THE DEPARTMENT OF THE TREASURY

Agency Financial 

Report

Office of Financial Stability – Troubled Asset Relief Program

F i s c a l Ye a r 2 0 1 2
Robert F. Dacey, CGFM, CPA 

Chair, Certificate of Excellence 

in Accountability Reporting Board

Relmond P. Van Daniker, DBA, CPA 

Executive Director, AGA

 CERTIFICATE OF 

 EXCELLENCE IN 

ACCOUNTABILITY

 REPORTING®

BEST-IN-CLASS AWARD

Presented to the

In recognition for Providing the

Most Innovative Approach to 

Communicating Technical Information

in your FY2011 Agency Financial Report

U.S. Department 

of the Treasury, 

Office of 

Financial Stability

 CERTIFICATE OF 

 EXCELLENCE IN 

ACCOUNTABILITY

 REPORTING®

Presented to the

In recognition of your outstanding 

efforts in preparing the Agency Financial 

Report and Summary of Performance 

and Financial Information for the 

fiscal year ended September 30, 2011.

A Certificate of Excellence in Accountability Reporting is presented

by AGA to federal government agencies whose annual 

Performance and Accountability Reports achieve the 

highest standards demonstrating accountability 

and communicating results.

U.S. Department 

of the Treasury, 

Office of 

Financial Stability

Relmond P. Van Daniker, DBA, CPA 

Executive Director, AGA

Robert F. Dacey, CGFM, CPA 

Chair, Certificate of Excellence 

in Accountability Reporting Board

THE DEPARTMENT OF THE TREASURY

1789

THE DEPARTMENT OF THE TREASURY

Office of Financial Stability – Troubled Asset Relief Program

Agency Financial Report

Fiscal Year 2011

11-15-11_teal OFS-TARP_AFR covers_UPDATE.indd 1 11/28/11 10:54 AM

2 0 11 C E RT I F I C AT E S O F E X C E L L E N C E
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

TABLE OF CONTENTS iii

Table of Contents 

MESSAGE FROM THE ASSISTANT SECRETARY FOR FINANCIAL STABILITY ......................................... v

EXECUTIVE SUMMARY ................................................................................................................................................ vii

Part 1: Management’s Discussion and Analysis

Background, Mission, and OFS Organization Structure ................................................................................... 2

Overview of TARP for Fiscal Year 2012 ................................................................................................................. 4

Key Trends/Factors Affecting TARP Future Activities and Ultimate Cost .............................................12

Systems, Controls, and Legal Compliance ...........................................................................................................14

Limitations of the Financial Statements ...............................................................................................................17

Operational Goals ..........................................................................................................................................................18

Operational Goal One: Ensure the Overall Stability and Liquidity of the Financial System ..........18

Capital Purchase Program ..................................................................................................................................18

Targeted Investment Program .........................................................................................................................20

Asset Guarantee Program ..................................................................................................................................20

Community Development Capital Initiative ...............................................................................................21

Public-Private Investment Program ..............................................................................................................21

Term Asset-Backed Securities Loan Facility ..............................................................................................23

Small Business Administration 7(a) Securities Purchase Program ..................................................23

Automotive Industry Financing Program ....................................................................................................24

American International Group, Inc. (AIG) Investment Program ........................................................27

Operational Goal Two: Prevent Avoidable Foreclosures and Preserve Homeownership ..............28

Operational Goal Three: Protect Taxpayers’ Interests..................................................................................33

Operational Goal Four: Promote Transparency ...............................................................................................34

Part 2: Financial Section

MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CF0) ............................................................................40

GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT .............................................................41

Appendix I: Management’s Report on Internal Control Over Financial Reporting ....................47

Appendix II: OFS Response to Auditor’s Report.......................................................................................48

FINANCIAL STATEMENTS .........................................................................................................................................49

NOTES TO THE FINANCIAL STATEMENTS .........................................................................................................54

REQUIRED SUPPLEMENTARY INFORMATION ................................................................................................. 86

OTHER ACCOMPANYING INFORMATION – SCHEDULE OF SPENDING ..................................................88

Part 3: Appendices

APPENDIX A: TARP GLOSSARY ........................................................................................................................91

APPENDIX B: ABBREVIATIONS AND ACRONYMS....................................................................................93

WEBSITES .......................................................................................................................................... inside back cover

 
This page intentionally left blank. 
MESSAGE FROM THE ASSISTANT SECRETARY v 

MESSAGE FROM THE ASSISTANT SECRETARY 

FOR FINANCIAL STABILITY 

November 9, 2012

I am pleased to present the Office of Financial Stability’s (OFS) Agency 

Financial Report for Fiscal Year (FY) 2012, which describes our 

financial and performance results for the fourth year of the Troubled 

Asset Relief Program (TARP). The report contains the financial 

statements for TARP and the Government Accountability Office (GAO) 

audit opinion on those financial statements, a separate opinion on 

OFS’ internal control over financial reporting, and results of GAO’s 

tests of OFS’ compliance with selected laws and regulations. 

The Emergency Economic Stabilization Act of 2008 (EESA) established 

OFS within the Office of Domestic Finance of the Department of the 

Treasury to implement TARP, the purpose of which was to ―restore the 

liquidity and stability of the financial system‖. 

By any reasonable objective standards, TARP worked: it helped stop 

widespread financial panic, it helped prevent what could have been a devastating collapse of our 

financial system, and it did so at a cost that is far less than what most people expected at the time 

the law was passed. 

Four years after TARP’s establishment, OFS has made substantial progress in withdrawing the 

extraordinary assistance that had to be provided during the financial crisis. OFS has moved quickly 

to reduce the dependence of the financial system on emergency assistance, replacing public support 

with private capital. 

As of September 30, 2012, OFS has collected 88.5 percent of the $417.6 billion in program funds 

disbursed under TARP. During fiscal year 2012, OFS has focused on winding down TARP overall 

and can report the following significant highlights: 

 Working with the Federal Reserve Bank of New York (FRBNY), we made substantial 

progress winding down the investments in American International Group. Inc. (AIG). The 

peak amount of assistance offered to AIG by the FRBNY and Treasury was $182.3 billion, a 

part of which was later cancelled, and an amount in excess of the total disbursed has now 

been recovered through repayments, sales and other income. OFS disbursed a total of $67.8 

billion to AIG and has collected $50.3 billion to date. Treasury still holds 15.9 percent of 

AIG’s outstanding common stock of which OFS holds 10.5 percent. Further detail is 

provided in the Executive Summary. 

 We continued winding down the bank support programs. On May 3, 2012, we announced 

our exit strategy for the remaining investments in the Capital Purchase Program (CPP). 

That exit strategy uses a combination of repayments, restructurings, and auction sales. 

During fiscal year 2012, we collected $8.9 billion in repayments, sales, and dividends on 

CPP investments. As of September 30, 2012, we had collected a total of $267.0 billion for all 

TARP bank support programs through repayments, sales, dividends, interest, and other 

income – compared to the $245.5 billion that was initially invested. 
vi MESSAGE FROM THE ASSISTANT SECRETARY 

 We also reduced the overall amount that remains outstanding in OFS’ credit market 

programs. On January 24, 2012, we completed the wind down of the SBA 7(a) Securities 

Purchase Program, collecting $9 million more than we disbursed. Progress was also made 

winding down the Term Asset Backed Securities Loan Facility (TALF), when Treasury and 

the Federal Reserve agreed in June 2012 to further reduce the credit protection Treasury 

provides the TALF LLC from $4.3 billion to $1.4 billion because the outstanding TALF loan 

balances declined. In addition, OFS collected a total of $8.9 billion in fiscal year 2012 

through loan repayments, interest and equity distributions under the Public Private 

Investment Program (PPIP). 

The financial and performance data included in this report are reliable and complete. For the fourth 

consecutive year, OFS has earned unqualified opinions on its financial statements and its internal 

control over financial reporting from the U.S. Government Accountability Office. In addition, OFS 

successfully resolved its one fiscal year 2011 significant deficiency relating to internal control 

surrounding financial reporting. 

OFS’ authority to make new commitments expired on October 3, 2010. Since that time, our focus 

has been managing the remaining TARP investments to protect taxpayers’ interests while 

maintaining financial stability. We continue to achieve these measures while maintaining 

comprehensive financial and performance accountability and transparency standards. OFS also 

continues to implement the housing programs funded under TARP, which are designed to prevent 

avoidable foreclosures, primarily by helping homeowners achieve mortgage modifications. There will 

be a cost related to our assistance to helping people avoid foreclosure, which is money that was never 

expected to be returned, but these efforts have directly helped more than one million people avoid 

foreclosure and indirectly helped millions more by setting new standards throughout the mortgage 

servicing industry. 

Sincerely, 

Timothy G. Massad 

Assistant Secretary 

Office of Financial Stability 

 

 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

EXECUTIVE SUMMARY vii

EXECUTIVE SUMMARY 

 

Treasury’s Office of Financial Stability (OFS) 

presents to the reader the Fiscal Year 2012 

Agency Financial Report for the Troubled Asset 

Relief Program (TARP), established by the 

Department of the Treasury (Treasury) 

pursuant to the Emergency Economic 

Stabilization Act of 2008 (EESA). Four years 

after TARP’s establishment, substantial 

progress has been made in stabilizing the 

financial system and OFS has recovered most of 

the assistance that was provided during the 

crisis. 

Four years ago, the U.S. financial system was at 

risk of collapse and many major financial 

institutions were at risk of failure. Markets had 

ceased to function. Without immediate and 

forceful government action, our country faced 

the possibility of a second Great Depression, 

which would have had profound consequences 

for all Americans. 

In this environment of fear and panic, TARP 

was created as a central part of a series of 

emergency measures. The goal of TARP, along 

with other federal government actions, was to 

stop the panic and prevent a collapse of the U.S. 

financial system, and restore stability and 

liquidity to the system. TARP, in conjunction 

with other federal government actions, helped to 

prevent that collapse by helping stabilize the 

banking sector and unfreeze the markets for 

credit and capital, bringing down the cost of 

borrowing for businesses, individuals, and state 

and local governments, restoring confidence in 

the financial system and restarting economic 

growth. TARP’s initiatives were done faster, and 

at a much lower cost, than many anticipated. 

For a more comprehensive overview on the 

impact of the combined actions of the Treasury, 

the Federal Reserve, and the Federal Deposit 

Insurance Corporation (FDIC), please see ―The 

Financial Crisis Response in Charts, 

http://www.treasury.gov/resource-center/datachartcenter/Documents/20120413_FinancialCrisisRes

ponse.pdf. 

As of October 3, 2010, OFS’ authority to make 

new commitments under TARP expired. 

Throughout fiscal year 2012, OFS focused 

principally on (i) exiting remaining investments 

in a timely and orderly manner consistent with 

the duty to promote financial stability and 

protect taxpayers’ interests that maximizes the 

return for taxpayers, and (ii) continuing to help 

homeowners avoid preventable foreclosures. 

OFS has taken several steps toward executing 

its strategy for winding down the TARP and 

exiting the remaining TARP programs. 

 Treasury, including OFS, and the 

FRBNY made substantial progress in 

winding down the investments related 

to the AIG, such that the total amounts 

collected now exceed the combined 

disbursements since inception. The 

peak amount of assistance offered to 

AIG by the FRBNY and Treasury was 

$182.3 billion, a part of which was later 

cancelled, and an amount in excess of 

the total disbursed has now been 

recovered through repayments, sales 

and other income. Of these amounts, 

OFS disbursed a total of $67.8 billion to 

AIG and collected $50.3 billion to date. 

During fiscal year 2012, Treasury, 

including OFS, substantially reduced 

its common stock investment in AIG 

through several sales with $38.2 

billion1 in collections. As of September 

30, 2012, Treasury held approximately 

234 million shares of AIG common 

stock, with a fair value of 

 

1Because the Treasury AIG common stock has 

consisted of both ―TARP shares‖ and ―non-TARP 

shares‖ as discussed herein, a portion of the proceeds 

received as well as the remaining common shares held 

are not included in the TARP financial statements. 

OFS manages the sale of both the TARP and nonTARP AIG common shares on a pro-rata basis. 

During fiscal year 2012, the collections from common 

stock sales consisted of $25.2 billion in respect of 

TARP shares (representing proceeds less than cost of 

$9.9 billion) and $13.0 billion in respect of Treasury’s 

non-TARP shares (which were provided to Treasury 

at no cost). 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

viii EXECUTIVE SUMMARY

approximately $7.7 billion, 

representing approximately 15.9 

percent2 of the company. OFS’ 

preferred interests in an AIG SPV were 

also repaid in full, resulting in 

additional collections of $9.6 billion 

during fiscal year 2012. 

 OFS has continued to wind down the 

bank support programs, and, through 

September 30, 2012, had collections of 

$267.0 billion in repayments, sales, 

dividends, interest, and fees –

compared to the $245.5 billion that was 

initially invested. Of the 707 original 

Capital Purchase Program (CPP) 

institutions, OFS held outstanding 

investments in 290 banks as of 

September 30, 2012. All participants in 

the Targeted Investment Program (TIP) 

have fully repaid OFS and no claim 

payments were made under the Asset 

Guarantee Program. 

 OFS also reduced the overall amount 

that remains outstanding in TARP’s 

credit market programs. The SBA 7(a) 

Securities Purchase Program, one of the 

credit market programs created under 

TARP to help restart the flow of credit 

to small businesses, was closed on 

January 24, 2012. OFS invested $367 

million (excluding purchased accrued 

interest) in the program and collected 

$376 million through sales, principal 

and interest payments, representing 

approximately $9 million more in 

collections than funds disbursed. OFS 

also made progress winding down the 

Term Asset Backed Securities Loan 

Facility (TALF), when Treasury and the 

Federal Reserve agreed to further 

reduce the credit protection OFS 

provides the TALF, LLC from $4.3 

billion to $1.4 billion because of the 

 

2

Treasury’s shares consist of approximately 154 

million TARP shares (10.5 percent of the total AIG 

common shares outstanding) and 80 million nonTARP shares (5.4 percent). The fair value of TARP 

and non-TARP shares as of September 30, 2012, was 

$5.1 billion and $2.6 billion, respectively.

continued decline in outstanding TALF 

loans. In addition, collections under the 

Public Private Investment Program 

(PPIP) totaled $8.9 billion during fiscal 

year 2012 through loan repayments, 

interest and equity distributions. The 

outstanding balance on the program 

was reduced to $9.8 billion at the end of 

the fiscal year. 

The estimated cost of TARP is significantly 

below original projections. In the August 2009 

Midsession Review of the President’s 2010 

Budget, the lifetime cost of TARP, based on 

budget scoring conventions, was projected to be 

$340.5 billion (assuming the full $700.0 billion of 

TARP authority was utilized). Estimated 

lifetime TARP cost have significantly decreased 

since August 2009 with the most recent 

September 30, 2012 lifetime cost estimated at 

$59.7 billion (see table 5 for lifetime cost 

estimates as of September 30, 2012, 2011, 2010, 

and 2009). During this four year period, TARP’s 

purchase authority decreased from $700 billion 

to $467.0 billion.3

The accrual-based cost of TARP activities from 

inception, on October 3, 2008, through 

September 30, 2012, based on the OFS financial 

statements, was $20.3 billion. Note that the 

lifetime cost of TARP, based on budget scoring 

conventions, differs from the cost based on the 

OFS financial statements. Estimates of lifetime 

costs, based on budget scoring conventions, 

assume that all planned expenditures are made 

and, for certain programs, include additional 

assumptions about the impact of potential sale 

strategies. By contrast, the TARP financial 

statement costs are based on transactions 

through September 30, 2012. Thus, it does not 

include the committed but undisbursed funds for 

housing programs as well as other programs, all 

of which are included in the expected lifetime 

cost for budget purposes. The $20.3 billion cost 

consists of $7.7 billion of reported TARP net 

income in the OFS financial statements for fiscal 

year 2012; $9.5 billion of reported TARP net cost 

 

3The Dodd-Frank Wall Street Reform and Consumer 

Protection Act (P.L. 111-203) amended EESA Section 

115 authority to cap total purchase and guarantee 

authority at a cumulative $475.0 billion.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

EXECUTIVE SUMMARY ix

for fiscal year 2011; $23.1 billion of reported 

TARP net income for fiscal year 2010 and the 

$41.6 billion of reported TARP net cost for the 

period from inception through September 30, 

2009. The change of $17.2 billion since fiscal 

year 2011 (i.e., $7.7 billion net income for fiscal 

year 2012 as compared to $9.5 billion net cost for 

fiscal year 2011) is primarily due to sales of AIG 

common stock at values higher than the market 

value at September 30, 2011 and improvements 

in the market values of AIG, AIFP and CPP 

preferred and common stock investments still 

held, net of an increase in the Housing program 

cost between fiscal years.

The estimated lifetime cost of TARP reflects 

several factors, including the cost of the 

initiatives to help homeowners stay in their 

homes, for which $45.6 billion has been 

committed and is assumed to be disbursed. Of 

this amount, $5.5 billion has been disbursed 

through September 30, 2012; because payments 

for modifications are made over time, 

significantly more will be disbursed assuming 

the modifications stay in effect. OFS’ housing 

program disbursements were never intended to 

be recovered and OFS does not expect them to 

result in any repayments. The estimated 

lifetime cost also reflects primarily the costs 

related to investments in the auto companies. 

In addition, there are costs related to the TARP 

AIG investment (which excludes activity related 

to Treasury’s non-TARP AIG shares). These 

costs, which fluctuate in large part due to 

changes in market prices of General Motors and 

AIG common stock, are offset in part by income 

on TARP investments in banks and other 

programs. 

Since its inception, TARP has disbursed $417.6 

billion in direct loans, equity investments, and 

support for the Treasury Housing Programs 

under TARP; collected $326.8 billion from 

repayments and sales; received $23.0 billion in 

dividends, interest and fees; collected $9.7 

billion through warrant and additional note 

sales; and received $10.2 billion in net proceeds 

from the sale and repurchase of assets in excess 

of costs. As of September 30, 2012, TARP had 

$63.1 billion in gross outstanding direct loans 

and equity investments, which are valued at 

$40.2 billion (excluding the receivables for the 

Asset Guarantee Program that was valued at 

$1.0 billion as of September 30, 2012). In 

addition, from inception through September 30, 

2012, TARP incurred costs related to Treasury 

housing programs of $5.7 billion and 

administrative costs of $1.1 billion. 

OFS continues to provide detailed information 

about TARP to ensure the highest level of 

transparency. OFS published a Two-Year 

Retrospective Report on the Troubled Asset 

Relief Program on October 5, 2010, and a 

corresponding Three-Year Anniversary Report 

on October 3, 2011. OFS anticipates publishing a 

four year retrospective report on TARP in 

December 2012. These reports include detailed 

information on TARP as well as the federal 

government’s additional emergency measures to 

address the 2008 financial crisis. OFS also 

publishes a monthly report to Congress on the 

program, a monthly report on its housing 

initiatives and a variety of other reports. Please 

refer to these documents at: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx. 

 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

x EXECUTIVE SUMMARY

This page intentionally left blank.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 0
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

1 MANAGEMENT‘S DISCUSSION AND ANALYSIS
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 2

Part 1: Management’s Discussion and Analysis

Background, Mission, and OFS Organization Structure 

In order to appreciate the concentrated efforts of 

the Administration to combat the financial crisis 

and TARP’s contribution to these efforts, it is 

useful to examine the origins and causes of the 

crisis. 

In September 2008, the nation was in the midst 

of one of the worst financial crises in our history. 

The financial institutions and markets that 

Americans rely upon to protect their savings, 

help finance their children’s education, and help 

pay their bills, and that businesses rely upon to 

make payroll, build inventories, fund new 

investment, and create new jobs, were 

threatened, unlike at any time since the Great 

Depression. Across the country, people were 

rapidly losing confidence in our financial system 

and in the federal government’s ability to 

safeguard their economic future. 

The causes of the crisis will be studied for years, 

and this report is not meant to provide a 

comprehensive analysis of why the crisis 

occurred. But some reasons are clear. Over the 

two decades preceding the crisis, the financial 

system had grown rapidly in an environment of 

economic growth and stability. Risks grew in 

the system without adequate transparency. Lax 

regulations and loopholes in supervision let 

firms become highly leveraged and take on too 

much risk. Ample credit around the world 

fueled an unsustainable housing boom in the 

first half of the last decade. When the housing 

market inevitably turned down, starting in 2006, 

the pace of mortgage defaults accelerated at an 

unprecedented rate. By mid-2007, rising 

mortgage defaults were undermining the 

performance of many investments held by major 

financial institutions. 

The crisis began in the summer of 2007 and 

gradually increased in intensity and momentum 

over the course of the following year. A series of 

major financial institutions, including 

Countrywide Financial, Bear Stearns, and 

IndyMac, were purchased under duress or failed; 

and Fannie Mae and Freddie Mac, the largest 

purchasers and guarantors of home loans in the 

mortgage market, came under severe stress. 

By September 2008, for the first time in 80 

years, the U.S. financial system was at risk of 

collapse. Using authority granted in July 2008, 

the Federal Housing Finance Agency placed 

Fannie Mae and Freddie Mac into 

conservatorship on September 7, 2008. A 

growing sense of panic was producing the classic 

signs of a generalized run on the banks. People’s 

trust and confidence in the stability of major 

institutions, and the capacity of the federal 

government to contain the damage, were 

vanishing. 

The U.S. system of regulation and supervision 

had failed to constrain the excessive use of 

leverage and the level of risk in the financial 

system and the United States entered this crisis 

without adequate tools to manage it. The 

Executive Branch did not have existing options 

for managing failures of systemically important 

non-bank financial institutions. 

The Department of the Treasury (Treasury), the 

Federal Reserve Board, the Federal Deposit 

Insurance Corporation (FDIC), and other federal 

government bodies undertook an array of 

emergency actions to help prevent a collapse and 

the dangers posed to consumers, businesses, and 

the broader economy. However, the severe 

conditions our nation faced required additional 

resources and authorities. Therefore, the Bush 

Administration proposed the Emergency 

Economic Stabilization Act (EESA) in late 

September 2008, and with the support of 

Democrats and Republicans in Congress, EESA 

was enacted into law on October 3, 2008 and 

TARP was established. 

EESA also established the Office of Financial 

Stability (OFS) within the Office of Domestic 

Finance of the Treasury to implement TARP. 

OFS’ mission is to carry out the authorities 

given to the Secretary of the Treasury to 

implement TARP. Section 101 of EESA 

authorized the Secretary of the Treasury to 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

3 MANAGEMENT‘S DISCUSSION AND ANALYSIS

establish TARP to ―purchase, and to make and 

fund commitments to purchase, troubled assets 

from any financial institution, on terms and 

conditions as are determined by the Secretary‖. 

EESA defines the terms ―troubled assets‖ and 

―financial institution‖ and provides other 

requirements that must be met for any such 

purchase. Section 102 of EESA also provides 

authority for a guarantee program for troubled 

assets. Section 109 of EESA provides authority 

to assist homeowners. The Dodd-Frank Wall 

Street Reform and Consumer Protection Act (the 

Dodd-Frank Act) signed into law in July 2010 

reduced total TARP purchase authority from 

$700.0 billion to a cumulative $475.0 billion. 

Final purchase authority to make new 

commitments under TARP expired on October 3, 

2010. This means no new commitments can be 

made. OFS is continuing to implement 

commitments made prior to the October 3 

deadline for the TARP programs which are 

disbursed over time. For those assets already 

purchased, OFS will continue to wind down 

TARP and manage the remaining TARP 

investments in order to recover as much of 

taxpayers’ funds as possible.

OFS is headed by the Assistant Secretary for 

Financial Stability, appointed by the President 

with the advice and consent of the Senate. 

Reporting to the Assistant Secretary for 

Financial Stability are seven major 

organizations: the Chief Investment Officer, the 

Chief Financial Officer, the Chief of 

Management and Operations, the Chief of 

Homeownership Preservation, the Chief of OFS 

Internal Review, the Chief Reporting Officer, 

and the Chief Compliance Officer. A Chief 

Counsel’s Office reports to the Assistant

Secretary and to the Office of the General 

Counsel in the Department of Treasury. 

The OFS organization chart follows: 

The Office of the Chief Investment Officer (CIO) 

is responsible for program development and the 

execution and management of all investments 

made by either purchasing or insuring ―troubled 

assets‖ pursuant to EESA, other than TARP 

housing programs. 

The Office of the Chief Financial Officer (CFO) 

has lead responsibility within OFS for budget 

formulation and execution, cash management, 

accounting, financial systems, financial 

reporting, program and internal metrics 

analytics, modeling cash flows, and internal 

controls. 

The Office of the Chief of Management and 

Operations (CMO) is responsible for developing 

the operating infrastructure and managing 

internal operations in OFS. 

The Office of the Chief of Homeownership 

Preservation (HPO) is responsible for identifying 

opportunities to help homeowners and 

overseeing homeownership programs while also 

protecting taxpayers. 

The Office of Internal Review (OIR) is 

responsible for identifying the most significant 

risks that TARP faces, both internally and 

externally. 

The Office of the Chief Reporting Officer (CRO) 

is responsible for periodic reports to the 

Congress as required by EESA. 

The Office of the Chief Compliance Officer 

(CCO), created in December 2011, is responsible 

for establishing processes to help ensure that 

TARP recipients, participants, contractors, and 

agents conduct their TARP-related activities in 

accordance with applicable laws, regulations, 

program guidance, and contract requirements. 

Assistant Secretary for Financial 

Stability

Chief 

Investment 

Officer

Chief of 

Internal 

Review

Chief 

Reporting 

Officer

Chief of 

Home 

Ownership 

Preservation 

Chief of

Management 

and 

Operations

Chief 

Financial 

Officer

Chief 

Counsel

Chief 

Compliance

Officer
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 4 

This office was previously part of the Office of 

Internal Review. 

The Office of the Chief Counsel reports 

functionally to the Office of General Counsel at 

the Department of the Treasury and provides 

legal advice to the Assistant Secretary. The 

Office is involved in the structuring of OFS 

programs and activities to ensure compliance 

with EESA and with other laws and regulations. 

The Office of the Chief Counsel is also 

responsible for coordinating OFS’ work with the 

external oversight entities including the 

Government Accountability Office (GAO), the 

Special Inspector General for TARP (SIGTARP), 

the Financial Stability Oversight Board and the 

Congressional Oversight Panel (COP) through 

the end of its existence on April 3, 2011. 

OFS is not envisioned as a permanent 

organization, so to the maximum extent possible 

when economically efficient and appropriate, 

OFS utilizes private sector expertise in support 

of the execution of TARP programs. Fannie Mae 

and Freddie Mac accounted for 56.3 percent of 

the fiscal year 2012 administrative cost ($151 

million of $268 million) to assist OFS in the 

administration and compliance oversight of the 

Making Home Affordable Program. 

Additionally, asset managers were hired to serve 

as financial agents in assisting with managing 

the assets associated with several TARP 

programs. Private sector firms were also 

engaged to assist with the significant volume of 

TARP work in the areas of custodial services, 

accounting and internal controls, modeling, 

administrative support, facilities, legal advisory, 

financial advisory, and information technology.

 

Overview of TARP for Fiscal Year 2012 

 

OFS Strategic Goal and Operational Goals 

EESA provided the Secretary of the Treasury 

with the authorities and facilities to help restore 

liquidity and stability to the U.S. financial 

system. EESA also provided specific authority 

to take certain actions to help prevent avoidable 

foreclosures. As such, OFS’ strategic goal is to 

ensure the overall stability and liquidity of the 

financial system, prevent avoidable foreclosures 

and preserve homeownership. 

In light of this strategic goal, OFS established 

the following operational goals for TARP and 

developed a number of programs to help 

stabilize the U.S. financial system and the 

housing market: 

 Ensure the overall stability and liquidity 

of the financial system. 

 Make capital available to viable 

institutions. 

 Provide targeted assistance as 

needed. 

 Increase liquidity and volume in 

securitization markets. 

 Prevent avoidable foreclosures and help 

preserve homeownership. 

 Protect taxpayer interests. 

 Promote transparency.

Details on programs developed in support of 

these Operational Goals can be found later in 

this Management’s Discussion and Analysis 

under Operational Goals. As noted earlier, the 

focus of OFS is now to wind down the programs 

that were statutorily implemented with a 

mandate to stabilize the financial system and to 

continue to implement the programs for the 

housing market. 

 

Fiscal Year 2012 Financial Summary and 

Cumulative Net Income 

EESA provided TARP authority to purchase or 

guarantee up to $700.0 billion in troubled 

assets.4 EESA spending authority would have 

terminated December 30, 2009; however, as 

authorized under Section 120(b) of EESA, the 

Secretary of the Treasury certified the extension 

of TARP authority until October 3, 2010, with 

 

4

 The Helping Families Save Their Homes Act of 2009, 

Pub. L. No. 111-22, Div. A, amended the act and 

reduced the maximum allowable amount of 

outstanding troubled assets under the act by $1.3 

billion, from $700.0 billion to $698.7 billion. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

5 MANAGEMENT‘S DISCUSSION AND ANALYSIS

the submission of a written certification to 

Congress. 

The Dodd-Frank Act5 amended EESA by 

capping total purchase and guarantee authority 

at a cumulative $475.0 billion and limiting any 

new obligations to programs or initiatives that 

were initiated prior to June 25, 2010. OFS 

reduced TARP program allocations to conform to 

these limitations. 

Based on operations for the year ended 

September 30, 2012, OFS reports the following 

key results: 

 Since its inception, TARP has disbursed 

$417.6 billion in direct loans, equity 

investments and support for the 

Treasury housing programs under 

TARP. 

 In fiscal year 2012, OFS disbursed $1.0 

billion for loans and equity investments 

as well as $3.1 billion in payments for 

Treasury housing programs under 

TARP, and reported net income from 

operations of $7.7 billion. 

 During fiscal year 2012, OFS received 

$49.9 billion from repayments of loans 

and repurchases and sales of 

investments. 

 As of September 30, 2012, OFS reported 

$40.2 billion (excluding a $1.0 billion 

receivable related to the Asset 

Guarantee Program) for the value of 

loans and equity investments 

outstanding. 

 

 

 

 

 

 

 

 

 

 

5Pub. L. 111-203.

Results of TARP Operations (Fiscal Year 

2012 and Fiscal Year 2011) 

OFS’ fiscal year 2012 net income from 

operations of $7.7 billion includes the reported 

net income related to loans, equity investments, 

and other credit programs. For the fiscal year 

ended September 30, 2012, OFS reported net 

subsidy income for six programs – the Capital 

Purchase Program (CPP), the Community 

Development Capital Initiative (CDCI), the 

Term Asset-Backed Securities Loan Facility 

(TALF), the SBA 7(a) Securities Purchase 

Program, Asset Guarantee Program (AGP) and 

the American International Group, Inc (AIG) 

Investment Program. These programs 

collectively reported net subsidy income of $11.4 

billion. Also, for the fiscal year ended 

September 30, 2012, OFS experienced net 

subsidy cost for three programs – the PublicPrivate Investment Program (PPIP), the 

Automotive Industry Financing Program (AIFP), 

and the Federal Housing Agency Refinance 

Program totaling $445 million. Fiscal year 2012 

expenses for the Treasury housing programs 

under TARP of $3.0 billion and administrative 

expenses of $268 million bring the total reported 

fiscal year net income from operations to $7.7 

billion, as shown in Table 1. For the fiscal year 

ended September 30, 2011, the net cost of

operations was $9.5 billion as reflected in 

Table 1. These net income and net cost amounts 

reported in the financial statements reflect only 

transactions through September 30, 2012 and 

September 30, 2011, respectively, and therefore 

are different than lifetime cost estimates made 

for budgetary purposes. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 6 

Table 1: Net Income (Cost) of TARP Operations 

(Dollars in billions)1

 

TARP Program 

For the Year 

Ended 

September 30, 

2012 

For the Year 

Ended 

September 30, 

2011 

From TARP’s 

Inception 

through 

September 30, 

20123 

Bank Support Programs 

Capital Purchase Program $ 1.9 $ 1.8 $ 14.9

Targeted Investment Program --- 0.2 4.0

Asset Guarantee Program 0.2 --- 3.9

Community Development Capital Initiative --- 0.1 (0.2)

Credit Market Programs 

Public-Private Investment Program (0.2) 1.8 2.4

Term Asset-Backed Securities Loan Facility 0.1 0.1 0.5

SBA 7(a) Securities Purchase Program --- --- ---

Other Programs 

Automotive Industry Financing Program (0.2) (9.7) (23.8)

American International Group Investment 

Program2

9.2 (1.6) (15.2)

FHA-Refinance Program --- --- ---

Total Net Subsidy Income (Cost) 11.0 (7.3) (13.5) 

Additional TARP (Costs) 

Treasury Housing Programs Under TARP 

(excluding FHA-Refinance Program) (3.0) (1.9) (5.7)

Administrative Costs (0.3) (0.3) (1.1)

Total Net Income (Cost) of TARP Operations $ 7.7 $ (9.5) $ (20.3) 

1 Information in Table 1 is presented in billions of dollars to ensure consistency with other tables in this 

Management’s Discussion and Analysis; similar information is presented in the financial statements in millions 

of dollars.

2 The amounts for AIG reflect only the operations/activities of TARP and do not reflect proceeds received from 

the sale of shares of AIG common stock held by Treasury outside of TARP (non-TARP shares). For further 

details, see the discussion of the American International Group Investment Program, beginning on p. 28.

3Inception through September 30, 2012 column includes dollar amounts related to the ($18.5) billion net cost of 

operations for the period from inception through September 30, 2010.

Over time the cost of TARP programs will 

change. As described later in the MD&A, and in 

the OFS audited financial statements, these 

estimates are based in part on currently 

projected economic factors. These economic 

factors will likely change, either increasing or 

decreasing the lifetime cost of TARP. 

