AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

TABLE OF CONTENTS i
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

TABLE OF CONTENTS iii

Table of Contents

FOREWORD....................................................................................................................................................................... iv

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

EXECUTIVE SUMMARY...............................................................................................................................................viii

PART 1: Management’s Discussion and Analysis

Background, OFS Organization Structure and Programs................................................................................ 3

OFS Operational Goals .................................................................................................................................................10

Operational Goal One: Complete the Wind-down of the Investment Programs..................................10

Capital Purchase Program..................................................................................................................................10

Targeted Investment Program.........................................................................................................................11

Asset Guarantee Program ..................................................................................................................................11

Community Development Capital Initiative ...............................................................................................11

Public Private Investment Program...............................................................................................................11

Term Asset-Backed Securities Loan Facility ..............................................................................................12

Small Business Administration 7(a) Securities Purchase Program..................................................12

Automotive Industry Financing Program....................................................................................................12

American International Group (AIG) Investment Program .................................................................13

Operational Goal Two: Continue Helping Families in Need to Avoid Foreclosure.............................14

Operational Goal Three: Minimize Cost to Taxpayer......................................................................................16

Operational Goal Four: Continue to Operate with the Highest Standards of Transparency, 

Accountability, and Integrity ....................................................................................................................................17

Fiscal Year 2014 and 2013 Financial Summary and Cumulative Net Income......................................19

Systems, Controls, and Legal Compliance............................................................................................................25

Other Management Information, Initiatives, and Issues ...............................................................................29

Limitations of the Financial Statements...............................................................................................................30

Part 2: Financial Report

MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CF0)............................................................................33

GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT .............................................................34

Appendix I: Management’s Report on Internal Control Over Financial Reporting ....................40

Appendix II: OFS Response to Auditor’s Report.......................................................................................41

FINANCIAL STATEMENTS .........................................................................................................................................42

NOTES TO THE FINANCIAL STATEMENTS.........................................................................................................47

REQUIRED SUPPLEMENTARY INFORMATION.................................................................................................77

Part 3: Other Information (Unaudited)

Section A – Schedule of Spending ...........................................................................................................................81

Section B – IPIA (as amended by IPERA).............................................................................................................82

Part 4: Appendices

Appendix A: TARP Glossary ......................................................................................................................................84

Appendix B: Abbreviations and Acronyms .........................................................................................................86

WEBSITES.........................................................................................................................................................................87

For the online version of this Report see www.FinancialStability.gov

and search on Reports by Frequency, Yearly 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

iv FOREWORD

FOREWORD

The Office of Management and Budget (OMB) Circular A-136 provides agencies with the guidance 

for reporting financial and performance information to Congress, the President, and the American 

people on an annual basis. In lieu of the consolidated Performance and Accountability Report (PAR), 

the U.S. Department of Treasury’s (Treasury) Office of Financial Stability (OFS) has chosen to 

prepare a series of separate reports to provide the fiscal year 2014 financial and performance 

information for the Troubled Asset Relief Program (TARP). The following Agency Financial Report 

(AFR) is the first in this series of reports, and includes the following components:

 Message from the Deputy Assistant Secretary: A statement from the Deputy Assistant 

Secretary providing his assessment of the reliability and completeness of the financial and 

performance data contained in the report, as well as a summary status of TARP programs.

 Management’s Discussion and Analysis: This section contains summary information about 

the history of TARP and the mission and organizational structure of OFS; background and 

analysis of OFS programs and Operational Goals; and analysis of financial statements, 

systems, controls, and legal compliance, including the Deputy Assistant Secretary’s 

Statement of Assurance.

 Financial Report: This section provides a message from the Chief Financial Officer; the 

Report of the Independent Auditors; the financial statements; the notes to the financial 

statements; and other statutory reporting.

 Other Information: This section includes the Schedule of Spending and information 

regarding the Improper Payments Information Act (IPIA).

In addition to this AFR, the performance section of the OFS fiscal year 2016 Congressional Budget 

Justification and the Citizens’ Report satisfy the reporting requirements of the following major 

legislation:

 Reports Consolidation Act of 2000;

 Government Performance and Results Act of 1993 (GPRA) and GPRA Modernization Act of 

2010;

 Government Management Reform Act of 1994 (GMRA);

 Federal Managers’ Financial Integrity Act of 1982 (FMFIA);

 Federal Financial Management Improvement Act of 1996 (FFMIA);

 Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments 

Elimination and Recovery Act of 2010 (IPERA).

These reports will be available on the OFS website at: http://www.treasury.gov/initiatives/financialstability/reports/Pages/default.aspx
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MESSAGE FROM THE DEPUTY ASSISTANT SECRETARY v

MESSAGE FROM THE DEPUTY ASSISTANT SECRETARY FOR 

FINANCIAL STABILITY

November 5, 2014

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

Financial Report for the Fiscal Year 2014. This report describes our 

financial and performance results for the sixth year of the Troubled Asset 

Relief Program (TARP). Within this report you will find the comparative 

fiscal years 2014 and 2013 financial statements for TARP, and the 

Government Accountability Office’s (GAO) auditor’s report with the audit 

opinion on these financial statements, an opinion from GAO on OFS’s 

internal control over financial reporting for TARP, and the results of the 

GAO’s tests of OFS’s compliance with selected provisions of laws, 

regulations, contracts, and grant agreements applicable to OFS. 

The Emergency Economic Stabilization Act (EESA) of 2008 established OFS within the Office of 

Domestic Finance at the Department of the Treasury (Treasury) to implement TARP. With the 

nation in the midst of the worst financial crisis since the Great Depression, TARP was created to 

“restore the liquidity and stability of the financial system.” It was an extraordinary response to an 

extraordinary crisis. 

Today, it is generally agreed that as a result of the forceful and coordinated response by the federal 

government through TARP and many other emergency programs, we helped avert what could have 

been a devastating collapse of our financial system. Although we are still repairing the damage from 

the crisis and many families still face challenges on a daily basis, the financial system is much more 

stable and our economy is growing, albeit not as fast as we would like. Credit is more available than 

would otherwise be the case for families, businesses, and local governments, banks are better 

capitalized, and we are implementing reforms to address the underlying causes of the crisis. 

OFS has made significant progress towards winding down TARP investments. As of September 30, 

2014, OFS had collected 103 percent of the $412.1 billion in program funds that were disbursed 

under TARP investment programs, as well as an additional $17.5 billion from Treasury’s equity

stake in AIG. Here is where we stand concerning the four categories of TARP investment programs: 

• Banking Programs. OFS has collected more than $275.0 billion (including $1.7 billion 

collected in fiscal year 2014) for all TARP bank support programs through repayments, sales, 

dividends, interest, and other income compared to $245.5 billion invested. As of September 

30, 2014, $1.1 billion in banking program investments remained outstanding, primarily in 

community banks, and OFS is continuing to wind-down these investments through 

repurchases by banks and asset sales. 

• Credit Market Programs. OFS has substantially completed the wind-down of all of the 

TARP credit market programs, including investments made under the Public-Private 

Investment Program (PPIP), Term Asset-Backed Securities Loan Facility (TALF) program, 

and SBA 7(a) Securities Purchase Program. As of the end of fiscal year 2014, OFS collected 

$23.6 billion as compared to $19.1 billion of disbursements under these programs.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

vi MESSAGE FROM THE DEPUTY ASSISTANT SECRETARY

 Auto Industry Financing Program. As of September, 30 2014, OFS collected $68.9 billion 

through sales, repayments, dividends, interest, and other income, compared to the $79.7

billion in funds that were disbursed under the Automotive Industry Financing Program 

(AIFP). Chrysler exited the program in July 2011 and the wind-down of the General Motors 

(GM) stake was completed in December 2013. In November 2013, OFS received a repayment 

of $5.9 billion from Ally Financial Inc. (Ally) under an agreement announced in August 2013.

In January 2014, OFS collected $3.0 billion from a sale of Ally stock to private investors. The 

company executed a successful initial public offering in April 2014, which brought in $2.4

billion in proceeds on behalf of taxpayers, plus $181 million associated with the overallotment option that was exercised in May 2014. OFS has since begun selling its remaining 

stake through a series of pre-defined written trading plans. As of September 30, 2014, OFS 

collected approximately $18.1 billion on the Ally investment, roughly $923 million more than 

the original $17.2 billion investment.

• American International Group. In fiscal year 2013, OFS exited all remaining holdings in 

American International Group, Inc. (AIG). During the financial crisis, the peak amount of 

assistance provided by OFS and the Federal Reserve to prevent the collapse of AIG totaled 

$182.3 billion, a part of which was later canceled. As a result of the combined efforts of AIG, 

Treasury, and the Federal Reserve, $22.7 billion in excess of the total of funds disbursed to 

AIG has been recovered through sales and other income. Of the $67.8 billion total disbursed 

to AIG by OFS, TARP’s cumulative net collections from repayments, sales, dividends, 

interest, and other income related to AIG assets totaled $55.3 billion. Treasury’s non-TARP 

AIG shares generated proceeds in excess of cost of $17.5 billion, resulting in net proceeds in 

excess of cost of $5.0 billion for Treasury as a whole.

While OFS carefully winds down the investment programs under TARP, we are continuing to 

implement the TARP Housing Programs to help millions of struggling homeowners avoid foreclosure, 

primarily through mortgage modifications and other forms of assistance. These programs (which 

includes government sponsored enterprise (GSE) and non-GSE programs) have also set new 

mortgage modification and consumer protection standards which have helped to transform the 

mortgage servicing industry and thereby helped millions more families. On June 26, 2014, the 

Obama Administration announced the extension of the application deadline for the Making Home 

Affordable Program through at least December 2016 in order to provide struggling homeowners 

additional time to access sustainable mortgage relief.

The financial and performance data contained in this report are reliable and complete. For the sixth 

consecutive year, OFS has earned unmodified opinions on its financial statements for TARP and its 

internal control over financial reporting for TARP from the GAO. In 2014, OFS was also awarded its 

fifth consecutive Certificate of Excellence in Accountability Reporting by the Association of 

Government Accountants.

Sincerely, 

Timothy J. Bowler

Deputy Assistant Secretary for Financial Stability
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

FOREWORD vii
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

viii EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Six years ago, the U.S. financial system faced 

challenges on a scale not seen since the Great 

Depression. The banks and financial markets,

that American families and businesses rely on to 

meet their everyday financing needs, were on 

the brink of failure. By October 2008, major 

financial institutions of all sizes were threatened 

and many of them tried to shore up their balance 

sheets by shedding risky assets and hoarding 

cash. People were rapidly losing trust and 

confidence in the stability of America’s financial 

system and the capacity of the government to 

contain the damage. Without immediate and 

forceful action by Congress and the federal 

government, the U.S. economy faced the risk of 

falling into a second Great Depression.

It was out of these extraordinary circumstances 

that TARP and OFS were created. They were a 

central part of the emergency measures taken by 

the federal government pursuant to the 

Emergency Economic Stabilization Act of 2008 

(EESA). Collectively, TARP and the federal 

government’s other emergency programs helped 

to prevent the collapse of our financial system. 

As a result of the careful design, 

implementation, and coordination of these 

programs, the federal government was able to 

limit the broader financial and economic damage 

caused by the crisis. Although we are still 

recovering, these measures were critical to 

restarting economic growth, and in restoring 

access to capital and credit. 

Since late 2010 when OFS’s authority to make 

new commitments under TARP expired, OFS 

has focused on carefully winding down TARP’s 

investment programs, recovering the OFS’s 

outstanding investments, and continuing to 

implement the various housing programs under 

TARP to help struggling homeowners avoid 

foreclosure. While the total disbursed for TARP 

programs was $425.9 billion, OFS has collected 

$422.9 billion (or $440.4 billion if including the 

$17.5 billion in proceeds from the additional 

Treasury AIG shares discussed on page 13) 

through repayments, sales, dividends, interest, 

and other income. As of September 30, 2014, 

only $2.9 billion in investments remain 

outstanding. 

The MD&A highlights the establishment of OFS, 

its background, mission, organizational 

structure, and programs. OFS administers 

programs that fall into two major categories: 

Investments and Housing. In total, OFS had

responsibility for 12 individual programs. Most 

of these programs have either been closed or are 

in the process of winding down. 

Each year, OFS reports on our Operational 

Goals, which were developed by management to 

achieve our strategic goal to promote domestic 

economic growth and stability while continuing 

reforms of the financial system. The first 

operational goal for OFS is to complete the winddown of the TARP investment programs. OFS is 

continuing to implement the three-pronged exit 

strategy announced in May 2012 for the Capital 

Purchase Program (CPP). That strategy 

includes waiting for those banks that are able to 

repay in full in the near future to do so, 

restructuring OFS’s investments in limited 

cases, and selling investments through auctions 

in cases where the bank is not expected to repay 

in the near future. As of September 30, 2013, 

both the Targeted Investment Program (TIP) 

and the Asset Guarantee Program (AGP) were 

closed and had generated positive returns on 

behalf of taxpayers. 

As of September 30, 2014, OFS has substantially 

completed the wind-down of the three TARP 

credit market programs which resulted in a 

positive return on behalf of taxpayers. OFS has 

recovered all debt and equity investments made 

in the Public-Private Investment Program 

(PPIP). OFS’s $100 million loan made through 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

EXECUTIVE SUMMARY ix

the Term Asset-Backed Securities Loan Facility 

(TALF) was fully repaid or extinguished during 

fiscal year 2013. The Small Business 

Administration 7(a) Securities Purchase 

Program (SBA 7(a)) was successfully closed 

during fiscal year 2012.

OFS continued to wind down the Automotive 

Industry Financing Program (AIFP) during 

fiscal year 2014. OFS sold the remaining 101 

million shares of GM common stock in 

accordance with the plan announced in 

December 2012, completing the wind-down of

OFS’s investment in GM. In November 2013, 

per an August 2013 agreement, OFS collected a 

total of $5.9 billion from Ally to repurchase all of 

its Mandatory Convertible Preferred (MCP)

stock from OFS and to eliminate certain rights 

under the original agreement. OFS collected 

$3.0 billion from a sale of Ally stock to private 

investors in January 2014, almost $2.4 billion 

from Ally’s initial public offering (IPO) in April 

2014, and $181 million associated with the overallotment option that was exercised in May 

2014. OFS is actively seeking to wind down the 

remaining Ally investment and on August 14, 

2014, commenced the disposition of a portion of 

the remaining 75 million common shares of Ally 

common stock through a series of pre-arranged 

written trading plans. 

OFS exited its remaining holdings in the 

American International Group, Inc. (AIG) 

Investment Program in December 2012 and sold 

the remaining warrants in March 2013. As of 

September 30, 2013, OFS did not hold any 

residual interest in AIG.

OFS’s second operational goal is to continue 

helping struggling homeowners avoid 

foreclosure. The Making Home Affordable 

Program (MHA) is helping homeowners and 

assisting in stabilizing the housing market. On 

June 26, 2014, the Administration extended the 

application deadline for MHA programs for at 

least one additional year through 2016, in order 

to provide struggling homeowners additional 

time to access sustainable mortgage relief. The 

largest program within MHA is the Home 

Affordable Modification Program (HAMP). 

Under this program more than 1.4 million 

homeowners have had their mortgages modified 

permanently. HAMP has also set new standards 

and changed practices throughout the mortgage 

servicing industry in fundamental ways. 

In addition, the Hardest Hit Fund (HHF) 

provides funding to 18 states and the District of 

Columbia to provide assistance to struggling 

homeowners through locally-tailored programs. 

All 19 HHF programs are fully operational and 

have created extensive infrastructures including 

selecting and training networks of housing 

counselors to assist with applications, creating 

portals to aid homeowners in applying for 

assistance, and hiring underwriters and other 

staff to review and approve applications. Six

states and the District of Columbia have closed

their HHF application portals in anticipation of 

full commitment of program funds.

The third operational goal of OFS is to minimize 

the cost of the TARP programs to the taxpayer. 

OFS manages TARP investments to minimize 

costs to taxpayers by carefully managing the 

timely exit of these investments to reduce 

taxpayers’ exposure, returning TARP funds to 

reduce the federal debt, and continuing to 

replace government assistance with private 

capital in the financial system. 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’s final operational goal is to continue to 

operate with the highest standards of 

transparency, accountability, and integrity. 

OFS posts a variety of reports online that 

provide taxpayers with regular and 

comprehensive information about how TARP 

funds are being spent, who has received them 

and on what terms, and how much has been 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

x EXECUTIVE SUMMARY

collected to date. In addition to discussing 

program performance, the MD&A also addresses 

OFS’s financial performance in the Fiscal Year 

2014 and 2013 Financial Summary and 

Cumulative Net Income section. OFS provides 

an overview of its financial data and explains its 

fiscal year 2014 net income from operations and 

related loans, equity investments and other 

credit programs. 

Finally, the Systems, Controls, and Legal 

Compliance section of the MD&A provides a 

discussion of the actions OFS has taken to 

address its management control responsibilities. 

This section includes OFS’s assurance related to 

the Federal Manager’s Financial Integrity Act, 

the determination of its compliance with both 

the Federal Financial Management 

Improvement Act and the Improper Payment 

Elimination and Recovery Act.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 1
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

2 MANAGEMENT’S DISCUSSION AND ANALYSIS
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 3

PART 1: Management’s Discussion and Analysis

Background, OFS Organization Structure and Programs

Background

In response to the worst financial crisis since the 

Great Depression, the Troubled Asset Relief 

Program (TARP) was created pursuant to the 

Emergency Economic Stabilization Act (EESA) 

on October 3, 2008. To carry out the authorities 

given to the Secretary of the Treasury to 

implement TARP, the U.S. Department of the 

Treasury (Treasury) established the Office of 

Financial Stability (OFS) within the Office of 

Domestic Finance. EESA authorized the 

Secretary of the Treasury to 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” to restore the 

liquidity and stability of the financial system. 

The terms “troubled assets” and “financial 

institution” are defined within EESA, which can 

be found at: 

http://www.gpo.gov/fdsys/pkg/BILLS110hr1424enr/pdf/BILLS-110hr1424enr.pdf

In addition, 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 billion to a 

cumulative $475 billion. OFS’s authority to 

make new commitments under TARP expired on 

October 3, 2010. OFS is carefully managing the 

disposition of TARP financial assets to recover 

OFS’s outstanding investments while continuing 

to implement initiatives to help struggling 

homeowners avoid foreclosure.

OFS Organization Structure

OFS is currently headed by the Deputy 

Assistant Secretary for Financial Stability. 

Reporting to the Deputy Assistant Secretary are 

five major organizations the: Office of the Chief 

Investment Officer, Office of Finance and 

Operations, Office of the Chief Home Ownership 

Preservation Officer, Office of Financial Agents, 

and Office of the Chief Compliance Officer. A 

Chief Counsel’s Office also reports to the Deputy 

Assistant Secretary and to the Office of the 

General Counsel in the Department of the

Treasury.

The OFS organization chart follows:

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 and liquidation of TARP 

programs. These firms assist in the areas of 

custodial services, accounting and internal 

controls, administrative support, legal advisory, 

financial advisory, and information technology.

Deputy Assistant Secretary for 

Financial Stability

Office of the 

Chief 

Investment 

Officer

Office of 

Financial 

Agents

Office of the 

Chief Home 

Ownership 

Preservation

Officer

Office of 

Finance and 

Operations

Chief 

Counsel

Office of the 

Chief 

Compliance 

Officer
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

4 MANAGEMENT’S DISCUSSION AND ANALYSIS

OFS Programs

Bank Support Programs (CPP, TIP, AGP, 

CDCI, CAP, SCAP)

By late September 2008, several major financial 

institutions had already failed. Many others 

were at risk of failure and people were rapidly

losing confidence in the nation’s financial system 

as a whole. Therefore beginning in early 

October 2008, OFS launched five bank support 

programs to help stabilize the nation’s banking 

institutions. 

