed 4/2/2014. Treasury, “Fact Sheet: Unlocking Credit for Small Businesses,” 3/16/2009, www.treasury.gov/presscenter/press-releases/Pages/tg58.aspx, accessed 4/2/2014. Treasury, “Special Master Feinberg Testimony before the House Committee on Oversight and Government Reform,” 10/28/2009, www.treasury.gov/press-center/press-releases/Pages/tg334. aspx, accessed 4/2/2014. Treasury, “Supplemental Directive 10-14: Making Home Affordable Program - Principal Reduction Alternative Update,” 10/15/2010, www.hmpadmin.com/portal/programs/docs/hamp_servicer/ sd1014.pdf, accessed 4/2/2014. Treasury, “TARP Standards for Compensation and Corporate Governance,” 6/10/2009, www. treasury.gov/press-center/press-releases/Pages/tg165.aspx, accessed 4/2/2014. U.S. Census Bureau, “Residential Finance Survey, Glossary Of RFS Terms And Definitions,” no date, www.census.gov/hhes/www/rfs/glossary.html#l, accessed 4/2/2014. U.S. Department of Housing and Urban Development, “Glossary,” no date, www.hud.gov/offices/hsg/ sfh/buying/glossary.cfm, accessed 4/2/2014. 343 344 APPENDIX B I ACRONYMS AND ABBREVIATIONS I APRIL 30, 2014 ACRONYMS AND ABBREVIATIONS 2MP Second Lien Modification Program ABS asset-backed securities the “Act” Securities Act of 1933 AGP Asset Guarantee Program AHR American Home Recovery AIFP Automotive Industry Financing Program AIG Ally, Ally Financial AMS American International Group, Inc. Ally Financial Inc. American Mortgage Specialists, Inc. Anchor Anchor BanCorp Wisconsin, Inc. Artisans’ Artisans’ Bank ASSP Auto Supplier Support Program AWCP Auto Warranty Commitment Program Bank of America Bank of America Corporation BNC BNC National Bank BOC Bank of the Commonwealth The Burke Group Calvert Burke Real Estate Group Calvert Financial Corporation CAP Capital Assistance Program CBO Congressional Budget Office CDCI Community Development Capital Initiative CDFI Community Development Financial Institution CEBT CEO Cerberus Colorado East Bank and Trust chief executive officer Cerberus Capital Management, L.P. DTI EESA Eligible Assets debt-to-income Emergency Economic Stabilization Act of 2008 securities eligible for purchase by PPIFs Fannie Mae Federal National Mortgage Association FDIC Federal Deposit Insurance Corporation FDIC OIG Federal Reserve FHA FHA2LP Fiat FRB OIG FRBNY Freddie Mac FSOC Federal Deposit Insurance Corporation Office of Inspector General Board of Governors of the Federal Reserve System Federal Housing Administration Treasury/FHA Second-Lien Program Fiat North America LLC Office of Inspector General-Board of Governors of the Federal Reserve System Federal Reserve Bank of New York Federal Home Loan Mortgage Corporation Financial Stability Oversight Council or the Council FTC Federal Trade Commission GAO Government Accountability Office Gateway GM GM Financial GSE Gateway Bank, FSB General Motors Company General Motors Financial Company, Inc. Government-sponsored enterprise GulfSouth GulfSouth Private Bank HAFA HAMP Home Affordable Foreclosure Alternatives program Home Affordable Modification Program; HAMP Tier 1 CFO chief financial officer Chrysler Chrysler Holding LLC HFA Housing Finance Agency Chrysler Financial Services Americas LLC HHF Hardest Hit Fund Chrysler Financial CIGIE Citigroup CMBS Council of the Inspectors General on Integrity and Efficiency HHF or Hardest Housing Finance Agency Hardest Hit Fund Hit Fund HOPE Home Owners Protection Economics, Inc. commercial mortgage-backed securities HPDP Home Price Decline Protection CPP Capital Purchase Program Dodd-Frank Act Home Affordable Modification Program Tier 2 Citigroup Inc. Coastal Securities Coastal Securities, Inc. DE OIG HAMP Tier 2 Department of Education Office of Inspector General Dodd-Frank Wall Street Reform and Consumer Protection Act HUD IDI Department of Housing and Urban Development Investment Directions, Inc. Jefferies Jefferies, Inc. Jobs Act Small Business Jobs Act of 2010 IPO initial public offering ACRONYMS AND ABBREVIATIONS I APPENDIX B I APRIL 30, 2014 Lend America Ideal Mortgage Bankers Ltd. (d/b/a Lend America) LTV M&T loan-to-value M&T Bank Corporation Mainstreet Mainstreet Bank MBS mortgage-backed securities MCP mandatorily convertible preferred shares Merrill MHA MidCoast NeighborWorks Merrill Lynch & Co. Inc. Making Home Affordable program MidCoast Community Bank, Inc. Neighborhood Reinvestment