TARP Program Summary 

Table 2 provides a financial summary for TARP 

programs since TARP inception on October 3, 

2008, through September 30, 2012. For each 

program, the table provides utilized TARP 

authority (which includes purchases made, legal 

commitments to make future purchases, and 

offsets for guarantees made), the amount 

actually disbursed, repayments to OFS from 

program participants or from sales of the 

investments, write-offs and losses, net 

outstanding balance as of September 30, 2012, 

and cash inflows on the investments in the form 

of dividends, interest or other fees. As of 

September 30, 2012, $49.4 billion of the $467.0

billion in purchase and guarantee authority 

remained unused.6

 

6OFS tracks costs in accordance with Federal budget 

procedures. First, OFS enters into legally binding 

―obligations‖ to invest or spend the funds for TARP 

programs. Then, funds are disbursed over time 

pursuant to the obligations. In any given case, it is 

possible that the full amount obligated will not be 

disbursed.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

7 MANAGEMENT‘S DISCUSSION AND ANALYSIS

Table 2: TARP Summary1 

From TARP Inception through September 30, 2012 

(Dollars in billions) 

Purchase 

Price or 

Guarantee 

Amounts 

Total $ 

Disbursed 

Investment 

Sales and 

Repayments 

Writeoffs and 

Losses3 

Outstanding 

Balance4 

Received 

from 

Investments 

Bank Support Programs 

Capital Purchase Program5

$ 204.9 $ 204.9 $ (193.2)6 $ (3.0) $ 8.7 $ 26.4 

Targeted Investment 

Program 40.0 40.0 (40.0) - - 4.4 

Asset Guarantee Program 5.0 - - - - 3.0 

Community Development 

Capital Initiative

0.6 0.6 - - 0.6 - 

Credit Market Programs 

Public Private Investment 

Program

21.6 18.6 (8.8) - 9.8 2.4

Term Asset-Backed 

Securities Loan Facility

1.4 0.1 - - 0.1 -

SBA 7(a) Securities 

Purchase Program

0.4 0.4 (0.4) - - -

Other Programs 

Automotive Industry 

Financing Program 79.7 79.7 (35.1) (7.4) 37.2 5.7

American International

Group Investment 

Program2

67.8 67.8 (49.3) (11.8) 6.7 1.0

Sub-total for Investment 

Programs 

421.4 412.1 (326.8) (22.2) 63.1 42.9 

Treasury Housing 

Programs under TARP 45.67 5.5 N/A N/A N/A N/A

Total for TARP Program $ 467.0 $ 417.6 $ (326.8) $ (22.2) $ 63.1 $ 42.9 

1This table shows TARP activity for the period from inception through September 30, 2012, on a cash basis. Received from 

investments includes dividends and interest income reported in the Statement of Net Cost, and proceeds from sale and 

repurchases of assets in excess of costs. 

2The amounts for AIG reflect only the operations of TARP and do not reflect proceeds received from the sale of shares of AIG 

common stock held by Treasury outside of TARP (non-TARP shares). For further details, see the discussion of the American 

International Group Investment Program, beginning on page 27.

3 Losses represent proceeds less than cost on sales of assets which are reflected in the financial statements within ―net 

proceeds from sales and repurchases of assets in excess of (less than) cost‖.

4 Total disbursements less repayments, write-offs and losses do not equal the total outstanding balance because the 

disbursements for the Treasury housing programs under TARP generally do not require (and OFS does not expect) 

repayments.

5OFS received $31.9 billion in proceeds from sales of Citigroup common stock, of which $25.0 billion is included at cost in 

investment sales, and $6.9 billion of net proceeds in excess of cost is included in Received from Investments.

6Includes $2.2 billion of SBLF refinancing outside of TARP and CDCI exchanges from CPP of $363 million.

7 Individual obligation amounts are $29.9 billion for the Making Home Affordable Program, $7.6 billion for the Hardest Hit 

Fund, and $8.1 billion committed for the FHA-Refinance Program.

Most TARP funds have been used to make 

investments in preferred stock or to make loans. 

OFS has generally received dividends on the 

preferred stock and interest payments on the 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 8 

loans from the institutions participating in 

TARP programs. These payments represent 

additional proceeds received on OFS’ TARP 

investments. From inception through 

September 30, 2012, OFS received a total of 

$23.0 billion in dividends and interest. 

OFS has conducted several sales of its positions 

in banking institutions as part of its exit 

strategy for winding down TARP. OFS plans to 

sell its investments in banks that are not 

expected to be able to repay Treasury in the 

foreseeable future. These sales are being 

conducted over time and in stages and include 

both common and preferred stock. During fiscal 

year 2012, OFS sold its positions in 40 banks for 

$1.3 billion in aggregate proceeds through 

individual public and private auctions resulting 

in proceeds less than cost of $180 million for 

those investments. 

OFS also received warrants in connection with 

most of its investments, which provides an 

opportunity for taxpayers to realize additional 

proceeds on investments. Since the program’s 

inception, OFS has received $9.3 billion in gross 

proceeds from the disposition of warrants 

associated with 169 CPP investments, both TIP 

investments, and AGP, consisting of (i) $3.9 

billion from issuer repurchases at agreed upon 

values and (ii) $5.4 billion from auctions. 

TARP’s Warrant Disposition Report is posted on 

the OFS website at the following link: 

http://www.financialstability.gov/latest/reportsa

nddocs.html. 

Table 3 shows the breakdown of receipts for the 

periods ended September 30, 2012 and 2011 for 

all TARP programs combined as well as totals 

for the period from inception through September 

30, 2012. 

Table 3: TARP Receipts and Repayments on Investments/Loans 1 

(Dollars in billions)

 

For the Year 

Ended 

September 30, 

2012 

For the Year 

Ended 

September 30, 

2011

From TARP’s 

inception through 

September 30, 

20122 

Dividends, Interest, Warrant 

Repurchases and Additional Notes 

Dividends and Interest $ 2.9 $ 3.7 $ 23.0

Sales/Repurchases of Warrants and 

Warrant Preferred Stock and 

Additional Notes

0.1 1.5 9.7

Proceeds in Excess of Cost 0.4 6.2 10.2

Subtotal 3.4 11.4 42.9 

 

Investment/Loan Repayments 

Sales/Repurchases/Repayments on 

Investments3

43.9 66.5 303.1

Loan Principal Repaid 6.0 6.3 23.7

Subtotal 49.9 72.8 326.8 

Grand Total $ 53.3 $ 84.2 $ 369.7 

1 This table shows TARP activity on a cash basis. 

2 The total reported for Inception through September 30, 2012 column includes the $232.2 billion in receipts and 

repayments related to the period from inception through September 30, 2010.

3 Includes $2.2 billion of SBLF refinancing outside of TARP and CDCI exchanges from CPP of $363 million.

 

 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

9 MANAGEMENT‘S DISCUSSION AND ANALYSIS

 

Summary of TARP Direct Loans and Equity Investments 

Table 4 provides information on the estimated 

values of TARP direct loan and equity 

investments by program, as of the end of fiscal 

years 2012 and 2011. (Treasury housing 

programs under TARP are excluded from the 

chart because no repayments are expected). The 

Outstanding Balance column represents the 

amounts disbursed by OFS relating to the loans 

and equity investments that were outstanding 

as of September 30, 2012 and 2011. The 

Estimated Value of the Investment column 

represents the present value of net cash inflows 

that OFS estimates it will receive from the loans 

and equity investments. These estimates include 

market risk assumptions. For equity securities, 

this amount represents fair value. The total 

difference of $22.9 billion (2012) and $42.3 

billion (2011) between the two columns is 

considered the ―subsidy cost allowance‖ under 

the Federal Credit Reform Act methods OFS 

follows for budget and accounting purposes

(see Note 6 in the financial statements for 

further discussion).7

Table 4: Summary of TARP Direct Loans and Equity Investments 

(Dollars in billions)

Program 

Outstanding 

Balance as of 

September 30, 

20121

Estimated Value 

of Investment as 

of September 30, 

2012

Outstanding 

Balance as of 

September 30, 

20111

Estimated 

Value of 

Investment as 

of September 

30, 2011

Bank Support Programs 

Capital Purchase Program $ 8.7 $ 5.7 $ 17.3 $12.4

Community Development 

Capital Initiative 0.6 0.4 0.6 0.4

Credit Market Programs 

Public Private Investment 

Program 9.8 10.8 15.9 18.4

Term Asset-Backed 

Securities Loan Facility 0.1 0.7 0.1 0.6

SBA 7(a) Securities Purchase 

Program --- --- 0.1 0.1

Other Programs 

Automotive Industry 

Financing Program 37.2 17.5 37.3 17.8

American International 

Group Investment Program 6.7 5.1 51.1 30.4

Total $ 63.1 $ 40.2 $ 122.4 $ 80.1 

1 Before subsidy cost allowance.

 

7

 The subsidy cost in Table 1 and on the Statement of Net Cost, is composed of (1) the change in the subsidy 

cost allowance, net of write-offs, (2) net intra-governmental interest cost, (3) certain inflows from the direct 

loans and equity investments (e.g., dividends, interest, net proceeds from sales and repurchases of assets in 

excess of cost, and other realized fees), and (4) the change in the estimated discounted net cash flows related to 

the asset guarantee program and FHA-Refinance Program. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 10 

The ultimate cost of TARP will not be known for 

some time. The financial performance of the 

programs will depend on many factors such as 

future economic and financial conditions, and 

the business prospects of specific institutions. 

The cost estimates are sensitive to slight 

changes in model assumptions, such as general 

economic conditions, specific stock price 

volatility of the entities in which OFS has an 

equity interest, estimates of expected defaults, 

and prepayments. If OFS receives repayments 

faster than expected and incurs lower than 

expected defaults, TARP’s ultimate cost on these 

investments may be lower than estimated. 

Wherever possible, OFS uses market prices of 

tradable securities to estimate the fair value of 

TARP investments. Use of market prices was 

possible for TARP investments that trade in 

public markets or are closely related to tradable 

securities. For those TARP investments that do 

not have direct analogs in private markets, OFS 

uses internal market-based models to estimate 

the market value of these investments. All 

future cash flows are adjusted for market risk. 

Further details on asset valuation can be found 

in Note 6 of the Financial Statements. 

 

 

 

Comparison of Estimated Lifetime TARP 

Costs Over Time 

 

Market conditions and the performance of 

specific financial institutions are critical 

determinants of TARP’s estimated lifetime cost. 

The changes in the OFS estimates since TARP’s 

inception through September 30, 2012, provide a 

good illustration of this impact. Table 5 provides 

information on how OFS’ estimated lifetime cost 

of TARP has changed over time. These costs 

fluctuate in large part due to changes in the 

market prices of common stock for AIG and 

General Motors (GM) and the estimated value of 

the Ally Financial (Ally) stock. This table 

assumes that all expected investments (e.g. 

PPIP) and disbursements for Treasury housing 

programs under TARP are completed, and 

adhere to general government budgeting 

guidance. This table will not tie to the financial 

statements since it includes investments and 

other disbursements expected to be made in the 

future. Table 5 is consistent with the estimated 

TARP lifetime cost disclosures on the OFS web 

site at: 

http://www.treasury.gov/initiatives/financialstability/Pages/default.aspx. 

The cost amounts in Table 5 are based on 

assumptions regarding future events, which are 

inherently uncertain.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

11 MANAGEMENT‘S DISCUSSION AND ANALYSIS

Table 5: Estimated Lifetime TARP Costs (Income)1 

(Dollars in billions)

 Estimated Lifetime Cost (Income) as of September 30 

Program 20095 2010 2011 2012 

Bank Support Programs 

Capital Purchase Program $ ( 14.6) $ ( 11.2) $ ( 13.0) $ ( 14.9)

Targeted Investment Program ( 1.9) ( 3.8) ( 4.0) ( 4.0)

Asset Guarantee Program2 ( 2.2) ( 3.7) ( 3.7) ( 3.9)

Community Development 

Capital Initiative 0.4 0.3 0.2 0.2

Credit Market Programs 

Public Private Investment 

Program 1.4 ( 0.7) ( 2.4) ( 2.4)

Term Asset-Backed Securities 

Loan Facility ( 0.3) ( 0.4) ( 0.4) ( 0.5)

SBA 7(a) Securities Purchase 

Program N/A --- --- ---

Other Programs 

Automotive Industry Financing 

Program 34.5 14.7 23.6 24.3

American International Group 

Investment Program3

56.8 36.9 24.3 15.3

Subtotal 74.1 32.1 24.6 14.1

Treasury Housing Programs 

under TARP4

50.0 45.6 45.6 45.6

Total $ 124.1 $ 77.7 $ 70.2 $ 59.7 

1 Estimated program costs (+) or savings (in parentheses) over the life of the program, including interest on reestimates and excluding administrative costs.

2 Prior to the termination of the guarantee agreement, Treasury guaranteed up to $5.0 billion of potential losses 

on a $301.0 billion portfolio of loans.

3 The amounts for AIG reflect only the operations of TARP and do not reflect proceeds received from the sale of 

shares of AIG common stock held by Treasury outside of TARP (non-TARP shares). For further details, see the 

discussion of the American International Group Investment Program, beginning on page 27.

4 Includes FHA-Refinance Program, which is accounted for under credit reform.

5 Estimated lifetime cost for 2009 includes funds for projected disbursements and anticipated obligations.

 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 12 

Key Trends/Factors Affecting TARP Future Activities and 

Ultimate Cost 

 

This section provides additional TARP analytic 

information and enhanced sensitivity analysis 

focusing on the remaining TARP 

dollars/continued taxpayer exposure and what is 

likely to affect the expected future return. As of 

September 30, 2012, one TARP program – the 

AIFP – has more than $10 billion still 

outstanding and remains at the most risk of 

additional taxpayer loss. Going forward, the 

collections or costs from the AIFP and the 

expenditures for Treasury housing programs 

under TARP are expected to most significantly 

affect the lifetime cost of TARP. 

Automotive Industry Financing Program 

 

As of September 30, 2012, OFS’ gross AIFP 

investments outstanding in GM and Ally 

Financial totaled $37.2 billion, with an 

estimated value of $17.5 billion. The future 

value of OFS’ investment in GM will depend on 

the market price of GM common stock, which is 

affected by a variety of factors specific to the 

financial condition and results of operations of 

GM as well as factors pertaining to the industry 

and the overall economy, such as the 

competitiveness of U.S. manufacturers, both 

domestically and internationally, and 

macroeconomic conditions (unemployment, 

Gross Domestic Product growth, etc.) which 

affect the overall trends in auto sales. The 

future value of OFS’ investment in Ally will 

depend on industry and macroeconomic factors 

as well as company-specific factors, including in 

particular the ability of the company to resolve 

the bankruptcy of its subsidiary, Residential 

Capital, LLC (ResCap), in a timely and costeffective manner, and the proceeds realized from 

the sale of its international operations. 

Treasury Housing Programs Under TARP 

 

OFS committed $45.6 billion to fund Treasury 

housing programs under TARP. From inception 

through September 30, 2012, $5.5 billion has 

been disbursed under these programs. Based 

only on the permanent modifications in place as 

of September 30, 2012, OFS estimates that $10.5 

billion in incentive fees will ultimately be 

disbursed in association with all Making Home 

Affordable (MHA) modifications made as of 

September 30, 2012, if all active modifications 

were to remain current and receive incentives 

for five years. The program is continuing to 

enter into new modifications, as the termination 

date was extended to December 31, 2013. 

Separately, $7.6 billion has been allocated for 

the Hardest Hit Fund and $8.1 billion for the 

FHA Refinance Program. 

Sensitivity Analysis 

 

The ultimate value of TARP investments will 

only be known in time. Realized values will vary 

from current estimates in part because economic 

and financial conditions will change. Many 

TARP investments do not have readily 

observable values and their values can only be 

estimated by OFS. 

Sensitivity analysis is one way to get some feel 

for the degree of uncertainty around the OFS 

estimates. In the analysis reported here, OFS 

focuses on the AIFP as it is the only remaining 

program with investments in excess of $10.0 

billion. 

 

AIFP Analysis 

The most important inputs to the valuation of 

OFS’ outstanding investments under the AIFP 

are the market price of New GM common stock 

and the change in the estimated value of Ally 

Financial common stock, which is driven by 

certain pricing metrics of comparable public 

financial institutions. Table 6 shows the change 

in estimated value of OFS outstanding AIFP 

investments based on a 10 percent increase and 

10 percent decrease in the trading price of the 

New GM common stock and separately a 10 

percent increase and 10 percent decrease in the 

estimated value of the Ally Financial common 

stock. Figure A shows that the securities have 

recently been trading within the range used in 

the analysis as well as outside of this range, 

illustrating the uncertainty around the cost 

estimates.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

13 MANAGEMENT‘S DISCUSSION AND ANALYSIS

Table 6: Impact on AIFP Valuation 

(Dollars in billions) September 30, 2012 

Reported Value for 

AIFP

Effect of 10% 

Increase

Effect of 10% 

Decrease

Impact of GM on AIFP $17.55 $18.68 $16.41

% change from current N/A 6.40% (6.40)%

Impact of Ally (formerly 

GMAC) on AIFP $17.55 $18.16 $16.93

% change from current N/A 3.50% (3.50)%

Figure A shows the daily closing price of the 

New GM common stock since the initial public 

offering in November 2010. The closing price for 

September 30, 2012 was $22.75. The dashed 

lines represent the high and low price used in 

the sensitivity analysis.

 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 14 

Systems, Controls, and Legal Compliance

 

 

 

MANAGEMENT ASSURANCE STATEMENT 

 

The Office of Financial Stability's (OFS) management is responsible for establishing and maintaining 

effective internal control and financial management systems that meet the objectives of the Federal 

Managers’ Financial Integrity Act (FMFIA), 31 U.S.C. 3512(c),(d). OFS has evaluated its 

management controls, internal controls over financial reporting, and compliance with the federal 

financial systems standards. As part of the evaluation process, we considered the results of extensive 

documentation, assessment and testing of controls across OFS, as well as the results of independent 

audits. We conducted our reviews of internal controls in accordance with FMFIA and Office of 

Management and Budget (OMB) Circular A-123. 

As a result of our reviews, management concludes that the management control objectives described 

below, taken as a whole, were achieved as of September 30, 2012. Specifically, this assurance is 

provided relative to Section 2 (internal controls) and 4 (systems controls) of FMFIA. OFS further 

assures that the financial management systems relied upon by OFS are in substantial compliance 

with the requirements imposed by the Federal Financial Management Improvement Act (FFMIA).

OFS' internal controls are designed to meet the management objectives established by Treasury and 

listed below:

(a) Programs achieve their intended results; 

(b) Resources are used consistent with overall mission; 

(c) Programs and resources are free from waste, fraud, and mismanagement; 

(d) Laws and regulations are followed;

(e) Controls are sufficient to minimize any improper or erroneous payments; 

(f) Performance information is reliable; 

(g) System security is in substantial compliance with all relevant requirements; 

(h) Continuity of operations planning in critical areas is sufficient to reduce risk to 

reasonable levels; and

(i) Financial management systems are in compliance with federal financial systems 

standards, i.e., FMFIA Section 4 and FFMIA.

In addition, OFS management conducted its assessment of the effectiveness of internal control over 

financial reporting, which includes safeguarding of assets and compliance with applicable laws and 

regulations, in accordance with OMB Circular A-123, Management’s Responsibility for Internal 

Control, Appendix A, Internal Control over Financial Reporting. Based on the results of this 

evaluation, OFS provides unqualified assurance that internal control over financial reporting is 

appropriately designed and operating effectively as of September 30, 2012, with no related material 

weaknesses noted.

Sincerely,

 

 Timothy G. Massad

 Assistant Secretary for Financial Stability
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

15 MANAGEMENT‘S DISCUSSION AND ANALYSIS

Internal Control Program 

OFS management remains committed to 

maintaining effective internal controls in 

safeguarding taxpayer dollars while providing 

financial stability through the TARP. OFS 

continues to have a high performing internal 

control program in compliance with the Federal 

Managers’ Financial Integrity Act (FMFIA). 

The OFS Risk and Control Group (RCG) works 

closely with program managers and support 

personnel to maintain robust internal controls 

across business functions. RCG also coordinates 

with the OFS Office of Financial Agents (OFA) 

to ensure that third party service providers 

whose work has a potential financial reporting 

impact on OFS have well designed and effective 

internal control environments supporting the 

TARP. During fiscal year 2012, OFS continued 

to implement effectively its internal control 

environment as demonstrated below: 

 Business processes supporting existing

programs, including internal control

activities, utilized increasingly welldefined policies and procedures and

internal control documentation. OFS

management regularly monitors

activities to confirm that control

procedures are performed consistently

and as designed.

 OFS made significant progress in

addressing findings and areas for

improvement in the internal control

environment identified through OFS'

self-assessment processes (e.g., OMB

Circular A-123 internal controls over

financial reporting assessment, annual

assurance statement process) and

through work performed by the oversight

bodies (i.e., GAO and SIGTARP).

 OFS continued to make improvements in

information technology (IT) in fiscal year

2012 to drive efficiencies through the

increased automation of the operational

and accounting environments.

OFS has a Senior Assessment Team (SAT) to 

guide the organization’s efforts to meet the 

statutory and regulatory requirements 

surrounding a sound system of internal control. 

The SAT is chaired by the Deputy Chief 

Financial Officer and includes representatives 

from all OFS functional areas. Furthermore, 

OFS has an internal control framework in place 

that is based on the principles of the Committee 

of Sponsoring Organizations of the Treadway 

Commission (COSO). The SAT leverages this 

framework in communicating control objectives 

across the organization and to its third party 

service providers. 

RCG operates under the direction of the Chief 

Financial Officer (CFO) and is guided by the 

SAT. RCG monitors the implementation of the 

internal control framework and is responsible 

for assessing the achievement of management 

control objectives by: 

 Integrating management controls into

OFS business processes by:

o Maintaining internal control

documentation,

o Developing and designing

internal control responsibilities

with business owners before

major program transactions, and

o Enhancing the monitoring of

control effectiveness during or

after significant new program

events;

 Conducting ―lessons learned‖ sessions to

identify and remediate areas requiring

improvement;

 Performing periodic sample-based

testing of key controls across mature

business processes; and,

 Monitoring feedback from oversight

bodies.

In addition, the internal control environment 

supporting TARP undergoes continuous 

improvement to remain effective and is subject 

to significant third party oversight by the GAO 

and the SIGTARP. 

The Assistant Secretary for Financial Stability 

reports annually to the Under Secretary for 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 16 

Domestic Finance on the adequacy of the various 

internal controls throughout OFS to include 

financial management systems compliance. This 

assurance statement covers OFS’ compliance 

with the FMFIA, the Federal Financial 

Management Improvement Act (FFMIA) and 

OMB Circular A-123 (Management’s 

Responsibility for Internal Control). In order to 

support the Assistant Secretary’s letter of 

assurance, the respective OFS functional areas 

prepare individual statements of assurance. 

These individual statements of assurance 

provide evidence supporting the achievement of 

OFS’ internal control objectives and disclose any 

noted internal control weaknesses. 

Information Technology Systems 

In fiscal year 2012, OFS continued to utilize and 

improve the Core Investment Transaction Flow 

(CITF), TARP’s system of record and accounting 

translation engine. OFS added standardized 

management reports to CITF to improve its 

usefulness to management decision-making and 

added functionality to capture key data elements 

for use in preparing the financial statements 

and associated notes. 

Other systems are supported by financial 

agents, which provide services to OFS. The 

financial agency agreements maintained by the 

Treasury Office of the Fiscal Assistant Secretary 

in support of OFS require financial agents to 

design and implement suitably robust security 

plans and internal control programs, to be 

reviewed and approved by OFS at least 

annually. 

In addition, OFS utilizes financial systems 

maintained by Treasury Departmental Offices 

and various Treasury bureaus. These systems 

are in compliance with federal financial systems 

standards and undergo regular independent 

audits. 

Compliance with the Improper Payments 

Elimination and Recovery Act (IPERA) 

The Improper Payments Elimination and 

Recovery Act of 2010 (IPERA) requires agencies 

to review their programs and activities annually 

to identify those susceptible to significant 

improper payments. IPERA significantly 

increases agency payment recapture efforts by 

requiring reviews of all programs with annual 

payments of $1 million or more, if cost effective. 

IPERA requires agencies to report information 

on their significant improper payments and 

recapture audit programs to the President and 

Congress annually. 

The elimination of improper payments is a major 

focus of OFS senior management. Managers are 

held accountable for developing and 

strengthening financial management controls to 

detect and prevent improper payments, and 

thereby better safeguard taxpayer dollars. OFS 

carried out its fiscal year 2012 IPERA review 

per Treasury-wide guidance and did not assess 

any programs or activities as susceptible to 

significant erroneous payments. However, 

management did identify the following matter: 

 A number of Making Home Affordable

(MHA) investor cost share payments

were erroneously calculated due to data

discrepancies between servicer files and

the MHA system of record. Data that

servicers upload to the MHA system of

record is used to calculate these

incentive payments. The overall impact

of the data errors on incentive payments

was immaterial, and OFS management

required servicers to take action to

correct these data discrepancies.

In fiscal year 2012, OFS concluded that a 

payment recapture audit was not cost effective 

as all programs were deemed to have a low risk 

of significant improper payments. For many 

programs, OFS already has procedures in place 

to review payments for completeness and 

accuracy prior to and after disbursement. 

Management leveraged OFS’ extensive internal 

control testing results or other compliance 

activities to corroborate risk assessment results, 

as well as the Bureau of the Public Debt’s 

testing results over administrative 

disbursements. 

On April 12, 2012, OMB issued Memorandum 

12-11 "Reducing Improper Payments through 

the 'Do Not Pay List,'" based on a Directive 

provided by the President in June 2010. The 

President directed agencies to "review current 

pre-payment and pre-award procedures and 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

17 MANAGEMENT‘S DISCUSSION AND ANALYSIS

ensure that a thorough review of available 

databases with relevant information on 

eligibility occurs before the release of any 

Federal funds." In order to achieve this mission, 

the President directed the creation of a single 

point of entry through which agencies would 

access relevant data before determining 

eligibility for Federal funding commonly referred 

to as the "Do Not Pay List." Prior to the release 

of this directive, OFS already had strong 

controls in place to help ensure payment 

eligibility. In fiscal year 2013 and beyond, OFS 

will, as appropriate, integrate the "Do Not Pay 

List‖ solution into its processes. 

Areas for Improvement 

Over the next year, OFS management will focus 

on maintaining its internal control environment 

in several key areas as follows: 

 As programs continue to wind down, 

OFS will remain vigilant to maintain 

effective processes and controls. OFS 

management will take steps to sustain 

adequate segregation of duties and the 

right level of institutional knowledge 

among remaining staff as the size of the 

organization decreases. 

 Third party service providers will 

continue to support critical services as 

programs continue to wind down. OFS 

will monitor these third parties closely to 

safeguard the operational efficiency of 

programs and processes. 

 As OFS programs conclude and staff 

continues to decrease, OFS plans to 

streamline the number and depth of 

policies and procedures to make them 

more efficient and reduce the 

maintenance burden. OFS will manage 

this process through the Senior 

Assessment Team to ensure that any 

resulting risk is minimal and controlled. 

 OFS has developed information 

technology capabilities to increase 

efficiency and automate manual 

processes. Continuing to leverage 

existing information technology assets 

will help reduce risks associated with 

human error. In addition, OFS 

management will continue to strengthen 

IT-related controls towards a more 

mature IT environment supporting core 

business processes.

Limitations of the Financial Statements 

The principal financial statements have been 

prepared to report the financial position and 

results of operations of OFS’ TARP programs, 

consistent with the requirements of 31 U.S.C. 

3515(b). While the statements have been 

prepared from the books and records of the OFS 

and the Department of the Treasury in 

accordance with section 116 of EESA and 

Generally Accepted Accounting Principles 

(GAAP) for Federal entities and the formats 

prescribed by the OMB, the statements are in 

addition to the financial reports used to monitor 

and control budgetary resources which are 

prepared from the same books and records. 

The statements should be read with the 

realization that they are for a component of the 

U.S. Government, a sovereign entity.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 18 

Operational Goals

The following discussion of OFS goals and 

TARP programs focuses largely on the 

significant events that occurred from 

inception through fiscal year 2012. A more 

comprehensive discussion of each program, 

including its development and prior years’ 

performance, can be found in the TARP TwoYear Retrospective, the TARP Three Year 

Anniversary Report, and the TARP Four Year 

Retrospective (expected to be published in 

December 2012) which are available at: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx

Operational Goal One: Ensure 

the Overall Stability and 

Liquidity of the Financial 

System 

The first and most significant goal of TARP 

was to help restore stability to the financial 

system. Despite recent volatility in the stock 

market and shocks in the global economy, the 

U.S. financial system today is more stable 

than it was during the midst of the 2008 

crisis. 

Financial markets and the economy continue 

to recover. Credit remains available for 

consumers and businesses. Financial 

institutions hold more capital relative to risk 

than they did before the crisis hit. Most of the 

government’s emergency responses to the 

crisis are being wound down in a way that 

protects the public’s interest and 88.5 percent 

of TARP program investments have been 

collected through repayments, sales, 

dividends, interest and other income. 

Bank Support Programs (CPP, TIP, 

AGP, CDCI) 

Capital Purchase Program 

OFS launched the Capital Purchase Program 

(CPP), the largest and most significant 

program under EESA, on October 14, 2008. 

Through the CPP, OFS provided capital 

infusions directly to banks and thrifts deemed 

viable by their regulators to bolster the capital 

position of institutions of all sizes and, in 

doing so, to build confidence in these 

institutions and the financial system as a 

whole. With the additional capital, CPP 

participants were better equipped to 

undertake new lending and continue to 

provide other services to consumers and 

businesses, even while absorbing write-downs 

and charge-offs on loans that were not 

performing. 

In the period following the CPP 

announcement, OFS provided $204.9 billion in 

capital to 707 institutions of all sizes and 

types across the country, including more than 

450 small and community banks and 22 

community development financial institutions 

(CDFIs) (see Table 7 below). The largest 

investment was $25.0 billion and the smallest 

was $301,000. As Table 7 illustrates, smaller 

financial institutions make up the vast 

majority of participants in the CPP. Of the 

707 applications approved and funded by OFS 

through the CPP by the time it closed to new 

institutions on December 31, 2009, 473 or 66.9

percent were institutions with less than $1.0 

billion in assets.

Table 7: CPP Investment Profile 

CPP Participants Total TARP Investment

Asset Range Number Percent Amount Percent

<$1 billion 473 66.9% $3.8 1.8%

$1 billion - $10 billion 177 25.0% 10.0 4.9%

>$10 billion 57 8.1% 191.1 93.3%

Total 707 100% $204.9 100%
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

19 MANAGEMENT‘S DISCUSSION AND ANALYSIS

OFS received preferred stock or debt 

securities in exchange for these investments. 

Most financial institutions participating in the 

CPP pay OFS a dividend rate of five percent 

per year, which will increase to nine percent 

per year after the first five years starting in 

fiscal year 2014. From inception of the 

program through September 30, 2012, OFS 

has received approximately $193.2 billion in 

CPP repayments/sales, along with 

approximately $11.8 billion in CPP dividends 

and interest, and $14.6 billion of proceeds in 

excess of cost that includes $6.9 billion in net 

proceeds received from the sale of Citigroup 

common stock in excess of cost. 

During fiscal year 2012, OFS has focused on 

winding down the CPP according to the exit 

strategy it announced on May 3, 2012. That 

strategy includes a combination of repayments 

in the case of banks which are expected to 

repay in the near future, selling OFS’ 

positions in banks through auctions, and 

restructuring some investments, typically in 

connection with a merger or other plan of the 

bank to infuse capital, in a way that 

maximizes timely OFS collections and helps 

avoid bank failures. The extent to which OFS 

employs each of the individual options will 

depend on market conditions and other 

factors. 

Repayments 

Under the terms of the CPP, participating 

financial institutions may repay the funds 

they received at any time, so long as they have 

the approval of their regulators. OFS cannot 

demand repayment of CPP preferred stock, 

nor is OFS’ approval required for financial 

institutions to repay. 

During fiscal year 2012, 95 financial 

institutions fully repaid a total of $8.1 billion, 

including proceeds from auctions and sales. 

Repayments were received from several of the 

largest remaining banks in the program such 

as Regions Financial Corp ($3.5 billion), Zion’s 

Bancorp ($1.4 billion), and M & T ($0.4 

billion). 

Auction (and Other) Sales 

To expedite the wind down of the CPP, OFS 

will periodically sell preferred stock and 

subordinated debt in CPP participants 

through both public and private auctions. 

OFS generally employs a modified Dutch 

auction8 process, which establishes a market 

price by allowing investors to submit bids at 

specified increments. Additional guidance for 

public auctions is available in prospectuses 

that are filed by the issuers of the preferred 

stock prior to the opening of each public 

auction. For private auctions, the procedures 

are described in full in the applicable bidder 

letter agreement. 

OFS held its first Dutch auction of CPP 

preferred securities and debentures in March 

2012, and has held five additional auctions 

since that date. OFS has sold its investments 

in 40 banks with an aggregate outstanding 

balance of $1.5 billion. These auctions 

resulted in combined proceeds of $1.3 billion 

or $180 million in proceeds less than cost. 

Restructurings 

Another component of OFS’ exit strategy for 

the CPP is to restructure certain investments

where a bank makes a proposal to do so. This 

is typically done in connection with a merger 

or the bank’s plan to raise new capital. 

Treasury agrees to receive cash (sometimes at 

a discount to the original ―par‖ value of the 

investment) or other securities, which can be 

more easily sold. Treasury will participate in 

these transactions in limited cases and only if 

the terms help maximize collections on behalf 

of taxpayers.

 

8During this modified Dutch auction process, 

Treasury, with advice from its external asset 

managers and the auction agents, publicly discloses 

a minimum bid for each auction. Bidders are able 

to submit one or more independent bids at different 

price-quantity combinations at or above the set 

minimum price. The auction agent does not 

provide bidders with any information about the 

bids of other bidders or auction trends, or with 

advice regarding bidding strategies, in connection 

with the auction. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 20 

OFS also received warrants to purchase 

common shares or other securities from the 

financial institutions at the time of the CPP 

investment. The purpose of the additional 

securities is to provide opportunities for OFS 

to reap additional returns on the investments 

made by it as CPP participants recover. From 

inception of the program through September 

30, 2012, OFS has received nearly $7.7 billion 

in proceeds from the sale/repurchase of CPP 

warrants. 

For additional information, please see OFS’ 

Monthly Report to Congress (also known as 

the 105a Report), which can be found at: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/Monthly-Report-toCongress.aspx

Refinancing Through the Small Business 

Lending Fund 

 

In fiscal year 2011, 137 CPP institutions 

refinanced their CPP investments totaling 

more than $2.2 billion using the Small 

Business Lending Fund (SBLF). These 

refinancing transactions moved the risk 

associated with these institutions’ repayments 

from OFS to SBLF. SBLF is not a TARP 

program and does not use TARP funds. The 

SBLF ceased making new commitments at the 

close of fiscal year 2011. As a result, there 

were no SBLF refinances in fiscal year 2012. 

Targeted Investment Program 

OFS established the Targeted Investment 

Program (TIP) in December 2008. Through 

TIP, OFS sought to prevent a loss of 

confidence in critical financial institutions, 

which could result in significant financial 

market disruptions, threaten the financial 

strength of similarly situated financial 

institutions, impair broader financial markets, 

and undermine the overall economy. TIP was 

considered ―exceptional assistance‖ for 

purposes of executive compensation 

requirements. 

 

OFS invested $20.0 billion in preferred stock 

in each of two institutions – Bank of America 

(BofA) and Citigroup – under TIP, in addition 

to those funds that these financial institutions 

received under the CPP. In December 2009, 

both participating institutions repaid their 

TIP investments in full, with dividends. Total 

TIP dividends were about $3.0 billion during 

the life of the program. OFS also received 

warrants from each bank which provided the 

taxpayer with additional gain on the 

investments when OFS sold the BofA 

warrants in fiscal year 2010 for $1.2 billion 

and the Citigroup warrant in fiscal year 2011 

for $190 million. TIP closed during fiscal year 

2011 and resulted in a positive return for 

taxpayers. 