Capital Purchase Program

The Capital Purchase Program (CPP) was 

launched in October 2008 to help stabilize the 

financial system by providing capital to viable 

financial institutions of all sizes throughout the 

nation. Without a viable banking system, 

lending to businesses and consumers could have 

frozen and the financial crisis might have 

spiraled further out of control. Based on market 

indicators at the time, it was clear that financial 

institutions needed additional capital to absorb 

losses and restart the flow of credit.

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 non–performing

assets. OFS received preferred stock or 

subordinated debt securities in exchange for the 

CPP investments. Most financial institutions 

participating in the CPP initially paid OFS a 

five percent dividend on preferred shares for the 

first five years and a nine percent rate 

thereafter. In addition, OFS received warrants 

to purchase common shares or other securities 

from the banks at the time of the CPP 

investment. The purpose of the additional 

securities was to enable OFS to receive

additional returns on its investments as banks 

recovered.

OFS has focused on winding down the CPP 

according to the exit strategy 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’s positions in banks that are unlikely to 

repay in the near-term through auctions, and

restructuring some investments, typically in 

connection with a merger or other plan of the 

bank to infuse capital.

Targeted Investment Program

OFS established the Targeted Investment 

Program (TIP) in December 2008. The program 

gave OFS the necessary flexibility to provide 

funding to financial institutions that were 

critical to the functioning of the U.S. financial 

system. 

OFS invested a total of $40.0 billion in two 

institutions – Bank of America (BofA) and 

Citigroup – under the TIP. Similar to the CPP,

OFS invested in preferred stock and received 

warrants to purchase common stock in each 

institution. 

The TIP investments provided for annual 

dividends of eight percent. The program also 

imposed greater reporting requirements and 

more onerous terms on the companies than 

under the CPP terms, including restricting 

common stock dividends to $0.01 per share per 

quarter, restrictions on executive compensation, 

restrictions on corporate expenses, and other 

measures.

Asset Guarantee Program

Under the Asset Guarantee Program (AGP), 

TARP commitments were used to support two 

institutions – BofA and Citigroup. They were 

selected because of the large number of illiquid 

assets that both of them held at the time of the 

financial crisis and the severe impact that their 

failure would have had on the broader economy. 

In January 2009, OFS, the Federal Reserve, and 

the Federal Deposit Insurance Corporation
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 5

(FDIC) agreed in principle to share potential 

losses on a $118 billion pool of financial 

instruments owned by BofA. However, in May 

2009, before the transaction was finalized, BofA 

decided to terminate negotiations, and in 

September 2009, the government and BofA 

entered into an agreement under which the 

bank agreed to pay a termination fee of $425 

million to the government, $276 million of which 

went to OFS. In January 2009, OFS, the 

Federal Reserve, and the FDIC similarly agreed 

to share potential losses on a $301 billion pool of 

Citigroup's covered assets. The arrangement 

was finalized and, as a premium for the 

guarantee, OFS and the FDIC received $7.0

billion of Citigroup preferred stock of which $4.0

billion was OFS’s portion (which was reduced by 

$1.8 billion upon termination of the 

agreement). OFS also received warrants to 

purchase 66.5 million shares of common stock.

Community Development Capital Initiative

OFS created the Community Development 

Capital Initiative (CDCI) on February 3, 2010, to 

help viable certified Community Development 

Financial Institutions (CDFIs) and the 

communities they serve cope with effects of the 

financial crisis. It was put in place to help keep 

day-to-day financing available to families and 

businesses in hard-hit communities that are 

underserved by traditional banks. 

Since many CDFIs don’t have the same access to 

capital markets as larger banks, the CDCI was 

designed with more generous terms than the 

CPP. Under this program, CDFI banks, thrifts,

and credit unions received investments 

aggregating $570 million in capital with an 

initial dividend or interest rate of two percent, 

compared to the five percent rate offered under 

the CPP. To encourage repayment while 

recognizing the unique circumstances facing 

CDFIs, the dividend rate increases to nine 

percent after eight years, compared to after five 

years under the CPP. CDFIs that participated 

in the CPP and were in good standing were 

allowed to exchange their CPP securities for 

securities under the more favorable terms of this 

program. 

Capital Assistance Program (CAP) and the 

Supervisory Capital Assessment Program 

(SCAP)

In 2009, Treasury worked with federal banking 

regulators to develop a comprehensive "stress 

test" known as the Supervisory Capital 

Assessment Program (SCAP). The purpose of 

the SCAP was to determine the health of the 

nation’s 19 largest bank holding companies with 

unprecedented transparency and help restore 

confidence in the banking system. In 

conjunction with the SCAP, Treasury announced 

that it would provide capital under TARP 

through the Capital Assistance Program (CAP) 

to those institutions that needed additional 

capital but were unable to raise it through 

private sources. The CAP closed on November 9, 

2009, without making any investments.

For additional information on the bank support 

programs please visit the OFS website at: 

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/bank-investmentprograms/Pages/default.aspx

Credit Market Programs (PPIP, TALF, SBA 

7(a))

As the financial crisis reached its peak, banks 

were not making new loans to businesses, or 

even to one another. As a result, many

businesses could not get loans for 

new investments, municipalities and state 

governments could not issue bonds at reasonable 

rates, and families could not get credit. The 

securitization markets—which provide financing 

for credit cards, student loans, auto loans, and 

other consumer loans as well as small business 

loans—had basically stopped functioning. OFS

launched three programs in 2009 to help 

unfreeze these markets and bring down the cost 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

6 MANAGEMENT’S DISCUSSION AND ANALYSIS

of borrowing for families and businesses: the 

Public-Private Investment Program (PPIP), the 

Term Asset‐Backed Securities Loan Facility 

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

Program. Although the specific goals and 

implementation methods of each program 

differed, the overall goal of these three programs 

was the same—to restart the flow of credit to 

meet the critical needs of small businesses and 

consumers. 

Public-Private Investment Program

On March 23, 2009, OFS launched the Legacy 

Securities Public-Private Investment Program 

(PPIP) to help restart the market for non-agency 

residential mortgage-backed securities (RMBS) 

and commercial mortgage-backed securities 

(CMBS). 

The purpose of PPIP was to draw new private 

capital into the market for legacy RMBS and 

CMBS by providing financing on attractive 

terms as well as a matching equity investment 

from OFS. Using up to $22.1 billion of TARP 

funds alongside equity capital raised from 

private investors, PPIP was designed to 

generate significant purchasing power and 

demand for troubled RMBS and CMBS. 

Term Asset-Backed Securities Loan Facility

The Term Asset-Backed Securities Loan Facility 

(TALF) was a joint OFS-Federal Reserve 

program that was designed to restart the assetbacked securities (ABS) and commercial 

mortgage-backed securities (CMBS) markets 

that had ground to a virtual standstill during 

the early months of the financial crisis.

Under the TALF, the Federal Reserve Bank of 

New York (FRBNY) provided non-recourse 

funding to any qualified borrower that owned 

eligible collateral. On fixed days each month, 

borrowers were allowed to request three-year, or 

in certain cases, five-year TALF loans. If the 

borrower did not repay the loan, the FRBNY 

would enforce its rights to the collateral and sell 

it to TALF, LLC-a special purpose vehicle (SPV) 

established specifically to purchase and manage 

these assets. OFS initially committed $20.0

billion in subordinated loans to the SPV but did 

not directly lend to TALF borrowers.

Small Business Administration 7(a) 

Securities Purchase Program

OFS launched the Small Business 

Administration (SBA) 7(a) Securities Purchase 

Program to help facilitate the recovery of the 

secondary market for small business loans, and 

thus help free up credit for small businesses. 

Under this program, OFS purchased securities 

comprised of the guaranteed portion of SBA 7(a) 

loans, which finance a wide range of small 

business needs. OFS invested approximately 

$367 million in 31 SBA 7(a) securities between 

March and September 2010. These securities 

were comprised of 1,001 loans from 17 different 

industries, including retail, food services, 

manufacturing, scientific and technical services, 

healthcare, and educational services. 

For additional information on the credit market 

programs, please visit the OFS website at: 

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/credit-marketprograms/Pages/default.aspx

Automotive Industry Financing Program

(AIFP)

The Automotive Industry Financing Program 

(AIFP) was launched in December 2008 to help 

prevent the disorderly liquidations of General 

Motors (GM) and Chrysler, and thus significant 

disruption of the U.S. auto industry. The 

potential for such a disruption at that time 

threatened the overall economy as it could have 

led to a loss of as many as one million American 

jobs. Recognizing that both GM and Chrysler 

were on the verge of collapse, OFS extended 

loans to both companies and their financing 

entities.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 7

In 2009, 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 record time. In

total OFS disbursed $79.7 billion in loans and 

equity investments to GM, Chrysler, and 

General Motors Acceptance Corporation (now 

known as Ally Financial). As a result, General 

Motors Company (New GM), Chrysler Group 

LLC (New Chrysler), and Ally are more 

competitive and viable companies, supporting 

American jobs and the economy. Operating 

results have improved, the industry added jobs, 

and TARP investments have largely been repaid. 

For additional information on the AIFP, please 

visit the OFS website at: 

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/automotiveprograms/Pages/default.aspx

American International Group, Inc. (AIG) 

Investment Program

On September 15, 2008, Lehman Brothers filed 

for bankruptcy. This triggered the start of a run 

on money market funds generally. The day after 

that, AIG – one of the largest and most complex 

financial firms in the world – was on the verge of 

failure. Confidence was already fragile in the 

financial system as a whole and firms were 

trying to shore up their balance sheets by selling 

risky assets, reducing exposure to other 

financial institutions, and hoarding cash. At the 

time, AIG was one of the most complex financial 

firms in the world. When the financial crisis hit, 

AIG had hundreds of billions of dollars in 

commitments without the capital and liquidity

to back them up. Millions of people depended on 

AIG for their life savings and it had a huge 

presence in many critical financial markets, 

including municipal bonds. Therefore, with AIG 

facing potentially fatal liquidity problems and 

with the crisis threatening to intensify and 

spread more broadly throughout the economy, 

OFS and the Federal Reserve provided 

assistance to AIG.

During this time, 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. After EESA 

became law, OFS and the FRBNY continued to 

work together to address the challenges posed by 

AIG. In 2008 and 2009, OFS funds were used to 

provide further support to AIG. In fiscal year 

2011, OFS, the FRBNY, the trustees of the AIG 

Credit Facility Trust (the Trust)1 and AIG 

completed a restructuring of the assistance 

provided by OFS and the FRBNY. A series of 

integrated transactions and corporate actions 

were executed to accelerate the repayment of 

taxpayer funds and to promote AIG’s transition 

from a majority government owned and 

supported entity to a financially sound and 

independent entity. 

For additional information on the AIG 

Investment Program, please visit the Office of 

Financial Stability website at: 

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/aig/Pages/default.aspx

Housing Programs

OFS established several housing programs 

under TARP to address the historic housing 

crisis and help struggling homeowners avoid 

foreclosure wherever possible. These programs 

have helped homeowners avoid foreclosure and 

introduced important new reforms for the 

mortgage servicing industry to help make 

mortgage modifications become more 

sustainable and affordable. 

 

1

The independent trust established to manage the 

Department of the Treasury’s beneficial interest in 

Series C preferred AIG shares.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

8 MANAGEMENT’S DISCUSSION AND ANALYSIS

Making Home Affordable (MHA)

In early 2009, OFS launched the Making Home 

Affordable® Program (MHA) to help struggling 

homeowners avoid foreclosure and stabilize the 

housing market. MHA is only one part of the 

Administration’s broader efforts to strengthen 

the housing market. OFS has committed $29.8

billion under the MHA program.

MHA is aimed at helping homeowners who are 

experiencing financial hardships remain in their 

homes until their financial position improves or 

they relocate to a more sustainable living 

situation. At the same time, MHA protects the 

interests of taxpayers by disbursing funds only 

when transactions are completed and only as 

long as those contracts remain in place. 

Therefore, funds will be disbursed over many 

years. 

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 and sustainable levels, so they can 

avoid the pain and substantial cost of 

foreclosure. In addition to HAMP, OFS

introduced programs under MHA to help 

homeowners who are unemployed, “underwater” 

on their loan (i.e. those who owe more on their 

home than it is currently worth), or are 

struggling with a second lien. MHA 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. 

In early 2012, the Administration announced a 

one-year extension and important enhancements 

to MHA that expanded the pool of eligible 

borrowers. Extending the reach of HAMP 

facilities assists a broader pool of struggling 

homeowners, offering support for tenants at risk 

of displacement due to foreclosure, and 

providing more robust relief to those who 

participate. On May 30, 2013, the 

Administration extended the application 

deadline for MHA programs to December 31, 

2015, and then on June 26, 2014, the 

Administration announced that the application 

deadline would be extended at least a year to 

December 31, 2016. Extending the program will 

benefit additional families while maintaining 

clear standards and accountability for the 

servicing industry.

MHA has set new standards for mortgage 

assistance and consumer protection, which have 

contributed to millions of homeowners receiving 

assistance to avoid foreclosure through other 

government programs and proprietary mortgage

modifications.

In addition to HAMP, MHA includes additional 

programs to help homeowners address specific 

types of mortgages, in conjunction with the 

Federal Housing Administration (FHA), and the 

United States Department of Agriculture 

(USDA).

Housing Finance Agency (HFA) Innovation 

Fund for the Hardest Hit Housing Markets 

(Hardest Hit Fund)

The Administration established the Hardest Hit 

Fund in February 2010 to provide targeted aid 

to homeowners in states hit hardest by the 

economic and housing market downturn. As 

part of the Administration’s overall strategy for 

restoring stability to housing markets, the 

Hardest Hit Fund provides funding for state 

Housing Finance Agencies (HFAs) to develop 

locally-tailored foreclosure prevention solutions 

in areas that have been hardest hit by home 

price declines and high unemployment. From its 

initial announcement, this program evolved from 

a $1.5 billion initiative focused on HFAs in the 

five states with the steepest home price declines 

to a broader-based $7.6 billion initiative 

encompassing 18 states and the District of 

Columbia (DC).
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 9

Hardest Hit Fund programs vary state to state, 

but may include such programs as mortgage 

payment assistance for unemployed or 

underemployed homeowners, principal reduction 

to help homeowners get into more affordable 

mortgages, funding to eliminate homeowners’ 

second lien loans, funding for blight elimination 

activities, and help for homeowners who are 

transitioning out of their homes and into more 

affordable living situations.

For additional information on the housing 

programs, please visit the OFS website at: 

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

10 MANAGEMENT’S DISCUSSION AND ANALYSIS

OFS Operational Goals

OFS’s Operational Goals were developed by 

management to achieve our strategic objective to 

wind down emergency financial crisis response 

programs under our strategic goal to promote 

domestic economic growth and stability while 

continuing reforms of the financial system. The 

following discussion of OFS operational goals 

focuses largely on the significant events that 

occurred during fiscal years 2014 and 2013. 

Operational Goal One: Complete the 

Wind-down of the Investment 

Programs

Banking Support Programs

OFS disbursed a total of $245.5 billion under the 

various TARP bank programs. As of September

30, 2014, OFS has collected more than $275.0

billion through repayments, dividends, interest, 

warrant sales, and other income, representing 

$29.5 billion in excess of disbursements. OFS is 

focused on recovering TARP funds in a manner 

that continues to promote the nation’s financial 

stability while maximizing returns on behalf of

the taxpayers. 

Capital Purchase Program

In fiscal year 2014, OFS continued to make

substantial progress winding down the CPP 

according to the three-pronged exit strategy 

announced in May 2012. Each dollar collected 

from CPP participants now represents an 

additional positive return on behalf of taxpayers. 

From inception of the program through 

September 30, 2014, OFS has received $199.4

billion in CPP repayments/sales, along with 

$12.1 billion in dividends and interest, and $14.9

billion of proceeds in excess of cost totaling 

$226.4 billion. As of September 30, 2014, $625

million in CPP gross investments remained 

outstanding.

Under this program, OFS provided capital to 

707 financial institutions in 48 states, Puerto 

Rico, and DC, including more than 450 small 

and community banks and 22 CDFIs. The 

largest investment was $25.0 billion and the 

smallest was $301,000. 

OFS received preferred stock or debt in each 

bank in which it made an investment, as well as 

warrants. 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. 

Throughout fiscal year 2014, OFS continued to 

implement the CPP exit strategy by periodically 

selling preferred stock and subordinated debt in 

CPP participants through private auctions. OFS

held six auctions with combined proceeds of 

$289 million during fiscal year 2014 compared to 

14 auctions with $1.5 billion in proceeds in fiscal 

year 2013. During fiscal year 2014 and 2013, 62

and 173 investments were repaid or sold for a 

total of $1.5 billion and $4.8 billion, respectively.

Another component of OFS’s exit strategy for the 

CPP is to restructure certain investments in 

limited cases. This is typically done in 

connection with a merger or the bank’s plan to 

raise new capital and is generally proposed by 

the bank. 

Under the CPP, OFS has also received warrants 

to purchase common shares or other securities 

from the banks. OFS has followed a policy of 

disposing of warrants as soon as practicable if no 

agreement is reached on a repurchase. As of 

September 30, 2014, OFS has collected $8.0

billion in net proceeds from the sale of warrants

since inception. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 11

Additional information on the CPP, including 

details on the program’s purpose, overview, and 

status can be found at the following website:

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/bank-investmentprograms/cap/Pages/default.aspx

Targeted Investment Program

OFS completed the wind-down of the TIP in 

December 2009 when both BofA and Citigroup 

repaid their TIP investments in full. This 

resulted in net proceeds of $4.4 billion in excess 

of disbursements. Additional information on 

TIP, including details on the program’s purpose, 

overview, and status can be found at the 

following website:

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/bank-investmentprograms/tip/Pages/default.aspx

Asset Guarantee Program

OFS completed the wind-down of the AGP in 

February 2013, and received more than $4.1

billion in proceeds from the AGP without 

disbursing any claim payments. Additional 

information on the AGP, including details on the 

program’s purpose, overview, and status can be 

found at the following website:

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/bank-investmentprograms/agp/Pages/default.aspx

Community Development Capital Initiative

Unlike the CPP, OFS did not take substantial 

actions during fiscal year 2014 to wind-down the 

CDCI because of the unique circumstances 

facing participating institutions. In particular, 

many CDCI participants lack the same access to 

capital markets that CPP institutions have, 

making it more challenging for them to repay 

the TARP investments in their institutions. 

OFS completed funding through this program in 

September 2010 with a total investment amount 

of $570 million for 84 institutions. Of this 

amount, $363 million (nearly $356 million from 

principal and nearly $8 million from warrants) 

represented exchanges by 28 CPP institutions 

converting into the CDCI. During fiscal years

2014 and 2013, OFS collected a total of $20

million and $97 million, respectively, in

repayments, dividends and interest from

institutions in the CDCI program. As of 

September 30, 2014, $465 million in CDCI 

investments remained outstanding.

OFS will continue to closely monitor the 

performance of the CDCI and make decisions 

regarding the program’s wind-down at a later 

date. Additional information on CDCI, including 

details on the program’s purpose, overview, and 

status can be found at the following website:

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/bank-investmentprograms/cdci/Pages/default.aspx

Credit Market Programs

OFS has now substantially completed the winddown of all three credit market programs that 

were launched under TARP. A total of $19.1

billion was disbursed through these programs

and a total of $23.6 billion has been collected 

through September 30, 2014. 