Corporation and NeighborWorks America NewPoint NewPoint Financial Services, Inc. Non-Agency Non-Agency Residential Mortgage-Backed RMBS Securities NPV NRSRO NYAG OFS OMB net present value nationally recognized statistical rating organization New York State Attorney General Office of Financial Stability Office of Management and Budget OneBanc One Bank & Trust, N.A. Option ARM OTS Oxford PII PPIF Option Adjustable Rate Mortgage Office of Thrift Supervision Oxford Collection Agency personally identifiable information Public-Private Investment Fund PPIP Public-Private Investment Program PRA Principal Reduction Alternative PSA Pooling and Servicing Agreements the Purchasers Cooper Capital Group, Ltd., Empower International, Inc., The Steve Manna Group, LLC QIB Qualified Institutional Buyers RD Department of Agriculture Office of Rural Development RD-HAMP Department of Agriculture Office of Rural Development HAMP ResCap Residential Capital, LLC RMA request for mortgage assistance RMBS RRB OIG SBLF SEC Small Business Lending Fund Securities and Exchange Commission servicers loan servicers servicing advance receivables for residential mortgage servicing receivables advances Shay Financial SIGTARP SIGTARP Act Shay Financial Services, Inc. Office of the Special Inspector General for the Troubled Asset Relief Program Special Inspector General for the Troubled Asset Relief Program Act of 2009 Small Business Jobs Act of 2010 Jobs Act SPA Servicer Participation Agreements SPV special purpose vehicle SSFI Systemically Significant Failing Institutions program SVB Sonoma Valley Bank Syringa Syringa Bank Syringa Bancorp Syringa Bank TALF Term Asset-Backed Securities Loan Facility TARP Troubled Asset Relief Program TBW Taylor, Bean and Whitaker Mortgage Corporation TCB TCB Holding Company, The Woodlands, Texas TCW The TCW Group, Inc. TIP Targeted Investment Program TPP trial period plan Treasury Department of the Treasury Treasury OIG Department of Treasury Office of Inspector General Treasury Secretary of the Treasury Secretary Treasury/FHAHAMP TRUPS TVA OIG UAW HAMP Loan Modification Option for FHA-insured Mortgages trust preferred securities Tennesse Valley Authority's Office of the Inspector General United Auto Workers UCBH United Commercial Bank Holdings, Inc. UCSB Unlocking Credit for Small Businesses residential mortgage-backed securities UP Home Affordable Unemployment Program Railroad Retirement Board Office of Inspector General VA Department of Veterans Affairs S corporations subchapter S corporations SBA Small Business Administration VA HAMP Department of Veterans Affairs Home Affordable Modification Program 345 346 APPENDIX B I ACRONYMS AND ABBREVIATIONS I APRIL 30, 2014 Washington Washington Mutual Bank Mutual Western Asset Western Asset Management Company Wilmington Trust Wilmington Trust Company REPORTING REQUIREMENTS I APPENDIX C I APRIL 30, 2014 REPORTING REQUIREMENTS This appendix provides Treasury’s responses to data call questions regarding the reporting requirements of the Special Inspector General for the Troubled Asset Relief Program outlined in EESA Section 121, as well as a cross-reference to related data presented in this report and prior reports. Italic style indicates narrative taken verbatim from source documents. # EESA Section EESA Reporting Requirement Treasury Response to SIGTARP Data Call SIGTARP Report Section 1 Section 121(c)(A) A description of the categories of troubled assets purchased or otherwise procured by the Treasury Secretary. Treasury’s authority to make new financial commitments under TARP ended on October 3, 2010. Section 2: “TARP Overview” Accordingly, the Secretary of the Treasury has not purchased or otherwise procured any troubled assets under TARP since that date. Below are program descriptions from Treasury’s website, www.treasury.gov/initiatives/ financial-stability/Pages/default.aspx, as of 7/11/2013, or as otherwise noted: CPP: The Capital Purchase Program (CPP) was launched to stabilize the financial system by providing capital to viable financial institutions of all sizes throughout the nation. Without a viable banking system, lending to businesses and consumers could have frozen and the financial crisis might have spiraled further out of control. AIG (otherwise known as Systemically Significant Failing Institutions (“SSFI”): At the height of