Asset Guarantee Program 

Under AGP, OFS acted to support the value of 

certain assets held by qualifying financial 

institutions, by agreeing to absorb a portion of 

the losses on those assets. The program was 

conducted jointly by Treasury, the FRBNY 

and the Federal Deposit Insurance 

Corporation (FDIC). Like TIP, it was 

designed for financial institutions whose 

failure could harm the financial system and 

reduce the potential for ―spillover‖ to the 

broader financial system and economy. The 

AGP was used to assist BofA and Citigroup in 

conjunction with TIP investments in those 

institutions. The arrangement with BofA was 

terminated before it was formally finalized, 

with BofA paying OFS a termination fee. 

Under the terms of the guarantee agreement 

with Citigroup, OFS, the FDIC, and the 

FRBNY received a premium for the guarantee 

of $7.0 billion in Citigroup preferred stock and 

warrants. Additional information on the two 

institutions under AGP can be found in the 

OFS’ fiscal year 2010 Agency Financial Report 

available at: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/Annual-AgencyFinancial-Reports.aspx. 

Although the guarantee was originally 

expected to be in place for five to ten years, 

Citigroup requested that it be terminated in 

December 2009 in conjunction with its 

repayment of $20 billion it received from the 

TIP. The banking regulators approved its 

request in conjunction with Citibank's raising 

of more than $20 billion of private capital. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

21 MANAGEMENT‘S DISCUSSION AND ANALYSIS

In connection with the termination, Treasury 

and the FDIC kept most of the premium paid

by Citigroup. Specifically, the government 

retained a total of $5.2 billion of the $7.0

billion of preferred stock (which had since 

been converted to trust preferred securities). 

OFS’ portion was $2.2 billion.

The FDIC and OFS agreed that, subject to 

certain conditions, the FDIC would transfer to 

OFS $800 million of their Citigroup trust 

preferred stock holding plus dividends thereon 

contingent on Citigroup repaying its 

previously-issued FDIC guaranteed debt 

under the FDIC’s Temporary Liquidity 

Guarantee Program which expires on 

December 31, 2012. OFS sold its trust 

preferred securities in October 2010 and the 

AGP warrants in January 2011, leaving only 

the $800 million of trust preferred stock 

receivable from the FDIC valued at $967

million (including dividends thereon held by 

FDIC) at September 30, 2012. During fiscal 

year 2013, OFS expects to receive and 

liquidate the $800 million Citigroup trust 

preferred securities. 

The AGP is now closed and resulted in a 

positive return for taxpayers. No OFS 

payments were made under the program. 

Community Development Capital 

Initiative 

 

The CDFIs focus on providing financial 

services to communities underserved by 

traditional banks, such as low- and moderateincome, minority, and other underserved 

communities. OFS launched the Community 

Development Capital Initiative to help viable 

certified CDFIs and the communities they 

serve cope with effects of the financial crisis. 

Under this program, CDFI banks and thrifts 

received investments of capital with an initial 

dividend or interest rate of two percent, 

compared to the five percent rate generally 

offered under CPP. CDFI banks and thrifts 

applied to receive capital up to five percent of 

risk-weighted assets. To encourage 

repayment while recognizing the unique 

circumstances facing CDFIs, the dividend rate 

will increase to nine percent after eight years, 

compared to five years under CPP. 

OFS completed funding under this program in 

September 2010. The total investment 

amount for the CDCI program under TARP is 

$570 million for 84 institutions. Of this 

amount, $363 million resulted from 28 banks 

exchanging their investments under the CPP 

into the CDCI. As of September 30, 2012, one 

institution representing $7 million went into 

receivership and OFS does not expect any 

collection on the associated preferred shares, 

and two institutions representing $3 million 

have fully repaid OFS. Due to the unique 

nature of these institutions and the difficulties 

faced by the communities they serve, OFS

designed this program to encourage 

repayment over a longer period of time. So for 

the time being, OFS will continue to hold 

these investments and will evaluate its

options for exiting them at a later date. 

Credit Market Programs (PPIP, 

TALF, SBA 7(a)) 

Public-Private Investment Program 

During the financial crisis, many institutions 

and investors were under extreme pressure to 

reduce indebtedness. This de-leveraging 

process pushed down the market prices for 

many financial assets, including troubled 

legacy securities (i.e., non-agency residential 

mortgage-backed securities (RMBS) and 

commercial mortgage-backed securities 

(CMBS)) below their fundamental value. 

Institutions and investors were trapped with 

these hard-to-value assets, marked at 

distressed prices on their balance sheets, 

which constrained liquidity and the 

availability of credit in these markets. 

The OFS designed the PPIP to facilitate the 

purchase of troubled legacy securities (i.e., 

non-agency RMBS and CMBS) by providing 

financing on attractive terms as well as a 

matching equity investment made by private 

investors. By drawing new private capital 

into the market for legacy RMBS and CMBS, 

PPIP was designed to help restart the market 

for these securities, thereby facilitating the 

removal of these assets from financial 

institutions’ balance sheets and allowing for 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 22 

more credit to become available for consumers 

and small businesses. 

Under the program, Public-Private 

Investment Funds (PPIFs) were established 

by private sector fund managers for the 

purpose of purchasing eligible legacy 

securities from banks, insurance companies, 

mutual funds, pension funds, and other 

eligible sellers as defined under EESA. OFS 

matches equity dollar-for-dollar and lends up 

to the amount of equity raised by the PPIFs 

for the purpose of purchasing eligible RMBS 

and CMBS from eligible financial institutions 

under EESA. 

PPIFs have the ability to invest in eligible 

assets over a three-year investment period 

ending in December 2012 for the remaining 

PPIFs. They then have up to five additional 

years, which may be extended for up to two 

more years, to manage these investments and 

return the proceeds to OFS and the other 

PPIF investors. PPIP fund managers retain 

control of asset selection, purchasing, trading, 

and disposition of investments. The profits 

generated by a PPIF, net of expenses, will be 

distributed to the investors, including OFS, in 

proportion to their equity capital investments. 

OFS also receives warrants from the PPIFs, 

which gives OFS the right to receive a 

percentage of the profits that would otherwise 

be distributed to the private partners that are 

in excess of their contributed capital. The 

program structure allows for risk to be spread 

between the private investors and OFS and 

provides taxpayers with the opportunity for 

positive returns. 

PPIP Results 

Treasury originally committed approximately 

$22.1 billion of equity and loans to the nine 

PPIFs. After completing their fundraising, 

PPIFs closed on approximately $7.4 billion of 

private sector equity capital commitments, 

which were matched 100 percent by OFS, 

representing $14.7 billion of equity capital 

commitments. In the aggregate, all nine 

PPIFs had $29.4 billion of total purchasing 

power. The following is a summary of the 

commitments and investments in individual 

PPIFs as of September 30, 2012.

Table 8: OFS Commitments and Investments in PPIFs 

(Dollars in billions)

PPIF 

Purchase 

Price 

Disbursements Repayments 

Amount 

Outstanding 

Other 

Receipts3 

Total 

Cash 

Back 

Angelo, Gordon & Co., LP 

and GE Capital Real Estate $ 3.6 $ 3.4 $ 1.1 $ 2.3 $ 0.6 $ 1.7

BlackRock, Inc 2.1 1.5 0.2 1.3 0.2 0.4

Invesco Ltd.1 2.0 1.7 1.7 - 0.2 1.9

Marathon Asset 

Management, LP 1.4 1.4 0.1 1.3 0.2 0.3

Oaktree Capital 

Management, LP 3.5 1.7 0.3 1.4 - 0.3

RLJ Western Asset 

Management, LP 1.9 1.9 1.4 0.5 0.4 1.8

The TCW Group, Inc2 0.4 0.4 0.4 - - 0.4

Wellington Management 

Company, LLP 3.4 3.4 0.4 3.0 0.3 0.7

Alliance Bernstein1 3.3 3.2 3.2 0.00 0.5 3.7

Total $ 21.6 $ 18.6 $ 8.8 $ 9.8 $ 2.4 $ 11.2 

1 Investment period has expired or been terminated.

2 The fund has been closed.

3 Other receipts includes interest, investment income and proceeds in excess of cost.

 

Wind Down Status for PPIFs 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

23 MANAGEMENT‘S DISCUSSION AND ANALYSIS

In March 2012, Invesco Legacy Securities 

Master Fund (Invesco Ltd) became the second 

PPIF to sell its remaining investments, 

repaying all of the $1.2 billion in debt and 

$581 million in equity capital invested by OFS 

in the fund. Cumulatively, OFS received $18 

million in interest and $139 million of 

proceeds in excess of original equity capital, 

including $3 million in warrant proceeds from 

Invesco Ltd. 

In July 2012, RLJ Western formally 

terminated its investment period. As of 

September 30, 2012, RLJ Western has repaid 

all of the $1.2 billion in debt and $144 million 

of the original $621 million in equity capital 

invested by OFS. Cumulatively, OFS received 

$37 million in interest and $340 million of 

proceeds in excess of original equity capital. 

As of September 2012, Alliance Bernstein also 

substantially wound down the fund. As of 

September 30, 2012, Alliance Bernstein has 

repaid all of the $2.1 billion in debt and all of 

the $1.1 billion in equity capital invested by 

OFS in the fund. Cumulatively, OFS received 

$58 million in interest and $448 million in 

proceeds in excess of original equity capital. 

OFS provides quarterly status reports on the 

program’s performance. For more information 

on these holdings and the performance of the 

PPIFs, readers can refer to the most recent 

PPIP Quarterly Report available at: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/Public-PrivateInvestment-Program-Quarterly-Report.aspx

Term Asset-Backed Securities Loan 

Facility 

TALF was a joint Federal Reserve-OFS 

program that was designed to restart the 

asset-backed securities (ABS) market that 

provide credit to consumers and small 

businesses, which had ground to a virtual 

standstill during the early months of the 

financial crisis. 

Pursuant to its Federal Reserve Act Section 

13(3) authority, the Federal Reserve Board 

authorized the FRBNY to extend up to $200.0

billion in non-recourse loans to borrowers to 

enable the purchase of newly issued assetbacked (including newly issued CMBS and 

legacy CMBS) AAA-rated securities including 

those backed by consumer loans, student 

loans, small business loans, and commercial 

real estate loans. In return, the borrowers 

pledged the eligible collateral with a risk 

premium (―haircut‖) as security for the loans. 

Should a borrower default upon its TALF loan 

or voluntarily surrender the collateral, it 

would be seized and sold to TALF LLC, a 

special purpose vehicle created by FRBNY to 

purchase and hold seized or surrendered 

collateral. Through September 30, 2012, 

TALF LLC has not purchased any collateral 

from the FRBNY. 

OFS originally committed to provide $20.0

billion in the form of a subordinated loan 

commitment to TALF LLC. This commitment 

was reduced to $4.3 billion after the program 

closed to new lending in June 2010, which 

represented 10 percent of the outstanding 

TALF loans at the time. In June 2012, the 

commitment was further reduced to $1.4 

billion at a time when the outstanding loans 

were $3.5 billion. As of September 30, 2012, 

$1.5 billion of TALF loans due to the FRBNY 

remained outstanding and the TALF program 

has experienced no losses. OFS does not 

expect any program cost to the taxpayers from 

this program. 

Small Business Administration 7(a) 

Securities Purchase Program 

Small businesses play an important role in 

generating new jobs and growth in our 

economy. The SBA’s 7(a) Loan Guarantee 

Program assists start-up and existing small 

businesses that face difficulty in obtaining 

loans through traditional lending channels. 

To help ensure that credit flows to 

entrepreneurs and small business owners, 

OFS developed the SBA 7(a) Securities 

Purchase Program to purchase SBAguaranteed securities from pool assemblers. 

Purchasing securities from participating pool 

assemblers enabled them to purchase 

additional small business loans from loan 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 24 

originators. OFS invested in a total of 31 SBA 

7(a) securities with a value of approximately 

$367 million (excluding purchased accrued 

interest) between March and September 2010. 

Those securities were comprised of 1,001 loans 

from 17 different industries, including retail, 

food services, manufacturing, scientific and 

technical services, health care, educational 

services, and others. Through its purchases, 

OFS injected much needed liquidity into this 

market to help restart the flow of credit, 

enabling pool assemblers to purchase 

additional small business loans from loan 

originators. Since OFS began its purchases, 

the SBA 7(a) market has now recovered with 

new SBA 7(a) loan volumes returning to precrisis levels. 

In January 2012, OFS sold its eight remaining 

SBA 7(a) securities in the portfolio, marking 

the successful wind down of the SBA 7(a) 

Securities Purchase Program. In total, OFS 

collected $376 million through sales ($334 

million) and principal payments ($29 million) 

and interest payments ($13 million) over the 

life of the program, representing cash 

collections of approximately $9 million more 

than its original investment of $367 million. 

 

Other Programs 

Automotive Industry Financing Program 

The Automotive Industry Financing Program 

(AIFP) was launched in December 2008 to 

help prevent the disorderly liquidation of 

Chrysler and General Motors (GM) and thus a 

significant disruption of the U.S. auto 

industry. The potential for such a disruption 

at that time posed a significant risk to 

financial market stability and threatened the 

overall economy. 

Recognizing both General Motors Corporation 

(Old GM) and Chrysler Holdings LLC (Old 

Chrysler) were on the verge of potentially 

disorderly liquidations, OFS extended 

temporary loans to GM and Chrysler in 

December 2008. OFS agreed to provide 

additional funds conditioned on each company 

and its stakeholders participating in a 

fundamental restructuring. Sacrifices were 

made by unions, dealers, creditors and other 

stakeholders, and the restructurings were 

achieved through bankruptcy court 

proceedings in a record time. As a result, 

General Motors Company (New GM) and 

Chrysler Group LLC (New Chrysler) are more 

competitive and viable companies, supporting 

American jobs and the economy. Operating 

results have improved, the industry has added 

jobs, and TARP investments have begun to be 

repaid. 

In total, OFS disbursed $79.7 billion in loans 

and equity investments to GM, GMAC (now 

known as Ally Financial), Chrysler, and 

Chrysler Financial. Please see Note 6 of 

financial statements for further information 

on the AIFP subsidy cost. 

 

General Motors 

OFS provided $49.5 billion under TARP to Old 

GM. The initial assistance was a $13.4 billion 

loan in December 2008 to Old GM to fund 

working capital. Under the loan agreement, 

Old GM was required to submit a viable 

restructuring plan. The first plan Old GM 

submitted failed to establish a credible path to 

viability, and the deadline was extended to 

June 2009 for Old GM to develop an amended 

plan. OFS loaned an additional $6.0 billion to 

fund Old GM as it worked to submit a viable 

restructuring plan. To achieve an orderly 

restructuring, Old GM filed for bankruptcy on 

June 1, 2009. OFS provided $30.1 billion 

under a debtor-in-possession financing 

agreement to assist Old GM during the 

restructuring. A newly formed entity, New 

GM purchased most of the assets of Old GM 

under a sale pursuant to Section 363 of the 

bankruptcy code (363 Sale). When the sale to 

New GM was completed on July 10, 2009, 

OFS converted most of its loans into 60.8 

percent of the common equity in New GM and 

$2.1 billion in preferred stock. At that time, 

OFS held $6.7 billion in outstanding loans 

which were repaid in full during fiscal year 

2010. Approximately $986 million in loans to 

Old GM (now known as Motors Liquidation 

Company) for wind-down costs associated with 

its liquidation remained outstanding. 

Following confirmation of the plan for 

liquidation by the bankruptcy court, New GM 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

25 MANAGEMENT‘S DISCUSSION AND ANALYSIS

emerged from the managed bankruptcy 

process as a stronger, more viable, and more 

competitive company. In 2010, New GM 

posted its first annual profit in six years. 

Since then, it has continued to add jobs and 

post strong growth. 

In November 2010, New GM completed its 

initial public offering (IPO), with gross 

proceeds to OFS of $13.6 billion, resulting in 

OFS reporting net proceeds less than cost of 

$4.3 billion. The IPO reduced OFS’ ownership 

of New GM’s outstanding common stock by 

nearly half. New GM then purchased all of 

OFS' preferred shares, further reducing the 

OFS’s stake in the company. 

In March 2011, the Plan of Liquidation for Old 

GM became effective and OFS’ $986 million 

loan to Old GM was converted to an 

administrative claim. During fiscal year 2011, 

OFS received payments totaling $111 million 

from Motors Liquidation Company. During 

fiscal year 2012, OFS received payments of

$26 million from Motors Liquidation 

Company. OFS retains the right to recover 

additional proceeds; however, any additional 

recovery is dependent on actual liquidation 

proceeds and pending litigation. OFS does not 

expect significant additional recoveries on this 

administrative claim. 

As of September 30, 2012, OFS holds 

approximately 500 million common stock 

shares with a value of $11.4 billion, 

representing 31.9 percent of the outstanding 

shares of common stock in New GM as 

discussed in Note 6 to the OFS Financial 

Statements. As of that date, OFS has collected 

$24.0 billion of its total $51.0 billion 

investment9. 

Since New GM is a publically-traded company 

and its stock is highly liquid, OFS can exit its 

investment over time through sales of its 

remaining common shares on the open 

market, through underwritten offerings, block 

 

9

 GM $51.0 billion of assistance consists of a $49.5 

billion loan to Old GM, $884 million loan to old GM 

to purchase GMAC rights, and $651 million in loans 

for Supplier and Warranty Programs. 

trades or dribble out programs, or a 

combination of the above. OFS will continue 

to evaluate its options based on market 

conditions. 

Chrysler 

OFS disbursed a total of $12.4 billion to 

Chrysler related entities including Old 

Chrysler and New Chrysler. During fiscal 

year 2011, OFS fully exited its loans and 

investment relating to Chrysler entities, six 

years ahead of the scheduled maturity of its 

loans. Of the $12.4 billion that was disbursed 

to Chrysler related entities under TARP, OFS 

collected more than $11.1 billion through 

principal repayments, sale of investments, 

and interest. While OFS retains a right to 

receive proceeds from a liquidation trust, no 

significant future cashflows are expected. 

The $12.4 billion disbursed to Chrysler related 

entities are made up primarily of the following 

transactions: 

In January 2009, OFS loaned $4.0 billion to 

Old Chrysler and the company was required 

to implement a viable restructuring plan. In 

fiscal year 2010, Old Chrysler repaid $1.9 

billion while a $500 million existing liability 

was assumed by New Chrysler. OFS wrote off 

the remaining $1.6 billion of this loan. 

During fiscal year 2009 the Administration 

laid out a framework for Old Chrysler to 

achieve viability by partnering with the 

international car company Fiat and OFS 

provided $1.9 billion to Old Chrysler under a 

debtor-in-possession (DIP) financing 

agreement for assistance during Old 

Chrysler’s bankruptcy proceeding. The DIP 

loan was extinguished by the bankruptcy 

court in April 2010, including collateral 

security attached to the loan, and transferred 

to a liquidation trust. OFS retained the right 

to recover the proceeds from the liquidation of 

the specified collateral and received $40 

million from the liquidation trust in fiscal 

year 2010, $8 million in fiscal year 2011, and 

$9 million in fiscal year 2012. 

In June 2009, a newly formed entity, Chrysler 

Group LLC, (New Chrysler) purchased most of 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 26 

the assets of Old Chrysler under a 363 sale. 

OFS provided a $6.6 billion loan commitment 

to New Chrysler (of which $4.6 billion was 

disbursed), and received $384 million in 

additional notes and a 9.9 percent equity 

ownership in New Chrysler. 

In May 2011, New Chrysler repaid $5.1 billion 

in TARP loans, $384 million relating to 

additional notes received, and interest 

thereon, and terminated its ability to draw a 

remaining $2.1 billion TARP loan 

commitment. New Chrysler’s repayment came 

six years before the scheduled maturity of 

those loans in 2017. In July 2011, OFS 

received $560 million in proceeds from the 

sale of its remaining stake in New Chrysler to 

Fiat. With the closing of this transaction, 

OFS completed its exit from New Chrysler. 

 

Ally Financial (formerly GMAC) 

 

In December 2008, OFS made an initial 

investment of $5.0 billion in GMAC. OFS also 

lent $884 million of TARP funds to Old GM for 

the purchase of additional ownership interests 

in a rights offering by GMAC. In May 2009, 

federal banking regulators required GMAC to 

raise additional capital by November 2009 in 

connection with the Supervisory Capital 

Assistance Program (SCAP)/stress test. 

Concurrently, OFS exercised its option to 

exchange the loan with Old GM for 35.4 

percent of common membership interests in 

GMAC. OFS also purchased $7.5 billion of 

convertible preferred shares from GMAC in 

May 2009, which enabled GMAC to partially 

meet the Supervisory Capital Assessment 

Program (SCAP) requirements. In December 

2009, OFS made additional investments of 

$3.8 billion in GMAC to enable GMAC to 

satisfy the SCAP requirements and exchanged 

certain preferred shares for common stock. 

OFS provided the $3.8 billion in new capital in 

the form of $2.5 billion of trust preferred 

securities, which are senior to all other capital 

securities of the company, and $1.3 billion of 

mandatory convertible preferred stock. 

In May 2010, GMAC changed its corporate 

name to Ally Financial, Inc. In December 

2010, OFS converted preferred stock in Ally 

Financial with a liquidation preference of $5.5 

billion into common stock. The conversion 

increased OFS’ common equity stake in Ally 

Financial from 56 percent to 74 percent of 

total common shares outstanding. 

In fiscal year 2011, Ally commenced work on 

an initial public offering which would have 

enabled OFS to begin exiting its common 

stock investment. However, Ally was forced to 

delay the IPO due to intensifying issues 

related to legacy liabilities of its subsidiary, 

ResCap, a residential mortgage company, as 

well as a general weakening in the IPO 

market. 

In March 2011, OFS sold all of its Ally 

Financial trust preferred securities at par. 

Aggregate proceeds from the sale totaled $2.7 

billion. With the proceeds from this sale, OFS 

has received $5.7 billion from Ally Financial 

from inception of the program through 

September 30, 2012, including $3.0 billion in 

dividends. 

In May 2012, ResCap filed to enter into a 

Chapter 11 reorganization process. ResCap, 

about one-tenth the size of Ally based on 

assets, is a separate and distinct company 

from Ally that has its own board of directors 

and creditors. OFS does not hold any equity, 

debt, or other direct investment in ResCap. 

While it is unfortunate that a Chapter 11 

filing became necessary for ResCap, OFS 

believes this action puts OFS in a stronger 

position to continue recovering OFS’

investment in Ally Financial. Ally’s 

automotive financing business has remained 

profitable and its retail banking operation has 

grown. Concurrently with the filing by 

ResCap, Ally began exploring strategic 

alternatives for its international business in a 

manner that Ally believes will maximize value 

for its shareholders. 

As of September 30, 2012, OFS held 119

million convertible preferred stock shares with 

a liquidation preference of $5.9 billion and 74 

percent of Ally Financial’s outstanding 

common stock as discussed in Note 6 to the 

OFS Financial Statements. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

27 MANAGEMENT‘S DISCUSSION AND ANALYSIS

OFS provided a total of $16.3 billion to GMAC 

from December 2008 through December 2009 

to help support its ability to issue new loans to 

GM and Chrysler dealers and consumers and 

to address the company’s capital needs. As of 

September 30, 2012, OFS has collected $5.7

billion, consisting of $3.0 billion in dividend 

receipts on the mandatory convertible 

preferred, warranty preferred, and trust 

preferred securities (TruPS), and $2.7 billion 

from the sale of TruPS, (including $127 

million of proceeds in excess of cost). 

American International Group, Inc. (AIG) 

Investment Program 

The peak amount of assistance offered to AIG 

by the FRBNY and Treasury was $182.3 

billion, a part of which ($22.1 billion) was 

later cancelled, and an amount in excess of the 

total disbursed has now been recovered 

through repayments, sales and other income. 

Through September 30, 2012, Treasury 

disbursed a total of $67.8 billion to AIG and 

has collected $65.3 billion (of this, OFS 

disbursed $67.8 billion and collected $50.3 

billion). Treasury’s collections include

proceeds from sales of a total of 1.4 billion AIG 

common stock shares resulting in proceeds in 

excess of costs for non-TARP shares of $15.0 

billion and proceeds less than cost of $11.8 

billion for TARP shares. 

In September 2008, AIG was the largest 

provider of conventional insurance in the 

world, with approximately 75 million 

individual and corporate customers in more 

than 130 countries. AIG’s assets exceeded $1 

trillion and insured 180,000 businesses and 

other entities employing more than 100 

million people in the U.S. It was a large 

issuer of commercial paper and the second 

largest holder of U.S. municipal bonds. 

Then, the financial crisis peaked in 2008. 

AIG’s parent holding company engaged in 

financial activities that were well beyond the 

business of life insurance and property and 

casualty insurance. Its financial products 

unit was a significant participant in some of 

the newest, riskiest, and most complex 

transactions of the U.S. financial system. In 

the chaotic environment of September 2008, 

the Federal Reserve and Treasury concluded 

that AIG’s failure could be catastrophic. 

Among other things, if AIG had failed, the 

crisis would have almost certainly spread to 

the entire insurance industry, and its failure 

could have directly affected the savings of 

millions of Americans. Therefore, Treasury 

and the FRBNY took action to protect the U.S. 

financial system. 

During the fall of 2008, the Federal Reserve 

and OFS took a series of steps to prevent 

AIG’s disorderly failure and mitigate systemic 

risks. The initial assistance to AIG was 

provided by the FRBNY before the passage of 

EESA and the creation of TARP. After EESA 

became law, OFS and the Federal Reserve 

continued to work together to address the 

challenges posed by AIG. 

In November 2008, OFS invested $40.0 billion 

in senior preferred stock of AIG and it also 

received warrants to purchase common shares 

in the firm. The funds were used immediately 

to reduce the loans provided to AIG by the 

FRBNY. The preferred stock was 

subsequently exchanged in April 2009, for face 

value plus accrued dividends, into $41.6 

billion of a different series of preferred stock. 

Complete details on the AIG investment are 

available in the TARP Three Year 

Anniversary Report and the TARP Two-Year 

Retrospective Report which are both available 

at: 

http://www.treasury.gov/initiatives/financialstability/briefingroom/reports/agency_reports/Pages/default.as

px. 

In fiscal year 2011, Treasury, including OFS, 

FRBNY, the trustees of the AIG Credit 

Facility Trust (the Trust)10 and AIG completed 

a restructuring of AIG and Treasury, 

including OFS, and the FRBNY began exiting 

their respective investments. The 

restructuring, which was announced on 

September 30, 2010 and completed in January 

 

10 The independent trust established to manage the 

Department of Treasury’s beneficial interest in 

Series C preferred AIG shares.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 28 

2011, was a series of integrated transactions 

and corporate actions designed to accelerate 

the repayment of U.S. taxpayer funds and to 

promote AIG’s transition from a majority 

government owned and supported entity to a 

financially sound and independent entity. As 

part of the restructuring, AIG drew $20.3 

billion from the capital facility made available 

by OFS, for a total of $27.8 billion drawn and 

AIG repaid FRBNY a total of $47.0 billion, as 

a result of which AIG no longer had any 

outstanding obligations to the FRBNY 

(although the FRBNY still had loans to two 

special purpose vehicles which acquired assets 

from AIG). Following the restructuring, OFS’ 

total investment in AIG was $67.8 billion, and 

as of January 31, 2011, Treasury’s investment 

consisted of approximately 1.7 billion shares 

of AIG common stock (1.1 billion shares owned 

by OFS and 563 million shares owned by the 

Treasury, which were received on the 

termination of the Trust), representing 

ownership of 92 percent of the company (77 

percent held by OFS and 15 percent held by 

the Treasury outside of OFS) as well as $20.3 

billion of OFS’ preferred interests in two AIG 

SPVs. The AIG SPVs are wholly owned by 

AIG and consolidated on the AIG financial 

statements. The OFS owned 100 percent of 

the preferred interests in the two AIG SPVs. 

Exiting the Government’s AIG Investment 

During fiscal year 2012, AIG completed the 

repayment of OFS’ preferred interests in the 

AIG SPVs. In March 2012, OFS received $8.6 

billion in repayments of its preferred interest 

in the AIG AIA SPV. This allowed for OFS’ 

preferred interests in AIG SPVs to be repaid 

in full. 

During fiscal year 2012, the Treasury’s, 

including OFS’, common stock investment in 

AIG was also substantially reduced. Over the 

course of the year, OFS conducted four 

offerings that sold a total of 1.2 billion shares 

of AIG common stock (consisting of 806

million TARP shares and 415 million

Treasury non-TARP shares) at prices that 

ranged from $29.00 per share to $32.50 per 

share. Total proceeds from these fiscal year 

2012 sales of AIG common stock amounted to

$38.2 billion, consisting of $25.2 billion in

proceeds to OFS and additional proceeds to 

the Treasury for the non-TARP shares of 

$13.0 billion. The proceeds to OFS from such 

common stock sales were $9.9 billion less than 

the cost of the shares. 

As of September 30, 2012, Treasury’s 

remaining outstanding AIG investments 

consisted of 234 million shares of AIG common 

stock, consisting of 154 million TARP shares 

and 80 million non-TARP shares. Treasury’s 

percentage ownership of AIG’s outstanding 

shares of common stock was 15.9 percent at 

such date (of which the TARP shares are 10.5 

percent and non-TARP shares are 5.4 

percent). OFS’ remaining TARP shares have 

a cost basis of $43.53 per share and have a 

fair market value of $5.1 billion, or $32.79 per 

share, as of September 30, 2012. The Treasury 

non-TARP shares, which were received from 

the trust, are not owned by OFS and, 

consequently, are not included in the OFS 

financial statements and were provided to 

Treasury at no cost. The figure of $28.73 per 

share is often referred to as Treasury’s ―breakeven‖ price for AIG common stock sales in 

order for Treasury to recover the TARP AIG 

investment because that number averages the 

cost over the TARP and non-TARP shares. 

Additional discussion of the AIG investment 

including subsidy cost can be found in Note 6 

to the OFS Financial Statements. 

Operational Goal Two: Prevent 

Avoidable Foreclosures and 

Preserve Homeownership 

OFS established several programs under 

TARP to address the historic housing crisis 

and important new reforms are being 

introduced in part because of TARP’s housing 

programs. While the housing market remains 

fragile, there have been more than 1.2 million 

homeowner assistance actions taken through 

the Making Home Affordable (MHA) program 

(a joint TARP and government sponsored 

enterprise (GSE)11 initiative) to assist 

 

11 GSEs involved in MHA include Fannie Mae and 

Freddie Mac. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

29 MANAGEMENT‘S DISCUSSION AND ANALYSIS

struggling homeowners12. In addition, TARP’s 

housing programs have also transformed the 

mortgage servicing industry. These programs 

have changed industry standards and 

practices and have helped to make mortgage 

modifications become more sustainable and 

affordable. Since March 2009, there have been 

more than 3 million private-sector mortgage 

modifications, in part because of the new 

standards that TARP’s housing programs 

have established. 

Using authority granted under EESA, OFS 

established two central housing programs 

under TARP. There is the MHA program, 

which includes the Home Affordable 

Modification Program (HAMP) and several 

additional programs to help homeowners 

refinance or address specific types of 

mortgages. There is also the Hardest Hit 

Fund (HHF) Program which commits $7.6 

billion to the 18 hardest hit states, plus the 

District of Columbia, to develop locallytailored programs to assist struggling 

homeowners in their communities. In 

addition, OFS provided support for the 

Federal Housing Administration’s Short 

Refinance Program that assists borrowers who 

are current on their mortgage (or complete a 

trial payment plan) but owe more than their 

home is worth, to refinance into an FHAinsured loan.

To protect taxpayers, the MHA and HHF 

housing initiatives generally have pay-forsuccess incentives: funds are disbursed only 

when transactions are completed and 

thereafter only as long as those contracts 

remain in place. Therefore, funds will be 

disbursed over many years. The total cost of 

the Treasury housing programs under TARP, 

excluding administrative costs, cannot 

exceed—and may be less than—$45.6 billion13, 

which is the amount committed to that 

purpose. 

 

12 726,253 of these actions were TARP funded 

modifications.

13 This amount includes $29.9 billion for MHA, $7.6 

billion for HHF, and $8.1 billion for FHA-Refinance 

programs. 

Making Home Affordable (MHA) 

 

Launched in February 2009, MHA consists of 

several programs designed to help struggling 

homeowners prevent avoidable foreclosures. 

The cornerstone of MHA is the Home 

Affordable Modification Program (HAMP). 

HAMP is a first-lien mortgage modification 

program that provides incentives to mortgage 

servicers, investors, and homeowners to 

reduce eligible homeowners’ monthly 

payments to affordable levels. Under this 

program, OFS pays the incentives for the 

modification of loans not held by GSEs while 

the GSEs bear the cost of modifications of 

loans held by the GSEs. HAMP is the largest 

program within MHA and includes several 

additional components to complement first 

lien modifications: 

 The Principal Reduction Alternative 

(PRA), which was implemented in 

October 2010. PRA requires servicers 

of non-GSE loans to evaluate the 

benefit of principal reduction for 

mortgages with a loan-to-value (LTV) 

ratio greater than 115.0 percent when 

evaluating a homeowner for a HAMP 

first lien modification. While servicers 

are required to evaluate homeowners 

for PRA, they are not required to offer 

principal reduction and generally may 

only do so when permitted by the 

mortgage investor. PRA pays investors 

incentives for every dollar of principal 

forgiven, according to a sliding scale 

depending on the degree to which the 

homeowner's unmodified balance is 

greater than the market value of the 

home and the delinquency status of 

the homeowner at time of 

modification. 

 The Home Affordable Unemployment 

Program (UP) requires participating 

servicers to grant qualified 

unemployed borrowers a forbearance 

period during which their mortgage 

payments are temporarily reduced or 

suspended while they look for 

employment. At the end of this 

forbearance period, if the homeowner 

receives a HAMP modification, the 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 30 

forborne amount is capitalized onto 

the unpaid principal balance. This 

program does not require any 

payments from OFS. 

 The Home Affordable Foreclosure 

Alternatives Program (HAFA), which 

helps homeowners exit their homes 

and transition to a more affordable 

living situation through a short sale or 

deed-in-lieu of foreclosure. HAFA 

provides a defined process along with 

incentives for these transactions. 

 The Home Price Decline Program 

provides incentives to investors to 

partially offset losses from home price 

declines. 

Additional components of the MHA program 

include: 

 The Second Lien Modification 

Program (2MP), which provides 

incentives for second-lien holders to 

modify or extinguish a second-lien 

mortgage when a modification has 

been initiated on the first lien 

mortgage for the same property under 

HAMP. 