Public Private Investment Program

OFS substantially completed the wind-down of 

the PPIP during fiscal year 2013, with no debt or 

equity investments outstanding after the final 

outstanding equity repayment was made in June 

2013. During fiscal year 2014, OFS received 

termination notices from five Public Private 

Investment Funds (PPIFs), leaving only 1 of the 

original 9 PPIFs in the process of winding down 

as of September 30, 2014. From inception of the 

program through September 30, 2014, OFS has 

received $2.4 billion in interest and investment 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

12 MANAGEMENT’S DISCUSSION AND ANALYSIS

income and $1.5 billion in net proceeds in excess 

of cost. The total of $22.5 billion of repayments, 

sales, and investment income exceeds the 

original investment by $3.9 billion, with all 

future PPIP payments providing additional 

profit to OFS.

Additional information on PPIP, including 

details on fund performance can be found at the 

following website:

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

Term Asset-Backed Securities Loan Facility

OFS originally committed to provide credit 

protection of up to $20.0 billion in the form of a 

subordinated loan commitment to TALF, LLC to 

support up to $200.0 billion of lending by the 

FRBNY. After subsequent reductions in OFS’s 

commitments in 2013, the commitment was 

$100 million – the initial loan amount disbursed 

by OFS to fund the TALF, LLC.

During fiscal year 2013, OFS’s original $100 

million loan disbursed was fully repaid with 

interest. As of September 30, 2014, the balance 

of outstanding TALF loans provided by FRBNY 

had declined to $14 million from $101 million on 

September 30, 2013, due to scheduled and 

voluntary prepayments by borrowers. All loans 

that have not been repaid-in-full are current in 

their payments of principal and interest and are 

fully collateralized by the residual balance held 

by the TALF, LLC. As of September 30, 2014, 

accumulated income earned from investments in 

TALF, LLC totaled $645 million, all of which 

occurred during fiscal years 2014 and 2013.

Additional information on TALF, including 

details on the program’s purpose, overview, and 

status can be found at the following website:

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/credit-marketprograms/talf/Pages/default.aspx

Small Business Administration 7(a)

Securities Purchase Program

During fiscal year 2012, OFS completed the fifth 

and final disposition of securities within the 

SBA 7(a) Securities Purchase Program, marking 

the successful wind-down of the program. OFS 

collected a total of $376 million through the 

program. This includes $334 million in sales, 

$29 million in principal payments, and $13 

million in interest payments over the life of the 

program. These cash collections exceeded OFS’s 

original investment amount by $9 million, 

excluding purchased accrued interest.

Additional information on SBA 7(a), including 

details on the program’s purpose, overview, and 

status can be found at the following website:

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/credit-marketprograms/sba7a/Pages/default.aspx

Automotive Industry Financing Program

OFS continued to make substantial progress in 

the wind-down of the AIFP during fiscal year 

2014, including the exit from its investment in 

GM. In total, OFS disbursed $79.7 billion in 

loans and equity investments to the auto 

industry through the AIFP. As of September 30, 

2014, OFS has collected $68.9 billion through 

sales, repayments, dividends and interest under 

this program.

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 $11.1 billion 

through principal repayments, sale of 

investments, and interest. OFS retains a right 

to receive proceeds from a liquidation trust, no

significant future cashflows are expected. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 13

In December 2013, OFS fully exited its 

investment in GM completing the disposition of 

its remaining shares of GM common stock. The 

total amount collected for fiscal year 2014 was

$3.8 billion, raising to $39.7 billion the total 

collected by Treasury from its original GM 

investment (this excludes the $884 million loan 

to GM which was converted to GMAC common 

stock).

OFS invested $17.2 billion ($16.3 billion in 

initial GMAC investments and an $884 million 

loan to Old GM which was converted to GMAC 

stock) in Ally Financial (Ally) under TARP. As 

of September 30, 2014, OFS’s outstanding 

investment in Ally stood at $1.8 billion. During 

fiscal year 2014, Ally completed the two 

strategic initiatives OFS previously said were 

critical to maximize recovery of the investment

– the Chapter 11 proceeding of Ally’s mortgage 

subsidiary, Residential Capital LLC (ResCap), to 

address Ally’s legacy mortgage liabilities and the 

sale of its international auto finance operations. 

During fiscal year 2013, Ally, ResCap, and 

ResCap’s major creditors agreed on terms for a 

plan of reorganization and the settlement of 

certain claims against Ally. In December 2013, 

the bankruptcy court approved ResCap’s final 

plan to liquidate and exit bankruptcy, thus 

allowing Ally to cut its ties to ResCap. Ally also 

has sold or entered into agreements to sell all of 

its international auto finance operations for a 

total of $9.2 billion. All related transactions 

have closed with the exception of one joint 

venture that is awaiting a foreign government’s

regulatory approval. 

On August 19, 2013, Ally entered into private 

placement agreements with investors of Ally 

common stock for an aggregate price of $1.0

billion (later increased to $1.3 billion in 

November 2013). Concurrently, Ally also 

entered into agreements with OFS to repurchase 

all of the outstanding MCP stock and terminate 

the MCP’s Share Adjustment Right (SAR), 

which provided OFS with the right to receive 

additional common stock of Ally under certain 

circumstances if certain events occurred prior to 

December 30, 2016. Ally repurchased all of its 

MCP stock from OFS for $5.2 billion in 

November 2013. In addition, OFS received an 

additional $725 million for the elimination of the 

SAR.

OFS took significant action in fiscal year 2014 to 

reduce its remaining investment in Ally. In 

January 2014, Treasury sold Ally common stock 

in a private offering for approximately $3.0 

billion. In April 2014, Treasury sold common 

stock as part of Ally’s initial public offering 

(IPO) for almost $2.4 billion and $181 million 

associated with the over-allotment option that 

was exercised in May 2014. On August 14, 2014, 

OFS commenced the disposition of its remaining 

75 million common shares of Ally common stock 

through a series of pre-arranged written trading 

plans. These sales increased the total amount 

collected by OFS on behalf of taxpayers to $18.1

billion, which is $923 million more than the 

original investment in Ally. OFS is actively

seeking to wind-down the remaining investment

in Ally, which represents approximately 13.4

percent of Ally’s common stock as of September 

30, 2014.

Additional information on the AIFP, including 

details on the program’s purpose, overview, and 

status can be found at the following website:

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/automotiveprograms/Pages/default.aspx

American International Group (AIG) 

Investment Program

In fiscal year 2013, OFS exited all remaining 

holdings in AIG through the sale of common 

stock and AIG’s repurchase of warrants. During 

the financial crisis, the OFS’s and the FRBNY’s

peak support for AIG totaled $182.3 billion. 

That included $69.8 billion that OFS committed 

and $112.5 billion committed by the FRBNY, 

including $22.1 billion of these commitments 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

14 MANAGEMENT’S DISCUSSION AND ANALYSIS

which were later canceled. As a result of the 

combined efforts of AIG, OFS, and the Federal 

Reserve, $22.7 billion in excess of the total of 

funds disbursed were recovered through sales 

and other income. OFS’s cumulative net 

proceeds from repayments, sales, dividends, 

interest, and other income related to AIG assets 

totaled $55.3 billion. While TARP recovered less 

than its $67.8 billion total investment, this was 

offset by the proceeds from the additional 

Treasury shares of AIG, resulting in overall 

proceeds exceeding disbursements by $5.0 billion

for Treasury as a whole.

Additional information on the AIG Investment 

Program, including details on the program’s 

purpose, overview, and status can be found at 

the following website:

http://www.treasury.gov/initiatives/financialstability/TARP-Programs/aig/Pages/default.aspx

Operational Goal Two: Continue 

Helping Families in Need to Avoid 

Foreclosure

Making Home Affordable (MHA)

Consistent with OFS’s goal of continuing to help 

struggling homeowners find solutions to avoid 

foreclosure wherever possible, OFS is continuing 

to implement the MHA program and to reach as 

many homeowners as possible. As of September 

30, 2014, 81 non-GSE servicers are participating 

in MHA. As of September 30, 2014, OFS has 

commitments to fund up to $29.8 billion in MHA 

payments and has disbursed $9.3 billion since 

inception.

OFS publishes quarterly assessments of servicer 

performance containing data on compliance with 

program guidelines as well as program results 

metrics. OFS believes that these assessments 

have set the standard for transparency about 

mortgage servicer efforts to assist homeowners 

at risk of foreclosure, and encourage servicers to 

improve processes and performance for 

foreclosure prevention activities. 

MHA performance highlights for fiscal year 2014

can be found at: 

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

Additional information on MHA, including 

details on the program’s purpose, overview, and 

status can be found at the following website:

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

Home Affordable Modification Program 

(HAMP)

The largest program within MHA is the Home 

Affordable Modification Program (HAMP). 

HAMP offers eligible homeowners at risk of 

foreclosure the opportunity to obtain reduced 

monthly mortgage payments that are affordable 

and sustainable over the long-term. 

As of September 30, 2014, approximately 1.4

million homeowners have received permanent 

modifications through HAMP.2 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 have 

collectively experienced nearly a 42 percent 

median reduction in their mortgage payments—

representing more than $540 per month. MHA 

has also encouraged the mortgage industry to 

adopt similar programs that have helped 

millions more at no cost to taxpayers by 

establishing standards and best practices for 

loss mitigation evaluations. 

 

2

783,301 of these modifications were OFS funded.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 15

Housing Finance Agency Innovation Fund 

for the Hardest Hit Housing Markets 

(Hardest Hit Fund)

In addition to MHA, OFS also operates the 

Hardest Hit Fund, which allows participating 

HFAs in the nation’s hardest hit housing and 

unemployment markets to design innovative, 

locally-targeted foreclosure prevention 

programs. As of September 30, 2014, 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 Ocwen) are currently 

participating in programs in all 19 jurisdictions, 

primarily through mortgage payment assistance 

and mortgage loan reinstatement assistance. 

As of September 30, 2014, the 19 HFAs have 

collectively drawn approximately $4.5 billion (59

percent) of the $7.6 billion allocated under the 

program. For fiscal years 2014 and 2013, this 

program has disbursed $1.6 billion and $1.4 

billion, respectively. Each state draws down 

funds as they are needed, but must have no 

more than five percent of their allocation on 

hand before they can draw down additional 

funds. States have until December 31, 2017 to 

enter into agreements with borrowers. As of 

September 30, 2014, seven HFAs had stopped 

accepting new applications for assistance in 

anticipation of full commitment of program 

funds: the District of Columbia, Illinois, New 

Jersey, Ohio, Oregon, Rhode Island and 

Tennessee.

Each HFA submits a quarterly report on the 

progress of its program. These reports measure 

the states’ performance against metrics set by 

OFS for 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

OFS also publishes a Quarterly Performance 

Summary, a companion reference to the HFAs’ 

Quarterly Performance Reports. The Summary 

contains performance data and trends, key 

economic and loan performance indicators, and 

brief program descriptions for each HFA. The 

Quarterly Performance Summary can be found 

at: 

http://www.treasury.gov/initiatives/financialstability/reports/Documents/FINAL%20Q1%202

014%20Hardest%20Hit%20Fund%20Program%2

0Performance%20Summary.pdf

Additional information on the Hardest Hit Fund, 

including details on the program’s purpose, 

overview, and status can be found at the 

following website:

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

FHA Refinance Program

On March 26, 2010, HUD and Treasury 

announced enhancements to the Federal 

Housing Administration Refinance Program

(FHA Refinance), designed to make 

homeownership more affordable for borrowers 

whose homes are worth less than the remaining 

amounts on their mortgage loans (negative 

equity). TARP funds were made available by 

OFS through an $8.0 billion letter of credit 

facility, in order to fund a share of the losses 

associated with this program (subsequently 

reduced to $1.0 billion in fiscal year 2013 due to 

low utilization). As of September 30, 2014, FHA 

guaranteed 2,069 Refinance loans with a total 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

16 MANAGEMENT’S DISCUSSION AND ANALYSIS

face value of almost $292 million currently 

under OFS’s letter of credit facility. 

Operational Goal Three: Minimize 

Cost to Taxpayer

OFS manages TARP investments to minimize 

costs to taxpayers by managing the timely exit of 

these investments 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 has taken a number of steps during fiscal 

years 2014 and 2013 to dispose of OFS’s 

outstanding investments in a manner that 

balances the desire to exit these investments as 

quickly as practicable with maximizing returns 

on behalf of taxpayers. OFS continues to take 

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 takes a disciplined portfolio approach –

reviewing each investment and closely 

monitoring risk and performance. In addition to 

repayments by participants, OFS has disposed of 

investments to third parties through public and 

private offerings and auctions with approval 

from regulators. 

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’s

investment on behalf of taxpayers, while 

maintaining financial stability. Specifically, 

OFS’s 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 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’s preferred stock investments, 

TARP recipients must comply with restrictions 

on payment of dividends and on repurchases of 

junior securities. Recipients of exceptional 

assistance (currently Ally) must comply with 

additional restrictions on executive 

compensation, lobbying, and corporate expenses. 

OFS also performs periodic reviews of the 19 

HFAs participating in the HHF program, to 

evaluate each HFA’s ongoing compliance with 

their contractual agreement with Treasury, as 

well as compliance with HHF program terms 

and underwriting requirements.

In addition, all mortgage servicers participating 

in MHA are subject to program guidelines, 

which require the servicer to offer MHA

assistance 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’s

compliance agent, Making Home AffordableCompliance (MHA-C), a separate, independent 

division of Freddie Mac, to monitor whether 

servicers’ obligations under MHA requirements 

are being met. In fiscal year 2011, OFS began 

publishing quarterly assessments of the largest 

servicers that currently comprise approximately 

88% of the HAMP mortgage servicing and 

continued publishing these quarterly 

assessments throughout fiscal year 2014. These 

assessments have helped prompt the industry to 

improve its practices.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 17

Operational Goal Four: Continue to 

Operate with the Highest Standards 

of Transparency, Accountability, and 

Integrity

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, is posted in the 

Financial Stability section of the Treasury.gov 

website, which can be found at: 

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

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 monthly report on dividend and 

interest payments;

 A quarterly report on Making Home 

Affordable; 

 A report of each transaction (such as an 

investment or repayment) within two 

business days of each transaction;

 A quarterly report on the Hardest Hit 

Fund; and

 A quarterly report to Congress on 

administrative expense activities.

In addition, OFS regularly publishes data files 

related to MHA and transaction reports that 

show activity related to MHA and HHF. The 

release of the data file fulfills a requirement 

within the Dodd-Frank Act to make available 

loan-level data about the program. OFS updates

the file monthly. 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

Audited Financial Statements 

OFS prepares separate financial statements for 

TARP on an annual basis. This is the sixth OFS 

Agency Financial Report (AFR), and includes the 

audited financial statements for the fiscal years 

ended September 30, 2014 and September 30, 

2013. Additional reports for prior periods are 

available at: 

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

In its six years of operation, TARP’s financial 

statements have received unmodified audit

opinions from its auditor, the GAO. OFS also 

received a Certificate of Excellence in 

Accountability Reporting (CEAR) from the 

Association of Government Accountants for 

fiscal years 2013, 2012, 2011, 2010 and the 

period ending September 30, 2009.

TARP Tracker

During fiscal year 2013, OFS launched an 

expanded version of its existing TARP Tracker, 

which is an online, interactive tool that allows 

users to track the flow of TARP funds in greater 

detail over the lifetime of each individual TARP 

investment area. The expanded capability 

allows users to view each investment area 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

18 MANAGEMENT’S DISCUSSION AND ANALYSIS

separately to get a clearer sense of what has 

occurred in a particular program, including a 

scroll of events, major transactions, and 

legislative actions that have impacted the 

program.

Readers are invited to refer to these documents 

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

Oversight by Three Separate Agencies

OFS activities are currently reviewed by three 

oversight entities:

 The Financial Stability Oversight Board, 

established by EESA Section 104;

 Specific responsibilities for the GAO as 

set out in EESA Section 116;

 The Special Inspector General for TARP, 

established by EESA Section 121; 

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.

Congressional Hearings and Testimony

OFS officials have testified in numerous 

Congressional hearings since TARP was created. 

Copies of their written testimony are available 

at: 

http://www.treasury.gov/initiatives/financialstability/news-room/Pages/default.aspx
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 19

Fiscal Year 2014 and 2013 Financial Summary and Cumulative Net 

Income

OFS’s fiscal year 2014 net cost of operations of 

$3.0 billion includes the reported net income 

related to loans, equity investments, and other 

credit programs, as well as expenses for the 

Treasury housing programs under TARP and 

administrative expenses. For the fiscal year 

ended September 30, 2014, OFS reported net 

subsidy income for 5 programs – CPP, CDCI, 

TALF, AIFP, and FHA-Refinance. These 

programs collectively reported net subsidy 

income of $1.5 billion. Fiscal year 2014 expenses 

for the Treasury housing programs under TARP 

are $4.3 billion and administrative costs are

$186 million. For the fiscal year ended 

September 30, 2013, the net income from

operations was $7.7 billion. These net cost and

income amounts reported in the financial 

statements reflect only transactions through 

September 30, 2014 and September 30, 2013, 

respectively, and therefore are different than 

lifetime cost estimates made for budgetary 

purposes. 

Over time the cost of TARP programs will 

change. As described later 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 1 provides a financial summary for TARP 

programs since its inception on October 3, 2008, 

through September 30, 2014. 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, 2014, 

and cash inflows on the investments in the form 

of dividends, interest or other fees. 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

20 MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 1: TARP Summary1

From TARP Inception through September 30, 2014

(Dollars in billions)

Purchase 

Price or 

Guarantee 

Amounts

Total $ 

Disbursed

Investment 

Repayments

Write-offs 

and Losses6

Outstanding 

Balance7

Received 

from 

Investments

Bank Support Programs 

Capital Purchase Program2 $ 204.9 $ 204.9 $ (199.4)5 $ (4.9) $ 0.6 $ 27.0 

Targeted Investment 

Program 40.0 40.0 (40.0) - - 4.4

Asset Guarantee Program 5.0 - - - - 4.1

Community Development 

Capital Initiative 0.6 0.6 (0.1) - 0.5 0.1

Credit Market Programs 

Public Private Investment 

Program 18.7 18.6 (18.6) - - 3.9

Term Asset-Backed 

Securities Loan Facility 0.1 0.1 (0.1) - - 0.6

SBA 7(a) Securities 

Purchase Program 0.4 0.4 (0.4) - - -

Other Programs 

Automotive Industry 

Financing Program 79.7 79.7 (61.8) (16.1) 1.8 7.1

American International 

Group Investment 

Program3

67.8 67.8 (54.3) (13.5) - 1.0

Sub-total for Investment 

Programs 

 

417.2 

 

412.1 

 

(374.7)

 

(34.5)

 

2.9 

 

48.2 

Treasury Housing 

Programs under TARP 38.54 13.8 N/A N/A N/A N/A

Total for TARP Program $ 455.7 $ 425.9 $ (374.7) $ (34.5) $ 2.9 $ 48.2 

1 This table shows TARP activity for the period from inception through September 30, 2014, 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.

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

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

3The 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 (additional Treasury shares). 

4Individual obligation amounts are $29.8 billion for the Making Home Affordable Program, $7.6 billion for the Hardest 

Hit Fund, and $1.0 billion committed for the FHA-Refinance Program.

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

6Losses 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”.

7Total 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.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 21

Most TARP funds were 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 

loans from the institutions participating in 

TARP programs. These payments represent 

additional proceeds received on OFS’s TARP 

investments. From inception through 

September 30, 2014 OFS received a total of 

$24.5 billion in dividends and interest. 

OFS has conducted several sales of its 

investments in banking institutions as part of its 

exit strategy for winding down TARP. OFS 

plans to continue to sell its investments in banks 

that are not expected to repay OFS in the 

foreseeable future. These sales are being 

conducted over time and in stages and include 

both common and preferred stock and 

debentures. During fiscal years 2014 and 2013, 

OFS sold its investments in 31 and 113 banks 

for combined proceeds of $263 million and $1.5

billion, respectively, through individual private 

auctions. These auctions resulted in net

proceeds less than cost of $73 million and $455

million for those investments during fiscal years 

2014 and 2013, respectively.