the financial crisis in September 2008, American International Group (AIG) was on the brink of failure. At the time, AIG was the largest provider of conventional insurance in the world. Millions depended on it for their life savings and it had a huge presence in many critical financial markets, including municipal bonds. AIG’s failure would have been devastating to global financial markets and the stability of the broader economy. Therefore, the Federal Reserve and Treasury acted to prevent AIG’s disorderly failure. AGP: Under the Asset Guarantee Program (AGP), the government supported institutions whose failure would have caused serious harm to the financial system and the broader economy. It involved supporting the value of certain assets held by qualifying financial institutions by agreeing to absorb a portion of losses on those assets. AGP was conducted jointly by Treasury, the Federal Reserve, and the FDIC and was used in conjunction with other forms of exceptional assistance. … Two institutions received assistance under the AGP - Bank of America and Citigroup. TIP: The Targeted Investment Program (TIP) was created to help stabilize institutions considered systemically significant, to prevent broader disruption of financial markets. Under the TIP, Treasury purchased $20 billion in preferred stock from two institutions, Citigroup Inc. and Bank of America. TALF: The Term Asset-Backed Securities Loan Facility (TALF) is a joint program with the Federal Reserve. The program was launched in March 2009 with the aim of helping to restart the asset-backed securitization (ABS) markets that provide credit to consumers and small businesses. … Under this program, the Federal Reserve Bank of New York made non-recourse loans to buyers of AAA-rated asset-backed securities to help stimulate consumer and business lending. Treasury used TARP funds to provide credit support for these loans. PPIP: On March 23, 2009, Treasury announced the Legacy Securities Public-Private Investment Program (PPIP), which was designed to support market functioning and facilitate price discovery in the markets for legacy Commercial Mortgage-Backed Securities (CMBS) and non-agency Residential Mortgage-Backed Securities (RMBS). CDCI: Treasury created the Community Development Capital Initiative (CDCI) on February 3, 2010 to help viable certified Community Development Financial Institutions (CDFIs) and the communities they serve cope with effects of the financial crisis. Under this program, CDFI banks, thrifts, and credit unions received investments of capital. Eighty-four institutions received investments totaling approximately $570 million. Appendix D: “Transaction Detail” 347 348 APPENDIX C I REPORTING REQUIREMENTS I APRIL 30, 2014 # EESA Section EESA Reporting Requirement Treasury Response to SIGTARP Data Call SIGTARP Report Section SBLF: Established by the Small Business Jobs Act of 2010 (the Act), the Small Business Lending Fund (SBLF) is a dedicated fund designed to provide capital to qualified community banks and community development loan funds (CDLFs) in order to encourage small business lending. The purpose of the SBLF is to encourage Main Street banks and small businesses to work together, help create jobs, and promote economic growth in communities across the nation. SBA 7(a) Securities Purchase Program (formerly known as UCSB): Treasury launched the SBA 7(a) Securities Purchase Program to help unlock credit for small businesses. Under this program, Treasury purchased securities backed by the government guaranteed portion of SBA 7(a) small business loans and provided additional liquidity to the market in order to increase overall small business lending. AIFP: The Automotive Industry Financing Program (AIFP) was launched in December 2008 to prevent the uncontrolled liquidation of Chrysler and General Motors (GM) and the collapse of the U.S. auto industry. ASSP: The Automotive Supplier Support Program was created to ensure that auto suppliers received compensation for their services and products, regardless of the condition of the auto companies that purchase their products.a AWCP: Treasury provided loans to protect warranties on new vehicles purchased from GM and Chrysler during their restructuring periods.a HAMP (a program under MHA): The Home Affordable Modification Program’s goal is to offer homeowners who