 The FHA-HAMP Program, which 

provides similar servicer incentives as 

HAMP for Federal Housing 

Administration (FHA) guaranteed 

loans. 

 The Treasury/FHA Second Lien 

Program (2LP), which provides 

incentives to servicers for 

extinguishment of second liens for 

borrowers who refinance their first 

lien mortgages under the FHARefinance Program. 

 The Rural Development (RD)-HAMP 

Program provides incentives for 

modified United States Department of 

Agriculture (USDA) guaranteed 

mortgages. 

MHA Results

The incentives offered under MHA are helping 

homeowners and assisting in stabilizing the 

housing market. As of September 30, 2012, 96

servicers are actively participating in MHA. 

Between loans covered by these servicers and 

other loans owned or guaranteed by the GSEs, 

more than 85 percent of first-lien residential 

mortgage loans in the country are now held by 

servicers participating in the program. As of 

September 30, 2012, OFS has commitments to 

fund up to $29.9 billion in MHA payments and 

has disbursed $4.0 billion since inception. 

More than 1.2 million14 homeowners 

participating in the HAMP programs have 

had their mortgage terms modified 

permanently. This includes modifications on 

both non-GSE loans (for which the cost is paid 

by TARP) and GSE loans (for which the cost is 

paid by the GSEs). Homeowners participating 

in HAMP programs collectively have 

experienced a 38.0 percent median reduction 

in their mortgage payments—more than $539 

per month. MHA has also encouraged the 

mortgage industry to adopt similar programs 

that have helped millions more at no cost to 

the taxpayer. 

OFS publishes quarterly assessments of 

servicer performance, which contain data on 

compliance with program guidelines as well as 

program results metrics. Going forward, OFS 

hopes these assessments will set the standard 

for transparency about mortgage servicer 

efforts to assist homeowners and encourage 

servicers to correct identified instances of 

noncompliance. 

MHA performance highlights for fiscal year 

2012 can be found at: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/Making-HomeAffordable-Program-Performance-Report.aspx. 

 

14 726,253 of these actions were TARP funded 

modifications.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

31 MANAGEMENT‘S DISCUSSION AND ANALYSIS

Enhancements to MHA

HAMP was originally intended to support 

financial stability and help struggling 

homeowners grappling with a verifiable 

financial hardship that put them at risk of 

foreclosure. It focuses on families who could 

sustain their mortgage over the long term if 

modified. 

In an effort to continue to provide meaningful 

solutions to the housing crisis, OFS made 

several enhancements to MHA during fiscal 

year 2012. This included extending the 

application deadline from December 31, 2012 

to December 31, 2013 and expanding 

eligibility to reach a broader pool of distressed 

borrowers. Effective June 1, 2012, MHA 

eligibility expanded to include: 

 Homeowners who are applying for a 

modification on a home that is not 

their primary residence, but the 

property is currently rented or the 

homeowner intends to rent it. 

 Homeowners who previously did not 

qualify for HAMP because their debtto-income ratio was 31.0 percent or

lower. 

 Homeowners who previously received 

a HAMP permanent modification, but 

defaulted on their payments, therefore 

losing good standing. 

To encourage investors to consider or expand 

the use of principal reduction, Treasury issued 

program guidance on February 16, 2012 

tripling financial incentives under PRA for 

investors who agree to reduce principal for 

eligible underwater homeowners. The new 

program guidance applies to all permanent 

modifications of non-GSE loans under HAMP 

that include PRA and have a trial period plan 

effective date on or after March 1, 2012. 

Additional information about the 

enhancements is available on the MHA 

website: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/Making-HomeAffordable-Program-Performance-Report.aspx. 

Setting New Standards and Protecting 

Consumers

The impact that MHA has had goes far beyond 

the individual homeowners that are receiving 

direct assistance under the program. It has 

had a positive indirect effect on the mortgage 

market. In general, federal government 

efforts to date have contributed to the gradual 

decline in the number of seriously delinquent 

mortgage loans (loans 90 or more days past 

due or in the process of foreclosure). The 

latest available data shows continued declines 

in the rate of serious delinquency, continuing 

the trend that began at the end of 2009.15

MHA is also helping to make mortgage 

modifications more affordable overall. It has 

set standards that have been widely followed 

in the industry for making sure that mortgage 

modifications are affordable and sustainable, 

such as the debt-to-income test, and for 

determining whether modifications make 

sense for the holder of the mortgage, such as 

the HAMP net present value model. 

Additionally, MHA helped to establish several 

new reforms throughout the mortgage 

servicing industry aimed at protecting 

consumers. These include: 

 Requiring the 20 largest participating 

mortgage servicers to establish a 

single point of contact for homeowners 

seeking assistance, to ensure that a 

single, knowledgeable case manager 

can guide them through the 

modification process; 

 Requiring participating mortgage 

servicers to limit the practice of ―dual 

tracking‖ – where mortgage servicers 

begin the foreclosure process while 

simultaneously evaluating 

homeowners for assistance; and 

 Requiring participating mortgage 

servicers to provide qualified 

unemployed homeowners with a 

 

15 Source: The Mortgage Bankers Association 2012 

National Delinquency Survey. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 32 

forbearance period of 12 months, 

subject to investor and regulator 

guidelines, during which their 

monthly payments are temporarily 

reduced while they look for a new job. 

MHA’s mortgage servicing standards served 

as the basis for a joint state-Federal 

settlement with the country’s five largest 

mortgage loan servicers (Ally/GMAC, Bank of 

America, Citigroup, JPMorgan Chase, and 

Wells Fargo). The settlement is intended to 

provide as much as $25.0 billion in relief to 

distressed borrowers and direct payments to 

States and the Federal government. The 

agreement settled certain alleged violations of 

state and federal law based on the mortgage 

loan servicing activities of the country’s five 

largest mortgage loan servicers, including 

claims of document-related foreclosure abuses. 

Treasury, including OFS, participated in the 

negotiation of the settlement and shared 

knowledge gained through implementation of 

the Administration’s foreclosure prevention 

programs, including MHA. 

Housing Finance Agency Innovation Fund for 

the Hardest Hit Housing Markets (HFA 

Hardest Hit Fund, or HHF) 

 

In February 2010, the Obama Administration 

announced the Housing Finance Agency 

(HFA) Innovation Fund for the Hardest Hit 

Housing Markets (HFA Hardest Hit Fund, or 

HHF), which allows state HFAs in the 

nation’s hardest hit housing markets and high 

unemployment markets to design innovative, 

locally targeted foreclosure prevention 

programs. State HFAs design the state 

programs, tailoring the housing assistance to 

their local needs. A total of $7.6 billion has 

been allocated for the HHF, out of the $45.6 

billion committed for the housing programs 

under TARP. Further information on the 

funded programs is available at: 

http://www.treasury.gov/initiatives/financialstability/programs/housingprograms/hhf/Pages/default.aspx. 

HHF Results

The Hardest Hit Fund provides funding to 18 

states and the District of Columbia (DC) to 

provide assistance to struggling homeowners 

through locally-tailored programs. As of 

September 30, 2012, all 18 states and the 

District of Columbia were operating HHF 

programs statewide and collectively have 

drawn approximately $1.5 billion (19.7

percent) of the $7.6 billion allocated under the 

program. Each state draws down funds as 

they are needed. States have until December 

31, 2017 to expend funds and must have no 

more than 5.0 percent of their allocation on 

hand before they can draw down additional 

funds. 

All 19 HFAs are fully operational and have 

created extensive infrastructures to operate 

these programs, including selecting and 

training networks of housing counselors to 

assist with applications, creating homeowner 

portals to aid homeowners in applying for 

assistance, and hiring underwriters and other 

staff to review and approve applications. The 

five largest servicers (Bank of America, 

JPMorgan Chase, Wells Fargo, Citibank, and 

GMAC) are currently participating in 

programs in all 18 states and the District of 

Columbia, primarily through mortgage 

payment assistance and mortgage loan 

reinstatement assistance. 

Although states needed time to build their 

operations and refine processes, a number of 

states that have been up and running for 

longer periods of time are starting to show 

substantial growth in the number of 

borrowers assisted (e.g. California, Florida, 

Illinois, Michigan, North Carolina, Ohio and 

South Carolina). Each state submits a 

quarterly report on the progress of its 

program. These reports include the states’ 

performance on metrics set by OFS on various 

aspects of their programs. Direct links to each 

state’s most recent performance report can be 

found at: 

http://www.treasury.gov/initiatives/financialstability/TARPPrograms/housing/Pages/ProgramDocuments.aspx. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

33 MANAGEMENT‘S DISCUSSION AND ANALYSIS

During fiscal year 2012, OFS approved 40

program changes submitted by individual 

HFAs. These approved program changes 

include: 

 A Nevada principal reduction 

program that leverages refinances 

under the Home Affordable 

Refinance Program (HARP); and 

 A California program that uses 

principal reduction in conjunction 

with a modification or recast. 

OFS continues to hold conversations with 

HFAs, servicers, the GSEs, and other relevant 

stakeholders on ways to improve the delivery 

of foreclosure prevention assistance. Recent 

discussion topics included enhancing states’ 

transition assistance programs, new ways to 

utilize funds for principal reduction, and 

identifying ways to direct borrowers 

exhausting unemployment mortgage 

assistance to other resources available 

through servicers. OFS is working to identify 

best practices, share lessons learned between 

states, and develop other ways to provide 

technical assistance to states with lower 

participation volumes. 

Support for the FHA-Refinance Program 

In March 2010, the Administration announced 

enhancements to an existing FHA program 

that will permit lenders to provide additional 

refinancing options to homeowners who owe 

more than their homes are worth because of 

large declines in home prices in their local 

markets. This program, known as the FHARefinance program, is intended to provide 

more opportunities for qualifying mortgage 

loans to be restructured and refinanced into 

FHA-insured loans. 

TARP funds have been made available up to 

$8.1 billion in the aggregate to provide 

additional coverage to lenders for a share of 

potential losses on these loans and to provide 

incentives to support the write-downs of 

second liens and encourage participation by 

servicers. 

OFS has entered into a letter of credit (L/C) to 

fund the FHA-Refinance Program. Pursuant 

to this L/C, a reserve account has been prefunded with $50 million in funds for OFS’ 

share of any future loss claim payments. OFS 

will be reimbursed for all unused amounts 

from this account. As of September 30, 2012, 

there has not been substantial activity under 

the program and no disbursements for loss 

claim payments under the FHA-Refinance 

Program have been made. 

Housing Scorecard 

The U.S. Department of Housing and Urban 

Development (HUD) and OFS also release a 

Monthly Housing Scorecard on the nation’s 

housing market. Each month the scorecard 

presents key housing market indicators and 

highlights the impact of the Administration’s 

housing recovery efforts, including assistance 

to homeowners through the FHA and HAMP. 

The Housing Scorecard is available at: 

www.hud.gov/scorecard.

Operational Goal Three: Protect 

Taxpayers’ Interests 

OFS manages TARP investments to minimize 

costs to taxpayers and receives income on its 

holdings of preferred interests and other 

TARP investments in the form of interest, 

dividends and fees. OFS has taken a number 

of steps during fiscal year 2012 to dispose of 

OFS’ outstanding investments in a manner 

that balances the need to exit these 

investments as quickly as practicable and 

maximize returns for taxpayers. OFS also 

takes steps to ensure that TARP recipients 

comply with any TARP-related statutory or 

contractual obligations such as executive 

compensation requirements and restrictions 

on dividend payments.

OFS is exiting investments as soon as 

practicable to reduce taxpayers’ exposure, 

return TARP funds to reduce the federal debt, 

and continue to replace government 

assistance with private capital in the financial 

system. OFS’s strategies for exit depend on 

the program and investment involved. In 

addition to repayments by participants, OFS 

has disposed of investments to third parties 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 34 

through public and private offerings and 

auctions. 

In disposing TARP investments, OFS takes a 

disciplined portfolio approach – reviewing 

each investment level and closely monitoring 

risk and performance. In conducting the 

portfolio management activities, OFS employs 

a mix of dedicated professionals and external 

asset managers. These external asset 

managers provide market specific information 

such as market prices and valuations as well 

as detailed credit analysis using public 

information on a periodic basis. OFS has also 

worked with external parties as underwriters 

and placement agents for asset sales. 

Risk Assessment 

 

OFS has developed procedures to identify and 

mitigate investment risk. These procedures 

are designed to identify TARP recipients that 

face a heightened financial risk and determine 

appropriate responses to preserve OFS’

investment, on behalf of taxpayers, while 

maintaining financial stability. Specifically, 

OFS’ external asset managers review publicly 

available information to identify recipients for 

which pre-tax, pre-provision earnings and 

capital may be insufficient to offset future 

losses and maintain required capital. For 

certain institutions, OFS and its external 

asset managers engage in heightened 

monitoring and due diligence that reflects the 

severity and timing of the challenges. 

Compliance 

 

OFS also takes steps to ensure that TARP 

recipients comply with their TARP-related 

statutory and contractual obligations. 

Statutory obligations include executive 

compensation restrictions. Contractual 

obligations vary by investment type. For most 

of OFS’ preferred stock investments, TARP 

recipients must comply with restrictions on 

payment of dividends and on repurchases of 

junior securities, so that funds are not 

distributed to junior security holders prior to 

repayment of the federal government. 

Recipients of exceptional assistance (currently 

AIG, GM, and Ally) must comply with 

additional restrictions on executive 

compensation, lobbying, corporate expenses 

and internal controls and must provide 

quarterly compliance reports. 

Additionally, all mortgage servicers 

voluntarily participating in MHA have 

contractually agreed to follow the MHA 

program guidelines, which require the 

servicer to offer an MHA modification to all 

eligible borrowers and to have systems that 

can process all MHA-eligible loans. Servicers 

are subject to periodic, on-site compliance 

reviews performed by OFS’ compliance agent, 

Making Home Affordable-Compliance (MHAC), a separate, independent division of 

Freddie Mac, to ensure that servicers’

obligations under MHA requirements are 

being met. In fiscal year 2011, OFS began 

publishing quarterly assessments of the ten 

largest servicers and continued publishing 

assessments throughout fiscal year 2012. 

These assessments have provided a vehicle to 

identify core servicing issues. 

Operational Goal Four: Promote 

Transparency 

To protect taxpayers and help ensure that 

every dollar is directed toward promoting 

financial stability, OFS established 

comprehensive accountability and 

transparency measures. OFS is committed to 

operating its investment and housing 

programs in full view of the public. This 

includes providing regular and comprehensive 

information about how TARP funds are being 

spent, who has received them and on what 

terms, and how much has been collected to 

date. 

All of this information, along with numerous 

reports of different frequencies are posted on 

the Financial Stability section of the 

Treasury.gov website, which can be found at: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

35 MANAGEMENT‘S DISCUSSION AND ANALYSIS

These reports include: 

 A Daily TARP Update, which features 

detailed financial data related to each 

TARP investment program including 

the status of disbursements and all 

collections by category; 

 A monthly report to Congress that 

details how TARP funds have been 

used, the status of recovery of such 

funds by program, and information on 

the estimated cost of TARP; 

 A quarterly report on PPIP that 

provides detailed information on the 

funds, their investments, and returns. 

It is typically released within one 

month after the end of each quarter; 

 A monthly report on dividend and 

interest payments; 

 A report of each transaction (such as 

an investment or repayment) within 

two business days of each transaction; 

and 

 A semi-annual report on warrant 

dispositions. 

In addition, OFS posts to its website all 

investment contracts defining the terms of 

those investments within five to ten business 

days of a transaction’s closing and all 

contracts with OFS service providers involved 

with TARP programs. 

OFS is equally committed to operating its 

housing programs transparently and making 

information available and accessible to the 

public. 

In conjunction with the Monthly Housing 

Scorecard, each month Treasury releases a 

Making Home Affordable Program 

Performance Report, which provides detailed 

metrics on the Making Home Affordable 

(MHA) Program. Once per quarter, the MHA 

report is expanded to include detailed 

assessments of the performance of servicers 

participating in the Making Home Affordable 

program. 

Treasury provides information about servicer 

performance through two types of data: 

 Compliance data, which reflects 

servicer compliance with specific MHA 

guidelines; and 

 Program results data, which reflects 

how timely and effectively servicers 

assist eligible homeowners and report 

program activity. 

OFS also publishes information about HAMP 

Activity by Metropolitan Statistical Area. 

These reports, released in conjunction with 

the monthly MHA Program Performance 

Report, include mortgage modification activity 

under HAMP by metropolitan area. 

Additionally, OFS regularly publishes data 

files related to MHA and transaction reports 

that show activity related to MHA and HHF. 

In order to improve transparency of the 

HAMP Net Present Value (NPV) model, which 

is a key component of the eligibility test for 

HAMP, OFS released the NPV white paper to 

the public. To ensure accuracy and reliability, 

Freddie Mac, acting as OFS’ compliance 

agent, conducts periodic audits of servicers’ 

implementation of the model and requires 

servicers to use models which meet OFS’ NPV 

specifications or to revert back to OFS’ NPV 

application. As required by the Dodd-Frank 

Act, OFS established a web portal that 

borrowers can access to run a NPV analysis on 

their own mortgages, and that borrowers who 

are turned down for a HAMP modification can 

use. 

In a continued commitment to enhanced 

reporting and transparency, in January 2011, 

the Administration released the MHA Data 

File which includes characteristics of program 

participants to date, including financial 

information, mortgage loan information before 

and after entering HAMP, performance in a 

HAMP modification, and race/ethnicity data. 

The MHA Data File offers mortgage loan-level 

data and is intended to allow for better 

understanding of the impact of the program. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MANAGEMENT‘S DISCUSSION AND ANALYSIS 36 

OFS applied the recommendations of an 

independent non-profit, non-partisan policy 

institute in preparing the MHA Data File to 

ensure the privacy of participating 

homeowners. The release of the data file 

fulfills a requirement within the Dodd-Frank 

Act to make available loan-level data about 

the program. OFS will update the file monthly 

and will expand reporting to include newer 

initiatives that are part of Making Home 

Affordable. Researchers interested in using 

the MHA Data File can access the file and 

user guide at: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/mha_publicfile.aspx.

A. Audited Financial Statements 

OFS prepares separate financial statements 

for TARP on an annual basis. This is the 

fourth OFS Agency Financial Report (AFR), 

and includes the audited financial statements 

for the fiscal years ended September 30, 2012 

and September 30, 2011. Additional reports 

for prior periods are available at: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/Annual-AgencyFinancial-Reports.aspx

In its first four years of operation, TARP’s 

financial statements received unqualified 

audit opinions from its auditors, the GAO. 

OFS also received a Certificate of Excellence 

in Accountability Reporting (CEAR16) from the 

Association of Government Accountants for 

fiscal years 2011, 2010 and the period ending 

September 30, 2009. 

B. TARP Retrospective Reports 

In October 2011, OFS published the TARP 

Three-Year Anniversary Report. This serves 

as an update to OFS’ comprehensive TARP 

Two-Year Retrospective report issued in 

 

16The Certificate of Excellence recognizes 

outstanding accountability reporting and is the 

highest form of recognition in Federal government 

management reporting. AGA established the CEAR 

program in 1997 in conjunction with the Chief 

Financial Officers Council and the U.S. Office of 

Management and Budget to improve financial and 

program accountability by streamlining reporting 

and improving the effectiveness of such reports.

October 2010. OFS anticipates publishing a 

fourth retrospective report in December 2012. 

These reports include information on TARP 

programs and the effects of TARP and 

additional emergency measures taken by the 

federal government to stabilize the financial 

system following the 2008 crisis. Readers are 

invited to refer to these documents at: 

http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx

C. Oversight by Four Separate Agencies 

Congress also established four avenues of 

oversight for TARP: 

 The Financial Stability Oversight 

Board, established by EESA 

Section104; 

 Specific responsibilities for the GAO 

as set out in EESA Section 116; 

 The Special Inspector General for 

TARP, established by EESA Section 

121; and 

 The Congressional Oversight Panel 

(COP), established by EESA 

Section125. COP concluded its 

operations in accordance with EESA 

on April 3, 2011. 

OFS has productive working relationships 

with all of these bodies, and cooperates with 

each oversight agency’s effort to produce 

periodic audits and reports that focus on the 

many aspects of TARP. Individually and 

collectively, the oversight bodies’ audits and 

reports have made and continue to make 

important contributions to the development, 

strengthening, and transparency of TARP 

programs. 

D. Congressional Hearings and Testimony 

OFS officials have testified in numerous 

Congressional hearings since TARP was 

created. Copies of the written testimony are 

available at: 

http://www.treasury.gov/initiatives/financialstability/news-room/Pages/default.aspx. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

37 MANAGEMENT‘S DISCUSSION AND ANALYSIS

This page intentionally left blank. 

 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MESSAGE FROM THE CHIEF FINANCIAL OFFICER 38
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

39 AUDITOR’S REPORT

Part 2: Financial Report 

 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

MESSAGE FROM THE CHIEF FINANCIAL OFFICER 40

MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CF0) 

The Office of Financial Stability’s (OFS) Agency Financial Report for fiscal year 2012 provides readers 

information on financial results relating to the Troubled Asset Relief Program (TARP) as required by the 

Emergency Economic Stabilization Act (EESA) of 2008 and other laws. It is a critical part of our efforts to 

ensure the highest level of transparency and accountability to the American people. 

For fiscal year 2012, the Government Accountability Office (GAO) provided OFS unqualified audit opinions on 

the fair presentation of our financial statements and the effectiveness of our internal control over financial 

reporting. In addition, the auditors determined that we had no material weaknesses and successfully resolved 

our one fiscal year 2011 significant deficiency relating to internal control over our accounting and financial 

reporting processes. 

I would like to acknowledge senior management’s commitment to good governance as well as the discipline, 

transparency, and care exhibited by OFS employees in creating and executing our organization’s policies and 

procedures. We were honored to have received the Certificate of Excellence in Accountability Reporting (CEAR) 

award from the Association of Government Accountants for each of the three periods from inception through the 

fiscal year 2011. 

For fiscal year 2012, net income from operations was $7.7 billion, resulting in a cumulative net cost of 

operations of $20.3 billion since inception. Cumulative net cost of operations consists of (1) total net subsidy 

cost of $13.5 billion, and (2) housing costs and administrative costs of $5.7 billion and $1.1 billion, respectively. 

Total cumulative net subsidy cost consists of net subsidy income from the CPP, TIP, AGP, PPIP, SBA and TALF 

investments totaling $25.7 billion, primarily offset by net subsidy cost from investments in AIG of $15.2 billion,

and automobile company investments of $23.8 billion. The fiscal year 2012 net income from operations 

primarily results from improvements related to American International Group, Inc. (AIG) since September 30, 

2011, including an increase in the price per share of AIG common stock held as of September 30, 2012, and AIG 

common stock sold during fiscal year 2012, as compared to the price per share of AIG common stock held as of 

September 30, 2011. 

During fiscal year 2012, OFS collected a total of $53.3 billion through repayments, sales, dividends, and other 

receipts. OFS’ gross outstanding loan and investment balance as of September 30, 2012, was $63.1 billion 

comprising $37.2 billion in AIFP, $9.8 billion in PPIP, $8.7 billion in CPP, $6.7 billion in TARP AIG, and the 

remainder in CDCI and TALF. OFS is committed to exiting investments in a timely manner while maximizing 

collections on behalf of the taxpayer. 

In fiscal year 2012, OFS continued to maintain rigorous internal control processes around transaction 

processing, disbursements, collections, and financial reporting. OFS further standardized and automated its 

subsidiary ledger reporting supporting the validation and reconciliation of financial data and continued 

enhancements to the Daily TARP Update report promoting transparency. In the upcoming fiscal year, OFS will 

seek to streamline and simplify internal control processes in order to accommodate attrition in light of 

decreasing investment balances. OFS will need to continue to rely on our operational partners to manage 

investments and assure that we reconcile all transactions and investments balances to protect taxpayer 

interests. 

I feel fortunate to play a role in the continuing tradition of sound fiscal stewardship at OFS. This organization 

recognizes the importance of a robust control environment and will continue to uphold the highest standards of 

integrity as we carry out our fiduciary responsibilities to the American people. 

Sincerely, 

Lorenzo Rasetti 

Chief Financial Officer 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

41 AUDITOR’S REPORT

GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT

 

 

Independent Auditor’s Report

To the Assistant Secretary for Financial Stability 

In accordance with the Emergency Economic Stabilization Act of 2008 (EESA),1 we are 

required to audit the financial statements of the Troubled Asset Relief Program (TARP), 

which is implemented by the Office of Financial Stability (OFS).2In our audit of OFS’s 

fiscal years 2012 and 2011 financial statements for TARP, we found 

 the financial statements are presented fairly, in all material respects, in

conformity with U.S. generally accepted accounting principles;

 OFS maintained, in all material respects, effective internal control over financial

reporting as of September 30, 2012; and

 no reportable noncompliance in fiscal year 2012 with provisions of laws and

regulations we tested.

The following sections discuss in more detail (1) these conclusions; (2) required 

supplementary information and other information included with the financial statements; 

(3) our audit objectives, scope, and methodology; and (4) OFS’s comments on a draft of 

this report. In addition to our responsibility to audit OFS’s annual financial statements for 

TARP, we also are required under EESA to report at least every 60 days on the findings 

resulting from our oversight of the actions taken under TARP.3This report responds to 

both of these requirements. We have issued numerous other reports on TARP in 

connection with this 60-day reporting responsibility, which can be found on GAO’s 

website at http://www.gao.gov. 

1

Pub. L. No. 110-343, div. A, 122 Stat 3765 (Oct. 3, 2008), codified in part, as amended, at 12 U.S.C. §§ 5201-5261. Section 

116(b) of EESA, 12 U.S.C. § 5226(b), requires that the Department of the Treasury (Treasury) annually prepare and submit to 

Congress and the public audited fiscal year financial statements for the Troubled Asset Relief Program (TARP) that are prepared in 

accordance with generally accepted accounting principles. Section 116(b) further requires that GAO audit TARP’s financial statements 

annually in accordance with generally accepted auditing standards. 

2

Section 101 of EESA, 12 U.S.C. § 5211, established OFS within Treasury to implement TARP. 

3

Section 116 of EESA, 12 U.S.C. § 5226, requires the Comptroller General to report at least every 60 days on findings under section 

116. 

United States Government Accountability Office

Washington, DC 20548
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

AUDITOR’S REPORT 42

Opinion on Financial Statements 

OFS’s financial statements for TARP, including the accompanying notes, present fairly, 

in all material respects, in conformity with U.S. generally accepted accounting 

principles, OFS’s assets, liabilities, and net position as of September 30, 2012 and 

2011, and its net cost of operations, changes in net position, and budgetary resources 

for the fiscal years then ended. 

As discussed in notes 2 and 6 to OFS’s financial statements for TARP, the valuation of 

TARP direct loans, equity investments, and the asset guarantee program is based on 

estimates using economic and financial credit subsidy models. The estimates use 

entity-specific as well as relevant market data as the basis for assumptions about future 

performance, and incorporate an adjustment for market risk to reflect the variability 

around any unexpected losses. In valuing the direct loans, equity investments, and the 

asset guarantee program, OFS management considered and selected assumptions and 

data that it believed provided a reasonable basis for the estimated subsidy allowance 

and related subsidy cost or income reported in the financial statements.4 However, 

there are numerous factors that affect these assumptions and estimates, which are 

inherently subject to substantial uncertainty arising from the likelihood of future changes 

in general economic, regulatory, and market conditions. The estimates have an added 

uncertainty resulting from the unique nature of certain TARP assets. As such, there will 

be differences between the net estimated values of the direct loans, equity investments, 

and asset guarantee program as of September 30, 2012 and 2011, which totaled $41.2 

billion and $80.8 billion, respectively, and the amounts that OFS will ultimately realize 

from these assets, and such differences may be material. These differences will also 

affect TARP’s ultimate cost. Further, TARP’s ultimate cost will change as OFS 

continues to incur costs relating to its Treasury Housing Programs.5

As discussed in note 1 to the financial statements, while OFS’s financial statements for 

TARP reflect activity of OFS in implementing TARP, including providing resources to 

various entities to help stabilize the financial markets, the statements do not include the 

assets, liabilities, or results of operations of these entities in which OFS has a significant 

equity interest. According to OFS officials, OFS’s investments were not made to engage 

4 The subsidy cost or income is composed of (1) the change in the subsidy cost allowance, net of write-offs; 

(2) net intragovernmental interest cost; (3) certain inflows from the direct loans and equity investments (e.g., dividends, interest, 

net proceeds from sales and repurchases of assets in excess of cost, and other realized fees); and (4) the change in the estimated 

discounted net cash flows related to other credit programs (asset guarantee program and Federal Housing Administration 

refinance program). 

5 The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, title XIII, § 1302, 124 Stat. 1376, 

2133 (July 21, 2010), (1) limited Treasury’s authority to purchase or guarantee troubled assets to a maximum of $475 billion; (2)

changed this limit to a cap on all purchases and guarantees made without regard to subsequent sale, repayment, or cancellation of 

assets or guarantees; and (3) prohibited Treasury, under EESA, from incurring any obligations for a program or initiative unless 

the program or initiative had already been initiated prior to June 25, 2010. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

43 AUDITOR’S REPORT

in the business activities of the respective entities, and OFS has determined that none 

of these entities meet the criteria for a federal entity. 

Opinion on Internal Control 

OFS maintained, in all material respects, effective internal control over financial 

reporting as of September 30, 2012, that provided reasonable assurance that 

misstatements, losses, or noncompliance material in relation to the financial statements 

would be prevented or detected and corrected on a timely basis. Our opinion on internal 

control is based on criteria established under 31 U.S.C. § 3512 (c), (d), commonly 

known as the Federal Managers’ Financial Integrity Act (FMFIA). 

During fiscal year 2012, OFS sufficiently addressed the internal control issues related 

to the significant deficiency6 we reported for fiscal year 2011 concerning its accounting 

and financial reporting processes such that we no longer consider this to be a 

significant deficiency as of September 30, 2012. 

Compliance with Laws and Regulations 

Our tests of OFS’s compliance with selected provisions of laws and regulations for fiscal 

year 2012 disclosed no instances of noncompliance that would be reportable under U.S. 

generally accepted government auditing standards. The objective of our audit was not 

to provide an opinion on overall compliance with laws and regulations. Accordingly, we 

do not express such an opinion. 

Required Supplementary Information 

U.S. generally accepted accounting principles require that required supplementary 

information (RSI) be presented to supplement the financial statements.7This 

information, although not a part of the financial statements, is required by the Federal 

Accounting Standards Advisory Board (FASAB), who considers it to be an essential part 

of financial reporting for placing the financial statements in appropriate operational, 

economic, or historical context. We did not audit and we do not express an opinion or 

provide any assurance on the RSI because the limited procedures we applied do not 

provide sufficient evidence to express an opinion or provide any assurance. 

6 A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material 

weakness, yet important enough to merit attention by those charged with governance. A material weakness is a deficiency, or a 

combination of deficiencies, in internal controls such that there is a reasonable possibility that a material misstatement of the 

entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A deficiency in internal control 

exists when the design or operation of a control does not allow management or employees, in the normal course of performing 

their assigned functions, to prevent or detect and correct misstatements on a timely basis. 

7 RSI is comprised of “Management’s Discussion and Analysis” and the “Combined Statement of Budgetary Resources” that are 

included with the financial statements. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

AUDITOR’S REPORT 44

Other Information 

OFS’s other information8contains a wide range of information, some of which is not 

directly related to the financial statements. This information is presented for purposes of 

additional analysis and is not a required part of the financial statements or RSI. Our 

audit was conducted for the purpose of forming an opinion on OFS’s financial 

statements. We did not audit and do not express an opinion or provide any assurance 

on the other information. 

Objectives, Scope, and Methodology 

OFS management is responsible for (1) preparing the financial statements in conformity 

with U.S. generally accepted accounting principles; (2) preparing, measuring, and 

presenting the RSI in accordance with the prescribed guidelines in U.S. generally 

accepted accounting principles; (3) preparing and presenting other information included 

in documents containing the audited financial statements and auditor’s report, and 

ensuring the consistency of that information with the audited financial statements and 

the RSI; (4) establishing and maintaining effective internal control over financial 

reporting and evaluating its effectiveness; and (5) complying with applicable laws and 

regulations. OFS management evaluated the effectiveness of OFS’s internal control 

over financial reporting as of September 30, 2012, based on the criteria established 

under FMFIA. OFS management’s assertion based on its evaluation is included in 

appendix I. 

We are responsible for planning and performing the audit to obtain reasonable 

assurance and to provide our opinion about whether (1) OFS’s financial statements are 

presented fairly, in all material respects, in conformity with U.S. generally accepted 

accounting principles and (2) OFS management maintained, in all material respects, 

effective internal control over financial reporting as of September 30, 2012. We are also 

responsible for (1) testing compliance with selected provisions of laws and regulations 

that have a direct and material effect on the financial statements and (2) applying 

certain limited procedures to the RSI and other information included with the financial 

statements. 

In order to fulfill these responsibilities, we 

 examined, on a test basis, evidence supporting the amounts and disclosures in

OFS’s financial statements;

 assessed the accounting principles used and significant estimates made by OFS

management;

8

 Other information is comprised of information included with the financial statements, other than RSI and the 

auditor’s report.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

45 AUDITOR’S REPORT

 evaluated the overall presentation of OFS’s financial statements;

 obtained an understanding of OFS and its operations, including its internal

control over financial reporting;

 considered OFS’s process for evaluating and reporting on internal control over

financial reporting that OFS is required to perform by FMFIA and Section 116(c)

of EESA;

 assessed the risk of (1) material misstatement in OFS’s financial statements and

(2) material weakness in its internal control over financial reporting;

 evaluated the design and operating effectiveness of OFS’s internal control over

financial reporting based on the assessed risk;

 tested relevant internal control over OFS’s financial reporting;

 tested compliance with selected provisions of the following laws and regulations:

EESA, as amended; the Antideficiency Act; the Federal Credit Reform Act of

1990; the Dodd-Frank Wall Street Reform and Consumer Protection Act; and the

Purpose Statute;

 conducted inquiries of management about the methods of preparing the RSI and

compared this information for consistency with management’s responses to the

auditor’s inquiries, the financial statements, and other knowledge we obtained

during the audit of the financial statements, in order to report omissions or

material departures from FASAB guidelines, if any, identified by these limited

procedures;

 read the other information included with the financial statements in order to

identify material inconsistencies, if any, with the audited financial statements; and

 performed such other procedures as we considered necessary in the

circumstances.

An entity’s internal control over financial reporting is a process effected by those 

charged with governance, management, and other personnel, the objectives of which 

are to provide reasonable assurance that (1) transactions are properly recorded, 

processed, and summarized to permit the preparation of financial statements in 

conformity with U.S. generally accepted accounting principles, and assets are 

safeguarded against loss from unauthorized acquisition, use, or disposition and (2) 

transactions are executed in accordance with the laws governing the use of budget 

authority and other laws and regulations that could have a direct and material effect on 

the financial statements. 