OFS also received warrants in connection with 

most of its investments, which provides an 

opportunity for OFS on behalf of taxpayers to 

realize additional proceeds on investments. 

Since the program’s inception, through 

September 30, 2014, OFS has received $9.6

billion in gross proceeds from the disposition of 

warrants associated with 216 CPP, TIP, AGP,

and AIG, consisting of (i) $4.0 billion from issuer 

repurchases at agreed upon values and (ii) $5.6

billion from auctions. TARP’s Warrant 

Disposition Report is posted on the OFS website 

at the following link:

http://www.treasury.gov/initiatives/financialstability/reports/Pages/Warrant-DispositionReports.aspx

Summary of TARP Equity 

Investments

Table 2 provides information on the estimated 

values of TARP direct loan and equity 

investments by program, as of the end of fiscal 

years 2014 and 2013. OFS 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, 2014 and 2013. 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 

investments, this amount represents fair 

value. The total difference of $679 million 

(2014) and $5.6 billion (2013) 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.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

22 MANAGEMENT’S DISCUSSION AND ANALYSIS

Program

Outstanding 

Balance as of 

September 30, 

20141

Estimated 

Value of 

Investment as 

of September 

30, 2014

Outstanding 

Balance as of 

September 30, 

20131

Estimated 

Value of 

Investment as 

of September 

30, 2013

Bank Support Programs

Capital Purchase Program $ 0.6 $ 0.3 $ 3.1 $ 1.8 

Community Development 

Capital Initiative 0.5 0.4 0.5 0.4

Credit Market Programs

Public Private Investment 

Program 0 0 0 0

Term Asset-Backed Securities 

Loan Facility 0 0 0 0.1

Other Programs

Automotive Industry 

Financing Program 1.8 1.5 19.9 15.6

American International Group 

Investment Program 0 0 0 0

Total $ 2.9 $ 2.2 $ 23.5 $ 17.9 

1

 Before subsidy cost allowance.

Table 2: Summary of TARP Equity Investments

(Dollars in billions)

SBA 7(a) Securities Purchase 

Program 0 0 0 0

The ultimate cost of TARP will not be known for 

some time, but it is not expected to change 

significantly as only a few investment programs 

remain open with much of the original disbursed 

investments repaid. The financial performance 

of the remaining 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. Wherever possible, OFS uses 

market prices of tradable securities to estimate 

the fair value of TARP investments. Use of 

market prices is 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 marketbased 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.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 23

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 OFS estimates since 

TARP’s inception through September 30, 

2014, provide a good illustration of this 

impact. Table 3 provides information on how 

OFS’s estimated lifetime cost of TARP has 

changed over time. The cost estimates for the 

non-housing programs have fluctuated in 

large part due to changes in the market prices 

of common stock for AIG, GM and Ally. The 

future value of OFS’s remaining investment in 

Ally will be determined based on market 

prices of Ally common stock, which could be 

influenced by industry and macroeconomic 

factors. This table assumes that all expected 

investments 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 

repayments and disbursements expected to be 

made in the future. Table 3 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 3 are based on 

assumptions regarding future events, which 

are inherently uncertain.

Table 3: Estimated Lifetime TARP Costs (Income)1 

(Dollars in billions) 

 Estimated Lifetime Cost (Income) as of September 30 

Program 2009 5 2010 2011 2012 2013 2014 

Bank Support Programs 

Capital Purchase Program $ (14.6) $ (11.2) $ (13.0) $ (14.9) $ (16.1) $ (16.1)

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

Asset Guarantee Program2(2.2) (3.7) (3.7) (3.9) (4.0) (4.0)

Community Development 

Capital Initiative 0.4 0.3 0.2 0.2 0.1 0.1 

Credit Market Programs 

Public Private Investment 

Program 1.4 (0.7) (2.4) (2.4) (2.7) (2.7)

Term Asset-Backed Securities 

Loan Facility (0.3) (0.4) (0.4) (0.5) (0.6) (0.6)

SBA 7(a) Securities Purchase 

Program N/A 0.0 0.0 0.0 0.0 ---

Other Programs 

Automotive Industry

Financing Program 34.5 14.7 23.6 24.3 14.7 12.2 

American International Group 

Investment Program3

56.8 36.9 24.3 15.3 15.2 15.2 

Subtotal 74.1 32.1 24.6 14.1 2.6 0.1 

Treasury Housing Programs 

under TARP4

50.0 45.6 45.6 45.6 37.7 37.4 

Total $ 124.1 $ 77.7 $ 70.2 $ 59.7 $ 40.3 $ 37.5 

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

2 Prior to the termination of the guarantee agreement, OFS 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 (additional Treasury shares). For further details, see the discussion of the American International Group Investment Program, beginning on 

page 13.

4 The estimated lifetime cost for Treasury Housing Programs under TARP represent the total commitment except for the FHA Refinance Program, which is 

accounted for under credit reform. The estimated lifetime cost of the FHA Refinance Program represents the total estimated subsidy cost associated with total 

obligated amount.

5 Estimated lifetime cost for 2009 includes funds for projected disbursements and anticipated obligations.
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

24 MANAGEMENT’S DISCUSSION AND ANALYSIS

Key Trends/Factors Affecting TARP Future Activities and Ultimate Cost

TARP investment programs are nearly wound 

down with only $2.9 billion of the $412.1

billion still outstanding, representing 64

million shares of Ally Financial and 111 small 

banks in the CPP and CDCI portfolios. The 

estimated lifetime costs of investment 

programs are currently $67 million and may 

fluctuate in the future. Going forward, the 

fluctuations in Ally common stock prices and 

expenditures for Treasury housing programs 

under TARP are expected to most significantly 

affect changes to the lifetime cost of TARP. 

The ultimate cost of Treasury housing 

programs will depend on macroeconomic 

factors, including real-estate values, financing 

available in capital markets, and the market 

demand for housing. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 25

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, 2014. 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) Systems 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; 

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

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

(j) Complete and accurate data is reported on USAspending; and

(k) Controls and policies are in place to prevent fraud and inappropriate use of government 

charge cards.

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

financial reporting which includes the 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, 2014, with no related material weaknesses noted.

Sincerely, 

Timothy J. Bowler

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

26 MANAGEMENT’S DISCUSSION AND ANALYSIS

Federal Managers’ Financial 

Integrity Act (FMFIA)

The management control objectives under 

FMFIA are to reasonably ensure that:

• Obligations and costs are in 

compliance with applicable law;

• Funds, property, and other assets are 

safeguarded against waste, loss, 

unauthorized use, or 

misappropriation; and

• Revenues and expenditures applicable 

to agency operations are properly 

recorded and accounted for to permit 

the preparation of accounts, reliable 

financial and statistical reports, and 

to maintain accountability over the 

assets.

FMFIA requires agencies to evaluate and 

report on the effectiveness of controls over 

operations and financial reporting (FMFIA 

Section 2), and conformance with financial 

management systems requirements (FMFIA 

Section 4 and FFMIA) that protect the 

integrity of federal programs. Deficiencies 

that seriously affect an agency’s ability to 

meet these objectives are deemed “material 

weaknesses.”

OFS continues to have a high performing 

internal control program in compliance with 

FMFIA. FMFIA and OMB Circular A-123, 

Management’s Responsibility for Internal 

Control, require agencies to evaluate and 

report on internal controls in place to help 

ensure effectiveness and efficiency of 

operations, compliance with applicable laws 

and regulations, and reliability of financial 

reporting. OFS has completed these rigorous 

assessments since fiscal year 2009.

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. OFS’s internal control framework 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 OFS and its third-party 

service providers. Furthermore, managers 

throughout OFS are responsible for ensuring 

that effective internal controls are 

implemented in their areas of responsibility. 

Senior management throughout OFS provides 

sub-certification statements annually 

concerning whether there is reasonable 

assurance that the objectives of internal 

control are met. Senior management also 

reports on and takes steps to correct control 

weaknesses and tracks those weaknesses 

through resolution.

OFS management believes that maintaining 

integrity and accountability in all programs 

and operations is critical to its mission and 

demonstrates responsible stewardship over 

assets and resources. It also promotes 

responsible leadership and maximizes desired 

program outcomes. OFS has received 

unmodified opinions from the GAO on its 

financial statements and internal control over 

financial reporting for TARP since fiscal year 

2009, its first year of operation. OFS 

continues to execute its internal controls 

assessment process to ensure that 

management can identify risks and 

deficiencies and take timely corrective actions. 

The OFS fiscal year 2014 self-assessment of 

its system of internal controls did not identify 

any significant deficiencies or material 

weaknesses.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 27

Federal Financial Management 

Improvement Act (FFMIA) and 

Financial Management Systems

FFMIA

FFMIA mandates that agencies “...implement 

and maintain financial management systems 

that comply substantially with federal 

financial management systems requirements, 

applicable federal accounting standards, and 

the United States Government Standard 

General Ledger (USSGL) at the transaction 

level.” FFMIA also requires the development 

of remediation plans by any entity unable to 

report substantial compliance with these 

requirements. 

During fiscal year 2014, OFS used a riskbased approach to assess its financial 

management systems’ compliance with 

FFMIA, as required by OMB and in 

accordance with Treasury-wide guidance. 

OFS conducted its self-assessment to 

determine its risk levels and determined that 

all OFS financial management systems are in 

compliance with FFMIA.

Financial Management Systems 

Framework

OFS’s financial management systems 

framework consists of two fundamental 

components: 1) core financial and mixed 

systems maintained by OFS and Treasury 

bureaus that cross-service OFS; and 2) 

systems that are financially relevant operated 

and supported by financial agents. Combined, 

this framework satisfies OFS’s diverse 

financial operational and reporting needs as 

well as OFS’s internal and external reporting 

requirements.

In fiscal year 2014, OFS continued to utilize 

and improve the Core Investment Transaction 

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

accounting translation engine. OFS continued 

to fine-tune standardized management reports 

from CITF to improve their usefulness to 

management’s decision-making and reduce 

reliance on manual processes. 

In addition, OFS utilizes financial systems 

maintained by Treasury Departmental Offices 

and various Treasury bureaus. These systems 

are also in substantial compliance with 

federal financial management systems 

requirements and undergo regular 

independent audits.

In fiscal year 2014, OFS devoted substantial 

attention to simplifying its technology footprint in concert with the reduced activity and 

size of OFS operations. The simplification 

effort helps ensure the reliability, 

maintainability, and controllability of OFS 

technology as TARP programs wind-down.

Certain financially relevant systems are 

operated and 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. These plans and programs are 

reviewed and approved by OFS at least on an 

annual basis.

Legal Compliance

OFS is subject to numerous legislative and 

regulatory requirements that promote and 

support an effective internal control 

environment. At least on an annual basis, 

OFS conducts a formal process to identify and 

document applicable laws and regulations. 

This process includes the review and 

consideration of Treasury guidance, statutory 

and OMB requirements as well as 

consultation with OFS program management 
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

28 MANAGEMENT’S DISCUSSION AND ANALYSIS

and the Treasury Office of General Counsel. 

OFS program managers are responsible for 

identifying laws and regulations which impact 

their areas, developing policies and 

procedures which ensure compliance with 

those laws and regulations, and disseminating 

information to employees regarding 

compliance responsibilities.

In order to test compliance with laws and 

regulations, OFS maps the requirements of 

each applicable law or regulation to controls 

that support the requirements. The majority 

of the laws and regulations applicable to OFS 

are tested in this manner. In instances where 

OFS cannot leverage specific controls, OFS 

either performs alternative evaluation 

procedures or, through adherence to the 

guidance provided by Treasury, checks that 

controls are in place to meet guidance 

concerns and specifications where they apply.

The results of OFS’s evaluation of compliance 

with applicable laws and regulations are 

reflected in OFS’s assurance statement.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS 29

Other Management Information, Initiatives, and Issues

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 oversee and monitor closely these third parties to 

safeguard OFS resources and help ensure the operational efficiency of programs and 

processes. Where necessary and appropriate to ensure fiscal responsibility, OFS will 

look to reduce the number of third-party service providers commensurate with the winddown in OFS operations.

• 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. OFS will 

manage this process through the SAT to ensure that any resulting risk is minimal and 

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

30 MANAGEMENT’S DISCUSSION AND ANALYSIS

Limitations of the Financial Statements

The principal financial statements have been prepared to report the financial position and results of 

operations of OFS’s 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 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 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 2014

MESSAGE FROM THE CHIEF FINANCIAL OFFICER 31
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

32

Part 2: Financial Report
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

MESSAGE FROM THE CHIEF FINANCIAL OFFICER 33

MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CF0) 

The Office of Financial Stability’s (OFS) Agency Financial Report for fiscal year 2014 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 2014, the Government Accountability Office (GAO) provided OFS unmodified audit opinions on 

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

reporting for TARP. In addition, the auditors determined that we had no material weaknesses or significant 

deficiencies relating to internal control over our accounting and financial reporting processes for TARP. Since 

the inception of TARP in 2009, the program has consistently received unmodified audit opinions – a remarkable 

achievement for a start-up organization with complex programs. 

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 five periods from inception through the 

fiscal year 2013. 

For fiscal year 2014, net cost of operations was $3.0 billion, resulting in a cumulative net cost of operations of 

$15.6 billion since inception. Cumulative net cost of operations consists of (1) total net subsidy cost of $132 

million, and (2) housing costs and administrative costs of $14.0 billion and $1.5 billion, respectively. Total 

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

investments totaling $27.5 billion, offset primarily by net subsidy cost from investments in AIG of $15.2 billion, 

and automobile company investments of $12.3 billion.

During fiscal year 2014, OFS collected a total of $17.4 billion through repayments, sales, dividends, and other 

receipts. OFS’s gross outstanding loan and equity investment balance as of September 30, 2014 was $2.9 

billion, comprised of $1.8 billion in AIFP, $625 million in CPP, and the remainder in CDCI. OFS is committed to 

exiting investments in a timely manner while maximizing collections on behalf of the taxpayer. During fiscal 

year 2014, 62 CPP institutions repaid, were auctioned, or were restructured and sold. OFS also fully exited its 

investment in GM in fiscal year 2014 and continued with the disposition of its Ally investment with an initial 

repayment by Ally followed by sales of common stock through a private offering, a public offering, and prearranged trading plans.

In fiscal year 2014, as OFS continued to wind down, we have streamlined many of our processes to eliminate 

redundancy and become more efficient, making sure to maintain coverage over key controls. As an 

organization, OFS has and will continue to consolidate roles, as appropriate, and without comprising the 

internal control environment. Consolidation allows for the continued retention of institutional knowledge and 

helps ensure that all control points are monitored and executed. Maintaining rigorous internal control processes 

around transaction processing, disbursements, collections, and financial reporting will continue to be one of 

OFS’s top priorities.

I feel fortunate to play a role in continuing the 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

34 AUDITOR’S REPORT

GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT

441 G St. N.W.

Washington, DC 20548

Independent Auditor’s Report

To the Deputy Assistant Secretary for Financial Stability

In our audits of the fiscal years 2014 and 2013 financial statements of the Troubled Asset Relief 

Program (TARP), which is implemented by the Office of Financial Stability (OFS),1 we found 

 the OFS financial statements for TARP as of and for the fiscal years ended September 

30, 2014, and 2013, are presented fairly, in all material respects, in accordance with 

U.S. generally accepted accounting principles;

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

for TARP as of September 30, 2014; and

 no reportable noncompliance for fiscal year 2014 with provisions of applicable laws, 

regulations, contracts, and grant agreements we tested.

The following sections discuss in more detail (1) our report on the financial statements and on 

internal control over financial reporting, which includes two emphasis of matters related to 

certain factors affecting the valuation of TARP direct loans and equity investments and the 

TARP reporting entity, and required supplementary information (RSI)2 and other information3 

included with the financial statements; (2) our report on compliance with laws, regulations, 

contracts, and grant agreements; and (3) agency comments. In addition to our responsibility to 

audit OFS’s annual financial statements for TARP, we are also required under the Emergency 

Economic Stabilization Act of 2008 (EESA)4to report at least every 60 days on the findings 

resulting from our oversight of the actions taken under TARP.5 This 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

Section 101 of the Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343, div. A, 122 Stat 3765, 3767 

(Oct. 3, 2008), classified at 12 U.S.C. § 5211, established OFS within the Department of the Treasury (Treasury) to 

implement TARP.

2RSI consists of “Management’s Discussion and Analysis” and the “Combined Statement of Budgetary Resources”, 

which are included with the financial statements.

3Other information consists of information included with the financial statements, other than RSI and the auditor’s 

report.

4

EESA is classified, in part, as amended, as sections 5201 through 5261 of Title 31 of the United States Code. Section 

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

audited fiscal year financial statements for 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.

5

EESA § 116(a)(3), 12 U.S.C. § 5226(a)(3).
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

AUDITOR’S REPORT 35

Report on the Financial Statements and on Internal Control over Financial Reporting

In accordance with EESA, we have audited the OFS financial statements for TARP. The OFS 

financial statements for TARP comprise the balance sheets as of September 30, 2014, and 

2013; the related statements of net cost of operations, changes in net position, and budgetary 

resources for the fiscal years then ended; and the related notes to the financial statements. We 

also have audited OFS’s internal control over financial reporting for TARP as of September 30, 

2014, based on criteria established under 31 U.S.C. § 3512(c), (d), commonly known as the 

Federal Managers’ Financial Integrity Act (FMFIA).

We conducted our audits in accordance with U.S. generally accepted government auditing 

standards.6 We believe that the audit evidence we obtained is sufficient and appropriate to 

provide a basis for our audit opinions.

Management’s Responsibility 

OFS management is responsible for (1) the preparation and fair presentation of these financial 

statements in accordance with U.S. generally accepted accounting principles; (2) preparing, 

measuring, and presenting the RSI in accordance with 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) maintaining effective internal 

control over financial reporting, including the design, implementation, and maintenance of 

internal control relevant to the preparation and fair presentation of financial statements that are 

free from material misstatement, whether due to fraud or error; (5) evaluating the effectiveness 

of internal control over financial reporting based on the criteria established under FMFIA; and 

(6) providing its assertion about the effectiveness of internal control over financial reporting as of 

September 30, 2014, based on its evaluation, included in the accompanying Management’s 

Report on Internal Control Over Financial Reporting in appendix I.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements and an opinion on 

OFS’s internal control over financial reporting for TARP based on our audits. U.S. generally 

accepted government auditing standards require that we plan and perform the audits to obtain 

reasonable assurance about whether the financial statements are free from material 

misstatement, and whether effective internal control over financial reporting was maintained in 

all material respects. We are also responsible for applying certain limited procedures to the RSI 

and other information included with the financial statements. 

An audit of financial statements involves performing procedures to obtain audit evidence about 

the amounts and disclosures in the financial statements. The procedures selected depend on 

the auditor’s judgment, including the auditor’s assessment of the risks of material misstatement 

of the financial statements, whether due to fraud or error. In making those risk assessments, the 

auditor considers internal control relevant to the entity’s preparation and fair presentation of the 

financial statements in order to design audit procedures that are appropriate in the 

 

6

Section 116(b) of EESA requires that GAO audit TARP’s financial statements annually in accordance with generally 

accepted auditing standards (GAAS). U.S. generally accepted government auditing standards incorporates by 

reference the American Institute of Certified Public Accountants Statements on Auditing Standards which constitutes 

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

36 AUDITOR’S REPORT

circumstances. An audit of financial statements also involves evaluating the appropriateness of 

the accounting policies used and the reasonableness of significant accounting estimates made 

by management, as well as evaluating the overall presentation of the financial statements. An 

audit of internal control over financial reporting includes obtaining an understanding of internal 

control over financial reporting, assessing the risk that a material weakness exists, evaluating 

the design and operating effectiveness of internal control over financial reporting based on the 

assessed risk, and testing relevant internal control over financial reporting. Our audit of internal 

control also considered the entity’s process for evaluating and reporting on internal control over 

financial reporting based on criteria established under FMFIA. Our audits also included 

performing such other procedures as we considered necessary in the circumstances. 