are at risk of foreclosure reduced monthly mortgage payments that are affordable and sustainable over the long-term. HAMP was designed to help families who are struggling to remain in their homes and show: documented financial hardship and an ability to make their monthly mortgage payments after a modification. HAMP is a voluntary program that supports servicers’ efforts to modify mortgages, while protecting taxpayers’ interests. To protect taxpayers, MHA housing initiatives have pay-for-success incentives. This means that funds are spent only when transactions are completed and only as long as those contracts remain in place. Therefore, funds will be disbursed over many years. 2 3 4 Section 121(c)(B) Section 121(c)(C) Section 121(c)(D) A listing of the troubled assets purchased in each such category described under Section 121(c)(A). Treasury’s authority to make new financial commitments under TARP ended on October 3, 2010. An explanation of the reasons the Treasury Secretary deemed it necessary to purchase each such troubled asset. Treasury’s authority to make new financial commitments under TARP ended on October 3, 2010. A listing of each financial institution from which such troubled assets were purchased. Treasury’s authority to make new financial commitments under TARP ended on October 3, 2010. Information on all transactions as well as additional information about these programs and related purchases is available in TARP Transactions Reports and Monthly 105(a) Reports to Congress posted at www.treasury.gov/initiatives/financial-stability/reports/Pages/ default.aspx. Appendix D: “Transaction Detail” Section 2: “TARP Overview” Appendix C: “Reporting Requirements” of prior SIGTARP Quarterly Reports to Congress Information on all transactions as well as additional information about these programs and related purchases is available in TARP Transactions Reports and Monthly 105(a) Reports to Congress posted at www.treasury.gov/initiatives/financial-stability/reports/Pages/ default.aspx. Appendix D: “Transaction Detail” REPORTING REQUIREMENTS I APPENDIX C I APRIL 30, 2014 # EESA Section EESA Reporting Requirement Treasury Response to SIGTARP Data Call SIGTARP Report Section 5 Section 121(c)(E) A listing of and detailed biographical information on each person or entity hired to manage such troubled assets. There have been no new PPIP fund managers hired between June 30, 2013 and March 31, 2014. Section 2: “Public-Private Investment Program” A current estimate of the total amount of troubled assets purchased pursuant to any program established under Section 101, the amount of troubled assets on the books of Treasury, the amount of troubled assets sold, and the profit and loss incurred on each sale or disposition of each such troubled assets. Treasury published its most recent valuation of TARP investments on 4/10/2014, in its March 2014 Monthly Report to Congress, which will be available on Treasury’s public website at the following link: www.treasury.gov/initiatives/financial-stability/reports/ Pages/Monthly-Report-to-Congress.aspx. A listing of the insurance contracts issued under Section 102. Treasury’s authority to make new financial commitments under TARP ended on October 3, 2010. As such, Treasury cannot issue any new insurance contracts after this date. A detailed statement of all purchases, obligations, expenditures, and revenues associated with any program established by the Secretary of the Treasury under Sections 101 and 102. Treasury’s authority to make new financial commitments under TARP ended on October 3, 2010. 6 7 8 Section 121(c)(F) Section 121(c)(G) Section 121(f) Appendix C: “Reporting Requirements” of prior SIGTARP Quarterly Reports to Congress Table C.1; Section 2: “TARP Overview” Appendix D: “Transaction Detail” Section 2: “TARP Overview” Section 2: “Targeted Investment Program and Asset Guarantee Program” Treasury provides information about TARP obligations, expenditures, and revenues in TARP Transactions Reports available on Treasury’s public website at www.treasury.gov/ initiatives/financial-stability/Pages/default.aspx. Information on obligations and expenditures is also available in the Daily TARP Update reports available on Treasury’s public website at: www.treasury.gov/initiatives/financialstability/reports/Pages/Daily-TARP-Reports.aspx. Table C.1; Section 2: “TARP Overview” Section 4: “TARP Operations and Administration” Appendix D: “Transaction Detail” Notes: a Description is as of 7/11/2013. Sources: Program Descriptions: Treasury, “TARP Programs,” www.treasury.gov/initiatives/financial-stability/TARP-Programs/Pages/default.aspx#, accessed 4/1/2014; ASSP: “Treasury Announces Auto Suppliers Support Program,” 3/19/2009, www.treasury.gov/press-center/press-releases/Pages/tg64.aspx, accessed 4/1/2014; AWCP: “Obama Administration’s New Warrantee Commitment Program,” no date, www.whitehouse.gov/assets/documents/Warrantee_Commitment_Program.pdf, accessed 4/1/2014; TALF: Federal Reserve, “Term Asset-Backed Securities Loan Facility (TALF) Frequently Asked Questions,” 3/3/2009, www.federalreserve.gov/newsevents/press/monetary/monetary20090303a2.pdf, accessed 4/1/2014; SBLF: Small Business Lending Act, P.L. 111-240, 9/27/2010, www.gpo. gov/fdsys/pkg/PLAW-111publ240/html/PLAW-111publ240.htm, accessed 4/1/2014; MHA “Making Home Affordable Updated Detailed Description Update,” 11/23/2012, www.treasury.gov/initiatives/ financial-stability/TARP-Programs/housing/mha/Pages/default.aspx, accessed 4/1/2014. 349 350 APPENDIX C I REPORTING REQUIREMENTS I APRIL 30, 2014 TABLE C.1 TOTAL AMOUNT OF TROUBLED ASSETS PURCHASED AND HELD ON TREASURY’S BOOKS (NUMBERS IN PARENTHESES REPRESENT REPAYMENTS AND REDUCTIONS IN EXPOSURE) Total Funding ($ BILLIONS) Obligations After DoddFrank (As of 10/3/2010) Current Obligations (As of 3/31/2014) Expended On Treasury’s Booksa Housing Support Programs $70.6b $45.6 $38.5c $11.7 $—d Capital Purchase Program (“CPP”) 204.9 (196.0)e 204.9 204.9 204.9 6.7 Community Development Capital Initiative (“CDCI”) 0.6 (0.1) 0.6 0.6f 0.2 0.5 Systemically Significant Failing Institutions (“SSFI”) 69.8 (56.4)g 69.8 67.8h 67.8 13.5 Targeted Investment Program (“TIP”) 40.0 (40.0) 40.0 40.0 40.0 0.0 301.0 (301.0) 5.0 5.0 0.0 0.0 Automotive Industry Support Programs (“AIFP”)i 81.8j (61.2) 81.8 79.7 79.7 20.6 Term Asset-Backed Securities Loan Facility (“TALF”) 71.1 (0.1)k 4.3 0.1 0.1 0.0 Public-Private Investment Program (“PPIP”) 29.8 (18.6)l 22.4 19.6 18.6 0.0m 0.4n (0.4) 0.4 0.4 0.4 0.0 $868.9 $474.8 $456.5 $423.4o $41.2 Asset Guarantee Program (“AGP”) Unlocking Credit for Small Businesses (“UCSB”) Total Notes: Numbers may not total due to rounding. a “On Treasury’s Books” includes amounts disbursed and still outstanding of $8.1 billion, plus write-offs, realized losses, and investments currently not collectible because of pending bankruptcies or receiverships, totaling $33.2 billion. It does not include $11.7 billion in TARP dollars spent on housing programs. These programs are designed as Government subsidies, with no repayments to taxpayers expected. b Program was initially announced as a $75 billion initiative funded through TARP. Treasury reduced the commitment from $50 billion to an obligation of $45.6 billion; therefore, including the $25 billion estimated to be spent by the GSE’s, the total program amount is $70.6 billion. 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 Housing support programs were designed as a Government subsidy, with no repayment to taxpayers expected. e Includes $363.3 million in non-cash conversions from CPP to CDCI, which is not included in the total of $368.3 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. f 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. g The $56.4 billion in reduced exposure and repayments for SSFI includes the cancellation of the series G capital facility. Does not include AIG investment proceeds from the sale of AIG stock that Treasury received from the AIG credit facility trust in the January 2011 recapitalization. h Treasury deobligated $2 billion of an equity facility for AIG that was never drawn down. i 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. j Treasury deobligated $2.1 billion of a Chrysler credit facility that was never drawn down. k 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. l 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. m 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 March 31, 2014, except for Invesco. n Treasury reduced commitment from $15 billion to an obligation of $400 million. o 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: Repayments data: Treasury, Transactions Report, 3/19/2014; Treasury, Daily TARP Update, 