We did not evaluate all internal controls relevant to operating objectives as broadly 

established under FMFIA, such as those controls relevant to preparing statistical reports 

and ensuring efficient operations. We limited our internal control testing to testing 

controls over financial reporting. Our internal control testing was for the purpose of 

expressing an opinion on the effectiveness of internal control over financial reporting 

and may not be sufficient for other purposes. Consequently, our audit may not identify 

all deficiencies in internal control over financial reporting that are less severe than a 

material weakness. Because of inherent limitations, internal control may not prevent or 

detect and correct misstatements due to error or fraud, losses, or noncompliance. We 

also caution that projecting any evaluation of effectiveness to future periods is subject to 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

AUDITOR’S REPORT 46

the risk that controls may become inadequate because of changes in conditions, or that 

the degree of compliance with the policies or procedures may deteriorate. 

We did not test compliance with all laws and regulations applicable to OFS. We limited 

our tests of compliance to selected provisions of laws and regulations that have a direct 

and material effect on the financial statements for fiscal year 2012. We caution that 

noncompliance may occur and not be detected by these tests and that such testing may 

not be sufficient for other purposes. 

We performed our audit in accordance with U.S. generally accepted government 

auditing standards. We believe our audit provides a reasonable basis for our opinions 

and other conclusions. 

Agency Comments 

In commenting on a draft of this report, the Assistant Secretary for Financial Stability 

stated that OFS is proud to receive unqualified opinions on its financial statements and 

its internal control over financial reporting. He also stated that OFS is committed to 

maintaining the high standards and transparency reflected in these audit results. The 

complete text of OFS’s comments is reprinted in its entirety in appendix II.

Gary T. Engel 

Director 

Financial Management and Assurance 

November 5, 2012 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

47 AUDITOR’S REPORT

Appendix I: Management’s Report on Internal Control Over 

Financial Reporting 

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

ASSISTANT SECRETARY

Management’s Report on Internal Control over Financial Reporting 

The Office of Financial Stability’s (OFS) internal control over financial reporting is a process affected 

by those charged with governance, management, and other personnel, the objectives of which are to 

provide reasonable assurance that (1) transactions are properly recorded, processed, and 

summarized to permit the preparation of financial statements in conformity with U.S. generally 

accepted accounting principles, and assets are safeguarded against loss from unauthorized 

acquisition, use, or disposition; and (2) transactions are executed in accordance with the laws 

governing the use of budget authority and other laws and regulations that could have a direct and 

material effect on the financial statements. 

OFS management is responsible for establishing and maintaining effective internal control over 

financial reporting. OFS management evaluated the effectiveness of OFS’ internal control over 

financial reporting as of September 30, 2012, based on the criteria established under 31 U.S.C. 

3512(c), (d) (commonly known as the Federal Managers’ Financial Integrity Act).

Based on that evaluation, we conclude that, as of September 30, 2012, OFS’ internal control over 

financial reporting was effective. 

Office of Financial Stability 

Timothy G. Massad 

Assistant Secretary for Financial Stability 

Lorenzo Rasetti 

Chief Financial Officer 

November 5, 2012 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

AUDITOR’S REPORT 48

Appendix II: OFS Response to Auditor’s Report

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

ASSISTANT SECRETARY

November 7, 2012 

Mr. Gary T. Engel 

Director, Financial Management and Assurance 

U.S. Government Accountability Office 

441 G Street, N.W. 

Washington, DC 20548 

Dear Mr. Engel: 

We have reviewed the Independent Auditor’s Report concerning your audit of the Office of 

Financial Stability’s (OFS) fiscal year 2012 financial statements. OFS is proud to receive 

unqualified opinions on our financial statements and our internal controls over financial 

reporting. We are also pleased that you agree that OFS resolved our one fiscal year 2011 

significant deficiency relating to internal control surrounding accounting and financial reporting 

processes. 

We appreciate the professionalism and commitment demonstrated by your staff throughout the 

audit process. The process was valuable for us and resulted in concrete improvements in our 

operations and financial management efforts. 

OFS is committed to maintaining the high standards and transparency reflected in these audit 

results as we carry out our responsibilities for managing the Troubled Asset Relief Program. 

Sincerely, 

Timothy G. Massad 

Assistant Secretary for Financial Stability 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

49 FINANCIAL STATEMENTS

FINANCIAL STATEMENTS 

The Office of Financial Stability (OFS) prepares 

financial statements for the Troubled Asset Relief 

Program (TARP) as a critical aspect of ensuring 

the accountability and stewardship for the public 

resources entrusted to it and as required by 

Section 116 of the Emergency Economic 

Stabilization Act of 2008 (EESA). Preparation of 

these statements is also an important part of the 

OFS’ financial management goal of providing 

accurate and reliable information that may be 

used to assess performance and allocate resources. 

The OFS management is responsible for the 

accuracy and propriety of the information 

contained in the financial statements and the 

quality of internal controls. The statements are, in 

addition to other financial reports, used to 

monitor and control budgetary resources. The 

OFS prepares these financial statements from its 

books and records in conformity with the 

accounting principles generally accepted in the 

United States for federal entities and the formats 

prescribed by the Office of Management and 

Budget (OMB). 

While these financial statements reflect activity 

of the OFS in executing its programs, including 

providing resources to various entities to help 

stabilize the financial markets, they do not 

include, as more fully discussed in Note 1, the 

assets, liabilities, or results of operations of 

commercial entities in which the OFS has a 

significant equity interest. 

The Balance Sheet summarizes the OFS assets, 

liabilities and net position as of September 30, 

2012 and 2011. Intragovernmental assets and 

liabilities resulting from transactions between 

federal agencies are presented separately from 

assets and liabilities from transactions with the 

public. 

The Statement of Net Cost presents the net cost of 

(income from) operations for the years ended 

September 30, 2012 and 2011. 

The Statement of Changes in Net Position 

presents the change in OFS’ net position for two 

components, Cumulative Results of Operations 

and Unexpended Appropriations, for the years 

ended September 30, 2012 and 2011. The ending 

balances of both components of net position are 

also reported on the Balance Sheet. 

The Statement of Budgetary Resources provides 

information about funding and availability of 

budgetary resources and the status of those 

resources for the years ended September 30, 2012 

and 2011. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

FINANCIAL STATEMENTS 50

Dollars in Millions 2012 2011

ASSETS

Intragovernmental Assets:

 Fund Balance with Treasury (Note 3) $ 75,495 $ 83,342

 Asset Guarantee Program (Note 6) 967 739

 Other 1 - 

Total Intragovernmental Assets 76,463 84,081

Cash on Deposit for Housing Program (Note 4) 50 50

Troubled Asset Relief Program:

 Direct Loans and Equity Investments, Net (Note 6) 40,231 80,104

Total Assets $ 116,744 $ 164,235

LIABILITIES

Intragovernmental Liabilities:

 Accounts Payable and Other Liabilities $ 2 $ 2

 Due to the General Fund (Note 7) 9,714 4,591

 Principal Payable to the Bureau of the Public Debt (Note 8) 52,828 129,497 

Total Intragovernmental Liabilities 62,544 134,090

Accounts Payable and Other Liabilities 87 93

Liabilities for Treasury Housing Programs Under TARP:

 FHA-Refinance Program (Notes 5 and 6) 7 1 

Making Home Affordable Program and Hardest Hit Fund (Note 5) 241 343

Total Liabilities $ 62,879 $ 134,527

Commitments and Contingencies (Note 9) - - 

NET POSITION 

 Unexpended Appropriations $ 54,572 $ 57,544

 Cumulative Results of Operations (707) (27,836) 

Total Net Position $ 53,865 $ 29,708

Total Liabilities and Net Position $ 116,744 $ 164,235

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

Office of Financial Stability (Troubled Asset Relief Program)

BALANCE SHEET 

As of September 30, 2012 and 2011
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

51 FINANCIAL STATEMENTS

Dollars in Millions 2012 2011

Gross Cost of (Income from) Operations:

 Program Subsidy Cost (Income) (Note 6)

 Direct Loan and Equity Investment Programs $ (10,778) $ 7,208

 Other Credit Programs (201) 31

 Total Program Subsidy Cost (Income) (10,979) 7,239

 Interest Expense on Borrowings from the Bureau of the Public Debt (Note 10) 2,252 3,827

 Treasury Housing Programs Under TARP (Note 5) 2,963 1,943

 Administrative Cost 268 315

Total Gross Cost of (Income from) Operations (5,496) 13,324

Earned Revenue:

 Dividend and Interest Income - Programs (Note 6) (2,733) (3,476)

 Interest Income on Financing Account (Note 10) (605) (781)

 Subsidy Allowance Amortization (Note 10) 1,086 430

Total Earned Revenue (2,252) (3,827)

Total Net Cost of (Income from) Operations $ (7,748) $ 9,497

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

For the Years Ended September 30, 2012 and 2011

STATEMENT OF NET COST

Office of Financial Stability (Troubled Asset Relief Program)

STRATEGIC GOAL: TO ENSURE THE OVERALL STABILITY AND LIQUIDITY OF THE FINANCIAL SYSTEM, PREVENT AVOIDABLE 

FORECLOSURES AND PRESERVE HOMEOWNERSHIP
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

FINANCIAL STATEMENTS 52

Dollars in Millions

Unexpended 

Approprations

 Cumulative 

Results of 

Operations 

Unexpended 

Approprations

 Cumulative 

Results of 

Operations 

Beginning Balances $ 57,544 $ (27,836) $ 79,783 $ (1,546)

Budgetary Financing Sources

 Appropriations Received 27,593 - 2,278 - 

 Appropriations Used (30,565) 30,565 (24,517) 24,517 

Other Financing Sources - (11,184) - (41,310) 

Total Financing Sources (2,972) 19,381 (22,239) (16,793) 

Net (Cost of) Income from Operations - 7,748 - (9,497) 

Net Change (2,972) 27,129 (22,239) (26,290) 

Ending Balances $ 54,572 $ (707) $ 57,544 $ (27,836)

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

2011

Office of Financial Stability (Troubled Asset Relief Program)

STATEMENT OF CHANGES IN NET POSITION

2012

For the Years Ended September 30, 2012 and 2011
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

53 FINANCIAL STATEMENTS

Dollars in Millions

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

BUDGETARY RESOURCES

Unobligated Balances Brought Forward $ 14,166 $ 21,143 $ 11,075 $ 10,548

Recoveries of Prior Year Unpaid Obligations 146 6,114 3,057 4,664 

Borrowing Authority Withdrawn - (5,832) - (1,368) 

Actual Repayments of Debt, Prior-Year Balances - (19,900) - (7,996) 

Unobligated Balance from Prior Year Budget Authority, Net 14,312 1,525 14,132 5,848 

Appropriations 27,593 - 2,278 - 

Borrowing Authority - 2,659 - 35,596 

Spending Authority from Offsetting Collections - 21,695 - 45,101 

TOTAL BUDGETARY RESOURCES (Note 11) $ 41,905 $ 25,879 $ 16,410 $ 86,545

STATUS OF BUDGETARY RESOURCES

Obligations Incurred $ 27,555 $ 8,248 $ 2,244 $ 65,402

Unobligated Balance:

 Apportioned 41 3,946 36 511

 Unapportioned 14,309 13,685 14,130 20,632

Total Unobligated Balance 14,350 17,631 14,166 21,143

TOTAL STATUS OF BUDGETARY RESOURCES $ 41,905 $ 25,879 $ 16,410 $ 86,545

CHANGE IN OBLIGATED BALANCES

Obligated Balance Brought Forward:

Unpaid Obligations $ 43,814 $ 13,158 $ 69,128 $ 41,918

Uncollected Customer Payments from Federal Sources - (496) - (23,816) 

Obligated Balance, Net, Brought Forward 43,814 12,662 69,128 18,102 

 Obligations Incurred 27,555 8,248 2,244 65,402 

 Gross Outlays (30,675) (9,366) (24,501) (89,498) 

 Change in Uncollected Customer Payments from Federal Sources - 147 - 23,320 

 Recoveries of Prior Year Unpaid Obligations (146) (6,114) (3,057) (4,664) 

Obligated Balance, Net, End of Period:

Unpaid Obligations, Gross, End of Period 40,548 5,926 43,814 13,158 

Uncollected Customer Payments from Federal Sources - (349) - (496) 

OBLIGATED BALANCE, NET, END OF PERIOD $ 40,548 $ 5,577 $ 43,814 $ 12,662

BUDGET AUTHORITY AND OUTLAYS, NET

 Budget Authority, Gross $ 27,593 $ 24,354 $ 2,278 $ 80,697

 Actual Offsetting Collections - (81,269) - (107,307) 

 Change in Uncollected Customer Payments from Federal Sources - 147 - 23,320 

BUDGET AUTHORITY, NET $ 27,593 $ (56,768) $ 2,278 $ (3,290)

 Gross Outlays $ 30,675 $ 9,366 $ 24,501 $ 89,498

 Actual Offsetting Collections - (81,269) - (107,307) 

 Net Outlays 30,675 (71,903) 24,501 (17,809) 

 Distributed Offsetting Receipts (6,063) - (61,832) - 

AGENCY OUTLAYS, NET $ 24,612 $ (71,903) $ (37,331) $ (17,809)

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

2012 2011

Office of Financial Stability (Troubled Asset Relief Program)

STATEMENT OF BUDGETARY RESOURCES

For the Years Ended September 30, 2012 and 2011
AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 54

NOTES TO THE FINANCIAL STATEMENTS 

NOTE 1. REPORTING ENTITY 

The Troubled Asset Relief Program (TARP) was 

authorized by the Emergency Economic 

Stabilization Act of 2008 (EESA or ―the Act‖). The 

Act gave the Secretary of the Treasury (the 

Secretary) broad and flexible authority to establish 

the TARP to purchase and insure mortgages and 

other troubled assets, which permitted the Secretary 

to inject capital into banks and other commercial 

companies by taking equity positions in those 

entities to help stabilize the financial markets. 

The EESA established certain criteria under which 

the TARP would operate, including provisions that 

impact the budgeting, accounting, and reporting of 

troubled assets acquired under the Act. Section 

101(a) of the EESA provided the authority for the 

Secretary to purchase troubled assets, and Section 

101(a)(3) of the EESA established the Office of 

Financial Stability (OFS) to implement the TARP. 

Section 102 of the EESA required the Secretary to 

establish a program to guarantee troubled assets 

originated or issued prior to March 14, 2008, 

including mortgage-backed securities. Section 115 of 

the EESA limited the authority of the Secretary to 

purchase troubled assets up to $700.0 billion 

outstanding at any one time, calculated at the 

aggregate purchase prices of all troubled assets held. 

Amendments to Section 115 of the EESA during the 

period ended September 30, 2009, reduced that 

authority by $1.3 billion, from $700.0 billion to $698.7 

billion. Section 120 of the EESA established that the 

authorities under Sections 101(a), excluding Section 

101(a)(3), and Section 102 of the EESA would 

terminate December 31, 2009, unless extended upon 

submission of a written certification to Congress by 

the Secretary of the Treasury. On December 9, 2009, 

the Secretary extended the program authorities 

through October 3, 2010. In July 2010, the DoddFrank Wall Street Reform and Consumer Protection 

Act amended Section 115 of the EESA, limiting the 

TARP’s authority to a total of $475.0 billion 

cumulative obligations (i.e. purchases and 

guarantees) and prohibiting any new obligations for 

programs or initiatives that had not been publicly 

announced prior to June 25, 2010. Of the maximum 

$475.0 billion authority under the EESA, as amended, 

OFS had utilized (including purchases made, legal 

commitments to make purchases and offsets for 

guarantees made) $467.0 billion as of September 30, 

2012 and $470.1 billion as of September 30, 2011. 

The TARP developed the following programs: the 

Capital Purchase Program (CPP); the Targeted 

Investment Program (TIP); the Community 

Development Capital Initiative (CDCI); the PublicPrivate Investment Program (PPIP); the Term AssetBacked Securities Loan Facility (TALF); the SBA 7(a) 

Securities Purchase Program (SBA 7(a)); the 

Automotive Industry Financing Program (AIFP); the 

American International Group, Inc. (AIG) Investment 

Program (formerly known as the Systemically 

Significant Failing Institutions Program); the Asset 

Guarantee Program (AGP); and the Treasury Housing 

Programs Under TARP (see Notes 5 and 6 for details 

regarding all of these programs).

While these financial statements reflect the activity 

of the OFS in executing its programs, including 

providing resources to various entities to help 

stabilize the financial markets, they do not include 

the assets, liabilities, or results of operations of 

commercial entities in which the OFS has a 

significant equity interest. Through the purchase of 

troubled assets, the OFS has entered into several 

different types of direct loan, equity investment, and 

other credit programs (which consist of the AGP and 

the Federal Housing Administration (FHA) 

Refinance Program) with private entities. These 

direct loans, equity investments, and other credit 

programs were entered into with the intent of 

helping to stabilize the financial markets and 

mitigating, as best as possible, any adverse impact 

on the economy. These direct loans, equity 

investments, and other credit programs were not 

entered into to engage in the business activities of 

the respective private entities. Based on this intent, 

the OFS concluded that such direct loans, equity 

investments, and other credit programs are 

considered ―bail outs‖, under the provisions of 

paragraph 50 of Statement of Federal Financial 

Accounting Concepts (SFFAC) No. 2, Entity and 

Display. In addition, these entities are not included 

in the Federal budget and, therefore, do not meet 

the conclusive criteria in SFFAC No. 2. As such, the 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

55 NOTES TO THE FINANCIAL STATEMENTS 

OFS determined that none of these entities meet the 

criteria to be classified as a federal entity. 

Consequently, their assets, liabilities, and results of 

operations were not consolidated in these OFS 

financial statements, but the value of OFS’ 

investments in such entities was recorded in OFS’ 

financial statements. 

In addition, the OFS has made loans and 

investments in certain Special Purpose Vehicles 

(SPV)17. SFFAC No. 2, paragraphs 43 and 44, 

reference indicative criteria such as ownership and 

control to carry out government powers and 

missions, as criteria in the determination about 

whether an entity should be classified as a federal 

entity. The OFS has concluded that none of the 

17 During 2012 and 2011, the OFS held investments in SPVs 

under the TALF, PPIP and AIG Investment Programs. 

SPVs meet the conclusive or indicative criteria to be 

classified as a federal entity. As a result, the assets, 

liabilities and results of operations of the SPVs are 

not included in these OFS financial statements. 

Additional disclosures regarding certain SPV 

investments are included in Notes 2 and 6; see 

PPIP, TALF and AIG Investment Program. 

The EESA established the OFS within the Office of 

Domestic Finance of the U. S. Department of the 

Treasury (Treasury). The OFS prepares stand-alone 

financial statements to satisfy EESA’s requirement 

for the TARP to prepare annual financial 

statements. Additionally, as an office of the 

Treasury, its financial statements are consolidated 

into Treasury’s Agency Financial Report.
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 56

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and 

Presentation

The accompanying financial statements include the 

operations of the OFS and have been prepared from 

the accounting records of the OFS in conformity 

with accounting principles generally accepted in the 

United States for federal entities (Federal GAAP), 

and the OMB Circular A-136, Financial Reporting 

Requirements, as amended. Federal GAAP includes 

the standards issued by the Federal Accounting 

Standards Advisory Board (FASAB). The FASAB is 

recognized by the American Institute of Certified 

Public Accountants (AICPA) as the official 

accounting standards-setting body for the U.S. 

Government. As such, the FASAB is responsible for 

establishing Federal GAAP for Federal reporting 

entities. 

The FASAB issued the Statement of Federal 

Financial Accounting Standards (SFFAS) No. 34, 

The Hierarchy of Generally Accepted Accounting 

Principles, Including the Application of Standards 

Issued by the Financial Accounting Standards Board 

in July 2009. SFFAS No. 34 identifies the sources of 

accounting principles and the framework for 

selecting the principles used in the preparation of 

general purpose financial reports of federal 

reporting entities that are presented in conformity 

with Federal GAAP. 

In addition to the above, Section 123(a) of the EESA 

requires that the budgetary cost of purchases of 

troubled assets and guarantees of troubled assets, 

and any cash flows associated with authorized 

activities, be determined in accordance with the 

Federal Credit Reform Act of 1990 (FCRA). Section 

123(b) (1) of the EESA requires that the budgetary 

costs of troubled assets and guarantees of troubled 

assets be calculated by adjusting the discount rate 

for market risks. As a result of this requirement, 

the OFS considered market risk in its calculation 

and determination of the estimated net present 

value of its direct loans, equity investments and 

other credit programs for budgetary purposes. 

Similarly, market risk is considered in the 

valuations for financial reporting purposes (see Note 

6 for further discussion). 

Consistent with its accounting policy for equity 

investments in private entities, including SPV’s, the 

OFS accounts for its equity investments at fair 

value. Since fair value is not defined in federal 

accounting standards, following the hierarchy of 

accounting principles established in SFFAS No. 34, 

the OFS conforms to fair value definitions contained 

in the private sector Financial Accounting 

Standards Codification (ASC) 820, Fair Value 

Measurement. OFS defines fair value of its equity 

investments as the estimated amount of proceeds 

that would be received if the equity investments 

were sold to a market participant in an orderly 

transaction. Note 6 presents Direct Loan and Equity 

Investments and the Asset Guarantee Program 

receivable tabulated by the Level of Observation of 

the inputs used in the valuation process. Level 1 

assets are measured using quoted market prices for 

identical assets. Level 2 assets are measured using 

observable market inputs other than direct market 

quotes. Level 3 assets are measured using 

unobservable inputs. 

The OFS uses the present value accounting concepts 

embedded in SFFAS No. 2, Accounting for Direct 

Loans and Loan Guarantees, as amended (SFFAS 

No. 2), to derive fair value measurements for its 

equity investments in Levels 2 and 3. The OFS 

concluded that some of the equity investments, such 

as preferred stock, were similar to direct loans since 

there was a stated rate and a redemption feature 

which, if elected, required repayment of the amount 

invested. Furthermore, consideration of market risk 

provided a basis to arrive at a fair value 

measurement. Therefore, the OFS concluded that 

SFFAS No. 2 (as more fully discussed below) should 

be followed for reporting and disclosure 

requirements of its equity investments. 

Federal loans and loan guarantees are governed by 

FCRA for budgetary accounting and the associated 

FASAB accounting standard SFFAS No. 2 for 

financial reporting. The OFS applies the provisions 

of SFFAS No. 2 when accounting and reporting for 

direct loans and other credit programs. Direct loans 

disbursed and outstanding are recognized as assets 

at the net present value of their estimated future 

cash flows. Outstanding asset guarantees are 

recognized as liabilities or assets at the net present 

value of their estimated future cash flows. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

57 NOTES TO THE FINANCIAL STATEMENTS

Liabilities under the FHA-Refinance Program are 

recognized at the net present value of their 

estimated future cash flows when the FHA 

guarantees loans. 

For direct loans and equity investments, the subsidy 

allowance account represents the difference between 

the face value of the outstanding direct loan and 

equity investment balance and the net present value 

of the expected future cash flows or fair value, and is 

reported as an adjustment to the face value of the 

direct loan or equity investment. 

The OFS recognizes dividend income associated with 

equity investments when declared by the entity in 

which the OFS has invested and when received in 

relation to any repurchases, exchanges and 

restructurings. The OFS recognizes interest income 

when earned on performing loans; interest income is 

not accrued on non-performing loans. The OFS 

reflects changes, referred to as reestimates, in its 

determination of the value of direct loans, equity 

investments, and other credit programs in the 

subsidy cost on the Statement of Net Cost annually. 

The OFS has received common stock warrants, 

additional preferred stock (referred to as warrant 

preferred stock) or additional notes as additional 

consideration for providing direct loans and equity 

investments and for supporting the Asset Guarantee 

Program. The OFS accounts for the common stock 

warrants and warrant preferred stock received 

under Section 113 of the EESA as fees under SFFAS 

No. 2, and, as such, the proceeds received in any 

sales are credited to the subsidy allowance rather 

than to income. 

Use of Estimates 

The OFS has made certain estimates and 

assumptions relating to the reporting of assets, 

liabilities, revenues, and cost to prepare these 

financial statements. Actual results could 

significantly differ from these estimates. Major 

financial statement lines that include estimates are 

TARP Direct Loans and Equity Investments, Net, 

the Asset Guarantee Program and the Liabilities for 

Treasury Housing Programs Under TARP on the 

Balance Sheet, and related Program Subsidy Cost 

(Income) on the Statement of Net Cost (see Note 6). 

The most significant differences between actual 

results and estimates may occur in the valuation of 

direct loans, equity investments, and other credit 

programs. These estimates are sensitive to slight 

changes in model assumptions, such as general 

economic conditions, specific stock price volatility of 

the entities in which the OFS has an equity interest, 

estimates of expected default, and prepayment 

rates. Forecasts of future financial results have 

inherent uncertainty, and the OFS’ TARP Direct 

Loans and Equity Investments, Net and Asset 

Guarantee Program line items, as of fiscal year 

ends, primarily reflect relatively illiquid assets with 

values that are sensitive to future economic 

conditions and other assumptions. Estimates are 

also prepared for the FHA-Refinance Program to 

determine the liability for losses. 

Credit Reform Accounting 

The FCRA provides for the use of program, 

financing, and general fund receipt accounts to 

separately account for activity related to direct 

loans, equity investments and other credit 

programs. These accounts are classified as either 

budgetary or non-budgetary in the Statement of 

Budgetary Resources. The budgetary accounts 

include the program and general fund receipt 

accounts, and the non-budgetary accounts consist of 

the credit reform financing accounts. 

As discussed previously, the OFS accounts for the 

cost of direct loans, equity investments and other 

credit programs in accordance with Section 123(a) of 

the EESA and the FCRA for budgetary accounting, 

and fair value and SFFAS No. 2 for financial

reporting. 

Consistent with SFFAS No. 2 and FCRA, the OFS 

maintains program accounts which receive 

appropriations and obligate funds to cover the 

subsidy cost of direct loans, equity investments and 

other credit programs, and disburses the subsidy 

cost to the OFS financing accounts. The financing 

accounts are non-budgetary accounts that are used 

to record all of the cash flows resulting from the OFS 

direct loans, equity investments and other credit 

programs. Cash flows include disbursements, 

borrower repayments, repurchases, fees, recoveries, 

interest, dividends, proceeds from the sale of stock 

and warrants, borrowings from and repayments to 

Treasury, negative subsidy and the subsidy cost 

received from the program accounts, as well as 

subsidy reestimates and modifications. 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 58

The financing arrangements specifically for the 

TARP activities are provided for in the EESA as 

follows: (1) borrowing for program funds under 

Section 118 that constitute appropriations when 

obligated or spent, which are reported as 

―appropriations‖ in these financial statements; (2) 

borrowing by financing accounts for non-subsidy cost 

under the FCRA and Section 123; and (3) 

establishment of the Troubled Assets Insurance

Financing Fund (TAIFF) for the Asset Guarantee 

Program under Section 102(d). 

The OFS uses general fund receipt accounts to 

record the receipt of amounts paid from the 

financing accounts when there is a negative subsidy 

or negative modification (a reduction in subsidy cost 

due to changes in program policy or terms that 

change estimated future cash flows) from the 

original estimate or a downward reestimate. 

Amounts in the general fund receipt accounts are 

available for appropriations only in the sense that 

all general fund receipts are available for 

appropriations. Any assets in these accounts are 

non-entity assets and are offset by 

intragovernmental liabilities. At the end of the fiscal 

year, the fund balance transferred to the U.S. 

Treasury through the general fund receipt account is 

not included in the OFS’ reported Fund Balance 

with Treasury. 

SFFAS No. 2 requires that the actual and expected 

costs of federal credit programs be fully recognized 

in financial reporting. The OFS calculated and 

recorded initial estimates of the future performance 

of direct loans, equity investments, and other credit 

programs. The data used for these estimates were 

reestimated annually, at fiscal year-end, to reflect 

adjustments for market risk, asset performance, and 

other key variables and economic factors. The 

reestimate data was then used to estimate and 

report the ―Program Subsidy Cost (Income)‖ in the 

Statement of Net Cost. A detailed discussion of the 

OFS subsidy calculation and reestimate 

assumptions, process and results is provided in 

Note 6. 

Fund Balance with Treasury 

The Fund Balance with Treasury includes general, 

financing and other funds available to pay current 

liabilities and finance authorized purchases. Cash 

receipts and disbursements are processed by the 

Treasury, and the OFS’ records are reconciled with 

those of the Treasury on a regular basis. 

Available unobligated balances represent amounts 

that are apportioned for obligation in the current 

fiscal year. Unavailable unobligated balances 

represent unanticipated collections in excess of the 

amounts apportioned which are unavailable. 

Obligated balances not yet disbursed include 

undelivered orders and unpaid expended authority. 

See Note 3. 

Troubled Asset Relief Program 

Direct Loans and Equity 

Investments, Net 

Troubled Asset Relief Program Direct Loans and 

Equity Investments, Net represents the estimated 

net outstanding amount of the OFS direct loans and 

equity investments. The direct loan and equity 

investment balances have been determined in 

accordance with the provisions of SFFAS No. 2 or at 

fair value (see Note 6). Write-offs of gross direct 

loan and equity investment balances (presented in 

Note 6 table) are recorded when a legal event occurs, 

such as a bankruptcy with no further chance of 

recovery or extinguishment of a debt instrument by 

agreement. Under SFFAS No. 2, write-offs do not 

affect the Statement of Net Cost because the 

written-off asset is fully reserved. Therefore, the 

write-off removes the asset balance and the 

associated subsidy allowance. 

Asset Guarantee Program 

During fiscal year 2010, the OFS and the Federal 

Deposit Insurance Corporation (FDIC) entered into 

a termination agreement with the Asset Guarantee 

Program’s sole participant, Citigroup. As a result, 

in fiscal year 2011, the OFS sold securities and 

warrants held in the program. The Intragovernmental Asset line item, Asset Guarantee Program, 

remaining on the Balance Sheet is the estimated 

value of certain Citigroup trust preferred securities 

including dividends collected, currently held by the 

FDIC for the benefit of OFS. Under the termination 

agreement, the FDIC has agreed to transfer these 

securities to the OFS, less any losses on FDIC’s 

guarantee of Citigroup debt, by December 31, 2012. 

See Note 6. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

59 NOTES TO THE FINANCIAL STATEMENTS

General Property and Equipment 

Equipment with a cost of $50,000 or more per unit 

and a useful life of two years or more is capitalized 

at full cost and depreciated using the straight-line 

method over the equipment’s useful life. Other 

equipment not meeting the capitalization criteria is 

expensed when purchased. Software developed for 

internal use is capitalized and amortized over the 

estimated useful life of the software if the cost per 

project is greater than $250,000. However, OFS 

may expense such software if management 

concludes that total period costs would not be 

materially distorted and the cost of capitalization is 

not economically prudent. Based upon these 

criteria, the OFS reports no capitalized property, 

equipment or software on its Balance Sheet as of 

September 30, 2012 and 2011. 

Accounts Payable and Other 

Liabilities 

Accounts Payable and Other Liabilities are amounts 

due to intragovernmental or public entities that are 

anticipated to be liquidated during the next 

operating cycle (within one year from the balance 

sheet date). 

Due to the General Fund 

Due to the General Fund represents the amount of 

accrued downward reestimates not yet funded, 

related to direct loans, equity investments and other 

credit programs as of September 30, 2012 and 2011. 

See Notes 6 and 7. 

Principal Payable to the Bureau of 

the Public Debt 

Principal Payable to the Bureau of the Public Debt 

(BPD) represents the net amount due for equity 

investments, direct loans and other credit programs 

funded by borrowings from the BPD as of the end of 

the fiscal year. Additionally, OFS borrows from the 

BPD for payment of intragovernmental interest and 

payment of negative subsidy cost to the general 

fund, as necessary. See Note 8. 

Liabilities for the Treasury Housing 

Programs Under TARP 

There are three initiatives in the Treasury Housing 

Programs: the Making Home Affordable Program, 

the Housing Finance Agency Hardest-Hit Fund and 

the FHA-Refinance Program. The OFS has 

determined that credit reform accounting is not 

applicable to the Treasury Housing Programs Under 

TARP except for the FHA-Refinance Program. 

Therefore, liabilities for the Making Home 

Affordable Program and Housing Finance Agency 

Hardest-Hit Fund are accounted for in accordance 

with SFFAS No. 5, Accounting for Liabilities of the 

Federal Government. In accordance with this 

standard, a liability is recognized for any unpaid 

amounts due and payable as of the reporting date. 

The liability estimate, as of September 30, 2012 and 

2011, is based on information about loan 

modifications reported by participating servicers for 

the Making Home Affordable Program and 

participating states for the Housing Finance Agency 

Hardest-Hit Fund. See Note 5. 

At the end of fiscal year 2010, the OFS entered into 

a loss-sharing agreement with the FHA to support a 

program in which FHA would guarantee refinancing 

for borrowers whose homes are worth less than the 

remaining amounts owed under their mortgage 

loans, i.e. ―underwater‖. The liability for OFS’ share 

of losses was determined under credit reform 

accounting and is shown as FHA-Refinance 

Program, one of the Liabilities for Treasury Housing 

Programs Under TARP, on the Balance Sheet. See 

Notes 4, 5 and 6. 

Unexpended Appropriations 

Unexpended Appropriations represents the OFS 

undelivered orders and unobligated balances in 

budgetary appropriated funds as of September 30, 

2012 and 2011.

Cumulative Results of Operations 

Cumulative Results of Operations, presented on the 

Balance Sheet and on the Statement of Changes in 

Net Position, represents the net results of the OFS 

operations not funded by appropriations or some 

other source, such as borrowing authority, from 

inception through fiscal year end. At September 30, 

2012 and 2011, OFS had $755 million and $27.9 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 60

billion, respectively, of unfunded upward 

reestimates that resulted in OFS reporting negative 

Cumulative Results of Operations. The fiscal year 

2012 unfunded upward reestimates will be funded in 

fiscal year 2013. The fiscal year 2011 unfunded 

upward reestimates were funded in fiscal year 2012. 

Cumulative Results of Operations in 2012 and 2011 

also included $50 million reported as Cash on 

Deposit for Housing Program on the Balance Sheet, 

see Note 4. 

Other Financing Sources 

The Other Financing Sources line in the Statement 

of Changes in Net Position for each year consists 

primarily of downward reestimates. Each program’s 

reestimates, upward and downward, are recorded 

separately, not netted together. 

Leave 

A liability for the OFS employees’ annual leave is 

accrued as it is earned and reduced as leave is 

taken. Each year the balance of accrued annual 

leave is adjusted to reflect current pay rates as well 

as forfeited ―use or lose‖ leave. Amounts are 

unfunded to the extent current or prior year 

appropriations are not available to fund annual 

leave earned but not taken. Sick leave and other 

types of non-vested leave are expensed as taken. 