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

under FMFIA, such as those controls relevant to preparing performance information 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 

whether effective internal control over financial reporting was maintained, in all material 

respects. Consequently, our audit may not identify all deficiencies in internal control over 

financial reporting that are less severe than a material weakness.7 

Definitions and Inherent Limitations of Internal Control over Financial Reporting 

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 accordance 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 laws governing the 

use of budget authority and with other applicable laws, regulations, contracts, and grant 

agreements that could have a direct and material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent, or 

detect and correct, misstatements due to fraud or error. We also caution that projecting any 

evaluation of effectiveness to future periods is subject to 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. 

Opinion on Financial Statements

In our opinion, OFS’s financial statements for TARP present fairly, in all material respects, 

TARP’s financial position as of September 30, 2014, and 2013, and its net cost of operations, 

changes in net position, and budgetary resources for the fiscal years then ended in accordance 

with U.S. generally accepted accounting principles. 

 

7

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, 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. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

AUDITOR’S REPORT 37

Emphasis of Matters

Valuation of TARP’s Direct Loans and Equity Investments

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

direct loans and equity investments 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 and the equity 

investments, 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.8 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 

and equity investments as of September 30, 2014, and 2013 (which totaled $2.2 billion and 

$17.9 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.9

TARP Reporting Entity

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. As also 

discussed in note 1 to the financial statements, OFS’s investments were not made to engage in 

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

entities meet the criteria for a federal entity.

Our opinion on OFS’s financial statements for TARP is not modified with respect to these 

matters.

Opinion on Internal Control over Financial Reporting

 

8

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 the Federal Housing Administration 

refinance program. 

9

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

38 AUDITOR’S REPORT

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

reporting for TARP as of September 30, 2014, based on criteria established under FMFIA.

During our fiscal year 2014 audit, we identified deficiencies in OFS’s internal control over 

financial reporting for TARP that we do not consider to be material weaknesses or significant 

deficiencies.10 Nonetheless, these deficiencies warrant OFS management’s attention. We have 

communicated these matters to OFS management and, where appropriate, will report on them 

separately.

Other Matters

Required Supplementary Information

U.S. generally accepted accounting principles issued by the Federal Accounting Standards 

Advisory Board (FASAB) require that RSI be presented to supplement the financial statements. 

Although not a part of the financial statements, FASAB considers this information to be an 

essential part of financial reporting for placing the financial statements in appropriate 

operational, economic, or historical context. We have applied certain limited procedures to the 

RSI in accordance with U.S. generally accepted government auditing standards, which 

consisted of inquiries of management about the methods of preparing the RSI and comparing 

the 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. 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.

Other Information 

OFS’s other information contains 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. We read the other 

information included with the financial statements in order to identify material inconsistencies, if 

any, with the audited financial statements. Our audit was conducted for the purpose of forming 

an opinion on OFS’s financial statements for TARP. We did not audit and do not express an 

opinion or provide any assurance on the other information.

Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

In connection with our audits of OFS’s financial statements for TARP, we tested compliance 

with selected provisions of applicable laws, regulations, contracts, and grant agreements 

consistent with our auditor’s responsibility discussed below. We caution that noncompliance 

may occur and not be detected by these tests. We performed our tests of compliance in 

accordance with U.S. generally accepted government auditing standards.

 

10A 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.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

AUDITOR’S REPORT 39

Management’s Responsibility

OFS management is responsible for complying with laws, regulations, contracts, and grant 

agreements applicable to OFS.

Auditor’s Responsibility

Our responsibility is to test compliance with selected provisions of laws, regulations, contracts, 

and grant agreements applicable to OFS that have a direct effect on the determination of 

material amounts and disclosures in the TARP financial statements, and perform certain other 

limited procedures. Accordingly, we did not test compliance with all laws, regulations, contracts, 

and grant agreements applicable to OFS. 

Results of Our Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements

Our tests for compliance with selected provisions of applicable laws, regulations, contracts, and 

grant agreements disclosed no instances of noncompliance for fiscal year 2014 that would be 

reportable under U.S. generally accepted government auditing standards. However, the 

objective of our tests was not to provide an opinion on compliance with laws, regulations, 

contracts, and grant agreements applicable to OFS. Accordingly, we do not express such an 

opinion. 

Intended Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant 

Agreements 

The purpose of this report is solely to describe the scope of our testing of compliance with 

selected provisions of applicable laws, regulations, contracts, and grant agreements, and the 

results of that testing, and not to provide an opinion on compliance. This report is an integral 

part of an audit performed in accordance with U.S. generally accepted government auditing 

standards in considering compliance. Accordingly, this report on compliance with laws, 

regulations, contracts, and grant agreements is not suitable for any other purpose.

Agency Comments

In commenting on a draft of this report, OFS stated that it is proud to receive unmodified 

opinions on its financial statements and its internal control over financial reporting. OFS also 

stated that it is committed to maintaining the high standards and transparency reflected in these 

audit results. The complete text of OFS’s response is reprinted in appendix II.

Gary T. Engel

Director

Financial Management and Assurance

November 5, 2014
THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY

40 AUDITOR’S REPORT

Appendix I: Management’s Report on Internal Control Over 

Financial Reporting

DEPARTMENT OF THE TREASURY

 WASHINGTON, D.C. 20220

Management’s Report on Internal Control Over Financial Reporting 

 

The Office of Financial Stability’s (OFS) internal control over financial reporting (for TARP) 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 accordance 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 laws governing 

the use of budget authority and with other applicable laws, regulations, contracts, and grant 

agreements that could have a direct and material effect on the financial statements.

OFS management is responsible for maintaining effective internal control over financial reporting, 

including the design, implementation, and maintenance of internal control relevant to the 

preparation and fair presentation of financial statements that are free from material misstatement, 

whether due to fraud or error. OFS management evaluated the effectiveness of OFS’s internal 

control over financial reporting as of September 30, 2014, 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, 2014, OFS’s internal control over 

financial reporting was effective.

Office of Financial Stability

Timothy Bowler

Deputy Assistant Secretary for Financial Stability

Lorenzo Rasetti

Chief Financial Officer

November 5, 2014
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

AUDITOR’S REPORT 41

Appendix II: OFS Response to Auditor’s Report

DEPARTMENT OF THE TREASURY

 WASHINGTON, D.C. 20220

 DEPUTY ASSISTANT SECRETARY 

November 5, 2014

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 2014 financial statements. OFS is proud to receive 

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

reporting. 

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 J. Bowler

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

42 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’s 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, 

2014 and 2013. Intragovernmental assets and 

liabilities resulting from transactions between 

federal agencies are presented separately from 

assets and liabilities resulting from transactions 

with the public.

The Statement of Net Cost presents the net cost of 

(income from) operations for the fiscal years ended 

September 30, 2014 and 2013.

The Statement of Changes in Net Position 

presents the change in OFS’s net position for two 

components, Cumulative Results of Operations 

and Unexpended Appropriations, for the fiscal 

years ended September 30, 2014 and 2013. 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 fiscal years ended September 30, 

2014 and 2013. 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

FINANCIAL STATEMENTS 43

Dollars in Millions 2014 2013

ASSETS

Intragovernmental Assets:

 Fund Balance with Treasury (Note 3) $ 33,210 $ 53,240

 Other - 1

Total Intragovernmental Assets 33,210 53,241

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

Direct Loans and Equity Investments, Net (Note 6) 2,174 17,869

Total Assets $ 35,434 $ 71,160

LIABILITIES

Intragovernmental Liabilities:

 Accounts Payable and Other Liabilities $ 4 $ 1

 Due to the General Fund (Note 7) 1,488 8,139

 Principal Payable to the Bureau of the Fiscal Service (Note 8) 1,304 11,949

Total Intragovernmental Liabilities 2,796 20,089

Accounts Payable and Other Liabilities 47 87

Liabilities for Treasury Housing Programs Under TARP:

 FHA-Refinance Program (Notes 5 and 6) 6 9

 Making Home Affordable Program and Hardest Hit Fund (Note 5) 243 263

Total Liabilities $ 3,092 $ 20,448

Commitments and Contingencies (Note 9) - -

NET POSITION 

 Unexpended Appropriations $ 32,295 $ 50,663

 Cumulative Results of Operations 47 49

Total Net Position $ 32,342 $ 50,712

Total Liabilities and Net Position $ 35,434 $ 71,160

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, 2014 and 2013
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

44 FINANCIAL STATEMENTS

Dollars in Millions 2014 2013

Gross Cost of (Income from) Operations:

 Program Subsidy Cost (Income) (Note 6)

 Direct Loan and Equity Investment Programs $ (1,492) $ (11,794)

 Other Credit Programs (3) (116)

 Total Program Subsidy Cost (Income) (1,495) (11,910)

 Interest Expense on Borrowings from the Bureau of the Fiscal Service (Note 10) 218 856

 Treasury Housing Programs Under TARP (Note 5) 4,280 3,961

 Administrative Cost 186 248

Total Gross Cost of (Income from) Operations 3,189 (6,845)

Earned Revenue:

 Dividend and Interest Income - Programs (Note 6) (245) (1,292)

 Interest Income on Financing Account (Note 10) (29) (235)

 Subsidy Allowance Amortization (Note 10) 56 671

Total Earned Revenue (218) (856)

Total Net Cost of (Income from) Operations $ 2,971 $ (7,701)

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

Office of Financial Stability - Troubled Asset Relief Program

STATEMENT OF NET COST

For the Years Ended September 30, 2014 and 2013

STRATEGIC GOAL: TO PROMOTE DOMESTIC ECONOMIC GROWTH AND STABILITY WHILE CONTINUING REFORMS OF THE 

FINANCIAL SYSTEM
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

FINANCIAL STATEMENTS 45

Dollars in Millions

Unexpended 

Appropriations

 Cumulative Results 

of Operations 

Unexpended 

Appropriations

 Cumulative Results 

of Operations 

Beginning Balances $ 50,663 $ 49 $ 54,572 $ (707)

Budgetary Financing Sources

 Appropriations Received 308 - 788 -

 Appropriations Used (4,556) 4,556 (4,697) 4,697

 Other Adjustments - Canceled Authority (14,120) - - -

Other Financing Sources - (1,587) - (11,642)

Total Financing Sources (18,368) 2,969 (3,909) (6,945)

Net (Cost of) Income from Operations - (2,971) - 7,701

Net Change (18,368) (2) (3,909) 756

Ending Balances $ 32,295 $ 47 $ 50,663 $ 49

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

Office of Financial Stability - Troubled Asset Relief Program

STATEMENT OF CHANGES IN NET POSITION

For the Years Ended September 30, 2014 and 2013

2014 2013
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

46 FINANCIAL STATEMENTS

Dollars in Millions

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

BUDGETARY RESOURCES

 Unobligated Balance Brought Forward, October 1 $ 21,606 $ 1,462 $ 14,350 $ 17,631

 Recoveries of Prior-Year Unpaid Obligations 261 865 7,246 4,941

 Borrowing Authority Withdrawn - - - (2,611)

 Actual Repayments of Debt, Prior-Year Balances - (1,444) - (17,738)

 Canceled Authority (14,120) - - -

Unobligated Balance from Prior-Year Budget Authority, Net 7,747 883 21,596 2,223

Appropriations 308 - 788 -

Borrowing Authority - 839 - 208

Spending Authority from Offsetting Collections - 7,394 1 13,131

TOTAL BUDGETARY RESOURCES (Note 11) $ 8,055 $ 9,116 $ 22,385 $ 15,562

STATUS OF BUDGETARY RESOURCES

Obligations Incurred $ 295 $ 8,502 $ 779 $ 14,100

Unobligated Balance:

 Apportioned 14 558 11 668

 Unapportioned 7,746 56 21,595 794

Total Unobligated Balance 7,760 614 21,606 1,462

TOTAL STATUS OF BUDGETARY RESOURCES $ 8,055 $ 9,116 $ 22,385 $ 15,562

CHANGE IN OBLIGATED BALANCES

Unpaid Obligations:

 Unpaid Obligations Brought Forward, October 1 $ 29,406 $ 993 $ 40,548 $ 5,926

 Obligations Incurred 295 8,502 779 14,100

 Gross Outlays (4,612) (8,503) (4,675) (14,092)

 Recoveries of Prior-Year Unpaid Obligations (261) (865) (7,246) (4,941)

Unpaid Obligations, End of Year 24,828 127 29,406 993

Uncollected Payments from Federal Sources:

 Uncollected Payments Brought Forward, October 1 $ - $ (226) $ - $ (349)

 Change in Uncollected Payments - 197 - 123

Uncollected Payments from Federal Sources, End of Year - (29) - (226)

Obligated Balance, Net, End of Year $ 24,828 $ 98 $ 29,406 $ 767

OBLIGATED BALANCES

 (Net of Unpaid Obligations and Uncollected Payments Above)

Obligated Balance, Net, Brought Forward, October 1 $ 29,406 $ 767 $ 40,548 $ 5,577

Obligated Balance, Net, End of Year $ 24,828 $ 98 $ 29,406 $ 767

BUDGET AUTHORITY AND OUTLAYS, NET

 Budget Authority, Gross $ 308 $ 8,233 $ 789 $ 13,339

 Actual Offsetting Collections - (17,541) (1) (36,604)

 Change in Uncollected Customer Payments from Federal Sources - 197 - 123

BUDGET AUTHORITY, NET $ 308 $ (9,111) $ 788 $ (23,142)

 Gross Outlays $ 4,612 $ 8,503 $ 4,675 $ 14,092

 Actual Offsetting Collections - (17,541) (1) (36,604)

 Net Outlays 4,612 (9,038) 4,674 (22,512)

 Distributed Offsetting Receipts (8,238) - (13,218) -

AGENCY OUTLAYS, NET $ (3,626) $ (9,038) $ (8,544) $ (22,512)

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

Office of Financial Stability - Troubled Asset Relief Program

STATEMENT OF BUDGETARY RESOURCES

For the Years Ended September 30, 2014 and 2013

2014 2013
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 47

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, as amended (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 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 as the 

aggregate purchase prices of all troubled assets held. 

In July 2010, the Dodd-Frank 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, OFS had 

utilized (including purchases made, legal 

commitments to make purchases and offsets for 

guarantees made) $455.7 billion as of September 30, 

2014 and $456.6 billion as of September 30, 2013. 

The reduction between 2014 and 2013 reflects the 

deobligation of unused funds in certain programs. 

During fiscal year 2014, the TARP administered the 

following programs: the Capital Purchase Program 

(CPP); the Community Development Capital 

Initiative (CDCI); the Public-Private Investment 

Program (PPIP); the Term Asset-Backed Securities 

Loan Facility (TALF); the Automotive Industry 

Financing Program (AIFP); and the Treasury Housing 

Programs Under TARP. During fiscal year 2013, the 

American International Group, Inc. (AIG) Investment 

Program (formerly known as the Systemically 

Significant Failing Institutions Program) and the 

Asset Guarantee Program (AGP) were closed. See 

Notes 5 and 6 for details regarding 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 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) (collectively, the OFS programs) 

with private entities. The OFS 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; they

were not entered into to engage in the business 

activities of the respective private entities. Based on 

this intent, the OFS concluded that such programs

are considered “bailouts,” 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 

OFS determined that none of these entities should 

be classified as a federal entity. Consequently, their 

assets, liabilities and results of operations were not 

consolidated in these OFS financial statements, but 
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

48 NOTES TO THE FINANCIAL STATEMENTS

the value of such investments was recorded in the 

OFS financial statements.

In addition, the OFS has made loans and 

investments in certain Special Purpose Vehicles 

(SPV)3. 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 

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 equity 

interests are included in Notes 2 and 6; see PPIP

and TALF Investment Programs.

 

3 During fiscal year 2014, the OFS held an equity interest in an 

SPV under the TALF program. During fiscal year 2013, the OFS 

held an equity interest in SPVs under the TALF and PPIP 

programs.

The EESA established the OFS within the Office of 

Domestic Finance of the U. S. Department of the 

Treasury (Treasury) to administer the TARP and 

required its separate audited financial statements.

The OFS prepares stand-alone financial statements

for TARP to satisfy EESA Section 116(b)(1).

Additionally, as an office of the Treasury, its 

financial statements are consolidated into 

Treasury’s Agency Financial Report.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 49 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and 

Presentation

The accompanying financial statements include the 

results of operations of the TARP 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. 

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 SPVs, the 

OFS accounts for its equity investments at fair 

value. Since fair value is not defined in federal 

accounting standards, as established in 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, 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 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. 

The OFS applies the provisions of FCRA for 

budgetary accounting and the associated FASAB 

accounting standard SFFAS No. 2 for financial 

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. Liabilities under the 

FHA-Refinance Program are recognized at the net 

present value of their estimated future cash flows 

when the FHA guarantees loans. 
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

50 NOTES TO THE FINANCIAL STATEMENTS

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. 

In certain programs, the OFS has received common 

stock warrants, additional preferred stock (referred 

to as warrant preferred stock) or additional notes as 

additional consideration. The OFS accounts for any 

proceeds received from the sale of these investments 

as fees under SFFAS No. 2; as such, they 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 

Direct Loans and Equity Investments, Net, 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 

OFS programs. These valuation 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 Direct 

Loans and Equity Investments, Net, as of fiscal year 

ends, include 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 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. The FCRA 

calls for the establishment of program, financing 

and general fund receipt accounts to segregate and 

report receipts and disbursements. These accounts 

are classified as either budgetary or non-budgetary 

in the Statement of Budgetary Resources. The OFS 

maintains budgetary 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. 

Financing arrangements specifically for the TARP 

activities are provided for in EESA as follows: (1) 

borrowing for program funds under Section 118, 

reported as “appropriations” in these financial 

statements and (2) borrowing by financing accounts 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 51

for amounts not covered by subsidy cost, under the 

FCRA and Section 123. The OFS uses budgetary 

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. Any assets in these accounts 

are non-entity assets, not available to the OFS, 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 accounts is not included in the OFS’s

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 were 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’s 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.

Direct Loans and Equity 

Investments, Net

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). Writeoffs of gross direct loan and equity investment 

balances (presented in Note 6 table) are recorded 

when a legal event occurs, such as a bankruptcy or 

liquidation with suspension or termination of 

collection action, or extinguishment of a debt 

instrument by agreement and there is currently no 

expectation of further collection. 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. In fiscal year 

2013, under the termination agreement, the FDIC 

transferred certain Citigroup trust preferred 

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

guarantee of Citigroup debt, which OFS then sold. 

As of September 30, 2013, there were no remaining 

securities under the Asset Guarantee Program. See 

Note 6.

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 
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

52 NOTES TO THE FINANCIAL STATEMENTS

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, 2014 and 2013.

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, 2014 and 2013. 

See Notes 6 and 7.

Principal Payable to the Bureau of 

the Fiscal Service

Principal Payable to the Bureau of the Fiscal Service 

(Fiscal Service) is the net amount due for equity 

investments, direct loans and other credit programs 

funded by borrowings from the Fiscal Service as of 

the end of the fiscal year. Additionally, OFS 

borrows from the Fiscal Service 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, 2014 and 

2013, 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’s

share of losses was determined under credit reform 

accounting and 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

reduced by canceled authority in budgetary 

appropriated funds as of September 30, 2014 and 

2013.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 53

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. Cumulative 

Results of Operations in 2014 and 2013 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 Cost. 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

There are no related parties for OFS. 
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

54 NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. FUND BALANCES WITH TREASURY

Fund Balances with Treasury, by fund type and status, as of September 30, 2014 and 2013, are presented in 

the following table.