4/1/2014. ($50,000.00) Warrant Sales $0.00 111,000 $1,000.00 $488.70 $1,000.00 Alarion Financial Services, Inc., Ocala, FL8,14 Adbanc, Inc, Ogallala, NE8,14,44 AB&T Financial Corporation, Gastonia, NC 11/16/2012 9/20/2012 9/19/2012 9/18/2012 3/27/2009 4/24/2009 3/26/2013 2/7/2013 2/6/2013 6/26/2009 6/17/2009 5/13/2009 12/19/2008 4/9/2013 3/28/2013 3/27/2013 6/26/2009 3/26/2013 Alpine Banks of Colorado, Glenwood Springs, CO8,14 Allied First Bancorp, Inc., Oswego, IL8 Alliance Financial Services Inc., Saint Paul, MN14,15 Alliance Financial Corporation, Syracuse, NY11 Alliance Bancshares, Inc., Dalton, GA Alaska Pacific 11/29/2012 Bancshares, Inc., Juneau, AK 1/11/2013 11/28/2012 2/6/2009 9/12/2013 7/22/2013 7/19/2013 1/23/2009 7/21/2011 1/30/2009 3/19/2014 2/10/2014 1/6/2014 11/19/2013 1/23/2009 $70,000,000.00 $3,652,000.00 $12,000,000.00 $26,918,000.00 $2,986,000.00 $4,781,000.00 $6,514,000.00 $12,720,000.00 $3,500,000.00 $10,000,000.00 $73,129,160.69 $409,753.00 $9,806,136.60 $28,356,360.00 $3,581,397.27 $5,130,973.44 $7,674,004.73 $15,071,769.00 $1,274,909.59 $10,870,902.67 $50,160,264.00 $6,559,920.24 $280,115.76 $5,626,575.00 $3,375,945.00 $26,918,000.00 $2,856,437.46 $4,058,697.67 $208,870.74 $5,524,880.90 $877,729.70 $12,720,000.00 $150,621.36 $815,100.00 $10,000,000.00 ($570,003.00) ($90,025.20) ($25,000.00) ($7,324.33) ($42,675.67) ($64,026.11) ($1,506.21) $0.00 $3,652,000.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 61,600 8,056 344 7,500,000 4,500,000 26,918 2,986 4,547 234 5,621 893 12,720 536 2,964 10,000 $814.30 $814.30 $814.30 $0.75 $0.75 $1,000.00 $956.60 $892.60 $892.60 $982.90 $982.90 $1,000.00 $281.00 $275.00 $1,000.00 ($2,148,900.00) ($11,439,736.00) ($1,496,079.76) ($63,884.24) ($1,873,425.00) ($1,124,055.00) ($129,562.54) ($488,302.33) ($25,129.26) ($96,119.10) ($15,270.30) ($385,378.64) $3,291,750.00 $504,900.00 $900,000.00 $44,746.31 $94,153.69 $337,363.35 $636,000.00 $500,000.00 $111,000,000.00 16,369 10,400 3/13/2009 1st United Bancorp, Inc., 11/18/2009 Boca Raton, FL8,11,14 $125,480,000.00 $0.00 $0.00 $3,750,000.00 $111,000,000.00 $9,229,948.97 $11,748,156.44 1st Source 12/29/2010 Corporation, South Bend, IN11 3/9/2011 1/23/2009 $4,400,000.00 $8,000,000.00 Gain4 $16,369,000.00 ($8,369,000.00) (Realized Loss) / (Write-off) 11/14/2008 1st FS Corporation, Hendersonville, 12/31/2013 NC102 $1,000.00 Average Price of Shares Disposed $220,000.00 12,000 Number of Shares Disposed $10,400,000.00 $0.00 Remaining Capital Amount $6,000,000.00 $12,000,000.00 Auction Fee3 2/13/2009 1st Enterprise 12/11/2009 Bank, Los Angeles, CA8,14,18,44 9/1/2011 $13,433,242.67 Capital Repayment / Total Cash Back2 Disposition / Auction2,4 $326,576.00 $12,000,000.00 Investment Amount 1st Constitution 10/27/2010 Bancorp, Cranbury, NJ11 11/22/2011 12/23/2008 Transaction Date Institution TABLE D.1 CPP TRANSACTIONS DETAIL, AS OF 3/31/2014 TRANSACTION DETAIL $0.80 $24.46 $25.69 $0.40 $7.66 $32.09 $0.38 $22.00 $10.39 Stock Price as of 3/31/14 $13,407,113.69 $409,753.00 $388,741.80 $538,360.00 $611,059.81 $913,405.03 $998,056.89 $1,715,769.00 $360,694.44 $370,902.67 $10,730,000.00 $1,229,948.97 $1,128,156.44 $1,106,666.67 Dividend/Interest Paid to Treasury Continued on next page Current Outstanding Warrants TRANSACTION DETAIL I APPENDIX D I APRIL 30, 2014 351 9/30/2009 8/5/2009 12/19/2008 8/18/2011 7/10/2009 7/14/2011 3/13/2009 8/28/2013 7/31/2013 1/30/2009 9/15/2011 2/27/2009 3/19/2014 2/10/2014 2/7/2014 12/29/2009 12/6/2011 9/14/2011 4/6/2011 11/21/2008 3/6/2013 4/18/2012 1/30/2009 9/27/2013 1/30/2009 4/9/2013 3/28/2013 3/27/2013 3/26/2013 8/21/2009 11/2/2011 8/11/2011 12/19/2008 8/22/2012 6/19/2012 11/21/2008 11/2/2011 Bancorp Rhode Island, Inc., Providence, RI11 Bancorp Financial, Inc., Oak Brook, IL8,17,44 BancIndependent, Inc., Sheffield, AL8,44 Avidbank Holdings, Inc./Peninsula Bank Holding Co.11 Avenue Financial Holdings, Inc., Nashville, TN8,14,44 Atlantic Bancshares, Inc., Bluffton, SC8,17 Associated Banc-Corp, Green Bay, WI11 Annapolis Bancorp, Inc. Annapolis, MD11,90 Anchor BanCorp Wisconsin Inc., Madison, WI94 AmFirst Financial Services, Inc., McCook, NE14,15 AmeriServ Financial, Inc, Johnstown, PA45 Ameris Bancorp, Moultrie, GA American State Bancshares, Inc., Great Bend, KS8,11,14 1/9/2009 1/26/2011 American Premier Bancorp, Arcadia, CA8,11,14 American Express Company, New