The liability is included in the Balance Sheet 

amount for Accounts Payable and Other Liabilities. 

Employee Health and Life Insurance 

and Workers’ Compensation Benefits

The OFS employees may choose to participate in the 

contributory Federal Employees Health Benefit and 

the Federal Employees Group Life Insurance 

Programs. The OFS matches a portion of the 

employee contributions to each program. Matching 

contributions are recognized as current operating 

expenses. 

The Federal Employees’ Compensation Act (FECA) 

provides income and medical cost protection to 

covered Federal civilian employees injured on the 

job, and employees who have incurred a workrelated injury or occupational disease. Future 

workers’ compensation estimates are generated from 

an application of actuarial procedures developed to 

estimate the liability for FECA benefits. The 

actuarial liability estimates for FECA benefits 

include the expected liability for death, disability, 

medical, and miscellaneous costs for approved 

compensation cases. Any FECA amounts relating to 

OFS employees are expensed as incurred. 

Employee Pension Benefits

The OFS employees participate in either the Civil 

Service Retirement System (CSRS) or the Federal 

Employees’ Retirement System (FERS) and Social 

Security. These systems provide benefits upon 

retirement and in the event of death, disability or 

other termination of employment and may also 

provide pre-retirement benefits. They may also 

include benefits to survivors and their dependents, 

and may contain early retirement or other special 

features. The OFS contributions to retirement plans 

and Social Security, as well as imputed costs for 

pension and other retirement benefit costs 

administered by the Office of Personnel 

Management, are recognized on the Statement of 

Net Cost as Administrative Costs. Federal employee 

benefits also include the Thrift Savings Plan (TSP). 

For FERS employees, a TSP account is 

automatically established and the OFS matches 

employee contributions to the plan, subject to 

limitations. The matching contributions are 

recognized as Administrative Costs on the 

Statement of Net Cost. 

Related Parties 

The nature of related parties and descriptions of 

related party transactions are discussed within 

Notes 1 and 6. 

Reclassifications 

Reclassification of certain items of the 2011 financial 

statements has been made to conform to the 2012 

presentation. For example, OMB Circular A-136 

changed the format of the Statement of Budgetary 

Resources to align with the SF-133 Report on 

Budget Execution and Budgetary Resources for all 

federal reporting entities. Fiscal year 2011 balances 

on the SBR were reclassified to conform to the new 

format. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

61 NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. FUND BALANCES WITH TREASURY 

Fund Balances with Treasury, by fund type and status, are presented in the following table. 

(Dollars in Millions) 2012 2011

Fund Balances:

 General Funds $ 40,517 $ 43,542

 Program Funds 14,382 14,438

 Financing Funds 20,596 25,362

Total Fund Balances $ 75,495 $ 83,342

Status of Fund Balances:

 Unobligated Balances

 Available $ 3,987 $ 547

 Unavailable 27,994 34,762

 Obligated Balances Not Yet Disbursed 43,514 48,033

Total Status of Fund Balances $ 75,495 $ 83,342

As of September 30,

Collections relating to the AGP are deposited in the 

Troubled Assets Insurance Financing Fund (which is 

within OFS Financing Funds balance) as required 

by the EESA Section 102(d). In fiscal years 2012 

and 2011, the TAIFF balance was reduced for AGPrelated downward reestimates, repayments of AGPrelated debt and payments of interest on AGPrelated debt due to the Bureau of the Public Debt. 

NOTE 4. CASH ON DEPOSIT FOR HOUSING PROGRAM 

As of September 30, 2012, and 2011, the OFS had 

$50 million on deposit with a commercial bank to 

facilitate its payments of claims under the FHARefinance Program as OFS’ agent. Under terms of 

its agreement, the OFS is required to maintain a 

minimum amount of funds on deposit, depending 

upon the size of the program and potential claims. 

Unused funds will be returned to the OFS upon the 

termination of the program and agreement. 

NOTE 5. TREASURY HOUSING PROGRAMS UNDER TARP 

Fiscal year 2012 saw a continued advancement of 

programs designed to provide stability for both the 

housing market and homeowners. These programs 

assist homeowners who are experiencing financial 

hardships to remain in their homes until their 

financial position improves or they relocate to a 

more sustainable living situation. The programs fall 

into three initiatives: 

1) Making Home Affordable Program (MHA); 

2) Housing Finance Agency (HFA) Hardest-Hit 

Fund; and 

3) FHA-Refinance Program. 

MHA

In early 2009, Treasury launched the Making Home 

Affordable Program (MHA) to help struggling 

homeowners avoid foreclosure. Since its inception, 

MHA has helped homeowners avoid foreclosure by 

providing a variety of solutions to modify or 

refinance their mortgages, get temporary 

forbearance if they are unemployed, or transition 

out of homeownership via a short sale or deed-in-
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 62

lieu of foreclosure. The cornerstone of MHA is the 

Home Affordable Modification Program (HAMP), 

which provides eligible homeowners the opportunity 

to reduce their monthly mortgage payments to more 

affordable levels. Treasury also launched programs 

under MHA to help homeowners who are 

unemployed, ―underwater‖ on their loans (those who 

owe more on their home than it is currently worth), 

or struggling with second liens. It also includes 

options for homeowners who would like to transition 

to a more affordable living situation through a short 

sale or deed-in-lieu of foreclosure. MHA includes 

several additional programs to help homeowners 

refinance or address specific types of mortgages, in 

conjunction with the Federal Housing 

Administration (FHA), the United States 

Department of Agriculture (USDA), and the 

Department of Veterans Affairs (VA). 

Features of these initiatives follow:

Housing Program Features

MHA

Home Affordable Modification Program (HAMP)

First Lien Modification Program Provides for upfront, monthly and annual incentives to servicers, borrowers 

and investors who participate, whereby the investor and OFS share the costs 

of modifying qualified first liens, conditional on borrower performance.

Principal Reduction Alternative Program Pays financial incentives to investors for principal reduction in conjunction 

with a first lien HAMP modification.

Home Price Depreciation Program (HPDP) Provides financial incentives to investors to partially offset losses from home

price declines.

Home Affordable Foreclosure Alternatives (HAFA) Designed to assist eligible borrowers unable to retain their homes through a 

HAMP modification, by simplifying and streamlining the short sale and deedin-lieu of foreclosure processes and providing financial incentives to servicers 

and investors as well as relocation assistance to borrowers who pursue short 

sales and deeds-in-lieu.

Unemployment Forebearance Program (UP) Offers assistance to unemployed homeowners through temporary 

forebearance of a portion of their mortgage payments. This program does not 

require any payments from OFS. 

FHA-HAMP Provides mortgage modifications similar to HAMP, but for FHA-insured or 

guaranteed loans offered by the FHA, VA or USDA.

Second Lien Program (2MP) Offers financial incentives to participating servicers who modify second liens 

in conjunction with a HAMP modification.

Treasury/FHA Second Lien Program (FHA 2LP) Provides for reduction or elimination of second mortgages on homes whose

servicers participate in the FHA Refinance Program.

Rural Development Program (RD-HAMP) Provides for lower monthly payments on USDA guaranteed loans.

HHF Provides targeted aid to families in the states hardest hit by the housing 

market downturn and unemployment.

FHA-Refinance Program Joint initiative with HUD to encourage refinancing of existing underwater 

mortgage loans not currently insured by FHA into FHA insured mortgages.

In fiscal year 2012, the OFS made three changes 

to MHA programs, designed to provide relief to 

more homeowners and to accelerate the housing 

market recovery. First, the deadline for 

homeowners to apply for MHA programs was 

extended from December 31, 2012 to December 

31, 2013. Secondly, HAMP program guidelines 

were expanded through the introduction of a 

second-level evaluation that expands the 

population of homeowners eligible for the 

programs by allowing for homes that are rental 

properties, a flexible debt-to-income ratio 

requirement, and by including previous HAMP 

participants who lost good standing. Finally, 

investor incentives for PRA were tripled on first 

liens and doubled on second liens. 

All MHA disbursements are made to servicers 

either for themselves or for the benefit of 

borrowers and investors, and all payments are 

contingent on borrowers remaining in good 

standing. To be considered for MHA programs, 

borrowers must apply by December 31, 2013. 

Fannie Mae, as the MHA Program Administrator, 

provides direct programmatic support as a third 

party agent on behalf of the OFS. Freddie Mac 

provides compliance oversight of servicers as a 

third party agent on behalf of the OFS, and the 

servicers work directly with the borrowers to 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

63 NOTES TO THE FINANCIAL STATEMENTS

modify and service the borrowers’ loans. Fees 

paid to Fannie Mae and Freddie Mac are included 

in administrative costs reported on the Statement 

of Net Cost. 

 

HHF

The Housing Finance Agency (HFA) Hardest-Hit 

Fund was implemented in fiscal year 2010, and 

provides targeted aid to families in the states hit 

hardest by the housing market downturn and 

unemployment. States that meet the criteria for 

this program consist of Alabama, Arizona, 

California, Florida, Georgia, Illinois, Indiana, 

Kentucky, Michigan, Mississippi, Nevada, New 

Jersey, North Carolina, Ohio, Oregon, Rhode 

Island, South Carolina, Tennessee, as well as the 

District of Columbia. Approved states develop 

and roll out their own programs with timing and 

types of programs offered targeted to address the 

specific needs and economic conditions of their 

state. States have until December 31, 2017 to 

enter into agreements with borrowers. 

In fiscal year 2012, HFAs made substantial 

eligibility changes to existing programs (e.g. 

Florida, New Jersey) and significantly modified 

principal reduction programs (e.g. Arizona, 

California and Nevada) incorporating 

curtailments (i.e. unmatched principal reduction) 

that can be applied to all eligible loans including 

GSE loans that historically have not participated 

in principal reduction programs. 

FHA-Refinance Program 

The FHA-Refinance Program is a joint initiative 

with the Department of Housing and Urban 

Development (HUD) which is intended to 

encourage refinancing of existing underwater (i.e. 

the borrower owes more than the home is worth) 

mortgage loans not currently insured by FHA into 

FHA-insured mortgages. HUD will pay a portion 

of the amount refinanced to the investor and OFS 

will pay incentives to encourage the 

extinguishment of second liens associated with 

the refinanced mortgages. OFS established a 

letter of credit that obligated the OFS portion of 

any claims associated with the FHA-guaranteed 

mortgages. The OMB determined that for 

budgetary purposes, the FHA-Refinance Program 

cost is calculated under the FCRA, and 

accordingly OFS determined that it was 

appropriate to follow SFFAS No. 2 for financial 

reporting. Therefore, the liability is calculated at 

the net present value of estimated future cash 

flows. Homeowners can refinance into FHAguaranteed mortgages through December 31, 

2014, and OFS will honor its share of claims 

against the letter of credit through 2020. As of 

September 30, 2012, 1,774 loans had been 

refinanced. As of September 30, 2011, 334 loans 

had been refinanced. 

OFS deposited $50 million with a commercial 

bank as its agent to administer payment of claims 

under the program; no claim payments have been 

made as of September 30, 2012. See Notes 4 and 

6. OFS paid $2 million each year in fiscal years 

2012 and 2011 to maintain the letter of credit. 

The table below recaps housing program 

commitments as of September 30, 2012, and 

payments and accruals as of September 30, 2012 

and 2011. 

Treasury Housing Programs Under TARP 

Commitments as of Fiscal Year Payments through September 30, Accruals as of September 30, 

(Dollars in Millions) September 30, 2012 2012 2011 2012 2011

MHA $ 29,871 $ 2,202 $ 1,282 $ 241 $ 343

HFA Hardest Hit Fund 7,600 861 599 - -

FHA - Refinance* 8,117 2 2 - -

Totals $ 45,588 $ 3,065 $ 1,883 $ 241 $ 343

*Payments do not include $50 million to establish reserve, shown on Balance Sheet as Cash on Deposit for Housing Program, nor the subsidy cost to fund 

OFS' share of defaults, which establishes the liability for losses, see Note 6. Payments are for the FHA-Refinance Program administrative expense only.
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 64

NOTE 6. TROUBLED ASSET RELIEF PROGRAM DIRECT LOANS AND 

EQUITY INVESTMENTS, NET AND OTHER CREDIT PROGRAMS 

The OFS administers a number of programs 

designed to help stabilize the financial system and 

restore the flow of credit to consumers and 

businesses. The OFS made direct loans and equity 

investments under TARP. The OFS also entered 

into other credit programs, which consist of an asset 

guarantee program and a loss-sharing program 

under the TARP. The table below recaps OFS 

programs by title and type: 

Program Program Type

Direct Loans and Equity Investments

 Capital Purchase Program Equity Investment/Subordinated Debentures

 Targeted Investment Program Equity Investment

 Community Development Capital Initiative Equity Investment/Subordinated Debentures

 Public-Private Investment Program Equity Investment and Direct Loan

 Term Asset-Backed Securities Loan Facility Subordinated Debentures 

 SBA 7(a) Security Purchase Program Direct Loan

 Automotive Industry Financing Program Equity Investment and Direct Loan

 American International Group, Inc. Investment Program Equity Investment

Other Credit Programs

 Asset Guarantee Program Asset Guarantee

 FHA-Refinance Program Loss-sharing Program with FHA

Valuation Methodology 

The OFS applies fair value and the provisions of 

SFFAS No. 2 to account for direct loans, equity 

investments and other credit programs. This 

standard requires measurement of the asset or 

liability at the net present value of the estimated 

future cash flows. The cash flow estimates for each 

transaction reflect the actual structure of the 

instruments. For each of these instruments, 

analytical cash flow models generate estimated cash 

flows to and from the OFS over the estimated term 

of the instrument. Further, each cash flow model 

reflects the specific terms and conditions of the 

program, technical assumptions regarding the 

underlying assets, risk of default or other losses, and 

other factors as appropriate. The models also 

incorporate an adjustment for market risk to reflect 

the additional return required by the market to 

compensate for variability around the expected 

losses reflected in the cash flows (the ―unexpected 

loss‖).

The adjustment for market risk requires the OFS to 

determine the return that would be required by 

market participants to enter into similar 

transactions or to purchase the assets held by OFS. 

Accordingly, the measurement of the assets 

attempts to represent the proceeds expected to be 

received if the assets were sold to a market 

participant in an orderly transaction. The 

methodology employed for determining market risk 

for equity investments generally involves a 

calibration to market prices of similar securities that 

results in measuring equity investments at fair 

value. The adjustment for market risk for loans is 

intended to capture the risk of unexpected losses, 

but not intended to represent fair value, i.e. the 

proceeds that would be expected to be received if the 

loans were sold to a market participant. The OFS 

uses market observable inputs, when available, in 

developing cash flows and incorporating the 

adjustment required for market risk. For purposes 

of this disclosure, the OFS has classified its 

programs’ asset valuations as follows, based on the 

observability of inputs that are significant to the 

measurement of the asset: 

 Quoted prices for Identical Assets (Level 1): The

measurement of assets in this classification is

based on direct market quotes for the specific

asset, e.g. quoted prices of common stock.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

65 NOTES TO THE FINANCIAL STATEMENTS

 Significant Observable Inputs (Level 2): The

measurement of assets in this classification is

primarily derived from market observable data,

other than a direct market quote, for the asset.

This data could be market quotes for similar

assets for the same entity.

 Significant Unobservable Inputs (Level 3): The

measurement of assets in this classification is

primarily derived from inputs which generally

represent management’s best estimate of how a 

market participant would assess the risk 

inherent in the asset. These unobservable 

inputs are used because there is little to no 

direct market activity. 

The table below displays the assets held by the 

observability of inputs significant to the 

measurement of each value: 

(Dollars in Millions)

Quoted 

Prices for 

Identical 

Assets 

(Level 1)

Significant

Observable 

Inputs 

(Level 2)

Significant

Unobservable 

Inputs 

(Level 3) Total

Program

 Capital Purchase Program $ 327 -$ $ 5,407 $ 5,734

 CDCI and TALF 9 - 1,095 1,104

 Public-Private Investment Program - - 10,778 10,778

 Automotive Industry Financing Program 11,376 - 6,170 17,546

 American International Group Inc. Investment Program 5,067 - 2 5,069 

 Asset Guarantee Program - 967 - 967

Total TARP Programs $ 16,779 $ 967 $ 23,452 $ 41,198

(Dollars in Millions)

Quoted 

Prices for 

Identical 

Assets 

(Level 1)

Significant

Observable 

Inputs 

(Level 2)

Significant

Unobservable 

Inputs 

(Level 3) Total

Program

 Capital Purchase Program $ 202 -$ $ 12,240 $ 12,442

 CDCI, TALF and SBA 7(a) - 126 951 1,077

 Public-Private Investment Program - - 18,377 18,377

 Automotive Industry Financing Program 10,091 - 7,747 17,838

 American International Group Inc. Investment Program 21,076 9,294 - 30,370 

 Asset Guarantee Program - 739 - 739

Total TARP Programs $ 31,369 $ 10,159 $ 39,315 $ 80,843

As of September 30, 2012

As of September 30, 2011

The following provides a description of the 

methodology used to develop the cash flows and 

incorporate the market risk into the measurement of 

the OFS assets. 

Financial Institution Equity Investments18 

The estimated values of preferred equity 

investments are the net present values of the 

18 This consists of equity investments made under CPP and CDCI.

expected dividend payments and proceeds from 

repurchases and sales. The model assumes that the 

key decisions affecting whether or not institutions 

pay their preferred dividends are made by each 

institution based on the strength of their balance 

sheet. The model assumes a probabilistic evolution 

of each institution’s asset-to-liability ratio (the assetto-liability ratio is based on the estimated fair value 

of the institution’s assets against its liabilities). 

Each institution’s assets are subject to uncertain 

returns and institutions are assumed to manage 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 66

their asset-to-liability ratio in such a way that it 

reverts over time to a target level. Historical 

volatility is used to scale the likely evolution of each 

institution’s asset-to-liability ratio. 

In the model, when equity decreases, i.e. the assetto-liability ratio falls, institutions are increasingly 

likely to default, either because they enter 

bankruptcy or are closed by regulators. The 

probability of default is estimated based on the 

performance of a large sample of US banks over the 

period 1990-2011. At the other end of the spectrum, 

institutions call their preferred shares when the 

present value of expected future dividends exceeds 

the call price; this occurs when equity is high and 

interest rates are low. Inputs to the model include 

institution specific accounting data obtained from 

regulatory filings, an institution’s stock price 

volatility, historical bank failure information, as 

well as market prices of comparable securities 

trading in the market. The market risk adjustment 

is obtained through a calibration process to the 

market value of certain trading securities of 

financial institutions within TARP programs or 

other comparable financial institutions. The OFS 

estimates the values and projects the cash flows of 

warrants using an option-pricing approach based on 

the current stock price and its volatility. 

Investments in common stock which are exchange 

traded are valued at the quoted market price as of 

year end. 

Public-Private Investment Program (PPIP) 

For the PPIP investments and loans made in the 

Public Private Investment Fund (PPIF) SPVs, the 

OFS estimates cash flows to the PPIF by simulating 

the performance of the collateral supporting the 

residential mortgage-backed securities (RMBS) and 

commercial mortgage-backed securities (CMBS) held 

by the PPIF (i.e. performance of the residential and 

commercial mortgages). Inputs used to simulate the 

cash flows, which consider market risks, include 

unemployment forecasts, home price 

appreciation/depreciation forecasts, the current term 

structure of interest rates and historical pool 

performance as well as estimates of the net income 

and value of commercial real estate supporting the 

CMBS. The simulated cash flows are then run 

through a financial model that defines distributions 

of the RMBS/CMBS to determine the estimated cash 

flows to the PPIF. Once determined, these cash 

flows are run through the waterfall of the PPIF to 

determine the expected cash flows to the OFS 

through both the equity investments and loans. 

Term Asset-Backed Securities Loan Facility 

(TALF)

For the loan associated with the TALF, the OFS 

model derives the cash flows to the Federal Reserve 

Bank of New York (FRBNY) TALF LLC SPV, and 

ultimately the OFS, by simulating the performance 

of underlying collateral. Loss probabilities on the 

underlying collateral are calculated based on 

analysis of historical loan loss and charge-off 

experience by credit sector and subsector. Historical 

mean loss rates and volatilities are significantly 

stressed to reflect recent and projected performance. 

Simulated losses are run through cash flow models 

to project impairment to the TALF-eligible 

securities. Impaired securities are projected to be 

purchased by the SPV, which could require 

additional OFS funding. Simulation outcomes 

consisting of a range of loss scenarios are 

probability-weighted to generate the expected net 

present value of future cash flows. 

SBA 7(a) Securities Purchase Program (SBA 

7(a)) 

OFS held no SBA 7(a) securities as of September 30, 

2012. As of September 30, 2011, the valuation of 

SBA 7(a) securities was based on the discounted 

estimated cash flows of the securities. 

Automotive Industry Financing Program 

(AIFP) 

As of September 30, 2012 and 2011 the OFS held 

500 million shares of common stock in General 

Motors Company (New GM) that were valued by 

multiplying the publicly traded share price by the 

number of shares held. 

As of September 30, 2012 and 2011, for investments 

in Ally Financial’s (Ally, formerly known as GMAC, 

Inc.) common equity and mandatorily convertible 

preferred stock, which is valued on an ―if-converted‖ 

basis, the OFS used certain valuation multiples such 

as price-to-earnings, price-to-tangible book value, 

and asset manager valuations to estimate the value 

of the shares. The multiples were based on those of 

comparable publicly-traded entities. The 

adjustment for market risk is incorporated in the 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

67 NOTES TO THE FINANCIAL STATEMENTS

data points used to determine the measurement for 

Ally, since all points rely on market data.

American International Group, Inc. (AIG) 

Investment Program 

As of September 30, 2012, and 2011, the OFS held 

154 million and 960 million shares, respectively, of 

AIG common stock. Investments in AIG common 

stock were valued at the quoted market price as of 

September 30, 2012 and 2011. 

The OFS also held interests in certain AIG SPVs at 

September 30, 2011. To estimate the value of the 

assets underlying the preferred interests in the 

SPVs, OFS summed the value of the common equity 

shares held by the SPVs, any cash held in escrow 

from previous asset sales, and the weighted average 

value of the remaining assets under different 

scenarios. Because the resulting value greatly 

exceeded the liquidation preference of the 

investments in the SPVs, the SPVs were valued at 

the liquidation preference. These interests were 

liquidated during fiscal year 2012. 

Asset Guarantee Program (AGP) 

During fiscal year 2010, an agreement was entered 

into to terminate the guarantee of OFS to pay for 

any defaults on certain loans and securities held by 

Citibank. As of September 30, 2012 and 2011, the 

instruments within the AGP, consisting of Citigroup 

Trust Preferred Securities receivable from the FDIC 

with an $800 million liquidation preference value 

plus accrued dividends and interest, were valued in 

a manner broadly analogous to the previously 

described methodology used for financial institution 

equity investments. 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 68

Direct Loan and Equity Investment Programs

The following table recaps gross direct loans or 

equity investments, subsidy allowance, and net 

direct loans or equity investments by TARP 

program. Detailed tables providing the net 

composition, subsidy cost for new disbursements, 

modifications and reestimates, along with a 

reconciliation of subsidy cost allowances as of and 

for the years ended September 30, 2012 and 2011, 

 are provided at the end of this Note for Direct Loans 

and Equity Investments, detailed by program, and 

for the other credit programs separately. 

Descriptions and chronology of significant events by 

program are after the summary table. 

(Dollars in Millions)

Gross Direct

Loans and 

Equity 

Invesments

Subsidy 

Allowance

Net Direct

Loans and 

Equity 

Invesments

Program

 Capital Purchase Program $ 8,664 $ (2,930) $ 5,734

 TALF and CDCI 667 437 1,104 

 Public-Private Investment Program 9,763 1,015 10,778 

 Automotive Industry Financing Program 37,252 (19,706) 17,546 

 American International Group Inc. Investment Program 6,727 (1,658) 5,069 

Total Direct Loan and Equity Investment Programs $63,073 ($22,842) $40,231

(Dollars in Millions)

Gross Direct

Loans and 

Equity 

Invesments

Subsidy 

Allowance

Net Direct

Loans and 

Equity 

Invesments

Program

 Capital Purchase Program $ 17,299 $ (4,857) $ 12,442

 TALF, CDCI and SBA 7(a) 798 279 1,077 

 Public-Private Investment Program 15,943 2,434 18,377 

 Automotive Industry Financing Program 37,278 (19,440) 17,838 

 American International Group Inc. Investment Program 51,087 (20,717) 30,370 

Total Direct Loan and Equity Investment Programs $122,405 ($42,301) $80,104

As of September 30, 2012

As of September 30, 2011

Capital Purchase Program

In October 2008, the OFS began implementation of 

the TARP with the Capital Purchase Program 

(CPP), designed to help stabilize the financial 

system by assisting in building the capital base of 

certain viable U.S. financial institutions to increase 

the capacity of those institutions to lend to 

businesses and consumers and support the economy. 

The OFS invested a total of $204.9 billion in 707 

institutions under the CPP program between 

October 2008 and December 2009. 

Under this program, the OFS purchased senior 

perpetual preferred stock from qualifying U.S. 

controlled banks, savings associations, and certain 

bank and savings and loan holding companies 

(Qualified Financial Institution or QFI). The senior 

preferred stock has a stated dividend rate of 5.0 

percent through year five, increasing to 9.0 percent 

in subsequent years. The dividends are cumulative 

for bank holding companies and subsidiaries of bank 

holding companies and non-cumulative for others; 

they are payable when and if declared by the 

institution’s board of directors. QFIs that are Subchapter S corporations issued subordinated 

debentures in order to maintain compliance with the 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

69 NOTES TO THE FINANCIAL STATEMENTS

Internal Revenue Code. The maturity of the 

subordinated debentures is 30 years and interest 

rates are 7.7 percent for the first 5 years and 13.8 

percent for the remaining years. QFIs, subject to 

regulator approval, may repay the OFS’ investment 

at any time. 

In addition to the senior preferred stock, the OFS 

received warrants, with a ten-year term, as required 

by section 113(d) of EESA, from public QFIs to 

purchase a number of shares of common stock. 

Subsequent to December 31, 2009, the OFS may 

exercise any warrants held in whole or in part at 

any time. The OFS received warrants from nonpublic QFIs for the purchase of additional senior 

preferred stock (or subordinated debentures if 

appropriate) with a stated dividend rate of 9.0 

percent (13.8 percent interest rate for subordinate 

debentures) and a liquidation preference equal to 5.0 

percent of the total senior preferred stock (additional 

subordinate debenture) investment. These warrants 

were immediately exercised and resulted in the OFS 

holding additional senior preferred stock 

(subordinated debentures) (collectively referred to as 

―warrant preferred stock‖) of non-public QFIs. 

In fiscal year 2009, OFS entered into an exchange 

agreement with the banking institution Citigroup, 

under which OFS exchanged its original $25.0

billion CPP investment in senior preferred stock for 

7.7 billion common shares of Citigroup stock, at 

$3.25 per share. Between April 2010 and January 

2011, OFS sold all of its stock and warrants. During 

fiscal year 2011, OFS received $15.8 billion from the 

sale of Citigroup common stock and warrants, 

resulting in proceeds from sales in excess of cost of 

$3.9 billion. Total gross proceeds from Citigroup 

sales between April 2010 and January 2011 were 

$31.9 billion. 

In addition to the above transactions, the OFS 

entered into other transactions with various 

financial institutions including exchanging existing 

preferred shares for a like amount of non taxdeductible Trust Preferred Securities, exchanging 

preferred shares for shares of mandatorily 

convertible preferred securities and selling preferred 

shares to financial institutions that were acquiring 

the QFIs that had issued the preferred shares. 

Generally the transactions are entered into with 

financial institutions in poor financial condition with 

a high likelihood of failure. As such, in accordance 

with SFFAS No. 2, these transactions are considered 

workouts and not modifications. The changes in cost 

associated with these transactions are captured in 

the year-end reestimates. 

During fiscal year 2012, OFS elected to sell selected 

CPP investments to the public in auction sales. 

Because auction sales were not considered in the 

budget formulation estimate for the CPP program, 

OFS recorded a modification increasing the cost of 

the program by $973 million. 

In fiscal year 2012, OFS sold 40 CPP investments in 

six separate auctions for total net proceeds of $1.3 

billion. These auction sales resulted in net proceeds 

less than cost of $180 million. All other sales and 

redemptions in the program for the fiscal year 

resulted in net proceeds less than cost of $105 

million. 

During fiscal year 2011, certain financial 

institutions participating in CPP became eligible to 

exchange their OFS-held stock investments to 

preferred stock in the Small Business Lending Fund 

(SBLF), a separate Department of the Treasury 

program not a part of the TARP. Because this 

refinance was not considered in the formulation 

estimate for the CPP program, a modification was 

recorded in May 2011, resulting in a subsidy cost 

reduction of $1.0 billion. 

OFS made no write-offs of CPP investments in fiscal 

years 2012 or 2011. During fiscal year 2012, five 

institutions, in which OFS had invested $41 million, 

were either closed by their regulators or declared 

bankruptcy. During fiscal year 2011, eight 

institutions, in which OFS had invested $190 

million, were closed by their regulators. The OFS 

does not anticipate recovery on these investments 

and therefore the values of these investments are 

reflected at zero as of September 30, 2012 and 2011. 

The ultimate amount received, if any, from the 

investments in institutions that filed for bankruptcy 

and institutions closed by regulators will depend 

primarily on the outcome of the bankruptcy 

proceedings and of each institution’s receivership.
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 70

The following tables provide key data points related to the CPP for the fiscal years ending September 30, 

2012 and 2011: 

CPP Participating Institutions

2012 2011

Cumulative Number of Institutions Participating 707 707

Cumulative Institutions Paid in Full, Merged or Investments Sold (234) (139)

Institutions Transferred to CDCI (28) (28)

Institutions Refinanced to SBLF (137) (137)

Institutions Written Off After Bankruptcy or Receivership (2) (2)

Number of Institutions with Outstanding OFS Investments 306 401

Institutions in Bankruptcy or Receivership (16) (11)

Number of CPP Institutions Valued at Year-End 290 390

Of the Institutions Valued, Number that Have Missed One or More Dividend Payments 158 165

CPP Investments

(Dollars in Millions) Fiscal Year 2012 Fiscal Year 2011

Outstanding Beginning Balance, Investment in CPP Institutions, Gross $ 17,299 $ 49,779

Repayments and Sales of Investments (8,223) (30,188)

Losses from Sales and Repurchases of Assets in Excess of Cost (412) (85)

Refinanced to SBLF - (2,207)

Outstanding Ending Balance, Investment in CPP Institutions, Gross $ 8,664 $ 17,299

Interest and Dividend Collections $ 572 $ 1,283

Net Proceeds from Sales and Repurchases of Assets in Excess of (Less Than) Cost $ (285) $ 4,540

As of September 30,

Targeted Investment Program

The Targeted Investment Program (TIP) was 

designed to prevent a loss of confidence in financial 

institutions that could result in significant market 

disruptions, threatening the financial strength of 

similarly situated financial institutions, impairing 

broader financial markets, and undermining the 

overall economy. 

Under TIP, the OFS invested $20.0 billion in 

Citigroup in December, 2008 and $20.0 billion in 

Bank of America in January, 2009. In December 

2009, both institutions repaid the amounts invested 

along with dividends through the date of repayment. 

In fiscal year 2011, OFS sold its warrant from 

Citigroup under TIP for $190 million and closed the 

program. 

Community Development Capital 

Initiative 

In February 2010, the OFS announced the 

Community Development Capital Initiative (CDCI) 

to invest lower cost capital in Community 

Development Financial Institutions (CDFIs). Under 

the terms of the program, the OFS purchased senior 

preferred stock (or subordinated debt) from eligible 

CDFIs. The senior preferred stock had an initial 

dividend rate of 2 percent. CDFIs could apply to 

receive capital up to 5 percent of risk-weighted 

assets. To encourage repayment while recognizing 

the unique circumstances facing CDFIs, the 

dividend rate increases to 9 percent after eight 

years. 

For CDFI credit unions, the OFS purchased 

subordinated debt at rates equivalent to those 

offered to CDFIs and with similar terms. These 

institutions could apply for up to 3.5 percent of total 

assets - an amount approximately equivalent to the 

5 percent of risk-weighted assets available to banks 

and thrifts. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

71 NOTES TO THE FINANCIAL STATEMENTS

CDFIs participating in the CPP, subject to certain 

criteria, were eligible to exchange, through 

September 30, 2010, their CPP preferred shares 

(subordinated debt) then held by OFS for CDCI 

preferred shares (subordinated debt). These 

exchanges were treated as disbursements from 

CDCI and repayments to CPP. OFS invested a total 

of $570 million ($363 million as a result of 

exchanges from CPP) in 84 institutions under the 

CDCI. During fiscal year 2012, one CDCI 

institution, in which the OFS invested $7 million, 

was closed by its regulator. The OFS does not 

anticipate recovery on this investment and therefore 

the value of the shares is reflected at zero as of 

September 30, 2012. 

In fiscal year 2012, OFS received $3 million in 

repayments and $11 million in dividends and 

interest from its CDCI investments. In fiscal year 

2011, OFS received no repayments and $11 million 

in dividends and interest; no CDCI institutions were 

closed. 

Public-Private Investment Program 

The PPIP is part of the OFS’ efforts to help restart 

the financial securities market and provide liquidity 

for legacy securities. Under this program, the OFS 

(as a limited partner) made equity investments in 

and loans to nine investment vehicles (referred to as 

Public Private Investment Funds or ―PPIFs‖) 

established by private investment managers 

between September and December 2009. The OFS 

equity investments were used to match private 

capital and equal 49.9 percent of the total equity 

invested. Each PPIF elected to receive a loan 

commitment equal to 100 percent of partnership 

equity. The loans bear interest at one month 

LIBOR, plus one percent, payable monthly. The 

maturity date of each loan is the earlier of 10 years 

or the termination of the PPIF. The loan can be 

prepaid without penalty. Each PPIF terminates 

eight years from its commencement, if not 

previously terminated or extended with two 1-year 

extensions, subject to approval of the OFS. The loan 

agreements also require cash flows from purchased 

securities received by the PPIFs to be distributed in 

accordance with a priority of payments schedule 

(waterfall) designed to help protect the interests of 

secured parties. Security cash flows collected are 

disbursed: 1) to pay administrative expenses; 2) to 

pay margin interest on permitted hedges; 3) to pay 

current period interest to OFS; 4) to maintain a 

required interest reserve account; 5) to pay principal 

on the OFS loan when the minimum Asset Coverage 

Ratio Test is not satisfied; 6) to pay other amounts 

on interest rate hedges if not paid under step 2 ; 7) 

for additional temporary investments or to prepay 

loans (both at the discretion of the PPIF); 8) for 

distributions to equity partners up to the lesser of 12 

months’ net interest collected or 8 percent of the 

funded capital commitments; 9) for loan 

prepayments to OFS; and 10) for distribution to 

equity partners. 