Collections relating to the AGP are deposited in the 

Troubled Assets Insurance Financing Fund (TAIFF) 

(which is within OFS Financing Funds balance) as 

required by the EESA Section 102(d). In fiscal year 

2013 the TAIFF was closed because the AGP 

program was completed and investments sold. 

NOTE 4. CASH ON DEPOSIT FOR HOUSING PROGRAM

As of September 30, 2014 and 2013, the OFS had 

$50 million on deposit with a commercial bank to 

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

Under terms of the agreement with the commercial 

bank, unused funds will be returned to the OFS 

upon the termination of the program. 

(Dollars in Millions) 2014 2013

Fund Balances:

 General Funds $ 32,231 $ 36,630

 Program Funds 358 14,382

 Financing Funds 621 2,228

Tot al Fund Balances $ 33,210 $ 53,240

St at us of Fund Balances:

 Unobligated Balances

 Available $ 572 $ 678

 Unavailable 7,802 22,389

 Obligated Balances Not Yet Disbursed 24,836 30,173

Tot al St at us of Fund Balances $ 33,210 $ 53,240

As of September 30,
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 55

NOTE 5. TREASURY HOUSING PROGRAMS UNDER TARP

Fiscal years 2014 and 2013 saw 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) Hardest-Hit Fund (HHF); and 

3) FHA-Refinance Program. 

Features of these initiatives follow:

Housing Program Features

MHA

 Home Affordable Modificat ion Program (HAMP)

 First Lien Modification Program (Tier 1 and Tier 2) 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 (PRA) Pays financial incentives to investors for principal reduction in conjunction 

with a first lien HAMP modification.

 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.

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

HHF Provides targeted aid to homeowners 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.
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

56 NOTES TO THE FINANCIAL STATEMENTS

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-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) and the U.S.

Department of Agriculture (USDA). 

In fiscal year 2013, the deadline for applications 

under the MHA programs was extended from 

December 31, 2013, to December 31, 2015, and in 

fiscal year 2014 it was announced that it would be 

extended again at least a year to December 31, 

2016. In addition, in fiscal year 2014, OFS made 

changes to MHA programs to align with recently 

issued Consumer Financial Protection Bureau 

(CFPB) regulations and to address the interest 

rate increase and enhance borrower awareness of 

any payment change and resources available 

should they need assistance. 

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.

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 

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 HHF was implemented in fiscal year 2010, 

and provides targeted aid to homeowners in the 

states hit hardest by the housing market 

downturn and unemployment through each state’s 

Housing Finance Agency (HFA). States that meet 

the criteria for this program, consisting 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, receive 

funding from the OFS. Approved states develop 

and roll out their own programs with timing and 

types of programs 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 2014, state HFAs continued to adapt 

their programs to best meet borrower needs in 

evolving economic and housing markets. A total 

of fourteen HFAs now offer principal reduction to 

induce a loan modification, refinance, or recast. 

In addition to Florida, Illinois, and Ohio, now 

Nevada and North Carolina provide HHF 

resources to enhance modification of loans 

purchased through distressed asset note sales. 

Oregon continues to offer refinancing options to 

underwater homeowners ineligible for other 

options. Illinois, Indiana, and Ohio joined 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 57

Michigan in allocating a portion of their HHF 

funds to blight elimination in an effort to stabilize 

neighborhoods and prevent foreclosures. Finally, 

another five HFAs followed Rhode Island and 

Illinois in closing their HHF application portals in 

anticipation of full commitment of program funds: 

the District of Columbia, New Jersey, Ohio, 

Oregon, and Tennessee.

FHA-Refinance Program

The FHA-Refinance Program is a joint initiative 

with the U. S. Department of Housing and Urban 

Development (HUD) which is intended to 

encourage refinancing of existing underwater 

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 September 

2020. As of September 30, 2014, and September 

30, 2013, 3,015 loans had been refinanced. 

OFS deposited $50 million with a commercial 

bank as its agent to administer payment of claims 

under the program; $47,840 in claim payments 

were made as of September 30, 2013. No 

additional claim payments were made in fiscal 

year 2014. See Notes 4 and 6 for further details 

about the deposit and the program. OFS paid 

$0.8 million in fiscal year 2014 and $2 million in 

fiscal year 2013 to maintain the letter of credit.

The table below recaps housing program 

commitments as of September 30, 2014, and 

payments and accruals as of September 30, 2014

and 2013.

Treasury Housing Programs Under TARP 

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

(Dollars in Millions) September 30, 20141

2014 2013 2014 2013

MHA $ 29,829 $ 2,739 $ 2,541 $ 243 $ 263

HFA Hardest Hit Fund 7,600 1,560 1,396 - -

FHA - Refinance2

 1,025 1 2 - -

Totals $ 38,454 $ 4,300 $ 3,939 $ 243 $ 263

1

Total commitments represent amounts obligated to support all of OFS's Housing programs. This differs from the $24,429 outstanding 

commitments as of September 30, 2014, which are the remaining funds available to be spent.

2

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's estimated share of defaults, which establishes the liability for losses, see Note 6. Payments are the FHA-Refinance administrative 

expense only.
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

58 NOTES TO THE FINANCIAL STATEMENTS

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: 

Direct Loan and Equity Investment Programs

Capital Purchase Program (CPP)

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 non-cumulative for 

others; they are payable when and if declared by the 

institution’s board of directors. In addition to the 

senior preferred stock, the OFS received warrants, 

with a 10-year term, as required by Section 113(d) of 

EESA, from public QFIs to purchase a number of 

shares of common stock. QFIs that are Subchapter 

S corporations issued subordinated debentures 

instead of preferred stock (to comply with tax code 

regulations) with interest rates of 7.7 percent for the 

first five years and 13.8 percent thereafter. 

The OFS received warrants from non-public 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 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 have issued the preferred shares. 

` Program Type

Direct Loans and Equity Investments

 Capital Purchase Program Equity Investment/Subordinated Debentures

 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 

 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
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 59

Generally, these 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 2014 and 2013, OFS continued 

auction sales of selected remaining CPP 

investments.

In fiscal year 2014, OFS sold 31 CPP investments in 

6 separate auctions for total net proceeds of $289 

million. These auction sales resulted in net proceeds 

less than cost of $73 million. In addition, other sales 

and redemptions for 31 institutions resulted in net 

proceeds less than cost of $96 million.

In fiscal year 2013, OFS sold 113 CPP investments 

in 14 separate auctions for total net proceeds of $1.5 

billion. These auction sales resulted in net proceeds 

less than cost of $455 million. In addition, other 

sales and redemptions for 60 institutions resulted in 

net proceeds less than cost of $38 million.

During fiscal year 2014, three institutions, in which 

OFS had invested $27 million, were either closed by 

their regulators or declared bankruptcy. During 

fiscal year 2013, seven institutions, in which OFS 

had invested $137 million, were either closed by 

their regulators or declared bankruptcy. The 

ultimate amount received, if any, from the 

investments in institutions that filed for bankruptcy 

and institutions closed by regulators primarily 

depends upon the outcome of the bankruptcy 

proceedings and of each institution’s 

receivership. At closing or bankruptcy, they are 

valued by OFS at zero.

During fiscal year 2014, 27 institutions that entered

bankruptcy or were closed by their regulators 

between 2009 to 2014 were written off for $797 

million, the amount of OFS’s original investments. 

During fiscal year 2013, one CPP institution was 

written off for $104 million. OFS had originally 

invested $110 million and recovered $6 million. The 

write-offs reduced gross investment outstanding and 

subsidy allowance by equal offsetting amounts, since 

the investments were valued at zero through the 

subsidy cost reestimates.

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

2014 and 2013:

CPP Part icipat ing Inst it ut ions

2014 2013

Number of Institutions Funded 707 707

Institutions Paid in Full, Merged or Investments Sold (469) (407)

Institutions Transferred to CDCI (28) (28)

Institutions Refinanced to SBLF (137) (137)

Institutions Written Off After Bankruptcy or Receivership (30) (3)

Number of Institutions with Outstanding OFS Investments 4 3 132

Institutions in Bankruptcy or Receivership (not written off) - (24)

Number of CPP Institutions Valued at Year-End 4 3 108

Of the Institutions Valued, Number that Have Missed One or More Dividend Payments 3 6 7 6

CPP Invest ment s

(Dollars in Millions) Fiscal Year 2014 Fiscal Year 2013

Outstanding Beginning Balance, Investment in CPP Institutions, Gross $ 3,143 $ 8,664

Repayments and Sales of Investments (1,454) (4,752)

Write-Offs (797) (104)

Losses from Sales and Repurchases of Assets (267) (665)

Outstanding Balance, Investment in CPP Institutions, Gross $ 625 $ 3,143

Interest and Dividend Collections $ 8 8 $ 262

Net Proceeds from Sales and Repurchases of Assets Less Than Cost $ (169) $ (493)

Cumulative as of September 30,
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

60 NOTES TO THE FINANCIAL STATEMENTS

Community Development Capital 

Initiative (CDCI)

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.

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 2014, there were no CDCI 

institutions written off. During fiscal year 2013, one 

CDCI institution, in which the OFS invested $7 

million, was written off. 

In fiscal year 2014, OFS received $10 million in 

repayments and $10 million in dividends and 

interest from its CDCI investments with, as of 

September 30, 2014, an outstanding balance of $465 

million and value of $372 million. In fiscal year 

2013, OFS received $86 million in repayments and 

$11 million in dividends and interest from its CDCI 

investments with, as of September 30, 2013, an 

outstanding balance of $475 million and value of 

$371 million. 

Public-Private Investment Program

(PPIP)

The PPIP was part of the OFS’s 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 equaled 49.9 percent of the total 

equity invested. Each PPIF elected to receive a loan 

commitment equal to 100 percent of partnership 

equity. Agreements between the OFS and the 

PPIFs 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.

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 were 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 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 61

secured directly by the actual mortgage loans, leases 

or other assets (eligible assets) and not other 

securities. The PPIFs investment period ended 

December 2012 and as of June 30, 2013, all of the 

PPIF’s securities portfolios were completely

liquidated. 

In fiscal year 2013, the six remaining PPIFs 

liquidated investments and fully repaid investors, 

including OFS. During fiscal year 2014, upon final 

termination notice from five PPIF partnerships, the 

OFS received $10 million, of which $6 million was 

recognized as investment income and $4 million as 

net proceeds in excess of cost. During fiscal year 

2013, the OFS received $17 million in interest on 

loans and $5.7 billion in loan principal repayments

from the PPIFs and received $5.5 billion in equity 

distributions, of which $254 million was recognized 

as investment income, $1.2 billion as net proceeds in 

excess of cost and $4.1 billion as a reduction of the 

gross investment outstanding. 

As of September 30, 2014, OFS had no PPIF equity 

investments or loans outstanding. As of September 

30, 2013, OFS had no PPIF equity investments or 

loans outstanding. The $10 million positive balance 

in the PPIP subsidy allowance account represented 

additional proceeds expected upon final liquidation 

of remaining partnerships. 

Of the legal commitments to disburse up to $984 

million to remaining PPIFs as of September 30, 

2013, $858 million were canceled in 2014 since all 

PPIFs had ceased operations and termination 

notices had been received from all but one of them. 

There is little likelihood of additional disbursement 

as they would only occur if a factor adjustment to a 

trade was recognized, requiring additional funds 

from the investors in the PPIF.

Term Asset-Backed Securities Loan 

Facility (TALF)

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, 2014, one loan due to FRBNY of 

approximately $14.3 million remained outstanding. 

As of September 30, 2013, $101 million 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’s commitment was 

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

commitment was reduced to $1.4 billion. In fiscal 

year 2013, the remaining commitment was 

terminated. 

The OFS disbursed $100 million upon the creation of 

TALF, LLC in 2009. Upon its wind-down, when 

collateral defaults, reaches final maturity or is sold, 

available cash will be disbursed to FRBNY and OFS 

according to the legal agreement between them.

In fiscal year 2014, OFS received $62 million of 

contingent interest, recorded as proceeds in excess of 

cost. 

In fiscal year 2013, a modification to the terms of the 

legal agreement resulted in $55 million in subsidy 

income for the program. The modification allowed 

OFS to receive $100 million in repayments, $13 

million in interest and $570 million of contingent 

interest, recorded as proceeds in excess of cost, in 

fiscal year 2013 rather than in fiscal year 2015 as 

originally expected.

As of September 30, 2014 or 2013, no TALF loans 

were in default and consequently no collateral was 

purchased by the TALF, LLC.
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

62 NOTES TO THE FINANCIAL STATEMENTS

Automotive Industry Financing Program

(AIFP)

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 $51.0 billion to General Motors 

Corporation (Old GM) through various loan 

agreements including the initial loan for general and 

working capital purposes, auto supplier and 

warranty programs, and the final loan for debtor in 

possession (DIP) financing while Old GM was in 

bankruptcy. As of September 30, 2012, after various 

sales and restructurings of its investment, the OFS 

held 500 million shares of common stock of New GM, 

the post-bankruptcy GM entity, and had received a 

cumulative total of $23.9 billion in stock sale 

proceeds, loan repayments, dividends and interest.

During fiscal year 2014, OFS sold its remaining 101 

million shares of GM common stock for $3.8 billion. 

The sales resulted in net proceeds less than cost of 

$639 million. At September 30, 2014, the OFS 

retained no ownership in the common stock of New 

GM.

During fiscal year 2013, OFS sold 399 million shares 

of GM common stock for $12.0 billion. The sales 

resulted in net proceeds less than cost of $5.4 billion.

At September 30, 2013, the OFS held 101 million

shares of the common stock of New GM that

represented approximately 7.3 percent of the 

common stock of New GM outstanding. Market 

value of the 101 million shares as of September 30, 

2013 was $3.6 billion. 

In fiscal year 2011, $986 million of OFS’s loan to Old 

GM 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 $1 

million and $22 million in fiscal years 2014 and 

2013, respectively, on the administrative claim. The 

outstanding balance at September 30, 2013 was 

$827 million. Because OFS does not expect to 

recover any significant additional proceeds from this 

claim, OFS recognized a write-off of the remaining 

$826 million in fiscal year 2014 resulting in no 

outstanding balance at September 30, 2014. 

Chrysler Group LLC (New Chrysler) and 

Chrysler Holding LLC (Old Chrysler)

During fiscal years 2009 and 2010, OFS invested 

$7.8 billion in Chrysler Holding LLC (Old Chrysler), 

including the auto supplier and warranty programs, 

and an additional $4.6 billion in Chrysler Group 

LLC (New Chrysler) under the terms of Chrysler’s 

bankruptcy agreement. Prior to fiscal year 2012, 

pursuant to several agreements with New Chrysler 

that included write-offs, OFS had received loan 

repayments, interest and additional payments

totaling $11.1 billion and had no remaining interest 

in New Chrysler. 

OFS continues to hold a right to receive proceeds 

from a bankruptcy liquidation trust related to Old 

Chrysler, but no significant cash flows are expected. 

Nothing was received from the trust in fiscal year 

2014 or 2013. The underlying loan balance was 

extinguished in the Chrysler bankruptcy, and was 

written off by OFS in fiscal year 2010.

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 addition, in May 2009, 

under the terms of a separate $884 million loan to 

Old GM, OFS exercised its exchange option and 

received 190,921 shares of GMAC common stock 

from Old GM in full satisfaction of the loan. In May 

2010, GMAC changed its corporate name to Ally 

Financial, Inc. (Ally), a private bank holding 

company. As a result of original investments, 

exchanges, conversions, warrant exercises and sales, 

at the beginning of fiscal year 2013, OFS had 

received $5.7 billion in sales proceeds, dividends, 

and additional payments on its initial investment 

and held 981,971 shares of common stock (73.8 

percent of Ally’s outstanding common stock) and 119 

million shares of Series F-2 mandatorily convertible 

preferred securities (Series F-2). The Series F-2 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 63

were convertible into at least 513,000 shares of 

common stock. 

Per an August 2013 agreement, all of the Series F-2 

were repurchased by Ally from OFS for $5.2 billion 

in November 2013 along with an additional $725 

million for the elimination of certain rights under 

the original agreement. This transaction resulted in 

proceeds in excess of cost of $300 million. The 

August 2013 agreement also included terms for Ally 

to issue a November 2013 private offering of new 

common stock at a price of $6,000 per share. 

Following the private offering, OFS’s ownership was 

reduced to 63.4 percent of Ally’s outstanding 

common stock. A stock split of 310/1 was also 

announced by Ally following the private offering. 

The OFS received $141 million and $534 million in 

dividends, respectively, from the Ally investment in 

fiscal years 2014 and 2013.

During fiscal year 2014, OFS sold 410,000 pre-split 

shares and 113 million post-split shares of Ally 

common for $5.8 billion. The sales resulted in net 

proceeds less than cost of $1.4 billion.

At September 30, 2014, the OFS held 64,110,418 

shares of Ally common stock (post-split), with a 

market value of $1.5 billion, representing 13.4 

percent ownership in Ally.

At September 30, 2013, the OFS held 981,971 shares 

of Ally common stock (pre-split), representing 73.8 

percent ownership in Ally. The total investment in 

Ally was valued at $12.0 billion at September 30, 

2013, considering the effects of the August 2013 

agreement: $5.9 billion for the common stock and 

$6.1 billion for the Series F-2. 

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. An additional $27.8 

billion was drawn from a capital facility made 

available to AIG by OFS, secured by additional 

preferred stock and common stock warrants. By 

January 2011, and as a result of various 

restructurings of both the OFS’s and the Federal 

Reserve Bank of New York’s investments in AIG, 

the OFS’s entire investment outstanding consisted 

of $20.3 billion of interests in two AIG subsidiaries

organized as Special Purpose Vehicles (the “AIG 

SPVs”) and 1.1 billion shares of AIG common stock.

In fiscal year 2013, OFS sold the remainder of its 

common stock and warrants for $5.0 billion, 

resulting in proceeds less than cost of $1.7 billion.

As of September 30, 2013, OFS retained no 

ownership interest in AIG, common or preferred, nor 

any interests in SPVs. 

On its original $67.8 billion investment in AIG, OFS 

received $55.3 billion in repayments, sales proceeds, 

fees and dividends. OFS also incurred net interest 

cost of $2.7 billion, for a total subsidy cost of $15.2 

billion, or 22.4 percent of original investment.

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. 
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

64 NOTES TO THE FINANCIAL STATEMENTS

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 using 

market prices of similar securities to estimate an 

appropriate market-adjusted discount rate 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.

 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.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 65

The following table 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 $ 106 $ - $ 175 $ 281

 CDCI and TALF 3 8 - 372 410

 Automotive Industry Financing Program 1,483 - - 1,483

Tot al TARP Programs $ 1,627 $ - $ 547 $ 2,174

(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 $ 125 $ - $ 1,668 $ 1,793

 CDCI and TALF 1 8 - 451 469

 Public-Private Investment Program - - 1 0 1 0

 Automotive Industry Financing Program 3,647 11,950 - 15,597

Tot al TARP Programs $ 3,790 $ 11,950 $ 2,129 $ 17,869

As of September 30, 2014

As of September 30, 2013

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 Investments4 

The estimated values of preferred equity 

investments are the net present values of the 

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 

 

4

This consists of equity investments made under CPP and CDCI.

institution based on the strength of its balance 

sheet. The model assumes a probabilistic approach 

to estimate the projected cash flows due to the 

Treasury based on market pricing data and the 

strength of a given institution’s balance sheet. Each 

institution’s performance is subject to uncertainty. 

For a given institution, the model uses market 

pricing data and the strength of its balance sheet to 

estimate its future performance.