York, NY11 AmeriBank Holding Company, Collinsville, OK8,14,44 AMB Financial Corp., Munster, IN8,14,45 5/29/2009 7/29/2009 6/17/2009 1/9/2009 9/15/2011 3/6/2009 9/22/2011 1/30/2009 Transaction Date Institution $30,000,000.00 $13,669,000.00 $21,100,000.00 $6,000,000.00 $7,400,000.00 $2,000,000.00 $525,000,000.00 $8,152,000.00 $110,000,000.00 $5,000,000.00 $21,000,000.00 $52,000,000.00 $6,000,000.00 $1,800,000.00 $3,388,890,000.00 $2,492,000.00 $3,674,000.00 Investment Amount (CONTINUED) $32,341,666.66 $15,595,736.93 $24,841,411.03 $7,563,057.15 $8,798,415.33 $2,503,554.78 $596,539,172.32 $9,643,136.33 $6,000,000.00 $6,523,255.00 $24,601,666.66 $59,637,438.67 $7,220,141.67 $2,052,682.49 $3,803,257,308.33 $2,960,021.33 $4,387,576.45 $30,000,000.00 $13,669,000.00 $21,100,000.00 $6,000,000.00 $7,400,000.00 $50,000.00 $1,950,000.00 $262,500,000.00 $262,500,000.00 $4,076,000.00 $4,076,000.00 $6,000,000.00 $2,328,960.00 $2,112,000.00 $359,040.00 $21,000,000.00 $48,391,200.00 $6,000,000.00 $1,800,000.00 $3,388,890,000.00 $2,492,000.00 $3,674,000.00 Capital Repayment / Total Cash Back2 Disposition / Auction2,4 CPP TRANSACTIONS DETAIL, AS OF 3/31/2014 ($25,000.00) ($48,000.00) ($725,868.00) Auction Fee3 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Remaining Capital Amount 30,000 13,669 21,100 6,000 7,400 50 1,950 262,500 262,500 4,076 4,076 60,000,000 2,426,000 2,200,000 374,000 21,000 52,000 6,000 1,800 3,388,890 2,492 3,674 Number of Shares Disposed $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,150.00 $1,150.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $0.10 $0.96 $0.96 $0.96 $1,000.00 $930.60 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 Average Price of Shares Disposed ($104,000,000.00) ($97,040.00) ($88,000.00) ($14,960.00) ($3,608,800.00) (Realized Loss) / (Write-off) $7,500.00 $292,500.00 Gain4 $1,400,000.00 $410,000.00 $1,055,000.00 $190,781.12 $370,000.00 $10,798.98 $95,031.02 $3,435,005.65 $259,875.00 $825,000.00 $2,670,000.00 $300,000.00 $90,000.00 $340,000,000.00 $125,000.00 $184,000.00 Warrant Sales $2.40 $18.06 $13.40 $18.75 $3.85 $23.30 $90.03 $7.05 Stock Price as of 3/31/14 $941,666.66 $1,516,736.93 $2,686,411.03 $1,372,276.03 $1,028,415.33 $122,724.78 $68,104,166.67 $1,511,380.00 $2,776,666.66 $9,302,106.67 $920,141.67 $162,682.49 $74,367,308.33 $343,021.33 $529,576.45 Dividend/Interest Paid to Treasury Continued on next page Current Outstanding Warrants 352 APPENDIX D I TRANSACTION DETAIL I APRIL 30, 2014 BancStar, Inc., Festus, MO8,14 BancPlus Corporation, Ridgeland, MS8,11,14 6/12/2013 4/3/2012 11/21/2008 3/26/2013 1/11/2013 11/9/2012 2/13/2009 9/8/2011 1/23/2009 1/30/2009 11/24/2009 11/4/2009 12/12/2008 4/17/2009 8/5/2009 6/17/2009 10/28/2008 11/23/2011 3/31/2009 12/5/2008 1/6/2014 10/21/2013 3/13/2009 10/26/2011 9/27/2011 11/14/2008 1/11/2013 11/30/2012 1/16/2009 3/9/2010 12/9/2009 1/9/2009 10/28/2008 3/26/2013 Banner Corporation, Walla Walla, WA BankGreenville, Greenville, SC8,14 BankFirst Capital Corporation, Macon, MS8,14,44 Bankers’ Bank of the West Bancorp, Inc., Denver, CO8 Bank of the Ozarks, Inc., Little Rock, AR11 Bank of the Carolinas Corporation, Mocksville, NC Bank of New York Mellon, New York, NY11 Bank of Marin Bancorp, Novato, CA11 Bank of George, Las Vegas, NV8 Bank of Commerce Holdings, Redding, CA44 Bank of Commerce, Charlotte, NC8,14 Bank of America Corporation, Charlotte, NC6,7,11 Bank Financial 12/20/2012 Services, Inc., Eden Prairie, MN8,14 1/11/2013 12/19/2012 8/14/2009 12/19/2008 BancTrust Financial Group, Inc., 2/15/2013 Mobile, AL83 5/31/2013 4/29/2013 4/26/2013 4/3/2009 9/29/2010 2/20/2009 Transaction Date Institution $124,000,000.00 $1,000,000.00 $15,500,000.00 $12,639,000.00 $75,000,000.00 $13,179,000.00 $3,000,000,000.00 $28,000,000.00 $2,672,000.00 $17,000,000.00 $3,000,000.00 $10,000,000,000.00 $15,000,000,000.00 $1,004,000.00 $50,000,000.00 $8,600,000.00 $48,000,000.00 Investment Amount (CONTINUED) $129,079,862.47 $1,100,653.50 $18,492,469.25 $3,598,065.85 $109,717,680.00 $900,000.00 $15,500,000.00 ($1,645,765.20) ($16,000.00) $0.00 $0.00 $0.00 $12,639,000.