Each loan carries a financial covenant, the Asset 

Coverage Ratio Test. The Asset Coverage Ratio Test 

generally requires the PPIF to maintain an Asset 

Coverage Ratio equal to or greater than 150 percent. 

The Asset Coverage Ratio is a percentage obtained 

by dividing total assets of the PPIF by the principal 

amount of the loan and accrued and unpaid interest 

on the loan. Failure to comply with the test could 

require accelerated repayment of loan principal and 

prohibit the PPIF from borrowing additional funds 

under the loan agreement. 

As a condition of its investment, the OFS also 

received a warrant from each of the PPIFs entitling 

the OFS to 2.5 percent of investment proceeds 

(excluding those from temporary investments) 

otherwise allocable to the non-OFS partners after 

the PPIFs return of 100 percent of the non-OFS 

partners’ capital contributions. Distributions 

relating to the warrants generally occur upon the 

final distribution of each partnership. 

The PPIFs are allowed to purchase commercial and 

non-agency residential mortgage-backed securities 

(CMBS and RMBS, respectively) issued prior to 

January 1, 2009, that were originally rated AAA or 

an equivalent rating by two or more nationally 

recognized statistical rating organizations without 

external credit enhancement and that are secured 

directly by the actual mortgage loans, leases or other 

assets (eligible assets) and not other securities. The 

PPIFs may invest in the aforementioned securities 

for a period of 3 years using proceeds from capital 

contribution, loans and amounts generated by 

previously purchased investments (subject to the 

requirements of the waterfall). The three-year 

investment periods for the remaining PPIFs end by 

December 2012. The PPIFs are also permitted to 

invest in certain temporary securities, including 

bank deposits, U.S. Treasury securities, and certain 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 72

money market mutual funds. At least 90 percent of 

the assets underlying any eligible asset must be 

situated in the United States. As of September 30, 

2012, the PPIFs’ portfolios were comprised of 

approximately 74 percent RMBS and 26 percent 

CMBS. As of September 30, 2011, they held 

approximately 79 percent RMBS and 21 percent 

CMBS. 

The PPIFs pay a management fee to the fund 

manager from the OFS’ share of investment 

proceeds. During the Investment Period, the 

management fee is equal to 0.2 percent per annum 

of the OFS’ capital commitment as of the last day of 

the applicable quarter. Thereafter, the management 

fee is 0.2 percent per annum of the lesser of (a) the 

OFS’ capital commitment as of the last day of the 

applicable quarter or (b) the OFS Interest Value as 

of the last day of the quarter. 

During fiscal year 2012, OFS disbursed $245 million 

as equity investments and $803 million as loans to 

PPIFs. During fiscal year 2011, OFS disbursed $1.1 

billion as equity investments and $2.3 billion as 

loans to PPIFs. 

During fiscal year 2012, the OFS received $124 

million in interest on loans and $5.6 billion in loan 

principal repayments from the PPIFs and received 

$3.2 billion in equity distributions, of which $1.3 

billion was recognized as investment income, $223 

million as proceeds in excess of cost and $1.7 billion 

as a reduction of the gross investment outstanding. 

One PPIF partnership fully repaid its investors, 

including OFS, in 2012. Another terminated its 

investment period and repaid all equity capital by 

September 30, 2012; it is expected to distribute 

additional funds and cease operations by December 

2012. 

During fiscal year 2011, the OFS received $123 

million in interest on loans and $868 million in loan 

principal repayments from the PPIFs and received 

$735 million in equity distributions, of which $306 

million was recognized as dividend income, $91 

million of proceeds in excess of cost and $338 million 

as a reduction of the gross investment outstanding. 

As of September 30, 2012, OFS had equity 

investments in six PPIFs outstanding of $4.1 billion 

and loans outstanding of $5.7 billion for a total of 

$9.8 billion. These investments and loans were 

valued at $10.8 billion. 

As of September 30, 2011, OFS had equity 

investments in eight PPIFs outstanding of $5.5 

billion and loans outstanding of $10.4 billion for a 

total of $15.9 billion, valued at $18.4 billion. As of 

September 30, 2012, and 2011, OFS had legal 

commitments to disburse up to $3.1 billion and $4.3 

billion, respectively, for additional investments and 

loans to remaining PPIFs. 

Term Asset-Backed Securities Loan 

Facility 

The Term Asset-Backed Securities Loan Facility 

(TALF) was created by the Federal Reserve Board 

(FRB) to provide low cost funding to investors in 

certain classes of Asset-Backed Securities (ABS). 

The OFS agreed to participate in the program by 

providing liquidity and credit protection to the FRB. 

Under the TALF, the Federal Reserve Bank of New 

York (FRBNY), as implementer of the TALF 

program, originated loans on a non-recourse basis to 

purchasers of certain AAA rated ABS secured by 

consumer and commercial loans and commercial 

mortgage backed securities (CMBS). The FRBNY 

ceased issuing new loans on June 30, 2010. 

As of September 30, 2012, approximately $1.5 billion 

of loans due to the FRBNY remained outstanding. 

At September 30, 2011, approximately $11.3 billion 

of loans due to the FRBNY remained outstanding. 

As part of the program, the FRBNY created the 

TALF, LLC, a special purpose vehicle that agreed to 

purchase from the FRBNY any collateral it has 

seized due to borrower default. The TALF, LLC 

would fund purchases from the accumulation of 

monthly fees paid by the FRBNY as compensation 

for the agreement. Only if the TALF, LLC had 

insufficient funds to purchase the collateral did the 

OFS commit to invest up to $20.0 billion in nonrecourse subordinated notes issued by the TALF, 

LLC. In July 2010, the OFS’ commitment was 

reduced to $4.3 billion. In June 2012, the OFS’ 

commitment was reduced further, from $4.3 billion 

to $1.4 billion, in consultation with the FRBNY. 

The OFS disbursed $100 million upon creation of the 

TALF, LLC and the remainder can be drawn to 

purchase collateral in the event the fees are not 

sufficient to cover purchases. The subordinated 

notes bear interest at 1 Month LIBOR plus 3.0 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

73 NOTES TO THE FINANCIAL STATEMENTS

percent and mature 10 years from the closing date, 

subject to extension. Any amounts needed in excess 

of the OFS commitment and the fees would be 

provided through a loan from the FRBNY. Upon 

wind-down of the TALF, LLC (collateral defaults, 

reaches final maturity or is sold), available cash will 

be disbursed first to FRBNY and then to the OFS 

principal balances, secondly to FRBNY and then to 

the OFS interest balances and finally any remaining 

cash 10 percent to the FRBNY and 90 percent to the 

OFS. 

As of September 30, 2012 and 2011, no TALF loans 

were in default and consequently no collateral was 

purchased by the TALF, LLC. 

SBA 7(a) Securities Purchase Program 

In March 2010, the OFS began the purchase of 

securities backed by Small Business Administration 

7(a) loans (7(a) Securities) as part of the Unlocking 

Credit for Small Business Initiative. Under this 

program OFS purchased 7(a) Securities 

collateralized with 7(a) loans (these loans are 

guaranteed by the full faith and credit of the United 

States Government) packaged on or after July 1, 

2008. In May 2011, OFS began selling its securities 

to investors. Sales were completed in January of 

2012 and the program closed. 

The OFS invested a total of $367 million (excluding 

purchased accrued interest) and received $363 

million in principal payments and sales proceeds, as 

well as $13 million in interest on its securities over 

the course of the program. During fiscal year 2012, 

the OFS sold its remaining SBA securities and 

received proceeds of $127 million, including interest. 

During fiscal year 2011, the OFS received $236 

million in principal payments and $11 million in 

interest on its securities. As of September 30, 2012, 

OFS held no investment in SBA 7(a) securities. As 

of September 30, 2011, OFS held $128 million of 

SBA 7(a) securities. 

Automotive Industry Financing Program 

The Automotive Industry Financing Program (AIFP) 

was designed to help prevent a significant 

disruption of the American automotive industry, 

which could have had a negative effect on the 

economy of the United States. 

General Motors Company (New GM) and 

General Motors Corporation (Old GM) 

In the period ended September 30, 2009, the OFS 

provided $49.5 billion to General Motors 

Corporation (Old GM) through various loan 

agreements including the initial loan for general and 

working capital purposes and the final loan for 

debtor in possession (DIP) financing while Old GM 

was in bankruptcy. The OFS assigned its rights in 

these various loans (with the exception of $986 

million which remained in Old GM for wind down 

purposes and $7.1 billion that would be assumed) 

and previously received common stock warrants to a 

newly created entity, General Motors Company 

(New GM). New GM used the assigned loans and 

warrants to credit bid for substantially all of the 

assets of Old GM in a sale pursuant to Section 363 of 

the Bankruptcy Code. During fiscal year 2009, upon 

closing of the Section 363 sale, the credit bid loans 

and warrants were extinguished and the OFS 

received $2.1 billion in 9.0 percent cumulative 

perpetual preferred stock and 60.8 percent of the 

common equity in New GM. In addition, New GM 

assumed $7.1 billion of the DIP loan, simultaneously 

paying $361 million (return of warranty program 

funds), resulting in a net balance of $6.7 billion. 

The assets received by the OFS as a result of the 

assignment and Section 363 sale were considered 

recoveries of the original loans for subsidy cost 

estimation purposes. During fiscal year 2010, the 

OFS received the remaining $6.7 billion as full 

repayment of the DIP loan assumed. 

During fiscal year 2011, New GM repurchased its 

preferred stock for 102 percent of its liquidation 

amount, $2.1 billion. As part of an initial public 

offering by New GM in fiscal year 2011, the OFS 

sold 412 million shares of its common stock for $13.5 

billion, at a price of $32.75 per share (net of fees). 

The sale resulted in net proceeds less than cost of 

$4.4 billion. During fiscal year 2012, OFS did not 

sell any of its New GM common stock shares. 

At both September 30, 2012, and 2011, the OFS held 

500 million shares of the common stock of New GM 

that represented approximately 32 percent of the 

common stock of New GM outstanding. Market 

value of the shares as of September 30, 2012 and 

2011 was $11.4 billion and $10.1 billion, 

respectively. 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 74

On March 31, 2011, the Plan of Liquidation for Old 

GM became effective and OFS’ $986 million loan 

was converted to an administrative claim. OFS 

retains the right to recover additional proceeds but 

recoveries are dependent on actual liquidation 

proceeds and pending litigation. OFS recovered $26 

million in fiscal year 2012 and $111 million in fiscal 

year 2011 on the administrative claim. OFS does 

not expect to recover any significant additional 

proceeds from this claim. 

GMAC LLC Rights Offering 

In December 2008, the OFS agreed, in principal, to 

lend up to $1.0 billion to Old GM for participation in 

a rights offering by GMAC LLC (now known as Ally 

Financial, Inc.) in support of GMAC LLC’s 

reorganization as a bank holding company. The 

loan was secured by the GMAC LLC common 

interest acquired in the rights offering. The loan 

was funded for $884 million. In May 2009, the OFS 

exercised its exchange option under the loan and 

received 190,921 membership interests, 

representing 35.4 percent of the voting interest at 

the time, in GMAC LLC in full satisfaction of the 

loan. As of September 30, 2012 and 2011, the OFS 

continued to hold the ownership interests obtained 

in this transaction (see further discussion of OFS’ 

GMAC holdings under Ally Financial Inc. in this 

note). 

Chrysler Group LLC (New Chrysler) and 

Chrysler Holding LLC (Old Chrysler) 

In the period ended September 30, 2009, the OFS 

invested $5.9 billion in Chrysler Holding LLC (Old 

Chrysler), consisting of $4 billion for general and 

working capital purposes (the general purpose loan) 

and $1.9 billion for DIP financing while Old 

Chrysler was in bankruptcy. Upon entering 

bankruptcy, a portion of Old Chrysler was sold to a 

newly created entity, Chrysler Group LLC (New 

Chrysler). Under the terms of the bankruptcy 

agreement, $500 million of the general purpose loan 

was assumed by New Chrysler. In fiscal year 2010, 

the OFS received $1.9 billion on the general purpose 

loan and wrote off the remaining $1.6 billion. 

Recovery of the $1.9 billion DIP loan was subject to 

the liquidation of collateral remaining with Old 

Chrysler. In fiscal year 2010, as part of a 

liquidation plan, OFS’ DIP loan to Old Chrysler was 

extinguished, and OFS retained a right to receive 

proceeds from a liquidation trust. 

Under the terms of the bankruptcy agreement, the 

OFS committed to make a $7.1 billion loan to New 

Chrysler, consisting of $6.6 billion of new 

commitments (of which $4.6 billion was funded) and 

$500 million of assumed debt from the general 

purpose loan with Old Chrysler. The loan was 

secured by a first priority lien on the assets of New 

Chrysler. The OFS also obtained other 

consideration including a 9.9 percent equity interest 

in New Chrysler and additional notes with principal 

balances of $284 million and $100 million. Fiat SpA 

(the Italian automaker), the Canadian government 

and the United Auto Workers (UAW) retiree 

healthcare trust were the other shareholders in New 

Chrysler. 

In May 2011, New Chrysler repaid the $5.1 billion in 

loans outstanding ($4.6 billion in funded 

commitments and $500 million assumed from Old 

Chrysler), the additional notes totaling $384 million 

and all interest due. New Chrysler’s ability to draw 

the remaining $2.1 billion loan commitment was 

terminated. In July 2011, Fiat SpA paid the OFS 

$560 million for its remaining equity interest in New 

Chrysler and for OFS’ rights under an agreement 

with the UAW retiree healthcare trust pertaining to 

the trust’s shares in New Chrysler. 

As a result of the fiscal year 2011 transactions, OFS 

had no remaining interest in New Chrysler as of 

September 30, 2012 and 2011. Total net proceeds 

received relating to the 2011 transactions were $896 

million less than OFS’ cost. OFS continues to hold a 

right to receive proceeds from a bankruptcy 

liquidation trust but no significant cash flows are 

expected. OFS received $9 million and $8 million 

from the liquidation trust during fiscal years 2012 

and 2011, respectively. 

Ally Financial Inc. (formerly known as 

GMAC)

The OFS invested a total of $16.3 billion in GMAC 

between December 2008 and December 2009, to help 

support its ability to originate new loans to GM and 

Chrysler dealers and consumers and to help address 

GMAC’s capital needs. In May, 2010, GMAC 

changed its corporate name to Ally Financial, Inc. 

(Ally). As a result of original investments, 

exchanges, conversions and warrant exercises, at 

September 30, 2010, the OFS held 450,121 shares of 

Ally common stock (representing 56.3 percent of the 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

75 NOTES TO THE FINANCIAL STATEMENTS

company’s outstanding common stock including 

ownership interests from the GMAC LLC Rights 

Offering previously discussed), 2.7 million shares of 

8 percent cumulative Trust Preferred Securities 

(TruPS) with a $1,000 per share liquidation 

preference and 229 million shares of Ally’s Series F2 Mandatorily Convertible Preferred Securities. The 

Series F-2, with a $50 per share liquidation 

preference and a stated dividend rate of 9 percent, is 

convertible into Ally common stock at Ally’s option, 

subject to the approval of the Federal Reserve and 

consent by the OFS or pursuant to an order by the 

Federal Reserve compelling such conversion. The 

Series F-2 security is also convertible at the option 

of the OFS upon certain specified corporate events. 

Absent an optional conversion, any Series F-2 

remaining will automatically convert to common 

stock after 7 years from the issuance date. The 

applicable conversion rate is the greater of the (i) 

initial conversion rate (0.00432) or (ii) adjusted 

conversion rate (i.e., the liquidation amount per 

share of the Series F-2 divided by the weighted 

average price at which the shares of common equity 

securities were sold or the price implied by the 

conversion of securities into common equity 

securities, subject to antidilution provisions). 

In December 2010, 110 million shares of the Series 

F-2 preferred were converted into 531,850 shares of 

Ally common stock, resulting in the OFS holdings of 

Series F-2 preferred decreasing to 119 million 

shares, and OFS holdings in common stock of Ally 

increasing to 981,971 shares, representing 73.8 

percent of Ally’s outstanding common stock. 

During fiscal year 2011, the agreement between Ally 

and OFS regarding its TruPS was amended to 

facilitate OFS’ sale of its TruPS in the open market. 

Because this amendment to agreement terms was 

not considered in the formulation subsidy cost 

estimate for the AIFP program, the OFS recorded a 

modification resulting in a subsidy cost reduction of 

$174 million. In March 2011, the OFS sold its 

TruPS for $2.7 billion, resulting in proceeds in 

excess of cost of $127 million. 

As of September 30, 2012 and 2011, the OFS held 

981,971 shares of common stock (73.8 percent of 

Ally’s outstanding common stock) and 119 million 

shares of the Series F-2 preferred securities. The 

Series F-2 are convertible into at least 513,000 

shares of common stock, which, if combined with the 

common stock currently owned, would represent 81 

percent ownership of Ally common stock by the OFS. 

In fiscal year 2012, the OFS received $534 million in 

dividends from Ally. In fiscal year 2011, the OFS 

received $839 million in dividends. 

American International Group, Inc. (AIG) 

Investment Program

The OFS provided assistance to systemically 

significant financial institutions on a case by case 

basis in order to help provide stability to institutions 

that were deemed critical to a functioning financial 

system and were at substantial risk of failure as 

well as to help prevent broader disruption to 

financial markets. OFS invested in one institution, 

AIG, under the program. 

In November 2008, the OFS invested $40.0 billion in 

AIG in the form of Series D 10 percent cumulative 

perpetual preferred stock (the ―Series D‖ preferred 

stock) The OFS also received a warrant for the 

purchase of 54 million shares (adjusted to 2.7 

million shares after a 20:1 reverse stock split) of AIG 

common stock. On April 17, 2009, AIG and the OFS 

restructured their November 2008 agreement. 

Under the restructuring, the OFS exchanged $40.0 

billion of Series D preferred stock for $41.6 billion of 

AIG Series E 10 percent non-cumulative perpetual 

preferred stock (the ―Series E‖ preferred stock). 

Additionally, the OFS agreed to make available to 

AIG a $29.8 billion equity capital facility from which 

AIG could draw funds, if needed, to assist in its 

restructuring. Under the equity capital facility, the 

OFS received AIG Series F 10 percent noncumulative perpetual preferred stock with no initial 

liquidation preference (the ―Series F‖ preferred 

stock) and a warrant for the purchase of 3,000 

shares (adjusted to 150 shares after a 20:1 reverse 

stock split of AIG common stock). 

The Series F liquidation preference increased with 

any draw down by AIG on the facility, and the 

dividend rate applicable to these shares was payable 

quarterly, if declared, on the outstanding liquidation 

preference. In fiscal year 2011, AIG drew $20.3 

billion from the capital facility, for a cumulative 

total of $27.8 billion drawn. 

On September 30, 2010, the Treasury, FRBNY and 

AIG announced plans for a restructuring of the 

Federal Government’s investments in AIG. The 

restructuring, which occurred January 14, 2011, 

converted OFS’ $27.8 billion investment in Series F 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 76

preferred stock into $20.3 billion of interests in two 

AIG SPVs subsidiaries (the ―AIG SPVs‖) and 168 

million shares of AIG common stock. The remaining 

$2.0 billion of undrawn Series F capital facility 

shares were exchanged for 20,000 shares of a new 

Series G Cumulative Mandatory Convertible 

Preferred Stock (the ―Series G‖ preferred stock) 

equity capital facility under which AIG had the right 

to draw up to $2 billion. OFS’ $41.6 billion of Series 

E preferred stock was converted into 925 million 

shares of AIG common stock.[19] On May 27, 2011, 

pursuant to agreement between the OFS and AIG, 

and as a result of AIG’s primary public offering of its 

common stock, the Series G equity capital facility, 

which was undrawn, was canceled. 

According to the terms of the preferred stock, OFS 

had the right to appoint members to the AIG board 

of directors if AIG missed four scheduled dividend 

payments. As a result of the nonpayment of 

dividends, in April 2010, OFS named two directors 

to the AIG board, increasing the total size from ten 

directors to twelve directors. In 2012, one of the two 

OFS-appointed directors resigned from the AIG 

board, and as of September 30, 2012, the AIG board 

consists of eleven total directors. Additionally, until 

Treasury’s overall ownership falls below 5 percent, 

OFS retains the right to have observers at board 

meetings. All directors are subject to election 

annually by a majority shareholder vote at the 

Company’s annual meeting. 

 

19 Additionally, the AIG Credit Facility Trust between the 

Federal Reserve Bank of New York and AIG was terminated and 

the Department of the Treasury separately, not the OFS, received 

563 million shares of AIG common stock as part of the 

restructuring transaction. At the completion of the restructuring 

per the agreement, the Department of the Treasury, including 

OFS, held 92.1 percent of AIG’s common stock. See the Agency 

Financial Report for the Department of the Treasury for its 

separate presentation and valuation of its shares of AIG common 

stock. 

In fiscal year 2012, OFS received $9.6 billion in 

distributions from the AIG SPVs, paying off the 

investment balance of $9.1 billion, recording 

proceeds in excess of cost of $127 million, and 

collecting $395 million of investment income 

(including $204 million capitalized and recognized 

as income in fiscal year 2011). OFS also sold 806 

million shares of common stock for $25.2 billion. 

These proceeds were less than OFS’ cost by $9.9 

billion. 

 

In fiscal year 2011, OFS received $11.5 billion in 

distributions from the AIG SPVs, reduced its 

outstanding balance relating to the AIG SPVs by 

$11.2 billion and received investment income of $246 

million. OFS also capitalized investment income of 

$204 million. Additionally, OFS received fees of 

$165 million from AIG. In May 2011, OFS sold 132

million shares of its AIG common stock for $3.8 

billion. These proceeds were less than OFS’ cost by 

$1.9 billion. 

 

At September 30, 2012, the OFS owned 154 million 

shares of AIG common stock, approximately 10.5 

percent of AIG’s common stock equity.20 Market 

value of the common stock shares was $5.1 billion. 

At September 30, 2011, the OFS owned 960 million 

shares of AIG common stock, approximately 50.8 

percent of AIG’s common stock equity.21 Market 

value of the common stock shares was $21.1 billion. 

OFS also owned preferred units in an AIG SPV with 

an outstanding balance of $9.3 billion, including 

capitalized investment income. 

 

 

20 The Department of the Treasury, not OFS, owned 80 million 

shares of AIG common stock, approximately 5.4 percent of AIG’s 

common stock equity, at September 30, 2012. 

21 The Department of the Treasury, not OFS, owned 495 million 

shares of AIG common stock, approximately 26.1 percent of AIG’s 

common stock equity, at September 30, 2011. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

77 NOTES TO THE FINANCIAL STATEMENTS

Subsidy Cost and Reestimates

The recorded subsidy cost of a direct loan, equity 

investment or other credit program is based upon 

the calculated net present value of expected future 

cash flows. The OFS’ actions, as well as changes in 

legislation that change these estimated future cash 

flows change subsidy cost, and are recorded as 

modifications. The cost or reduction in cost of a 

modification is recognized when it occurs. 

During fiscal year 2012, a modification occurred in 

the CPP, increasing subsidy cost by $973 million. 

During fiscal year 2011, modifications occurred in 

the AIFP (see Ally Financial Inc.) and CPP, reducing 

subsidy cost by $1.2 billion. 

The purpose of reestimates is to update original 

program subsidy cost estimates to reflect actual cash 

flow experience as well as changes in equity 

investment valuations or forecasts of future cash 

flows. Forecasts of future cash flows are updated 

based on actual program performance to date, 

additional information about the portfolio, 

additional publicly available relevant historical 

market data on securities performance, revised 

expectations for future economic conditions, and 

enhancements to cash flow projection methods. 

For 2012 and 2011, financial statement reestimates 

for all programs were performed using actual 

financial transaction data through September 30. 

For 2012, a mix of market and security specific data 

publicly available as of August 31 and September 

30, 2012, was used for all programs. For 2011, a mix 

of market and security specific data publicly 

available as of August 31 and September 30, 2011, 

was used for all programs, with the exception of 

security specific data as of June 30, 2011 that was 

used for TALF and PPIP. 

Net downward reestimates for the fiscal years ended 

September 30, 2012 and 2011, totaled $11.9 billion 

and $11.6 billion, respectively. Descriptions of the 

reestimates, by OFS Program, are as follows: 

CPP 

The $2.9 billion downward reestimate for CPP for 

the year ended September 30, 2012 was the result of 

improved market values of the outstanding 

investments and the effect of receiving $8.2 billion in 

repayments, which reduced the remaining 

investment by about one-half, in fiscal year 2012. 

The downward reestimate for CPP of $816 million 

for the year ended September 30, 2011, was the net 

result of receipts significantly greater than cost on 

the sale of Citigroup common stock offset by a 

decline in the estimated market values of the 

remaining outstanding investments due to market 

conditions at September 30, 2011. 

TIP 

The TIP program was closed in fiscal year 2011, 

with a final downward reestimate of $192 million, 

primarily due to a better than projected return on 

warrant sales. OFS received cumulative receipts of 

$4.4 billion on total investments of $40.0 billion. 

CDCI

The CDCI program continued to reflect improved 

investment performance, resulting in a $30 million 

downward reestimate for the year ended September 

30, 2012. 

The CDCI program reported improved investment 

performance, resulting in a $99 million downward 

reestimate, for the year ended September 30, 2011. 

PPIP 

The $240 million upward reestimate for the PPIP for 

the year ended September 30, 2012, was due 

primarily to accelerated repayments and changes in 

projected performance of the PPIP portfolio. 

The $1.8 billion downward reestimate for the PPIP 

for the year ended September 30, 2011, was due 

primarily to a decline in market risk projections, 

program repayments, and changes in projected 

performance of the PPIP portfolio. 

TALF 

The investments in the TALF continued to 

experience improved market conditions and 

accelerated repayments, resulting in a $96 million 

downward reestimate for the year ended September 

30, 2012. 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 78

In fiscal year 2011, the TALF program showed 

improved market conditions, resulting in a $105 

million downward reestimate. 

SBA 7(a) 

The SBA 7(a) Securities Purchase Program was 

closed in fiscal year 2012, with a $1 million 

downward closing reestimate. 

The program reported a $6 million downward 

reestimate for fiscal year 2011, due to improved 

investment performance. 

AIFP 

The $230 million upward reestimate for the year 

ended September 30, 2012, was due to a decline of 

$1.6 billion in the value of the Ally investment, 

partially offset by an increase in the common stock 

market price of New GM, from $20.18 per share at 

September 30, 2011 to $22.75 per share at 

September 30, 2012. 

The $9.9 billion in upward reestimate for the AIFP 

for the year ended September 30, 2011, was due to a 

decline of over $7.0 billion due to changes in the 

common stock price of New GM since its IPO and a 

decline in the estimated value of Ally investments 

due to market conditions. 

AIG Investment Program 

The $9.2 billion downward reestimate for the year 

ended September 30, 2012 was due primarily to 

sales of 806 million shares of common stock at prices 

higher than the September 30, 2011 price of $21.95 

per share and the effect of valuing the remaining 

155 million shares at the September 30, 2012 price 

of $32.79 per share. 

The $18.5 billion downward reestimate for the year 

ended September 30, 2011 for the AIG Investment 

Program was due primarily to subsidy cost 

estimates recorded for $20.3 billion of new 

disbursements during the fiscal year. Under budget 

rules, the subsidy cost estimate for these new 

disbursements was determined based upon subsidy 

rates formulated in April 2009, the period in which 

OFS originally agreed to make the funding available 

to AIG. At that time, OFS calculated a subsidy rate 

of 98.98 percent, which resulted in an estimated 

subsidy cost of $20.1 billion associated with the 

$20.3 billion disbursed in fiscal year 2011. OFS 

calculated a $16.7 billion downward reestimate 

relating to these fiscal year 2011 disbursements that 

reflects improvements in AIG’s financial condition 

since the original subsidy rate was formulated. The 

remainder of the downward reestimate was due to 

the restructuring of the AIG investment to common 

stock offset by AIG’s financial condition at 

September 30, 2011. At year end, the subsidy 

allowance represented about 41 percent of the gross 

outstanding AIG Investment Program balance. 

Summary Tables 

The following detailed tables provide the net 

composition, subsidy cost, modifications and 

reestimates and a reconciliation of the subsidy cost 

allowance for each TARP Direct Loan or Equity 

Investment Program for the years ended September 

30, 2012 and 2011. Other Credit Program narrative 

and detailed tables follow these summary tables. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

79 NOTES TO THE FINANCIAL STATEMENTS

Troubled Asset Relief Program Loans and Equity Investments

(Dollars in Millions) TOTAL CPP PPIP AIFP AIG

CDCI-TALFSBA

As of September 30, 2012

Direct Loans and Equity Investment Programs:

Direct Loans and Equity Investments Outstanding, Gross $ 63,073 8,664$ 9,763$ $ 37,252 6,727$ $ 667

Subsidy Cost Allowance (22,842) (2,930) (19,706) 1,015 (1,658) 437

Direct Loans and Equity Investments Outstanding, Net $ 40,231 5,734$ $ 10,778 $ 17,546 5,069$ $ 1,104

New Loans or Investments Disbursed $ 1,048 -$ 1,048$ -$ -$ -$ 

Obligations for Loans and Investments not yet Disbursed $ 4,358 -$ 3,058$ -$ -$ $ 1,300

Reconciliation of Subsidy Cost Allowance:

Balance, Beginning of Period $ 42,301 4,857$ $ (2,434) $ 19,440 $ 20,717 $ (279)

 Subsidy Cost (Income) for Disbursements and Modifications 942 973 (31) - - - 

 Dividend and Interest Income 2,733 1,426 572 534 191 1 0

 Net Proceeds from Sales and Repurchases of Assets

in Excess of (Less than) Cost (9,788) (285) 223 9 (9,735) - 

 Net Interest Income (Expense) on Borrowings from BPD

and Financing Account Balance (1,626) (290) (439) (507) (349) (41) 

Balance, End of Period, Before Reestimates 34,562 5,827 (1,255) 19,476 10,824 (310) 

 Subsidy Reestimates - Upward (Downward) (11,720) (2,897) 240 (9,166) 230 (127) 

Balance, End of Period $ 22,842 2,930$ $ (1,015) $ 19,706 1,658$ $ (437)

Reconciliation of Subsidy Cost (Income):

 Subsidy Cost (Income) for Disbursements $ (31) -$ (31) $ -$ -$ $ -

 Subsidy Cost (Income) for Modifications 973 973 - - - - 

 Subsidy Reestimates - Upward (Downward) (11,720) (2,897) 240 (9,166) 230 (127) 

Total Direct Loan and Equity Investment Programs

 Subsidy Cost (Income) $ (10,778) $ (1,924) $ 209 $ (9,166) 230 $ $ (127)

(Dollars in Millions) TOTAL CPP PPIP AIFP AIG

CDCI-TALFSBA-TIP

As of September 30, 2011

Direct Loans and Equity Investment Programs:

Direct Loans and Equity Investments Outstanding, Gross 122,405 $ $ 17,299 $ 15,943 $ 37,278 $ 51,087 $ 798

Subsidy Cost Allowance (42,301) (4,857) (19,440) 2,434 (20,717) 279

Direct Loans and Equity Investments Outstanding, Net $ 80,104 $ 12,442 $ 18,377 $ 17,838 $ 30,370 $ 1,077

New Loans or Investments Disbursed $ 23,839 -$ 3,421$ -$ 20,292 $ $ 126

Obligations for Loans and Investments not yet Disbursed $ 8,479 -$ 4,279$ -$ -$ $ 4,200

Reconciliation of Subsidy Cost Allowance:

Balance, Beginning of Period $ 36,745 1,546$ $ 14,529 (676) $ $ 21,405 $ (59)

 Subsidy Cost (Income) for Disbursements and Modifications 18,887 (1,010) (15) (174) 20,085 1 

 Dividend and Interest Income 3,461 1,283 1,280 428 450 2 0

 Fee Income 165 - - - 165 - 

 Net Proceeds from Sales and Repurchases of Assets

in Excess of (Less than) Cost (2,262) 4,540 (5,165) 9 1 (1,918) 190

 Net Interest Income (Expense) on Borrowings from BPD

and Financing Account Balance (3,016) (686) (418) (945) (938) (29) 

Balance, End of Period, Before Reestimates 53,980 5,673 (590) 9,525 39,249 123

 Subsidy Reestimates - Upward (Downward) (11,679) (816) (1,844) (18,532) 9,915 (402) 

Balance, End of Period $ 42,301 4,857$ $ (2,434) $ 19,440 $ 20,717 $ (279)

Reconciliation of Subsidy Cost (Income):

 Subsidy Cost (Income) for Disbursements $ 20,071 -$ $ (15) -$ 20,085 $ $ 1

 Subsidy Cost (Income) for Modifications (1,184) (1,010) - (174) - - 

 Subsidy Reestimates - Upward (Downward) (11,679) (816) (1,844) (18,532) 9,915 (402) 

Total Direct Loan and Equity Investment Programs

 Subsidy Cost (Income) $ 7,208 $ (1,826) $ (1,859) 9,741$ 1,553$ $ (401)

Note: There are no budget execution subsidy rates for FY 2012; the OFS authority expired October 3, 2010 with no additional commitments made after September 30, 

2010. 

Note: There are no budget execution subsidy rates for FY 2011; the OFS authority expired October 3, 2010 with no additional commitments made after September 30, 

2010.
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 80

Other Credit Programs 

Asset Guarantee Program 

The Asset Guarantee Program (AGP) provided 

guarantees for assets held by systemically 

significant financial institutions that faced a risk of 

losing market confidence due in large part to a 

portfolio of distressed or illiquid assets. 

Section 102 of the EESA required the Secretary to 

establish the AGP to guarantee troubled assets 

originated or issued prior to March 14, 2008, 

including mortgage-backed securities, and 

established the Troubled Assets Insurance 

Financing Fund (TAIFF). The OFS completed its 

only transaction under the AGP in January 2009, 

when it finalized the terms of a guarantee 

agreement with Citigroup. Under the agreement, 

the OFS, the Federal Deposit Insurance Corporation 

(FDIC), and the FRBNY (collectively the USG 

Parties) provided protection against the possibility 

of large losses on an asset pool of approximately 

$301.0 billion of loans and securities backed by 

residential and commercial real estate and other 

such assets, which remained on Citigroup’s balance 

sheet. The OFS’ guarantee was limited to $5.0

billion. 

As a premium for the guarantee, Citigroup issued 

$7.0 billion of cumulative perpetual preferred stock 

(subsequently converted to Trust Preferred 

Securities with similar terms) with an 8 percent 

stated dividend rate and a warrant for the purchase 

of common stock; $4.0 billion and the warrant were 

issued to the OFS, and $3.0 billion was issued to the 

FDIC. The OFS received $15 million in dividends on 

the preferred stock during fiscal year 2011. These 

dividends were deposited into the TAIFF. The OFS 

had also invested in Citigroup through CPP and the 

TIP. 