In fiscal year 2014, OFS implemented a new 

estimation methodology in its model for its 

remaining equity investments. The new model was 

implemented as the risk profile of the remaining 

equity investments within the TARP portfolio 

evolved over time and as the portfolio as a whole 

continued to wind down. Within the new model, 
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

66 NOTES TO THE FINANCIAL STATEMENTS

some institutions are increasingly likely to default 

or to miss the preferred dividends as the quality of 

their assets deteriorates or the level of capital they 

have available to absorb losses declines as a share of 

their assets. The probability of default was 

estimated based on the performance of a large 

sample of U.S. banks over time and on the historical 

behavior of the TARP’s own equity investments. At 

the other end of the spectrum, institutions are 

increasingly likely to call their preferred shares over 

time as their balance sheets improve. Inputs to the 

model included institution-specific accounting data 

obtained from regulatory filings, an institution’s 

stock price volatility and historical bank failure 

information, as well as market pricing data of 

comparable securities trading in the market. The 

market risk adjustment is estimated by grouping 

institutions with similar financial performance and 

applying credit spreads from similar securities.

For equity valuations at September 30, 2013, the 

OFS model assumed that institutions managed their 

asset-to-liability ratios in such a way that they 

revert over time to a target level. Historical 

volatility was used to scale the likely evolution of 

each institution’s asset-to-liability ratio. When 

equity decreased, i.e. the asset-to-liability ratio fell, 

institutions were increasingly likely to default, 

either because they entered bankruptcy or were 

closed by regulators. The probability of default was 

estimated based on the performance of a large 

sample of U.S. banks. At the other end of the 

spectrum, institutions called their preferred shares 

when the present value of expected future dividends 

exceeded the call price; this occurred when equity 

was high and interest rates were low. Inputs to the 

model included institution-specific accounting data 

obtained from regulatory filings, an institution’s 

stock price volatility and historical bank failure 

information, as well as market prices of comparable 

securities trading in the market. The market risk 

adjustment was obtained through a calibration 

process to the market value of certain trading 

securities of financial institutions within TARP 

programs or other comparable financial 

institutions.

For both its September 30, 2013 model and its new 

model implemented in fiscal year 2014, 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 that are exchange 

traded are valued at the quoted market price as of 

year end.

Public-Private Investment Program 

At September 30, 2014 and 2013, since the PPIFs no 

longer held security portfolios, their valuation 

represented expected proceeds to OFS upon final 

liquidation notice from the remaining PPIFs. 

Term Asset-Backed Securities Loan Facility 

For fiscal year 2014, the valuation represents

expected proceeds to the OFS upon final wind down 

of the Federal Reserve Bank of New York (FRBNY) 

TALF LLC SPV because the OFS loan was fully 

repaid in fiscal year 2013 and only one FRBNY 

TALF loan remained outstanding as of September 

30, 2014. 

During fiscal year 2013, the OFS model derived the 

cash flows to the SPV and ultimately the OFS, based 

on the performance of underlying collateral under 

various economic scenarios. Loss probabilities on 

the underlying collateral were calculated based on 

analysis of historical loan performance by credit 

sector and subsector. Scenario outcomes consisting 

of a range of loss scenarios were probabilityweighted to generate the expected net present value 

of future cash flows.

Automotive Industry Financing Program 

Shares of common stock in General Motors Company 

(New GM) held by OFS were valued by multiplying 

the publicly traded share price by the number of 

shares held plus the value of any traded but not 

settled shares as of September 30, 2013. Traded but 

not settled shares as of September 30, 2013, were 

valued based on the actual trade proceeds. OFS had 

no investment in GM common stock remaining as of 

September 30, 2014.

At September 30, 2014, shares of common stock in 

Ally, held by OFS, were valued by multiplying the 

publicly traded share price by the number of shares 

held plus the value of any traded but not settled 

shares as of September 30, 2014. Traded but not 

settled shares as of September 30, 2014, were valued 

based on the actual trade proceeds.

To value its holdings in Ally at September 30, 2013,

OFS considered observable market data from the 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 67

August 2013 agreement for the repurchase of the 

Series F-2 and Ally’s private offering of new common 

stock at a price of $6,000 per share. Proceeds and 

dividends received in November related to the Series 

F-2 repurchase were discounted to September 30, 

2013 at a risk-free discount rate to reflect the timing 

and certainty of the expected cash flows. OFS’s

investment in 981,971 shares of common stock was 

valued at the price per share in Ally’s private 

offering.

American International Group, Inc. 

Investment Program

OFS had no investment in AIG remaining as of 

September 30, 2013. 

Asset Guarantee Program

As of September 30, 2013, no instruments remained 

under the Asset Guarantee Program.

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’s 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 2014, there were no modifications 

to any of the remaining programs. 

During fiscal year 2013, modifications occurred in 

the AGP and TALF programs that resulted in 

subsidy income of $94 million and $55 million, 

respectively. 

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 fiscal years 2014 and 2013, financial statement 

reestimates for all programs were performed using 

actual financial transaction data through September 

30. For fiscal year 2013, a mix of market and 

security specific data publicly available as of 

September 30 and August 31 were used for all 

programs. For fiscal year 2014 market and security 

specific data publicly available as of September 30 

were used.

Net downward reestimates for the fiscal years ended 

September 30, 2014 and 2013, totaled $1.5 billion 

and $11.8 billion, respectively. Descriptions of the 

reestimates, by OFS Program, are as follows:

CPP

The $88 million downward reestimate for CPP for 

the fiscal year ended September 30, 2014 was the 

result of a reduction in the projected number of 

institutions that would be sold via asset sales, 

revenues from asset sales in 2014 being higher than 

projected, and repayments.

The $1.1 billion downward reestimate for CPP for 

the fiscal year ended September 30, 2013 was the 

result of a reduction in the projected number of 

institutions that would be sold via asset sales, 

repayments and improved market values of the 

outstanding investments.

CDCI

The CDCI program experienced improved market 

values and repayments in full, resulting in a $6 

million downward reestimate for the fiscal year 

ended September 30, 2014.

The CDCI program experienced improved 

investment performance with several institutions 

repaying in full, resulting in a $32 million 

downward reestimate for the fiscal year ended 

September 30, 2013. 

PPIP

There was a nominal reestimate for the PPIP for the 

fiscal year ended September 30, 2014, due to the 

wind-down of expenses being nearly as projected.

The $380 million net downward reestimate for the 

PPIP for the fiscal year ended September 30, 2013, 

was primarily due to accelerated repayments.
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

68 NOTES TO THE FINANCIAL STATEMENTS

TALF

The investments in the TALF experienced lower 

than anticipated expenses resulting in a $1 million 

downward reestimate for the fiscal year ended 

September 30, 2014.

The investments in the TALF experienced improved 

market conditions and accelerated repayments, 

resulting in a $33 million downward reestimate for 

the fiscal year ended September 30, 2013. The $55 

million downward modification reflected principal 

and interest repayments occurring in February 

2013, with contingent interest paid over time 

beginning in February 2013. Prior to the 

modification, principal, interest and contingent 

interest would have occurred in March 2015.

AIFP

Improvements in the value of Treasury’s investment 

in Ally resulted in $1.0 billion in downward 

reestimates and improvements in Treasury’s 

investments for GM resulted in $349 million for a 

total of $1.4 billion in downward reestimates for 

AIFP for the year ended September 30, 2014. In 

April, 2014 an initial public offering (IPO) of Ally 

common stock occurred with Treasury selling 95 

million shares at $25.00 per share. In May 7.2 

million shares were sold at that price. As of 

September 30, 2014 the remaining shares of Ally 

common were valued at $23.14 per share.

Improvements in the common stock share price for 

New GM accounted for $4.4 billion of the $10.2 

billion in downward reestimates for AIFP as of 

September 30, 2013. The price improved throughout 

fiscal year 2013, from $22.75 per share at September 

30, 2012 to $35.97 per share at September 30, 2013. 

The remaining $5.8 billion in downward reestimates 

for AIFP was due to increases in the valuation of the 

outstanding investment in Ally, reflecting the 

November 2013 repurchase of the Series F-2 

mandatorily convertible preferred securities per the 

August 2013 agreement and the valuation of 

remaining shares at an observable market value.

AIG Investment Program

The $32 million net upward reestimate for the fiscal 

year ended September 30, 2013 was due primarily to 

the sale of the remaining 155 million shares of AIG 

common stock at a price of $32.50 per share, slightly 

lower than the September 30, 2012 price of $32.79 

per share. The AIG program was closed out in fiscal 

year 2013. 

Summary Table

The following table recaps gross direct loans or 

equity investments, subsidy allowance, net direct 

loans or equity investments, reconciliation of 

subsidy cost allowance and subsidy cost, by TARP 

program, as of and for the fiscal years ended 

September 30, 2014 and 2013. OFS authority 

expired October 3, 2010 and no commitments were 

made thereafter, so there were no budget execution 

subsidy rates for fiscal years 2014 and 2013.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 69

Troubled Asset Relief Program Loans and Equity Investments

(Dollars in Millions) TOTAL CPP PPIP AIFP AIG CDCI-TALF

As of Sept ember 30, 2014

Direct Loans and Equit y Invest ment Programs:

Direct Loans and Equity Investments Outstanding, Gross $ 2,853 $ 625 $ - $ 1,763 $ - $ 465

Subsidy Cost Allowance (679) (344) - (280) - (55)

Direct Loans and Equity Investments Outstanding, Net $ 2,174 $ 281 $ - $ 1,483 $ - $ 410

Obligations for Loans and Investments not yet Disbursed $ 126 $ - $ 126 $ - $ - $ -

Reconciliat ion of Subsidy Cost Allowance:

Balance, Beginning of Period $ 5,627 $ 1,350 $ (10) $ 4,281 $ - $ 6

 Interest and Dividend Revenue 245 8 8 6 141 - 1 0

 Net Proceeds from Sales and Repurchases of Assets

 in Excess of (Less than) Cost (1,889) (169) 4 (1,786) - 6 2

 Write-Offs (1,623) (797) - (826) - -

 Net Interest Expense on Borrowings from Fiscal Service

 and Financing Account Balance (189) (40) - (133) - (16)

Balance, End of Period, Before Reestimates 2,171 432 - 1,677 - 6 2

 Subsidy Reestimates Upward (Downward) (1,492) (88) - (1,397) - (7)

Balance, End of Period $ 679 $ 344 $ - $ 280 $ - $ 5 5

Reconciliat ion of Subsidy Cost (Income):

 Subsidy Cost (Income) for Modifications $ - $ - $ - $ - $ - $ -

 Subsidy Reestimates Upward (Downward) (1,492) (88) - (1,397) - (7)

Total Direct Loan and Equity Investment Programs

 Subsidy Cost (Income) $ (1,492) $ (88) $ - $ (1,397) $ - $ (7)

(Dollars in Millions) TOTAL CPP PPIP AIFP AIG CDCI-TALF

As of Sept ember 30, 2013

Direct Loans and Equit y Invest ment Programs:

Direct Loans and Equity Investments Outstanding, Gross $ 23,496 $ 3,143 $ - $ 19,878 $ - $ 475

Subsidy Cost Allowance (5,627) (1,350) 1 0 (4,281) - (6)

Direct Loans and Equity Investments Outstanding, Net $ 17,869 $ 1,793 $ 1 0 $ 15,597 $ - $ 469

Obligations for Loans and Investments not yet Disbursed $ 984 $ - $ 984 $ - $ - $ -

Reconciliat ion of Subsidy Cost Allowance:

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

 Subsidy Cost (Income) for Disbursements and Modifications (55) - - - - (55)

 Interest and Dividend Revenue 1,092 262 271 534 - 2 5

 Net Proceeds from Sales and Repurchases of Assets

 in Excess of (Less than) Cost (5,790) (493) 1,173 (5,361) (1,679) 570

 Write-Offs (111) (104) - - - (7)

 Net Interest Expense on Borrowings from Fiscal Service

 and Financing Account Balance (612) (105) (59) (412) (11) (25)

Balance, End of Period, Before Reestimates 17,366 2,490 370 14,467 (32) 7 1

 Subsidy Reestimates Upward (Downward) (11,739) (1,140) (380) (10,186) 3 2 (65)

Balance, End of Period $ 5,627 $ 1,350 $ (10) $ 4,281 $ - $ 6

Reconciliat ion of Subsidy Cost (Income):

 Subsidy Cost (Income) for Modifications $ (55) $ - $ - $ - $ - $ (55)

 Subsidy Reestimates Upward (Downward) (11,739) (1,140) (380) (10,186) 3 2 (65)

Total Direct Loan and Equity Investment Programs

 Subsidy Cost (Income) $ (11,794) $ (1,140) $ (380) $ (10,186) $ 3 2 $ (120)
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

70 NOTES TO THE FINANCIAL STATEMENTS

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. 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’s guarantee was 

limited to $5.0 billion. 

In December 2009, the USG Parties and Citigroup 

agreed to terminate the guarantee agreement. 

At the beginning of fiscal year 2013, $800 million of

a TruPS-related receivable from the FDIC valued at 

$967 million was on the OFS Balance Sheet. The 

TruPS were received, exchanged for subordinated 

notes, and the notes sold in 2013 for $894 million. 

In addition, OFS received $200 million of dividends 

on the TruPS in fiscal year 2013. 

A downward modification of $94 million due to the 

exchange of TruPS into subordinated notes and 

immediate sale of the notes, and net reestimates 

including the closing downward reestimate of $24 

million resulted in subsidy income for fiscal year 

2013.

The AGP program was closed out in fiscal year 2013. 

The following table details the changes in the 

receivable account and the AGP subsidy cost during

fiscal year 2013:

Reconciliat ion of Asset Guarant ee Program Receivable:

(Dollars in Millions) 2014 2013

Balance, Beginning of Period $ - $ 967

 Subsidy Income for Modifications - 9 4

 Dividend Revenue - (200)

 Proceeds from Sales in Excess of Cost - (894)

 Net Interest Expense on Borrowings from Fiscal Service and Financing Account Balance - 9

Balance, End of Period, Before Reestimates and Modification - (24)

 Subsidy Reestimates - Downward - 2 4

Balance, End of Period $ - $ -

Reconciliat ion of Subsidy Cost (Income)

 Subsidy Income for Modifications $ - $ (94)

 Subsidy Reestimates - (Downward) - (24)

Tot al Subsidy Cost (Income) $ - $ (118)

Fiscal Year
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 71

FHA-Refinance Program

As discussed in Note 5, the OFS entered into a losssharing 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. OFS has 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 2014, no new loans were 

guaranteed by FHA under this program that 

required a Treasury contribution.

During fiscal year 2013, $182 million of loans were 

guaranteed by the FHA. As of September 30, 2014 

and September 30, 2013, 3,015 loans that FHA 

guaranteed, with a total value of $489 million, had 

been refinanced under the program through May 

2013. Effective June 1, 2013, the Treasury Coverage 

Ratio, which governs the amount of losses financed 

by OFS, was recalculated and it was determined 

that OFS’s guarantee was no longer needed during 

the remainder of fiscal year 2013 and throughout 

fiscal year 2014.

OFS’s maximum exposure related to FHA’s 

guarantee totaled $34 million and $59 million at 

September 30, 2014 and 2013, respectively. OFS’s 

guarantee resulted in a liability of $6 million at 

September 30, 2014 and a liability of $9 million at 

September 30, 2013. The liability was calculated, 

using credit reform accounting, as the present value 

of the estimated future cash outflows for the OFS’s

share of losses incurred on any defaults of the FHA 

guaranteed loans. As of September 30, 2013, 

$47,840 of claims had been paid by OFS under the 

program. No additional claims were paid by OFS 

during fiscal year 2014 under the program.

At September 30, 2014 and 2013, OFS’s obligation 

for subsidy for potential new FHA guaranteed loans 

under the program was $1.0 billion.

Budget subsidy rates for the program, entirely for 

defaults, were set at 2.48 percent for loans 

guaranteed in fiscal year 2013.

The program recorded a $3 million downward 

reestimate, for each of the fiscal years 2014 and 

2013, due to 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 2014 and 2013:

Reconciliat ion of FHA-Refinance Program Liabilit y

(Dollars in Millions) 2014 2013

Balance, Beginning of Period $ 9 $ 7

 Subsidy Cost for Guaranties (Defaults) - 5

Balance, End of Period, Before Reestimates 9 1 2

 Subsidy Reestimates - Upward (Downward) (3) (3)

Balance, End of Period $ 6 $ 9

Reconciliat ion of Subsidy Cost (Income)

 Subsidy Cost for Guaranties (Defaults) $ - $ 5

 Subsidy Reestimates - Upward (Downward) (3) (3)

Tot al Subsidy Cost (Income) $ (3) $ 2

Fiscal Year
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

72 NOTES TO THE FINANCIAL STATEMENTS

NOTE 7. DUE TO THE GENERAL FUND

As of September 30, 2014, the OFS accrued $1.5 

billion of downward reestimates payable to the 

General Fund. As of September 30, 2013, the OFS 

accrued $8.1 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 FISCAL SERVICE 

(Fiscal Service)

Equity investments, direct loans and other credit

programs accounted for under federal credit reform 

are funded by subsidy appropriations and 

borrowings from the Fiscal Service. 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 Fiscal Service 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, 2014 and 2013 were as follows: 

Borrowings from the Fiscal Service by TARP program, outstanding as of September 30, 2014 and 2013, were 

as follows:

As of September 30, 2014, borrowings carried 

remaining terms ranging from 2 to 27 years, with 

interest rates from 2.5 percent to 3.8 

percent. As of September 30, 2013, borrowings 

carried remaining terms ranging from 3 to 28 years, 

with interest rates from 2.5 percent to 3.8 percent. 

(Dollars in Millions) 2014 2013

Beginning Balance, Principal Payable t o t he Fiscal Service $ 11,949 $ 52,828

 New Borrowings 749 208

 Repayments (11,394) (41,087)

Ending Balance, Principal Payable t o t he Fiscal Service $ 1,304 $ 11,949

As of September 30,

(Dollars in Millions) 2014 2013

Capital Purchase Program $ 291 $ 1,210

CDCI and TALF 418 551

Public-Private Investment Program 7 305

Automotive Industry Financing Program 588 9,883

Tot al Borrowings Out st anding $ 1,304 $ 11,949

As of September 30,
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 73

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 materially adverse effect on the OFS 

financial statements, except for the pending legal 

action described below which may have a materially 

adverse impact on the financial statements 

depending on the outcome of the case. Contingent 

liabilities related to litigation are recorded in the 

financial statements if and when losses are 

determined to be probable and estimable. 

Contingent liabilities are disclosed where the 

conditions for liability recognition have not been met 

and the likelihood of unfavorable outcome is more 

than remote. If litigation losses are to be paid by the 

Treasury Judgment Fund, the related cost is 

allocated to the appropriate federal entity, which 

records the cost and an offsetting financing source in 

its financial statements.

Starr International Co., Inc. v. United States: 

Plaintiffs’ principal class claim in this case, filed in 

the U.S. Court of Federal Claims, arises out of the 

receipt by the United States of a 79.9 percent equity 

interest in AIG as part of the consideration for the 

extension of an $85 billion, 2-year revolving credit

facility to AIG by the Federal Reserve Bank of New 

York in September 2008 and prior to the passage of 

the Emergency Economic Stabilization Act. 