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $81,004,166.67 ($9,000.00) ($25,000.00) ($25,000.00) ($15,670.63) ($9,329.37) ($84,509.62) $0.00 $0.00 Remaining Capital Amount $13,179,000.00 $75,000,000.00 $3,000,000,000.00 $28,000,000.00 $955,240.00 $17,000,000.00 $2,502,000.00 $25,000,000,000.00 $481,335.96 $451,600.92 $50,000,000.00 $8,352,695.00 $98,267.00 $48,000,000.00 Auction Fee3 $1,039,677.00 $3,231,416,666.67 $30,155,095.11 $1,233,940.00 $19,564,027.78 $3,087,573.33 $26,599,663,040.28 $1,114,680.76 $60,451,155.74 $10,701,460.58 $54,607,399.33 Capital Repayment / Total Cash Back2 Disposition / Auction2,4 CPP TRANSACTIONS DETAIL, AS OF 3/31/2014 124,000 1,000 15,500 75,000 3,000,000 28,000 2,672 17,000 3,000 1,000,000 518 486 50,000 8,500 100 48,000 Number of Shares Disposed $884.80 $900.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $357.50 $1,000.00 $834.00 $25,000.00 $929.20 $929.20 $1,000.00 $982.70 $982.70 $1,000.00 Average Price of Shares Disposed ($14,282,320.00) ($100,000.00) ($1,716,760.00) ($498,000.00) ($36,664.04) ($34,399.08) ($147,305.00) ($1,733.00) (Realized Loss) / (Write-off) Gain4 $134,201.00 $21,880.50 $775,000.00 $2,650,000.00 $136,000,000.00 $1,703,984.00 $23,709.00 $125,000.00 $100,100.00 $305,913,040.28 $23,500.00 $15,000.00 $426,338.55 $2,400,000.00 Warrant Sales $41.21 $68.06 $0.50 $35.29 $45.06 $6.14 $17.20 $25.35 Stock Price as of 3/31/14 $20,873,746.67 $203,773.00 $2,217,469.25 $3,598,065.85 $3,354,166.67 $1,039,677.00 $95,416,666.67 $451,111.11 $279,991.00 $2,439,027.78 $510,473.33 $1,293,750,000.00 $183,243.88 $10,436,155.74 $1,908,669.65 $4,207,399.33 Dividend/Interest Paid to Treasury Continued on next page 475,204 730,994 Current Outstanding Warrants TRANSACTION DETAIL I APPENDIX D I APRIL 30, 2014 353 Bern Bancshares, Inc., Bern, KS8,14,44 Berkshire Hills Bancorp, Inc., Pittsfield, MA11 Biscayne Bancshares, Inc., Coconut Grove, FL15,17 Blackridge Financial, Inc., Fargo, ND8,14 2/10/2012 3/6/2009 Blue River Bancshares, Inc., Shelbyville, IN8,64,97 Blue Ridge 10/29/2012 Bancshares, Inc., 10/31/2012 Independence, MO8,14 1/11/2013 3/6/2009 9/12/2012 6/27/2012 5/22/2009 1/11/2013 10/29/2012 Blackhawk Bancorp, Inc., 10/31/2012 Beloit, WI8,14 3/13/2009 3/26/2013 2/8/2013 2/7/2013 6/19/2009 Birmingham Bloomfield 12/18/2009 Bancshares, Inc, Birmingham, 7/28/2011 MI8,14,18,44 4/24/2009 9/1/2011 2/13/2009 6/24/2009 5/27/2009 12/19/2008 Berkshire Bancorp, Inc./Customers 9/19/2011 Bancorp, Inc., Phoneixville, 12/28/2011 PA8,11,14 $5,000,000.00 $12,000,000.00 $5,000,000.00 $10,000,000.00 $6,400,000.00 $1,744,000.00 $1,635,000.00 $985,000.00 $40,000,000.00 $2,892,000.00 $3,444,478.21 $529,105.00 $11,938,437.34 $6,127,326.35 $11,459,461.11 $8,271,975.28 $3,803,022.67 $1,172,062.50 $41,917,777.78 ($62,329.60) $0.00 ($90,600.00) $0.00 26 11,974 $9,040,370.00 $0.00 2,250 2,750 $19,630.00 $2,750,000.00 $2,250,000.00 205 9,795 3,800,000 2,600,000 3,379 985 $8,913,450.00 ($91,000.00) $0.00 $0.00 $0.00 $0.00 40,000 $186,550.00 $3,700,820.00 $2,532,140.00 $3,379,000.00 $985,000.00 $0.00 2,892 $40,000,000.00 2,892 $0.00 $0.00 300 1,200 $2,892,000.00 $300,000.00 6/27/2012 6/12/2009 $1,200,000.00 6/6/2012 1,500 1,500 10,800 3,134 18,751 795 $1,500,000.00 $0.00 $0.00 $1,706,000.00 $0.00 $0.00 $0.00 Number of Shares Disposed 1,500 $10,800,000.00 $3,133,640,000.00 $18,751,000.00 $795,000.00 Remaining Capital Amount $1,500,000.00 $7,263,316.66 $13,371,500.00 $173,507.50 $3,293,353,918.53 $20,037,514.11 $942,411.42 Auction Fee3 10/19/2011 Beach Business Bank, Manhattan 3/7/2012 Beach, CA8,11,14 $6,000,000.00 $10,800,000.00 $1,706,000.00 $3,133,640,000.00 $18,751,000.00 $795,000.00 Capital Repayment / Total Cash Back2 Disposition / Auction2,4 $1,500,000.00 BCSB Bancorp, Inc., Baltimore, MD11 BCB Holding Company, Inc., Theodore, AL8 BB&T Corp., Winston-Salem, NC11 Bar Harbor Bankshares, Bar Harbor, ME12,16 Banner County Ban Corporation, Harrisburg, NE8,14,44 Investment Amount (CONTINUED) 7/6/2011 1/30/2009 4/19/2013 1/26/2011 12/23/2008 4/3/2009 7/22/2009 6/17/2009 11/14/2008 7/28/2010 2/24/2010 1/16/2009 7/28/2011 2/6/2009 Transaction Date Institution CPP TRANSACTIONS DETAIL, AS OF 3/31/2014 $755.00 $755.00 $1,000.00 $1,000.00 $910.00 $910.00 $0.97 $0.97 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000,000.00 $1,000.00 $1,000.00 Average Price of Shares Disposed ($5,000,000.00) ($2,933,630.00) ($6,370.00) ($881,550.00) ($18,450.00) ($99,180.00) ($67,860.00) (Realized Loss) / (Write-off) Gain4 $541,793.34 $250,000.00 $470,250.00 $140,347.75 $64,158.97 $82,000.00 $50,000.00 $1,040,000.00 $145,000.0
@FedFRASER