In December 2009, the USG Parties and Citigroup 

agreed to terminate the guarantee agreement. 

Under the terms of the termination agreement 

Citigroup cancelled $1.8 billion of the preferred 

stock previously issued to OFS. In addition, the 

FDIC agreed to transfer to the OFS $800 million of 

their Trust Preferred Securities (TruPS) plus 

dividends by December 31, 2012. The amount OFS 

will receive would be reduced by any losses FDIC 

incurs on its Citigroup guaranteed debt. The 

additional preferred shares from the FDIC were 

included in the subsidy calculation for AGP, based 

on the net present value of expected future cash 

inflows. 

In fiscal year 2011, the OFS sold its TruPS for $2.2 

billion and sold additional warrants for $67 million, 

leaving only the $800.0 million of TruPS-related 

receivable from the FDIC valued at $967 million on 

the OFS Balance Sheet at September 30, 2012. This 

receivable was valued at $739 million as of 

September 30, 2011. 

For fiscal year 2012, the AGP program recorded a 

$207 million downward reestimate, due to revised 

expectations about the timing of receipt of dividends, 

interest on the dividends and the TruPS from the 

FDIC. OFS expects to receive a cash transfer of 

dividends and interest, along with the TruPS 

certificates from the FDIC, as scheduled, on 

December 31, 2012. For fiscal year 2011, the 

program recorded an upward reestimate of $30 

million due to a decline in market conditions. 

The following table details the changes in the 

receivable account and the AGP subsidy cost during 

fiscal years 2012 and 2011: 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

81 NOTES TO THE FINANCIAL STATEMENTS

Reconciliation of Asset Guarantee Program Receivable:

(Dollars in Millions) 2012 2011

Balance, Beginning of Period $ 3,055 739 $

 Dividend Revenue - (15) 

 Proceeds from Sales in Excess of Cost - (2,301) 

 Net Interest Expense on Borrowings from BPD and Financing Account Balance 2 1 3 0

Balance, End of Period, Before Reestimates 760 769

 Subsidy Reestimates - (Upward) Downward 207 (30) 

Balance, End of Period $ 967 $ 739

Reconciliation of Subsidy Cost (Income):

 Subsidy Reestimates - Upward (Downward) $ (207) $ 3 0

Total Subsidy Cost (Income) $ (207) $ 30

Fiscal Year

FHA-Refinance Program 

The OFS has entered into a loss-sharing agreement 

with the FHA to support a program in which FHA 

guarantees refinancing of borrowers whose homes 

were worth less than the remaining amounts owed 

under their mortgage loans. In fiscal year 2011, the 

OFS established a $50 million account, held by a 

commercial bank, serving as its agent, from which 

any required reimbursements for losses will be paid 

to third party claimants, including banks or other 

investors. 

During fiscal year 2012, $234 million of loans were 

disbursed by the FHA. As of September 30, 2012, 

1,774 loans that FHA had guaranteed, with a total 

value of $307 million, had been refinanced under the 

program. During fiscal year 2011, $73 million of 

loans were guaranteed by the FHA. As of 

September 30, 2011, 334 loans that FHA had 

guaranteed, with a total value of $73 million, had 

been refinanced. OFS’ maximum exposure related 

to FHA’s guarantee totaled $41 million and $6 

million at September 30, 2012 and 2011, 

respectively. OFS’ 

guarantee resulted in a liability of $7 million at 

September 30, 2012 and a liability of $1 million at 

September 30, 2011. The liability was calculated, 

using credit reform accounting, as the present value 

of the estimated future cash outflows for the OFS’ 

share of losses incurred on any defaults of the 

disbursed loans. As of September 30, 2012, no 

claims have been paid under the program. 

Budget subsidy rates for the program, entirely for 

defaults, excluding modifications and reestimates, 

were set at 4.0 percent and 1.26 percent for loans 

guaranteed in fiscal years 2012 and 2011, 

respectively. 

The program recorded a $3 million downward 

reestimate for the year ended September 30, 2012, 

due to a reduction in market risks and lower than 

projected defaults. 

The following table details the changes in the FHARefinance Program Liability and the Subsidy Cost 

for the program during fiscal years 2012 and 2011: 

Reconciliation of FHA-Refinance Program Liability

(Dollars in Millions) 2012 2011

Balance, Beginning of Period 1$ -$ 

 Subsidy Cost for Guarantees (Defaults) 9 1 

Balance, End of Period, Before Reestimates 1 0 1 

 Subsidy Reestimates - Upward (Downward) (3) - 

Balance, End of Period 7$ 1$ 

Reconciliation of Subsidy Cost (Income)

 Subsidy Cost for Guarantees (Defaults) 9$ 1$ 

 Subsidy Reestimates - Upward (Downward) (3) - 

Total Subsidy Cost (Income) 6$ 1$ 

Fiscal Year
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 82

NOTE 7. DUE TO THE GENERAL FUND 

As of September 30, 2012, the OFS accrued $9.7 

billion of downward reestimates payable to the 

General Fund. As of September 30, 2011, the OFS 

accrued $4.6 billion of downward reestimates 

payable to the General Fund. Due to the General 

Fund is a Non-Entity liability on the Balance Sheet. 

NOTE 8. PRINCIPAL PAYABLE TO THE BUREAU OF THE PUBLIC DEBT 

(BPD) 

Equity investments, direct loans and other credit 

programs accounted for under federal credit reform 

are funded by subsidy appropriations and 

borrowings from the BPD. The OFS also borrows 

funds to pay the Treasury General Fund for 

negative program subsidy costs and downward 

reestimates (these reduce program subsidy cost) in 

advance of receiving the expected cash flows that 

cause the negative program subsidy or downward 

reestimate. The OFS makes periodic principal 

repayments to the BPD based on the analysis of its 

cash balances and future disbursement needs. All 

debt is intragovernmental and covered by budgetary 

resources. See additional details on borrowing 

authority in Note 11, Statement of Budgetary 

Resources. 

Debt transactions for the fiscal years ended 

September 30, 2012 and 2011, were as follows: 

(Dollars in Millions) 2012 2011

Beginning Balance, Principal Payable to the BPD $ 129,497 $ 140,404

 New Borrowings 2,658 35,974

 Repayments (79,327) (46,881)

Ending Balance, Principal Payable to the BPD $ 52,828 $ 129,497

As of September 30,

Borrowings from the BPD by TARP program, outstanding as of September 30, 2012 and 2011, were as 

follows: 

(Dollars in Millions) 2012 2011

Capital Purchase Program $ 5,150 $ 19,003

CDCI, TALF and SBA 7(a) 1,020 1,165

Public-Private Investment Program 16,317 23,792

Automotive Industry Financing Program 17,845 32,419

American International Group, Inc. Investment Program 11,736 52,285

Asset Guarantee Program 760 833

Total Borrowings Outstanding $ 52,828 $ 129,497

As of September 30,

As of September 30, 2012, borrowings carried 

remaining terms ranging from 2 to 29 years, with 

interest rates from 1.0 percent to 4.4 percent. As of 

September 30, 2011, borrowings carried remaining 

terms ranging from 3 to 30 years, with interest rates 

from 1.0 percent to 4.7 percent. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

83 NOTES TO THE FINANCIAL STATEMENTS

NOTE 9. COMMITMENTS AND CONTINGENCIES 

The OFS is party to various legal actions and claims 

brought by or against it. In the opinion of 

management and the Chief Counsel, the ultimate 

resolution of these legal actions and claims will not 

have a material effect on the OFS financial 

statements. The OFS has not incurred any loss 

contingencies that would be considered probable or 

reasonably possible for these cases; therefore, no 

liability was established. Refer to Note 5 for 

additional commitments relating to the TARP’s 

Housing Programs and Note 6 relating to Direct 

Loan and Equity Investment Programs. 

NOTE 10. STATEMENT OF NET COST

The Statement of Net Cost (SNC) presents the net 

cost of (income from) operations for the OFS under 

the strategic goal of ensuring the overall stability 

and liquidity of the financial system, preventing 

avoidable foreclosures and preserving 

homeownership. The OFS has determined that all 

initiatives and programs under the TARP fall within 

this strategic goal. 

The OFS SNC reports the annual accumulated full 

cost of the TARP’s output, including both direct and 

indirect costs of the program services and output 

identifiable to TARP, in accordance with SFFAS No. 

4, Managerial Cost Accounting Concepts and 

Standards. 

The OFS SNC for fiscal year 2012 includes $2.3 

billion of intragovernmental costs relating to 

interest expense on borrowings from the BPD and 

$605 million in intragovernmental revenues relating 

to interest income on financing account balances. 

The OFS SNC for fiscal year 2011 includes $3.8 

billion of intragovernmental costs relating to 

interest expense on borrowings from the BPD and 

$781 million in intragovernmental revenues relating 

to interest income on financing account balances. 

Subsidy allowance amortization on the SNC is the 

difference between interest income on financing 

fund account balances, dividends and interest 

income on direct loans, equity investments and other 

credit programs from TARP participants, and 

interest expense on borrowings from the BPD. 

Credit reform accounting requires that only subsidy 

cost, not the net of other costs (interest expense and 

dividend and interest income), be reflected in the 

SNC. The subsidy allowance account is used to 

present the loan or equity investment at the 

estimated net present value of future cash flows. 

The OFS SNC includes $1.1 billion and $430 million 

of subsidy allowance amortization for fiscal years 

2012 and 2011, respectively. 

NOTE 11. STATEMENT OF BUDGETARY RESOURCES 

The Statement of Budgetary Resources (SBR) 

presents information about total budgetary 

resources available to the OFS and the status of 

those resources. For the year ended September 30, 

2012, the OFS’ total resources in budgetary accounts 

were $41.9 billion and resources in non-budgetary 

financing accounts, including borrowing authority 

and spending authority from collections of loan 

principal, liquidation of equity investments, interest, 

dividends and fees were $25.9 billion. For the year 

ended September 30, 2011, the OFS’ total resources 

in budgetary accounts were $16.4 billion and 

resources in non-budgetary financing accounts were 

$86.5 billion. 

Permanent Indefinite Appropriations 

The OFS receives permanent indefinite 

appropriations annually, if necessary, to fund 

increases in the projected subsidy costs of direct 

loans, equity investment and other credit programs 

as determined by the reestimation process required 

by the FCRA. 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

NOTES TO THE FINANCIAL STATEMENTS 84

Additionally, Section 118 of the EESA states that 

the Secretary may issue public debt securities and 

use the resulting funds to carry out the Act and that 

any such funds expended or obligated by the 

Secretary for actions authorized by this Act, 

including the payment of administrative expenses, 

shall be deemed appropriated at the time of such 

expenditure or obligation. 

Borrowing Authority 

The OFS is authorized to borrow from the BPD 

whenever funds needed to disburse direct loans and 

equity investments, and to enter into asset 

guarantee and loss-sharing arrangements, exceed 

subsidy costs and collections in the non-budgetary 

financing accounts. For the year ended September 

30, 2012, the OFS had borrowing authority available 

of $2.6 billion. For the year ended September 30, 

2011, the OFS had borrowing authority available of 

$8.4 billion. 

The OFS uses dividends and interest received as 

well as principal repayments on direct loans and 

liquidation of equity investments to repay debt in 

the non-budgetary direct loan, equity investment 

and other credit program financing accounts. These 

receipts are not available for any other use per 

credit reform accounting guidance. 

Apportionment Categories of 

Obligations Incurred: Direct versus 

Reimbursable Obligations 

All of the OFS apportionments are Direct and are 

Category B. Category B apportionments typically 

distribute budgetary resources on a basis other than 

calendar quarters, such as by activities, projects, 

objects or a combination of these categories. The 

OFS obligations incurred are direct obligations 

(obligations not financed from intragovernmental 

reimbursable agreements). 

Undelivered Orders 

Undelivered orders as of September 30, 2012 were 

$40.2 billion in budgetary accounts and $5.9 billion 

in non-budgetary financing accounts. Undelivered 

orders as of September 30, 2011 were $43.4 billion in 

budgetary accounts and $13.2 billion in nonbudgetary financing accounts. 

Explanation of Differences Between 

the Statement of Budgetary 

Resources and the Budget of the 

United States Government 

Federal agencies and entities are required to explain 

material differences between amounts reported in 

the SBR and the actual amounts reported in the 

Budget of the U. S. Government (the President’s 

Budget). 

The President’s Budget for 2014, with the ―Actual‖ 

column completed for fiscal year 2012, has not yet 

been published as of the date of these financial 

statements. The President’s Budget is currently 

expected to be published and delivered to Congress 

in early February 2013. It will be available from the 

Government Printing Office. 

The 2013 President’s Budget, with the ―Actual‖ 

column completed for the year ended September 30, 

2011, was published in February 2012, and 

reconciled to the SBR. The only differences between 

the two documents were due to: 

 Rounding;

 Expired funds that are not shown in the

Actual column of the President’s Budget;

and

 A $32 million downward modification shown

as an outlay and as a corresponding

distributed offsetting receipt in the SBR in

2011 that was included in the President’s

Budget in fiscal year 2010.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

85 NOTES TO THE FINANCIAL STATEMENTS

NOTE 12. RECONCILIATION OF OBLIGATIONS INCURRED TO NET COST 

OF (INCOME FROM) OPERATIONS 

The OFS presents the SNC using the accrual basis 

of accounting. This differs from the obligation-based 

measurement of total resources supplied, both 

budgetary and from other sources, on the SBR. The 

reconciliation of obligations incurred to net cost of 

operations shown below categorizes the differences 

between the two, and illustrates that the OFS 

maintains reconcilable consistency between the two 

types of reporting. 

The Reconciliation of Obligations Incurred to Net 

Cost of (Income from) Operations for the fiscal years 

ended September 30, 2012 and 2011 is as follows: 

(Dollars in Millions) 2012 2011

Resources Used to Finance Activities:

Budgetary Resources Obligated

 Obligations Incurred $ 35,803 $ 67,646

 Actual Offsetting Collections and Recoveries (87,383) (91,708) 

 Offsetting Receipts (6,063) (61,832) 

Net Obligations (57,643) (85,894) 

Other Resources 1 1 

Total Resources Used to Finance Activities (57,642) (85,893) 

Resources Used to Finance Items Not Part of Net Cost of (Income from) Operations:

 Net Obligations in Direct Loan, Equity Investment and Asset Guarantee Financing Funds 78,988 23,249 

 Change in Resources Obligated for Goods, Services and Benefits Ordered but not yet Provided 3,157 25,330 

 Resources that Fund the Acquisition of Assets - (50) 

 Resources that Fund Prior Period Expenses and Reestimates (23,294) 23,562 

Total Resources Used to Finance Items Not Part of Net Cost of (Income from) Operations 58,851 72,091 

Total Resources Used to Finance the Net Cost of (Income from) Operations 1,209 (13,802) 

Components of Net Cost of (Income from) Operations that Will Not Require or Generate 

Resources in the Current Period:

 Accrued Net Upward (Downward) Reestimates at Year-End (8,958) 23,293 

 Other 1 6 

Total Components of Net Cost of (Income from) Operations that Will Not Require or Generate 

Resources in the Current Period (8,957) 23,299 

Net Cost of (Income from) Operations $ (7,748) $ 9,497
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

REQUIRED SUPPLEMENTARY INFORMATION 86

Required Supplementary Information 

Dollars in Millions

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

BUDGETARY RESOURCES

 Unobligated Balances Brought Forward $ 14,166 $ 21,143 $ 13,967 $ 21,143 $ 199 $ -

 Recoveries of Prior Year Unpaid Obligations 146 6,114 104 6,114 42 - 

 Borrowing Authority Withdrawn - (5,832) - (5,832) - - 

 Actual Repayment of Debt, Prior-Year Balances - (19,900) - (19,900) - - 

 Unobligated Balance from Prior Year Budget Authority, Net 14,312 1,525 14,071 1,525 241 - 

 Appropriations 27,593 - 27,270 - 323 - 

 Borrowing Authority - 2,659 - 2,659 - - 

 Spending Authority from Offsetting Collections - 21,695 - 21,695 - - 

TOTAL BUDGETARY RESOURCES (Note 11) $ 41,905 $ 25,879 $ 41,341 $ 25,879 $ 564 $ -

STATUS OF BUDGETARY RESOURCES

 Obligations Incurred $ 27,555 $ 8,248 $ 27,270 $ 8,248 $ 285 $ -

 Unobligated Balance:

Apportioned 41 3,946 - 3,946 41 - 

 Unapportioned 14,309 13,685 14,071 13,685 238 - 

 Total Unobligated Balance 14,350 17,631 14,071 17,631 279 - 

TOTAL STATUS OF BUDGETARY RESOURCES $ 41,905 $ 25,879 $ 41,341 $ 25,879 $ 564 $ -

CHANGE IN OBLIGATED BALANCES

Obligated Balance Brought Forward:

 Unpaid Obligations $ 43,814 $ 13,158 $ 43,618 $ 13,158 $ 196 $ -

 Uncollected Customer Payments from Federal Sources - (496) - (496) - - 

Obligated Balance, Net, Brought Forward 43,814 12,662 43,618 12,662 196 - 

 Obligations Incurred 27,555 8,248 27,270 8,248 285 - 

 Gross Outlays (30,675) (9,366) (30,400) (9,366) (275) - 

 Change in Uncollected Customer Payments from Federal Sources - 147 - 147 - - 

 Recoveries of Prior Year Unpaid Obligations (146) (6,114) (104) (6,114) (42) - 

Obligated Balance, Net, End of Period:

 Unpaid Obligations, Gross, End of Period 40,548 5,926 40,384 5,926 164 - 

 Uncollected Customer Payments from Federal Sources - (349) - (349) - - 

OBLIGATED BALANCE, NET, END OF PERIOD $ 40,548 $ 5,577 $ 40,384 $ 5,577 $ 164 $ -

BUDGET AUTHORITY AND OUTLAYS, NET

 Budget Authority, Gross $ 27,593 $ 24,354 $ 27,270 $ 24,354 $ 323 $ -

 Actual Offsetting Collections - (81,269) - (81,269) - - 

 Change in Uncollected Customer Payments from Federal Sources - 147 - 147 - - 

BUDGET AUTHORITY, NET $ 27,593 $ (56,768) $ 27,270 $ (56,768) $ 323 $ -

 Gross Outlays $ 30,675 $ 9,366 $ 30,400 $ 9,366 $ 275 $ -

 Actual Offsetting Collections - (81,269) - (81,269) - - 

 Net Outlays 30,675 (71,903) 30,400 (71,903) 275 - 

 Distributed Offsetting Receipts (6,063) - (6,063) - - - 

AGENCY OUTLAYS, NET $ 24,612 $ (71,903) $ 24,337 $ (71,903) $ 275 $ -

2012

Combined TARP Programs TARP Administrative

OFFICE OF FINANCIAL STABILITY (TROUBLED ASSET RELIEF PROGRAM)

REQUIRED SUPPLEMENTARY INFORMATION

COMBINED STATEMENT OF BUDGETARY RESOURCES

For the Year Ended September 30, 2012

(Unaudited)
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

87 REQUIRED SUPPLEMENTARY INFORMATION

Dollars in Millions

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

BUDGETARY RESOURCES

 Unobligated Balances Brought Forward $ 11,075 $ 10,548 $ 10,949 $ 10,548 $ 126 $ -

 Recoveries of Prior Year Unpaid Obligations 3,057 4,664 3,018 4,664 39 - 

 Borrowing Authority Withdrawn - (1,368) - (1,368) - - 

 Actual Repayment of Debt, Prior-Year Balances - (7,996) - (7,996) - - 

 Unobligated Balance from Prior Year Budget Authority, Net 14,132 5,848 13,967 5,848 165 - 

 Appropriations 2,278 - 1,886 - 392 - 

 Borrowing Authority - 35,596 - 35,596 - - 

 Spending Authority from Offsetting Collections - 45,101 - 45,101 - - 

TOTAL BUDGETARY RESOURCES (Note 11) $ 16,410 $ 86,545 $ 15,853 $ 86,545 $ 557 $ -

STATUS OF BUDGETARY RESOURCES

 Obligations Incurred $ 2,244 $ 65,402 $ 1,886 $ 65,402 $ 358 $ -

 Unobligated Balance:

Apportioned 36 511 - 511 36 - 

 Unapportioned 14,130 20,632 13,967 20,632 163 - 

 Total Unobligated Balance 14,166 21,143 13,967 21,143 199 - 

TOTAL STATUS OF BUDGETARY RESOURCES $ 16,410 $ 86,545 $ 15,853 $ 86,545 $ 557 $ -

CHANGE IN OBLIGATED BALANCES

Obligated Balance Brought Forward:

 Unpaid Obligations $ 69,128 $ 41,918 $ 68,898 $ 41,918 $ 230 $ -

 Uncollected Customer Payments from Federal Sources - (23,816) - (23,816) - - 

Obligated Balance, Net, Brought Forward 69,128 18,102 68,898 18,102 230 - 

 Obligations Incurred 2,244 65,402 1,886 65,402 358 - 

 Gross Outlays (24,501) (89,498) (24,148) (89,498) (353) - 

 Change in Uncollected Customer Payments from Federal Sources - 23,320 - 23,320 - - 

 Recoveries of Prior Year Unpaid Obligations (3,057) (4,664) (3,018) (4,664) (39) - 

Obligated Balance, Net, End of Period:

 Unpaid Obligations, Gross, End of Period 43,814 13,158 43,618 13,158 196 - 

 Uncollected Customer Payments from Federal Sources - (496) - (496) - - 

OBLIGATED BALANCE, NET, END OF PERIOD $ 43,814 $ 12,662 $ 43,618 $ 12,662 $ 196 $ -

BUDGET AUTHORITY AND OUTLAYS, NET

 Budget Authority, Gross $ 2,278 $ 80,697 $ 1,886 $ 80,697 $ 392 $ -

 Actual Offsetting Collections - (107,307) - (107,307) - - 

 Change in Uncollected Customer Payments from Federal Sources - 23,320 - 23,320 - - 

BUDGET AUTHORITY, NET $ 2,278 $ (3,290) $ 1,886 $ (3,290) $ 392 $ -

 Gross Outlays $ 24,501 $ 89,498 $ 24,148 $ 89,498 $ 353 $ -

 Actual Offsetting Collections - (107,307) - (107,307) - - 

 Net Outlays 24,501 (17,809) 24,148 (17,809) 353 - 

 Distributed Offsetting Receipts (61,832) - (61,832) - - - 

AGENCY OUTLAYS, NET $ (37,331) $ (17,809) $ (37,684) $ (17,809) $ 353 $ -

Combined TARP Programs TARP Administrative

OFFICE OF FINANCIAL STABILITY (TROUBLED ASSET RELIEF PROGRAM)

REQUIRED SUPPLEMENTARY INFORMATION

COMBINED STATEMENT OF BUDGETARY RESOURCES

For the Year Ended September 30, 2011

(Unaudited)

2011
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

OTHER ACCOMPANYING INFORMATION - SCHEDULE OF SPENDING 88

Other Accompanying Information – Schedule of Spending 

Dollars in Millions

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

WHAT IS AVAILABLE TO SPEND?

 Total Resources per Statement of Budgetary Resources (SBR) $ 41,905 $ 25,879 $ 16,410 $ 86,545

 Less Amount Apportioned (not yet agreed to be spent) (41) (3,946) (36) (511)

 Less Amount Unapportioned (not yet available to be spent) (14,309) (13,685) (14,130) (20,632)

AMOUNT AVAILABLE TO SPEND - OBLIGATIONS INCURRED PER SBR $ 27,555 $ 8,248 $ 2,244 $ 65,402

HOW WAS THE AMOUNT SPENT?

 Personnel Compensation $ 20 $ - $ 24 $ -

 Personnel Benefits 6 - 6 - 

 Travel and Transportation 1 - 1 - 

 Supplies and Materials 2 - - - 

 Other Services 244 3 322 - 

 Housing Program Incentive Payments 3,066 - 1,935 - 

 Investments and Loans - 1,048 - 23,839

 Interest - 2,252 - 3,828

 Subsidies, including Reestimates for Previously

Disbursed Loans and Investments Outstanding22 27,336 6,063 22,213 61,831

TOTAL SPENDING - OUTLAYS PER SBR 30,675 9,366 24,501 89,498

AMOUNT REMAINING TO BE SPENT (SPENT FROM PREVIOUSLY OBLIGATED 

AUTHORITY) (3,120) (1,118) (22,257) (24,096)

AMOUNT AVAILABLE TO SPEND - OBLIGATIONS INCURRED PER SBR $ 27,555 $ 8,248 $ 2,244 $ 65,402

2012 2011

OFFICE OF FINANCIAL ST ABILIT Y (T ROUBLED ASSET RELIEF PROGRAM)

OTHER ACCOMPANYING INFORMATION

SCHEDULE OF SPENDING

For the Years Ended September 30, 2012 and 2011

(Unaudited)

The Schedule of Spending presents an overview of how 

and where the OFS is obligating and disbursing funds. 

Obligations are legally binding agreements that result 

in outlays, immediately or in the future. The Schedule 

presents total budgetary resources, gross outlays, and 

total obligations in further detail than that provided on 

the Statement of Budgetary Resources, although the 

data used to populate both is the same. 

The section ―How Was the Amount Spent‖ presents 

disbursements, or outlays, for services received, supplies 

purchased, subsidies paid and program loans or 

investments made during 2012 or 2011, even if 

obligations for those outlays were made in prior years.22.

22 Subsidies disbursed from nonbudgetary financing accounts consist 

of negative subsidies and downward reestimates, which are reductions 

of subsidy cost, transferred from the financing accounts to the 

Treasury General Fund.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

89 APPENDIX A: TARP GLOSSARY

Part 3: Appendices 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

APPENDIX A: TARP GLOSSARY 90
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

91 APPENDIX A: TARP GLOSSARY

APPENDIX A: TARP GLOSSARY

Asset-Backed Security (ABS): A financial 

instrument representing an interest in a pool 

of other assets, typically consumer loans. 

Most ABS are backed by credit card 

receivables, auto loans, student loans, or other 

loan and lease obligations. 

Asset Guarantee Program (AGP): A TARP 

program under which OFS, together with the 

Federal Reserve and the FDIC, agreed to 

share losses on certain pools of assets held by 

systemically significant financial institutions 

that faced a high risk of losing market 

confidence due in large part to a portfolio of 

distressed or illiquid assets. 

Automotive Industry Financing Program 

(AIFP): A TARP program under which OFS 

provided loans or equity investments in order 

to avoid a disorderly bankruptcy of one or 

more auto companies that would have posed a 

systemic risk to the country’s financial 

system. 

Capital Purchase Program (CPP): A TARP 

program pursuant to which OFS invested in 

preferred equity securities and other 

securities issued by financial institutions. 

Commercial Mortgage-Backed Securities 

(CMBS): A financial instrument representing 

an interest in a commercial real estate 

mortgage or a group of commercial real estate 

mortgages. 

Commercial Paper (CP): An unsecured debt 

instrument with a short maturity period, 270 

days or less, typically issued by large financial 

institutions or other large commercial firms. 

Community Development Capital Initiative 

(CDCI): A TARP program that provides lowcost capital to Community Development 

Financial Institutions to encourage lending to 

small businesses and help facilitate the flow of 

credit to individuals in underserved 

communities. 

Community Development Financial 

Institution (CDFI): A financial institution 

that focuses on providing financial services to 

low- and moderate- income, minority and 

other underserved communities, and is 

certified by the CDFI Fund, an office within 

OFS that promotes economic revitalization 

and community development. 

Debtor-In-Possession (DIP): A debtor-inpossession in U. S. bankruptcy law has filed a 

bankruptcy petition but still remains in 

possession of its property. DIP financing 

usually has priority over existing debt, equity 

and other claims. 

Emergency Economic Stabilization Act

(EESA): The law that created the Troubled 

Asset Relief Program (TARP). 

Government-Sponsored Enterprises (GSEs): 

Private corporations created by the U.S. 

Government. Fannie Mae and Freddie Mac 

are GSEs. 

Home Affordable Modification Program 

(HAMP): A TARP program OFS established 

to help responsible but struggling 

homeowners reduce their mortgage payments 

to affordable levels and avoid foreclosure.

Legacy Securities: CMBS and non-agency 

RMBS issued prior to 2009 that were 

originally rated AAA or an equivalent rating 

by two or more nationally recognized 

statistical rating organizations without 

ratings enhancement and that are secured 

directly by actual mortgage loans, leases or 

other assets and not other securities. 

Making Home Affordable (MHA): A 

comprehensive plan to stabilize the U.S. 

housing market and help responsible, but 

struggling, homeowners reduce their monthly 

mortgage payments to more affordable levels 

and avoid foreclosure. HAMP is part of MHA. 

Mortgage-Backed Securities (MBS): A type of 

ABS representing an interest in a pool of 

similar mortgages bundled together by a 

financial institution. 
AGENCY FINANCIAL REPORT l FISCAL YEAR 2012 

APPENDIX A: TARP GLOSSARY 92

Non-Agency Residential Mortgage-Backed 

Securities: RMBS that are not guaranteed or 

issued by Freddie Mac, Fannie Mae, any other 

GSE, Ginnie Mae, or a U.S. federal 

government agency.

Preferred Stock: Equity ownership that 

usually pays a fixed dividend and gives the 

holder a claim on corporate earnings superior 

to common stock owners. Preferred stock also 

has priority in the distribution of assets in the 

case of liquidation of a bankrupt company.

Public-Private Investment Fund (PPIF): An 

investment fund established to purchase 

Legacy Securities from financial institutions 

under PPIP.

Public-Private Investment Program (PPIP): A 

TARP program designed to support the 

secondary market in mortgage-backed 

securities. The program is designed to 

increase the flow of credit throughout the 

economy by partnering with private investors 

to purchase Legacy Securities from financial 

institutions.

Qualifying Financial Institution (QFI): 

Private and public U.S.-controlled banks, 

savings associations, bank holding companies, 

certain savings and loan holding companies, 

and mutual organizations.

Residential Mortgage-Backed Securities 

(RMBS): A financial instrument representing 

an interest in a group of residential real estate 

mortgages.

SBA: U.S. Small Business Administration. 

SBA 7(a) Securities Purchase Program: A 

TARP program under which OFS purchased

securities backed by the guaranteed portions 

of the SBA 7(a) loans.

Servicer: An administrative third party that 

collects mortgage payments, handles tax and 

insurance escrows, and may even bring 

foreclosure proceedings on past due mortgages 

for institutional loan owners or originators. 

The loan servicer also generates reports for 

borrowers and mortgage owners on the 

collections. 

Targeted Investment Program (TIP): A TARP 

program created to stabilize the financial 

system by making investments in institutions 

that are critical to the functioning of the 

financial system.

Term Asset-Backed Securities Loan Facility 

(TALF): A program under which the Federal 

Reserve Bank of New York made term nonrecourse loans to buyers of AAA-rated AssetBacked Securities in order to stimulate 

consumer and business lending. 

Troubled Asset Relief Program (TARP): The 

Troubled Asset Relief Program, which was 

established under EESA to stabilize the 

financial system and prevent a systemic 

collapse. 

Trust Preferred Security (TruPS): A security 

that has both equity and debt characteristics, 

created by establishing a trust and issuing 

debt to it. TruPS are treated as capital, not 

debt, for regulatory purposes. 

Warrant: A financial instrument that 

represents the right, but not the obligation, to 

purchase a certain number of shares of 

common stock of a company at a fixed price
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY 

93 APPENDIX B: ABBREVIATIONS AND ACRONYMS

APPENDIX B: ABBREVIATIONS AND ACRONYMS

ABS Asset-Backed Securities 

AGP Asset Guarantee Program 

AIFP Automotive Industry Financing Program 

AIG American International Group, Inc. 

CBO Congressional Budget Office 

CDFI Community Development Financial Institution 

CMBS Commercial Mortgage-Backed Securities 

CP Commercial Paper 

COP Congressional Oversight Panel 

CPP Capital Purchase Program 

CDCI Community Development Capital Initiative 

DIP Debtor-In-Possession 

EESA Emergency Economic Stabilization Act of

2008 

FCRA Federal Credit Reform Act of 1990 

FHA Federal Housing Administration 

FRBNY Federal Reserve Bank of New York 

GAO Government Accountability Office 

GSE Government-Sponsored Enterprise 

HAFA Home Affordable Foreclosure Alternatives 

HHF Hardest Hit Fund 

HAMP Home Affordable Modification Program 

HPDP Home Price Decline Protection 

IPO Initial Public Offering 

LIBOR London Interbank Offered Rate 

LTV Loan-to-Value Ratio 

MBS Mortgage-Backed Security 

MHA Making Home Affordable Program 

NPV Net Present Value 

OFS Office of Financial Stability 

OMB Office of Management and Budget 

PPIF Public-Private Investment Fund 

PPIP Public-Private Investment Program 

PRA Principal Reduction Alternative 

QFI Qualifying Financial Institution 

RMBS Residential Mortgage-Backed 

Securities 

SIGTARP Special Inspector General for the 

Troubled Asset Relief Program 

SPV Special Purpose Vehicle 

TAIFF Troubled Assets Insurance 

Financing Fund 

TALF Term Asset-Backed Securities Loan 

Facility 

TARP Troubled Asset Relief Program 

TIP Targeted Investment Program

TruPS Trust Preferred Securities

USDA U. S. Department of Agriculture
Office of Financial Stability Websites:

www.FinancialStability.gov

www.MAKINGHOMEAFFORDABLE.gov

Documents Referenced in the AFR:

Monthly Reports to Congress

http://www.treasury.gov/initiatives/financial-stability/reports/Pages/Monthly-Report-to-Congress.aspx

The Financial Crisis Response in Charts – April 2012

http://www.treasury.gov/resource-center/data-chart-center/Documents/20120413_FinancialCrisisResponse.pdf.

Anniversary Reports 

http://www.treasury.gov/initiatives/financial-stability/reports/Pages/TARP-Annual-Retrospectives.aspx

Agency Financial Reports, including 2012, 2011, 2010 and 2009:

http://www.treasury.gov/initiatives/financial-stability/reports/Pages/Annual-Agency-Financial-Reports.aspx

Housing Scorecard:

http://portal.hud.gov/hudportal/HUD?src=/initiatives/Housing_Scorecard 

Warrant Disposition Report:

http://www.treasury.gov/initiatives/financial-stability/reports/Pages/Warrant-Disposition-Reports.aspx

PPIP Quarterly Reports

http://www.treasury.gov/initiatives/financial-stability/reports/Documents/External%20Report%20-%2009-12%20vFinal.pdf

Making Home Affordable Monthly Reports:

http://www.treasury.gov/initiatives/financial-stability/reports/Pages/Making-Home-Affordable-Program-Performance-Report.aspx
www.financialstability.gov