Plaintiffs claim that the transfer of the equity 

interest, which was in the form of Series C preferred 

stock held by a trust for the benefit of the United 

States Treasury, was an illegal exaction under 

Section 13(3) of the Federal Reserve Act or 

constituted a taking of AIG shareholders’ property 

for which just compensation is due under the Fifth 

Amendment to the United States Constitution. In a 

separate class claim, plaintiffs allege that an illegal 

exaction, or taking for which just compensation is 

due, occurred when the United States allegedly 

caused AIG to conduct a reverse stock split in June 

2009 without a separate class vote of the then 

outstanding common shareholders. Plaintiffs seek 

compensatory damages from the government, 

including an amount related to the exchange by the 

United States of Series E and F preferred shares, 

purchased with TARP funds, for common shares of 

AIG in January 2011, which common shareholders 

allegedly could have blocked but for the reverse 

stock split. The United States has denied all 

liability. The Department of Justice (DOJ), which is 

representing the United States Treasury and the 

Board of Governors of the Federal Reserve System 

in this lawsuit, is unable to determine the likelihood 

of an unfavorable outcome or make an estimate of 

potential loss at this time. In addition, if an 

unfavorable outcome were to occur, OFS believes 

that the settlement would be paid by the Treasury 

Judgment Fund. Accordingly, if an unfavorable 

outcome were deemed probable and measureable 

and the related cost is allocated to OFS, then OFS 

would record an imputed cost and offsetting 

financing source in its financial statements.

In addition, the OFS pays for a portion of the 

STARR litigation expenses incurred by DOJ based 

on an Inter-Agency Agreement (IAA) between the 

OFS and DOJ. Under the terms of the IAA, OFS 

paid $747,766 to DOJ for expenses invoiced during 

fiscal year 2014. 

Refer to Note 5 for additional commitments relating 

to the Treasury Housing Programs under TARP and 

Note 6 relating to Direct Loans and Equity 

Investments, Net and Other Credit 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 to promote domestic economic 

growth and stability while continuing reforms of the 

financial system. 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 DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

74 NOTES TO THE FINANCIAL STATEMENTS

The OFS SNC for fiscal year 2014 includes $218 

million of intragovernmental costs relating to 

interest expense on borrowings from the Fiscal 

Service and $29 million in intragovernmental 

revenues relating to interest income on financing 

account balances. The OFS SNC for fiscal year 2013

includes $856 million of intragovernmental costs 

relating to interest expense on borrowings from the 

Fiscal Service and $235 million 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 Fiscal 

Service. 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 $56 million and $671 million 

of subsidy allowance amortization for fiscal years 

2014 and 2013, 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 fiscal year ended 

September 30, 2014, the OFS’s total resources in 

budgetary accounts were $8.1 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 $9.1 

billion. For the fiscal year ended September 30, 

2013, the OFS’s total resources in budgetary 

accounts were $22.4 billion and resources in nonbudgetary financing accounts were $15.6 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 investments and other credit programs 

as determined by the reestimation process required 

by the FCRA. 

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 Fiscal 

Service to pay interest costs in excess of interest 

income and to fund downward reestimates transfers 

to the General Fund. For the fiscal year ended 

September 30, 2014, the OFS had borrowing 

authority available of $90 million, of the $839 

million current year authority authorized. For the 

fiscal year ended September 30, 2013, the OFS had 

no borrowing authority available, of the $208 million 

authorized, since the authority was used. 

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).
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

NOTES TO THE FINANCIAL STATEMENTS 75

Undelivered Orders

Undelivered orders as of September 30, 2014 were 

$24.5 billion in budgetary accounts and $0.1 billion 

in non-budgetary financing accounts. Undelivered 

orders as of September 30, 2013 were $29.1 billion in 

budgetary accounts and $1.0 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 2016, with the “Actual” 

column completed for fiscal year 2014, 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 2015. It will be available from the 

Government Printing Office.

The 2015 President’s Budget, with the “Actual” 

column completed for the fiscal year ended 

September 30, 2013, was published in March 2014, 

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.
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

76 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, 2014 and 2013 follows:

(Dollars in Millions) 2014 2013

Resources Used to Finance Activities:

Budgetary Resources Obligated

 Obligations Incurred $ 8,797 $ 14,879

 Actual Offsetting Collections, Net of Change in Uncollected Customer Payments, and Recoveries (18,471) (48,668)

 Offsetting Receipts (8,238) (13,218)

Net Obligations (17,912) (47,007)

Other Resources - 1

Total Resources Used to Finance Activities (17,912) (47,006)

Resources Used to Finance Items Not Part of Net Cost of Operations:

 Net Obligations in Direct Loan, Equity Investment and Other Credit Programs Financing Funds 9,707 27,322

 Change in Resources Obligated for Goods, Services and Benefits Ordered but not yet Provided 4,523 11,164

 Resources that Fund Prior Period Expenses and Reestimates 8,138 8,957

Total Resources Used to Finance Items Not Part of Net Cost of Operations 22,368 47,443

Total Resources Used to Finance the Net Cost of Operations 4,456 437

Components of Net Cost of (Income from) Operations that Will Not Require or Generate 

Resources in the Current Period:

 Accrued Net Downward Reestimates at Year-End (1,486) (8,139)

 Other 1 1

Total Components of Net Cost of (Income from) Operations that Will Not Require or 

Generate Resources in the Current Period (1,485) (8,138)

Net Cost of (Income from) Operations $ 2,971 $ (7,701)

Fiscal Year
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

REQUIRED SUPPLEMENTARY INFORMATION 77

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, October 1 $ 21,606 $ 1,462 $ 21,290 $ 1,462 $ 316 $ -

 Recoveries of Prior-Year Unpaid Obligations 261 865 235 865 26 -

 Actual Repayment of Debt, Prior-Year Balances - (1,444) - (1,444) - -

 Canceled Authority (14,120) - (14,024) - (96) -

 Unobligated Balance from Prior-Year Budget Authority, Net 7,747 883 7,501 883 246 -

 Appropriations 308 - 90 - 218 -

 Borrowing Authority - 839 - 839 - -

 Spending Authority from Offsetting Collections - 7,394 - 7,394 - -

TOTAL BUDGETARY RESOURCES (Note 11) $ 8,055 $ 9,116 $ 7,591 $ 9,116 $ 464 $ -

STATUS OF BUDGETARY RESOURCES

 Obligations Incurred $ 295 $ 8,502 $ 90 $ 8,502 $ 205 $ -

 Unobligated Balance: - -

 Apportioned 14 558 - 558 14 -

 Unapportioned 7,746 56 7,500 56 246 -

 Total Unobligated Balance 7,760 614 7,500 614 260 -

TOTAL STATUS OF BUDGETARY RESOURCES $ 8,055 $ 9,116 $ 7,590 $ 9,116 $ 465 $ -

CHANGE IN OBLIGATED BALANCES

Unpaid Obligations:

 Unpaid Obligations Brought Forward, October 1 $ 29,406 $ 993 $ 29,221 $ 993 $ 185 $ -

 Obligations Incurred 295 8,502 90 8,502 205 -

 Gross Outlays (4,612) (8,503) (4,390) (8,503) (222) -

 Recoveries of Prior-Year Unpaid Obligations (261) (865) (235) (865) (26) -

Unpaid Obligations, End of Year 24,828 127 24,686 127 142 -

Uncollected Payments from Federal Sources:

 Uncollected Payments Brought Forward, October 1 - (226) - (226) - -

 Change in Uncollected Payments - 197 - 197 - -

Uncollected Payments from Federal Sources, End of Year - (29) - (29) - -

Obligated Balance, Net, End of Year 24,828 98 24,686 98 142 -

OBLIGATED BALANCES 

 (Net of Unpaid Obligations and Uncollected Payments Above)

Obligated Balance, Net, Brought Forward, October 1 $ 29,406 $ 767 $ 29,221 $ 767 $ 185 $ -

Obligated Balance, Net, End of Year $ 24,828 $ 98 $ 24,686 $ 98 $ 142 $ -

BUDGET AUTHORITY AND OUTLAYS, NET

 Budget Authority, Gross $ 308 $ 8,233 $ 90 $ 8,233 $ 218 $ -

 Actual Offsetting Collections - (17,541) - (17,541) - -

 Change in Uncollected Customer Payments from Federal Sources - 197 - 197 - -

BUDGET AUTHORITY, NET $ 308 $ (9,111) $ 90 $ (9,111) $ 218 $ -

 Gross Outlays $ 4,612 $ 8,503 $ 4,390 $ 8,503 $ 222 $ -

 Actual Offsetting Collections - (17,541) - (17,541) - -

 Net Outlays 4,612 (9,038) 4,390 (9,038) 222 -

 Distributed Offsetting Receipts (8,238) - (8,238) - - -

AGENCY OUTLAYS, NET $ (3,626) $ (9,038) $ (3,848) $ (9,038) $ 222 $ -

2014

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, 2014 

(Unaudited)
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

78 REQUIRED SUPPLEMENTARY INFORMATION

d Sup

Dollars in Millions

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

BUDGETARY RESOURCES

 Unobligated Balances Brought Forward, October 1 $ 14,350 $ 17,631 $ 14,071 $ 17,631 $ 279 $ -

 Recoveries of Prior-Year Unpaid Obligations 7,246 4,941 7,219 4,941 27 -

 Borrowing Authority Withdrawn - (2,611) - (2,611) - -

 Actual Repayment of Debt, Prior-Year Balances - (17,738) - (17,738) - -

 Unobligated Balance from Prior-Year Budget Authority, Net 21,596 2,223 21,290 2,223 306 -

 Appropriations 788 - 483 - 305 -

 Borrowing Authority - 208 - 208 - -

 Spending Authority from Offsetting Collections 1 13,131 - 13,131 1 -

TOTAL BUDGETARY RESOURCES (Note 11) $ 22,385 $ 15,562 $ 21,773 $ 15,562 $ 612 $ -

STATUS OF BUDGETARY RESOURCES

 Obligations Incurred $ 779 $ 14,100 $ 483 $ 14,100 $ 296 $ -

 Unobligated Balance:

 Apportioned 11 668 - 668 11 -

 Unapportioned 21,595 794 21,290 794 305 -

 Total Unobligated Balance 21,606 1,462 21,290 1,462 316 -

TOTAL STATUS OF BUDGETARY RESOURCES $ 22,385 $ 15,562 $ 21,773 $ 15,562 $ 612 $ -

CHANGE IN OBLIGATED BALANCES

Unpaid Obligations:

 Unpaid Obligations Brought Forward, October 1 $ 40,548 $ 5,926 $ 40,384 $ 5,926 $ 164 $ -

 Obligations Incurred 779 14,100 483 14,100 296 -

 Gross Outlays (4,675) (14,092) (4,427) (14,092) (248) -

 Recoveries of Prior-Year Unpaid Obligations (7,246) (4,941) (7,219) (4,941) (27) -

Unpaid Obligations, End of Year 29,406 993 29,221 993 185 -

Uncollected Payments from Federal Sources:

 Uncollected Payments Brought Forward, October 1 - (349) - (349) - -

 Change in Uncollected Payments - 123 - 123 - -

Uncollected Payments from Federal Sources, End of Year - (226) - (226) - -

Obligated Balance, Net, End of Year 29,406 767 29,221 767 185 -

OBLIGATED BALANCES 

 (Net of Unpaid Obligations and Uncollected Payments Above)

Obligated Balance, Net, Brought Forward, October 1 $ 40,548 $ 5,577 $ 40,384 $ 5,577 $ 164 $ -

Obligated Balance, Net, End of Year $ 29,406 $ 767 $ 29,221 $ 767 $ 185 $ -

BUDGET AUTHORITY AND OUTLAYS, NET

 Budget Authority, Gross $ 789 $ 13,339 $ 483 $ 13,339 $ 306 $ -

 Actual Offsetting Collections (1) (36,604) - (36,604) (1) -

 Change in Uncollected Customer Payments from Federal Sources - 123 - 123 - -

BUDGET AUTHORITY, NET $ 788 $ (23,142) $ 483 $ (23,142) $ 305 $ -

 Gross Outlays $ 4,675 $ 14,092 $ 4,427 $ 14,092 $ 248 $ -

 Actual Offsetting Collections (1) (36,604) - (36,604) (1) -

 Net Outlays 4,674 (22,512) 4,427 (22,512) 247 -

 Distributed Offsetting Receipts (13,218) - (13,218) - - -

AGENCY OUTLAYS, NET $ (8,544) $ (22,512) $ (8,791) $ (22,512) $ 247 $ -

2013

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, 2013

(Unaudited)
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

OTHER INFORMATION 79
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

80 OTHER INFORMATION
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

OTHER INFORMATION 81

Part 3: Other Information (Unaudited)

Section A – Schedule of Spending

The Schedule of Spending presents an 

overview of obligations incurred subtotaled by 

purpose and again by type of entity to be paid. 

Obligations are legally binding agreements 

that usually result in outlays, immediately or 

in the future. The schedule presents more 

detail than the Statement of Budgetary 

Resources, although the data used to populate 

both is the same. 

The section “How Was the Amount Spent” 

presents obligations committed to in each 

fiscal year for services received, supplies 

purchased, subsidies and program loans or 

investments made, even if actual receipt of 

services or goods has not yet occurred or 

payments have not yet been made for 

particular obligations. While most obligations 

become contractual agreements for which 

services and goods are received in the same 

fiscal year as established, certain obligations 

or portions of obligations reported here may 

never be used. These unused amounts, when 

closed, are reported as “Recoveries of PriorYear Unpaid Obligations” on the SBR.

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) $ 8,055 $ 9,116 $ 22,385 $ 15,562

 Less Amount Apportioned (not yet agreed to be spent) (14) (558) (11) (668)

 Less Amount Unapportioned (not yet available to be spent) (7,746) (56) (21,595) (794)

AMOUNT AVAILABLE TO SPEND - OBLIGATIONS INCURRED PER SBR $ 295 $ 8,502 $ 779 $ 14,100

HOW WAS THE AMOUNT SPENT?

 Personnel Compensation $ 12 $ - $ 17 $ -

 Personnel Benefits 4 - 5 -

 Travel and Transportation - - 1 -

 Supplies and Materials - - 1 -

 Other Services 189 46 272 26

 Interest - 218 - 856

 Subsidies, including Reestimates for Previously

 Disbursed Loans and Investments Outstanding1

 90 8,238 483 13,218

AMOUNT AVAILABLE TO SPEND - OBLIGATIONS INCURRED PER SBR $ 295 $ 8,502 $ 779 $ 14,100

TO WHOM WERE THE OBLIGATIONS MADE?

 Federal Agencies and Entities $ 114 $ 8,456 $ 505 $ 14,074

 Non-Federal Companies - Freddie Mac/Fannie Mae for Housing 129 - 215 -

 Non-Federal Companies - All Other 39 46 41 26

 Non-Federal Individuals 13 - 18 -

AMOUNT AVAILABLE TO SPEND - OBLIGATIONS INCURRED PER SBR $ 295 $ 8,502 $ 779 $ 14,100

1

Subsidies obligated in nonbudgetary accounts consist of negative subsidies and downward reestimates, which are reductions of subsidy cost, 

transferred from the financing accounts to the Treasury General Fund. These transactions occur in the same fiscal year as the obligations.

Office of Financial Stability - T roubled Asset Relief Program

SCHEDULE OF SPENDING

For the Years Ended September 30, 2014 and 2013

2014 2013
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

82 OTHER INFORMATION

Section B – IPIA (as amended by IPERA)

On July 22, 2010, President Obama signed 

into law the Improper Payments Elimination 

and Recovery Act (IPERA, Pub. L. 111-204). 

IPERA amends the Improper Payments 

Information Act (IPIA), generally repeals the 

Recovery Auditing Act, and significantly 

increases agency payment recapture efforts by 

expanding the types of payments to be 

reviewed and lowering the dollar threshold of 

annual payments that requires agencies to 

conduct payment recapture audit programs. 

Agencies continue to be required to review 

their programs and activities periodically to 

identify those susceptible to significant 

improper payments. OMB Circular No. A-123, 

Management’s Responsibility for Internal 

Control, Appendix C, “Requirements for 

Effective Measurement and Remediation of 

Improper Payments” (A-123, Appendix C), 

amended April 14, 2011, defines “significant 

improper payments” as gross annual improper 

payments in a program exceeding both the 

threshold of 1.5 percent and $10 million, or 

exceeding $100 million regardless of the 

improper payment percentage. A-123, 

Appendix C, also requires agencies to review 

all programs with annual payments of $1 

million or more, if cost-effective.

OFS 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 2014 IPERA review per 

Treasury-wide guidance and did not assess 

any programs or activities as susceptible to 

significant improper payments. However, 

management did identify a number of Making 

Home Affordable (MHA) investor cost share 

payments that 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. 

In fiscal year 2014, OFS concluded that a 

payment recapture audit was not costeffective 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. For the MHA program, nearly 

2,000 business rules have been integrated into 

the MHA system of record to ensure the 

eligibility, accuracy and appropriateness of 

incentive payments. Management leverages 

OFS’s extensive internal control testing 

results or other compliance activities to 

corroborate risk assessment results, as well as 

the Bureau of the Fiscal Service’s testing 

results over administrative disbursements. 

The Improper Payments Elimination and 

Recovery Improvement Act of 2012 (IPERIA,

Pub. L. 112-248) was signed into law by the 

President on January 10, 2013, and also 

amends IPIA. It is important to note that 

Section 5 of IPERIA, regarding the “Do Not 

Pay” Initiative, is treated separately from 

Circular No. A-136 reporting requirements.

The Bureau of the Fiscal Service partnered 

with the Saint Louis and Kansas City Federal 

Reserve Banks to operate the “Do Not Pay 

Business Center” as part of a government 

wide “Do Not Pay” solution. During fiscal 

year 2013, OFS implemented the “Do Not 

Pay” solution to monitor administrative 

disbursements to ensure, to the extent 

permitted by law, a thorough review of 

available databases with relevant information 

on eligibility occurs before the release of any 

Federal funds. To date, the “Do Not Pay” 

Business Center has not identified any 

potential OFS improper payments.
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

APPENDIX A: TARP GLOSSARY 83

Part 4: Appendices
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

84 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.

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.

Mandatory Convertible Preferred (MCP): 

Preferred stock that includes an option for the 

holder to convert the preferred shares into a 

fixed number of common shares, usually any 

time after a predetermined date.

 

 
AGENCY FINANCIAL REPORT | FISCAL YEAR 2014

APPENDIX A: TARP GLOSSARY 85

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 help 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 I OFFICE OF FINANCIAL STABILITY

86 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.

CAP Capital Assistance Program

CDFI Community Development Financial Institution

CMBS Commercial Mortgage-Backed Securities

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

GM General Motors

GMAC General Motors Acceptance Corporation

GSE Government-Sponsored Enterprise

HAFA Home Affordable Foreclosure Alternatives

HFA Housing Finance Agency

HHF Hardest Hit Fund

HAMP Home Affordable Modification Program

 

 

MBS Mortgage-Backed Security

MCP Mandatory Convertible Preferred

MHA Making Home Affordable Program

OFS Office of Financial Stability

OMB Office of Management and Budget

PPIF Public-Private Investment Fund

PPIP Public-Private Investment Program

QFI Qualifying Financial Institution

RMBS Residential Mortgage-Backed 

Securities

SBR Statement of Budgetary Resources 

SBLF Small Business Lending Fund

SCAP Supervisory Capital Assessment 

Program

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

Contact information:

Department of the Treasury – Office of Financial Stability

1500 Pennsylvania Avenue NW

Washington, DC 20220

Telephone 202-622-2000 - Treasury Press Office 202-622-2960

Websites:

www.FinancialStability.gov

www.MAKINGHOMEAFFORDABLE.gov

Additional References:

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 2014, 2013, 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 

Making Home Affordable Monthly Reports:

http://www.treasury.gov/initiatives/financial-stability/reports/Pages/Making-Home-Affordable-ProgramPerformance-Report.aspx
THE DEPARTMENT OF THE TREASURY I OFFICE OF FINANCIAL STABILITY

APPENDIX B: ABBREVIATIONS AND ACRONYMS 88